Good morning and thank you for joining us today for Hovnanian Enterprises Fiscal 2015 Third Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode. Management will make some opening remarks about the third quarter results and then open up the line for questions. The Company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investor Relations' page on the Company's Web site at www.khov.com. Those listeners who would like to follow along should log on to the Web site at this time. Before we begin, I'd like to turn the call over to Jeff O'Keefe, Vice President-Investor Relations. Jeff, please go ahead. Jeffrey T. O’Keefe: Thank you, Amanda, and thank you all for participating in this morning's call to review the results for our third quarter, which ended July 31, 2015. All statements on this conference call that are not historical fact should be considered as forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company's goals and expectations with respect to its financial results for the current or future financial periods, including total revenues, gross margin, selling, general and administrative expense as a percentage of total revenues and adjusted pre-tax profit. And the illustrative modeling…

Thanks, Jeff. Let me get started with our third quarter results, which can be found on Slide 3. The dollar amount of our net contracts increased 20%, while the number of net contracts we signed increased 13%. If you include unconsolidated joint ventures, we had a 28% increase in dollars and a 16% increase in the number of net contracts. Our strong sales pace continued in August, when the dollar amount of net contracts increased 15% and the number of net contracts also increased 15% on a consolidated basis, and on an -- if you include unconsolidated joint ventures, we had a 19% increase in the number of contracts and a 24% increase in the dollars of contracts in the month of August. Primarily as a result of geographic and product mix, our average sales price increased from $381,000 during last year’s third quarter to $404,000 for the third quarter of this year. Our community count growth continued with a 5% year-over-year increase in the third quarter. We expect even stronger community count growth during our fourth quarter. On top of our community count growth, our pace of contracts per community increased. Our consolidated net contracts per community increased 7% during the third quarter, while net contracts per community including unconsolidated joint ventures increased 12%. The dollar amount of our net contract backlog increased 23% to $1.26 billion at the end of the third quarter compared to $1.03 billion at quarter end last year. On a less positive note, our total revenues declined 2%. This decline was due to a 4% decrease in deliveries, which was partially offset by a 2% increase in the average sales price. The drop in deliveries corresponds with our poor sales last year, which were adversely impacted by a slower market and by delays in…

Thanks, Ara. Turning now to our current sales environment on Slide 8, the dollar amount of our consolidated net contracts per month for each of the past 12 months. The most recent month is shown in blue, the same month of the previous year is shown in yellow, and we used green arrows pointing up to indicate an increase and down red arrows to indicate a decrease. Our recent sales performance is encouraging. The dollar value of our net contracts for the past five months increased 19% year-over-year on a consolidated basis and increased 26% on a year-over-year basis when including unconsolidated joint ventures. Driven by the combination of increased community counts, higher average sales prices, and more recently stronger sales results, 11 of the past 12 months have had year-over-year increases. These year-over-year increases in our sales results will lead to an improving revenue environment in the coming year. While Slide 8 showed the dollar amount of net contracts, Slide 9 shows the number of monthly net contracts per community. Over the past few months, there have been more positive than negative year-over-year monthly comparisons, which seems to indicate that the housing recovery is firming up. On Slide 10, we try to put the current sales situation into perspective with a longer-term view. The dark blue bar shows that we averaged 44 net contracts per community per year from 1997 through 2002, a period of neither boom nor bust times. Then in yellow, we show average net contracts per community bottoming at 21.3 per year in 2011 followed by two years of improvement in 2012 and 2013 at 28.1 and 30.7 per year respectively. Surprisingly, we in the home building industry took a step backwards in sales pace per community in 2014 to 28.4 net contracts per year. Looking…

