Q4 2021 Green Brick Partners Inc Earnings Call
Good afternoon, everyone and welcome to Green brick partners earnings call for the fourth quarter and year ended December 31 2021.
Following today's remarks, we will hold a question and answer session. As a reminder, this call is being recorded and will be available for playback.
A slideshow supporting today's presentation will accompany today's webcast and is also available on green brick partners' website, www dot green brick partners Dot com.
From the homepage. Please on the reporting and presentations on the Investor Relations and then navigate to the presentation named fourth quarter 2021 investor call presentation.
Company reminds you that during this conference call. It will make various forward looking statements within the meaning of the safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1095, including its financial and operational expectations for 2022, and the feature and anticipated impact of COVID-19 on our operations prospects and other aspects of our.
Business.
Investors are cautioned that such forward looking statements are based on current expectations and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those set forth in our forward looking statements.
These risks are set forth in our fourth quarter earnings press release, which was released on Tuesday March 1st 2022.
And the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission.
Green brick partners undertakes no duty to update any forward looking statements that are made during this call.
In addition, our comments will include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by regulation G. Regarding these metrics can be found in the earnings release that green brick.
<unk> yesterday and the presentation are available on the company's website.
Now I would like to turn the conference call over to Green bricks CEO , Jim Brickman. Mr. Brickman. Please go ahead.
Thank you operator, hi, everyone. Thanks for joining our call today.
With me are Rick Costello, our CFO and Jed Dolson our CLO.
Before we jump into this remarkable quarter and record breaking year I wanted to draw your attention to our presentation for today.
In the interest of maximizing time for questions. We have made some changes to our slide deck.
In a moment I will pass things over to Rick who will be going over our fourth quarter and full year highlights as well as providing an overview of our spec focused strategy. Following Rick's remarks, I will cover key financial metrics, our capital allocation strategy and an update on our land investments.
Finally, before my closing remarks, and kicking off our Q&A Jed will provide insight into our expansion into Austin market conditions and demand I'll now turn it over to Rick Rick.
Thanks, Tim and thank you all for joining us today to review, our 2021 fourth quarter financial results.
Please move to slide four which is related to our highlights for Q4, 'twenty one versus Q4 'twenty.
During the fourth quarter <unk> results set records for any quarter in the Companys history for total revenues residential units revenues and EPS.
Here are the highlights during.
During Q4 2001, we delivered 823 homes, which represented growth of 41% over Q4 2020.
Total revenues in Q4 2021 were a record 452 million that increased 78% from Q4 of 2020.
And also setting a record in residential units revenues that increased 70% year over year for the quarter, we combine that 41% unit growth with an increase of 21, 3% and our average sales price.
Now regarding a SP. We also note that our backlog average sales price was up 25, 2% year over year.
Homebuilding gross margin for Q4, 2021 was up 100 basis points over Q4, 2020 to 26, 2% and we believe as I'll discuss a little later that our focus on price over pace will continue to sustain our gross margins at levels higher than our peers.
In addition to our 78% increase in total revenues the company experienced a strong improvement in SG&A leverage.
Improving 350 basis points from Q4 2020.
Down to eight 8% for Q4 2021.
When you combine our unit growth, our ASP growth and improvement in both gross margins and SG&A leverage our bottom line Q4 2021 diluted earnings per share of $1 24 was an increase of 114% over Q4 2020 far outpacing our unit growth of <unk> 41 per.
<unk>.
In fact, our EPS for Q4 exceeded EPS for any full year prior to 2020.
In Q4 Green brick was also named to the top 50 of Forbes 2022, Americas Best small companies list.
Finally, we had a very busy December and the capital markets. We successfully completed an offering of $50 million and our series a preferred shares.
We issued our fourth note purchase agreement and the amount of a $100 million at a fixed rate of $3 two 5% over the seven seven year average term and a well received club deal structured by Prudential private capital our investors again included Prudential bearings, Hartford security and Voya.
And we completed an extension expansion an amendment of our unsecured line of credit facility that added $130 million in new commitments, bringing our total commitments to $300 million.
The maturity of all commitments have been extended to December of 2024, and the accordion feature was increased to $325 million. We now have a diverse lender group of eight banks with four new lenders being added.
Please move to slide five related to our financial highlights for the full year and year over year comparisons.
For the year ended 12, 31, 21 <unk> results set records for any year in the company's history for total revenues residential units revenues and EPS plus.
Plus lots owned and controlled also represent an all time record.
