Q3 2024 Taylor Morrison Home Corp Earnings Call
Ladies and gentlemen, the tandem Morris for incorporation stuff closer to <unk> 24 earnings webcast will begin in just a few minutes, but your highest Mackenzie Aron. We appreciate your patience bullish payoffs session today during the call. We do encourage any participants to raise questions. They may have you can raise a question by pressing star one on your telephone keypad.
And so you make yourself that line of questioning it staff for it by Chi we'll begin in just a few minutes.
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Okay.
Speaker Change: Good morning, and welcome to the Teva Morris The course, which went to 24 earnings conference call. Currently all participants are in a listen only mode. Later, we will conduct a question not session and instructions will be given at that time as.
Speaker Change: As a reminder, this conference call is being recorded I would now like to introduce to you Mackenzie Aron Vice President Investor Relations.
Speaker Change: Mackenzie.
Mackenzie Aron: Thank you and good morning, everyone. We appreciate you joining us today before we begin let me remind you that this call, including the question and answer session will include forward looking statements. These statements are subject to the safe Harbor statement for forward looking information that you can review in our earnings release.
Mackenzie Aron: That's really just a portion of our website at Taylor Morrison Dotcom. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Mackenzie Aron: These risks and uncertainties include but are not limited to those factors identified in the release and in our filings with the SEC and we do not undertake any obligation to update our forward looking statements and.
Speaker Change: In addition, we will refer to certain non-GAAP financial measures on this call, which are reconciled to GAAP figures in our release now I will turn the call over to our chairman and Chief Executive Officer, Cheryl Palmer. Thank.
Cheryl Palmer: Mackenzie and good morning, everyone. Joining me as Curt then hefty, our Chief Financial Officer, and Eric user our Chief Corporate operations Officer as always I will focus my remarks on an update on the market and our strategic priorities, while Eric will discuss our land portfolio and thoughts on the retail market.
And Kurt will provide our detailed financials and guidance I am proud to share the outstanding results of our third quarter, which clearly demonstrates the benefits of our diversified consumer and geographic strategy as well as our teams execution and amid continued interest rate volatility economic.
Cheryl Palmer: Uncertainty and hurricane related disruptions to.
Cheryl Palmer: To begin in the third quarter, we delivered 3394 homes at an average price of 598000, producing over $2 billion of revenue with a home closings gross margin of 24, 8%.
Cheryl Palmer: Coupled with strong SG&A leverage and improved financial services income this generated over 50% year over year growth and our earnings per diluted share to $2.37 and a 15% year over year increase in our book value per share to approximately $54.
Cheryl Palmer: Yeah.
Cheryl Palmer: Once again, both our closings volume and gross margin exceeded our guidance, where China, particularly proud of considering there were two hurricanes during the quarter, including Hurricane Helene during the critical final two weeks.
Cheryl Palmer: Thankfully our communities with the storms wins in range well with minimal damage reported however, consistent with our robust safety protocols, we shut the sales offices and construction site three days in advance of the storms and then required several days for cleanup and recovery, resulting in nearly two week.
Cheryl Palmer: It's worth of disruption.
Cheryl Palmer: Most notably the excess water has the greatest impact on land under development with Florida, The Carolinas and Georgia, representing a combined 35% of our total communities. These storms impacted a sizable portion of our portfolio as a result, I believe our better than expected third quarter closings in <unk>.
Cheryl Palmer: Most margin are all the more impressive, particularly given our resort lifestyle communities outsized contribution to revenue and margin.
Cheryl Palmer: While there will be some temporary timing delays due to the storms I believe the most lasting impact will be related to the heightened risk of shrinking availability of homeowners insurance specifically in coastal market.
Cheryl Palmer: Fortunately for our customers, we are able to offer well priced coverage via our wholly owned subsidiary Taylor Morrison insurance services, which as of the third quarter had a 59% capture rate.
The strong construction quality of our newly built homes compared to older existing homes and careful site selection generally away from coastlines. The average premium of our insurance policies is typically lower than the market and has increased to a lesser degree well.
Cheryl Palmer: Well, we are closely watching the evolving market dynamics, we do not expect a meaningful change in insurance availability and are pleased that insurance has generally not been an obstacle for our buyers turning now to the quarter Homebuyer demand was generally solid in most markets led by the east and central regions while the.
West Coast was more mixed as I shared on our second quarter call. We have begun to see traffic recover in June and July which translated into improving order volume throughout the third quarter with activity ending on a high note in September.
Cheryl Palmer: In total our net orders increased 9% year over year during the quarter driven by a monthly absorption pace of two eight per community.
Cheryl Palmer: While still early in October demand has generally been healthy and consistent with seasonal trends, even with the impact of yet another hurricane in Florida.
Cheryl Palmer: By consumer group, our third quarter orders consisted of 33% entry level, 43% move up and 24% resort lifestyle.
Cheryl Palmer: On a year over year basis orders were strongest in our resort lifestyle segment with 20% growth even if this florida heavy business bore the brunt of hurricane related disruptions. Meanwhile, our <unk> sales increased 8%, while the entry level was up more modestly at 4%.
Cheryl Palmer: Since the federal reserve announced its long awaited rate reduction in September mortgage rates have been somewhat range bound in the mid 6% range as the market largely anticipated the move.
Cheryl Palmer: On the sales floor, we continue to lien primarily on customizable finance incentives in lieu of base price adjustments to address each consumer's unique circumstances as needed.
Cheryl Palmer: This approach allows us to better maintain our communities home prices and protect our gross margins all while improving our customers' purchasing power.
Cheryl Palmer: Accordingly, our use of relatively costly mortgage hard commitments to secure below market interest rate has remained at just around a third of our third quarter closings half of which are for first time buyers. Many of our buyers instead prefer to allocate their incentive dollars towards closing costs or temporary body.
Cheryl Palmer: And this is one reason why our consumer diversification support our strong gross margins.
Cheryl Palmer: In addition, our margins reflect the sizable lot an option premium revenue, we earned primarily on to be built homes on a per home basis. This combined revenue averaged a 101000 in the third quarter or 17% of our average closing price.
Cheryl Palmer: This contributed to several hundred basis points spread between our to be built and spec home margins again, reinforcing the benefits of our diversified approach in the third quarter to be built homes accounted for 40% of our sales down from 45% a year ago. In addition to the margin.
Cheryl Palmer: Benefits, we have found that by offering both to be built and spec homes, we are better able to compete for sales against builders with more limited options. Our online tools has been a great option for home shoppers looking to take more control of the buying process.
Cheryl Palmer: Following the National Association of Realtors, New rules governing the way Realtors get paid and by whom we are seeing more customers opt for self service within our online home reservation system. In fact, the third quarter brought record highs for the year in <unk>.
Cheryl Palmer: Online reservation with a conversion rate of 58% and a 17% contribution to sales realtor participation on our online tools reservations continues to trend downward with meaningful improvement.
Cheryl Palmer: Over a year.
Taking a step back we continue to believe that the housing market remains severely under supplied with a multimillion unit deficit due to years of under building relative to household formation, while the existing home market has started to loosen with resale listings gravitating back towards historic norms, especially in Florida.
