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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
___________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 001-33530
Green Brick Partners, Inc.
 
(Exact name of registrant as specified in its charter)
Delaware 20-5952523
(State or other jurisdiction of incorporation) (IRS Employer Identification Number)
2805 Dallas Pkwy , Ste 400
Plano , TX 75093 (469) 573-6755
(Address of principal executive offices, including Zip Code) (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share
GRBK
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes No

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

The number of shares of the Registrant's common stock outstanding as of July 31, 2021 was 50,759,972.


TABLE OF CONTENTS
FINANCIAL INFORMATION
Item 1.
1
1
2
3
5
7
Item 2.
Item 4.
OTHER INFORMATION
Item 5.
Item 6.



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (Unaudited)
June 30, 2021 December 31, 2020
ASSETS
Cash and cash equivalents $ 33,517  $ 19,479 
Restricted cash 23,598  14,156 
Receivables 7,007  5,224 
Inventory 1,106,141  844,635 
Investments in unconsolidated entities 50,342  46,443 
Right-of-use assets - operating leases 4,528  2,538 
Property and equipment, net 3,712  3,595 
Earnest money deposits 20,161  22,242 
Deferred income tax assets, net 15,376  15,376 
Intangible assets, net 580  622 
Goodwill 680  680 
Other assets 21,494  13,857 
Total assets $ 1,287,136  $ 988,847 
LIABILITIES AND EQUITY
Liabilities:
Accounts payable $ 45,761  $ 24,521 
Accrued expenses 57,425  40,416 
Customer and builder deposits 63,700  38,131 
Lease liabilities - operating leases 4,582  2,591 
Borrowings on lines of credit, net 130,605  106,687 
Senior unsecured notes, net 235,624  111,056 
Notes payable 233  2,125 
Contingent consideration —  368 
Total liabilities 537,930  325,895 
Commitments and contingencies
Redeemable noncontrolling interest in equity of consolidated subsidiary 17,515  13,543 
Equity:
Green Brick Partners, Inc. stockholders’ equity
Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued and outstanding —  — 
Common stock, $0.01 par value: 100,000,000 shares authorized; 51,151,911 and 51,053,858 issued and 50,759,972 and 50,661,919 outstanding as of June 30, 2021 and December 31, 2020, respectively 511  511 
Treasury stock, at cost, 391,939 shares (3,167) (3,167)
Additional paid-in capital 292,157  293,242 
Retained earnings 427,888  349,656 
Total Green Brick Partners, Inc. stockholders’ equity 717,389  640,242 
Noncontrolling interests 14,302  9,167 
Total equity 731,691  649,409 
Total liabilities and equity $ 1,287,136  $ 988,847 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1

GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Residential units revenue $ 333,500  $ 228,667  $ 550,736  $ 419,854 
Land and lots revenue 40,306  4,166  57,549  26,246 
Total revenues 373,806  232,833  608,285  446,100 
Cost of residential units 244,165  175,723  406,237  322,910 
Cost of land and lots 28,665  3,215  42,083  20,326 
Total cost of revenues 272,830  178,938  448,320  343,236 
Total gross profit 100,976  53,895  159,965  102,864 
Selling, general and administrative expenses (33,985) (25,672) (63,473) (52,541)
Equity in income of unconsolidated entities 4,593  5,174  8,484  7,739 
Other income, net 2,393  2,788  4,263  879 
Income before income taxes 73,977  36,185  109,239  58,941 
Income tax expense 15,694  1,348  23,195  7,388 
Net income 58,283  34,837  86,044  51,553 
Less: Net income attributable to noncontrolling interests 6,020  1,190  7,812  1,989 
Net income attributable to Green Brick Partners, Inc. $ 52,263  $ 33,647  $ 78,232  $ 49,564 
Net income attributable to Green Brick Partners, Inc. per common share:
Basic $ 1.03  $ 0.67  $ 1.54  $ 0.98 
Diluted $ 1.02  $ 0.66  $ 1.53  $ 0.98 
Weighted average common shares used in the calculation of net income attributable to Green Brick Partners, Inc. per common share:
Basic 50,701  50,583  50,667  50,519 
Diluted 51,064  50,692  51,029  50,669 
The accompanying notes are an integral part of these condensed consolidated financial statements.

