# Forestar Group Inc. (FOR) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Forestar Group Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1406587/000140658721000093/for-20210930.htm
Accession: 0001406587-21-000093
Filing date: 2021-11-18
Report date: 2021-09-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/FOR/
All MD&A years: /company/FOR/mda/
Next year: /company/FOR/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote an understanding of our financial condition, results of operations, liquidity and certain other factors that may affect future results. MD&A is provided as a supplement to, and should be read in conjunction with our consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-K. This section generally discusses the results of operations for fiscal 2021 compared to 2020. For similar operating and financial data and discussion of our fiscal 2020 results compared to our fiscal 2019 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2020, which was filed with the SEC on November 19, 2020.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Statements” and under Item 1A — “Risk Factors.”

Our Operations

We are a residential lot development company with operations in 56 markets in 23 states as of September 30, 2021. In October 2017, we became a majority-owned subsidiary of D.R. Horton. Through our alignment with and support from D.R. Horton, we have grown our business into a national, well-capitalized residential lot developer selling finished lots to D.R. Horton and other homebuilders. As our controlling shareholder, D.R. Horton has significant influence in guiding our strategic direction and operations. Our strategy is focused on making investments in land acquisition and development to expand our residential lot development business across a geographically diversified national platform and consolidating market share in the fragmented U.S. lot development industry. We are primarily investing in short duration, phased development projects that generate returns similar to production-oriented homebuilders. This strategy is a unique, lower-risk business model that we expect will produce more consistent returns than other public and private land developers. We also make strategic short-term investments in finished lots (lot banking) and undeveloped land with the intent to sell these assets within a short time period, primarily to D.R. Horton, utilizing available capital prior to its deployment into longer term lot development projects.

COVID-19

Beginning in March 2020, the impacts of the COVID-19 pandemic and the related widespread reductions in economic activity began to temporarily affect our business operations and the demand for our residential lots. Residential construction was designated an essential business as part of critical infrastructure in almost all municipalities across the U.S. where we operate. As economic activity and housing market conditions began to improve during the last half of fiscal 2020, our lot sales pace increased and remained strong throughout fiscal 2021. However, multiple disruptions in the supply chain, combined with the improvement in economic conditions and strong demand for residential lots, have resulted in shortages in certain construction materials and tightness in the labor market, which has caused our development cycles to lengthen in certain markets. We believe we are well-positioned to effectively operate through changing economic conditions due to our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R. Horton.

Business Segment

We manage our operations through our real estate segment, which is our core business and generates substantially all of our revenues. The real estate segment primarily acquires land and develops infrastructure for single-family residential communities and generates revenues from sales of residential single-family finished lots to local, regional and national homebuilders. We have other business activities for which the related assets and operating results are immaterial, and therefore, are included in our real estate segment.

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Results of Operations

The following tables and related discussion set forth key operating and financial data as of and for the fiscal years ended September 30, 2021 and 2020.

Operating Results

Components of income before taxes were as follows:

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[[/GREPCENT_TABLE]]

Lot Sales

Residential lots sold consist of:

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","2020"],["Development projects","14,221","","","7,316"],["Lot banking projects","1,694","","","3,057"],["","15,915","","","10,373"],["Average sales price per lot (a)","$","81,600","","","$","84,600"]]
[[/GREPCENT_TABLE]]

 _______________

(a) Excludes any impact from change in contract liabilities.

Revenues

Revenues consist of:

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","2020"],["","(In millions)"],["Residential lot sales:"],["Development projects","$","1,182.6","","","$","616.3"],["Lot banking projects","116.1","","","261.7"],["(Increase) decrease in contract liabilities","(5.6)","","","2.3"],["","1,293.1","","","880.3"],["Tract sales and other","$","32.7","","","$","51.5"],["Total revenues","$","1,325.8","","","$","931.8"]]
[[/GREPCENT_TABLE]]

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Residential lots sold and residential lot sales revenues have increased as we have grown our business primarily through our strategic relationship with D.R. Horton. In fiscal 2021, we sold 14,839 residential lots to D.R. Horton for $1.2 billion compared to 10,164 residential lots sold to D.R. Horton for $859.7 million in fiscal 2020. In fiscal 2021, we sold 1,076 residential lots to customers other than D.R. Horton for $86.5 million compared to 209 residential lots sold for $18.3 million in fiscal 2020.

