Kenneth Zener

Ken Zener questioned TopBuild's confidence in a "benign" first half of 2026 for residential, given the significant decline in public builder inventory units. He also asked for a contrast between the slowdowns in specific Sunbelt markets (like Florida and Texas) for public builders versus the activity seen in non-public builder segments.

Answer

Rob Kuhns, CFO, clarified that while not providing 2026 guidance, the expectation for 1H26 residential is flat to slightly down for single-family, acknowledging tough comparisons to the prior year. Robert Buck, President and CEO, confirmed slowdowns in markets like Naples and Austin where builders are working through inventory, but noted steady demand in other regions such as the Midwest and Pacific Northwest, indicating varied regional performance.

Ken Zener questioned the confidence in a benign first half of 2026 for residential, given public builder inventory units are down significantly. He also asked for a contrast between builder activity in areas like Florida and Texas, where margin pressure is evident, versus non-public builder business.

Answer

Rob Kuhns (CFO) stated that while not providing 2026 guidance, they anticipate single-family to be flat to slightly down in 1H 2026, acknowledging tough comparisons from the previous year. Robert Buck (President and CEO) confirmed slowdowns in specific markets like Naples and Austin as builders work through inventory, but noted steady demand in other regions such as the Midwest and Pacific Northwest.

Kenneth Zener of Seaport Research Partners asked about the factors that could influence second-half decremental margins relative to guidance. He also inquired about performance with public versus private builders and where inventory issues are most acute.

Answer

CFO Rob Kunins identified further single-family volume deterioration as a potential headwind, while upside could come from strong C&I project timing or a conservative price-cost assumption. Regarding builders, Kunins said private and regional builders have held up relatively well, though CEO Robert Buck noted regionals are more pressured by inventory.

Kenneth Zener of Seaport Research Partners requested a more detailed framing of the single-family market, including regional differences and the performance of public versus private builders.

Answer

President and CEO Robert Buck provided a comprehensive regional overview. He noted that markets like Florida and most of Texas are slower due to oversupply, with the exception of Dallas, which remains strong. In contrast, the Northeast, Midwest, and Southern California are showing positive momentum, along with the Carolinas. He also mentioned that custom builders are showing strength in certain markets like the Northeast.

Kenneth Zener posed a high-level question about the timeline for the housing market to work through its high inventory of homes under construction. He also asked if the specific markets where TopBuild is experiencing margin pressure overlap with the regions where homebuilders are facing similar pressures.

Answer

CEO Robert Buck acknowledged the inventory issue and noted its larger impact on smaller regional builders, while larger builders use mortgage buydowns and adjust product mix to manage. CFO Rob Kuhns confirmed a general correlation between markets where TopBuild sees pressure and those with higher builder inventory, but stressed that conditions are highly localized and vary significantly even within states.

Kenneth Zener of Seaport Research Partners asked for context on bidding activity and price pressure in 'choppy' markets, considering rising builder inventories and interest rates. He also sought perspective on whether public builders are continuing to gain significant share from private builders.

Answer

CEO Robert Buck attributed the choppiness to a 'calibration time period' as the market adjusts to rates and other uncertainties, with insights driven by their ERP system's bid data. CFO Rob Kuhns added that rate certainty is a key factor. Regarding builders, Buck noted that regional and custom builders, who couldn't offer rate buydowns like the publics, are positive about their prospects in a more stable rate environment.

Ken Zener asked if the 20% gross margin guidance could be a new normalized rate given D.R. Horton's improved asset efficiency, particularly with two-thirds of lots bought finished. He also questioned if current market conditions, characterized by slower job growth in key markets, indicate a more traditional economic slowdown rather than just affordability and interest rate concerns. Additionally, he inquired if the 110 basis point increase in incentives now places them in the low double-digit range.

Answer

Paul Romanowski, President and CEO, acknowledged that job growth impacts household formations and consumer confidence, and flatness in certain markets affects demand, emphasizing the need for consistent job growth. Jessica Hansen, SVP of Communications, expressed confidence in their margin profile given market disruptions and expects sustainably higher pre-tax profit margins long-term, but is not ready to call a bottom. She clarified that the 110 basis point sequential increase in incentives still keeps them in the high single-digit percentage overall, and noted that external broker commissions are detailed in the supplemental presentation.

Ken Zener asked if the 20% gross margin guidance, while down sequentially but historically normal, could represent a new normalized rate given D.R. Horton's improved asset efficiency, such as two-thirds of lots being bought finished. He also questioned if current market conditions reflect a traditional economic slowdown with less job growth rather than solely interest rates and affordability. Additionally, he inquired if the 110 basis point sequential increase in incentives pushed total incentives into the low double digits, given past high single-digit figures.

