The New Home Company Inc.
Q3 2015 Earnings Call Transcript

Published: 9 Nov 2015

[Operator:]

Greetings, and welcome to The New Home Company Third Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now pleasure to introduce your host, Drew Mackintosh, Investor Relations. Thank you, you may begin.

[Drew Mackintosh:]

Good morning. We would like to thank you for joining us today for The New Home Company's third quarter 2015 earnings conference call. Today's conference call is hosted by Larry Webb, the company's Chief Executive Officer; and John Stephens, the company's Chief Financial Officer. Additionally, Wayne Stelmar, the Company's Chief Investment Officer will join us on today's Q&A session. This morning we distributed a press release detailing our third quarter financial results, which can be found in the Investor Relations section of our website at thenewhomecompany.com. We expect to file our Form 10-Q today after the close of the market. During our call today, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements includes statements regarding expected performance, especially expectations with respect to revenue, gross margins, operating income and expenses, cash flow and liquidity, as well as non-GAAP financial measures, operational expectations including community count, the number of new community openings and home deliveries, and the role of fee building in our overall business plan. These statements may -- which may occur during our prepared remarks or during the question-and-answer session may be identified by word such as expects, should, anticipates, intense, estimates, believes, or similar expressions that are used in connection with any discussion on the future, financial and operating performance. As a reminder, forward-looking statements represent Management's current estimates and the company assumes no obligation to update any forward-looking statement in the future. We encourage you to review the company's past and future filings with the SEC including, without limitation, the company's Form 10-K which identifies the specific risk factors that may cause actual results or events to differ materially from those described in these forward looking statements. I will now turn the call over to our CEO, Larry.

[Larry Webb:]

Thank you for joining us for review our third quarter results. The New Home Company delivered another quarter of strong year-over-year growth as we continue to execute in each of our three business segments. Revenues in our wholly-owned business increased more than six-fold from a year ago period, thanks to a 200% jump in the rise [ph] and 135% increase in the average sales price. Key building revenue grew 43% in the quarter due in large part just starting over 200 homes in the last three months. While home sales revenues from our unconsolidated joint ventures grew 198% on a year-over-year. These growth rates are testament to rapidly scale our operations in a profitable manner as each of our business segment contributed positively to the bottom-line. Overall, I'm extremely pleased with our third quarter results as they exceeded our expectations. As I stated in the past, The New Home Company is different by design. Our management team's unparalleled expertise in building high end homes gives us the ability to create one of kind places to live. Our strong relationships with landowners and developers present us with opportunities to participate in some of the most exclusive communities in the West. Finally, our unique operating philosophy allows us to maximize returns to our shareholders by leveraging our capital through joint venture arrangements and agreements. Specifically, The New Home Company difference allows us to take advantage of opportunities that other builders either would not or could not capitalize on. Now I'd like to share a car with you about some of the wholly-owned projects in each of our markets. In Southern California, our Fiano Community in prestigious Newport Coast, once the standout performer during the quarter generating sales pace of 6.3 homes per month and an average sales price of nearly $4 million per home. Set on the scenic hilltops of the Newport Coast, Fiano is the final neighborhood to be built at the Pacific range master plan community is a truly one-of-a-kind home sites with panoramic views of the Pacific Ocean, and buyers have responded accordingly. As of we ended the quarter, we are 23 homes in backlog and expect to deliver eight due December. As of September 30, or 16 home site sell at Fiano, and we planned a maximize stock and there would each of these exclusive for us. Moving a few miles east to the City of Old [ph], I choose the orchid hills of master plan community, Trevi continue to generate strong gross margin dollars for the company. Sales activity kept slow a bit in the quarter as is typical of this time. We ended the quarter with 16 homes in backlog in Amelia and 12 homes in backlog in Trevi. It enables us price $2.1 million and $3.1 million respectively. Further up the coast, our 20 Oaks development to 1000 Oaks contributed several sales in the quarter at an average sales price of $1.2 million. And as is typical with our copy, 20 Oaks is a unique inflow opportunity, in a highly desirable location where new high development is virtually non-existent. We currently have 8 homes in backlog at the community and 12 blocks left to sell. In the Bay area, we recently grand opened our Woodbury community which is situated in were broken through any Contra Costa County in upscale Lafayette. Woodbury consist of three product lines; and terrace flat which are single-story residences ranging from 1,100 square feet to 1,700 square feet; and the garden flats, which are luxury residence with square footage ranging upto 3,000 square feet. Of the two products lines, trials have gravitated more towards the high rise garden flat due to their larger size and better views. Average sales price for the garden flats are $1.6 million and represent over $20 million in background value as of the end of the quarter. Moving northeast to the Sacramento area, we continue to see sort of more challenging movement and sales environment. As you recall from our last conference call, we mentioned the two projects in this market negatively impacted our margins in the second quarter. We have since closed out one of these projects; we have only home remaining to sell the other. This remaining one should have a minimal impact on our earnings going forward. In a recent grand opening of our two communities, and our Cannery Master Plan and Davis, was met with great enthusiasm and resulting in 18 net sales for the quarter. We generated the majority of these sales at our Amelia community which has an average sales price of approximately $550,000. Given the positive response for the Cannery, we are quite optimistic about our future Davis. Finally, before I turn the call over to John to go over more detail on the numbers from the quarter, I want to mention an exciting new community that we recently put under contract in Paradise Valley, Arizona. Those community will consistent of 60 high-end homes in the Mountain Shadows Master Plan where can [ph]. And the service in newborn companies initial entry in the Phoenix. A market which our management knows well, and where we have enjoyed success in the past. We expect pro forma joint venture to leverage our return on capital and also display a large portion of our initial condition related target cost through the overhead fees earned. And while this project will not contribute meaningfully to our bottom line in 2016, instead which is another avenue for growth to our company, and fits well into our existing portfolio of projects, both from a capital commitment and return perspective. I am happy to report that Patt Maroni, a 20-year plus veteran of the Phoenix market will be leading at local operations. And as always, we will focus on inflow opportunities, then we are more than quality planning and architecture. With that, I will now turn the call over to our CFO, John Stephens to provide additional details on our financial results.