Here are the highlights for the full year, we delivered 2834 homes, which represented growth of 28% for the full year over 2020.
Total revenues in 2021 were a record $1 4 billion that increased 44% from 2020.
So total revenue has grown by a compounded annual growth rate of 33% over the past two years and 29% over the past six years.
And also setting a record in residential units revenues that increased 41% year over year for the FERC for the full year, we combined the 28% unit growth with an increase of 10, 1% and our average sales price for the year.
Yeah.
Homebuilding gross margin for the full year 2021 was at 26, 4% up 220 basis points over 2020.
And in addition to the 44% increase in total revenues for the full year, we significantly improved our SG&A leveraged by 180 basis points and they've got a 10, 3% for all of 2021.
And just like our quarterly results when you combine our unit growth, our ASP growth and our improvement in both gross margins and SG&A leverage our bottom line full year 2021 diluted EPS of $3 72 grew 66% over 2020 far outpacing our unit growth of 28%.
Like I said lots owned and controlled were a record they virtually doubled up 98% year over year to a total of 28621 lots.
And again for the year Green brick was named as the top 20 of Fortune magazine's 2021 fastest growing companies list and we are the number one fastest growing public homebuilder.
Please turn to slide six where we will discuss metering of sales our spec focus and the impacts on our operations.
Our full year net home orders were flat with 28 85 net sales in 2020 and $28 51 net sales in 2021.
In Q4, 2021 our net sales were down by 44% from Q4 2020, as we continue to meet or sales as a result, we increased spec units under construction from a low of 28% of total units under construction in Q1 of this of this past year.
39% of total units as of the end of the year.
This is a success is holding back homes for sale gives us a better mix of specs versus pre sold back walk homes, we believe our higher mix of spec homes will lead to more efficient operations higher gross margins and less risk of unmatched construction costs.
We believe selling somehow says two to four months before completion, we'll get a better margin than selling all the houses seven to 12 months ahead of completion as we can capture increased sales prices.
Managing our sales pace as a corporate straight deciding to meter sales aggressively. So we can return to a higher level of spec units under construction has and we expect will continue to contribute to our superior gross margins and return on capital.
Our average sales price of $509000 for Q4 and $461000 for the full year were up 21, 3% over Q4, 2020, and 10, 1% year over year for the full year.
And our ASP backlog of 588000 at year end.
Is up 25, 2% year over year.
As a result of metering sales, we believe that our Q4 absorption per active selling community is not indicative of demand and we will talk about demand.
But later in.
Jed session.
But please recognize that our full year pace of.
Absorption of $8 two units per quarter per community is up 46% from the levels in 2019 two years ago.
With that I'll now turn it over to Jim Jim.
Okay. Thanks, Rick please flip to slide seven where I'll.
I'd like to start by focusing on our return on equity.
For the fourth quarter annualized net income return on average equity was 31, 9% for the full year.
Our return on average equity stands at 25, 9%, we have had a substantial increase in return on average equity over the last two years, what would do a sizeable increase in net income up 224% over that period.
Exceptional market conditions strategically executed operational initiatives and our unwavering approach to capital allocation have all been critical components to achieving such strong results.
In 2021, we again expanded our entry level Trophy signature homes brand with trophy, representing 36% of our home closing revenue.
This focus has allowed us to create positive SG&A leverage by prioritizing higher absorption trophy communities with simplified design packages and a simplified library of plans you will also see on this slide that we have been able to capitalize on this growth by expanding gross margins by two.
220 basis points to 26, 4% year over year and by 500 basis points over the last two years.
As you can see on slide eight we continued to maintain some of the best margins in the industry performing well above our peer average of 23, 5%.
Our homebuilding operations are in strong markets, where we can real pricing power in an environment, where we continue to raise prices as Rick mentioned, our focus on spec units allows us to sell homes later in the construction process at higher prices and therefore to achieve higher margins.
On the next slide nine I would like to address our capital allocation.
We continue to exercise a very disciplined approach, which includes investing significantly in lat growth.
Executing the organic growth of our builder subsidiaries and expanding into new markets.
So there are many noteworthy metrics, we can point to as indicators of our success in 2021, I would like to direct your attention to our lot position.
In 2021, we increased our lots owned and controlled by 98% year over year far exceeding any of our peers as we show.
This coming year, we intend to spend some $285 million and land development with a goal of delivering over 4700 finished home sites to our subsidiary homebuilders across 43 communities throughout 2022.
