Q1 2021 Lennar Corp Earnings Call
[music].
Welcome to <unk> first quarter earnings conference call at this time, all participants are in a listen only mode. After the presentation. We will conduct a question and answer session. Today's conference is being recorded if you have any objections you may disconnect. At this time I would now like to turn the call over to Alexandra Lumpkin for the reading of the forward looking statements.
Thank you and good morning, Today's conference call May include forward looking statements, including statements regarding the <unk> business financial condition results of operations cash flows strategies and prospects forward looking statements represent only the Lennart estimates on the date of this conference call and are not intended to give any assurance as the ax.
Future results because forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause one or the actual activities of the results to differ materially from the activities and results anticipated in forward looking statements.
These factors include those described in yesterday's press release.
And our SEC filings, including those under the caption risk factors contained in the monarch annual report on form 10-K, most recently filed with the SEC. Please note that when our assumes no obligation to update any forward looking statements.
I would now like to introduce your host Mr. Stuart Miller Executive Chairman, Sir you may begin.
Great Good morning, and thank you everyone of.
This morning line here in Miami at the World the seemingly beginning to normalize with the scaled down and still socially distanced crew that includes Diane Bessette, our Chief Financial Officer, David Collins, our non vice President and controller Bruce gross.
CEO of Lamar financial services and of course, Alex who you just heard from.
Rick Beckwitt, our chief.
<unk>, Chief Executive Officer, and co President of in Colorado, and Jon Jaffe, Our co Chief Executive Officer, and co President is in California, and they're on the line this morning as well.
So today, we have a lot of ground to cover I'll give a macro and strategic Lenoir overview, Rick will talk about market strength land in community count and John will update supply chain production and construction costs. The as usual Diane will give the detailed financial information highlights and additional guidance.
Then we will attempt to answer as many of your questions as possible.
As always please limit your questions to one question per customer and one follow up.
So.
From a macro perspective, the housing market remains strong demand has continued to strengthen of the millennial generation, which had previously postponed its entry into the housing market has now continued to drive family formation, while at the same time, the supply of new and existing home remains.
Strained, even though interest rates have moved higher at the same time the home prices have moved higher overall affordability remains strong.
Interest rates are still lower than they were a year ago and personal savings for deposits are strengthening many American families have fortified savings.
Vacations and recreational activities have been canceled or postponed and stimulus money from the government continues to fill the remaining gaps the American dream of Homeownership ship is an essential aspiration of the American population and the seemingly.
The imminent resolution of the pandemic isn't new.
Not slowing the growing demand.
The apartment dwellers, Ken today of for the first time home and demand is strong and growing yesterday's first time homes are selling quickly and at higher prices, enabling first time move up the market for yesterday's move up home is strong and the enabling customers to consider the.
The purchase of larger home with the larger yard with an office of nicer kitchen, and the new set of necessary spaces for an evolving market.
Also the eye buyer in single family for rent participants are providing additional liquidity to the marketplace to sell and purchase homes as they evolve and provide ever more frictionless transactions.
The underproduction of homes for the past 10 years has created a housing shortage and with strong demand home prices are moving higher.
Although this reality is exacerbating the well documented affordability crisis across the country as workforce housing is limited and getting more expensive the solution. It seems will be in the growing supply.
We'll be in growing supply by building more housing.
Current conditions have given rise to strong pricing power strong, though controlled sales pace, certainly labor and material increases very strong gross margins and even stronger net margins and of course of the challenge of land scarcity.
In the context of overall market conditions <unk> first quarter results reflect the intersection of our clearly stated strategic focus with excellent operational performance, let me connect the dots.
We have stated consistently that we would remain focused on orderly targeted growth and maintain our sales pace tightly matched with our the pace of production.
We actively managed growth at the top line in favor of even greater growth at the bottom line, we focused on gross margin margin by harvesting pricing power and controlling costs, while building a better mouse trap as I've called it in order to reduce our SG&A we.
Of focused on cash flow debt reduction and stock buybacks land owned versus controlled return on capital and on the equity and of course innovative technologies. All of this strategic focus shows through in our first quarter results.
We grew our deliveries 19% year over year and grew revenues, 18%, which drove a pretax income before extraordinary items.
The two an increase of 95% year over year and an after tax pre extraordinary items income and EPS increase of 61%.
To achieve this we've controlled sales pace and matched it with production.
And while some have questioned our controlled and managed sales pace. The virtue of that strategy has been borne out by our 25% first quarter gross margin versus 25% last year.
At the same time, we remain focused on improving our operating efficiency driving our SG&A down the SG&A down to a first quarter all time low of eight 4% versus nine 2% last year and driving our net margin to 16, 6% this year versus the 11 four.
Per cent last year.
Alongside of our homebuilding operations, our financial services group has continued to exceed all expectations as well.
Some of the remarkable $146 million.
Of earnings contribution from this segment is capital markets driven in today's market environment much of the consistent performance beat from this group continues to be driven by constant work and rework of the cost structure low.
<unk> financial services continues to be a leader in the drive to create a better experience for our customers at a lower cost to transact.
While operations have performed extremely well we have also further improved our balance sheet.
Rick will discuss our land program in our single family for rent program, which will which of.
Which continued to drive balance sheet improvements.
And just as <unk> seen dramatic improvement and other facets of and other facets of our business just in time delivery of land and just in time delivery of completed homes enables us to be laser focused on our inventory turn and we will be reporting on progress in that area.
The quarters.
Of course, all of our work has strategically focused attention on our returns on equity and returns on capital, which have improved year over year by 470, and 420 basis points, respectively, and Diane will give more detail and our guidance in her comments.
Yeah.
So moving on.
In addition to the solid operating performance that we reported this quarter. We also had an extraordinary items of note.
We've been talking about the strength of our Lennox technology platform and this quarter Lennox requires some additional discussion.
Let me start by noting the remarkable contribution of Eric Fader and his team led by San of Con and Christian Fong at Lennox.
We have learned from scratch, how to be of constructive strategic investor and disruptive or adaptive technology companies through trialing out through trial and error together with study and the engagement and we have learned quite a lot.
This group has learned how to balance both the tip of the spear and engaging best of breed entrepreneurs and innovators and the soft touch required to engage and bridge change management together with our operating leaders within the company great.
Great work team.
With that said last quarter, we daylight that open door one of our many Linux technology business investments would begin trading as a public company and would require mark to market gain recognition recognition.
Accordingly opened door is now a public company and we recorded a $470 million profit as a result.
While this gain is extraordinary relative to our operating platform. It is not a one time event for the company.
Through <unk>, we have invested in a number of high quality technology businesses that are changing the way business is transacted is transacted in our company and in the housing business in general.
Two more of our <unk> investment companies Doma previously known as states title and Hippo home insurance have both announced the pending spec combinations of.
Additionally, as we have recently announced our Sun Street Solar power company will be acquired by the Nova energy give.