Tract sales and other revenue in fiscal 2021 primarily consisted of 85 tract acres sold to D.R. Horton for $25.9 million and 12 tract acres sold to third parties for $1.6 million. Tract sales and other revenue in fiscal 2020 primarily consisted of 602 tract acres sold to third parties for $25.5 million and 143 tract acres sold to D.R. Horton for $25.6 million.

Cost of sales in fiscal 2021 increased compared to fiscal 2020 primarily due to the increase in the number of lots sold. Cost of sales related to tract sales and other revenues in fiscal 2021 and 2020 was $27.0 million and $40.6 million, respectively.

Selling, General and Administrative (SG&A) Expense and Other Income Statement Items

SG&A expense in fiscal 2021 was $68.4 million compared to $45.7 million in fiscal 2020. SG&A expense as a percentage of revenues was 5.2% and 4.9% in fiscal 2021 and 2020, respectively. Our SG&A expense primarily consists of employee compensation and related costs. Our business operations employed 250 and 143 employees at September 30, 2021 and 2020, respectively.

Equity in earnings of unconsolidated ventures in fiscal 2021 and 2020 reflects our share in ventures that we account for using the equity method.

Gain on sale of assets in fiscal 2021 consists of a gain of $2.5 million associated with the reduction of our remaining obligation in connection with the Cibolo Canyons Special Improvement District issuance of bonds in 2014. As our obligation expires over time, our liability is reduced and gains are recognized.

Loss on extinguishment of debt of $18.1 million in fiscal 2021 was due to the redemption of our $350 million principal amount of 8.0% senior notes due 2024 in May 2021.

Interest and other income primarily represents interest earned on our cash deposits.

Income Taxes

Our income tax expense was $36.1 million and $16.4 million in fiscal 2021 and 2020, respectively, and our effective tax rate was 24.6% and 21.0% in those respective years. Our effective tax rate for fiscal 2020 includes a tax benefit of $2.3 million related to the net operating loss (NOL) carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which allowed the Company to carryback a portion of its fiscal 2018 NOL. The carryback provisions resulted in the recognition of previously unrecognized tax benefits and the revaluation of deferred tax assets due to the utilization of NOLs at a higher tax rate in the carryback period. Our effective tax rate for both years includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.

At September 30, 2021, we had deferred tax liabilities, net of deferred tax assets, of $23.2 million. The deferred tax assets were offset by a valuation allowance of $1.2 million, resulting in a net deferred tax liability of $24.4 million. At September 30, 2020, deferred tax liabilities, net of deferred tax assets, were $4.2 million. The deferred tax assets were offset by a valuation allowance of $1.5 million, resulting in a net deferred tax liability of $5.7 million. The valuation allowance for both years was recorded because it is more likely than not that a portion of our state deferred tax assets, primarily NOL carryforwards, will not be realized because we are no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. We will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on our deferred tax assets. Any reversal of the valuation allowance in future periods will impact our effective tax rate.

We had no unrecognized tax benefits at September 30, 2021 and September 30, 2020 as a result of the recognition of $1.6 million of previously unrecognized tax benefits during fiscal 2020. All of the $1.6 million of recognized tax benefits affected our effective tax rate and were attributable to the NOL carryback provisions of the CARES Act, allowing previously uncertain tax attributes to be recognized.

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Land and Lot Position

Our land and lot position at September 30, 2021 and 2020 is summarized as follows:

[[GREPCENT_TABLE]]
[["","September 30,"],["","2021","","2020"],["Lots owned","64,400","","","42,400"],["Lots controlled through land lot purchase contracts","32,600","","","18,100"],["Total lots owned and controlled","97,000","","","60,500"]]
[[/GREPCENT_TABLE]]

At September 30, 2021, our lot position consisted of 97,000 residential lots, of which approximately 64,400 were owned and 32,600 were controlled through purchase contracts. Of our total owned residential lots, approximately 21,000 are under contract to sell to D.R. Horton. Additionally, D.R. Horton has the right of first offer on approximately 18,200 of our owned residential lots based on executed purchase and sale agreements. At September 30, 2021, our lots owned included approximately 5,300 lots that are fully developed, of which approximately 300 are related to lot banking. At September 30, 2021, we had approximately 800 lots under contract to sell to customers other than D.R. Horton.

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Liquidity and Capital Resources

Liquidity

At September 30, 2021, we had $153.6 million of cash and cash equivalents and $349.7 million of available borrowing capacity on our revolving credit facility. We have no senior note maturities until fiscal 2026. We believe we are well positioned to effectively operate during changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R. Horton.