Cheryl Palmer: In Texas, we believe our communities and product had not been meaningfully impacted given a substantial portion of the listings are not truly competitive as Eric will discuss in just a moment.
Cheryl Palmer: Taylor Morrison, regardless of the ever shifting macro backdrop, we believe that our ability to drive outsized growth and attractive returns has been permanently strengthen since expanding our company's scale and refining our operational capabilities over the last many years. This is reflected in the long term targets that we introduced earth.
Cheryl Palmer: Earlier this year each of which are meaningfully more strong than our historic norms. These targets include a 10% annual home closings growth in annualized low three absorption pace low to mid 20% home closings gross margins and mid to high teens return on equity.
Cheryl Palmer: This year with just two months to go we expect to meet or exceed each of these metrics with double digit closings growth to approximately 12725 homes at a gross margin of around 24, 3% as 2024 has shaped up to be another milestone.
Cheryl Palmer: One year for our company as we head into 2025, we are confident that our longstanding emphasis on capital efficient growth will yield another year of strong performance supported by strong tailwind driving the need for new construction and our favorable positioning as a diversified homebuilder with that lens.
Speaker Change: Now turn the call over to Eric.
Eric: Thanks, Cheryl and good morning.
Eric: I will begin with the topic of resale competition, which continues to bear close monitoring in light of rising listing levels in a number of markets for perspective. The total number of resale listings in our operating Msas increased over 30% since the beginning of the year, however, when including existing home sales and the analysis the average amount.
Eric: So supply in our Msas is up to $3 two from two one months a year ago, but does it actually declined from three four months to three two months since the beginning of the year.
Eric: We believe this metric more fully reflects market dynamics as it accounts for both supply and demand and remains below historic norms.
Eric: Beyond these high level observations, we are most focused on understanding competitive retail supply at the community level and how consumers may evaluate these listings as compared to our product.
Eric: As I discussed on last quarter's call. Our teams had analyzed the true competitive sets for communities in Florida, Texas, and Arizona with encouraging conclusions.
Eric: At that time I shared that for this sample set the average months of resale supply surrounding our communities was nearly 20% lower than that of the overall msas.
Eric: And only 19% of the resale homes within a three mile radius of those communities would likely be considered truly competitive with our homes after taking into account square footage price product type and vintage factors.
Eric: We believe our communities amenities would likely further improve our products appeal.
Eric: We have since updated the analysis and found that the competitive set still represents just 19% of currently listed homes for these Florida, Texas and Arizona communities.
Eric: In addition, since last quarter, we expanded the analysis beyond these key markets to cover all of our areas of operations across the country and I am pleased to report that through this broader loans. The conclusion is even more favorable with only 17% of current resale listings likely to be considered truly competitive from our trusted national portfolio.
Eric: Leo.
Leo: We believe that a normalizing resale market should we expect that over time, but we will continue to examine relevant MSA sub market and asset level impacts.
Leo: Moving to land, our owned and controlled lot inventory was 83579 homebuilding lots at quarter end based on trailing 12 month closings. This represented six six years of supply of which only $2. Seven years was one of these lots 58% were controlled via off balance sheet structures up from.
53% at the end of 2023 to the highest level in our history.
Leo: Our use of capital efficient investing tools is grounded in our strategic focus on generating enhanced returns on our invested capital and we are well on our way to achieving our near term goal of controlling at least 60% to 65% over a lot supply.
Leo: In support of this effort I am pleased to announce that we have secured another land banking facility that provides $1 billion of aggregate off balance sheet financing with significant return benefits.
Leo: After voting with field of prospective partners for this vehicle, we chose Kennedy Lewis, a leading credit focused investment firm given execution confidence in terms that we believe are advantageous and navigating a rate environment, which continues to exhibit some degree of volatility.
Leo: From an investment perspective, we allocated $323 million to homebuilding land acquisition and $270 million to development of existing assets for a total spend of $593 million during the quarter.
Leo: This brought our total year to date land investment to $1 8 billion.
Leo: Leaving us on track to spend around $2 $5 billion this year.
Leo: End of our prior range.
Leo: Approximately 40% of the spend is allocated for development.
Leo: The total amount of land spend though we will ultimately be somewhat dependent on our ongoing use of off balance sheet financing through the end of the year.
Leo: Based on our strong land pipeline of development timelines, we expect our community count to continue to expand into 2025 and beyond from an anticipated year end outlet count between 330 to 340 as we remained very well subscribed for the near term.
Leo: And lastly, I will provide a brief update to our evolving yardley build to rent business, which develops a monetize rental communities of one to three bedroom cottage style homes and individual backyard for all.
Leo: We have our next two wholly owned communities under contract for disposition by year end, which is expected to generate cash flow of around $85 million.
Leo: With our disposition activity to increase in the coming years as communities reach completion and achieve targeted occupancy levels, we will provide a greater guidance on our yardley projections early next year.
Speaker Change: With that I will turn the call to Kurt.
Kurt: Thanks, Eric and good morning, everyone to dive into the specifics of our third quarter reported net income was $251 million.
Kurt: We're $2 37 per diluted share.
This was up from 54% from $1.54 a year ago, driven by a sharp increase in homebuilding revenue.
Kurt: Strong gain in our homebuilding gross margin and healthy SG&A leverage.
Kurt: Driving our topline growth our closings volume increased 29% year over year to 3394 homes.
Kurt: This more than offset a 2% decline in our average closing price to $598000 to produce a 26% increase in home closings revenue to $2 billion, resulting in an upside to our prior guidance our closings volume benefited from improvement in construction cycle times in there.
Kurt: Greater number of spec homes sold and closed during the quarter.
Kurt: In addition, we closed nearly 60 homes in the Bay area during the quarter that had been scheduled for the fourth quarter as the energy utility company result delays sooner than anticipated from a production standpoint, we started 2864 homes or two eight per community per month consistent with our <unk>.
Kurt: <unk> space.
Kurt: Inclusive of these starts we ended the quarter with 8490 homes under production of which 3349 respects, including 623 finished units.
Based on our homes under production, we expect to deliver around 3400 homes in the fourth quarter for the full year. This equates to total expected closings of 12 725 homes as compared to 11495 homes in 2023 from a pricing perspective.
Kurt: We expect the average closing price of our deliveries to be around $600000 for the year, including approximately $610000 in the fourth quarter.
Kurt: Turning now to margins our home closings gross margin was 24, 8% up from 23, 8% in the prior quarter and 23, 1% a year ago.
Kurt: Compared to our expectations our margin benefited from a number of factors, including favorable mix fewer incentives and better than expected cost leverage from higher closing volume.
For the fourth quarter, we expect our home closings gross margin to remain healthy at around 24, 5%.
Kurt: Which could result in a full year margin of approximately 24, 3%. This is up from our prior full year guidance of around 24%.
Kurt: It is also worth highlighting that our gross margins have remained consistent in a tight range over the last two years, despite significant movement in interest rates over that time.
Kurt: This is in contrast to greater volatility and industry margin trends, reflecting the pricing resiliency of our diverse portfolio. Looking ahead, we continue to expect our gross margins in the foreseeable future to remain above historic averages in the low to mid 20% range.