Given our ownership interest in these companies.
And the understanding that we might or might not qualify for mark to market accounting treatment. We are conservatively estimating an economic gain in excess of $1 billion from these companies.
Additionally, we believe that other companies in our technology portfolio will mature over time as well.
While some have questioned the heat in the technology market space, our Lenox investments are not driven by the onetime gains that might capture attention.
Instead of <unk>.
<unk> investments are focused on best of breed management teams that are building solutions to important problems that are adjacent to our core homebuilding and financial services businesses.
These companies their solutions and their form of execution, our models for us to learn participate with and reengineer our own operating platform for improved performance.
Our investment focus prioritizes the return to our operating platform over our outsized return on our investment.
Although the gains can be sizable and positively impact our earnings and balance sheet. They are more importantly, indicative of the maturity and relevance of the underlying management and business.
And while they are subject to the up and down fluctuations of stock market movements. The.
Part of our investment that is not subject to market fluctuations as the permanent impact to our operating platform and company performance.
Each of these companies have meaningfully impacted our core operating platform.
Let me give some examples.
Open door pioneer of the <unk> space, we invested and participated in molding and evolving this business, we learned that the <unk> space can reshape the entire home transaction, especially of move up transaction.
Is this solution continues to evolve and mature the buyer sale will become an industry standard as seamless trustworthy and timed for the customers' convenience becomes an expected way of transacting in the home buying world.
For the <unk> open door ignited and in turn.
Internal digital marketing transformation that altered our entire customer acquisition and engagement.
We both learned from them and then began to teach ourselves we changed.
And as a direct result, we significantly reduced SG&A by reducing selling marketing and outside realtor cost and enabling better coordinated closings for us and for our purchasers.
Doma, formerly states title is pioneering the incident digital home and mortgage closing.
The conventional process of title insurance underwriting and traditional escrow closing is confusing to the customer time consuming for lenders and time consuming for lenders builders and customers alike.
Doma is simply working to reduce a 14 day work stream to 14 minutes.
By eliminating the traditional process of buyer dashboard and seamless customer interface.
An instant closing with one tap convenience.
This eliminates time and risk for the lenders.
<unk> complexity for the customer and reduces cost for all parties involved.
Lenoir became a shareholder in doma by selling our retail title business for debt and equity in the company.
The <unk> retail platform and title underwriter became a springboard for <unk> growth and evolution.
With <unk>, we simplified, allowing our team to focus all of their attention on just our captive business, our operation and overall operating costs were reduced significantly helping.
Helping to drive Lenoir financial services bottom line.
Hippo insurance has pioneered in the instant and personalized home insurance product.
Home insurance history with the historically has required of detailed application process that resulted in a one size fits all overly expensive insurance policy.
Hippo uses big data and technology to gather detailed information on each home deliver of refined policy at a lower cost and with coverage for what matters most to the customer.
The process is simple and frictionless.
<unk> invested in Hippo by joint Venturing, our captive home insurance agency and investing additional dollars over time.
This investment enabled us to participate in the development of the Hippo product for the new home market.
Design elements to the home like security by ring, and Flo by Moen water shutoff valve that lowers home insurance rates and designed the engagement for the new home buyer.
Today Hipple Underwrites every <unk> home before the purchase our customer simply ops into here from the Hippo and they will get an immediate quote.
<unk> has already done all the work <unk> participates in the agency fee with no overhead and thus simplifying when our financial services once again and enhancing our bottom line.
Finally, we have recently announced that we will sell our Sun Street solar operations to Sonoma in exchange for stock in the company.
We built the Sun Street platform to install solar panels on every line our home in certain markets, where it was feasible.
We built of Blue chip chip team that sells the installations for production new home as opposed to retrofit.
The Sun Street platform is readily expandable and we expect the Nova will effectively grow that business.
<unk> will benefit by simplifying our business and partnering with the Nova to take standard solar installations, and turn communities into micro grids with battery storage generators and advanced arbitrage technology.
We expect to develop next generation energy solution for new homes and communities that will solve the problem of power outages and electric grid deficiencies for new communities.
We look forward to working with Sanofi the synovus team who specializes in this space to solve the critical problem of energy generation and distribution in an environmentally efficient manner.
Simply put lenore is the very different company.
We are no longer just the homebuilding company with technology operating in the background. We are now a focused technology aware and technology engaged homebuilder that incorporates effective the new technology solutions to enhance our core operations and our product offerings, we <unk>.
Invest in technology companies and professionals, we worked alongside them to develop products for our industry, we incorporate new ways of doing business and we profit as well by investing in world class innovators and entrepreneurs that help help illuminate our path forward.
To the Investor World, We would not make the case that of higher EPS from non operating income or loss for that matter should be used with our multiple to value of our company.
But instead I would make the case and we'll make the case over time.
For multiple expansion as our focus on cash flow and returns together with an improving operating platform with embedded upside from strategic and investment merits consideration.
Now before I turn it over to Rick Let me briefly turn to our ancillary business divisions, and our drive to focus on our core homebuilding and financial services businesses.
We have continued to drive and grow our excellent ancillary business divisions and they continue to mature.
But being simpler enables us to focus on our core business units evermore.
As noted in past conference calls, we have been working on strategies to better position, our multifamily business called LNC, along with are now maturing <unk> or single family for rent business that Rick will talk about the minute.
Additionally, we have of dynamic and growing land program and land management business. We have also LMS lenoir of mortgage finance, our commercial mortgage business and other excellent business.
And finally, we have of growing technology investment business, which is part of onex.
We've concluded that the best way to enhance corporate value is to have one of our stand alone as the pure play homebuilder and financial services company and to enable these these blue chip businesses to thrive and excel independently.
Therefore, we are working to construct a tax free spin off of all or parts of these ongoing businesses and a unified company.
The spin co may contain all or part of the assets of these businesses together with certain land assets and programs as well as part of our Lenox investment business.
The expected size of the spun enterprise would be between three and $5 billion in asset base with no debt, which our balance sheet can comfortably accommodate.
The remaining Lenore would see almost no loss of operating income from the spin off.
And we will continue to have a very liquid balance sheet.
The Standalone company.
Would ultimately drive income from significant asset management fees.
The spin co will be focused on building an active asset management business debt raises third party capital to support ongoing business verticals included in land developed including land development.
The company will become an active asset and property management company. The backbone for the company will be Lncs operating platform together with the <unk> the structures.
The the rest of this resolution is no longer a long term strategy, but is immediate as we focus on driving higher returns with less noise in our numbers from lumpy profits and losses, which will increase visibility for the capital markets into our core.
<unk> expect to hear a lot more about the spend over the next quarters as our thinking matures.
Today, we can only give a brief sketch of the future of this program I know you will thirst for more detail, but we're not in a position to give at this time.
But we did feel that it was time to share our thinking with the investment world as we work to fill out the detail and build a new company.
