Edited Transcript of GRBK earnings conference call or presentation 12-May-20 4:00pm GMT

I’m pleased to report that we closed our first quarter of 2020 with yet another record-breaking quarter, including an all-time high basic EPS, a record backlog of $427.3 million and net new home orders up 42%. Under more typical circumstances and absent COVID-19, this would be a cause for celebration. Seeing much of the country come to a stop in a matter of weeks was something even the most seasoned CEO could not anticipate. We feel more confident now than only weeks ago, but we remain cautious about the potential effects that the COVID-19 pandemic have on Americans, our business and the economy as a whole. As conditions change, we will continue to revolve our COVID-19 response that was first implemented in the beginning of March to reflect the best interest of our staff, customers and business.

Please flip to Slide 4 of your presentation. We are a diversified builder with 8 brands in 4 major markets. Our diversification includes a wide array of home types and price ranges from homes as low as $200,000. As we continue to evaluate the consequences of this pandemic, we remain positive that our diversification efforts have placed us in a position to continue to weather this storm. While our industry has undoubtedly been impacted, homebuilding has been designated as an essential business in 100% of the markets where we participate. And all of our operations, including mortgage, and Title services, sales and construction have remained active. Beginning mid-March, employees with the capacity of work remotely have been doing so. And stringent social distancing guidelines have been implemented for the remainder of our employees.

On Slide 5, we have outlined some of our ongoing COVID-19 response. We have revised our land spend strategy to improve our liquidity and better reflect lower net new orders. This has entailed reducing purchases of lots and land, slowing land development spend on existing projects and halting expansion into new markets like Houston. By effectively idling parts of our business, we believe we can maintain very strong liquidity while positioning our operations to meet buyer demand.

I am pleased to report that our sales offices remain fully operational by offering virus-private appointments, implementing private self-guided tours, and for areas with the strongest stay-at-home orders, live virtual tours accessible directly from the customer’s home.

In an effort to remedy the significant decline in foot traffic, we have expanded our digital marketing efforts. As a result, in March, we saw an increase in digital traffic of 76% over the prior year and a year-over-year increase of 44% for April. Here are the details for the impacts on sales and cancellations since mid-March. Net sales in April were down 42% from April 2019. With the first 11 days of May, our net sales are already over 80% of sales for all of April with 3 weeks remaining. In fact, our net sales for May are running 25% higher than in May 2019. For the 6-week period ending May 11, our sales have steadily improved with gross sales and net sales, both increasing each week. And our net sales in the week ending yesterday have gone up by 440% since the first week of April 6, when things were very slow.

Our cancellation rate was elevated in March and continued to be high in April, with — April cancellation rate of 31% was almost double the Q1 cancel rate of 16.5%. But our cancellation rate for the last 2 weeks is now consistently normal around 17.1% versus our first quarter average of 16.5%. Our mortgage and title ventures have also continued to operate within the confiance of social distancing, which has included moving the majority of meetings to digital platforms and conducting over 95% of our closings as drive-through closings.

See the map on Slide 6, where we begin our discussion of the markets we participate in and how COVID-19 has impacted our business in these specific locations. Approximately 65% of our billing revenues in Q1 were from our Dallas operations. And the latest data indicates that our Dallas communities are located in cities, which have been identified as some of the most recession-resistant cities in the country. Indeed, a report from SmartAsset recently named Frisco, Plano and Denton, as 3 of the 4 most recession-proof cities in the country with Arlington included in the top 20.

Continuing with our Dallas Ter, we are seeing some really nice results in our Trophy Signature and CB JENI brands. Interestingly, sales have also increased in our higher brand second time move-up Southgate brand. And our first time move-up Normandy brand.

Please go to Slide 7. Atlanta has not performed as well due to worse conditions economically and delays due to the wettest winter on record. However, we are optimistic with 4 new lower price point neighborhoods set to open in the next 6 months. Most of our lots and homes are located in AAA constrained North Atlanta suburbs like Alpharetta and Johns Creek, where lot supply and coming lots under development is less than 2 years.

