Green Brick Partners - Earnings Call - Q4 2020

Transcript

Operator (participant)

Good afternoon, everyone, and welcome to Green Brick Partners Earning Call for the fourth quarter ended December 31st, 2020. Following today's remarks, we will hold a question-and-answer session. As a reminder, this call is being recorded and will be available for playback. A slideshow supporting today's presentation is available on the Green Brick Partners' website, www.greenbrickpartners.com. Go to Investors and Governance, then click on the option that says reporting, and then scroll down the page until you see the fourth quarter investor call presentation. The company reminds you that during this conference call, we'll make various forward-looking statements within the meaning of the safe harbor provisions of the United States Private Security Litigation Reform Act of 1995, including its financial and operational expectations for 2021 and the future and anticipated impact of COVID-19 on our future operations, prospects, and other aspects of our business.

Investors are cautioned that such forward-looking statements are based on current expectations and are subject to risk and uncertainties and could cause actual results or outcomes to differ materially from those set forth in our forward-looking statements. These risks are set forth in our fourth quarter earnings press release, which was released on Monday, March 8th, 2021, and the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission. Green Brick Partners undertakes no duty to update any forward-looking statements that are made during this call. In addition, our comments will include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G regarding these metrics can be found in the earnings release that Green Brick issued yesterday and the presentation available on the company's website.

I would now like to hand the conference over to Green Brick's CEO, Jim Brickman. Please go ahead, sir.

Jim Brickman (CEO)

Thank you, Operator. Hi, everyone. I hope this call finds everyone well. With me is Rick Costello, our CFO, Jed Dolson, our COO. Thanks for joining the call. As the operator mentioned, the presentation that accompanies this earning call can be found on our web page at greenbrickpartners.com. At the top of the page, click on Investors and Governance, then click on the option that says Reporting, and then scroll down the page until you see the fourth quarter investor call presentation. I'll give everybody a few minutes to do this. Looking back over the past year, the value of a home has never been greater. Whether it's from the desire to work from home, start a family, or enroll in the best schools, our buyers continue to place a premium on homeownership.

In fact, demand for our homes has been tremendous at all price points and continues to climb with net new orders up 63% year-over-year in the last half of 2020. This secular shift toward homeownership has driven Green Brick's financial success to new highs this year, especially in the suburban high-growth Sunbelt markets where we operate. Our diluted EPS of $2.24 in 2020 represents an all-time record for the company and is up 93% over the prior year. This robust growth represents a 34% compounded annual growth rate from our fiscal year 2015 results and is a testament to the hard work and dedication of our employees and team builders. I would like to thank everyone in the Green Brick family for their hard work and look forward to building upon these results in 2021.

A key element of our future success will be determined by the significant investment Green Brick made in land and lots in 2020. Because we pivoted so quickly when we saw demand pick up last June, our lots owned and controlled reached a record 14,468 lots as of December 31st. This is up 58% from just six months ago. This growth was accomplished despite reaching an all-time high of 1,780 units under construction after starting a record 1,004 homes in the fourth quarter of 2020. This is a 99% increase over the fourth quarter of 2019. We believe these record inventory levels will keep us competitive in our core markets and provide us the capacity to continue to address the tremendous demand for new homes for years to come.

The dollar value of our ending backlog reached $686.9 million this quarter, a new all-time high for the company, and a 98% increase from Q4 2019. In fact, thanks to the tremendous sales momentum we've seen this year, our backlog value has increased an impressive 24% in the past three months alone. We anticipate these captive sales to translate to increased deliveries that we expect to accelerate beginning in Q2 2021. It is important to note that our historic growth this year was accomplished while maintaining one of the lowest debt-to-capital ratios of all public builders. Our ending debt-to-capital ratio of 25.6% and interest coverage of 15.6X significantly reduces the risk in our business and allows Green Brick to access reliable and cost-effective capital. In fact, I am pleased to announce that Green Brick issued an additional $125 million in senior unsecured notes as of February 25th, 2021.

