NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and applicable regulations of the Securities and Exchange Commission (“SEC”), but do not include all of the information and footnotes required for complete financial statements. The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments of a normal, recurring nature necessary to fairly state our financial position, results of operations and cash flows. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or subsequent periods due to seasonal variations and other factors, such as the effects of novel coronavirus (“COVID-19”) and its influence on our future results.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Green Brick Partners, Inc., its controlled subsidiaries, and variable interest entities (“VIEs”) in which Green Brick Partners, Inc. or one of its controlled subsidiaries is deemed to be the primary beneficiary (together, the “Company”, “we”, or “Green Brick”).
All intercompany balances and transactions have been eliminated in consolidation.
The Company uses the equity method of accounting for its investments in unconsolidated entities over which it exercises significant influence but does not have a controlling interest. Under the equity method, the Company’s share of the unconsolidated entities’ earnings or losses, if any, is included in the condensed consolidated statements of income.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes, including the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Reclassifications
Beginning in the first quarter of 2020, the Company reclassified the allowances for option deposits and pre-acquisition costs related to option contracts from selling, general and administrative expenses to other (loss) income, net in the consolidated statements of income to conform to current year presentation. There was no impact on net income from the reclassification in any period.
For a complete set of the Company’s significant accounting policies, refer to Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Newly identified significant accounting policies during the nine months ended September 30, 2020 are presented below.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an “incurred loss” approach to an “expected credit loss” methodology. The Company adopted the standard on January 1, 2020 using the full retrospective application. The adoption of ASU 2016-13 had no impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company adopted the standard on January 1, 2020. The adoption of ASU 2017-04 had no impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2019-12 to have a material impact on the Company’s consolidated financial statements.
2. VARIABLE INTEREST ENTITIES
On April 29, 2020, through a series of transactions, the Company acquired the remaining membership and voting interests in our subsidiary, CB JENI Homes DFW LLC (“CB JENI”). As a result, CB JENI became an indirect wholly owned subsidiary of the Company, was no longer considered a VIE and was consolidated based on the majority voting interest pursuant to ASC 810.
As both the entity wholly owned by the Company to which CB JENI ownership interests were assigned and CB JENI were controlled by the Company on April 29, 2020, the acquisition of the remaining membership interest was accounted for at the carrying amounts on CB JENI’s books, pursuant to provisions of ASC 805 that govern transactions between entities under common control.
3. INVENTORY
A summary of inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Homes completed or under construction
|
$
|
302,070
|
|
|
$
|
314,966
|
|
Land and lots - developed and under development
|
470,791
|
|
|
437,553
|
|
Land held for sale
|
6,499
|
|
|
1,048
|
|
Total inventory
|
$
|
779,360
|
|
|
$
|
753,567
|
|
A summary of interest costs incurred, capitalized and expensed is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest capitalized at beginning of period
|
$
|
18,791
|
|
|
$
|
17,199
|
|
$
|
18,596
|
|
|
$
|
14,780
|
|
Interest incurred
|
2,010
|
|
|
3,052
|
|
7,677
|
|
|
9,066
|
|
Interest charged to cost of revenues
|
(2,999)
|
|
|
(2,324)
|
|
(8,471)
|
|
|
(5,919)
|
|
Interest capitalized at end of period
|
$
|
17,802
|
|
|
$
|
17,927
|
|
$
|
17,802
|
|
|
$
|
17,927
|
|
|
|
|
|
|
|
|
|
Capitalized interest as a percentage of inventory
|
2.3
|
%
|
|
2.5
|
%
|
|
2.3
|
%
|
|
2.5
|
%
|
As of September 30, 2020, the Company reviewed the performance and outlook for all of its communities for indicators of potential impairment and performed detailed impairment analysis when necessary. As of September 30, 2020, the Company performed impairment analysis of the selling communities with indicators of impairment with a combined corresponding carrying value of approximately $8.2 million. For the three and nine months ended September 30, 2020, the Company recorded $0.0 million and a de minimis impairment adjustment, respectively, to reduce the carrying value of impaired communities to fair value.
There was no impairment adjustment related to inventory recorded during the three months ended September 30, 2019. An impairment adjustment of $0.1 million to reduce the carrying value of impaired communities to fair value was recorded for the nine months ended September 30, 2019.
4. INVESTMENT IN UNCONSOLIDATED ENTITIES
In May 2020, we established a joint venture, BHome Mortgage, LLC (“BHome Mortgage”) with First Continental Mortgage, Ltd., to provide mortgage related services to homebuyers. The Company owns 49.0% in BHome Mortgage.
In August 2020, GRBK Edgewood established a joint venture, GBTM Sendera, LLC (“GBTM Sendera”), with TM Sendera to acquire and develop a tract of land in Fort Worth, Texas. Both parties hold a 50% ownership interest in GBTM Sendera.
On September 1, 2020, the Company increased its ownership interest in GRBK Mortgage, LLC from 49.00% to 49.99%.
