The New Home Company Inc.
Q4 2014 Earnings Call Transcript

Published: 6 Mar 2015

[Operator:]

Greetings and welcome to The New Home Company Fourth Quarter 2014 Earnings Conference 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. It is now my pleasure to introduce your host, Rodny Nacier, Investor Relations for New Home Company. Thank you, sir. You may begin.

[Rodny Nacier:]

Good morning. We would like to thank you for joining us today for The New Home Company's fourth quarter 2014 earnings conference call. Today's conference call is hosted by Larry Webb, the Company’s Chief Executive Officer, and Wayne Stelmar, the Company’s Chief Financial Officer. This morning we distributed a press release detailing our fourth 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-K 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, number of new community openings and home deliveries and the role of fee building in our overall business plan. These statements which may occur during our prepared remarks or during the question-and-answer session maybe identified by words such as expect, should, anticipate, intend, estimates, believes or similar expressions that are used in connection with any discussion of 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 statements 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 risks 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 Larry.

[Lawrence Webb:]

Thank you for joining us today for our fourth quarter 2014 earnings conference. I will provide a summary of our operating and financial highlights for the quarter, and Wayne will then discuss additional details on our financial results and balance sheet. After our prepared remarks, we will open the call to your questions. 2014 was a highly transformative year for our company. Since our IPO last January, we have spent the year laying the groundwork to maximize our skills and relationships, as well as position ourselves to capitalize on the improving California marketplace. Our unique business model combines wholly-owned homebuilding, joint ventures for both homebuilding and master planned community development and fee building. This multi-faceted approach has allowed us to significantly expand our operations through a disciplined allocation of capital with an emphasis on maximizing our return on equity. During the year, we significantly expanded our operations on all our project activities to reinforce the foundation for future success. Just as importantly, we delivered a year of profitable results. Quite simply, 2014 was the year in which we built the foundation for the long-term success of the New Home Company. During the fourth quarter of 2014, we produced solid growth in total revenues, favorable leverage in our G&A base and had continued progress in our JV operations which all contributed to the growth in our net income. We began work an additional wholly-owned community at attractive price points, which should provide us with solid returns on the equity. We more than doubled our JV income to $7.4 million as we continued to increase activity in our homebuilding JV, while also initiating lots sales from land development JV at very attractive gross margins. Our fee building activity also delivered another quarter of exceptional growth and has positioned the New Home Company as a dominant presence in Orange County. During 2014, we opened seven communities to end the year with 12 actively selling including four wholly-owned and eight owned by our JVs. We ended the year with one less JV community than expected. As our Rose Lane communities sold out ahead of schedule. In our fee building operations, we expanded significantly and at present, there are over 450 homes under construction, compared to just over a 100 homes a year ago. We ended 2015 with a significantly strengthened backlog of both wholly-owned and JV homes. Combined with our JVs, we’ve finished the year with a healthy pipeline of over 5900 well located premium lots in highly desirable California markets to support our projected deliveries for the coming year. The coastal and infield California homebuilding markets continue to exhibit strong economic fundamentals and offer a favorable demand environment for a wide range of innovative home concepts across all price points that execute our growth strategy. I’d like to emphasize that since the 1st of the year, we are seeing strong demand in most of our markets. Moving to our operating results, big picture the news is very positive. For the fourth quarter, homebuilding revenues from our communities grew over 200% to $33 million and for the full year increased 57% to $56 million. During 2014, our wholly-owned backlog dollar value expanded more than six times to $87 million as a result of increased New Home workers and higher price of homes in backlog. In the fourth quarter, fee building revenues grew up 186% to $14 million compared to a year ago as a result of an increasing start to the number of our communities. Our fee building revenues increased 97% to $94 million for the whole year. We’ve remained committed to expanding our fee building activities, which provides us with attractive returns and also increased visibility in our core Orange County market, as well as access to the best trade partners. We believe our fee building business has a strong base of activity to continue growing into the future. In our JVs, we continue to participate in the ownership of larger more unique sites in some of the strongest markets in the US. Total revenues in our JVs more than doubled to $183 million in the fourth quarter and increased 48% to $271 million for the whole year. Fourth quarter and full year 2014 revenues from our JVs included $47 million of land sale revenue which yielded a close marketing of 25.4%. We were extremely pleased to begin delivering improved lots from our Foster Square JV. We have a strong backlog of homes and lots which will provide us additional contribution to our JV operations in 2015. On the homebuilding side, our Meridian and Rose Lane communities accounted for the majority of the dollar value of homes in backlog. Meridian had its grand opening in December 2014 and has already sold 44 of the 79 homes totaling $132 million in sales revenue as of the end of February. In December, our Arantine Hills JV closed on our previously announced acquisition of Bedford Ranch. This development is expected to contain over 1300 lots within an upscale master plan community and will further drive our JV homebuilding and lots sales activities beginning in mid-2016. We believe our progress highlights the strengths of our master plan community with development expertise and strategic relationships with land owners and capital providers. We are well positioned to build on the progress we made throughout 2014, which should lead to improving financial results as we move forward. Wholly-owned communities remain the primary focus to the company’s future growth while communities owned by our JVs and controlled through our fee building activities allow us to generate meaningful income and further enhance our return on equity. Let me be very clear. Our primary focus in 2015 is to grow our business. Specifically, we plan to open 10 new communities during that time, eight of which are wholly-owned in premier California markets. We believe 2015 will be a year of implementation and operational excellence. As I mentioned, we want continued growth in all facets of our operations. As we move beyond 2015, we remained very positive on our ability to lever our unique business model to deliver consistent earnings improvement and attractive returns on our equity. With our experienced team, creative strategy and solid foundation, we look forward to expanding our operations and generating value for our shareholders. I will now turn the call over to our CFO, Wayne Stelmar to provide additional details on our financial results.