So in conclusion.
Let me say that our results and our expectations for the year are solid in all respects and they reflect our focused strategy to balance growth and drive bottom line margin cash flow and returns.
But complementing our business performance, we continue to be focused as to focus on our broader mission of making the world around us even better.
Whether it's with our social focus on extending home ownership to a broader social and economic array of customers with our emerging single family for rent program, which Rick will discuss shortly or our $1000 per home that we contribute to our <unk> Foundation for social health and education.
The programs across the country or our solar initiative for better and more sustainable energy for our homes.
We are positioned to do well, but always focused on doing good.
At <unk>, we have never been better positioned financially organizationally culturally and technologically to thrive and grow in this evolving and exciting housing market with that let me turn it over to Ray.
Thanks, Stuart as you can tell from Stuart your opening comments. The housing market is very strong our team is extremely well coordinated and our financial results continue to benefit from a solid execution of our core operating strategies.
Key to that has been running a finely tuned homebuilding machine, where we carefully matched homebuilding starts with sales on a community by community basis.
In this environment it makes no sense to sell too far out ahead.
As you lose the ability to offset potential cost increases with sales price increases.
Our first quarter results prove out the success of this strategy.
In the quarter, both new orders and starts were up 26% over the prior year.
Enabling an orderly construction program in a just in time delivery of convenient as completed homes.
This sales and production focused program allowed us to drive of 450 basis point improvement in our gross margins year over year with strong results in each months of the quarter.
In the first quarter, new orders deliveries gross margins were up strongly in each of our operating regions.
In addition, we saw strength in all product categories from entry level to move up to our active adult communities.
The strength of the market was also reflected.
Historically, low cancellation rate, which was nine 6% in the quarter down 450 basis points from last year.
This is additional evidence debt buyers have the required down payment and mortgage qualifications to purchase of new home and they have little desire to risk canceling their new home purchase due to the risk of rising sales prices.
As Stuart mentioned technology, driven innovation and a focus on process has significantly lowered our SG&A.
This has been reflected in each of our operating regions with net margins up across the board in every region.
Now I'd like to spend a few moments talking about growth and community count.
As expected our community count at the end of the first quarter was down 8% from the prior year.
Notwithstanding the 8% decline we achieved the 26% increase in new orders in the first quarter driven by a 45% increase in sales per community.
Part of the increase in absorption pace was driven by improved market conditions part of it was due.
Two the fact that we had been targeting larger.
Higher volume entry level communities that can deliver more homes per months and smaller communities.
And the next several quarters, our growth will continue to come from the overall higher absorption pace as well as an increase in community count and we are still on track to increase our active communities by about 10% in fiscal 2021 with the increase coming in the back half of the year.
<unk>.
While we continue to be focused on our community count we are intensely focused on replacing our existing communities with larger higher volume communities. As this allows us to better leverage our overhead improve our bottom line and.
An increase of returns and cash flow.
As I've mentioned on prior calls improving our returns on capital and reducing our balance sheet. Our on balance sheet investment in land is a top priority.
With that in mind, we have been laser focused on increasing our percentage of option homesites and reducing our year supply of owned home sites, all while increasing our overall home site supply.
During the first quarter.
As our controlled home sites, the percentage increased 4800 basis points year over year, and 600 basis points sequentially to end the first quarter at 45%.
In addition, our years owned supply of Homesites dropped 234 years from four years in the year ago period, and $3 five years sequentially.
Most importantly, we increased our total controlled and owned home sites by approximately 37000 home sites in the quarter with approximately 95% of these being optioned or controlled home sites.
Based on this progress we are in excellent position to achieve our goals of 50% controlled home sites and of through your own supply by the end of fiscal 2021.
These improvements reflect the strength of our relationships with local developers and other strategic partners.
We've been building adjusted time delivery system for our land inventory that we believe is sustainable throughout the cycles, we've created relationships with developers and investors with appetite for different duration risk for land.
And have matched that duration risk with the appropriate risk adjusted returns the.
The short term land and long term land programs will allow us to continue to strengthen our balance sheet.
While generating strong margins and increased returns on capital.
Consistent with our land light strategy and are focused on increased profitability and returns. We are excited to expand our business through the creation of a first of its kind of single family rental platform that will facilitate a better time delivery of our homes with reduced cycle times.
Following this earnings call, we will formally announce the formation of the upward of America venture.
This business will initially be capitalized with a total equity equity commitment of 125 billion led by Centerbridge partners alongside all of the us real estate and other high quality institutional investors.
Including leverage the venture will be positioned to acquire over $4 billion of new single family homes and Townhomes from Lamar.
We expect <unk> peak capital investment could be $50 million in the in the upward of America adventure.
This venture is uniquely positioned to quickly scale given its direct access to <unk> pipeline of both purpose built single family communities and scattered single family homes that meet the index the ventures investment criteria the.
The initial pipeline of purpose built communities for this venture includes approximately 3000 homes in 2007 communities with a total purchase price of approximately $900 million.
Like our multifamily build the core business. This platform will be asset managed <unk> with third party equity in debt owning the assets and an asset light program for Illinois.
As housing needs of demographics continue to evolve we believe that the single family rental sector will continue to outperform.
In addition, the upward of America Adventure continues one of our vision of becoming an ESG driven homebuilding company by.
By making our high quality homes, not only available for sale, but also for rent with a portion of the homes available with the rent to own option.
The vehicles, social focus provides a unique opportunity for families and individuals across the country to live in brand new in our homes and an attainable price point, all without putting up the down payment.
Given this we have a distinct opportunity to create upward mobility in the housing market through this initiative.
Now I'd like to turn it over to John.
Thank you Rick and good morning, everyone as Richard Stuart noted matching sales pace with our production pace has been our consistent strategic focus that has enabled us to drive excellent performance by pairing of production and sales, we've maximized margins driven bottom line profitability.
The current environment, we could have easily generated more sales, but our view has been and remains the key to success. In this market is all about managing the supply chain and production.
I'd like to briefly describe our strategy performance and expectations for production of construction cost in order to shed some light on how the strategy has been central to our accomplishments this quarter and how it will impact the balance of 2021.
First let me share with you some statistics of our first quarter. Our total construction cost per square foot was down <unk>, 7% in Q1 year over year, but up one 9% sequentially from the fourth quarter.
In the first quarter, one of our cost increased about $1 per square foot or $2300 per home both year over year and sequentially.
These cost increases were more than offset by other cost decreases year over year, but not sequentially, resulting in the overall year over year cost decline in sequential cost increase.
Year over year of construction costs as a percentage of average sales price decreased from 45 percentage to 42% and remained flat sequentially as our pricing power driven by our controller sales pace.
It is well documented that the cost of Bloomberg at all time highs of supply is limited and demand is high.
We will see additional cost increases from loan growth throughout the year with increases from today, the all time high level of pricing starting with Q3 deliveries.
