What changed in this filing

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Item 1. Financial Statements

2021-08-03 compared with 2021-05-04 · 137 added, 90 removed, 337 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands, except share data)

March 31, December 31,

June 30, December 31,

Cash and cash equivalents $ 111,704 $ 35,942

13 unchanged sentences

COMMITMENTS AND CONTINGENCIES

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 26,908,643 shares issued and 24,934,429 shares outstanding as of March 31, 2021 and 26,741,554 shares issued and 24,983,561 shares outstanding as of December 31, 2020

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 26,926,693 shares issued and 24,617,479 shares outstanding as of June 30, 2021 and 26,741,554 shares issued and 24,983,561 shares outstanding as of December 31, 2020

Additional paid-in capital 281,808 270,598

8 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Home sales revenues $ 791,512 $ 481,602 $ 1,497,465 $ 936,329

3 unchanged sentences

Operating income 146,007 67,834 268,450 121,712

Loss on extinguishment of debt 662 — 662 —

Other income, net ( 3,776 ) ( 763 ) ( 4,609 ) ( 1,774 )

21 unchanged sentences

BALANCE— March 31, 2021 26,908,643 $ 269 $ 276,398 $ 1,033,935 $ ( 91,964 ) $ 1,218,638

Net income — — — 118,134 — 118,134

Stock repurchase — — — — ( 55,776 ) ( 55,776 )

Compensation expense for equity awards — — 3,395 — — 3,395

Stock issued under employee incentive plans 18,050 — 2,015 — — 2,015

BALANCE— June 30, 2021 26,926,693 $ 269 $ 281,808 $ 1,152,069 $ ( 147,740 ) $ 1,286,406

BALANCE—December 31, 2019 26,398,409 $ 264 $ 252,603 $ 610,382 $ ( 18,056 ) $ 845,193

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BALANCE— March 31, 2020 26,680,474 $ 266 $ 255,509 $ 653,221 $ ( 49,391 ) $ 859,605

Net income — — — 55,624 — 55,624

Compensation expense for equity awards — — 2,613 — — 2,613

Stock issued under employee incentive plans 14,705 1 939 — — 940

BALANCE— June 30, 2020 26,695,179 $ 267 $ 259,061 $ 708,845 $ ( 49,391 ) $ 918,782

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization 537 317

Loss on extinguishment of debt 662 —

Loss on disposal of assets 350 —

Compensation expense for equity awards 6,817 4,466

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Purchases of property and equipment ( 1,139 ) ( 560 )

Return of capital from (investment in) unconsolidated entity 1,683 ( 1,125 )

Net cash provided by (used in) investing activities 404 ( 1,542 )

Investment in unconsolidated entities ( 1,345 ) ( 1,125 )

Payment for business acquisition ( 27,279 ) —

Net cash used in investing activities ( 29,763 ) ( 1,685 )

Cash flows from financing activities:

1 unchanged sentence

Payments on notes payable ( 564,000 ) ( 235,000 )

Loan issuance costs ( 10,500 ) ( 2,084 )

Proceeds from sale of stock, net of offering expenses 4,123 1,770

Stock repurchase ( 81,603 ) ( 31,335 )

Net cash provided by (used in) financing activities ( 148,875 ) 22,626

Net cash used in financing activities ( 34,327 ) ( 133,630 )

Net increase in cash and cash equivalents 75,762 10,757

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Results for interim periods are not necessarily indicative of results to be expected for the full year.

The accompanying unaudited financial statements as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, include the accounts of the Company and its subsidiaries.

The accompanying unaudited financial statements as of June 30, 2021, and for the three and six months ended June 30, 2021 and 2020, include the accounts of the Company and its subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

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The following table presents our home sales revenues disaggregated by revenue stream (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Retail home sales revenues $ 696,826 $ 443,507 $ 1,340,398 $ 853,909

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The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 13 (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Central $ 347,963 $ 167,924 $ 636,713 $ 333,699

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Our real estate inventory consists of the following (in thousands):

March 31, December 31,

June 30, December 31,

Land, land under development and finished lots $ 1,105,388 $ 981,838

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Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method.

Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value.

Inventory costs for completed homes are expensed to cost of

sales as homes are closed.

Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which

we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value.

Inventory costs for completed homes are expensed to cost of sales as homes are closed.

Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis.

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Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 5 , are capitalized to qualifying real estate projects under development and homes under construction.

On May 6, 2021, we acquired certain real estate assets owned by KenRoe Inc.

and its affiliated entities, including R Home LLC and Paxmar Land Development (collectively, “KenRoe”), and assumed certain related liabilities.

As a result of the KenRoe acquisition, we expanded our Minnesota presence in the Minneapolis market.

We acquired approximately 100 homes under construction and more than 3,000 owned and controlled lots.

The total purchase price for the KenRoe assets, primarily consisting of inventory, was approximately $ 27.3 million in cash.

The acquisition is accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

Our purchase accounting for KenRoe as of June 30, 2021 is preliminary and we expect to complete the working capital adjustment and valuation of the tangible assets, intangible assets and liabilities assumed as of the acquisition date within one year from the acquisition date.

ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued and other liabilities consist of the following (in thousands):

March 31, December 31,

June 30, December 31,

Taxes payable $ 15,686 $ 26,181

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Changes to our warranty accrual are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Warranty reserves, beginning of period $ 5,950 $ 3,750 $ 5,350 $ 3,500

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Revolving Credit Agreement

On April 30, 2020, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by the Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated

Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “2020 Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent.

In the Second Amendment, certain lenders agreed to extend the maturity of their commitments, while another lender agreed to extend the maturity of its commitment subsequent to the execution of the Second Amendment.

Lenders with $ 566.0 million, or 87 %, of the $ 650.0 million of commitments under the 2019 Credit Agreement agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022.

The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75 , increased the sublimit for letters of credit to $ 40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70 %.

The 2020 Credit Agreement otherwise has substantially similar terms and provisions to the 2019 Credit Agreement and continues to provide for a $ 650.0 million revolving credit facility, which can be increased at the request of the Company by up to $ 100.0 million, subject to the terms and conditions of the 2020 Credit Agreement.

The 2020 Credit Agreement matures on May 31, 2023 with respect to 87 % of the commitments thereunder and on May 31, 2022 with respect to 13 % of the commitments thereunder.

Before each anniversary of the 2020 Credit Agreement, we may request a one-year extension of its maturity date.

The 2020 Credit Agreement is guaranteed by each of our subsidiaries that have gross assets equal to or greater than $ 0.5 million.

The borrowings and letters of credit outstanding under the 2020 Credit Agreement, together with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may not exceed the borrowing base under the 2020 Credit Agreement.

As of March 31, 2021, the borrowing base under the 2020 Credit Agreement was $ 949.3 million, of which borrowings, including the Senior Notes, of $ 421.5 million were outstanding, $ 10.3 million of letters of credit were outstanding and $ 517.5 million was available to borrow under the 2020 Credit Agreement.

Interest is paid monthly on borrowings under the 2020 Credit Agreement at LIBOR plus 2.35 %.

On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Credit Agreement”), which amends and restates that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, the “2020 Credit Agreement”).

The Credit Agreement (a) increases the commitments to $ 850.0 million, (b) allows the Company to increase the commitments by up to $ 100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $ 50.0 million, (e) adds unrestricted cash in excess of $ 10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 1.45 % to 2.10 %, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50 %, (h) increases the minimum tangible net worth requirement to $ 850.0 million plus 75 % of the net proceeds of equity issuances after December 31, 2020 and 50 % of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company;

otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.

As of June 30, 2021, the borrowing base under the Credit Agreement was $ 1.3 billion, of which borrowings, including the 2026 Senior Notes and the 2029 Senior Notes (each as defined herein), of $ 600.3 million were outstanding, $ 10.3 million of letters of credit were outstanding and $ 714.5 million was available to borrow under the Credit Agreement.

Interest is paid monthly on borrowings at LIBOR plus 1.45 %.

