ITEM 1. FINANCIAL STATEMENTS
GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Assets
|
Cash and cash equivalents
|
$
|
19,754
|
|
|
$
|
21,207
|
|
Restricted cash
|
24,829
|
|
|
94
|
|
Accounts receivable
|
2,067
|
|
|
3,314
|
|
Inventory
|
415,242
|
|
|
344,132
|
|
Property and equipment, net
|
946
|
|
|
802
|
|
Earnest money deposits
|
14,137
|
|
|
17,845
|
|
Deferred income tax assets, net
|
72,186
|
|
|
80,663
|
|
Other assets
|
4,953
|
|
|
5,819
|
|
Total assets
|
$
|
554,114
|
|
|
$
|
473,876
|
|
Liabilities and stockholders' equity
|
Accounts payable
|
$
|
35,744
|
|
|
$
|
13,530
|
|
Accrued expenses
|
11,189
|
|
|
5,719
|
|
Customer and builder deposits
|
15,318
|
|
|
6,938
|
|
Obligations related to land not owned under option agreements
|
11,951
|
|
|
18,176
|
|
Borrowings on lines of credit
|
81,500
|
|
|
47,500
|
|
Notes payable
|
9,713
|
|
|
10,158
|
|
Total liabilities
|
165,415
|
|
|
102,021
|
|
Commitments and contingencies (Note 11)
|
—
|
|
|
—
|
|
Stockholders’ equity
|
|
|
|
Green Brick Partners, Inc. stockholders’ equity
|
|
|
|
Common shares, $0.01 par value: 100,000,000 shares authorized; 48,937,084 and 48,833,323 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
|
489
|
|
|
488
|
|
Additional paid-in capital
|
272,846
|
|
|
271,867
|
|
Retained earnings
|
103,257
|
|
|
87,177
|
|
Total Green Brick Partners, Inc. stockholders’ equity
|
376,592
|
|
|
359,532
|
|
Noncontrolling interests
|
12,107
|
|
|
12,323
|
|
Total stockholders’ equity
|
388,699
|
|
|
371,855
|
|
Total liabilities and stockholders’ equity
|
$
|
554,114
|
|
|
$
|
473,876
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Sale of residential units
|
$
|
87,827
|
|
|
$
|
69,165
|
|
|
$
|
248,187
|
|
|
$
|
179,195
|
|
Sale of land and lots
|
3,843
|
|
|
6,033
|
|
|
12,377
|
|
|
26,442
|
|
Total revenues
|
91,670
|
|
|
75,198
|
|
|
260,564
|
|
|
205,637
|
|
Cost of residential units
|
66,737
|
|
|
55,263
|
|
|
190,665
|
|
|
137,431
|
|
Cost of land and lots
|
2,676
|
|
|
4,217
|
|
|
8,389
|
|
|
19,095
|
|
Total cost of sales
|
69,413
|
|
|
59,480
|
|
|
199,054
|
|
|
156,526
|
|
Total gross profit
|
22,257
|
|
|
15,718
|
|
|
61,510
|
|
|
49,111
|
|
Salary expense
|
(6,587
|
)
|
|
(5,062
|
)
|
|
(19,506
|
)
|
|
(14,571
|
)
|
Selling, general and administrative expense
|
(4,334
|
)
|
|
(3,385
|
)
|
|
(12,792
|
)
|
|
(9,700
|
)
|
Operating profit
|
11,336
|
|
|
7,271
|
|
|
29,212
|
|
|
24,840
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(281
|
)
|
Depreciation and amortization expense
|
(78
|
)
|
|
(531
|
)
|
|
(199
|
)
|
|
(873
|
)
|
Interest on direct financing leases income
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Other income, net
|
564
|
|
|
402
|
|
|
2,400
|
|
|
1,008
|
|
Income before provision for income taxes
|
11,822
|
|
|
7,142
|
|
|
31,413
|
|
|
24,707
|
|
Income tax provision
|
3,657
|
|
|
1,856
|
|
|
9,340
|
|
|
6,229
|
|
Net income
|
8,165
|
|
|
5,286
|
|
|
22,073
|
|
|
18,478
|
|
Less: net income attributable to noncontrolling interests
|
1,922
|
|
|
2,460
|
|
|
5,993
|
|
|
7,846
|
|
Net income attributable to Green Brick Partners, Inc.
|
$
|
6,243
|
|
|
$
|
2,826
|
|
|
$
|
16,080
|
|
|
$
|
10,632
|
|
|
|
|
|
|
|
|
|
Net income attributable to Green Brick Partners, Inc. per common share:
|
|
|
|
|
|
|
|
Basic
|
$0.13
|
|
$0.06
|
|
$0.33
|
|
$0.29
|
Diluted
|
$0.13
|
|
$0.06
|
|
$0.33
|
|
$0.29
|
Weighted average common shares used in the calculation of net income attributable to Green Brick Partners, Inc. per common share:
|
|
|
|
|
|
|
|
Basic
|
48,899
|
|
|
48,495
|
|
|
48,868
|
|
|
37,125
|
|
Diluted
|
48,907
|
|
|
48,595
|
|
|
48,871
|
|
|
37,161
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
22,073
|
|
|
$
|
18,478
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and amortization expense
|
199
|
|
|
873
|
|
Share-based compensation
|
980
|
|
|
318
|
|
Deferred income taxes, net
|
8,477
|
|
|
5,751
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
Increase in restricted cash
|
(24,735
|
)
|
|
(764
|
)
|
Decrease in accounts receivable
|
1,247
|
|
|
22
|
|
Increase in inventory
|
(77,335
|
)
|
|
(31,470
|
)
|
Decrease (increase) in earnest money deposits
|
3,708
|
|
|
(9,965
|
)
|
Decrease (increase) in other assets
|
866
|
|
|
(1,143
|
)
|
Increase in accounts payable
|
22,214
|
|
|
752
|
|
Increase (decrease) in accrued expenses
|
5,470
|
|
|
(3,492
|
)
|
Increase (decrease) in customer and builder deposits
|
8,380
|
|
|
(1,358
|
)
|
Net cash used in operating activities
|
(28,456
|
)
|
|
(21,998
|
)
|
Cash flows from investing activities
|
|
|
|
Proceeds from sale of investment in direct financing leases
|
—
|
|
|
2,768
|
|
Acquisition of property and equipment
|
(343
|
)
|
|
(662
|
)
|
Net cash (used in) provided by investing activities
|
(343
|
)
|
|
2,106
|
|
Cash flows from financing activities
|
|
|
|
Borrowings from lines of credit
|
63,000
|
|
|
42,460
|
|
Proceeds from notes payable
|
1,425
|
|
|
3,206
|
|
Repayments of lines of credit
|
(29,000
|
)
|
|
(42,561
|
)
|
Repayments of notes payable
|
(1,870
|
)
|
|
(3,898
|
)
|
Repayment of term loan facility
|
—
|
|
|
(150,000
|
)
|
Proceeds from equity offering, net of issuance costs
|
—
|
|
|
169,983
|
|
Contributions from noncontrolling interests
|
2,921
|
|
|
87
|
|
Distributions to noncontrolling interests
|
(9,130
|
)
|
|
(6,423
|
)
|
Net cash provided by financing activities
|
27,346
|
|
|
12,854
|
|
Net decrease in cash and cash equivalents
|
(1,453
|
)
|
|
(7,038
|
)
|
Cash and cash equivalents at beginning of period
|
21,207
|
|
|
22,651
|
|
Cash and cash equivalents at end of period
|
$
|
19,754
|
|
|
$
|
15,613
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
Cash paid for interest, net of capitalized interest
|
$
|
—
|
|
|
$
|
2,764
|
|
Cash paid for taxes
|
$
|
1,037
|
|
|
$
|
1,143
|
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
(Decrease) increase in obligations related to land not owned under option agreements
|
$
|
(6,225
|
)
|
|
$
|
12,255
|
|
Out-of-period equity adjustment
|
$
|
—
|
|
|
$
|
1,933
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GREEN BRICK PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
When used in these notes, references to the “Company”, “Green Brick”, “we”, “us” or “our” refer to the combined company, which has been renamed Green Brick Partners, Inc. and its subsidiaries, resulting from the acquisition by BioFuel Energy Corp. and its then consolidated subsidiaries (“BioFuel”) of JBGL Builder Finance LLC and its consolidated subsidiaries and affiliated companies (collectively, “Builder Finance”), and JBGL Capital Companies (“Capital”), a combined group of commonly managed limited liability companies and partnerships (collectively with Builder Finance, “JBGL”) by means of a reverse recapitalization transaction on October 27, 2014.
Green Brick Partners, Inc. (formerly named BioFuel Energy Corp.) was incorporated as a Delaware corporation on April 11, 2006, to invest solely in BioFuel Energy, LLC, a limited liability company organized on January 25, 2006, to build and operate ethanol production facilities in the Midwestern United States. On November 22, 2013, the Company disposed of its ethanol plants and all related assets. Following the disposition of these production facilities, we were a public shell company with no substantial operations.
On June 10, 2014, the Company entered into a definitive transaction agreement with the owners of JBGL, which provided that we would acquire JBGL for
$275 million
, payable in cash and shares of our common stock (the “Transaction”). JBGL is a real estate operator involved in the purchase and development of land for residential use, construction lending and home building operations. The Transaction was completed on October 27, 2014 (the “Transaction Date”). Pursuant to the terms of the Transaction, we paid the
$275 million
purchase price with approximately
$191.8 million
in cash and the remainder in
11,108,500
shares of our common stock valued at approximately
$7.49
per share.
The cash portion of the purchase price was primarily funded from the proceeds of a
$70.0 million
rights offering conducted by the Company (the
$70.0 million
includes proceeds from purchases of shares of common stock by certain funds and accounts managed by Greenlight Capital, Inc. and its affiliates (“Greenlight”) and Third Point LLC and its affiliates (“Third Point”)) and
$150.0 million
of debt financing provided by Greenlight pursuant to a loan agreement, with the lenders from time to time party thereto (the “Loan Agreement”), which provided for a
five
year term loan facility (the “Term Loan Facility”). In 2015, the Loan Agreement was repaid in full.
The
$70.0 million
rights offering included a registered offering by the Company of transferable rights to the public holders of its common stock, as of September 15, 2014 (the “Rights Offering”) to purchase additional shares of common stock. Each right permitted the holder to purchase, at a rights price ultimately equal to
$5.00
per share of common stock,
2.2445
shares of common stock.
4,843,384
shares of common stock were purchased in the public Rights Offering for aggregate gross proceeds of approximately
$24.2 million
.
In addition to the Rights Offering, Greenlight and Third Point participated in a private rights offering to purchase additional shares of common stock pursuant to commitment letters. Pursuant to its commitment letter, Third Point agreed to participate in the private rights offering for its full basic subscription privilege in the Rights Offering and to purchase, simultaneously with the consummation of the Rights Offering to the public, all of the available shares not otherwise sold in the Rights Offering following the exercise of all other public holders’ basic subscription privileges. Pursuant to such commitment letters, Greenlight purchased
4,957,618
shares of common stock for aggregate gross proceeds of approximately
$24.8 million
and Third Point purchased
4,198,998
shares of common stock for aggregate gross proceeds of approximately
$21.0 million
.
At the time the Transaction was completed, BioFuel was a non-operating public shell corporation with nominal operations and assets consisting of cash, deferred tax assets, and nominal other nonoperating assets. As a result of the Transaction, the owners and management of JBGL gained effective operating control of the combined company. As of the Transaction Date, BioFuel did not meet the definition of a business for accounting purposes.
Accordingly, for financial reporting purposes, the Transaction was deemed to be a capital transaction in substance and recorded as a reverse recapitalization of JBGL whereby JBGL is deemed to be the continuing, surviving entity for accounting purposes, but through reorganization, has deemed to have adopted the capital structure of BioFuel. Because the acquisition was considered a reverse recapitalization for accounting purposes, the combined historical financial statements of JBGL became our historical financial statements and from the completion of the acquisition on October 27, 2014, the financial statements have been prepared on a consolidated basis. The assets and liabilities of BioFuel have been brought forward at their book value and
no
goodwill has been recognized in connection with the Transaction.
As a result of the Transaction, Green Brick changed its business direction and is now in the real estate industry. We are a uniquely structured company that combines residential land development and homebuilding. We acquire and develop land, provide land and construction financing to our controlled builders and participate in the profits of our controlled builders. Our core markets are in the high growth U.S. metropolitan areas of Dallas, Texas and Atlanta, Georgia. We are engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, marketing and sales and the creation of brand images at our residential neighborhoods and master planned communities.
The condensed consolidated financial statements set forth in this Quarterly Report on Form 10-Q consist of JBGL and BioFuel Energy, LLC.
Condensed Basis of Presentation and Principles of Consolidation
The 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. In the opinion of management, the accompanying 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 our audited consolidated financial statements for the year ended
December 31, 2015
, included in our Annual Report on Form 10-K filed with the SEC on
March 30, 2016
. Our operating results for the three and
nine
months ended
September 30, 2016
are not necessarily indicative of the results that may be expected for any future periods.
