Q2 2021 Forestar Group Inc Earnings Call
[music].
Good afternoon, and welcome to force, our second quarter 2021 the earnings conference call. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad at the reminder of this conference is being recorded I would now turn the call over to Jessica Hansen.
The Vice President of Investor Relations for D. R. Horton the majority shareholder of four-star you may begin.
We welcome each of you to the call to discuss the <unk> financial results before we get started today's call may include comments. The constitute forward looking statements as defined by the private Securities Litigation Reform Act of 1095, although the Forrester believes any such statements are based on reasonable assumptions. There is no assurance that actual outcomes will not.
The materially different.
Forward looking statements are based upon information available the force or on the date of this conference call and so we started does not undertake any obligation to publicly update or revise any forward looking statements.
Additional information about issues that could lead to material changes in performance is contained in the <unk> annual report on form 10-K, and its most recent quarterly report on form 10-Q, both of which are filed with the Securities and Exchange Commission.
This afternoon's earnings release and on enforced Staar's web site at Investor Day at <unk> Dot Com and the 10-Q is expected to be filed by early next week. After this call. We will post an updated investor presentation to force sort of Investor Relations site under events and presentations for your reference now I will turn the call over to Dan <unk>.
Yeah of course, Sir.
Thank you Jessica and good afternoon, everyone.
In addition to Jessica I'm pleased to be joined on the call today by Jim Allen, Our Chief Financial Officer, and Katy Smith, our new director of Finance and Investor Relations, who joined four-star a few weeks ago.
I'd like to take a brief moment to have Katie introduce yourself before we can start.
Thank you, Dan and Hello, everyone.
Excited to get to know our current investor base and analyst.
And I'm also looking for at the helping four-star expand and build of shareholder base with new investors or just isn't the asset about four stars value creation strategy as we are.
Thank you Katie given that Kt has just recently joined four star she will not be an active participant today, but we're very excited to have her with us as a key member of our team.
The first our team delivered a strong second quarter outperforming our expectations and we continue to achieve important milestones that create additional value for our shareholders.
Our business is expanding rapidly and we are capitalizing on the strength of the residential finished lot market.
We delivered 7155 lots to homebuilders in the first half of fiscal 2021, putting us on track to now deliver over 14500 lots for the full year of fiscal 2021.
Well, that's the thank our development teams and our contractor base for the strong execution over the last several months, which has made this possible.
We continue to gain market share and the undercapitalized and fragmented lots of development industry.
Four stars lots sold the D. R Horton continuing to grow as a percentage of D. R. Horton closings year over year.
On a lot deliveries of third party builders are at their highest level since D. R. Horton acquired a controlling interest in force start.
Yeah.
Executing on our plan is translating into increased profitability our.
Our second quarter gross profit margin increased by 450 basis points year over year to 18, 6%.
There were several factors that contributed to this quarters gross margin improvement.
We delivered a larger mix than normal mix of lots from communities with higher gross margins.
We also made further progress delivering more of loss and projects that were sourced by four star and we did less lot banking in the quarter.
Finally, the market remains strong with increased demand for lots from homebuilders.
We remain committed to our returns focused business model, our high turnover lower risk manufacturing strategy led to a 360 basis point year over year improvement enforced average return on equity.
We expect to generate further growth on pre tax income.
Increase our returns on equity and the inventory.
As our platform continues to gain scale and our team grows in their respective markets.
Jim will now discuss our second quarter financial results in more detail.
Thank you Dan.
In the second quarter four stores net income increased 196% to $28 4 million or <unk> 59 per diluted share.
Impaired to $9 6 million or <unk> 20 per diluted share in the prior year quarter.
First our second quarter revenues increased 80% from the prior year quarter to $287 1 million.
Residential lots sold during the quarter totaled 3588 lots an increase of 84% from the prior year quarter.
The average lot sales price for the quarter was $78100.
88% of lots sold in the quarter were from development projects up from 65% in the same quarter in the prior year.
Lots of the D. R. Horton during the quarter represented 94% of force Staar's total lots sold down from 98% in the second quarter of fiscal 2020.
We sold lots to 11 builders other than D. R. Horton during the second quarter of this year up from six builders in the same quarter last year.
Our pre tax income for the quarter was $37 $6 million with a pre tax profit margin of 13, 1%.
