The New Home Company Inc.
Q4 2016 Earnings Call Transcript

Published: 22 Feb 2017

[Operator:]

Greetings and welcome to The New Home Company Fourth Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Drew Mackintosh, Investor Relations. Thank you, Mr. Mackintosh. You may begin.

[Drew Mackintosh:]

Good morning. Welcome to the New Home Company's earnings conference call. Earlier today, the Company released its financial results for the fourth quarter and full year 2016. Documents detailing these results are available in the Investor Relations section of the Company's website at nwhm.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, are forward-looking statements that involve risks and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual operating results to differ materially from those in the forward-looking statements are detailed in the Company's filings made with the SEC, including in its most recent annual report on Form 10-K and in its quarterly reports on Form 10-Q. The Company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures may be discussed on this conference call. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through the New Home Company's website and in its filings with the SEC. Hosting the call today is Larry Webb, Chief Executive Officer, and John Stephens, the Company's Chief Financial Officer. With that, I will now turn the call over to Larry.

[Lawrence Webb:]

Thank you, Drew, and good morning to everyone. Thank you for joining us as we review our fourth quarter and full year financial results as we provide some color on our outlook of our business moving forward. The New Home Company ended 2016 on a strong note with the fourth quarter wholly owned revenues of 78%. Net new home orders are 44% and homes and backlog up 18%. The company also met or exceeded all the volumes metrics for 2016 that we outlined on our last quarterly conference call. Each results are testament to our ability to grow our company in a profitable fashion and deliver on the goals that we set for our organization. As we enter 2017, The New Home Company story continues to evolve. Building on our success is a premier builder in the luxury market. The New Home Company has embarked on a strategy to expand its product offerings to include more affordable priced homes. Each new neighborhood will have all the hallmarks of a typical new home community. With an emphasis on highly desirable locations, innovative architecture and state of the art design. But will be priced at a level that will cater to a deeper pool of buyers. We believe that these new communities will be a great compliment to our existing product portfolio. And will allow us to continue to generate strong inventory turns as a result of higher absorption rates and shorter cycle times. Heling us execute this strategy will be our new Chief Operating Officer, Leonard Miller who comes to us with over 14 years of operating experience at a regional and divisional level in several western markets. Leonard has a proven track record of producing great results in a number of markets and at a number of different price points. And we are excited for him to join our leadership team as we enter the new phase of our company's lifecycle. Our business remains on solid footing as we enter 2017. Thanks to the biggest year in backlog in our company's history. A strong balance sheet and excellent market fundamentals. We continued to be presented with great land opportunities both within our existing markets and other high quality growth markets with favorable terms and deal structures that fit into our high end asset turnover business model. In short we are in a great position to grow our brand and diversify our operations for the benefit of both our home buyers and shareholders. With that here's some color on the markets which we build. California continues to exhibit all the characteristics of a strong housing market. According to the Bureau of Labor Statistics, California added over 330,000 more jobs in 2016. At the same time, the demand for homes in California continues to outstretch supply as the month supply of existing home shrank to 2.6 months in December. Well below the six month level which is considered Equilibrium. This stable dynamic is highlighted in a research note put out by a prominent analyst result which noted that our market weighted employment to permit ratio was the best of any publicly traded home builder in their coverage universe at 3.4. Southern California has been the driver of our business recently. Both in terms of the number of homes closed and average sales price. Our communities at Crystal Cove along the Newport coast continues to perform extremely well. Pearl Canyon which posted the average sales price worth over $4 million posted the best sales pace of our company at 4.3 homes per month for the quarter. We also sold five more homes in our higher priced Coral Crest community during the quarter at an average price of over $8 million. Demand remains steady at our communities, The Orchard Hills master plan. Where changes in pricing with the better sales on a year-over-year basis at both Emilia and Trevi. Our Cressa community in the Portola Springs master plan was one of our best performing communities in 2016 where we sold 48 homes during the year at an average price of above $1 million. And we expect this trend to continue based on the start of the spring selling season. Looking out into 2017, our sales pace in Southern California should get increased from the addition of lower priced communities in our Irvine, San Diego and Rancho Mission Viejo, much of which will occur in second half of the year. In the Bay Area, the favorable market dynamics of high inventory and strong employment growth have been somewhat tempered by the rise in cost of land and the availability of labor which have increasingly made affordability an issue. That said we continue to see pockets of strength in this region. Our Emmerson community in Santa Clara had a solid debut in November generating 8 sales in 2 months during the quarter and the landing at Fremont [ph] also performed better for us with more sales this quarter than we had in the third quarter. We continue to see a steady level of demand at our Canary master plan in Davis [ph], for the more affordably priced heirloom product line. Further east, one of our more high profile joint venture communities, [indiscernible] Sacramento opened to great fanfare and generated solid sales with 29 homes during the quarter. This master plan boasts several unique product lines in a living experience unlike anything else in the area. Similar to Southern California we look forward to complementing our existing community offerings in Northern California with more affordable pricing options as the New Year unfolds. Now I will turn it over to John for more details on the numbers.