The condensed consolidated financial statements include the historic accounts of JBGL and are consolidated with Green Brick beginning October 27, 2014. All intercompany balances and transactions have been eliminated in consolidation. Investments in which the Company directly or indirectly has an interest of more than
50
percent and/or is able to exercise control over the operations have been fully consolidated and noncontrolling interests are stated separately in the condensed consolidated financial statements as required under the provisions of FASB ASC 810,
Consolidations
.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires 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.
Noncontrolling Interests
We own
50%
controlling interests in several builders. The financial statements of these builders are consolidated in our condensed consolidated financial statements. The noncontrolling interests attributable to the
50%
minority interests not owned by us are included as part of noncontrolling interests on the condensed consolidated balance sheets.
Segment Information
The Company’s operations are organized into
two
reportable segments: builder operations and land development. Builder operations consist of
two
operating segments: Texas and Georgia. In accordance with ASC 280,
Segment Reporting
, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, geography, including product types, production processes, average selling prices, gross profits, suppliers, land acquisition results, and underlying demand and supply.
Reclassifications
Beginning in the third quarter of 2015, model home furnishings were reclassified from property and equipment, net in the condensed consolidated balance sheet to inventory. Depreciation of model home furnishings for the three and
nine
months ended
September 30, 2015
has been reclassified from depreciation and amortization expense in the accompanying condensed consolidated statements of income to cost of residential units to conform to the current period presentation.
Cash related to refundable customer deposits, which are not held in escrow, has been reclassified from restricted cash in the accompanying condensed consolidated balance sheets as of December 31, 2015 and the accompanying condensed consolidated
statements of cash flows for the
nine
months ended
September 30, 2015
to cash and cash equivalents to conform to the current period presentation.
Out-of-Period Adjustment
During the fourth quarter ended December 31, 2015, the Company recorded an out-of-period adjustment associated with a
$1.9 million
overaccrual of distributions payable recorded during the fourth quarter ended December 31, 2014. As a result, as of December 31, 2014, accrued expenses was overstated and retained earnings was understated by
$1.9 million
. After evaluating the quantitative and qualitative aspects of the out-of-period adjustment, management has determined that the adjustment is not material to any prior period financial statements.
Recent Accounting Pronouncements
In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in GAAP when it becomes effective. In August 2015, FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which delayed the effective date of ASU No. 2014-09 by one year. Subsequent to the issuance of ASU 2014-09, the FASB issued several amendments in 2016 to the original standard including ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
and ASU 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients
. These amendments do not change the core principle of the guidance stated in ASU 2014-09. Rather, they are intended to clarify and improve understanding of certain topics included in ASU 2014-09. ASU 2014-09 and the related amendments are effective for the Company beginning on
January 1, 2018
. Early adoption is permitted for reporting periods beginning after December 15, 2016. The standard permits the use of either the full retrospective approach or the modified retrospective approach. The Company has not yet selected a transition method and is currently evaluating the effect that the standard will have on its condensed consolidated financial statements and related disclosures.
In February 2015, FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
, which amends the consolidation requirements in ASC 810, primarily related to limited partnerships and VIEs. This standard was effective for the Company beginning on
January 1, 2016
. The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.
In April 2015, FASB issued ASU No. 2015-03,
Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This standard was effective for the Company beginning on
January 1, 2016
. In August 2015, FASB issued ASU No. 2015-15,
Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting
, which clarified that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. As permitted, the Company is deferring and presenting debt issuance costs related to its lines of credit as assets and subsequently amortizing the costs straight line over the term of the lines of credit.
In November 2015, FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
, as part of its simplification initiative. The standard amends the existing guidance to require that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet, and eliminates the prior guidance which required an entity to separate deferred tax liabilities and assets into a current amount and a noncurrent amount in a classified balance sheet. The standard is effective for the Company beginning on
January 1, 2017
. Early adoption is permitted as of the beginning of an interim or annual period. Additionally, the new guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company does not believe that the adoption of this standard will have a material effect on its condensed consolidated financial statements and related disclosures.
In February 2016, FASB issued ASU No. 2016-02,
Leases
, which requires an entity that leases assets to classify the leases as either finance or operating leases and to record assets and liabilities for the rights and obligations created by long-term leases, regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. This standard is effective for the Company beginning on
January 1, 2019
and must be adopted using a modified retrospective approach. The Company does not
believe that the adoption of this standard will have a material effect on its condensed consolidated financial statements and related disclosures.
In March 2016, FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. This standard is effective for the Company beginning on
January 1, 2017
. The Company is currently evaluating the effect that this standard will have on its condensed consolidated financial statements and related disclosures.
In August 2016, FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
, which reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230,
Statement of Cash Flows
, including providing additional guidance on how and what an entity should consider in determining the classification of certain cash receipts and cash payments. This standard is effective for the Company beginning on
January 1, 2018
. The Company does not believe that the adoption of this standard will have a material effect on its condensed consolidated financial statements and related disclosures.
2. NET INCOME ATTRIBUTABLE TO GREEN BRICK PARTNERS, INC. PER SHARE
The Company's restricted stock awards 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 non-vested shares of restricted stock awards 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 restricted stock awards.
The computation of basic and diluted net income attributable to Green Brick Partners, Inc. per share using the treasury stock method is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Basic net income attributable to Green Brick Partners, Inc. per share
|
|
|
|
|
|
|
|
Net income attributable to Green Brick Partners, Inc. —basic
|
$
|
6,243
|
|
|
$
|
2,826
|
|
|
$
|
16,080
|
|
|
$
|
10,632
|
|
Weighted-average number of shares outstanding —basic
|
48,899
|
|
|
48,495
|
|
|
48,868
|
|
|
37,125
|
|
Basic net income attributable to Green Brick Partners, Inc. per share
|
$
|
0.13
|
|
|
$
|
0.06
|
|
|
$
|
0.33
|
|
|
$
|
0.29
|
|
Diluted net income attributable to Green Brick Partners, Inc. per share
|
|
|
|
|
|
|
|
Net income attributable to Green Brick Partners, Inc. —diluted
|
$
|
6,243
|
|
|
$
|
2,826
|
|
|
$
|
16,080
|
|
|
$
|
10,632
|
|
Weighted-average number of shares used to compute basic net income attributable to Green Brick Partners, Inc.
|
48,899
|
|
|
48,495
|
|
|
48,868
|
|
|
37,125
|
|
Dilutive effect of stock options and restricted stock awards
|
8
|
|
|
100
|
|
|
3
|
|
|
36
|
|
Weighted-average number of shares outstanding —diluted
|
48,907
|
|
|
48,595
|
|
|
48,871
|
|
|
37,161
|
|
Diluted net income attributable to Green Brick Partners, Inc. per share
|
$
|
0.13
|
|
|
$
|
0.06
|
|
|
$
|
0.33
|
|
|
$
|
0.29
|
|
The following securities that 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,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Antidilutive options to purchase common stock and restricted stock awards
|
113
|
|
|
—
|
|
|
186
|
|
|
67
|
|
3. INVENTORY
Inventory consists of land in the process of development, undeveloped land, developed lots, completed homes, raw land scheduled for development, and land not owned under option agreements in Texas and Georgia. Inventory is valued at cost unless the carrying value is determined to be not recoverable in which case the affected inventory is written down to fair value. Cost includes any related pre-acquisition costs that are directly identifiable with a specific property so long as those pre-acquisition costs are recoverable at the sale of the property.
A summary of inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Completed home inventory and residential lots held for sale
|
$
|
109,004
|
|
|
$
|
85,342
|
|
Work in process
|
292,045
|
|
|
236,383
|
|
Undeveloped land
|
3,481
|
|
|
6,193
|
|
Land not owned under option agreements
|
10,712
|
|
|
16,214
|
|
Total Inventory
|
$
|
415,242
|
|
|
$
|
344,132
|
|
The Company capitalizes interest costs incurred to inventory during active development and other qualifying activities. Interest capitalized as cost of inventory is charged to cost of sales as related homes, land and/or lots are closed. Interest incurred on undeveloped land is directly expensed and included in interest expense in our consolidated statements of income.
Interest costs incurred, capitalized and expensed were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest capitalized at beginning of period
|
$
|
8,909
|
|
|
$
|
9,854
|
|
|
$
|
9,085
|
|
|
$
|
3,713
|
|
Interest incurred
|
742
|
|
|
1,890
|
|
|
2,267
|
|
|
9,238
|
|
Interest charged to cost of sales
|
(546
|
)
|
|
(1,389
|
)
|
|
(2,247
|
)
|
|
(2,315
|
)
|
Interest charged to interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(281
|
)
|
Interest capitalized at end of period
|
$
|
9,105
|
|
|
$
|
10,355
|
|
|
$
|
9,105
|
|
|
$
|
10,355
|
|
4. DEBT
Lines of Credit
Lines of credit outstanding as of
September 30, 2016
and
December 31, 2015
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Promissory note to Inwood National Bank (“Inwood”):
|
|
|
|
Revolving credit facility
(1)
|
$
|
21,500
|
|
|
$
|
17,500
|
|
Unsecured revolving credit facility
(2)
|
60,000
|
|
|
30,000
|
|
Total lines of credit
|
$
|
81,500
|
|
|
$
|
47,500
|
|
|
|
(1)
|
On
July 30, 2015
, the Company replaced its John's Creek credit facility with a new revolving credit facility with Inwood, which provides for up to
$50.0 million
and is secured by land owned in John’s Creek, Georgia, Allen, Texas, and Carrollton, Texas. The costs associated with the new revolving credit facility of
$0.4 million
were deferred and are included in other assets in our condensed consolidated balance sheets. The Company is
amortizing these debt issuance
|
costs to interest expense over the term of the new revolving credit facility using the straight line method
. Amounts outstanding under the new revolving credit facility is 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, including land owned in John’s Creek, Georgia, Allen, Texas, and Carrollton, Texas. The amounts outstanding under the new revolving credit facility are also guaranteed by certain of the Company's subsidiaries.
Before the amendment (as discussed below), the new revolving credit facility was subject to a borrowing base limitation equal to the sum of
50%
of the total value of land and
60%
of the total value of lots owned by certain of the Company's subsidiaries, each as determined by an independent appraiser, with the value of land being restricted from being more than
50%
of the borrowing base. Outstanding borrowings under the new revolving credit facility bear interest payable monthly at a floating rate per annum equal to the rate announced by Bank of America, N.A., from time to time, as its “Prime Rate” (the “Index”) with such adjustments to the interest rate being made on the effective date of any change in the Index. Notwithstanding the foregoing, the interest may not, at any time, be less than
4%
per annum or more than the lesser amount of
18%
and the highest maximum rate allowed by applicable law. The entire unpaid principal balance and any accrued but unpaid interest is due and payable on the maturity date. As of
September 30, 2016
, the interest rate on outstanding borrowings under the Credit Facility was
4.0%
per annum.
On May 3, 2016, the Company amended the new revolving credit facility. The amended revolving credit facility is subject to a borrowing base limitation equal to the sum of
50%
of the total value of land and
65%
of the total value of lots owned by certain of the Company's subsidiaries, each as determined by an independent appraiser, with the value of land being restricted from being more than
65%
of the borrowing base. Beginning on August 1, 2017, a non-usage fee equal to
0.25%
of the average unfunded amount of the
$50.0 million
commitment amount over a trailing 12 month period is due on or before August 1st of each year during the term of the amended revolving credit facility. The maturity date has been extended to
May 1, 2019
. The costs associated with the amendment of
$0.1 million
were deferred and are included in other assets in our consolidated.
Under the terms of the new revolving credit facility, the Company is required, among other things, to maintain minimum multiples of net worth in excess of the outstanding new revolving credit facility balance, minimum interest coverage and maximum leverage. The Company was in compliance with these financial covenants under the revolving credit facility as of
September 30, 2016
.
|
|
(2)
|
On December 15, 2015, the Company entered into a credit agreement (the “Credit Agreement”) with the lenders named therein, and Citibank, N.A., as administrative agent, providing for a senior, unsecured revolving credit facility with aggregate lending commitments of up to
$40.0 million
(“Unsecured Revolving Credit Facility”). Before the Amendment (as defined and discussed below) increased the maximum amount of the Unsecured Revolving Credit Facility, the Company could, at its option and subject to certain terms and conditions, prior to the termination date, increase the amount of the revolving credit facility up to a maximum aggregate amount of
$75.0 million
. Commitments under the Unsecured Revolving Credit Facility are available until the period ending December 14, 2018, which period may be extended for additional one year periods, subject to the consent of the lenders and the satisfaction of certain other terms and conditions. Citibank, N.A. and Credit Suisse AG, Cayman Islands Branch have initially committed to provide
$25.0 million
and
$15.0 million
, respectively.
|
The costs associated with the Unsecured Revolving Credit Facility of
$0.5 million
were deferred and are included in other assets in our condensed consolidated balance sheets. The Company is
amortizing these debt issuance costs to interest expense over the term of the Unsecured Revolving Credit Facility using the straight line method
.
