Green Brick Partners, Inc. (GRBK) Earnings Call Transcript & Summary

Today's conference will include forward-looking statements. These forward-looking statements involve estimates and assumptions, which may be affected by risks and uncertainties in the company's business as well as other external factors, which could cause future results to materially differ from those expressed in this presentation. For a more detailed discussion of these and other risks and uncertainties applicable to the company, we encourage you to see the company's most recent annual report on Form 10-K filed with the Securities and Exchange Commission. In addition to the forward-looking statements included in our press release related to our Q2 '21 results issued on August 3, 2021. Welcome to Green Brick Partners Inaugural Investor Day. My name is Jim Brickman. I'm the CEO and Co-Founder of Green Brick Partners. We are incredibly excited to be able to show you our analysts and our shareholder community behind the scenes look at our wonderful company and introduce you to some of the managers in charge of producing our superior financial results. The focus of today's event will be to showcase our strategic advantages and demonstrate why Green Brick Partners offers a compelling investment today and tomorrow. While I don't like talking about myself, I do think it's important for investors to understand how my personal experiences have shaped our corporate culture at Green Brick, and set the tone for how Green Brick Partners operates. First, let me share a little bit about my background. My twin sister, and I were born in Chicago and raised in the suburbs in a well off German and Norwegian family, where bragging didn't take place and results mattered. My family was very competitive growing up. I was a good student, but a better athlete and still maintain a close relationship with my wrestling coach 50 years later. I went to Arizona State in 1970 and transferred SMU in 1972. In 1976, I received my master's degree in business from SMU. After spending 4 years in Dallas and getting my master's degree, I really fell in love with the positive can-do attitude here in Dallas. So in 1976, I purchased a small condominium in Highland Park for $32,500. For those of you worried if interest rates might increase, my interest rate was 8.75%. After being rejected by a job by a large Dallas bank, I decided to become an entrepreneur. Months later, I was 1 of 3 equal partners in a tiny homebuilding and remodeling company with 2 guys just a bit older than me. In the first year, my income was far greater than it would have been at a bank, and I was learning the homebuilding business from the bottom up as an on-site construction superintendent. I also learned how to sell and that everything starts with the sale. For the next 7 years, my partners and I were involved in many aspects of real estate from homebuilding, multifamily condominiums and commercial office developments. We were fortunate to do fairly well. So well, in fact, that in 1984, I decided to buy out my 2 partners in the business. As it turned out, this was not one of my best decisions. In 1978, I got married to my wife, Susan, that was probably my best decision. We have raised 4 great kids together and have our 12th grandchild on the way. For those of you on the call too young to remember, the 1985 to 1990 Texas real estate depression was much more severe for Texas homebuilders than the national recession in 2008 to 2010. I never thought most of my lenders would go broke before I did, but that happened. Every public bank and nearly every private bank and SNL in Dallas and Texas failed by 1986. And trust me, having the FDIC or the RTC as your new lender wasn't fun, but it was a great learning experience. Most of my debt was nonrecourse, but some wasn't. Unlike nearly every other Texas developer, I avoided going broke or putting a single property or entity into bankruptcy. I lost a lot of my net worth and learned the hard way the dangers of leverage. This experience with excessive debt explains why 30 years later, Green Brick Partners is one of the lower leveraged public builders. Going forward, we expect to continue to operate the business with no more than 35% debt to total capital and probably less. If you visit our website, you'll see that the lessons I learned in the '80s and earlier are the foundation for our values and culture, which is summarized in an acronym we called home. More specifically, we believe that if you are honest, objective, mature and efficient, you will set the stage for your future success in any economic cycle and maintain the strong reputation needed to succeed coming out of any economic downturn. From 1990 to 2000, I focused on home building. During that period, I found, I could make wonderful returns developing lots and building homes with almost no leverage. Today, based on lessons learned in my past, Green Brick Partners makes even better returns with low leverage. Indeed, a well-run business does not want or need much debt to succeed. By 2000, I achieved my goal of semi retiring before 50. I quit homebuilding and was able to live comfortably but not extravagantly on my savings, apartments I built and owned and distressed debt investing and some lending. Little that I know my life would soon radically change by meeting a young hedge fund manager in New York. One of my distressed investments were senior notes in an NYSE company called Amresco. When Amresco filed for bankruptcy, as I expected in the summer of 2001, I talked to court into letting me serve on the Credit Risk Committee with 3 large institutional investors. Later, I was a trustee in charge of liquidating Amresco. One of the biggest SBA lenders in the country. In the summer of 2002, an investment manager told me that a young hedge fund manager was shorting stock in a public company called Allied Capital, that owned a huge fraud SBA lender called Business Loan Express. In 2002, armed with my Amresco-SBA experience, I introduced myself to Dave Einhorn over the Internet. I'll let David tell you about how Green Brick started and later went public.

Thanks, Jim. Hi, I'm David Einhorn, President of GreenLake Capital and Chairman of the Board of Green Brick Partners. I won't get into all the background that resulted in Jim and I meeting and becoming partners. But the most direct answer about how an investment manager in New York City became partners with a builder developer from Dallas, is because Jim is capable, honest, hard-working and today surrounds himself with people that share these values. For those that love these details about the early stages of our relationship, I wrote about them in fooling some of the people, all of the time. I started working with Jim in 2002, mostly on staff related to Allied Capital and its subsidiary business Loan Express. At the time, Jim had plenty of time on his hands. In 2008, when the national real estate market collapsed, Jim proposed that we start a distressed real estate equity fund and later a second fund that would lend money to builders. In 2009, JBGL Capital, which stood for Jim Brickman, Greenlight was formed and later JBGL Builder Finance, LLC. Jim and his family owned about 10% and Greenlight entities owned about 90%. These funds had no debt. The original game plan was to buy distressed income properties cheaply, hold these investments for a few years and sell at a huge gain, just like Jim saw so many smart investors do in the Texas real estate collapse and recovery in the late 1980s and '90s. However, this time was different. Because the problem was national and not regional in scope and interest rates were so low, the banks were given a pass by the regulators, and we're not forced to sell at the bottom, most of the nonperforming assets on their books. The one asset class that the banks did not want to own was land, particularly land that needed additional capital to convert into finished lots, particularly when it was owned by financially weak builders. For obvious reasons, the banks also didn't want to make construction loans to low or no net worth builders. So with Jim's strong background in homebuilding, land development and lending JBGL was able to easily fill this gap, and begin actively buying land and lots and loans on land or lots that the banks didn't want. Some experienced builders were in financial distress. So JBGL lent the money and took controlling ownership. By 2013, the market had turned up, we had a great lot position and own controlling interests in now very profitable builders. However, the builders needed permanent capital. JBGL was not structured to be a permanent vehicle. In January of 2014, I suggested we sell JBGL to a public shell company I was previously involved with that had some tax losses. But this would require Jim to run a public company. Jim's response was an immediate yes, based on our long history together and a new challenge. My response was, you might want to think about that for a few days. Running a public company has a lot more red tape and a lot more hassles than running a private fund. Thankfully, he didn't reconsider. On October 27, 2014, we rolled the 2 JBGL funds into a renamed public company called Green Brick Partners, Inc. and a reverse recapitalization with the stock opening at $7.49 a share. We were able to use the predecessor's $180 million of tax losses to grow Green Brick Partners without paying taxes for the first few years. Despite Jim's insistence on low leverage, our results since going public have been fantastic. Our revenue has more than tripled and pretax earnings are up about 6x in just over 5 years. This growth translates into a 28% compounded growth in revenue and a 44% compounded growth in pretax earnings since 2015. Over that same period, our stock price has increased about threefold. As you can see by the 60% year-over-year revenue growth and the 55% year-over growth in earnings per share, we just announced for our second quarter of 2021, our growth rate is actually accelerating. Housing demand has shifted. Before the pandemic, demand for single-family housing was weak. Grown-up children were moving into their parents' basements. If they had to move out, they prefer to rent rather than to own. The pandemic has caused that trend to reverse. There is now a shortage of single-family detached housing that may take years to satisfy. Land development and getting permits takes time. There's no way to satisfy the new demand, which is even more acute in the growth markets where we do business. Green Brick Partners has achieved a critical mass. If you look at our income statement, revenues and gross profits are rising rapidly, and we're able to grow and leverage SG&A so that the earnings grow faster than the revenues. When you hear from our team today, how we have strategically positioned the company, I think you're likely to agree that the best may be yet to come. The takeaway I want you to leave you with today is that Jim is one of the most quietly persistent capable people I've ever met. And we now have a culture of people to think like him, our company's attention to detail, research capabilities and broad knowledge of real estate is how we cautiously expanded into some of the very best markets in the nation as we grew and how we will continue to expand into new markets as we grow. Our subsidiary builders all have decades-long relationships and in-depth knowledge in the markets where they build, which is why we have such a fantastic land and lot position. Our operating ability has now matured to where we operate and build homes like the best run large cap builders. We're particularly thrilled with the growth of our wholly-owned entry-level and value proposition subsidiary, Trophy Signature Homes, which we believe will produce scalable growth into multiple markets over the next several years and really take us to the next level. Jed and Rick will discuss Trophy in detail later. Our company's persistent competitive nature and focus on getting the job done is why Green Brick has been such a wonderful investment and should be a winner going forward. And indeed, yesterday, we reported $1.02 in earnings per share, which is more than a 30% annualized return on equity. And even better, Jim said he expects this to grow over the rest of the year. And of course, only operating in the best markets in the country, Dallas-Fort Worth, Atlanta, Florida and Colorado is icing on the cake. Now I'll turn the conversation back to Jim to tell you more about Green Brick Partners.