Thanks, Larry. One of our key objectives over the next few years in addition to returning to normalized gross margins is to continue to grow revenue so that we can achieve operating leverage from both SG&A and interest expense. This would allow us to achieve significantly higher levels of profitability without assuming any changes in market conditions and excluding potential impact from land related charges, gains or losses from extinguishment of debt or other non-recurring items such as legal settlement. To accomplish this goal, we plan to continue to increase our land investments and correspondingly our deliveries and revenues for the next few years. After several years of growth, we plan to stop growing revenues and flatten our inventory levels. This would allow us to begin to harvest cash and reduce debt. This strategy would also allow us to shift our focus from growth to repairing our balance sheet. Simultaneously, we expect to continue to benefit from the operating efficiencies including both a substantially lower SG&A ratio and reduced interest expenses. We will continue to believe that we could accomplish our goals of debt reduction and repairing our balance sheet without a dilutive equity offering. Turning to Slide 27, the next series of slides shows you actual results for 2013 and 2014, which are shown in red. Our guidance for 2015 and ’16 which are shown in green and illustrative financial modeling scenarios for 2017 through 2020. All of these data points on Slide 27, 28, and 29 are annual which are plotted at year on the horizon access. Quarterly data is not presented or implied in any of these charts. For these illustrative financial modeling scenarios, we show a base case, a downside case, and an upside case the assumptions of which are shown in Slide 32. The first…

Thank you. [Operator Instructions] Our first question comes from Andrew Casella of Imperial Capital. Your line is open.

Hi, guys. Thanks for taking the question, and thanks for all the color on the balance sheet and the modeling. I guess, firstly I just want to confirm that I’m understanding this correctly, assuming again the high yield markets are not available to you on an economic basis. You are in now way restricted from monetizing the inventory that you guys showed in that slide with the first and second wins and essentially monetizing that and paying off unsecured debt maturities, is that correct, via land bank or sale lease back?

I mean, what I said was perfectly accurate. We can land bank any of our owned inventory, we can do joint ventures and all the other capital alternative sources. I said. I’m not sure what you mean by monetize, but if that’s what you mean by monetize, yes that’s correct.

All right, great. Thanks. And then just as my follow-up, when we look at land banking today, just curios how -- if it’s easy to execute a structure and how large a land banking agreement might be. And I know in the past you’ve said you’ve done work with GSO, I think they had done something up to $400 million. What is the status of that facility? Is that still available and if there’s any remaining capacity under that agreement?

Yes, we are still doing business with GSO and have additional capacity with them, and there’s other land bankers out there that we’ve done business with and want to do more with us, so the type of transaction that I illustrated in my comments have taken $250 million or so of our current inventory and taken the land banker, we do not think would be problematic.

Anything I would say, there are more entrants into the land banking arena. So, that continues to be available for us.

All right, great. Thanks. I’ll get back in the queue.

Thank you. Our next question comes from Nishu Sood of Deutsche Bank. Your line is open.

Thanks, and I also appreciate all the color and the longer term information. My first question is about the gross margin trajectory. There was a nice improvement this quarter and Ara, you’re mentioning obviously the reduction in specs as well as the stronger selling environment. But the 4Q and the next year guidance doesn’t imply any further improvement. But with that backdrop why wouldn’t we see further improvement in gross margins even in the next four, five quarters?

And Nishu, as we always do, we assume current market conditions remain unchanged when we’re making our projection. So, I think it’s safe to say kind of the current run rate of gross margins what we average for the full year of ’15 is a reasonable expectation for ’16. So it’s just the methodology that we use. If the market improves obviously there’s upside potential.

Our base case does assume the margin slowly goes back after the years of guidance in the modeling scenarios of 2017 and 2018 start to get it back to the margins that we had in ’13 and ’14.

Got it. So just digging into that a little bit more. Sitting back now, now that you’ve come out of the down draft in gross margins and any other - they’re growing up again. You mentioned specs as being a major driver. The specs were only down I think you said to 48% of delivery down from I think 52% or 53% last quarter. So I think if you could just maybe give us a little bit more numerical detail on the -- how much that was impacting margins and whether that was the main driver of the improvement sequentially in terms of the quarter. So just maybe your broader thoughts on the weak selling environment or what's going to get it back up to 20% as it’s laid out in the longer term scenarios?