[Wayne Stelmar:]

Thank you, Larry, and good morning. We ended 2014 with strong fourth quarter results. There are five highlights this quarter I’d like to emphasize. First, the backlog dollar value of our wholly-owned community increased six-folds to $87 million. The backlog dollar value of our housing JV increased to $115 million compared to $43 million in 2013. Third, we delivered 256 lots from our Foster Square JV community, which represented land sale revenue of $47 million. Additionally, we sold 265 lots in our Cannery master-plan located in Vegas. Backlog dollar value from lot sales at these communities was $89 million. Four, our SG&A as a percent of home sales revenue improved dramatically to 16% as a result of closings of new communities and fifth and finally, we ended the year with a strong balance sheet with $74 million of total liquidity to invest in our future growth. I'll now provide an overview of our fourth quarter and the full year operating results. In the fourth quarter, our total revenue which includes our wholly-owned communities and fee building activities were $73 million and $25 million in the prior year period. Reported net income of $5.3 million or $0.32 per share, largely as a result of an increase in equity and net income from JVs. For the full year 2014, our total revenue increased 80% to $150 million from $83 million in the prior year and we reported net income of $4.8 million or $0.30 per share. For the fourth quarter, home sales revenue was $33 million from 20 deliveries compared to $11 million from 23 deliveries in the prior year period. The increase in home sales revenue was attributable to a significant increase in the average selling price of homes delivered to $1.7 million compared to $475,000 in the prior year period. This increase in average sales price largely reflects the initial deliveries from Amelia and Trevi communities located in Irvine, which had an average sales price of $2.5 million. As we mentioned last quarter, we expect average selling prices that vary from period to period as we bring new communities to the market. Our four active selling communities currently have average sales prices that range from $420,000 to $3.5 million. Our homebuilding gross margin in the fourth quarter was 13.2% compared to 21.4% in the prior year quarter. The change in gross margin was due to the shift in the mix of homes delivered to the Irvine communities noted above where lots are acquired under favorable lot option structure which generated strong return in the company’s invested equity. For the full year, wholly-owned home sales revenue increased 57% to $56 million compared to $36 million. As a result of the strong growth in home sales revenue, we reduced our SG&A percentage in the fourth quarter to 16% compared to the prior year quarter of 27%. As deliveries and revenue increased from wholly-owned communities, we expect our SG&A as a percentage of home sales revenue to continue to improve. In the fourth quarter, fee building revenue increased significantly to $40 million, compared to $14 million in the prior year quarter, primarily due to a higher number of homes under construction and related construction activity. Management fees from JVs increased slightly to $4.1 million from $3.9 million in the prior year period. For the full year, fee building revenue increased 97% to $94 million compared to $48 million in the prior year. The number of homes under construction within our fee building arrangements with Irvine Pacific increased to 470 from 126 at the end of 2013. For the quarter, we reported fee building gross margin of $2.6 million compared to $2.2 million in the prior year period. The relationship between fee building revenue and gross margin is significantly impacted by the mix of lower margin contracting revenue and management fee income. The fee building business remains attractive to us as we continue to identify strategic relationships and expand activity in our core markets. Moving on to our JV communities. The JV structure continues to provide us an opportunity to earn an economic return in excess of our capital percentage as well as significant management fees. As a reminder, results of our JVs are not consolidated and reported in equity and net income of unconsolidated joint ventures in our financial statements. At