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Edited Transcript of GRBK earnings conference call or presentation 4-Mar-20 5:00pm GMT

Q4 2019 Green Brick Partners Inc Earnings Call

DENVER Mar 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Green Brick Partners Inc earnings conference call or presentation Wednesday, March 4, 2020 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James R. Brickman

Green Brick Partners, Inc. - Co-Founder, CEO & Director

* Jed Dolson

Green Brick Partners, Inc. - President of Texas Region

* Richard A. Costello

Green Brick Partners, Inc. - CFO, Treasurer & Secretary

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Conference Call Participants

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* Aaron Randall Hecht

JMP Securities LLC, Research Division - MD & Senior Research Analyst

* Carl Edwin Reichardt

BTIG, LLC, Research Division - MD & Homebuilding Analyst

* Margaret Jane Wellborn

JP Morgan Chase & Co, Research Division - Analyst

* Matthew W. Dhane

Tieton Capital Management, LLC - Senior Research Analyst, Principal & Portfolio Manager

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Presentation

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Operator [1]

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Good afternoon, everyone, and welcome to Green Brick Partners' Earnings Call for the Fourth Quarter ended December 31, 2019. (Operator Instructions) As a reminder, this call is being recorded and will be available for playback. A slide show supporting today's presentation is available on the Green Brick Partners website, www.greenbrickpartners.com, go to Investors and Governance, then click on the option that says Reporting, and then scroll down the page until you see the Fourth Quarter Investor Call Presentation.

The company reminds you that during this conference call, it will make various forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including its financial and operational expectations for 2020 and the future. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of Green Brick Partners are based on current expectations and are subject to risks and uncertainties. A few factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the cautionary statement regarding forward-looking statements contained in the company's press release, which was released on Tuesday, March 3, and the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission.

Green Brick Partners undertakes no duty to update any forward-looking statements that are made during this call. In addition, our comments will include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G regarding these metrics, can be found in the earnings release that Green Brick issued yesterday and the presentation available on the company's website.

I would now like to turn the conference call over to Green Brick's CEO, Jim Brickman. Please go ahead, sir.

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [2]

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Hi, everybody. With me is Rick Costello, our CFO; and Jed Dolson, our President of the Texas region. Thanks for joining our call. As the operator mentioned, the presentation that accompanies this earnings call can be found on our website at greenbrickpartners.com. At the top of our web page, click on Investors and Governance, then click on the option that says Reporting, and then scroll down the page until you see the Fourth Quarter Investor Call Presentation. I'll give everybody a few seconds to do this.

Our future continues to be bright as we ended 2019 with yet another record-breaking quarter. We are exceedingly proud to report record highs in total revenues, gross profit, earnings per share and the numbers of net new home orders in our history. We surpassed our goal of active selling communities as of year-end and the communities grew by 27% over just the past 2 quarters. Combined with our Q4 absorption rate increase of 78% year-over-year, we sold more homes than ever with net 2 new home orders more than doubling with a year-over-year increase of 111%.

Entering 2020 with such a strong foundation of excellence has placed us in a position primed for continued success, including the largest backlog to date. We continue to approach Green Brick's future with enthusiasm and optimism but also conservative financial leverage. We look forward to improving upon our record-setting results we saw this past quarter and year.

Please look to Slide 5. Two of the best markets in the country are our core markets of Dallas and Atlanta. During the last 12 months, Dallas and Atlanta continued to be 2 of the largest markets in terms of generating capital growth. We also look forward to the potential opportunity presented by our planned expansion into Houston.

On Slide 6, you can see that Dallas continues to be the #1 new housing market in the nation, adding about 34,700 starts. Atlanta is the fifth largest market and our Challenger Homes affiliate that operates in Colorado Springs, part of the 6th largest market. We are 2% to 5% of the starts in 3 of the largest markets in the United States, which we believe gives us significant opportunities for growth in the coming years. Furthermore, Trophy Signature Homes is expected to commence operations in Houston, the second largest market at roughly 30,500 starts by the latter half of 2020.

