Green Brick Partners, Inc. (NYSE:GRBK) Q4 2021 Earnings Conference Call March 2, 2022 12:00 PM ET
Company Participants
Jim Brickman – CEO
Rick Costello – CFO
Jed Dolson – COO
Conference Call Participants
Carl Reichardt – BTIG
Alex Rygiel – B. Riley
James Mceniff – Wedbush
Matthew Dhane – Tieton Capital Management
Alex Barron – Housing Research Center
Aaron Hecht – JMP Securities
Operator
Good afternoon, everyone and welcome to Green Brick’s Partners Earnings Call for the Fourth Quarter and Year ended December 31, 2021. Following today’s remarks, we will hold a question-and-answer session. As a reminder, this call is being recorded and will be available for playback.
A slideshow supporting today’s presentation will accompany today’s webcast and is available on Green Brick Partners website, www.greenbrickpartners.com. From the homepage, please select reporting and presentations under Investor Relations and then navigate to the presentation named the Fourth Quarter 2021 Investor Call Presentation.
The company reminds you that during this conference call, it will make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including its financial and operational expectations for 2022 and the future and anticipated impact of COVID-19 on our operations, prospects and other aspects of our business.
Investors are cautioned that such forward-looking statements are based on current expectations and are subject to risks and uncertainties and could cause actual results or outcomes to differ materially from those set forth in our forward-looking statements. These risks are set forth in our fourth quarter earnings press release, which was released on Tuesday, March 01, 2022 and the risk factors described in the company’s most recent annual and quarterly filings with the Securities and Exchange Commission. Green Brick Partners undertakes no duty to update any forward-looking statements that are made during this call.
In addition, our comments will include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by the Regulation G regarding these metrics can be found in the earnings release that Green Brick issued yesterday and the presentation available on the company’s website.
Now, I would now like to turn the conference over to Green Brick’s CEO, Jim Brickman. Mr. Brickman, please go ahead.
Jim Brickman
Thank you, operator. Hi, everyone. Thanks for joining our call today. With me are Rick Costello, our CFO and Jed Dolson, our COO.
Before we jump into this remarkable quarter and record-breaking year, I wanted to draw your attention to our presentation for today. In the interest of maximizing time for questions, we have made some changes to our slide deck. In a moment, I will pass things over to Rick who will be going over our fourth quarter and full your highlights as well as providing an overview of our spec focused strategy. Following Rick’s remarks, I will cover key financial metrics, our capital allocation strategy, and an update on our land investments. Finally, before my closing remarks and kicking off our Q&A, Jed will provide insight to our expansion into Austin, market conditions and demand.
I’ll now turn it over to Rick. Rick?
Rick Costello
Thanks, Jim. And thank you all for joining us today to review our 2021 fourth quarter financial results. Please move to Slide four, which is related to our highlights for Q4 ’21 versus Q4 of ’20. During the fourth quarter, Green Brick’s results set records for any quarter in the company’s history for total revenues, residential units revenues, and EPS. Now here are the highlights.
During Q4 ’21, we delivered 823 homes, which represented growth of 41% over Q4 2020. Total revenues in Q4 2021 were a record $452 million that increased 78% from Q4 2020, and also setting a record in residential units revenues that increased 70% year-over-year for the quarter, we combined that 41% unit growth with an increase of 21.3% in our average sales price. Now regarding ASP, we also note that our a backlog average sales price was up 25.2% year-over-year.
Home [ph] and gross margin for Q4 2021 was up 110 basis points over Q4 2020 to 26.2% and we believe as I’ll discuss a little later that our focus on price over pace will continue to sustain our gross margins at levels higher than our peers. In addition to our 78% increase in total revenues, the company experienced a strong improvement in SG&A leverage, improving 350 basis points from Q4 2020 down to 8.8% for Q4 2021.
When you combine our unit growth, our ASP growth and improvement in both gross margins and SG&A leverage, our bottom line Q4 2021 diluted earnings per share of a $1.24 was an increase of 114% over Q4 2020 far outpacing our unit growth of 41% and in fact, our EPS for Q4 exceeded EPS for any full year prior to 2020. In Q4 Green Brick was also named to the top 50 of Forbes 2022 America’s Best Small Companies list.
Finally, we had a very busy December in the capital markets. We successfully completed an offering of $50 million in our Series A preferred shares. We issued our fourth note purchase agreement in the amount of $100 million at a fixed rate of 3.25% over the 7.7 year average term, and a well-received club deal structured by Prudential Private Capital. Our investors again included Prudential, Bearings, Hartford, Securian and Voya. And we completed an extension expansion and amendment of our unsecured line of credit facility that added a $130 million in new commitments, bringing our total commitments to $300 million. The maturity of all commitments have been extended to December of 2024 and the accordion feature was increased to $325 million. We now have a diverse lender group of eight banks with four new lenders being added.