In a moment Jed will discuss our recently announced excuse me announced expansion into Austin.
On slide 10, we highlight the significance of a robust land pipeline and what it means for our communities going forward.
We believe our willingness to invest heavily in our growth of lot inventory and commit to self developing such a large proportion of our launch is a key factor to our higher gross margins.
However, we also understand the importance of maintaining lower financial leverage.
Appropriate to match our significant investment in dirt.
Based on our strong returns on equity are lower financial leverage means our results are even more impressive on a risk adjusted basis.
On this map you will also note the almost 9000 lots allocated trophy signature homes are from communities that exceed 800 Homesites one of the main ways, we mitigate risk in these larger longer life communities is by buying land in Submarkets, which we believe have long growth term, but.
At very affordable prices.
In the case of these trophy communities. These lots you have an average paper lot price up under 8000 per lot.
Many of these locks also have special development districts, such as municipal utility excuse me municipal utility districts are public improvement districts. They can fund a sizeable proportion of our development costs and thereby reduce our cost of capital and development risk even for.
Either.
I would like to now turn the call over to Jed Dolson, who will be covering off the Austin market conditions as well as demand Gen.
Thanks, Jim let's start with our exciting news about entering Austin as we cover the maps on slides 11 and 12.
On February eight we announced that green brick will make its debut into the Austin market for trophy signature homes.
We purchased eight 383 acres of land in Elgin, Texas, 25 miles northeast of downtown Austin.
For the development of our first Austin area community named Trinity Ranch, we plan to commence construction.
In early 'twenty, three 2023 and start to see closings as early as Q4 of 2023.
The 1700 unit neighborhood will be developed as a 50 50 joint development with century communities, where trophy will have 850 home sites with two lakh with product lines.
For our bullets on the two maps, it's easy to see why we're excited the community is exceptionally located near the new Tesla and Samsung plants, albeit short commute to many of the cities major employers.
The city's low unemployment educated workforce and a who's who of major employers have led to a sizable population growth. So it's no surprise that.
Also one of the lowest levels of resell inventory.
And as the fifth largest starts market in the country.
Having said that we really realized at one community does not make a division so stay tuned as we look to add additional land positions in Austin.
Shifting gears to slide 13.
On the demand side, we continue to see an incredibly strong desire for homeownership in all our markets and across all of our product offerings.
As Rick mentioned earlier, although our full year net home orders were flat. We believe this is a result of our proactively metering our sales rather than an indication of decreased buyer demand.
We know that interest rates have been on the forefront of everyone's minds. So we wanted to put into perspective, how we anticipate rising interest rates will affect our buyers.
Looking back at December January our average buyer had a debt to income ratio of 34, 4%.
Most commonly referred to as a backend ratio with a credit score of more than 750.
Should rates go up to 5% in 2022.
We could see average debt to income ratios increased by 2% to 4% overall.
This is still well below the 43% level for backend ratios that we would try to stay at or under in order not to potentially impacts loan approvals.
We believe that our buyers strong credit quality, coupled with a limited resale inventory is shown on slide 14, our recipe for continued demand in 2022 and beyond.
Retail inventory levels are at all time lows across the country, allowing home builders to share a larger share of home sales of the home sales pie.
In fact, our.
Our resale months of supply was cut in half during 2021 dropping from one four months of supply in January of 2021 207 months of supply in January of 'twenty two.
As you can see Austin is only 0.5 months supply.
Resale inventory.
The average price appreciation in our markets is 25%.
Per the Burns home value index versus a national average of 18%.
We believe we have more pricing power because of our our preference for high job growth markets, coupled with creditworthy buyers, who can afford larger homes and bigger mortgage mortgages. We believe this will allow us to continue to raise prices with each new release of lots.
Before I turn this back this back to Jim for some closing remarks. Please follow me to slide sorry.
Sorry to slide 15.
Our current metrics for evaluating demand had been significantly impacted by supply chain challenges beyond our control.
And we believe are not truly indicative of how strong the demand for new homes.
Here you will see a few case studies, we have documented to really illustrate what our boots on the ground teams are seeing.
For example, Echo Park, one of our Townhome communities in Atlanta, Georgia or Division released four Homesites to an interest list of over 2200 perspective homebuyers.
To accommodate for this incredible demand, we revised our sales strategy to operate on a bidding system.
In Dallas Fort worth our biggest market, we've seen similar stories with demand far exceeding the number of lots released for sale.