Well, Nishu, I think we mentioned in the call that the margin on specs improved about 270 basis points sequentially, I mean you can do the math on the balance there. I’d say the overall margin virtually all of the public builders reported downward pressure on gross margin in the last couple of quarters compared to the prior year. Part of that was driven by a little bit of a [headshake] [ph] if you will in 2013 where the market thought it was recovering and there was a lot of momentum, a lot of pace increase and a lot of price increase. That led to many including ourselves get a little more aggressive in land in 2014, but lo and behold the market took a little bit of a step back in 2014 and the recovery that looked like it was really beginning to roar in 2013 didn’t happen. So the margins that came about from land that was purchased in 2014 were a little more disappointing when those deliveries happened, that’s what occurred in 2015. But as we burn through that and as the land market settled a little bit, I think it’s reasonable in our illustrative modeling scenarios that they should get back to normal levels that we saw in ’13 and ’14.

Yes, just to reiterate Nishu what Ara just said, the reason that margins start to trend upward in the base case is nothing more than we’re burning through some of that land we bought in the later part of ’13 and into ’14. And as we burn through that the new stuff that we’re doing today are closer to our normalized 20% margin. So it’s logical for it to trend that way.

I’ll also add that we’re slowly burning through some of our older inventory that while it’s been impaired, it does have lower margin contribution. So that should also help in the future.

Thanks. I appreciate the color.

Thank you. Our next question comes from Alan Ratner of Zelman & Associates. Your line is open.

Hi, guys. Thanks again for all the color and taking the question. I guess on the absorption pace that you had seen in the out years, you mentioned you’re not really assuming any significant change in conditions. But it looks like you haven’t provided community count guidance, but it looks like there’s probably some absorption improvement embedded in those delivery increases in ’16 and ’17 and ’18 as well. So, is that just a function of where you’re underwriting these deals today is similar to the margin -- the 20% margin that you’re assuming in the out years or is there some other driver there that brings that absorption level a little bit higher?

In terms of the new communities that we’re acquiring, we don’t make any assumptions about improvements in market condition. So we take the most recent quarter’s kind of an absorption and pro forma of the land acquisition with that absorption in mind and the pace that you’ve seen in the model reflects that. With respect to existing owned communities or controlled communities, we allow our divisions two years out to modestly begin to tweak absorptions a little bit upward back towards normalized if they don’t get to normalize. So it’s a subsection of the communities out in the future that make that kind of an assumption, Alan if you understood that.

Got it. I appreciate that. And second question, if you do decide to go down the land banking route and pursue those transactions in greater scale, and you can kind of just walk through a little bit the terms on that you’re seeing today on land banking. What type of impact would that have on gross margin? I would presume that those deals would generate a lower margin as they flow through on the delivery line. You mentioned the 15% cash down up front, but any info you can give on margin or takedown schedules or price depreciation that you need to bake in there would be appreciated.

You don’t bake any price depreciation in ever, so that didn’t happen at all. There would be some modest pressure on margins but it’s not as substantive as you might think.

And also Alan, in general all of our alternative capital sources as I think we mentioned land banking as well as joint ventures actually increase our return on investment. So while there is a little pressure on gross margins and not a lot as Larry pointed out, it definitely enhances our return on investment.

Got it. Thanks and good luck.

Thank you. Our next question comes from Michael Rehaut of JPMorgan. Your line is open.

Hi. It’s actually Jason in for Mike. First question is just on community count. I appreciate the guidance on 2015 revenues and profitability. But it would be helpful if you could give some color in terms of how you’re thinking about community count in 2016. Do you think that, that should grow at a rate that’s higher than what you’ll see in ’15 and if so could you maybe quantify what you might expect to see?