Slide 7 demonstrates what we mean by A-rated submarkets. John Burns Real Estate Consulting had published maps of our Dallas and Atlanta metropolitan areas where they have designated grades on submarkets of most desirable, an A market, through the most affordable, an F market, based on a variety of subjective factors, such as quality of schools, proximity of jobs and the existence of infrastructure for quality of life.

We have taken those maps and overlaid our locations of our Green Brick communities with green dots. As you can see, the preponderance of our communities are in the very best, A, our most desirable A-rated markets. What the product group does -- do not tell you is how supply-constrained lots are in these most prime A locations. Green Brick owns or controls over 5,600 lots in the Dallas Metroplex and over 2,200 lots in Atlanta, primarily in A locations. Over 2,000 of the Dallas lots are for Trophy Signature Homes, our new entry-level builder and first-time move-up builder. As we continue to grow our Trophy brand, we expect to see our land position expand to include more affordable submarkets, but we will still maintain strict underwriting criteria. At the bottom of Slide 7, you will also see the 37 communities under development. As I mentioned earlier, we were successful in achieving our community count guidance provided over the last 3 quarters. We ended the year with 95 active selling communities. We opened a net of 20 new communities in the last 2 quarters alone.

Slide 8 takes a closer look at our growth story of annual revenue and the related investment in land and land development. And look at the chart, and you can see the direct correlation from that growth in total lots owned and controlled with the resulting growth in annual revenues. Over the last 12 months, we have grown our total revenues by 27% and our total lots owned and controlled by 11%. I want to thank the entire Green Brick team for their hard work and great results.

Next, Jed Dolson, our President of the Texas region, will discuss our growth drivers and our diversification efforts.

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Jed Dolson, Green Brick Partners, Inc. - President of Texas Region [3]

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Thanks, Jim. Green Brick is truly one of the best growth stories in the public homebuilder space. Take a look at Slide 7, titled Growth Drivers. Over the last 2 years, annual total revenues from 2017 to 2019 have grown 73%. While this growth is remarkable. We believe that we have positioned ourselves for even stronger growth in the future. Over the last 2 years, our backlog grew from -- grew 129% to $347 million as of December 31, 2019, which more than doubles our backlog from 2 years prior, and it's the all-time record for the company.

During these last 24 months, we also increased our lots owned and controlled by 44% and grew the average number of selling communities by 59%. Looking at our inventory growth, our units under construction have grown to 1,297 units, which is up 76% from the same time 2 years ago. This growth was made possible through years of rigorous land planning and underwriting, which have fueled a 63% growth in annual starts over the last 24 months. Thanks to the strong performance of our team builders, these past 2 years, Green Brick has the backlog, the construction starts, the level of units under construction and the lot inventory that we believe will sustain further dynamic growth in 2020.

On Slide 10, we highlight the diversification of our product offerings. Over the last 24 months, we have significantly increased our focus on townhome communities, thanks to years of planning, land acquisition and development. In fact, we've grown our townhome revenue 23% over this period. Our robust single-family growth of 118% in the 24 months from December 31, 2017 to December 31, 2019 is highlighted by GHO's revenues of $114 million over the last 12 months, which were at a lower average sales price with our more affordable age-targeted product. As a result of this product diversification, our average sales prices decreased by about 1% in total over the last 2 years. We are extremely proud that over this period, we have been able to maintain affordability, while continuing to offer high quality -- a high-quality product.

Slide 11 visually demonstrates our range of homes and diversified homebuyer mix that have grown our revenues and provided stable earnings by not concentrating on any one homebuyer segment. We now address 5 distinct consumer segments, which all experienced strong revenue growth into Q4 of 2019. Looking at the right side of the page, you can easily see the improved diversification of our product types versus 2 years prior. Our 73% growth over the past 24 months has seen an important balancing and diversification of our targeted customer mix. And please remember what you saw back on Slide 7. Most of our communities are located in desirable A submarkets, the additional move to include different consumer segments and product types of our Green Brick's longer-term strategy to diversify our offerings and limit risk without reliance on constantly growing sales price for a single group of homebuyers.