The Unsecured Revolving Credit Facility provides for interest rate options on advances at rates equal to either: (x) in the case of base rate advances, the highest of (i) Citibank’s base rate, (ii) the federal funds rate plus
0.5%
, and (iii) the one-month LIBOR plus
1.0%
, in each case plus
1.5%
; or (y) in the case of Eurodollar rate advances, the reserve adjusted LIBOR plus
2.5%
. Interest on amounts borrowed under the Unsecured Revolving Credit Facility is payable in arrears quarterly on the last day of each March, June, September and December during such periods. As of
September 30, 2016
, the interest rate on outstanding borrowings under the Credit Facility was
2.9%
per annum.
The Company pays the lenders a commitment fee on the amount of the unused commitments on a quarterly basis at a rate per annum equal to
0.45%
.
Outstanding borrowings under the Unsecured Revolving Credit Facility are subject to, among other things, a borrowing base. The borrowing base limitation is equal to the sum of:
100%
of unrestricted cash (in excess of
$15.0 million
);
85%
of the book value of model homes, construction in progress homes, sold completed homes, and speculative homes (subject to certain limitations on the age and number of speculative homes and model homes);
65%
of the book value of finished lots
and land under development; and
50%
of the book value of entitled land (subject to certain limitations on the value of entitled land and land under development as a percentage of the borrowing base).
On August 31, 2016, the Company, entered into a First Amendment to the Credit Agreement (the “Amendment”), with Flagstar Bank, FSB (“Flagstar Bank”), the lenders named therein, and Citibank, N.A., as administrative agent, which amends the Credit Agreement. The Amendment adds Flagstar Bank as a lender under the Credit Agreement, with an initial commitment of
$20.0 million
, which increases the aggregate lending commitments available under the Unsecured Revolving Credit Facility from
$40.0 million
to
$60.0 million
. The Amendment also increases the maximum amount of the Unsecured Revolving Credit Facility to a maximum aggregate amount of
$110.0 million
, which further increases are available at the Company’s option, prior to the termination date, subject to certain terms and conditions. The costs associated with the Amendment of
$0.2 million
were deferred and are included in other assets in our condensed consolidated balance sheets.
Additionally, under the terms of the Unsecured Revolving Credit Facility, the Company is required, among other things, to maintain compliance with various covenants, including financial covenants relating to a maximum Leverage Ratio, a minimum Interest Coverage Ratio, and a minimum Consolidated Tangible Net Worth, each as defined therein. The Company's compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Unsecured Revolving Credit Facility. The Company was in compliance with these covenants as of
September 30, 2016
.
Notes Payable
Notes payable outstanding as of
September 30, 2016
and
December 31, 2015
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Note payable to unrelated third party:
|
|
|
|
Briar Ridge Investments, LTD
(1)
|
$
|
9,000
|
|
|
$
|
9,000
|
|
Lyons Equities, Inc. Trustee
(2)
|
—
|
|
|
988
|
|
Wretched Land, LP
(3)
|
713
|
|
|
—
|
|
Subordinated Lot Notes
(4)
|
—
|
|
|
170
|
|
Total notes payable
|
$
|
9,713
|
|
|
$
|
10,158
|
|
|
|
(1)
|
On December 13, 2013, a subsidiary of JBGL signed a promissory note for
$9.0 million
maturing on December 13, 2017, bearing interest at
6.0%
per annum and collateralized by land purchased in Allen, Texas. Accrued interest as of
September 30, 2016
was
$0
.
|
|
|
(2)
|
On May 22, 2015, a subsidiary of JBGL signed a promissory note for
$1.0 million
maturing on May 22, 2016, bearing interest at
3.5%
per annum and collateralized by land located in Allen, Texas. The note was paid off during May 2016.
|
|
|
(3)
|
On August 19, 2016, a subsidiary of JBGL signed a promissory note for
$1.4 million
maturing on January 1, 2017, bearing interest at
2.0%
per annum and collateralized by land located in Allen, Texas.
$0.7 million
of this note was repaid during September 2016.
|
|
|
(4)
|
Subsidiaries of the Company purchased lots under various agreements from unrelated third parties. The sellers of these lots had subordinated a percentage of the lot purchase price to various construction loans of subsidiaries of the Company’s construction loans. Notes were signed in relation to the subordination bearing interest between
8.0%
and
14.0%
, collateralized by liens on the homes built on each lot. The sellers released their lien upon payment of principle plus accrued interest at the closing of each individual home to a third party buyer. The subordinated lot notes were paid off during the three months ended March 31, 2016.
|
5. STOCKHOLDERS’ EQUITY
A summary of changes in stockholders’ equity is presented below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Total Green Brick Partners, Inc. Stockholders’ Equity
|
|
Noncontrolling Interests
|
|
Total Stockholders’ Equity
|
|
Shares
|
|
Amount
|
|
Balance as of December 31, 2014
|
31,346,084
|
|
|
$
|
313
|
|
|
$
|
101,626
|
|
|
$
|
69,919
|
|
|
$
|
171,858
|
|
|
$
|
9,739
|
|
|
$
|
181,597
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
227
|
|
|
—
|
|
|
227
|
|
|
—
|
|
|
227
|
|
Issuance of common stock under 2014 Equity Plan
|
22,908
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of deferred share-based compensation
|
—
|
|
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
Issuance of common stock in connection with secondary offering, net of issuance costs
|
17,444,897
|
|
|
175
|
|
|
169,808
|
|
|
—
|
|
|
169,983
|
|
|
—
|
|
|
169,983
|
|
Contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
87
|
|
Distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,423
|
)
|
|
(6,423
|
)
|
Out of period adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
1,933
|
|
|
1,933
|
|
|
—
|
|
|
1,933
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
10,632
|
|
|
10,632
|
|
|
7,846
|
|
|
18,478
|
|
Balance as of September 30, 2015
|
48,813,889
|
|
|
$
|
488
|
|
|
$
|
271,752
|
|
|
$
|
82,484
|
|
|
$
|
354,724
|
|
|
$
|
11,249
|
|
|
$
|
365,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
48,833,323
|
|
|
$
|
488
|
|
|
$
|
271,867
|
|
|
$
|
87,177
|
|
|
$
|
359,532
|
|
|
$
|
12,323
|
|
|
$
|
371,855
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
288
|
|
|
—
|
|
|
288
|
|
|
—
|
|
|
288
|
|
Issuance of common stock under 2014 Equity Plan
|
103,761
|
|
|
1
|
|
|
490
|
|
|
—
|
|
|
491
|
|
|
—
|
|
|
491
|
|
Amortization of deferred share-based compensation
|
—
|
|
|
—
|
|
|
201
|
|
|
—
|
|
|
201
|
|
|
—
|
|
|
201
|
|
Contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,921
|
|
|
2,921
|
|
Distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,130
|
)
|
|
(9,130
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
16,080
|
|
|
16,080
|
|
|
5,993
|
|
|
22,073
|
|
Balance as of September 30, 2016
|
48,937,084
|
|
|
$
|
489
|
|
|
$
|
272,846
|
|
|
$
|
103,257
|
|
|
$
|
376,592
|
|
|
$
|
12,107
|
|
|
$
|
388,699
|
|
Equity Offering
On July 1, 2015, the Company completed an underwritten public offering of
17,000,000
shares of its common stock at a price to the public of
$10.00
per share and granted to the underwriters a
30-day
option to purchase up to an aggregate of
841,500
additional shares of common stock to cover over-allotments (the “Equity Offering”). On
July 23, 2015
, the underwriters exercised the option and purchased
444,897
additional shares. All of the shares were sold by the Company pursuant to an effective shelf registration statement previously filed with the SEC.
The Equity Offering resulted in net proceeds to Green Brick of approximately
$170.0 million
, after deducting underwriting discounts and offering expenses. On July 1, 2015, Green Brick used approximately
$154.9 million
of the net proceeds from the Equity Offering to repay all of the outstanding principal, interest and a prepayment premium under the Term Loan Facility. Upon repayment, the Term Loan Facility was terminated and all security interests in, and all liens held by Greenlight with respect to the assets of Green Brick securing the amounts owed under the Term Loan Facility were terminated and released. Green Brick used the remaining net proceeds for working capital and general corporate purposes.
6. SHARE REPURCHASE PROGRAM
In March 2016, the Company's Board of Directors authorized a share repurchase program of up to
1,000,000
shares of its common stock through
2017
. The timing, volume and nature of share repurchases will be at the discretion of management and dependent on market conditions, corporate and regulatory requirements and other factors, and may be suspended or discontinued at any time. The authorized repurchases will be made from time to time in the open market, through block trades
or in privately negotiated transactions. No assurance can be given that any particular amount of common stock will be repurchased. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when we might otherwise be prevented from doing so under insider trading laws or because of self-imposed blackout periods. This repurchase program may be modified, extended or terminated at the discretion of our Board of Directors at any time. We intend to finance the repurchases with available cash.
No
shares were repurchased during the
nine
months ended
September 30, 2016
.
7. SHARE-BASED COMPENSATION
We measure and account for share-based awards in accordance with ASC Topic 718, “
Compensation - Stock Compensation
”. Share-based compensation expense associated with stock options with vesting contingent upon the achievement of service conditions is recognized on a straight-line basis, net of estimated forfeitures of unvested stock options, over the requisite service period the awards are expected to vest. We estimate the aggregate intrinsic value of stock options with vesting contingent upon the achievement of service conditions as of the date the award was granted using the Black-Scholes option pricing model. The Black-Scholes option-pricing model requires the use of certain input variables, such as expected volatility, risk-free interest rate and expected award life.
Share-Based Award Activity
In April 2016, the Company granted
65,875
shares of common stock (the “Stock Bonus Awards”) to its Named Executive Officers, pursuant to the 2014 Equity Plan. At the time of the grant, the Stock Bonus Awards were
100%
vested and non-forfeitable. The Stock Bonus Awards have a weighted grant-date fair value of
$7.45
per share. The fair value of the Stock Bonus Awards were recorded as share-based compensation expense in April 2016.
The Company's non-employee Board of Directors elected to defer up to 100% of their annual retainer fee, chairman fees and meeting fees in the form of common stock. In June 2016, the Company granted
37,886
restricted stock awards (“RSAs”) to certain non-employee Board of Directors, pursuant to the 2014 Equity Plan. The RSAs 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 Issuer's 2017 Annual Meeting of Stockholders. The RSAs have a weighted average grant-date fair value of
$7.51
per share. The fair value of the outstanding shares of restricted stock awards will be recorded as share-based compensation expense over the vesting period.
A summary of restricted stock awards activity during the
nine
months ended
September 30, 2016
is as follows:
|
|
|
|
|
|
|
|
|
Number of Shares (in thousands)
|
|
Weighted Average Grant Date Fair Value per Share
|
Nonvested, December 31, 2015
|
23
|
|
|
$
|
8.73
|
|
Granted
|
104
|
|
|
$
|
7.47
|
|
Vested
|
(89
|
)
|
|
$
|
7.78
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Nonvested, September 30, 2016
|
38
|
|
|
$
|
7.51
|
|
A summary of stock option activity during the
nine
months ended
September 30, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares (in thousands)
|
|
Weighted Average Exercise Price per Share
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Options outstanding, December 31, 2015
|
500
|
|
|
$
|
7.49
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Options outstanding, September 30, 2016
|
500
|
|
|
$
|
7.49
|
|
|
8.07
|
|
$
|
385
|
|
Options exercisable, September 30, 2016
|
100
|
|
|
$
|
7.49
|
|
|
8.07
|
|
$
|
77
|
|
A summary of our unvested stock options during the
nine
months ended
September 30, 2016
is as follows:
|
|
|
|
|
|
|
|
|
Number of Shares (in thousands)
|
|
Weighted Average Per Share Grant Date Fair Value
|
Unvested, December 31, 2015
|
400
|
|
|
$
|
2.88
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Unvested, September 30, 2016
|
400
|
|
|
$
|
2.88
|
|
Valuation of Share-Based Awards
We utilize the Black-Scholes option pricing model for estimating the grant date fair value of stock options. There were
no
stock options issued during the
nine
months ended
September 30, 2016
and
September 30, 2015
.
Share-Based Compensation Expense
Share-based compensation expense was
$0.1 million
and
$1.0 million
for the three and
nine
months ended
September 30, 2016
, respectively, and
$0.1 million
and
$0.3 million
for the three and
nine
months ended
September 30, 2015
, respectively. As of
September 30, 2016
, the estimated total remaining unamortized share-based compensation expense related to unvested restricted stock awards and stock options, net of forfeitures, was
$1.1 million
which is expected to be recognized over a weighted-average period of
0.7
years. As of
September 30, 2016
, the estimated total remaining unamortized share-based compensation expense related to stock options, net of forfeitures, was
$0.9 million
which is expected to be recognized over a weighted-average period of
3.1
years.