Yes, I think as we’ve repeatedly stated on prior calls, predicting community count is a difficult number to predict because you could actually sell faster and therefore have fewer community counts than you’re expecting or you could have regulatory delays and temporarily not have as many communities as you would have expected. So it’s not something we’re going to give you specific guidance on. As I said in the fourth quarter we think community count will be a little more meaningful so that it gives you a head [ph] in 2016. We do expect community count to continue to grow, but what we’d like to really focus in on in terms of a surrogate for community count is that inventory turns. And if you buy into the inventory turns being kind of reasonable and rational which we certainly believe it is based on our history, it’s easy to get to the revenue numbers that we’re talking about.

Okay, great. Next question just on pricing power in general, can you just talk a little bit about the overall pricing and incentive environment that you saw during the quarter; how much you think pricing is kind of on a same store basis for the quarter, and then from a regional perspective, where you’re seeing the most pricing power right now?

I’d say certainly Northern California in the bay area is probably the strongest area with pricing power followed by South East Florida. Those are probably two of the strongest markets overall in terms of pricing opportunity and what we’ve actually experienced. Overall I wouldn’t say pricing power is the big story in terms of current performance right now. It’s been more on absorptions and sales pace per community.

Okay. Thank you.

Thank you. Our next question comes from Sam McGovern of Credit Suisse. Your line is open.

Hi, guys. Thanks for taking my questions. Just going back to the liquidity levers, I assume you’re going to use some combination to the extent you don’t revive of all four that you highlight there. Can you talk about the relative attractiveness either from gross margin or return on capital standpoint to you guys?

Yes, I think all of them have an improvement in return on capital. I think we would probably focus first on land banking, maybe second on joint ventures just from a prioritization perspective that is probably ease of implementation rather than driven by impact on margin or return on capital.

Yes, to some extent it also varies depending on the longevity of the asset. So land banking is good for a medium term operating two or three years. Three or four year assets are particularly good for joint ventures where you can get the multiple in return. And then in certain markets project specific financing is more available, it’s the cheapest of all three sources but not necessarily the highest return on capital because it’s a little less leverage. So we imply as you started out on your assumption, we tend to apply a mix of all the different capital types.

Okay, great. And then just in terms of the delivery expectations on the base case that you guys lay out, how does that sort of correlate to consensus estimates that are out there for national housing starts, I mean is it meaningfully different or I just haven’t -- hadn’t a lot of time to go through these numbers and see how that maps out.

So I mean, certainly our guidance for ’16 implies a little more growth than most for the national market and I think that’s primarily because as we pointed out we had tremendous growth in inventory over the last two years in particular. And as we showed in one of the slides, our growth in inventory over the last year has been higher than all but two of our peers. So based on that inventory then getting the land, getting develop the models being built and actually delivering the homes. I think it’s reasonable that our deliveries in this upcoming particular year would be higher than most on consensus for the overall market.

Thanks. I’ll pass it along.

Thank you. Our next question comes from James Finnerty of Citi. Your line is open.

Hi. Good afternoon.

Good afternoon.

Just want to go back to the land banking just looking back at the initial transaction you did with GSO where it involved you own land, could you just explain how the sort of mechanics, how it worked. You identified land and land went to GSO and did cash come to you in one quarter or did it come to you over a number of quarters? If you could identify sort of just how much cash actually transferred back to you in that initial transaction?

I’m not sure I remember the specifics of that initial transaction, but what happens is, as we identify land that we own and we would show it to the land banker whether it would be GSO or whether it would be someone else. They would underwrite it and decide whether they were willing to purchase it from us. If they were willing to purchase it from us they would give us cash. So I think the first was $100 million, $150 million something in that order of magnitude.

Maybe -- $125 million, maybe.

Yes, maybe its $125 million, but I’m not sure whether we identified $125 million all at once or whether that was filled over across a few months that may have crossed quarters, I just don’t recall the specifics from that line or whatever it was.

And then just if we look back historically, where would we see the cash coming in on the cash flow statement whether any line item that we should look for?

Yes, there’s actually in the financing section the cash flow statement is financing from land banking …

Great.

That therefore the ones that we sell to somebody obviously if its owned to land bank where we haven’t owned the property then it just comes through as purchased inventory as we bought a lot.