Next, Rick Costello, our CFO, will discuss our fourth quarter and annual results in more detail.

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Richard A. Costello, Green Brick Partners, Inc. - CFO, Treasurer & Secretary [4]

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Thanks, Jed. Thank you all for joining us today to review our 2019 fourth quarter and annual financial results. Please move on to Slide #13, related to our financial highlights. For Q4 of '19 versus Q4 of '18 and year-to-date comparisons, here are some key operational metrics. Net new orders increased by 111% for the quarter and 38% for all of 2019. Home deliveries increased by 35%, with residential unit revenues up 30% for the quarter. For the full year, home deliveries increased by 34%, with residential unit revenues up by 31%. Year-over-year, homes under construction are up 15%, with homes started on the last 12-month basis up by 24%. The dollar value of units in backlog increased by 31% year-over-year. Like Jed said, it's a new record. Our EPS was a record for any quarter, up 23% versus Q4 2018. In over the last 12 months, EPS is now 14% higher in 2019 versus 2018.

Now for more details. For the fourth quarter, the number of net new home orders was 590 homes, an increase of 111% compared to the fourth quarter of 2018. For full year 2019 versus 2018, our net new home orders have grown by 38% from 1,397 to 1,923. We saw a huge improvement in Q4 relative to the prior year with an absorption for active selling community that was 78% higher than Q4 of 2018, despite growing our active community count to a record of 95 communities as of 12/31/19.

Green Brick delivered a record 514 homes for the quarter, 35% more than the fourth quarter of 2018. For full year 2019 versus 2018, Green Brick delivered 1,719 homes, a 34% increase over '18. Residential units revenues were a record $223.3 million for the quarter, an increase of 30% over Q4 of '18. For the full year, Green Brick's residential units revenues grew to $759.8 million, up 31% over 2018. The average sales prices of homes delivered was about $434,400 for the quarter and $437,600 for the year, down 2% from Q4 2018 and up only 1% versus all of 2018. At 12/31/19, our Builder Operations segment had a backlog of 786 sold but unclosed homes, with a total value of approximately $346.8 million. That's an increase in value of 31% from 12/31/18. At year-end, the ASP, average sales price of homes in backlog was approximately $441,300, a decrease of about 3% compared to the prior year.

Now let's introduce and review some of our key growth metrics. Regarding sales, net new orders for the year were 1,923. That number of homes is up 38% from 1,397 homes from the prior year. Regarding closings, units closed for the year totaled 1,719, up 34% from the prior year. Residential units revenues were up 31% over 2018. For the fourth quarter, Green Brick had an average of 90 active selling communities, a year-over-year increase of 18%. For the year, all 12 months ended 12/31/19, our average community count represented an increase of 30% on a year-over-year basis. Regarding lots inventory, the number of lots owned and controlled has grown to just under 9,000 lots, up from about 8,100 lots from the year ago period, for an increase of 11% at 12/31/19. And this was accomplished despite starting almost 1,900 houses in 2019.

Homes under construction increased 15% to 1,297 units at 12/31 compared to 1,127 units as of 12/31/18. And another key growth metric, in 2019, we started 1,889 homes versus 1,524 homes. As of the prior year-end, an increase of 24%. As Jed mentioned, and this is important to future prospects for growth in revenues, after starting an average of 420 units per quarter from Q2 of '18 through Q2 of '19, we started at an average of 520 units during the past 2 quarters. Our Q4 starts of 505 units represented an increase in our starts rate of 28% versus Q4 of 2018. During Q4, our adjusted homebuilding gross margin declined to 22.7% for Q4 of '19 from 25.0% for Q4 of '18. This lower gross margin was driven by typical front-end expenses associated with new community openings and sales incentives driven by community-specific market conditions. That said, our Q4 adjusted gross margin of 22.7% is up sequentially from our Q3 margin of 2019 of 22.2% and is consistent with our year-to-date gross margin of 22.4%.

