Good morning and welcome to Taylor Morrison's Fourth Quarter 2024 Earnings Conference Call. Currently, all participants are on a listen-only mode. Later, we will conduct question-and-answer session and the instructions will be given at that time. As a reminder, this conference call is being recorded and I'd like to introduce your host, Mackenzie Aaron, 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, Cheryl Palmer.

Thank you, Mackenzie, and good morning, everyone. Joining me today is Kurt Van Hefty, our Chief Financial Officer, and Eric Kuser, our Chief Corporate Operations Officer. I will share an update on the market and our strategic priorities, while Eric will discuss our land portfolio and thoughts on the retail market, and Kurt 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 three 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 stable sequentially and up year over year in contrast to significant compression seen across our industry. As I have highlighted on recent calls, our margins have remained in a tight range over the last two years despite the volatile rate environment. I attribute our positive results to the quality locations of our communities which are concentrated in attractive core sub markets with minimal exposure to further out tertiary locations. As Eric will discuss, tertiary markets are facing the most pricing pressure from rising inventory, as well as greater sensitivity to affordability constraints among first-time buyers attracted to such markets. Alternatively, our prime location strategy continues to benefit from attractive underlying fundamentals by serving well-qualified homebuyers in our entry-level move-up and resort lifestyle segments. Across our portfolio, we further diversify by offering both to-be-built and spec homes, aimed at meeting the needs and preferences of our customers. In addition to aiding our sales opportunities, this balanced mix further insulates our margins from broader market pressures as to-be-built homes generate superior gross margins. As we have discussed in the past, a high percentage of our resort lifestyle buyers prefer to select their own home site, floor plan, and elevation, and generally spend three times more in lot and option premiums as compared to each of our other consumer groups. They also require less incentives than entry-level heavy spec homes. This makes our fourth quarter margin performance all the more notable when considering that 54% of the quarter's closings came from specs, including 21% that were sold and closed during the quarter, a higher than normal contribution that helped drive the upside to our closing volume. As we look ahead, we expect this balanced approach and long-standing emphasis on quality locations to serve us well as we balance pace and price in each community to maximize our returns. With the spring selling season officially kicking off this week following Sunday's Super Bowl, early indicators are encouraging. Appreciating that we have a difficult year-over-year comparison this quarter, given the exceptionally strong sales recorded in the first quarter of 2024, we are pleased to see pre-qualifications growing by week and web traffic to taylormorrison.com almost up 40% from a year ago. This strong lift in website visitors is a direct correlation to our involvement in ABC's reboot of Extreme Makeover Home Edition, where we serve as the season's official home builder, providing beautiful, functional homes to deserving families. In the fourth quarter and continuing into 2025, we're seeing healthy momentum in online home reservations with a 53% conversion to sale and a declining rate of participation with real estate agents. Most notably, among customers using our online scheduling tool, we saw a sharp decline in the share of sales with a real estate agent to 67% last quarter from 80% a year ago. This shift is likely due to a number of factors, including the recent NAR rulings, the pricing transparency delivered by our digital experience, and our longstanding reputation as America's most trusted home builder, 10 years running. Alongside the year's early momentum, we are strategically managing our pricing and incentives, including the rollout of a national base price increase in early January. As needed, we continue to prioritize customizable finance incentives to address each customer's unique circumstances. By working closely with our customers to personalize the most effective use of sales tools, we better manage our overall incentive cost while improving our customers' purchasing power. This customer-by-customer strategy has allowed us to maintain a relatively low utilization of mortgage-forward commitments tied to below market interest rates, with just 38% of our fourth quarter closings using these most costly incentive structures. Similar to the last many quarters, about half of the customers using these forward commitments are first-time homebuyers. By consumer group, our fourth quarter orders consisted of 32% entry level, 48% move-up, and 20% resort lifestyle. On a year-over-year basis, orders were strongest in our move-up segment with 27% growth, while our entry-level sales were up 5% and resort lifestyle declined 9%, in part due to the hurricane impact in Florida, where this segment is heaviest, as well as the timing of opening and closeouts of Esplanade communities at year-end. in addition florida has been faced with some of the highest levels of rising inventory but as eric will elaborate on we have found that most of this supply is not competitive to our communities and we are encouraged that florida has started to show some positive signs year to date overall i would characterize buyer demand across all of our buyer profiles as healthy albeit with varying needs of assistance to overcome affordability challenges with the most pressure at the entry level. Recognizing that there are more unknowns this year than typical given the new administration, we continue to be grounded in a positive view on the need for new construction that meets the needs and budgets of our targeted consumer groups. While interest rates are unlikely to provide near-term relief to affordability constraints, we believe our suite of incentive tools and broad product offerings are appropriately aligned to achieve our targeted sales goals. We will meet the market as needed as we look to maintain an annualized sales pace in the low 3 range while also generating healthy gross margins in the low to mid 20% range. As Kurt will discuss in greater detail, our initial guidance for the year calls for 13,500 to 14,000 home closings at a gross margin between 23 to 24 percent and an SG&A ratio in the mid-9 percent range. Let me just end by saying that as an organization with significant tenure across our leadership and operating teams, we are well accustomed to facing uncertainty and market disruptions head-on. Our teams are nimble and have the flexibility to adjust our starts, product offerings, and pricing structures as needed to minimize risk and maximize long-term profitability. Beyond the near-term potential headwinds, we remain confident in our outlook and look forward to providing more insights into our strengthened organizational capabilities at our upcoming Investor Day. We hope all of you will join us on March 6th at 12 p.m. Eastern time for the webcast presentations, which will highlight our multi-year growth trajectory and the many ways in which we have set up Taylor Morrison to succeed, regardless of the market backdrop. For those of you able to attend in person, we look forward to seeing you soon. With that, let me now turn the call over to Eric.

