M/I Homes, Inc. (MHO) Q4 2020 Earnings Call Transcript

Good day and welcome to the M/I Homes Fourth Quarter Earnings Release Conference Call. All participants will be in a listen-only mode. After today's presentation there will be an opportunity to ask questions. Please also note, this event is being recorded. I would now like to turn the conference over to Phil Creek. Please go ahead.

Thanks for joining us today. On the call is Bob Schottenstein, our CEO and President; Tom Mason, EVP; Derek Klutch, President of our Mortgage Company; Ann Marie Hunker, VP, Corporate Controller; and Kevin Hake, Senior VP. First, to address Regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call, because we are prohibited from discussing significant non-public items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today’s press release also applies to any comments made during this call, including comments related to COVID-19. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call. Also during this call, we disclosed certain non-GAAP financial measures. A presentation of the most directly comparable financial measure calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP financial measure and the GAAP measure was included in our earnings release issued earlier today that is available on our website. With that, I will turn the call over to Bob.

Thanks, Phil. Good afternoon, and thank you for joining our call. We are extremely pleased with our fourth quarter and full year results highlighted by significant growth and record-setting financial achievements across the board. By every measure, 2020 was an outstanding year for M/I Homes. We nearly doubled our net income, increasing our bottom line by 88% over 2019, resulting in a very strong return on equity of 22%. A number of factors contributed to our strong returns. We achieved record revenue of $3 billion, an increase of 22% over 2019. Record closings of 7,709 homes, 22% better than a year ago; very strong gross margins that reached 23% in the fourth quarter and 22.2% for the full year, a 260 basis point improvement over 2019. Our full year pre-tax income percentage improved by 360 basis points to 10.2%. These results continue the trend of strong growth in revenues and earnings that we've achieved since coming out of the recession. Since 2012, our revenues have grown at a compounded annual rate of 19%, and our pre-tax income has grown at an even more impressive compound annual rate of 49%. Additionally, the strong performance of our mortgage and title operations, as well as improved SG&A operating leverage, also contributed to our record earnings. We had an outstanding sales year. New contracts for the year improved by 39% to a record 9,427 homes sold. Fourth quarter sales continued the strong pace that began in late April. During the quarter, we sold 2,128 homes, a fourth quarter record and 27% better than a year ago. Overall, housing demand remains very strong, driven by a number of factors, including historically low mortgage rates, low inventory levels, an increasing number of millennials joining the ranks of homeownership, and a shift in buyer preference away from renting in more densely populated areas in favor of single-family homes. In addition, a number of other factors helped drive our strong sales performance. Among them are the quality of our locations, our ability to execute on many fronts, including successfully managing a rapidly increasing number of online leads, and the continued success and growth of our Smart Series line of homes. With respect to our Smart Series, this is our most affordably priced product offering. At the end of 2020, our Smart Series was offered in all 15 of our housing markets, comprised of 62 of our total communities, or 31% of total and accounted for more than 35% of total company sales. Our Smart Series communities continued to provide a better monthly sales pace, better margins, faster cycle time, and as a result, better overall returns. We fully expect the sale of our Smart Series homes to grow further within our markets and likely approach 40% or more of total M/I sales in the coming year. In terms of demand and traffic, as we begin 2021, housing conditions continue to be very robust throughout all 15 of our markets. Our year-end backlog increased 64% in units to 4,389 homes, and the dollar value increased by 74% to an all-time company record of $1.8 billion. Now, I will provide some additional comments on our markets, which we divide into two regions. The northern region, which consists of Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis, and Detroit, and the southern region, which consists of the balance of our markets: Charlotte, Raleigh, Orlando, Tampa, Sarasota, Houston, Dallas, Austin, and San Antonio. We experienced strong performance in the fourth quarter across both the northern and southern regions, with new contracts in the southern region increasing by 31% for the quarter and 21% in the northern region. Our closings or deliveries increased 16% over last year's fourth quarter in the southern region and increased 19% over last year's fourth quarter in the northern region. Our owned and controlled lot position in the southern region increased by 23% compared to a year ago and increased by 12% in the northern region compared to last year. While we are selling through communities somewhat faster than expected, it's important to underscore that we are very well positioned to open new communities in 2021 and well into 2022. 37% of our owned and controlled lots are in the northern region, with the balance 63% in the southern region. We have a very strong land position. Company-wide, we own and control approximately 40,000 lots, up 19% from last year, which equates to about a four to five years supply. Perhaps more importantly, over half of the lots that we own and control, or about 57%, are controlled under option contracts and not yet on our books. This gives us significant competitive flexibility to react to changes in demand or individual market conditions. We had 112 communities in the southern region at the end of the quarter, down from 129 a year ago. And we had 90 communities in the northern region at the end of the quarter, down from 96 a year ago. As I mentioned, the decline in community count is partially a result of our accelerated sales pace. But it's also important to recognize that nearly a third of our communities are now offering our Smart Series homes, which not only often have more lots in total, but generally produce a greater sales pace. Before turning the call over to Phil, let me just make a few concluding comments. First, our financial condition is very strong, with $1.3 billion of equity at December 31 and a book value of $44 per share. We ended 2020 with a cash balance of $261 million and zero borrowings under our $500 million unsecured revolving credit facility. This resulted in a 34% debt to capitalization ratio, down from 38% a year ago, and a net debt to capitalization ratio of 23%. Second, 2020 was a year of unprecedented challenges and severe hardship caused by the global pandemic. As an industry, we have been very fortunate that our business and the business of our competitors have held up exceptionally well. As it relates to M/I Homes, I could not be more proud of our company as we came together to safely and carefully provide quality homes to so many. Finally, as we move forward into 2021, we are very optimistic about our business. Our backlog is strong. Our sales pace has been terrific. We have an excellent land position. And housing conditions, including both demand and traffic, continue to be very good. We have a lot of operating momentum and are positioned for another strong year in 2021.