In addition to reducing incentives we have significantly cut back on marketing spend marketing spend for example, and one and one Texas community of 58, Townhomes, we were able to generate an interest list of over 350 people with no digital marketing and using a single sign.
In summary, we believe that our well qualified buyers coupled with our limited resale inventory or are significant or sufficient to overcome.
The significant disruptions in supply chain and rising interest rates now.
Now I will turn it back to Jim for a few closing remarks Jim.
Okay. Thanks, Jed Please turn briefly to slide 16.
As I mentioned earlier, we've accomplished record operating results industry, leading investments in lot inventory and return on equity results that have risen almost 120% over two years with a core philosophy of maintaining low debt to total capital.
Our financial leverage has consistently been far below the average of mid cap and small cap peers and it's been typically one of the lowest and often the absolute lowest leverage metric among this peer group.
Our strong results this year, the combination of meticulous planning and hard work by everyone on our team.
Despite our success, we remain focused on maintaining a disciplined approach to investing our capital and then.
Excuse me and enhancing our long term value of our company for our shareholders and the communities in which we operate.
Please visit slide 18.
I'd like to close here by highlighting the culture of excellence that we are building one defined not just by our financial performance, but also by our commitment to environmental social and governance behaviors.
As such I am pleased to announce the expansion of our governance committees role to oversee our efforts going forward and making sustainability a source of value for our business and society.
With that I will now turn the call over to our operator for the Q&A operator.
Thank you and at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
And our first question comes from the line of Michael Rehaut with Jpmorgan. Please proceed with your question.
Good afternoon, everyone.
Or I guess still good morning in Texas, but.
Thanks for all the information congrats on the results.
Hi.
Wanted to focus a little bit on 2022, I know in general.
You Havent laid out any guidance in the in the slides I believe it's outside of land spend.
And the delivery of the 4700 Homesites to your builders, but I was hoping to get a little bit of a framework of how to think about closings in AOSP.
For 2022.
As well as the direction of the.
Our community count.
Throughout the year.
Sure. This is Jim Thanks, Mike.
Let me just.
Add a little color at the land spend was really land development spend that.
Figure that we gave earlier did not include a land acquisition costs that was just the development spend part of that.
When it gets to the Asps, we are expecting double digit growth in asps.
In our business, it's going to be a little bit lumpy, depending on some of the product mix as we phase out of some more expensive trophy communities into lower entry level cost.
Sophie communities and neighborhood community count growth, we expect double digit growth Rick do you have anything you want to add to that.
I would say both of the asps year over year.
It should be low double digit growth and the as well as the community count as of the end of 'twenty one to the end of 'twenty two the ending community count should be again low double digit growth.
We typically don't provide guidance, but.
There is obvious.
Growth needs.
The year end numbers, we want to provide those.
Reference points.
No.
That's very helpful. I appreciate that.
I guess the second question I had was.
The gross margins, obviously a lot of success there.
And the approach of.
Of selling it further into the construction process is.
A lot of sense.
One thing that kind of stands out.
Is that your gross margins have been.
Kind of in a 26% to 726, 7% and 26% to 27% range.
For the last three quarters, the dip down a little bit sequentially I don't know if that was due to mix I'd be curious about that <unk> versus <unk>.
But any thoughts on.
Again.
You know 22 as it relates to you know.
Do you feel like the current level of gross margins are sustainable do you think they could even trend higher.
That there has been a clear trend of home price appreciation.
More than offsetting cost inflation. So it's kind of a two 2.2 part question. There one any comments on <unk> versus <unk> and then just how do you see the sustainability of this current range going forward.
Yes.
The first part of that question and Jed Dolson, our CLO is probably going to shutter. It the second part because he's responsible for really helping us maintain our margins in a very difficult operating environment, but.
We are not planning on seeing any reduction in margins at this point.
Because of our lot position and buyer demand, we think that theres still could be room for improvement.
Jed why don't you take the rest of that.
Just kind of explain the challenges of.
You.
Dealing with meeting the expectations I just set.
Yeah. So.
As Jim mentioned, we are trying to mitigate potential surprises.
In the supply chain from a cost perspective by metering, our sales and delay in sales until the later stages of construction that recipe has worked well for us.
Most of the homes, we are selling right now.
As lumber packs for example that were.
Delivered.
Late fall early winter.
Last year, so we feel very good about our position.
For 2022 as far as gross margin goes.
New lumber packs are quite expensive. So we are continuing to raise prices and value engineer.