Now we'll talk about SG&A leverage. Green Brick's SG&A leverage has gone down year-over-year as we've grown, and it did so again in Q4 and in full year 2019. There are 2 important points to discuss. Point number one, there is a line item in our income statement called change in fair value of contingent consideration. This item is much closer to a noncontrolling interest expense and should not be considered part of SG&A. This expense is directly related to the operating income and earn-out payment of GHO Homes. This item terminates in early 2021 and is not forecast to be significant in either 2020 or 2021. Therefore, it is not part of our internal calculation of SG&A leverage. Excluding this nonrecurring item, our SG&A leverage as a percentage of total revenues declined for the quarter year-over-year from 12.4% to 12.0% and declined full year year-over-year from 12.9% to 12.5%.

Now the second point is that we do expect SG&A leverage to improve as top line revenues grow and scale -- we scale our operations. But in advance of revenues growing, we make a substantial investment in our builders' SG&A overhead. Indeed, in the back half of 2019, we grew from 75 to 85 to 95 active selling communities in those 2 quarters. That growth of 20 communities, in fact, is a net number. In reality, we opened closer to 38 communities and had 18 communities that were sold out and completed. Yet our SG&A operating leverage declined from 13.1% in the first half of the year to 12.0% in the last 2 quarters of 2019. This decline was accomplished while still making a significant investment in Trophy Signature Homes. In the last 2 quarters, Trophy closed their first 33 homes, but in preparation for 2020 and beyond, we more than doubled Trophy staff from 14 to 32, and that continues to grow.

Now let's turn to Slide 14, which demonstrates our performance measured against our peers. The chart begins on the left side with 2 critical measures of pretax income performance. Pretax income takes into consideration building margins as well as operating expenses. As you can see, pretax income as a percentage of revenues or our pretax margin stands at 9.9% for the last 12 months. This puts us far above our small-cap and mid-cap peers who are at 5.6% and 8.1% averages of return on revenues, respectively. A second measure of adjusted pretax income performance is based on return on invested capital. This is the middle of the 3 bar charts on this page. Again, Green Brick's return of 11.0% ROIC for the last 12 months is well above the 7.9% average of our small-cap peers. And our 11.0% ROIC is almost 21% higher than the average ROIC of our mid-cap peers at 9.1%. More important is the bottom line. Green Brick's EPS was a record $0.32 per share for Q4 '19, up 23% from Q4 of '18. Our net income return on equity is shown on the 3 bars on the right side of Chart 14. Our ROE stands at 11.8% for the last 12 months ended 12/31/19, which is 0.9% above the average ROE of our small-cap peers and only 0.7% lower mid-cap peers.

So let's look at that more closely. Look at Slide 15 now for the rest of that story about return on equity. As shown on Slide 15, our return on equity has been accomplished despite keeping one of the lowest net debt-to-capital ratios of any public builder. We've been able to grow rapidly, while increasing our financial leverage through low interest rate revolving lines of credit and now our very low long-term fixed rate with credential of 4%. As of 12/31/19, we have continued that gradual increase to the point where our net debt-to-capital ratio, where net debt is debt minus cash, has actually decreased to 28.1%. Note that other peer builders have leverage to an average of 38%.

So look even more closely. The slide shows that all 7 of the 8 builders on the left side, or the wrong side of the chart, are small-cap and mid-cap builders. The net debt-to-capital ratios of those 7 peers range from 35% to 68%, for an average of 47%. In other words, our peers are each accomplishing the rates of return on equity with almost 70% more financial leverage than Green Brick. We believe this demonstrates that our model has the ability to deliver a significant risk-adjusted ROE as compared to these peers.