2

GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
For the three months ended June 30, 2021 and 2020:
Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Total Green Brick Partners, Inc. Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
Balance at March 31, 2021 51,124,215  $ 511  (391,939) $ (3,167) $ 293,162  $ 375,625  $ 666,131  $ 10,630  $ 676,761 
Issuance of common stock under 2014 Omnibus Equity Incentive Plan 27,696  —  —  —  —  —  —  —  — 
Amortization of deferred share-based compensation —  —  —  —  173  —  173  —  173 
Change in fair value of redeemable noncontrolling interest —  —  —  —  (1,178) —  (1,178) —  (1,178)
Distributions —  —  —  —  —  —  —  (1,606) (1,606)
Net income —  —  —  —  —  52,263  52,263  5,278  57,541 
Balance at June 30, 2021 51,151,911  $ 511  (391,939) $ (3,167) $ 292,157  $ 427,888  $ 717,389  $ 14,302  $ 731,691 
Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Total Green Brick Partners, Inc. Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
Balance at March 31, 2020 51,008,861  $ 510  (391,939) $ (3,167) $ 294,695  $ 250,944  $ 542,982  $ 10,900  $ 553,882 
Issuance of common stock under 2014 Omnibus Equity Incentive Plan 44,997  —  —  —  —  — 
Amortization of deferred share-based compensation —  —  —  —  84  —  84  —  84 
Change in fair value of noncontrolling interest —  —  —  (1,892) —  (1,892) —  (1,892)
Increase in ownership in CB JENI Homes —  —  —  —  —  937  937  (937) — 
Distributions —  —  —  —  —  —  —  (2,281) (2,281)
Net income —  —  —  —  —  33,647  33,647  504  34,151 
Balance at June 30, 2020 51,053,858  $ 511  (391,939) $ (3,167) $ 292,887  $ 285,528  $ 575,759  $ 8,186  $ 583,945 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
For the six months ended June 30, 2021 and 2020:
Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Total Green Brick Partners, Inc. Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
Balance at December 31, 2020 51,053,858  $ 511  (391,939) $ (3,167) $ 293,242  $ 349,656  $ 640,242  $ 9,167  $ 649,409 
Issuance of common stock under 2014 Omnibus Equity Incentive Plan 139,371  —  —  2,436  —  2,437  —  2,437 
Withholdings from vesting of restricted stock awards (41,318) (1) —  —  (833) —  (834) —  (834)
Amortization of deferred share-based compensation —  —  —  —  319  —  319  —  319 
Change in fair value of redeemable noncontrolling interest —  —  —  —  (3,007) —  (3,007) —  (3,007)
Distributions —  —  —  —  —  —  —  (1,606) (1,606)
Net income —  —  —  —  —  78,232  78,232  6,741  84,973 
Balance at June 30, 2021 51,151,911  $ 511  (391,939) $ (3,167) $ 292,157  $ 427,888  $ 717,389  $ 14,302  $ 731,691 
Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Total Green Brick Partners, Inc. Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
Balance at December 31, 2019 50,879,949  $ 509  (391,939) $ (3,167) $ 290,799  $ 235,027  $ 523,168  $ 13,227  $ 536,395 
Issuance of common stock under 2014 Omnibus Equity Incentive Plan 249,617  —  —  1,598  —  1,601  —  1,601 
Withholdings from vesting of restricted stock awards (75,708) (1) —  —  (591) —  (592) —  (592)
Amortization of deferred share-based compensation —  —  —  —  218  —  218  —  218 
Change in fair value of redeemable noncontrolling interest —  —  —  —  863  —  863  —  863 
Increase in ownership in CB JENI Homes —  —  —  —  —  937  937  (937) — 
Contributions —  —  —  —  —  —  —  400  400 
Distributions —  —  —  —  —  —  —  (5,251) (5,251)
Net income —  —  —  —  —  49,564  49,564  747  50,311 
Balance at June 30, 2020 51,053,858  $ 511  (391,939) $ (3,167) $ 292,887  $ 285,528  $ 575,759  $ 8,186  $ 583,945 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Six Months Ended June 30,
2021 2020
Cash flows from operating activities:
Net income $ 86,044  $ 51,553 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:      
Depreciation and amortization expense 1,394  1,539 
Share-based compensation expense 2,756  1,819 
Deferred income taxes, net —  (115)
Equity in income of unconsolidated entities (8,484) (7,739)
Allowances for option deposits and pre-acquisition costs 43  1,532 
Distributions of income from unconsolidated entities 4,593  3,393 
Changes in operating assets and liabilities:   
Increase in receivables (1,783) (9,767)
(Increase) decrease in inventory (261,156) 2,798 
Decrease (increase) in earnest money deposits 2,078  (6,273)
Increase in other assets (7,649) (4,820)
Increase (decrease) in accounts payable 21,240  (1,322)
Increase in accrued expenses 17,009  14,735 
Payment of contingent consideration in excess of acquisition date fair value (368) (5,267)
Increase (decrease) in customer and builder deposits 25,568  (3,061)
Net cash (used in) provided by operating activities (118,715) 39,005 
Cash flows from investing activities:
Investments in unconsolidated entities (8) (490)
Purchase of property and equipment (1,467) (1,180)
Net cash used in investing activities (1,475) (1,670)
Cash flows from financing activities:   
Borrowings from lines of credit 342,000  112,000 
Borrowings from senior unsecured notes 125,000  — 
Repayments of lines of credit (318,000) (133,000)
Proceeds from notes payable 127  10,562 
Repayments of notes payable (2,018) (6,313)
Payments of debt issuance costs (893) — 
Payments of withholding tax on vesting of restricted stock awards (834) (592)
Contributions from noncontrolling interests —  400 
Distributions to redeemable noncontrolling interest (106) (1,505)
Distributions to noncontrolling interests (1,606) (5,251)
Net cash provided by (used in) financing activities 143,670  (23,699)
Net increase in cash and cash equivalents and restricted cash 23,480  13,636 
Cash and cash equivalents, beginning of period 19,479  33,269 
Restricted cash, beginning of period 14,156  4,416 
Cash and cash equivalents and restricted cash, beginning of period 33,635  37,685 
Cash and cash equivalents, end of period 33,517  43,162 
Restricted cash, end of period 23,598  8,159 
Cash and cash equivalents and restricted cash, end of period $ 57,115  $ 51,321 




5

GREEN BRICK PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest $ —  $ — 
Cash paid for income taxes, net of refunds $ 32,463  $ 13 

The accompanying notes are an integral part of these condensed consolidated financial statements. 
6

GREEN BRICK PARTNERS, INC.
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 and six months ended June 30, 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.
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2. INVENTORY

A summary of inventory is as follows (in thousands):
June 30, 2021 December 31, 2020
Homes completed or under construction $ 535,138  $ 356,706 
Land and lots - developed and under development 567,398  482,371 
Land held for sale 3,605  5,558 
Total inventory $ 1,106,141  $ 844,635 

A summary of interest costs incurred, capitalized and expensed is as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Interest capitalized at beginning of period $ 18,380  $ 18,876 $ 17,520  $ 18,596 
Interest incurred 3,250  2,708 6,101  5,667 
Interest charged to cost of revenues (2,670) (2,793) (4,661) (5,472)
Interest capitalized at end of period $ 18,960  $ 18,791 $ 18,960  $ 18,791 
Capitalized interest as a percentage of inventory 1.7  % 2.5  % 1.7  % 2.5  %

As of June 30, 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 June 30, 2021, the Company did not identify any selling communities with indicators of impairment. For the three and six months ended June 30, 2021, the Company did not record an impairment adjustment to reduce the carrying value of impaired communities to fair value.