Kurt: This outlook reflects increased production and operational efficiencies greater cost leverage from our scale and a lower capitalized interest burden from our reduced debt levels. Our net sales orders increased 9% year over year to 2830 homes.
Kurt: This was driven by a 5% increase in ending community count to 340 outlets and a 4% improvement in our monthly absorption pace of two eight.
Kurt: It is worth highlighting that this quarter sales pace was well above our pre 2023rd quarter average of 2.2.
Kurt: As we have discussed on recent calls we are targeting an annualized sales pace goal in the low three range.
Kurt: This is one of the drivers of our improving returns and reflects our growth in higher pacing entry level price points and pivot away from large third party developed master planned communities year to date, our average pace of three two is consistent with this goal our cancellations remain within normal ranges and below industry average at just nine three per.
Kurt: A scent of gross orders as we continue to benefit from a diversified consumer base diligent pre qualifications and meaningful average customer deposits of $54000 per home.
Kurt: SG&A as a percentage of home closings revenue was nine 8% down from 10, 4% a year ago for.
Kurt: For the year, we continue to expect an SG&A ratio in the high 9% range.
Kurt: During the quarter financial services revenue was $50 million with a gross margin of 45% up from $40 million and 42, 2% a year ago driving these results our financial services team achieved another exceptional capture rate of 88%, reflecting the success of its effect.
Kurt: <unk> incentive tools strong customer service and close partnership with our homebuilding teams in.
Kurt: In the third quarter, our buyers financed by Taylor Morrison home funding had an average credit score of 754 down payment of 23% and household income of $180000.
Kurt: Turning now to our balance sheet, we ended the quarter with liquidity of approximately $1 $2 billion.
Kurt: This included $256 million of unrestricted cash and 946 billion of available capacity on our revolving credit facility, which was undrawn outside normal course letters of credit.
Kurt: Our net homebuilding debt to capitalization ratio was 22, 5% and our next senior note maturity is not until 2027, providing us with financial flexibility we.
Kurt: We expect to end the year with our net homebuilding debt to capitalization ratio of around 20%.
Kurt: During the quarter, we repurchased 1 million shares of our common stock outstanding for $61 million, bringing.
Kurt: Bringing our year to date investment to $4 2 million shares and $258 million.
Kurt: This leaves us on track to meet our target of repurchasing a total of approximately $300 million this year.
Kurt: Based on our share repurchases completed and settled through the third quarter. We now expect our diluted shares outstanding to average $106 million in the fourth quarter and $107 million in the full year.
Kurt: It is our normal practice this guidance does not reflect the potential of any future share repurchases that may occur over the remainder of the year.
Kurt: Our capital allocation priorities include investing in our business, maintaining a strong liquidity position and returning excess capital to our shareholders in the form of share repurchases all.
Kurt: All with a focus on generating attractive returns on our equity and invested capital.
Kurt: To that point I am pleased to share that our board of directors recently authorized an increase in our share repurchase authorization up to $1 billion. This new authorization is effective through December 31 2026.
Kurt: This expanded authorization suggests we remained strongly committed to taking advantage of our healthy cash generation, which we continue to enhance with our asset lighter land investment approach to repurchase our shares and an increasingly programmatic manner now I will turn the call back over to Cheryl. Thank you Carl.
To wrap up let me emphasize that our strong third quarter results, including our better than expected closings volume healthy sales and strong and steady gross margin are a testament to the benefits of our diversified consumer and geographic strategy, while the macro backdrop remains choppy with headwinds from interest rate.
Kurt: The upcoming election, and broader economic unknowns weighing on consumers confidence and sense of urgency. We believe we are well positioned to continue to take advantage of what is still an undeniably strong underlying need for new construction.
Kurt: As we shared we are not experiencing meaningful competition from resale listings, nor has homeowners insurance become a significant impediment for our buyers. Although we will continue to closely monitor these issues and adjust as necessary. We have long invested in core locations that are designed and underwritten to meet the needs of our.
Kurt: Customers with product offerings and pricing strategies that ensure our sales paces pricing and incentives are appropriately aligned to optimize our margins and ultimately returns as always our approach is refined at the community level as.
Kurt: As we wrap up 2024, our results are tracking firmly ahead of our expectations coming into the year with strong upside to our closings in gross margin and I am confident that the positive momentum will continue into 2025 and beyond based on our land pipeline that is concentrated in quality locations.
Kurt: I meant to perform through the ebbs and flows of housing cycles with that I'd like to share my appreciation to each of our homebuilding and financial service team members for another outstanding quarter for those directly impacted by the Hurricanes I am, especially thankful for your efforts to keep each other our customers.
Kurt: And our community safe.
Kurt: All while still delivering outstanding results, the generosity and tenacity of our team never ceases to Amaze me.
Now, let's open the call to your questions operator, please provide our participants with instructions.
Kurt: Thank you.
Speaker Change: And the lines for Q&A.
Speaker Change: To ask a question. Please press star followed by one telephone keypad.
Speaker Change: That's for me yourself that line of questioning he'll be followed by two.
Speaker Change: Our first question comes from Trevor Allinson of Wolfe Research. Your line is now open.
Speaker Change: Yeah.
Speaker Change: Travis My associate your lines locally muted.
Speaker Change: We all kinds of Cleveland season next question Trevor you can resubmit a question.
Speaker Change: Ron So answering it our next question comes from Michael Rehaut of Jpmorgan, Michael Your line is now open.
Michael Rehaut: Thanks, Good morning, everyone.
Michael Rehaut: First I'd love to dive into the comments, you've made so far around competition and incentives and the results that you were able to post this quarter and guide for the next quarter. So far is in pretty good contrast to most builders that have reported so far and even last month.
Michael Rehaut: Months.
Michael Rehaut: In terms of see fewer incentives during the quarter.
Michael Rehaut: And really not.
Michael Rehaut: Kind of you. We've heard for example yesterday one of your peers talk about increased competition in Texas, So I'd love to kind of understand number one.
Michael Rehaut: Where your incentive levels are at.
Michael Rehaut: Where they were let's say at quarter end versus at the beginning of the quarter.
Michael Rehaut: Third quarter, how that's trended.
Michael Rehaut: Specifically in Florida and Texas.
Michael Rehaut: You alluded to the higher inventory and the fact that a lot of that really doesn't compete directly but you still have a sizable positions in a lot of key markets that ads.
Michael Rehaut: You know experienced some some increased incentives and just wanted to dig down a little bit in terms of even if your product doesn't compete directly.
The differences that have allowed what appears to be your incentive levels, holding or even maybe declining a little bit.
Michael Rehaut: Yeah.
Okay, Mike I think you threw about a half dozen questions in there.
Speaker Change: Maybe the best way to go about it and I. Appreciate the question I really do is maybe to take a little spin.
Speaker Change: I'll start kind of macro and then take a little spin around the country for you, but I think you need to ground ourselves, even though there is a lot of noise that we see and headlines that we still are truly working on an under supply environment and we are seeing resale inventory down compared to what we saw.
Speaker Change: The first of the era and I'll, let Eric jump in just a moment and talk to that in a little bit more detail when I look at our markets on average were still seeing.