Effort to minimize that.
Those would.
These new costs would probably affect us late Q3 early Q4.
And Jed arent you seemed pretty much.
Cycle times, not getting any worse, they've kind of stabilized at a.
But we would like to still improve upon but they are certainly not going the other direction right now.
Yes, that's correct.
Kind of realize that we live in a new norm now and.
It's obviously a elongated.
First is the pre pandemic cycle times, but.
Yes.
Cycle times are not getting worse, it's just a matter of the unpredictability of which part and piece is going to be in short supply that week.
Great One last quick one if I could.
I was hoping to get some commentary on.
Demand trends.
I know that Youre still metering sales pace.
But have you seen any impact.
The.
Right.
Higher rates in the last let's say four weeks or so sometimes it takes a little bit for a change in rates to filter its way through the marketplace.
Any change in the buyer.
Buyer traffic.
Or even incentives in the market in general that you've noticed.
<unk> had no increase in incentives.
I think they are still going the other direction and the builder's favor. It's a tough time actually to be a consumer we don't really see that shifting at all so.
Demand is very very robust and we don't see it.
Being anything but strong.
And typically what you would see in a period of increasing interest rates is folks have to reset what they can shop for.
Hi.
<unk> existing resale inventory, usually takes a preponderance of the deals out there, but because so little existing inventory is out there. There is a lot more of the pipe from the builders with all of US metering sales theres plenty of time for buyers to adjust and figure out what they can afford.
We're leasing so few lots every every period.
That case, it will be healthy to have an inventory adjustment, but we're not seeing one at all.
And Mike I would just I would just add Mike that.
Yes house prices have gone up at all wages are also significantly risen in our markets.
And as typical rising.
Interest rate market, we would typically see the buyers looking for smaller square footage homes.
And basically trying to keep their payment the same.
We're not seeing that at all right now we're seeing buyers want bigger hubs.
Much more successful in selling two story homes at one store comps across the country right now.
The other thing is as you are.
Aware apartment rents are continuing to escalate very quickly.
<unk> are full.
So those are very strong indicators for trophies entry level business and we.
We are just seeing huge demand there and of course, the in migration and Dallas Atlanta, Florida in our markets is really unprecedented.
Great. Thanks, so much guys I appreciate it.
Thank you.
Our next question comes from the line of Carl <unk> with <unk>.
<unk>. Please proceed with your question.
Thanks, everybody.
Thanks for the new slide deck by the way it looks great.
But let's pretend that this isn't a new normal I think we called it a new abnormal in a piece recently, but.
If you look at trophy signatures underwriting for absorptions sort of longer term compared to the rest of green bricks portfolio of businesses. What are you looking what do you think normalized absorptions for trophy signatures.
Signature are and then what do you think they are for the for the rest of the business. If you could combine the bits and pieces from the other markets in different products.
I think it varies Carl.
It's interesting we had a we had a meeting yesterday with a.
Top 10, homebuilder that we do a lot of business with them.
And.
We went over 12 communities that we are joined builders in the.
The absorptions range from.
30, a month to seven a month.
And I think the demand right now there.
The demand is there for 30, a month across the board.
Trades are not there for 30 a month so.
We all have limited trade base basis, and we're kind of spreading those across but I think Rick highlighted some of the.
Dramatic differences in trophies absorption versus the rest of the companies.
And I think you'll continue to see that expand and get.
More pronounced in the future again Carl to add on there.
You might go ahead, Jim Yeah, because I wanted to follow up on that because I want to make sure our investors and shareholders understand that we didn't ever underwrite any community. When we bought land based upon 20 or 30 sales a month.
Pretty aware of how our peers underwrite land and we were always on the most conservative side of that equation.
Six to eight works for us really well.
Demand could be 30%, but as Ted said.
The labor and supply trades arent there.
But we didn't write enough and underwrote all of these all of these neighborhoods in a much more conservative basis from that.
Carl.
The other thing that I should have added before about community count is that a trophy communities are a bigger.
And they are higher absorption.
What we have seen.
<unk> is that the.
Trophy pace can be one and a half to two times the rest.
Our of our builders. So if you take all of 2021 at 18 at eight <unk> two units per quarter per active selling community.
And it may be the if it's if you assume that trophy is one seven times.
Our rest of our communities.
Somewhere between $1 five and two times, maybe it's six houses a month or I'm, sorry, six houses per quarter for our other brands.
10 to 12 houses for trophy, so it really depends on.