Our gross profit margin was 18, 6% in the second quarter up 450 basis points from 14, 1% in the prior year quarter.
As I mentioned earlier the improvement in our gross margin was primarily due to an increase in development of lot sale margin, which was largely driven by delivering a higher than normal mix of lots from communities with outsized gross margins.
We continue to expect fluctuations in our gross and pretax margins due to the quarterly mix of our lot deliveries and the timing of tract sales.
SG&A expense as a percentage of revenues in the second quarter was five 7% compared to 7% in the prior year quarter.
We remain focused on managing our SG&A expenses efficiently, while building out our platform to support our significant growth.
And we believe we will continue to manage our business at an SG&A percentage significantly lower than most public homebuilders.
Jessica <unk> underwriting criteria for new development projects includes the minimum 15% annual pre tax return on inventory and a return of the initial cash investment within 36 months.
During the second quarter investments in lots land and development totaled $380 million.
Of which roughly half was free land and half was from land development from the <unk>.
Six months ended March investments in lots land and development totaled 850 million times.
Of course, there continues to expect to invest at least $1 $5 billion in lot of land and development in fiscal 2021 subject to market conditions.
First there is a lot position at March 31 increased 62% from a year ago to 84500 lots of which 58700 lots of and 25800 lots are controlled through purchase contracts.
The <unk> 58700 owned lots of 35% are under contract to sell the deal from representing at least one $5 billion of future revenue.
And another 28% enforcers of lots are subject to a right of first offer to D. R. Horton under the Master supply agreement.
What force think Northstar continue to grow as a percentage of the company's owned lot portfolio supporting long term improvement enforcers gross margin and the.
The company's owned lot position at March 31, 48% or source May force start up from 31% of year end zone. Four star continues to target of three to four year owned inventory of land and lots of Kim.
Of course star remains focused on maintaining a strong balance sheet with ample liquidity and modest leverage.
During the quarter, we utilized our aftermarket equity offering program for the first time and issued 1 million 1 million shares of common stock for net proceeds of $23 3 million.
We ended the quarter with $500 million of liquidity, including $170 million of unrestricted cash and $330 million of available capacity on our revolving credit facility.
Total debt at March 31 was $655 million and our net debt to capital ratio at quarter end was 34, 1%.
Earlier this month, we priced $400 million.
Principal amount of $3 eight 5% senior notes that will mature in 2026.
The transaction is scheduled to close tomorrow.
The portion of the proceeds will be used to redeem our $350 million, 8% senior notes due in 2024 and full and the remainder of the proceeds will be used for general corporate purposes.
After we redeem the 8% notes, we expect to recognize the loss on extinguishment of debt of $18 $1 million in the third quarter, which represents the call premium and write off of unamortized debt issuance costs related to the notes.
This refinancing transaction will result in substantial interest savings.
Last week, we amended our revolving credit facility to increase the facility size to $410 million and extended the maturity date from 2022 to 2025.
At March 31, stockholders' equity was $944 million and our book value per share increased to $19 21.
Up 10% from a year ago.
We are excited about our team and their ability to execute the lot development model.
Four star continues to be uniquely positioned to gain market share through housing market and the economic cycles in the highly fragmented lots of development industry.
Based on results for the first half of the fiscal year in today's market conditions. We now expect to deliver between 14000 515000 lots of to generate approximately one point to the $1 billion to $5 billion of revenue in fiscal 2021.
We are now expecting our pre tax profit margin for the full year of fiscal 2021 to be in the range of 10 five.
The 5%, excluding the onetime charges associated with calling our 8% notes.
We expect our tax rate for the third and fourth quarter to be in the range of 25% to 26%.
At scale, we continue to expect our operating model to produce financial results and returns that are better than most of mid cap homebuilders.
Before we turn to questions I'd like to remind everyone of four stars of investment highlights.
We are of unique lot manufacturing business model that is very different than the typical land developer we have no unintended of land.
We are focused on developing lots for the affordably priced housing market.
We have a seasoned management team experienced in consolidating market share and navigating through market cycles.
We have a strong balance sheet and liquidity position.
With low net leverage.
We have consistently we have been consistently profitable and are managing our business at an SG&A percentage significantly lower than most public homebuilders.
