00:05 Good morning, and welcome to the Taylor Morrison's Fourth Quarter 2021 Earnings Conference Call. My name is Jemma and I'll be the operator today. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. 00:23 I would now like to introduce Mackenzie Aron, Vice President of Investor Relations. Please go ahead. Thank you.

00:28 Thank you and good morning. Before we get started let me remind you that today's call, including the question-and-answer session includes forward-looking statements that are subject to the Safe Harbor Statement for forward-looking information that you will find in today's earnings release, which is available on the Investor Relations portion of our website at www.taylormorrison.com. 00:54 These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release. 01:25 Now let me turn the call over to Sheryl.

01:28 Thank you, Mackenzie and good morning, everyone. I am pleased to also be joined today by Lou Steffens, our new Chief Financial Officer; and Erik Heuser, our Chief Corporate Operations Officer. 01:42 Lou officially stepped into the CFO role January 1 after several years spearheading our transformational M&A strategy and integration execution. And he is nearly 15 years with the company, Lou also held a number of Regional and Area President roles and I am thrilled to be kicking off 2022 with him in this new capacity. 02:05 Eric leads our strategic direction and overseas our land investments, as well as our sales, marketing and research teams. He joined us this morning to provide an update on our strategic partnership with the focus on our Build-to-Rent business. 02:23 Before we dive-in, I want to begin by acknowledging the extraordinary efforts of our Homebuilding and Financial Services team members throughout 2021 and especially in the fourth quarter. Their dedication and resiliency allowed us to end the year on a high note to deliver record-breaking results for our organization, while serving our homebuyers with an uncompromising commitment to construction quality and customer service, despite the severe supply chain disruptions felt across the industry. 02:56 Our customer-centric approach is key to our long-term success and I believe has become even more differentiated in this challenging operating environment, as we recently earned the coveted distinction of America's Most Trusted Builder for the seventh consecutive year. With our highest trust index score yet this special recognition is a testament to our tremendous team members across the organization. 03:23 Let me review just some of the other highlights of the past year. In 2021, we increased our home closings by 9% to 13,699 homes. Expanded our home closings revenue by 22% to nearly $7.2 billion…

13:59 Thanks, Sheryl and good morning, everyone. Since first announcing our entry into the Build-to-Rent arena in 2019 by way of a strategic relationship with our brand partner Christopher Todd Communities. The long-term opportunity to serve both the Renner by choice demographic and those impacted by rising home prices has only strengthened further. This business enables us to leverage our core production homebuilder strengths of land acquisition, development and construction to deliver innovative rental communities that we believe still avoid in the market. 14:31 Unlike many other single-family rental offerings, our gated, villa style communities offer residents well-appointed amenities, social programing and generally one or two bedrooms single story homes that are equipped with smart technology, pet friendly features and private backyards. The average size of these communities is approximately 175 homes, with an average rental rate of $1,700 per month for a typical 1,000 square foot average unit, making them a compelling affordable option for many prospective customers. 15:03 In addition to the demand opportunity, these communities which generally offer two floor plans provide new ways to capitalize on streamline construction processes. This supports accelerated cycle times with roughly 20 starts targeted per community per month. We also expect to garner benefits associated with organically growing cost effective customer leads that will eventually benefit our floor sale business. 15:26 As we continue to scale this segment, our priority has been to develop an efficient operating playbook and capital infrastructure to support return accretive growth. Over the last two years, we have strategically expanded our market penetration and establish a robust land pipeline that will fuel accelerating community growth in the coming years. 15:45 We now have an active VTR presence in nine of our 19 markets of operation, with a handful of additional markets being evaluated for entry opportunities…

18:16 Thanks, Eric and good morning, everyone. I'm excited for the opportunity to speak to you all today and look forward to getting to know you in this new role. I will provide an overview of our strong fourth quarter earnings results and our detailed financial guidance for the first quarter and full year. 18:31 To begin, we generated fourth quarter net income of $273 million or $2.19 per diluted share, which was up 204% year-over-year. On a pre-tax basis, our income margin equals 13.7%, up 610 basis points from the prior year. 18:51 Turning to our operations. We delivered 4,283 homes during the quarter at an average selling price of $558,000, which drove a 61% year-over-year increase in our home closing revenue to $2.4 billion. Homes closed were slightly below our prior guidance due to extended construction cycle times as we navigate these supply constraints, our teams continue to be diligent and creative in finding solutions and most importantly, delivering high quality homes to our customers. 19:22 This includes implementing enhanced scheduling processes, streamlining operations and simplifying production through plan and option rationalization, and expanding and leveraging our strong trade and vendor relationships. While we are hopeful these strategies will help stabilize construction schedules as we move through the year, we're not projecting any change in supply chain conditions in our guidance. 19:44 We currently expect to deliver between 2,600 and 2,900 closed homes in the first quarter and between 14,000 and 15,000 closed homes for the full year. Given favorable pricing trends in ongoing market strength, we expect the average sales price of our closed homes in 2022 to be at least $600,000 versus $524,000 in 2021. This strong price growth is expected to drive a meaningful improvement in our home closing revenue for the year. 20:14 From…