[John Stephens:]

Thank you, Larry and good morning. Consistent to what we have guided to our 2016, we finished the year on a very strong note generating over 50% of our full year home sales revenue and 65% from our pre-tax profit in our fourth quarter. For the fourth quarter our net income was up 15% to $13.8 million or $0.66 per diluted share compared to $12.2 million or $0.59 per diluted share in the prior year. The 2016 fourth quarter results include $3.5 million in pre-tax inventory and terms or $0.10 per diluted share on an after tax basis related to two home building community and one asset. The prior year did not include any impairments. The year-over-year improvement in our net income was primarily due to a 66% increase in total revenue and a 120 basis point reduction in our SG&A rate due to stronger operating leverage from our wholly owned operation. These improvements were partially offset by $1.3 million reduction in Joint Venture income, a $2.1 million decrease in JV management fees and the impairments previously noted. The decrease in JV income and management fees are consistent with our strategy shift towards our wholly owned operation. For the full year 2016, our net income was $21 million or $1.01 per diluted share compared to $21.7 million or $1.28 per diluted share in 2015. As previously noted Crystal 2016 included $3.5 million in inventory impairments or $0.10 per diluted share and 2015 did not include any impairments. The lower year-over-year EPS in 2016 was also impacted by 23% higher average share count and 2016 as compared to 2015 due to the foreign equity offering that we completed in December 2015. Home sales revenue for the quarter were up 78% to $262 million, thanks to a 55% increase in deliveries and a 15% increase in average selling price to $2.2 million. The increase in our average selling price was driven largely by 150% increase in deliveries from our Southern California communities where our average selling price was $2.9 million and was heavily influenced by the initial deliveries from our two Crystal Cove communities where the blended ASP was $5.9 million for the quarter. This increase in ASP was partially offset by lower price point deliveries in Northern California combined with 25 deliveries from our Cressa communities in Irvine where average sales price was $1.1 million. Based on the homes in our backlog that are scheduled to deliver in the first quarter, we expect our average selling price to be down sequentially by about 40% to approximately $1.3 million for the 2017 first quarter as compared to the fourth quarter of 2016. This sequential decline is primarily due to the anticipatory reduction in deliveries from our Crystal Cover communities during the first quarter combined with the closeout of our Viano community in Newport Coast in the fourth quarter of the last year. For the full year 2017, we expect our average selling price will be down approximately 25% year-over-year to about $1.5 million primarily due a shift in delivery mix including deliveries from 5 new communities with average base prices under $750,000. Our gross margin for home sales for the fourth quarter was 14.4% and included $2.4 million in inventory impairments related to two home building communities. Excluding inventory impairments our gross margin from home sales for the 2016 fourth quarter was 15.3% versus 16.6% in the prior year period. 130 basis point decline in margins excluding the impairments was due largely to a change in mix including lower margins in two master plan communities in Irvine or more sellers to utilize. To a lesser extent lower margins in the Bay Area. Sequentially our gross margin from home sales was down 20 basis points and excluding interest in cost of sales and inventory impairments, our adjusted home building gross margin percentage was 16.2% during the quarter compared to 17.7% in the prior year. For the first quarter of 2017, we expect our gross margin from home sales to decline to about 12% as a result of the anticipated mix of home closings and the lower volume of deliveries. We expect our margins to improve as we move through the year and expect a full year gross margin percentage to be in the mid 14% range. Our SG&A rate as a percentage of the home sales revenue for the fourth quarter revenue was 7.9% as compared to 90.1% in the prior year. Year-over-year improvement was driven by the strong operating leverage resulting from a 78% jump in home sales revenue. For the first quarter of 2017, we expect our SG&A rate to be in the mid 16% range as the first quarter is projected to be our lowest revenue quarter of the year. We expect our SG&A rate thereafter to improve each quarter as we move through 2017 and expect our full year SG&A rate to be in the low 10% range. Our share of joint venture income for the fourth quarter was $3.3 million compared to $4.6 million