[John Stephens:]

Thank you, Larry and good morning. As we anticipated, the 2015 third quarter was a strong quarter for us, and another step in the right direction for growing our business. During the quarter, the company generated net income of $4.4 million or $0.27 per diluted share compared to a net loss of $1.1 million or $0.06 per diluted share in the prior year period. The improvement in our results was driven by a more than 600% jump in home sell revenues to $58 million, a 43% rise in our homebuilding revenues and a $4 million increase in our joint venture income. Our total revenues for the quarter were $87 million, up 204% as compared to $29 million in your earlier period. The growth in our home sales revenue was driven by 200% increase in new home deliveries, and 135% increase in our average selling price to $1.9 million versus $820,000 in your earlier period. The increase in deliveries and revenues is a result of our shift to wholly-owned communities post IPO. These investments are now starting to pay dividends from a growth and profitability standpoint, the increase in our average sales price was largely due to a mix shift to higher price closing from our Amelia and Trevi communities in Irvine where our average home price was nearly $2.7 million coupled with initial deliveries from our Lafayette Luxury Condominiums in the Bay area where our average home price was $1.6 million. In the fourth quarter, we expect our average selling price to decline 10% to 15% from the third quarter as we start delivering homes from additional new communities that have lower price points. Our gross margin percentage from home sales for the quarter was 13.8% versus 15.6% in the prior year period. The decline in our gross margin percentage was primarily due to lower margins generated from two close-up communities in Sacramento that we discussed last quarter. In Southern California, the deliveries from our higher prized urban communities were in line with our expectations. And the average of these communities was higher than our company-wide average gross margin percentage. In addition, the gross margin for home delivery for our urban communities which have significant land seller profit participation, on average in excess of $400,000 per delivery providing strong SG&A operating leverage. And then our advantage of building in these provide master plan communities is that they are purchased under a rolling lot option structure which requires a lower level of upfront capital or acquisition and allows us to better utilized our capital and generate strong returns on equity. Based upon our margins currently in backlog, we anticipate that our gross margins will improve modestly in the fourth quarter as compared to the margins generated this quarter. Our SG&A expenses as a percentage of home sales revenue was 12.8% versus 15.2% in the prior year third quarter. So significant improvement in our SG&A rate referring by higher home sales revenue which more than offset higher selling and marketing expenses resulting from increased community count from the year ago, and increased G&A expenses related to higher personal and professional fees to support the growth in our business. Sequentially, our SG&A rate decreased substantially from the 2015 second quarter, again as a result of stronger operating leverage from higher deliveries in revenues. We expect this SG&A rate to improve further in the fourth quarter, thanks to higher closing volumes. Our net new orders were up 126% to 61 homes compared to 27 homes in the prior year third quarter. The increase was due to a 120% increase in our average active selling communities during the quarter. Our monthly sales absorption rate was 2.3 sales per average active community which was flat with the prior year, and up 21% from 1.9 per month in the 2015 second quarter. As a result of our increased order activity, the dollar value of our wholly-owned backlog was up 132% over the prior year to $212 million representing 96 homes at an average sales price of $2.2 million per homes. Our fee-building