NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and applicable regulations of the Securities and Exchange Commission (“SEC”), but do not include all of the information and footnotes required for complete financial statements. The condensed consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments of a normal, recurring nature necessary to fairly state our financial position, results of operations and cash flows. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021 or subsequent periods due to seasonal variations and other factors.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Green Brick Partners, Inc., its controlled subsidiaries, and variable interest entities (“VIEs”) in which Green Brick Partners, Inc. or one of its controlled subsidiaries is deemed to be the primary beneficiary (together, the “Company”, “we”, or “Green Brick”).
All intercompany balances and transactions have been eliminated in consolidation.
The Company uses the equity method of accounting for its investments in unconsolidated entities over which it exercises significant influence but does not have a controlling interest. Under the equity method, the Company’s share of the unconsolidated entities’ earnings or losses, if any, is included in the condensed consolidated statements of income.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes, including the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
For a complete set of the Company’s significant accounting policies, refer to Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2020, with early adoption permitted. The Company adopted the standard on January 1, 2021. The adoption of ASU 2019-12 had no impact on the Company’s consolidated financial statements.
2. INVENTORY
A summary of inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Homes completed or under construction
|
$
|
466,128
|
|
|
$
|
356,706
|
|
Land and lots - developed and under development
|
440,622
|
|
|
482,371
|
|
Land held for sale
|
14,140
|
|
|
5,558
|
|
Total inventory
|
$
|
920,890
|
|
|
$
|
844,635
|
|
A summary of interest costs incurred, capitalized and expensed is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
Interest capitalized at beginning of period
|
|
$
|
17,520
|
|
|
$
|
18,596
|
|
Interest incurred
|
|
2,851
|
|
|
2,959
|
|
Interest charged to cost of revenues
|
|
(1,991)
|
|
|
(2,679)
|
|
Interest capitalized at end of period
|
|
$
|
18,380
|
|
|
$
|
18,876
|
|
|
|
|
|
|
Capitalized interest as a percentage of inventory
|
|
2.0
|
%
|
|
2.4
|
%
|
As of March 31, 2021, the Company reviewed the performance and outlook for all of its communities for indicators of potential impairment and performed detailed impairment analysis when necessary. As of March 31, 2021, the Company did not identify any selling communities with indicators of impairment. For the three months ended March 31, 2021, the Company did not record an impairment adjustment to reduce the carrying value of impaired communities to fair value.
The Company recorded a de minimis impairment adjustment to reduce the carrying value of impaired communities to fair value during the three months ended March 31, 2020.
3. INVESTMENT IN UNCONSOLIDATED ENTITIES
A summary of the Company’s investments in unconsolidated entities is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
GB Challenger, LLC
|
|
$
|
31,239
|
|
|
$
|
29,488
|
|
GBTM Sendera, LLC
|
|
9,838
|
|
|
9,846
|
|
EJB River Holdings, LLC
|
|
5,295
|
|
|
5,296
|
|
Green Brick Mortgage, LLC
|
|
1,408
|
|
|
1,207
|
|
BHome Mortgage, LLC
|
|
677
|
|
|
606
|
|
Total investment in unconsolidated entities
|
|
$
|
48,457
|
|
|
$
|
46,443
|
|
A summary of the unaudited condensed financial information of the six unconsolidated entities that are accounted for by the equity method is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Assets:
|
|
|
|
Cash
|
$
|
13,226
|
|
|
$
|
12,765
|
|
Accounts receivable
|
2,109
|
|
|
1,815
|
|
Bonds and notes receivable
|
5,942
|
|
|
5,942
|
|
Loans held for sale, at fair value
|
20,309
|
|
|
14,530
|
|
Inventory
|
132,192
|
|
|
122,819
|
|
Other assets
|
9,858
|
|
|
8,377
|
|
Total assets
|
$
|
183,636
|
|
|
$
|
166,248
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
6,445
|
|
|
$
|
7,171
|
|
Accrued expenses and other liabilities
|