the end of the quarter, we had an ownership interest in 12 JVs including eight homebuilding and four land development JVs with capital percentages ranging from 5% to 35%. For the fourth quarter, JV home sales revenue increased to $136 million, from 129 home deliveries compared to $78 million from 74 home deliveries a year ago. As Larry mentioned, land sales revenue from JVs during the fourth quarter totaled $47 million related to lot sales in our Foster Square community. We continue to produce strong gross margins from our JVs. Homebuilding gross margins from JVs was 23.1% in the fourth quarter and 22.4% for the full year. As a reminder, the gross margin comparison of approximately 27% in both periods for 2013 was positively impacted by the strong gross margins from three communities at Lambert Ranch located in Irvine that were nearing closeouts. Land sales gross margin from the Foster Square JV was 25.4% for the fourth quarter of 2014. There were no lot sales in the prior year quarter. Our share of net income from JVs for the fourth quarter was $7.4 million compared to $3 million in the prior year period largely due to the contribution from lots sales revenue and mix of homes delivered in our homebuilding JVs and the impact from the specific income allocation percentage for each of the JVs. For the full year, our share of net income from JVs was $8.4 million compared to $4.7 million in the prior year. The backlog of homes and JV communities continue to grow. At the end of the fourth quarter, there were 75 homes in backlog from eight communities representing $115 million of backlog dollar value compared to 62 homes and six communities at the end of the prior year representing $43 million of backlog dollar value. This growth was an increase in average selling communities from six to eight which produced 57 new home orders compared to 45 in the prior year period and significantly higher average sales prices. This growth in backlog in community count, positions us to recognize higher revenue and earnings during 2015. As I noted earlier, we also sold lots in our Cannery master-plan during the fourth quarter. There were 420 lots in backlog from lots sales at the Foster Square and the Cannery master-plan with a dollar value of $89 million. In January 2015, the company acquired a 145 of the Cannery lots with a purchase price of $34 million. Construction of model homes in two Cannery communities is underway. Our land pipeline remains strong and well positioned to support our growing operations above all our activities. At the end of the fourth quarter, together with our JVs, we owned or controlled over 5900 lots representing a 16% increase from a year ago. Of this lot to buy, we enter JVs owned 4047 lots and control an additional 1879 lots. Moving on to the balance sheet and liquidity. We ended the quarter with $74 million of total liquidity including $44 million in cash and $30 million available under our loan commitments. We had $114 million in outstanding debt, which represented a net debt-to-capital ratio of 31.9%. We believe our balance sheet is strong and expect to continue to invest in opportunities, currently controlled or in our acquisition pipeline. I now like to discuss our outlook for 2015. For the full year of 2015, we expect the strong momentum to continue as we increase our overall deliveries across all project activities. To that end, we are introducing our earnings per share outlook; provide you with a clear picture of the positive direction which our company is headed. We expect to deliver earnings in the range of $1.30 to $1.45 per share for the full year 2015 which we project will be largely weighted for the fourth quarter of 2015. We based our EPS outlook on the following assumptions. We expect to end the full year 2015 with 17 actively selling communities consisting of 10 wholly owned and seven JVs. We expect to report revenue from our own communities of $230 million to $250 million. From our fee building activity, we expect revenue of $155 million to $170 million for the full year 2015. Finally, we expect our equity and net income from unconsolidated joint ventures to approximate $20 million to $23 million for the full year 2015 from a combination of homebuilding and lot sale activities. I’ll now turn the call back to Larry for concluding remarks.