And most importantly, we have a unique competitive advantage due to our relationship with D. R. Horton the nation's largest builder.
This highly strategic relationship allows us to expand our platform nationally while minimizing risk.
To summarize we are continuing to execute on our plan and are positioned for continued success.
Paul at this time, we'll now open up the line for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue you May press.
Our two of you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up of your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you. Our first question comes from John Lovallo with Bank of America. Please proceed with your question.
Hey, guys. Thank you for taking my questions Tonight the.
The first one is on the gross margin and Dan I apologize you cut out when you mentioned the updated pre tax margin guidance I think I think you said 10 to 10 five.
Is that correct, yes, thats correct, okay, great. Thanks.
On the gross margin the $18 six was well ahead of what we were thinking and you talked about several drivers and also mentioned that it could be a little bit bumpy, but I guess, what we're trying to gauge is just.
How repeatable is this margin might be so maybe any thoughts on that and along those lines is there any way you could disclose what the average margin on development lots was and the average on banking deals in the quarter.
Well John It was really great that we had such a great quarter on everything aligned for us.
But it also illustrates how lumpy our quarterly results can really be.
We don't anticipate a repeat of those strong gross margins over the next couple of quarters.
We really remain focused on returns and not on margins.
It's just really was just on all it was just happened to be the certain lots delivered that had higher margins and I think as we've said before the longer the.
The longer projects with no. It was more of lots on the longer life, we're going to have more gross margin on the shorter ones because of our focus on returns.
And then we thought that given the.
Gross margin breakdown between what day that wasn't net.
Sales and lot of 19 sale of lot banking did decline again to about 12% of.
The overall watch sales for the quarter and generally speaking those are lower gross margin than the development sale on margin just because of the underwriting to the returns rather than the gross margin associated with that.
Okay understood.
Obviously <unk> had the ability to raise price is pretty aggressively in this environment.
Curious how force towards being able to sort of keep up with the price increases on new deals that also on different phases of met in the existing deals have you been able to aggressively raised prices as well.
We have definitely had opportunities to raise prices.
We're generally pricing lots may be 6%.
Nine months of 12 months of delivery of ahead of us. So we can't really do it in the short run so I think youll see a gradual improvement of that pricing power, but again as we are so focused on returns and it was really also about how rapidly the subdivision is absorbing.
So we really wanted to be careful not to raise too much so that the that the.
The velocity and of particular subdivision curtailed.
And then in terms of Nick.
The ASP coming down John really that's been driven by force focused on selling lots for homes at affordable price points and so they saw in previous quarters more higher lot sales.
Deliveries and from the higher price projects today, we think they've settled out to where it's going to be going forward call. It high 70 of the low eighties on for an app.
The average lot sales price I mean, it's still a little bit of variability, but that high 70 is the low eighty's generally we do see a home sales price of three to three and a quarter of standards of very much of an affordable price point.
Great and if I could sneak one more on here certainly some some tough weather in the quarter any impact on four stars results in the second quarter that may benefit as you move through the year of just kind of a push forward.
You know.
I really got to give credit to our teams they really delivered.
In fact, we really kind of delivered lots faster than anticipated and several projects.
The weather was tough, but we were pretty fortunate that.
Being spread across the country likely are being diversified the impact for us was pretty pretty nominal.
If there was an impact I will take that impact every time.
The second quarter.
Alright, thanks, very much guidance.
Thank you. Our next question comes from Ryan Gilbert with <unk>. Please proceed with your question.
Hi, Thanks very much on first question is just I guess, just going back to gross margin.
It sounds like the on the.
The real driver here was that the.
Net debt.
The mix of.
Lots that were being delivered from the kind of outside of the gross margin communities because if I look at the land banking mix. It was pretty comparable to the first quarter of 'twenty. One when your gross margin was much lower so maybe you can just talk about the characteristics of those communities why they have such higher gross margins and your ability to kind of replicate those communities.
And in the quarters ahead.
Yes.
It's probably highly driven by four star source.
Deals, where we have gone a little bit longer in the in the size of a project and because of our returns focused nature.
The longer duration of a project for always result in a higher gross margin than the shorter duration projects.
We like to have a good mix of bolt on.
And again it was just it just happened to be the stars align and which projects delivered lots you know frankly, a lot of them came of that in the last couple of weeks of the quarter.