12,624
|
|
|
11,148
|
|
Notes payable
|
75,266
|
|
|
60,642
|
|
Total liabilities
|
$
|
94,335
|
|
|
$
|
78,961
|
|
Owners’ equity:
|
|
|
|
Green Brick
|
$
|
45,484
|
|
|
$
|
43,451
|
|
Others
|
43,817
|
|
|
43,836
|
|
Total owners’ equity
|
$
|
89,301
|
|
|
$
|
87,287
|
|
Total liabilities and owners’ equity
|
$
|
183,636
|
|
|
$
|
166,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Revenues
|
|
|
|
|
$
|
39,721
|
|
|
$
|
35,365
|
|
Costs and expenses
|
|
|
|
|
31,951
|
|
|
29,815
|
|
Net earnings of unconsolidated entities
|
|
|
|
|
$
|
7,770
|
|
|
$
|
5,550
|
|
Company’s share in net earnings of unconsolidated entities
|
|
|
|
|
$
|
3,891
|
|
|
$
|
2,565
|
|
A summary of the Company’s share in net earnings (losses) by unconsolidated entity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
GB Challenger, LLC
|
|
|
|
|
$
|
2,750
|
|
|
$
|
1,761
|
|
Green Brick Mortgage, LLC
|
|
|
|
|
1,088
|
|
|
789
|
|
Providence Group Title, LLC
|
|
|
|
|
—
|
|
|
15
|
|
EJB River Holdings, LLC
|
|
|
|
|
(1)
|
|
|
—
|
|
BHome Mortgage, LLC
|
|
|
|
|
71
|
|
|
—
|
|
GBTM Sendera, LLC
|
|
|
|
|
(17)
|
|
|
—
|
|
Total net earnings from unconsolidated entities
|
|
|
|
|
$
|
3,891
|
|
|
$
|
2,565
|
|
4. DEBT
Lines of Credit
Borrowings on lines of credit outstanding, net of debt issuance costs, as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Secured Revolving Credit Facility
|
$
|
5,000
|
|
|
$
|
7,000
|
|
Unsecured Revolving Credit Facility
|
—
|
|
|
101,000
|
|
Debt issuance costs, net of amortization
|
(1,191)
|
|
|
(1,313)
|
|
Total borrowings on lines of credit, net
|
$
|
3,809
|
|
|
$
|
106,687
|
|
Secured Revolving Credit Facility
The Company is party to a revolving credit facility (the “Secured Revolving Credit Facility”) with Inwood National Bank, which provides for an aggregate commitment amount of $35.0 million. On May 22, 2020, the Company amended the Secured Revolving Credit Facility to reduce the aggregate commitment amount of $75.0 million to $35.0 million. Amounts outstanding under the Secured Revolving Credit Facility are secured by mortgages on real property and security interests in certain personal property (to the extent that such personal property is connected with the use and enjoyment of the real property) that is owned by certain of the Company’s subsidiaries. The entire unpaid principal balance and any accrued but unpaid interest is due and payable on the maturity date. As of March 31, 2021, the maturity date of the Secured Revolving Credit Facility is May 1, 2022.
As of March 31, 2021, letters of credit outstanding totaling $2.7 million reduced the aggregate maximum commitment amount to $32.3 million.
As of March 31, 2021, the interest rate on outstanding borrowings under the Secured Revolving Credit Facility was 4.00% per annum.
Unsecured Revolving Credit Facility
The Company is party to a credit agreement, providing for a senior, unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”). The Unsecured Revolving Credit Facility currently provides aggregate lending commitments of up to $265.0 million. As of March 31, 2021, the maximum aggregate amount of the Unsecured Revolving Credit Facility was $275.0 million, and the termination date with respect to commitments under the Unsecured Revolving Credit Facility was December 14, 2021 for $30.0 million, December 14, 2022 for $75.0 million, December 14, 2023 for $160.0 million out of the aggregate lending commitment of $265.0 million. In March 2021, the amount outstanding under the Unsecured Credit Facility was paid down to $0.0 million.
Senior Unsecured Notes
On August 8, 2019, the Company issued $75.0 million aggregate principal amount of senior unsecured notes (the“2026 Notes”) due on August 8, 2026 at a fixed rate of 4.00% per annum to Prudential Private Capital in a Section 4(a)(2) private placement transaction and received net proceeds of $73.3 million. A brokerage fee of approximately $1.5 million associated with the issuance was paid at closing. The brokerage fee, and other debt issuance costs of approximately $0.2 million, were
deferred and reduced the amount of debt on our consolidated balance sheet. The Company used the net proceeds from the issuance of the 2026 Notes to repay borrowings under the Company’s existing revolving credit facilities.