The Credit Agreement applicable margin for LIBOR loans ranges from 1.45 % to 2.10 % based on our leverage ratio.

At March 31, 2021, LIBOR was 0.11 %;

At June 30, 2021, LIBOR was 0.09 %;

however, the Credit Agreement has a 0.50 % LIBOR floor.

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The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments.

At March 31, 2021, we were in compliance with all of the covenants contained in the 2020 Credit Agreement.

The Credit Agreement (a) increases the commitments to $ 850.0 million, (b) allows the Company to increase the commitments by up to $ 100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $ 50.0 million, (e) adds unrestricted cash in excess of $ 10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10 % to 1.45 %, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50 %, (h) increases the minimum tangible net worth requirement to $ 850.0 million plus 75 % of the net proceeds of equity issuances after December 31, 2020 and 50 % of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company;

otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.

Senior Notes Offering

On July 6, 2018, we issued $ 300.0 million aggregate principal amount of the Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S under the Securities Act.

At June 30, 2021, we were in compliance with all of the covenants contained in the Credit Agreement.

Senior Notes Offerings

On June 28, 2021, we issued $ 300.0 million aggregate principal amount of our 4.000 % Senior Notes due 2029 (the “2029 Senior Notes”) in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act.

Interest on the 2029 Senior Notes accrues at a rate of 4.000 % per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2022.

The 2029 Senior Notes mature on July 15, 2029.

Terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

On July 6, 2018, we issued $ 300.0 million aggregate principal amount of our 6.875 % Senior Notes due 2026 (the “2026 Senior Notes”) in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S.

Interest on the 2026 Senior Notes accrues at a rate of 6.875 % per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2019, and the 2026 Senior Notes mature on July 15, 2026 .

Terms of the 2026 Senior Notes are governed by an Indenture and First Supplemental Indenture thereto, each dated as of July 6, 2018, and a Second Supplemental Indenture thereto, dated as of April 30, 2020, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the 2020 Credit Agreement and Wilmington Trust, National Association, as trustee.

On June 14, 2021, the Company delivered a notice of conditional full redemption for all of the outstanding 2026 Senior Notes.

The redemption price for the 2026 Senior Notes was equal to 103.438 % (expressed as a percentage of the principal amount of the 2026 Senior Notes redeemed), plus accrued and unpaid interest, if any, on the 2026 Senior Notes to be redeemed.

The Company financed the redemption of the 2026 Senior Notes with a portion of the net proceeds from the offering of the 2029 Senior Notes, together with cash on hand.

The Company’s obligation to redeem the 2026 Senior Notes was conditioned upon the prior consummation of the issuance of the 2029 Senior Notes.

On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes, which resulted in the principal payment of $ 300.0 million and a redemption premium of $ 10.3 million.

Additionally, we expensed $ 3.0 million of deferred financing costs and discounts that were being previously amortized in association with the 2026 Senior Notes.

Notes payable consist of the following (in thousands):

March 31, 2021 December 31, 2020

Notes payable under the 2020 Credit Agreement ($ 650.0 million revolving credit facility at March 31, 2021) maturing in part on May 31, 2022 and in part on May 31, 2023;

June 30, 2021 December 31, 2020

Notes payable under the Credit Agreement ($ 850.0 million revolving credit facility at June 30, 2021) maturing on April 28, 2025;

interest paid monthly at LIBOR plus 1.45 %.

net of debt issuance costs of approximately $ 4.4 million and $ 4.9 million at March 31, 2021 and December 31, 2020, respectively

$ 274 $ 246,621

1 unchanged sentence

interest paid semi-annually at 4.000%.

net of debt issuance costs of approximately $ 1.8 million and $ 1.9 million at March 31, 2021 and December 31, 2020, respectively;

and approximately $ 1.4 million in unamortized discount at March 31, 2021 and December 31, 2020.

6.875% Senior Notes due July 15, 2026;

interest paid semi-annually at 6.875%.