How we meter it and how expensive things get et cetera, but.
Definitely there the power horse.
So at the end of the day rig.
The pace price balance for you would be you probably don't want to I mean, you've got the supply constraints that you wouldn't want to raise prices to the point, where that six a quarter for for core and 10 to 12 a quarter for trophy gets gets damaged right. That's kind of the that's the sweet spot is to try to hit that balance the highest price you can get and hit those absorptions.
Is that the right way to think about it as we model Yeah, maybe trough trophy can be higher.
When you think about it if youre doing 9% to 12 per quarter, that's three to four per month.
That's clearly below our experience, but like Jim says, we just underwrite conservatively.
Okay, perfect and then.
So the last couple of quarters overall orders have been down a combination of absorption and <unk>.
<unk> count as you look at 'twenty. Two is there is there a particular quarter, where you feel comfortable assuming that supply chain to that point doesn't doesn't change where you feel that that number will inflect positive again on a year over year basis.
Jed why don't you take that because we've been studying that all the time with you.
Sorry, Carl could you repeat that.
Which quarter in 2022 do you believe that overall orders will be positive year over year.
Oh.
Rick do you have those pull for last year.
I know, we really started metering sales the second half of Q2 last year, So Q3 and Q4 for sure.
Okay.
Yes.
Karl we really wanted to get to even flow, but we slowed things down in the second quarter of last year with just over 600 sales. So.
So we could beat that in Q2, because we're going at a greater rate than that in terms of deliveries starts and we just want to wait until we get over 40, maybe 45% maybe higher percent spec. So that's going to be the case and the cycle time. So I don't know what the cycle times are going to do and so that could change everything.
Alright.
Rear end loaded yes.
Okay fair enough that I'd assume cycle times have stayed the same okay. I've use my two questions are more than that so I will turn it over thanks very much guys really appreciate the help thanks.
Thanks Carl.
Our next question comes from the line of Alex <unk>.
With B Riley. Please proceed with your question.
Thank you very much the cancel rate stepped up in the fourth quarter can you talk about why that was.
And your outlook as the portfolio shifts more towards the spec homes.
By default, obviously have reduced time to close.
Rick.
Yes.
Well first.
It was.
Yes.
It was a one quarter aberration the full year is obviously lower in January February .
And the full two months canceled.
Cancel rate is down to under 8%.
So it was a function of kicking out some buyers that are couldnt qualify.
And.
A lot of that comes to a head when you have such a robust <unk>.
Q4 closings as well some of those folks they had just changes in our personal lives through their financing or whatever it was so.
There is nothing that indicates that that is continuing as you see in our January February change and in fact, we saw February cancel rate lower than January so we're seeing the market accelerate not decelerate.
To the year and then you mentioned earlier closing out some higher price communities.
Can you help us understand sort of the pacing of that when will that occur in this calendar year.
Well, you'll see a pretty high ASP in our backlog, which is always the case.
You always have that higher because the you don't get a lot of town homes and backlog and trophy is designed not to be a backlog build or either that's more of a spec builder, but we do have quite a few communities that when we originally started trophy off we had multiple communities still available in the Frisco Submarket in DFW.
Which is one of the most dynamic.
<unk>.
Markets in terms of lack of availability no more dirt available and just a much higher rate of appreciation, we're going to close a lot of those houses in Q1.
And then in <unk>.
Our tailing off in Q2 before we settled down like I said.
Before it in an overall ASP basis, the full year should be up low double digits, but youre going to see.
Like Jim said, Lumpiness, it's going to be.
Going up by a good measure in Q1, just don't get excited about it because it's coming back down as.
As we roll out of those higher price point communities.
That makes sense and very helpful.
Thank you.
And our next question comes from the line of Jay Mccanless Wedbush. Please proceed with your question.
Hey, good morning, everyone.
My first question I think Jim you said earlier the goal is to get to 45% spec is that just.
Function of the mix from trophy signature or.
Have you guys found out that there is some financial gross margin benefits by getting it to that level and then maybe ramping the sales pace up a little book.
I think it's really across the board, obviously trophy as it's growing it's becoming a more important part of our business.
But even though.
Smaller builder like DHL, and Florida, I think that Dave.
Finally determined along with us that they are much better off.
Trying to increase their spec production then they are billed.
For sale.
Sold homes, so it's really across the board the only builder that it's really.
That we don't do a lot.
Pre selling is in our townhome, just because the rebuilding homes with <unk>.