Given the unprecedented pricing levels, we've seen is challenging to predict how lumber prices will trend, but we're encouraged by the additional OSB capacity currently coming on line in the longer future markets, indicating some relief.
The overall production environment of today is defined by a supply chain with limited to no exit of inventory.
Normally the manufacturers that supply of our industry carry 30 to 60 days of inventory are able to adjust distributions to meet varying demand.
However, due to COVID-19 disruption of manufacturing facilities in the U S. Mexico the overseas in 2020 debt capacity.
The dramatically reduced the net worth eliminated.
At the same time demand has increased from both new home construction and big box retailers.
The situation makes the supply chain, particularly vulnerable to further disruption such as the deep freeze of sharp, Texas last month.
The storm shutdown of the plants that manufacture of MDI and poly based revenue impacting the manufacturing of OSB paid installation refrigerators and other products were.
We're working closely with all of these effective manufacturers to ensure that we have the products, we need to be delivered to our job sites as we need them.
The management of these disruptions in the supply chain of materials as well as to be the builder of choice and the continually constrained labor market, we employ the following strategies and processes.
First we remain disciplined about our everything's included approach, which simplifies the entire building process for our trades.
The share data by providing frequent forecast and open purchase order information we.
We simplified by rationalizing our skus across multiple categories.
We access alternative supply chain solutions and aggressively of pre buy materials as needed most.
Most importantly, we communicate.
Our trade partners of well in advance of our upcoming production needs our divisions new of extended manufacturing lead times and the real time and our national supply chain team led by calculus together with our regional purchasing of the fees are in constant communication with each other our divisions and all of our trade partners.
I would best describe the production environment of challenge, but manageable in the first quarter, we saw a mild increase of our cycle times as we dealt with resolving issues as they presented themselves.
Through our strong supply chain partnerships were largely able to overcome supply constraints are.
Our highest volume partners have given us expanded returns, which we were able to accommodate due to our production first model, where our needs of our forecasted several quarters out.
We believe we are well positioned with our disciplined and production first process to continue to manage through new new challenges as they present themselves. Our focus on these processes is why we are comfortable affirming our deliveries for the year. However.
However, this environment is not easily stress to allow for an increase in deliveries. So our focus is on maintaining our planned starts deliveries of maximizing margins.
In conclusion with our strategy of the managed approach to production and sales pace produced great results of our first quarter as we look to the balance of the year. We're confident that our gross margins will remain around 25% will drive our SG&A lower producing higher net margins the stronger bottom line, while maintaining our planned volume.
And now I'll turn it over to Diane.
Thank you John and good morning, everyone.
I know you've heard some of our financial results from Stuart Rick and Jon I'll begin by recapping certain of our Q1 2021 highlights and then provide detailed guidance for Q2 2021 and high level guidance for fiscal year 2021, So I will start with homebuilding.
The new orders, we ended the quarter with new orders of 15570 of 26% increase year over year.
This was the highest new water total for a quarter in our history.
We continue to be focused on production first.
Matching sales in stocks in the first quarter. Our starts were 15982 also up 26% year over year.
Some of pay standpoint, our monthly sales pace was four five for the quarter matching our monthly starts PE of $4 six for the quarter.
We ended the quarter with 22077 homes in backlog with the dollar value of nine 5 billion and ended with 1162 active communities our cancellation rate was about 10%.
For the quarter deliveries totaled 12314 up 19% year over year gross margin was 25% up 450 basis points from the prior year. This increase was primarily driven by our continued focus on obtaining price increases while control controlling and.
Matching cost increases. In addition, we also had lower interest expense per home as a result of our continued pay downs of senior notes in the past several years and lower field expense per home due to a higher delivery line.
Our SG&A was eight 4% down 80 basis points from the prior year. This improvement is primarily a result of our intense focus on incorporating technology to gain efficiencies across our homebuilding platform.
Our net margins of the quarter was 16, 6% the highest first quarter net margin ever achieved.
Our financial services team also executed at high levels reporting $146 million of operating earnings.
Mortgage operating earnings increased to $100 million compared to $41 million in the prior year.
The mortgage earnings benefited primarily from an increase in volume and lower cost per loan combined with an increase in secondary margins.
Title operating earnings was $31 million compared to $10 million in the prior year title earnings increased primarily due to an increase in volume.
We also have started to realize upside from our technology from our strategic technology investments in our other segment.
Stuart mentioned during the quarter, we recorded a 470 million mark to market gain on our opens are investment as a result of the company going public in December the gain was based on open to a stock price at the end of our first quarter, which was 28 <unk>.
The investment will be marked to market at each quarter end based on open to our stock price at that time.
I also want to mention that we have a new line item on our P&L titles charitable Foundation contribution, which is the conservation contribution to Ireland. Our foundation previously our annual contribution to the foundation was the 1% of net income the.
Beginning with this year 2021, we will be increasing our current contribution to $1000 per home delivered and so just for a bit of perspective using fiscal 2020 numbers. Our net income last year was about $2 5 billion, which resulted in the contribution of about $25 million.
If we had contributed at $1000 per home level.
Our contribution would have been about $53 million. So the increase is significant and we are very pleased and very proud to be able to give back even more to our communities.
Doing good while we do well.
And then turning to the balance sheet, we ended the quarter with $2 4 billion of cash and no borrowings outstanding on our $2 5 billion revolving credit facility. We continue to focus on our strategy to become asset lighter by developing adjusted time delivery system for land and homes.
Improving returns and generating increased homebuilding cash flow at quarter end, we owned a 189000 home sites and controlled 154000 home sites, which resulted in our year supply owned decreased to three four units from four point year on year and the prior year and our Homesites controlled.
Increasing to 45% from 31% in prior year, we continue to make progress as Rick mentioned in reaching our goal of three year supply owned 50% Homesites controlled by the end of the year.
During the quarter, we repurchased a small amount of shares 510000 per total of 543 million at quarter end, our homebuilding debt to total capital of 24% down from 33, 6% in the prior year and just a few final points on our balance sheet, our stockholders' equity increased to approximately <unk>.
19 billion of $16 billion in Q1 of the prior year and our book value per share increased to $60 30.
From $51 39 in the prior year.
Finally, just a few weeks ago, we were upgraded by Fitch to Triple B flat from Triple B minus this upgrades follows the upgrade to investment grade from Moody's that we received last November we are quite pleased with the rating agency advances that we've achieved in the pit.
Months.
So in summary, our balance sheet is very strong very strong balance sheet enables us to execute a spin off and even after that transaction, we will have a rock solid balance sheet.
And with that brief overview, let's turn to guidance.
I will first provide detailed guidance per day.
Second quarter, and then some high level guidance for the fiscal year, So let's start with homebuilding.
We expect Q2, new orders to be in the range of 16500 to 16700 home and our Q2 deliveries will be in the range of 14200 to 14400 homes. Our Q2 average sales price of me around 405000.