That just happened to happen to have a great result.
Yes.
Question of being repeatable, I think John kind of alluded to that but.
Over the next couple of quarters.
The visibility that we have I don't expect that to be repeated but.
But I think it gives a snapshot of what can be achieved that down the road when we're really at scale and operating more efficiently and having the projects at all all cycles.
Every part of our of our project cycles. So you know is.
Is it is it going to happen next month or the next quarter I would highly doubt it but again I think it gives us a good snapshot of what's achievable.
Okay. That's great. So I guess just to kind of repeat what you just said it is as we move to a higher mix of four star of sorts of sourced lots over the next you know.
A couple of years call it.
Youre going to see gross margins that are closer to the $18. Six that you did in this quarter versus the 14 point forward that you did in the first quarter of 'twenty, one that the right way to think about it.
Yeah, Yeah and again.
I'll caution that it's lumpy and as you know.
The Evens force our source deals, we're doing small deals as well as the big deals and it's going to vary from quarter to quarter.
But again I'd say, if I if I can align the stars of the way this quarter happened every time. The then I would say, yes for sure we can do that.
And our base case would be the high end that on an annual basis, you will see four stars metrics improve year over year going forward. It's just the quarterly that we're talking about is lumpy the lumpy not necessarily replicable today from net gross margin perspective.
Okay got it all right. Thank you second question.
We're hearing a lot about the supply side constraints and I guess other other areas of the.
On the supply chain here for homebuilders.
And I'm I'm wondering if if on.
Bottlenecks elsewhere in the supply chain is kind of hurting the pace that that the builders that youre selling to you can take down lots or even your ability to you know to get finished lots of ready for builders to be able to take down.
From a from a supply constraint.
Say that we're starting to see little impact clearly on on concrete on some of the markets. We're hearing about concrete allocations.
But for us at least at this point in time knock on wood, we haven't we haven't really been impacted by that.
And from where I see the builders.
Although we finished a lot of the loss. This quarter. We saw of them finished lot inventory didn't go up so as of right now of not seeing any impact.
Of their ability to take down of lots and get the houses on the ground. He had a lot of our sales.
The Horton.
94% or something this quarter.
Horton.
Whether thats repeatable why every builder I can't answer of that but so far.
We're not really seeing anything other than give more of lots on the ground because we want them.
Okay, great. Thanks, I'll jump back in the queue I appreciate it.
Thanks Ryan.
Thank you. Our next question comes from Anthony Pettinari with Citi. Please proceed with your question.
Hi, good afternoon.
Your guidance implies I think over 40% growth in water deliveries for the year I think at the midpoint and D. R. Horton.
Delivery of our closings guidance for the year I think is low to mid twenties.
Just wondering if you could talk about the Delta is that just D. R Horton purchasing more than of consumes to build back inventory.
So is there a way to think about sort of of the length of time that you can sort of grow above the.
Airports pace before that maybe normalizes or correct or are there offsets that we should think about in terms of share gain of third party sales that could come.
Keep your your kind of outperformance or the fast clip going.
Yes, I think right now I don't remember the exact number this quarter, but I remember I remember seeing is that we delivered approximately 16% of hortons lots and lots of needs.
I think that we've stated in the heart as stated previously the goal is for us to get the 30% to 35% of the flattening. So we can double the number of lots of taking before we can get to I think their target again. It doesn't mean the target doesn't move when we get there but for right now.
That is the discussion.
There is still significant growth just to get to that number.
Additionally, the third party builder business.
Is starting to kick in all of them, but.
I think I know the numbers still seem a little bit low but.
But 400 lots of headwinds.
The four-star Deloitte delivered 14 under lots of I think the first year I was here. So the deliver 400 last one other builder is kind of beginning that process and the.
The more horsepower source deals we have the more of that becomes available. So I think youre going to see growth in both areas I think the percentage growth is going to be greater on the third party builders, because we're starting on a low base, but we.
But we feel really good about the guidance, so and with force stairs capital today with their access to the capital markets just compare it to the landed on the industry as a whole I mean, they are so well positioned to continue to consolidate share and as Dan said does not only through <unk>.
Any more deal Horton of lots on the ground versus the auto is selling more to third parties, there's really still on limited potential for them to grow their share from where it's at today.