Principal on the 2026 Notes is required to be paid in increments of $12.5 million on August 8, 2024 and $12.5 million on August 8, 2025. The final principal payment of $50.0 million is due on August 8, 2026. Optional prepayment is allowed with payment of a “make-whole” penalty which fluctuates depending on market interest rates. Interest is payable quarterly in arrears commencing November 8, 2019.
On August 26, 2020, the Company entered into a Note Purchase Agreement with The Prudential Insurance Company of America and Prudential Universal Reinsurance Company to issue a $37.5 million aggregate principal amount of senior unsecured notes (the“2027 Notes”) due on August 26, 2027 at a fixed rate of 3.35% per annum in a Section 4(a)(2) private placement transaction. The Company received net proceeds of $37.4 million and incurred debt issuance costs of approximately $0.1 million that were deferred and reduced the amount of debt on our condensed consolidated balance sheet. The Company used the net proceeds from the issuance of the 2027 Notes to repay borrowings under the Company’s existing revolving credit facilities and for general corporate purposes. Interest is payable quarterly in arrears commencing on November 26, 2020.
On February 25, 2021, the Company entered into a Note Purchase Agreement with several purchasers pursuant to which the Company issued $125.0 million aggregate principal amount of senior unsecured notes (the “2028 Notes”). Principal on the 2028 Notes is due in increments of $25.0 million on February 25, 2024; $25.0 million on February 25, 2025; $25.0 million on February 25, 2026; $25.0 million on February 25, 2027 and $25.0 million on February 25, 2028. Interest accrues at an annual fixed rate of 3.25% per annum and is payable quarterly in arrears commencing on May 25, 2021. The Company received net proceeds of $124.4 million and incurred debt issuance costs of approximately $0.6 million that were deferred and reduced the amount of debt on our condensed consolidated balance sheet. The Company used the net proceeds from the issuance of the 2028 Notes to repay borrowings under the Company’s existing revolving credit facilities, to pay fees and expenses incurred in connection with the transaction and for general corporate purposes.
5. REDEEMABLE NONCONTROLLING INTEREST AND CONTINGENT CONSIDERATION
Redeemable Noncontrolling Interest in Equity of Consolidated Subsidiaries
The Company has a noncontrolling interest attributable to the 20% minority interest in GRBK GHO Homes, LLC (“GRBK GHO”) owned by our Florida-based partner that is included as redeemable noncontrolling interest in equity of consolidated subsidiary in the Company’s condensed consolidated financial statements.
The following tables show the changes in redeemable noncontrolling interest in equity of consolidated subsidiary during the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2021
|
|
2020
|
Redeemable noncontrolling interest, beginning of period
|
$
|
13,543
|
|
|
$
|
13,611
|
|
Net income attributable to redeemable noncontrolling interest partner
|
329
|
|
|
556
|
|
Change in fair value of redeemable noncontrolling interest
|
1,829
|
|
|
(2,755)
|
|
Redeemable noncontrolling interest, end of period
|
$
|
15,701
|
|
|
$
|
11,412
|
|
Contingent Consideration
Under the terms of the purchase agreement, the Company may be obligated to pay contingent consideration to our partner if certain annual performance targets are met over the three-year period following the Acquisition Date. The performance targets specified in the purchase agreement were met for the period from January 1, 2020 through December 31, 2020, and the contingent consideration of $0.4 million was earned by the minority partner and paid by the Company in April 2021 in addition to a $0.1 million distribution of income. As of March 31, 2021, the estimate of the undiscounted contingent consideration payouts for the period from January 1, 2021 through April 26, 2021 was $0.0 million. The contingent consideration period expires April 26, 2021.
6. STOCKHOLDERS’ EQUITY
2021 Share Repurchase Program
On March 1, 2021, the Company’s Board of Directors (the “Board”) authorized a new $50.0 million stock repurchase program (the “Repurchase Plan”). The Repurchase Plan authorizes the Company to purchase from time to time on or prior to December 31, 2022, up to $50.0 million of our outstanding common stock through open market repurchases in compliance with
Rule 10b-18 under the Exchange Act and/or in privately negotiated transactions at management’s discretion based on market and business conditions, applicable legal requirements and other factors. Shares repurchased will be retired. The Repurchase Plan may be modified or terminated by our Board at any time in its sole discretion.