Thanks Bob. As far as financial results, new contracts for 2020 increased 39% to 9,427, an all-time record compared to 6,773 for last year. Our new contracts were up 14% in October, up 36% in November, and up 35% in December for a 27% improvement in the quarter compared to last year's fourth quarter. Our sales pace was 3.5 in the fourth quarter compared to 2.5 in last year's fourth quarter. And our cancellation rate for this year's fourth quarter was 10%. We are also pleased to say that our buyer demand continued to be very strong in January. As to our buyer profile, about 53% of our fourth-quarter sales were to first-time buyers compared to 49% a year ago. In addition, 43% of our fourth-quarter sales were inventory homes compared to 44% in last year's fourth quarter. Our community count was 202 at the end of the year compared to 225 at the end of 2019. The breakdown by region is 90 in the northern region and 112 in the southern region. During the quarter, we opened 18 new communities while closing 23, and for the year we opened 69 new communities and closed 92. We delivered a record 2,242 homes in the fourth quarter, delivering 50% of our backlog compared to 66% a year ago. There are a couple of factors that led to this decline in backlog conversion rates compared to last year. First, our extremely strong sales and significantly higher backlog levels in the back half of 2020 led to longer times for getting homes started. Secondly, we had been selling spec homes nearly as fast as we can get them started, which leads to lower spec home inventories, especially those which are closer to completion and could contribute to closings within 90 days. Revenue increased 22% in the fourth quarter of this year, reaching a fourth-quarter record of $906 million, and our average closing price for the fourth quarter was $389,000, a 3% increase when compared to last year's fourth quarter average closing price of $377,000. Our backlog average sale price is $419,000, up 6% from a year ago, and our backlog average sale price of our Smart Series is $322,000. We recorded $8.4 million of impairment charges in the fourth quarter, compared to $5 million in last year's fourth quarter. Our operating gross margins excluding impairments for the fourth quarter were 24.1, up 420 basis points year-over-year and up 120 basis points from 2020's third quarter. Our higher margins in our Texas operations were a big driver of our margin improvement. For the full year of 2020, our operating gross margin was 22.5 versus last year's 19.8. Our construction costs increased by about 3% in the fourth quarter, with the biggest impact from lumber. Our fourth-quarter and full-year SG&A expenses were 11.7% of revenue, a 40 basis point improvement compared to 2019, and 2020 is our third consecutive year of improved SG&A efficiency. Interest expense decreased $3.5 million for the quarter compared to the same period last year and decreased $11.7 million for the 12 months of this year. The decrease for the year is due to lower outstanding borrowings as well as a lower weighted average borrowing rate, and interest incurred for the quarter was $10 million compared to $12.5 million a year ago. For the year, interest incurred was $40 million versus $49 million a year ago. We are pleased with our improved returns for the year. Our pre-tax income was 10.2% versus 6.6% last year, and our return on equity was 22% versus 14% a year ago. During the fourth quarter, we generated $127 million of EBITDA compared to $75 million in last year's fourth quarter. For the full year 2020, we generated $383 million of EBITDA, up 60% over last year. Despite a significant amount of reinvestment into our business, we generated $168 million of positive cash flow from operations in 2020, compared to $66 million last year. We have $21 million in capitalized interest on our balance sheet. This is about 1% of our total assets. Our effective tax rate was 21% in this year's fourth quarter compared to 19% in last year's fourth quarter. Our annual effective rate this year was 22.6 compared to 23.2 for 2019. Our fourth-quarter and annual tax rate benefited from energy tax credits from prior years. We expect 2021's effective tax rate to be around 24%. Our earnings per diluted share for the quarter increased 88% to $2.71 per share from $1.44 per share in last year's fourth quarter, and increased 83% for the year to $8.23 from $4.48 per share last year. Now Derek Klutch will address our mortgage company results.

