Q1 2024 Green Brick Partners Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Green brick Partners, Inc. First quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time press star one.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Green Brick Partners Inc. first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, press star 1. I will now hand today's call over to Rick Costello, CFO. Please go ahead, sir.
Operator: Now hand, today's call over to Rick Costello CFO. Please go ahead Sir.
Richard A. Costello: Welcome to Green brick partners earnings call for the first quarter ended March 31 2024.
Richard A. Costello: Welcome to Green Brick Partners' earnings call for the first quarter ended March 31, 2024. Following today's remarks, we will hold a Q&A session. As a reminder, this call is being recorded and will be available for playback.
Richard A. Costello: Following today's remarks, we will hold a Q&A session. As a reminder, this call is being recorded and will be available for playback. In addition, our presentation will accompany today's webcast and is also available on the Companys website at investors stock Greenberg partners Dot com.
Richard A. Costello: In addition, a presentation will accompany today's webcast and is also available on the company's website at investors.greenbrickpartners.com. On the call today is Jim Brickman, co-founder and chief executive officer. Jed Dolson, President and Chief Operating Officer, and myself, Rick Costello, Chief Financial Officer. Some of the information discussed on this call is forward-looking, including the company's financial and operational expectations for 2024 and beyond. In yesterday's press release and SEC filings, the company detailed material risks that may cause its future results to differ from its expectations.
Richard A. Costello: On the call today is Jim Berkman, co founder and Chief Executive Officer.
Richard A. Costello: Jed Dolson, President and Chief operating Officer.
Richard A. Costello: And myself, Rick Costello, Chief Financial Officer.
Richard A. Costello: Some of the information discussed on this call is forward looking including the company's financial and operational expectations for 2024 and beyond.
Richard A. Costello: In yesterday's press release, and SEC filings the company detailed material risks that may cause future results to differ from its expectations.
Richard A. Costello: The companys statements or asset today May <unk> 2024, and the company has no obligation to update any forward looking statements. It may make.
Richard A. Costello: The comments also include non-GAAP financial metrics. The reconciliation of these metrics and other information required by regulation G can be found in the earnings release that the company issued yesterday and in the presentation available on the company's website.
Richard A. Costello: The company's statements are as of today, May 2, 2024, and the company has no obligation to update any forward-looking statements it may make. The comments also include non-GAAP financial metrics. The reconciliation of these metrics and other information required by Regulation G can be found in the earnings release that the company issued yesterday and in the presentation available on the company's website. With that, I'll turn the call over to Jim.
Richard A. Costello: With that I'll turn the call over to Jeff.
Richard A. Costello: Yeah.
Jim: Thank you Rick.
James R. Brickman: Thank you, Rick. I'm pleased to share that Green Brick kicked off 2024 with excellent first quarter results highlighted by diluted earnings per share of $1.82, a record for any first quarter in company history. We also achieved a record home building gross margin of 33.4%, which again was the highest in the home building industry, as shown on slide four. The solid performance was driven by our superior locations and high-growth markets, as well as strong demand for our new homes.
Jim: I'm pleased to share that green brick kicked off 2024 with excellent first quarter results highlighted by diluted to earnings per share of $1 82 was a record for any first quarter in company history.
James R. Brickman: We also achieved a record homebuilding gross margin of 33, 4%, which again was the highest in the homebuilding industry as shown on slide four.
James R. Brickman: The solid performance was driven by our superior locations and high growth markets strong demand for our new loans are investment grade balance sheet and most importantly, excellent execution by our hard working teams.
James R. Brickman: Our Investment Grade Balance Sheet, and most importantly, excellent execution by our hardworking teams. Our book value grew 27% from a year ago to $29.67 per share at the end of the first quarter of 2024, as we again generated an attractive return on equity of 25.5% for the quarter on an annualized basis.
James R. Brickman: Our book value grew 27% from a year ago to $29 67 per share at the end of the first quarter of 2024.
James R. Brickman: We again generated an attractive return on equity of 25, 5% for the quarter on an annualized basis.
James R. Brickman: Our accomplishments were achieved with the balance sheet the destroyer than ever.
James R. Brickman: Our accomplishments were achieved with a balance sheet that is stronger than ever. Due to strong cash flow, equity growth in earnings net of stock buybacks during the last 12 months, and $38 million of debt paid, our debt to total capital ratio decreased 550 basis points to 18.3% at the end of the quarter, while our net debt to total capital ratio dropped to 8.2%.
James R. Brickman: Due to strong cash flow equity growths in the earnings net of stock buybacks. During the last 12 months and $38 million of debt pay down our debt to total capital ratio decreased 550 basis points.
James R. Brickman: To 18, 3% at the end of the quarter.
James R. Brickman: While our net debt to total capital ratio dropped to eight 2%.
James R. Brickman: This is even more impressive considering that we carry over 86% ever owned and controlled lots on our balance sheet.
James R. Brickman: This is even more impressive considering that we carry over 86% of our owned and controlled lots on our balance. Unlike most peers, we do not rely on land banking to acquire or develop lots. We believe this strategy puts us in a stronger position due to our lower cost of capital and a greater ability to minimize potential cost escalations between phases. Because we self-develop most of our lots, we avoid paying retail lot prices on contracts that typically have 6% annual price escalators and have better control of the development costs and timing for our finished lots.
James R. Brickman: Unlike most peers, we do not rely on land banking to acquire or develop blocks.
James R. Brickman: We believe this strategy puts us in a stronger position due to our lower cost of capital and a greater ability to minimize potential cost escalation between phases.
James R. Brickman: Yes.
James R. Brickman: Because we self develop most of our lives we avoid paying retail lot prices on contracts that typically yes, 6% annual price escalators and have better control of the development costs and timing for our venue slots.
James R. Brickman: We believe this approach can mitigate some of the lot inflation pressure that our peers are base.
James R. Brickman: We believe this approach can mitigate some of the lot inflation pressure that our peers are facing. Our industry-leading gross margins have been earned in part from our self-development strategy. This film is underwriting, and the diligence, expertise, and hard work of our land acquisition teams. Our unique land strategy has led to a top-quality land pipeline that has fueled our growth. Not only do we operate in some of the best markets in the country, but we also primarily target infill and infill adjacent submarkets, where supply and competition are more limited.
James R. Brickman: Our industry, leading gross margins have been earned in part from our self development strategy.
James R. Brickman: Disciplined underwriting.
James R. Brickman: And the diligence expertise.
James R. Brickman: And hard work of our land acquisition teams.
James R. Brickman: Our unique land strategy has led to a top quality land pipeline that has fueled our growth.
James R. Brickman: Not only do we operate some of the best markets in the country, but we also primarily target infill and infill adjacent submarkets.
James R. Brickman: Where supply and competition are more limited.
James R. Brickman: Sourcing and acquiring high quality land at least desirable locations requires a unique skill set and extensive local knowledge.
James R. Brickman: Sourcing and acquiring high quality land in these desirable locations.
James R. Brickman: Requires a unique skill set and extensive local knowledge. We take pride in our long-standing reputation for quality communities and close knit relationships with local landowners and sellers. This is exemplified by our recent joint venture with Hearst Family Investments and a new community with approximately 2,000 lives in the booming subgroup of Salina, Texas. With our diversified home building brands, unlike many peers, we can offer a variety of products in the community to cater to different homebuyer needs and price points.
James R. Brickman: We take pride in our long standing reputation for quality communities and close knit relationships with local land owners and sellers.