Excellent.

And we do, do a combination of both whether we acquire it first and then land banker buys it from us and in other cases while it’s under our contract the land banker buys it directly. It really just depends on the details of timing and approvals.

Okay.

For recent years it’s been the later which is, we’ll find land, we’re interested in purchasing, we’ll take it to the land banker, they’ll purchase it and then grant us an auction and we only showed on our books as we take down those lots on adjusted time bases. So there was some initially that we did that was off our balance sheet and there might have been a transaction or two later but it’s a minimal part of what we’ve done to date.

Great. But just to address your upcoming maturities, I think you would need to theoretically do one involving your land in order to generate the cash upfront, I would imagine.

Yes, that’s correct and again it’s something we’ve certainly done many times in the past.

Got you. And just a separate question, just back to the community count growth in ’16, I know you’re not going to give specific guidance. But its been growing around the 5% clip, what should we expect in ’16 that it’s going to be higher than that or same or, just anything …

Once again I think that’s the same question that was asked a moment ago and, good try but we like almost every public builder hates trying to forecast community counts into the future just because there are so many factors out of our control that suffices to say as Larry pointed out last time this was asked, the real focus should be on inventory which we’ve already got a ton behind us in ’14 and’15 and then inventory turnover. And I use that as your own -- in your own model to forecast revenue growth and future revenues more than worrying about community count growth, it’s just too hard to be real specific on that.

Yes, I guess, all that inventory has to turn into communities anyways.

If we have 10,000 -- control 10,000 more lots than we delivered homes on growth is coming.

Yes, exactly. Good. Thanks very much. Great quarter. Thank you.

Okay.

Thank you. Our next question comes from Susan Berliner of JPMorgan. Your line is open.

Thank you and thanks for all the detail on the presentation. Very helpful. I wanted to start I guess just with the weather in Texas and I was wondering if you guys could talk about I guess any delays down there in closing as well as what's going on, on the labor cost front?

Sure. Well we certainly, as I’m sure our peers have reported suffered from the very wet season in Houston and in Dallas but particularly Houston and it impacted our deliveries. But we baked that into the guidance that we’ve given you.

Okay.

And I’d say on the labor front side especially Dallas I think our cycle times continued to elongate as there are some labor shortages in that market. So the first delays were created because of weather and the wet weather and the land developers couldn’t get the lots finished in time, so that’s caused some delays. And now actually when we get the lots delivered labor shortages are causing elongated cycle times. It’s happening to a lesser degree in Houston in terms of elongated cycle times but we are seeing longer cycle times in Houston as well as its just worse in Dallas.

Got you. And then my only other question was with regards to I guess some of the other markets, and I appreciate the color on Houston. I was wondering if you could talk a little about the Mid-Atlantic and the North East and Mid-West because clearly the North East and Mid-Atlantic did pretty well on an order perspective.

Yes, overall though the Mid-Atlantic is still suffering from a little hangover of sequestering. It hasn’t seen the job growth and hasn’t quite come in the full recovery that it has enjoyed in other up-cycles. The North East is somewhat similar, although we’ve been fortunate in purchasing some similar. Although we’ve been fortunate in purchasing some new land positions that are based on those slower markets and we’ve done quite well on them. The key is to be able to purchase the assets at the correct value in today's slower environment. But overall we have been helped a bit by some of the community count growth.

Great. Thank you so much.

Thank you. Our next question comes from Alex Barron of Housing Research. Your line is open.

Thanks guys. I was hoping you could discuss what kind of mortgage rate assumptions are you making in your longer term forecast. Are you also assuming they stay around current levels?

Yes, I would say that we didn’t really make specific assumptions regarding mortgage rates there, but I mean if you look at prior recoveries in every one of the prior recoveries in recent decades the interest rates are dramatically higher than they were are today and in those recoveries you had significantly higher starts than we are seeing today. So we do not expect that, even if we had a movement upward in interest rates that it would materially impact those projections in terms of housing activity in the U.S. would even then still improve because it would be a reflection that the economy is better, that jobs are being created, so give me higher rates because the economy is doing dramatically better and I think our results would even be better.