Please move to Slide Five related to our financial highlights for the full year and year-over-year comparisons. For the year ended 12/31/21 Green Brick’s results set records for any year in the company’s history for total revenues, residential units, revenues and EPS plus lots owned and controlled also represent on all time record. Here are the highlights.
For the full year, we delivered 2,834 homes, which represented growth of 28% for the full year over 2020. Total revenues in 2021 were a record $1.4 billion that increased 44% from 2020. So total revenue has grown by a compounded annual growth rate of 33% over the past two years and 29% over the past six years and also setting a record in and residential units revenues that increased 41% year over year for the full year, we’ve combined the 28% unit growth with an increase of 10.1% in our average sales price for the year.
Home building gross margin for the full year 2021 was at 26.4% up 220 basis points over 2020. And in addition to the 44% increase in total revenues for the full year, we significantly improved our SG&A leverage by 180 basis points ending up at 10.3% for all of 2021.
And just like our quarterly results, when you combine our unit growth, our ASP growth and our improvement of both growth margins and SG&A leverage, our bottom line full year 2021 diluted EPS of $3.72 grew 66% over 2020 far outpacing our unit growth of 28%.
Like I said, lots owned and controlled were a record, they virtually doubled up 98% up year-over-year to a total of 28,601 lots. And again for the year Green Brick was named at the top 20 of Fortune Magazine’s 2021 fastest growing companies list. And we are the number one fastest growing public home builder.
Please turn to slide six, where we will discuss metering of sales, our spec focus and the impacts on our operations. Our full year net home orders were flat with 2885 net sales in 2020 and 2851 net sales in 2021.
In Q4 2021 our net sales were down by 44% from Q4 2020, as we continued to meter sales. As a result, we increased spec units under construction from a low of 28% of total units under construction in Q1 of this past year to 39% of total units as the end of the year. This is a success as holding back homes for sale gives us a better mix of specs versus pre-sold backlog homes. We believe our higher mix of spec homes will lead to more efficient operations, higher gross margins and less risk of unmatched construction costs.
We believe selling some houses two to four months before completion will get a better margin than selling all the houses 7 months to 12 months ahead of completion as we can capture increased sales prices. Managing our sales pace is corporate strength deciding to meter sales aggressively, so we can return to a higher level of spec units under construction has and we expect will continue to contribute to our superior gross margins and return on capital.
Our average sales price of $509,000 for Q4 and $461,000 for the full year were up 21.3% over Q4 2020 and 10.1% year-over-year for the full year. And our ASP of backlog of 588,000 at year end is up 25.2% year-over-year. As a result of metering sales, we believe that our Q4 absorption proactive selling community is not indicative of demand and we’ll talk about demand but later in Jed’s session, but please recognize that our full year pace of absorption of 8.2 units per quarter per community is up 46% from the levels in 2019 two years ago.
With that I’ll, I’ll turn it over to Jim. Jim?
Jim Brickman
Okay. Thanks, Rick. Please flip to slide seven where I would like to start by focusing on a return on equity. For the fourth quarter annualized, our net income return on average equity was 31.9% for the full year. Our return on average equity stands at 25.9%. We have had a substantial increase in return on average equity over the last two years, owed to a sizable increase in net income of 224% over that period. Exceptional market conditions, strategically executed operational and initiatives and our unwavering approach to capital allocation have all been critical components to achieving such strong results.
In 2021, we again expanded our entry level Trophy Signature homes brand with Trophy representing 36% of our home closing revenue. This focus has allowed us to create positive SG&A leverage by prioritizing higher absorption trophy communities with simplified design packages and a simplified library of plans. You will also see on this slide that we have been able to capitalize on this growth by expanding gross margins by 220 basis points to 26.4% year over year, and by 500 basis points over the last two years.
As you can see on slide eight, we continued to maintain some of the best margins in the industry, performing well above our peer average of 23.5%. Our home building operations are in strong markets where we can wield pricing power. In an environment where we continue to raise prices as Rick mentioned, our focus on spec units allows us to sell homes later in the construction process at higher prices and therefore to achieve higher margins.
On the next Slide Nine, I would like to address our capital allocation. We continue to exercise a very disciplined approach which includes investing significantly in lot growth, executing the organic growth of our builder subsidiaries and expanding into new markets. So there are many noteworthy metrics we can point to as indicators of our success in 2021, I would like to direct your attention to our lot position.