in the prior year period. The year-over-year reduction was largely due to a 47% increase in JV home sales revenue driven by a 22% decrease in JV deliveries and a 32% lower JV average selling price. Our net new orders for the fourth quarter, were up 44% to 69 homes, and represented $159 million in value. Order activity was solid in Southern California, as it was up 100% year-over-year consistent with the increase in community count in the region, while Northern California was up 10% on a 17% increase in community count. The average order price for the quarter was $2.3 million per home, which was heavily influenced by strong demand at our Crystal Cove communities where we sold 18 homes during the quarter. Our community count was up 50% over the prior year at 15%, and our monthly sales absorption rate was flat with the prior year at 1.6 per average selling community. We ended the year with $187 million in backlog, which was up 12% over the last year. Net new order activity has been solid to start the year, with January sales up 59% year-over-year and February's pace has exceeded that. Our fee building revenue for the quarter was up 27% to $61 million, due to increased construction activity that included $2 million in JV management fees compared to $4.1 million in the prior year. We continue to view the fee building business as an attractive source of profits and returns, as it requires little invested capital. We expect it to continue to be a solid business for the foreseeable future. However, we do expect lower fee building revenue in 2017, compared to 2016 due to the timing and start and new community openings and the number of homes expected to be under construction. As of the end of the year, we owned or controlled approximately 5,500 lots, which included approximately 1,600 lots from our wholly-owned business, 3,000 through joint ventures, and over 900 fee building lots. Of the nearly 1,600 lots owned or controlled through our wholly-owned business, approximately 63% were controlled through options or phased takedowns. Controlling a substantial portion of our lots through options and takedown structures enables up to turn our inventory quicker and be more efficient with our capital as was evidenced by our average inventory turn of 1.3 times for the full year 2016. Moving to our balance sheet; we ended the year with $287 million in real estate inventories and $118 million in debt. We turned our inventory significantly during the fourth quarter and generated $104 million in cash flow from operation. As a result of this strong asset turnover in cash flow, we paid down a $116 million in debt during the quarter and ended the year with $173 million in liquidity. As of December 31, 2016, we had a gross debt-to-cap ratio of 32.5% ratio and a net debt-to-cap ratio of 26.2%. Now, I would like to update you on some additional guidance for the full year 2017 and some quarterly color. We are anticipating home sales revenues of approximately $530 million to $570 million. And similar to the last two years, our revenues will be heavily back-end loaded due to the longer building cycles for large luxury homes along with the opening of 12 new communities during the year, five of which are expected to generate deliveries for 2017. In particular, 25% of our full year expected home sales revenue will be delivered over the first half of the year and 75% of total revenues in the second half of the year with the fourth quarter approximately 50% of the total. As a result of this dynamic, we expect to generate a slight pre-tax loss in the first quarter of about a $1 million. It is important to note that, similar to last year this projected quarterly loss is not indicative of our results for the full year, as the expected increase in revenue and associated SG&A leverage moving forward should lead to significantly better results as the year progresses. We are expecting fee building revenue of $130 million to $150 million. On a quarterly basis, we are currently projecting the fee revenues to be recognized on a fairly consistent basis throughout the year other than the exception for a slight dip in Q2, due to lower projected -- activity. Also, we expect our fee building gross margins to be about 4% for the full year and may fluctuate from quarter-to-quarter based on JV management fees recognized. We are estimating joint venture income of $4 million to $6 million with approximately 80% to 90% of this income is expected to be generated in the second half of the year, including about 50% in the fourth quarter. We expect our wholly-owned year-end community count to be 18. We expect a nominal dip in the second quarter and then expect it to increase in Q3, with all the anticipated opening. With respect to our JV's, we expect to end the year with 8 active communities. I'll now turn the call back to Larry for his concluding remarks.