7. SHARE-BASED COMPENSATION
Share-Based Award Activity
During the three months ended March 31, 2021, the Company granted stock awards (“SAs”) under its 2014 Omnibus Equity Incentive Plan to executive officers (“EOs”). The SAs granted to the EOs were 100% vested and non-forfeitable on the grant date. The fair value of the SAs granted to EOs was recorded as share-based compensation expense on the grant date. The Company withheld 41,318 shares of common stock from EOs, at a total cost of $0.8 million, to satisfy statutory minimum tax requirements upon grant of the SAs.
Employee Stock Awards
On March 1, 2021, the Company’s Board of Directors approved an incentive program for eligible employees to participate in the Company’s new restricted stock award plan. This plan is being offered pursuant to the Company’s 2014 Omnibus Equity Incentive Plan. The Company incurred de minimis compensation expense related to these awards as of March 31, 2021.
A summary of share-based awards activity during the three months ended March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value per Share
|
|
(in thousands)
|
|
Nonvested, December 31, 2020
|
45
|
|
|
$
|
12.33
|
|
Granted
|
112
|
|
|
$
|
21.82
|
|
Vested
|
(112)
|
|
|
$
|
21.82
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Nonvested, March 31, 2021
|
45
|
|
|
$
|
12.33
|
|
Stock Options
A summary of stock options activity during the three months ended March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price per Share
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
|
(in thousands)
|
|
|
(in years)
|
|
(in thousands)
|
Options outstanding, December 31, 2020
|
500
|
|
|
$
|
7.49
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Options outstanding, March 31, 2021
|
500
|
|
|
$
|
7.49
|
|
|
3.58
|
|
$
|
7,595
|
|
Options exercisable, March 31, 2021
|
500
|
|
|
$
|
7.49
|
|
|
3.58
|
|
$
|
7,595
|
|
Share-Based Compensation Expense
Share-based compensation expense was $2.6 million and $1.7 million for the three months ended March 31, 2021 and 2020, respectively. Recognized tax benefit related to share-based compensation expense was $0.6 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, the estimated total remaining unamortized share-based compensation expense related to unvested RSAs, net of forfeitures, was $0.1 million which is expected to be recognized over a weighted-average period of 0.2 years.
8. REVENUE RECOGNITION
Disaggregation of Revenue
The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Three Months Ended March 31, 2020
|
|
Residential units revenue
|
|
Land and lots revenue
|
|
Residential units revenue
|
|
Land and lots revenue
|
Primary Geographical Market
|
|
|
|
|
|
|
|
Central
|
$
|
157,378
|
|
|
$
|
8,417
|
|
|
$
|
123,425
|
|
|
$
|
22,080
|
|
Southeast
|
59,858
|
|
|
8,826
|
|
|
67,762
|
|
|
—
|
|
Total revenues
|
$
|
217,236
|
|
|
$
|
17,243
|
|
|
$
|
191,187
|
|
|
$
|
22,080
|
|
|
|
|
|
|
|
|
|
Type of Customer
|
|
|
|
|
|
|
|
Homebuyers
|
$
|
217,236
|
|
|
$
|
—
|
|
|
$
|
191,187
|
|
|
$
|
—
|
|
Homebuilders and Multi-family Developers
|
—
|
|
|
17,243
|
|
|
—
|
|
|
22,080
|
|
Total revenues
|
$
|
217,236
|
|
|
$
|
17,243
|
|
|
$
|
191,187
|
|
|
$
|
22,080
|
|
|
|
|
|
|
|
|
|
Product Type
|
|
|
|
|
|
|
|
Residential units
|
$
|
217,236
|
|
|
$
|
—
|
|
|
$
|
191,187
|
|
|
$
|
—
|
|
Land and lots
|
—
|
|
|
17,243
|
|
|
—
|
|
|
22,080
|
|
Total revenues
|
$
|
217,236
|
|
|
$
|
17,243
|
|
|
$
|
191,187
|
|
|
$
|
22,080
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
Transferred at a point in time
|
$
|
216,134
|
|
|
$
|
17,243
|
|
|
$
|
189,248
|
|
|
$
|
22,080
|
|
Transferred over time
|
1,102
|
|
|
—
|
|
|
1,939
|
|
|
—
|
|
Total revenues
|
$
|
217,236
|
|
|
$
|
17,243
|
|
|
$
|
191,187
|
|
|
$
|
22,080
|
|
Revenue recognized over time represents revenue from mechanic’s lien contracts.