Okay, that's very helpful.
And then your owned lots increased by I think around 6000 from the prior quarter I think your option lots increased by a much smaller number I think around 500.
Is this just the function of bringing more what's on the book as you exercise of options and get set up for accelerating lot development or is it.
Is it getting more difficult option, what's on the current environment or is there anything to kind of read into that mix.
You know I think it's.
Really just been execution of our plan, we have seen this as a as a growth.
You know platform.
You need lots of the continues the growth.
Having a strong pipeline, we've been pretty proud of that and I think the number of owned lots of shows that we're closing all of the projects that we have.
I've put in contract earlier.
The it's still having roughly 25000 lots of controlled lots of that just shows a slowdown of pretty strong platform of future deals.
The all of the flip side as you know of land prices have been accelerating and.
They're not necessarily going to be as many good deals today as there was six months ago or a year ago, but we think that'll be up.
I don't think it will be a continued pace, but the.
The meantime, yeah, we built out of our acquisition of teams and our development teams and we're just going to continue the ex execute and try to underwrite very conservatively the.
The strong deals on our books.
Okay.
Okay. That's very helpful I'll turn it over.
Thank you. Our next question comes from Truman Patterson with Wolfe Research. Please proceed with your question.
Hey, good afternoon, everyone.
The first Dan I wanted to follow up on one of the prior questions just about some of the.
Potential supply constraints, but.
Really specific to horizontal development are you seeing the.
Enough labor of machinery to really meet your growth needs could you just kind of characterize.
<unk>.
Do you think the industry is doing are you seeing any tightness, that's beginning to delay your developments at all.
From a from a labor and machinery standpoint, we have not really seen any problems.
And the markets, where we're building scale we're.
And that reputation of the quick payer.
On someone's going to keep their crews busy becoming kind of.
Pretty pretty large force in the bigger markets as well.
As we've grown our platform I'm.
So I actually feel really good about our contractor base on how that is actually I think continues to improve so the only real issues I am seeing is really in as in resin. So the.
On the plastic pipes.
Of those prices have accelerated it's a relatively small piece.
Piece of the overall cost of developing a lot of now more recently.
Concrete kind of accretion actually been a little bit of shortage as well as the price has gone up.
So far nothing has been outsized and we've been able to pass through of those costs.
As of as they are incurred.
Okay do you think on.
Horizontal labor in the machinery not really facing any constraints is that really you need the four star or do you think the.
The industry has ample capacity right now.
You know I don't know that I can answer that.
I can talk to what we've been able to get accomplished.
Not hearing that other people are able to get that other than maybe on some other builder calls.
They have listened in on in the past but personally.
Our team has not been seeing any shortages in those areas.
Okay. Okay.
And the.
Big picture.
Land competition.
I'll just ask about.
Builder behavior outside of D. R Horton right.
What sort of build of underwriting are you seeing or are the baking and price appreciation.
And you know more recently.
Is there any.
The pushback.
Just from lumber has inflated very materially the past month or so.
So just wondering your thoughts there and finally are you still seeing builders really go out.
After the larger lot communities.
You know I really can't speak to the details of how theyre getting to their underwriting.
I am definitely see them offering.
Higher prices for land tenants and.
In some cases, almost taking out any development type of profits in that land.
And obviously, where we haven't won every deal because of that we're not going on we obviously these are the rights of the development profit.
Are they getting into a little bit bigger deals I'm seeing a little of that but mostly I am seeing them kind of run up the pricing and the smaller projects.
We've even had some offers for us of deals that we intend to develop that.
The offer us for the land that we haven't put in the development, yet I'm kind of like how do they get some of that price.
I just think right now it's created some frothy pricing in the smaller <unk>.
Mahler projects that are ready to go and.
Seeing a little bit of extra competition on the bigger projects.
Okay, Okay, and then final one for me could.
Could you just give us an update on your corporate in the.
The divisional Inc.
The structure, where you think you are what inning, you're at and finally.
Believe as of the end of the year, you're worrying about 51 markets are you pretty comfortable with that footprint or is there more geographic expansion.
I'd say most of our growth is going to occur in the in the markets that we're already in I think we closed the quarter of 53 markets. So we did pick up a couple of markets.
But together the smaller markets, where I think we're in.
Probably 30 35 of the top 40 markets now.