In 2021, we increased our lots owned and controlled by 98% year-over-year far exceeding any of our peers as we show. This coming year, we intend to spend some $285 million on land development with a goal of delivering over 4,700 finished home sites to our subsidiary home builders across 43 communities throughout 2022. In a moment, Jed will discuss our recently announced, excuse me, announced expansion into Austin.
On Slide 10, we highlight the significance of our robust land pipeline and what it means for our communities going forward. We believe our willingness to invest heavily in our growth of lot inventory and commit to self-developing such a large proportion of our lots is a key factor to our higher gross margins. However, we also understand the importance of maintaining lower financial leverage that is appropriate to match our significant investment incurred [ph].
Based on our strong returns on equity, our lower financial leverage means our results are even more impressive on a risk adjusted basis. On this map, you will also note the almost 9,000 lots allocated to Trophy Signature homes are for communities that exceed 800 home sites.
One of the main ways we mitigate risk in these larger, longer life communities is buying land in submarkets, which we believe have long growth term potential at very affordable prices. In the case of these Trophy communities, these lots have an average paper lot price of under $8,000 per lot. Many of these lots also have special development districts such as municipal utility, excuse me, municipal utility districts or public improvement districts that can fund a sizable proportion of our development costs and thereby reduce our cost of capital and development risk even further.
I would like to now turn the call over to Jed Dolson, who will be covering the Austin market conditions as well as demand. Jed?
Jed Dolson
Thanks, Jim. Let’s start with our exciting news about entering Austin as we cover the maps on Slides 11 and 12. On February 8, we announced that Green Brick will make its debut into the Austin market through Trophy Signature homes. We purchased 383 acres of land in Elgin, Texas, 25 miles Northeast of Downtown Austin for the development of our first Austin area community named Trinity Ranch. We plan to commence construction in early 2023, and start to see closings as early as Q4 of 2023.
The 1700 unit neighborhood will be developed as a 50-50 joint development with century communities where Trophy will have 850 home sites with two lot with product lines. For our bullets on the two maps, it’s easy to see why we’re excited. The community is exceptionally located near the new Tesla and Samsung plants, and will be a short commute to many of the city’s major employers.
The city’s low unemployment, educated workforce and a who’s who have major employers have led to a sizable population growth. So it’s no surprise that it is also one of the lowest levels of resell inventory and is the fifth largest starts market in the country. Having said that, we realize that one community does not make a division. So stay tuned as we looked at additional land positions in Austin.
Shifting gears to Slide 13, on the demand side, we continue to see an incredibly strong desire for home ownership in all our markets and across all of our product offerings. As Rick mentioned earlier, although our full year net home orders were flat, we believe this is a result of our proactively metering our sales rather than an indication of decrease buyer demand.
We know that interest rates have been on the forefront of everyone’s minds. So we wanted to put some into perspective how we anticipate rising interest rates will affect our buyers. Looking back at December and January, our average buyer had a debt to income ratio of 34.4%, most commonly referred to as a backend ratio with the credit score of more than 750. Should rates go up to 5% in 2022, we could see average debt to income ratios increase by 2% to 4%. Overall, this is still well below the 43% level for backend ratios that we would try to stay at or under in order not to potentially impact loan appraisals.
We believe that our buyer’s strong credit quality coupled with a limited resell inventory shown on Slide 14 are recipe for continued demand in 2022 and beyond. Resell inventory levels are at all-time lows across the country, allowing home builders to share a larger share of home sales — of the home sales pie. In fact, our resale months of supply was cut in half during 2021 dropping from 1.4 months of supply in January of 2021 to 0.7 months of supply in January of ’22.
As you can see, Austin has only 0.5 month supply of resale inventory. The average price appreciation in our markets is 25% per the Burns Home Value Index versus a national average of 18%.
We believe we have more pricing power because of our preference for high job growth markets, coupled with creditworthy buyers who can afford larger homes and bigger mortgages. We believe this will allow us to continue to raise prices with each new release of lots.
Before I turn this back to Jim for some closing remarks, please follow me to Slide Seven, sorry, Slide 15. Our current metrics for evaluating demand have been significantly impacted by supply chain challenges beyond our control. And we believe are not indicative of how strong the demand for new homes is. Here you’ll see a few case studies we have documented to really illustrate what our boots on the ground teams are seeing. For example, at Echo Park, one of our townhome communities in Atlanta, Georgia, our division released four home sites to an interest list of over 2200 perspective homebuyers.
To accommodate for this incredible demand, we revised our sales strategy to operate on a bidding system. In Dallas, Fort Worth, our biggest market, we have seen similar stories with demand far exceeding the number of lots released for sale. In addition to reducing incentives with significantly cut back on market spend — marketing spend. For example, in one Texas community of 58 town homes, we were able to generate an interest list of over 350 people with no digital marketing and using a single sign.