12 units at a time.
Jay is our historically, we have been at.
40% to 50% depending on the quarter that number changes every Q4 end.
It goes to more spec at that point, because a lot of the press.
Pre sold houses close in Q4, so 40% to 50% is our history and we could easily see ourselves.
Being at the high end of that range, if not higher because those historic numbers were not one trophy was 35% to 40% of our closings and sales so.
Yeah.
We could see the number go higher but but for now we'll be happy to get it back to those historic ranges.
That's correct.
And then maybe some comments around the pretty steep decline both year over year and sequentially in the community count and.
Thank you for the guidance on double digit community growth for this for fiscal 'twenty, two but do you expect most of that to be back half loaded or is it going to roll on roll in as the year progresses.
Jeff can you help them on the kind of the timing of our community count growth.
Yes, I would just add that.
I think you'll really see it pick up the second half of the year, it's going to stay pretty flat. The first half of the year, but I would add that you know.
These communities that are coming online are coming on with.
200, 5300 lots per phase, which is allowing us to get those increased velocities.
Going forward one.
The other thing that we found really interesting over the last couple of quarters as you know.
We've made great returns on equity, having almost 29000 lots on our balance sheet. Most of those lots are not producing any current income.
So we're really set in terms of our lot position going forward and we've had a number of calls from builders that are short of lots or need lots and were considering actually selling off.
Actual neighborhoods bring.
Bringing other builders and some of them are lot positions, just because we have such a good lot position.
That might be a nicely big for income this year.
Well that was actually going to be my other question is I saw the land sales pick back up this quarter.
Thought last quarter.
The company had indicated that revenue number might be coming down so.
Are you seeing agenda, that's going to start to pop back up and we've had to start thinking about selling those or modeling for a higher level of land revenue well.
It's and it's a wildcard right now we've had a number of unsolicited offers that jets, taking a look at for us.
And we're working that we really didn't anticipate being part of our strategy in 2022. So I guess the answer is stay tuned on that but we're sure considering it.
Okay, great. Thanks for taking my questions.
Our next question comes from the line of Matt Dane with.
Titan Capital Management. Please proceed with your question.
Thank you.
Want to ask about the starts and I think the they ticked down to a lower level 545 46 in the fourth quarter here.
When are you expecting to start to start increasing and see some growth there in the start again.
I can take that.
Hey, Matt Jed here, Yes starts did go down in Q4 that was partially a function of our.
Hi deliveries in Q4.
Just.
It's the same kind of message.
Same story here that.
Our builders and our trade partners can only.
Can only handle so much so we had to kind of get that.
Huge.
Delivery in Q4, and we had to get those homes are 100% done and transferred over to buyers before we could really start our next batch which is in Q1. So I think when we're when we release, our Q1 numbers you'll be.
Apple Youll be happy with those numbers.
Great. Thanks, Scott.
And again as a reminder, if anyone has any questions you May press star one on your telephone keypad in order to join the question and answer queue.
Our next question comes from the line of Alex Barron with housing Research Center. Please proceed with your question.
Yes, thanks gentlemen.
I wanted to ask about.
The buyers that you guys are currently seeing we know.
In the last year or two there has been a significant.
An increase in people who are migrating across state lines. So I was wondering if you guys track.
Track that or have some general idea of what percentage of your sales are going to those type of buyers.
Yes, Jed Jed can answer part of that is it's harder to track when do you think a little bit because many people rent and they will do well they will migrate from Texas and try to ramp which is obviously, becoming more difficult as apartments rule, but they are renting before they're buying so they may have a.
Texas, or Georgia, or Florida address before they buy but Jed do you want to take the rest of the question in terms of what Youre seeing in the migration I know it's.
It.
As Jim mentioned, it's very difficult.
Look at we look at because we with our mortgage joint ventures, we have 60% to 70% capture rate. So we're not even getting all of the buyer data.
But we do look at that with our mortgage joint venture partners.
Its submarket by Submarket can make a generalized statement.
In our a location markets, where youre seeing a.
Higher percentage.
The out of state buyers and oftentimes that's over 50%.
As we get into our more affordable product the buyers are more Texas space buyers, but we still see significant out of the top buyers.
Okay. That's helpful.
Along the same lines.
I was wondering if you guys track investor purchases or whether you have a specific policy around investors buying houses, yes, we do we don't sell for many homes to investors.
<unk>.