For the three and six months ended June 30, 2020, the Company recorded a $0.0 million and a de minimis impairment adjustment, respectively, to reduce the carrying value of impaired communities to fair value.

3. INVESTMENT IN UNCONSOLIDATED ENTITIES

A summary of the Company’s investments in unconsolidated entities is as follows (in thousands):
June 30, 2021 December 31, 2020
GB Challenger, LLC $ 33,070  $ 29,488 
GBTM Sendera, LLC 9,854  9,846 
EJB River Holdings, LLC 5,769  5,296 
Green Brick Mortgage, LLC 886  1,207 
BHome Mortgage, LLC 763  606 
Total investment in unconsolidated entities $ 50,342  $ 46,443 
8


A summary of the unaudited condensed financial information of the five unconsolidated entities that are accounted for by the equity method is as follows (in thousands):
June 30, 2021 December 31, 2020
Assets:
Cash $ 14,131  $ 12,765 
Accounts receivable 2,558  1,815 
Bonds and notes receivable 5,942  5,942 
Loans held for sale, at fair value 35,756  14,530 
Inventory 150,154  122,819 
Other assets 7,775  8,377 
Total assets $ 216,316  $ 166,248 
Liabilities:
Accounts payable $ 7,578  $ 7,171 
Accrued expenses and other liabilities 15,712  11,148 
Notes payable 99,906  60,642 
Total liabilities $ 123,196  $ 78,961 
Owners’ equity:
Green Brick $ 47,652  $ 43,451 
Others 45,468  43,836 
Total owners’ equity $ 93,120  $ 87,287 
Total liabilities and owners’ equity $ 216,316  $ 166,248 
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenues $ 51,737  $ 52,948  $ 91,458  $ 88,313 
Costs and expenses 42,492  42,337  74,359  72,152 
Net earnings of unconsolidated entities $ 9,245  $ 10,611  $ 17,099  $ 16,161 
Company’s share in net earnings of unconsolidated entities $ 4,593  $ 5,174  $ 8,484  $ 7,739 

A summary of the Company’s share in net earnings (losses) by unconsolidated entity is as follows:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
GB Challenger, LLC $ 3,225  $ 3,805  $ 5,975  $ 5,566 
Green Brick Mortgage, LLC 545  1,371  1,633  2,160 
Providence Group Title, LLC —  111  —  14 
EJB River Holdings, LLC 473  (1) 472  (1)
GBTM Sendera, LLC 17  —  —  — 
BHome Mortgage, LLC 333  —  404  — 
Total net earnings from unconsolidated entities $ 4,593  $ 5,174  $ 8,484  $ 7,739 

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4. DEBT

Lines of Credit
Borrowings on lines of credit outstanding, net of debt issuance costs, as of June 30, 2021 and December 31, 2020 consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Secured Revolving Credit Facility $ 2,000  $ 7,000 
Unsecured Revolving Credit Facility 130,000  101,000 
Debt issuance costs, net of amortization (1,395) (1,313)
Total borrowings on lines of credit, net $ 130,605  $ 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 June 30, 2021, the maturity date of the Secured Revolving Credit Facility is May 1, 2022.

As of June 30, 2021, there were letters of credit outstanding totaling $2.7 million and a net available commitment amount of $32.3 million.

As of June 30, 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 provides for maximum aggregate lending commitments of up to $275.0 million of which the Company has secured outstanding commitments of $265.0 million. Following amendments to the Unsecured Revolving Credit Facility to replace Credit Suisse AG, Cayman Islands Branch (“Credit Suisse”) with Veritex Community Bank (“Veritex”) as lender, the termination date with respect to commitments under the Unsecured Revolving Credit Facility is December 14, 2022 for $75.0 million and December 14, 2023 for $190.0 million out of aggregate lending commitments of $265.0 million.

Fees and other debt issuance costs of $0.3 million were incurred during the three months ended June 30, 2021, associated with the amendments. These costs are deferred and reduce the carrying amount of debt on our consolidated balance sheet. As of June 30, 2021, the interest rates on outstanding borrowings under the Unsecured Revolving Credit Facility ranged from 2.57% to 2.59% per annum.

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
10

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 in a Section 4(a)(2) private placement transaction (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 and six months ended June 30, 2021 and 2020 (in thousands):
Three Months Ended June 30,
2021 2020
Redeemable noncontrolling interest, beginning of period $ 15,701  $ 11,412 
Net income attributable to redeemable noncontrolling interest partner 742  686 
Distributions of income to redeemable noncontrolling interest partner (106) (1,505)
Change in fair value of redeemable noncontrolling interest 1,178  1,892 
Redeemable noncontrolling interest, end of period $ 17,515  $ 12,485 
Six Months Ended June 30,
2021 2020
Redeemable noncontrolling interest, beginning of period $ 13,543  $ 13,611 
Net income attributable to redeemable noncontrolling interest partner 1,071  1,242 
Distributions of income to redeemable noncontrolling interest partner (106) (1,505)
Change in fair value of redeemable noncontrolling interest 3,007  (863)
Redeemable noncontrolling interest, end of period $ 17,515  $ 12,485 
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 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. The performance targets were not met for the period from January 1, 2021 through April 26, 2021. The contingent consideration period expired April 26, 2021.