These notes will be due in 2028 at a fixed rate of 3.25%. With this expansion of our working capital, Green Brick has demonstrated its capacity to grow its business with low-cost debt, which is priced comparably to that of low-leveraged large-cap peers. Please flip to slide four, where our diversified builders with eight brands in four major markets with a wide array of product types and price ranges. We believe this stratification of products will continue to appeal to a broad base of home buyers and expect that our entry-level segment will continue to rapidly expand through the growth of our Trophy Signature and CB JENI brands. As we have discussed in our previous earnings call this year, Green Brick now operates on a much simpler ownership than seen in the past.

In 2020, roughly 67% of our total revenues were generated through wholly-owned subsidiaries compared to only 7% in 2019. Initiated by increased ownership in our Southgate CB JENI and Normandy brands, as well as the radical expansion of Trophy Signature Homes, this increased control has provided us more flexibility to adapt quickly to the booming demand for our new homes and rapidly respond to new challenges as they arise. Slide five announces Green Brick's recognition as one of America's best small companies by Forbes magazine this past December. Our fifth place ranking is the highest of any small-cap home builder and is an excellent acknowledgment of our tremendous growth this past year. On slide six, we highlight the economic strength of our core markets and present the decline in active listings seen in January 2021 from the prior year.

Like every other economy in the country, the COVID-19 pandemic created a major disruption in commercial activity and led to a significant rise in unemployment last year. However, as shown on the right side of the graph in this page, our Atlanta and Dallas-Fort Worth markets ended the quarter with the lowest and third-lowest unemployment rates out of the 10 largest metro areas in the United States. Looking at the left side of the graph, you can see that Dallas-Fort Worth and Atlanta had the largest decline in active listings in January 2021 out of the 10 largest MSAs, with listings down 55% and 52% respectively. This remarkable drop in listings is evidence of the booming demand in our markets and indicates the pricing power of Green Brick as in 2021 to capitalize on an inventory of existing homes.

With 86% of our active selling communities in these core markets of DFW and Atlanta, we believe Green Brick is well positioned to succeed in 2021 and beyond. Additionally, we believe the strong bounce back from the high employment seen in April 2020 and the rapid uptick in demand in our core markets is further proof that our focus on business-friendly, pro-growth markets is correct and the best choice that will differentiate Green Brick from peers. Thanks to the superior and economically diversified markets where we operate, Green Brick is poised to capitalize on what we believe are long-term positive shifts in homeownership. As seen on slide seven, the cohort of the U.S. population aged 35 to 44 continues to accelerate after reaching record lows in 2016. This demographic is considered the most active home buyer and expected to have a dramatic impact on housing over the next 10 years.

This impact may exceed even historical norms as millennials have delayed family formation much longer than in previous generations. In addition, when we look at today's 18 to 29-year-olds, an astonishing 52% of young adults were estimated to be living with their parents this past July. This is a figure not seen since the Great Depression. We believe these factors not only indicate current demand levels will rise in future periods but also indicate significant pent-up demand for housing in our current economy. We believe these trends bode very well for Green Brick as our core markets of Dallas-Fort Worth and Atlanta have a larger millennial population than the national average, which we believe will continue to shift demand to the right. Jed Dolson, our Chief Operating Officer and Executive Vice President, will now speak in greater detail to our growth drivers and land position. Jed?

Jed Dolson (President and COO)

Thanks, Jim. Take a look at slide eight, Growth Drivers, which demonstrates that Green Brick still has a long pathway towards future growth. On an annual basis, total revenues from 2018 to 2020 have grown 57% over that two-year period. Additionally, our backlog grew an astounding 160% to 687 million as of December 31st, 2020. These improvements indicate that Green Brick has been successful in capturing waves of new buyers and we believe is well positioned to continue to capitalize on the booming demand for new homes. During the last 24 months, we also increased our lots owned and controlled by 79% and grew the average number of selling communities by 45%. In fact, in the last quarter alone, Green Brick added a gross 3,400 lots to our inventory of lots owned and controlled, with Trophy Signature Homes opening 16 new selling communities over the past six months.