We now have 205 people on board as of the end of the quarter. So we continue to build our teams.
Mostly about building out teams in the markets that we're already.
We will probably interest some new markets on a selective basis, but youll see the predominance of our growth being in the markets that we're already in I mean, I don't know if the as well.
I don't know if they have access to the investor deck, yet or no it'll be pets of Andrew when you look at the investor deck and there we always have that map of our footprint, you know and you'll see Texas, Texas and Florida are you know.
Good 50% or more of our lot positions, that's where there is there are several markets in each state there is a top producing markets.
And that's going to be the predominant focus you'll also see you know, Arizona, Georgia and the Carolinas growing.
Again, where we find that's the best values for land is where we're going to be putting the.
The bulk of our dollars.
Okay. Thank you and good luck on the upcoming quarter.
Great. Thanks, a lot.
Thank you. Our next question comes from Michael Rehaut with Jpmorgan. Please proceed with your question.
Hi, This is a lot hillman on for Mike Congrats on the results of not thanks for taking my questions.
The first just going back to gross margins from the moment I was curious if you could disclose what percent of deliveries this quarter were a force source.
Compared to last quarter.
Yeah, that's really not something that were disclosing you know I think what youll see though as it was about 50% of our own lots now has four star on the source slots.
And you'll continue to see a trend from towards more and more deliveries from horsepower projects.
But what we're not providing the information of the sales on the sales force.
Okay understood.
And then also I was wondering if you.
Could talk a little bit more about.
Any maybe regional standouts, you mentioned, Texas, and Florida being top producing market's been anything particular to this quarter from a geographic perspective that needed benefited the quarter.
Yeah, I, just really think of those are the two key states that we've we've made a lot of investment and they are producing Arizona is a strong third behind it in our Atlanta Division is building a great infrastructure as well.
I don't think there was any change in all of it.
Sales from one state to the other.
That would that would create any differences quarter to quarter or is this really kind of continuing to deliver where we have lot positions.
Great. Thanks, and then my last question is just in terms of the M&A front and maybe.
You know for the consolidating the land development market is there.
It is something that.
You guys are thinking about kind of in the near term to be able to.
Acquire more land more easily or are you still kind of a ways out from that.
We think about it all the time, we have discussions from time to time with possible candidates I think the market right now.
It's pretty strong we prefer not to buy of the top of the market.
Well look for some stress on the road before we actually do any transactions.
Sounds good thank you.
Thank you.
Thank you. Our next question comes from Depot Ragavan with Wells Fargo Securities. Please proceed with your question.
Hi, good evening, Dan and team.
Thanks for taking the question.
So my first one is.
On the last earnings call you guys mentioned strong demand in second half of the year, especially for large I think the implication was.
The second half is going to be of second half weighted in lot of guidance.
On your updated guide.
14, five to 15 K implies an almost even split first half of this year versus second half anything changed there, but they've got to demand cadence maybe there was some pull forward.
Or is it just conservatism in the second half.
I don't think it was demand driven before when we clearly it may be steered to the softer second quarter than what we experienced I just really have to give the credit to our development teams and our contractors that really delivered lots faster than we anticipated. So we were able to pull forward.
Not just from one quarter to the next but kind of are all of our whole platform, which is why we've increased guidance for the year.
But the.
It was it was it was just the strong execution by our teams and I give them all of the credit.
Okay got it.
Yeah.
On your balance sheet canceled wages can you talk to can you.
Talk a little bit on why you felt the need to raise equity when your debt access is much stronger now I mean, any covenants that you needed to maintain our ratios that you're kind of mindful of I just want to understand when does such when do you need to trigger such equity issuances.
Jimmy I'll take that one sure well, we've always said we want to.
Raise the balance of of debt and equity capital.
Being mindful of kind of our target.
40% net debt to capital ratio of debt.
We keep an eye on.
Yeah, we use the the.
On the ATM for the first time this quarter, it's proven to the.
A very effective tool to efficiently raise.
Primary equity capital.
I think we will continue to take a disciplined and opportunistic approach to utilizing the ATM in the future.
And we would anticipate.
Opportunistic raises at the equity and debt going forward, it's part of their long term capital plan.
Alright got it on housekeeping one from me on the final one.
