M.D.C. Holdings, Inc.
Q3 2017 Earnings Call Transcript

Published: 5 Nov 2017

[Operator:]

Good afternoon, my name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the M.D.C. Holdings Third Quarter Earnings Call. [Operator Instructions]. I would now like to turn the call over to Kevin McCarty, Vice President of Finance and Corporate Controller. Please go ahead.

[Kevin McCarty:]

Thank you, Angela, and good morning, ladies and gentlemen. Welcome to the M.D.C. Holdings 2017 Third Quarter Earnings Conference Call. On the call with me today, I have Larry Mizel, Chairman and Chief Executive Officer; and Bob Martin, Chief Financial Officer. [Operator Instructions]. Please note that this conference is being recorded and will be available for replay. For information on how to access this replay, please visit our website at mdcholdings.com. Before turning the call over to Larry, it should be noted that certain statements made during this conference call, including those related to MDC's business, financial condition, results of operations, cash flows, strategies and prospects and responses to those questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause the company's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These and other factors that could impact the company's actual performance are set forth in the company's third quarter 2017 Form 10-Q, which is scheduled to be filed with the SEC today. It should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures. Any information required by Regulation G is posted on our website with our webcast slides. And now I will turn the call over to Mr. Mizel for his opening remarks.

[Larry Mizel:]

I'm pleased to announce 2017 third quarter net income of $61.2 million or $1.16 per share, despite challenges presented to our Florida operations by Hurricane Irma and our Colorado operation by the Weyerhaeuser joists issue, we increased revenues net order value and ending backlog value year-over-year. In addition, we recognized significant gains from opportunistic sale of several investments during the quarter driving 132% increase in our net income. Our strong top and bottom line performance over the past year has driven significant improvements in our returns, which remain a key factor for us. At the end of the third quarter 2017, our last 12-month return on equity was 11.8%, up 500 basis points year-over-year and 250 basis points sequentially from the 2017 second quarter. On a pretax basis, our last 12-month return on equity was the highest level since 2006 fourth quarter. The home building industry continues to benefit from solid economic fundamentals. This is especially true for first time homebuyer's segment. We believe this segment will become a significant source of growth for new home sales in the future. While our community count is down slightly year-over-year, we have taken a number of steps to increase community count in order to meet this growing demand. First, we continued to ramp up our approval of lot purchases. During the third quarter, we improved the purchase of almost 2,500 lots, an 83% increase over the prior year. Throughout the first nine months of 2017, we improved the purchase of more than 7,800 lots. This is more than double the level from the same period a year ago. With these additional approvals, we have ended the quarter with our controlled lots supply up 28% year-over-year and its highest level since 2007. Increasingly, we have focused on projects targeted for the first-time homebuyer's segment, including our Seasons series. Customer response to this series has been positive with financial metrics that are generally as good, if not better than our other product offerings. Giving this positive response, we are exploring other financial affordable offerings as well, including a duplex product that was just introduced into our Colorado market. Additionally, in September, we announced our entry into the Greater Portland area. This gives us an additional exposure to Pacific Northwest where we have experienced solid results. We are actively looking at multiple sites for acquisitions in the near future. Our accelerated lot approval activity coupled with our entry into the greater Portland area will require us to invest additional capital in our homebuilding operations. In the third quarter alone, we spent more than $210 million on land acquisition and development. Our highest level in four years, even though our balance sheet was already equipped to handle these additional investments, we recently further enhanced our financial position. At the end of September, we expanded the capacity under a line of credit from $550 million to $700 million and extended its maturity by two years to December 2022. In October, we added $150 million to our senior secured notes due 2043, and with our liquidity up 40% over the prior year to almost $1.1 billion, at the end of the third quarter, we have sufficient resources to drive our growth initiatives. I'll now turn the call over to Bob Martin, for more specific financial highlights of the 2017 third quarter. Bob?