revenues which includes management fees from joint ventures, increased 43% to $29 million, and our fee-building gross margins was 70.1% versus 5.0% a year ago. The higher fee revenues were due to increased construction activity including the commencement of three new communities and Irvine Master Plan developments. The joint venture management fees for the quarter totaled $3.3 million compared to $2.2 million in the prior year period. The fee-building is an attractive segment of our operating platform as it provides incremental process and returns by leveraging our overhead structure without much incremental capital. In addition, the fee business strengthens our relationships with our trade partners and key land sellers. Moving to our joint ventures, as of the end of the quarter, we had ownership in 13 JVs which included nine home early JVs and four land development JVs. These joint ventures contributed solidly to our bottom line generating $4.1 million in income compared to $50,000 in the prior year period. The improvements in direct metric income was driven primarily by a significant increase in home sales revenue and stronger gross margin. The business continues to be attractive from our return-on-capital perspective as our pre-tax return on our joint venture investment on a trailing 12 month basis was 28% as of the end of the third quarter. Our home sales revenue from JVs increased 198% to $106 million on 71 deliveries and our JV land sales was $9 million. The increase in JV home sales revenue was very largely by our highly successful, Meridian luxury condominium project in Newport Beach. This community generated 23 deliveries during the quarter at an average sales price of $3.3 million per home and contributed a substantial portion of our JV income. Our gross margin from joint venture home closings came in at a very strong 24.8% versus 17.9% a year ago. The strong margins were heavily influenced by the outstanding performance by our previously mentioned Meridian project, and our multi product, Condo town home [ph] community in San Jose. We need the quarter with 11 actively selling joint venture communities as compared to 10 at the end of the prior year period. The dollar value of homes and backlogs from our unconsolidated joint ventures at the end 2015 third quarter was up 9% to $206 million or 173 homes compared to $189 million or 147 homes in the prior year. In addition, the dollar value of joint venture relates to land under contract, totaled approximately $52 million. Our joint venture profitability in the fourth quarter will not be as robust as we previously expected due to anticipated delays including several joint venture land sales, prefer profit recognition related to completion of lot development activity related to land sales and to a lesser extent, higher development costs. As of the end of the third quarter, together with our JVs we owned or controlled over 6,000 lives including fee building lots. Of this supply, we in our joint ventures owned approximately 3,600 blocks and controlled an additional 2,500 blocks. This pipeline remains strong and is in well located in land constraint markets. That positions us well to support our growing operation. With respect to our financial position, we ended the quarter with $56 million including $35 million in an unrestricted cash and $21 million in availability under long commitments. We had total balance of $169 million dollars as in ends the quarter, which represented a net debt to cap of Clinton 45.6%. Now I'd like to update our outlook for the full year results. We're revising our expectation for full year earnings per diluted share to $1.20 to $1.35. This revised detail outlook is based on the following assumptions; 18 actively selling communities at year end consisting of 10 wholly-owned and 8 JV communities. Revenue from owned communities of $250 million to $270 million, fee building revenue of $130 million to $140 million and income from joint ventures of $16 million to $18 million. I'll now turn the call back to Larry for his concluding remarks.