With our dramatic growth in lots owned and controlled and record starts of over 1,000 units this quarter, we are confident that we have the necessary levels of sold and speculative inventory to achieve significant growth in 2021 and beyond. On slide nine, we demonstrate how our investment in land has translated to increased capacity to generate top-line growth. As you can see from the chart on this slide, a key driver behind our strong financial and operational results has been our ability to convert investments we made in land to a future growth in revenue. For our 2020 fiscal year, our revenues have grown 23% over the 2019 fiscal year, which represents our third consecutive year with top-line growth above 20% and sixth consecutive year with growth in the double digits.

With our substantial investment in land and lots in the latter half of 2020 and our continued investment throughout 2021, we believe we continue to maintain significant top-line and bottom-line growth. Slide 10 further details our Q4 2020 land investments, which resulted in 20% sequential growth over Q3 in total lots for the company. As the slide details, roughly one-half of this land growth was spread across three DFW communities. These communities represent significant long-term investments in our Texas market and will be a dependable source for new lots as our Trophy Signature Homes and CB JENI brands continue to expand across the Metroplex. Slide 11 details the growth we have already seen in our Trophy brand over the past year. When picking a new location for one of our builders, we are diligent to target an underwritten 21% unleveraged internal rate of return for new projects.

We believe this process plays a direct role in generating our high home building gross margin, which ranks among the best in the industry. As you can see from our community map on this slide, we are able to more than double Trophy selling communities in 2020 and have been thrilled to see Trophy perform with both entry-level and move-up buyers. Due to the high density of trophies communities, we are able to underwrite these deals with a much higher absorption pace than our other brands. This difference is implied in the table at the bottom of slide 11, where you can see that our annual absorption per average selling community is nearly two times the rate of our other brands.

As we go forward, we expect that this focus on our larger communities with higher absorption rates will allow Green Brick to continue growing sales and closing volumes more efficiently without incurring the expense and man hours associated with adding new active selling communities. Please move to slide 12. John Byrnes Real Estate Consulting has published maps of our Atlanta and Dallas metropolitan areas where they have designated grades on some markets, most desirable being an A market through most affordable being an F market. Based on a variety of subjective factors such as quality of schools, proximity of jobs, and existence of infrastructure for quality of life, we have overlaid the locations of our Green Brick communities with green dots. The preponderance of our communities are in the sub-markets rated as most desirable.

In the current market environment, we believe that our superior market positioning will be key in differentiating our results from our peers. This positioning is further strengthened by the lot supply shortages in both the northern suburbs of Dallas and Atlanta, which we believe will be a strategic advantage for us as we expect land development activity for other builders will slow in coming months. Our community count grew 8% from Q4 2019 to 103 active selling communities as of December 31st, 2020, as we continue to open more communities geared toward the first-time home buyer. Going forward, we're selling out of some of our smaller neighborhoods, and we are developing lots in larger neighborhoods that have a higher planned sales velocity. Consequently, even though our neighborhood count is intentionally planned to contract as the year progresses, our lot count and top-line revenues are expected to grow significantly.

Our pivot to these larger high absorption communities focused on entry-level buyers has not been at the cost of increased risk. Based on our Q4 2020 home closings with our unconsolidated mortgage ventures, Green Brick saw an average FICO score of 760, with 90% of the funding exceeding a FICO score of 700. The creditworthiness of our average buyer profile is a fundamental strength of many of our A markets that we operate in, which we believe will continue to mitigate risk for our business. Next, Rick Costello, our CFO, will discuss our fourth quarter and annual results in more detail.

Rick Costello (CFO)

Thanks, Jed. And thank you all for joining us today to review our 2020 fourth quarter financial results. Let's start with slide 13 of our presentation, where we compare our fiscal year 2020 gross margins with available pure data. Our gross margin reported for the full year was 24.2%. This was up 280 basis points over fiscal year 2019. And for the fourth quarter 2020 alone, gross margins were 25.1% and up 350 basis points over our margins reported in Q4 2019. Now, this chart demonstrates that our performance is among the best in the industry. We believe our superior margin experience is evidence of our conservative land underwriting and prudent planning that Jed mentioned earlier. This is a winning strategy that has well prepared us to manage pace and price during the remainder of 2021 and beyond.