Thanks, Phil. Our mortgage and title operations achieved record fourth quarter results in 2020, including record pre-tax income of $14.8 million, up $8.4 million, or 131% over 2019 and record revenue of $25.6 million, which was up 62% over last year, due to a higher volume of loans closed and sold along with significantly higher pricing margins. We also set a record for the number of loans originated. For the year, pre-tax income was $50.5 million and revenue was $87 million, both all-time records. The loan to value on our first mortgages for the fourth quarter was 83% in 2020, up from 2019's fourth quarter of 82%. 74% of the loans closed in the fourth quarter were conventional and 26% were FHA or VA compared to 76% and 24%, respectively, for 2019's same period. Our average mortgage amount increased to $319,000 in 2020's fourth quarter compared to $303,000 in 2019. The number of loans originated increased 25% from 1,398 to an all-time quarterly record of 1,746, and the volume of loans sold increased by 15%. Our borrower profile remains solid, with an average down payment of over 15%. For the quarter, the average borrower credit score on mortgages originated was 745, a slight decline from 747 last quarter. Our mortgage operation captured over 85% of our business in the fourth quarter and increased from 84% one year ago. We maintained two separate mortgage warehouse facilities that provide us with funding for our mortgage originations prior to sale to investors. At December 31, we had a total of $226 million outstanding under these facilities, which expire in May and October this year. Due to our typical high volume of fourth quarter closings, we include a seasonal increase in our warehouse facilities, which provides temporary availability of $275 million through February 4, 2021, after which time total availability returns to $215 million. Both facilities are typical 364-day mortgage warehouse lines that we extend annually. Now I'll turn the call back over to Phil.

Thanks, Derek. As far as the balance sheet, total homebuilding inventory at 12/31/20 was $1.9 billion, an increase of $147 million over December '19 levels. During 2020, we spent $415 million on land purchases and $318 million on land development for total land spending of $733 million, which was up from $600 million in 2019. In 2020, we purchased about 11,500 lots, of which 77% were raw with about 150 average lots per community. In 2019, we purchased about 7,500 lots, of which 63% were raw with about 100 average lots per community. In general, most of our Smart Series communities are raw land deals and have above average company pace and margin. We have a strong land position at 12/31/20, controlling almost 40,000 lots, up 19% from a year ago, of which 43% are owned. Based on 2020's record closings, this is about a five-year supply of inventory with just over two years owned. At the end of the year, we had 225 completed inventory homes, about one per community, and 1,131 total inventory. At 12/31/19, we had 668 completed inventory homes and 1,459 total inventory homes. This completes our presentation. We will now open the call for any questions or comments.

We will now begin the question-and-answer session. The first question comes from Alan Ratner with Zelman and Associates.

