Green Brick Partners, Inc. annual report, FY2021

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Green Brick Partners, Inc. — FY2021 Form 10-K

Business context and reporting period. The filing reports the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter report. Green Brick develops land and builds homes through its brands, primarily in Dallas–Fort Worth, Atlanta, and Florida’s Treasure Coast, with an equity-method investment in a Colorado builder. It owned or controlled 28,621 lots at year-end.

Financial and operating performance

  • Revenue: $1.403 billion, up 43.7% from $976.0 million. Residential units revenue was $1.310 billion, up 40.8%; land and lots revenue was $93.2 million, up 103.3%.
  • Profitability: Gross profit was $362.1 million, versus $234.6 million; consolidated gross margin was approximately 25.8%, versus 24.0%. Net income was $204.4 million, versus $117.8 million. Net income attributable to Green Brick was $190.2 million, or $3.75 basic and $3.72 diluted per share, compared with $113.7 million, or $2.25 and $2.24.
  • Homebuilding metrics: Deliveries rose 28.4% to 2,834; average delivered home price increased 10.1% to $460,700. Net new orders declined 1.2% to 2,851. Year-end backlog increased 26.6% in value to $869.9 million (1,480 homes); the cancellation rate fell to 7.7% from 13.0%.
  • Margins and expenses: Residential units gross margin improved to 26.4% from 24.1%, as selling-price increases outpaced input-cost inflation. SG&A was $134.3 million, or 9.6% of revenue, down from 11.5%.
  • Cash flow: Operating activities used $92.4 million, versus generating $35.1 million in 2020, principally reflecting a $358.3 million inventory increase. Investing activities used $2.0 million. Financing activities provided $154.3 million, including $225.0 million of senior-note proceeds and $47.7 million net proceeds from preferred stock issuance.
  • Liquidity and debt: Unrestricted cash was $78.7 million, versus $19.5 million. The company reported a 27.7% debt-to-total-capitalization ratio and 22.7% net debt ratio. Its debt reconciliation showed $334.9 million total debt and $256.2 million net debt. It had $335.4 million of senior unsecured notes and $2.0 million drawn on its $35 million secured revolver; the $300 million unsecured revolver had no borrowings. Management said cash, available credit capacity, and operating cash flows should cover debt service over the next 12 months.
  • Balance sheet: Total assets were $1.422 billion; inventory was $1.204 billion, up from $844.6 million. Stockholders’ equity attributable to Green Brick was $874.5 million.

Material changes versus 2020

  • Revenue and attributable net income increased substantially, supported by more deliveries and higher average selling prices. The company attributed strong demand partly to low interest rates, first-time buyers, and demand for suburban homes.
  • Gross margin improved despite labor and material cost increases. Management said prices rose faster than input costs during the year.
  • Lot ownership and control nearly doubled, to 28,621 from 14,468, following a 97.8% increase in 2021. Management said these additions were expected to support earnings growth in 2022 and beyond.
  • Operating cash flow reversed to an outflow as inventory investment accelerated. Senior unsecured notes outstanding increased from $111.1 million to $335.4 million, while the unsecured revolver balance fell from $101.0 million to zero.

Outlook, risks, and unusual items

  • The company expected substantially all year-end backlog, subject to normal cancellations, to close during 2022; backlog is not assured revenue and may be canceled.
  • No quantified earnings or revenue guidance is provided. Management described continued land acquisition and growth as strategic priorities and announced expansion of Trophy Signature Homes into Austin, Texas, on February 4, 2022.
  • Management cited shortages, higher prices, and longer lead times for labor, materials, products, and appliances, with potential for construction delays, closing delays, and margin pressure. It also described actively metering sales to better align orders with construction and deliveries.
  • Key risks include housing-market cyclicality, rising mortgage rates and reduced affordability, inflation, supply and subcontractor constraints, concentrated exposure to core markets, land and inventory impairment, weather and regulatory delays, and access to capital. Inventory impairment testing involves significant management estimates; no impairment adjustment was recorded in 2021.
  • In December 2021, Green Brick issued $100 million of 3.25% senior notes due in 2029 and $50 million of 5.75% cumulative perpetual preferred stock, receiving $47.7 million net of issuance costs. The preferred shares rank ahead of common stock for dividends and liquidation. The company does not anticipate common-stock dividends in the foreseeable future.
  • After year-end, the secured revolver maturity was extended to May 1, 2025 and its minimum interest rate reduced from 4.00% to 3.15%. The auditor issued unqualified opinions on the financial statements and internal controls; inventory impairment evaluation was identified as a critical audit matter. Ordinary-course litigation was not expected by management to have a material adverse effect.

Important facts for investors to verify

  1. Whether the enlarged lot position converts into planned home deliveries and earnings without excessive carrying costs or weakening demand.
  2. Whether home prices and gross margins remain resilient as labor, materials, and other construction costs change.
  3. Whether backlog closes as expected, including cancellation trends and buyers’ ability to obtain mortgage financing.
  4. Actual borrowing capacity under revolver borrowing-base and covenant terms, and the timing and cost of scheduled note repayments.
  5. Inventory valuation assumptions and any changes in community-level sales pace, costs, or market conditions that could trigger impairment.