In Vero Beach and the Florida Treasure Coast, our large buyer deposits of nearly 13% of the purchase price has resulted in a very low cancellation rate on our backlog sales. We believe that once our age-targeted northeastern buyers can resume travel to Florida, sales of our low-density affordable homes will pick up considerably.

Lastly, we anticipate the demand to remain consistently strong in Colorado Springs due to a very robust economy with new home demand driven by military installations, low interest rates and first-time buyers.

Jed Dolson, our President of the Texas region, will now speak in greater detail to our land position and gross margins. Jed?

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Jed Dolson, Green Brick Partners, Inc. – President of Texas Region [3]

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Thanks, Jim. Please move to Slide 8. John Burns Real Estate Consulting has published maps of our Atlanta and Dallas metropolitan areas, where they have designated grades of submarkets of most desirable, being an A market through most affordable, an F market, based on a variety of subjective factors such as quality of schools, proximity of jobs and the 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 submarkets rated as most desirable. In the current market environment, we believe that superior market positioning of our lot inventory will be key to differentiating our results from our peers. With strong lot positions in some of the most high-demand areas of Dallas and Atlanta, we are hopeful that our team builders will be able to bear the impact of the COVID-19 crisis. This position is further strengthened by the lot supply shortages in both northern suburbs of Dallas and Atlanta, which we believe will be a strategic advantage for us as we expect land development activity will slow in the coming months.

Moving on to our community count, which grew 18% from Q1 of 2019 to 93 active selling communities today. We continue to open more communities geared towards first-time buyer. However, this increase on affordability has not been at the cost of increased risk. Based on our Q1 2020 home closings of our unconsolidated mortgage venture, Green Brick saw an average FICO score of 755, with 85% of our fundings exceeding a FICO score of 700. The credit worthiness of our average buyer profile is a fundamental strength of the A markets where we operate. We believe we will continue to mitigate risk of our business. Our lot supply is also uniquely positioned to create positive cash flows for Green Brick as we strategically reduce our land spending.

As you can see on Slide 9, Green Brick has maintained a consistent percentage of owned lots at or above 70% for the past 2 years. With more than 45% of these owned lot inventory finished or nearly finished, we are confident in our ability to simultaneously slow our land pipeline down while still maintaining an ample supply of lots for our team builders. This supply of ready lots will translate into strong positive cash flow in future quarters as we close homes. This would not be possible in a land light business model. We also believe that our land position will permit Green Brick to generate some of the best margins in the industry as we close homes.

Slide 10 of our presentation compares our Q1 2020 gross margins with available peer data. Our gross margin just reported in Q1 was 23.1%. This was up 230 basis points over Q1 2019 and sequentially was up 150 basis points over Q4 2019. We believe our strong margin experience this quarter is evidence of our conservative land underwriting and prudent planning or a winning strategy that has left the company well prepared to manage pace and price during the remainder of 2020.

The next 2 slides demonstrate the significant improvement Green Brick has made in diversifying our product lines over the past 2 years. Let’s first look at Slide 11. As Jim mentioned earlier, we now offer 8 unique brands with the addition of GHO Homes in 2018 and Trophy Signature Homes in 2019. Our robust single-family growth of 99% from Q1 2018 to Q1 2020 is highlighted by GHO’s revenue of $22.4 million and Trophy’s revenues of $28.0 million in the current quarter. GHO and Trophy’s homes sell at lower average sales price with their more affordable age-targeted product and affordable products, respectively. As a result of this product diversification, our ASP has decreased 6% since the first quarter of 2018, all while maintaining higher-than-average industry gross margins and profitability. This improved affordability will be crucial in preserving and hopefully improving our market share under the current economic conditions.