11

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 six months ended June 30, 2021, the Company granted stock awards (“SAs”) under its 2014 Omnibus Equity Incentive Plan to executive officers (“EOs”) and restricted stock awards (“RSAs”) to non-employee members of the Board of Directors (“BOD”). The SAs granted to the EOs were 100% vested and non-forfeitable on the grant date. Some members of the BOD also elected to defer up to 100% of their annual retainer fee in the form of RSAs. The RSAs granted to the BOD will become fully vested on the earlier of (i) the first anniversary of the date of grant of the shares of restricted common stock or (ii) the date of the Company’s 2022 Annual Meeting of Stockholders. The fair value of the SAs granted to EOs and RSAs granted to non-employee members of the BOD were recorded as share-based compensation expense on the grant date and over the vesting period, respectively. The Company withheld 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 during the three and six months ended June 30, 2021.

A summary of share-based awards activity during the six months ended June 30, 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 139  $ 22.10 
Vested (157) $ 19.09 
Forfeited —  $ — 
Nonvested, June 30, 2021 28  $ 23.21 

Stock Options
A summary of stock options activity during the six months ended June 30, 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, June 30, 2021 500  $ 7.49  3.33 $ 7,625 
Options exercisable, June 30, 2021 500  $ 7.49  3.33 $ 7,625 

12

Share-Based Compensation Expense
Share-based compensation expense was $0.2 million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively. Recognized tax benefit related to share-based compensation expense was de minimis for the three months ended June 30, 2021 and 2020.

Share-based compensation expense was $2.8 million and $1.8 million for the six months ended June 30, 2021 and 2020, respectively. Recognized tax benefit related to share-based compensation expense was $0.6 million and $0.4 million for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, the estimated total remaining unamortized share-based compensation expense related to unvested RSAs, net of forfeitures, was $0.6 million which is expected to be recognized over a weighted-average period of 1.0 year.

8. REVENUE RECOGNITION

Disaggregation of Revenue
The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition for the three and six months ended June 30, 2021 and 2020 (in thousands):
Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
Residential units revenue Land and lots revenue Residential units revenue Land and lots revenue
Primary Geographical Market
Central $ 233,592  $ 22,556  $ 151,851  $ 3,926 
Southeast 99,908  17,750  76,816  240 
Total revenues $ 333,500  $ 40,306  $ 228,667  $ 4,166 
Type of Customer
Homebuyers $ 333,500  $ —  $ 228,667  $ — 
Homebuilders and Multi-family Developers —  40,306  —  4,166 
Total revenues $ 333,500  $ 40,306  $ 228,667  $ 4,166 
Product Type
Residential units $ 333,500  $ —  $ 228,667  $ — 
Land and lots —  40,306  —  4,166 
Total revenues $ 333,500  $ 40,306  $ 228,667  $ 4,166 
Timing of Revenue Recognition
Transferred at a point in time $ 332,279  $ 40,306  $ 226,785  $ 4,166 
Transferred over time 1,221  —  1,882  — 
Total revenues $ 333,500  $ 40,306  $ 228,667  $ 4,166 
13

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
Residential units revenue Land and lots revenue Residential units revenue Land and lots revenue
Primary Geographical Market
Central $ 390,970  $ 30,973  $ 275,276  $ 26,006 
Southeast 159,766  26,576  144,578  240 
Total revenues $ 550,736  $ 57,549  $ 419,854  $ 26,246 
Type of Customer
Homebuyers $ 550,736  $ —  $ 419,854  $ — 
Homebuilders and Multi-family Developers —  57,549  —  26,246 
Total revenues $ 550,736  $ 57,549  $ 419,854  $ 26,246 
Product Type
Residential units $ 550,736  $ —  $ 419,854  $ — 
Land and lots —  57,549  —  26,246 
Total revenues $ 550,736  $ 57,549  $ 419,854  $ 26,246 
Timing of Revenue Recognition
Transferred at a point in time $ 548,413  $ 57,549  $ 416,033  $ 26,246 
Transferred over time 2,323  —  3,821  — 
Total revenues $ 550,736  $ 57,549  $ 419,854  $ 26,246 

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):
June 30, 2021 December 31, 2020
Customer and builder deposits $ 63,700  $ 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 and six months ended June 30, 2021 and 2020 are as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Type of Customer
Homebuyers $ 13,266  $ 7,334  $ 15,846  $ 11,153 
Homebuilders and Multi-Family Developers 304  639  1,309  4,277 
Total deposits recognized as revenue $ 13,570  $ 7,973  $ 17,155  $ 15,430 

14

Performance Obligations
There was no revenue recognized during the six months ended June 30, 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 $13.4 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 $ 5,314 
2022 6,554 
2023 1,513 
Total $ 13,381 

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.

15

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 June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Revenues: (1)
Builder operations
Central $ 234,315  $ 152,235  $ 392,701  $ 275,660 
Southeast 117,658  77,056  186,342  144,818 
Total builder operations 351,973  229,291  579,043  420,478 
Land development 21,833  3,542  29,242  25,622 
Total revenues $ 373,806  $ 232,833  $ 608,285  $ 446,100 
Gross profit:
Builder operations
Central $ 68,144  $ 38,750  $ 112,033  $ 69,945 
Southeast 34,293  20,329  53,342  38,587 
Total builder operations 102,437  59,079  165,375  108,532 
Land development 5,524  1,177  7,304  6,775 
Corporate, other and unallocated (2)
(6,985) (6,361) (12,714) (12,443)
Total gross profit $ 100,976  $ 53,895  $ 159,965  $ 102,864 
Income before income taxes:
Builder operations
Central $ 44,360  $ 25,038  $ 69,218  $ 37,005 
Southeast 24,246  12,320  34,409  21,063 
Total builder operations 68,606  37,358  103,627  58,068 
Land development 5,285  198  7,129  5,737 
Corporate, other and unallocated (3)
86  (1,371) (1,517) (4,864)
Income before income taxes $ 73,977  $ 36,185  $ 109,239  $ 58,941 
June 30, 2021 December 31, 2020
Inventory:
Builder operations
Central $ 490,409  $ 421,477 
Southeast 249,976  183,623 
Total builder operations 740,385  605,100 
Land development 336,257  213,555 
Corporate, other and unallocated (4)
29,499  25,980 
Total inventory $ 1,106,141  $ 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
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lot closings, which for the three and six months ended June 30, 2021 were $18.5 million and $28.3 million, respectively, compared to $0.6 million for the three and six months ended June 30, 2020, respectively.
(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 income (loss) before income taxes includes results from Green Brick Title, LLC and investments in unconsolidated subsidiaries, in addition to capitalized cost adjustments that are not allocated to operating segments.