As we mentioned we expect to maintain our gross margin at about 25% for Q2, despite rising material and labor costs. We expect our Q2 SG&A to be in the range of seven 9% to 8% as we continue to focus on benefiting from technology efficiencies.
And for the combined category of homebuilding joint venture land sales and other we expect the Q2 loss in the range of about $5 million to $10 million. We believe our financial services earnings for Q2 will be in the range of $100 million to $105 million.
For our multifamily operations, we expect a loss in the range of $5 million to $10 million and so the lennar. Other category. We also expect the loss in the range of $5 million to $10 million now remember that this guidance for one of our other does not include any potential mark to market gains on our Hippo States title XOMA.
The investment we have not yet concluded if we will be able to utilize the mark to market accounting for the investment and if we do the gain will be determined by the stock price of each company at the end of the second quarter. Additionally, the guidance does not include any potential adjustment to our current opened our investments.
Two will be determined by the stock price of the open dock at the end of our second quarter and lastly, the guidance does not include a gain related to the sale of our sunscreen some of the company since the.
The shares that we will receive as consideration will be the value that synovus closing price on the date the transaction closes.
We expect our Q2 corporate G&A to be about one five percentage of total revenue and as I mentioned, our charitable foundation contribution will be based on $1 per home delivered during the quarter.
We expect our tax rate to be about 24, 5% and the weighted average share count for the quarter should be approximately 311 million shares and so when you pull all this together this guidance should produce an EPS range of $2 25.
$2 35 per share for the quarter.
So now let me provide some guidance for the fiscal year.
We still expect to deliver between 62000 64000 homes, but with now higher gross margin guidance of about 25% of the year and an even more efficient operating platform with SG&A guidance of seven 6% to seven eight for the year.
And we believe our average sales price for the year will be about 400000, and our financial services earnings will be in the range of $445 million to $460 million.
Finally, our tax range should be about 24%.
And so as we continue to extra executing our core operating strategies maintained its very strong balance sheet and remain focus on cash flow generation and returns we are well positioned for another excellent year.
With that let me turn it over to the operator for questions.
Thank you I would now like to begin the question and answer session of todays conference. We ask that you limit your questions to one question and one follow up question until all the questions have been answered if you would like to ask a question. Please on mute your phone press star one and record your name clearly when prompted if you need to withdraw. Your question. You May you start to again that is star.
Wanted to ask a question and our first question comes from Truman Patterson with Wolfe Research. Your line is open.
Hi, good morning, everyone. Thanks for taking my questions.
Wow.
A lot of.
Detail on the call.
Stuart I feel like Youre, beating me to ask a question about the spin co, but I'm going to refrain for now.
So.
So first question on on the gross margin guidance, you bumped it up to 25% that implies flat sequentially throughout the year when normally we see sequential improvement.
Due to leverage as we move through the year could you just let us know what your expectations are for land labor and material inflation is as we move through the year end.
Does this imply since its.
Flat gross margin through the year does this imply that some of your internal efficiencies are starting to level off or pricing you assume as cooling just walk us through some of the moving parts there. Please.
Well, let me just start as Rick and Jon collect your thoughts on that question.
But just remember Truman debt.
Our guidance on.
On margin.
It was pretty consistent through the year at between.
$23 five to 24.
As a percent.
So we're upping our guidance it was flat through the year recognizing that.
Of that along the way in through the year some of the construction costs would would rise and wood.
Pull through at different parts of the year.
So this is this is consistent with how we were thinking.
At the beginning of the year in terms of the way the year.
Would shape out of shape up even with as you say.
The leverage embedded in increase.
Volume as you go quarter by quarter.
So what youre seeing is a significant improvement.
Debt, we're reflecting in each quarter's results.
Jon Rick do you want to.
The add some color to the.
The way that margin shaping up sure.
Sure.
As I mentioned in my prepared remarks.
The one way or the biggest mover on the cost side of the equation.
And we will see in Q2.
More of an impact from lumber prices as they were spiking.
October of 2020, and so I said, we have about a $2300 per home increase.
In a lower quality of Q1.
That will go up by about another four of 5000 per home as the.
Moving into Q2.
And then in Q3 and Q4, we'll see a repeat of that pattern of global prices.
Higher of the recent months.
Before what we hope will be unexpected leveling off so.
All of US had mentioned.
We've got significant pricing power of that overcoming.
The big needle mover of the logo policy increases Thats, just the reflection of where the lumber market is.
Not something that any of the can do anything about sort of the market itself correct.
And then as I mentioned, we're seeing other cost increases other categories.
There is a supply constraint and the increased demand sort of in that natural <unk>.
Why are the there that's occurring of the supply chain.
Yes, I think it's Stuart and Jon of covered it.
The view this as we've bumped overall year guidance by 125 basis points. So we feel that's a really big increase from of the air.
Yeah.
I would agree with that.
And apologies if I missed I missed the first part of the call. So apologies if I ask something that was covered earlier on but clearly it sounds like demand is healthy but on the flip side.
Are you seeing any demand softening with the recent increase in rates and I'm trying to link this to.
Your <unk> orders guidance seems like it's below what we would expect seasonally right sequentially.
Is this just you all are comfortable running your mouse trap.
At this level and you're fine with demand outstripping supply or are you concerned.
Of the market softening near term.
And with that your guidance was about $16 6000 orders or starts I would estimate is that the level that you. All are comfortable you can produce going forward.
Greg.
So as John said in his commentary we could get we could have sales be whatever we wanted the market is extremely strong and oil price and product categories.
And what we've really been focused on is matching starts with sales and making sure that we are maximizing our bottom line through operating efficiencies and.
We've we've looked at what some of the other builders have done selling so far out ahead and without the ability to match a price increase to cover of costs that may be potentially come in it just doesn't make business sense for us. So we're sticking to our plan.
And feel very good about what we've laid out for you.
Yes.
Look we're managing carefully controlled business and as you've heard from the the earnings call of our commentary today, we are of a number of moving parts in the company, we've been focusing on balancing margin and bottom line and cash flow and really building that rock solid balance sheet I know that new.
And I ask everyone to hesitate and asking questions about the spin.
But the balance sheet is really the key to spinning and leaving both companies with rock solid balance sheets.
All of this comes about through carefully vantage program of matching starts production sales and keeping them and orderly.
Relationship to each other and Thats exactly what <unk> seen from the company.
As we map out our strategy for going forward.
Next question please.
Thank you.
Thank you. Our next question comes from Stephen Kim from Evercore ISI. Your line is open.
Yes, thanks, very much guys.
You've certainly been busy good to see.
And we will be looking forward to a lot more information.
Moving forward.
I did want to ask you generally, though about Atlanta, ex which I understand this line to the ex power but.
I see two potential approaches.
And I'm curious, which is more of the priority for you, which is really more of the emphasis there is sort of driving.