A summary of the unaudited condensed financial information of the six unconsolidated entities that are accounted for by the equity method is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Assets:
|
|
|
|
Cash
|
$
|
17,771
|
|
|
$
|
11,699
|
|
Accounts receivable
|
1,446
|
|
|
3,252
|
|
Bonds and notes receivable
|
7,342
|
|
|
5,864
|
|
Loans held for sale, at fair value
|
21,801
|
|
|
23,143
|
|
Inventory
|
108,006
|
|
|
73,704
|
|
Other assets
|
8,153
|
|
|
4,012
|
|
Total assets
|
$
|
164,519
|
|
|
$
|
121,674
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
6,635
|
|
|
$
|
1,726
|
|
Accrued expenses and other liabilities
|
11,270
|
|
|
7,784
|
|
Notes payable
|
61,684
|
|
|
58,223
|
|
Total liabilities
|
$
|
79,589
|
|
|
$
|
67,733
|
|
Owners’ equity:
|
|
|
|
Green Brick
|
$
|
42,260
|
|
|
$
|
25,910
|
|
Others
|
42,670
|
|
|
28,031
|
|
Total owners’ equity
|
$
|
84,930
|
|
|
$
|
53,941
|
|
Total liabilities and owners’ equity
|
$
|
164,519
|
|
|
$
|
121,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues
|
$
|
50,068
|
|
|
$
|
42,428
|
|
|
$
|
138,381
|
|
|
$
|
116,786
|
|
Costs and expenses
|
39,188
|
|
|
36,227
|
|
|
111,340
|
|
|
101,348
|
|
Net earnings of unconsolidated entities
|
$
|
10,880
|
|
|
$
|
6,201
|
|
|
$
|
27,041
|
|
|
$
|
15,438
|
|
Company’s share in net earnings of unconsolidated entities
|
5,299
|
|
|
3,022
|
|
|
$
|
13,038
|
|
|
$
|
7,565
|
|
A summary of the Company’s share in net (losses) earnings by unconsolidated entity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
GB Challenger, LLC
|
$
|
3,825
|
|
|
$
|
2,572
|
|
|
$
|
9,391
|
|
|
$
|
6,574
|
|
Green Brick Mortgage, LLC
|
1,498
|
|
|
340
|
|
|
3,658
|
|
|
668
|
|
Providence Group Title, LLC
|
—
|
|
|
111
|
|
|
14
|
|
|
323
|
|
EJB River Holdings, LLC
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
GBTM Sendera, LLC
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
BHome Mortgage, LLC
|
(24)
|
|
|
—
|
|
|
(24)
|
|
|
—
|
|
Total net earnings from unconsolidated entities
|
$
|
5,299
|
|
|
$
|
3,022
|
|
|
$
|
13,038
|
|
|
$
|
7,565
|
|
GBTM Sendera, LLC
In August 2020, GBTM Sendera, LLC joint venture (“GBTM Sendera”) was formed by GRBK Edgewood, LLC (“GRBK Edgewood”) and TM Sendera, LLC (“TM Sendera”) with the purpose to acquire and develop a tract of land in Fort Worth,Texas. Both parties hold a 50% ownership interest in GBTM Sendera. GBTM Sendera had no activity in the period but it is expected to begin its operations in the fourth quarter of 2020.
In August 2020, GBTM Sendera received two $9.0 million initial contributions from its two members, GBRK Edgewood and TM Sendera. Per the GBTM Sendera company agreement, GRBK Edgewood and TM Sendera share equally in the profits and losses of GBTM Sendera, with the exception of certain customary fees.
Following the analysis of the above facts and provisions of the GBTM Sendera company agreement, the Company has determined that GBTM Sendera is a joint venture to be evaluated under the voting interest model. Therefore, the investment in GBTM Sendera is treated as an unconsolidated investment under the equity method of accounting and is included in investments in unconsolidated entities in the Company’s condensed consolidated balance sheets.
As of September 30, 2020, the carrying amount of GBTM Sendera assets was $19.6 million, and GBTM Sendera had no liabilities. Assets were comprised of real estate inventory and cash. As of September 30, 2020, the Company’s maximum exposure to loss as a result of its involvement with GBTM Sendera was $9.8 million, represented by the sum of the Company’s investment in GBTM Sendera of $9.0 million and an additional $0.8 million contribution made each by GBRK Edgewood and TM Sendera.
5. DEBT
Lines of Credit
Borrowings on lines of credit outstanding, net of debt issuance costs, as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Secured Revolving Credit Facility
|
$
|
4,000
|
|
|
$
|
38,000
|
|
Unsecured Revolving Credit Facility
|
90,500
|
|
|
128,000
|
|
Debt issuance costs, net of amortization
|
(1,011)
|
|
|
(1,358)
|
|
Total borrowings on lines of credit, net
|
$
|
93,489
|
|
|
$
|
164,642
|
|
Secured Revolving Credit Facility
The Company is party to a revolving credit facility (the “Secured Revolving Credit Facility”) with Inwood National Bank, which provides for an aggregate commitment amount of $35.0 million. On May 22, 2020, the Company amended the Secured Revolving Credit Facility to reduce the aggregate commitment amount of $75.0 million to $35.0 million. Amounts outstanding under the Secured Revolving Credit Facility are secured by mortgages on real property and security interests in certain personal property (to the extent that such personal property is connected with the use and enjoyment of the real property) that is owned by certain of the Company’s subsidiaries. The entire unpaid principal balance and any accrued but unpaid interest is due and payable on the maturity date. As of September 30, 2020, the maturity date of the Secured Revolving Credit Facility is May 1, 2022.