8. INCOME TAXES
We recorded an income tax provision of
$3.7 million
and
$9.3 million
for the three and
nine
months ended
September 30, 2016
, respectively, as compared to
$1.9 million
and
$6.2 million
for three and
nine
months ended
September 30, 2015
, respectively. The effective tax rate for the three and
nine
months ended
September 30, 2016
was
30.9%
and
29.7%
, respectively, as compared to
26.0%
and
25.2%
for the three and
nine
months ended
September 30, 2015
. The effective tax rate for the three and
nine
months ended
September 30, 2016
and
September 30, 2015
is driven by the statutory tax rate benefit related to non-controlled earnings and state income taxes.
9. RELATED PARTY TRANSACTIONS
During the three and
nine
months ended
September 30, 2016
and
2015
, the Company had related party transactions through the normal course of business. These transactions include the following:
On October 27, 2014, in connection with the Transaction, the Company entered into the Loan Agreement, a guaranty and a pledge and security agreement with certain funds and accounts managed by Greenlight, our largest shareholder. Greenlight beneficially owns approximately
49.4%
of the voting power of the Company. The Loan Agreement provided for a
five
year Term Loan Facility in an aggregate principal amount of
$150.0 million
which funded part of the Transaction. Certain subsidiaries of the Company guaranteed obligations under the Term Loan Facility pursuant to the guaranty. The Term Loan Facility bore interest at
9.0%
per annum, payable quarterly, from October 27, 2014 through the first anniversary thereof and
10.0%
per annum thereafter. On July 1, 2015 we used approximately
$154.9 million
of the net proceeds from the Equity Offering to repay all of the outstanding principal, interest and a prepayment premium under the Term Loan Facility. See
Note 5
for further discussion of this repayment.
In 2012, we formed Centre Living Homes, LLC (“Centre Living”), a builder that focuses on a limited number of homes and luxury townhomes each year in the Dallas, Texas market. Trevor Brickman, the son of Green Brick's Chief Executive Officer, is the President of Centre Living. Effective as of January 1, 2015, Centre Living's operating agreement was amended and restated to the same general terms as with our other builders, such that Green Brick's ownership interest in Centre Living is
50%
and Trevor Brickman's ownership interest is
50%
for future operations beginning January 1, 2015. Subsequent to this amendment, Green Brick has
51%
voting control over the operations of Centre Living. As such,
100%
of Centre Living's operations are included within our condensed consolidated financial statements. The noncontrolling interest attributable to Centre Living was
$0.3 million
and
$0.3 million
as of
September 30, 2016
and
December 31, 2015
, respectively. In June 2016, the Company sold
one
developed lot to Trevor Brickman for
$0.4 million
, of which
$0.3 million
was included in the cost of
land and lots. In September 2016, Trevor Brickman entered into an agreement with Centre Living to construct a home on the developed lot. In accordance with the Company's employee discount policy, the contract price is construction costs plus a
13%
premium. As of
September 30, 2016
, the Company has incurred
$28,111
in costs to construct the home.
In September 2015, the Company purchased
11
lots from an entity affiliated with the president of The Providence Group of Georgia L.L.C. (“TPG”), one of its controlled builders. The lots are part of a
19
-home community, The Parc at Cogburn in Atlanta. The total paid for the lots in 2015 was
$1.8 million
. Under the option agreement in place, the Company purchased
$0.3 million
in lots during the
nine
months ended
September 30, 2016
and have another
$1.0 million
in lots that it is required to purchase during the fourth quarter of 2016.
In November 2015, the Company purchased
12
lots from an entity affiliated with the president of TPG, one of its controlled builders. The lots are part of a
92
-unit townhome community, Glens at Sugarloaf in Atlanta.
No
deposits were paid by the Company in contracting for the lots. The total paid for the lots in 2015 was
$1.0 million
. During March 2016, the Company purchased the remaining
80
townhome lots within the community at a price of
$4.8 million
from the affiliated entity.
During March 2016, the Company purchased undeveloped land for an eventual
83
lot community, Academy Street in Atlanta. Simultaneously, the Company entered into a partnership agreement with an entity affiliated with the president of TPG to develop the community for sale of the lots to TPG under GRBK Academy LLC. Contributions and profits will be
80%
for the Company and
20%
for the affiliated entity. Total capital contributions are estimated at
$12.0 million
, of which
$9.6 million
will be contributed by the Company. The total contributions paid in 2016 was
$10.2 million
, of which
$8.2 million
was paid by the Company. The Company has
80%
ownership in GRBK Suwanee Station LLC and has consolidated the entity.
During March 2016, the Company purchased undeveloped land for an eventual
73
-townhome community, Suwanee Station in Atlanta. Simultaneously, the Company entered into a partnership agreement with an entity affiliated with the president of TPG to develop the community for sale of the lots to TPG under GRBK Suwanee Station LLC. Contributions and profits will be
50%
for the Company and
50%
for the affiliated entity. Total capital contributions are estimated at
$2.0 million
, of which
$1.0 million
will be contributed by the Company. The total contributions paid in 2016 was
$1.8 million
, of which
$0.9 million
was paid by the Company. The Company holds
two
of the
three
board seats and is able to exercise control over the operations of GRBK Suwanee Station LLC, and therefore has consolidated the entity.
In June 2016, the Company purchased
14
lots from an entity affiliated with the president of TPG. The lots are part of a
40
-unit townhome community, Dunwoody Towneship.
No
deposits were paid by the Company in contracting for the lots. The total paid for the lots in 2016 was
$1.8 million
. Under the option agreement in place, the total that would be expected to be paid for the remaining lots would be
$1.8 million
during 2017 and
$1.7 million
during 2018.
10. 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, accounts receivable, earnest money deposits, other assets, accounts payable, accrued liabilities, customer and builder deposits, obligations related to land not owned under option agreements, borrowings on lines of credit, and notes payable. The Company estimates that due to the short term nature of underlying instruments or the proximity of the underlying transaction to the applicable reporting date that the fair value of all financial instruments does not differ materially from the aggregate carrying values recorded in the condensed consolidated financial statements as of
September 30, 2016
and
December 31, 2015
. Per the fair value hierarchy, level 1 financial instruments include: cash and cash equivalents, restricted cash, earnest money deposits, and customer and builder deposits. All other instruments are deemed to be level 3.
Fair Value of Nonfinancial Instruments
Nonfinancial assets and liabilities include items such as inventory and long lived assets that are 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. During the
nine
months ended
September 30, 2016
and the year ended
December 31, 2015
, the Company did
not
record any fair value adjustments to those nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
11. COMMITMENTS AND CONTINGENCIES
Warranties
The Company accrues an estimate of its exposure to warranty claims based on both current and historical home sales data and warranty costs incurred. The Company offers homeowners a comprehensive third party warranty on each home. Homes are generally covered by a ten year warranty for qualified and defined structural defects, one year for defects and products used, and two years for electrical, mechanical and plumbing systems. Warranty accruals are included within accrued expenses in the condensed consolidated balance sheets.
Warranty activity, included in accrued expenses in our condensed consolidated balance sheets consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Beginning balance
|
$
|
717
|
|
|
$
|
504
|
|
|
$
|
474
|
|
|
$
|
460
|
|
Additions
|
341
|
|
|
169
|
|
|
859
|
|
|
545
|
|
Charges
|
(205
|
)
|
|
(127
|
)
|
|
(480
|
)
|
|
(459
|
)
|
Ending balance
|
$
|
853
|
|
|
$
|
546
|
|
|
$
|
853
|
|
|
$
|
546
|
|
Commitments
The Company has leases associated with office space in Georgia and Texas which are classified as operating leases. Rent expense under these leases are included in the selling, general and administrative expense in the 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, 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 a reserve for potential 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 possible range of losses or a statement that such loss is not reasonably estimable. We believe that the ultimate resolution of any claims and lawsuits will not have a material adverse effect on our results of operations and liquidity or on our financial position. As of
September 30, 2016
and
December 31, 2015
, the Company did
not
have any accruals for asserted or unasserted matters.
12. 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)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
Builder Operations
|
|
|
|
|
|
|
|
|
Texas
|
$
|
48,206
|
|
|
$
|
26,438
|
|
|
$
|
128,892
|
|
|
$
|
89,585
|
|
Georgia
|
39,621
|
|
|
42,727
|
|
|
119,295
|
|
|
89,610
|
|
Land Development
|
3,843
|
|
|
6,033
|
|
|
12,377
|
|
|
26,442
|
|
|
$
|
91,670
|
|
|
$
|
75,198
|
|
|
$
|
260,564
|
|
|
$
|
205,637
|
|
Gross profit:
|
|
|
|
|
|
|
|
Builder Operations
|
|
|
|
|
|
|
|
Texas
|
$
|
11,756
|
|
|
$
|
6,964
|
|
|
$
|
30,677
|
|
|
$
|
22,408
|
|
Georgia
|
9,334
|
|
|
6,938
|
|
|
26,845
|
|
|
19,356
|
|
Land Development
|
1,167
|
|
|
1,816
|
|
|
3,988
|
|
|
7,347
|
|
|
$
|
22,257
|
|
|
$
|
15,718
|
|
|
$
|
61,510
|
|
|
$
|
49,111
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
|
Inventory:
|
|
|
|
|
|
|
|
Builder Operations
|
|
|
|
|
|
|
|
Texas
|
$
|
85,519
|
|
|
$
|
60,768
|
|
|
|
|
|
Georgia
|
176,937
|
|
|
158,623
|
|
|
|
|
|
Land Development
|
152,786
|
|
|
124,741
|
|
|
|
|
|
|
$
|
415,242
|
|
|
$
|
344,132
|
|
|
|
|
|
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes statements and information that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act.” Statements that are “forward-looking statements” include any projections of earnings, revenue or other financial items, any statements of the plans, strategies or objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, any statements concerning potential acquisitions, and any statements of assumptions underlying any of the foregoing. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “outlook,” “strategy,” “positioned,” “intends,” “plans,” “believes,” “projects,” “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.
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 homebuilding and builder finance.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
|
|
•
|
cyclicality in the homebuilding industry and adverse changes in general economic conditions;
|
|
|
•
|
fluctuations and cycles in value of, and demand for, real estate investments;
|
|
|
•
|
significant inflation or deflation;
|
|
|
•
|
the unavailability of subcontractors;
|
|
|
•
|
labor and raw material shortages and price fluctuations;
|
|
|
•
|
the failure to recruit, retain and develop highly skilled and competent employees;
|
|
|
•
|
an inability to acquire undeveloped land, partially-finished developed lots and finished lots suitable for residential homebuilding at reasonable prices;
|
|
|
•
|
an inability to develop communities successfully or within expected timeframes;
|
|
|
•
|
an inability to sell properties in response to changing economic, financial and investment conditions;
|
|
|
•
|
risks related to participating in the homebuilding business through controlled homebuilding subsidiaries;
|
|
|
•
|
risks relating to buy-sell provisions in the operating agreements governing two builder subsidiaries;
|
|
|
•
|
risks related to geographic concentration;
|
|
|
•
|
risks related to government regulation;
|
|
|
•
|
the interpretation of or changes to tax, labor and environmental laws;
|
|
|
•
|
the timing of receipt of regulatory approvals and of the opening of projects;
|
|
|
•
|
fluctuations in the market value of land, building lots and housing inventories;
|
|
|
•
|
volatility of mortgage interest rates;
|
|
|
•
|
the unavailability of mortgage financing;
|
|
|
•
|
the number of foreclosures in our markets;
|
|
|
•
|
interest rate increases or adverse changes in federal lending programs;
|
|
|
•
|
increases in unemployment or underemployment;
|
|
|
•
|
any limitation on, or reduction or elimination of, tax benefits associated with owning a home;
|
|
|
•
|
the occurrence of severe weather or natural disasters;
|
|
|
•
|
high cancellation rates;
|
|
|
•
|
competition in the homebuilding, land development and financial services industries;
|
|
|
•
|
risks related to future growth through strategic investments, joint ventures, partnerships and/or acquisitions;
|
|
|
•
|
the inability to obtain suitable bonding for the development of housing projects;
|
|
|
•
|
difficulty in obtaining sufficient capital;
|
|
|
•
|
risks related to environmental laws and regulations;
|
|
|
•
|
the occurrence of a major health and safety incident;
|
|
|
•
|
poor relations with the residents of our communities;
|
|
|
•
|
information technology failures and data security breaches;
|
|
|
•
|
product liability claims, litigation and warranty claims;
|
|
|
•
|
the seasonality of the homebuilding industry;
|
|
|
•
|
utility and resource shortages or rate fluctuations;
|
|
|
•
|
the failure of employees or other representatives to comply with applicable regulations and guidelines;
|
|
|
•
|
future litigation, arbitration or other claims;
|
|
|
•
|
uninsured losses or losses in excess of insurance limits;
|
|
|
•
|
cost and availability of insurance and surety bonds;
|
|
|
•
|
volatility and uncertainty in the credit markets and broader financial markets;
|
|
|
•
|
availability, terms and deployment of capital including with respect to the timing and size of share repurchases, acquisitions, joint ventures and other strategic actions;
|
|
|
•
|
our debt and related service obligations;
|
|
|
•
|
required accounting changes;
|
|
|
•
|
an inability to maintain effective internal control over financial reporting; and
|
|
|
•
|
other risks and uncertainties inherent in our business including those described Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2015
.
|
Should one or more of the risks or uncertainties described above or elsewhere in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Except as required by law, we disclaim all responsibility to publicly update any information contained in a forward-looking statement
All forward-looking statements attributable to us or to persons acting on our behalf, including any such forward-looking statements made subsequent to the publication of this Quarterly Report on Form 10-Q, are expressly qualified in their entirety by this cautionary statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2015
filed with the Securities and Exchange Commission (“SEC”) on
March 30, 2016
. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results discussed in or implied by any of the forward-looking statements as a result of various factors, including those listed elsewhere in this Quarterly Report on Form 10-Q. See “Forward-Looking Statements” above and “Risk Factors” below.