Congrats on the great quarter and great year. Good to hear you guys are doing well. So I guess first to start off with the gross margin that was the area at least relative to our expectations that really was blow away, much, much better than expected. So we'd love to get a little bit more insight into what drove the strength of this quarter. I mean, obviously, it's a strong market, but very significant sequential step up. So anything we need to be cognizant of from a mix perspective or timing related to cost inflation, things like that, or is this a pretty good indicator of where your margins are in backlog right now?

I think that there are a couple of things, and maybe Phil wants to add to it. One is clearly as Smart Series sales and then closings become a greater percentage of the mix. That will help bring margins up, because in almost each case, our Smart Series communities have slightly better gross margins. That's number one. Number two, we have made tremendous progress in strengthening the quality of our operation and the size of our operations in Texas. That scale and improvement has positively impacted virtually every one of our financial metrics, including margins. The only other thing I'd say, maybe Phil wants to add to that. The conditions as they exist today present an opportunity for margins to go up. I don't know. I feel like this is a pretty good spot, and notwithstanding the cost pressures, I think the current levels of demand should give us some ability to offset most of those and keep the margins about where they are. We don't give guidance on it, but we have historically said things like we think homebuilding is a 20% to 21% business. Right now it's a 22% to 23% plus percent business. I think that's about where it is today. Phil, do you have anything to add?

The only other thing is that, as far as store count, we are selling out of communities faster than we thought. We are managing our sales process very, very carefully. And as you have fewer sales opportunities, in most situations, there is an opportunity to raise prices. So execution, we always talk about, really, really matters. Hopefully, we're executing at a pretty high level as we have fewer sales opportunities in certain communities.

I appreciate that. I mean, both of your perspectives there until you kind of touched on my second question there with the community count. First off, I appreciate the insight you gave as far as the size of the communities because I think that's something that gets lost a lot of times when we're just looking at absolute community count is that the composition of these communities can differ quite significantly. So, on one hand, it sounds like you're well positioned for continued growth based on the lots you have on the ground, even though community counts are under pressure. But Phil, you kind of touched on the idea that you don't want that to gap out too much. So you're probably at a point where maybe in some markets, in some communities, you actually are limiting the pace of sale. So I'm curious as I look at your lot count now, is there a possibility to kind of stem the tide of these declines in community count and actually see some growth there over the course of 2021? Or do you think that's a number that's going to remain under pressure for the next few quarters just based on what's in the pipeline, delays on development, and dealing with municipalities, etc.?

I'm going to try to answer that question and while others can chime in, I want to underscore something about the first comment you made, Alan. We're not apologizing for our community count; we have sold out a lot of communities faster. Frankly, I think the whole industry is dealing with a little bit of delays in new communities coming on. Some of those delays are a direct result of staffing issues that have been impacted by COVID. And that's not an excuse; that's just the situation we're dealing with. The conditions in general for us have been phenomenal, so you can't complain about anything. But having said all that, selling out faster while new ones are coming on slower, not all communities—this was your first point—not all communities are equal. With Smart Series accounting for nearly a third of our communities, and that will grow, and with a pace in Smart Series communities, often being 10%–15%–20% larger and the pace being 10%–15%–20% per month higher, with fewer communities, you can sell more houses. And you know that arithmetic just translates that way, and that's what we've seen. Phil, if you want to talk about the outlook for the balance of the year, I mentioned in my comments that we fully expect down the road to continue growing our company; we're not satisfied remaining flat. We want to grow units, we want to grow closings. In order to do that, we will also be growing community count, this year and next. Exactly when they come on within the quarters is a little bit less certain, but Phil?

As I talked about, we opened 69 new stores in 2020. We closed out of more stores than we thought we would, therefore we ended up with a down community count. We do plan on opening more stores this year than last year. As Bob said, due to more of the Smart Series being raw land, the store account is more skewed toward the second half of the year versus the first half. It's just so hard to predict closeouts; we're trying to manage that process as best we can from a pricing standpoint, from a construction standpoint, and so forth. But our plan is definitely to continue our growth. We talked about the growth we've achieved the last ten years. We obviously have a record-high backlog right now. We feel very, very good about our land position. But community count for us will be challenged, especially in the first part of the year. But again, we plan to continue our growth.

The next question comes from Art Winston with Pilot Advisors. Please go ahead.