James R. Brickman: This is exemplified by our recent joint venture with Hearst family investments in a new community was approximately 2000 lives in the booming subgroup of July to Texas.
James R. Brickman: With our diversified homebuilding brands. Unlike many peers, we can offer a variety of products and the community to cater to different homebuyer needs and price points.
James R. Brickman: With a limited supply and infill in infill adjacent communities, we experienced solid demand across our markets and brands as we enter the spring selling season.
James R. Brickman: With a limited supply in infill and infill adjacent communities, we experienced solid demand across our markets and brands as we entered the spring selling season. Despite higher interest rates, we sold 1,071 net new homes in Q1 2024. This is the second highest in company history, just shy of the COVID-fueled 1,082 orders in the first quarter of 2021. And with a record low cancellation rate.
James R. Brickman: Higher interest rates, we sold 1071 net new homes Q1 2020 for this business.
James R. Brickman: Second highest in company history, just shy of the cold, which fueled 1082 orders in the first quarter of 2021 and was a record low cancellation rate.
James R. Brickman: As shown on slide five continuing high interest rates have kept existing home inventory near historical lows headed into 2024.
James R. Brickman: As shown on slide five, continuing high interest rates have kept existing home inventory near historical lows headed into 2024. Additionally, close to 80% of outstanding mortgages are locked in at rates less than 5%, as shown on slide 6. The Golden Handcuff Effect has proven to be more pronounced in infill and infill adjacent submarkets where we have a strong presence and have historically generated over 80% of our revenue, including in Q1 2024.
James R. Brickman: Additionally, close to 80% of outstanding mortgage are locked in at rates less than 5% as shown on slide six.
James R. Brickman: The Golden Handcuff effective say has proven to be more pronounced in NPL and infill adjacent submarkets, where we have a strong presence and have historically generated over 80% of our revenues, including in Q1 2024.
James R. Brickman: Even as higher mortgage rates persist potentially temporary demand, we remain bullish and believe the democratic shifts and our strong high growth markets together with the systemic housing shortage will continue to sustain a healthy housing market in the cities, where we operate.
James R. Brickman: Even as higher mortgage rates persist, potentially tempering demand, we remain bullish and believe that demographic shifts in our strong, high-growth markets, together with the systemic housing shortage, will continue to sustain a healthy housing market in the cities where we operate. Additionally, as shown on slide seven, with a growing population of millennials aging into prime home-buying age, the urgency and necessity to buy a home should continue to grow, even if mortgage
James R. Brickman: Additionally, as shown on slide seven with a growing population of millennials aging into prime home buying age their urgency and necessity to buy a home should continue to grow even if mortgage rates remain elevated.
James R. Brickman: Many homebuyers, who are waiting on the sidelines need a more permanent housing solution as they hit their next life milestone, whether thats getting married having children or changing jobs.
James R. Brickman: Many homebuyers who are waiting on the sidelines need a more permanent housing solution as they hit their next life mile, whether that's getting married, having children, or changing jobs. To conclude, we believe we are well positioned to capture pent-up demand and grow market share with our strategic advantages, shown on slide eight, which are, one, our footprints and infill and infill adjacent submarkets within high-growth metropolitan areas. Two, superior lot and land positions.
James R. Brickman: To conclude we believe we are well positioned to capture pent up demand and grown market share with our strategic advantage as shown on slide eight which are one our footprints and infill and Intel adjacent submarkets within high growth metropolitan areas.
Richard A. Costello: Three, a unique and efficient operational structure, form a strong balance sheet, and remain laser focused on executing our long-term goals for disciplined growth and creating shareholder value. With that, I'll now turn it over to Rick to provide more detail regarding our financial results. Thank you, Jim.
James R. Brickman: <unk> superior lot and land positions.
Rick: Our unique and efficient operational structure.
Rick: Our strong balance sheet.
Rick: We remain laser focused on executing our long term goals for disciplined growth and creating shareholder value.
Richard A. Costello: With that I'll now turn it over to Rick to provide more detail regarding our financial results.
Rick: Thank you Jim.
Richard A. Costello: Please turn to slide 9 of the presentation. During the first quarter, we delivered 821 homes, an increase of 8% year over year, primarily driven by increased levels of finished and spec home inventory entering the quarter and shorter cycle time. ASP declined 8.6% year-over-year to $540,000, resulting from closing out infill communities and opening new communities and surrounding infill adjacent areas. For the balance of the year, we expect our quarterly ASP to range from $540,000 to $560,000 each quarter, subject, of course, to changes in mix and business conditions.
Rick: Please turn to slide nine of the presentation.
Richard A. Costello: During the first quarter, we delivered 821 homes, an increase of 8% year over year, primarily driven by increased levels of finished and finishing spec home inventory entering the quarter and shorter cycle times.
Richard A. Costello: ASP declined eight 6% year over year to $540000, resulting from closing out infill communities and opening new communities and surrounding infill adjacent areas.
Richard A. Costello: For the balance of the year, we expect our quarterly ASP to range from $540000 to $560000 each quarter subject of course to changes in mix and business conditions.
Richard A. Costello: In total, we generated $443 million in home closing revenues for the first quarter. Notably, Homebuilding Gross Margin reached a new company high of 33.4%, breaking the previous record of 33.3% achieved in the third quarter of 2023. Our gross margin in Q1 was up 580 basis points year over year and up 200 basis points sequentially. As shown back on slide four, we continue to lead the industry in this metric. Stronger pricing power in our infill and infill-adjacent communities has allowed us to lower incentives, which Jed will review in a few minutes. Construction costs were down year-over-year as we delivered smaller square footage homes with lower feature levels.
Richard A. Costello: In total we generated $443 million of home closings revenues for the first quarter.
Richard A. Costello: Notably homebuilding gross margin reached a new company high of 33, 4% breaking the previous record of 33, 3% achieved in the third quarter of 2023.
Richard A. Costello: Our gross margin in Q1 was up 580 basis points year over year, and up 200 basis points sequentially.
Richard A. Costello: As shown back on slide four we continued to lead the industry in this metric.
Richard A. Costello: Stronger pricing power in our in cell and infill adjacent communities has allowed us to lower incentives, which Ted will review in a few minutes.
Richard A. Costello: Construction costs were down year over year, as we delivered smaller square footage homes with lower feature levels. Additionally, a higher mix of deliveries from infill adjacent communities contributed to lower average lot costs.
Richard A. Costello: Additionally, a higher mix of deliveries from infill adjacent communities contributed to lower average lot costs. SG&A as a percentage of residential units revenue for the quarter increased 120 basis points year-over-year to 11.4 percent, primarily from payroll and the set of compensation growth as we have grown our team and continue to invest in our personnel to sustain future growth. Net income attributable to Green Brick increased 30% to $83 million, and diluted earnings per share for the first quarter grew 33% to $1.82 per share, a record for any first quarter and the second highest in company history.
Richard A. Costello: SG&A as a percentage of residential units revenue for the quarter increased 120 basis points year over year to 11, 4%.
Richard A. Costello: Brian barely from payroll and incentive compensation growth as we have grown our team and continue to invest in our personnel to sustain future growth.
Richard A. Costello: Net income attributable to Greenberg increased 30% to $83 million and diluted earnings per share for the first quarter grew 33% to $1 82 per share.
Richard A. Costello: A record for any first quarter and second highest in company history.
Richard A. Costello: Limited competition from both existing homes and few new competing communities in our infill and infill adjacent locations has continued to drive demand in these desirable neighborhoods. During the quarter, net new home orders were 1,071, the second highest in company history. However, revenue from new homeowners was down slightly year over year to $613 million due to the lower ASP discussed earlier.