As of September 30, 2020, letters of credit outstanding totaling $7.2 million reduced the aggregate maximum commitment amount to $27.8 million.
As of September 30, 2020, the interest rate on outstanding borrowings under the Secured Revolving Credit Facility was 4.00% per annum.
Unsecured Revolving Credit Facility
The Company is party to a credit agreement, providing for a senior, unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”). The Unsecured Revolving Credit Facility provides aggregate lending commitments of up to $215.0 million. As of September 30, 2020, the maximum aggregate amount of the Unsecured Revolving Credit Facility was $275.0 million, and the termination date with respect to commitments under the Unsecured Revolving Credit Facility was December 14, 2021 for $30.0 million and December 14, 2022 for $185.0 million out of the aggregate lending commitment of $215.0 million. As of September 30, 2020, the interest rates on outstanding borrowings under the Unsecured Revolving Credit Facility ranged from 2.64% to 2.66% per annum.
Based on the unprecedented disruptions to the credit and economic markets arising from the COVID-19 pandemic, we drew the full amount of our Unsecured Revolving Credit Facility during the three months ended March 31, 2020. During the three months ended June 30, 2020, we paid our Unsecured Revolving Credit Facility down to prior levels once it was apparent that the Company’s access to liquidity in the financial markets was not compromised.
Senior Unsecured Notes
On August 8, 2019, the Company issued $75.0 million aggregate principal amount of senior unsecured notes due on August 8, 2026 at a fixed rate of 4.00% per annum to Prudential Private Capital in a Section 4(a)(2) private placement transaction and received net proceeds of $73.3 million. A brokerage fee of approximately $1.5 million associated with the issuance was paid at closing. The brokerage fee, and other debt issuance costs of approximately $0.2 million, were deferred and reduced the amount of debt on our consolidated balance sheet. The Company used the net proceeds from the issuance of the senior unsecured notes to repay borrowings under the Company’s existing revolving credit facilities.
Principal on the senior unsecured notes is required to be paid in increments of $12.5 million on August 8, 2024 and $12.5 million on August 8, 2025. The final principal payment of $50.0 million is due on August 8, 2026. Optional prepayment is allowed with payment of a “make-whole” penalty which fluctuates depending on market interest rates. Interest is payable quarterly in arrears commencing November 8, 2019.
On August 26, 2020, the Company entered into a Note Purchase Agreement with The Prudential Insurance Company of America and Prudential Universal Reinsurance Company to issue a $37.5 million aggregate principal amount of senior unsecured notes due on August 26, 2027 at a fixed rate of 3.35% per annum in a Section 4(a)(2) private placement transaction. The Company received net proceeds of $37.4 million and incurred debt issuance costs of approximately $0.1 million that were deferred and reduced the amount of debt on our condensed consolidated balance sheet. The Company used the net proceeds from the issuance of the Notes to repay borrowings under the Company’s existing revolving credit facilities and for general corporate purposes. Interest is payable quarterly in arrears commencing on November 26, 2020.
6. REDEEMABLE NONCONTROLLING INTEREST
The Company has a noncontrolling interest attributable to the 20% minority interest in GRBK GHO Homes, LLC (“GRBK GHO”) owned by our Florida-based partner that is included as redeemable noncontrolling interest in equity of consolidated subsidiary in the Company’s condensed consolidated financial statements.
In February 2020, the Company and the minority partner of GRBK GHO amended the operating agreement of GRBK GHO to change the initial date upon which the put and purchase options related to the redeemable noncontrolling interest can be exercised from April 2021 to April 2024.
The following tables show the changes in redeemable noncontrolling interest in equity of consolidated subsidiary during the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2020
|
|
2019
|
Redeemable noncontrolling interest, beginning of period
|
$
|
12,485
|
|
|
$
|
12,509
|
|
Net income attributable to redeemable noncontrolling interest partner
|
501
|
|
|
863
|
|
Distributions of income to redeemable noncontrolling interest partner
|
—
|
|
|
—
|
|
Change in fair value of redeemable noncontrolling interest
|
638
|
|
|
(1,163)
|
|
Redeemable noncontrolling interest, end of period
|
$
|
13,624
|
|
|
$
|
12,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
Redeemable noncontrolling interest, beginning of period
|
$
|
13,611
|
|
|
$
|
8,531
|
|
Net income attributable to redeemable noncontrolling interest partner
|
1,743
|
|
|
2,528
|
|
Distributions of income to redeemable noncontrolling interest partner
|
(1,505)
|
|
|
(527)
|
|
Change in fair value of redeemable noncontrolling interest
|
(225)
|
|
|
1,677
|
|
Redeemable noncontrolling interest, end of period
|
$
|
13,624
|
|
|
$
|
12,209
|
|
Under the terms of the purchase agreement, the Company may be obligated to pay contingent consideration to our partner if certain annual performance targets are met over the three-year period following the Acquisition Date. The performance targets specified in the purchase agreement were met for the period from January 1, 2019 through December 31, 2019, and contingent consideration of $5.3 million was earned by the minority partner in 2019 and paid by the Company in April 2020 in addition to a $1.5 million distribution of income. As of September 30, 2020, the estimate of the undiscounted contingent consideration payouts for the period from January 1, 2020 through April 26, 2021 was $0.4 million.