And our infill communities like Alpharetta, Georgia, which is comparable to Frisco, Texas, we see unbelievable demand for investors when really we stay away from them. We have also been approached by the build for rent guys to see whether they wanted to closeout communities or do business with the build to rent sector and we don't do that either.
And finally, when you get to our balance sheet, we don't do really land banking or off balance sheet.
Optics.
And is it you don't choose to sell to investors because the returns are not as good or because you don't want the communities to be full of those types of owners.
Well, we don't sell because of the.
We don't want the communities to be full and then.
It's very it's harder on the financing side, if youre, an investor obviously, if youre all cash investor that's easier, but as Jim mentioned, our sales to investors are in the low single digits.
Got it yes, we are having on the separately and what's real retail buyers, we can almost shallow home I know when you strip out <unk>.
Sales commissions and all that some of these guys are offering you almost the same margin, but we really aren't that's not part of our strategy at all.
Okay.
On a separate topic.
Any guidance you guys can offer on the tax rate for 2022 and also can you comment on why the tax rate was lower this quarter.
Rick.
We just had a.
A decrease in our state taxes, just based on Interstate allocation.
And that debt.
That all hits.
At Q4 after you filed all of your returns from the prior year.
But it will probably be higher next year.
Because of how much harder it is to get the energy tax credits on the change has gone up per unit from 2000, 2500, but it's infinitely harder do get that.
So, it's it's probably going to be closer to <unk>.
24% for the year.
Okay, Thanks, and if I could ask one last one.
I've got another couple of folks wanting to get on if we can move along please.
Okay, sorry about that I'll jump off thank you. Thank you.
Our next question comes from the line of Aaron Hecht with JMP Securities. Please proceed with your question.
Hey, guys.
Land sales up this quarter, but the margin on those sales looked like it was pretty low.
Not really.
Align with some of the commentary about the strength and potential earnings that you could see next year. So anything in particular that happened this quarter with those land sales to have a low margin yes.
Yes.
Yes.
We did an exchange with another public builder, so technically that's a sale, but it was really an exchange.
Okay helped us.
Increase our community count on our longevity in a sub market that we wanted to be in long term.
Understood and then in terms of.
Capital structure, you did the preferred stock issuance.
You decide to go with preferreds versus debt or I guess potentially equity.
Given the strength of your balance sheet the costs that you've got an on the debt that you issued.
Why why preferred over more debt.
This is Jim.
One of the advantages we saw well first of all we expected interest rates to rise and we call that correctly and we wanted to lock in very long term.
Our cost of equity and the second thing is that $50 million, we knew we're expanding into some larger longer term.
Land positions and we just thought it was a better asset liability.
Match with with this type of equity that lowered our cost of capital and really match. Some of these longer life communities that were investing in.
Got it appreciate it guys. Thanks.
Thanks Aaron.
And our next question comes from Michael Rehaut with Jpmorgan. Please proceed with your question.
Yes.
Hi, Thanks, just had a couple of modeling clarifications.
The equity.
From Jv's and the other income.
Yes.
<unk> continued to go up in terms of equity and JV.
As well as the other income at 10.300 million actually almost doubled from 2020 should we see a similar increasing trend in 'twenty two.
For those line items.
Other income is other income that's always going to be unpredictable, but the.
As youll see in the footnotes of the 10-K.
<unk> income.
Most substantially from our 49, 9% investment in challenger homes in Colorado Springs in Denver.
And they're knocking it out of the park so their business is improving.
Like all of our brands are improving.
Then.
The second biggest piece is our <unk>.
Income from our mortgage joint ventures.
So and that is directly correlated to our.
Our topline and our capture rate. So if you assume that our top line is going up and our capture rates are going to make remained constant you would see the JV income going going up with our business.
Okay. No that's helpful and just on the tax rate, you said closer to 24% for the upcoming year for 2022.
That would be the tax rate on the adjusted pretax income attributable to green brick before the non controlling interest does that Kevin correct.
It's actually after Noncontrolling you have to back it out because we don't pay tax for our partners. So you take the pretax income and you subtract out the.
Noncontrolling interest income and that that is your leftover pretax income related to our allocable are attributable to green brick so that net number.
How I look at it.
Yes.
Maybe I misspoke, but that's what I meant so okay. Thanks.
Thanks, a lot Rick Yep, you're on target Matt.
And we have reached the end of the question and answer session and it's Awesome concludes today's conference and you may disconnect. Your lines at this time.
Thank you for your participation.
Yes.
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