Slide 12 visually demonstrates that we have grown our revenues and provided stable earnings by not concentrating on any 1 homebuyer segment. We now address 6 distinct consumer segments, which all experienced strong revenue growth and sales volumes in Q1 of 2020. Our 42% year-over-year growth in net new orders demonstrates the health of our markets prior to the COVID-19 pandemic. The growth breaks down as follows: entry-level, up 211%; age-targeted, up 11%; first-time move-up, up 146%; suburban town home, up 8%; second-time move-up, down 24%; and our urban living, up 46%. Our expectation is for the entry-level segment, those homes with an average sales price under $300,000 to grow in size in terms of community count, sales orders and closings. In that regard, during the rest of the calendar year 2020, Trophy Signature Homes and CB JENI Homes are expected to open a combined 7 additional entry-level communities, up from the current 8 entry-level communities.

Next, Rick Costello, our CFO, will discuss our first quarter and annual results in more detail.

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Richard A. Costello, Green Brick Partners, Inc. – CFO, Treasurer & Secretary [4]

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Thanks, Jed, and thank you for joining us today to review our 2020 first quarter financial results. Please move to Slide 13 related to our financial highlights. For Q1 of 2020 versus Q1 of 2019 comparisons, here are some key operational metrics. Net new orders increased by 42.3% for the quarter, and that’s what Jed just went through on how that broke down by our segments. This increase was a function of a 17.5% increase in absorption rate or net orders per community as well as a 20.5% in average selling communities. Home deliveries increased by 21.7%, with residential units revenue up by 18.3% for the quarter. Year-over-year, homes under construction are up 21%, with homes started on a last 12-month basis, up 24%. The dollar value of units in backlog increased by 39% year-over-year and 23% sequentially.

As Jed highlighted, homebuilding gross margins was up 230 basis points over Q1 of ’19 and adjusted homebuilder gross margin was up 270 basis points quarter-over-quarter and sequentially was up 150 basis points over Q4 of ’19. And last and most important, our bottom line Q1 2020 EPS tied our Q4 2019 all time record EPS of $0.32, which was an increase of 28% over Q1 of ’19. Very importantly, please note that in the current quarter, the company recorded $3.4 million of lot option contract abandonments or reserves for lot deposit impairment for future communities, which had a $0.04 impact on EPS, net of taxes. Without these costs of abandonment/reserves, Q1 EPS would have been $0.36, a new all-time record for the company by more than 12% and would have been up 44% over Q1 of 2019.

Now please turn to Slide 14. This is a new chart for us. Here, we show our year-by-year growth in backlog. As measured by adding our Q1 closing volume plus our ending March 31 backlog units and then comparing that total to total of the prior year’s closing volume in units. So this calculation shows that our units closed this quarter plus our units in backlog scheduled to close during the remainder of 2020 represent 82.5% of last year’s closing volume. And you can further see how that’s improved every year at this time as our backlog and first quarter performance has consistently — have consistently both been in strong uptrends. So as a result, we have grown from being in a position back in 2017 of having 62% of our prior year’s volume covered at the end of Q1 ’17 to a point where we now have 82% of last year’s volume on the books or in backlog as of the end of Q1 this year. We believe this measure indicates our low reliance on spec units to meet prior year volumes and shows our company’s strength entering the current market decline. This also indicates that we build and sell in strong markets and that we are executing very well and at the right time. Now in particular, both CB JENI Homes and Trophy Signature Homes performed exceedingly well during the first quarter prior to the COVID-19 closures and have been the quickest to see sales order rebounds in the last 4 weeks.

While Slide 14 notes the impact of our strong sales performance on our inventory position, Slide 15 clearly demonstrates that our business is a variable cost business. Over the past 3 years, our operating leverage, as seen in the SG&A percentages, has improved with a percentage of revenue decline from almost 13% down to 12.2% on the last 12 months basis as of 3/31/20. And you can see that, that’s the gray line going across the chart. It’s fairly flat, but it has trended down to the point where we’re at a lower 12.2% SG&A leverage. At all revenue levels, however, you can see an immediate adjustment in expenses. In recognition of the future impacts of COVID-19 and understanding the need to continue to run our business as much as possible as a variable cost business, we executed a cost reduction plan commencing in April. As we noted in our 10-Q, this included salary reductions ranging from 32% for our CEO, 30% for the cash compensation for our Board and decreases of between 5% to 30% for the remainder of our staff. In addition, we implemented an overall staff layoff of 18%. In total, these cost reductions represent $10.4 million on an annualized basis. We intend to continue to align compensation and overhead, if necessary, to maintain the lean organization, which we expect will allow us to drive our profitability and maintain our industry-leading gross margins and operating margins.