I'll now turn the call back over to Jim, who will wrap up our part of the call prior to opening things up for Q&A. Jim?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [5]

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Thanks, Rick. Our team builders did a great job of managing pace versus price to generate the best quarter in our history for net income, total revenues and residential units revenue. Operationally, we are seeing house margins stabilize and the benefits of our standardized operating systems utilized by all of our builders. Our business is now scaled to where we expect our title and mortgage business to expand rapidly and profitably with little risk. With 2020 well underway, we are eager to build upon our many accomplishments of the past year. Additionally, we anticipate further diversification of our business through the continued growth of our Trophy Signatures brand, which will see its first entry-level homes closed in Houston sometime later this year.

We generally do not comment on monthly sales before quarter results are filed. However, the reaction of the stock market to recent headlines deserves comment. On a unit basis, we had our best January sales on record, which was followed by record February sales. At the same time, we remain adamant that our future growth will not be obtained at the cost of undue risk. With one of the lowest leveraged balance sheets in the industry, we continue to believe that our strategy of prudent organic growth is the ability to produce superior risk-adjusted earnings growth. I want to thank the entire Green Brick team for their hard work and great results.

I'll now turn the call back over to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Michael Rehaut with JPMorgan.

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Margaret Jane Wellborn, JP Morgan Chase & Co, Research Division - Analyst [2]

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This is actually Maggie on for Mike. Congrats on the quarter. First, obviously, sales pace and order growth were extremely strong. Could you comment on if any specific builders were -- or product lines drove this strength or if it was pretty standard across the board? And also, if you could comment on pricing power and incentive trends that you saw during the quarter. Looking forward, do you have any plans to begin pushing price over pace? Or do you kind of anticipate this stronger pace to continue?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [3]

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Okay. This is Jim. Let me take the first part of your question, Maggie. We saw really significant growth in all of our Dallas builders and brands. Southgate is the highest price point builder, and that's kind of held its own, but our townhouse business is just gangbusters right now in Dallas. All of our businesses are doing well. Trophy is off to a much better start than we expected. We don't typically break down results by builders, but I can tell you that we're just thrilled with the market reception to the Trophy product and branding that we're doing. The only slow part, for any of you that follow weather forecasts, Atlanta has had record rains. They had 20 inches of rain in February. That's the only builder that's really off pace. And we're really thinking that the weather had a really significant impact on their results. And Jed, do you want to talk about pace versus price?

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Jed Dolson, Green Brick Partners, Inc. - President of Texas Region [4]

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Yes, we're seeing -- we are raising prices, and we're also tightening incentives. I think as an industry, we're probably going to see some lumber increases and concrete increases in the near future. But we think those will be more than offset by the lack of -- or the tightening of incentives and higher prices.

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Margaret Jane Wellborn, JP Morgan Chase & Co, Research Division - Analyst [5]

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Got it. And second, you surpassed your goal of the 92 active communities by the end of the quarter. I was wondering if you could give us any sense of how much growth we could expect during 2020, especially given that you are expanding into the Houston market.

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [6]

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We don't forecast, Rick, you might want to comment on this too, look at our future community growth. But I think that one important differentiator that we really have a strategic advantage on is that in all the markets we're operating, and we've been there or our partners have been there, our team partners and builders have been there 10, 20, 30, 40 years. And we've been developing lots, and we really are very good at finding lots. And I think that in the next few quarters, you're going to see that the ability to develop lots is going to become increasingly important for builders, and that's taking it for the entitlement through the land development process and we think we really have a strategic advantage of over any peer in doing that. Rick, do you want to...

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Richard A. Costello, Green Brick Partners, Inc. - CFO, Treasurer & Secretary [7]

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Yes, Maggie, and we're not quite ready yet at this time to project a profound number like we did last year. We'll have a little bit more of the year open up before we consider that. But generally speaking, we'll just let our record stand right now.

