The nation’s largest homebuilder spent more than $8 million buying property in the last two years from companies that were led by children of its chairman and its CEO.
D.R. Horton Inc. plows billions of dollars a year into land for tens of thousands of homes across the U.S. But a smattering of its development deals go to some top executives’ family members, who could profit handsomely.
Those are important details, said Nell Minow, the vice chairwoman of ValueEdge Advisors, which specializes in corporate governance. Before a public company approves a deal with fathers, sons or other related parties, it should obtain independent asset valuations and appoint an independent board committee to conduct a review, she said.
It says Donald Horton lent $77.5 million, at an annual interest rate of 2.55%, to a company owned by the sons, Ryan and Reagan Horton, to finance the land purchase. The homebuilding company then agreed to pay the sons’ firm, R&R Riverview, an annualized return of 16% for an option to buy the land. Donald Horton, in a telephone interview, said of the Arizona deal that his sons “did it cheaper than other people would.”Donald Horton provided another $8.9 million in loans so his sons could buy property in Louisiana and Texas that the company agreed to buy at a later date, the homebuilder said in response to inquiries from Bloomberg News. The company didn’t disclose this financing, though it did alert shareholders to the larger Arizona deal “due to the significant size,” Hansen wrote.
In general, it’s important for builders to be able to walk away, said Larry Sorsby, the chief financial officer of Hovnanian Enterprises Inc., a New Jersey-based builder. “Anytime you have a related-party transaction, you have to be extra cautious,” he said, while acknowledging that there are probably a limited number of land banks that could handle large deals like the one in Arizona.
Institutional Shareholder Services gives D.R. Horton the riskiest possible rating for the structure of its board, flagging related-party transactions and a lack of diversity.
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