300,000 300,000

Net discount and debt issuance costs ( 16,618 ) ( 8,223 )

Total notes payable $ 583,656 $ 538,398

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Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Interest incurred $ 8,040 $ 9,262 $ 15,772 $ 19,418

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Cash paid for interest $ 1,859 $ 3,676 $ 14,492 $ 18,700

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.7 million for the three months ended March 31, 2021 and 2020.

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.7 million for each of the three months ended June 30, 2021 and 2020, and $ 1.4 million for each of the six months ended June 30, 2021 and 2020.

and state income tax returns in jurisdictions with varying statutes of limitations.

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however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.

For the three months ended March 31, 2021, our effective tax rate of 19.2 % is lower than the Federal statutory rate primarily as a result of the extension of the federal energy efficient homes tax credit that was enacted into law in December 2019 and excess compensation cost for share-based payments, partially offset by an increase in the rate for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 0.2 million and $ 18.4 million for the three months ended March 31, 2021 and 2020, respectively.

For the three and six months ended June 30, 2021, our effective tax rate of 20.8 % and 20.0 %, respectively, is lower than the Federal statutory rate primarily as a result of the federal energy efficient homes tax credit and excess compensation cost for share-based payments, partially offset by an increase in the rate for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 63.5 million and $ 0.5 million for the three months ended June 30, 2021 and 2020, respectively.

Income taxes paid were $ 63.7 million and $ 18.9 million for the six months ended June 30, 2021 and 2020, respectively.

Stock Repurchase Program

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In October 2020, the Board approved an increase in our stock repurchase program by an additional $ 300.0 million.

During the three months ended March 31, 2021 and 2020, we repurchased 216,221 and 567,028 shares of our common stock for $ 25.8 million and $ 31.3 million, respectively, to be held as treasury stock.

During the three months ended June 30, 2021, we repurchased 335,000 shares of our common stock for $ 55.8 million to be held as treasury stock.

During the six months ended June 30, 2021, we repurchased 551,221 shares of our common stock for $ 81.6 million to be held as treasury stock.

A total of 1,309,214 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of March 31, 2021, we may purchase up to $ 274.6 million of shares of our common stock under our stock repurchase program.

As of June 30, 2021, we may purchase up to $ 218.8 million of shares of our common stock under our stock repurchase program.

The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements.

1 unchanged sentence

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Numerator (in thousands):

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The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):

Three Months Ended March 31,

Six Months Ended June 30,

Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value

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Ending balance 129,839 $ 77.01 156,361 $ 60.42

We recognized $ 0.8 million of stock-based compensation expense related to outstanding RSUs for the three months ended March 31, 2021 and 2020.

We recognized $ 0.9 million of stock-based compensation expense related to outstanding RSUs for each of the three months ended June 30, 2021 and 2020.

We recognized $ 1.7 million of stock-based compensation expense related to outstanding RSUs for each of the six months ended June 30, 2021 and 2020.

Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock.

At March 31, 2021, we had unrecognized compensation cost of $ 6.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 years.

At June 30, 2021, we had unrecognized compensation cost of $ 5.4 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.0 years.

Performance-Based Restricted Stock Units

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The terms of the PSUs provide that the payouts will be capped at 100 % of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance;

market condition applies for amounts recorded above target.

this market condition applies for amounts recorded above target.

The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period.

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The PSUs can only be settled in shares of our common stock.

The following table summarizes the activity of our PSUs for the three months ended March 31, 2021:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2020 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at March 31, 2020 Weighted Average Grant Date Fair Value

The following table summarizes the activity of our PSUs for the six months ended June 30, 2021:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2020 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at June 30, 2021 Weighted Average Grant Date Fair Value

2018 2018 - 2020 60,040 — ( 60,040 ) — — $ 64.60

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Total 229,820 46,027 ( 60,040 ) — 215,807

At March 31, 2021, management estimates that the recipients will receive approximately 100 %, 200 % and 200 % of the 2021, 2020 and 2019 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 2.2 million and $ 0.9 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, 2021 and 2020, respectively.

The 2018 - 2020 performance period PSUs vested and issued on March 15, 2021 at 200 % of the target number.