Answer

President and CEO Paul Romanowski agreed that job growth impacts new household formations and consumer confidence, and flatness in some markets affects demand, but affirmed D.R. Horton's strong positioning. SVP of Communications Jessica Hansen stated D.R. Horton feels good about its margin profile given market disruptions and adjustments, producing generally better bottom-line operating margins than historical norms, and expects sustainably higher pre-tax profit margins long-term. Jessica Hansen clarified that the 110 basis point increase keeps total incentives in the high single-digit percentage range, not low double digits, and noted increased external broker commissions.

Kenneth Zener of Seaport Research Partners asked for details on outside commissions within gross margin and the company's conceptual floor for pace versus price. He also asked if inventory units would be down year-over-year in Q4.

Answer

Executive Jessica Hansen clarified that realtor commissions impact gross margin by about 270 basis points. EVP and CFO Bill Wheat reiterated that pace and margin are balanced at the community level to maximize returns. EVP and COO Michael Murray projected that fiscal year-end inventory units would be roughly flat year-over-year and that the company expects to improve its inventory turns.

Kenneth Zener of Seaport Research Partners asked about the margin spread between homes closed from backlog versus spec homes sold within the quarter. He also inquired why D.R. Horton's regional margins show less dispersion than peers.

Answer

COO Michael Murray acknowledged that homes sold prior to the quarter in a lower interest rate environment would have a higher margin but did not provide a specific spread. Regarding regional margins, Murray suggested that the aggregation of many markets within each region tends to blend out specific market differences. CFO Bill Wheat added that the consistent focus on maximizing returns at the community level contributes to the balanced results across regions.

Ken Zener asked if slowing demand was due to having pulled forward sales with incentives, or if it was purely an affordability issue. He also questioned if management still believes in structurally higher long-term gross margins given the persistence of affordability challenges.

Answer

President & CEO Paul Romanowski suggested that the lock-in effect on resale is a key factor and that pent-up demand may be building. EVP Jessica Hansen reiterated that while they will compress margins in the short term to maximize returns, they believe long-term margins can be structurally higher due to scale and a lower cost of capital. EVP & CFO Bill Wheat noted the guided 22.5% margin is still above historical levels.

Kenneth Zener questioned the cadence of Tri Pointe Homes' starts versus orders, given the reported Q3 starts and anticipated community count growth, and asked about the G&A impact of this growth.

Answer

Tom Mitchell, President and COO, confirmed Q3 starts were approximately 577, significantly down, and Q4 starts would be comparable as the company works through existing inventory. He explained that new communities would have necessary starts based on anticipated demand, while existing communities would prioritize selling excess inventory before normalizing. Doug Bauer, CEO, reiterated the expected 10-15% community count growth. Glenn Keeler, CFO, stated that the G&A impact from community growth would be minimal, mainly incremental field and sales expenses.

Kenneth Zener sought clarification on the cadence of starts versus orders, particularly given Q3 starts were lower than orders, a 30% year-over-year inventory reduction, and projected 10-15% community count growth for next year, also asking about G&A implications for this growth.

Answer

President and COO Tom Mitchell confirmed Q3 starts were 577, down from prior quarters, reflecting a focus on balancing spec and to-be-built homes. He indicated Q4 starts would be comparable to Q3 as the company works through existing inventory before normalizing its start strategy. CFO Glenn Keeler stated that the anticipated community count growth would not lead to a significant lift in fixed G&A, with only incremental field and sales expenses expected.

Kenneth Zener asked about the drivers of rising variable SG&A costs, expectations for year-end inventory levels, and a broader strategic question on how the industry can solve for lower demand due to affordability if demand is inelastic.

Answer

CFO Glenn Keeler clarified that higher SG&A as a percentage is a function of lower volume and reduced leverage on fixed costs, not increased spending. He also confirmed expectations for inventory levels to be down year-over-year. CEO Douglas Bauer addressed the strategic question by attributing inelasticity to buyer confidence, not affordability for their specific high-income buyer profile, and expressed long-term bullishness on housing fundamentals.

Kenneth Zener asked management to reconcile the national narrative of high new home inventory with TRI Pointe's own inventory units being down 23% year-over-year. He also asked about the 320 basis point interest drag on gross margins and when the benefits of recent debt paydown would become visible.

