What changed in this filing

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Item 1A. Risk Factors

2021-11-18 compared with 2020-11-19 · 81 added, 38 removed, 257 unchanged (32% of the section changed)

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Horton of all or any portion of its ownership interest in us;

• performance under the Master Supply Agreement between D.R.

Horton and us;

• performance under the Master Supply Agreement;

• arrangements with third parties that are exclusionary to D.R.

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and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

In December 2019, C-19 emerged in the Wuhan region of China and has subsequently spread worldwide.

The World Health Organization has declared C-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions requiring closure of non-essential businesses for a period of time.

In almost all municipalities across the U.S.

where we operate, residential construction has been deemed an essential business as part of critical infrastructure and we have continued our lot development operations in those markets where allowed in order to supply homebuilders with finished lots for residential construction.

We have implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence and consumer confidence.

There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S.

economy, capital markets and the demand for our lots.

The extent to which C-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of the outbreak and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If C-19 has a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

In December 2019, COVID-19 emerged in the Wuhan region of China and subsequently spread worldwide.

The World Health Organization declared COVID-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, requiring closure of non-essential businesses for a period of time, which began to adversely affect our business in March 2020.

As economic activity resumed and restrictive orders relating to COVID-19 were eased, demand for our residential lots improved significantly during the remainder of fiscal 2020 and remained strong throughout fiscal 2021.

However, the effects of the pandemic, combined with the improvement in economic conditions and the strong demand for residential lots, caused multiple disruptions in our supply chain and have resulted in shortages in certain building materials and tightness in the labor market, which has caused our development cycle to lengthen in some markets.

There is uncertainty regarding the extent to which and how long COVID-19 will impact the U.S.

economy and our supply chain.

The extent to which COVID-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of COVID-19 or other variant strains and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If COVID-19 or other variant strains have a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

The homebuilding and lot development industries are cyclical and affected by changes in economic, real estate or other conditions that could adversely affect our business or financial results.

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• availability of financing for homebuyers;

• availability of financing for companies that purchase our residential lots;

• interest rates;

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economy and the real estate market and in turn, could adversely affect the operating results of our businesses.

Weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, volcanic activity, droughts and floods, heavy or prolonged precipitation or wildfires, can harm our business.

These can delay our development work, lot closings, adversely affect the cost or availability of materials or labor or damage real estate under construction.

The climates and geology of many of the states in which we operate, including California, Florida, Texas and other coastal areas that have experienced recent natural disasters, present increased risks of adverse weather or natural disasters.

Deployments of U.S.

military personnel to foreign regions, terrorist attacks, other acts of violence or threats to national security and any corresponding response by the United States or others, domestic or international instability or civil unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our business.

military personnel to foreign regions, terrorist attacks, other acts of violence or threats to national security and any corresponding response by the United States or others, domestic or international instability or social or political unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our business.

If we experience any of the foregoing, homebuilders may be less willing or able to buy our residential lots.

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In addition, cancellations of lot sales contracts may increase if homebuilders do not honor their contracts due to any of the factors discussed above.

Our business and financial results could be adversely affected by weather conditions and natural disasters.

Physical risks, including weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, volcanic activity, droughts, floods, hailstorms, heavy or prolonged precipitation, wildfires and others, can harm our business.

Additionally, the physical impacts of climate change may cause these occurrences to increase in frequency, severity and duration.

Any such events could delay our development work and lot sales, unfavorably affect the cost or availability of materials or labor, damage residential lots under construction, lead to changing customer preferences and/or negatively impact demand for residential lots in affected areas.

There has been no material impact on our business from these events or material operational challenges resulting from these events, but they could adversely affect our business in the future.

The climates and geology of many of the states in which we operate, including California, Florida, Texas and other coastal areas where we have some of our larger operations and which have experienced recent natural disasters, present increased risks of adverse weather or natural disasters.

The impacts from past natural disasters have not had a material impact on our business, financial condition and results of operations.