Thanks, David. Since going public, we have continued to evolve and grow to a national presence of 8 brands across 4 of the best markets in the country. Originally, we maintained a controlling interest in our biller subsidiaries where our local operators were allowed to participate in the profits of the subsidiary, 50-50. However, this profit split was made after Green Brick captured its profit from the lots we sold to the subsidiary at a very high IRR and our intercompany interest charges made at equity rates of returns. Today, the Providence Group in Georgia is the only builder that very successfully operates under this structure. In addition to the Providence Group, we have 2 subsidiaries with much smaller side-by-side ownership with our operators. GHO Homes, where we own 80% and center living homes where we own 90%. In both of these subsidiaries, earnings are shared according to ownership and we have a pathway to 100% ownership. But our goal is to never have to exercise that control. We believe that real estate is a local business, and we want local partners like Warren Jolly at the Providence Group and Bill Handler at GHO that have decades of experience buying land to be our local managers. Today, over 2/3 of our revenues come from fully consolidated 100% owned subsidiaries, CB JENI Homes, Normandy Homes, Southgate Homes and Trophy Signature Homes. And over 80% of our revenues come from entities where we own at least an 80% interest and can potentially own 100%. All of our subsidiary homebuilders operate through a standardized financial and integrated operating system. I want to thank our Board of Directors for helping a CEO that had never worked for or ran a public company succeed. Nobody has been more supportive than our Chairman, David Einhorn. I can remember like yesterday, missing our 3Q 2015 internal projections and analyst expectations and David's response was basically let's do better. And thanks to a lot of hard work by a lot of capable people. We did a lot better and should continue to be even better going forward. Over the next 2.5 hours, we will illustrate to you our capital and operating strategy, the unique advantages each of our homebuilders brings to the Green Brick family and share our pathway to accelerated growth primarily through the rapid expansion of our nationally scalable wholly-owned Trophy Signature Homes brand. There will be a Q&A at the end of each section. So I will now open up the floor for questions from our audience to David and myself, and then I will pass the presentation off to our COO, Jed Dolson, for a look at our operating strategy.

David, thanks again for coming. I'm looking at my iPad here, and this is a great opportunity to really address questions that we never have time to do in our ordinary investor calls. I have a number of them on my iPad that are showing up from everybody attending. So thank you for your attendance. Well, I think one of the first most interesting questions that we really haven't addressed in investor calls is talking about the existing management team. Let's see the question is what type of successorship planning has Green Brick implemented? Or do we plan to implement? Great question. I think the most important takeaway I want to leave you with is we have been planning about succession and building our bench strength. We still plan on a very strong growth rate over the next 5 to 10 years, and we've made really great strides in bringing and attracting really key people to Green Brick. Recently, who we are going to meet later, we've hired a new National Director of purchasing. That's been very accretive to our earnings, improving relationships with national account vendors. We're currently looking for -- so if you know any out there, send him over here, a Senior Vice President of Finance. Our company has grown a lot. We want to continue to improve our operational ability to really digest all the data that our IT department and Jed Dolson, are going to talk about later. And really, we've totally revamped our employee onboarding system to better tell the Green Brick stories to new people as they come on to our business. David, do you have any?

Well, yes, I mean the thing is succession planning is very important, but our current leadership is also very important. And the thing that I know is that you've already practiced retiring once. And since you already have had that experience, you'll be in no rush to do that again. So I think we're going to be set for a good amount of time with the current setup.

Great. Great answer, David. Sure. Okay. Let's see another question. Okay, if you had a silver bullet and could only take out one of your competitors, who would it be and why? Well, since this is a public forum, you never want to take out a competitor, but I can tell you that the company that we really admire and we don't try to copy ourselves against anybody, but we recognize is really the gorilla in the room is D.R. Horton. And it's particularly important for us to recognize this because we're in Dallas-Fort Worth. Many of you may not know that D.R. Horton started really in the Fort Worth, Dallas area. And not only are they the big gorilla in our industry, but they are the super gorilla in our market. So it was very interesting. Our strategy originally was we knew we couldn't compete against D.R. Horton. And what we did is we grew our businesses and you're going to meet these operators and leaders and partners later as these guys all had strategic advantages that were niche builders in each one of their markets. So we knew we couldn't go after Horton. They were the dominant guy here. You had to have not only a very efficient operation, but you had to be very, very cost competitive. So until we had a title company, a mortgage company and really a back office and support through purchasing, we knew we couldn't compete with Horton. The good news is we're there. And we're there with Trophy Signature Homes. We opened up neighborhoods that are right down the street from Horton and do a great job. Do you want to add to that, David?

Well, sure. I'd love to. A number of years ago, we were in a board meeting. And the company was, in my judgment, not earning its cost of capital. And I said, we really need to earn our cost of capital, otherwise we're not even worth book if we don't earn a reasonable return on equity. And Jim and the management team really have taken this to heart. And what's happened since then is at each time, not only has our return on capital improved, we're constantly benchmarking how we're doing. So first, we started doing better than the other small cap companies, and then the mid-cap companies. And then the larger ones that Jim didn't think were operated so well. And now we're at the point where our performance metrics are now really right there equal with the top tier despite the fact that we're still at a lower scale. And it's a real credit and watching how Jim views the competition and how the management views the competition has, I think, really inspired and motivated the company to perform.

Okay. Thanks, David. I'm going to let you really take the next question because this comes up in our Board meetings frequently, investors ask about it. And the question is, can you explain your thought process behind stock buybacks?

Sure. Look, it's really, really difficult to figure out to buy back -- when to buy back stock in this company and when not. And the reason is, is that the unlevered returns on capital that the business is able to achieve are so attractive that we have to compare it to a stock buyback. If you have a company that's earning a low return on capital and it's trading at a low value, it makes a lot of sense to return the capital to the shareholders. But here we are with a relatively low amount of leverage and a fairly heavy land burden and earning a 30% return on equity that seems poised to grow. So I think the preference of the company is because the returns on invested capital are so high to explore all of the opportunities that have high returns on capital. And to the extent that there's still some capital that's left over that works out within our leverage targets, and we're very conservative in terms of the financial leverage that we're willing to take and the stock is cheap, and it makes sense to buy some capital, so stock back in the market. But the goal really here is to grow the company, and the company has demonstrated that it is a good user of capital.