Now please turn to Slide 16. Here, we have compared our preparedness versus our small and mid-cap peers in terms of critical measures of an organization’s ability to thrive in a post-COVID-19 recessionary world. We have provided 4 measures. I should let you know that you can flip down to Slide 20 in our appendix, which includes the calculation of equal weighting these measures and why Green Brick is at the top of the chart. We’ve already discussed how well we have booked 82.5% of unit closings and backlog units through 3/31/20 as compared to last year’s closing levels. That is the first data column next to the builder names. And Jed already discussed our very strong gross margins, which are again displayed here. Strong gross margins give Green Brick a very high starting point of profitability against which we believe we can withstand recessionary incentives or slower volumes, which may occur when the economy is beginning to recover.

Also included is our first quarter interest coverage of 8.5x EBITDA, which is a function of great earnings, combined with conservative lower levels of financial leverage and lower-priced debt. Finally, we include the percentage of owned lots. Let me explain this one. As stated earlier, a supply of more owned and ready lots gives a builder the opportunity to generate tremendous positive cash flow in future quarters when we close the homes. Green Brick is positioned to monetize these ready assets on our balance sheet. This is simply less dynamic a factor for a land light business model.

So put all these measures in relative rankings together, and we believe that Green Brick is better positioned than most of its peers, and has the ability to excel in a more competitive environment.

Finally, look at Slide 17, which you’ve seen since we pretty much started doing these presentations. While we expect our business model to generate free cash flow in the coming months, we also entered Q2 2020 with significant levels of liquidity. As of March 31, 2020, Green Brick maintained $106 million in cash and cash equivalents and $37 million in additional capacity on our revolving lines of credit. Due to the unprecedented disruptions to the credit and economic markets rising from the COVID-19 pandemic and sales that stalled in late March, we drew the full amount of our unsecured revolving credit facility during the 3 months ended March 31. We intend to maintain a bit higher-than-typical cash balance going forward to hedge against the uncertainty in the industry and augment our free cash flows generated from operations.

Our net debt-to-capital ratio, as shown in this chart, remains one of the lowest in the industry as it has always been, which positions Green Brick to continue limiting risk while preserving profitability.

I’ll now turn the call back over to Jim, who will wrap up our part of the call prior to opening things up for Q&A. Jim?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [5]

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Okay. Thanks, Rick. In closing, what remains uncertainty with the ever-evolving reality of conducting business during the pandemic, we have seen a significant uptick in sales week by week, and we believe that the combination of our COVID-19 response measures and our management team of industry veterans that has successfully navigated business cycles, will allow us to continue to conduct our business in a manner consistent with the prudent approach that has historically delivered superior risk-adjusted returns. Because of our record backlog, we have visibility into a decent Q2. Our job is to continue to sell as many homes as possible to build up our backlog for the rest of 2020 and into 2021. By the time we get through the challenges of COVID-19, we will have adapted to a lot of changes. What won’t have changed, however, is the strategic and disciplined approach and conservative financial leverage, which we require to running our culture and values that we call home.

I’ll now turn the call back over to the operator. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question comes from the line of Michael Rehaut from JPMorgan.

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Margaret Jane Wellborn, JP Morgan Chase & Co, Research Division – Analyst [2]

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This is Maggie on for Mike. First, I wanted to ask on your gross margins. Obviously, you reported very strong margins in the first quarter. As you look into 2Q and the rest of the year, I was wondering if you could talk about what you’re seeing in terms of incentive levels. And also maybe your degree of confidence that you can continue to deliver those strong margins as the year progresses?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [3]

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I’ll start the first part, and Jed can chime in. Looking at the increased sales that we experienced in the first week of May, we achieved those sales with only moderate increase of incentives, less than 1%. So we are not — it’s been very surprising because of the very low levels of existing homes in all of our markets. And really, the buyers are very intelligent buyers, but we’re really not seeing, at this point anyway, a lot of margin compression. Jed?