In summary, we believe that our well-qualified buyers coupled with our limited resale inventory, are significant or sufficient to overcome the significant disruptions of supply chain and rising interest rates.
Now I will turn it back up to Jim for a few closing remarks, Jim?
Jim Brickman
Okay. Thanks, Jed. Please turn briefly to Slide 16. As I mentioned earlier, we’ve accomplished record operating results industry leading investments in lot inventory and return on equity results that have risen almost 120% over two years with the core philosophy of maintaining low debt to total capital.
Our financial leverage has consistently been far below the average of midcap and small cap peers and has been typically one of the lowest and often the absolute lowest leverage metric among this peer group.
Our strong results this year are the culmination of meticulous planning and hard work by everyone on our team. Despite our success, we remain focused on maintaining a disciplined approach to investing our capital in, excuse me, in enhancing our long term value of our company for our shareholders and the communities in which we operate.
Please visit Slide 18. I’d like to close here by highlighting the culture of excellence that we are building one defined not just by our financial performance, but also by our commitments to environmental, social and governance behaviors. As such I am pleased to announce the expansion of our governance committee’s role to oversee our efforts going forward in making sustainability a source of value for our business and society.
With that, I will now turn the call over to our operator for the Q&A. Operator?
Question-and-Answer Session
Operator
[Operator instructions] And our first question comes from the line of Mike Riha [ph] with JPMorgan. Please proceed with your question.
Unidentified Analyst
Thanks. Good afternoon, everyone. Or I guess still good morning in Texas, but thanks for all the information. Congrats on the results. I wanted to focus a little bit on 2022. I know in general, you haven’t laid out any guidance in the slides. I believe it’s outside of landscape and the delivery of the 4,700 home sites to your builders. But I was hoping to get a little bit of a framework of how to think about closings in ASP for 2022 as well as the direction of the community count throughout the year.
Jim Brickman
Sure. This is Jim. Thanks, Mike. Let me just add a little color. The land spend was really land development spend that figured we gave earlier did not include a land acquisition cost. That was just the development spend part of that. When it gets to the ASP, we are expecting double digit growth in ASP in our business. It’s going to be a little bit lumpy depending on some of the product mix as we phase out of some more expensive Trophy communities into lower entry level cost Trophy communities and neighborhood community count growth, we expect double digit growth. Rick, do you have anything you want to add to that?
Rick Costello
Yeah, I would say bulk of the ASP year over year should be low double digit growth and as well as the community count as of the end of ’21 to the end of ’22, the ending community counts should be again low double digit growth. We typically don’t provide guidance, but since there is obvious growth beneath the yearend numbers, we want to provide those reference points.
Unidentified Analyst
No, that’s very helpful. Appreciate that. I guess the, the second question I had was on the gross margins, obviously a lot of success there and the approach of selling further into the construction process makes a lot of sense. One thing that kind of stands out is that your gross margins have been kind of in a 26% to 27%, 26% to 27% range for the last three quarters that dip down a little bit sequentially. I don’t know if that was due to mix. I’d be curious about that, 4Q versus 3Q.
But any thoughts on, again ’22 as it relates to — do you feel like the, the current level of gross margins are sustainable? Do you think they could even trend higher given that there has been a clear trend of home price appreciation more than offsetting cost inflation? So it’s kind of a two part question there, one, any comments on 4Q versus 3Q, and then just, how do you see the sustainability of this current range going forward?
Jim Brickman
Yeah, this is Jim. I’ll take the first part of that question and Jed Dolson our COO is probably going to shutter at the second part because he’s responsible for really helping us maintain our margins in a very difficult operating environment. But we are not planning on seeing any reduction in margins at this point because of our lot position and buyer demand. We think that there’s still could be room for improvement and Jed, why don’t you take the rest of that and just kind of explain the challenges of you dealing with meeting the expectations I just said.
Jed Dolson
Yeah. So, as Jim mentioned, we are trying to mitigate potential surprises in the supply chain from a cost perspective by metering our sales and delaying sales until the later stages of construction. That recipe has worked well for us. Most of the homes we are selling right now had lumber packs for that were delivered in the late fall, early winter of last year. So we feel very good about our position as for 2022 as far as gross marching goes. The new lumber packs are quite expensive. So we are continued into raise prices and value engineer in an effort to minimize that, but those would — these new costs would probably affect us late Q3, early Q4
Unidentified Analyst
And Jed aren’t you seeing pretty much cycle times not getting any worse, they’ve kind of stabilized at a — what we would like to still improve upon, but they they’re certainly not going the other direction right now.