Thanks, Cheryl, and good morning. Beginning with our land portfolio, our owned and controlled lot inventory was 86,153 home building lots at quarter end. Based on trailing 12-month closings, this represented 6.2.8 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 home building 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 home building land investment to be approximately with a similar split between acquisition and development investment will be dependent on market opportunities and our increasing use of off balance sheet financing tools to support our use of such returns on our invested capital and we are well on our way to achieving our near-term goal of controlling at least 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 to 345, and at least 355 prices have increased by approximately 25%. Turning to our Yardley bill-to-rent business, as expected, we sold two wholly-owned assets during the quarter for a valuation that yielded a load of mid-final. With 11 communities currently leasing across six markets, we are targeting five in 2025 communities underway. We expect to ramp the level of annual dispositions until reaching a relatively steady state in the next three years. I look forward to providing a greater detail on this evolving business at next month's end. Another topic we will leave is a defining characteristic. The importance of this yeast in most markets. We are closely monitoring the impact of rising supply on our portfolio, given the 30% increase of resale months of supply across our MSA footprint over the last year. Despite these headline numbers, it is worth noting several meaningful market nuances. For one, there are still markets with very low supply, such as the Bay Area, with less than two months of inventory. And after analyzing a number of our MSAs, including those in Florida and Texas where attention is most focused, and reviewing the submarkets in which we operate compared to those in which we do not, we overwhelmingly found lower months of supply, reflecting our favorable strategic positioning. As you will recall, this recent analysis follows our previous community review, which highlighted that approximately 17% of resale homes would be deemed competitive to our new home offerings after considering vintage, would be even lower after further filtering for community types in age-targeted communities, such as amenities, concierge services, and single-level products to meet their needs. As we look to investors, we will remain mindful of these dynamics as we contemplate investment decisions while continuing to emphasize poor locations.

Adjusted net income increased 12 percent. Your average closing price is roughly flat from a year of 2.2 billion dollars per month from 2,912 a year ago. Inventory is well-positioned to meet expected consumer demand, as evidenced by our team. Record number of interest. We will be mindful of our inventory levels to pivot. We ended the quarter in 37, whereas our teams achieved the savings of 2,900 homes in the We expect the average closing price to be in the range of $590,000 to $600,000 each quarter and for the full year. The fourth quarter was 25% in the third quarter, but up from 24.1% in the fourth quarter of 2023. We understand there is heightened focus on margin outlooks this year, given the many cross-currents at play. On the one hand, our beginning backlog of over 4,000% includes a greater number in recent years. And as you've heard today, we expect our vote in 2020 and believe our range for the year appropriately accounts for the likely outcomes we could face understanding a problem in recent years should they arrive. We continue to expect capitalized interest increase in ending community count reflecting this remained well above our pre- in the low to mid to and below industry average continue to benefit from a 30 basis point mid 9% range from 9.9% in 2024 up from $43 million and 46% a year ago We received a capture rate of 89%, reflecting the success of our incentive strategy with our home building teams of $183,000, ultimately $1.4 billion. This included 487 months at year end. It is not until 2020 financial flexibility, 4 million shares of our common stock outstanding for $90 million. At year-end, 2015, utilizing both programs, $150 million, approximately $102 million for the full year, including $104 million to call back over to Cheryl.