The decision.
We will drive your decision, making around the line ex one would be to create a <unk>.
Separate operating segment of sorts in order to have a collection of businesses be more easily valuable by the street.
Literally able to be valued more easily.
But then another alternative would be that you want to create an ecosystem.
On the ecosystem of tech enabled businesses that of customer enters into when they walk into one of your sales centers of one of your rental offices.
In order to sort of maximize the value that you can both provide and get compensated for by the customer and I'm wondering which was more of the priority or is more of the priority in your mind and sorry, and then as a follow up.
We consider should we consider these initiatives to be cash flow positive or negative meaningfully over the next few years at all.
So fair question Steve.
Our primary focus in building Linux.
And it has been evolutionary.
Has been the latter approach.
It was and continues to be all about.
In the background of our core business.
Inject these new streams of activity.
Are enabling a better customer experience and better cost structure for our company I've called it instead of building a better mousetrap.
And if you think about the companies we've talked about.
Over time.
You could you could imagine that the customer walks in and says I've got a home to sell we've got a solution. It's the <unk> buyer space and that leads right into a blend powered mortgage application, which is a seamless simpler technology enabled.
Mortgage application feeding.
Feeding right into DOUMA and a.
The entire closing process being one tap and digitized.
And then the immediate home insurance policy it becomes a joyful experience with our technology companies operating in the background, creating an excellent experience for our customer, but driving our cost structure down and enabling us to build profitability and even pass on some of those savings to our customer.
Which is of greater good.
I haven't really mentioned that each of our technology companies has an ESG component and focus as well and that will develop over time, so really think about it as we are building a better one of our by investing in these technology companies and the investment in the technology company.
Not really isolating and looking at as a separate operating business.
And I just wanted to daylight that Eric Fader and his team.
Of Sonic on Christian <unk>, and the number of others have really developed some expertise.
In creating a focus on technology companies that matter.
Together with change management.
Dovetailed within the company.
And I think that over time, what you're going to see as these companies develop their own value proposition as you've already started to see they do become cash flow positive in their own right.
And each of them has the map to that strategy.
And the dovetail with Lenovo and the operating performance is what gets us very enthusiastic. So we're more focused on the lateral approach than we are on the former and we really want to deemphasize what I call the shiny object of of.
The big gains and I want to emphasize more the.
The core programs that Rick is involved in John's involved in Eric's involved and I'm involved in every single day of building a better company, that's what it's really about.
That's great. Thanks, a lot for that Stuart I appreciate it.
The second the second thing I wanted to ask about <unk>.
Rates to this land venture.
Which you talked a little bit about in your 10-K, and you talked a little bit about today, Rick I believe you spoke to.
The idea that this would be creating a structure by which you can basically bucket the land parcels into various categories categorizing as in the put them into buckets with different <unk>.
Durations and different.
Returns on capital expectations.
In a way, though that's kind of what you've always been doing Brian Mike Homebuilder is always what they are doing things properly are sort of evaluating parcels of land two.
For duration and returns on capital expectations, and so forth. So is what's different here that you've got some form of the system that enables you to do that more quickly by isolating specific metrics or something I don't want to put words in your mouth, because I'll, probably get it wrong, but can you but to the degree that theres already.
That discipline that existed in line our previously can you zip.
Arrow in on exactly what is different and special about this particular relationship and venture.
So let me start off and I'll, let John follow.
Steve Youre right, we have always done what we thought we could do to maximize the land opportunities out there whether they be short term or long term I think the key difference associated with this is we've created something that's very programmatic and systemize and oriented where we're matching.
Capital and returns to either short dated and long dated land opportunities and what we've learned as we've evolved our thinking over the last several years is that there is tremendous appetite out there in the market for risk adjusted returns and the returns is.
Associated with the short term sort of current inventory type of opportunity is a much lower threshold and something that that is a little bit riskier and by creating a programmatic systemize the machine, where we funnel our land opportunities G. Either one of these programmatic structures.
It allows us to become very efficient and to to really incredibly scour the land opportunities out there.
To grow our business so John anything you want to add to that.
I would just add that perhaps the.
Fine tuning of what we've always done has been to further <unk>.
The the risk buckets associated with land. So if you think about the least risky component thats the land of which were.
Building, a home zone and that should really be financed at the lowest cost of capital will primarily our cash on hand of our revolver.
And then if you look at the next bucket in the Gulf of land that is more like with the.
That's ready to come into the production Assembly line.
So the zero to four year ago.
That is properly structured relatively very low risk.
Sure the attractive cost of capital of that is also very low and separated sales where the mid term of.
Bucket of land, which has historically worked for.
High teens, the 20% kind of returns from the Covid investment standpoint.
Bye.
Structuring and really reducing the significant portion of the risk associated with the middle bucket.
We're able to create as Rick said, a or is this the systemic.
Systemic approach of that.
Significant.
Size and scale to it allow it towards the rewards of staff facility to be able to.
Very easy to transact.
To really position.
Moving to BG risks.
Great I appreciate it I'm sure we'll be hearing more about this as we go forward, but thanks, a lot guys and good luck and good job of everything so far Steve Let me just let me just say before you get all that it's really adjusted time delivery system for land that we're building, but I love. The fact that the question.
Coming from new and I reminisce about new mean, David Dreier sitting in my old office going through this.
Kind of tranche risks.
Reward association relative to see MBS, probably 25 years ago.
And here, we are going through that same thinking process again as it relates to another asset class.
Yes, indeed, and I imagine that the returns from this might even be greater than what you saw in the early nineties from the from the other one which was pretty meaningful as well, but when we do those back but this will be very interesting.
Thank you.
Thank you.
Our next question comes from Buck Horne from Raymond James Your line is open.
Hi, Thank you for the time and quite of bit of news digest. The thank you so much for going through it.
The back it out to just the.
More of a higher level and kind of policy type question for you, we're hearing a little bit more chatter coming out of DC.
That there is some renewed consideration of the president of items of the proposal for the $15000 first time buyer tax credit and among some other things out there, but I was just wondering what your thoughts might be on how of tax credit like that could affect the current housing market with the benefits outweigh the.
Cost of new see any other policy options that might be more supportive to incur.
The increasing housing supply at these levels.
So.
Look the.
The last thing I think we should be weighing in on US politics of these days there is no question that stimulus as.
As a significant part of the equation.
So of noted in my remarks interest rates are still.
LOE by all measures.
Yes, they've ticked up a little bit, but the other side of the equation is the savings rate.
And the stimulus that's out there just in the most recent stimulus bill additional legislation seems to be cut.
Coming down the track and that will once again stimulate even more demand the.
The complicating part is that we are dealing more with supply shortage. Then we are dealing with the shortage of demand with the factors demand is very very strong.
And a tax credit to stimulate more demand it seems is probably going to layer on.
The more demand to an already constrained supply.
We'll probably have the impact of.