Answer

CEO Douglas Bauer and CFO Glenn Keeler addressed the inventory question by stating they focus on their local markets rather than national narratives, highlighting their ability to pivot quickly on starts to manage inventory. President & COO Tom Mitchell added their current inventory is at historically acceptable levels. Regarding interest expense, Keeler explained that the benefit from lower debt levels will become more apparent over the next 18 months as older inventory with capitalized interest is sold.

Kenneth Zener asked about the drivers for the expected gross margin decline from Q1 to the full-year 2025 guidance, questioning if regional mix was the cause. He also inquired about the expected trend for interest expense given the company's land development strategy.

Answer

CFO Glenn Keeler explained the margin progression is not due to regional mix but rather the mix of communities. The company is closing out some high-margin communities in Q1 while opening 65 new communities throughout the year that have a higher lot cost basis. Keeler also stated that interest expense is expected to trend down in 2025, benefiting from the recent payoff of senior notes and a larger inventory base for amortization.

Ken Zener requested a regional performance breakdown, asking for commentary on incentives, demand, and margins in the West, particularly California, compared to other regions.

Answer

CEO Douglas Bauer stated that West Coast markets, including Orange County, the Inland Empire, and Washington, have been very strong, with incentives in line with the company average. He noted that the West now represents slightly less than 50% of orders and deliveries. President & COO Tom Mitchell affirmed that the West continues to perform very well for the company.

Kenneth Zener inquired about the gross margin trends in M/I Homes' Northern and Southern segments, seeking specific insights into the aggregation of Texas and Florida markets within the Southern region.

Answer

Bob Schottenstein (President and CEO) highlighted that Orlando was stronger than Tampa and Sarasota, and Austin was struggling the most in Texas, with Houston and Dallas also seeing margin drops but still holding up well. Phil Creek (EVP and CFO) added that the Midwest and Carolina businesses generally saw better pricing and margins compared to Texas and Florida.

Ken Zener from Seaport inquired about M/I Homes' order seasonality, the strategic use and quantification of sales incentives, particularly the mix between price reductions and mortgage rate buy-downs, and the gross margin trends across its Northern and Southern regions, with a focus on Texas and Florida markets.

Answer

President and CEO Bob Schottenstein explained that M/I Homes uses selective mortgage rate buy-downs as the primary driver for traffic and sales, noting that the majority of the 250 basis point year-over-year gross margin decline (excluding inventory charges) is due to these incentives. He also provided a regional breakdown, stating that Orlando is stronger than Tampa/Sarasota, and while Austin is struggling, Houston and Dallas margins are holding up well. EVP and CFO Phil Creek added that Midwest and Carolina businesses have seen better pricing and margins compared to Texas and Florida, and noted that last September's strong sales event in the Midwest impacted the year-over-year comparison.

Kenneth Zener inquired about the operational performance and margin spread between Florida and Texas within the Southern region. He also asked if the company is observing the high new home inventory levels suggested by Census Bureau data in its markets.

Answer

Robert Schottenstein (Chairman, President & CEO) explained that while Texas margins have moderated from a year ago, they remain very good and are currently slightly better than Florida's. Regarding inventory, he noted that the increase in spec homes is a strategic necessity to offer attractive rate buy-downs on homes that can close within 60 days. He added that he does not pay close attention to Census data due to concerns about its reliability and timeliness and was unaware if M/I Homes responds to their surveys.

Kenneth Zener from Seaport Research Partners asked for details on the gross margin spread between M/I Homes' Florida and Texas markets, whether the company is observing the high new home inventory levels suggested by Census data, and if M/I Homes participates in Census data requests.

Answer

Robert Schottenstein, Chairman, President & CEO, explained that while Texas margins have moderated from their peak a year ago, they remain very good and are currently slightly better than margins in Florida. Regarding inventory, he acknowledged that public builders are producing more spec homes, which contributes to inventory figures, but highlighted the competitive advantage of offering rate buy-downs on these homes. He also stated he was unaware if the company responds to Census data requests, noting he finds the data often dated and not always reliable.

Kenneth Zener asked about the company's outlook on order pace and how it influences their strategy for units under construction and spec starts throughout the year.

Answer

Executive Phillip Creek responded that the company is carefully managing its construction pipeline on a subdivision-by-subdivision basis to balance margins, returns, and sales pace. He noted that homes in the field are up slightly year-over-year to 4,800 from 4,500, reflecting a cautious approach to growth while ensuring they are positioned to meet demand.