7. SHARE-BASED COMPENSATION
Share-Based Award Activity
During the nine months ended September 30, 2020, the Company granted stock awards (“SAs”) under its 2014 Omnibus Equity Incentive Plan to executive officers (“EOs”) and restricted stock awards ("RSA") to non-employee members of the Board of Directors (“BOD”). The SAs granted to the EOs were 100% vested and non-forfeitable on the grant date. Some members of the BOD elected to defer up to 100% of their annual retainer fee in the form of RSAs. The RSAs granted to the BOD will become fully vested on the earlier of (i) the first anniversary of the date of grant of the shares of restricted common stock or (ii) the date of the Company’s 2021 Annual Meeting of Stockholders. The fair value of the SAs granted to EOs and RSAs granted to non-employee members of the BOD were recorded as share-based compensation expense on the grant date and over the vesting period, respectively. The Company withheld 75,708 shares of common stock from EOs, at a total cost of $0.6 million, to satisfy statutory minimum tax requirements upon grant of the SAs.
A summary of share-based awards activity during the nine months ended September 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value per Share
|
|
(in thousands)
|
|
Nonvested, December 31, 2019
|
59
|
|
|
$
|
9.05
|
|
Granted
|
250
|
|
|
$
|
8.63
|
|
Vested
|
(264)
|
|
|
$
|
8.10
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Nonvested, September 30, 2020
|
45
|
|
|
$
|
12.33
|
|
Stock Options
A summary of stock options activity during the nine months ended September 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price per Share
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
|
(in thousands)
|
|
|
(in years)
|
|
(in thousands)
|
Options outstanding, December 31, 2019
|
500
|
|
|
$
|
7.49
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Options outstanding, September 30, 2020
|
500
|
|
|
$
|
7.49
|
|
|
4.08
|
|
$
|
4,305
|
|
Options exercisable, September 30, 2020
|
500
|
|
|
$
|
7.49
|
|
|
4.08
|
|
$
|
4,305
|
|
Share-Based Compensation Expense
Share-based compensation expense was $0.1 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively. Recognized tax benefit related to share-based compensation expense was de minimis for the three months ended September 30, 2020 and 2019.
Share-based compensation expense was $2.0 million and $2.0 million for the nine months ended September 30, 2020 and 2019, respectively. Recognized tax benefit related to share-based compensation expense was $0.4 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively.
As of September 30, 2020, the estimated total remaining unamortized share-based compensation expense related to unvested RSAs, net of forfeitures, was $0.4 million which is expected to be recognized over a weighted-average period of 0.7 years.
8. REVENUE RECOGNITION
Disaggregation of Revenue
The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Three Months Ended September 30, 2019
|
|
Residential units revenue
|
|
Land and lots revenue
|
|
Residential units revenue
|
|
Land and lots revenue
|
Primary Geographical Market
|
|
|
|
|
|
|
|
Central
|
$
|
191,634
|
|
|
$
|
11,894
|
|
|
$
|
104,685
|
|
|
$
|
8,746
|
|
Southeast
|
72,251
|
|
|
42
|
|
|
95,233
|
|
|
740
|
|
Total revenues
|
$
|
263,885
|
|
|
$
|
11,936
|
|
|
$
|
199,918
|
|
|
$
|
9,486
|
|
|
|
|
|
|
|
|
|
Type of Customer
|
|
|
|
|
|
|
|
Homebuyers
|
$
|
263,885
|
|
|
$
|
—
|
|
|
$
|
199,918
|
|
|
$
|
185
|
|
Homebuilders
|
—
|
|
|
11,936
|
|
|
—
|
|
|
9,301
|
|
Total revenues
|
$
|
263,885
|
|
|
$
|
11,936
|
|
|
$
|
199,918
|
|
|
$
|
9,486
|
|
|
|
|
|
|
|
|
|
Product Type
|
|
|
|
|
|
|
|
Residential units
|
$
|
263,885
|
|
|
$
|
—
|
|
|
$
|
199,918
|
|
|
$
|
—
|
|
Land and lots
|
—
|
|
|
11,936
|
|
|
—
|
|
|
9,486
|
|
Total revenues
|
$
|
263,885
|
|
|
$
|
11,936
|
|
|
$
|
199,918
|
|
|
$