Reverse Recapitalization
On June 10, 2014, we entered into a definitive transaction agreement with the owners of JBGL Builder Finance LLC and its consolidated subsidiaries and affiliated companies (collectively, “Builder Finance”), and JBGL Capital Companies (“Capital”), a combined group of commonly managed limited liability companies and partnerships (collectively with Builder Finance, “JBGL”), which provided that we would acquire JBGL for
$275 million
, payable in cash and shares of our common stock (the “Transaction”). JBGL is a real estate operator involved in the purchase and development of land for residential use, construction lending and homebuilding operations. The Transaction was completed on October 27, 2014 (“Transaction Date”). Pursuant to the terms of the Transaction, we paid the
$275 million
purchase price with approximately
$191.8 million
in cash and the remainder in
11,108,500
shares of our common stock valued at approximately
$7.49
per share.
The cash portion of the purchase price was primarily funded from the proceeds of a
$70.0 million
rights offering conducted by the Company (the
$70.0 million
includes proceeds from purchases of shares of common stock by certain funds and accounts managed by Greenlight Capital, Inc. and its affiliates (“Greenlight”) and Third Point LLC and its affiliates (“Third Point”)) and
$150.0 million
of debt financing provided by Greenlight pursuant to a loan agreement, with the lenders from time to time party thereto (the “Loan Agreement”), which provided for a five year term loan facility (the “Term Loan Facility”). In 2015, the Term Loan Facility was repaid in full.
The
$70.0 million
rights offering included a registered offering by the Company of transferable rights to the public holders of its common stock, as of September 15, 2014 (the “Rights Offering”) to purchase additional shares of common stock. Each right permitted the holder to purchase, at a rights price ultimately equal to
$5.00
per share of common stock,
2.2445
shares of common stock.
4,843,384
shares of common stock were purchased in the public Rights Offering for aggregate gross proceeds of approximately
$24.2 million
.
In addition to the Rights Offering, Greenlight and Third Point participated in a private rights offering to purchase additional shares of common stock pursuant to commitment letters. Pursuant to its commitment letter, Third Point agreed to participate in the private rights offering for its full basic subscription privilege in the Rights Offering and to purchase, simultaneously with the consummation of the Rights Offering to the public, all of the available shares not otherwise sold in the Rights Offering following the exercise of all other public holders’ basic subscription privileges. Pursuant to such commitment letters, Greenlight purchased
4,957,618
shares of common stock for aggregate gross proceeds of approximately
$24.8 million
and Third Point purchased
4,198,998
shares of common stock for aggregate gross proceeds of approximately
$21.0 million
.
At the time the Transaction was completed, BioFuel Energy Corp. (“BioFuel”) was a non-operating public shell corporation with nominal operations and assets consisting of cash, deferred tax assets, and nominal other nonoperating assets. As a result of the Transaction the owners and management of JBGL gained effective operating control of the combined company.
Accordingly, for financial reporting purposes, the Transaction was deemed to be a capital transaction in substance and recorded as a reverse recapitalization of JBGL whereby JBGL is deemed to be the continuing, surviving entity for accounting purposes, but through reorganization, has deemed to have adopted the capital structure of BioFuel. Because the acquisition was considered a reverse recapitalization for accounting purposes, the combined historical financial statements of JBGL became our historical financial statements and, from the completion of the acquisition on October 27, 2014, the financial statements have been prepared on a consolidated basis. The assets and liabilities of BioFuel have been brought forward at their book value and no goodwill has been recognized in connection with the Transaction.
As a result of the Transaction, Green Brick changed its business direction and is now in the real estate industry. The financial statements set forth in this Quarterly Report on Form 10-Q for all periods prior to the reverse recapitalization are the historical financial statements of JBGL and have been retroactively restated to give effect to the Transaction.
Equity Offering
On July 1, 2015, we completed an underwritten public offering of
17,000,000
shares of our common stock at a price to the public of
$10.00
per share and granted to the underwriters a
30-day
option to purchase up to an aggregate of
841,500
additional shares of common stock to cover over-allotments (the “Equity Offering”). On
July 23, 2015
, the underwriters exercised the option and purchased
444,897
additional shares. All of the shares were sold by us pursuant to an effective shelf registration statement previously filed with the SEC.
The Equity Offering resulted in net proceeds to us of approximately
$170.0 million
, after deducting underwriting discounts and offering expenses. On July 1, 2015, we used approximately
$154.9 million
of the net proceeds from the Equity Offering to repay all of the outstanding principal, interest and a prepayment premium under the Term Loan Facility. Upon repayment, the Term Loan Facility was terminated, and all security interests in, and all liens held by Greenlight with respect to, the assets of Green Brick securing the amounts owed under the Term Loan Facility were terminated and released. We used the remaining net proceeds for working capital and general corporate purposes.
Overview of the Business
We are a uniquely structured company that combines residential land development and homebuilding. We acquire and develop land, provide land and construction financing to our controlled builders and participate in the profits of our controlled builders. Our core markets are in the high growth U.S. metropolitan areas of Dallas, Texas and Atlanta, Georgia. We are engaged in all aspects of the homebuilding process, including land acquisition and the development, entitlements, design, construction, marketing and sales and the creation of brand images at our residential neighborhoods and master planned communities. We believe we offer higher quality homes with more distinctive designs and floor plans than those built by our competitors at comparable prices. Our communities are located in premium locations in our core markets and we seek to enhance homebuyer satisfaction by utilizing high-quality materials, offering a broad range of customization options and building well-crafted energy-efficient homes. We seek to maximize value over the long term and operate our business to mitigate risks in the event of a downturn by controlling costs and quickly reacting to regional and local market trends.
We are a leading lot developer in the Dallas and Atlanta markets and believe that our strict operating discipline provides us with a competitive advantage in seeking to maximize returns while minimizing risk. We currently own or control over
5,000
home sites in premium locations in the Dallas and Atlanta markets. We consider premium locations to be lot supply constrained with high housing demand and where much of the surrounding land has already been developed. We are strategically positioned to either build new homes on our lots through our controlled builders or to sell finished lots to large unaffiliated homebuilders.
We sell finished lots or option lots from third-party developers to our controlled builders for their homebuilding operations and provide them with construction financing and strategic planning. Our controlled builders provide us with their local knowledge and relationships. We support our controlled builders by financing their purchases of land from us at an unlevered internal rate of return (“IRR”) of at least
20%
and by providing construction financing at approximately a
13.8%
interest rate. Our income is further enhanced by our
50%
equity interest in the profits of our controlled builders. In addition, the land we sell to third-party homebuilders also typically generates an unlevered IRR of
20%
or greater.
References to our “controlled builders” refer to our homebuilding subsidiaries in which we own at least a 50% controlling interest.
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|
|
|
|
|
Our Controlled Builders
|
|
Year
Formed
|
|
Market
|
|
Products Offered
|
|
Prices Ranges
|
The Providence Group of Georgia L.L.C. (“TPG”)
|
|
2011
|
|
Atlanta
|
|
Townhomes
|
|
$280,000 to $550,000
|
Single family
|
$350,000 to $1.4 million
|
Luxury homes
|
$1.2 million to $4.0 million
|
CB JENI Homes DFW LLC (“CB JENI”)
|
|
2012
|
|
Dallas
|
|
Townhomes
|
|
$230,000 to $420,000
|
Single family
|
$300,000 to $700,000
|
Centre Living Homes, LLC (“Centre Living”)
|
|
2012
|
|
Dallas
|
|
Townhomes
|
|
$500,000 to more than $1 million
|
Contractor on luxury homes
|
Up to $2.5 million
|
Southgate Homes DFW LLC (“Southgate”)
|
|
2013
|
|
Dallas
|
|
Luxury homes
|
|
$600,000 and above
|
During the first quarter of 2015, we formed Green Brick Title, LLC (“Green Brick Title”), our wholly-owned title company. Green Brick Title's core business includes title insurance, and closing and settlement services for our homebuyers. Green Brick Title had minimal operations during the
nine
months ended
September 30, 2016
and
2015
.
Definitions
In the following discussion, “backlog” refers to homes under sales contracts that have not yet closed at the end of the relevant period, “cancellation rate” refers to sales contracts canceled divided by sales contracts executed during the relevant period, “net new home orders” refers to new home sales contracts reduced by the number of sales contracts canceled during the relevant period, and “overall absorption rate” refers to the rate at which net new home orders are contracted per selling community during the relevant period. Sales contracts relating to homes in backlog may be canceled by the prospective purchaser for a number of reasons, such as the prospective purchaser’s inability to obtain suitable mortgage financing. Upon a cancellation, the escrow deposit may be returned to the prospective purchaser (other than with respect to certain design-related deposits, which we retain). Accordingly, backlog may not be indicative of our future revenue.
Overview and Outlook
The following are our key operating metrics for the three months ended
September 30, 2016
as compared to the three months ended
September 30, 2015
: home deliveries increased by
27.3%
, home sales revenue increased by
27.0%
, average selling prices decreased by
0.2%
, backlog units increased by
34.0%
, backlog units value increased by
41.1%
, average sales price of homes in backlog increased by
5.3%
, and net new home orders increased by
45.7%
.
The following are our key operating metrics for the
nine
months ended
September 30, 2016
as compared to the
nine
months ended
September 30, 2015
: home deliveries increased by
23.4%
, home sales revenue increased by
38.5%
, average selling prices increased by
12.2%
, and net new home orders increased by
40.2%
.
The increase in the average sales price of homes in backlog is the result of changes in product mix of homes contracted for sale during the period and local market appreciation. From
April 2015
to
April 2016
homes in the Dallas and Atlanta markets appreciated by
8.3%
and
5.3%
, respectively (Source: S&P/Case-Shiller 20-City Composite Home Price Index,
September 2016
). During the
nine
months ended
September 30, 2016
, the housing market continued to show signs of improvement, which we believe is driven by rising consumer confidence, lower interest rates, high affordability metrics, and a reduction in home inventory levels.
Our two primary markets, Dallas and Atlanta, have shown significant housing market recovery. We believe the housing market recovery is sustainable, and that we operate in two of the most desirable housing markets in the nation. Among the 12 largest metropolitan areas in the country, the Dallas metropolitan area ranked first in the rate of job growth and second in the number of jobs added from
September 2015 to September 2016
(Source: US Bureau of Labor Statistics,
November 2016
). The Atlanta metropolitan area has recorded employment gains each month, as compared to the same month in the prior year, since July 2010 (Source: US Bureau of Labor Statistics,
July 2016)
. We believe that increasing demand and supply constraints in our target markets create favorable conditions for our future growth.
Basis of Presentation and Principles of Consolidation
The accompanying 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 SEC. Our operating results for the three and
nine
months ended
September 30, 2016
are not necessarily indicative of the results that may be expected for any future periods.
The condensed consolidated financial statements and notes thereto include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Results of Operations
Land Development
During the three months ended
September 30, 2016
, our land development segment revenue decreased
$2.2 million
, or
36.3%
, from
$6.0 million
for the three months ended
September 30, 2015
to
$3.8 million
for the three months ended
September 30, 2016
. The decrease was comprised of
$2.9 million
due to a
48.1%
decrease in finished inventory of lots delivered from
54
for the three months ended
September 30, 2015
to
28
for the three months ended
September 30, 2016
, partially offset by an increase of
$0.7 million
related to an increase in the average sales price per lot of
$137,259
per lot for the three months ended
September 30, 2016
from
$111,716
per lot for the three months ended
September 30, 2015
.
During the
nine
months ended
September 30, 2016
, our land development segment revenue decreased
$14.1 million
, or
53.2%
, from
$26.4 million
for the
nine
months ended
September 30, 2015
to
$12.4 million
for the
nine
months ended
September 30, 2016
. The decrease was comprised of
$15.9 million
due to a
60.3%
decrease in finished inventory lots delivered from
239
for the
nine
months ended
September 30, 2015
to
95
for the
nine
months ended
September 30, 2016
, partially offset by an increase of
$1.8 million
related to an increase in the average sales price per lot of
$130,284
per lot for the
nine
months ended
September 30, 2016
from
$110,635
per lot for the
nine
months ended
September 30, 2015
.
The decrease in finished inventory lots delivered is a result of a decrease in third party lot sales driven by an increase in intercompany lot sales to our controlled builders where revenue is not recognized until the home closes. While there is a time lag in when we can recognize intercompany lot sales, we believe this is best for the Company as we are able to further invest in our controlled builders and improve overall margins.