Thank you, guys for the great results. I have two questions. Given that you sort of stopped or slowed down buying the land in the first couple months of the year, and then you end up spending 700 plus million dollars. I was wondering if you think that you and the competitors wanted to maybe buy the same land if you were forced to pay up, and the potential for the return on investment from the land you bought this year could be less profitable than purchases historically?

No, I don't know. First of all, thank you for the opening comment. When we delayed land, when we paused—I think we talked about this exact point with you during the last conference call last quarter—when we paused almost every one of our land transactions towards the end of March and into early April of 2020, when the pandemic really became front and center, we really didn't cancel maybe one deal. 99% of our transactions remained in play. We bought time, but we did not sacrifice the transactions; we didn't walk away from them, we didn't have to buy them back at a higher price, we didn't lose them to competitors. We tried to buy 30, 60, 90 days and in some cases got that in some cases didn't, just to give us time to see what the hell was going to be happening within—how the pandemic was going to affect us. I don't think that'll have any impact going forward on returns. But I will say this: the land market is extremely competitive. We are all about trying to find the best locations we possibly can. We focus very heavily on A locations, it's never been our style to go out into the secondary and tertiary markets to try to buy cheap, big parcels and see how that works. That's not our style and isn't today. We talk about the 40,000 lots that we own and control, equating roughly to four to five years supply. Less than half of it's on our books, 55% to 60% is controlled by options. Our land position is as strong as it's ever been today.

My second question is you alluded to Texas, maybe two or three times. If we forgot about Texas, I assume that the results for the remainder of the company are still quite excellent, even excluding Texas?

Yes. I think every one of our divisions had double-digit volume growth in 2020, which contributed to the 40% increase company-wide in sales. We had an exceptional year as I sort of go around the horn in Orlando, Tampa, in Minneapolis, in Columbus, in Indianapolis; certainly Dallas, Austin, those—Charlotte, those markets stand particularly tall as I sort of scan our 15 markets.

Good. Just one more thing that I didn't understand. I understand that you can get more of the smart homes on an acre than the other homes. But are you buying bigger parcels of land or just putting more homes on the same size parcels?

A little bit of both. It's a little bit of both. I mean, it's on average, most of our Smart Series communities are raw transactions as opposed to finished lot takedowns from third parties. They tend to be on average, larger communities. My guess is it's both: acreage it’s certainly bigger in lots.

The next question comes from Alex Barron with Housing Research Center. Please go ahead.

Yes, I wanted to focus on the sales piece this quarter versus last quarter. So last quarter you guys got 2,949 homes sold. This quarter 2,100. I understand some of that is because the community count is down. You think you mentioned you're managing the sales pace some? I'm just trying to understand, are you guys limiting the number of lot releases per month? Or are you guys just managing it by raising prices or a little bit of both?

A little bit of both. I mean, it does us no good to first of all, let even back up a little bit. It goes against your nature to ever want to quote manage sales. No one knows what's going to happen in an hour or tomorrow. But when the demand is so great in so many of our communities that our ability to deliver the homes on time is at risk, where we can protect our pricing, because we're having to build and deliver them so far out, when that becomes at risk, it's in our best interest to control the number of sales or home sites that we offer for sale in a particular community. Some of its with pushing price, but some of it's just us recognizing that we can only deliver a quality home with so many quality homes six, seven months out in a particular community per month. When we try to do many more than that, we run the risk of margin erosion or the inability to protect pricing.

And Alex, you also get into when the communities are opening. We talked about opening 69 stores last year. We opened 12 stores in the third quarter and 18 in the fourth. So we try to make sure we only get one chance to open and open the right way. We definitely manage how many houses, how many lots we released initially; make sure we understand where the demand is coming from, increase prices if we can, that impacts it also. But I think one thing in the last six or so months has shown us is there's not a lot of seasonality; demand has been very, very strong. And we try to take advantage of that without getting out too far ahead of ourselves, especially from a cost standpoint and also from a construction standpoint.

Yes, understood. That makes sense. Now, you guys mentioned that you want to continue to grow. So what can you do to expand your production capacity? Is it to hire more people, both field people, sales people, other than open more communities, or expand somehow your labor?