Okay. Great. Let me see what else we have coming up here that we can talk about that we don't address in conference calls. Here's one. Green Brick recently announced a 50-50 partnership with Meritage Homes on the purchase of 1,800 lots in Farmersville, Texas. Why split the opportunity with a competitor? Good question. Hogs get fat, pigs get slaughtered, as kind of the way I look at this. We have a great relationship with Meritage. They recognize our land buying and land development skills. And this was a large transaction that we wouldn't have taken on by ourselves because it really would have been too big for either us or Meritage to get through this many lots over a reasonable time period that would generate the returns on capital that we want to achieve in our business. So we split up that opportunity, and we really like doing that. As long as we have a good partner that we know we can collaborate with because there's always overlapping responsibilities in the land development. Let's see. David, you might want this? What macro economic drivers of our business do you think might impact our business? And what are your concerns as one of our biggest investors over the next few years?

Well, look, I think it's very interesting because for the first many years that we've been in business, the trick has been enough demand for the houses. And how many can we sell? And can we get reasonable margins and turn the inventory and get the asset turns? And what shifted in the last year or so, is now the question is, how many houses can we manufacture and build over what time frame and at what cost. And so we've moved from basically being a company that's limited by demand to a company that's limited by our internal capabilities to execute. And there's lots of things that can go wrong or cause costs to go up, labor, supplies, materials and whatnot. But I'm very confident that we're going to execute successfully in those areas. So what ultimately is concerned, it has to concern is what happens if the macro economy turns in a major way such that we go back to having to find enough demand for what we're doing. And the most likely cause of that would be much higher interest rates or something or something like that. But I don't think a little bit higher interest rates are going to do it. It would really take a kind of a sea change, I think, to drive the demand low enough that we're back into that nature of our business.

Yes. And yesterday, which I know you were listening to our investor call very closely as probably many of the people that we're visiting with today were. But one of the things we're having a hard time really communicating effectively is why we are not selling houses intentionally. We see great demand. We see great macroeconomic conditions, and we are delaying sales because we want to harvest greater profits as we see the price of our houses going up over time. So that's a hard counterintuitive thing for people to understand we're doing it. And we think it's going to be really a win-win for Green Brick and its investors.

But it's a very high-quality problem to have.

Yes. And one of it if you have to add. Okay. David, thank you so much for coming down here today, sharing your thoughts with us. I'm now going to pass the presentation over to Jed Dolson, our COO, who will be discussing our operating strategy.

Hello, and welcome to our Operating Strategy segment. I'm Jed Dolson, Chief Operating Officer and Executive Vice President of Green Brick Partners. As Jim mentioned earlier, in this segment, we will be showcasing our strategic advantages in demonstrating what Green Brick Partners offers a compelling investment. I would like to go over 4 key operational areas and how we foresee them fitting in our vision for accelerated growth. First, I would like to give a brief overview of how we are planning our growth through our land pipeline. We believe our land and lot runway is the best of all public builders with a significant concentration in the high-growth markets of Dallas-Fort Worth and Atlanta. Our strong geographic footprint should provide meaningful downside protection and a recessionary economy and significant selling power in today's booming market. We currently have an excess of 21,000 lots owned and controlled with over 14,000 of those lots under development. With an additional 1,800 lots anticipated to be finished over the next 6 months, and 4,600 lots to be completed in 2022. We feel our lot runway is primed for continued double-digit growth. Our lots are located in high-demand suburban areas where we can sell to third parties in excess of a 25% gross margin. Despite many requests to do so, that is not our plan. Our land and lot pipeline has grown over the last 5.5 years at an annual rate of 32%, placing Green Brick in a position to continue growing closings at a double-digit pace for the next few years, independent of expansions into new markets. Despite our move to more outlined markets, we have continued to maintain robust margins on land development. And due to strong pricing and execution, we are currently running well ahead of our minimum underwriting expectations. All of our new neighborhoods are under in at a 20% or greater unleveraged rate of return and more than 20% gross margin without assuming any home price escalation, construction cost savings or ancillary revenue from our financial services businesses. By working with other large public homebuilders and land developers through joint development and joint venture arrangements, we have been able to share costs and take advantage of larger deals than might otherwise have been too large for us alone. And outline Texas suburban markets, we continue to capitalize on our reputation in decades long relationships to participate in special tax districts such as public improvement districts and municipal utilities districts. These districts are created to provide public improvements, infrastructure and services such as water, sewer and storm water drainage in areas where city services are either not yet available or require improvement. The district is typically financed through revenue bonds, which are paid off through taxes levied on residences in a given district. For developers, this poses a significant strategic advantage as they are reimbursed for development costs once the neighborhood has created a taxable value. This next slide really puts our growth of land and lots in perspective of our public peers. With the demand for land and lots at its highest in decades, we successfully utilized our strong relationships in our markets to grow our lots owned and controlled by 133% over the past 12 months. During this time, our land acquisitions team added a total of approximately 16,000 gross lots stored to our lots owned and controlled, while maintaining the same underwriting standards that have led to Green Brick's success to date. One particularly compelling thing I would like to note is that our very high net income return on average equity in the second quarter of 30.2% was achieved despite the fact that our industry-leading investment in new land and lots will not produce revenue until 2022 and beyond. This rapid growth in our land pipeline is the strongest of any public builder and is a clear example of Green Brick's capacity to quickly and efficiently source land in our markets. We believe our core markets still have remarkable opportunities for growth, but we continue to evaluate expansion into new markets. With nearly 57,000 single-family starts in DFW and 30,000 in Atlanta, our subsidiary builders have the markets to significantly expand and capitalize on this demand. As we announced last May, we are actively working with Challenger Homes to source land in the Denver area to fuel Trophy Signature Homes expansion. We also remain optimistic that Trophy's value-oriented scalable model will be successful in other Texas markets like Houston or San Antonio. Our biggest strategic advantage when it comes to land is that each of our building subsidiaries have local operators with decades of experience in their respective markets, and are also supported by our corporate land team, one of the best in the industry. Additionally, our in-house engineers, corporate analysts and underwriters provide significant support to our local homebuilding operations. Next, I wanted to briefly touch on our purchasing. Later in the program, there will be an opportunity to participate in the live Q&A with our directors of purchasing across our brands as well as our National Director of purchasing. But I would be remiss not to at least mention how integral our cohesive purchasing program has been to our growth. After achieving the required scale to get the attention of national vendors, Green Brick now has a successful national purchasing program. In addition to resulting in millions of dollars in cost savings has provided us with preferred supply and the security of price protection across our brands. In our year-to-date 2021 results, this program has resulted in roughly 70 bps improvement in homebuilding gross margin. Our participation in these programs makes us a preferred customer and critically improves our purchasing power and leverage to manage current supply constraints. Additionally, our corporate oversight and cross-training uses the lessons learned at various subsidiaries to make improvements quickly and efficiently across all our purchasing teams. These efforts accumulate and stronger bottom-line results that help us stand out from our peers. As many of you know from our prior quarterly calls, in addition to offering a large array of home types and price points, Green Brick Partners offers financial services to coordinate and enhance the home buying experience. This includes our two 49% owned mortgage joint ventures, Green Brick Mortgage, and B Home Mortgage as well as our wholly owned national title operations, Green Brick Title. In addition to providing ancillary income, these services create a one-stop shop solution for our buyers and eliminate many of the stressors that come with purchasing a new home. This all-inclusive approach results in cross-channel revenue capture including mortgage, title, homebuilding and residential management service operations. Finally, an area where we continue to improve by leaps and bounds as our operating systems. We have a corporate team that maintains a rigid standardized accounting construction, purchasing and production platform used by all of our builders. This allows our local operators the best possible operating systems and enables our corporate office management and finance teams to consistently evaluate each of our subsidiaries to see what is working best. Additionally, we work continuously with our software developer behind our ERP system to augment the existing efficiencies and make ongoing investments into our software. For example, after completing the implementation of Express Pay with one of our subsidiary builders, we realized an 80% improvement in efficiencies with our accounts payable team. Due to its success, we are currently in the process of replicating this to our other builders. Another great example is a new master project, our IT team is currently working on that will soon be rolled out at our Trophy Signature Homes brand. This will enable us to build and roll out new communities much more efficiently and forecast costs much faster than we have been able to do in the past. In closing, the most important takeaway I want to leave you with is that we have the land pipeline, operating systems and people to grow our top line and bottom-line results. There's been a lot of discussion in the marketplace about land and opportunities and prices of land. What opportunities is Green Brick seen across our builders?