Thank you, Kurt. To wrap up, before we turn the page on 2024, I'd like to take a moment to reflect on this year's achievement of 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's following years of strategic growth and positioning. These are multi-year 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 percent, well ahead of the 4 percent increase contemplated in our initial guidance heading into the year and our 10% average growth target. Along with the stronger volume, our adjusted gross margin of 24.5% was at 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 three 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 outsize 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 Life Story 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 have to open the lines for Q&A. If you'd like to raise a question, please press star followed by one on your telephone keypad now, and to remove yourself that line of questioning will be star followed by two. Our first question comes from Matthew Booley of Barclays. Matthew, your line is now open.

Good morning. You have Elizabeth Langen on for a map 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% 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 Kurt. 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 Kurt, would you say it's fair, you know, 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's 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 um it's very interesting um up until a couple of weeks ago i would say that the cost environment was probably pretty stable as well as the the overall supply chain but like you we've been following the news uh relative to you know 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. I look forward to seeing you guys in March.

Look forward to it.

Thank you very much. Our next question comes from Michael Reharts of JPMorgan. Michael, your line is now open.

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 increase in incentives in the fourth quarter, and you're actually looking for a price increase, if I heard you right, in January, which is a little counter to, I think, the rest of the group. So I'd love to get a better sense of, you know, number one, you know, your pricing strategy in general, how you are approaching the market, given that, you know, perhaps the rest of the market is seeing perhaps a sharper increase in incentives. and also, you know, how much of your guidance includes a step up in incentives in the first quarter or throughout, you know, 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. You know, 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. You know, 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. But 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. You know, 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 kick 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, you know, 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 Kurt 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 and 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, Cheryl. You know, maybe secondly, on the SG&A guidance, you know, 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 flats, 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 expectation for some volume growth. But I'd also be curious about, you know, the marketing dollars and the commissions that you're putting out there. How would you compare, you know, 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 Kurt to pick up on the just overall SG&A in total. You know, I think what we're seeing, Mike, with NAR is the consumer is just becoming more aware. You know, we're getting 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 in the reduction of co-broke. 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 um 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 sgna leverage going into to 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 as a reminder if you would like to raise a question please press star followed by one on your telephone keypad now if you'd like to remove your cell phone under questioning will be star followed by two our next question comes from mike doll of rbc mike your line is now open all right thanks for taking my questions um i want to stick with kind of the pricing and incentive um topic uh so it's interesting kind of testing the market with the broad increase but at the same time you're you're messaging that the net of incentives and um and cost inflation is going to bring margins down

over the course of the year so so is this kind of it would you characterize this as pretty modest in aggregate just take a little bit where you where you can just to offset some pressures or um you know how would you characterize kind of magnitude of the attempted base increases in 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 you know there's 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 you know 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, you know, aren't buying a completed inventory that we're going to deliver them a rate that's, you know, generally 1% under the market rate at the 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 be 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 labor front. There's obviously some noise in the market around what may or may not happen with various parts of immigration. And, you know, 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 Cheryl 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, Cheryl, I would throw it to you on the immigration front.

More to come next quarter on the margin, right? On immigration, you know, happy to report that we haven't seen anything hit the job site. Certainly, we've got protocols in place. You know, we, across the business, have e-verified 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. Thank you both.

Thank you.

Thank you very much. Our next question comes from Trevor Allenson of Warb 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 it 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, you know, 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, you know, 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 Eric, Kurt, and I all talk about the repositioning of our communities to 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 Cheryl, I might argue relative to sub-market positioning, we've alluded to the fact where we test where we're playing in the market and where we're not. And in each of those circumstances, our supply of resale homes in the places that we're operating are less than the places that we're not. 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 setback. 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 at the percentage of your 2025 closings in 2025 versus 2024? Thanks.