[Bob Martin:]

Thank you, Larry. Our home sale revenues increased 2% from the prior year to $584.9 million, primarily due to a 2% increase in homes closed to 1,317. Our backlog conversion rate was 38%, which was even with the prior year rate. We believe that closing levels and backlog conversion could have been higher, roughly 90 units originally scheduled to close in the 2017 third quarter were delayed due to the Weyerhaeuser joist issue in Colorado. And hurricane Irma in Florida pushed out an additional 25 units to future periods. In spite of these issues, closings were at a 10-year third quarter high, driven by a 2% increase in beginning backlog and improved cycle times. Looking forward to the fourth quarter, we will continue to be impacted by fallout from the Weyerhaeuser joist issue. The issue impacts build times not only for the homes with the defective joist, but also for other homes in backlog due to the strain that the replacement process places on our subcontractor base overall. In large part due to this ongoing dynamic, we believe that our backlog conversion rate for the 2017 fourth quarter will be in the 43% to 44% range, which is lower than the 46% backlog conversion rate that we achieved in the fourth quarter of 2016. Lingering impacts from the hurricane are also contributing to the lower conversion rate, but to a lesser degree than the joint issue. Our recycle times, defined as days from start to finish, improved by 10% year-over-year companywide, with improvement shown in most of our markets. However, we will likely see cycle times creep up sequentially during the next couple of quarters, mostly due to the continuing impact of the two issues I just mentioned. As for product mix, 8% of our closings were from our Seasons collection versus only 2% a year ago. We had Seasons closings in our Colorado, Arizona and Florida markets during the third quarter. Our average selling price for the quarter of $444,200 was down slightly year-over-year. However, without our Seasons product closings, our average selling price would have been up about 2%. Our gross margin from home sales percentage was up year-over-year from 15.5% to 16.3%. The difference is primarily due to warranty adjustments as our 2016 third quarter included a $1.8 million adjustment to increase our warranty accrual, while we recorded an adjustment to decrease our warranty accrual by $0. 4 million this quarter. We recorded $4.5 million of inventory impairments during the third quarter. The majority of these impairments were recorded in two subdivisions. One in Southern California and one in South Florida. During the 2016 third quarter, we recorded $4.7 million of inventory impairments. Before impairment and warranty adjustments, our gross margin percentage was up 30 basis points year-over-year and up 20 basis points sequentially. Our total dollar SG&A expense was up $7.2 million from last year. The increase primarily was related to a $5.5 million increase in our general and administrative expense, which was mostly driven by increases in headcount as we continue to plan for the future growth of our business. Our selling, general and administrative expense as a percentage of home sales revenue was up 100 basis points year-over-year. However, absent the Weyerhaeuser joist and hurricane Irma issues previously discussed, we estimate the increase might have only been a 40 basis points year-over-year. The dollar value of net orders increased 6% year-over-year to $596.7 million, driven by 8% increase in our average price of net orders. The higher average price resulted from both the strong demand for new homes and a higher percentage of our net orders coming from our Southern California market, where average prices significantly exceed the overall company average. The impact of these two factors was partially offset by a higher number of our net new orders coming from our affordable Seasons collection, which accounted for 12% of net new orders during the quarter, up from 5% a year ago. New net orders decreased by 2% as a 4% decline in our average active community count more than offset a 2% increase in our absorption rate. Nearly every state, we operate showed an increase in absorption rate. The most notable exception was Colorado with a 36% decrease, part of that decrease is related to an increased cancellation rate, resulting mostly from Weyerhaeuser-related cancellations. Also, we are up against a difficult comparison from last year. Our absorption rate from the 2016 third quarter was up 60% year-over-year and did not show a normal sequential decline from the second quarter of 2016. We ended the quarter with an estimated sales value for homes in backlog of $1.71 billion, which was up 6% year-over-year based on an increase in average selling price. Overall, our cancellations as a percentage of beginning backlog was down slightly year-over-year from 13% to 12% and as a percentage of gross sales, from 25% to 24%. Active subdivision count was at 154 at the end of 2017 third quarter, up slightly from a 153 at the end of 2017 second quarter, but down from our 159 a year ago. We continue to see among the largest decreases occurring in Maryland and Virginia, where we previously disclosed a lower levels of investment due to returns that did not meet our expectations. Washington also showed large decrease year-over-year due to strong sales activity during the year that resulted in subdivisions closing out more quickly than anticipated. Additionally, competition for the acquisition of new subdivisions in Washington has been significant, resulting in the acquisition of fewer new communities than planned. Colorado offset those decreases somewhat with the 71% year-over-year increase in active subdivision count. During the quarter, we had eight fewer subdivisions in the category we call Soon to Be Active than in the Soon to Be Inactive category. In other words, we continue to be a little heavier in subdivisions that are on the verge of sellout relative to those that are just opening. That tells us that we are unlikely to see an increase in our subdivision count by the end of 2017 compared with our subdivision count at the end of the third quarter. While we don't foresee an increase to our community count by the end of 2017, our recent increase in lot approval activity gives us the possibility for a significant increase in community count during 2018. For the 2017 third quarter, we acquired 2,004 lots, up 90% from a year ago and the highest number we've seems since third quarter of 2013. We acquired lots in every state we operate in with the heaviest concentration in Nevada, Arizona and Colorado. Acquisitions spend for lots was $150 million. After adding in an additional $67 million for development expenditures, our total land spend for the quarter was $217 million. The lots we acquired in the third quarter were in 44 communities, including 26 new communities, and 30% of the lots are finished. We approved 2,489 lots for acquisition during the quarter with each state represented in the total, except Maryland and Virginia. This was an 83% increase from the prior year. At the end of the quarter, we owned or controlled 18,959 lots, up 28% year-over-year and 11% sequentially. This represents about 3.4 year supply on a trailing 12-months delivery basis, which is up from 3.1 at the end of the same quarter a year ago. With a significant amount of lot approvals during the quarter, the percentage of our lots controlled via option increased to 33% at the end of the 2017 third quarter from 17% at the same point a year ago, and 30% at the end of 2017 second quarter. Our last 12-month return on equity is up 500 basis points year-over-year and 250 basis points sequentially to 11.8% at the end of the third quarter of 2017. Even without the $52 million gain recorded in the third quarter related to the sale of investment, our last 12-month return on equity still would have been 9.1%, up 230 basis points over the prior year. Turning now to some of the key measures of our financial position. Our net debt to capital decreased by 820 basis points year-over-year to 24%. Overall liquidity grew by more than $300 million year-over-year to $1.1 billion, driven by a $150 million increase in our line of credit to $700 million that we completed in September, an increase of nearly $175 million in our cash and marketable securities balance, to $418 million. As Larry noted earlier, we further added to our liquidity after the end of the quarter through a $150 million add-on issuance of our senior notes due 2043. Including that issuance, the average time to maturity of our senior notes is now nearly 15 years, which is the best in the industry. That concludes my prepared remarks. At this time, I will hand it over for questions.