25:07 Thank you very much. We have our first question from Carl Reichardt of BTIG. Carl, your line is now open. Please go ahead with your question. Thank you.

25:27 Thanks. Good morning, everybody. Thank you for the time today and all the details.

25:31 Good morning, Carl.

25:34 Hey, Sheryl. I wanted to ask just on mix and going forward mix, with the move-up side being 51% of total orders. As you look at the community count openings, including the sort of multi-outlet thing that we're all talking about in ‘22 and even beyond that. How do you see your mix adjusting over time? Do you expect it to go lower end and then is there any kind of a regional alteration that you're expecting over the next year or two?

26:05 Good question, Carl. A couple of things, when I look at the mix of the quarter you saw that we were slightly slanted more than we have been to that move-up, first second time move-up in active adult. When I look at the new communities, Carl that will be coming on board over the next many quarters, I think you'll see a little bit more pickup in the first time buyer. I think as we look over time, we see our average sales price moderate a bit as a result of that. 26:34 When I look at regionally, probably not significant shifts. I mean, Florida will continue to prioritize the active adult certainly the Sarasota and Naples area. When we look at the Carolinas, Georgia, I think you'll see a much greater penetration in the first time buyer as you will in our California business. One of the most recent shifts in the California businesses actually the complement of the active adult positions that we've added and they have, as we've expanded the Esplanade brand across the country. They have continued. They have performed quite well.

27:14 Thanks, Sheryl. And then, my follow-up is on the improvement on the Canvas. And I guess, I’m trying to think about the right way to ask this. So if you look at what your ultimate goal on say build cycle time is from the improvements that you're making to your efficiencies and you compare it to what your cycle time was before the pandemic, so will the pandemic sort of muddying the waters here. What kind of improvement in -- let's say build time do you expect ultimately to achieve from these initiatives? Thanks.

27:49 Thank you, Carl. No, it's interesting because we don't have a tremendous amount of data yet on the Canvas, even though we saw about 13%, 14% of our sales in 2021. What I would tell you the early read is an interesting, Carl, I haven't gone back and compared it against pre-pandemic. But if I look at it in real time, compared to the cycle times we're seeing and what I would call our more typical design center build. We've seen a benefit of about 20 days in cycle time on our Canvas packages. So even though the entire kind of portfolio is a little out of whack across in Taylor Morrison and in the industry given the dynamics we have out in the marketplace. We are absolutely seeing a benefit in the Canvas build. I would expect that, if that matures through the organization and obviously, we'll see a considerable ramp up in 2022. We should be able to build on that and then as we get to a more normalized environment again, I would expect that we should retain at least a couple of week cycle time enhancements.

29:03 And Carl, this is Lou. Good morning. Just one thing to add to that and another thing, area that we believe we're going to see significant benefits is to sale the start timeframe with Canvas. So that's another added benefit, we'll see coming through the pipeline as we continue to roll that out.

29:19 Thanks, Lou. Thank you. Sheryl. Appreciate it.

29:21 Yeah. You bet. And I just might even add one last comment to it, because Lou you're so right. And when we look at the fourth quarter and we look at some of the closings we lost, we generally loss them in our active adult business specifically Florida is where we saw the greatest shift. But when you compare Canvas or even our normal design center appointments. as we look across the portfolio our options, I know we've chatted about this in the past, but our options in a market like Naples and Sarasota, which is generally all our Esplanade brand or a high majority that's about 2 times the company average. So when you take that level of complexity out is to build with the Canvas packages. Once again, I think it's just about tremendous opportunity for us.

30:14 Thank you.

30:16 Thank you.

30:16 Thanks, Carl.

30:19 Our next registered question comes from Matthew Bouley of Barclays. Matthew, please go ahead with your question.