Speaker Change: Our particular sub markets, we are seeing a reduction compared to the national averages and as Eric said as you get deeper it even becomes more of a reduction I also think you have to look at the average resale inventory, Mike and it's significantly older than obviously and has a different set of challenges.
Speaker Change: Consumers are able to get in the new home market and we're just seeing a strong preference for Neil.
Speaker Change: As I kind of think about and work across the country, you know I'll start in Florida, but that seems to be aware.
Speaker Change: Many questions.
Speaker Change: Our line and we talked a lot about the hurricane So I don't think I need to spend more time there but.
Speaker Change: When I look at just pay for some of our highest paces in the portfolio are actually in Florida, all point to Orlando and Tampa.
Speaker Change: Strongly above our company averages.
Speaker Change: Orlando continues to be a very strong firsthand market for us.
Speaker Change: When I think about Naples, we had very strong community growth, we had more than 30% sales growth and one of our strongest margins in the country.
Speaker Change: Tampa has also like I said strong paces community down community count down a bit so sales were modestly down but also very high margins above company average.
Speaker Change: And interestingly enough with that sales success tap it doesn't benefit from the same active adult penetration.
Speaker Change: That we see in other parts of Florida, So very exciting.
Speaker Change: Sarasota also very strong sales in what I would consider a non seasonal part of the year. So very committed buyers low cancellations discounts down significantly from black prior quarters and tied with Naples.
Speaker Change: Naples with one of our highest margins.
<unk> a growing business for us are not getting the benefits of scale yet.
Speaker Change: But delighted with land pipeline that we see coming to market.
Likely it would be one of our highest growing businesses next year.
Speaker Change: If I move to Texas.
Speaker Change: Despite Austin kind of news I think the team has done a tremendous job sales were up nearly 20% absorptions were up nearly 30%.
Closing that margin performance just under the company average in that competitive environment.
Speaker Change: I actually think the market has adjusted really well.
Speaker Change: And it's always been a strong market for us it's certainly gone through this reset, but I expect that returns.
Speaker Change: Dallas, a whole new business for us with outsized growth this year and continue to expect that in the coming years nearly a doubling in size year over year press. This year and just given the size and strength of the Dallas market and I'm excited about the growth there, allowing us to compete with.
Speaker Change: I would say on a very different level.
Speaker Change: If I round out, Texas with Houston, another great story, we've been talking about the repositioning of that market self developed lots.
Speaker Change: ASP down press in Houston about $100000, probably the most meaningful reposition in the company, but our paces are up significantly and our discounts are down about 50% year over year Mike.
Mike: Mike I don't have the data specifically to look at discounts.
In the quarter as we did talk about September was our strongest month from a sales standpoint.
Mike: Let me just round out.
Mike: Country really quickly and then I'll make a couple of comments on affordability.
Mike: Southeast Charlotte one of our strongest paces in the country and the highest margin in the country.
Mike: Followed by Raleigh, also with strong paces margins and growth this year about 30%.
Mike: And Atlanta, another great market for us, where we've really positioned strong community count growth in our highest orders growth in the organization.
Speaker Change: For my prepared remarks that west with Max and I think that's a fair comment Phoenix.
Speaker Change: Remains very strong.
Speaker Change: So strong discounts down.
Speaker Change: Really the strongest margin we've seen there in a couple of years.
Speaker Change: If I go to California quickly.
Speaker Change: Similar commentary for Bay, and Sacramento to Phoenix, but very very steady.
Speaker Change: Southern California, I would probably point that out to be one of the more competitive landmark as we've seen.
Speaker Change: And that market has always run a little bit more hand to mouth for us.
Speaker Change: I would say Denver in Pac northwest, a little bit more impacted by inventory.
Speaker Change: Probably two of our most rate sensitive markets, but I'm encouraged by the traction.
Speaker Change: <unk> is a healthy market, we just wish we had more communities open.
Speaker Change: And I'll finish up with Vegas, very steady that's an interesting market for us where we've had.
Speaker Change: This very large old William Lyon asset in Pahrump, and it's been dragging the business down for a number of years, but the team is reposition that and we've really found good traction, which has really changed the trajectory of that business.
Speaker Change: And then I'll finish up with our newest market being in D. C.
Speaker Change: You would expect right. After we acquired a little bit slow as we've got you know worked our way through integration quickly the team getting real traction.
Speaker Change: We're excited about our team there continued to see opportunities on the land front.
And as we initially shared we couldnt be more excited with just the entry. It's one of our lowest ASP markets and so we think it really positions the company really.
Speaker Change: Really well.
Speaker Change: And then maybe the last comment that I'll I'll finish out Mike is you asked about just incentives and rates and.
Speaker Change: I think everyone understands where we are from a market standpoint, and what's happened to rates and the volatility we've seen but actually when I look at where we are today.
When I look at the impact of.
Speaker Change: Our incentives and our ability to serve our consumers.
With what I would call Barry a proprietary strategy I'm really personalizing the needs on an individual basis I really think that's what you're seeing and the impact on our margin.
Speaker Change: We use forward commitments and similar tools to benefit our customers.
Speaker Change: But we do it on a very personalized level. So it can be not just for a spec that needs to close in 30 or 45 days, but it can be on a to be built.
Speaker Change: You know it might not close for six or seven months in our toolbox just has a plethora of programs.
Speaker Change: But as I said the proof is in the margin because when I look at the average cost of those what I call a very expensive forward commitments honestly when I put it across the business for the quarter the impact of those core commitments was only about a point in the quarter.
Speaker Change: Very similar to what we've seen in past quarters.
Speaker Change: So I'll stop there.
Speaker Change: Hopefully I got to all of your questions.
Speaker Change: That was fantastic Sheryl I appreciate it.
Speaker Change: One of my new year resolutions coming up will be to be a little more succinct and my questions.
Speaker Change: Just secondly.
Speaker Change: I appreciated the highlighting of of your of your relationship with Kennedy Lewis I know those guys well.
Speaker Change: I was wondering if you could kind of step back and just kind of review.
Speaker Change: Where you are in the lot optioning journey.
Speaker Change: How any growing impact with Kennedy Louis or other land bankers will impact your margins and returns over the next let's say three years.
Speaker Change:
Speaker Change: And what you're expecting from incremental cash flow generation.
Eric: Yeah, Hey, Mike, It's Eric happy to take that and yeah. As I mentioned, we've added the field and Kennedy Louis is a well respected and good firm that we feel comfortable with.
Eric: I appreciate your framing of the question in that it has been an evolution as we acquired companies.
Eric: Take a step back to I think 2019, our percent control was all the way down to 21% ish and so we've worked really hard to drive that up to where it is today at 58% and looking to continue to climb that up to at least 60% to 65% multiple call the ball.
Eric: As it evolves in terms of cost, we are really mindful and being somewhat surgical and the application of land banking to the right deals and when we do that we.
Eric: We did have a prior vehicle.
Eric: That one.
Eric: The trade off between margin and return for everything within that vehicle averaged about 175 basis points of margin impact for about a 6% lift in return.
Eric: The cost of this just given interest rates are slightly higher and so.
Eric: We do expect the margin impact to be slightly higher still under 2%.
Eric: The assets being deployed but still a really good turn in terms of kind of a three and a half X in terms of the return benefit.