Contract Balances
Opening and closing contract balances included in customer and builder deposits on the condensed consolidated balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Customer and builder deposits
|
$
|
56,073
|
|
|
$
|
38,131
|
|
|
The difference between the opening and closing balances of customer and builder deposits results from the timing difference between the customers’ payments of deposits and the Company’s performance, impacted slightly by terminations of contracts.
The amount of deposits on residential units and land and lots held as of the beginning of the period and recognized as revenue during the three months ended March 31, 2021 and 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
Type of Customer
|
|
|
|
|
Homebuyers
|
|
$
|
6,616
|
|
|
$
|
5,835
|
|
Homebuilders and Multi-Family Developers
|
|
1,109
|
|
|
3,641
|
|
Total deposits recognized as revenue
|
|
$
|
7,725
|
|
|
$
|
9,476
|
|
Performance Obligations
There was no revenue recognized during the three months ended March 31, 2021 and 2020 from performance obligations satisfied in prior periods.
Transaction Price Allocated to the Remaining Performance Obligations
The aggregate amount of transaction price allocated to the remaining performance obligations on our land sale and lot option contracts is $32.9 million. The Company will recognize the remaining revenue when the lots are taken down, or upon closing for the sale of a land parcel, which is expected to occur as follows (in thousands):
|
|
|
|
|
|
|
Total
|
Remainder of 2021
|
$
|
25,164
|
|
2022
|
6,194
|
|
2023
|
1,525
|
|
Total
|
$
|
32,883
|
|
The timing of lot takedowns is contingent upon a number of factors, including customer needs, the number of lots being purchased, receipt of acceptance of the plat by the municipality, weather-related delays, and agreed-upon lot takedown schedules.
Our contracts with homebuyers have a duration of less than one year. As such, the Company uses the practical expedient as allowed under ASC 606, Revenue from Contracts with Customers, and therefore has not disclosed the transaction price allocated to remaining performance obligations as of the end of the reporting period.
9. SEGMENT INFORMATION
Financial information relating to the Company’s reportable segments is as follows. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2021
|
|
2020
|
Revenues: (1)
|
|
|
|
|
Builder operations
|
|
|
|
|
Central
|
|
$
|
158,386
|
|
|
$
|
123,425
|
|
Southeast
|
|
68,684
|
|
|
67,762
|
|
Total builder operations
|
|
227,070
|
|
|
191,187
|
|
Land development
|
|
7,409
|
|
|
22,080
|
|
Total revenues
|
|
$
|
234,479
|
|
|
$
|
213,267
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
Builder operations
|
|
|
|
|
Central
|
|
$
|
43,889
|
|
|
$
|
31,195
|
|
Southeast
|
|
19,049
|
|
|
18,258
|
|
Total builder operations
|
|
62,938
|
|
|
49,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2021
|
|
2020
|
Land development
|
|
1,780
|
|
|
5,598
|
|
Corporate, other and unallocated (2)
|
|
(5,729)
|
|
|
(6,082)
|
|
Total gross profit
|
|
$
|
58,989
|
|
|
$
|
48,969
|
|
|
|
|
|
|
Income before income taxes:
|
|
|
|
|
Builder operations
|
|
|
|
|
Central
|
|
$
|
24,858
|
|
|
$
|
11,967
|
|
Southeast
|
|
10,163
|
|
|
8,743
|
|
Total builder operations
|
|
35,021
|
|
|
20,710
|
|
Land development
|
|
1,844
|
|
|
5,539
|
|
Corporate, other and unallocated (3)
|
|
(1,603)
|
|
|
(3,493)
|
|
Income before income taxes
|
|
$
|
35,262
|
|
|
$
|
22,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Inventory:
|
|
|
|
Builder operations
|
|
|
|
Central
|
$
|
468,724
|
|
|
$
|
421,477
|
|
Southeast
|
220,979
|
|
|
183,623
|
|
Total builder operations
|
689,703
|
|
|
605,100
|
|
Land development
|
203,645
|
|
|
213,555
|
|
Corporate, other and unallocated (4)
|
27,542
|
|
|
25,980
|
|
Total inventory
|
$
|
920,890
|
|
|
$
|
844,635
|
|
|
|
|
|
Goodwill:
|
|
|
|
Builder operations - Southeast
|
$
|
680
|
|
|
$
|
680
|
|
(1)The sum of Builder operations Central and Southeast segments’ revenues does not equal residential units revenue included in the condensed consolidated statements of income in periods when our builders have revenues from land or lot closings, which for the three months ended March 31, 2021 were $9.8 million compared to $0.0 million for the three months ended March 31, 2020.