[Operator:]

[Operator Instructions]. Your first question is from the line of Alan Ratner with Zelman & Associates.

[Alan Ratner:]

I've got a couple of questions just regarding the big step-up in land activity this quarter, I guess really in the last two quarters. First, I was curious if you could just maybe elaborate a little bit why you think now is the time to really aggressively increase the land book after a couple of years of pretty flat trends there, just kind of what you're seeing on the demand side that gives you that confidence? Number two, just kind of thinking about the timing of that flowing through, it looks like community counts going to probably stay under a little bit of pressure into the fourth quarter, but if we look at your lot count up almost 30% year-over-year. Is that kind of a realistic growth target that you have for the business over 2018 and 2019 because when we look back, when you had a similar spike in land buying back in 2013, we did see one or two years of very strong double-digit growth, so curious if you could put some timing around that and any comments on the magnitude to expect?

[Bob Martin:]

So, I guess first of all, just in terms of the timing of increasing land acquisition, I think it's clear that we feel good about the market. I think we look at very basic information when we're deciding whether or not we're going to approve new land deals and those include overall economic factors, job growth, income growth, consumer confidence. So, I think those things have been consistently positive as we look over the course of a number of quarters even the past year or two, perhaps even longer than that. So that's one thing. Two, we certainly look at where our results are, generally speaking what our absorption rates are, we have the benefit of looking subdivision-by-subdivision at what's happening in each of our individual markets and I think - generally speaking, we've liked what we've seen and that gives us some encouragement. And then third, I think we have seen a positive response to our Seasons products and more broadly speaking really a product that has been initially targeted to a first-time consumer. So, we feel like that's an additional segment for growth that we can invest in. So, I think all those things really come into play as we're looking at whether or not we want to acquire more lots. In terms of magnitude of the increase, I don't know that I would relate directly the 28% year-over-year increase in our lot supply to what growth might be in future years. I do think the subdivision growth in 2018, it can be in the double-digits percentage wise. I'm not willing to yet hazard and further information on what degree that might be, but I also think you're correct that for Q4 kind of flattish after subdivision count is probably what we're going to have. I hope that's helpful.