Eric: So as you think about that blending into the business, obviously, that's not going to hit the entire business, but just the proportion of land banking today the percent of control that's kind of.
Eric: Rolling through land banking is 20% that probably will elevate a little bit.
Eric: But you can kind of see how that would blend into the business overtime.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thanks, Mike.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from Trevor Allinson of Wolfe Research. Your line is now open.
Trevor Allinson: Hi, Good morning can you hear me.
Speaker Change: Yes, we sure can Trevor good morning.
Trevor Allinson: Okay, great. Thank you I appreciate it thank you for taking my questions.
Trevor Allinson: First just wanted to ask a question about consumer segments moving forward I think you guys talked about the benefits so you're more balanced portfolio and if we look at consensus for next year for mortgage rates. There is still to move below 6% in 2025 should help with affordability. But then you also have potential for rate locks to lose.
Trevor Allinson: And to some degree current homeowners had very healthy equity position. So just giving you a more balanced approach in that environment, which consumer segment do you think would perform best.
Speaker Change: Rich will perform best I thought you're going to a different place what will our balance look like.
Trevor Allinson: <unk>.
Speaker Change: Actually I have confidence I think for different reasons in each of the groups. If I think about the first timers Trevor.
Speaker Change: And obviously as rates, it's the largest population right and as rates continue to moderate I think it really helps that consumer I mean today the affordability issues with this consumer are real and the differential that we're seeing between for that consumer rent versus.
Speaker Change: Our purchase is fairly significant so I think as we can bridge that gap.
I think that will only continue to bring more of that consumer to the market.
Speaker Change: Those same.
Speaker Change: Differ slightly different dynamic for the move up I think as the market improves I think if the move up consumer today has any.
Speaker Change: <unk>, it's about making sure they can sell their existing home to qualify for the new home. So I think once again as rates move down it helps that consumer in the active adult just doesn't have that same concern about rates, it's more about lifestyle, where they want to live and how they want to live and making sure they can get.
What they need.
Speaker Change: Assuming markets stay steady I expect that consumer to.
Speaker Change: To continue on in fact, you'll continue to see.
Speaker Change: Our portfolio across the country, including more of our Esplanade active adult positions, but I.
Speaker Change: I don't know that I can prioritize one Eric or do you feel any different now.
Speaker Change: And we'd like to blend in with the diversified portfolio of unsold to stroke.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: A lot of sense.
Speaker Change: And then thinking about your current inventory levels I think you mentioned 623 completed specs.
Speaker Change: I think I can see to about one point for our community and I think last quarter you were more like $1. Four can you just talk about how you feel about your current completed inventory levels, especially in a more volatile interest rate environment that we're at right now and do you expect to keep right.
Similar level of completed inventory here moving forward.
Speaker Change: Yeah.
Yes, Trevor I can take that one.
Speaker Change: Yes were right at about one eight for the quarter and so when we look at kind of R. R.
Speaker Change: Total specs kind of sales velocity relative to to be built we're hovering right around that 50% to 60% range here in the last several quarters. So when we think about that coupled with the fact that our overall inventory as a percentage of our units under construction is still below 40%.
Speaker Change: Plus with the fact that the <unk>.
Speaker Change: Entry level is still a third of our business, we still feel real good about that 1.8.
Speaker Change: Expect us to kind of hover around that that might ebb and flow based on kind of what we see from a cycle time improvement perspective, but generally speaking at the one eight we're comfortable based on kind of the trajectory of the business and what we're seeing from a kind of expect to to be built kind of ratio and the fact that the entry level.
Consumer is going to be part of our business on that consistent kind of third part of the pie so to speak yeah, and the only thing I'd add Trevor which I think is kind of exciting.
Speaker Change: Is one we used to talk about specs, we fully focused them on the first time buyer today, our specs in the quarter, 75% of our back of our first time buyers buy this back so 25% still a lot of T V belt. It actually flipped on its head when you think of the Actavis.
Speaker Change: Salt, which used to be all to be built but since we've moved our Kansas program and we're able to put these really nice curated packages together for the consumer that mirrors, what they would do we've seen it pick up there so 37% of our active adult sales in the quarter were excellent as we're seeing as we're seeing this meaningful.
Speaker Change: Shift in spec purchases.
Speaker Change: It's really helpful to have this inventory, having said that I think one of the strengths that we saw across many of our markets was to have that choice of tupi belts I looked at a market like Phoenix, where 75 or 80% of our sales came through to be built so it's really that.
Speaker Change: Strategy of being able to provide by consumer said exactly what they need.
Speaker Change: To your point on the consumer shall we do ask for the buyers why did they ultimately by the spec home and about half say it was because they simply likes the home and home site and so there wasn't kind of a disproportionate requirement for incentive it was as we built the right thing for them. So we do look for that percentage to approximate our spec which is great.
Speaker Change: Alright. Thank you that was all very helpful and good luck moving forward.
Speaker Change: Thank you.
Speaker Change: Thank you very much as a reminder, if you would like to raise a question. Please press star followed by one telephone keypads and to remove yourself from the line of questioning is stopped by to our next question comes from Matthew Bouley Barclays. Matthew Your line is now open.
Matthew Bouley: Good morning, everyone. Thanks for taking the questions.
Matthew Bouley: Wanted to go back to the question around incentives.
Because you know as.
Matthew Bouley: As you mentioned.
Matthew Bouley: Kind of the pricing resiliency of your.
Matthew Bouley: Portfolio being the diversity of the portfolio has kind of stood out relative to what's been more volatile industry margins I think Cheryl you mentioned kind of the ability to personalize it.
Matthew Bouley: Individually is helping there, but I just wanted to dig in a little bit more because it seems like what what happened with your incentives is a little bit different than what we've seen from from your peers. So I guess the question is if there's kind of a more forward look on incentives maybe what are you seeing around new orders coming in relative to your pre.
Matthew Bouley: Your closings is there any way to think about maybe early 2025, if there's still some more incentives to kind of flow through there or just any more color on sort of what's different with what you guys are doing versus what were seeing elsewhere. Thank you.
Matthew Bouley: Well I appreciate the recognition and I really do I'm Matt.
Matt: You know it's interesting because obviously, we've seen you know over the last few weeks, we've seen a lot of noise around incentives going up when I look at our incentives in the quarter on our closings. It was actually the lowest quarter of incentives we've had about two years.
Matt: And without being really really redundant I do recognize the affordability issues out there, but when I look at our buyer such I look at the credit metrics I look at their financial situation. It remains really healthy and actually better than any quarter. We've seen in the last year when I look at the question.
Matt: Yeah.
Matt: I've talked about for a number of years to cushion a great impact for both our conventional FHA buyers that's as wide as we've seen in the last five or six quarters.
Matt: Our rate that we actually qualified and completed the transaction on for our consumers was rate was down for both FHA and conventional buyers.
I'm not running from the affordability issues because there are challenges for first time buyers and it's not just rate. It's not just cry prices you know they don't have equity to bring to the table. They don't have savings just the general inflation and life.
Matt: And it's real but without being redundant.
Matt: The ability that we have to separate ourselves with our proprietary strategy on personalizing the needs allows us to use these buy downs.