[Larry Webb:]

Thanks, John. In summary, I'm extremely pleased with the progress our team made during the quarter. We continue to grow our young company at a rapid pace, and keep selling a profitable manner. We more than doubled our wholly-owned community count on a year-over-year basis which set for cable for continued growth in the future. We further solidified our fee business with the Irvine Company starting at significant number of homes for the company in the quarter. That ensure thanks to our unique operating strategy. Our strong reputation in award winning luxury home builders and our unparalleled relationships with rain developers. The New Home Company describe position to take advantage of the favorable housing fundamentals that currently the rest are going to manage [ph]. Our potential for growth was within California and beyond is significant. As I have stated on previous calls, 2015 is all about operational excellence. We are delivering on that promise. Finally, I want to thank all of our employees for their hard work during the quarter. It's our people that make The New Home Company a different kind of home builder, and totally appreciative of their efforts. That concludes our prepared remarks. We welcome your comments and questions.

[Operator:]

Thank you [Operator Instructions] Our first question is from Mike Dahl from Credit Suisse. Please proceed with your question.

[Mike Dahl:]

Hi, thanks for taking my questions and nice quarter. I just wanted to start with the announcement about Phoenix and congrats on the market entry but wondering if you can give us a little more color around how to think about this -- maybe this first part of land in terms of -- I know it's JV but any details you can give us around when the community would officially open? What the selling price would be? And then as you think about the expansion of the platform, when can we expect to see wholly-owned communities roll on in Phoenix?

[Larry Webb:]

Thanks Mike, this is Larry. We have been looking at the Phoenix market for over two years. And we've done this for a lot of reasons but primarily one we think the demographics in Phoenix, it's really strong, a great job growth. Second, we see -- we have always had terrific relationships with land sellers in the Phoenix market from our old days and our relationships throughout the years. We feel that there is a real opportunity for builders that it focuses on Intel site in a particular and move up side of the business to really have a competitive advantage in the Phoenix market. So big picture, we're in Phoenix right now because we think it's a long-term play and a really strong one for a company like ours. Regarding our Mountain Shadows Paradise Valley community, we're still early in this process. But it's going to have a lot of similarities to our Meridian project in Newport Beach, it is a small but pretty awaited master plan in as any location that you can have. We're still in the architectural planning stages, so it's a little premature but we'll have a lot more information on our next call. Regarding other old projects, as I mentioned we have really placed our patmaroni [ph] -- you know our approach is two-fold, one is make sure you're in the right demographic areas but second, make sure you have the right people running your organization and leading. This is a great person, tons of experience comes out of standard Pacific background. And so we think we're going to have a lot of opportunities moving forward but we're not ready to give guidance yet.

[Mike Dahl:]

Got it, appreciate that color. I guess on a related follow-up, you had a shelf out there in terms of shelf-filing and our understanding was that may be saved for a bigger potentially inorganic market expansion opportunity, so outside of Phoenix can you give us any sort of update on how you're thinking about other markets and maybe where you are in some of the evaluation process there?

[Larry Webb:]

Sure Mike. First of all, I don't want anyone to get an idea that we're just running around helter-skelter [ph]. We're going to use our primary investments in the returns we're generating. First and foremost to expand our platform within our existing market places, all of our three California divisions have the staff in place to do two more homes than they are and so that's where our first position is going to be. Phoenix will be next but then we will look at other Western United States opportunities but I would seem in near-term, think about us using the profits and capital, cash and flow and everything to focus, first in California and then in Phoenix.

[Mike Dahl:]

Okay, thanks and maybe one quick one for John. In terms of the margins for the quarter, it seems like it's still the headwind from Sacramento but margins were stronger than that at least we were looking for so. I just want to get a sense of how much was the impact specifically from the Sacramento closeouts? And then if you think about 3Q margin and your guide, what are some of the other puts and takes as far as upside or downside on other projects?