Any one time items, you may want to call out from either of last year's second half or even if the even within this year are there any shifts the first half second half.
Anything we should be mindful off as we try to model you guys out for the rest of the year.
I think this is a pretty clean quarter.
Not much of the call out of track sales were minimal and in both last years quarter and the third quarter. They really the only thing I think which we proactively accepted was to take note of the loss, we will take on the extinguishment of debt in the third quarter and that outside of that pretty pretty straightforward and again other than what we've said before on the on margin.
Moving to the margin this quarter was a little bit outsized, so I wouldn't use that number on it.
Continued go forward basis.
Got it that was helpful. Thanks very much.
Thank you. Our next question comes from Alex Barron with housing Research Center. Please proceed with your question.
Yeah, Thanks, and great job on the quarter I was hoping you could help me understand how to think about the growth.
The trajectory for four star.
You know you guys gave as guidance from 2021, but as I look beyond that into next year.
Is there a constraint to your growth based on the.
And the labor availability or.
Or is it just a function of how fast you guys are growing your lot inventory.
Yeah, I think part of it's lot of inventory of part of his capital I think the.
You know the guidance, what we've said in the past is with our current capital base.
And earnings pace that we feel pretty comfortable that we can grow at about a 20% rate year over year without additional capital events.
Additional capital that should help us accelerate that in future years.
Okay and another question in terms of the.
The rationale behind paying down debt the 2024 bonds I mean.
I know, obviously youre getting a lower cost of debt with the new issuance, but why not keep the other debt just to allow you to have more capital to keep growing.
Why pay it down now.
Well again, we were really trying to keep a conservative and strong balance sheet.
Pay very close attention to our net debt the cap.
At this point, we feel comfortable with the total amount of debt level that we have.
So it was really about lowering our cost of funds of which lowers our interest cost significantly on a on a year over year basis. It is roughly a one year payback of the.
Cost of of refinancing is extended debt maturity of another couple of years.
Eventually that saved interest costs will roll through our cost of goods sold as you know in future years.
The increased margin and I think Alex our thought was always that we were the have the opportunity to do that it was an inaugural offering for the new four star before we'd really had a chance to prove that the new business model and which ultimately is leading the higher credit ratings and which we've already seen some movement on and we believe that force there is going to continue to demonstrate progress to bear there.
Cost of capital is going to continue to go down on the future and so really it was just opportunistic tend to refinance that high keep on net right.
And we also.
$500 million of liquidity at the end of the quarter.
So I mean, we.
We have the ability to be opportunistic and when and how we raise capital.
Got it okay, well, thanks, again and best of luck for the year.
Great. Thank you.
Okay.
Thank you our last question comes from Ryan Gilbert with <unk>. Please proceed with your question.
Hi, Thanks for taking the follow up the I had a question about land banking it seems like theres been on <unk>.
Kind of of recent proliferation of of land banking, maybe some new entrants or at least of increased willingness on the part of builders to use land banking.
I just I appreciate you.
Your perspective on what you're seeing in the marketplace around kind of financial participants on the land development market and the extent that you feel like youre competing with them for other land or customers.
Yes.
Ryan it's interesting that we have seen.
Maybe some new entrants into the.
Investment in land business, so to speak we're seeing.
Or at least we're hearing I haven't seen anything happen yet, but we are hearing about an expectation of lower cost of funds to do land and lot banking than what was there before.
I would say some of the people that were in the business or maybe lowering the return expectations, which I think makes it makes it easier.
It's as far as competing with them I don't know I don't know that we're competing with them.
I'm not seeing any as far as the projects that we're going after on that hearing that they are chasing the same things. We are I think there are more of just trying to align with builders at least that's what I'm, saying trying on line with builders to help them, maybe take some stuff off their balance sheets.
But then again on that really seeing any direct competition from them.
The repeat.
Interesting that maybe they were lower in the return expectations, a little bit from where they were over the prior years.
That is interesting okay, great. Thanks very much.
Brian.
There are no further questions at this time I would like to turn the floor back over to Dan Bartok for closing comments.
Thank you Paul the thank you to everyone on the four star team for your focus on the hard work, we look forward to working together to continue growing and improving our operations over the coming years. We appreciate everyone's time on the call today and look forward to speak on to you again in July the share of third quarter results. Thanks, everyone.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.