30:30 Hey. Good morning. This is Ashley Kim on for Matt today. Congrats on the nice results here. If I could just kind of ask what's giving you incremental confidence to kind of put out that conservatism until you've built up more of that backlog or anything in the pricing or cost outlook that is contributed to that?

31:04 of over 9,100 sold homes in our backlog. We have strong visibility to the future margin profile. And in that our teams, I believe, have built in the correct amount of contingency to get us through with cost increases we're seeing today. And then combine that with the specs that we have under production, which we've increased significantly year-over-year strong visibility to where we think today pricing on those is going to end up being. So we have overall between our specs in our backlog a quite a large portion of our total year's closings some visibility out today.

31:42 Yeah. And to your point Lou, compared to last year, like you said, we've doubled our spec inventory and given that those gotten the true benefit of real pricing. We are in a very different position than we were last year. If you think about the 22%, we shared last quarter I mean the backlog was in a different place, lumber was moving I mean, lot of the units are secured for the year already.

32:07 Okay. Thanks for that. And then just on my second question, I appreciate that kind of extra color on affordability given up top, if I could just kind of expand on that topic, has there been any changes in buyer side preferences that you're seeing, any kind of lower square footages or less options in premium, in response to that structuring affordability?

32:36 Not yet, to be quite honest about it. We've continued to see strength in our buyers and their behaviors have not really moved. As we discussed in the prepared remarks, the favorable characteristics we've seen with our close customers quarter-after-quarter just didn’t meaningfully change in Q4. As I mentioned, we did see some compression with that first time buyer and where we've seen probably a little bit more resistance and probably a larger percentage of folks that pre-qualify and have challenges would be with that first time buyer. 33:15 And then when we looked at our entire backlog, our conventional buyers from here are close buyers. Their credit scores are high. Their DTI back ratios are almost right on top of our closed buyers and they have very strong qualifying incomes. We then went ahead and look and see what would happen if rates move up to 4.5 and honestly, their back ratios still stay very healthy under 40%. And even if we move rates up to 5.5%, they barely go over 40%. A little bit different with FHA buyers as I mentioned, they with their back-end ratios would move into the low '50s, but now generally if there's been any pressure on kind of rate. It's really more backlog because those are the folks that maybe when they entered into a purchase agreement with us rates may have been something around 3%, so watching that movement. 34:18 But I think most notably, as we've done a great deal of surveys with our shoppers to understand how they feel about the moving rate environment. We did a very similar survey back in 2018 and we started comparing the two. We've learned a few things. One, the percentage of shoppers that expect to pay cash is significantly higher and that…

36:18 Thank you. As you said, Sheryl in those high cost cities people are migrating. These homes are really cheap to them and from some of the places are relocating.

36:27 They're not -- it’s full local buyers, right?

36:28 Right.

36:29 So I hope that helps, actually.

36:33 Yeah. All fair points there. And I guess thanks for taking my questions and I'll leave it there. Good luck.

36:40 Thank you.

36:47 Jay McCanless from Wedbush. You have the next question. Please go ahead.

36:54 Hey. Good morning. Thanks for taking my questions. So I guess the first question I had going to the build for rent in. Thank you for the detail there. But I was just wondering, at the end of the prepared comments, you guys talked about doing some bulk sales. Are the bulk sales going to be on balance sheet for Taylor Morrison or is that going to be part of the Christopher Todd joint venture?

37:18 No. Good morning, Jay. Yeah. That's really a licensing agreement and kind of leveraging the brand that exists for Christopher Todd, but those will be on balance sheet, those will be Taylor Morrison assets and will be kind of in control of those disposition decisions for build-to-rent -- for build-to-rent.

37:35 Yeah. The SFR really won't be engaged with the build to rent process.

37:40 Correct, yes. I think Jay the right way to think about it is the way we're defining build to rent is really the Christopher Todd model, which is the horizontal apartments, kind of a one flatted amenitized communities and the single-family rental is just leveraging our core business to be able to produce homes that ultimately we would be disposed to SFR players in the space and that might take the -- that might look like individual homes, that might look like specs, that might look like dedicated communities, that might look like dedicated phases within our master plan. So a lot of optionality that we're excited about exploring.

38:16 Okay. That's what I was kind of getting to is I didn't know if it was going to be a model where you just built an entire community and then sold it, but it sounds like you guys are using it basically that's kind of a tactical play more than anything else. I guess it's best way to think about it. My next question is on the cancellation rate 8%, sounds great. Could you tell us what it was last year and where it was in the third quarter?