[Lawrence Webb:]

As you can see, our 2014 is truly a transformative year from private to public, from unentitled land to fully approved master-plans, from architectural concepts to ten exciting new housing programs that will open this year. And finally, our fee business has evolved from a relatively small operation to New Home becoming the largest builder new homes in Orange County. Our results in the fourth quarter are just the beginning. In the coming weeks, we will be announcing additional significant investments in Irvine communities. We are very well positioned to take advantage of the improving coastal California housing market. I recognized that our formula for success is different than many of our peers. However, it is exactly that difference that makes us unique. Our homebuilding, fee building and master-plan develops allow us to lever our experience in relationships to form a powerful company. As I’ve said before, our future really is bright. We welcome your questions.

[Operator:]

[Operator Instructions] Our first question today is coming from Will Randall from Citigroup. Please proceed with your question.

[Will Randall:]

Hey, good morning guys and congratulations on the progress.

[Lawrence Webb:]

Thank you, Will. We appreciate it.

[Will Randall:]

In terms of your 2015 guidance, and the lower ASP on the new communities coming on, how should we think about average selling prices and gross margins is trending over this year?

[Wayne Stelmar:]

Well, Will, this is Wayne. I’ll pick that. From our perspective, the first three quarters of 2015 are really building for us. We opened seven new communities, five of which are in our wholly-owned, two of which are joint venture. Those will be coming on during the course of the first nine months, most in the first half. One of those communities will be an Irvine community and have gross margins that are similar to Amelia and Trevi. The others will be communities for which we’ve developed lots and we would expect higher gross margins. At this point, that was pretty different to get very specific.

[Will Randall:]

Makes sense. In terms of given the progress, with really expanding the revenue and earnings line this year, as we look – or sorry last year, as we look to over the next couple of years, how do you guys think about geographic expansion as well as deepening your presence in California and what’s the optimal amount of leverage and how to go about that?

[Lawrence Webb:]

Well, Will, our program from day one was always to lay the foundation in 2014 and then grow significantly 2015 and beyond. And as we sit here today, we really think we are able to do that in our existing marketplaces. We have plenty of opportunity to continue to expand our business significantly. That said, we have looked in other parts of the Western United States, but I think our primary focus for 2015 will still be in the markets we are in. We have plenty of potential to do better and better. So, that’s where we are going to focus.

[Will Randall:]

And if I could just slip on last one for the tax rate, should we be thinking about close to 38% tax rate for this year?

[Wayne Stelmar:]

We had – and I forecast to use 40%, so your 38% would be very, very close.

[Will Randall:]

Okay, perfect. Thanks and congratulations again.

[Wayne Stelmar:]

You are welcome.

[Operator:]

Thank you. Our next question today is coming from Ivy Zelman from Zelman and Associates. Please proceed with your question.

