Time to Get Out of Standard Pacific

Editor's note: "Bricks and Mortar" is a mock portfolio created by reporter Nicholas Yulico that is meant to help generate real estate and gaming-related stock ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks.

Updated from 1:01 p.m. EST

Liquidity worries continue to circle homebuilder Standard Pacific(SPF Quote).

Shares were plunging 33% Friday to $1.79 after Debtwire reported that Standard Pacific hired Miller Buckfire -- a restructuring and bankruptcy specialist -- as financial adviser. The story cited unnamed sources.

Standard Pacific, I believe, is one of the prime homebuilding candidates for a restructuring or bankruptcy this year. But I'm now closing out my rating on the stock for the Bricks and Mortar portfolio since shares are finally reflecting these worries.

When I originally flagged the stock as overvalued in late October, shares were trading at $5.25. At the time, I felt investors were not yet pricing in the company's liquidity problems.

The stock has fallen 60% since then to around $2 -- a level signaling that investors now realize the company could be headed for a debt restructuring or bankruptcy in 2008.

The builder carries some of the largest joint-venture risk of any other homebuilder, with significant exposure to the California housing market (one of the worst in the country).

Already, Standard Pacific has been forced in recent quarters to supply capital to weak joint ventures in California. The builder is on the hook for $500 million of recourse exposure to joint venture debt, according to the company's regulatory filings.

The company remains at the mercy of its banks, as it has already violated several debt covenants.

The final piece of the puzzle is whether Standard Pacific is actually solvent -- can its assets cover its liabilities?

Investors obviously are skeptical about Standard Pacific's stated book value of $20. But with shares now at $2, it's hard to make much money shorting the name, unless it is actually going to zero -- which remains an open question.

Bricks and Mortar Portfolio A Look at How Nicholas Yulico's Picks Have Performed
	Rating Date	Price at Rating	Rating	Current Price*	Return**
Brookfield Properties (BPO)	1/23/2007	28.67	Own	18.36	-36.0%
Global Real Estate ETF (RWX)	1/23/2007	64.00	Own	53.55	-16.3%
Ryland (RYL)	1/23/2007	56.00	Flag	23.50	58.0%
Trump (TRMP)	1/23/2007	17.50	Flag	3.42	80.5%
Penn National (PENN)	2/6/2007	45.56	Own	53.37	17.1%
Melco PBL (MPEL)	3/12/2007	15.46	Own	10.35	-33.1%
Starwood Hotels (HOT)	7/12/2007	72.37	Own	41.06	-43.3%
Standard Pacific (SPF)	10/26/2007	5.25	Flag	2.67	49.1%
Average Total Portfolio Return, Unweighted, (including closed ratings)					19.2%
Closed Ratings	Rating Date	Price at Rating	Rating	Closing Price***	Return**
Hilton (HLT)	3/2/2007	$34.69	Own	47.50	36.9%
Home Solutions of America (HSOA)	4/24/2007	4.98	Flag	1.06	78.7%
	Close At Start of Portfolio			Current Value*
S&P 500	1427.99			1,420.33	(0.5%)
U.S. MSCI REIT Index	1140.36			808.50	-29.1%
*(1/10/08 closing prices) **For "flagged" stocks, a drop in price is tracked as a positive for the portfolio, and a rise in price is a negative. ***Hilton closed out of portfolio on 10/26/07 because Blackstone Group completed purchase of firm. HSOA closed out of portfolio on 12/26/07 at day's closing price