|
9,486
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
Transferred at a point in time
|
$
|
262,319
|
|
|
$
|
11,936
|
|
|
$
|
197,280
|
|
|
$
|
9,486
|
|
Transferred over time
|
1,566
|
|
|
—
|
|
|
2,638
|
|
|
—
|
|
Total revenues
|
$
|
263,885
|
|
|
$
|
11,936
|
|
|
$
|
199,918
|
|
|
$
|
9,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2019
|
|
Residential units revenue
|
|
Land and lots revenue
|
|
Residential units revenue
|
|
Land and lots revenue
|
Primary Geographical Market
|
|
|
|
|
|
|
|
Central
|
$
|
466,910
|
|
|
$
|
37,900
|
|
|
$
|
268,278
|
|
|
$
|
24,228
|
|
Southeast
|
216,829
|
|
|
282
|
|
|
268,282
|
|
|
750
|
|
Total revenues
|
$
|
683,739
|
|
|
$
|
38,182
|
|
|
$
|
536,560
|
|
|
$
|
24,978
|
|
|
|
|
|
|
|
|
|
Type of Customer
|
|
|
|
|
|
|
|
Homebuyers
|
$
|
683,739
|
|
|
$
|
—
|
|
|
$
|
536,560
|
|
|
$
|
185
|
|
Homebuilders
|
—
|
|
|
38,182
|
|
|
—
|
|
|
24,793
|
|
Total revenues
|
$
|
683,739
|
|
|
$
|
38,182
|
|
|
$
|
536,560
|
|
|
$
|
24,978
|
|
|
|
|
|
|
|
|
|
Product Type
|
|
|
|
|
|
|
|
Residential units
|
$
|
683,739
|
|
|
$
|
—
|
|
|
$
|
536,560
|
|
|
$
|
—
|
|
Land and lots
|
—
|
|
|
38,182
|
|
|
—
|
|
|
24,978
|
|
Total revenues
|
$
|
683,739
|
|
|
$
|
38,182
|
|
|
$
|
536,560
|
|
|
$
|
24,978
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
Transferred at a point in time
|
$
|
678,352
|
|
|
$
|
38,182
|
|
|
$
|
529,003
|
|
|
$
|
24,978
|
|
Transferred over time
|
5,387
|
|
|
—
|
|
|
7,557
|
|
|
—
|
|
Total revenues
|
$
|
683,739
|
|
|
$
|
38,182
|
|
|
$
|
536,560
|
|
|
$
|
24,978
|
|
Revenue recognized over time represents revenue from mechanic’s lien contracts.
Contract Balances
Opening and closing contract balances included in customer and builder deposits on the condensed consolidated balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
|
|
Customer and builder deposits
|
$
|
29,339
|
|
|
$
|
23,954
|
|
|
|
|
|
The difference between the opening and closing balances of customer and builder deposits results from the timing difference between the customers’ payments of deposits and the Company’s performance, impacted slightly by terminations of contracts.
The amount of deposits on residential units and land and lots held as of the beginning of the period and recognized as revenue during the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Type of Customer
|
|
|
|
|
|
|
|
Homebuyers
|
$
|
6,436
|
|
|
$
|
7,661
|
|
|
$
|
16,147
|
|
|
$
|
13,335
|
|
Homebuilders
|
1,135
|
|
|
981
|
|
|
5,415
|
|
|
2,663
|
|
Total deposits recognized as revenue
|
$
|
7,571
|
|
|
$
|
8,642
|
|
|
$
|
21,562
|
|
|
$
|
15,998
|
|
Performance Obligations
There was no revenue recognized during the nine months ended September 30, 2020 and 2019 from performance obligations satisfied in prior periods.
Transaction Price Allocated to the Remaining Performance Obligations
The aggregate amount of transaction price allocated to the remaining performance obligations on our land sale and lot option contracts is $22.1 million. The Company will recognize the remaining revenue when the lots are taken down, or upon closing for the sale of a land parcel, which is expected to occur as follows (in thousands):
|
|
|
|
|
|
|
Total
|
Remainder of 2020
|
$
|
3,669
|
|
2021
|
15,510
|
|
2022
|
2,919
|
|
Total
|
$
|
22,098
|
|
The timing of lot takedowns is contingent upon a number of factors, including customer needs, the number of lots being purchased, receipt of acceptance of the plat by the municipality, weather-related delays, and agreed-upon lot takedown schedules.
Our contracts with homebuyers have a duration of less than one year. As such, the Company uses the practical expedient as allowed under ASC 606, Revenue from Contracts with Customers, and therefore has not disclosed the transaction price allocated to remaining performance obligations as of the end of the reporting period.