A health and safety incident relating to our operations could be costly in terms of potential liability and reputational damage.

Land development sites are inherently dangerous, and operating in this industry poses certain inherent health and safety risks.

Due to health and safety regulatory requirements and the number of residential lots we develop, health and safety performance is critical to the success of our business.

Any failure in health and safety performance, including compliance with potential new workplace requirements related to the COVID-19 pandemic, may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to liability that could be costly.

Such an incident could generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our financial results and liquidity.

Supply shortages and other risks related to acquiring land, materials and skilled labor could increase our costs and delay lot deliveries.

The residential lot development industry may experience significant difficulties that can affect the cost or timing of lot development, including:

• difficulty in acquiring land suitable for residential development at affordable prices in locations that are attractive to homebuilders;

• shortages of qualified subcontractors;

• reliance on local subcontractors, manufacturers and distributors who may be inadequately capitalized;

• shortages of construction materials;

• significant increases in the cost of materials.

These factors may cause construction delays or increase our costs.

During periods of significantly higher demand in the housing industry, the risk of shortages and cost increases in land, labor and materials available to the industry will likely increase.

The real estate development industry is highly competitive and a number of entities with which we compete are larger and have greater resources or are smaller and have lower cost structures, and competitive conditions may adversely affect our results of operations.

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Our business, financial condition and results of operations may be negatively affected by any of these factors.

We have changed our business strategy, and there can be no assurance that our current business strategy will be successful.

Our business strategy has changed substantially since our merger with D.R.

In October 2017, we became a 75% owned subsidiary of D.R.

Horton, the largest homebuilder in the country, and D.R.

Horton currently owns approximately 65% of our outstanding common stock.

Our business strategy is to leverage our strategic relationship with D.R.

Horton and use our unique production-oriented lot manufacturing model to scale into a national footprint in the residential lot development industry.

Although we believe that our strategy will grow our business and mitigate risks, there can be no assurance that our unique model will succeed as intended or that we will be able to execute on our strategy effectively, because of risks described elsewhere in this "Risk Factors" section, the risk of concentrating our focus on the residential lot development industry, costs to support our business model that are greater than anticipated or other unforeseen issues or problems that arise.

There can be no assurance that our current business strategy will be successful.

Our business strategy is focused on expanding our unique residential lot development business across a geographically diversified national platform while consolidating market share in the fragmented U.S.

lot development industry, primarily through our strategic relationship with D.R.

There can be no assurance that our unique model will continue to succeed as intended or that we will be able to continue to execute it effectively because of the risks described elsewhere in this “Risk Factors” section, or other unforeseen issues or problems that arise.

If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial condition may be negatively affected.

We may have continuing liabilities relating to assets that have been sold, which could adversely impact our results of operations.

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Such obligations could be material and they could adversely impact our results of operations.

Our activities are subject to environmental regulations and liabilities that could have a negative effect on our operating results.

Our operations are subject to federal, state and local laws and regulations related to the protection of the environment.

Compliance with these provisions or the promulgation of new environmental laws and regulations may result in delays, may cause us to invest substantial funds to ensure compliance with applicable environmental regulations and can prohibit or severely restrict real estate development activity in environmentally sensitive regions or areas.

Governmental regulations and environmental matters could increase the cost and limit the availability of property suitable for residential lot development and could adversely affect our business or financial results.

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Government agencies also routinely initiate audits, reviews or investigations of our business practices to ensure compliance with these laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant.

Government restrictions, standards, or regulations intended to reduce greenhouse gas emissions or potential climate change impacts are likely to result in restrictions on land development in certain areas and may increase energy, transportation, or raw material costs, which could reduce our profit margins and adversely affect our results of operations.

Recently, there has been growing concern from advocacy groups, government agencies and the general public over the effects of climate change on the environment.

Transition risks, such as government restrictions, standards or regulations intended to reduce greenhouse gas emissions and potential climate change impacts, are emerging and may increase in the future in the form of restrictions or additional requirements on land development in certain areas.