At September 30, 2021, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 41.0% compared to 42.4% at September 30, 2020. Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 35.2% compared to 22.1% at September 30, 2020. Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less. We believe that the ratio of net debt to total capital is useful in understanding the leverage employed in our operations.

We believe that our existing cash resources and revolving credit facility will provide sufficient liquidity to fund our near-term working capital needs. Our ability to achieve our long-term growth objectives will depend on our ability to obtain financing in sufficient amounts. We regularly evaluate alternatives for managing our capital structure and liquidity profile in consideration of expected cash flows, growth and operating capital requirements and capital market conditions. We may, at any time, be considering or preparing for the purchase or sale of our debt securities, the sale of our common stock or a combination thereof.

Bank Credit Facility

In April 2021, our senior unsecured revolving credit facility was amended to increase its capacity to $410 million with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. The maturity date of the facility was extended to April 16, 2025. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of our real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. Borrowings and repayments under the facility were $58.0 million each during fiscal 2021. At September 30, 2021, there were no borrowings outstanding and $60.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $349.7 million.

The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At September 30, 2021, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

Senior Notes

We have outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act. The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums defined in the respective indenture. The notes are guaranteed by each of our subsidiaries to the extent such subsidiaries guarantee our revolving credit facility.

In April 2021, we issued $400 million principal amount of 3.85% senior notes (the "2026 notes") that mature May 15, 2026 with interest payable semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%. The net proceeds from this issuance were primarily used to redeem all of our $350 million principal amount of 8.0% senior notes due April 15, 2024 on May 7, 2021. The redemption price of $365.6 million included a call premium of $14.0 million and accrued and

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unpaid interest of $1.6 million. We recognized an $18.1 million loss on extinguishment of debt upon the redemption of such notes.

We also have outstanding $300 million principal amount of 5.0% senior notes (the "2028 notes"), which mature March 1, 2028 with interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.

The indentures governing our senior notes require that, upon the occurrence of both a change of control and a rating decline (each as defined in the indentures), we offer to purchase the applicable series of notes at 101% of their principal amount. If we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest the net cash proceeds from such asset sales in our business within a specified period of time, repay certain senior secured debt or debt of our non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount. The indentures contain covenants that, among other things, restrict the ability of us and our restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. At September 30, 2021, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

Effective April 30, 2020, our Board of Directors authorized the repurchase of up to $30 million of our debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at September 30, 2021.

Other Note Payable

We also have a note payable of $12.5 million that was issued as part of a transaction to acquire real estate for development. The note is non-recourse and is secured by the underlying real estate, accrues interest at 4.0% per annum and matures in October 2023.

Issuance of Common Stock

At September 30, 2021, we had an effective shelf registration statement filed with the SEC in September 2018 registering $500 million of equity securities, of which $100 million was reserved for sales under our at-the-market equity offering program that became effective August 2020. In fiscal 2021, we issued 1.4 million shares of common stock under our at-the-market equity offering program for proceeds of $33.4 million, net of commissions and other issuance costs totaling $1.0 million. At September 30, 2021, $359.9 million remained available for issuance under the shelf registration statement, of which $65.6 million was reserved for sales under our at-the-market equity offering program.

In October 2021, after the expiration of the existing registration statement and at-the market equity offering program, a new shelf registration statement became effective registering $750 million of equity securities. We anticipate entering into a new at-the-market equity offering program under this new shelf registration statement.

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Operating Cash Flow Activities

In fiscal 2021, net cash used in operating activities was $303.1 million, compared to $168.4 million in fiscal 2020. The cash used in operating activities in both years is the result of our investment in the acquisition and development of our real estate.

Investing Cash Flow Activities

In fiscal 2021, net cash provided by investing activities was $1.0 million, compared to $5.0 million in fiscal 2020. The cash provided by investing activities in both years is primarily the result of distributions received from our unconsolidated ventures.

Financing Cash Flow Activities

In fiscal 2021, net cash provided by financing activities was $61.4 million, consisting primarily of proceeds from the issuance of $400 million principal amount of 3.85% senior notes and the issuance of common stock under our at-the-market equity offering program for net proceeds of $33.4 million, which were partially offset by the early redemption of our $350 million principal amount of 8.0% senior notes and the related call premium of $14.0 million. Net proceeds in the prior year primarily consisted of the issuance of our $300 million principal amount of 5.0% senior notes, partially offset by the repayment of $118.9 million principal amount of our 3.75% convertible senior notes at maturity.