[Ivy Zelman:]

Thank you. Good morning guys and congrats on the strong quarter. Larry, maybe you can give everyone sort of a big picture perspective on for the buyer in the market today and if you’ve seen any notable changes, there has been some concerns especially in the Coastal California markets about the strengthening dollar and what the impact might be on four national fires. So, and I thought a big picture commentary around the buyer demand and then what you are seeing and – how would you ranked strength so far in a scale one to ten, ten being a strong as possible just because I gauge your enthusiasm more a views of the trends.

[Lawrence Webb:]

Sure, okay, Ivy, I am happy to do that, and I love, you say big picture, because, that’s what I am all about, right. Basically, let me answer the Chinese national fire first. It is clear and in particular in our Southern California operation that we’ve had a significant number of Asian buyers, probably 60% of our Ranch County buyers have been Asians and now that maybe 20% have been foreign nationals. We believe that these foreign national buyers clearly are going to be impacted, but to-date, we haven’t seen it. We have been very consistent in our – where we are and I’ve heard other calls where homebuilders and some of our peers have said it’s been significant but we just had not seen it. Our results are very solid. In terms of the spring selling season, January was solid, February was even better than that and in our California, that the coastal areas, we are very optimistic.

[Ivy Zelman:]

Great, that’s very helpful. Just backing on the same idea with respect to demand, are you raising prices in your communities incrementally a few percent, 3% to 5% apples-to-apples theme and are you using instead of less than you had then let’s say this time last year, just directionally for both new home price inflation and then incentive?

[Wayne Stelmar:]

Ivy, we in Coastal Southern California in the Bay area, typically have relatively small releases, it could be anywhere from 3000 to 5000 per paid, really to kind of match our absorption. Our experience has been increase of anywhere from 1% to 1.5% per se. So that may equate to two months worth of absorption or slightly less than that, maybe a month and a half worth of absorption.

[Lawrence Webb:]

Give you an example with that for everyone else, we opened Trevi, which is our move up community through the Irvine Company in May of last year. And we’ve consistently raised prices 1% to 1.5% every release. So, we are now two-thirds of the way through the project and we have roughly 7% up from what we did then. We still do have some incentives that we give in Sacramento. But the rest of our marketplace, we focus on raising prices every release and it’s been a powerful tool for us.

[Ivy Zelman:]

It’s very helpful. Do you think the resale market, can you say comps to what you are offering in your new communities that you are opening that you are trading at a significant premiums, something that will be considered comparable? I know, it’s difficult in retail or do you think that spread between the New Home prices and retail is pretty much always what it’s been or is that gap widened for a similar, obviously, in older homes, but in your square footage and price point range?

[Lawrence Webb:]

We have always traded at a premium and if I was going to estimate and it purely an estimation it would be 15% to 20%. One of our initial strategic approaches which is still prevalent today is, we wanted to be closer in the jobs in infield sites and our primary target and our primary competition has always been the resale market. And because our architecture is new and dynamic, we just had this big competitive advantage wherever we are.

[Ivy Zelman:]

That’s great, but that premium, that 15% to 20%, it’s not above that normal range right now, you say you are right within that same?

[Lawrence Webb:]

I would say so, I would say so, the last thing I want to do is, be overly optimistic, but one thing we’ve seen is, in a lot of the markets we are in, there is very little – very few resale houses for sale anymore. Time on the marketplace is a month and a half. So, we just don’t have that competition like we did.

[Ivy Zelman:]

Great, well, best wishes for 2015 guys. Thank you.

[Lawrence Webb:]

Thank you.

[Operator:]

Thank you. Our next question today is coming from Michael Dahl from Credit Suisse. Please proceed with your question.

[Michael Dahl:]

Hi, thanks and Larry, Wayne, congrats on a good quarter and good year. Wanted to actually follow-on to one of Ivy’s questions first and if you could just think in the opening remarks, you made a comment that you were seeing strong demand in both of the markets and you kind of highlighted the Irvine projects as seeing some strong releases but could you rank, go across your footprint and rank your top to bottom and is it really just Sacramento that you would fluid out of those strong markets or is there anywhere else that you’d highlight less robust trends?