Slide 14 visually demonstrates that we have grown our revenues and provided stable earnings by not concentrating on only one home buyer segment. At the end of 2018, two segments accounted for about three quarters of our revenues. Fast forward two years, and we now address six distinct and individually significant customer segments, which all experienced strong revenue growth in sales volume through December 31, 2020. This revenue growth is in line with our 50% year-over-year growth in 2020 net new orders and demonstrates the health of our markets. Now, our net new order growth breaks down as follows. Net new orders of entry-level and second-time move-up single-family homes were both up 45% in Q4 2020 versus Q4 2019, demonstrating that today's historic demand is really impacting all price points.

Even more impressive, our net sales of townhouse product that's priced above 300,000 grew by 127% in Q4 2020 versus Q4 2019. Now, we believe this tremendous growth is evidence that our superior lot position in some of the best locations in Dallas-Fort Worth and Atlanta is a winning strategy. Our strong ties to the municipalities where we operate and our experienced land team have laid the groundwork for our CB JENI Townhome brand to become the dominant townhome builder in DFW. We expect our strong offering of townhome communities to continue driving growth in 2021. Also, our sales for age-targeted segment at GHO Homes in Florida were up 56% year-over-year as we have seen improved demand for product as lockdown restrictions have lifted and home buyers continue to migrate out of both large urban centers in the Northeast and in South Florida.

Finally, urban home sales in Q4 2020 were up 29% over Q4 2019. This growth is driven by the move of urban millennials away from dense apartment living, as well as the demand for larger, more intentional living spaces, as Jim mentioned earlier. Please move to slide 15 related to our financial highlights. For Q4 20 versus Q4 19 and year-to-date comparisons, here are our key operational metrics. Net new orders increased 44% for the quarter. This increase was a function of a 26% increase in the absorption rate of net orders per community, as well as a 13% increase in average selling communities. For the full year of 2020, our 50% order growth was driven by a 12% increase in average selling communities and a 34% improvement in absorption. Home deliveries increased by 14%, with residential units' revenues up by 10% for the quarter.

Year-to-date, residential revenues improved by 22% due to a 28% increase in homes closed. Our average sales price of homes over all our brands declined by 3.4% for the quarter and 4.4% year-to-date versus the comparable period in 2019. Now, these declines in ASP are attributable to the increasing contribution of Trophy Signature Homes and CB JENI Homes Townhome division to our total revenues. Both of these builders sell homes at average sales prices that are below the average price for the company. As emphasized earlier, we believe this improved affordability will serve to preserve and improve our market share. Year-over-year, homes under construction are up 37% year-over-year, with homes started up during 2020 by 43% from 2019. During the quarter, we started a record 1,004 homes, up 99% year-over-year, and up sequentially 41% from the third quarter.

Combined, in the second half of 2020, we started 1,741 homes, which should provide us with the inventory for another year of strong top-line and bottom-line growth. The dollar value of units in backlog increased, as said before, by 98% year-over-year and 24% sequentially from Q3 to Q4. This trend has continued during the first two months of 2021, with sales up 80% from the prior year period. And we expect this year-to-date growth in backlog to drive strong closing growth in 2021. As I highlighted earlier, home building gross margin was up 350 basis points over Q4 2019, and adjusted home building gross margin was up 340 basis points quarter over quarter. From Q3 to Q4 of this year, gross margin was up 30 basis points.

For the full fiscal year, our 2020 home building consolidated margin and adjusted home building gross margins were up 280 basis points and 290 basis points respectively. Turning to operating leverage, our SG&A expense dropped 90 basis points from 12.4% in 2019 to 11.5% for fiscal year 2020. This decrease in the annual SG&A leverage ratio was primarily driven by strong revenue growth during the year and reduced headcount levels for most of 2020. Our interest coverage of 18.9 for Q4 2020 represents a 142% growth over Q4 2019 and clearly demonstrates our capacity to generate positive cash flow well above our needs. Year-to-date, our interest coverage of 15.6 times represents a 111% improvement year-over-year. Our bottom line Q4 2020 basic EPS of 58 cents for the quarter was an increase of 81% over Q4 of 2019.