Richard A. Costello: Limited competition from both existing homes and few new competing communities and our Intel and intelligence and locations.
Richard A. Costello: We have continued to drive demand in these desirable neighborhoods.
Richard A. Costello: During the quarter net new home orders were 1071.
Richard A. Costello: Second highest in company history revenue from new homeowners was down slightly year over year to $613 million due to the lower Asps discussed earlier sequentially revenue from new home orders increased 61%.
Richard A. Costello: Consequently, revenue from new home orders increased 61%. Active selling communities at the end of Q1 increased 24% year over year to 98. This growth is juxtaposed against national trends. John Burns Consulting reported on April 22nd, 2024, that the community count in the top 65 U.S. markets was down 8% year over year in Q1.
Richard A. Costello: Active selling communities at the end of Q1 increased 24% year over year to 98.
Richard A. Costello: This growth is juxtaposed against National trends, John Burns consulting reported on April 22020 for that community count in the top 65 U S markets was down 8% year over year in Q1, we.
Richard A. Costello: We believe Green Brick's differentiator in its performance is that Green Brick operates in dynamically growing markets with favorable demographic tailwinds, where we have timely acquired land, self-developed lots, and brought many new communities to market. Our quarterly absorption rate moderated from record levels in 1Q of 23, but remained robust at 11.4 homes per average active selling community, or 3.8 homes per month, despite higher interest rates. Their cancellation rate for the first quarter reached the lowest level in company history at 4.1%. This was also the lowest among public home building peers, as shown on slide 10.
Richard A. Costello: We believe green bricks differentiator and its performance is that green brick operates and dynamically growing markets with favorable demographic tailwind is where.
Richard A. Costello: Where we have timely acquired land self developed lots and brought many new communities to market.
Richard A. Costello: Our quarterly absorption rate moderated from record levels in <unk> of 'twenty, three but remained robust at 11 four homes per average active selling community or three eight homes per months, despite higher interest rates.
Richard A. Costello: Our cancellation rate for the first quarter reached the lowest level in company history at four 1%.
Richard A. Costello: This was also the lowest among public homebuilding peers as shown on slide 10.
Richard A. Costello: Due to strong sales performance across all brands, our backlog value at the end of the first quarter increased 32% year over year, and 31% sequentially to $725 million.
Richard A. Costello: Due to strong sales performance across all brands, our backlog value at the end of the first quarter increased 32% year over year and 31% sequentially to $725 million. Backlog ASP increased 8.9% to $711,000 as opposed to our decrease in closing age. This is due to our backlog being underweight, our lower-priced trophies. Trophy, which operates primarily as a spec builder, continues to represent a low percentage of overall
Richard A. Costello: Backlog ASP increased eight 9% to $711000 as opposed to our decrease in closing ASP.
Richard A. Costello: This is due to our backlog being underweight or lower price trophy hubs.
Richard A. Costello: Trophy, which operates primarily as a spec builder continue to represent a low percentage of overall backlog.
Richard A. Costello: Spec units under construction as a percentage of total units under construction decreased sequentially to 60% at the end of the first quarter due to selling homes at earlier stages of construction. During the first quarter, we started 997 homes, up almost 50% year over year. During the last three quarters, starts averaged over 940 homes per quarter, with total starts increasing each quarter. By strategically increasing our starts, we believe we're well positioned to capture additional market share in the coming quarters.
Richard A. Costello: Spec units under construction as a percentage of total units under construction decreased sequentially to 60% at the end of the first quarter due to selling homes at earlier stages of construction.
Richard A. Costello: During the first quarter, we started 997 homes up almost 50% year over year.
Richard A. Costello: During the last three quarters starts averaged over 940 homes per quarter with total starts increasing each quarter.
Richard A. Costello: By strategically increasing our starts we believe we are well positioned to capture additional market share in the coming quarters.
Richard A. Costello: Our investment grade balance sheet provides us a strong foundation positioning us to grow and invest in our future.
Richard A. Costello: Our investment grade balance sheet provides us with a strong foundation, positioning us to grow and invest in our future. As Jim stated at the end of the first quarter, our net debt to total capital ratio was 8.2%, and our total debt to total capital ratio was only 18.3%, one of the lowest among public homebuilding peers, as shown back on slide eight. 100% of our debt as of March 31, 2024 was fixed at a fixed rate and an average coupon of 3.4%. Now to put this in perspective, some of our highly leveraged peers recently issued five-year debt at rates above 9%. Our outstanding debt is long term through 2029 and well below current market rates.
Richard A. Costello: As Jim stated at the end of the first quarter, our net debt to total capital ratio was eight 2% and our total debt to total capital ratio was only 18, 3% one of the lowest among public homebuilding peers as shown back on slide eight.
Richard A. Costello: 100% of our debt as of March 31, 2024 was fixed rate and an average coupon of three 4%.
Richard A. Costello: To put this in perspective, some of our highly leveraged peers recently issued five year debt at rates above 90%.
Richard A. Costello: Our outstanding debt is long term through 2029, and well below current market rates.
Richard A. Costello: Additionally, we had $186 million of cash on hand at the end of the quarter, as well as $360 million of undrawn amounts under our lines of credit, with financial prudence and discipline being one of our core operating tenets. Coupled with strong cash flow from operations, we will continue to evaluate growth opportunities, ensuring they align with our long-term financial goals and strategic vision. Lastly, as we previously announced, we sold our 49.9% interest in Challenger Homes on February 1, 2024. As a result of the transaction, equity and income of unconsolidated entities decreased to $2.6 million in Q1 of 24, or 38.6% year-over-year.
Richard A. Costello: Additionally, we have $186 million of cash on hand at the end of the quarter as well as $360 million of Undrawn amounts under our lines of credit.
Richard A. Costello: With financial Prudence, and discipline being one of our core operating tenants coupled with strong cash flow from operations, we will continue to evaluate growth opportunities ensuring they align with our long term financial goals and strategic vision.
Richard A. Costello: Lastly, as we previously announced we sold our 49, 9% interest in challenger homes on February one 2024, as a result of the transaction equity and income of unconsolidated entities decreased to $2 6 million in Q1 of 24 or 38 six.
Jed Dolson: As we recognized only one month of net earnings from this investment compared to three months in the prior year, other income, at the same time, increased to $15.4 million due to a $10.7 million gain on the sale of our investment in Challenger. Over the course of our investment in Challenger, we earned an internal rate of return in excess of 50%. With that, I'll now turn it over to Jed. Thank you, Rick.
Jed Dolson: <unk> year over year.
Jed Dolson: As we recognized only one month of net earnings from this investment compared to three months in the prior year.
Jed Dolson: Other income at the same time increased to $15 $4 million due to a $10 $7 million gain in the sale of our investment in challenger.
Jed Dolson: Over the course of our investment in Challenger Wayne origin internal rate of return in excess of 50%.
Jed Dolson: With that I'll now turn it over to Chad.
Jed Dolson: Thank you Rick as we entered the heart of the spring selling season, our net new orders for the first quarter grew 58% sequentially to 1071 demand was strong despite higher mortgage rates because of limited supply and our infill and infill adjacent submarkets.
Jed Dolson: As we entered the heart of the spring selling season, net new orders for the first quarter grew 58% sequentially to 1071. Demand was strong despite higher mortgage rates because of limited supply in our infill and infill-adjacent submarkets. We continue to only offer incentives strategically in select communities and for select homes during Q1 of 2024. We give our buyers the flexibility to use the incentive package toward closing costs. Limited Rate Buy Downs, or a Combination of Both.