Jed Dolson
Yeah, that’s correct. We’ve kind of realized that we live in a new norm now and it’s obviously elongated versus the pre pandemic cycle times, but the cycle times are not getting worse. It’s just a matter of the unpredictability of which part and piece is going to be in short supply that week.
Unidentified Analyst
Great. One last quick one if I could, I was hoping to get some commentary on demand trends. I know that you’re still metering sales pace but have you seen any impact of the rise, the higher rates in the, let’s say four weeks or so sometimes it takes a little bit for a change in rates to filter its way through the marketplace. Any change in either buyer traffic or even incentives in the market in general that you’ve noticed?
Jim Brickman
We have had no increase in incentives. I think they’re still going the other direction in the builder’s favor. It’s a tough time actually to be a consumer. We don’t really see that shifting at all. So demand is very, very robust and we don’t see it being anything but strong.
Jed Dolson
And typically what you would see in a period of increasing interest rates is folks have to reset what they can shop for. The existing resale inventory usually takes a preponderance of the deals out there, but because so little existing inventory is out there, there’s a lot more of the pie from the builders.
With all of us metering sales, there’s plenty of time for buyers to adjust and figure out what they can afford because we’re releasing so few lots every period and in that case, it would be healthy to have an inventory adjustment, but we’re not seeing one at all.
Jim Brickman
And Mike, I would just say, I would just add Mike that, yes, house prices have gone up, but wages have also significantly risen in our markets and in a typical rising interest rate market, we would typically see the buyers looking for smaller square footage homes and basically trying to keep their payment the same. We are not seeing that at all right now. We’re seeing buyers want bigger homes. We’re much more successful in selling two story homes and one story homes across the country right now,
Jed Dolson
Mike, the other thing is, as you’re aware, apartment rents are continuing to escalate very quickly. Apartments are full. So, those are very strong indicators for Trophy’s entry level business. And we just seeing huge demand there. And of course, the in migration in Dallas, Atlanta, Florida and our markets is really unprecedented.
Unidentified Analyst
Great. Thanks so much guys. Appreciate it.
Operator
Our next question comes from the line of Carl Reichardt with BTIG. Please proceed with your question.
Carl Reichardt
Thanks everybody. At first, thanks for the new slide deck, by the way looks great. Let pretend Jed that this isn’t a new normal, I think we called it a new abnormal in a piece recently, but if you look at Trophy Signatures underwriting for absorptions sort of longer term compared to the rest of Green Brick’s portfolio of businesses, what are you looking? What do you think normalized absorptions for Trophy Signatures — for Trophy Signature are then what do you think they are for the rest of the business, if you combine the bits and pieces from the other markets and different products
Jim Brickman
I think it varies Carl and I think, it’s interesting. We had a meeting yesterday with a top 10 home builder that we do a lot of business with. And we went over 12 communities that we are joint builders in and the absorptions range from 30 a month to seven a month. And I think the demand right now there, the demand is there for 30 a month across the board. The trades are not there for 30 a month.
So, we all have limb trade bases and we’re kind of spreading those across, but I think Rick highlighted some of the dramatic differences in trophies absorption versus the rest of the companies. And I think you will continue to see that expand and get more pronounced in the future.
Unidentified Analyst
You want to go ahead, Jim?
Jim Brickman
Yeah, because I want to follow up on that because I want to make sure our investors and shareholders understand that we didn’t ever underwrite any community when we bought land based upon 20 or 30 sales a month. We’re pretty aware of how our peers underwrite land and we were always on the most conservative side of that equation and six to eight works for us really well. Demand could be 30, but as Ted said that the labor and supply trades aren’t there, but we didn’t underwrite enough and underwrote all of these neighborhoods on a much more conservative basis than that.
Jed Dolson
Carl, the other thing that I should have added before about community count is that as Trophy communities are bigger and they are higher absorption, what we have seen traditionally is that the Trophy pace can be one and a half to two times the rest of our builders. So if you take all of 2021 at 8.2 units per quarter, per active selling community and maybe if you assume that Trophy is 1.7 times the rest of our communities somewhere between one and a half and two times, they would be at six houses a month, or I’m sorry, six houses per quarter for our other brands and 10 to 12 houses for Trophy? So it really depends on how we meter it and how expensive things get, etcetera, but definitely they’re the power horse.
Unidentified Analyst
Okay. So at the end of the day, Rick, then the pace price balance for you would be, you probably don’t want to, you’ve got the supply constraints, but you wouldn’t want to raise prices to the point where that six a quarter for core and 10 to 12, a quarter for Trophy gets damaged right. That’s the sweet spot is to try to hit that balance, the highest price you can get and hit those absorptions. Is that the right way to think about it as we model?