[Alan Ratner:]

Yes, that's great Bob. I appreciate all the detail. And then just kind of make sure we're looking at the portfolio correctly Disneyland buyers come through the pike here, can you give us a little bit of insight in terms of how you're thinking about the underwriting either gross margin absorption rates, because I think you've kind of highlighted in the past that you're focusing more on entry level, so presumably those are going to come at a higher absorption rate than the overall company average is running at today, but curious if there's any offset there either on gross margin or something else?

[Bob Martin:]

Thank you, I don't think there is really much of an offset on gross profit margin we can't think about in the same way as we have before, and every deal was different depending upon the risks, inherent the deal whether or it's finished lots or lots that require development, all those things factor in to the discussion point. From an absorption rate perspective, we have a pretty firm rule of kind of looking at what we've been able to do recently. I think response to our first-time product, we've talked about before the absorption rate has been stronger than our traditional product. So, we think that's appropriate assumption or the underwriting of some of those deals going forward, but the same thing as we underwrite any other deal we kind of take a look at what we recently experienced to start with whether or not we can justify the absorption rate in the underwriting.

[Operator:]

Your next question is from the line of John Lovallo with Bank of America.

[Peter Galbo:]

Hi guys, this is actually Peter Galbo on for John, thanks for taking the question. Bob, I was wondering if you could just start up by talking about Colorado, in particular community count there was up 71%, its year-over-year and just trying to parse out, is that 75% driven by Season's or something lower than that and how we should think of that going forward?

[Bob Martin:]

I guess in terms of the community count, I'm not sure I actually parsed it out by community count. I think, we're still in the relative kind of infancy stage with regard to Seasons. I mean it is becoming a larger percentage of what we're doing in Colorado. I think it's probably in the neighborhood of 20% of our sales in Colorado. But I would imagine it's less than 20% of our overall community count at this point. So, it's outperforming kind of its community count representation.

[Peter Galbo:]

Got it, that's helpful. And maybe just if you'd be willing to given that it is November now, any update on kind of what October sales trends look like?

[Bob Martin:]

For October, our sales were up year-over-year.

[Operator:]

Your next question is from the line of Stephen East with Wells Fargo.

[Paul Przybylski:]

Actually, this is Paul Przybylski on for Stephen. Bob, I guess this is the first quarter in about a year so that your gross margin went above 17%, do you think that level is sustainable moving forward?

[Bob Martin:]

In past calls we have talked about stability of margins and I would keep using that phrase here I think, they are pretty stable within a range. If you look over the past 10 quarters, maybe there's a 90 basis point differential kind of low and we're still within that. So, we're seeing a lot of things in terms of the ability to increase prices, we've talked before about seasons, outperforming gross margin wise, our traditional products. I think there's a lot of the things happening. But I would describe the environment as kind of stable relative to where we were in the third quarter.

[Paul Przybylski:]

What percentage of communities were you able to raise prices in the quarter and is that pricing power accelerating and given the community count decline was there more of a focus on margin this quarter?

[Bob Martin:]

I think we're always cognizant of pricing, I think the official number is about 55% of our communities had price increases at some point during the quarter. I was left in Q2, but then again you are not in the heart of the spring selling season. So that kind of make sense. So, I think that's a reasonable figure.

[Paul Przybylski:]

And then one last question. And on the impairments, can you help us understand how these are occurring given your short land bank in the AFC [ph] growth?

[Bob Martin:]

Like I said most of the impairments occurred in two subdivisions and considering we've got 154 actively selling communities, but 250 some more in there, may be 230 overall that are selling at some level. So, it's really 1% of subdivisions that are selling in some capacity that had a significant impairment during the quarter. So, it was really pretty low hit rate. We have exercised the same discipline that we do every quarter where we just look at every single subdivision independently to see where we're at and we take whatever impairments are required by the accounting literature. So, it's a very disciplined process and will do it again next quarter and come up with the result.

[Operator:]

Your next question is from the line of Nishu Sood with Deutsche Bank.

[Nishu Sood:]

I wanted to ask about the entry into the Portland market. Larry, I know you take a long view on a lot of decisions whether it comes to capital raising, markets etc. So, the thought process behind entering that market, what characteristics led you to - obviously you have the operation in Seattle, so what was the thought process behind the market characteristics that led you to that decisions?