<unk> prices somewhat.
Just supply and demand imbalance.
So.
The question is what do you do across the country that is talking about workforce housing and.
And short supply.
Yes.
As a governing kind of <unk>.
Component.
And it seems that there is going to have to be some additional initiative.
The focus on more land entitlement.
More streamlined.
No.
Government involvement in the constraining the supply.
But we'll have to see how it all shakes out as things sit right now when we look at the housing market. It's one of the reasons that we think that for the next years, but.
The housing market benefits from a fairly strong supply limitation.
Limitation and demand strength.
The strong demand in shorter supply.
And for the homebuilders, we're going to have to be an active participant in finding reconciliation here and participating in building new homes.
Great. Thank you so much of that let.
Let me follow up with a question on the single family rental platform the new strategy.
A lot of detail to cover there.
For clarification.
With our BD exclusive builder to this new SSR adventure.
What's the any kind of what's the initial timeline to ramp up deliveries to the debenture.
Would the returns.
Or margins on these home would be similar to the for sale of products.
So.
Bunch of questions there.
<unk> of the venture as of 12 year period.
A four year investment period.
The venture is not exclusive to NR, although our partners in the debentures are very comfortable with Lin our product and its been geared towards just behind our new homes.
And.
So what was the <unk>.
The last part of your question.
Would the returns and margins on build to rent product be similar to the for sale.
Yes, yes.
So let me say debt. This is primarily a focused program on lenore product we have the ability.
Within the program too.
By other builders product as well, but think of it is primarily focused on a new build program.
That is going to be basically opening the.
The ability to purchase across the <unk> platform Thats the exciting part of this program is.
The ability to ramp up we have already started buying homes into this program.
Even though the ink is just drawing on the.
The.
Centerbridge led.
Financing component, we had a head start on this program and have started buying homes will be ramping up pretty considerably over the next year and you can expect that our margins are going to be a <unk>.
Exactly in line with the margins on the rest of our product.
There will be no pullback of compromise in that regard.
And consistent with Stuart's comments on technology and visibility.
This business allows the venture to have complete visibility across our pipeline and make it very seamless for them to transact with one of our so yes.
Let me just say one more thing and one of the things that has us most enthusiastic about this program is the social component. This is an upward mobility program.
Produces access across the <unk> landscape to a broader array of social and economic.
The participants in our communities.
And really stretches and kids' single family lifestyle access to a much broader array of the population now if that's the case for single family for rent in general, but notably in this program we have.
<unk> of our program that is dedicated to and focused on.
The lease with an option to buy and where we're really focused on finding a way to not only create accessibility to our single family home.
In our single family for rent program, but also to engage more people and the ability over time to find their way to home ownership.
Which we think is of greater good.
So this is an exciting program for the company and I think ultimately for the industry and we've designed it to be ultimately an industry solution as well.
Thank you I.
Appreciate that thank you Beth.
Thank you. Our next question is from Carl Reichardt from BTG. Your line is open thanks, good morning, everybody.
Wanted to ask one so you can get someone else in here, but Richard sure. However, John if you can you talk about how the mix has changed in terms of entry level versus first time move up or even down to Nextgen. You mentioned that folks are looking for larger homes now more space and I'm interested if your community count as it changes over the year is.
The address that if youre seeing more demand for higher end of the DAU compared to say six months ago when fee level was a big driver.
Jon Rick and.
This is Jonathan I'd say that we're seeing consistent demand across our platform. So it's.
You still have tremendous drive for the the more affordable homes as people come out of the apartments.
And we're able to access homeownership for the first time.
Driven in large part as we've discussed by historically low interest rates.
But we see it throughout two our Nextgen product as you mentioned, which is a phenomenal solution for those looking for a home thats better suited for working at home playing at the home educating at home as well as the need for multi generational family of as America continues to age.
Seeing continued demand.
The new demand of their active adult product line.
But if you look at our square footage, which is average of first quarter of up 2300 square feet per home.
Really the base into very cost of level. So even though we have a shift towards more first time of affordable product in our overall mix of you can see the impact of the demand for larger loans.
Really balancing out our average square footage across the entire platform.
But in addition of what John said consistent as to what we said in prior calls we're very focused on expanding our entry level market share and that's what's been driving our sales price is down on a consolidated basis. Notwithstanding the fact that were seeing pricing power in net.
Segment.
Really focused on higher returns higher volume.
In our entry level and first time move up communities.
Alright, Thanks, a lot Rick Thanks, Ken.
Thank you. Our next question is from Ivy Zelman from Zelman and Associates. Your line is open.
Hey, guys. Good afternoon, its actually Alan on for Ivy Congrats on all of the the exciting things going on in the great performance.
No.
My first question I think a lots been discussed about all the ancillary businesses. So all.
I'll, probably leave that to the side for now, but just the terms of the the home the core homebuilding side.
Yes, I thought it was interesting last week, we saw an announcement from the GSE is about actually capping the percentage of second homes and investment properties that theyre going to be buying and I'm pretty sure. That's the first real example of the.
Tightening on the mortgage side, we've seen in a while and I know, it's a small part of the business, but I'm curious have you looked at what impact that might have on your business what percentage of your sales today are in the second home owners or investment.
Property owners and just kind of curious if that differs across your footprint.
Sure. Good morning, Alan This is Bruce I'll take that question.
We're running somewhere in the 8% range and the limitation they talked about was 7%.
So what that means is we will look to the private market.
The sell those loans as opposed to the Gse's.
So the impact might be a little bit on the margin side within financial services.
But we'll still be able to go ahead and.
After those loans will just be selling them elsewhere.
Got it very helpful. There Bruce good to hear your voice.
Likewise of the question.
Second question I guess, just on the land side.
Obviously, tying up a lot of land there and I think you made the comment about looking towards larger community. So you can kind of keep of higher sales pace going.
Can you provide any additional color about the.
The underwriting on the land you have tied up over the last year and how that might differ from land prior to the pandemic, whether that again quantifying the number of lots per community absorption rates that you're assuming going forward the.
Margins implied margins on that of any color you can give would be would be great.
Great.
So from an underwriting standpoint, we're pretty much consistent with where we've been in prior time periods with the exception of coming out of the downturn, where there was a lot of distress out there.
From an underwriting standpoint, we're really not focused on underwriting inflation.
Staying very close to where the markets are with regard to sales prices and pace.
We have a lot of metrics right now with regard to what current activity is.
And as Stuart and Jon talked about really matching duration risk to risk adjusted return for the various programmatic structures we've got.
What I would add to that as well.
The 10th focus because of our production strategy to looking for land in that.
With the existing product that we build so we can maximize the reuse of products.
Which really creates efficiencies throughout the system of as you could imagine for both of us internally and all of our trade partners.