I certainly think it’s reasonable to assume mortgage rates are going to creep up, that certainly would be consensus and I don’t think you’d find us disagreeing with that prognosis. On the other hand, we offer in all of our communities a variety of home sizes and we also offer options and the ability for customers to add higher levels of finishes at a higher price. I think it’s certainly possible that if interest rates go up that customers would select a slightly smaller house or slightly fewer options. But generally speaking we price to as very similar gross margin on each of the home offerings in every community and our smaller homes have a similar gross margin to our larger homes. So we’re somewhat indifferent and I think it’s logical to assume that, that might transpire along the way. And as Larry reminded to give you the specific, if you go back to ’82 which was a recovering market mortgage rates actually were in the mid-teens and there were more homes sold and built in that year than there are right now. So in the long run demographics or destiny, customers may have to shift their expectations as to the type of house or the size of house or the finishes based on mortgage rates. But in the end its demographics drive the need for housing and they should in growing numbers coming up and the housing starts and sales should follow.

Right. So I think the issue I see just that’s different when the rates were higher versus now is that, home prices were also maybe at least normally lower and that could have been just that outright prices were lower or builders were offering smaller type homes. So I think that’s the only issue.

Yes, I think you got to look and keep in mind on the affordability index, and I think there is still a good amount of room for both price and mortgage rates before the affordability index gets to normal and historical levels. I mean we are at an extremely, even with the recent increase in prices we were at very high levels and in terms of the affordability index, so certainly above historical norm. So we could, I think the market could absorb some rate increases before …

I have the number, and based on today's affordability index we could absorb 140 basis points increase in margin before we returned because the index today is almost 160, before we return to 135 which is just the past peak. So I think from an affordability perspective Ara is absolutely correct is, higher rates were not helpful. So don’t misunderstand us Alex. But I think the market would absorb it and again I’ll go back to my earlier comment that, if rates go up there’s something good happening in the economy and I think that would board well for peoples desires to make home purchases.

Right. And as part of your I guess five year outlook and so, are you guys assuming basically the same type mix shift or is there any explicit strategy to try to move down the price curve to offer more affordable type communities?

Very simplistic, we just assume that our average price stayed flat for all five years.

Got it. Okay.

We only -- we have a relatively short owned land position, one of the shorter ones in the industry. So as the market shift, I think its reasonable to assume and it does all the time, we have ample time to make adjustments in the type of lots that we purchase. We always have the opportunity to shift this type of homes that we offer. In general our company offers homes with a wide variety of sizes and prices. And we’ve got experience from the lowest level of entry level homes to the highest level of high priced homes. So we’re comfortable shifting our home designs and offerings as the market tells us and we could do it relatively quickly if we needed to.

Right. Well I appreciate all the detail in the outlook and I wish you guys best of luck.

Thanks.

Thank you. Our next question comes from Megan McGrath of MKM Partners. Your line is open.

Thanks for taking my question. Just a couple of quick follow-ups, on the pricing it looks like your guidance is implying a pretty significant increase in 4Q ASPs. I assume that’s mix based on what you’ve said, but if you could give a little bit more detail on what you’re expecting for next quarter that would be great.

Well maybe you’re taking total revenue and identified some delivery numbers, so I don’t think there’s any material change in average price and are built into our guidance.

Well, it looks like for the full year your guidance is for $397,000 and ASPs for fiscal ’15, and since you’ve been running in that mid $370,000 range, that’s sort of where the math I was doing there to get to a $397,000 number that would need to bump up a lot next quarter?

Yes, we -- what was it in the third quarter Jeff? Jeffrey T. O’Keefe: Consolidated was $374,000, but our sales price …

Sale price.

Sales price, that’s on delivery.

Yes, that sales price. Jeffrey T. O’Keefe: The sales price was $404,000.

Yes. So I think it’s just a reflection of what's in backlog.