Kenneth Zener asked for the number of homes in the field, the margin difference between intra-quarter spec sales and backlog homes, and whether the affordable 'Smart Series' product achieves better net pricing due to higher demand.

Answer

Executive Phillip Creek confirmed the homes-in-field count was 4,700. CEO Robert Schottenstein explained that while spec sale margins are typically 100-150 basis points lower than to-be-built homes across the company, the margin performance is highly market-dependent and in some cases, spec margins are equal to or higher. He clarified that Smart Series margins are not uniformly higher, but rather vary by the specific community's quality and location, similar to their move-up products.

Kenneth Zener inquired about the percentage of closings that were from intra-quarter orders, the margin difference between these homes and backlog, and the reasons behind M/I Homes' comparatively strong margins. He also asked for Texas's share of the business and whether mortgage incentives are pulling forward future demand.

Answer

Executive Phillip Creek stated that about 40% of closings came from spec homes sold and closed within the quarter, with no significant gross profit difference compared to other homes. CEO Robert Schottenstein attributed their strong margins to having well-located communities in competitive markets like Dallas, Raleigh, and Orlando. Schottenstein noted Texas's share is slightly higher than Florida's 20%. On incentives, Creek explained that they are a necessary tool in the current environment to meet existing demand, which remains strong due to household formation trends, rather than pulling demand forward.

Ken Zener asked for a breakdown of Taylor Morrison's incentives, specifically how they are bucketed (e.g., price reduction, mortgage buydowns, closings) and how financial services-related incentives are recorded.

Answer

Sheryl Palmer, Chairman and CEO, clarified that approximately 45% of incentives are specific to financial services, including forward commitments, with the remaining 50% being a combination of options, lot premiums, and price resets. She confirmed that all financial services incentives run through the homebuilding margin, with some impacting ASP and others cost of goods. Ken Zener also inquired about Taylor Morrison's playbook for managing starts volume relative to orders, particularly if the spring selling season next year is softer than expected, given the company's efforts to reduce fixed SG&A. Curt VanHyfte, CFO, stated that the company will generally keep starts sticky to sales, adjusting based on community-specific analysis. He noted that entry-level and townhome communities would likely see more specs, while move-up segments would aim for more to-be-built business, allowing the market to guide the path forward.

Kenneth Zener asked for a breakdown of Taylor Morrison's incentives, specifically the proportion allocated to price reductions, mortgage buydowns, and closing costs.

Answer

Chairman and CEO Sheryl Palmer estimated approximately 45% of incentives are for financial services (including forward commitments), with the remaining 50% comprising options, lot premiums, and market-driven price resets.

Kenneth Zener asked about the geographic origin of active adult buyers in Florida and requested a precise definition of the 71% spec sales figure, including how it compares to prior periods.

Answer

Chief Corporate Operations Officer Erik Heuser stated that the origin of Florida active adult buyers varies, with out-of-state buyers as high as 80% in Naples but closer to 50% in northern Florida. CFO Curt VanHyfte clarified the 71% figure was the percentage of spec sales in the quarter, up from 59% a year ago, and noted that specs sold and closed in-quarter was 28%.

Kenneth Zener asked for the outlook on year-end units in production and community count, and how the company will manage its starts pace relative to orders.

Answer

Curt VanHyfte, CFO, stated that units in production are expected to moderate down from the current 8,032 by year-end due to cycle time improvements and a focus on clearing specs. He reiterated the company's core strategy of aligning new starts with the observed sales pace, while allowing for some flexibility during key selling seasons.

Kenneth Zener requested clarification on several land banking metrics, including the percentage of closings from third-party lots, the specific target for lots under land banking structures, and the precise margin and return trade-offs involved.

Answer

Chief Corporate Operations Officer Erik Heuser clarified that about 20% of acquired deals are for finished lots and that 20-25% of their controlled lots are currently in land banking structures. He reiterated the financial trade-off: a gross margin impact of less than 2% for a more than 3x lift in IRR at the deal level.

Ken Zener asked about the regional distribution of incentives and the impact of slowing job growth in markets like Dallas on different buyer groups, such as active adult versus entry-level.

Answer

Ryan Marshall, President and CEO, stated that incentives are lower in Florida, the Southeast, Northeast, and Midwest, and higher in Texas and the West, aligning with market difficulty. He downplayed concerns about slowing job growth in Texas, emphasizing that continued population and job growth in these markets support a thriving housing environment, regardless of slight changes in the rate of growth.