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Operator [8]

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(Operator Instructions) Your next question comes from Carl Reichardt with BTIG.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [9]

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I got a couple or 3 for you here. One was just on -- you talked -- you gave a lot of helpful detail on SG&A. Can you talk a little bit about the gross margin outlook? You've got pricing. You think it will overcome some input cost increases. Your mix is also shifting slightly more downstream. We know historic count's coming up. So just give me a sense as to -- as you look at your backlog now and what you're expecting to sell in '20, so how do you feel that margins are likely to trend? Have you seen the bottom here? Or is it still likely to be a little more pressure on gross margins?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [10]

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This is Jim. I'll take that in a few parts. First of all, I think investors need to recognize we have some of the highest margins in the industry right now. We don't see a degradation in the margins. Trophy Signature Homes, which is more key to an entry-level builder, is having consistent margins with the rest of our builders despite many of their margin taking place on optioned lots and having faster inventory turns, which implies a higher return on capital. So hence, in a sense, our gross margins we see keeping the same, but we think return on capital could improve because of faster inventory turns.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [11]

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Okay. So that's helpful. And then just to clarify, Jim, what you said before, Trophy Signature is performing better than you expected. Is that a reference to sales pace, your ability to open stores, pricing power? What are the drivers of better-than-expected for you?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [12]

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It's really everything, where their sales are faster than we expected, their margins are equal or better than we expected, and really, one of the most exciting things is around town, we are attracting some of the best talents to join Trophy Signature Homes because everybody in town is just amazed at their rapid and successful start. So at the end of the day, it's a lot about people, not just about capital, and we think they really are putting a fantastic team in place under there.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [13]

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Okay. That's helpful. And then a couple of more if you'll indulge me. Can you talk a little bit about the land market on a go-forward basis? So we figured that option shift on Trophy, you grew lots 40% over the last couple of years, but your sales pace, your orders, it sounds they're doing a lot faster. So when you look -- you've noted -- I noticed in the slides, you mentioned a slight increase in debt-to-cap. So how are you thinking about what the land market looks like now, the focus for potential new markets versus investing in your current markets? And what prices look like as we see builders, many builders, as you know, scrambling for lots in a variety of markets?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [14]

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I'm going to let Jed take a part of the question. But one of the things I want to highlight that investors really don't see because it's not very transparent when they look at Green Brick and other builders, in that we don't do any off-balance sheet land banking transactions, where to make our balance sheet look like and land light, that we are giving land bankers almost equity returns to bank in the lots. Jed, will you take the rest of the question in terms of what our future looks like in keeping a lot supply?

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Jed Dolson, Green Brick Partners, Inc. - President of Texas Region [15]

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Yes. I mean we are seeing a high demand for lots across all our geographies. We, as you know, Carl, have quite a few lots already under control. So we're in a pretty good position. And I think the market, for the most part, we're seeing kind of a surge in A location lot prices, but on the kind of entry-level price points, I think we're seeing more modest increases. So we feel good about it, but we can see that others that may not have planned as well would be struggling right now.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [16]

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Okay. I understand that. And then 2 more, just 1 on Trophy Signature, and you mentioned the closings you've got so far. Can you give us a sense of roughly maybe what percentage of your open communities at the end of '20 Trophy Signature might be?

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Richard A. Costello, Green Brick Partners, Inc. - CFO, Treasurer & Secretary [17]

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It was officially 10 out of the 95 at year-end and growing.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [18]

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So you think that share will grow, Rick, than in 2021 -- or '20, yes, '20, what year is it, '20? Okay.

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Richard A. Costello, Green Brick Partners, Inc. - CFO, Treasurer & Secretary [19]

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Yes, absolutely.

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Carl Edwin Reichardt, BTIG, LLC, Research Division - MD & Homebuilding Analyst [20]

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Okay. And last question, and I'm sorry to have to ask this, but I do have to ask it. Can you give me a sense over the last week, obviously, there's been an enormous change in the 10-year treasury yield mortgage rates, a lot of chatter and then, of course, we have coronavirus scaring people as well. So there's a tension between the 2. Can you maybe comment over the last week or so if you've seen any positive impact from rates or negative impact from coronavirus on just traffic through the communities?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [21]