Jed, great question. I appreciate that. Just before I jump into the question, I would like to thank everybody for joining us today. Certainly means a lot to our team here that you're taking your time out of your day to join us and hopefully learn a little bit about our Green Brick operating team as well as addressing a few questions related to our land and operating strategy here on the front end. Just to kind of Jed to dive right into the question. I want to point out first, we look to acquire accretive land position for all our team builders. Trophy is our only single-family detached builder that serves our entry-level buyer, which, of course, is a very hot segment of the market currently today. Long term, Trophy is going to plan on primarily building homes ranging from the 200 to 500, which will really give them the chance to offer product on a wide range of buyers. And that gives them the ability to underwrite deals that maybe some of our other team builders wouldn't consider. Now that Trophy has really started to achieve some scale in this marketplace, we're really starting to see that business produce outsized returns and while they're minimizing incremental corporate overhead and adding communities as well as home deliveries. I think all of those are primary reasons why where we're seeing a shift to the land allocation towards Trophy.

And so conversely, when we have -- we have 8 lot of land that we've entitled over the years and what, we would call a locations, do you -- how hard is it to find new lot positions or even existing lot positions in those 8 locations?

It's getting extremely tight, right? And -- but with Trophy kind of moving to the periphery, as we see those opportunities pop up on the infill kind of 8 location still. We are able to act quickly, make efficient decisions and allocate those potentially to one of our other team builder partners.

Okay. Let's switch over to IT, Randall. The pandemic taught us all how to use our Internet and iPads better than we had pre-pandemic. Can you provide some context about what opportunities Green Brick found as a result of the pandemic?

Definitely, Jed. So just a little background. Our IT department contains a business applications team, which is made up of our residential experts for the applications and systems that we -- that our partner homebuilders use on a day-to-day basis. Going back to our acquisition of GHO Homes in 2018, that team developed a standard operating model, which we now use across all of our subsidiary partners. And we've continued to maintain that model diligently throughout the pandemic and Trophy's rapid growth. Thanks to all of these efforts. We've been able to quickly adapt to all of the constraints of the pandemic and even allowed us to recognize a 23% growth in revenue from 2019 to 2020, despite the 4%, I believe, decrease in headcount we experienced during that same time period. And now with the unprecedented first 6 months of 2020 that we've seen so far this year. We've had to rapidly scale our headcount beyond those 2019 and 2020 numbers and due to Trophy's growth, and thanks to all of the efforts we've made since 2018. We have and continue -- and believe that we will continue to recognize operational efficiencies as we continue to scale and size.

Thanks, Randall Okay, Bobby, shifted back to land. This year and even more recently, it feels like we've been saying no to a lot of land deals with rising land prices. Luckily, we were fortunate to get out ahead of the curve. We have about 21,000 lots we own or control. Can you talk a little bit about what opportunities we're seeing and what the right inventory level for us is?

Yes. Jed, I'll kind of answer that from a different perspective of really kind of how we manage to our underwriting. We -- our goal is to deliver the best risk-adjusted returns in our industry. We're going to continue to underwrite deals to our strict underwriting standards, which is meeting a 20% unlevered return as well as exceeding a 20% gross margins. But we're recognizing now that really, there's -- the market is getting tighter and deals are, quite frankly, they're just getting harder to pencil. As you just mentioned, we've built a great lot position up over the course of the last year and really have been able to source what I would consider accretive land to get us to our internal debt-to-capital ratios of a cap of 35%, which I know Jim had touched on earlier today. But we are expecting that leverage to gradually work down for the remainder of this year.

Great. Randall, I know one question everybody -- I get asked all the time from peers is are you guys virtually or you're back in the office? So do you want to talk about how -- what that looks like at Green Brick?

Yes, definitely. So 2020 came with its challenges, and thanks to our unique decentralized structure, we really didn't have many challenges moving to a remote work-from-home environment at our various business units, departments and even unique individual situations. Prior to the pandemic, our sales and construction teams, they were already working remote from their subdivisions. And it was not very challenging for us to extend those capabilities into our purchasing, accounting and other back-office teams.

So another question I get asked often is are you guys going to eventually go to virtual sales platform if there's another -- if and when there's another pandemic?

Yes. That's an interesting topic. To date, we really haven't invested too heavily in a virtual sales platform, at least on the IT side. We definitely have the capability to make virtual sales and had made some virtual sales so far this year. But our position -- I mean our buyers, a new home is their biggest purchase they're going to be making at that time in their lives. And it's our experience that they would rather walk our models and work with our experience and skilled sales agents prior to signing on a contract of a home.

Okay. Thank you. Bobby, in Dallas, Fort Worth, if you read the paper, everybody says we have less than a year supply of finished lots out there. Do you want to -- and as we talk with our competitors, everybody is pacing sales and starts so they don't run out of lots. Everybody has geared up and there are more lots on the horizon. So do you want to kind of tell the investors what our deliverable pipeline a lot looks like in the next 12 to 24 months?

Sure. I think really, I'll kind of take it even tranche a little closer to that. Really in the next 6 months, we're expecting about 1,800 lots to be -- to deliver to our team builders. And over the course of 2022, I think that number jumps up to approximately 4,600 lots. So we're very well positioned to maintain the growth that we've been seeing thus far and looking forward to continue on that path.

Okay. Great. Another question we got from the recently -- today from the audience is do we take -- do we sell homes to investors and build to rent guys? I'll take that one. We don't discriminate against investors, but we don't actively seek out investors either. So it's not uncommon for -- as we're selling homes to see some for rent signs pop in our neighborhood, but it's not something that we actively pursue. Another question? Bobby and Randall looks like we're out of time. Thank you for your time and insight. Next, we have Rick Costello, our CFO, who will be covering our capital planning and strategy. Thank you, guys.