Rick Costello
Yeah. Maybe Trophy can be higher. When you think about it, if you’re doing nine to 12 per quarter, that’s three to four per month and that’s clearly below our experience but like Jim says, we just underwrite conservatively.
Unidentified Analyst
Okay. Perfect. And then so the last couple of quarters overall orders have been down combination of absorption and community count. As you look at ’22, is there a particular quarter where you feel comfortable assuming that supply chain to Jed’s point doesn’t change where you feel that that number will inflect positive again on a year over year basis?
Rick Costello
Jed, why don’t you take that because we’ve been studying that all the time with you?
Jed Dolson
Sorry. Carl, could you repeat this?
Unidentified Analyst
Yeah. Which quarter and 2022, do you believe that overall orders will be positive year over year?
Jed Dolson
Rick, do you have this poll for last year?
Rick Costello
I know we really started metering sales the second half of Q2 last year. So Q3 and Q4 for sure. Carl.
Jed Dolson
Yeah. We really, Carl, we really want to get to even flow, but we, we slow things down in the second quarter of last year with just over 600 sales. So we could beat that in Q2 because we’re going at a greater rate than that in terms of deliveries starts and we just want to wait until we get over 40, maybe 45, maybe higher percent spec. So that’s going to be the key and the cycle times, we don’t know what the cycle times are going to do and so that can change everything.
Rick Costello
Carl, that would be rear end loaded.
Unidentified Analyst
Yeah. Okay. Fair enough. That I’d assume cycle times would stay the same. Okay. I’ve used my two questions or more than that. So I will turn it over. Thanks very much, guys. Really appreciate the help.
Operator
Our next question comes from the line of Alex Rygiel – B. Riley. Please proceed with your question.
Alex Rygiel
Thank you very much. The cancel rates stepped up in the fourth quarter. Can you talk about why that was and your outlook as the portfolio shifts more towards spec homes that by default obviously have reduced time to close?
Rick Costello
Yeah. well first it was a one quarter aberration. The full year is obviously lower in January, February in the full two months. The cancel rate is down to under 8%, so it was a function of kicking out some buyers that couldn’t qualify and see a lot of that comes to a head when you have such a robust Q4 of closings as well.
Some of those folks, they had just changed his interpersonal lives or their financing or whatever it was. So there’s, there’s nothing that indicates that is continuing as you see in or January, February change.
Jim Brickman
And, and the in fact, we saw a February cancel rate lower than January. So we’re seeing the market accelerate, not decelerate.
Alex Rygiel
It’s good to hear. And then you mentioned earlier closing out some higher price communities. Can you help us understand sort of the pacing of that one will that occur in this calendar year?
Rick Costello
Well, you, you see a pretty high ASP in our back-blog, which is always the case. You always have that higher because the — you don’t get a lot of town homes and backlog and trophy is designed not to be a backlog builder out there. That’s more of a spec builder, but we do have quite a few communities that when we originally started trophy off, we had multiple communities still available.
And the Frisco submarket in DFW, which is one of the most dynamic markets in terms of lack of availability, no more dirt available and just a much higher rate of appreciation. We’re going to close a lot of those houses in Q1 and then and start telling off in Q2 before we settle down. Like I said, in before on an overall ASP basis, the full year should be below double digits.
But you’re going to see like Jim said, lumpiness, it’s going to be going up by a good measure in Q1 and just don’t get excited about it because it’s coming back down as we roll out of those higher price point communities. Does that make sense?
Alex Rygiel
Very helpful. It sure does. Thank you.
Operator
And our next question comes from the line of James Mceniff with Wedbush. Please proceed with your question.
James Mceniff
Hey, good morning, everyone. So my first question, I think, Jim, you said earlier, the goal is to get to, to 45% spec. Is that just a function of, of the mix from Trophy Signature or have you guys found out that there’s some financial gross margin benefits by getting it to that, that level, and then maybe ramping the sales pace up a little bit?
Jim Brickman
I think it’s really across the board, obviously Trophy is, it’s growing. It’s becoming a more important part of our business, but even at a smaller builder, like GHL in Florida I think that they finally determined along with us that they’re much better off trying to increase their spec production than their build for sale pre-sold homes.
So it’s really across the board, the only builder that’s really that we don’t do a lot of pre-selling is in our town home just because they’re, we’re building homes, in six and 12 units at a time,
Rick Costello
James, his or — historically we have been at 40% to 50%, depending on the quarter that number changes every Q4 and goes to who more spec at that point, because a lot of the pre-sold houses close in Q4. So 40% to 50% is our history.