Jed Dolson: We continue to only offer incentives strategically in select communities.
Jed Dolson: <unk> select homes during Q1 of 2024.
Jed Dolson: We gave our buyers the flexibility to use the incentive package toward closing costs.
Jed Dolson: Limited rate buy downs or a combination of both.
Jed Dolson: As expected, the incentives were higher for entry-level products in the periphery locations but remain limited in our infill community, and incentives for net new orders dropped each month during the first quarter and ended at 3.8% in March.
Jed Dolson: As expected the incentives for higher for entry level products in the periphery locations, but remained limited at our infill communities and incentives for net new orders dropped each month during the first quarter and ended at three 8% in March as a result of the demand.
Jed Dolson: As a result of demand, we were also able to raise prices moderately in approximately two-thirds of our community. However, our buyer's financial profiles remained unchanged with an average FICO score of 740 and a debt-to-income ratio of 38%. We believe the dynamics in our infill and infill adjacent locations will continue to create healthy demand. We will continue to monitor interest rates and evaluate incentives and product mix carefully. Our industry-leading gross margin of 33.4% gives us plenty of room to adjust prices as needed.
Jed Dolson: We're also able to raise prices moderately and approximately two thirds of our communities.
Jed Dolson: Our buyers financial profiles remained unchanged with an average FICO score of 740, and a debt to income ratio of 38%.
Jed Dolson: We believe the dynamics in our infill and infill adjacent locations will continue to create healthy demand.
Jed Dolson: We will continue to monitor and interest rates and evaluate incentives and product mix carefully our industry, leading gross margin of 33, 4% gives us plenty of room to adjust pricing as needed.
Jed Dolson: We continue to make incremental improvements on cycle times across our building brands. Mean cycle time for homes that completed construction in the first quarter of 2024 was 5.5 months, 10 days shorter than the fourth quarter of 2023, and down significantly from 8.6 months in the first quarter of 2023. Trophy cycle time in Dallas was less than four months in the first quarter of 2024.
Jed Dolson: We continued to make incremental improvements on cycle times across our building brands.
Jed Dolson: <unk> cycle time for homes that completed construction in the first quarter of 2024 was $5 five months 10 days shorter than the fourth quarter of 2023 and down significantly from $8 six months in the first quarter of 2023 Trophy cycle time in Dallas was less than <unk>.
Jed Dolson: Four months in the first quarter of 2024.
Jed Dolson: We will continue to take steps to refine our processes and improve efficiency, while still maintaining strong quality control procedures.
Jed Dolson: We will continue to take steps to refine our processes and improve efficiency while still maintaining strong quality control procedures. Next, with strong cash flow, we will continue to carefully evaluate our capital allocation strategy to maximize capital efficiency. We announced last quarter that we expect to ramp up our spending in 2024 for raw land acquisition, finished lot purchases, and land development. During the first quarter of 2024, we spent $91 million on purchasing land and finished lots and $53 million on land development.
Jed Dolson: Next with strong cash flow, we continue to carefully evaluate our capital allocation strategy to maximize capital efficiency, we announced last quarter that we expect to ramp up our spending in 2024 for raw land acquisition finished lot purchases and land development during the <unk>.
Jed Dolson: First quarter of 2024, we spent $91 million in purchasing land and finished lots and $53 million and land development.
Jed Dolson: Our total lots owned and controlled increased 7% sequentially to approximately 30,800. While land prices remain sticky, we continue to successfully underwrite deals that meet our internal IRR threshold of 21%. We expect to have approximately 5,100 finished lots at the end of 2024, providing a strong runway for growth and allowing us to capture pent-up demand quickly. Just as important, more than 80% of the finished lots are expected to be infill and infill adjacent locations, as shown on slides 12 and 13.
Jed Dolson: Our total lots owned and controlled increased 7% sequentially to approximately 30800.
Jed Dolson: Well land prices remain sticky we continued to successfully underwrite deals that met our internal IRR threshold of 21%.
Jed Dolson: We expect to have approximately 5100 finished lots at the end of 2024, providing.
Jed Dolson: The strong runway for growth and allowing us to capture pent up demand portfolio.
Jed Dolson: Just as important more than 80% of the finished lots are expected to be infill and infill adjacent locations as shown on slides 12 and 13.
Jed Dolson: Another of our business priorities. This year is to grow trophy signature homes, both in our existing Dallas Submarket as well as our newer markets of Austin and Houston.
Jed Dolson: Another of our business priorities this year is to grow Trophy Signature Homes, both in our existing Dallas sub-market as well as in our newer markets of Austin and Houston. Trophy owned and controlled almost 21,000 lots in DFW at the end of the first quarter of 2024. Approximately 16,000 of those home sites are in longer life communities and submarkets with long-term growth potential and more affordable prices. Those lots have an average cost of $11,000 per raw lot, creating a tailwind for strong gross margin.
Jed Dolson: The owned and control almost 21000 lots in DFW at the end of the first quarter of 2024.
Jed Dolson: Approximately 16000 of those homesites earn longer life communities in sub markets with long term growth potential and more affordable prices those lots or an average cost of 11000 per raw law.
Jed Dolson: And a tailwind for strong gross margins.
Jed Dolson: Being the seventh largest home builder in Dallas-Fort Worth on a standalone basis with a strong land pipeline, Trophy is well-positioned to capture more demand among first-time and first-time move-up buyers with our value-rich products. In Austin, we have further expanded our pipeline. As of the end of the first quarter of 2024, we had over 2,000 lots owned and controlled, almost double the size from a year ago. And in Houston, we're also actively seeking additional new land opportunities in addition to our first 460-lot acquisition that we recently closed, as we simultaneously look to build a strong local team.
Jed Dolson: Being the seventh largest homebuilder in Dallas Fort worth on a standalone basis with a strong land pipeline trophy is well positioned to capture more demand among first time and first time move up buyers with our value rich products.
Jed Dolson: In Austin, we have further expanded our pipeline.
Jed Dolson: As of the end of the first quarter of 2024, we had over 2000 lots owned and controlled.
Jed Dolson: Almost double the size from a year ago and in Houston, We're also actively seeking additional new land opportunities.
Jed Dolson: In addition to our first 460 <unk> acquisition that we recently closed.
Jed Dolson: As we simultaneously look to build a strong local team.
Jed Dolson: Lastly, during the first quarter, we completed over $3.7 million in stock repurchases at a weighted average price of $52.23 per share. The remaining dollar value of the shares that may yet be purchased under the 2023 repurchase plan is approximately $99.7 million.
Jed Dolson: Lastly, during the first quarter, we completed over $3 $7 million in stock repurchases at a weighted average price of $52 23 per share. The remaining dollar value of the shares that may yet be purchased under the 2023 repurchase plan was approximately $99.
Jed Dolson: 7 million share repurchases remain on the table as we explore investment opportunities for growth.
James R. Brickman: Share repurchases remain on the table as we explore investment opportunities for growth, all aimed at delivering the best-in-class risk-adjusted returns for our shareholders. With that, I'll turn it over to Jim for closing remarks. Thank you, Jed. In closing, I am extremely pleased with our first quarter results, and we look forward to building on this momentum in the quarters to come. We have a clear vision for our long-term growth and future, and with the talented teams we have in place, we're confident in achieving our goals and continuing to deliver exceptional value to our shareholders. This concludes our prepared remarks, and we will now open the line for questions. Thank you. As a reminder, if you would like to ask a question, press star one.