38:44 Yeah. Sure, Jay. This is Lou. Last year, our fourth quarter, we were at 7.9%. So a lot of us would be argue that may be even too low where we're at today. Our financial services team does such a great job of pre-filing our buyers, which makes it a lot easier for us that we don't have to worry about ton of cancellations in our business. But you would almost argue we could take some more risks out there, but we're very proud of how low it is.

39:15 Yeah. It's great. And then just my last question, I think -- and correct me on this, I think you said in the prepared comments your average lot count inside the communities that you are putting under contract is up about 25% and I'm just wondering how far out are you having to go to get that extra 25% or are you able, are you able to stay closer in the town I guess kind of thinking about how much you having to give up in terms of potential profit anything like that to get the extra lots or is it, there are these still locations that are fairly close to the metro, the core of the metro areas?

40:01 Yeah, Jay. I would suggest that we are still focused on core locations. I always look at the land opportunities and context of the portfolio. So to the extent, we need to expand 10% until those areas to get exposure. I would say we're comfortable with that. But by and large, we're focused on core locations. I wouldn't say that we're needing to do those sized deals to reach out, I would say it's a function of the deals that are available to us. And frankly in some cases, it's a benefit because we have multiple outlets within those communities.

40:34 The only thing, -- I'm sorry. The only thing I was going to add is, if you think about our active adult business generally, those are larger communities that would both come into the portfolio, they will have some effect on the overall size of each asset but that would be another strategy where you know that we have probably three to five positions within an active adult communities.

40:58 And just lastly, I'd say that it's part of having the scale that we have a lot of builders couldn't take down that larger projects. So we're able to get into the core locations as Erik said and get the synergies of having more than one outlet, but many players to start willing to do that bigger project.

41:14 And can’t, yeah.

41:16 Exactly.

41:17 Fair point.

41:19 Sounds great. Thanks for taking my questions.

41:22 Thank you.

41:28 The next question comes from Mike Rehaut of JP Morgan. Mike, please go ahead with your question.

41:34 Great. Thanks. Good morning, everyone.

41:39 Hey, Mike.

41:40 First, I wanted to just -- good morning. I wanted to circle back to the gross margin guidance and obviously very encouraging on the full year rays. In terms of cadence, I was just wondering, you obviously laid out 22% for the first quarter and the 23.5% for the full year. Just trying to get a sense, if possible, in terms of the step-up into the back half and obviously implies ending the year over the 23.5%, but should be expecting kind of like more of a ratable increased over the next three quarters 2Q to 4Q or could we see another pretty, pretty significant step up in 2Q and the reason I'm asking that is obviously have the 9,000 plus homes in backlog. That all else equal would probably get you somewhere to the secured third quarter so it would that, that type of visibility I'm kind of thinking you'd see a pretty notable increase in the second quarter off the back?

43:05 Yeah, Mike. It's a great question. I'd say you're looking at it, right. Q2, we had the favorable benefits of lumber reductions. So we'll see some fairly strong margins in Q2. And then as we continue to move through the year, we've been able to stay in front of cost increases going forward. But getting to that where we expect to exit, the exit rate at the end of the year, just based on the averages, you're probably in the low 24s, low to mid-24s.

43:35 I mean the one thing we don't have visibility on Mike in the fourth quarter is probably the newest round of rate locks on the lumber because this next lock will really determine your fourth quarter deliveries, but Lou is point absent that, they're just going to continue to see that ramp up.

43:51 Yeah.

43:53 Right. No, that makes sense. I guess secondly, one thing that the whole industry is going through right now or investors looking at the industry is trying to gauge over the next two or three years, “what normalized gross margin could be” because obviously you've had a massive amount of gross margin expansion, earnings have doubled and tripled and people are trying to triangulate what's normal. For Taylor Morrison, there's been a lot of structural change on top of the improving housing market and the stronger housing market and positive price cost. I was hoping if you could give a little bit of insight in terms of when you're underwriting land deals today. What type of gross margin is part of that? And also when you look back at gross margins that you generated from 2015 to 2019, it averaged about 18% and that was obviously a period where you're going through a lot of acquisition integration and so forth. I guess it's sort of a two-parter. One, what would that 18% look like today with the improvement in cost structure post acquisition integration? And secondly, from a land underwriting standpoint, what would the new baseline be, so to speak?