Builder Operations
During the three months ended
September 30, 2016
, our builder operations segment delivered
196
homes, with an average sales price of
$448,097
, compared to
154
homes, with an average sales price of
$449,123
, during the same period in
2015
. During the three months ended
September 30, 2016
, our builder operations segment generated approximately
$87.8 million
in revenue compared to
$69.2 million
during the same period in
2015
. For the three months ended
September 30, 2016
, net new home orders totaled
204
, a
45.7%
increase from the same period in
2015
.
During the
nine
months ended
September 30, 2016
, our builder operations segment delivered
569
homes, with an average sales price of
$436,181
, compared to
461
homes, with an average sales price of
$388,709
, during the same period in
2015
. During the same period, our builder operations segment generated approximately
$248.2 million
in revenue compared to
$179.2 million
during the same period in
2015
. For the
nine
months ended
September 30, 2016
, net new home orders totaled
683
, a
40.2%
increase from the same period in
2015
.
As of
September 30, 2016
, our builder operations segment had a backlog of
315
sold but unclosed homes, a
34.0%
increase from the same period in
2015
, with a total value of approximately
$138.7 million
, an increase of
$40.4 million
, or
41.1%
, from
September 30, 2015
. The increase in value of backlog units reflects an increase in the number of homes in backlog and an increase in the average sales price of homes in backlog.
The increase in the average sales price of homes in backlog is the result of changes in product mix related to higher priced single family homes over lower priced townhomes closed during the period and local market appreciation. The average sales price of homes may increase or decrease depending on the mix of typical homes delivered and sold during such period and local market conditions. These changes in the average sales price of homes are part of our natural business cycle.
Revenues
We primarily generate revenue through (a) the sale of lots from our land development segment to public builders, large private builders and our controlled builders, (b) making first lien construction loans to our controlled builders, and (c) the
closing and delivery of homes through our builder operations segment. We recognize revenue on homes and lots when completed and title to, and possession of, the property have been transferred to the purchaser.
All customer deposits are treated as liabilities. We also serve as the general contractor for certain custom homes where the customers, and not our company, own the underlying land and improvements. We recognize revenue for these contracts on the percentage of completion method.
Expenses
Lot acquisition, materials, other direct costs, interest and other indirect costs related to the acquisition, development, and construction of lots and homes are capitalized until the homes are complete, after which they are expensed. Direct and indirect costs of developing residential lots are allocated based on the relative sales price of the lots. Capitalized costs of residential lots are charged to earnings when the related revenue is recognized.
Salary Expense
Salary expense represent salaries, benefits and share-based compensation, and are recorded in the period incurred.
Selling, General and Administrative Expense
Selling, general and administrative expenses represent property taxes, advertising and marketing, rent and lease expenses, and other administrative items, and are recorded in the period incurred.
Interest Expense
Interest expense consists primarily of interest costs incurred on our debt that is not capitalized and amortization of related debt issuance costs. We capitalize interest costs incurred to inventory during active development and other qualifying activities.
Other Income, Net
Other income, net consists of net revenue from contracts where we are the general contractor and where our customers own the land, interest on direct financing leases income, profit participation on notes receivable, costs incurred for business acquisitions, depreciation, amortization, income from rental property and forfeited deposits.
Income Tax Provision
Prior to the Transaction, JBGL consisted of entities that filed individual
partnership tax returns for federal income tax purposes. Several of the underlying entities were wholly-owned limited liability companies (“LLC’s”), and thus disregarded for federal income tax purposes, while several other entities had non-controlled interests, causing these LLC entities to be treated as regarded entities that filed partnership tax returns for federal income tax purposes. The Transaction resulted in the ownership of JBGL by Green Brick, a corporate entity. Effectively, during the fourth quarter of calendar year 2014, JBGL and its wholly-owned LLC interests became disregarded for federal income tax purposes, taxable as a branch of the corporate entity. As such, the Transaction resulted in a change in tax status of the partnerships. The income tax effect of the change in tax status was recorded as an income tax benefit during the fourth quarter of the year ended December 31, 2014.
We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We regularly review historical and anticipated future pre-tax results of operations to determine whether we will be able to realize the benefit of deferred tax assets. A valuation allowance is required to reduce the deferred tax asset when it is more-likely-than-not that all or some portion of the deferred tax asset will not be realized due to the lack of sufficient taxable income.
We establish reserves for uncertain tax positions that reflect our best estimate of deductions and credits that may not be sustained on a more-likely-than-not basis. In accordance with ASC 740,
Income Taxes
, the Company recognizes the effect of income tax positions only if those positions have a more-likely-than-not chance of being sustained by the Company. Recognized income tax positions are measured at the largest amount that is greater than
50%
likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Condensed consolidated financial Data
The consolidated historical financial data presented below reflect our land development and builder operations segments, and are not necessarily indicative of the results to be expected for any future period.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(in thousands, except per share data)
|
Sale of residential units
|
$
|
87,827
|
|
|
$
|
69,165
|
|
|
$
|
248,187
|
|
|
$
|
179,195
|
|
Sale of land and lots
|
3,843
|
|
|
6,033
|
|
|
12,377
|
|
|
26,442
|
|
Total revenues
|
91,670
|
|
|
75,198
|
|
|
260,564
|
|
|
205,637
|
|
Cost of residential units
|
66,737
|
|
|
55,263
|
|
|
190,665
|
|
|
137,431
|
|
Cost of land and lots
|
2,676
|
|
|
4,217
|
|
|
8,389
|
|
|
19,095
|
|
Total cost of sales
|
69,413
|
|
|
59,480
|
|
|
199,054
|
|
|
156,526
|
|
Total gross profit
|
22,257
|
|
|
15,718
|
|
|
61,510
|
|
|
49,111
|
|
Salary expense
|
(6,587
|
)
|
|
(5,062
|
)
|
|
(19,506
|
)
|
|
(14,571
|
)
|
Selling, general and administrative expense
|
(4,334
|
)
|
|
(3,385
|
)
|
|
(12,792
|
)
|
|
(9,700
|
)
|
Operating profit
|
11,336
|
|
|
7,271
|
|
|
29,212
|
|
|
24,840
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(281
|
)
|
Other income (expense), net
|
486
|
|
|
(129
|
)
|
|
2,201
|
|
|
148
|
|
Income before provision for income taxes
|
11,822
|
|
|
7,142
|
|
|
31,413
|
|
|
24,707
|
|
Income tax provision
|
3,657
|
|
|
1,856
|
|
|
9,340
|
|
|
6,229
|
|
Net income
|
8,165
|
|
|
5,286
|
|
|
22,073
|
|
|
18,478
|
|
Less: net income attributable to noncontrolling interests
|
1,922
|
|
|
2,460
|
|
|
5,993
|
|
|
7,846
|
|
Net income attributable to Green Brick Partners, Inc.
|
$
|
6,243
|
|
|
$
|
2,826
|
|
|
$
|
16,080
|
|
|
$
|
10,632
|
|
|
|
|
|
|
|
|
|
Net income attributable to Green Brick Partners, Inc. per common share:
|
|
|
|
|
|
|
|
Basic
|
$0.13
|
|
$0.06
|
|
$0.33
|
|
$0.29
|
Diluted
|
$0.13
|
|
$0.06
|
|
$0.33
|
|
$0.29
|
|
|
|
|
|
|
|
|
Weighted average common shares used in the calculation of net income attributable to Green Brick Partners, Inc. per common share:
|
|
|
|
|
|
|
|
Basic
|
48,899
|
|
|
48,495
|
|
|
48,868
|
|
|
37,125
|
|
Diluted
|
48,907
|
|
|
48,595
|
|
|
48,871
|
|
|
37,161
|
|
Reclassifications
Depreciation of model home furnishings for the three and
nine
months ended
September 30, 2015
has been reclassified from depreciation and amortization expense, which is included in
other income, net
in the condensed consolidated financial data above, to cost of residential units to conform to the current period presentation.
Three Months Ended
September 30, 2016
Compared to the Three Months Ended
September 30, 2015
Net New Home Orders and Backlog
The table below represents new home orders and backlog related to our builder operations segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Increase (Decrease)
|
New Home Orders & Backlog
|
|
2016
|
|
2015
|
|
Change
|
|
%
|
Net new home orders
|
|
204
|
|
|
140
|
|
|
64
|
|
|
45.7%
|
Number of cancellations
|
|
31
|
|
|
27
|
|
|
4
|
|
|
14.8%
|
Cancellation rate
|
|
13.2
|
%
|
|
16.2
|
%
|
|
(3.0
|
)%
|
|
(18.5)%
|
Average selling communities
|
|
49
|
|
|
43
|
|
|
6
|
|
|
14.0%
|
Selling communities at end of period
|
|
49
|
|
|
42
|
|
|
7
|
|
|
16.7%
|
Backlog ($ in thousands)
|
|
$
|
138,686
|
|
|
$
|
98,267
|
|
|
$
|
40,419
|
|
|
41.1%
|
Backlog (units)
|
|
315
|
|
|
235
|
|
|
80
|
|
|
34.0%
|
Average sales price of backlog
|
|
$
|
440,273
|
|
|
$
|
418,157
|
|
|
$
|
22,116
|
|
|
5.3%
|
Net new home orders for the three months ended
September 30, 2016
increased by
64
homes, or
45.7%
, to
204
from
140
for the three months ended
September 30, 2015
. Overall absorption rate for the three months ended
September 30, 2016
was an average of
4.3
per selling community (
1.4
monthly), compared to an average of
3.3
per selling community (
1.1
monthly) for the three months ended
September 30, 2015
.
Our cancellation rate was approximately
13.2%
for the three months ended
September 30, 2016
, compared to
16.2%
for the three months ended
September 30, 2015
. Management believes a cancellation rate in the range of 15% to 20% is representative of an industry average cancellation rate. Nevertheless, on average, our cancellation rate is on the lower end of the industry average, which we believe is due to our target buyer demographics, which generally does not include first time homebuyers.
Backlog units increased by
80
homes, or
34.0%
, to
315
as of
September 30, 2016
from
235
as of
September 30, 2015
. The dollar value of backlog units increased
$40.4 million
, or
41.1%
, to
$138.7 million
as of
September 30, 2016
from
$98.3 million
as of
September 30, 2015
. The increase in value of backlog units reflects an increase in the number of homes in backlog and an increase in the average sales price of homes in backlog. Our average sales price of homes in backlog increased
$22,116
, or
5.3%
, to
$440,273
for the three months ended
September 30, 2016
, compared to
$418,157
for the three months ended
September 30, 2015
. The increase in the average sales price of homes in backlog is the result of changes in product mix related to higher priced single family homes over lower priced townhomes contracted for sale during the period and local market appreciation. The average sales price of homes may fluctuate depending on the mix of typical homes delivered and sold during a period. The change in the average sales price of homes is part of our natural business cycle.
New Homes Delivered and Home Sales Revenue
The table below represents home sales revenue and new homes delivered related to our builder operations segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Increase (Decrease)
|
New Homes Delivered and Home Sales Revenue
|
|
2016
|
|
2015
|
|
Change
|
|
%
|
New homes delivered
|
|
196
|
|
|
154
|
|
|
42
|
|
|
27.3%
|
Home sales revenue ($ in thousands)
|
|
$
|
87,827
|
|
|
$
|
69,165
|
|
|
$
|
18,662
|
|
|
27.0%
|
Average sales price of home delivered
|
|
$
|
448,097
|
|
|
$
|
449,123
|
|
|
$
|
(1,026
|
)
|
|
(0.2)%
|
New home deliveries (excluding existing completed homes sold, but not yet closed) for the three months ended
September 30, 2016
for our builder operations segment was
196
, compared to new home deliveries of
154
for the three months ended
September 30, 2015
, resulting in an increase of
42
homes, or
27.3%
. The increase in new home deliveries was primarily attributable to a
14.0%
increase in new communities to
49
from
43
and an increase in the number of homes delivered per community.
Home sales revenue increased
$18.7 million
, or
27.0%
, to
$87.8 million
for the three months ended
September 30, 2016
, from
$69.2 million
for the three months ended
September 30, 2015
. The increase in revenue was driven by a
27.3%
increase in
homes delivered to
196
for the three months ended
September 30, 2016
, from
154
for the three months ended
September 30, 2015
.