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Jed Dolson, Green Brick Partners, Inc. – President of Texas Region [4]

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Yes. I don’t really have anything to add.

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Margaret Jane Wellborn, JP Morgan Chase & Co, Research Division – Analyst [5]

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Okay. And then second, I believe in the past, you’ve talked about how you have the option in August to increase your ownership in Challenger Homes to controlling ownership. So I was wondering if you could talk about how the current environment has changed any plans there? Or how you’re thinking about that opportunity?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [6]

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Yes. We — well, first of all, Brian Bahr has just been a fantastic partner at Challenger Homes; and Tom Hennessy, his division President and CEO have just been — have really done just an unbelievable job for us as being a 49% minority investor. And the way we left it with Brian is that he did not want to lose control of his business basically to us right now, where we would go from 49% to about 70%, for 1 simple reason, and that is because his return on capital is running as well or as high as any business we’ve ever evaluated. So Brian wants to maintain ownership. And we are so delighted just to be at 49% ownership — owner or partner with him and we’re just going to maintain being a 49% partner.

Well, one other thing that they are cautiously looking at, and we said we weren’t expanding into other markets, is Challenger is either the second or third, depending on quarterly rankings, largest builder in the Colorado Springs market that extends north toward Denver. And they are looking at some sites to very cautiously expand into Denver right now.

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Margaret Jane Wellborn, JP Morgan Chase & Co, Research Division – Analyst [7]

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Got it. Okay. And one more on Trophy, quickly. You said that you’ve kind of decided not to expand into Houston for the time being. But as you look forward, is that still an opportunity that you would evaluate? And has the current situation changed? I mean outside of the obvious, limiting land spend and development, has the situation changed how you’re thinking about Trophy’s expansion within the Dallas market?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [8]

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Yes. I’ll address Houston. Really, we made the decision internally not to expand into Houston in late February before COVID-19 just because of oil prices, and we didn’t really announce that internally until mid-March because we were watching that closely. Our exit, we made no investment in land lots, et cetera. So we’re monitoring Houston, but we don’t expect to be entering Houston anytime soon. And Jed, why don’t you talk about where we are with Trophy and Dallas?

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Jed Dolson, Green Brick Partners, Inc. – President of Texas Region [9]

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Yes. We’re still growing Trophy and Dallas. We have great land positions. A lot of those that we previously signed up. So say, if they’re option deposits, that money has already been spent. We’re excited to get those opportunities when those lots deliver based on our recent track record. So we feel like we have top land positions, top operator and a top team underneath that operator. So we’re very bullish on Trophy.

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Operator [10]

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(Operator Instructions) Your next question comes from the line of Carl Reichardt from BTIG.

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Carl Edwin Reichardt, BTIG, LLC, Research Division – MD & Homebuilding Analyst [11]

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I had a couple for you. First, just a cleanup. Rick, can you tell me where the option walkaway charges were, like what markets?

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Richard A. Costello, Green Brick Partners, Inc. – CFO, Treasurer & Secretary [12]

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They were all in the Dallas market. They were basically communities that we had not started up yet and just felt that the competition was not what we wanted to face without any kind of momentum or sales presence.

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Carl Edwin Reichardt, BTIG, LLC, Research Division – MD & Homebuilding Analyst [13]

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Makes sense. And then just that connected to my next question. So when we look at community count for you, which has been growing fairly rapidly, given the new environment, is the right way to think about this, let’s say, at current sales basis that you would try to replace communities you closed out of, so keep your community number of neighborhoods flat? Or would you attempt to sort of bleed that down, do you think as you’re looking out sort of over the rest of the year? I guess I’m asking how have your community count — your community opening plans changed for the balance of ’20?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [14]

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Carl, that’s very fluid, I think is the best way to describe it. If you would have talked to me in April, I would have said we were going to really shrink. And I got my sales report last night, and I would say, gosh, we shrunk too much and we should be a little bit more aggressive. So I really think it’s going to be between those. We’re probably going to be slightly growing to stable.