James R. Brickman: All aimed at delivering the best in class risk adjusted returns for our shareholders with that I'll turn it over to Jim for closing remarks.
Jim: Thank you Chad in closing I am extremely pleased with our first quarter results and we look forward to building on this momentum in the quarters to come.
Jim: We have a clear vision for our long term growth and future and with the talented teams. We have in place we're confident in achieving our goals and continuing to deliver exceptional value to our shareholders.
Jim: This concludes our prepared remarks, and we will now open the line for questions.
Speaker Change: Thank you as a reminder, if you would like to ask a question press star one on your telephone keypad.
James R. Brickman: The question has been answered and you would like to remove yourself from the queue Press Star one again.
Jim: Well pause for just a moment to compile the Q&A roster.
Jim: Your first question is from Karl record with BT hygiene.
Operator: Thank you. As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star 1 again. We'll pause for just a moment to compile the Q&A list. Your first question is from Carl Reichardt with VTIG.
Carl Edwin Reichardt: Thanks. Hey guys, nice to talk to you.
Carl Edwin Reichardt: Thanks, Hey, guys nice to talk to you.
Carl Edwin Reichardt: Hi, Bob a question about starts and in community count.
Carl Edwin Reichardt: I have a question about starts and community count. There is a big ramp in community count and starts, as you pointed out. I think Rick was it who said we've been up a lot the last couple of three quarters. So as we look out for the rest of the year, do you expect the community count to kind of flatten out or continue to grow at a fast pace? And the same question really related to starts on a year-over-year basis.
Carl Edwin Reichardt: No big ramp in community Count and starts as you pointed out I think Rick was you said, we've been up a lot in the last couple of three quarters. So as you look out for the rest of the year do you expect community count to kind of flatten out or continue to grow at a fast pace and same question really related to starts on a year over year basis.
Richard A. Costello: We're not really going to issue guidance on that. Obviously, we've reached a good start pace that has sequentially grown every quarter. We're trying to grow Trophy, especially. We've got a lot of lots there to start in larger communities. So we don't want to be specific on the community count.
Carl Edwin Reichardt: We're not really good.
Richard A. Costello: Issue guidance on that obviously, we've reached a good start pace.
Richard A. Costello: That has sequentially grown it every quarter.
Richard A. Costello: We're trying to grow trophy, especially we've got a lot of lots there to start.
Richard A. Costello: Larger communities so we.
Richard A. Costello: But we don't want to be specific on the community count.
Carl Edwin Reichardt: Okay, thank you, Rick. And then you talked about five and a half months of cycle time as sort of where you're running now, and that's improved quite a bit. As you look at sort of what your cycle time was pre-trophy signature versus where you think it's optimized today, are you kind of back to what you'd say is a normal level for the non-trophy business and at normal for the trophy business now? Is five and a half months sort of the right number to think about going forward, or do you think that can come down more?
Speaker Change: Okay. Thank you Greg and then.
Carl Edwin Reichardt: You talked about five five months cycle time as sort of where you are running now and that's improved quite a bit as you look at sort of what your cycle time was pre trophy signature versus where you think it's optimized today are you kind of back to what you'd say is a normal level for the non trophy business in at normal for trophy business now.
Carl Edwin Reichardt: And so five five months sort of the right number to think about going forward or do you think that can come down mark.
James R. Brickman: Well, this is Jim. I think it will come down a little just because Trophy is growing significantly relative to all of our other businesses, and Trophy's entry-level homes are more like 120-day cycle homes, so just due to product mix, I think there could be some improvement in cycle times. Jed, do you want to expand on that? No. Yeah, we're already Carl under four months on trophies. So we can spend that inventory three times.
Carl Edwin Reichardt: This is Jim I think it will come down a little just because trophies growing relative to all of our other businesses significantly.
Carl Edwin Reichardt: Great. And then last one, if I can squeeze one more in.
Jed Dolson: And trophies entry level homes are more like 120 day cycle homes. So.
Carl Edwin Reichardt: Just due to product mix I think there could be some improvement in cycle times Jed do you want to expand on that.
Carl Edwin Reichardt: No.
Jed Dolson: Yes, we're already Carl under four months on trophy. So we can see in that inventory three times okay.
Speaker Change: Okay, Great and then last one if I can squeeze one more in just on SG&A leverage.
Carl Edwin Reichardt: Just on SG&A leverage, you talked about adding some folks to staff up for growth, and I'm assuming that's at least partially connected to community count. But are you expecting that that sort of add-on is largely finished, and you should see some better leverage on SG&A over the course of the next year or two? Or are you going to continue to staff up? Is the growth strong enough that you'll continue to see these slightly higher levels of SG&A? Thanks, guys.
Carl Edwin Reichardt: You talked about adding some folks to staff up for growth and I'm, assuming that's at least partially connected to community count but are you expecting that that sort of add on is largely finished and you should see some better leverage on SG&A over the course of the next year or two or are you going to continue to staff up as the growth strong enough that youll continue to see these a little.
Carl Edwin Reichardt: Higher levels of SG&A, thanks, guys.
Richard A. Costello: Well, Rick can chime in on this, but some of the SGA was impacted by incentives in the quarter. And then Rick, do you want to talk about scaling our business and future SGA? Yeah, you're right, Carl, in terms of that. Some of it is implicit in the growth that we've seen in starts and community counts, etc. So as we see that growth in starts translates into growth in revenues, you should see improving SG&A.
Carl Edwin Reichardt: Rick can chime in on this.
Richard A. Costello: The SGA was impacted by incentives in the quarter and then Rick do you want to talk about scaling our business and future SG&A, Yes, Youre right Carl in terms of its.
Rick: Some of it is implicit in the and the growth that we've seen in starts in community count.
Richard A. Costello: Et cetera.
Speaker Change: So as <unk>.
Rick: As we see that growth in starts translate into growth in revenues.
Rick: You should see improving SG&A, yes, sir.
Carl Edwin Reichardt: I appreciate it, Rick. Thanks, guys.
Speaker Change: Appreciate it thanks guys.
Carl Edwin Reichardt: Yes, sir. Appreciate it, Rick. Thanks, guys. You bet.
Carl Edwin Reichardt: You bet.
Carl Edwin Reichardt: Your next question is from the line of.
Alexander John Rygiel: Your next question is from the line of Alex Rygiel with B. Reilly.
Alexander John Rygiel: Alex Rygiel with B Riley.
Alexander John Rygiel: Okay.
Alexander John Rygiel: Thank you. Nice quarter, gentlemen. Primary question here relates to gross margins. Gross margins are fantastic, and congratulations on that, particularly relative to your peer-reviewed universe. But I guess my question here is, Are you doing anything different right now, sort of in the current quarter, that would suggest a material change in home builder gross margin in the near term?
Alexander John Rygiel: Thank you nice quarter gentlemen.
Alexander John Rygiel: Hi.
Alexander John Rygiel: Primary question here as it relates to gross margin. So gross margins are fantastic and congratulations.
Alexander John Rygiel: On that particularly relative to your peer of universe.
Alexander John Rygiel: And I guess my question here is.
Alexander John Rygiel: Yep.
Alexander John Rygiel: Are you doing anything different right now sort of in the current quarter that would suggest a material change in homebuilder gross margin in the near term.