Matt: Differently and I think it's really showing up.
Matt: In our results and in our margin and so do I expect some fluctuation from quarter to quarter if rates move.
Matt: Sure Thats the case I, just don't expect it to be quite as dramatic as the range, we're seeing across the marketplace.
Speaker Change: Okay, No that's great and very helpful color there.
Speaker Change: And then maybe for my second one I just wanted to touch on SG&A.
Speaker Change: Just the guide for the year are you talking to the high nines.
Speaker Change: Obviously pretty similar to what you did last year.
Speaker Change: Although you're growing revenues nicely this year and presumably.
Speaker Change: That's probably around some of the new community openings and all of that so I'm just curious as we think going forward youre talking about the kind of 10% delivery growth beyond as we get past this year should we start to look at.
Speaker Change: Maybe some more potential to find more leverage on that SG&A line given the growth outlook you've got thank you.
Speaker Change: Okay.
Speaker Change: Yes, Matt I can take that.
Speaker Change: Yeah to your point, we are guiding still to the high 9% range this year and while we haven't necessarily guided.
Speaker Change: SG&A for next year at this point in time, but to your point with that expected growth on the top line. We do expect to see improved leverage over time to kind of go along with that growth. So.
Speaker Change: Because why growth youre not going to find additional leverage in the business. So that is definitely in our line of sight.
Speaker Change: Stay tuned until next quarter, we will provide.
Speaker Change: More detailed specific to 2025 relative to that metric.
Speaker Change: Great well, thanks, everyone and good luck.
Matthew Bouley: Thanks, Matt.
Thank you very much. Our next question comes from Mike Dahl of RBC, Mike. Your line is now open.
Mike Dahl: Good morning, Thanks for taking my questions.
Mike Dahl: Sheryl appreciate all the commentary so far for me and the team.
Mike Dahl: Just specifically on October <unk>.
Mike Dahl: A lot of moving pieces around the storms. This move in rates you characterize demand is healthy but seasonal can you can you be more specific about the sales pace that you are.
Mike Dahl: That youre seeing in October just given some of the some of the moves in rates.
Mike Dahl: Yes.
Mike Dahl: Some things are appears looking a little bit sore.
Mike Dahl: Sure.
Mike Dahl: Yeah.
Mike Dahl: Yeah, you know.
Mike Dahl: I can try.
Mike Dahl: The first week of the month.
Speaker Change: As you know, Mike and as I mentioned in my prepared remarks, I mean, we had a number of communities without power and your clothes, So honestly I've been more than pleased.
Speaker Change: With the sales trajectory that we've seen I'm shocked we were writing deals in Florida. When our sales offices were closed and you know and we Didnt have power and then when I look across the country.
Speaker Change: As I mentioned when I did my tour around the country every deal Theres more competition out there on the inventory side.
Speaker Change: <unk>, who are calling they're trying to understand what the right opportunities are I think we carry an advantage with our to be built across the country. We're absolutely seeing that in our active adult positions, we're seeing it in markets like Phoenix.
It's at a high percentage of our business, but having that choice for the consumer is keeping our paces.
Speaker Change: As I said very consistent.
Speaker Change: With seasonal trends and honestly given the impact of the storms and the lost days in the market.
Speaker Change: We're pleased quite pleased.
Speaker Change: Okay.
Speaker Change: Thanks, good year.
Speaker Change: Second question.
Speaker Change: Yeah.
Speaker Change: I appreciate your comments around kind of the.
Speaker Change: Insurance environment in Florida, which is obviously critical I'm wondering.
Speaker Change: Guys do such extensive kind of consumer.
Speaker Change: Research and mapping and sentiment work.
Speaker Change: The other the other key thing is really like after a stretch of.
Speaker Change: Storms not just.
Speaker Change: Florida, It can I get insured, but do I want to live here and so from that standpoint in terms of desirability.
Speaker Change: Is there anything you're working on in terms of trying to gauge.
Speaker Change: Whether or not you're seeing.
Speaker Change: Maybe early but yes it is.
Speaker Change: Something youre doing now or planning to do in terms of kind of gauging any changes in consumer sentiment around desirability of some of these coastal markets.
Speaker Change: You guys have.
Speaker Change: Really meaningful exposure to.
Okay.
Speaker Change: Yeah, well I'll just give you one quick stat and I'll, let Eric jump in because I. Appreciate your comments on the research and I think he's got some really interesting stuff to share, but when I look at our overall insurance and we looked at you know what's.
Speaker Change: The increases are.
Our buyers have seen on new it's just somewhere between 56% year over year increases if you compare that to what is being seen in the resale market.
Speaker Change: That really led to our comments that it has not been an obstacle for our customers and that would be inclusive in Florida, but I think some really interesting sentiment about what we see when these storms happen.
Speaker Change: Yes.
Mike Dahl: Mike every storm's different.
Mike Dahl: And the impacts different and we want to be sensitive to.
Mike Dahl: Some of the things that you see on TV and everything and what folks have gone through but we did to your 0.1 of the things that we can look at because the rearview mirror and so we found this study.
Mike Dahl: That again this isn't a predictor of the future but.
Mike Dahl: It basically said that the historic population growth in Florida is give or take 2% over a number of decades that relative to the U S is kind of compared to kind of a 5%. So outsized growth in terms of population, but what happens to that growth in a year after a major storm.
Mike Dahl: And the year after a major storm that kind of 2% growth rate goes to $1 seven so it does dip, but still significantly greater.
Mike Dahl: Then kind of the U S average and then does kind of bump bounce back to enroll normalization and so.
Mike Dahl: Again, we want to be sensitive to the impacts and every storm is different and we will continue to monitor it but from a rearview mirror perspective. It does seem like if you move to Florida, you kind of understand I'd also highlight that new construction is superior to retail.
Mike Dahl: Both from a flood perspective, as well as wind perspective, and where we build particularly.
Mike Dahl: It doesn't tend to be exactly on the coast, where some of these where you see some of the.
Mike Dahl: Video coming through so.
Mike Dahl: We're still bullish overall on Florida, I think would be the punch line.
Mike Dahl:
Mike Dahl: <unk> to be a good market. It continues to be a priority certainly in our resort lifestyle and it will be interesting to see what the shoulder season looks like going into the spring, but early indications are good.
Mike Dahl: Yeah.
Speaker Change: Okay, great thanks for that color.
Speaker Change: Thank you.
Thank you very much. Our next question comes from Alan Ratner of Zelman <unk> Associates.
Speaker Change: Line is now open.
Speaker Change: Okay.
Hey, good morning, Congrats on the strong results and continued progress great.
Speaker Change: Great to see.
Alan Ratner: So Erika also Eric I'll throw a question that you are first you know I love. The analysis you guys do and I. Appreciate you updating that to cover the whole footprint on the competitive landscape versus resale.
Alan Ratner: I am sure you Didnt do that analysis for for the whole new home market, but I'm curious if you have any general thoughts.
Alan Ratner: When you look at the 17%.
Alan Ratner: It's competitive to your product.
Alan Ratner: Would you say thats fairly indicative of the new home market as a whole, meaning just the location and the type of product that builders are building is generally unique and differentiated to the resale market or would you say this is more.