Likewise, for the full year, our basic EPS of 2.25 is 94% higher than the same period last year. And finally, our net income return on average book equity grew from 12.3% in Q4 19 to 18.8% during Q4 of 2020, an increase of 650 basis points. Combined with our low debt leverage, our risk-adjusted returns are remarkable. Please turn to slide 16. Here we have compared our performance versus our small and mid-cap peers to demonstrate why we believe that our risk-adjusted growth and returns are uniquely strong. We have provided five measures. In the previous slide, we already discussed our remarkable 22.4% growth in residential units revenue in 2020 over the prior year, which, as Jim mentioned earlier, was primarily driven by organic growth at CB JENI and Trophy Signature Brands.

With both team builders focused on increasing our offerings of affordable product, this growth is expected to bring further diversification and reductions in our overall average sales price. That dynamic growth rate can be seen in the first data column, where our growth ranks us near the top of our peers. And as we demonstrated again this quarter, our industry-leading gross margins drove excellent returns on revenues again this quarter. Also included on slide 15 is our year-to-date interest coverage, which is a function of great earnings combined with conservative lower levels of financial leverage and lower price debt. Our lower leverage is reflected in our low net debt to capital, the fourth metric, which indicates our reliance on organic growth rather than leverage to maintain strong operating cash flows.

Finally, we include pre-tax return on average invested capital to measure each builder's return, disregarding differences in leverage and tax rates. Lastly, from a financial side, please look at slide 17, which focuses on our lower leverage, which I just discussed. Now, as Jim just stressed at the start of the call, we were able to achieve our record-setting fiscal 2020 results while maintaining one of the lowest head-to-capital ratios amongst public builders. Our lower leverage positions Green Brick to continue limiting risk while generating industry-leading return on equity of 19.5% in 2020, as we just saw on slide 15. Also, as mentioned in Jim's opening remarks, we are thrilled to announce the closing of our $125 million offering of senior unsecured notes issued in February of 2021. These notes are due in 2028 at a fixed rate of 3.25%.

We believe our lower relative interest costs will be a positive tailwind for gross margins and for profitability as the company continues to grow and scale through 2021 and 2022. Importantly, we're developing long-term relationships with other exceptional institutional partners as part of this club deal. The institutional investors who purchased the notes were represented by Prudential, Barings, Hartford, Securian, and Boya. Prudential Private Capital structured the club deal. I'll now turn the call back to Jim, who will wrap up our part of the call prior to opening up things for Q&A. Jim?

Jim Brickman (CEO)

Okay. Thanks, Rick. The outstanding order growth we are seeing today continues to accelerate thanks to historically low mortgage interest rates, the aging of the millennial generation, the migration of renters from high-density living conditions to homes, and us operating in the best housing markets in the country. In the first two months of this year, net new orders were up 80% over the first two months of 2020. We achieved this remarkable growth despite the strong comparisons last year, where net orders in January and February were up 76% from the same prior period in 2019. We are now raising prices faster than costs and are not executing contract offers when or where our capacity is constrained. We expect these higher prices to lead to slower orders but even higher profitability, which should flow through the income statement in the latter half of the year.

Additionally, our board of directors approved a two-year $50 million share repurchase program on March 1st, 2021. This authorization provides an additional opportunity for Green Brick to increase the value for our shareholders in addition to our continued robust investment in land and lots. Despite the challenges we faced this past year, I believe Green Brick has entered 2021 as a stronger and more efficient company. I am confident that the teams we have in place will continue to strive to build and sell superior quality homes for our home buyers. I'll now turn the call back to the operator for questions. Thank you.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Michael Rehaut with JPMorgan. You may proceed with your question.

Hi. This is Maggie on for Mike. First question I guess I have is on how sales pace or orders trended throughout four Q and into one Q. I think last quarter you had said that October was going to be up and around somewhere in the 80% range, and then obviously four Q finished at 44%, and then you saw the big step up again as we came into one Q in January and February. So can you talk about what you were seeing there in any kind of dynamics driving the different growth rates and how you adapted to the environment? And also, I guess more recently, have you seen any change in demand given the recent step up in rates?