[John Stephens:]

Hi, Mike. Let's see in terms of the impact from the Sacramento close outs we didn't touch on a little bit last quarter. And one of them we did close out this quarter there is another project with a couple of units remaining to close. They were just a much smaller percentage of our total overall mix this quarter versus last quarter. And I think what we saw -- the Irvine company jobs or the master plan communities in Irvine are pretty healthy margins, I would say close to the 15% range on average. And those represented a larger portion of our total overall deliveries. I'd say going forward for next quarter, we would expect to see modest improvement in our margins for the fourth quarter, maybe in the 50 basis point range. And again, the Irvine company's jobs, the master plan jobs will still be pretty significant portion of our revenues because as we talked about earlier on the car, our average selling price out of those communities is pretty significant. And I would say this year probably is in the 70% range of our total revenues for 2015. And next year it steps down a little but still is a meaningful part kind of probably in that fifty to be approaching sixty percent range next year.

[Mike Dahl:]

Okay, great. Thank you.

[Operator:]

Our next question is from Allan Ratner with Zelman & Associates.

[Allan Ratner:]

Hey guys, good morning, congrats on the progress. Larry, first question on the labor side, given your fee-building business, you're in a pretty unique position where you're building homes I think you've mentioned in the past you meet the largest builders just in terms of activity in an Orange County. I curious if you can give us some color on what you're seeing on the labor side, big focal point of builders and investors right now, maybe talk a little bit about where you're seeing some backlogs, where you've been successful in mitigating some of those concerns? And an extension of that I guess, just in terms of cost inflation, what type of pressure are you seeing on the inflation side and how does that compare to your pricing power in your current footprint?

[Larry Webb:]

Let me take the first half of that and I'll put the cost increase and pricing power over to John. Big picture, because of the fee business and because of our quality locations, the price of our houses in Southern California we are in pretty strong position through our trade partners. And we are as every builder is, we are feeling the labor issue but I would say that in Southern California in particular, our construction schedules are slightly longer. But it has been well long terms of its impact on our group, and again it's because we're the largest builder here. And it's not just that but it's also because we have really strong teams in close relationships with these trade partners. In the Bay area it has been more meaningful in terms of delays. Our houses now are roughly taking about 30 days longer than previously and that's because of the strong demand there, both all of the Peninsula. Going to Sacramento, again it's -- rather has been some push, it has not been a significant or meaningfully position. So Bay area delays, Southern California pretty grow under control, Sacramento still a relatively slow market. John?

[John Stephens:]

Yes, on the cost side we've seen it in the 5% range plus or minus and on the directs, that's primarily labor related.

[Allan Ratner:]

And just in terms of the pricing power there, is that something you find very able to push along to the consumer or because it's little bit hard to tell apples-to-apples margins given all the mix what's going on. So just curious how you view that 5% in the context of pricing power?

[John Stephens:]

I think we've been able to -- in like Orange County, for example, and then the Bay Area we've been able to pass along those cost increases generally. I think Sacramento workflow that softer we're really not able to do that and it's really a function of what sort of demand we're seeing in each of our markets and our ability to do that. Having said that, we have pushed -- our prices up quite a bit on some of these higher end projects and the more well located spots. So I would say it's really where the demand is -- where we've been able to do that Allan.

[Allan Ratner:]

Got it. Thanks, I appreciate that and one additional one if I could, Larry I think you mentioned Amelia and Trevi you saw a little bit of slowdown in demand in the quarter. Perhaps that's just seasonal but I was curious and that I believe is a high percentage Asian buyer and with the strengthening dollar here, do you attribute any of that slowdown to kind of what's going on there or is it something else that's driving that in your opinion?

[Larry Webb:]

Yes, it clearly is, the whole impact of the Asian buyer is something we watch very carefully and there has been a slowdown but in the price range we're at, which is the luxury market in your line, we have not been an impacted I think as some other builders. In principle because our buyers -- have opportunities and options and they are incredibly well financed. I don't know if you are aware but our cancellation rate is one of the lowest in the industry and our primary Asian target market is not foreign nationals but its second and third generation Asian so our foreign national business was only about 10% of the urban market. So while there has been a slight reduction, I would say processed more minimal than what other builders.

[Allan Ratner:]

All right, thanks and good luck.

[Operator:]

Our next question is from Michael Rehaut with JPMorgan.