[Lawrence Webb:]

In conclusion, I'm very pleased with the New Home Company's performance in 2016. We delivered another year of strong possibility for our shareholders. We are holding on lots under control by 20%, while maintaining a well-capitalized solid balance sheet. The investments we made in 2016 will begin to gain traction in 2017 and will really start to bear fruit in 2018. Our strategic decision to move down the price spectrum with many of our new land investments will allow us to address a much deeper pool of buyers, while continuing to be a category leader in the move up to luxury segments. Despite what our current average selling price might suggest, this management team has a proven track record of successfully building house in different market segments over the years. And the addition of Leonard Miller, as Chief Operating Officer makes our team even stronger. In addition having co-founded Tom Redwitz focus exclusively on land and product will serve all of us well as he assumes the Chief Investment Officer role. Our senior management team remains a strength of the company. The New Home Company is poised for success as we head into 2017. Thanks to our proven investments in both land and people. And I look forward to achieving great things to our shareholders in the future. Finally, I want to thank all of our employees for job well done in 2016. You are the driving force behind the success of our company and I'm truly appreciative of your efforts. I would especially like to thank Wayne Stelmar, our retired Chief Investment Officer. We have worked together over 20 years in this great industry. And I will always be grateful for his partnership and contributions to our collective success. Since Wayne will stay on as a consultant and board member, his sage guidance will continue. However, I will miss seeing his smiling face every day. That concludes my prepared remarks. And now, I'll be happy to answer your questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Michael Rehaut with JP Morgan. Please proceed with your question.

[Jason Marcus:]

Hi, it's actually Jason in for Mike.

[Lawrence Webb:]

Hi, Jason.

[Jason Marcus:]

So first question on the impairment that you took in the quarter. Just wanted to see if you could give a little bit more color around what drove that? Which community was that? And if you are expecting anything like that might occur over the next couple of quarters.

[Lawrence Webb:]

Well, we don't take impairments widely. This was the first one we've ever had in New Home Company.

[Jason Marcus:]

Yes.

[Lawrence Webb:]

Basically we had three communities. One in the Bay area, one in Southern California, and one in the Sacramento area that we felt were underperforming and that it made good business sense to market-to-market and move on.

[Jason Marcus:]

Yes.

[John Stephens:]

And basically, we're having slow absorption rate, one was in 1,000 -- there is 12 units remaining there, there are price points that are in the $1.4 million range and we wanted to pick up the pace during the [indiscernible] and to redeploy the capital there. Larry said the one in Sacramento also selling slower than we like it to sell, so we've decided to make an adjustment there. And then the other one was a land sale. The one he referenced in the very small instill land site where we thought it made sense to again, redeploy the capital and move on from that asset, so we want to add and took a small impairment there and we'll be selling that piece of land.

[Jason Marcus:]

Okay. That's helpful. And then moving on to pricing and incentive trend. In the last quarter you talked about a few select adjustments in certain Southern California communities. So I just wanted to get a sense of what you're seeing were broadly across the portfolio from a pricing incentive dynamic, and then just in terms of options, if you've seen any changes there in terms of the level of option that go there.

[Lawrence Webb:]

Well, on the pricing front, I think we really have pretty solid news. We made some adjustments at projects in the fourth quarter, we saw results because of that and heading into the January and February selling months, we haven't had to make additional adjustment in. What we are seeing is significantly better sales. Really December, January and February to-date have been some of the strongest sales we've never had in our company. So as we sit here today, we're pretty optimistic about one, that the reductions we made were the proper ones and they influence sales; and two, that we don't see in the near term at least any need to do any more of that. John, do you want to add anything else?

[John Stephens:]

No. I think you've covered it well in the projects that we needed to take a couple of adjustments, we did and we saw the increased absorption. But again, sales have been very, very strong as we head into 2017.