Alan Ratner: If you take the Taylor Morrison and you guys, whether its location or product type or amenities. However, you kind of bucket the dairy the variable that Taylor Morrison is really unique to both the resale market as well as the new home market as a whole.
Speaker Change: Yes, it's hard to comment Alan I would like I would think that to some degree there would be a correlation to where new homebuilders are building in the product and kind of the defined superiority.
Speaker Change: But at the same time do you know, we're pretty proud of our locations in our core location kind of selection. So.
Speaker Change: Tough question to answer I know, what ours is I would think there'd be some degree of correlation but I also think that we would take a lot of pride in our positions to here just for the part of it Eric when you look at the list of all the communities across the country, we did it feels like where the.
Speaker Change: The improvement is not quite.
Our strong.
Speaker Change: Is in that very first time buyer is very first time buyer positions.
Speaker Change: So maybe it's harder to differentiate.
Speaker Change: Then it is as we do our move up in our active adult where the communities where we do change.
Speaker Change: Change brings with that.
Speaker Change: I think Thats fair, Sheryl and Alan Yeah, we definitely didn't Cherry pick these either I mean, we've got we've got a pretty in a good way we've got a pretty strong degree of variability on kind of what that 17 averaged 17% averages to and so to <unk> point.
Speaker Change: Those where you've got a little bit more direct competition from resales and maybe.
Speaker Change: Direct from other builders.
Speaker Change: It is smaller stuff lower price stuff.
Speaker Change: Got it and as Sheryl, that's kind of where I was going with it I didn't want to lead the witness. So I. Appreciate you throwing that thought out there because I thought that was kind of a cross my mind when I was listening to the a good data point from Eric.
Speaker Change: So second question I guess, if I had to poke any holes or any of kind of the various metrics right now if I look at your balance sheet.
Inventory dollars year over year are up almost 20%, which is obviously more than the growth rate and in your overall business, whether it's orders closings topline et cetera, and I know at least a portion of that is going to be based on the pivot towards more spec which makes sense.
Speaker Change: But at the same time inventory turnover has come down a touch so as you look forward over the next year or two years, how should we think about inventory dollar growth now that you're banking more land, obviously very focused on asset efficiency.
Speaker Change: Should we expect that growth rate to begin to subside, a little bit and maybe even kind of flatline or would you say, it's still going to grow kind of intent with the broader business, so it's plus or minus 10%.
Yes, a great question Alan.
Speaker Change: I'll take a stab at it I think generally speaking, yes, if you look at our balance sheet year over year, our inventory is up pretty significantly part of that is part of our growth strategy that we kind of went through at the beginning of this year.
Speaker Change: So thats kind of whats driving that today, our spec inventory is up a little of our total warehouse inventory is up as well.
Speaker Change: But as we look forward in our Crystal ball, we're going to continue to focus on.
Speaker Change: More asset light kind of land portfolio, as well, which will help us from that standpoint, and then we will always make sure from our house inventory perspective that it's appropriate for the business that were looking that were forecasting. So I would say, it's going to moderate and be appropriate relative to our business and what we're projecting on a go forward.
Speaker Change: <unk> basis.
Speaker Change: But also setting a set of restaurants spring Yep Yep Yep.
Speaker Change: Yep.
Speaker Change: Got it great well thanks, a lot guys appreciate it good luck.
Speaker Change: Thanks Alan.
Speaker Change: Thank you very much. Our next question comes from Carl Reichardt of <unk> Co. Your line is now open.
Carl Reichardt: Thanks, Hey, guys.
Just one clarification on the gross margin this quarter.
Carl Reichardt: The beat relative to your expectation.
Carl Reichardt: Expectations, you mentioned mix was that geographic mix I E. Those bay area homes that closed or was that something related to like moved up resort lifestyle mixed that helped.
Karl It was more geographic mix kind of as to what we said in our prepared comments with that the asset the west overall based on the assumptions that we had going into kind of the guide closed a few more houses generally speaking overall, but a lot of that was in the bag.
Speaker Change: Okay, great. Thanks, I figured that okay, and then a bigger picture question. So Joe we've.
Speaker Change: We've got as part of your long term goals set this mid to high teens return on equity number when you're already sort of doing that in the mid teens.
Speaker Change: So if we think about to Alan's last question better inventory turns coming margin stabilizing at higher levels. Some still some upside to cycle times improving more buybacks.
Speaker Change: It starts to make me think that.
Speaker Change: There should shouldn't be too many reasons why row couldnt exceed high teens going forward.
Speaker Change: What do you think that the ceiling on that might be and do you expect that you could reset that go higher do you see a 20% plus Roe.
Speaker Change: Taylor Morrison's future and if so what are the elements that would help get you there beyond what youre already laying out.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah, that's a good one Carl.
Speaker Change: You know obviously when we put it like that interplay is intended to be a multi.
Speaker Change: [laughter] yeah yeah.
Speaker Change: It's intended to be a multiyear goal and it takes you through the volatility of different.
Speaker Change: Parts of the cycle, but having said that I think it's a very fair acknowledgment on your part that with all the work that we've done in the business and the.
Speaker Change: Journey, the land light in some of the other operational efficiencies I think it's very realistic.
Speaker Change: A little early to set to reset the goal when we do our Investor day. The first quarter, we will probably have a more explicit kind of discussion around what that looks like over through an OTA.
Speaker Change: Over the next five years and the strategies that will get us there.
Speaker Change: But I think the way you're thinking about it is completely accurate the company's in a very different position than we laid out a goal of 60% to 65%.
Speaker Change: The controlled.
Speaker Change: Controlled which are already yeah, we're working on a lot of other things that I think will continue to enhance that.
Speaker Change: So without giving you know new goals, our new guidance I'd say I think the way youre thinking about it correct.
Speaker Change: Yes.
Speaker Change: Okay I appreciate that thanks for squeezing me in guys. Thanks.
Speaker Change: Yes.
Speaker Change: Thank you very much as a reminder, if you would like to ask a question. Please press star followed by one telephone keypad and to remove yourself on that line of questioning staff by two.
Speaker Change: Our next question comes from Buck Horne with Raymond James Book. Your line is now open.
Speaker Change: Okay.
Buck Horne: Hey, Thanks, I appreciate I know, we're going over time, so I'll try to be brief but congrats on the great quarter under the circumstances I wanted to dive in on land spend.
Speaker Change: Our land spend is up pretty significantly year over year on year closing in on being up I think correct me, if I'm wrong, almost 40% year over year.
Speaker Change: I'm kind of wondering how that measures against maybe what youre seeing in terms of lot cost inflation right. Now you know how is that trending.
Speaker Change: What kind of expectations are you thinking in terms of just what land prices are doing on a year over year basis.
Speaker Change: And I guess the secondary question to that is just really like how should we think about the acceleration of community count at this point, it's not a matter of if but when does.
Does that really start to take off in 'twenty five or is this going to be more of a 'twenty six acceleration.
Speaker Change: Yeah.
Speaker Change: Yeah, Hey, Bob It's Eric I will start with kind of the environment.