[Lawrence Webb:]

Well, Sacramento is clearly the slowest of the markets we are in. The strongest would be Orange County or the San Jose headquarter. But really every market we are in is solid. Even Sacramento now has been picking up a little bit this year. But, we don’t really have much going on here, we only have a couple projects right now. So, longer-term we still think Sacramento will be fine, but these other markets, we have four and five jobs being created for every new house. So it appears at least as we sit here today that there is no let up in site towards LA, Orange County, and the Bay Area.

[Michael Dahl:]

Great, that’s helpful. And then, Wayne, I appreciate that there is a lot of moving parts here and then mix plays a big role in the results, but as it pertains to margins, you are putting out a formal earnings guidance range. So, I guess, there is got to be a margin assumption behind that. Could you just give us and it seems to be something that would be well north of what we were just seeing in the past couple of quarters just back of the envelope. So could you give us what’s behind the assumptions there?

[Wayne Stelmar:]

Certainly, the expectation is that, over the fourth quarter of 2015 that margins will continue to improve as we began to generate revenue from wholly-owned communities on lots that we develop.

[Lawrence Webb:]

Mike, I would like to add though, that we won’t see the bulk of that till the fourth quarter.

[Michael Dahl:]

Exactly right.

[Lawrence Webb:]

So, last thing we want to do is, in anyway over around this year, we have a solid business that – we really have used 2014 to lay a foundation. We are opening ten new projects and we feel very confident about all of them. But again, our business plan is back-loaded because of all the new openings we are going to have in the first half of the year.

[Michael Dahl:]

Got it. Understood, but I guess, even with that back-end loaded guide, it would seem to imply that you are back up into the kind of mid-teens in that fourth quarter. Is that fair?

[Wayne Stelmar:]

That’s fair.

[Michael Dahl:]

Okay, great. Thank you.

[Operator:]

Thank you. Our next question today is coming from Brendan Lynch from Sidoti & Company. Please proceed with your question.

[Brendan Lynch:]

Good morning, Larry. Good morning, Wayne. My first question is on your unconsolidated JVs. They contributed about $35 million to them in 2014. How do you anticipate this trending over the next couple of years as you shift your focus to your wholly-owned projects?

[Wayne Stelmar:]

Well, certainly the joint ventures, particularly the land development joint ventures that have very little debt will continue to be consumers of capital. The housing joint ventures for the most part have been capitalized, or capital within those deals, but we will expect, as we make our way through 2015, to see the peak and the equity and that with our share of the equity in the ventures that peak we would expect that in the third quarter and then we see it’s starting to decline pretty markedly from fourth quarter onwards.

[Brendan Lynch:]

Okay, great. That’s very helpful. And then also on the JVs maybe you could just give us a little more color on the vintage of the project within them? Obviously the JVs have been existed for a few quarters now and in some cases a few years. Are these JVs still initiating new projects within them or are they all moving towards a more mature status and perhaps closed out in the next couple of years?

[Wayne Stelmar:]

Well, there is two different – there is two distinct types of JVs, one is the housing JV and the other is the land development JV. The housing JV is the first we did was in 2010 which was Lambert, which is obviously closed out. We have a number of 11 – 2011 vintage JVs which will have their final closings in 2015. But the housing JVs have a shorter life cycle more immediate closeout than the land development JVs. As we mentioned in the fourth quarter, we saw our first sales and first lot closing from our four land development JVs. Those two will continue to have activity, closing activity in 2015 and a bit into 2016. We also have our Bedford Ranch and our – I am sorry, Ranch JVs which begin lot sales in 2016. We finalize entitlements in 2015. So they’ll have a longer life than the housing JVs. They will withstand into the year 2017, 2018.

[Brendan Lynch:]

Great, thank you very much. That’s very helpful.

[Operator:]

Thank you. Our next question today is coming from Michael Rehaut from JP Morgan. Please proceed with your question.