[Jason Marcus:]

Okay, great. And then just lastly on the SG&A, I think for the full year you came in kind of at the lower end of the range of SG&A that you have provided which was nice to see. You're saying now that I think you expect below 10% type number for 2017, so a little bit more leveraged. But if you think a little bit longer term, how do you think SG&A can trend over the next couple of years? Maybe you can read to the 10% mark or how should we think about that?

[John Stephens:]

Yes. I think we can breach the 10% mark. We need to continue to see revenue growth. One thing that Larry alluded to in his opening remarks was the fact that we are moving down price point, moving down from north of a $2 million price point to $1.5 million and then beyond that, you get into '18, probably a little more migration as we're adding more and more communities. So 10% is sort of where we are for the near term. I like to see it below that moving out a couple of years from there.

[Jason Marcus:]

Okay, great. Thanks.

[John Stephens:]

You're welcome.

[Operator:]

Our next question comes from Alan Ratner with Zelman and Associates. Please proceed with your question.

[Alan Ratner:]

Hey, guys. Good afternoon. Nice quarter.

[Lawrence Webb:]

Thanks, Alan. Thanks to everyone.

[Alan Ratner:]

And congrats to Wayne, and Tom, and Leonard. It sounds like exciting things going on there at the corporate suite. I appreciate all of the guidance you've given especially because it sounds like there's going to be quite a transformation in the business over the next couple of years, obviously moving down price points. I guess what I'm curious on is as you look at the community openings that you've got coming down the pipe in '17 and beyond, we've kind of gotten used to it a little bit. Your company migrating up on the price point, but having an absorption rate somewhere sub 2% per month and I think that's fairly in-line with what other higher end builders report. So I'm curious on the flip side of that as price moves lower as you open up more lower-priced community. How do you typically think about absorptions when you underwrite these communities and how quickly should we see that absorption case trend higher? Because there's obviously going to be a lag in terms of when these new communities deliver, so we might not see the big impact on ASP for deliveries. But I would assume you should see a more mediate effect on the absorption cases. You're starting to [indiscernible] of these communities.

[Lawrence Webb:]

I'll let John take it first, because in our company, he represents the negative side and then I'll finish up with what will be the optimistic side. All right? Let John go through some and let me follow up.

[John Stephens:]

Hey, Alan. Our absorption case on these lower-priced communities, we would expect to be well north of the one 7% quarter range. I think anywhere from 3% to mid-3%s would be what we'd expect when you get down the price points in the $500,000 to $700,000 range. You're right and that we're opening up a lot of those communities in Q3 and Q4, so you'll see the absorption pace pick up more, I'd say then, but in terms of as we get into 2018, maybe we're getting closer to a free handle on a consolidated basis would be where we'd like to target our company as we do transition to these more lower affordable projects. I don't know if that's negative enough for Larry, but I'll hand it over.

[Lawrence Webb:]

It wasn't too bad. It wasn't that to everybody. I would say just following up because absorption is clearly something that we file daily, weekly, monthly. December, January and February, it's in uptake and absorption in all across the board in all price ranges. January and February, we're over 2% already and that's before we get into the much more affordable housing. We really are feeling pretty positive about where the market is today.

[Alan Ratner:]

Got it. That's very helpful. Second question and forgive me for skewing it a bit more negatively, so maybe this is directed to John. Your joint venture income guidance was lower than we were expecting and if I remember correctly, I think this time a year ago when you gave the 16 number, it also was down a bit. I think it seems like that's a combination of maybe some projects being delayed, as well as maybe others performing a little bit weaker than initially assumed. I was hoping, can you give a little bit more color on why you see that JV income line down? I know your de-emphasizing JVs in general, but it still is a fairly meaningful investment on your balance sheet. I think we were expecting a little bit more of maybe a steady number there, or even an uplift as you move through some of these -- the Phoenix JV begins to deliver et cetera. Any color there would be great.