Yes. It's frankly, the same things. I don't mean to be overly simplistic; I hope this comes out the right way. It's the same things we've been doing for the last seven years. We've more than doubled our business since coming out of the recession, and pretty much all of it's been organic with a few minor acquisitions when we've been able to. Our income has grown by an even greater percentage. So it's going to come from additional communities, growing community count, trying to continue to push more pace per community. Certainly, we need more field personnel to be able to manage the construction. It's all of those things. And that's what we've been doing. And that's what we're going to continue to do.

And you adjust your staffing for those types of things as far as not only having land acquisition people, but having land development people where you need them. Also having, perhaps different layers of construction. It's different from a construction standpoint when we were doing 250 houses in Dallas versus 500 versus 750. So as we get scale in these markets, these also help us with subcontractors and suppliers. The Smart Series is a different issue. As far as those customers in general, don't go to design centers; the product has a few less selections, making it easier to get the sale process and the start process going. So it's just about execution. We think we have a really good team on the field, and we are very, very happy with our land position. We think we are pretty much taken care of for the next two years as far as we know what we mean we pretty much have it. When you look after that, assuming things don't change, we're in good shape there to execute on that. So when you look at our 10 years of growth and where we are today, we still think we have a lot of headroom in our existing markets. Plus we’re always looking at other opportunities also.

And without getting into too much detail, when I think back maybe six, seven years ago, and I think about things like online sales management, we have three times as many people working on our company today doing that as we did then. When I look at our marketing focus, it's completely turned upside down from what it was back then; it's all about online today. I suspect most of our competitors are similarly set up. So it's also Phil talks about execution; it's the way we approach the business, which is all about growth, but all about trying to focus on what it takes to capture that growth.

Yes, I know you guys have done a good job and obviously the opportunity is there. One more question if I could, do you guys see the potential to see some operating leverage to get a lower SG&A ratio this year? Or is the growth not going to allow that?

I hope so. I think so. Look, it's over the last three or four years. My guess is, on average, we've improved it somewhere between 30 and 60 basis points a year, something like that. I'd like to think that if we can continue to grow the top line 10% to 20%, we ought to continue to see that. I mean, we should get it. I'm looking around the room that I'm sitting in now. Even though there's hardly anybody in it because we're trying to practice social distancing, if our business doubled, I don't think there'd be twice as many people in this room. So I mean, all kidding aside, yes, I think we can get more scale.

I mean, it's really important to us to improve our returns. We've worked on that very hard in the last few years. The revenue base matters. The GP matters, especially when you're a $3 billion-plus revenue company; the SG&A, as Bob talked about, 10 basis points or 20 basis points, we have gotten leverage over the last three years. The interest line, interesting curve basically was flat in the last couple of years. We're trying to be more efficient in all phases of our operation. We want to continue growing, but we want to continue making more money and improving our returns. That's very important to us also.

The next question comes from Jay McCanless with Wedbush.

So the expense question was actually what I was going to ask about too, on the G&A line. It looks like in the third quarter and fourth quarter of this year, there were some pretty meaningful increases in money spent on the G&A line. Could you talk about what that money is going to? And is it something that you all are going to be able to leverage as we move into 2021? And also, are there any one-time items in there that are worth calling out?

Jay, it was a couple of things. We are glad we got SG&A leverage for the year. We did have in the third quarter and the fourth quarter, especially more incentive expenses as we had better results. We had more bonuses and those types of things. We also had some increased charitable contributions, which we thought, especially in these times, was very important to do. Overall, we did still get leveraged, and we hope to continue getting leverage in that. We were very pleased with our 10% income and 20% plus ROE for the year.

Yes, absolutely. I just didn't know if that was, if there was a buildup there to help support potential community growth, like you all talk about for the back half of 2021.

There's some of that, but hopefully we're going to continue having that because we definitely plan on opening more stores as we go forward. But that's just a general operating cost as we continue to grow.

And then maybe asking the community count question a bit differently. I mean, this year, for the full year, it looks like the absorption was 3.9 orders per month. If you think about the land that you've got coming on, at least it's in front of me for 2021. Do you feel like the absorption pace is going to be that level or something higher or lower, either because you have less specs, or you're going to get better sell-through from Smart Series?