Yes, I was just going to say, so basically to say and perhaps you’re looking at average sales price that’s on page 33, that shows our guidance in the base case, that growth goes from $397,000 from ’15 for the full year to $415,000, its not because of assumptions that we can raise our price. It is as you started primarily a shift in mix.

Okay, great. And I’ll follow-up on the other issue. And then, to follow-up on your conversation about inventory turns, I know you talked about it a couple of times, but it certainly is important to your guidance for ’16. At the midpoint it looks like you’re looking for 30% plus growth in deliveries off of a year which would be, we haven’t gotten the next couple of months, but let’s say 10% to 15% orders. So it sounds like you’re already expecting those inventory returns to kick up nicely next year. So if you could just talk a little bit more about where that’s coming from and how you’re going to increase that conversion or those turns as early as next year?

Two things, is you’re taking unit count and we’re talking about revenue growth which means you’ve got to take the improvement that we’ve recently seen in average and the dollar amount of contracts which is 20 something percent versus the 15% in unit count, Megan. So that’s the first thing I would say. The second thing I would say to that is because we’re flattening out the inventory. We’re not going to continue to grow it as we’ve been growing it and therefore implicit inventory turns become a little bit higher.

Megan, if you look at the appendix slide 33 and you focus on the top series of total inventory just to elaborate on the point Larry is making. From ’13 to ’15 in just the last two years, our inventory based on the guidance for our last quarter I mean most of its behind us, but housing inventory grew almost a little more than 50% from $977 million to $1.5 million, and the biggest occurred in this last 12 months. So the inventory growth primarily comes when you buy land, then you start developing it, that’s a lot of the growth. But when you buy and develop it you can't deliver it in the same quarter. So if you then look at that same line, you see that the guidance we’re giving ’16 and ’17 is dramatically less. We grow just a $100 million ’16 as opposed to about $500 million in the prior two years, and then another $140 million in ’17. So inventory growth is moderating and we’re pertaining or transforming the inventory that we just bought in ’14 and ’15 into deliveries and that’s why we’re projecting the inventory turnover can return to more normal levels. On that same slide if you look at inventory turnovers, you can see that it’s recently its ’13, we were almost at 2.2 times turns. We’re only projecting to get to 1.95 in the guidance for ’16. So I think they’re fairly reasonable assumptions regarding turnover.

And implicit for ’16 Megan is similar to what I said earlier is when you have 10,000 more lots acquired than home delivery it implied some growth and part of that growth is a growth in community count although we’re not giving you specifics for 2016 community count growth, there is community count growth assumed and going to occur in our guidance, its implicit within our guidance. We’re just not comfortable giving you the precise number.

Okay. Thanks very much.

Thank you. Our next question comes from Adam Goodwin of Goldman Sachs. Your line is open.

Hi, this is Derek Ching on for Adam. Just going back to slide 18 where you laid out asset coverage for the 2% and the 5% notes. Our understanding is that your debt incurrence capacity goes up on a dollar for dollar basis with the underlying collateral and the equity in the joint ventures, and based on what you provided on the slide there you’d be able to incur close to $60 million in debt in that box for refinancing purposes. Can you just confirm this for us.

I think if it was only within that box you’re right, but I think there is a guarantor they may endue specific because I’m going to mess this up, but we need to have capacity to do secured -- additional secured in the other side of the secured bonds and unsecured bonds as well. So I think we’re limited to something less than $60 million at this time even though we could do it if it was only with respect to the twos and fives. That wouldn’t -- I think I got the point across.

Okay, got it. And then, in terms of your third party liquidity sources, I mean is there anyway you can quantify the size of the different buckets, whether it’s the land banking or the model of sale of the lease back, and are there any limit or constraints around how much you can do there?

In theory, okay, there’s no limitation upon us. If we wanted to take our entire $1.6 billion of inventory and land we wouldn’t do that, but in theory we have the capacity from a covenant perspective to do that. I mean we don’t have limitations, we’re not intending to do that. But what we’re trying to convey to you is we have liquidity levers that will more than take care of our near-term maturities.