(4)Corporate, other and unallocated inventory consists of capitalized overhead and interest related to work in process and land under development.

10. INCOME TAXES

The Company’s income tax expense for the three and six months ended June 30, 2021 was $15.7 million and $23.2 million, respectively, compared to $1.3 million and $7.4 million in the prior year periods. The effective tax rate was 21.2% and 21.2% for the three and six months ended June 30, 2021, respectively, compared to 3.7% and 12.5% in the comparable prior year periods. The change in the effective tax rate for the three and six months ended June 30, 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 through December 31, 2021.

11. EARNINGS PER SHARE

The Company’s RSAs have the right to receive forfeitable dividends on an equal basis with common stock and therefore are not considered participating securities that must be included in the calculation of net income per share using the two-class method.

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period, adjusted for nonvested shares of RSAs during each period. Diluted earnings per share is calculated using the treasury stock method and includes the effect of all dilutive securities, including stock options and RSAs.

The computation of basic and diluted net income attributable to Green Brick Partners, Inc. per share is as follows (in thousands, except per share amounts):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income attributable to Green Brick Partners, Inc. $ 52,263  $ 33,647  $ 78,232  $ 49,564 
Weighted-average number of shares outstanding - basic 50,701  50,583  50,667  50,519 
Basic net income attributable to Green Brick Partners, Inc. per share $ 1.03  $ 0.67  $ 1.54  $ 0.98 
Weighted-average number of shares outstanding - basic 50,701  50,583  50,667  50,519 
Dilutive effect of stock options and restricted stock awards 363  109  362  150 
Weighted-average number of shares outstanding - diluted 51,064  50,692  51,029  50,669 
Diluted net income attributable to Green Brick Partners, Inc. per share $ 1.02  $ 0.66  $ 1.53  $ 0.98 

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The following shares which could potentially dilute earnings per share in the future are not included in the determination of diluted net income attributable to Green Brick Partners, Inc. per common share (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Antidilutive options to purchase common stock and restricted stock awards —  40  —  20 

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 June 30, 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 June 30, 2021 was $256.9 million. The carrying value of senior unsecured notes as of June 30, 2021 was $237.5 million.

There were no transfers between the levels of the fair value hierarchy for any of our financial instruments during the three and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2021, GRBK GHO incurred de minimis rent expense under such lease agreements. As of June 30, 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 six months ended June 30, 2021 and 2020, GRBK GHO incurred de minimis fees related to such title closing services. As of June 30, 2021, and December 31, 2020, no amounts were due to the title company affiliate.
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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 June 30, 2021 and December 31, 2020, letters of credit and performance bonds outstanding were $7.0 million and $9.8 million. The Company does not believe that it is likely that any material claims will be made under a letter of credit or performance bond in the foreseeable future.

Warranties
Warranty accruals are included within accrued expenses on the condensed consolidated balance sheets. Warranty activity during the three and six months ended June 30, 2021 and 2020 consisted of the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Warranty accrual, beginning of period $ 6,861  $ 4,173  $ 6,407  $ 3,840 
Warranties issued 1,662  1,015  2,762  1,855 
Changes in liability for existing warranties 23  (52) 62  (139)
Settlements (644) (285) (1,329) (705)
Warranty accrual, end of period $ 7,902  $ 4,851  $ 7,902  $ 4,851 

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 $0.4 million and $0.7 million for the three and six months ended June 30, 2021, respectively, and $0.3 million and $0.6 million in the prior year periods, is included in selling, general and administrative expenses in the condensed consolidated statements of income. Cash paid for amounts included in the measurement of operating lease liabilities was $0.3 million and $0.6 million, respectively, for the three and six months ended June 30, 2021 and 2020.
As of June 30, 2021, the weighted-average remaining lease term and the weighted-average discount rate used in calculating our lease liabilities were 5.5 years and 4.2%, 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 June 30, 2021 are presented below (in thousands):
Remainder of 2021 $ 625 
2022 1,526 
2023 1,298 
2024 507 
2025 517 
Thereafter 1,368 
Total future lease payments $ 5,841 
Less: Interest 1,259 
Present value of lease liabilities $ 4,582 

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 $0.3 million for the three and six months ended June 30, 2021, respectively, and $0.1 million and $0.2 million for the comparable prior year periods, is included in selling, general and administrative expenses in the condensed consolidated statements of income.
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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) expectations regarding our industry and our business in 2021 and beyond; (4) our land and lot acquisition strategy and its impact on our results; (5) the sufficiency of our capital resources to support our business strategy and to service our debt; (6) the impact of new accounting standards and changes in accounting estimates; (7) trends and expectations regarding backlog, cancellation rates, construction costs, land costs, profitability and inventories; (8) our future cash needs; (9) our strategy to utilize leverage to invest in our business; (10) seasonal factors and the impact of seasonality in future quarters; and (11) 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, 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; (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.
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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, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2020. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview and Outlook
Our key financial and operating metrics are home deliveries, home closings revenue, average sales price of homes delivered, and net new home orders, which refers to sales contracts executed reduced by the number of sales contracts canceled during the relevant period. Our results for each key financial and operating metric, as compared to the same period in 2020, are provided below:
Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
Home deliveries
Increased by 36.9%
Increased by 27.2%
Home closings revenue
Increased by 46.5%
Increased by 31.8%
Average sales price of homes delivered
Increased by 7.0%
Increased by 3.7%
Net new home orders
Increased by 3.8%
Increased by 38.9%

The United States has been impacted by the coronavirus (“COVID-19”) pandemic. However, throughout the pandemic, we have continued to build, close and sell homes in our markets. The overwhelming expansion of our sales activity is attributable to the strong performance of our new Trophy brand division, an increase in average selling communities as well as the impact of macroeconomic factors such as low interest rates, an influx of millennia first-time home buyers and demand for suburban homes from apartment dwellers in response to COVID-19. The significant increase in new home demand has, in turn, led to increased demand for the raw materials, products and appliances for new homes. Due to the increased demand for certain materials, we have and may continue to experience price increases, shortages and significant extensions to our lead time for the delivery of materials such as lumber, appliances and windows.