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Carl Edwin Reichardt, BTIG, LLC, Research Division – MD & Homebuilding Analyst [15]

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And then last, historically, as a growing company, a growing builder, you’ve been operating cash flow negative. Most of the time, modestly negative. I think ’18 was the last time I remember you were OCF-positive. Again, sort of given the new environment, given the lots you have on the books, given the importance of liquidity cushion, how are you thinking about cash flow sort of for the rest of the year? Is it right to think about you being positive OCF for the time being for the next few quarters? Or are we going to see sort of a more of a seasonal trend where you’re back-end loaded to positive-OCF?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [16]

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Well, I think it’s — we are going to see increasing free cash flows over 2020. But because we had such a large backlog going into the second quarter, we are not going to produce a lot of free cash flow in June or July. It’s going to take place after that because of that huge bulge of backlog that took place. And obviously, our goal is to then replace that backlog with as many new sales as we can. And we will trade-off some cash flow for making home sales at high margins. So — but I think that generally, we don’t predict how much our cash flow is going to be going down. I’ve met with all of our lenders. And we think that it will go down considerably in the third and fourth quarters. And the only reason it wouldn’t is if we just sold a whole bunch of houses in June and July.

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Richard A. Costello, Green Brick Partners, Inc. – CFO, Treasurer & Secretary [17]

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And when he’s saying go down, Carl, it’s our cash flow is going to be up and our debt is positioned to go down.

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Carl Edwin Reichardt, BTIG, LLC, Research Division – MD & Homebuilding Analyst [18]

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Yes. And I think that — so that’s the question. And Jim, just my last one is really as you look at this, and you have to be built as sort of the key part of your model. You mentioned that orders, I think, net sales are up 25% so far in May, year-on-year, which seems quite remarkable. Is there a difference in how the consumer is approaching and how your CAM rates are trending on your to-be-builds relative to the spec that you have?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [19]

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Yes. It’s been really interesting because, first of all, we’ve seen our specs really decrease, and as we mentioned in our call, we’re not unique that we really cut back on our spec building and our — many of our peers did the same thing. So when the buyer comes out to a neighborhood, typically they’re not seeing a lot of spec inventory and if they want a home, we’re directing them into existing homes because these people want to home right now, and we’re seeing that. And Jed, do you want to talk about kind of build jobs at Trophy and what they’re saying?

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Jed Dolson, Green Brick Partners, Inc. – President of Texas Region [20]

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Yes. So just because of the shortage of spec inventory on the ground, a lot of people are signing up for to-be-builds, but specs are primarily their first choice.

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [21]

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Carl, one of the other things that we did that we’re going to continue doing is that even on build jobs, as you — the entry-level buyer is probably the lowest FICO score and most vulnerable buyer when things change. And we have increased our lot deposits. I mean our customer deposits pretty much across the board from Trophy and all of our other builders because we don’t want to start a home and then end up with a cancellation or something else. So we have noticed that our peers have kept their lot deposit very, very low. And we’ve raised ours, and it really hasn’t impacted our sales velocity.

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Operator [22]

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Your next question comes from the line of Bill Dezellem from Tieton Capital.

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William J. Dezellem, Tieton Capital Management, LLC – President, CIO & Chief Compliance Officer [23]

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So I’d actually like to pick up with the May sales trends. First of all, did we hear correctly that sales May to date are up 25% after April was down 42% in both of those comparing to the same month a year ago?

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Richard A. Costello, Green Brick Partners, Inc. – CFO, Treasurer & Secretary [24]

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Yes. You’re comparing April to April of a year ago and May to May of a year ago. So — but if you take the rate of the first 11 days in May and compare it to May last year, we are up 25%. And yes, we were down to scathingly low numbers in April compared to last year of 42% down. So it really took a pause there, the cancellation rate was higher. But every single week, we’ve seen the gross sales go up, and we’ve seen the net sales go up. And the last 2 weeks have just been pretty remarkable in terms of, gosh, maybe we don’t have enough specs. So it’s been — and actually amongst multiple product lines as well.