Hi. I'm Rick Costello, CFO for Green Brick Partners, and I will be leading our Investor Day segment related to our capital structure and strategy. I'd like to begin this segment by highlighting the tremendous growth Green Brick has accomplished over the past 5.5 years. As Jim mentioned earlier, our 2020 revenues are over 3x our 2015 revenues, while our pretax income attributable to Green Brick is up double that, showing 6x higher from 2015 to 2020. Based on our results for the 12 months ended June 30, 2021, our compounded annual growth rates in total revenues and pretax income sit at 28% and 44%, respectively, which is truly remarkable. Our outsized growth in pretax earnings was made possible through our efforts to scale our business efficiently. At Green Brick, we encourage every employee to maintain a business owner mentality and take ownership of each dollar spent. In fact, our SG&A leverage reached an all-time low this quarter of 9.1% of total revenues. Our work to minimize overhead costs has resulted in a 28% decline in SG&A per home delivery over the past 5 years and has allowed our company to minimize overhead costs as we increase revenues, accelerating our pretax growth in excess of top line results. The growth we have achieved to date was only possible, thanks to the diligent underwriting and careful acquisition of our superior lot position. As Jed discussed earlier, the growth in our lot position is unrivaled in our industry as demonstrated by our 32% compounded annual growth rate over the past 5.5 years. Our growth in lots owned and controlled is a leading indicator for future revenues as each lot under development or contracted through an option agreement should convert to a potential home closing. With our total lots owned and controlled up 133% in the past 12 months alone, we believe Green Brick has a clear capability to continue our current growth trajectory. We believe our dramatic improvement in lot position can lead to sustained double-digit growth in units delivered for the next 3 years, assuming demand remains strong. To finance our tremendous growth, Green Brick uses a combination of short-term credit facility lines and long-term senior notes to finance land acquisition, land development and the construction of our homes. As you can see from the table on your screen, we have some of the best lending names in the nation as our capital providers. Our relationships with these providers, coupled with our low-risk profile and propensity to keep our debt to capital at or below 35%, enable us to maintain both short-term facilities and long-term debt at low rates compared to those of our peers. Of note, our most recent long-term private notes were issued at a low fixed rate of 3.25% and because our participants underwrote Green Brick as investment grade. Next, I would like to briefly discuss our capital structure cycle and illustrate how we marry our unique capital position with homebuilding. In this slide, we illustrate our capital structure and how it grants us the flexibility to be opportunistic to acquire new land and lots and grow our business. We begin with the expansion of our lot pipeline. Acquisition of land and lots are funded through short-term lines of credit. This results in growth of units under construction and subsequently increasing revenues. Upon reaching $150 million to $175 million in credit facility utilization, we initiate a private placement of senior long-term notes at favorable low fixed rates. As you can see in the third step of our cycle, proceeds from these notes are then utilized for repayment of the short-term lines of credit. And the last step, the cash flow from our high-margin home closings in turn funds the replacement of our lot pipeline. This cycle provides us with the financial flexibility to remain opportunistic on land and lot acquisitions in our respective markets and continue to provide our homebuilders a stable opportunity for growth. Presently, we have additional capacity on our line of credit facilities of approximately $170 million, which provides us plenty of dry powder to move quickly on acquisitions of larger land deals expand geographically into new markets or complete an acquisition. One of the most common questions we've received has been regarding Green Brick's future growth. And how Trophy Signature Homes brand is changing our business. As you can see from this slide, we pride ourselves in having some of the best product diversification in the industry. We have done this through individually branded and locally managed subsidiary homebuilders, and we intend to continue supporting their growth. As Jim mentioned earlier in this segment, we are particularly thrilled with the growth of our Trophy Signature Homes brand in DFW, where they currently operate as well as its potential for growth in other major markets. We believe this growth will significantly enhance a variety of our key metrics and fundamentally improve our business. For example, Trophy is producing very high return on invested capital by building homes at high gross margins and high net operating margins with a shorter building cycle time than many of its competitors. Despite only being launched in 2018, and the brand continues to innovate as it scales, using its world-class construction and purchasing teams to improve efficiencies at all stages of construction. For example, Trophy pioneered the use of prebuilt wall panels and manufactured trusses amongst our builders, resulting in reduced material and labor cost, improved efficiency and a speedier construction process that requires significantly less skilled labor. We believe trophy's value to be truly unmatched and subsequently intend for it to grow to become a larger portion of our business. Trophy's percentage of home closings has grown 14% from 20% of our full year closings in fiscal year 2020 to reach 34% of our total closings for the 6 month ended June 30, 2021. However, we believe Trophy is well set to continue this growth trajectory as unit started over the first 6 months of 2021, represent 41% of total starts for the company. Additionally, we have significantly grown Trophy's lot position over the last 12 months, increasing the subsidiary's total lots owned and controlled by roughly 10,800 lots. This substantial investment provides Trophy a total of 13,800 total lots owned and controlled as of June 30, 2021, representing 65% of our total lots and a 460% increase in their lot position from a year ago. While our lot runway has increased significantly, this includes to 1,000-plus lot communities for trophy that will have a much longer life cycle. Excluding these 2 communities that represent about 5,000 home sites, Trophy's share of existing lots is 54%. Because of Trophy's ability to sell across a wider spectrum of home buyers with prices ranging from the high 200s to up to $830,000, Trophy has been one of our most dynamic builders in acquisition underwriting. With the majority of acquisition opportunities in suburban single-family markets, Trophy's ability to serve the entry-level buyer has been crucial to their growth success to date and continued opportunity for expansion. Our acquisition underwriting remains strict while targeting unlevered internal rates of return of greater than 20% at today's margins without assuming increasing prices to our customers. Many have noticed that Trophy's average community size is significantly larger than our historical average. While Trophy has already significantly impacted the average size of our communities this year, we believe that Trophy's average community in fiscal year 2022 will reach an average of 160 lots, roughly doubled the average of our other brands. These larger communities have a much higher sales absorption rate allowing us to reduce active selling communities while continuing to grow net new orders. In short, Trophy's communities produced twice as many sales and are appropriately twice as large, allowing us to reduce our active selling communities, while continuing to increase total sales and reduce many of the fixed costs associated with the management of so many neighborhoods. These larger communities will allow us to grow sales and top line results while minimizing the cost and time associated with community openings and closeouts improving profitability. We believe Trophy has a robust lot pipeline in the DFW market to allow for future growth while reducing costs. Additionally, Trophy's lots include several sizable communities that will be a consistent source of revenue for a much longer time frame than a typical Trophy community. As the brand continues to become a more significant component of our business, Trophy's production of superior financial results has accelerated the growth in our bottom line results. Trophy maintained slightly higher gross margins on average versus our other brands and has seen its Q2 2021 gross margins improved 490 basis points year-over-year, well above the 360 basis point year-over-year improvement seen in Green Brick's consolidated results. There are significant overhead costs needed to start and grow a homebuilding brand to steady state optimal operating performance. Thanks to Trophy's larger community size and less frequent community turnover, Trophy has been able to maintain an SG&A leverage that is 90 points stronger than our other brands. We expect that trend to continue as we achieve additional scale in the back half of this year and in future years, which in turn will help Green Brick achieve additional overhead leverage. As those of you in attendance at our earnings call yesterday may have already heard, our Q2 2021 record results represent a new normal for our company and have set the bar for our Q3 and Q4 results later this year. We are incredibly excited and optimistic about the growth of our builders, especially Trophy Signature Homes. And expect to be in a stronger position going into 2022 than we have ever before. I would now like to pivot to addressing some of the questions we have received from our audience.

Thanks, Rick, for that introduction. Now let's jump right into some questions from our audience. First question is, do you believe your growth path over the next 5 to 10 years will be more focused on organic growth in your existing markets or expansion into other markets. Jim, do you want to take that?

Yes, I'm going to hedge that and say both. And the reason I'm going to say both is because we don't know where the best opportunity is going to take place. But I can tell you that we are aggressively looking at expanding into the Denver market right now with Challenger Homes that operates in Colorado Springs, they expanded in Denver. We own 49.9% of Challenger Homes. Tom Hennessy, who runs Challenger previously ran a public builder for 12 years in Denver. As everybody on this panel now land is where the risk is. It's also where the profit starts and kind of we're looking for opportunities there. We're also looking at other markets, but we really don't share what those other markets are. And we probably wouldn't share Challenge other than Challenge already announced that to all their people. So it's pretty public knowledge that we're fishing around Denver.

Okay. Great. Rick, what capacity does Green Brick have to continue sourcing low-cost private placements?

We have great capacity. Now that we have 5 very solid relationships with insurance companies and investors through the club deal that we closed in the first quarter for $125 million at a fixed rate of 3.25% over 7 years. When we underwrote that deal with the investors. We actually asked them what their indicated interest was, and that deal was more than 2x subscribed. So I think it's really going to come down to allowing ourselves the time, the visibility, as I suggested before on our line of credit, once that gets to a sustainably high level of $150 million to $175 million is when we move into doing our next deal. We're in constant communication with them. So it's really a very good set of circumstances for us.

Rick, explain, I think, one of the things our viewers would be interested in, Flagstar Bank administers our bank facility. And I think they've done a great job of increasing and growing our bank lines. And then tell us about, the Prudential deal was wonderful and how that started and then the club deal and who's involved in that.

Yes. Actually, all of the companies, including Securian, Barings, Voya and Hartford, they follow what Prudential initially did, which was really active underwriting of us. When we first met Prudential and dealt with the local office here in Dallas, it was a long process for them to really do a deep dive on us. And at that time and when we did the club deal, Prudential underwrote us as investment grade and the whole group continues to do that from an internal standpoint. So it was a process that resulted with Prudential closing our first deal in 2018 for $75 million. Then we did a follow-up deal in -- a year later in 2019 for $37.5 million for 3.35%. And after that, we started discussing, well, what do we do next? And that was getting a little heavy for them to go at themselves. So they threw their Atlanta team, helped structure a club deal in which they brought 4 other investors that they commonly do deals with and really they only had to go out and speak to a very small number to raise the interest. So it became a deal in which Prudential structured the transaction. There's not a lead like Flagstar is the administrative agent. But they all followed and conform to the same set of documents. So we know that every deal that we do into the future is going to contain the same terms and conditions, which is great. So we've proven ourselves with Prudential, and now we're proven ourselves with our new investors.

One of the most important takeaways that I want our audience to really understand about Green Brick is the relationships do matter. They matter not only internally but in external relationships with lenders like Prudential, and we're just thrilled to have really solid relationships with some of the premier lenders in the country.

Very much so. In fact, pretty much all of our banks and investors are on Investor Day watching us today. So that's very cool.