James R. Brickman: This is Jim. Short answer, no, a little bit longer answer: we've actually seen our margins maintained. Our incentives have not increased, and hopefully, the interest rate impact will allow us to maintain these margins as we continue throughout the rest of 2024. No, I think it's pretty much status quo from the results you're seeing. Yeah, thanks. Thanks, Alex.
Jim: This is Jim.
James R. Brickman: Short answer no.
James R. Brickman: I'm, a little bit longer answer we've actually seen.
James R. Brickman: Our margins maintained.
James R. Brickman: Our incentives have not increased and <unk>.
James R. Brickman: Hopefully the interest rate impact will allow us to maintain these margins.
James R. Brickman: As we continue throughout the rest of 2024 <unk>.
James R. Brickman: No I think it's pretty much status quo from the results you're seeing.
James R. Brickman: We are seeing that we're able to control our lock costs very well because of our self-development. We don't have what a lot of other builders who are land-like get exposed to with the constant 6% escalator clauses. So, you know, as we have come down in our ASP, you've seen our margins sustain themselves, and there are lots of metrics that you can look at. You know, one is that 80% of our revenues are from infill and infill-adjacent locations.
James R. Brickman: Yeah. Thanks, Thanks, Alex we are seeing.
James R. Brickman: That we are able to control our log costs very well because of our self development. We don't have what a lot of the other builders, who are land light get exposed to with a constant 6% escalator clauses.
James R. Brickman: So as we have come down in our ASP.
James R. Brickman: <unk> seen our margins sustain themselves and there are lots of metrics that you see one is that we're 80% of our revenues are in infill and infill adjacent locations 80% of the.
James R. Brickman: 80% of the finishing lots this year, you see some maps in there that show that those continue to be in infill and infill-adjacent locations. And our land buys have also been, this last quarter was 80% in those similar locations. So, you know, subject to whatever happens with interest rates, obviously, there's variability there with the 20% of the first-time buyer. But so far, so good.
James R. Brickman: Finishing lots this year you see some maps in there that show that those continue to be an infill and infill adjacent locations and our land buys are have also been unless this last quarter was.
James R. Brickman: 80%.
James R. Brickman: Those similar location so.
James R. Brickman: Subject to whatever happens with interest rates, obviously, there is variability there with our 20% of the <unk>.
James R. Brickman: First time buyer.
James R. Brickman: But so far so good.
James R. Brickman: And then I believe you said spec homes under construction as a percentage of all homes under construction is about 60% right now.
James R. Brickman: And then I believe you said spec homes under construction as a percentage of all homes under construction is about 60% right now. Any near term expectation for that to change a lot either?
James R. Brickman: Any near term expectation for that to change a lot either.
James R. Brickman: This is Jim. We just got our latest weekly report, and it's really interesting. Our sales start and closings are all in cadence right now pretty well, so we don't see a lot of change. Excellent.
Jim: This is Jim.
Jim: We just got our latest weekly report and it's really interesting our sales start with closings are all in cadence right now pretty well soon.
Jim: We don't see a lot of change.
Speaker Change: Excellent nice quarter.
Alexander John Rygiel: Excellent. A nice quarter.
Speaker Change: Thanks, Alex.
Alexander John Rygiel: Your next question is from the line of Jay Mccanless with Wedbush.
Jay McCanless: Your next question is from the line of Jay McCanless with Wedbush.
Jay McCanless: Hey, good afternoon. Thanks for taking my question. I guess the first one I wanted to ask about was surprised to see sales absorption down on a year-over-year basis. Maybe you could talk about why that happened and whether it was just waiting for some communities to get developed or slow walking in certain areas?
Jay McCanless: Hi, Good afternoon. Thanks for taking my question I guess, the first one I wanted to ask about was surprised to see sales absorption down on a year over year basis.
Unknown Executive: Kind of walk us through what happened there. Yeah, we were quite happy with the rate that we achieved in Q1, if you recall, Q1 of last year. That was really when sales took off for us. We entered that quarter with a lot more finished and finished inventory. In fact, one of the reasons that our backlog grew a little bit more this quarter was because we did not have as much finished and finished inventory.
Jay McCanless: Maybe talk about why that happened and was it just waiting for some communities get developed or slow walking in certain areas kind of walk us through what happened there. Please.
Unknown Executive: Yeah, we were we were quite happy with the with the rate and that we achieved in <unk>.
Unknown Executive: But still, Trophy, for instance, is selling and closing 70% of their sales in the same quarter. They sell it, and close it in the same quarter. With that kind of statistics, it really helps to have quite a bit more of that inventory. Pulte, for instance, who is the closest and gross margin to us, had 3.0 sales per month. So, you know, our performance is actually very strong. What were we?
Unknown Executive: Q1, if you recall Q1 of last year.
Unknown Executive: That was really when sales took off for us.
Unknown Executive: We entered to that quarter with a lot more finished and finishing inventory.
Unknown Executive: In fact, one of the reasons that our backlog grew a little bit more this quarter was because we did not have as much finished and finishing inventory, but still trophy for instances selling and closing 70% of their sales in the same quarter. So they sell it and close it in the same quarter. So.
Unknown Executive: With that kind of statistic. It really helps helps to have quite a bit more of that inventory but.
Unknown Executive: <unk> for instance, who is the closest in gross margin to US had 3.0 sales per month. So our performance is actually very strong for $23. Eight so were really strong there.
Unknown Executive: 3.8, you know, so we're really strong there. Could you talk about what you're seeing so far in April, not only maybe pricing power and traffic, but also what are you seeing from your competitors in terms of increasing incentives, especially with mortgage rates moving up? Yeah, this is Jed Jay.
Jed Dolson: Could you talk about what youre seeing so far in April.
Jed Dolson: Not only maybe pricing power in traffic, but also what are you seeing from your competitors in terms of increasing incentives, especially with mortgage rates moving up.
Unknown Executive: Yes. This is Jed J.
Jed Dolson: We wrapped up April with, you know, very good results and very strong demand. And as we look into May, it looks like that will continue. We may, depending on where rates bounce around, we may tweak incentives a little bit, but I don't see that being anything meaningful. Yeah, we've had a fairly inconsequential change in the incentives from March to April, from Q1 to April. You know, we have been successful in raising prices in approximately two-thirds of our communities at the same time that we saw the incentives come down in Q1. So we like what we see.
Jed Dolson: We wrapped up April with very.
Jed Dolson: Very good results.
Jed Dolson: Very strong demand as we look into may.
Jed Dolson: It looks like that will continue we may depend.
Jed Dolson: Depending on where rates bounce around we made tweak incentives a little bit, but I don't see that being.
Jed Dolson: Anything meaningful.
Jed Dolson: Yeah, we've we've had.
Jed Dolson: Yes.
Jed Dolson: Fairly in consequential change and.
Jed Dolson: The incentives from.
Jed Dolson: From March to April from Q1 to April.
Jed Dolson: We have been successful in raising prices and approximately two thirds of our communities at the same time that.
Jed Dolson: We saw the incentives come down in Q1.
Jed Dolson: So we like what we see the buyer is back in our markets.
Jay McCanless: The buyer is back in our market. So we're, we're, we're feeling good. And then the other question I had, just going back to the gross margin question. What historically has been the mix of infill business versus, I know Trophy Signature is new, but newer, but what's that historical mix of business? And are you guys expecting infill to maybe be a higher percentage this year? Is that one of the reasons that the gross margin was so strong in one queue?
Jay McCanless: So we're we're feeling good.
Jay McCanless: Okay.
Jay McCanless: And then the other question I had just going back to the gross margin question.