Homebuilding
The table below represents cost of home sales and gross margin related to our builder operations segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Homebuilding ($ in thousands)
|
|
2016
|
|
%
|
|
2015
|
|
%
|
Home sales revenue
|
|
$
|
87,827
|
|
|
100.0
|
%
|
|
$
|
69,165
|
|
|
100.0
|
%
|
Cost of home sales
|
|
$
|
66,737
|
|
|
76.0
|
%
|
|
$
|
55,263
|
|
|
79.9
|
%
|
Homebuilding gross margin
|
|
$
|
21,090
|
|
|
24.0
|
%
|
|
$
|
13,902
|
|
|
20.1
|
%
|
Cost of home sales for the three months ended
September 30, 2016
for builder operations was
$66.7 million
, compared to cost of home sales of
$55.3 million
for the three months ended
September 30, 2015
, resulting in an increase of
$11.5 million
, or
20.8%
, primarily due to the
27.3%
increase in the number of homes delivered. Homebuilding gross margin percentage for the three months ended
September 30, 2016
for builder operations was
24.0%
, compared to a gross margin percentage of
20.1%
for the three months ended
September 30, 2015
. The increase in homebuilding gross margin is largely due to the opening of new communities during the three months ended
September 30, 2016
. The increase in gross margin percentage is due primarily to the substantial number of home closings in existing communities being closed out during the three months ended
September 30, 2015
and lower amortization of capitalized interest during the three months ended
September 30, 2016
.
Salary Expense
The table below represents salary expense related to our land development and builder operations segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Three Months Ended September 30,
|
|
As Percentage of Related Revenue
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Land development
|
|
$
|
54
|
|
|
$
|
137
|
|
|
1.4
|
%
|
|
2.3
|
%
|
Builder operations
|
|
$
|
6,533
|
|
|
$
|
4,925
|
|
|
7.4
|
%
|
|
7.1
|
%
|
Land Development
Salary expense for the three months ended
September 30, 2016
for land development was
$0.1 million
, a slight decrease compared to the three months ended
September 30, 2015
. The decrease is primarily the result of a decrease in the average employee headcount of
1
for the three months ended
September 30, 2016
due to an employee who changed roles and was reported under land development during the three months ended
September 30, 2015
compared to builder operations during the three months ended
September 30, 2016
.
Builder Operations
Salary expense for the three months ended
September 30, 2016
for builder operations was
$6.5 million
, compared to
$4.9 million
for the three months ended
September 30, 2015
, an increase of
32.6%
. The increase was primarily the result of an increase in salaries driven by an increase in the average employee headcount of
50
and the associated costs of benefits to support the growth in our builder operations segment.
Selling, General and Administrative Expense
The table below represents selling, general and administrative expenses related to our land development and builder operations segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Three Months Ended September 30,
|
|
As Percentage of Related Revenue
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Land development
|
|
$
|
345
|
|
|
$
|
308
|
|
|
9.0
|
%
|
|
5.1
|
%
|
Builder operations
|
|
$
|
3,989
|
|
|
$
|
3,077
|
|
|
4.5
|
%
|
|
4.4
|
%
|
Land Development
Selling, general and administrative expense for the three months ended
September 30, 2016
for land development remained flat at
$0.3 million
compared to the three months ended
September 30, 2015
.
Builder Operations
Selling, general and administrative expense for the three months ended
September 30, 2016
for builder operations was
$4.0 million
, compared to
$3.1 million
for the three months ended
September 30, 2015
, an increase of
29.6%
. The increase was primarily attributable to increases in expenditures to support the growth in our builder operations business. Builder operations expenditures include community costs, such as, non-capitalized property taxes, rent expenses, professional fees, and advertising and marketing expenses. The average selling community count was
49
for the three months ended
September 30, 2016
compared to
43
for the three months ended
September 30, 2015
.
Interest Expense
Interest expense was
$0.0 million
for the three months ended
September 30, 2016
and
September 30, 2015
, respectively, as all interest expense was capitalized.
Other Income, Net
Other income, net, increased
$0.6 million
, or
476.7%
, to
$0.5 million
for the three months ended
September 30, 2016
, from other expense, net of
$0.1 million
for the three months ended
September 30, 2015
. The increase was due primarily to an increase in homes built on third party lots of
$0.6 million
, sale of a commercial tract of
$0.4 million
, and an increase in various other income, net, partially offset by an increase
$0.5 million
in depreciation and amortization expense.
Income Tax Provision
Income tax expense increased
$1.8 million
, or
97.0%
, to
$3.7 million
for the three months ended
September 30, 2016
, from an expense of
$1.9 million
for the three months ended
September 30, 2015
. The increase in income tax expense is due primarily to an increase in pre-tax book income.
Nine Months Ended
September 30, 2016
Compared to the
Nine Months Ended
September 30, 2015
Net New Home Orders and Backlog
The table below represents new home orders and backlog related to our builder operations segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Increase (Decrease)
|
New Home Orders & Backlog
|
|
2016
|
|
2015
|
|
Change
|
|
%
|
Net new home orders
|
|
683
|
|
|
487
|
|
|
196
|
|
|
40.2%
|
Number of cancellations
|
|
96
|
|
|
87
|
|
|
9
|
|
|
10.3%
|
Cancellation rate
|
|
12.3
|
%
|
|
15.2
|
%
|
|
(2.9
|
)%
|
|
(19.1)%
|
Average selling communities
|
|
47
|
|
|
41
|
|
|
6
|
|
|
14.6%
|
Net new home orders for the
nine
months ended
September 30, 2016
increased by
196
homes, or
40.2%
, to
683
from
487
for the
nine
months ended
September 30, 2015
. Overall absorption rate for the
nine
months ended
September 30, 2016
was an average of
14.6
per selling community (
1.6
monthly), compared to an average of
12.0
per selling community (
1.3
monthly) for the
nine
months ended
September 30, 2015
.
Our cancellation rate was approximately
12.3%
for the
nine
months ended
September 30, 2016
, compared to
15.2%
for the
nine
months ended
September 30, 2015
. Management believes a cancellation rate in the range of 15% to 20% is representative of an industry average cancellation rate and that our low cancellation rate for the
nine
months ended
September 30, 2016
was atypical. Nevertheless, on average, our cancellation rate is on the lower end of the industry average, which we believe is due to our target buyer demographics, which generally does not include first time homebuyers.
New Homes Delivered and Home Sales Revenue
The table below represents home sales revenue and new homes delivered related to our builder operations segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Increase (Decrease)
|
New Homes Delivered and Home Sales Revenue
|
|
2016
|
|
2015
|
|
Change
|
|
%
|
New homes delivered
|
|
569
|
|
|
461
|
|
|
108
|
|
|
23.4%
|
Home sales revenue ($ in thousands)
|
|
$
|
248,187
|
|
|
$
|
179,195
|
|
|
$
|
68,992
|
|
|
38.5%
|
Average sales price of home delivered
|
|
$
|
436,181
|
|
|
$
|
388,709
|
|
|
$
|
47,472
|
|
|
12.2%
|
New home deliveries (excluding existing completed homes sold, but not yet closed) for the
nine
months ended
September 30, 2016
for our builder operations segment was
569
, compared to new home deliveries of
461
for the
nine
months ended
September 30, 2015
, resulting in an increase of
108
homes, or
23.4%
. The increase in new home deliveries was primarily attributable to a
14.6%
increase in new communities to
47
from
41
and an increase in the number of homes delivered per community.
Home sales revenue increased
$69.0 million
, or
38.5%
, to
$248.2 million
for the
nine
months ended
September 30, 2016
, from
$179.2 million
for the
nine
months ended
September 30, 2015
. The increase in revenue is due to (a) a
$42.0 million
increase in revenues driven by a
23.4%
increase in homes delivered to
569
for the
nine
months ended
September 30, 2016
, from
461
for the
nine
months ended
September 30, 2015
, and (b) a
$27.0 million
increase in revenues resulting from an increase in average sales price of
$47,472
per home to
$436,181
for the
nine
months ended
September 30, 2016
from
$388,709
for the
nine
months ended
September 30, 2015
.
Homebuilding
The table below represents cost of home sales and gross margin related to our builder operations segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Homebuilding ($ in thousands)
|
|
2016
|
|
%
|
|
2015
|
|
%
|
Home sales revenue
|
|
$
|
248,187
|
|
|
100.0
|
%
|
|
$
|
179,195
|
|
|
100.0
|
%
|
Cost of home sales
|
|
$
|
190,665
|
|
|
76.8
|
%
|
|
$
|
137,431
|
|
|
76.7
|
%
|
Homebuilding gross margin
|
|
$
|
57,522
|
|
|
23.2
|
%
|
|
$
|
41,764
|
|
|
23.3
|
%
|
Cost of home sales for the
nine
months ended
September 30, 2016
for builder operations was
$190.7 million
, compared to cost of home sales of
$137.4 million
for the
nine
months ended
September 30, 2015
, resulting in an increase of
$53.2 million
, or
38.7%
. Homebuilding gross margin percentage for the
nine
months ended
September 30, 2016
for builder operations was
23.2%
, compared to a gross margin percentage of
23.3%
for the
nine
months ended
September 30, 2015
. The increase in homebuilding gross margin is largely due to the opening of new communities during the
nine
months ended
September 30, 2016
and an increase in the number of homes delivered per community.
Salary Expense
The table below represents salary expense and management fees, related to our land development and builder operations segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Nine Months Ended September 30,
|
|
As Percentage of Related Revenue
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Land development
|
|
$
|
162
|
|
|
$
|
675
|
|
|
1.3
|
%
|
|
2.6
|
%
|
Builder operations
|
|
$
|
19,344
|
|
|
$
|
13,896
|
|
|
7.8
|
%
|
|
7.8
|
%
|
Land Development
Salary expense for the
nine
months ended
September 30, 2016
for land development was
$0.2 million
compared to
$0.7 million
for the
nine
months ended
September 30, 2015
, a decrease of
76.0%
. The decrease is primarily the result of a 50% decrease in the average employee headcount due to an employee who changed roles and was reported under land development during the
nine
months ended
September 30, 2015
compared to builder operations during the
nine
months ended
September 30, 2016
.
Builder Operations
Salary expense for the
nine
months ended
September 30, 2016
for builder operations was
$19.3 million
, compared to
$13.9 million
for the
nine
months ended
September 30, 2015
, an increase of
39.2%
. The increase was primarily the result of an increase in salaries driven by an increase in the average employee headcount of
49
and the associated costs of benefits to support the growth in our builder operations segment.
Selling, General and Administrative Expense
The table below represents selling, general and administrative expenses related to our land development and builder operations segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Nine Months Ended September 30,
|
|
As Percentage of Related Revenue
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Land development
|
|
$
|
872
|
|
|
$
|
1,039
|
|
|
7.0
|
%
|
|
3.9
|
%
|
Builder operations
|
|
$
|
11,920
|
|
|
$
|
8,661
|
|
|
4.8
|
%
|
|
4.8
|
%
|
Land Development
Selling, general and administrative expense for the
nine
months ended
September 30, 2016
for land development was
$0.9 million
compared to
$1.0 million
for the
nine
months ended
September 30, 2015
, a decrease of
16.1%
. The decrease was primarily attributable to a decrease in property tax expense and a decrease in various other selling, general and administrative expense during the
nine
months ended
September 30, 2016
.
Builder Operations
Selling, general and administrative expense for the
nine
months ended
September 30, 2016
for builder operations was
$11.9 million
, compared to
$8.7 million
for the
nine
months ended
September 30, 2015
, an increase of
37.6%
. The increase was primarily attributable to increases in expenditures to support the growth in our builder operations business. Builder operations expenditures include community costs, such as, non-capitalized property taxes, rent expenses, professional fees, and advertising and marketing expenses. The average selling community count was
47
for the
nine
months ended
September 30, 2016
compared to
41
for the
nine
months ended
September 30, 2015
. Selling, general and administrative expense as a percentage of related revenue remained flat for the
nine
months ended
September 30, 2016
, as a result of internal cost efficiencies, as many of our selling, general and administrative expense did not increase as we scaled up our business through organic growth.
Interest Expense
Interest expense decreased
$0.3 million
, or
100.0%
, to
$0.0 million
for the
nine
months ended
September 30, 2016
, from
$0.3 million
for the
nine
months ended
September 30, 2015
. The decrease was due to an increase in the amount of capitalized interest during
nine
months ended
September 30, 2016
.
Other Income, Net
Other income, net, increased
$2.1 million
, or
1,387.2%
, to
$2.2 million
for the
nine
months ended
September 30, 2016
, from
$0.1 million
for the
nine
months ended
September 30, 2015
. The increase was due to an increase in homes built on third party lots of
$1.3 million
, other income on sale of a commercial tract of
$0.4 million
, and an increase in various other income, net, partially offset by an increase
$0.5 million
in depreciation and amortization expense.
Income Tax Provision
Income tax expense increased
$3.1 million
, or
49.9%
, to
$9.3 million
for the
nine
months ended
September 30, 2016
, from an expense of
$6.2 million
for the
nine
months ended
September 30, 2015
. The increase in income tax expense is due primarily to an increase in pre-tax book income, partially offset by discrete tax benefits.
Lots Owned and Controlled
The table below represents lots owned and controlled (including land option agreements) as of
September 30, 2016
and
December 31, 2015
. Owned lots are those to which the Company holds title, while controlled lots are those that we have the contractual right to acquire title but does not currently own.