[Jason Marcus:]

Hi, good morning, it's actually Jason Marcus for Mike. First question, I just wanted to clarify I think you said with the gross margin going to $40 million, did you say that you're spending with 50 basis points or so of sequential improvement because that would only get you to the lower end of the full-year guidance unless I'm missing something with the SG&A. So I guess how should we be thinking about the incremental SG&A as we look at 4Q?

[John Stephens:]

Well, incremental SG&A should come down, our rate should come down as our revenue drop. What I was referring to was, it was margin guidance. We would expect to see some modest improvement sequentially, and as we deliver more revenues and homes in the fourth quarter on a relative basis we would expect our SG&A rate to continue to drop. So we'll see increased leverage and increase our operating margin in Q4 of this year.

[Jason Marcus:]

Okay. And then moving on to the fee-building business, and I think obviously the margin improvement and you spoke about a couple reasons why in the third quarter. Is that something that you think is repeatable into the fourth quarter? And then as you go into next year, how should we think about margin there?

[John Stephens:]

I think the margin is -- should kind of remain in that neighborhood. I think the one variable there is our management fee, which we do include in that fee-building line item. And that can have some variability from quarter-to-quarter but I'd say and that range is probably inappropriate estimate.

[Jason Marcus:]

Okay, great. And then last question on the land market in general, do you talk about what you're seeing as you look at different land deals in terms of competition and pricing across some of the different market they are in and if the underwriting standards that you've had in the past have -- you continue to find deals that match those standards?

[Wayne Stelmar:]

This is Wayne speaking for the first time, it's kind of fun to be on a call where Larry and John get to do all the work. The land market continues to be very tight, particularly in the markets we've chosen to play which are close to Southern California and the Bay Area. So for us to track and find deals that work is difficult and that we haven't relaxed underwriting standards because we think that as we move through the vitals that we're currently in is proving to remain and retain general writing guidelines that we built the company on and we'll continue to operate the company. That said, we have a pipeline of deal that are very strong for us and most of those deals require us to develop a lot but there are several others where we're buying finished -- very good master plan communities. So I think for our perspective, while it's difficult and is very competitive, we will just stick to our approach and both with respect to the market and our underwriting standards themselves, and continue to be picked up or we're going to wind that process.

[Larry Webb:]

And this is Larry again, if I can just add one thing. For further years, I've had people say can you find new wins, and we've heard all the way on this and the simple fact is, we do have opportunities and as our company grows and gains more success which third quarter is pretty evident of. We're having more opportunities not less, we're already there, don't worry about us finding land, that is not our issue.

[Jason Marcus:]

Okay, thanks.

[Operator:]

Our next question is from Will Randall from Citigroup [ph].

[Unidentified Analyst:]

Good morning and also congrats on the progress.

[Larry Webb:]

Thank you, good morning.

[Unidentified Analyst:]

In terms of your fee-building pipeline, how much visibility do you feel like you have in the 2016 and potentially beyond that? And in terms of potential cost overruns, are you seeing any benefit from lower lumber or negative pressure from labor within that business?

[John Stephens:]

Hi Will, this is John. On the fee-building side we do have good visibility to next year. I think the wild card there is just the start activity. Again this is dictated by the Irvine Company but we do have a very good visibility of our projects and a number of projects we have, and a schedule. And that can fluctuate from quarter-to-quarter but we have good visibility. In terms of cost overruns -- in terms of the fee-business, it really is not an impact for us because again we're kind of doing a cost plus markup on those actual direct construction costs. So if there are -- is creep in those cost, that would just be part of the arrangement with them.

[Unidentified Analyst:]

Understood. And then I guess going back to next question from earlier, I mean all of you guys have run a much larger enterprise than you currently are and obviously you're trying to grow organically. Is at least three well-known deals being shot right now. How far are you willing to go outside of California and now Phoenix in terms of geography? And what type of attributes you're looking for from a business perspective?