And we could easily see ourselves being at the high end of that range, if not higher, because those historic numbers were not one trophy was 35 to 40% of our closings in sales. So the that, that, that we, we could see the number go higher, but, but for now, we’ll be happy to get it back to those historic ranges.
James Mceniff
Great. And then maybe some comments around the pretty steep decline both year-over-year and sequentially in the community count. And I know, and thank you for the guidance on, on double digit community growth with this come for fiscal ’22. But do you expect most, most of that to be back half loaded? Or is it going to roll on roll in as, as the year progresses?
Jim Brickman
Jed, can you help him on kind of the timing of our community comp growth?
Jed Dolson
Yeah, I would just add that — it is I think you’ll really see it pick up the second half of the year. It’s going to stay pretty flat the first half of the year, but I would add that, these communities that are coming online are coming on with, 250, 300 lots per phase, which is allowing us to get those increased philosophies going forward.
Jim Brickman
One other thing that we found, really resting over the last couple quarters is, we’ve made great returns on equity having almost 25,000 lots on our balance sheet. most of those lots are not producing any current income. So we were really set in terms of our lot position going forward.
And we’ve had a number of calls from builders that are short of lots or need lots. And we’re considering actually selling off not full neighborhoods, but are bringing other builders in some of our lot positions, just because we have such a good lot position. And that might be a nice little big for income this year.
James Mceniff
Well, that, that was like, so going to be my other question is I saw the land sales pick back up this quarter and I thought last quarter, the company had indicated that that revenue number might be coming down. So what are you saying, Jim, that that’s going to start to pop back up and we’ve had, you need to start thinking about selling those or modeling for a higher level of land revenue?
Jim Brickman
Well, it’s an — it’s a wild card right now. We’ve had a number of unsolicited offers that Jed taking a look at for us and that we’re working, that we really didn’t anticipate being part of our strategy in 2022. So I guess the, the answer is stay tuned on that, but we’re sure considering it.
James Mceniff
Okay, great. Thanks for taking my questions.
Operator
Our next question comes on the line of Matt Dhane with Tieton Capital Management. Please proceed with your question.
Matthew Dhane
Thank you. I want to ask about the start and I, I think they picked down to a lower level 545, 546 in the fourth quarter here. When are you expecting the start to, to start increasing in and see some growth there in the, the start again?
Jed Dolson
I can take that. Hey, Matt Jed here. Yes. starts, did go down in Q4. That was partially a function of our high deliveries in Q4. And just, it’s the same kind of message or same story here that, our builders and our trade partners can only can only handle so much.
So we had to kind of get, we had a huge delivery in Q4 and we had to get those homes a hundred percent done and transferred over to buyers before we could really start our next batch, which is in Q1. So I think when we, when we release our one numbers, you’ll be helpful. You’ll be happy with those numbers.
Matthew Dhane
Great. Thanks, Jed.
Operator
[Operator Instructions] Our next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.
Alex Barron
Yeah, thanks. Gentlemen I wanted to ask about the buyers that you guys are currently seeing. We know in the last year or two, there’s been a significant increase in people who are migrating across state lines. I was wondering if you guys track that or have some general idea of what percentage of your sales are going to those types of buyers?
Jim Brickman
Yeah. Jed, Jed can answer part of that. It’s some, it’s harder attract than you think a little bit, because many people rent and they will, they will in migrate from Texas and try to rent, which is obviously becoming more difficult. It apartments will be that they’re renting before they’re buying. So they may have a Texas or a Georgia or a Florida address before they buy. But Jed, do you wanna take the rest of the question in terms of what you’re seeing in new migration? I know it’s, it’s…
Jed Dolson
Yeah. It, as Jim mentioned, it’s very difficult to look at. We look at, cause we, with our mortgage joint ventures, we have a 60 to 70% capture rate. So we’re not even getting all the buyer data. But we do look at that with our mortgage joint venture partners.
And it it’s submarket by submarket. I can make a generalized statement that in our, a location markets, we are seeing a higher percentage of out-of-state buyers. And oftentimes that’s over 50% as we get into our more affordable product. The, the buyers are more Texas based buyers, but we still see significant out of town buyers.
Alex Barron
Okay. That’s helpful. Along the same lines I was wondering if you guys track investor purchases or whether you have a specific policy around investors buying houses?
Jim Brickman
Yes, we do. We, we don’t sell Germany homes to investors and our infield communities like Alpharetta Georgia, which is comparable to a Frisco, Texas, we see unbelievable demand for investors and really we stay away from them.
We’ve also been our approached by the build for rent guys to see whether they want to close out communities or do business with the build for sector. And we don’t do that either. And finally, when you get to our balance sheet, we don’t do really land banking or off balance sheet optics.