Great. So can you give a little recap about what our long-term debt looks like and then what our line of credit looks like, Rick?

Well, we've got $237.5 million of long-term debt, that has staggered maturities, that go out generally 4 to 7 years. And then we've got a credit facility with -- that is administered by Flagstar. Flagstar is a major participant in that. It has $265 million of total commitments. So then you add on our small secured facility with Inwood National Bank, which is a long-term relationship here for Jim. We've got $300 million total available commitments. And so right now, as of the end of the second quarter, we've got $170 million of availability. We obviously utilized a good portion of that in Q2 when we spent $180 million in land and lot acquisitions. But we also think that as we go through the rest of the year, we'll probably taper down our debt to capital a little bit and really can sustain that with the amount of flexibility that we have right now. It's really a best practice to be able to borrow up and pay down, borrow up and pay down. So it's a great facility. Our current pay rate is under 2.7%, which is phenomenal. And we have an evergreen renewal in it, where every December, we get to go back to all of the participants in it, which is Huntington Bank, along with Flagstar. We now have Veritex in that facility as well as Citi and JPMorgan and Goldman Sachs, where we will extend it this December such that as of December 15, the new maturity date would be 3 years out from there. So we get plenty of advanced notice as to any maturities which is right...

That leads into our next question we've got from the audience, and that's what is the right amount of debt for the company, Rick? Well, how do you manage that?

Our total debt as it sits right now gives us less than a 35% debt to capital, which is our own structure requirement. But how we've always set it up is that our work in process on our homes under construction. The typical relationship that we see every quarter when we measure it, we have about twice as much cost in WIP as we do in outstanding debt. And that's really where we want to be. We don't -- we want to have our most easily convertible asset to cash, which is our homes under construction, far exceed the amount of debt. So our interest coverage is fantastic and really would like that level of 30% to 35% debt to capital. If you look at our charts in our investor presentation from yesterday, we are one of the lowest leverage of all the small and mid-cap builders. So we think where we're running is appropriate for the risk that we're taking.

Let me chime in one other thing that I think many investors are not aware because it's not easy to understand looking at peers' balance sheets and their liability side of their balance sheet is that Green Brick Partners doesn't do any land banking. And land banking can be a very effective way to reduce your appearance of leverage by downloading lots and other assets to land bankers. And we don't do that because we don't think we need to do it, first of all. There were some wonderful land bankers out there. I was with a big one last weekend or the weekend before last, but we don't do that. It's almost equity-type returns that we would be giving away. And that's another reason when we start talking about gross margins, why our gross margins are so high.

Absolutely. Two things happen when you do a land bank. Situation number one, you're giving up the extra margin that we can achieve in our strong markets from land development. Our land development profits as a portion of our average selling price is 5% based on the percentage of frequency of doing self-developed lots. You give that up if you do off-balance sheet financing. And worse which is...

With balancing of risk and we choose to take that in moderate proportions by not doing that.

Correct. And we don't want to pay a double-digit internal rate of return for somebody doing an off-balance sheet. It's a high cost of capital.

Great. Thanks. So let's shift over to our earnings, which we just announced yesterday. We announced over $1 for the first time in the company's history. Can you talk a little bit about the 3-year revenue growth it took to get to that point and then what the future holds?

Well, at the beginning of my remarks, I talked about our compounded annual growth rate, how the bottom line is growing faster than the top line. And that the 27% and 37% growth in top line and bottom line are even stronger over the last 2.5 years. When you consider where we're at today, we're in excess of 40-plus percent, 44% compounded annual growth rate over the last 2.5 years. We see -- and that is directly a function of the lot inventory that you just talked about. And really, we have queued it up in advance. There's a very dynamic strong correlation between our revenue growth and lots owned and controlled. So on that basis, where we're at now and how many lots we've added, we have strong capability to sustain those double-digit plus growth rates in both top line and bottom line. The bottom line operating leverage is really coming down, should continue to come down the remainder of the year. Our margins are strong. We expect them to continue to be not just sustained, but improve over the balance of this year. We have very measured increases in our staffing. So it really is a very nice [ storm ] when you combine it with what's going on in our industry and our particular markets.

Yes. And we were -- let me add to that, when we were a much smaller business, being a public company is expensive. We had high fixed costs. And one of the things I'm really excited about that's going to translate even better going forward is our SG&A was, what, 9.2% in the second quarter, that's approaching the most efficient large companies, and we think that can continue to improve as we scale our business, particularly with Trophy.

Rick, can you talk to a little bit about what the future holds with our backlog and what those margins look like?

The margins look great. Really a lot of our backlog has grown over the last -- the fourth quarter last year, the first quarter of this year. And that was a time frame in which we were increasing prices very heavily from 9% to 25% per builder brand. So it's looking very strong at this point. We think our backlog is a little larger than we want it to be right now, which is why we're metering sales. We -- especially with Trophy and CB JENI as a townhome builder, we really want to have more spec inventory. Thank you, everyone, for your insightful questions. We hope this has given you a better understanding of our capital strategy. Now we'll be pivoting to our builder segment, where we will showcase each of our subsidiary builders. First up, we have Providence Group in Atlanta, Georgia. [Presentation]

Warren, thanks for coming. And we have some great questions that have come in about the Providence Group and Green Brick's relations with the Providence Group. I can say that Jed and I love going to Atlanta and seeing all the great stuff the Providence Group builds and develops. And I'd like to have you take us through the relationships the Providence Group has in Atlanta. I know you're a second-generation homebuilder with Pete who started it. So take us through that chronology.

Yes. So fortunate, we've been in Atlanta in the same jurisdictions that we're currently building for a minimum of 20 years in Atlanta, it's a bunch of local governments and cities. And so we have a great relationship with all of those jurisdictions. Normally, we don't have -- we haven't had to turn over to public builders yet with division presidents and so forth. So they're always dealt with me or Mike Smith. So we always do what we say we're going to do. And so we've got great relationships. But when the pandemic hit, we couldn't get the City of Atlanta even show up with inspectors, they wouldn't inspect our projects at all. In March, they basically [indiscernible] the job, but we were able to get with the local HBA and the governor staff. And by the end of March of last year, he drafted the executive order to allow third-party inspections by approved engineers to do inspections, which, if we didn't have that relationship, we wouldn't have [indiscernible] one of our best communities, we wouldn't have had any closings in first and second quarter last year.

Again, we talked about in even some of our other segues, how relationships matter. And that's really a case study of trust, people knowing you, knowing your reputation and working collaboratively for solutions in this kind of situation. So how have you -- how -- your company is growing, gosh, I don't know how many folds since we met first in 2009, but how have you handled that growth at the Providence Group, particularly doing so many different things?

Again, fortunate, we do, like you said, one of the most diverse product offerings for a builder in Atlanta. The main thing is we've got the same people that have been with us for 20-plus years. We've got some builders 15 years, some builders 25 years. So when you're building a complicated product, you need that team. But also, we've got the same civil engineers, the same land planners and architects, that are all used to working together on complicated projects, which we know in Atlanta most of it's driven by topography. And it's not the best sites are left. I mean the most difficult sites at good location.

And Waterside is a case study in this one?

Yes. Yes. And so Waterside, because of our relationship with the people that owned it, we were able to work a great deal, which we know is going to be a great community on the Chattahoochee River, 114 acres, almost 900 units that we're really excited about, and we wouldn't have that without these relationships.

Yes. So kind of what are your plans this year to manage this because everybody's interested in all those challenges?

Well, one thing keeps coming up is lots. And luckily, we had enough stuff teed up in zonings before the pandemic. And again, because of relationships, we're able to keep those things in zoning and then we were able to get those zones. So now we have over 600 lots that we are developing right now that we wouldn't have and we would have dropped them like most public builders did.

I think one of these deals, we weren't done for 5 years.

Right, we did get it done on Monday, a week ago.

Yes, which we hung in there and finally got it done. Okay, Warren, we're running out of time. So thank you very much for your time. Next, we're going to be joined by Steve Schermerhorn and Trevor Brickman to learn a bit more about CB JENI Homes, Normandy Homes, Southgate Homes and Centre Living Homes. So thanks again, Warren.