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Lots Owned
(1)
|
|
|
|
Texas
|
2,965
|
|
|
2,659
|
|
Georgia
|
1,234
|
|
|
991
|
|
Total
|
4,199
|
|
|
3,650
|
|
Lots Controlled
(1)(2)
|
|
|
|
Texas
|
443
|
|
|
326
|
|
Georgia
|
427
|
|
|
758
|
|
Total
|
870
|
|
|
1,084
|
|
|
|
|
|
Total Lots Owned and Controlled
(1)
|
5,069
|
|
|
4,734
|
|
|
|
(1)
|
The land use assumptions used in the above table may change over time.
|
|
|
(2)
|
Lots controlled excludes homes under construction.
|
Liquidity and Capital Resources Overview
As of
September 30, 2016
and
December 31, 2015
, we had
$19.8 million
and
$21.2 million
of cash and cash equivalents, respectively. Management believes that we have a prudent cash management strategy, including with respect to cash outlays for land and inventory acquisition and development. We intend to generate cash from the sale of inventory, and intend to redeploy the net cash generated from the sale of inventory to acquire and develop lots that represent opportunities to generate desired margins. We may also use cash to make share repurchases or additional investments in acquisitions, joint ventures, or other strategic activities.
Our principal uses of capital for the three months ended
September 30, 2016
were operating expenses, land purchases, land development, home construction and the payment of routine liabilities. We used funds generated by operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in our builder operations segment and acquiring desirable land positions in order to maintain a strong balance sheet and remain poised for growth.
Cash flows for each of our communities depend on their stage in the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of income until a home closes, we incur significant cash outlays prior to recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. We are actively acquiring and developing lots in our primary markets in order to maintain and grow our lot supply.
On July 1, 2015, we completed the Equity Offering of 17,000,000 shares of our common stock at a price to the public of $10.00 per share. On July 23, 2015, the underwriters purchased 444,897 additional shares pursuant to their 30-day option to purchase up to an aggregate of 841,500 additional shares of common stock to cover over-allotments. The Equity Offering resulted in net proceeds of approximately $170.0 million, after deducting underwriting discounts and offering expenses, which we used to repay the Term Loan Facility and for working capital and general corporate purposes. On July 30, 2015, we replaced our $25.0 million revolving credit facility with a new revolving credit facility with Inwood National Bank (“Inwood”), which provides for up to $50.0 million and is secured by land owned in John’s Creek, Georgia, Allen, Texas, and Carrollton, Texas. The maturity date for the new revolving credit facility is July 30, 2017. See
Note 5
to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion.
It is our intent to prudently employ leverage to continue to invest in our land acquisition, development and homebuilding businesses. We intend to target a debt to total capitalization ratio of approximately
35%
to
40%
, which we expect will provide us with significant additional growth capital. Our debt to total capitalization ratio was less than
20%
as of
September 30, 2016
.
Revolving Credit Facilities
As of
September 30, 2016
, we had the following lines of credit (“LOC”):
On July 30, 2015, we replaced our $25.0 million revolving credit facility with a new revolving credit facility with Inwood, which provides for up to $50.0 million. The costs associated with the new revolving credit facility of $0.4 million were deferred and are included in other assets in our condensed consolidated balance sheets. We are
amortizing these debt issuance costs to interest expense over the term of the new revolving credit facility using the straight line method
. Amounts outstanding under the new revolving credit facility is 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 our subsidiaries, including land owned in John’s Creek, Georgia, Allen, Texas, and Carrollton, Texas. The amounts outstanding under the new revolving credit facility are also guaranteed by certain of our subsidiaries.
Before the amendment (as discussed below), the new revolving credit facility was subject to a borrowing base limitation equal to the sum of
50%
of the total value of land and
60%
of the total value of lots owned by certain of our subsidiaries, each as determined by an independent appraiser, with the value of land being restricted from being more than
50%
of the borrowing base. Outstanding borrowings under the new revolving credit facility bear interest payable monthly at a floating rate per annum equal to the rate announced by Bank of America, N.A., from time to time, as its “Prime Rate” (the “Index”) with such adjustments to the interest rate being made on the effective date of any change in the Index. Notwithstanding the foregoing, the interest may not, at any time, be less than
4%
per annum or more than the lesser amount of
18%
and the highest maximum rate allowed by applicable law. The entire unpaid principal balance and any accrued but unpaid interest is due and payable on the
maturity date. As of
September 30, 2016
, the interest rate on outstanding borrowings under the Credit Facility was
4.0%
per annum.
On May 3, 2016, we amended the new revolving credit facility. The amended revolving credit facility is subject to a borrowing base limitation equal to the sum of
50%
of the total value of land and
65%
of the total value of lots owned by certain of our subsidiaries, each as determined by an independent appraiser, with the value of land being restricted from being more than
65%
of the borrowing base. Beginning on August 1, 2017, a non-usage fee equal to
0.25%
of the average unfunded amount of the
$50.0 million
commitment amount over a trailing 12 month period is due on or before August 1st of each year during the term of the amended revolving credit facility. The maturity date has been extended to
May 1, 2019
. The costs associated with the amendment of
$0.1 million
were deferred and are included in other assets in our consolidated. See
Note 5
to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion.
Under the terms of the new revolving credit facility, we are required, among other things, to maintain minimum multiples of net worth in excess of the outstanding new revolving credit facility balance, minimum interest coverage and maximum leverage.
On December 15, 2015, we entered into a credit agreement (the “Credit Agreement”) with the lenders named therein, and Citibank, N.A., as administrative agent, providing for a senior, unsecured revolving credit facility with aggregate lending commitments of up to
$40.0 million
(“Unsecured Revolving Credit Facility”). Before the Amendment (as defined and discussed below) increased the maximum amount of the Unsecured Revolving Credit Facility, we could at our option and subject to certain terms and conditions, prior to the termination date, increase the amount of the revolving credit facility up to a maximum aggregate amount of
$75.0 million
. Commitments under the Unsecured Revolving Credit Facility are available until the period ending December 14, 2018, which period may be extended for additional one year periods, subject to the consent of the lenders and the satisfaction of certain other terms and conditions. Citibank, N.A. and Credit Suisse AG, Cayman Islands Branch have initially committed to provide
$25.0 million
and
$15.0 million
, respectively.
The costs associated with the Unsecured Revolving Credit Facility of
$0.5 million
were deferred and are included in other assets in our condensed consolidated balance sheets. We are
amortizing these debt issuance costs to interest expense over the term of the Unsecured Revolving Credit Facility using the straight line method
.
The Unsecured Revolving Credit Facility provides for interest rate options on advances at rates equal to either: (x) in the case of base rate advances, the highest of (i) Citibank’s base rate, (ii) the federal funds rate plus
0.5%
, and (iii) the one-month LIBOR plus
1.0%
, in each case plus
1.5%
; or (y) in the case of Eurodollar rate advances, the reserve adjusted LIBOR plus
2.5%
. Interest on amounts borrowed under the Unsecured Revolving Credit Facility is payable in arrears quarterly on the last day of each March, June, September and December during such periods. As of
September 30, 2016
, the interest rate on outstanding borrowings under the Credit Facility was
2.9%
per annum.
The Company pays the lenders a commitment fee on the amount of the unused commitments on a quarterly basis at a rate per annum equal to
0.45%
.
Outstanding borrowings under the Unsecured Revolving Credit Facility are subject to, among other things, a borrowing base. The borrowing base limitation is equal to the sum of:
100%
of unrestricted cash (in excess of
$15.0 million
);
85%
of the book value of model homes, construction in progress homes, sold completed homes, and speculative homes (subject to certain limitations on the age and number of speculative homes and model homes);
65%
of the book value of finished lots and land under development; and
50%
of the book value of entitled land (subject to certain limitations on the value of entitled land and land under development as a percentage of the borrowing base).
On August 31, 2016, the Company, entered into a First Amendment to the Credit Agreement (the “Amendment”), with Flagstar Bank, FSB (“Flagstar Bank”), the lenders named therein, and Citibank, N.A., as administrative agent, which amends the Credit Agreement. The Amendment adds Flagstar Bank as a lender under the Credit Agreement, with an initial commitment of
$20.0 million
, which increases the aggregate lending commitments available under the Unsecured Revolving Credit Facility from
$40.0 million
to
$60.0 million
. The Amendment also increases the maximum amount of the Unsecured Revolving Credit Facility to a maximum aggregate amount of
$110.0 million
, which further increases are available at the Company’s option, prior to the termination date, subject to certain terms and conditions. The costs associated with the Amendment of
$0.2 million
were deferred and are included in other assets in our condensed consolidated balance sheets.
Additionally, under the terms of the Unsecured Revolving Credit Facility, we are required, among other things, to maintain compliance with various covenants, including financial covenants relating to a maximum Leverage Ratio, a minimum Interest
Coverage Ratio, and a minimum Consolidated Tangible Net Worth, each as defined therein. Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Unsecured Revolving Credit Facility.
We were in compliance with the covenants under the LOC agreements described above as of
September 30, 2016
.
Notes Payable
On December 13, 2013, a subsidiary of JBGL signed a promissory note with Briar Ridge Investments, LTD for
$9.0 million
maturing on December 13, 2017, bearing interest at
6.0%
per annum and collateralized by land purchased in Allen, Texas.
On August 19, 2016, a subsidiary of JBGL signed a promissory note with Wretched Land, LP for
$1.4 million
maturing on January 1, 2017, bearing interest at
2.0%
per annum and collateralized by land located in Allen, Texas.
$0.7 million
of this note was repaid during September 2016.
Cash Flows
The following summarizes our primary sources and uses of cash for the
nine
months ended
September 30, 2016
as compared to the
nine
months ended
September 30, 2015
:
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Operating activities.
Net cash used in operating activities for the
nine
months ended
September 30, 2016
was
$28.5 million
, compared to net cash used of
$22.0 million
during the
nine
months ended
September 30, 2015
. The change was primarily attributable to changes in working capital associated with (i) inventory, as inventory increased by
20.7%
for the
nine
months ended
September 30, 2016
, compared to a
15.9%
increase in inventory for the
nine
months ended
September 30, 2015
, (ii) restricted cash, as restricted cash increased
26,313.8%
for the
nine
months ended
September 30, 2016
, compared to an increase of
34.4%
during the
nine
months ended
September 30, 2015
, (iii) accounts payable, as accounts payable increased
164.2%
for the
nine
months ended
September 30, 2016
, compared to an increase of
5.5%
during the
nine
months ended
September 30, 2015
, (iv) earnest money deposits, as earnest money deposits decreased by
20.8%
for the
nine
months ended
September 30, 2016
, compared to an increase of
149.3%
during the
nine
months ended
September 30, 2015
, (v) customer and builder deposits, as customer and builder deposits increased
120.8%
for the
nine
months ended
September 30, 2016
, compared to a decrease of
13.9%
during the
nine
months ended
September 30, 2015
and (vi) accrued expenses, as accrued expense increased by
95.6%
for the
nine
months ended
September 30, 2016
, compared to a decrease of
30.9%
during the
nine
months ended
September 30, 2015
. The increase in restricted cash and accounts payable was due primarily to $22.6 million held in escrow for a transaction that closed through Green Brick Title in September 2016 and funded in October 2016 upon receipt of the wiring instructions.
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Investing activities.
Net cash used in investing activities for the
nine
months ended
September 30, 2016
was
$0.3 million
, compared to net cash provided of
$2.1 million
during the
nine
months ended
September 30, 2015
. The change was primarily due to a decrease in proceeds from investment in direct financing leases for the
nine
months ended
September 30, 2016
.
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Financing activities.
Net cash provided by financing activities for the
nine
months ended
September 30, 2016
was
$27.3 million
, compared to net cash provided of
$12.9 million
during the
nine
months ended
September 30, 2015
. The change was primarily due to (i) a decrease in repayments of the Term Loan Facility of
$150.0 million
, (ii) an increase in line of credit borrowings and proceeds from notes payable of
$18.8 million
and (iii) a decrease in repayments of notes payable and line of credit of
$15.6 million
, partially offset by (i) a decrease in proceeds from the Equity Offering, net of issuance costs of
$170.0 million
during the
nine
months ended
September 30, 2016
.
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Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we enter into land purchase contracts with third party developers in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlement. We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, which are the schedules that dictate when lots must be purchased to help manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require us to pay a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices.
We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting the cash deposit with no further financial responsibility to the land seller.
Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into these arrangements, the availability of capital to finance the development of optioned lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
Inflation
Homebuilding operations can be adversely impacted by inflation, primarily from higher land prices, and increased costs of financing, labor, materials and construction. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we may be unable to offset cost increases with higher selling prices.
Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes five to eight months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders lead to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.
Critical Accounting Policies
Our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of costs and expenses during the reporting period. On an ongoing basis, management evaluates estimates and judgments, including those which impact our most critical accounting policies. Management bases estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from estimates under different assumptions or conditions.
Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 to our audited consolidated financial statements for the year ended
December 31, 2015
and our critical accounting policies are more fully described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which are included in our Annual Report on Form 10-K for the year ended
December 31, 2015
filed with the SEC on
March 30, 2016
. There have been no significant changes in our critical accounting policies and estimates during the three months ended
September 30, 2016
.
Recent Accounting Pronouncements
See
Note 1
to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recent accounting pronouncements.
Related Party Transactions
See
Note 9
to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of our transactions with related parties.