Jim Brickman (CEO)

Yeah. This is Jim. And I'm going to have Jed to answer the second part of the question. Obviously, management's job is to balance pace, price, building cadence, and our lot position. I think, Jed, why don't you take Maggie through kind of what we're doing and to answer her question?

Jed Dolson (President and COO)

Yeah. Sure. From a high level, Maggie, we have seen very strong demand since December 1st of last year. We saw strong demand prior to that, but it really hit the accelerator for us in December. We've consistently raised prices on a monthly basis. We are still seeing strong demand, albeit a little moderation as a result of the mortgage rate spikes in the past two weeks. We are now seeing mortgage rates jump from in Q4, they were in the 2.6-2.7 range, and we're now seeing them in the 2 point sorry, the 3.25-3.5 range. Is that enough insight?

Yeah. Okay. Thank you. And then I guess secondly on ASP, obviously you talked about raising price. I think you said you're raising price higher than cost right now. But at the same time, Trophy and CB JENI are continuing to grow as part of the business. I think last quarter you made a comment that somewhere around the 420 range would be kind of a good way to think about ASP through 2021. But as I look at the average order price and the average price in backlog, it's significantly higher. So how can we think about ASP this year?

Yeah. Maggie, this is Jed again. I'll take that. It is going to be higher this year. I think we are projecting it to be more in the 450 range. When we talked in last quarter, we thought lumber prices were going down, and they were trending down temporarily. They did a head fake, and they've really gone up this year. Lumber is double what it was this time last year on our lumber packs. So part of that is part of the ASP rise is the lumber price increases. As far as our backlog ASP versus our closing ASP, we typically see a lot of buyers, especially at our CB JENI townhouse and our Trophy entry-level builders that purchase spec homes that are 30 to 60 days out. We're lucky enough at those two brands to have inventory still, while many of our competitors have very limited inventory.

So that's why our backlog ASP is higher than our closing ASP. But I think as we look for the year, I think 450 ASP would be a good number.

Rick Costello (CFO)

Maggie, for some additional color on both the backlog and on our sales success, if you were to take a historical look, you will find consistently that our ASP on backlog runs quite a bit hotter than our actual ASP for the reasons that Jed just laid out. And we really have some of the most expensive product that we sell is in backlog for quite a period as well. I was just looking at the absorption rates, and absorption was really started to kick up in 2019 in November and December. We had really seen that move at a pretty strong rate November, December, January, February until COVID hit in March. So while our October number was really bright to get the overall 44% increase for Q4 was against a very strong comp.

But what's really remarkable is January and February, where we're up 80% over some very strong comps. I mean, like Jim said, the 2020, those two months were up 79% over 2019. So we were really doing exceptionally well in early 2020, which just speaks to how strong demand is. And when we say that we're trying to slow sales, we're not trying to go below our strong absorption rates. We're trying to just moderate pace to a level that is sustainable from a production standpoint.

Got it. That's really helpful. Thanks.

Thanks for your questions.

Operator (participant)

Thank you. Our next question comes from Carl Rykard with ETNG. You may proceed with your question.

Thanks. Hi, everybody. So Rick, on that question, the comment you just made, this is kind of what I want to follow up on. So up 80% the first two months, what that seems to tell me is that raising prices isn't working to slow absorption. Although the rates may be, according to Jed, the last couple of weeks. So I guess I'm a little confused as to what is the production target then? What's kind of the growth rate in sales you think matches production?

Jim Brickman (CEO)

This is Jim. And Jed's going to chime in on this too because this is obviously a major topic of discussion internally among top management. But our January and February sales pace really would not be sustainable, even though the demand is there, just because of construction capacity within our business. It was a wonderful problem to have. Nobody wants to tell a customer that you can't execute a contract in a neighborhood that wants to buy a home, but we've actually had to do that on some neighborhoods where we have kept sales, and we're really not accepting the offers. So our demand is so robust that we're really trying to manage that to serve our customers and maintain our profit margins or hopefully improve these profit margins and pass through the lumber costs. Jed, do it.