(2)Corporate, other and unallocated gross loss is comprised of capitalized overhead and capitalized interest adjustments that are not allocated to builder operations and land development segments.
(3)Corporate, other and unallocated loss before income taxes includes results from Green Brick Title, LLC and investments in unconsolidated subsidiaries.
(4)Corporate, other and unallocated inventory consists of capitalized overhead and interest related to work in process and land under development.
10. INCOME TAXES
The Company’s income tax expense for the three months ended March 31, 2021 was $7.5 million, compared to $6.0 million in the three months ended March 31, 2020. The effective tax rate was 21.3% for the three months ended March 31, 2021, compared to 26.5% in the comparable prior year period. The change in the effective tax rate for the three months ended March 31, 2021 relates primarily to the impact of projected noncontrolling interest for the year and a tax benefit from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (“the 2019 Act”). The 2019 Act retroactively reinstated the federal energy efficient homes tax credit that expired on December 31, 2017 to homes closed from January 1, 2018 to December 31, 2020. In December 2020, Congress approved the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which extended the federal energy efficient homes tax credit to December 31, 2021.
11. EARNINGS PER SHARE
The Company’s Restricted Stock Awards (“RSAs”) have the right to receive forfeitable dividends on an equal basis with common stock and therefore are not considered participating securities that must be included in the calculation of net income per share using the two-class method.
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period, adjusted for nonvested shares of RSAs during each period. Diluted earnings per share is calculated using the treasury stock method and includes the effect of all dilutive securities, including stock options and RSAs.
The computation of basic and diluted net income attributable to Green Brick Partners, Inc. per share is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
Net income attributable to Green Brick Partners, Inc.
|
|
$
|
25,969
|
|
|
$
|
15,917
|
|
|
|
|
|
|
Weighted-average number of shares outstanding - basic
|
|
50,633
|
|
|
50,454
|
|
Basic net income attributable to Green Brick Partners, Inc. per share
|
|
$
|
0.51
|
|
|
$
|
0.32
|
|
|
|
|
|
|
Weighted-average number of shares outstanding - basic
|
|
50,633
|
|
|
50,454
|
|
Dilutive effect of stock options and restricted stock awards
|
|
360
|
|
|
192
|
|
Weighted-average number of shares outstanding - diluted
|
|
50,993
|
|
|
50,646
|
|
Diluted net income attributable to Green Brick Partners, Inc. per share
|
|
$
|
0.51
|
|
|
$
|
0.31
|
|
During the three months ended March 31, 2021 and 2020, there were no shares which could potentially dilute earnings per share in the future and that were not included in the determination of diluted net income attributable to Green Brick Partners, Inc. per common share.
12. FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The Company’s financial instruments, none of which are held for trading purposes, include cash and cash equivalents, restricted cash, receivables, earnest money deposits, other assets, accounts payable, accrued expenses, customer and builder deposits, borrowings on lines of credit, senior unsecured notes, and contingent consideration liability.
Per the fair value hierarchy, level 1 financial instruments include: cash and cash equivalents, restricted cash, receivables, earnest money deposits, other assets, accounts payable, accrued expenses, and customer and builder deposits due to their short-term nature. The Company estimates that, due to the short-term nature of the underlying financial instruments or the proximity of the underlying transaction to the applicable reporting date, the fair value of level 1 financial instruments does not differ materially from the aggregate carrying values recorded in the condensed consolidated financial statements as of March 31, 2021 and December 31, 2020.