Thank you. [Presentation]

Steve. We've known you since 2009. I really think you're really one of the great success stories at Green Brick watching your career, you're now running a really large business for us. CB JENI is the largest townhouse builder in the largest town -- in the largest house market in the country. So take us through this tremendous growth, not only for you personally, but for your business and managing this business for us.

Yes. I mean going back to 2009, it really starts with -- it really started with land. Green Brick's and Jed and [ Bobby's ] team, their ability to source, entitle and develop lots for us. And not just get us the lots, but get us the lots in premium locations. That's kind of the foundation of how we've been able to grow.

And this is all through CB JENI Townhouse, originally?

Yes, absolutely. That's how it all started. And I think the other big component that has really helped us is our -- we've got a team of just townhouse professionals. I mean Erin will be on one of the panels later today, but Erin was the first person I hired when we started CB JENI. And so it's been...

Erin is his purchasing manager.

Yes, our Director of Purchasing. And having a team that has been with us for over 10 years, has grown with us, has learned through the ups and downs and challenges that the market provides, that's really been a big component of our growth and what's really helped us.

And go ahead, Jed.

So let's talk about things that have changed a little. We started Trophy a little over 3 years ago. We saw some really good success stories there. Tell us how you changed your philosophy? And what CB JENI X is?

Yes. So one of the things that we've learned from Trophy when I started was the efficiency of the kind of prepackaged, no design center experience where you're eliminating the customers' need to make all these decisions, which I think in a lot of cases, they get buyer fatigue. And so what we've done, we kind of basically copied that created CB JENI X, professionally selected prepackaged selections that we build. They still get a choice because they can choose one of those packages, but it allows us to create a better experience for the buyer, and it's more efficient. So it was -- and really, we've transitioned. We've had a lot of success with it. It's really helped us, certainly, with the current status of the market. I'm glad we did that. It's allowed us to continue to grow. And we've really transition almost all the CB JENI brand into that kind of ex prepackaged process.

So that's a little different. And this is really interesting to me, particularly because Trevor and I obviously share the same last name. But Trevor's business is quite a bit different from yours. You are much more of a manufacturing, very process driven. I think all of our builders are process driven. But Trevor, kind of take me through the strategic advantage of Centre Living Homes versus Steve's much more manufacturing, process-driven business.

Yes. So we've been able to be a little bit more nimble in some of the selections and the design process. A lot of that was due to our history building in high-density urban infill areas, where zoning districts would change from block to block, and it really forced us to be able to adapt quickly. And so when we have some new communities that we're really excited about and some of the land sellers, like, for example, we have a new community in Frisco that's 121 lots. And that was a fifth generation Texan. And it was very important for him to have a builder that could adapt to a unique townhouse lot size and have product that we had to collaborate with the land seller on and a lot of homebuilders really didn't want to go through that difficult process of collaboration and developing new product for 1 community and 1 lot size that isn't easily repeatable.

Jed, do you have any?

So Steve, you've in addition to running CB JENI X and CB JENI, which are really production-oriented companies, you also run Normandy and Southgate for us. So can you tell us kind of some of the parallels and then some of the differences between those 3 brands?

Yes. I mean I think the core of it is the people, our leadership team between all 3 brands is the same kind of what I spoke to earlier. That's where it starts. We don't lose our process and discipline. Building a house requires a process, and we have to stick to the discipline whether we're building an entry-level townhouse with standard selections or building a house that's in upwards of higher than 800,000 and it's almost a full custom house. We still have to have a disciplined process with good people. And I think the other component with the Southgate brand and to a certain extent, Normandy, is a lot of builders are getting away from design center experiences. And so having Southgate be a builder that does offer that choice allows us to get a premium over our competition that might not be doing that to provide them with the quality, experience and of course, the architecture and floor plans that just live right is really something that we're excited about.

And tell us about your new Southgate community at Windsong and how that's kind of expanding Southgate's brand up there because we're really excited about that.

Yes. I mean Windsong in Prosper, we've got 2 different product lines there that we've developed, and we've got upwards -- I mean there's a couple of hundred lots in front of us...

And it's really the last phase. Jed helped put this together for Steve. So Jed, I think it'd be a good time for you to chime in how that happened.

Yes. Well, Southgate has been buying option lots. In Windsong, we have a great relationship with the master developer out there. It was the first community to have a crystal lagoon in North Texas. So it's a great community, really attracted very high-end buyers. And to develop -- we're lucky enough to purchase the last [ paper pods ] from the developer. So we have 425 lots that we're going to build with Trophy, Normandy and Southgate. So that's a good segue to the next question we have, Steve, here. How do you -- does having 3 brands help you entitle land? And then how do you kind of fit 3 -- all 3 brands in the same city and sometimes even the same property, I know?

Yes, I mean I think the first benefit that we get with the 3 brands is scalability with the development team with [ Bobby's ] group, right? So instead of I'm able to go find bigger pieces, if I can get the entitlements for all 3 brands, which makes [ Bobby's ] team more efficient. We can -- we can develop a 500-lot deal at once versus doing a 100-lot deal here, 100-lot deal here for each different builders. So that's a big efficiency that we gain there. And then certainly, being local and being able to meet with these cities and have 3 specific brands in my back pocket to say, "Hey guys, here's what we're going to do. We're going to offer 3 distinct brands, products that fit different buyers." And so we can almost create our own little master plan within 1 company, which is -- provides us with a lot of flexibility to, a, react to market changes when things change and, b, just gather a bigger swath of buyers.

So in Frisco, Texas -- Frisco, Texas is one of the most sought-after neighborhoods in the whole country, if you read any realtor magazines or best places to live publications. You're one of the biggest builders in Frisco, Texas. When you add in all 3 builders, maybe the biggest. What does the horizon look like? Firsco's the end is kind of approaching, where do you high-end buyers buy and build next?

Yes. I mean I think Frisco has got a little runway, but not -- that's not a long runway. And so I think the natural progression as North Dallas, the area itself as we continue to see job growth in transplant or migration in, the needs for housing will continue to move north, I think. I think we'll -- Prosper is not that big geographically. But certainly, with Windsong, we've got -- I think we think that the buyer is going to migrate there. And then certainly, Allen, McKinney, even Celina, I think Celina is the next Frisco, I think it's going to have a lot of that growth that Frisco has seen over the past decade.

And Trevor, we just mentioned it's kind of finishing of a high-end townhouse neighborhood in Newman Village, which we're excited about. But we're really excited about Painted Tree. I don't know what you could share with our audience about Painted Tree, that was really a [indiscernible] for us to be involved in and tell us about CB JENI and Normandy's involvement up there McKinney.

Yes. So we've -- there's -- we've worked with [ Tom Oliver ] and his team. We're buying -- well, it started with 2 pods. We were going to buy 2 pods for Normandy to get in there and really, the premium what we think are the premium pods. And part of that kind of to the point of having the multiple brands, that wasn't a townhouse. There wasn't a townhouse component when we started those conversations. And then over time, as we continued those conversations, we found that, hey, we can change the land plan a little bit and end up with some townhomes here, too, which I think is going to -- it really shows what we can do and it shows how we can work with partners and landowners.

Yes, one of the advantages, and another takeaway I want to leave our audience with, is that a lot developer, when they get zoning, they show renderings to a city. And as we have had real advantage over really decades of our builders working with these cities, we can actually show them what's going to be built. And we have, I don't know how many neighborhoods we've done in Frisco where they'd actually seen us execute this with our other builders. And that's just a huge advantage versus trying to get entitlements and overcoming neighborhood objections showing pretty pictures.

Absolutely. Yes.

So on the other end of the spectrum, Trevor, you've typically been an infill builder. And you want to tell the audience kind of what you're looking like the next few years?

Yes. So in the past, we've built mostly high-density urban infill. And what we've seen especially in the post-COVID era is a lot of the millennials are moving out of the city centers into the suburbs or the suburban city centers. And so we've been very excited about growing outside of the urban core of Dallas into some really exciting neighborhoods. So we have a new neighborhood in Heath, 27 single-family houses. We have a new neighborhood on the edge of CityLine, which is the regional headquarters of State Farm. That will be 58 townhomes. We touched base a little bit about the Newman Village, which is close to the PGA headquarters in Frisco. And then in Waxahachie, we have some new communities opening up, too.