Such restrictions and requirements could increase our operating and compliance costs or require additional technology and capital investment,

which could adversely affect our results of operations.

This is a particular concern in the western United States, where some of the most extensive and stringent environmental laws and residential building construction standards in the country have been enacted, and where we have business operations.

We believe we are in compliance in all material respects with existing climate-related government restrictions, standards and regulations applicable to our business, and such compliance has not had a material impact on our business.

However, given the rapidly changing nature of environmental laws and matters that may arise that are not currently known, we cannot predict our future exposure concerning such matters, and our future costs to achieve compliance or remedy potential violations could be significant.

Additionally, actual or perceived environmental, social, governance and other sustainability (“ESG”) matters and our response to these matters could harm our business.

Increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess and report.

These factors may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows.

If we are unable to adequately address such ESG matters or fail to comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our business results.

We are also subject to an extensive number of laws and regulations because our common stock is publicly traded in the capital markets.

These regulations govern our communications with our stockholders and the capital markets, our financial statement disclosures and our legal processes, and they also impact the work required to be performed by our independent registered public accounting firm and our legal counsel.

These regulations govern our communications with our shareholders and the capital markets, our financial statement disclosures and our legal processes, and they also impact the work required to be performed by our independent registered public accounting firm and our legal counsel.

Changes in these laws and regulations, including the subsequent implementation of rules by the administering government authorities, may require us to incur additional compliance costs, and such costs may be significant.

Our real estate development operations span several markets and as a result, our financial results may be significantly influenced by the local economies of those markets.

The local economic growth and strength of the markets in which our real estate development activity is located are important factors in sustaining demand for our lots and land.

The local economic growth and strength of the markets in which our real estate development activity is located are important factors in sustaining demand for our land and lots.

Any adverse impact to the economic growth and health, or infrastructure development, of a local economy in which we develop real estate could materially adversely affect our business, liquidity, financial condition and results of operations.

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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.

The maturity date of the facility is October 2, 2022.

The maturity date of the facility is April 16, 2025.

We also have outstanding $300 million principal amount of 5.0% senior notes due 2028 and $400 million principal amount of 3.85% senior notes due 2026, both of which may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements.

The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and are guaranteed by each of our subsidiaries to the extent such subsidiaries guarantee our revolving credit facility.

We have an effective shelf registration statement filed with the SEC in September 2018, registering $500 million of equity securities.

As of September 30, 2020, $394.3 million remained available for issuance under the shelf registration statement, $100 million of which is reserved for sales under our at-the-market equity offering program.

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations and support other general corporate and operational needs, and we regularly evaluate our opportunities to raise additional capital.

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.

At September 30, 2021, $359.9 million remained available for issuance under the shelf registration statement, of which $65.6 million is 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.

We plan to raise additional capital, in the form of additional debt or equity, in the future to have sufficient capital resources and liquidity to fund our business needs and future growth plans and repay existing indebtedness.

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Dependence on Future Performance

Our ability to meet our debt service and other obligations, including our obligations under the senior notes and the financial covenants under our revolving credit facility, will depend, in part, upon our future financial performance.

Our ability to meet our debt service and other obligations, including our obligations under the senior notes

and the financial covenants under our revolving credit facility, will depend, in part, upon our future financial performance.

Our future results are subject to the risks and uncertainties described in this “Risk Factors” section.

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The factors that affect our ability to generate cash can also affect our ability to raise additional funds for these purposes through the sale of debt or equity, the refinancing of debt or the sale of assets.

Risks of Variable Rate Debt

Changes in prevailing interest rates may affect the cost of our debt service obligations, because borrowings under our revolving credit facility bear interest at floating rates.

Borrowings under our revolving credit facility primarily bears interest based on the London Interbank Offered Rate (“LIBOR”).

On November 30, 2020, ICE Benchmark Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors.

The United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021.

The Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative for use in financial and other derivatives contracts that are currently indexed to United States dollar LIBOR.