Alex Barron
And, and is it, you don’t choose to sell to investors because the returns are not as good or because you don’t want the communities to be full of those types of owners?
Rick Costello
We, we don’t sell because of the, we don’t want the communities to be full. And then, the it’s very, it’s harder on the financing side, if you’re an investor, obviously if you’re all-cash investor, that’s easier, but as Jim mentioned or sales to, I are in the low single digits.
Alex Barron
Got it.
Jim Brickman
Yeah. We’re having
Alex Barron
A separate?
Jim Brickman
With real retail buyers, we can almost sell a home. I know when you strip out sales commissions and all that, some of these guys are offering you almost the same margin, but we, we really aren’t, that’s not part of our strategy at all.
Alex Barron
Okay. On a separate topic. Any guidance you guys can offer on the tax rate for 2022. And also, can you comment on why the tax rate was lower?
Jim Brickman
This, Rick?
Rick Costello
Oh, we just had a a decrease in our state taxes just based on interstate allocation. And that, that, that all hits at, at, at Q4 after you filed all of your returns from the prior year it’ll probably be higher next year because of how much harder it is to get the energy tax credits on the change it’s gone up per unit from 2000 to 2,500, but it’s infinitely harder to get that. So it’s, it’s probably going to be closer to 24% for the year.
Alex Barron
Okay. Okay. Thanks. And if I could ask one last one
Rick Costello
We’ve got another couple folks wanting to get on if we can move along, please?
Alex Barron
Okay. Sorry about that. I’ll jump off. Thank you.
Rick Costello
Thank you.
Operator
Our next question comes on the line of Aaron Hecht with JMP Securities, please proceed with your question.
Aaron Hecht
Hey guys, land sales up this quarter, but the margin on those sales looked like it was pretty low. Doesn’t really align with some of the commentary about the strength and potential earnings that you could see next year, so anything in particular that happened this quarter with those land sales to have a low margin?
Rick Costello
Yeah, I can. We we did an exchange with another public builder. So technically that’s a sale, but it’s, it was really an exchange.
Aaron Hecht
Okay.
Rick Costello
It helped us increase our community account and our longevity in a submarket that we wanted to be in long-term.
Aaron Hecht
Understood and then in terms of capital structure, you did the preferred stock issuance. How did you decide to go with the preferred versus debt or I guess potentially equity given the strength of your balance sheet, the cost that you got on, on the debt that you issued, why, why preferred over more debt?
Jim Brickman
I this is Jim. One of the advantages we saw, well, first of all, we, we expected interest rates to rise and we called that correctly. We wanted to lock in very long term lower cost of equity. And the second thing is that 50 million, we knew we were expanding into some larger, longer term land positions. And we just thought it was a better asset liability matched with, with this type of equity that lowered our cost of capital and really matched some of these longer life communities that we were investing in.
Aaron Hecht
Got it. Appreciate it guys. Thanks.
Rick Costello
Thanks, Aaron.
Operator
And our next question comes from Mike with JP Morgan. Please proceed with your question,
Unidentified Analyst
Right. Just a of modeling clarifications the equity from JVs and the other income continue to go up in terms of equity in, in JVs as well as the other income at $10 million 300,000 actually almost doubled from the 2020. Should we see a similar increasing trend in, in ‘22 for those line items?
Rick Costello
Other income is other income. That’s always going to be unpredictable, but the as you’ll see in the foot of the 10K, the JV income is most substantially our 49.9% investment in challenger homes in Colorado Springs and Denver. And, they’re knocking it out of the park. So their, their business is improving. Like all of our brands are improving.
And then the, the second biggest piece is our income from our mortgage to ventures. So, and that’s directly correlated to our top line and our capture rates. So if you assume that our top line is going up and our capture rates are going to make, remain constant, you would see the, the JV income going, going up with our business.
Unidentified Analyst
Okay. No, that’s helpful. And, and just on the, at the tax rate, you said closer to 24% for the upcoming year for 2022, that that would be a tax rate on the adjusted pretax income attributable to, to green brick before the non-controlling interest deduction. Correct?
Rick Costello
Well, it’s actually after non-controlling, you have to be back it out because we don’t pay tax for our partners. So you take the pre-tax income and you subtract out the a non-controlling interest income, and that, that is your leftover pre-tax income related to, or eligible or attributable to to green brick. So that net number,
Unidentified Analyst
Rick Costello
How I look at it.
Unidentified Analyst
Yeah. That’s that’s maybe I misspoke, but that’s what I meant. So we’re on page. Thank thanks a lot, Rick. Yep.
Rick Costello
You’re on target.
Operator
And we have reached the end of the question and asked the session, and this also concludes today’s conference, and you may disconnect your line at this time. Thank you for your participation.
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