Contractual Obligations and Off-Balance Sheet Arrangements

At September 30, 2021, contractual cash obligations consist of:

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[[/GREPCENT_TABLE]]

 _______________

(1)Debt represents principal and interest payments due on our senior notes and our revolving credit facility. Because the balance of our revolving credit facility was zero at September 30, 2021, we did not assume any principal or interest payments related to this facility in future periods.

(2)Our operating leases are primarily for office space. We lease office space in Arlington, Texas as our corporate headquarters and also lease office space in other locations to support our business operations.

(3)The performance bond and standby letter of credit were provided in support of a bond issuance by Cibolo Canyons Special Improvement District (CCSID). To facilitate the issuance of the bonds, we provided a $6.8 million letter of credit to the bond trustee as security for certain debt service fund obligations of the CCSID. The letter of credit must be maintained until the earlier of redemption of the bonds or scheduled bond maturity in 2034.

In support of our residential lot development business, we issue letters of credit under our revolving credit facility and we have a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations. In addition to the letter of credit discussed above, we had outstanding letters of credit of $53.5 million under the revolving credit facility at September 30, 2021 and surety bonds outstanding of $479.3 million issued by third parties to secure performance under various contracts that are not included in our consolidated balance sheets. We expect that our performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms. When we complete our performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving us with no continuing obligations. We have no material third-party guarantees.

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Inflation

We may be adversely affected during periods of high inflation, primarily because of higher financing, land and labor costs. We attempt to offset cost increases in one component with savings in another, and we increase our land and lot sales prices when market conditions permit. However, during periods when market conditions are challenging, we may not be able to offset cost increases with higher selling prices.

Critical Accounting Policies and Estimates

General — A comprehensive enumeration of the significant accounting policies of Forestar Group Inc. and subsidiaries is presented in Note 1 to the accompanying financial statements as of September 30, 2021 and 2020, and for the years ended September 30, 2021, 2020 and 2019. Each of our accounting policies has been chosen based upon current authoritative literature that collectively comprises U.S. Generally Accepted Accounting Principles (GAAP). In instances where alternative methods of accounting are permissible under GAAP, we have chosen the method that most appropriately reflects the nature of our business, the results of our operations and our financial condition, and have consistently applied those methods over each of the periods presented in the financial statements. The Audit Committee of our Board of Directors has reviewed and approved the accounting policies selected.

Accounting estimates are considered critical if both of the following conditions are met: (1) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (2) the effect of the estimates and assumptions is material to the financial statements. We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.

Revenue Recognition — Real estate revenue and related profit are generally recognized at the time of the closing of a sale, when title to and possession of the property are transferred to the buyer. Our performance obligation, to deliver the agreed-upon land or lots, is generally satisfied at closing. However, there may be instances in which we have an unsatisfied remaining performance obligation at the time of closing. In these instances, we record contract liabilities and recognize those revenues over time as the performance obligations are completed. Generally, our unsatisfied remaining performance obligations are expected to have an original duration of less than one year.

Real Estate and Cost of Sales — Real estate includes the costs of direct land and lot acquisition, land development, capitalized interest, and direct overhead costs incurred during land development. All indirect overhead costs, such as compensation of management personnel and insurance costs are charged to selling, general and administrative expense as incurred.

Land and development costs are typically allocated to individual residential lots based on the relative sales value of the lot. Cost of sales includes applicable land and lot acquisition, land development and related costs (both incurred and estimated to be incurred) allocated to each residential lot in the project. Any changes to the estimated total development costs subsequent to the initial lot sales are generally allocated to the remaining lots.

We receive earnest money deposits from homebuilders for purchases of developed lots. These earnest money deposits are typically released to the homebuilders as lots are sold. Earnest money deposits from D.R. Horton are subject to mortgages that are secured by the real estate under contract with D.R. Horton. These mortgages expire when the earnest money is released to D.R. Horton as lots are sold.

We have agreements with certain utility or improvement districts to convey water, sewer and other infrastructure-related assets we have constructed in connection with projects within their jurisdiction and receive reimbursements for the cost of these improvements. The amount of reimbursements for these improvements are defined by the district and are based on the allowable costs of the improvements. The transfer is consummated and we generally receive payment when the districts have a sufficient tax base to support funding of their bonds. The cost incurred by us in constructing these improvements, net of the amount expected to be collected in the future, is included in our land development budgets and in the determination of lot costs.

Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment. We determine if impairment indicators exist by analyzing a variety of factors including, but not limited to, the following:

•gross margins on lots sold in recent months;

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•projected gross margins based on budgets;

•trends in gross margins, average selling prices or cost of sales; and

•lot sales absorption rates.

If indicators of impairment are present, we perform an impairment evaluation, which includes an analysis to determine if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. These estimates of cash flows are significantly impacted by specific factors including estimates of the amounts and timing of future revenues and estimates of the amount of land development costs which, in turn, may be impacted by the following local market conditions:

•supply and availability of land and lots;

•location and desirability of our land and lots;

•amount of land and lots we own or control in a particular market or sub-market; and

•local economic and demographic trends.

For those assets deemed to be impaired, an impairment charge is recorded to cost of sales for the amount by which the carrying amount of the assets exceeds the fair value of the assets. Our determination of fair value is primarily based on discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams. When an impairment charge is determined, the charge is then allocated to each lot in the same manner as land and development costs are allocated to each lot.

We rarely purchase land for resale. However, we may change our plans for land we own or land under development and decide to sell the asset. When we determine that we will sell the asset, the project is accounted for as land held for sale if certain criteria are met. We record land held for sale at the lesser of its carrying value or fair value less estimated costs to sell. In performing the impairment evaluation for land held for sale, we consider several factors including, but not limited to, recent offers received to purchase the property, prices for land in recent comparable sales transactions and market analysis studies, which include the estimated price a willing buyer would pay for the land. If the estimated fair value less costs to sell an asset is less than the current carrying value, the asset is written down to its estimated fair value less costs to sell.

The key assumptions relating to inventory valuations are impacted by local market and economic conditions, and are inherently uncertain. Although our quarterly assessments reflect management’s best estimates, due to uncertainties in the estimation process, actual results could differ from such estimates.

Pending Accounting Standards

In December 2019, the FASB issued ASU 2019-12 related to simplifying the accounting for income taxes. The guidance is effective for us beginning October 1, 2021 and is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance. We will adopt these standards when LIBOR is discontinued and do not expect them to have a material impact on our consolidated financial statements or related disclosures.

In October 2021, the FASB issued ASU 2021-08, which requires application of ASC 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The guidance is effective for us beginning October 1, 2023 and interim periods therein, with early adoption permitted. We are currently evaluating the impact of this guidance on our consolidated financial position, results of operations and cash flows.

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Forward-Looking Statements

This Annual Report on Form 10-K and other materials we have filed or may file with the Securities and Exchange Commission contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our current views with respect to future events and are subject to risks and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to:

•the effect of D.R. Horton’s controlling level of ownership on us and the holders of our securities;

•our ability to realize the potential benefits of the strategic relationship with D.R. Horton;

•the effect of our strategic relationship with D.R. Horton on our ability to maintain relationships with our customers;

•the impact of COVID-19 on the economy and our business;

•the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate and other conditions;

•the impacts of weather conditions and natural disasters;

•health and safety incidents relating to our operations;

•supply shortages and other risks of acquiring land, construction materials and skilled labor;

•competitive conditions in our industry;

•our ability to achieve our strategic initiatives;

•continuing liabilities related to assets that have been sold;

•the impact of governmental policies, laws or regulations and actions or restrictions of regulatory agencies;

•the cost and availability of property suitable for residential lot development;

•general economic, market or business conditions where our real estate activities are concentrated;

•our dependence on relationships with national, regional and local homebuilders;

•our ability to obtain or the availability of surety bonds to secure our performance related to construction and development activities and the pricing of bonds;

•obtaining reimbursements and other payments from governmental districts and other agencies and timing of such payments;

•our ability to succeed in new markets;

•the conditions of the capital markets and our ability to raise capital to fund expected growth;

•our ability to manage and service our debt and comply with our debt covenants, restrictions and limitations;

•the volatility of the market price and trading volume of our common stock;

•our ability to hire and retain key personnel;

•the impact of significant inflation, higher interest rates or deflation; and

•the strength of our information technology systems and the risk of cybersecurity breaches and our ability to satisfy privacy and data protection laws and regulations.

Other factors, including the risk factors described in Item 1A of this Annual Report on Form 10-K, may also cause actual results to differ materially from those projected by our forward-looking statements. New factors emerge from time to time and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

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Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

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