9. SEGMENT INFORMATION
Financial information relating to the Company’s reportable segments is as follows. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues: (1)
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
Central
|
$
|
191,749
|
|
|
$
|
104,685
|
|
|
$
|
467,409
|
|
|
$
|
268,278
|
|
Southeast
|
72,293
|
|
|
95,973
|
|
|
217,111
|
|
|
269,032
|
|
Total builder operations
|
264,042
|
|
|
200,658
|
|
|
684,520
|
|
|
537,310
|
|
Land development
|
11,779
|
|
|
8,746
|
|
|
37,401
|
|
|
24,228
|
|
Total revenues
|
$
|
275,821
|
|
|
$
|
209,404
|
|
|
$
|
721,921
|
|
|
$
|
561,538
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
Central
|
$
|
52,616
|
|
|
$
|
24,237
|
|
|
$
|
122,561
|
|
|
$
|
60,257
|
|
Southeast
|
19,586
|
|
|
23,540
|
|
|
58,173
|
|
|
67,682
|
|
Total builder operations
|
72,202
|
|
|
47,777
|
|
|
180,734
|
|
|
127,939
|
|
Land development
|
2,661
|
|
|
2,300
|
|
|
9,436
|
|
|
6,202
|
|
Corporate, other and unallocated (2)
|
(6,977)
|
|
|
(5,352)
|
|
|
(19,420)
|
|
|
(13,769)
|
|
Total gross profit
|
$
|
67,886
|
|
|
$
|
44,725
|
|
|
$
|
170,750
|
|
|
$
|
120,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Income before income taxes:
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
Central
|
$
|
32,621
|
|
|
$
|
9,960
|
|
|
$
|
69,626
|
|
|
$
|
22,345
|
|
Southeast
|
10,964
|
|
|
12,486
|
|
|
31,677
|
|
|
36,852
|
|
Total builder operations
|
43,585
|
|
|
22,446
|
|
|
101,303
|
|
|
59,197
|
|
Land development
|
2,540
|
|
|
4,784
|
|
|
8,627
|
|
|
10,300
|
|
Corporate, other and unallocated (3)
|
(202)
|
|
|
(2,258)
|
|
|
(5,066)
|
|
|
(7,750)
|
|
Income before income taxes
|
$
|
45,923
|
|
|
$
|
24,972
|
|
|
$
|
104,864
|
|
|
$
|
61,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Inventory:
|
|
|
|
Builder operations
|
|
|
|
Central
|
$
|
384,496
|
|
|
$
|
251,677
|
|
Southeast
|
167,988
|
|
|
168,140
|
|
Total builder operations
|
552,484
|
|
|
419,817
|
|
Land development
|
201,181
|
|
|
308,071
|
|
Corporate, other and unallocated (4)
|
25,695
|
|
|
25,679
|
|
Total inventory
|
$
|
779,360
|
|
|
$
|
753,567
|
|
|
|
|
|
Goodwill:
|
|
|
|
Builder operations - Southeast
|
$
|
680
|
|
|
$
|
680
|
|
(1)The sum of Builder operations Central and Southeast segments’ revenues does not equal residential units revenue included in the condensed consolidated statements of income in periods when our builders have revenues from land or lot closings, which for the three and nine months ended September 30, 2020 were $0.2 million and $0.8 million, respectively, compared to $0.7 million and 0.8 million for the three and nine months ended September 30, 2019.
(2)Corporate, other and unallocated gross loss is comprised of capitalized overhead and capitalized interest adjustments that are not allocated to builder operations and land development segments.
(3)Corporate, other and unallocated loss before income taxes includes results from Green Brick Title, LLC and investments in unconsolidated subsidiaries.
(4)Corporate, other and unallocated inventory consists of capitalized overhead and interest related to work in process and land under development.
10. INCOME TAXES
The Company’s income tax expense for the three and nine months ended September 30, 2020 was $10.0 million and $17.4 million, respectively, compared to $5.8 million and $15.0 million in the prior year periods. The effective tax rate was 21.7% and 16.6% for the three and nine months ended September 30, 2020, respectively, compared to 23.4% and 24.3% in the comparable prior year periods. The change in the effective tax rate for the three and nine months ended September 30, 2020 relates primarily to the tax benefit of $7.4 million, net of the required basis adjustment, from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (“the Act”). The Act retroactively reinstated the federal energy efficient homes tax credit that expired on December 31, 2017 to homes closed from January 1, 2018 to December 31, 2020.
11. EARNINGS PER SHARE
The Company’s RSAs have the right to receive forfeitable dividends on an equal basis with common stock and therefore are not considered participating securities that must be included in the calculation of net income per share using the two-class method.
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period, adjusted for nonvested shares of RSAs during each period. Diluted earnings per share is calculated using the treasury stock method and includes the effect of all dilutive securities, including stock options and RSAs.
The computation of basic and diluted net income attributable to Green Brick Partners, Inc. per share is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income attributable to Green Brick Partners, Inc.
|
$
|
34,819
|
|
|
$
|
15,671
|
|
|
$
|
84,383
|
|
|
$
|
42,736
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding - basic
|
50,617
|
|
|
50,475
|
|
|
50,552
|
|
|
50,564
|
|
Basic net income attributable to Green Brick Partners, Inc. per share
|
$
|
0.69
|
|
|
$
|
0.31
|
|
|
$
|
1.67
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding - basic
|
50,617
|
|
|
50,475
|
|
|
50,552
|
|
|
50,564
|
|
Dilutive effect of stock options and restricted stock awards
|
259
|
|
|
122
|
|
|
187
|
|
|
78
|
|
Weighted-average number of shares outstanding - diluted
|
50,876
|
|
|
50,597
|
|
|
50,739
|
|
|
50,642
|
|
Diluted net income attributable to Green Brick Partners, Inc. per share
|
$
|
0.68
|
|
|
$
|
0.31
|
|
|
$
|
1.66
|
|
|
$
|
0.84
|
|
The following shares which could potentially dilute earnings per share in the future are not included in the determination of diluted net income attributable to Green Brick Partners, Inc. per common share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Antidilutive options to purchase common stock and restricted stock awards
|
—
|
|
|
—
|
|
|
4
|
|
|
19
|
|
12. FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The Company’s financial instruments, none of which are held for trading purposes, include cash and cash equivalents, restricted cash, receivables, earnest money deposits, other assets, accounts payable, accrued expenses, customer and builder deposits, borrowings on lines of credit, senior unsecured notes, and contingent consideration liability.