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Yes. It's been very interesting. It's almost like we're moving in an alternative universe from looking at the headlines. Obviously, I'm a builder, not a doctor. But we constantly look at the data and the context of things matter. First of all, our sales and traffic, we just got all of our website analytics, all of our foot traffic results on Sunday. They actually increased year-over-year and over the prior week, despite all the headlines. I can't tell you whether it's the historically low interest rates that drove people to get off the sidelines and start looking at homes, but we are not seeing a decline. I can't predict how this is going to play out in the future. But our backlog just continues to grow. We're operating more efficiently. We don't buy a lot of products from China or that part of the world. Like all of our appliances shifted to Whirlpool a few quarters ago to reduce our exposure there. So we feel good about that. In terms of context, Carl, I know you like numbers, and I like numbers. And I was looking at really what is going on. I'm not a doctor. But the American Cancer Society said that there were 1.8 million new cases of cancer last year and 606,000 people will die this year from cancer. 840,000 people died from heart attacks. 40,000 are killed in car wrecks, 40,000 by guns. I think the reaction to this is probably good to be aware of all these problems, but boy, it's really been quite a reaction that we'll be interested to see how it really plays out when we look backward at this 2 years from now.

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Richard A. Costello, Green Brick Partners, Inc. - CFO, Treasurer & Secretary [22]

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Hey, Carl, this is Rick. Thanks for joining the call. Specifically on point to your question, we've had 9 weeks this year. And if I look at the average weekly sales rate and then compare it to the week that just ended at the end of day, Monday, this last week of sales was 35% higher than the entire 9-week period. Look, people are buying houses. It reminds me of 2001 after 9/11, when the fed was being accommodative, and people started to turn to housing and nesting instead of traveling. It's maybe not the same situation, but it's certainly -- we might be seeing history rhyme. But that was very impressive. We thought that people were not just kicking tires. There are real buyers out there.

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [23]

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Yes. And the decline in treasury rates hasn't been fully reflected in long-term rates. Long-term rates have moved 1/8 to 1/4. Not 0.5% like -- short like the treasury rates, and that's still significant. When you start at 3.5%, and they go down 1/4, you're picking up that part of your mortgage payments going down almost 7%. So it's significant. It's not the same reduction that we've seen in treasury rates, but we're thankful for it.

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Operator [24]

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(Operator Instructions) And we do have a question from Aaron Hecht with JMP Securities.

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Aaron Randall Hecht, JMP Securities LLC, Research Division - MD & Senior Research Analyst [25]

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A couple of questions here, starting with the return on equity profile. You guys talked about peers having higher leverage and that being a benefit on that metric. I think you said you'd take your leverage up to around 35%. And obviously, the peers are still higher. So how did you come to that 35% level? And do you think you may take it up higher if you don't get the desired results out of moving up to 35%?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [26]

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This is Jim. No, we're not taking it above 35% because I think as we grow our business, we're going to get increased return on equity from SG&A leverage. And we hope to get about 1% there, 1% from our title and mortgage business and 1% from our increased efficiency at our builder level. And 35% was picked as we started this for a long time before we even went into business. We saw that every company that had a favorable capital structure like this and a downturn came out stronger on the back side, and we always want to be able to come out stronger on the back side of any kind of market correction. So we're going to maintain our discipline. We think we can make really nice returns with that discipline, and that's not changing.

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Aaron Randall Hecht, JMP Securities LLC, Research Division - MD & Senior Research Analyst [27]

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Got you. And then in terms of the increased operating efficiencies at the builder level. What does that really mean or entail? Any kind of clarity you can give me there?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [28]

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Jed?

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Jed Dolson, Green Brick Partners, Inc. - President of Texas Region [29]

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Yes. So obviously, a lot of our builders have reached a kind of targeted growth rate as far as how many homes they're producing a year. And so that SG&A is now stabilized. We're not having to hire up to produce future results. Now with Trophy growing like it is, we are, but our builders have had more modest growth over the past 12 months.

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [30]

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Aaron, what I think Jed's saying is we've rightsized our builders' organizations to match the revenues now, for the most part, with the introduction of Trophy that's rapidly growing.