45:38 So Mike, a couple of things. Obviously, we're not in a position yet to give margin guidance out beyond 2022. But you said it correctly, when you look in our kind of rearview mirror and you look at the margin profile, we've seen for, what the last five, six years, we've really had a great deal of noise with purchase accounting and things like that. So you know as well as I do kind of the long-term run rate of margin profiles in our industry for the last 20 years and kind of normalized times has been in the 20s, I think structurally it's going to be a little higher than that for the foreseeable future given the supply demand disconnect. I think so, hard to nail that down. Anything else and then we can talk a little bit about the underwriting.

46:28 I would say, Mike, we're finally going to be the beneficiaries of all the hard work our teams have done on the acquisition front from simplification to the various other synergies and the scale that we've achieved through this most recent M&As. On top of that between AV in line, we acquired a lot of lots at fairly strong really good prices. So I think we're really pleased where our lot position is today and our 5.6 years of supply feels really good based on when those lots were secured and contracted.

47:01 And Mike, I would add just from an underwriting lands perspective. Look, I've been doing this since 2004. So I would tell you with full emission the last couple of years have been really interesting. With land if it's gone up 30% in the 10% lift in ASP to cover it and we've experienced that and so I think we would say that we've been able to hold our land residual ratios, we’re performing well relative to our underwriting and we're underwriting at current market prices. Where we've been more conservative really is on the paces, because that has felt a little bit of a unique environment, as we think about the last couple of years. We've actually engaged in a pretty robust third-party study that's help us understand really what is a normalization expectation for each one of our markets as we think about historic places, as we think about land coming online. as you think about our positions and so spend a lot of time on that, a lot of time on scenarios and how do we think about some different things playing out relative to underwriting.

48:01 It's hard to ignore Erik the kind of generally 20% to 25% reduction in community count in most markets, right. So as those come online, we're going to expect to see paces moderate. So we're really trying to make sure we're ahead of that, Mike.

48:21 Great. Thanks so much.

48:23 Thank you.

48:29 Our next question on the line comes from Alan Ratner of Zelman Associates. Please go ahead, Alan.

48:35 Hey. Good morning. Thanks for taking my questions. So first one and nice to hear you on the call Lou. Welcome aboard on the public facing side. So just on the spec count the doubling that you referenced there obviously that's, those are homes under construction. And you mentioned the complete a number remains very low. Can you talk a little bit about your strategy with those specs in terms of when you're actually releasing those for sale, are you holding them back until completion or close to completion and just curious because we're hearing similar numbers and similar strategies from other builders, as far as kind of holding specs back and I'm just curious if you've given any thought to the competitive landscape as the year unfolds as you look at specs on the ground today versus potentially available for sale at some point in the future?

49:28 Yeah, Alan. Maybe I'll take a first shot at that, I would say our markets each market based on the supply chain environment probably releases on at a slightly different timeframe, depending on when they have better visibility on the costs. So one division may release some more at flat -- after slab and other may be closer to frame or close to dry wall. So probably varies a little bit against across the portfolio, but more importantly as they feel they have strong visibility on one, the cycle time and two the cost structure.

50:00 Yeah. I think that's right. And to Lou’s point Alan, I mean it is pretty varied, but I would tell you that there is an overarching company view and working with our divisions that there is a lot of inventory being built and we want to make sure that we get it out to market as quick as we can and we're really makes sense. The supply environment is different in each of our markets. There are some where there's not a lot of inventory under construction across the new homebuilders and there somewhere, it's pretty heavy. So there's a lot of considerations in that. 50:35 We feel really good. We're not carrying any completed inventory to speak out. I don't think it's 20, 25 units across the portfolio today, which I would tell you is much leaner than we'd like. So we're not going to let these things age, but if we can get them to at least frame drops or lumber drops, it gives us strong visibility on the most significant cost component of the house.

51:00 Yeah. And as it relates to our backlog, it's interesting. From 2020, we've seen a 66% increase in the number of our backlog homes that were sold its spec, so you're starting to see it really come through the portfolio at this point in time as we've continued to increase our spec count.

51:17 Yeah. And probably the most significant piece that's worth mentioning Alan is, with that pivot, if you think about last year, we had very few specs everything was 2B built. You saw our sales rates. So in some of our markets where we've really moved up our spec inventory, we've slowed down sales. That's a little bit of what you saw in Q4. And honestly, what you'll see in Q1 as we let those things at least get slabs in the ground where we've pivoted from really holding back and 2B lot, at the more affordable level specifically just so that's it's both -- it's impacting our sales pace as well as anything.