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William J. Dezellem, Tieton Capital Management, LLC – President, CIO & Chief Compliance Officer [25]

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So kind of playing off of that, what’s your view as to why the consumer is, It seems like, coming out in droves to buy homes from you. Does this have to do with low interest rates? Does it have to do with apartment dwellers deciding that they want to have a home because they just simply need more space, so they don’t kill each other while everyone is staying at home? Or is this like some concept of social distancing and just wanting to have a little more space away from the neighbors? Can you share any human or qualitative insights there?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [26]

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I’m going to start and Jed can finish and Rick can chime in. But at Trophy, on our entry-level product, we are clearly seeing — we looked at, I think, it was not this week, the week before, and we had a very low price point neighborhood that was $200,000, $225,000 wasn’t it, Jed?

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Jed Dolson, Green Brick Partners, Inc. – President of Texas Region [27]

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$250,000.

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [28]

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And the preponderance of those buyers were people leaving B-minus apartments, that wanted to get out of an apartment and own a house. We’re evaluating really how deep that pond is right now. There are about 500,000 apartment units in Dallas. We’re trying to figure out really what that buyer is doing and how many incremental buyers now have really decided that what looks like an attractive lifestyle is no longer nearly as attractive to them, and we think we’re going to see that continue. And we’re just monitoring that as close as we can. Jed, what are your comments on that?

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Jed Dolson, Green Brick Partners, Inc. – President of Texas Region [29]

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Yes. I think starting 3 or 4 weeks ago, we started seeing the renters really come out of the woodwork. They were renters, either single-family homes or apartments, and they were filling up our mortgage pipeline. We’ve seen that shift — well, that has continued to stay strong. But in the past couple of weeks, we’ve also sold quite a few homes, over 500,000. So I think it’s kind of a combination of all the factors you mentioned, people are needing a little bit more space.

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [30]

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The other thing we’re trying to evaluate is this, even on our own business, which I never thought I would do this, but we’re going to allow some people. We are seeing them actually operate more efficiently, working from home. And we’re evaluating that on a person by person basis in our business. We’re seeing a lot of other businesses, particularly the accounting law type firm service businesses doing the same thing. And to be able to have a home office in a separate area, living in a house is something that you really can’t do, living in a 4-story common home mid-rise. And we’re seeing that trend, I think, will continue going forward.

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William J. Dezellem, Tieton Capital Management, LLC – President, CIO & Chief Compliance Officer [31]

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And then one additional question, please. So have you seen any early signs of land and/or lot prices declining? And this question probably was a lot more applicable in April, maybe than it is today. But is that something that you anticipate? Or is this recent strength basically implying that the housing industry may have already crossed through the COVID valley?

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James R. Brickman, Green Brick Partners, Inc. – Co-Founder, CEO & Director [32]

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Well, we’re seeing one thing for sure. In any downturn, a master-planned large community typically does better than another community. Almost all master-planned communities are held by very strong owners. So we’re not seeing — obviously, they want to make as many sales as they can. We’re not seeing that master-planned community seller making discounts on lot prices or other things. They have been cooperative in extending lot purchases, but not reducing lot price. We always have, I think, in both Dallas, we’ve been — I’ve been in this market for over 40 years buying land. Our builder in Atlanta has been there for more than 40 years. Bill Handler has been there more than 40 years. And Brian Bahr has been in Colorado Springs since 1999 buying land. We think we see most deals first and we’re really not seeing a lot of distress out there from land sellers at this time.

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Jed Dolson, Green Brick Partners, Inc. – President of Texas Region [33]

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We’re seeing a little bit softer terms on new deals. Because of the uncertainty, I think our sales numbers speak for that uncertainty where, are we going to sell like we did in March — or sorry, in April, are we going to sell like we have so far in May. So we’re seeing a little bit softer terms, but prices are not going down.

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Operator [34]

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There are no further questions. This concludes today’s conference call. You may now disconnect.