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 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, you know, 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.

You're right. 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 Zellman and Associates. Alan, your line is now open.

Hey, good morning. Congrats on a great quarter and year. It's really great to see the consistency there in the challenging environment. First question, you know, on the margin and incentive topic. Yeah, on, you know, your rate buy-down usage is obviously well below a lot of your peers. And I know you referenced, Cheryl, many times the quality of your land, which you think is is really driving your your strong margins i'm guessing even within the company-wide though there are you know differences from community to community and in your use of incentives and your prevalence and i'm hoping to get a little more insight into um you know in the communities where you are offering more aggressive incentives and rate buy downs is there a you know common theme or driver that's contributing to that is it more resale competition in those particular areas is it you know these are entry-level communities and you're going head-to-head with you know more spec-focused entry-level builders is there anything you

can kind of point to you know 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 you know i'll start by saying kind of when I look at the rate in the fourth quarter, it's, you know, the absolute coupon rate that we close people at. It's, you know, 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, are 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. You know, 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 through a very expensive forward commitment where we're assisting a consumer, you know, 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 in 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, you know, we're seeing things in the market today that are, you know, $299, $399. Those can cost seven, eight, 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, you know, 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, Cheryl, I think you both hit a number of them. I know, Ellen, you mentioned resales, but I think, you know, land supply and land competition remains highest on kind of those first century, 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 U.S., I think the unsold finished 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, Helen, 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, you know, 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. So 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, you know, that wasn't the case a couple of years ago when builder margins were 30 percent 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 Eric. Thanks for the question. Yeah, it's your point. I think your guys research and others would suggest that, you know, third quarter, fourth quarter, you know, the demand for land categorically stepped down just a little bit. that doesn't mean it's easy it's it's it's always hard out there um but i do think it means to your point that we've got a little bit more flexibility in terms of deal uh structure so that's where we're seeing it as we really work to continue to increase our percent control um you know do the obs uh create uh greater efficiency in the in the balance sheet and increase our returns um 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 eric appreciate it guys thank you thank you very much as a reminder if you would like to raise a question please press star followed by one on your telephone keypad and to remove yourself the line of questioning will be star followed by two our next question comes from carl reicher of btig carl your line is now open thanks morning guys i appreciate the time Alan and Trevor stole all my questions, but I have one follow-up on Alan's, and I'd like to ask about land banking.

And, well, they're a great question. 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 and part of what I'm curious about is is 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 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.

Oh, you packed a lot in there. No, I appreciate it. So I guess 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, you know, when we started doing it a couple of 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. But rates popped up a little bit, we sidestepped, and then we were 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 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. I'll see you next month. Look forward to it.

Thank you very much. Our next question comes from Buckhorn 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 on self-development or or conversely are you starting to see more finished lots on the ground um that are already fully developed at more reasonable prices that could help mitigate the cost inflation hi buck it's eric and i'll take that um yeah i would say that we've 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 confidence of ours and I would say a good 85 to 90 percent 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 finding a plethora of finished lots out there we are used to self-developing and and we were kind of looking at that going forward from today as well that's very helpful and then just quickly going back to the yardly business if you got a minute to talk about single family rentals here just curious kind of what you saw going into year end in terms of you know the lease up rates and the absorption pace of of you know the build for rent communities is it getting more or less competitive with the amount of supply that's out there and just you know any other thoughts on investor interest and pricing of those assets yeah another good question buck um so the the two assets that that we mentioned that we sold those ran at a 14 to 15 a month lease rate um through their duration which was just a little bit under what we originally modeled um and we have felt a little bit of the multi-family but 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, you know, 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, you know, 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, Eric, 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.

Well, thank you, guys.

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

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 versus 80 million a year ago? What was included in that?

Hi, Alex. This is Kurt. 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 plaintiffs final attorney fees for the Solovita 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 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 Boniva and that was like I think that's what roughly 17 million bucks 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 Yardley portfolios yeah the sale of the Yardley 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 multi-family communities from the william lyon acquisition to the tune of just under 18 million dollars 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 Cheryl Palmer for any closing remarks.

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.