52:04 Yeah. That's kind of what I was getting at Sheryl, so thank you for that and sounds like a lot of builders are doing the same thing talking about first quarter orders, maybe not seeing that typical seasonal lift that you otherwise would, given kind of the timing of each of those specs, a little bit in getting further along in the construction process. 52:22 Second question on the mortgage side, and thank you for all of the information on the surveys, et cetera. I'm curious, now that the move-up piece of your business has grown as a piece of the pie at least -- at least for the time being. When you look at your either buyers or perspective buyers and I think the biggest difference now perhaps versus earlier on in the cycle when rates were hopping around is the vast majority of home buyers at this point have refinanced at a much lower mortgage rate and if you look at the overall universe of mortgage holders 70% are locked in below a 4% rate. So while affordability might still be attractive. 53:03 Just thinking about turnover there is that risk that a buyer is going to be less willing or perhaps to tougher pill to swallow to give up a low rate when the newer rate is going to be above that. So have you looked at that at all at -- survey that at all in terms of the willingness for the buyer to give up that low rate, if the newer rate is well above kind of where they're locked in at?

53:25 Yeah. That's the survey that I mentioned, Alan, we've actually spent a great deal of time understanding, kind of our shoppers views on what's motivating them to relocate. We obviously saw a different level of motivations back right after the pandemic started then what we're seeing today. And you're right, people have very low interest rates, but you can't forget that 300,000 on average. And generally when we think about the reasons they're moving, they have a whole different set of motivations today, when you look at the move-up buyer, the house isn't exactly -- they need additional flex spaces added bedroom counts, moving closer to grandchildren, there's all kinds of motivations, but honestly, we are seeing even in our move-up buyers, the first inventory to go is generally the largest. So it's been quite interesting. 54:26 Now the motivations on the first time buyer, a little bit different and that's where we're seeing, like I said, some compression. So we're really making sure that the specifications on those houses is really targeted to market. So it doesn't take people out of the buying opportunity. But interestingly enough, when you look at what they're locked in today, it's really being offset by the amount of equity they have in their home.

54:53 Got it. All right. I appreciate that. It will be interesting to watch unfold here. Thanks a lot.

55:00 Sure. Thank you.

55:05 Truman Patterson from Wolfe Research, you have the next question. Please go ahead.

55:13 This is actually Paul Przybylski on. Sure. I guess just touching, you mentioned that you really haven't seen any trade down and square footage at. You just said that the move-up buyer is trending towards the higher square footages. But as you look across your spectrum of four plans where exactly does the consumer stand? And I -- how much room do they have to trade down before you would have to go back to the drawing board? And then, do your lower square footage or plans carry the same margins as the higher ones?

55:47 Yeah. They do. Let me -- I'll go in reverse order here, Paul. Generally, it's square footage is not what shifting the margin. A lot of it has to do with one of the land was acquired. So if I look holistically at the portfolio, we are seeing some reduction with the added specs in square footage. Because what we're putting out to market is generally our specs tend to be the more affordable plans. We can't run from what we've seen happen in both pricing and rate movement. We've done a great deal of testing to look at the buyers that bought 12 months ago and look at those same plans today and potentially 4% interest rates and of course, there is real movement. 56:36 The interesting thing is when we test that on our backlog, their capability to absorb that without really any significant movement in their back-end ratio, some of it's being overcome because they’ve got higher down payments, their financial picture has improved over the last year. So once again and I hate to be redundant, but when you look across our backlog and the shoppers that are coming in today, they're not yet in a position making those trade-off on the move-up. We are seeing a slight compression. But even with that compression, even our first time buyers are in a position that the rates are moving them to the higher end of let's say back-end ratios, but still well within the range of what they can afford to do. 57:32 What I have found most interesting is, when you -- when we kind of parse apart our backlog, the average loan amount for our government FHA buyers is actually higher than our conventional buyers, because one of the tools they do have is the ability to put a higher, it is to be able to do a 3% down payment. And now why we're keeping such a close watch on that first time buyer because their incomes aren't moving at the level that the combined rate and price appreciation has.

58:16 Okay. And then I guess as rates have moved higher this year, if you've seen any conservatism enter the land market from either you or your peers?

58:28 As Erik mentioned, we have been -- everybody's feature, we have been very discerning in our acquisition strategy.

58:37 Yeah. I think it all comes around this scenarios, right, so what if home prices take a step backward what was that due to our underwriting. What does that mean relative to the affordability of that land? What does it mean to our metrics? So yeah, I can tell you it's a conversation as part of every land that we underwrite and it really comes by way the scenarios.

59:04 Thank you. Appreciate it.

59:02 Yeah, there is usually a drag six to nine month drag. And I think as I mentioned earlier, we're in a good position where we don't have to chase a lot of land because we do have a strong land bank in front of us. So we're not chasing those deals that look to us a little bit too high in costs. And we are seeing some transactions that we wouldn't participate in.

59:31 All right. I appreciate it. Thank you.

59:33 Thank you.

59:37 Our next registered question comes from Mike Dahl of RBC Capital. Mike, your line is now open.

59:46 Hey. This is Ryan Frank on for Mike. Thanks for taking my question. The inventory and the interest of time I'm just squeeze one quick one in here. So there's not a lot of talk about the mix shift over the past couple of years. I was just wondering, is there any notable margin difference between your entry level, your move up in your active adult products?

60:12 I'd say there surprisingly fairly consistent across all of those, some of it may be in affordable stuff that we bought from the acquisitions at a great rate, but overall the -- despite the mix, they're relatively consistent.

60:29 The only probably real difference we may see, as if you agree is on the active adult once again, if we look at what they're spending on lot premiums and what they're spending on options. I mean our lot premiums basically doubled last year, most of that came through the active adult business. Our options once again, I think on average may have been 70,000 on the portfolio, including active adult and our active adult position is 2 times that. So it is certainly helping the margin profile of that consumer group.

61:04 I think as you said, Sheryl the strength we've been seeing there has been really amazing.

61:11 Yeah. We're not even into the selling season that right.

61:15 Got it. Helpful. And then I guess you did mention kind of the acquisitions again. So is there any notable difference between kind of your legacy Taylor Morrison land in the AV and the William Lyon land? Again, on the margin front.

61:33 Yeah. I would say, we've been very pleased again how those deals have performed in terms of the acquisitions, but doesn't take away. I think our teams also over the last several years of acquired some amazing thesis. So overall in the blend, they seem to be very close to around the same today is when we first did the acquisitions. Obviously, we had to work through integration and so we started out of the gates with a little bit lower margins. But as we've integrated and worked in some of those simplification items. We're starting to -- hear of a lot of compression between the two.

62:07 We just showed our Board in this last board meeting kind of a chart that I think that at all, but it really kind of our legacy divisions that have never done an acquisition and looked at their margin profile. And then we layered on top the divisions that had a combined business and then the stand-alone and what became very clear as everything we've been share and for the last few years, about two years, you start to really see pull through and by three years, it's all the same was true. So when I look back to our AV our divisions with that were formed through the AV acquisition those margins are consistent with the standalone divisions based generally so and when you look at the movement in William Lyon, we're not quite there yet, but the year-over-year movement has been tremendous and give us another 12 months. So by the third year, we’re at a full pull through and you will see alignment across the portfolio.

63:00 And adding to that we’re seeing some of the divisions from acquisitions are having the highest margins across the company. So I have a particular level of price related to that but our team has done an awesome job. Yeah.

63:16 Awesome. Thank you very much.

63:18 Thank you.

63:25 Our next question comes from Ken Zener of KeyBanc. Please go ahead with your question.

63:33 Good morning, everybody.

63:36 Good morning.

63:37 If you could talk to you mentioned starts really appreciate that. Can you talk to the start in order relationship that we saw in the second half of ‘21 as we enter kind of the first half of ’22? And second, a little housekeeping, I guess, but do you have -- what the whip inventory close this year out at -- it was about 1.07 last year the whip value last year?

64:15 All right. So maybe tell me if I miss any of this Ken, but maybe starting off with starts. We finished the year with around 16,000 starts for the year. Our whip inventory ended about $1.3 billion at the end of ’21. And we're really pleased, our total units under construction were up 30% year-over-year. So we have obviously a tough finish and we are a bit disappointed where we ended up in terms of closings. But our teams have done a great job positioning us even better for this year with 30% more units under construction to achieve our closings this year. 64:49 As of the end of January, we had about 75% of our total units under construction for this year's closing. So yeah, in today's supply chain of -- nothing is easy but it's definitely trying to set ourselves up for better success this year.

65:03 And in the back half Lou, I think sales ran ahead of starts, but you saw that we've tried to show that kind of turned on its head in Q1 as we're trying to get more specs in the ground last year with the backlog, we have 2B built that just wasn't an option for us, but you're going to see those aligned. We'd like to get starts ahead sales really for the next quarter or so, just when you look at cycle times, we need that, I mean, we used to be able to start houses through May and June for the year. If I were to take a pre-21 that's just not the case in this environment.

65:49 Yeah. This year plans have significant majority of everything started by the end of April.

65:54 Really appreciate your operating comments. Thank you.

65:57 Thank you.

65:59 Our final question today comes from Alex Barron of Housing Research Center. Please go ahead with your question, Alex. Your line is open.

66:13 Yeah. Thanks. Good morning. Just to jump on that last question. You gave 15,000 starts for the year, what was it for the last quarter. And along those lines, how many total homes under construction do you guys have to, you mentioned that you're specs had gone up significantly, or I think doubled, what I wasn't sure you quantified how much you're talking about there?

66:39 Sure, Alex. Good morning. So with your first question, we started almost 3,400 starts in Q4. And I don't know if I heard you correctly but we started 16,000 homes in ‘21. I think you may have said 15, but I could have heard you wrong. And then total units under construction at the end of ‘21 we're close to 10,000. Of that, we have almost 2.000 of those were spec.

67:02 It wasn't like under 1,000, like 985 or something.

67:06 Yeah. We had like a little over 800 in 2020.

67:12 Okay. Great. That's helpful. The other question I had was you guys have mentioned this initiative to move towards design pallets and simplify the number of SKUs, but is that a strategy that you guys are employing on specs where you're starting homes with these design pellets and people just take out one of them, or is that something you're giving people on jobs as well where they get to pick that which one is it or is it both?

67:44 It's a little bit about, Alex. When we started you may recall that we talked about kind of the five different packages and the range of prices, trying to keep the spend generally similar to what they would have spent in the design center but making the process just simpler for the buyer. We started out our rollout last year with inventory homes to make sure that they were aligned with market. Then we moved into model homes to make sure the consumer could see what those looks like. And it just help them visually kind of let it all come together. 68:18 Then, we started doing 2B builds with buyers, especially at the more affordable, or I would say the first time move-up price point. Now, as I look at it, it's really definitely all of our specs. And I would say a large percentage of our move-up where they will have the choice to do a Canvas package or they will be able to go into a typical one day. We've got a new program, which is a one-day design center appointment. 68:53 When I look at the demographics of who is selecting the Canvas program so far, it is very skewed to what we call our demographic profiles of these baby . So these are folks that are just starting out a new family or kind of a home at last they've been aspiring to get a new home and that is the large majority. We're starting to see a little bit more take up in the active adult. But once again, those will, that will primarily be on specs with that consumer group because they really do enjoy the opportunity just specified to their wishes.

69:32 And maybe just adding that Alex, we transition to a national spec program near the end of the year for both 2B built and specs. And just as a couple of examples, the SKU reductions appliances were down over 80% from what we had offered before similarly over 80% in paint and then flooring selections down over 30%. So trying to continue to improve our possibilities in terms of achieving our closing goals, based on ensuring we have more availability of the products that we're putting into our homes.

70:08 And that's simplification carries over into the FFR and VTR conversations too.

70:12 For sure, and that's where I mean it's Canvas.

70:22 Okay. Well, that's a great answer and it's very, very good in terms of the way you guys have approached it. My final question has to do with your share count guidance $124 million doesn't seem to imply a lot of share buybacks, I mean you guys kind of engaged more in that this year. So that kind of implying you're going to step back from share buybacks or you're just not really guiding to any significant activity at this point, but you're still open to doing so?

70:53 Yeah. I would say we're always looking at that as an option on our capital allocation priorities. So first, we want to invest in the business. Secondly, we want to continue to strengthen our balance sheet as time goes on. And then lastly, with excess capital we definitely, we will look at share repurchases.

71:12 But we would never include that in our forward-looking guidance. But update you on the quarter basis.

71:19 Okay. Awesome. All right. Great job and good luck for this year. Thanks.

71:24 Thanks, Alex.

71:25 Thank you. Thank you all for joining us today. Look forward to updating you at the end of the first quarter.

71:42 Thank you very much. Have a good rest of your day.