Now if someone really knew the answer to that question. Well, look, if things stay like they are, you bet the absorption pace will stay where it is. I don't think it will get worse; it may even get better because we have a lot planned new Smart communities coming on. As we begin this year, the demand and traffic that we're seeing is very strong. I think it's likely to remain that way, as long as interest rates stay a lot closer to 3% than let's say 4%, and right now they're below 3%. By all indications, given so many things that we are reading here, I think they're going to stay about where they are for a considerable length of time. The homeownership rate amongst the millennials has been well documented; that's beginning to tick up by eights, quarters, and halves. That represents an enormous, enormous potential tailwind for all kinds of housing used homes, but also new homes. We're starting to see our fair share of that.

So a way to characterize that this is a year where we need to focus on what it makes M/I’s sales space looks like and judging you guys on that, rather than just where the gross community or the net community count falls out. Is that do you think that's a fair way to look at this year, think about this year and given just the challenges that are out there from the land development side?

Jay, you always want to get all the metrics going in the right way. Community count is important; sales pace is important; margins are important. There's all those things you watch every day, in a lot of different ways. I mean, we plan on opening more stores this year than we did last year, the hard thing to predict is just how many you sell out of, but again, if we're selling out faster than we thought like we did last year, we got higher prices and higher margins. We're not out there with our hair on fire buying B&C locations just to get more stores, because we have a really strong land position, and the stores are coming. But more of the stores coming are raw land that we got to develop, and that takes a little more time. So it's very, very hard to give a community count prediction. It is important to us, but more important than community count are our closings and sales, so we're going to do all we can. We should expect to close more houses this year than last year, because we have a lot higher backlog. We talked about January sales being strong and market conditions remaining very strong. There will be pressure on community count, especially in the first half of the year or so. But we are opening more stores in the second half and we're going to do all we can to get stores opened as fast as we can in the right way. We think we're positioned to have a really good year and we'll do all we can to improve our sales pace and our sales over last year.

Yes, absolutely. And then the other question, I guess, are the municipal headwinds that you talked about in terms of getting the flats and inspections, etc. Are those worse now than they were three months ago? Six months ago? Have they started to get better? Could you just talk about where you are in that right now?

I'm not really sure. I haven't heard that they're worse, but I also haven't heard that they're better. So I'm going to guess that they're probably about the same. It's also market-specific. Some places are worse than others, but it's manageable. You're not going to find me complaining about anything. Look, I wish there were greater density that will allow for more affordable housing throughout our whole country. I think that's a big issue. But you're not going to hear me complain about anything. I think these are about the best housing conditions we've ever seen. You heard Derek Klutch talk about our mortgage and title operation. Our average buyers are putting down 15% and have a credit score north of 740. This is nothing like when we had strong demand back in the early 2000s, when there was no credit and many speculators and flippers buying. This is real buyers with phenomenal credit; they want to live in a single family home. These are great, great conditions. If it takes a little longer for new communities to come along, then so be it. I know we're going to get our fair share of our growth. We've had, I think, we're really proud of the growth we've had over the last seven, eight years, and we expect to be able to continue that as long as the conditions will allow.

And it was definitely a phenomenal year. Thank you for taking my questions.

We will now begin the question-and-answer session. The next question is a follow-up from Art Winston with Pilot Advisors.

Bob and Phil, I realized that you're not fans of stock repurchase, but I was curious if the Board ever has contemplated a cash dividend to its shareholders.

I didn't quite get that question. I didn't hear about repurchase. If you look at the stock price, I mean, we're very pleased there was a significant improvement in book value last year, up to $44; very strong earnings, 20% plus in net worth. We look at the business right now being very strong. We talked about all the land we bought in 2020. We do have a significant amount of cash earmarked for land purchases also this year. We do watch the stock price for sure. Glad it is...

And my question, no, I said, you guys are not fans of stock repurchase. But what about, has the Board ever considered a cash dividend to the shareholders paying a dividend?

Years ago, we had one.

I was going to get to that. We have had that years ago. We have the Board; we talked about different things, but I would not say that anything that's under a lot of consideration right now.

This concludes our question-and-answer session. I would now like to turn the conference back over to our speakers for any closing remarks.

Thank you very much for joining us. Looking forward to talking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.