Per the fair value hierarchy, level 1 financial instruments include: cash and cash equivalents, restricted cash, receivables, earnest money deposits, other assets, accounts payable, accrued expenses, and customer and builder deposits due to their short-term nature. The Company estimates that, due to the short-term nature of the underlying financial instruments or the proximity of the underlying transaction to the applicable reporting date, the fair value of level 1 financial instruments does not differ materially from the aggregate carrying values recorded in the condensed consolidated financial statements as of September 30, 2020 and December 31, 2019.
Level 2 financial instruments include borrowings on lines of credit and senior unsecured notes. Due to the short-term nature and floating interest rate terms, the carrying amounts of borrowings on lines of credit are deemed to approximate fair value. The estimated fair value of the senior unsecured notes as of September 30, 2020 was $120.1 million.
The fair value of the contingent consideration liability related to the GRBK GHO business combination was estimated using the internally developed discounted cash flow analysis. As the measurement of the contingent consideration is based primarily on significant inputs not observable in the market, it represents a level 3 measurement.
Key inputs in measuring the fair value of the contingent consideration liability are management’s projections of GRBK GHO’s net income and debt, and the annual discount rate of 16.5% that reflects the risk associated with achieving the milestones of the contingent consideration payments.
The reconciliation of the beginning and ending balances for level 3 measurements is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Estimated Fair Value
|
Contingent consideration liability, balance as of December 31, 2019
|
$
|
5,267
|
|
|
$
|
5,267
|
|
Payment of contingent consideration in excess of acquisition date fair value
|
(5,267)
|
|
|
(5,267)
|
|
Change in fair value of contingent consideration
|
(210)
|
|
|
(210)
|
|
Contingent consideration liability, balance as of September 30, 2020
|
$
|
(210)
|
|
|
$
|
(210)
|
|
There were no transfers between the levels of the fair value hierarchy for any of our financial instruments during the three and nine months ended September 30, 2020.
Fair Value of Nonfinancial Instruments
Nonfinancial assets and liabilities include inventory which is measured at cost unless the carrying value is determined to be not recoverable in which case the affected instrument is written down to fair value. The fair value of inventory is primarily determined by discounting the estimated future cash flow of each community using various unobservable inputs in our impairment analysis. Per the fair value hierarchy, these items are level 3 nonfinancial instruments. For additional information on the Company’s inventory, refer to Note 3.
13. RELATED PARTY TRANSACTIONS
During the three and nine months ended September 30, 2020 and 2019, the Company had the following related party transactions in the normal course of business.
Corporate Officers
Trevor Brickman, the son of Green Brick’s Chief Executive Officer, is the President of CLH20, LLC (“Centre Living”). Green Brick’s ownership interest in Centre Living is 90% and Trevor Brickman’s ownership interest is 10%. Green Brick has 90% voting control over the operations of Centre Living. As such, 100% of Centre Living’s operations are included within our condensed consolidated financial statements. During the three and nine months ended September 30, 2020, Trevor Brickman made cash contributions to Centre Living of $0.0 million and $0.4 million respectively.
GRBK GHO
GRBK GHO leases office space from entities affiliated with the president of GRBK GHO. During the three and nine months ended September 30, 2020, GRBK GHO incurred de minimis rent expense under such lease agreements. As of September 30, 2020, there were no amounts due to the affiliated entities related to such lease agreements.
GRBK GHO receives title closing services on the purchase of land and third-party lots from an entity affiliated with the president of GRBK GHO. During the nine months ended September 30, 2020, GRBK GHO incurred de minimis fees related to such title closing services. As of September 30, 2020, no amounts were due to the title company affiliate.
14. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Performance Bonds
During the ordinary course of business, certain regulatory agencies and municipalities require the Company to post letters of credit or performance bonds related to development projects. As of September 30, 2020 and December 31, 2019, letters of credit outstanding were $7.2 million and $9.0 million, and performance bonds outstanding totaled $10.4 million and $5.4
million, respectively. The Company does not believe that it is likely that any material claims will be made under a letter of credit or performance bond in the foreseeable future.
Warranties
Warranty accruals are included within accrued expenses on the condensed consolidated balance sheets. Warranty activity during the three and nine months ended September 30, 2020 and 2019 consisted of the following (in thousands):
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2020
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2019
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2020
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2019
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Warranty accrual, beginning of period
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$
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4,851
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$
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2,898
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|
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$
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3,840
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|
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$
|
2,980
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|
Warranties issued
|
1,137
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|
|
930
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|
|
2,992
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|
|
2,351
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Changes in liability for existing warranties
|
51
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|
|
169
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|
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(88)
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|
|
72
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Settlements
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(638)
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(639)
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(1,343)
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(2,045)
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Warranty accrual, end of period
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$
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5,401
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$
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3,358
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$
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5,401
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|
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$
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3,358
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Operating Leases
The Company has leases associated with office and design center space in Georgia, Texas, and Florida that, at the commencement date, have a lease term of more than 12 months and are classified as operating leases. The exercise of any extension options available in such operating lease contracts is not reasonably certain.