[John Stephens:]

Yes. Alan, you're right. A part of it is sort of a timing issue. I would say actually more majority of it is timing. But part of it is, as you said, some of these communities maybe hadn't quite performed as well as we'd like them to and when you're more of minority participant, some of these JVs, some of that get squeezed out at the back end because you're the minority partner. But I would say the bulk of it is timing, mountain shallows were projected open in that community. I think it's the late March, first week or two of April. That will be a big part of our JV income. But I think some of that will push into '18 more than we maybe thought a year ago when we're sort of looking at our projection thing. I think we're probably a little more conservative on the JV projections than we were in the past as we have more experience with them and their experience to developing have more maturity.

[Alan Ratner:]

Great. Okay, thank you and good luck.

[Lawrence Webb:]

Thank you.

[Operator:]

Our next question comes from Alex Barron with Housing Research Center. Your question?

[Alex Barron:]

Thanks. Good morning ladies and gentlemen. I wanted to ask if you can comment a little bit on your fee. You mentioned the percentage is going to be around 4% and the dollar is I guess a little lower than last year. Are you guys just starting to move away from that? Or can you comment on what's going on in that business?

[Lawrence Webb:]

Alex, it's actually a very good question. We continue to look into fee business as significant and smart way to operate. We, as most of you know are the primary fee builder for Irvine Pacific and the Irvine Company and we are simply continuing that process. We believe we have a very, very strong relationship with them and that we're just trying to make sure that we're somewhat conserved in our outlook. The fee builds continues to be steady, but quite frankly last year, there was an uptake that we didn't anticipate. It was higher than we originally thought and we're just trying to look at this in the longer run and try to be a little more balanced in how much it will be. But we delivered somewhere between 600 and 700 houses last year on a fee business and we're estimating it will be a little bit less this year just because of the number of communities we're building on. John? Do you want to add anything?

[John Stephens:]

Yes. And last year like Larry said was an unusually high year in terms of revenues and a lot of that was driven by one particular community in Irvine that started almost 600 homes and they're selling through those so quickly. There are just not as many to start this year. So it's a timing issue, Alex. I think last year, we pulled a lot forward or they pulled a lot forward. And then in terms of the margins, sort of that 4% range, part of that is tied to the amount of JV management fees income that we recognize as well because that's what we're required to put that income and the fact that our JV income is sort of declining a little bit, that does have a little bit of reduction in the JV margins on a year-over-year basis.

[Alex Barron:]

Got it. Okay. And as the year guides start to shift towards more affordable priced product, what's your expectation, longer term for the margins associated with that product?

[John Stephens:]

Those margins should be above, at or above company level margins we're experiencing now. I think it depends on whether these are out of masterplan communities, are they sort of one-off instill locations? Masterplan communities are where we get terms of deals, when we get good ROE, we're willing to set a little our gross margin percentage. But obviously if it fits much more of a bulk, take down our development, we would expect a higher gross margin percentage.

[Lawrence Webb:]

It is clear that the shift towards more affordable housing programs will do two things that are very positive for us. One is because we're selling to a deeper market, we believe our sales pace will go up pretty significantly; and two, we're going to be able to build these homes faster and turn our inventory at a quicker pace, which is a really positive thing for all the metrics we work on.

[Alex Barron:]

Got it. And one last one, was there any communities that open, started selling homes for the first time this quarter?

[John Stephens:]

Yes. We had two communities we orphaned. Larry mentioned in his remarks, Emerson and Santa Clara. Our models aren't open yet, but we are pre-selling now there. And then we have a project in Lake [indiscernible] River Island that really had a soft opening. I think the grand opening will be in a couple of weeks here.

[Lawrence Webb:]

And the indicators, Alex, on both those communities, are they're going to be very well-received in the market place.

[Alex Barron:]

Okay. Well, I'll be sure to visit then. Best of luck. Good to see you again.

[John Stephens:]

Thank you.

[Lawrence Webb:]

Thank you.

[Operator:]

[Operator Instructions] Our next question is from Will Randow with Citi. Please proceed with your question.

[Will Randow:]

Hi. I guess good morning in California and thanks for taking my questions.

[Lawrence Webb:]

Good morning, Will.