Ken Zener asked about the regional distribution of the 8.9% incentives and the impact of slowing job growth (e.g., Dallas) on different buyer groups, such as active adult versus entry-level buyers.

Answer

Ryan Marshall (President and CEO, PulteGroup Inc.) stated that incentives are lower in Florida, the Southeast, Northeast, and Midwest, and higher in Texas and the West, aligning with market difficulty. He cautioned against over-indexing on slightly lower job growth in Texas, as population and jobs are still growing, supporting a thriving housing environment.

Kenneth Zener of Seaport Research Partners asked for the expected number of inventory units at year-end. He also inquired about the geographic origin of buyers in Florida, specifically how many are from within the state versus other states.

Answer

President & CEO Ryan Marshall declined to guide on year-end finished inventory units but noted their target for total spec inventory is 40-45% of units in production. He described Florida as a 'melting pot' attracting buyers from across the U.S., Canada, and internationally, as well as seeing healthy in-state migration. EVP & CFO James Ossowski added that PulteGroup's Florida business is well-diversified across first-time, move-up, and active adult segments, not just active adult.

Kenneth Zener of Seaport Research Partners asked about the company's expected year-end inventory unit count relative to the end of 2024. He also inquired how incentives differ across various buyer segments and geographies.

Answer

CEO Ryan Marshall stated the company's goal is to operate within its target spec inventory range of 40-45%, which would likely result in a lower year-end inventory count compared to year-end 2024. CFO Jim Ossowski explained that incentives are tailored to individual consumer needs—such as financing aid for first-time buyers or option discounts for cash buyers—rather than being applied broadly by geography.

Kenneth Zener asked for an explanation of the current strong gross margins relative to long-term targets, specifically how the mix shift toward private regional builders impacts the spread between gross margin and SG&A. He also requested more insight into the resilience of these less-visible private builders.

Answer

EVP, CFO & Director Michael Miller confirmed that regional builders yield higher gross margins but also have a higher cost-to-serve, reflected in SG&A. He noted that higher G&A in the quarter was driven by variable compensation tied to strong profitability. Miller explained that the resilience of regional builders is linked to geography; they have a higher share in the top half of the U.S., which is currently outperforming the bottom half. IBP's historical overweight position in these stronger markets is a key factor in its outperformance.

Kenneth Zener of Seaport Research Partners asked about the supply and demand dynamics for private versus public builders and whether the Q1 SG&A headwind would persist through the year.

Answer

CFO Michael Miller stated that based on IBP's experience, regional and local builders have performed better than public builders over the past two quarters, and they are not seeing signs of excess inventory among these private builders. Regarding SG&A, he noted that of the $6 million year-over-year increase, $4.4 million was from acquisitions and start-ups. He emphasized the company's focus on optimizing G&A in absolute dollar terms, referencing the new $15 million cost reduction target.

Kenneth Zener sought clarification on the 6-month market normalization timeline and asked for regional commentary on where single-family inventory is highest and how builders are reacting.

Answer

CFO Michael Miller clarified the 6-month timeline was specific to the normalization of multifamily units under construction, not single-family. For single-family, he noted current relative weakness in Texas and Florida and surprising strength in the Midwest and Northeast. He stated that inventory levels are highly localized to the subdivision level, making broad regional statements difficult.

Kenneth Zener asked for a historical comparison to the 2016-2018 period of gross margin degradation and whether similar factors would be needed for a repeat. He also requested regional commentary and clarification on the production builder mix.

Answer

CFO Michael Miller distinguished the current 'tight' supply environment from the 'emergency' situation of 2016-2018, which was caused by a plant fire and coincided with Fed rate hikes in a different market. CEO Jeffrey Edwards provided regional color, noting the Southeast continues to outperform the Northeast and Central regions. CFO Michael Miller added that housing starts are currently a better demand indicator than orders due to the high percentage of spec homes being built.

Kenneth Zener of Seaport Research Partners asked about sales pace, questioning if management would accept a monthly absorption rate below two homes per community. He also inquired about expectations for year-end inventory levels and the reason for the Q3 community count guidance being lower than previous full-year estimates.

Answer

Chairman & CEO Eric Lipar stated they would not expect the pace to fall below two and that Q2 should represent the low point for orders. CFO & Treasurer Charles Merdian added that they will start fewer homes than they close in Q3 to reduce completed inventory, targeting six to seven months of supply by year-end. Lipar clarified the community count adjustment is due to timing and a more cautious approach to new openings, not a structural change.