Operating lease cost of $0.3 million and $0.9 million for the three and nine months ended September 30, 2020, respectively, and $0.3 million and $0.9 million in the prior year periods, is included in selling, general and administrative expenses in the condensed consolidated statements of income. Cash paid for amounts included in the measurement of operating lease liabilities was $0.3 million and $0.9 million, respectively, for the three and nine months ended September 30, 2020 and 2019.
As of September 30, 2020, the weighted-average remaining lease term and the weighted-average discount rate used in calculating our lease liabilities were 2.6 years and 5.3%, respectively.
The future annual undiscounted cash flows in relation to the operating leases and a reconciliation of such undiscounted cash flows to the operating lease liabilities recognized in the condensed consolidated balance sheet as of September 30, 2020 are presented below (in thousands):
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Remainder of 2020
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$
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334
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2021
|
1,092
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2022
|
817
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2023
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1,216
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2024
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86
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Thereafter
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153
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Total future lease payments
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$
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3,698
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Less: Interest
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810
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Present value of lease liabilities
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$
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2,888
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The Company elected the short-term lease recognition exemption for all leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. For such leases, the Company does not recognize ROU assets or lease liabilities and instead recognizes lease payments in the condensed consolidated income statements on a straight-line basis. Short-term lease cost of $0.1 million and $0.3 million for the three and nine months ended September 30, 2020, respectively, and $0.1 million and $0.3 million for the comparable prior year periods, is included in selling, general and administrative expenses in the condensed consolidated statements of income.
Legal Matters
Lawsuits, claims and proceedings may be instituted or asserted against us in the normal course of business. The Company is also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, title company regulations, employment practices and environmental protection. As a result, the Company may be subject to periodic examinations or inquiry by agencies administering these laws and regulations.
The Company records an accrual for legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. The Company accrues for these matters based on facts and circumstances specific to each matter and revises these estimates when necessary.
In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, the Company generally cannot predict their ultimate resolution, related timing or eventual loss. If evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, the Company will disclose their nature with an estimate of the possible range of losses or a statement that such loss is not reasonably estimable. We believe that the disposition of legal claims and related contingencies will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “intend,” “objective,” “plan,” “predict,” “projection,” “seek,” “strategy,” “target,” “will” or other words of similar meaning. Some of them are opinions formed based upon general observations, anecdotal evidence and industry experience, but that are not supported by specific investigation or analysis. Forward-looking statements in this Quarterly Report include statements concerning (1) our balance sheet strategy and belief that we have ample liquidity; (2) our goals and strategies and their anticipated benefits; (3) the effects of COVID-19 pandemic on the homebuilding industry and our results of operations, business and liquidity, including the impact on demand for new home sales, closings and cancellations; (4) our intentions and the expected benefits and advantages of our product and land positioning strategies; (5) our beliefs regarding average industry cancellation rates; (6) expectations regarding our industry and our business in the remainder of 2020 and beyond; (7) the contribution of certain market factors to our growth; (7) our land and lot acquisition strategy; (8) the sufficiency of our capital resources to support our business strategy and to service our debt; (9) the impact of new accounting standards and changes in accounting estimates; (10) trends and expectations regarding sales prices, sales orders, cancellations, construction costs, gross margins, land costs and profitability and future home inventories; (11) our future cash needs; (12) our strategy to utilize leverage to invest in our business; (13) seasonal factors and the impact of seasonality in future quarters; and (14) our expectations regarding access to additional growth capital
These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based or the success of our business. In addition, even if results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Furthermore, industry forecasts are likely to be inaccurate, especially over long periods of time and in industries particularly sensitive to market conditions such as land development, homebuilding and builder financing.
These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements.
These risks include, but are not limited to: (1) continuing impacts from the COVID-19 pandemic, (2) general economic conditions, seasonality, cyclicality and competition in the homebuilding industry; (3) changes in macroeconomic conditions, including interest rates and unemployment rates that could adversely impact demand for new homes or the ability of our buyers to qualify; (4) shortages, delays or increased costs of raw materials, especially in light of COVID-19, or increases in the Company’s other operating costs, including costs related to labor, real estate taxes and insurance, which in each case exceed our ability to increase prices; (5) a shortage of labor, (6) an inability to acquire land in our markets for at anticipated prices or difficulty in obtaining land-use entitlements; (7) our inability to successfully execute our strategies; (8) a failure to recruit, retain or develop highly skilled and competent employees; (9) government regulation risks; (10) a lack of availability or
volatility of mortgage financing or a rise in interest rates; (11) severe weather events or natural disasters; (12) difficulty in obtaining sufficient capital to fund our growth; (13) our ability to meet our debt service obligations; (14) a decline in the value of our inventories and resulting write-downs of the carrying value of our real estate assets; and (15) changes in accounting standards that adversely affect our reported earnings or financial condition.
Please see “Risk Factors” located in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.