[Larry Mizel:]

Well we think it's in the right geographic area for continued growth especially in the technology world, we were able to acquire an initial positions that our products will be - vis-a-vis that market will be affordable as defined in the market. It's consistent with our desire to continue the expansion of opportunities in the market. In general, we believe that this is an excellent time for our growth strategy. We believe that affordable housing is coming into its own. We're able to execute and compete with everyone. And as you can see from the added land positions that we're taking, they're very strategic, each one is independently underwritten to meet our business objectives. And the - this is an interesting rebuilding of the housing market in our country and with the expectations of real growth in the economy; and everyone's talking about the tax bill and what does it mean. Assuming the growth that's expected north of 3% and the benefit that will go to, as they call it the middle class, we're going to be very focused on providing a housing solution in multiple markets that we believe there is a substantial demand for.

[Nishu Sood:]

Then the tax plan you mentioned, I mean a couple of years ago, the idea of reducing the mortgage introduction from balance of a $1 million to balance $500,000, wouldn't have been much of an issue for the builders that price points have come up so much. I mean, your order price in 3Q hit $470,000. So clearly there has been efforts underway, and you guys give good details on providing a more affordable product, but what kind of responses or I mean, if that does come into effect, what kind of changes do you think that would mean for your product mix in terms of the strategy you've been undertaking already for the last couple of years here?

[Larry Mizel:]

Well, first of all there's multiple elements to the proposed tax changes, best I can tell, they're only a few hours old. And what really ends up in the code in the effect upon the building industry is yet to be seen. One of the elements I commented on was an accelerated growth in the economy, but on the existing price points we're at, you can see that we're trending down in average sales price as the more affordable product expands. So, we intuitively believe that it will have an effect that has the possibility of being very positive with the growth of the economy. And where we are as a company, I think is uniquely positioned. I made a comment earlier that we're prepared to compete in the affordable market with products that go head-to-head with some of the more volume builders that build at a lower price point. We believe that we build a very high quality affordable home, and I guess the best way to judge it is look out into the future a little bit and we'll do our best to execute consistent with our expectations.

[Nishu Sood:]

Thank you.

[Operator:]

Our next question is from the line of Stephen Kim of Evercore ISI.

[Chris Shook:]

Hi, this is actually Chris Shook on for Steve. Thanks for taking my question. A lot of your competitors are finding a success in the West Coast exposure and, I'm just wondering if you could add some color on whether your West Coast new orders declined during the quarter due to closing out of communities faster than expected or is there another factor?

[Bob Martin:]

Yes, I think we certainly - we're a Western builder, that's where most of our operations are. I think we are still very comfortable with our performance in the West overall. If you look at our absorption rate, we are up 8% year-over-year. And Nevada and Washington, which are in our Western segment are up. California is up slightly year-over-year, and Arizona is about flat year-over-year. So overall, I would say, it's a good level of performance. And then as we look forward, it is an area that we want to continue to invest and that we want to continue to increase our subdivision count in. And we already mentioned Portland, so that will add a new dynamic to the West Coast. So, at some point that will be additive to our community count. In my prepared remarks, I did talk about Washington a little bit - running into a little bit of competition for the acquisition of new communities that being harder there than most of our markets to acquire new communities. So that's a little bit of a headwind, year-over-year. But we still feel good about every market we're on the West Coast.

[Chris Shook:]

Okay. And then on the SG&A front, should we expect any further headcount additions into next quarter? And then also if you can kind of describe where a lot of this headcount is being allocated to or whether it's just broad based?

[Bob Martin:]

Yes, I think there's still the possibility for increases in headcount on a sequential basis. I mean we evaluate what the needs of our business are and clearly with the one acquisition activity, we have designs to grow at a more significant rate. So, all of those coming into play when we're looking at that. And then the other part of your question, I'm sorry.

[Chris Shook:]

I guess sort of geographically, have you concentrated in one area or have you sort of spread that count across your business?

[Bob Martin:]

Yes, I think it's a little more broad based, but it is within our core home building operations. So, we're talking about purchasing folks, land folks we're in - efforts to improve customer service, so customer experience people, in all those areas that have increased year-over-year.

[Chris Shook:]

All right, very good. Thanks very much.

[Operator:]

Your next question is from the line of Michael Rehaut with JP Morgan.