Kenneth Zener questioned the guided sequential ramp-up in gross margin, given the weak Q1 results and market skepticism, and asked about the expected year-end inventory levels. He also requested clarification on the fixed-cost component within the cost of goods sold (COGS).

Answer

CEO Eric Lipar stated that gross margin is expected to ramp up through the year, driven primarily by higher sales volume. CFO Charles Merdian added that as absorptions accelerate, the company will see better operating leverage, which could improve margins by 30-50 basis points. Merdian projected year-end inventory would be similar to Q1 levels but with a more balanced mix of completed homes and work-in-progress.

Kenneth Zener asked for a detailed breakdown of year-end inventory units and inquired about the effectiveness of mortgage buydown incentives, questioning if their efficiency has diminished due to consumer job confidence.

Answer

CFO Charles Merdian provided the inventory figures: just over 4,000 total units, with roughly 2,500 completed and 1,360 in progress. CEO Eric Lipar addressed incentive effectiveness, stating that underlying demand from employed buyers remains strong. He identified affordability, driven by prices and rates, as the primary headwind, not job concerns. Lipar explained that incentives are a crucial tool to lower monthly payments and qualify more buyers, with their use balanced on a market-by-market basis.

Kenneth Zener asked about LGI Homes' return on equity goals to better understand the balance between its high-margin strategy and asset efficiency. He also inquired if the capitalized interest drag on gross margin would increase next year and requested a breakdown of land cost versus variable development costs as a percent of sales.

Answer

CEO Eric Lipar stated that while new projects are underwritten to a 20% ROE, recent heavy investments in land have temporarily suppressed returns, which he expects to increase as new communities come online. CFO Charles Merdian projected the capitalized interest impact on gross margin to be around 200 basis points in 2025. He also detailed that finished lot costs are roughly 20% of ASP, with raw land making up about 10% of that finished lot cost, and noted that most cost variability comes from infrastructure and development requirements.

Kenneth Zener of Seaport Research Partners sought clarification on the drivers of order declines in the Mountain region, the relationship between future starts and sales, and the expected year-end inventory of units under construction.

Answer

CFO J. Scott Dixon explained the Mountain region's order numbers were impacted by the majority of new communities opening late in the quarter, specifically in June. CEO Robert Francescon confirmed that starts will 'more or less' track sales. Dixon added that the level of starts and year-end inventory will be market and demand-dependent.

Kenneth Zener asked if the recent increase in incentives was concentrated in the Century Complete product line or if it was more specific to certain regions or price points. He also inquired about inventory management, asking if the company planned to destock specs or if starts would now align more closely with sales pace.

Answer

CFO John Dixon clarified that while mortgage incentives are used broadly, direct price reductions are more common in the Century brand, with Texas seeing slightly higher incentive levels. He noted the West region has been the strongest. On inventory, Dixon stated that the company had already moderated its starts pace in late 2024 and believes current inventory levels are appropriate, implying no major destocking is planned.

Kenneth Zener asked for the Q3 home starts number, the strategy of starting more homes than orders, and for context on the 800 basis point incentive level, including its comparison to Q2 and the split between price reductions and mortgage buydowns.

Answer

CFO John Dixon and Co-CEO Robert Francescon provided the start number of 3,141 for the quarter. Mr. Dixon explained that as a spec builder, starting in excess of sales is a deliberate strategy to support future growth. He confirmed Q3 order incentives were approximately 800 basis points, up from 700 in Q2, with a consistent 50/50 split between mortgage and price incentives.

An analyst, identified as Kenneth, asked if potential deregulation in California, mentioned by the governor, could expedite development at Five Point's communities. He also inquired about any concrete rule changes and the timeline for disclosing CapEx plans for the San Francisco project.

Answer

Daniel Hedigan, an executive, confirmed that any effort to expedite the regulatory process in California would be beneficial for housing delivery but stated that no concrete changes have been implemented yet, although legislative activity is being monitored. He added that guidance on San Francisco's CapEx plans would likely be provided towards the end of the year or early next year.

Kenneth Zener asked for clarification on the cash flow implications of treating land as a variable cost and inquired about the margin spread between backlog and new orders in Q1 and Q2.

Answer

CFO Diane Bessette and Executive Stuart Miller explained that while land is not a simple variable cost, the efficiencies gained from maintaining production—such as direct cost reductions and overhead absorption—are critical. Co-CEO and President Jonathan Jaffe added that the decision to build is effectively made at the time of land underwriting. Regarding margins, Bessette stated that for Q2, the margin on homes in backlog and expected intra-quarter sales are both 'pretty close' to the 18% guidance.