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020
Residential Units Revenue and New Homes Delivered
The table below represents residential units revenue and new homes delivered for the three months ended June 30, 2021 and 2020 (dollars in thousands):
Three Months Ended June 30,
2021 2020 Change %
Home closings revenue $ 332,279  $ 226,785  $ 105,494  46.5%
Mechanic’s lien contracts revenue 1,221  1,882  (661) (35.1)%
Residential units revenue $ 333,500  $ 228,667  $ 104,833  45.8%
New homes delivered 757  553  204  36.9%
Average sales price of homes delivered $ 438.9  $ 410.1  $ 28.8  7.0%

The $104.8 million increase in residential units revenue was primarily driven by the 36.9% increase in new homes delivered, which was primarily due to a large backlog of homes entering the quarter and an increased number of units under construction entering the quarter. The 7.0% increase in the average sales price of homes delivered for the three months ended June 30, 2021 was attributable to overall price increases driven by high demand and low supply of inventory.
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New Home Orders and Backlog
The table below represents new home orders and backlog related to our builder operations segments, excluding mechanic’s lien contracts (dollars in thousands):
Three Months Ended June 30,
2021 2020 Change %
Net new home orders 604  582  22  3.8  %
Cancellation rate 7.6  % 16.9  % (9.3) % (55.0) %
Absorption rate per average active selling community per quarter 6.8  6.3  0.5  7.9  %
Average active selling communities 89  92  (3) (3.3) %
Active selling communities at end of period 87  90  (3) (3.3) %
Backlog $ 974,349  $ 446,573  $ 527,776  118.2  %
Backlog (units) 1,876  999  877  87.8  %
Average sales price of backlog $ 519.4  $ 447.0  $ 72.4  16.2  %

Net new home orders increased 3.8% over the prior year period and our absorption rate per average active selling community increased 7.9% year over year. The absorption rate per average active selling community per quarter of 6.8 homes during the three months ended June 30, 2021, represented a decrease from 11.3 homes during the three months ended March 31, 2021 as a result of pro-active metering of home sales. Despite significant price increases taken by the Company (which averaged from 9% up to 25% depending on the builder) during the period from November 30, 2020, through April 30, 2021, net new home orders were 209.7% of home deliveries during the first quarter of 2021. Consequently, we determined that price increases were not sufficient to limit demand for net new home orders. As a result, we metered sales during the three months ended June 30, 2021, by limiting sales per community to better align the absorption rate of sales with the ability to deliver new homes. The absorption rate per average active selling community per quarter of 6.8 homes during the three months ended June 30, 2021, and 9.1 homes during the six months ended June 30, 2021, exceed the 5.9 net new home orders during both the three months and six months ended June 30, 2019, by 15.3% and 54.2%, respectively.

Backlog refers to homes under sales contracts that have not yet closed at the end of the relevant period, and absorption rate refers to the rate at which net new home orders are contracted per average active selling community during the relevant period. Upon a cancellation, the escrow deposit may be returned to the prospective purchaser. Accordingly, backlog may not be indicative of our future revenue.

Our cancellation rate, which refers to sales contracts canceled divided by sales contracts executed during the relevant period, was 7.6% for the three months ended June 30, 2021, compared to 16.9% for the three months ended June 30, 2020. The decrease in our cancellation rate is due to macroeconomic factors such as low interest rates, an influx of millennia first-time buyers and demand for suburban homes from apartment dwellers in response to COVID-19. 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. Management believes a cancellation rate in the range of 15% to 20% is representative of an industry average cancellation rate.
The $527.8 million increase in value of backlog was due to the 87.8% increase in the number of homes in backlog and the 16.2% increase in the average sales price of backlog. The 87.8% increase in the number of homes in backlog was due to a 7.9% increase in the absorption rate per average active selling community as well as the record level of backlog entering the quarter. The increase of the average sales price of homes in backlog was the result of price increases driven by the high demand and low supply of inventory. As a result of the metering of sales during the three months ended June 30, 2021, the value of backlog declined from $995.7 million as of March 31, 2021, to $974.3 million as of June 30, 2021, or 2.1%, despite increasing new homes delivered by 47.0% sequentially to 757 units, which is a record for any quarter in the existence of the Company.

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Residential Units Gross Margin
The table below represents the components of residential units gross margin (dollars in thousands):
Three Months Ended June 30,
2021 2020
Home closings revenue $ 332,279  100.0  % $ 226,785  100.0  %
Cost of homebuilding units 243,224  73.2  % 174,176  76.8  %
Homebuilding gross margin $ 89,055  26.8  % $ 52,609  23.2  %
Mechanic’s lien contracts revenue $ 1,221  100.0  % $ 1,882  100.0  %
Cost of mechanic’s lien contracts 941  77.1  % 1,547  82.2  %
Mechanic’s lien contracts gross margin $ 280  22.9  % $ 335  17.8  %
Residential units revenue $ 333,500  100.0  % $ 228,667  100.0  %
Cost of residential units 244,165  73.2  % 175,723  76.8  %
Residential units gross margin $ 89,335  26.8  % $ 52,944  23.2  %

Cost of residential units for the three months ended June 30, 2021 increased by $68.4 million, or 38.9%, compared to the three months ended June 30, 2020, primarily due to the 36.9% increase in the number of new homes delivered.

Residential units gross margin for the three months ended June 30, 2021 increased to 26.8%, compared to 23.2% for the three months ended June 30, 2020, primarily because of a decrease in sales incentives offered to customers and overall price increases.

Land and Lots Revenue
The table below represents lots closed and land and lots revenue (dollars in thousands):
Three Months Ended June 30,
2021 2020 Change %
Lots revenue $ 4,615  $ 4,166  $ 449  10.8  %
Land revenue 35,691  —  35,691  100%
Land and lots revenue $ 40,306  $ 4,166  $ 36,140  867.5  %
Lots closed 63  26  37  142.3  %
Average sales price of lots closed $ 73.3  $ 160.2  $ (86.9) (54.2) %

Lots revenue increased by 10.8%, primarily driven by a 142.3% increase in the number of lots closed and a higher number of lots developed internally. The average lot price decreased by 54.2% due to a higher number of entry level lots sold. Land revenue represents land acquired that also included parcels zoned for retail and multi family properties.

Selling, General and Administrative Expenses
The table below represents the components of selling, general and administrative expenses (dollars in thousands):
Three Months Ended June 30, As Percentage of Segment Revenue
2021 2020 2021 2020
Builder operations $ 34,528  $ 24,585  9.8  % 10.7  %
Land development 206  284  0.9  % 8.0  %
Corporate, other and unallocated (749) 803  —  — 
Total selling, general and administrative expenses $ 33,985  $ 25,672  9.1  % 11.0  %

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The 1.9% decrease of total selling, general and administrative expenses as a percentage of revenue was primarily driven by higher revenues.

Builder Operations
The 0.9% decrease in selling, general and administrative expenses as a percentage of revenue for builder operations was primarily attributable to an increase in builder operations revenues. Builder operations expenditures include salary expenses, sales commissions, and community costs such as advertising and marketing expenses, rent, professional fees, and non-capitalized property taxes.

Land Development
The 7.1% decrease in selling, general and administrative expenses as a percentage of revenue for land development was primarily attributable to an increase in land development segment revenues.

Corporate, Other and Unallocated
Selling, general and administrative expenses for the corporate, other and unallocated non-operating segment for the three months ended June 30, 2021 was income of $0.7 million, compared to expenses of $0.8 million for the three months ended June 30, 2020.

Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities decreased to $4.6 million, or 11.2%, for the three months ended June 30, 2021, compared to $5.2 million for the three months ended June 30, 2020, primarily due to a decrease in earnings from GB Challenger, LLC and Green Brick Mortgage, LLC. See Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of Green Brick’s share in net earnings by unconsolidated entity.

Other (Loss) Income, Net
Other income, net, decreased to $2.4 million for the three months ended June 30, 2021, compared to income of $2.8 million for the three months ended June 30, 2020.

Income Tax Expense
Income tax expense was $15.7 million for the three months ended June 30, 2021 compared to a $1.3 million for the three months ended June 30, 2020. The increase was partially due to higher taxable income. Also, during the quarter ended June 30, 2020, the company recognized favorable federal energy tax credits of $6.7 million from building energy-efficient homes in prior tax years.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

Residential Units Revenue and New Homes Delivered
The table below represents residential units revenue and new homes delivered for the six months ended June 30, 2021 and 2020 (dollars in thousands):
Six Months Ended June 30,
2021 2020 Change %
Home closings revenue $ 548,413  $ 416,033  $ 132,380  31.8%
Mechanic’s lien contracts revenue 2,323  3,821  (1,498) (39.2)%
Residential units revenue $ 550,736  $ 419,854  $ 130,882  31.2%
New homes delivered 1,273  1,001  272  27.2%
Average sales price of homes delivered $ 430.8  $ 415.6  $ 15.2  3.7%

The $130.9 million increase in residential units revenue was driven by the 27.2% increase in new homes delivered, which was due to a 40.0% increase in our absorption rate for net new home orders per average active selling community. The 3.7% increase in the average sales price of homes delivered for the six months ended June 30, 2021 was attributable to overall price increases driven by high demand and low supply of inventory.

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New Home Orders and Backlog
The table below represents new home orders and backlog related to our builder operations segments, excluding mechanic’s lien contracts (dollars in thousands):
Six Months Ended June 30,
2021 2020 Change %
Net new home orders 1,686  1,214  472  38.9  %
Cancellation rate 6.6  % 16.6  % (10.0) % (60.2) %
Absorption rate per average active selling community per quarter 9.1  6.5  2.6  40.0  %
Average active selling communities 93  93  —  —  %
Active selling communities at end of period 87  90  (3) (3.3) %

Net new home orders increased 38.9% over the prior year period. The increase reflects the strong performance of our new Trophy brand division as well as the impact of macroeconomic factors such as low interest rates, an influx of millennia first-time buyers and demand for suburban homes from apartment dwellers in response to COVID-19. Our absorption rate per average active selling community increased 40.0% year over year. The absorption rate per average active selling community per quarter of 6.8 homes during the three months ended June 30, 2021, represented a decrease from 11.3 homes during the three months ended March 31, 2021 as a result of pro-active metering of home sales. Despite significant price increases taken by the Company (which averaged from 9% up to 25% depending on the builder) during the period from November 30, 2020, through April 30, 2021, net new home orders were 209.7% of home deliveries during the first quarter of 2021. Consequently, we determined that price increases were not sufficient to limit demand for net new home orders. As a result, we metered sales during the three months ended June 30, 2021, by limiting sales per community to better align the absorption rate of sales with the ability to deliver new homes. The absorption rate per average active selling community per quarter of 6.8 homes during the three months ended June 30, 2021, and 9.1 homes during the six months ended June 30, 2021, exceed the 5.9 net new home orders during both the three months and six months ended June 30, 2019, by 15.3% and 54.2%, respectively.