Our revolving credit facility includes provisions addressing the future discontinuation of United States dollar LIBOR that are broadly consistent with the “hardwired” approach recommended by the Alternative Rates Reference Committee convened by the Federal Reserve Board.

Such provisions provide for a transition, upon the occurrence of certain triggers, to a SOFR-based interest rate or, under certain circumstances, interest rates based on another benchmark to be determined, together in each case with certain spread adjustments and other changes necessary to implement such replacement benchmark.

At this time, it is not possible to predict the effect any modification or discontinuation of LIBOR, or the establishment of an alternative reference rate such as SOFR, will have on us.

Changes in Debt Ratings

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Our success may be dependent on our ability to continue to employ and retain skilled personnel.

Our business and financial results could be adversely affected by significant inflation, higher interest rates or deflation.

Inflation can adversely affect us by increasing costs of land, materials and labor.

In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability and demand.

In a highly inflationary environment, depending on industry and other economic conditions, we may be precluded from raising residential lot prices enough to keep up with the rate of inflation, which could reduce our profit margins.

Moreover, in a highly inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which could have an adverse impact on our business or financial results.

Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels.

This could lead to deterioration in economic conditions, including an increase in the rate of unemployment.

Deflation could also cause the value of our real estate to decline.

If oil prices decline significantly, economic conditions in markets that have significant exposure to the energy sector may weaken.

These, or other factors that increase the risk of significant deflation, could have a negative impact on our business or financial results.

Information technology failures, data security breaches and the failure to satisfy privacy and data protection laws and regulations could harm our business.

We use information technology and other computer resources to carry out important operational and marketing activities and to maintain our business records.

These information technology systems are dependent upon global communications providers, web browsers, third-party software and data storage providers and other aspects of the Internet infrastructure that have experienced security breaches, cyber-attacks, significant systems failures and service outages in the past.

These information technology systems are dependent upon global communications providers, web browsers, third-party software and data storage providers and other aspects of the Internet infrastructure that have experienced security breaches, cyber-attacks, ransomware attacks, significant systems failures and service outages in the past.

Our normal business activities involve collecting and storing information specific to our customers, employees, vendors and suppliers and maintaining operational and financial information related to our business, both in an office setting and remote locations as needed.

A material breach in the security of our information technology systems or other data security controls could include the theft or release of this information.

A data security breach, a significant and extended disruption in the functioning of our information technology systems or a breach of any of our data security controls could disrupt our business operations, damage our reputation and cause us to lose customers, adversely impact our sales and revenue and require us to incur significant expense to address and remediate or otherwise resolve these kinds of issues.

kinds of issues.

The unintended or unauthorized disclosure of personal identifying and confidential information as a result of a security breach could also lead to litigation or other proceedings against us by the affected individuals or business partners, or by regulators.

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We provide employee awareness training of cybersecurity threats and routinely utilize information technology security experts to assist us in our evaluations of the effectiveness of the security of our information technology systems, and we regularly enhance our security measures to protect our systems and data.

Our increased use of remote work environments and virtual platforms in response to C-19 may also increase our risk of cyber-attack or data security breaches.

Our increased use of remote work environments and virtual platforms in response to the COVID-19 pandemic may also increase our risk of cyber-attack or data security breaches.

We use various encryption, tokenization and authentication technologies to mitigate cybersecurity risks and have increased our monitoring capabilities to enhance early detection and rapid response to potential cyber threats.

However, because the techniques used to obtain unauthorized access, disable or degrade systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

However, because the techniques used to obtain unauthorized access, disable or degrade systems change frequently and are increasing in sophistication, they often are not recognized until launched against a target.

As such, we may be unable to anticipate these techniques, to implement adequate preventative measures or to identify and investigate cybersecurity incidents.

Consequently, we cannot provide assurances that a security breach, cyber-attack, data theft or other significant systems or security failures will not occur in the future, and such occurrences could have a material and adverse effect on our consolidated results of operations or financial position.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors