Good morning, and welcome to the Taylor Morrison Fourth Quarter 2024 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at the time. As a reminder, this conference call is being recorded. And I would like to introduce your host, Mackenzie Aron, Vice President of Investor Relations.

Thank you, and good morning, everyone. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question-and-answer session, will include forward-looking statements. These statements are subject to the safe harbor statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at taylormorrison.com. 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. Now I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer.

Thank you, Mackenzie, and good morning, everyone. Joining me today is Curt VanHyfte, our Chief Financial Officer; and Erik Heuser, our Chief Corporate Operations Officer. I will share an update on the market and our strategic priorities, while Erik will discuss our land portfolio and thoughts on the retail market, and Curt will detail our financial performance and initial guidance for 2025. I am proud to share the strong results of our fourth quarter, which I believe once again distinguished our team's execution and the merits of our diversified consumer and geographic strategy. Among the highlights, we delivered 3,571 homes at an average price of $608,000, producing nearly $2.2 billion of revenue with an adjusted home closings gross margin of 24.9%. Each of our operational metrics met or exceeded our prior guidance. Combined with cost leverage, improved financial services income and a favorable tax rate, this generated nearly 30% year-over-year growth in our adjusted earnings per diluted share and a 14% year-over-year increase in our book value per share to $56. From a sales perspective, as I shared on our last earnings call in October, we were seeing healthy demand trends in line with seasonal patterns. While interest rates increased sharply through the quarter, activity held up with impressive consistency through year-end. As a result, our fourth quarter net orders increased 11% year-over-year with an absorption pace of 2.6 per community up from 2.4 a year ago. This brought our annualized absorption pace to 3 for the year within our targeted range. I am pleased that this sales success was achieved with only a modest increase in incentives needed to address the impact of higher interest rates. This contributed to our better than expected fourth quarter adjusted gross margin which was still stable sequentially and up year-over-year in contrast to…

Thanks Sheryl and good morning. Beginning with our land portfolio, our owned and controlled lot inventory was 86,153 homebuilding lots at quarter-end. Based on trailing 12-month closings, this represented 6.6 years of supply of which only 2.8 years was owned. Of these total lots, 57% were controlled via options and off-balance sheet structures, up from 53% at the end of 2023 and 51% at the end of 2022. From an investment perspective, we allocated $293 million to homebuilding land acquisition and $297 million to development of existing assets for a total of $590 million during the quarter. This brought our full year investment to approximately $2.4 billion, of which 57% was for lot acquisitions and 43% was for development of existing parcels. In 2025 we are projecting our total homebuilding land investment to be approximately $2.6 billion with a similar split between acquisition and development. As always, our ultimate investment will be dependent on market opportunities and our increasing use of off-balance sheet financing tools to support our growth aspirations. Our use of such tools aims to generate enhanced returns on our invested capital and we are well on our way to achieving our near-term goal of controlling at least 60% to 65% of our lot supply. Supported by this investment, we expect our community count to grow in the quarters ahead with an anticipated ending outlet count between 340 and to 345 for the first quarter and at least 355 by the end of the year. As we have discussed previously, our average underwritten community size has grown materially in the last three years versus the prior three, while our targeted paces have increased by approximately 25% over the same period, allowing us to greatly expand our business on a smaller outlet count, all else equal. This shift to…

Thanks Erik and good morning, everyone. For the fourth quarter, reported net income was $242 million or $2.30 per diluted share. After excluding legal impairment and other charges, our adjusted net income was $278 million or $2.64 per diluted share. This was up 29% from an adjusted earnings per share of $2.05 a year ago, driven by higher revenue due to increased closing volume and improved home closings gross margin, stronger financial services profitability and a lower tax rate. Our closings volume increased 12% year-over-year to 3,571 homes. The average closing price of these deliveries was roughly flat from a year ago at $608,000. In total, this produced home closings revenue of $2.2 billion. From a production standpoint, we moderated our starts volume by 5% to 2,779 homes or 2.7 per community per month from 2,912 homes or 3 per community per month a year ago. Recognizing that our finished inventory of 857 homes at quarter-end is slightly elevated compared to our historic run rate, we believe this inventory is well-positioned to meet expected consumer demand during the spring selling season, as evidenced by our team's success in selling and closing a record number of intra quarter spec sales during the fourth quarter. Going forward, we will be mindful of our inventory levels and will continue to align new starts with sales as our strategy allows us to pivot based on market demand. In total, we ended the quarter with 7,698 homes under production, of which 3,437 were specs. During the quarter, our cycle times continued to improve and were down nearly 30 days year-over-year as our teams achieve the savings we targeted going into 2024. Based on our homes currently under production and the normalization in our production timelines, we currently expect to deliver between 13,500 to 14,000 homes…

Thank you, Curt. To wrap up, before we turn the page on 2024, I'd like to take a moment to reflect on this year's achievements, each of our long-term targets. When we introduced these targets last year for sales pace, closings growth, gross margin and return on equity, our intent was to help provide greater insight into the evolution of Taylor Morrison following years of strategic growth and positioning. These are multiyear targets that we believe are achievable based on the makeup of our communities, land investment strategy and diversified portfolio. I am proud that despite the challenges that arose over the course of 2024 from volatile interest rates, highly competitive pressures and extreme weather, we still met or exceeded each of these goals. By delivering nearly 13,000 homes, we increased our closings volume by 12%, well ahead of the 4% increase contemplated in our initial guidance heading into the year and our 10% average growth target. Along with this stronger volume, our adjusted gross margin of 24.5% was up 50 basis points year-over-year, more than 100 basis points better than our initial expectation and at the high end of our low to mid 20% target. As you've heard this morning, our annualized sales pace of 3 for the year also met our goal. Combined with nearly $350 million in share repurchases, these results helped drive our return on equity to approximately 16% and set the stage for further expansion this year. We also entered into the affordable Indianapolis market, prudently increased our controlled lot percentage towards our 60% to 65% goal and made further progress in streamlining our operations for greater profitability. Most importantly, while 2025 promises to bring new challenges, some of which we are just beginning to fully understand, we are confident in our ability to navigate the headwinds and deliver results that once again meet the long-term targets we have established. As our initial guidance for the year suggests, we expect to grow our business while producing better than historical margins and returns. As you will hear at our Investor Day, we are committed to outsized growth in the years ahead and believe we have established the operational capability to do so accretively. I look forward to sharing more in three weeks and as always want to end by thanking our teams for their dedication and execution. It is because of their efforts that Taylor Morrison has recently been named America's Most Trusted Home Builder by Lifestory Research for an unprecedented 10th year, and to Forbes inaugural Most Trusted Companies in America list where we ranked number 12 out of 300. Now let's open the call to your questions. Operator, please provide our participants with instructions.

Thank you. We'd now like to open the lines for Q&A. [Operator Instructions] Our first question comes from Matthew Bouley of Barclays. Matthew, your line is now open.

Good morning. You have Elizabeth Langan for Matt this morning. Thank you for taking the questions. I just wanted to start off on gross margins. I know that you noted that incentives are moving higher. Could you talk a little bit about how you're thinking about the cadence for gross margins this year with the higher incentives and with your 1Q gross margin guide in the high 23% range? Would you mind speaking, kind of how you're thinking about it in the context of the year in that 23% to 24% range?

Yeah. Elizabeth, this is Curt. I'll take that one. So again, for the first quarter, we're guiding to the high 23% range. And as I think you can tell by our full year margin guide for the year, we're assuming moderating our margins over the course of the year as we take into account the step up in rates and the fact that we have lot cost inflation that we're going to be taking on over the course of the year. So that's kind of, I guess, the general idea is that -- I guess in summary is that the margin will moderate over the course of the year.

And Curt, would you say it's fair -- if you look at what came through the P&L in the fourth quarter, probably a little bit different, we're going to see that go up a little bit because rates have gone up. But when we think about what we were offering on the sales floor in the fourth quarter, it's actually probably pretty -- the exit rate is probably pretty similar to what we expect given rates are generally in the same place.

That's fair.

Okay. Thank you. And just to follow up on the gross margins a little bit, you mentioned that land costs, you're assuming like 7% this year. What are you assuming around material costs with -- the potential impact for tariffs? And I know that you said that you've reshored a lot of your products, but it would be helpful to have any color around that.

Yeah. Another great question. It's very interesting. Up until a couple of weeks ago, I would say that the cost environment was probably pretty stable as well as the overall supply chain. But like you, we've been following the news relative to the discussions on tariffs. And so, as we look at that, depending on kind of which tariff and you want to speak to whether it's steel or any of the other tariffs relative to our friends to the north or to the south, we do expect some cost pressure from some of that. If it's just the steel, it's quite minimal from that perspective, maybe $1,200 a lot. And that would only impact us in the back half of the year. Relative to the other tariffs that are out there, as we're looking at it and doing our homework, it's really early in the process and depending on if they come back, when we're looking at it, it might be an impact of $4,000 to $5,000 a house, roughly speaking. But the time that that would get implemented and the impact on the year would largely be a fourth quarter kind of time period. So again, we think it's very manageable within the range guide that we gave for the year that it's been contemplated in that.

Okay. Thank you. That's really helpful. Look forward to seeing you guys in March.

Look forward to it. Thank you.

Thank you very much. Our next question comes from Michael Rehaut of J.P. Morgan. Michael, the line is now open.

Thanks. Good morning, everyone. Thanks for taking my questions. First, I'd love to get a sense for the pricing backdrop. You mentioned that you had only modest incentive -- increase in incentives in the fourth quarter and you're actually looking for a price increase, if I've heard you right, in January. So, which is a little counter to, I think, the rest of the group. So, I'd love to get a better sense of, number one, your pricing strategy in general, how you are approaching the market, given that perhaps the rest of the market is seeing perhaps a sharper increase in incentives. And also, how much of your guidance includes a step up in incentives in the first quarter or throughout 2025.

Yeah. Fair questions, Michael. Thanks for them. Let me start with kind of the fourth quarter. We saw kind of pricing power in just about 50% of our communities. So, we felt really good about the sales performance in the fourth quarter, even as you mentioned, a very difficult selling environment. Looking month-to-month over the quarter, performance felt like it was kind of more in line with historical patterns, albeit with maybe a few more little obstacles. But honestly, if anything, I was a little surprised how consistent each month was within the quarter, seeing a very, very small spread between the months. As we moved into '25, the price increase that you spoke of, we actually did do a national price increase. I think it was on the 2nd of January. The January started off pretty slow, I'll be honest. Very pleased with the pickup we've seen since mid-January and further pickup into February. Having said that, as I mentioned in my prepared remarks, we had a very robust Q1 last year. So, we're up against a very difficult comp. I'm not sure if we'll catch it, but I'm very optimistic about the traffic we're seeing. As you would expect, Mike, the pricing opportunities is very much a community-by-community decision. We even had one or two communities in the fourth quarter and maybe in January that we actually had a hobo. And so, when you're looking at these distinct locations with our move-up and active adults on unique lots, we actually do have pricing power. As I mentioned to Elizabeth, when I think about what came through the P&L in the fourth quarter, I would expect a small tick up in incentives. When I look at what we were actually offering on the sales floor, I think where we ended Q4 is generally what our expectations are for 2025. So yes, our guide does contemplate the environment we're in today. If we see something meaningfully different and rates go up significantly from where we are today, I'm not sure we'll have that captured. But generally, we feel we're in a pretty good place when we look, as Curt mentioned, the combination of our to-be-built and the higher margin opportunity they have as well as what's required in our first-timers. And maybe I'll wrap that up, Mike, with just one more comment. And that's just the strength of our buyer groups. When we look at the move-up in the resort lifestyle, we just don't see the same need on the incentive side on rates because they're taking smaller loans. And obviously within our resort lifestyle, we're still seeing a great deal of cash.

Great. No, I appreciate all the thoughts there, Sheryl. Maybe secondly, on the SG&A guidance, looking for a little bit of leverage this year. And I think that's also in contrast perhaps to some of your peers looking for, maybe flat to even slightly up SG&A, given the tougher environment. I would think some of it is coming just from the operational leverage with the out -- expectations for some volume growth. But I'd also be curious about the marketing dollars and the commissions that you're putting out there. How would you compare just in the fourth quarter versus a year ago? How does that line up? You mentioned the NAR settlement, but in general, obviously also just perhaps a slightly more competitive backdrop that would require more investment in this area. So, how are you thinking about 2025 in terms of those two buckets from a leverage or a year-over-year perspective.

And maybe I'll take the NAR kind of broker world and ask Curt to pick up on just overall SG&A in total. I think what we're seeing, Mike, with NAR is the consumer is just becoming more aware. We're getting a lot of more -- a lot more calls in advance, calling in to understand what our commission rates are. I think the consumer understands the game that's being played and I think that is aiding to in the reduction of cobroke. As I mentioned in our prepared remarks, when I look across our virtual tools, we are finally really beginning to see some relief in broker commissions. I think we saw more than a 10% reduction year-over-year in the fourth quarter. When I looked at January, we went from 67% on our online appointments down to 60%. So, when we start seeing that come through all of our virtual tools at that level, it's going to be very meaningful. You want to pick up just on overall?

Yeah. I think, Mike, what I would just suggest is that with the step up in closings and the associated kind of revenue growth with that and the work that our teams have done to continually focus on running an efficient business, we're able to achieve some SG&A leverage going into this year. So, it's a tremendous focus of the team. We're seeing it kind of up and down kind of the overhead structures, whether it's on the sales side and/or even within kind of the admin kind of side of it as well. So -- but overall, that's kind of the genesis.

Great. Thanks very much and see you next month.

Perfect. Thanks Mike.

Thank you very much. [Operator Instructions] Our next question comes from Mike Dahl of RBC. Mike, your line is now open.

All right. Thanks for taking my questions. I want to stick with kind of the pricing and incentive topic. So, it's interesting, kind of testing the market with the broad increase, but same time you're messaging that the net of incentives and then cost inflation is going to bring margins down over the course of the year. So, is this kind of -- would you characterize this as pretty modest in aggregate? Just take a little bit where you can, just to offset some pressures or how would you characterize kind of magnitude of the attempted base increases in aggregate?

Yeah. If I'm understanding your question correctly, Mike, I mean, it really does come down to the mix of communities in the portfolio. When I think about the pressures across the business, it's undeniable that we are seeing more pressure with the first-time buyer and what we need to do to get them into their home. The good news we've talked about for a number of quarters that we really personalize the needs of our individual buyers and make sure we put a program that works for them. Being able to do that and kind of not spreading forward commitments across the portfolio is an absolute advantage. Earlier this year we actually introduced this new program, Buy Build Secure, a flex program that assures customers that are not about to close -- aren't buying a completed inventory, that we're going to deliver them a rate that's generally 1% under the market rate at a time they close. That gives them more assurance and not near as costly as a forward commitment for someone that's going to close in 45 days. So as you start spreading these different tools, recognizing that a third of our buyers are the first-time buyers with the most expensive incentives and you compare that to the other tools and then the impact that we see with our resort lifestyle buyers, it gives you, in total, I don't know if I'd call it modest, modest plus, but certainly that along with the land appreciation. We're going to see some margin pressure, but I feel that we're able to kind of stand tall with it in comparison.

Yeah. I think the comparison is clearly positive. Just one quick follow up or clarification there and then a second question. When you talk about the moderation through the year, does your guiding vision, you staying within the 23 to 24 each quarter of the year. And then if I could kind of sneak a second question in. Just on the paper front any -- there's obviously some noise in the market around what may or may not happen with various parts of immigration. And are you seeing anything today on your job sites that's noteworthy or how do you kind of balance and mitigate some of those potential issues?

Mike, I'll take the first part of that and maybe Sheryl can take the -- I guess the latter part on the immigration. But overall, from a margin guide perspective for 2025, what I would say is right now we're guiding for Q1 and for the full year, and not really providing any additional guide on the other quarters over the course of the year at this point in time. But overall, to your point, we are assuming some moderation over the course of the year. And we feel very good about our margin for the year overall and staying within that range despite even some of the noise that's out there. So, Sheryl, I would throw it to you on the immigration front.

You bet. More to come next quarter on the margin, right? On immigration, happy to report that we haven't seen anything hit the job site. Certainly, we've got protocols in place. We across the business have E-Verify protocols. Even though we've seen activity within markets, we have not seen anything hit our job sites. I'll be honest, Mike, coming into the year had a little bit of fear that we would see some absenteeism of folks, that maybe they didn't have a specific issue, but maybe a family member did and they may not show up. And we just haven't seen that so far. So, we'll keep you posted. But to date, I'd say there's been no disruptions.

Okay. All right. Thank you both.

Thank you.

Thank you very much. Our next question comes from Trevor Allinson of Wolfe Research. Trevor, your line is now open.

Hi, good morning. Thank you for taking my questions. First one, on demand by geography, focusing specifically on your central region. I know that's not exclusively Texas, but has a lot of Texas in it. And given the softness in that region, your 22% increase in absorptions was pretty notable. So, can you just talk about what is driving your strong performance in that region and any specific metros to call out?

Yeah. I certainly can try to help. It's honestly -- I'm happy to report it's generally across the board. But if I were to have a couple call outs, if I go back to 2023, we probably all recall the days where Austin was taking some disproportionate pain. They had seen some of the highest pace and pricing. And so, the year of '23 was a little bit more of a struggle. So, I'd say part of it was just the tremendous job on our Austin team. Sales were up nearly 20%. Absorptions were up nearly 30%. When I look at Houston, another great story, lots to talk about. You've heard Erik, Curt and I all talk about the repositioning of our communities. Too self-developed. We've really seen paces up and discounts down. So good stuff there. Dallas, it's a whole new business with kind of outsized growth this year and planned in the coming years, doubling in size. When I go to the Carolinas, honestly, we're seeing equal strength with community count, sales and closings up, and honestly same in Raleigh and Atlanta. So, it's actually pretty equally weighted across the central, which is very encouraging.

And Sheryl, I might argue relative to submarket positioning, we've alluded to the fact that we test where we're playing in the market and where we're not. And in each of those circumstances are the supply of resale homes in the places that we're operating are less than the -- and so I think that helps relative to the resale conditions.

Great point.

Yeah. Yeah. And your performance would clearly support that as well. The second question, demand for resort lifestyle buyers, it's been stronger in recent quarters. This quarter, it took a bit of a step back. You called out some impacts from the hurricane, also some community count closeouts which may have weighed on the number. Can you talk about your expectations for growth by consumer segment in 2025? And do you think there's a meaningful change in resort lifestyle closings as a percentage of your 2025 closings -- in 2025 versus 2024?

Yeah. No. Fair question. Let me start by saying, you're absolutely right. When I look at the fourth quarter, we had a number of impacts. So, three hurricanes certainly didn't help even though our communities fared very well. I would tell you we had a number of days, maybe even qualified as weeks that most -- many of our communities were closed due to prep for hurricanes as well as recovery. At the same time, because of all of that, we also changed the timing of some of our openings. So, in total, I think we had three that were in closeout and three that we pushed openings till early in the year along with the timing of amenities. So, I think there was a number of factors. When I look at kind of the overall performance of Esplanade, really excited about some of the things across the country and new Esplanades that are in the works today at different levels of either underwriting, horizontal development, buying the land. But when I look at '25, probably pretty close to '24 from a total penetration. But I would expect -- we'll see if the penetration grows as we grow. The penetration may stay relatively similar. But I would tell you that we're adding a number of communities and I would expect to see a slight uptick in the Esplanade penetration and just active adult because that gets a little blurred with our move-up. So, the strength that you're seeing in our move-up, predominantly our second move-up, I think also blurs the line of them showing up in our more traditional communities compared to just Esplanade.

Great. Thank you for all the color, and see you guys next month.

Thank you. Look forward to it.

Thank you very much. Our next question comes from Alan Ratner of Zelman and Associates. Alan, your line is now open.

Hey, good morning. Congrats on a great quarter and year. Great to see the consistency there in a challenging environment.

Thank you.

First question on the margin and incentive topic. Yeah. Your rate buydown usage is obviously well below a lot of your peers and I know you referenced, Sheryl, many times the quality of your land which you think is really driving your strong margins. I'm guessing even within the companywide though there are differences from community-to-community and your use of incentives and your prevalence. And I'm hoping to get a little more insight into -- in the communities where you are offering more aggressive incentives and rate buydowns, is there a common theme or driver that's contributing to that? Is it more resale competition in those particular areas? Is it -- these are entry-level communities and you're going head-to-head with more spec focused entry-level builders. Is there anything you can kind of point to within your own portfolio for the communities that have below average use of incentives versus above average?

Yeah. It's a really interesting question and you can imagine, Alan, we've dissected this pretty good. So, I'll start by saying kind of when I look at the rate in the fourth quarter, it's -- the absolute coupon rate that we close people at, it's probably the lowest we've seen in over a year. And I think that's just a kind of a point of time when we saw where rates were kind of late summer, early fall, where we're using and sorry to be redundant, but where we're really using and where we're seeing the most competitive pressure would be within our first-time buyer communities. There is not -- I mean unfortunately with those consumers it is very, very black and white that what they need to do to be able to qualify. Our pre-quals are more challenged. They're very, very patient or payment conscious. Their ratios are a little bit more difficult. But the numbers of that first-time buyer, they're still very large. It's a very large penetration, because they're trying to get out of what I would say are higher rents today. One of the examples I'll share that I think helps you understand really the benefit we're seeing with our consumers. That program that I mentioned, Alan, our Buy Build Secure flex program, instead of having to just discount the house or do a very expensive forward commitment where we're assisting a consumer, guaranteeing that they're going to have a 1% reduction to the market rate. Let's say on an average -- let me take a $500,000 house with a 20% down payment, a 400,000 loan, to do that it's costing me, let's say approximately $16,000. To get that consumer to the same monthly payment, it would cost me $60,000 to $65,000 price adjustment. So, when I can use these tools most efficiently to help that consumer and I'm using $16,000 as compared to what -- we're seeing things in the market today that are 299, 399, those can cost 700, 800, 900 basis points. We're doing some of these programs at a fraction, and we're not taking it off the price, which is also protecting our margin. But there's not just kind of one special pill here. It's very personalized to the consumer. But because we're not spreading these forward commitments across the portfolio and it is a much smaller, I think than probably what the industry is recognizing, it's really helping retain our margin strength.

And thematically, Sheryl, I think both at a number of them. You mentioned resales, but I think, land supply and land competition remains highest on kind of those first-entry more tertiary markets. And so that's going to create a little pressure through the system. And then also as you mentioned resales, I think the new home competition as we think about supply is also the heaviest out there because across the US, I think the unsold finish new homes per community is 3.1 in first-time positions versus 2.5 for move-up. So that insulates us a little bit across our core location portfolio.