[Michael Rehaut:]

Hi, thanks guys. Getting more and more jealous of the California weather everyday that passes out here on the East Coast.

[Lawrence Webb:]

That’s the reason we live here Michael.

[Wayne Stelmar:]

Yes, we are enjoying our 80 degrees today, by the way.

[Lawrence Webb:]

And for the rafted Wellington Hawaiian shirts, okay.

[Michael Rehaut:]

But that’s everyday, so.

[Lawrence Webb:]

No.

[Michael Rehaut:]

First question I had was, just kind of on the pace that you expect with the community openings in 2015, certainly appreciate the guidance there. I know it’s an inexact science, but when you talk about the income statement results being concentrated in 4Q, if we were to focus just on the eight wholly-owned communities for a moment that you expect to open in 2015. Is that more of a 1Q, 2Q or is it kind of spread out evenly?

[Wayne Stelmar:]

Part of the communities will open in the first half, three will open in the second half of the year and the three that open in the second half are all in metro Sacramento, two of which are – two of that are Davis community we discussed in our earnings release.

[Michael Rehaut:]

Okay. So the, the five in the first half then - is that you expect most of those to participate to a decent amount in the spring selling season or is it just going to be more pace throughout?

[Wayne Stelmar:]

We actually expect a b it of a pop when we open them.

[Lawrence Webb:]

So, and they primarily be in the second quarter.

[Wayne Stelmar:]

Correct.

[Lawrence Webb:]

The majority of them will be second quarter. As we sit here today Mike, we have a lot interest in these five projects. We have – we quantify people on our list significantly and things are very positive for these as we sit here today.

[Michael Rehaut:]

Okay. That’s helpful. And, I guess, you mentioned continued investment in 2015 and I was hoping you can go into a little bit more about that, in terms of investment across your different approaches to the business that this will be investment more in wholly-owned versus JVs or fee building, I noted – I think you mentioned some of these are fee building. But as you continue to build the business, where should we expect that investment to be concentrated in 2015? And any thoughts around financing?

[Lawrence Webb:]

Let me take the investment and let Wayne take the financing. On the investment front, we are going to continue to focus on the markets that we’re strongest in right now. So that’s Orange Country, that’s LA, that’s the Bay Area, in particular. As I mentioned in my closing remarks, we in the near-term will be announcing some major acquisitions within the Irvine company portfolio and we are very excited about that opportunity. From our perspective, we really do have opportunities to look outside the state. But we believe that we should first take advantage of the relationships we have here and that’s what we are going to do. Wayne, financing?

[Wayne Stelmar:]

Well, let me give you a little more clarity on the investment as well. We ended the year with about $60 million in JV investment. I would expect a – the year of 2014. I would expect the year in the year of 2015 with an investment in JVs less than that. Our fee-based business really requires no equity from our perspective. We have receivables, we have payables and they are pretty much offsetting, effectively all of our capital that we raised through the IPO or we generated from activities related to our existing communities, both wholly-owned and joint venture will be focused on investing in new wholly-owned communities. From a financing standpoint, we are in the process of working with our – with US bank and the participant in increasing the credit facility from $125 million to $175 million which we expect to occur in the very near term.

[Michael Rehaut:]

So, by that answer, Wayne, I appreciate that. I mean, given the model of working with the Irvine Company, where it’s a lower gross margin, but a strong return on equity and more of a capital light as they give it to you more on finished lots per se. The large investments in the Irvine Company, it seems like it can be done through, just more of the – like renegotiating this credit facility and not necessarily going back to the capital markets from an equity perspective anytime soon?

[Wayne Stelmar:]

That’s correct. Our primary focus is to finance those using the increase in our credit facility.

[Michael Rehaut:]

Okay, great. Thanks, so much.

[Operator:]

Thank you. [Operator Instructions] Our next question today is coming from Alex Barron from Housing Research Center. Please proceed with your question.