At March 31, 2021, we had unrecognized compensation cost of $ 16.6 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.1 years.

At June 30, 2021, management estimates that the recipients will receive approximately 158 %, 200 % and 200 % of the 2021, 2020 and 2019 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 2.2 million and $ 1.5 million of total stock-based compensation expense related to outstanding PSUs for the three months ended June 30, 2021 and 2020, respectively.

We recognized $ 4.4 million and $ 2.4 million of total stock-based compensation expense related to outstanding PSUs for the six months ended June 30, 2021 and 2020, respectively.

The 2018 - 2020 performance period PSUs vested and issued on March 15,

2021 at 200 % of the target number.

At June 30, 2021, we had unrecognized compensation cost of $ 14.9 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.2 years.

FAIR VALUE DISCLOSURES

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The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.

As of March 31, 2021, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

In order to determine the fair value of the Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

The following table below shows the level and measurement of liabilities at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021 December 31, 2020

As of June 30, 2021, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

In order to determine the fair value of the 2029 Senior Notes and the 2026 Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

The following table below shows the level and measurement of liabilities at June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021 December 31, 2020

Fair Value Hierarchy Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value

Senior Notes Level 2

2029 Senior Notes (1)

Level 2 $ 300,000 $ 303,054 $ — $ —

2026 Senior Notes (2)

$ 300,000 $ 310,314 $ 300,000 $ 340,388

(1) On June 28, 2021, we completed an offering of $ 300.0 million aggregate principal amount of the 2029 Senior Notes.

See Note 5 for more details regarding this offering.

(2) On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes.

See Note 5 for more details regarding the redemption.

RELATED PARTY TRANSACTIONS

Land Purchases from Affiliates

As of March 31, 2021, we have a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $ 4.0 million.

The lots will be purchased in takedowns, subject to a maximum price escalation of 6 % per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer.

We have a $ 0.2 million non-refundable deposit at March 31, 2021 related to this land purchase contract.

During the three months ended June 30, 2021, we completed a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $ 4.0 million.

The lots were purchased in takedowns, subject to a maximum price escalation of 6 % per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer.

In August 2019, we purchased our first takedown of 58 lots under the Pasco County contract for a base purchase price of approximately $ 2.1 million.

We did not complete any takedowns under this land purchase contract during the three months ended March 31, 2021 and 2020.

As of March 31, 2021, we have a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 2.5 million.

In April 2021, we purchased the remaining land in a takedown of 52 lots under the Pasco County contract for a base purchase price of approximately $ 1.9 million.

During the three months ended June 30, 2021, we completed a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 2.5 million.

COMMITMENTS AND CONTINGENCIES

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The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Land deposits and option payments $ 36,113 $ 34,097

1 unchanged sentence

Lots under land purchase contracts 33,418 26,236

As of March 31, 2021 and December 31, 2020, approximately $ 25.1 million and $ 24.0 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

As of June 30, 2021 and December 31, 2020, approximately $ 21.0 million and $ 24.0 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

Lease Obligations

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As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

ROU assets, as included in other assets on the consolidated balance sheets, were $ 4.9 million as of March 31, 2021 and December 31, 2020.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.2 million and $ 5.3 million at March 31, 2021 and December 31, 2020, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.4 million for the three months ended March 31, 2021 and 2020.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2021 and 2020 was $ 0.2 million and $ 0.4 million, respectively.

As of March 31, 2021, the weighted-average discount rate was 5.24 % and our weighted-average remaining life was 4.8 years.

We do not have any significant lease contracts that have not yet commenced at March 31, 2021.

The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2021 (in thousands):

ROU assets, as included in other assets on the consolidated balance sheets, were $ 4.7 million and $ 4.9 million at June 30, 2021 and December 31, 2020, respectively.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.1 million and $ 5.3 million at June 30, 2021 and December 31, 2020, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.4 million and $ 0.3 million for the three months ended June 30, 2021 and 2020, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.8 million and $ 0.7 million for the six months ended June 30, 2021 and 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the six months ended June 30, 2021 and 2020 was $ 0.8 million and $ 0.7 million, respectively.