Yeah. It really does. And Alan, we're not suggesting that with these entry-level buyers that we're not having to spend more to get them. It is a very competitive environment as we move out of kind of the core and the move-up. And it's not our whole portfolio. The diversity of our portfolio is truly the benefit that you're seeing.

Got it. That's all really helpful and helps frame, I think the strength you guys are seeing compared to others. The second question I had, maybe pivoting to the land market, you mentioned expectation for 7% lot price inflation flowing through the P&L this year. Obviously, that's a function of what we were seeing in the land market a couple of years ago. I'm curious if you've seen -- we've heard a little bit of this, a little chatter of some loosening or softening I guess in land prices, maybe some more willingness for land owners to renegotiate current option contracts. And that wasn't the case a couple years ago when builder margins were 30% plus. But now with some builders' kind of getting back down to more normalized levels, I think it has to enter the conversation. So, I'm curious if you've had any of those conversations with your land sellers or the folks kind of holding your contracts. And what your general view is of land prices going forward here over the next couple of years.

Yeah. Hey, Alan, it's Erik. Thanks for the question. Yeah, to your point, I think your guys research and others would suggest that third quarter, fourth quarter, the demand for land categorically stepped down just a little bit. That doesn't mean it's easy. It's always hard out there. But I do think it means to your point that we've got a little bit more flexibility in terms of dealing structure. So that's where we're seeing it as we really work to continue to increase our percent control, do the OBS create greater efficiency in the balance sheet and increase our returns. That is front and center of all of our operators minds to make sure that we're structuring deals in an efficient way. So, I think that's where we're seeing it. Not necessarily an absolute price, but flexibility.

Got it. Thanks Erik. Appreciate it guys.

Thank you.

Thank you very much. [Operator Instructions] Our next question comes from Carl Reichardt of BTIG. Carl, your line is now open.

Thanks. Morning, guys. Appreciate the time. Alan and Trevor stole all my questions, but I have one follow up on Alan and I'd like to ask about land banking. And well, they're great questions. I want to ask about land banking costs and so my understanding at least out there is the amount of capital available for land banking continues to be significant. But I'm curious as to whether or not your expectation is that the cost of said land banking, which is expensive, will begin to moderate too. And part of what I'm curious about is if you look at your change in option mix, I'm assuming the vast majority of that change is related to land banking deals as opposed to sort of finish lot option contracts or farmer options. Is there a particular sort of trade-off that you look for in terms of risk versus takes versus option up front? And what do you think the trade-off is between gross margin impact and return on equity impact if you can sort of make it mathematical. And that's all I have. Thanks, all.

That was a short one.

You packed a lot in there. No, I appreciate it. So, I'll start with kind of appetite and access. Yes. I think there's been a number of well-heeled players that have been around a long time and I think that that world has evolved positively in terms of risk mitigation and there's been new entrants. And so, I would say the demand for it really as more of a credit positioned vehicle has been really good and has actually brought down the cost. And so, when we started doing it a couple years ago, we were able to find a very attractive interest rate and to your point trade-off relative to gross margin, I'll come back to that. Rates popped up a little bit, we sidestepped and then we've -- we're kind of fully back in it. And I think it's a sustainable systemic tool for us to use. In terms of the trade-off, just in terms of focusing on gross margin. Our last larger facility we modeled to be about 197 basis points of gross margin hit for a 750 basis point impact to return. So, kind of a 3.8x trade for that. And then use of tools, it's going to be an important one for us. But I would also say that seller financing has been actually our biggest tool in the past and remains a strong tool for us. So, there's a fair number. We've got joint ventures, joint development agreements, option takedown, seller financing and land banking, all to assist us to continue to increase our level of control over time.

I appreciate the help. Thanks, all. See you next month.

Look forward to that.

Thank you very much. Our next question comes from Buck Horne of Raymond James. Buck, your line is now open.