[Michael Rehaut:]

First question, just wanted to circle back to the lot count, where obviously up strongly year-over-year. Somewhat of an acceleration in growth throughout this year. You pointed to the potential for significant community count growth next year off of that. I was hoping to get a sense, I mean you really had a couple of strong quarters year-over-year lot growth. I don't know if that's going to continue, but let's say we hold these levels or even grow from it, should we be modeling or - obviously you don't give guidance per se, but is it safe to assume given the magnitude of the increase here that we should be looking at another double-digit type of gain in community count in 2018, which again was the case back in 2013 and 2014?

[Bob Martin:]

Yes, I think I mentioned to Alan earlier. I think double-digit is a reasonable assumption for 2018, but at this point I'm not going to hazard the degree to which we get to the double-digit. So, it's something that I would describe as significant, that's how I described in by prepared remarks as well. So, I think certainly this kind of land acquisition activity is setting us up for that kind of growth, at least from what we can see at this time.

[Michael Rehaut:]

Right and I appreciate that, and then I guess you talked a little bit about one of the factors driving the higher SG&A on a year-over-year and the negative leverage was headcount with more of a muted top line growth number for 4Q as well, should we expect the similar type of deleveraging or SG&A was about 100 bps year-over-year, should we expect something similar for 4Q before you start to get leverage off of the headcount and more of the growth into 2018?

[Bob Martin:]

If you look what I said from a backlog conversion standpoint in Q4 what we might expect 43% to 44%, that would imply that the closings will be down year-over-year, so revenues are down a bit year-over-year. So, I think that would be that would be the end result, is that your SG&A rate is likely to be up year-over-year. As you look at the absolute level of G&A in the third quarter is about $33.2 million and I don't see that absolute level of G&A going down in the fourth quarter.

[Michael Rehaut:]

All right, great. Thank you.

[Operator:]

Your next question is from the line of Alex Barron with Housing Research Center.

[Alex Barron:]

I'm not sure if I missed it, but can you comment on what percentage of your deliveries or orders are coming from Seasons at this time?

[Bob Martin:]

Deliveries is 8% and orders is 12%.

[Alex Barron:]

Any type of guidance as far as what kind of land deals you guys are doing, what percentage charge are going to be geared towards that at this point?

[Bob Martin:]

It has inflows based upon the timing when deals close, but pretty consistently we've either been approving or closing roughly 20% of our loss of the Season's products. To keep in mind, that's only with acquisitions incurring after this point, about half of our states so that's not with the Season's product rolled out more broad based.

[Alex Barron:]

Got it. Okay, thanks so much.

[Operator:]

[Operator Instructions] your next question is from the line of Dan Oppenheim with UBS.

[Dan Oppenheim:]

I was wondering about - you made the comments in terms of the increased land acquisition being driven in part by conference in the markets here. Along those lines, the spec count actually came down and if you were feeling confident by the market, you think sort of a bit more noise specs also with a more product towards the first-time buyer. Should we expect to see more of those coming through? How should we think about that?

[Bob Martin:]

Yes, I mean it is down year-over-year, that's in line with our stated strategy of being a built-to-order builder. So, no time to increase it per se on an active basis.

[Dan Oppenheim:]

Okay, and then I guess in terms of the tax proposals, given the comments, given that you guys have been active in the past, accelerating the dividend at times and such. I was wondering, if you look at California where the average order price is above $650,000 this quarter, what percentage of the mortgages in those, that you're originating were for more than $500,000 if you have a sense of that?

[Bob Martin:]

In California?

[Dan Oppenheim:]

The order price is above $650,000, is it the place to look, right?

[Bob Martin:]

I don't know if I have the exact number of units that would be above that level. I think overall - California is one of our higher markets probably the overall number of deliveries say for the third quarter you're probably in the 15% range coming from a product that is priced above $500,000 but then again that's also where you have a higher percentage of cash buyers. So that 15% is at high side as well I would say overall, you're less than 10% coming from above $500,000.

[Dan Oppenheim:]

Yes. Okay. Thanks very much.

[Operator:]

And we have no further questions at this time.

[Bob Martin:]

Okay. Just one point of clarification that I wanted to make clear that with regard to Oregon, we have not at this point acquired or put under auction, any lots yet. Under the comment made earlier about what we're targeting out there, but it's really just a target at this point that first time buyer, but we haven't actually put anything under contract yet. So, with that clarification point, I appreciate everyone being on the call and look forward to coming back on the call for our fourth quarter earnings results.

[Operator:]

This concludes today's conference. You may now disconnect.