As of June 30, 2021, the weighted-average discount rate was 5.23 % and our weighted-average remaining life was 4.4 years.

We do not have any significant lease contracts that have not yet commenced at June 30, 2021.

The table below shows the future minimum payments under non-cancelable operating leases at June 30, 2021 (in thousands):

Year Ending December 31, Operating leases

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Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling $ 167.6 million (including $ 10.3 million of letters of credit issued under the Credit Agreement) and $ 143.8 million at March 31, 2021 and December 31, 2020, respectively, related to our obligations for site improvements at various projects.

We have outstanding letters of credit and performance and surety bonds totaling $ 182.3 million (including $ 10.3 million of letters of credit issued under the Credit Agreement) and $ 143.8 million at June 30, 2021 and December 31, 2020, respectively, related to our obligations for site improvements at various projects.

Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.

Investment in Unconsolidated Entity

Investment in Unconsolidated Entities

In 2019, we became a limited partner in a real estate investment fund with a maximum $ 30.0 million commitment.

The term of the commitment is eight years and includes renewals of up to two additional years.

As of March 31, 2021 and December 31, 2020, we have a total of $ 2.2 million and $ 3.9 million, respectively, within other assets on the balance sheet.

Contributions into the unconsolidated entity are for the use of investing in certain real estate transactions.

Additionally, during the three months ended June 30, 2021, we entered into a joint venture with a mortgage lender.

As of June 30, 2021 and December 31, 2020, we have a total of $ 5.3 million and $ 3.9 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and this mortgage joint venture.

Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage servic es.

SEGMENT INFORMATION

We operate one principal homebuilding business that is organized and reports by division.

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five reportable segments at March 31, 2021:

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five qualifying reportable segments at June 30, 2021:

our Central, Southeast, Northwest, West, and Florida divisions.

These segments reflect the way the Company evaluates its business performance and manages its operations.

The Central division is our largest division and comprised approximately 40.9 % and 36.5 % of total home sales revenues for the three months ended March 31, 2021 and 2020, respectively.

In accordance with ASC Topic 280, Segment Reporting , operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance.

The Central division is our largest division and comprised approximately 42.5 % and 35.6 % of total home sales revenues for the six months ended June 30, 2021 and 2020, respectively.

In accordance with ASC 280, Segment Reporting , operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance.

The CODMs primarily evaluate performance based on the number of homes closed, gross margin and average sales price per home closed.

The seven operating segments qualify as our five reportable segments.

In determining the most appropriate reportable segments, we consider operating segments’ economic and other characteristics, including home floor plans, average selling prices, gross margin percentage, geographical proximity, production construction processes, suppliers, subcontractors, regulatory environments, customer type and underlying demand and supply.

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Financial information relating to our reportable segments was as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Central $ 347,963 $ 167,924 $ 636,713 $ 333,699

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Actual warranty expenses are reflected within the reportable segments.

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Central $ 753,094 $ 708,087

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(1) The Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses and income tax receivables related to the federal energy efficient homes tax credit.

SUBSEQUENT EVENT

On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent, which amends and restates the 2020 Credit Agreement, as more fully discussed in Note 5 .

SUBSEQUENT EVENTS

On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes, as more fully discussed in Note 5 .

On July 14, 2021, we acquired the real estate assets of Buffington Homebuilding Group, Ltd.

(“Buffington”), one of the largest privately held homebuilders in Austin, Texas.

The total purchase price for the Buffington assets, primarily consisting of inventory, was approximately $ 40.0 million in cash.

This acquisition further expands our land position in the Austin, Texas market.

The acquired assets include over 100 homes under construction, and more than 500 owned and controlled lots.

The acquisition is accounted for in accordance with ASC 805.

Our purchase accounting for Buffington is preliminary and we expect to complete the working capital adjustment and valuation of the tangible assets, intangible assets and liabilities assumed as of the acquisition date within one year from the acquisition date.

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-Q

Item 1. Financial Statements