[Alex Barron:]

Good morning guys and great job. I wanted to see if you could help us out with G&A. Should we kind of think about this quarter’s number the $4.4 million as a rough run rate or do you think it’s going to go up from there in terms of dollars and also the selling and marketing, it was about 3% this quarter, is that also a good run rate?

[Wayne Stelmar:]

We expect the G&A to really be fairly stable moving forward. From an SG&A – from an S perspective, sales and marketing perspective, obviously as we bring new communities to the markets and we typically have a more front-end cost associated with a new community prior to the time we generate revenue. We might see a little pop in the first half related to the SG&A related to the five new wholly-owned community we expect to bring on in the first half.

[Alex Barron:]

Okay. And then, if I could ask some details around some of the communities. I am assuming you got that quite a few closings from Meridian and Orchard Park in San Jose this quarter, is that correct?

[Lawrence Webb:]

No, Meridian is – we fill in two phases and while we’ll have some closings, the majority of our closings will be in the fourth quarter maybe late third quarter. But right now, we are assuming fourth quarter for the project. Orchard Hills however…

[Wayne Stelmar:]

Orchard Park.

[Lawrence Webb:]

Oh, Orchard Park, yes, we will have close into the Orchard Park and as well as at Orchard Hills through the first quarter, both those.

[Alex Barron:]

But I am saying, in this fourth quarter, you just reported you didn’t have any closings in either of those projects?

[Lawrence Webb:]

No, we had closings in all of them.

[Wayne Stelmar:]

Correct. In closings, we closed a big – the majority of Phase I which consisted of 26 homes in Meridian and in Orchard Park which was three communities in San Jose, we had our first closing which were small in relation to the total that we expect from the entire project.

[Alex Barron:]

Okay.

[Lawrence Webb:]

As we sit here today, Alex, I am not sure, if you are aware of this, but, our Orchard Park project in San Jose is the fastest selling community in the entire San Jose market.

[Alex Barron:]

Yes, I would imagine so, because it’s obviously very well located and well priced. Okay, but, so you are saying, on the Meridian, it’s basically going to be in two phases, what you just delivered and then mostly third, but mostly fourth quarter of this year?

[Lawrence Webb:]

That’s correct.

[Wayne Stelmar:]

That’s correct. In Orchard Park, we’ll have the significant deliveries, pretty much they were out the year 2015, but with a – certainly a pop in the fourth quarter.

[Alex Barron:]

Okay, great. And then, how about, if we can focus on Amelia and Trevi, how many homes that you guys deliver from those projects and I am assuming Trevi is going to sell out a lot sooner. Is there going to be some type of – how long do you think that’s going to take to close out those projects and is there some plans for some type of a similar replacement in 2016 or 2017?

[Wayne Stelmar:]

Yes, let me take the second part first related to Trevi. Trevi has absorbed quicker than our expectations and certainly faster than Amelia, so it’s a very strong and performing community. To that end, we’ve negotiated an extension project with the Irvine coming to continue that project from our existing model home.

[Alex Barron:]

Okay, that’s good. And how many…

[Lawrence Webb:]

Actually, Alex it’s not good, it’s fantastic.

[Alex Barron:]

But, I am hoping you are raising prices along the way.

[Wayne Stelmar:]

Yes, we are, that’s anywhere from a point to a point and a half per phase and again you like relatively small phases. We get close to 11 Orchard Hill homes, six Amelia and five Trevi during the fourth quarter of 2014.

[Alex Barron:]

Okay, great. Okay, thanks guys.

[Operator:]

Thank you. We’ve reached the end of our question and answer session. I’d like to turn the floor back over to management for any further or closing comments.

[Lawrence Webb:]

I wanted to thank all of you. Most of the people on the call have been with our companies from our IPO and many of you, many years before that. We really do believe 2014 was a transformational year and now, we are very focused on operational excellence, doing what we say we are going to do and bringing all our communities to the market as soon as possible. Thanks for your support and we look forward to the one-on-ones. Thank you.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.