Great. So with the pandemic kind of easing, are you seeing more traffic in your infill locations?

Yes, our infill locations are doing great. We're still excited about our urban infill. We're just diversifying and growing with suburban infill locations as well.

So it's basically people like you, that look like you, that used to be urban that were kind of moving to the suburbs now?

Yes. Yes. And some -- and some of your demographic that are moved down buyers as well.

Okay. Thank you.

And do you think that's because people at your age are having kids and wanting to get into better school districts. What's driving the infill in the suburbs?

Yes. It's not just the pandemic and COVID. It's also the demographics of the millennials getting older and starting families and wanting a little bit more elbow room and some values in the suburbs.

Great. So in summary, I think, Steve, really big things ahead for you guys. I think when you add your 3 brands up, you're right around 1,000 closings a year, headed toward 1,200. We have the land pipeline to do that.

We don't have the time to do that. Sorry, Jed. I think, we got to cut you off, we got to keep the show moving forward. Thanks for coming on. Next, we're going to have Brian Bahr, who started Challenger Homes in Colorado Springs, and he's going to be our next guest, and I look forward to introducing Brian. [Presentation]

Brian, thanks for coming down here. I can say, very honestly, we own 49% -- 49.9% of Challenger Homes. I was very cautious about that when we did that a little over 4 years ago. It's been just a fantastic experience. And we've talked about Green Brick and our team builders, but I can say unequivocally that we have learned so much about culture, people and really the human side of running a business from Challenger Homes. And kind of take us through what your plans are for Green Brick/Challenger Homes and growing with you in the future.

Great. Thank you for having me down, Jim. It's been a pleasure to be your partner for over 4 years now. And since our partnership was formed, we've grown the company from under 400 closings a year to more than 500 in Colorado Springs. And last summer, we hired a Division President for Northern Colorado. And this year, we will close 50 homes in Denver and Fort Collins with goals of closing more than 200 homes next year. So it's been a great partnership, and I love being part of the Green Brick culture and just being partnered with great people like you.

Thank you so much. And I really do mean that. For people that want to see a really great group of people that can really row the boat together. Colorado Springs -- I mean Colorado -- your operation in Colorado Springs is great. And we don't announce returns on capital by builders, but I can tell you that one of the exciting things is treating people well really can translate to the bottom line, which you may want to address.

We have always been very good to our employees. We believe that making life better is our mission. And so we try to make life better for our customers and our employees and our trade partners, and it's resulted -- it's come out with great results. We're very thrilled.

And how many employees do you have? I mean you took them all on a cruise.

Yes. When we celebrated our 20-year anniversary, we took all of our employees and many of our trade partners on a Disney Cruise, just to say thank you for everything that they've done for us.

Yes. That's just great. Tell me about your kind of strategic advantage. You've been in Colorado Springs a long time. You develop a lot of lots and kind of take us through that lot supply because that's kind of the starting point for your success like it is for other businesses.

Well, just as you've mentioned, real estate is a local business, and it comes down to relationships and understanding your market. And we've been fortunate to develop relationships in the 21 years that Challenger Homes has been in business. And for years prior to that, that give us a first look at land. And so whereas other builders may be paying market rate or even getting hometowned at times when they come into Colorado Springs. We are able to see first -- get a first look and to see the land and to buy it right. And that adds, we estimate, 7% to our bottom line margin.

Before you run out of time, I want to give it a shout-out to Tom Hennessy, who's your CEO, because really, right after we went in the business, it was a little bit shocking because you wanted to change management, and that was a little over 4 years ago. And I can't say what a great success he's been to help -- helping our business grow together.

Tom is tremendous. He came from a public builder. He was in Denver, so he knew that market, and you and I had discussed that Denver was twice the size of Colorado Springs and a big growth opportunity. So this was a natural transition, and he's done tremendous work.

Well, thanks for your time, Brian. Thanks for coming out to seeing us again. We love our partnership with Challenger Homes. For the next segment, we're going to be taking closer examination of GHO Homes in Vero Beach, Florida area with Bill Handler, our President and operator there. Thanks, again.

Thank you. [Presentation]

Thanks for joining us. For our viewers, we've been in business together 3, 4, 5 years. Oh, gosh, I can't remember when we even met. It's a long time. I can tell everyone that it was one of the smoothest handshake transactions we've done. We shook hands, ended up being 80-20 owners, and it's been a great experience for Green Brick and our staff. Tell our audience, really what GHO does. When we met, you were almost exclusively selling to retired buyers from the Northeast, but share GHO's advantages and strategy for your business and who you sell to?

Generally, we do still sell to mainly retirees. We're in a smaller market of Vero Beach. It's very quiet. It's for people who have earned the right to come retire and live the lifestyle that they've always dreamed of come to, and we try to supply that market. Now it's changed with more people working from home, and they're using this as a place to sort of unwind and come to. So we're seeing buyers from all over the state, which is a very surprising trend, and from all over the country really showing up at our doorstep. But the core is still going to be retirees only because it's not a job market, but it's based upon a place where people can live the lifestyle that they really wanted to do, and everything is not too far.

Bill is a very conservative guy. They prospered in Florida, which is notorious for big building cycles. And one of the really unusual things about our business is we really have no debt at the subsidiary level, and we still make really great returns at GHO. Take us through some of the options and what you provide customers.

We try to be the premium brand locally. So for dealing with retirees, all the nationals want to do the same thing. Our goal is to be a step above. So from structural options to, I call them one-off options, a music room, something that guy just got to have because he's always dreamed of it, to our design studio, which there's nothing quite like it in the marketplace. We have the full gamut to provide our customers what they're looking for. Now we're built structurally -- not structurally, procedurally to build these homes for people with minor modifications.

Yes. I remember when we were doing our underwriting and visiting you, we were visiting a very large builder's competitors community, and he actually told me he sent you customers because they wouldn't make any changes.

Right. It's a marketplace that we're still dominant in and we just continue to grow it. Now we're doing it by price points. So we're getting up into $1 million homes in markets locally that the big nationals won't touch.

Tell me some of your newer neighborhoods that we're doing together that you probably wouldn't have done because they're larger and big investments that we made with GHO.

That's a big part of the partnership why I enjoy it so much. But yes, we do have a bigger window. Seaglass, which is on the island in Vero Beach is one of probably the last beautiful piece of properties that we're developing now. We can -- it's going to be amazing. And we have an...

That's for 72 home sites in the $1 million kind of...

That will probably be right about outside -- right about $1 million. And we'll have 2 different product types open up probably next year, but it's very exciting. And there's really nothing to compete with it. So we can find great opportunities like that. The Strand is another project where we're going to do over $1 million homes. And then things like Bent Pine near golf course, which are $600,000, $700,000, $800,000. So we're varying price point and letting buyers choose what they want.

Yes. Well, it's been a great experience. One of the fun things was your head construction guy actually has worked for you and brought you to your college dorm, I believe, it's another example of people matter and they perform.

It's all about the people. I have the best team. We've a couple of who have been together for almost 25 years. We used to be young. But it's easy to work with those people and you continue to grow.

Jed, do you have any?

Do you want to tell the investors kind of what closing -- how your closings this year look and how -- you've obviously bought a lot of land this past year, where are you trying to grow GHO and at what price points are you trying to...

We're really set up and -- the way the market is changing, we're set up so well for the next couple of years, it's great. Yes, it's hard to build right now. Yes, closings are going to be constrained. But we've got the best land stuff that you can't reproduce and we can set price points as we go forward. So the pacing is really going to work well to our favor. And we've got 5 projects opening up between now and like 6 months from now, all going to be different price points within the same geographic area.

Yes. We're really excited to see you build on those.

Yes. And you have really one of the great design centers in your whole market.

No. There's nothing quite like it. We keep -- we love that. It's a big differentiator.

Okay. Well, thanks for coming. Unfortunately, that's about all the time we have for this segment. I'd like to pivot to one of the most anticipated segments that we get lots of questions on, and that's purchasing, bottlenecks, supply chain. This is going to be led by Jack Wilkins, our National Purchasing Director.