So I wouldn't take January and February and multiply it times six in those two months and forecast our business. At the same time, I think our business is just really doing remarkably well. And Jed, what do you want to chime in on that?

Jed Dolson (President and COO)

Yeah. I mean, I think Jim pretty much covered it.

Rick Costello (CFO)

Yeah. And Carl, from a production standpoint, we started in excess of 1,700 homes in the last six months of the year. I think that right there is probably a lot more telling in terms of what our current capacity is.

Yeah. Rick, that's what I was going to ask then, is that that start pace is something you think is relatively sustainable over the course of a rolling six-month period. Is that the right way to think about it then?

Yes, sir.

Jim Brickman (CEO)

Yeah, Carl. And the other thing that we're seeing in our business is our higher-end builders are the more exposed in this cycle. Our lower-end builders have a much simpler process and a much faster inventory turn. And the bottlenecks and supply constraints that we're seeing are much more impact the higher price points and the lower price points. And as you know, we're really focused on those lower price points more than the higher price points now.

Well, how nice. That actually gets right to my second question, which is Trophy signatures now, I think, was your presentation in 23%, I think, of total turnover now, which is significant from zero a few years ago. Where do you want that business to be, Jim? Sort of what percentage of your business would you like Trophy signature to be? And I might as well add on to that. You talked before a little bit about potential market expansion you were thinking about prior to COVID. How are you thinking about that now that we're starting to see an ease in the pandemic and there's new market expansion for Trophy or any brand likely on the table in the next 12 months?

Likely is always a hard thing for me to handicap because you never know what makes sense until you really underwrite it. And we're not currently underwriting any new markets for Trophy, although we're evaluating two markets that we think would be natural markets for Trophy to expand into over the next few years. We have such growth in Dallas with Trophy that we're just blessed trying to manage that growth right now. In terms of our other builders and how we allocate capital, I think a good way to look at it would be we don't plan really on most of our builders reducing any of our capital commitments to them. The Providence Group is a 500 or 600 start builder there. They're in a much more complicated infill complex market. We just plan on recycling that cash.

But really, if you look at your earnings estimates and you take a look at what that implies in earnings in 2021, and if we borrow about 25 to 30 percent debt to capital, that 200 plus or minus million dollars, we really want to use to expand Trophy because it's scalable, it's easier to manage, and that's really where our growth's going to be.

Okay. Thank you, Jim. Thanks, everybody.

Rick Costello (CFO)

Thanks, Carl.

Operator (participant)

Thank you. Our next question comes from Alex Rygel with BRYN. You may proceed with your question.

Alex Rygiel (Managing Director and Senior Equity Research Analyst)

Thank you. And nice quarter, gentlemen. Based upon your land underwriting hurdles, are higher prices necessary to achieve gross margins of 25% or higher?

Jed Dolson (President and COO)

This is Jed. We do not factor price escalation in our underwriting models.

Alex Rygiel (Managing Director and Senior Equity Research Analyst)

And can you also?

Jed Dolson (President and COO)

We're not factoring cost escalation either.

Alex Rygiel (Managing Director and Senior Equity Research Analyst)

Excellent. And can you also talk about the competitive environment? Are you seeing competitors in your geographies raise prices as well as aggressively as you're attempting to?

Jed Dolson (President and COO)

Absolutely. I would say the big publics less so because they control more lots, but the smaller privates and some of the smaller publics that don't have the community count or the lot runway are very aggressive trying to moderate sales as they get from A to B.

Jim Brickman (CEO)

Yes. And we are doing a lot of transactions with one other mid-camp public builder that we really enjoy doing business with. And pretty much we're in lockstep in these neighborhoods where we're building with them and raising prices.

Alex Rygiel (Managing Director and Senior Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from Alex Byrn with Housing Research Center. You may proceed with your question.

Alex Byrne (Analyst)

Yes. Thank you, gentlemen. Great job on the quarter. I was just curious if you can comment on are you guys seeing a notable increase or acceleration in out-of-state buyers moving into places like Texas?