Jay McCanless: What historically has been the mix of infill business versus no trophy signatures, new but newer but what's the historical mix of business.
Jay McCanless: And are you guys expecting infill to maybe be a heavier percentage this year.
Jay McCanless: Is that one of the reasons that the gross margin was so strong in <unk> and <unk>.
Jay McCanless: I know you all don't like to give guidance, but infill is going to be a heavier percentage of the mix this year.
Jay McCanless: Does it follow that we should maybe be a little more optimistic around what our gross margin assumption should be.
Jay McCanless: And I know y'all don't like to give guidance, but if infill is going to be a heavier percentage of the mix this year, does it follow that we should maybe be a little more optimistic around what our gross margin assumption should be? Hey, Jay, this is Rick again. We have been consistent for the last several years, actually, with a little more than 80% being infill-infill adjacent. So we expect our ASP this year to continue to range. It's always a function of mix.
Jay McCanless: Hey, Jay this is Rick again.
Rick: Have been consistent for the last several years actually with.
Rick: A little more than 80% being unfilled infill adjacent so.
Rick: We expect our ASP this year to continue to range.
Jay McCanless: It's always a function of mix.
Richard A. Costello: The 539,000 in Q1 was not a surprise to us, and similarly, we expect between 540,000 and 560,000 for the rest of the year. So that kind of indicates that the mix really isn't changing a whole lot from where we're at right now. All those metrics, our revenue closing, our lot inventory, the lots that we're buying, the lots that we're finishing, continue to be in that same place. Jay, this is Je
Rick: The 539000 in Q1 was not a surprise to us.
Richard A. Costello: And similarly, we expect between $5 40, and $5 60 of the rest of the year. So.
Richard A. Costello: Is that kind of indicates that the mix really isn't changing a whole lot from where we're at right now.
Richard A. Costello: Which all of those metrics are revenues closing our our lot inventory are the lots that were buying the lots that were finishing continue to be in that same mix.
Jed Dolson: I would just add we're not running Trophy as a low margin business. We're running Trophy as a high margin business. And, you know, we do have to compete with other public builders more in that space. But the differential, you know, it's not a night and day difference in gross margin from infill to trophy. Yeah, this is Jim.
Richard A. Costello: Jay This is Chad I would just add we're not running trophy is a low margin business. We're running trophy is a high margin business.
Jim: And yes, we do have to compete with other public builders more in that space.
Jed Dolson: But.
Jim: The differential is.
Jim: It's not a night and day differential in gross margin from infill to trophy.
James R. Brickman: The other thing that's interesting is trophies, even at our lower entry level price point. Our cancellations are under 10%. I think we have a better backlog at Trophy, not as much as we said we're selling most of these homes, you know, in a shorter window when they close, but in terms of margin and risk, we can't eliminate all risk. But I think Trophy is doing a really great job of maintaining margin and not having cancellations.
Jed Dolson: Yes. This is Jim the other thing that's interesting is trophies, even in our lower entry level price point.
James R. Brickman: Our cancellations are under 10%.
James R. Brickman: I think we have.
James R. Brickman: A better backlog in trophy not as much as we said we're selling most of these homes and assured a window when they close but in terms of margin and risk.
James R. Brickman: But we cannot eliminate all risk, but I think trophy is doing a really great job of maintaining margin not having cancellations and were just real excited about some of the new communities that are getting ready to open end markets that we've already had great success.
Jay McCanless: And we're really excited about some of the new communities that are getting ready to open in markets that we've already had great success. The last question I have for you guys, could you talk about what your lot cost inflation has been so far this year? And also, as part of that, we've heard from some of your competitors that land development costs are also going up in addition to just the lot price itself. So maybe could you talk about what type of inflation you're seeing on both those metrics? Yeah, Jed can chime in on this.
Jed Dolson: Got it.
Jed Dolson: The last question I had for you guys could you talk about what Youre what cost inflation has been so far this year and also as part of that also we've heard from some of your competitors that land development costs are also going up in addition to just the what price itself. So maybe could you talk about what type of inflation, you're seeing on both those metrics.
Unknown Executive: He works on it, you know, all the time with Bobby Samuel, our national head of vice-vice president of land development, but we are not seeing major lot land development cost increases anymore. We're not seeing decreases either. We don't have a crystal ball where we can forecast this, but we're putting budgets together on a number of large land deals that we're tieing up and getting ready to start, and they're right in line with our projections.
Jay McCanless: Yes, Jed can chime in on this he works on it.
Unknown Executive: All the time with <unk> national and have a nice vice president of land development, but we are not seeing.
Unknown Executive: Major Lat land development cost increases anymore.
Unknown Executive: And we're not seeing decreases either.
Unknown Executive: We don't have a crystal ball, where we can forecast this but.
Unknown Executive: We're putting budgets together on a number of large land deals that we're teeing up and getting ready to start and they're right in line with our projections and we are not seeing nearly the cost pressures or the supply.
Unknown Executive: And we're not seeing nearly the cost pressures or the supply pressures of not having transformers and all the other stuff that we were experiencing a year or two ago. Yeah, we mentioned that, you know, half of our lots owned and controlled are in long-term master plan communities where we bought at wholesale prices. Sub 12,000 a paper lot, and You know, we feel good about those long-term buys. Most of those are in reimbursable-type communities where, over time, we'll get reimbursed for development costs, and our input, you know, we're not seeing land development horizontal costs go up; they're, you know, pretty stable to maybe trending down a percent or two. And one last point on that, you know, one of the big reasons for our year-over-year decline in ASP was the transition from more infill to infill-adjacent communities, and that was probably the most profound atrophy.
Unknown Executive: Pressures of not having transformers and all the other stuff that we were experiencing a year or two about jetblue.
Unknown Executive: Yes, we mentioned that half of our lots owned and controlled are in long term Master plan communities, where we bought at wholesale prices.
Unknown Executive: Sub 12000, a paper loss.
Unknown Executive: We feel good about those long term buys most of those are in Reimbursable type communities were over time.
Unknown Executive: We will get reimbursed for development costs.
Unknown Executive: And our we're not seeing land development horizontal costs.
Unknown Executive: Go up they're.
Unknown Executive: Pretty stable to maybe trending down a percent or two.
Richard A. Costello: But on a year-over-year basis, their ASP, I think, went down by about $100,000, but the lot cost, the finished lot cost, I'm not gonna say what the percentage was, but it was all within the same percentage point, you know, X point something percent to X point something percent. So it's remarkable that we've been able to maintain that cost structure and, therefore, our gross margin. Yeah, pretty impressive. Thanks, guys.
Unknown Executive: And then one last point on that.
Richard A. Costello: One of the big reasons for our year over year decline in ASP.
Richard A. Costello: Was the transition from more infill to infill adjacent communities and that was probably the most profound that trophy.
Richard A. Costello: But on a year over year basis. Their ASP I think went down by about $100000, but the lot cost. The finished lot costs I'm not going to say what the percentage was but it was all within the same percentage point.
Richard A. Costello: <unk> point something percent to X point something percent. So it's remarkable that we've been able to maintain.
Richard A. Costello: That cost structure, and therefore, our gross margins.
Richard A. Costello: Pretty impressive thanks, guys.
Speaker Change: Got it.
Richard A. Costello: As a reminder to ask a question press star one on your telephone keypad.
Alex Barron: As a reminder, to ask a question, press star 1 on your telephone keypad. Your next question is from the line of Alex Barron with Birch Center.
Alex Barron: Your next question is from the line of Alex Barron led batch center.