Okay, great. Thanks guys.

Thank you. Our next question comes from Joel Locker of FBN Securities. Your line is open.

Hi, guys. Just kind of quick question on amortized interest going forward, its been in the mid 200 basis point range and just went up to well over 300. Just what to do expect going forward there?

I think the best case -- the best thing to do is assume it would stay relatively consistent to what we’re running at now. What ends up happening is depending on what happens with land development and projects and how long it takes to get through those projects, capitalized interest can go up, up or down per home depending on the individual projects, so it can vary. But I think it’s safe to say that to assume something somewhere where we’re at now that’s reasonable.

Right. That was just a small inventory return that caused the [multiple speakers].

Right. That’s what happened.

All right. Thanks a lot guys.

Thank you. We have a follow-up from James Finnerty of Citi. Your line is open.

Hi. Just follow-up on the question regarding the collateral ratio covenants. Just for both sets of secured bonds, is there a minimum collateral ratio that you have to maintain? It’s a question I get a lot of times.

No.

Okay, it’s just more of, if you make -- for the certain ratio if I guess, 175% for the bigger issue, you’re able to do certain things?

Right.

That’s what my understanding was. Thank you very much. I appreciate that.

Thank you. Our next question comes from Peter Levinson of Waveny. Your line is open.

Hi, guys. Thanks for taking my call, and thanks for all the color. With all due respect to the sell side analyst community, I think you guys might agree what we’re seeing here is just repeating where the world had you guys dead, going into the last crisis you showed that you had many levers to pull. You’re laying out the blueprint here again, I think last time at least according to the press your land bank partner made a lot of money by selling the front end of your CDS, and I’m wondering why the company can't capitalize on some of these discounts that we’re seeing. As you know the preferred stock is obviously the hugest discount but is it frustrating to you to hear the same questions, T-plus seven, eight years and the same doubts or is it an opportunity? Thanks. And also a follow-up. Ara, you timed your last stock sale very well. I guess we’re not going to see more of those and I’d like to see some insider buying. Thanks.

Actually my stock sale had to do with the fact that I’m renovating my personal residence and just purchased a townhouse right before it that I renovated. So, really had nothing zero to do with timing and frankly that rather would have the stock but just had to do what I had to do to finish my personal residence. Regarding the first part of your question, of course it’s frustrating and I can understand some of the doubts that are out in the market place. But we just had to put our head down and keep ploughing forward. As I mentioned in my comment, back in ’04 and ’05 in a solid market place, we were not only at the top of the industry in terms of performance, in most metrics return on equity growth and sales, stock price appreciation, total return to shareholders. We were actually at the top of the number two in the Fortune 500 for ’04 and ’05. We certainly got caught up in the euphoria of that performance and really increased our investments significantly at what turned out to be the peak of the market place. And then obviously the rest is history. We saw an unprecedented recession and we are paying the price for that. But we made it through the most difficult and challenging times. We really feel like we’re in a good position and we hope to prove what we can do in the coming quarters.

Great. I appreciate that. And any comment on whether the company can capture any of this discount rather than just …?

No, I think our first priority Peter is to focus on executing our business plan, and to execute our business plan we are going to raise capital if necessary in order to pay down debt as it matures and invest in land. So I would say it’s not a priority at this point to be capturing discount on the preferred or on the debt. You never say never but it’s just not our priority at this time.

Understood. Thanks very much.

Okay.

Thank you. I’m showing no further questions. I would like to hand the call back to Ara Hovnanian for closing remarks.

Thank you very much. We’re obviously pleased with the sales results that we’ve reported for the quarter. We feel good about the sales that continue right into August in the first month of our fourth quarter. We’re looking forward to having better quarters ahead starting with a great fourth quarter to the one that we’re currently in and continuing on to 2016. So I think that ends our comments and Q&A for today, and we’ll look forward to reporting better results in the quarters to come. Thank you.