Jed Dolson (President and COO)

Yeah. This is Jed. I'll take that. The answer is yes. We thought when Toyota relocated their national headquarters to Plano a couple of years ago, we thought that was going to be the peak of immigration. That has just turned out to be the first wave of immigration. We're seeing companies from both coasts relocate here on a daily basis, and our buyer profile is significantly out of state, especially at the higher price points.

Jim Brickman (CEO)

I don't know if you heard this, Jim. This is Jim. And one of the really changes in this market is that the existing house inventory is so low that realtors in the low price point or in the $4 million price point in the Park Cities are literally knocking on doors right now trying to get listings from people to sell homes because the inventory levels are so low. And we don't see that really changing very much right now just because our industry doesn't have the capacity to just overbuild like it did in past building cycles that I've experienced in the '80s, for example. The industry, from zoning and titling land to getting it through the municipalities to actually building the homes, the capacity is so great that that's a constraint.

And we just don't have the same competitive dynamic that we used to have with existing homes.

Alex Byrne (Analyst)

Okay. Great. I was also hoping you could elaborate on the 80% growth seen so far this year. Is there any way you can break that down by geography or price points? Give us a sense of how different regions or brands or product types are doing relative to that number.

Jed Dolson (President and COO)

Yeah. This is Jed. This is Jed again. I'll take that. The 80% growth rate the first two months is not sustainable. I think we, Carl, we set a target for what is sustainable a couple of questions ago. We are seeing strong demand across every one of our regions at every one of our price points right now. So it's really a balancing act of raising price to match input cost increases and get to a good builder cadence as far as being able to start the number of homes that we sell each month.

Jim Brickman (CEO)

Right. And Trophy is much easier in that building cadence than our higher price points builders that struggle with a more complicated process and a much more customer-intensive process.

Alex Byrne (Analyst)

Okay. Understandable. If I could ask one last one. On your share buyback, you mentioned you allocated 50 million potentially to buyback. Is that expected to be consistent across the quarters, or is that more opportunistic?

Jim Brickman (CEO)

Well, it depends whether the stock price is consistent across the quarters, I guess. So I really don't know how to answer that question. It would be an opportunistic case-by-case basis depending on how we view land and lot investments versus buying our own stock at that given point in time.

Alex Byrne (Analyst)

That seems like a good deal right now. Thank you.

Rick Costello (CFO)

Thank you for that.

Operator (participant)

Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. Our next question comes from Bill Dezellem with Tieton Capital. You may proceed with your question.

Bill Dezellem (President and Chief Investment Officer)

Thank you. I have a nitpicky question, but your SG&A was up versus the third quarter, both on absolute dollars and on a % of revenue basis on lower revenues, which is a little bit counterintuitive. Would you talk to the dynamics there, please?

Rick Costello (CFO)

Sure, Bill. Thanks for the question. Really, in the short run, most of our overhead is going to be fixed. Over the long run, it's all variable. But as you just mentioned, we had a lower revenue base at a point in time when we increased starts 99% year-over-year. Obviously, that requires additional field overhead and back office overhead. It's a function of spending the money in advance of recognizing the revenues from a growth standpoint and also the fact that the revenues were a little bit lower in the quarter than the previous. That pretty much sums it up.

Bill Dezellem (President and Chief Investment Officer)

Thank you, Rick.

Rick Costello (CFO)

Sure.

Operator (participant)

Thank you. Our next question comes from Art Winston with Pilot Advisors. You may proceed with your question.

Art Winston (VP and Senior Analyst)

Thank you. You guys bought a very large amount of lots in a very short period of time. I know it's premature, but as you look back on it, do you think that almost all the money was well spent?

Jed Dolson (President and COO)

This is Jed. Yes. Absolutely, we think it was well spent. We've seen land prices. Most of the land that we closed in Q4, we contracted in June or July.

Jim Brickman (CEO)

Or before.

Jed Dolson (President and COO)

Or before. And some of it was pre-pandemic land that we temporarily put on hold or terminated and then picked back up. We've seen a dramatic increase in land costs compared to the price that we purchased those parcels at.

Art Winston (VP and Senior Analyst)

Thank you.

Jed Dolson (President and COO)

You're welcome.

Rick Costello (CFO)

Thanks, Art.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.