[John Stephens:]

Well I think we've talked about this on prior calls where we've identified western markets -- and by western we mean Denver in West. We like Denver, obviously we like Phoenix, having planned aside, was an iconic property there. We also like Las Vegas but specific master plans and I'll be very specific -- the summer was without the plan, with Las Vegas we need something we must focus on. But as Larry mentioned, we need to focus on achieving a capacity that we have with our existing Southern California and primarily Bay Area market and build that capacity given and focus on the land opportunities within those market rather than focus on going to a new market and take away from the California focus that we really have as a company.

[Larry Webb:]

We're looking at a lot of opportunities and Wayne is leading that. And for those of you who don't know, Wayne and I grew John Line Homes from two market company to one of the largest private home builders in the U.S. in five years. We know how to grow an organization but from our perspective, we only want to grow if we are in the right demographic areas for our company and the companies are -- if we do run, if we did an acquisition, the company would be dying, would not be just a way-in deal, it would be a company that manages, runs its organization in a parallel situation to us. There are a lot of opportunities out there Will but we're going to be very careful and cautious about how we look at them.

[Unidentified Analyst:]

Thanks for that and congrats again on the progress.

[Larry Webb:]

Thank you.

[Operator:]

[Operator Instructions] Our next question is from Alex Barron - Housing Research Center. Please proceed with your question.

[Alex Barron:]

Thank you and good job guys. I wanted to -- I guess, at least we could talk a little bit about looking into 2016. I guess it's still a fair assumption that your margins on the wholly-owned stuff are going to start to increase overtime as you build outside of Irvine ranch?

[John Stephens:]

Hey Alex, good morning, it's John Stephens. We're not going to kind of get into the level of guidance for 2016, in particular relates to margins but what I would say is than what I said earlier was that, being a large builder here in Orange County we'll continue to be impacted by -- I would say margins are kind of in the range we're now, just because we are doing more Irvine Company master plan deals. And as I said earlier, about 70% of our revenues in this year and 2015 will come out of those projects and next year it's probably in the 50% to 60% range depending on what we kind of pull through on a relative basis. So again, overtime on the wholly-owned business those projects will still be a big part of our business.

[Alex Barron:]

And then on the joint venture side, I'm guessing the landscape project is probably coming to a close in the next couple of quarters. Do you guys have anything new in the pipeline for 2016 and beyond on the joint venture side in Southern California? And then have both on timing as far as the Board guidelines fit, as well as McKinley Village where those two projects are at right now?

[John Stephens:]

Sure, I can give this. McKinley Village, we're doing site development work and we anticipate starting our models and having a grand opening sometime in the spring early summer. It's a pretty exciting project in really downtown Sacramento, close to downtown. We are -- all right, we didn't mention but our Cannery project continues to grow and be developed and move forward. We will -- I don't know if all of you recall but we stated at the beginning of this year that we are going to make most of our IPO proceeds and put them in the wholly-owned projects. Moving forward you'll stood the one-off JVs but most of our JV activity will be in land development and larger land deals.

[Alex Barron:]

Okay, in tightland?

[Larry Webb:]

Tightlands, we are under construction. We are very optimistic, agent San Mateo it's in an incredible location. We are really going to push forward and open in a big grand opening sales when the project gets little closer to completion and that would be the first quarter mid to late first quarter next year. So tightlands, we're very optimistic about it as well.

[Alex Barron:]

Okay, and anything on Suchow [ph] replacing the Valencia project?

[Larry Webb:]

It's a little too soon for that right now, Alex. We can give every one more guidance and we look forward to with on our next call.

[Alex Barron:]

Got it. Okay, thanks.

[Larry Webb:]

Thank you.

[Operator:]

Ladies and gentlemen, we've reached the end of the question-and-answer session. Now I'd like to turn the call back to Larry Webb for closing remarks.

[Larry Webb:]

Thank you very much. I'd like to thank all of you for listening. I know this is very busy time for everyone. When I look at the last nine months, I stated from day one, this is about getting great projects to the market and doing it the right way. That's what we've done, our third quarter is the beginning of us reaping some of the benefits of that and could not be more enthusiastic about our opportunities moving forward. And I really hope that you come out and see our projects and see how different we are. And just like you know how excited we are, I say this every call, and I'm going to say it again, I think our future is very bright. Thank you.

[Operator:]

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