Got it so just to clarify though on the absorption comment because I think you said you are kind of looking at today's absorptions. So is this $4 five per per month range that you are kind of running out of it is that the right way to think about how you anticipate the pace staying over the next ex number of years as these projects come on line, because thats, obviously much higher than that.
The cycle average I'm, just curious if theres any.
Haircut being implied there on the new line.
So as we look at land in general.
<unk> pace actually changes depending on the community and what we've found is in our larger communities. We can have multiple product lines going at any point in times of the pace is a bit higher.
But we're not we're not forecasting across the board of four and a half.
Over the next several years is really geared to what the the land opportunity is and the drivers of the local market there.
Let me just say, let me just say that.
Think that we've noted that we could tune up or down the actual sales pace in any of our communities right. Now demand is just the strong and has been that strong in terms of underwriting.
We tend to conserve the ties that sales pace.
Recognizing that we can get away with ourselves if we start anticipating that it's much higher.
So we really haven't.
We havent tuned up.
The the sales pace, the we could achieve it.
And we're probably underwriting to something closer to a four.
And even though we're running at four five right now and so maybe that gives some guidelines as to how we're thinking about land yeah.
That's very helpful. I appreciate the extra color Greg Good luck, okay. Thank you and why don't we take one more question.
Thank you our last question comes from Michael Rehaut from Jpmorgan. Your line is open.
Yes.
Good morning, Mike Thanks.
Thanks for squeezing me in I think the.
The second time I got the squeezing before the door closing so I appreciate it.
I want to make you first next time.
No I won't argue with that noted.
It's Stuart.
And team obviously appreciate all the detail on the results I wanted to ask.
Two quick questions.
One operationally on the homebuilding side in one.
If theres any way to squeeze out a couple of more numbers on the on the spin.
On the sales pace side.
In particular.
You guys have been very consistent in New York.
Approach to managing pace and.
Where possible, perhaps getting a little bit more on the margin side.
And I think that strategy really.
Comes home in an environment today, where rates are rising.
Which everything else equal would lower the true what I'm kind of referring to recently.
Theoretical level of demand.
Because certainly as you said your sales pace is below that level you can run a lot harder if you choose and so.
In that type of dynamic change it back.
If rates going higher.
Per overall market demand that you are running below that you should be able to still maintain a pretty steady business can of pretty steady.
Order inflow.
So.
Obviously, we're just in the initial stages of this rate rise, but I was wondering if that theory.
<unk>.
Is.
Is accurate in that over the last throughout the.
First quarter, particularly <unk>.
February and into March given again that you can of running a lot harder in other words below true market demand that.
The recent move in rates really hasn't impacted you at all from me.
From the order cadence.
So look I think I think Mike the way to think about it is.
I think that there tends to be a knee jerk debt interest rates move up and the homebuilders are going to have sales turmoil.
And that might be conventional wisdom, but in today's market as Ive noted there are offsets to the movement in interest rates first of all interest rates have are moving from a historically.
Abnormally low rate.
Were still lower than we were a year ago interest rates are still low, but the offset is the fact that the savings rate in the country.
He has really enabled so many more people to be able to afford a down payment the increase in home prices is on the one hand of negative but on the other hand, the positive in that someone who owns the home who's going to sell their first time home has the bigger down payment for their move up home. So.
Or is this kind of trickle up.
Portion of this.
And then stimulus is adding to the availability of capital to support.
Of the home and mortgage business.
You might find debt interest rates knock some people.
Out of the the.
At <unk>.
Credit boxes that are out there but.
But there is there is so much demand the backfill has been pretty readily.
The supportive of maintaining sales pace. So at the end of the day, we've really seen very little trail off in demand in fact, it's continued to be strong and be building.
What has been traditionally a spring selling season.
It's hard to detect where the spring selling season is because we've been consistently strong.
All the way through what at this time should be the beginning of the spring selling season.
So I think that what I'd say is.
Debt.
That we're still seeing of very strong demand pattern and even with interest rates ticking up there are offsets to that tick up that are keeping demand strong.
Great No I appreciate that Stuart Thank you for that.
Secondly.
And I know you guys are probably fairly reticent, but with the stock up on today's news obviously, both on the strong results, but also I think on the news of the spin.
I don't know if theres any other type of metrics you could provide I think.
One of the key numbers I guess.
<unk>.
Debt.
The tax free spin wood.
Be comprised of $3 billion to $5 billion in assets with no debt and you mentioned obviously the different.
Businesses that would.
From which the spin could be comprised of.
With the <unk> being the backbone.
If it's possible if you can kind of take that $3 billion to $5 billion asset range.
B the corresponding range for liabilities.
And also on the income statement side any type of corresponding.
Management fees of income that your.
You're deriving from today, that's running through your income statement as well as the.
The corporate G&A side, so I don't know if you could give us.
Perhaps all of those normally spread even a few would be very helpful.
So as I said.
We're giving you a skeleton right now.
I think that this is my starting point and just giving you some.
Some answer to that is we start with a really strong balance sheet right now you see of debt to total cap of 24%.
And.
Sizable profitability coming through the year. So you can imagine our balance sheet continues to get stronger that really enables us to do a spin.
Of a sizable amount of assets with no liabilities associated meaning no debt.
And it leaves us with the balance sheet debt when our debt is just rock solid.
So very little impact of the balance sheet now from an operating and earnings standpoint.
You can think.
Similarly look we've been building these businesses.
In the background and we've been reporting on them for years. These businesses are up running and have been operating but because of the composition of some of them. Unlike LLC, where you have depreciation and you have.
Third party management fees and a variety of things.
Don't show GAAP profitability, so there's the.
That's right.
Youre going to see very little if any impact to the earnings of the core company.
But these operating businesses as they stand on their own with their own identified metrics. This enables those businesses to be able to run more effectively and efficiently as a stand alone company. This is not about creating some notion of value or anything else. The.
Standalone homebuilding financial services group and the stand alone asset management business is the right configuration for these businesses on a go forward basis.
And you'll see very little impact to <unk> the remain co bottom line.
And an exciting value proposition and stand alone enterprise for spin co as it stands on its own.
That's the structure that the skeleton of it as far as we can go right now, but all of this interest.
Revenue by the fact that we have of balance sheet that supports we can give this kind of a strong.
Spin or dividend as you might think of it.
Without impacting the underlying balance sheet and building two or four of further range two very strong companies on a go forward basis, and I would just say.
Mike as you think about this remember Lenore has done this before in 1997, we spud the LNR.
And we did it in a very carefully constructed manner, where it was two separate businesses that were long standing and we identified and ran both companies.
The two.
And a very successful manner, and we expect to be doing some of that.
We all over again.
Alright, thanks, so much okay you bet.
I know that this has been a lot to absorb and we've run over time, but I thought it was worth the time to do that.
We look forward to continuing to update you on all elements of our business and look forward to a strong 2021. Thank you for joining us.
Thank you all for participating in today's conference you may disconnect your line and enjoy the rest of your day.
Yeah.