Our cancellation rate, which refers to sales contracts canceled divided by sales contracts executed during the relevant period, was 6.6% for the six months ended June 30, 2021, compared to 16.6% for the six months ended June 30, 2020. The decrease in our cancellation rate is due to macroeconomic factors such as low interest rates, an influx of millennia first-time buyers and demand for suburban homes from apartment dwellers in response to COVID-19. 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. Management believes a cancellation rate in the range of 15% to 20% is representative of an industry average cancellation rate.

Residential Units Gross Margin
The table below represents the components of residential units gross margin (dollars in thousands):
Six Months Ended June 30,
2021 2020
Home closings revenue $ 548,413  100.0  % $ 416,033  100.0  %
Cost of homebuilding units 404,454  73.7  % 319,767  76.9  %
Homebuilding gross margin $ 143,959  26.3  % $ 96,266  23.1  %
Mechanic’s lien contracts revenue $ 2,323  100.0  % $ 3,821  100.0  %
Cost of mechanic’s lien contracts 1,783  76.8  % 3,143  82.3  %
Mechanic’s lien contracts gross margin $ 540  23.2  % $ 678  17.7  %
Residential units revenue $ 550,736  100.0  % $ 419,854  100.0  %
Cost of residential units 406,237  73.8  % 322,910  76.9  %
Residential units gross margin $ 144,499  26.2  % $ 96,944  23.1  %

Cost of residential units for the six months ended June 30, 2021 increased by $83.3 million, or 25.8%, compared to the six months ended June 30, 2020, primarily due to the 27.2% increase in the number of new homes delivered.
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Residential units gross margin for the six months ended June 30, 2021 increased to 26.2%, compared to 23.1% for the six months ended June 30, 2020, primarily because of a decrease in sales incentives offered to customers and and overall price increases.

Land and Lots Revenue
The table below represents lots closed and land and lots revenue (dollars in thousands):
Six Months Ended June 30,
2021 2020 Change %
Lots revenue $ 13,058  $ 26,246  $ (13,188) (50.2) %
Land revenue 44,491  $ —  44,491  100.0%
Land and lots revenue $ 57,549  $ 26,246  $ 31,303  119.3  %
Lots closed 142  164  (22) (13.4) %
Average sales price of lots closed $ 92.0  $ 160.0  $ (68.0) (42.5) %

Lots revenue decreased by 50.2%, driven by a 13.4% decrease in the number of lots closed. The average lot price decreased by 42.5% due to a higher number of entry level lots sold. Land revenue represents land acquired that also included parcels zoned for retail and multi family properties.

Selling, General and Administrative Expenses
The table below represents the components of selling, general and administrative expenses (dollars in thousands):
Six Months Ended June 30, As Percentage of Segment Revenue
2021 2020 2021 2020
Builder operations $ 62,688  $ 50,045  10.8  % 11.9  %
Land development 245  611  0.8  % 2.4  %
Corporate, other and unallocated 540  1,885  —  — 
Total selling, general and administrative expenses $ 63,473  $ 52,541  10.4  % 11.8  %

The 1.4% decrease of total selling, general and administrative expenses as a percentage of revenue was primarily driven by an increase in revenues.
Builder Operations
The 1.1% decrease in selling, general and administrative expenses as a percentage of revenue for builder operations was primarily attributable to an increase in builder operations revenues. Builder operations expenditures include salary expenses, sales commissions, and community costs such as advertising and marketing expenses, rent, professional fees, and non-capitalized property taxes.

Land Development
The 1.6% decrease in selling, general and administrative expenses as a percentage of revenue for land development was primarily attributable to was primarily attributable to an increase in land development segment revenues.

Corporate, Other and Unallocated
Selling, general and administrative expenses for the corporate, other and unallocated non-operating segment for the six months ended June 30, 2021 was $0.5 million, compared to $1.9 million for the six months ended June 30, 2020, the decrease driven primarily by an increase in capitalized overhead adjustments that are not allocated to builder operations and land development segments.

Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities increased to $8.5 million, or 9.6%, for the six months ended June 30, 2021, compared to $7.7 million for the six months ended June 30, 2020, primarily due to an increase in earnings from GB Challenger,
26

EJB River Holdings, and BHome Mortgage. See Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of Green Brick’s share in net earnings by unconsolidated entity.

Other (Loss) Income, Net
Other income, net, increased to $4.3 million for the six months ended June 30, 2021, compared to income of $0.9 million for the six months ended June 30, 2020, the change is primarily due to $1.5 million of allowances for option deposits and pre-acquisition costs caused by COVID-19 pandemic considerations recorded during the six months ended June 30, 2020 and an increase in title closing and settlement services of $1.9 million arising from higher volume of closings during the period.
Income Tax Expense
Income tax expense was $23.2 million for the six months ended June 30, 2021 compared to $7.4 million for the six months ended June 30, 2020. The increase was partially due to higher taxable income. Also, during the quarter ended June 30, 2020, the company recognized favorable federal energy tax credits of $6.7 million from building energy-efficient homes in prior tax years.

Lots Owned and Controlled
The following table presents the lots we owned or controlled, including lot option contracts, as of June 30, 2021 and December 31, 2020. Owned lots are those for which we hold title, while controlled lots are those for which we have the contractual right to acquire title but we do not currently own.
June 30, 2021 December 31, 2020
Lots owned (1)
Central 14,115  6,823 
Southeast 2,212  2,097 
Total lots owned 16,327  8,920 
Lots controlled (1)
     
Central 4,126  4,398 
Southeast 898  1,150 
Total lots controlled 5,024  5,548 
Total lots owned and controlled (1)
21,351  14,468 
Percentage of lots owned 76.5  % 61.7  %