Speaker Change: Competitive out there I don't know that its pretty rare for me not to say, it's not competitive demand typically is higher than supply in the land market and that's kind of translating into and this is kind of internal and external kind of a 10% ish plus or minus appreciation level and land and development costs.
Speaker Change: Which honestly is pretty manageable I think that gravitates to kind of a long term norm and something as we as a company kind of evolve and experienced the efficiencies that we experience as we continue to scale.
Speaker Change: As well as kind of some some help from the general market.
Speaker Change: Able to cover that off so I would say, while very competitive never easy I would say that level of appreciation is actually pretty.
Speaker Change: It's a pretty manageable as we sit today.
And I would just add on the community count.
Speaker Change: And even though back we're not once again, giving <unk> guidance, yet, but with the spend happening. This year. The way I would think about it is we're going to have good growth next year.
Speaker Change: It gets outsized from there because obviously the stuff were bringing in today, if not most of it.
Speaker Change: All of that will not be opening next year finished lots are pretty extreme in today's environment are pretty unusual.
Speaker Change: So.
Speaker Change: From a multi year growth.
Speaker Change: Youll see it relatively outsized and youll start seeing it come in late.
Speaker Change: Late next year and certainly in a very strong way in subsequent years.
Speaker Change: Got it got it very helpful.
Speaker Change: And just one real last brief one is carbon.
Speaker Change: Comment that was made yesterday.
Speaker Change: Terms of feedback.
Speaker Change: Feedback from the field and in recent weeks are you seeing any signs that buyers are hesitating or kind of.
Speaker Change: We're pushing back on their home purchase decision because of the election is that having any sort of impact do you think on consumer behavior in this particular cycle.
Yeah.
Speaker Change: Yeah, you know it's interesting we do a lot of research generic might be able to go deeper and then we see some of the stuff you know from kind of other local market research.
Speaker Change: All of the above we would assume that it's affecting the.
Speaker Change: What I would call a resort lifestyle buyer, a little bit more very in tuned to what's going on.
Speaker Change: Some research suggests the first time buyers also taken a pause its everything its affordability and interest rates are rates going to drop. So you hear all of that noise, but honestly, it's our sales team's job to get with that customer and help them overcome that and explain to them. Why this is the time.
Speaker Change: To buy we can't just take that as a it's okay. It's a pause you know will get better next month.
Speaker Change: Our sales teams I am so proud of the work that they're doing and that's what they do on a daily basis, but theres always some noise in the consumers mind and this this period is no different I mean, we have some specifics rider, yeah, and I would say buck that.
Speaker Change: Our sales folks are saying that they hear a lot of it is and it's in a lot of the conversations but I think what folks were most interested in is just what is the impact relative to the economy their job their paycheck and rates and affordability. So I think while the word election might come out I think it really translates to those issues and concerns.
Speaker Change: And then I would just very briefly point to again, an external study that we just paid attention to that kind of looked at prior elections and really the five months that lead up to November in election years, and non election years, and really how has that impacted levels of sale of housing demand and transactions and really hard to find the direct correlation.
Speaker Change: The two so.
Speaker Change: So again this one might be different than.
Speaker Change: Folks were talking about it but it doesn't seem to be really translating into immediate impact.
Speaker Change: Okay.
Speaker Change: Got it I appreciate all the color guys and good luck.
Speaker Change: [laughter].
Speaker Change: Thanks, Bob.
Speaker Change: Thank you very much. Our next question comes from Ken Zenner Seaport Research partners. Ken Your line is now open.
Ken Zenner: Good morning, everybody appreciate your.
Speaker Change: Todd.
Ken Zenner: I would like you had kind of a baseline given the.
Speaker Change: Hello.
Speaker Change: Hello.
Speaker Change: We're here.
Speaker Change: Ken we're here. Thank you can you hear it all.
Speaker Change: Right.
Ken Zenner: I can hear you.
Ken Zenner: Hello.
Ken Zenner: Yeah keep Cowen where here, we can hear you.
Ken Zenner: Okay.
Speaker Change: So could you just baseline as we move towards this land banking your.
Speaker Change: Percent of closings today that are coming from third party finished acquired lots.
Speaker Change: You mentioned, 20% and I wasn't sure if that's going to be 20% of your option.
Speaker Change: Lots.
Currently land banking structure or if that's where your target is gonna be.
And I think you talked about a margin differential and a return component of around 200 basis points. If you could just clarify those questions. So we can see the trend as it unfolds. Thank you so much.
Speaker Change: Yeah, Hey.
Speaker Change: Yes, so as.
Speaker Change: As we look at the deals that are coming through the business about 20% are finished which I think was one of your first question is what are we acquiring that that might be finished.
Speaker Change: Land banking, the 20% to 25% that I referenced was really as a percent of the controls. So I'll call that of the 48000 lots and so that probably will elevate a little bit, but we've got a lot of different tools and these evolve over time as we think about risk return and.
Cost and so we used joint ventures, and joint development agreements land banking seller financing is is probably our most successful and low cost tool.
Speaker Change: And then just normal course take some terms.
In reference to your kind of cost and return tradeoffs. The reference was really less than 2% of cost as you translate that to gross margin impact for really a three X plus to return as measured at the dealer level by way of IRR.
Speaker Change: Thank you so much.
Speaker Change: Youre welcome thank.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from Unexpired of housing Research Center, Alex Your line is now open.
Speaker Change: Yes. Thank you.
Speaker Change: I wasn't sure if I missed it but did you guys talk about your build time and whether there was any improvement in the quarter and how much is it versus last year.
Speaker Change #100: Yes, Alex I can take that one we did see some sequential improvement quarter over quarter. I think we saw roughly about two weeks of improvement quarter over quarter.
Speaker Change #100: I don't have handy with me what that is year over year, but we did see a couple of weeks of improvement quarter over quarter. The teams have been working really hard at trying to drive.
Speaker Change #100: Efficiency and the cycle times lot of our markets are already at pre pandemic levels. We have a few outliers that are out there and I know the teams are working really hard at driving those cycle times down.
Speaker Change #100: Yeah.
Speaker Change #101: Okay. Thanks, and my other question was.
What percentage of your closings are using forward commitments.
Speaker Change #102: Whereas those other tools.
Speaker Change #103: Yeah about a third.
Speaker Change #104: And different versions of our forward commitments and as I mentioned, it's about a third of our total closings in the quarter, it's been pretty consistent for the last few quarters.
Speaker Change #103:
Speaker Change #103: It doesn't mean that there's not other tools, obviously, because we'd really personalize it to individual customers needs, but on specifically, what we call <unk> connect to be just under a third.
Okay. Thank you so thank you team.
Speaker Change #103: Okay.
Speaker Change #103: Thanks, Alex and have a great day, thanks, Alex.
Speaker Change #105: Thank you very much. We currently have no further questions. So I'd like to hand back to Sheryl Palmer for any closing remarks.
Speaker Change #103: Yeah.
Sheryl Palmer: Thank you all for joining us we really appreciate the time with everyone. This morning, and look forward to being able to share our 2020 for wrap up.
Speaker Change #103: Early next year.
Speaker Change #103: Take care.
Speaker Change #107: As we conclude today's call we'd like to thank everyone for joining you may now disconnect your lines.
Speaker Change #107: [music].