Hey, thanks. Good morning, everybody. Going back to the land and the lot cost inflation question that was earlier there and just ways to maybe mitigate some of those costs. I'm just wondering if you think about leaning into just a more heavy mix of self-development lots or do you think in this year ahead or forward you'll put more emphasis on self-development. Or conversely, are you starting to see more finished lots on the ground that are already fully developed at more reasonable prices that could help mitigate the cost inflation.

Hi, Buck. It's Erik and I'll take that. Yeah, I would say that we've experienced a pretty significant pivot over the last five-plus years relative to finding finished lots, frankly and having to self-develop. Fortunately, that's been a core competence of ours and I would say a good 85% to 90%, give or take, are coming through the system are raw and self-developed. Now the important follow up on that is that we almost in every instance look for ways to mitigate that capital exposure by tying a tool to it, a financial tool. So, we are not finding a plethora of finished lots out there. We are used to self-developing and we're kind of looking at that going forward from today as well.

Got it. That's very helpful. And then just quickly going back to the Yardly business. If you've got a minute to talk about single family rentals here. Just curious, kind of what you saw going into year-end in terms of the lease up rates and the absorption pace of the build for rent communities. Is it getting more or less competitive with the amount of supply that's out there? And just any other thoughts on investor interest and pricing of those assets?

Yeah. Another good question, Buck. So, the two assets that we mentioned that we sold, those ran at a 14 to 15 a month lease rate through their duration, which was just a little bit under what we originally modeled. And we have felt a little bit of the multifamily. But again, with these horizontal apartment kind of niche play, there is less competition as we think about the specific renter profile. Oftentimes we're getting -- our renters are walking across the street from the garden style apartment and kind of choosing the horizontal apartment option. And so, we're watching the multifamily, supply that has come on in '24 and through '25, but not as impactful as we might have otherwise expected.

I mean, early in the year, Erik, we have what, 11 communities that are in lease today and they're actually…

Yeah. And to your point, the last three, four weeks we've been running in the 40-plus for that particular portfolio. So, holding up well.

Very helpful. Thank you, guys. Congrats.

Thank you.

Thank you very much. Our next question comes from Alex Barron of Housing Research Center. Alex, your line is now open.

Yes, thank you. Good morning. I'm not sure if I missed it or if you mentioned it, but can you elaborate on the other income line item, the minus $47 million vs $80 million a year ago? What was included in that?

Hi, Alex. This is Curt. I'll take that. Yeah. There's a couple of things in there. Number one would be there was a legal reserve set up for -- in Q4, the court awarded the plaintiff's final attorney fees for the Solivita case. That was ruled on back in 2023. So, we're seeing about a $17 million incremental amount there being recorded to other income and expense. There's also some pre-acquisition write-off costs for projects that we're no longer pursuing. That's about -- in total, about $6.5 million for the quarter. And then the last main item that I would say is in other income expense is an increase in unrealized losses for prior policy periods in our captive insurance company that we refer to as Beneva. And that was like, I think, what, roughly $17 million for the quarter as well. So those are the big components of what is coming through other income and expense for the quarter.

Got it. Thank you. And then likewise, what drove the increase in the Amenity line item versus previous quarters? And I guess along those lines, where do you guys account for the sale of the Yardly portfolio?

Yeah. The sale of the Yardly assets come through Amenity revenue. And so that's what you're seeing there is the two sales. We had one sale in Dallas and one in Phoenix that contributed to the revenue component to that. And then for the quarter, what we're also doing is we had a charge on the remaining last multifamily communities from the William Lyon acquisition to the tune of just under $18 million that is running through what is called Amenity and other expense in cost of revenue.

Okay. So, all these are one-time nature type things. Thank you so much.

That's correct. Yes. Thanks, Alex.

Thank you very much. We currently have no further questions, so I'd like to hand back to Sheryl Palmer for any closing remarks. End of Q&A:

Well, thank you so much for joining us today. Look forward to seeing many of you next month at our Investor Day. Stay well.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.