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Aaron Randall Hecht, JMP Securities LLC, Research Division - MD & Senior Research Analyst [31]

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Okay. And no change in terms of how you finance lots or anything like that, changes in the option profile to get that ROE, it's more just ramping the size of the individual organization.

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [32]

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Well, we're looking at all kinds of alternatives all the time, whether it's a side-by-side, even a partner in buying land with us. But right now, we're just doing what we've always done.

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Jed Dolson, Green Brick Partners, Inc. - President of Texas Region [33]

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Aaron, I think if you looked at lots owned and controlled as a measure of that, one thing that's a little quirky in our numbers right now is we're showing a lower percentage owned, but there's a land joint venture that's disclosed in the footnotes to our financial statements where we don't consolidate it. It's called East Jones Bridge in Atlanta. And in that deal, we have options for about 560 lots. So those are counted in lots controlled under an option deal that we're really a 50-50 JV partner on. And for all intents and purposes, they're, in parentheses, owned. So if it wasn't for that, you'd be seeing that number more like around 75% or so. And it really is not a function of any change in strategy. We have picked up additional option lots for Trophy. But in many cases, that's the existing phase, where the second phase, we're going to be the developer of our second and third phase in some of those communities.

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Operator [34]

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Your next question comes from Matt Dhane with Tieton Capital Management.

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Matthew W. Dhane, Tieton Capital Management, LLC - Senior Research Analyst, Principal & Portfolio Manager [35]

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I was hoping to -- perhaps a little deeper into the financial services. I was curious how much room for growth and profitability contribution you see from that segment of your business here going forward. And how long of a runway is this going to be for a real contributor to earnings growth?

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Jed Dolson, Green Brick Partners, Inc. - President of Texas Region [36]

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This is Jed. I'll take that question. So on our title business, we only started -- Dallas was -- for 2019, Dallas was on title all year. We got Atlanta started in late Q4. So you'll see a lot of title business in Atlanta flowing through to 2020 numbers that wasn't there in 2019. On the mortgage front, we -- the same kind of deal as land -- or Dallas was on our mortgage platform all last year. Atlanta was on for only part of the year. Additionally, we think we'll see a 30 bp improvement over -- yes, 30 bp improvement in our margins on our mortgage business. So we think that once we do that, we're kind of stabilized for a while.

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [37]

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In terms of profit, we're looking title and mortgage in the $4 million to $5 million range. And that's a nice number. It's a very low-risk business. And just taking a look at our total interest cost, it's just the financial services platform that's an ongoing revenue stream, contributes about 1/3 of our interest cost. And we like that, too.

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Matthew W. Dhane, Tieton Capital Management, LLC - Senior Research Analyst, Principal & Portfolio Manager [38]

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And does the financial services piece of the business, does that also play a role with the GHO and Challenger, and is there a strategy to roll that out with those partners as well?

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James R. Brickman, Green Brick Partners, Inc. - Co-Founder, CEO & Director [39]

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It doesn't in Challenger. Challenger has its own mortgage joint venture. Our results are and the equity return on our income statement, where it's not broken out in terms of revenues. In terms of GHO, about half of their buyers are cash buyers. It's a move down their last home purchase. And so our mortgage operation is not as profitable there because just so many of their buyers are cash. The good news is, so many buyers are cash, they're low-risk contracts.

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Jed Dolson, Green Brick Partners, Inc. - President of Texas Region [40]

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Yes. And I would just add that as we grow Trophy and we start issuing more -- our financial services starts issuing more mortgages that are government-backed as opposed to conventional, we should also see more profitability off of those mortgages.

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Operator [41]

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There are currently no further questions at this time. I'll turn the call back to management for closing remarks.

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Richard A. Costello, Green Brick Partners, Inc. - CFO, Treasurer & Secretary [42]

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Thank you, everybody, today for joining the call, and we hope to report positive Q1 results in a couple of months. Have a good day.

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Operator [43]

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This concludes today's conference call. Thank you for joining. You may now disconnect.