Level 2 financial instruments include borrowings on lines of credit and senior unsecured notes. Due to the short-term nature and floating interest rate terms, the carrying amounts of borrowings on lines of credit are deemed to approximate fair value. The estimated fair value of the senior unsecured notes as of March 31, 2021 was $253.5 million.
The fair value of the contingent consideration liability related to the GRBK GHO business combination was estimated using the internally developed discounted cash flow analysis. As the measurement of the contingent consideration is based primarily on significant inputs not observable in the market, it represents a level 3 measurement.
Key inputs in measuring the fair value of the contingent consideration liability are management’s projections of GRBK GHO’s net income and debt, and the annual discount rate of 16.5% that reflects the risk associated with achieving the milestones of the contingent consideration payments.
The reconciliation of the beginning and ending balances for level 3 measurements is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Estimated Fair Value
|
Contingent consideration liability, balance as of December 31, 2020
|
$
|
368
|
|
|
$
|
368
|
|
Change in fair value of contingent consideration
|
—
|
|
|
—
|
|
Contingent consideration liability, balance as of March 31, 2021
|
$
|
368
|
|
|
$
|
368
|
|
There were no transfers between the levels of the fair value hierarchy for any of our financial instruments during the three months ended March 31, 2021.
Fair Value of Nonfinancial Instruments
Nonfinancial assets and liabilities include inventory which is measured at cost unless the carrying value is determined to be not recoverable in which case the affected instrument is written down to fair value. The fair value of inventory is primarily determined by discounting the estimated future cash flow of each community using various unobservable inputs in our impairment analysis. Per the fair value hierarchy, these items are level 3 nonfinancial instruments. For additional information on the Company’s inventory, refer to Note 2.
13. RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2021 and 2020, the Company had the following related party transactions in the normal course of business.
Corporate Officers
Trevor Brickman, the son of Green Brick’s Chief Executive Officer, is the President of CLH20, LLC (“Centre Living”). Green Brick’s ownership interest in Centre Living is 90% and Trevor Brickman’s ownership interest is 10%. Green Brick has 90% voting control over the operations of Centre Living. As such, 100% of Centre Living’s operations are included within our condensed consolidated financial statements.
GRBK GHO
GRBK GHO leases office space from entities affiliated with the president of GRBK GHO. During the three months ended March 31, 2021, GRBK GHO incurred de minimis rent expense under such lease agreements. As of March 31, 2021, there were no amounts due to the affiliated entities related to such lease agreements.
GRBK GHO receives title closing services on the purchase of land and third-party lots from an entity affiliated with the president of GRBK GHO. During the three months ended March 31, 2021 and 2020, GRBK GHO incurred de minimis fees related to such title closing services. As of March 31, 2021 and December 31, 2020, no amounts were due to the title company affiliate.
14. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Performance Bonds
During the ordinary course of business, certain regulatory agencies and municipalities require the Company to post letters of credit or performance bonds related to development projects. As of March 31, 2021 and December 31, 2020, letters of credit and performance bonds outstanding were $10.2 million and $9.8 million, respectively. The Company does not believe that it is likely that any material claims will be made under a letter of credit or performance bond in the foreseeable future.
Warranties
Warranty accruals are included within accrued expenses on the condensed consolidated balance sheets. Warranty activity during the three months ended March 31, 2021 and 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
Warranty accrual, beginning of period
|
|
$
|
6,407
|
|
|
$
|
3,840
|
|
Warranties issued
|
|
1,100
|
|
|
840
|
|
Changes in liability for existing warranties
|
|
39
|
|
|
(87)
|
|
Settlements
|
|
(685)
|
|
|
(420)
|
|
Warranty accrual, end of period
|
|
$
|
6,861
|
|
|
$
|
4,173
|
|
Operating Leases
The Company has leases associated with office and design center space in Georgia, Texas, and Florida that, at the commencement date, have a lease term of more than 12 months and are classified as operating leases. The exercise of any extension options available in such operating lease contracts is not reasonably certain.
Operating lease cost of $0.3 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively, is included in selling, general and administrative expenses in the condensed consolidated statements of income. Cash paid for amounts included in the measurement of operating lease liabilities was $0.3 million and $0.3 million, respectively, for the three months ended March 31, 2021 and 2020.