Alex Barron: Yes, hi, guys good morning.
Alex Barron: Yeah. Hi guys. Good morning.
Alex Barron: I wanted to ask about your land development, which you've emphasized and clearly it's yielding great results. What percentage of your overall losses that you guys are involved with are from self-development? And is that percentage likely to trend up from here?
Alex Barron: Good morning, I wanted to ask about your land development.
Alex Barron: You've emphasized and clearly it's yielding great results.
Alex Barron: What percentage of your overall.
Alex Barron: Lots that you guys are involved with our self development and as that percentage likelihood trend up from here.
Richard A. Costello: We show that calculation in both the earnings release and the 10-Q each quarter. We take the lots owned and controlled, and we back out of the controlled lots, the land parcels that we're about to close on, which are actually going to be self-developed. And we come up with that percentage, and it runs around 86% to 88%, give or take. And that's where we are at the end of Q1 as well. So it's a preponderance.
Alex Barron: We show that calculation actually inside both the earnings release and the 10-Q.
Richard A. Costello: Each quarter, we take a lots owned and controlled and we back out of the controlled lots.
Richard A. Costello: Land parcels that we're about to close on.
Richard A. Costello: Which are actually going to be self developed and we come up with that percentage and it runs around 86% to 88% give or take.
Richard A. Costello: And that's where we're at at the end of Q1 as well so it's a preponderance.
Speaker Change: Alex we're seeing in certain instances.
Richard A. Costello: <unk>.
Richard A. Costello: Well to answer your question, we're not going to be land light, we are seeing the spread and because some builders are trying to stay land lines no matter, what because of what they told wall Street theyre paying prices for lots, we would never consider on an option basis because the.
James R. Brickman: Well, to answer your question, we're not going to be land-locked; we are seeing the spread. And because some builders are trying to stay land-locked no matter what, because of what they told Wall Street, they're paying prices for lots we would never consider on an option basis. Because the spread between that retail option lot price and what we think you can put on a developed lot that we wholly own in a larger master plant community. We just aren't interested in even considering going out on land like this. The cost is too great,
James R. Brickman: Spread between net retail option lot price and what we think we can put a developed lot.
James R. Brickman: Wholly owned.
James R. Brickman: Larger master planned community.
James R. Brickman: We just arent interested in even considering going in the land light.
James R. Brickman: The cost is too great.
James R. Brickman: And how do you guys answered to the I guess.
James R. Brickman: And how do you guys answer to the, I guess, flip side of the argument that it's, you know, less capital and therefore a higher return?
James R. Brickman: Flip side of the argument that it's less capital and therefore higher return.
James R. Brickman: Well, let me answer this because I do it every time. For some reason, which I have never been able to figure out, everybody thinks you can magically transfer land risk and yield risk to a bank. Lot bankers are some of the smartest guys in the real estate business. Their goal is to make the highest returns for their investors. Their goal is to charge a builder the highest implied interest rate to the lot bank and get the greatest earnest money deposit they can. It's a totally misaligned structure that has just been, I think, oversold to Wall Street. Alex, one of the best.
Speaker Change: You already answered this because I think that every time for some reason.
James R. Brickman: Which I have never been able to figure out everybody thinks you could magically transfer.
James R. Brickman: Land risk and yield risk too a lot banker.
James R. Brickman: <unk> bankers are some of the smartest guys in the real estate business.
James R. Brickman: A lot bankers goal was to make the highest returns for the lock bankers investors there.
James R. Brickman: Our goal is to charge a builder the highest implied interest rate to the lot bank and get the greatest earnest money deposit taking it as a totally missile line structure.
James R. Brickman: Net.
James R. Brickman: Has just been I think oversold.
James R. Brickman: Wall Street.
James R. Brickman: Yes.
Alex Barron: Yes, Alex.
James R. Brickman: Best.
James R. Brickman: Stats that I can give you in that regard, it's actually twofold, one return on assets return on equity.
Richard A. Costello: The statistics that I can give you in that regard are actually twofold, one return on assets and return on equity. You know, our return on assets in Q1 was the highest amongst all of our peers. We don't publish it, but it was right at 17% on an annualized basis. And our return on equity in Q1 on average equity was 25.5%. So if it's going to show up, it's going to show up in those returns.
Richard A. Costello: Our return on assets in Q1 was the highest amongst all of our peers, we don't publish it but it was right at 17% on an annualized basis and our return on equity in Q1 on average equity was 25, 5%. So if it's going to show up it's going to show up in those returns.
Richard A. Costello: I think a lot of the folks who are landline, a lot of them, at least in the small and mid-cap builder range, are highly leveraged. So they're really trying to juice those equity returns, but it's not working. Well, they have to be land light.
Richard A. Costello: Thank a lot of the folks who are land light a lot of them at least in the small and mid cap builder range are highly leveraged.
Richard A. Costello: So they are really trying to juice those equity returns, but it's not working well they have to be land light yes.
James R. Brickman: Yeah, it means it's a positive feedback loop that's being created, and frankly, in our two largest markets, Dallas by far and Atlanta, we are one of the largest lot developers. There aren't enough developers to develop all these lots for landline guys in Atlanta or death. That's why you don't see NBR being a dominant builder in Atlanta.
Richard A. Costello: I mean, it's a it's a positive feedback loop, that's being created and frankly in our two largest markets Dallas and Atlanta.
James R. Brickman: We are.
James R. Brickman: One of the largest lot developers there are lot developers to develop all these lots for landline guys.
James R. Brickman: In Atlanta or Dallas.
James R. Brickman: That's why you don't say MBR being a dominant builder in Atlanta.
Speaker Change: Got it.
James R. Brickman: If I could ask another question. What is the average size of your communities? And also, you know, do you only develop for yourself to keep all the lots, or do you sell to other builders as well?
Speaker Change: If I could ask another question.
Speaker Change: What is the average size of your communities.
Speaker Change: And also do you.
Speaker Change: You only self develop for yourself and to keep all the lots of new sales to other builders as well.
James R. Brickman: Most of the time, we develop just for ourselves. We have a large deal that we're looking at closing in about three weeks, and we have builders calling us like crazy. Will you sell us lots? And I think what we're trying to decide right now is whether or not we would consider selling lots in this 1200 home neighborhood if, in return, they can give us lots in some other neighborhoods where we have more storefronts so we can increase our sales and revenue. So that's a fluid conversation. I doubt whether we're going to get the benefit of the bargain and will probably self-develop and be the only builder in this community. I appreciate the answer. I'll get back in later.
Speaker Change: Most of the time, we develop just for US we have a large deal that we're looking at closing in about three weeks.
James R. Brickman: That we have builders, calling us like crazy when you sell a slots.
James R. Brickman: And I think what we're trying to decide right now is.
James R. Brickman: Only would we consider selling lots in this 1200 home neighborhood is if with Bacon and return give us lots and some other neighborhoods, where we have more store fronts. So we can include to increase our sales and revenues. So that's a fluid conversation I doubt, whether we're going to get.
James R. Brickman: The benefit of the bargain and we will probably self developed and be the only builder in those communities.
Speaker Change: I appreciate the answer I'll get back in the queue. Thank you.
Alex Barron: We appreciate the answer. I'll get back to you. Thank you.
Speaker Change: Thanks, Alex.
Alex Barron: Okay.
Speaker Change: At this time there are no further audio questions. This does conclude today's call. Thank you for joining you may now disconnect.
Operator: At this time, there are no further audio questions. This does conclude today's call. Thank you for joining us. You may now disconnect.
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