[Will Randow:]

I guess in terms of fee building and JV income that's already been hit on, how do you feel about the sustainability of that beyond 2017? Obviously you're shrinking your balance sheet investment and JVs' returns are compressing a bit. But how do you think about those two as so-called 'earnings pillars' over the next couple of years?

[John Stephens:]

On the fee business, as Larry indicated, we are expecting a little bit of a dip. I would say maybe what you saw in 2015 is sort of what we're expecting this year and maybe what we see over the next couple of years at this point. Again on the fee business, it's a little hard to predict. We can kind of see out a couple of years, but beyond that, it's difficult because we don't know for sure exactly what's going to be released when. Obviously we're the fee contractor on that, but I's say '15 and what we're projecting for this year is sort of what I would think about for the next couple of years. And then on the JV side, we do have a couple of joint ventures with land development, sales, land sales that should kick in maybe a little late this year. But really, '18 and '19, we do have a couple of JV. So there's an opportunity. If those land sale JVs go well, that there's some upside during the JV investments, but at the end, overall, our plan going forward is more investment to the wholly-owned and then seeing our JV investments decline greatly over time. We'll always have some level investment JVs, but just as not as extensive as they were in the past.

[Will Randow:]

And then as you commit capital to the land or development thereof, what do you see are the best opportunities right now? Is it increasing your density in Arizona, SoCal and can you talk about how you think [indiscernible] with the markets today?

[Lawrence Webb:]

Sure. We spend a lot of time analyzing that. We think there's a lot of opportunity in the Phoenix area to grow our business. We're relatively small today and we are looking primarily inter Phoenix and into locations and we believe that we'll be probably 2x to 3x the size we are by '18 and heading into '19 there. We believe that the western Inland Empire offers a great opportunity for us. We have a large masterplan that will be hitting the market in '18 that will be building probably a little bit and also sell to other builders, but we think they're really our opportunities there. Historically that the marketplace, the 30,000, 40,000 new homes a year in the early 2000s. It's way below that today. And then our three existing California markets, the demographics are still really strong. Job growth is 3x, or 5x, or 6x for every permit. So we're continuing to look in our existing markets as well. Economic indicators are strong from where we are. But big picture, I think Phoenix is going to expand significantly. We believe Inland Empire will expand, we'll probably stay the same in Orange County where I would assume between fee and wholly-owned, one of the largest builders there, we'll be selective in all the other markets.

[Will Randow:]

And in terms of market expansion? Any other market shifting came up to this point?

[Lawrence Webb:]

We are considering a series of markets. We've worked very hard at the Portland area, we've given a lot of thought to Denver and Las Vegas. But as we sit here at this minute, we think our best opportunities are where we are right now.

[Will Randow:]

Thanks, Larry and John and congrats on a continued progress.

[Lawrence Webb:]

Thank you.

[John Stephens:]

Thanks, Will.

[Operator:]

Our next question is from Alex Barron with Housing Research Center. Please proceed with your question.

[Alex Barron:]

Yes. I wanted to clarify. I think you made a comment, John, that your ASP was going down. Was it just for the full year or for the first quarter as well?

[John Stephens:]

It will be down also for the full year.

[Alex Barron:]

So what was the $1.3 million then? That was for the first quarter?

[John Stephens:]

That was for the first quarter.

[Alex Barron:]

Got it. And wondering if you guys care to brag about how many homes do you closed in the [indiscernible]?

[John Stephens:]

I think we closed about 18.

[Alex Barron:]

Okay.

[Lawrence Webb:]

We think it's the most successful our community in the United States. For those of you who haven't seen it, we would want you to come out because we're extremely proud of it. Given its great margins, we have very happy homeowners. It's been a great opportunity and we really are proud of it. For those of you who've missed it, don't wait too long because it's not going to be around.

[Alex Barron:]

Okay, thank you.

[Operator:]

There are no further questions. At this time I like to turn the call back to Larry Webb for closing comments.

[Lawrence Webb:]

Thank you very much. I realized that you hear a lot of calls today. I imagine most of you have had three before you heard us. We're pretty proud of what we're doing here. We feel like we have a great management team, terrific staff of people and we're laying a terrific foundation to move forward for the company. We're really proud of our group and we really appreciate your support and wanted to thank all of you.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.