As of March 31, 2021, the weighted-average remaining lease term and the weighted-average discount rate used in calculating our lease liabilities were 3.0 years and 4.8%, respectively.
The future annual undiscounted cash flows in relation to the operating leases and a reconciliation of such undiscounted cash flows to the operating lease liabilities recognized in the condensed consolidated balance sheet as of March 31, 2021 are presented below (in thousands):
|
|
|
|
|
|
Remainder of 2021
|
$
|
758
|
|
2022
|
816
|
|
2023
|
1,216
|
|
2024
|
86
|
|
2025
|
87
|
|
Thereafter
|
66
|
|
Total future lease payments
|
$
|
3,029
|
|
Less: Interest
|
740
|
|
Present value of lease liabilities
|
$
|
2,289
|
|
The Company elected the short-term lease recognition exemption for all leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. For such leases, the Company does not recognize right-of-use assets or lease liabilities and instead recognizes lease payments in the condensed consolidated income statements on a straight-line basis. Short-term lease cost of $0.2 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively, is included in selling, general and administrative expenses in the condensed consolidated statements of income.
Legal Matters
Lawsuits, claims and proceedings may be instituted or asserted against us in the normal course of business. The Company is also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, title company regulations, employment practices and environmental protection. As a result, the Company may be subject to periodic examinations or inquiry by agencies administering these laws and regulations.
The Company records an accrual for legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. The Company accrues for these matters based on facts and circumstances specific to each matter and revises these estimates when necessary.
In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, the Company generally cannot predict their ultimate resolution, related timing or eventual loss. If evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, the Company will disclose their nature with an estimate of the possible range of losses or a statement that such loss is not reasonably estimable. We believe that the disposition of legal claims and related contingencies will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts and typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “objective,” “plan,” “predict,” “projection,” “seek,” “strategy,” “target,” “will” or other words of similar meaning. Forward-looking statements in this Quarterly Report include statements concerning (1) our balance sheet strategies, operational strength and margin performance; (2) our operational goals and strategies and their anticipated benefits; (3) the effects of COVID-19 pandemic on the homebuilding industry and our business; (4) expectations regarding our industry and our business in 2021 and beyond; (5) our growth, the drivers of that growth; (6) our land and lot acquisition strategy and its impact on our results; (7) the sufficiency of our capital resources to support our business strategy and to service our debt; (8) the impact of new accounting standards and changes in accounting estimates; (9) trends and expectations regarding sales prices, sales orders, backlog, cancellations, construction costs, gross margins, land costs, profitability and inventories; (10) our future cash needs; (11) our strategy to utilize leverage to invest in our business; (12) seasonal factors and the impact of seasonality in future quarters; and (13) our expectations regarding access to additional growth capital.
These forward-looking statements reflect our current views about future events and involve estimates and assumptions which may be affected by risks and uncertainties in our business, as well as other external factors, which could cause future results to materially differ from those expressed or implied in any forward-looking statement. These risks include, but are not limited to: (1) continuing impacts from the COVID-19 pandemic, (2) general economic conditions, seasonality, cyclicality and competition in the homebuilding industry; (3) changes in macroeconomic conditions, including interest rates and unemployment rates, that could adversely impact demand for new homes or the ability of potential buyers to qualify; (4) shortages, delays or increased costs of raw materials, especially in light of COVID-19 and increased demand for materials, or increases in other operating costs, including costs related to labor, real estate taxes and insurance, which in each case exceed our ability to increase prices; (5) a shortage of labor, (6) an inability to acquire land in our markets at anticipated prices or difficulty in obtaining land-use entitlements; (7) our inability to successfully execute our strategies, including an inability to grow our operations or expand our Trophy brand; (8) a failure to recruit, retain or develop highly skilled and competent employees; (9) government regulation risks; (10) a lack of availability or volatility of mortgage financing or a rise in interest rates; (11) severe weather events or natural disasters; (12) difficulty in obtaining sufficient capital to fund our growth; (13) our ability to meet our debt service obligations; (14) a decline in the value of our inventories and resulting write-downs of the carrying value of our real estate assets; and (15) changes in accounting standards that adversely affect our reported earnings or financial condition.
Please see “Risk Factors” located in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2020 for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.