What changed in this filing

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Item 1A. Risk Factors

2022-02-15 compared with 2021-02-25 · 98 added, 99 removed, 498 unchanged (28% of the section changed)

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• Operational Risks Related to Our Business:

◦ the impact of the COVID-19 pandemic;

◦ our ability to acquire finished lots and land parcels suitable for residential homebuilding at reasonable prices;

◦ labor and raw material shortages and price fluctuations that could delay or increase the cost of home construction;

◦ the impact of the COVID-19 pandemic;

• Industry and Economic Risks:

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Operational Risks Related to Our Business

Our business could be materially and adversely disrupted by an epidemic or pandemic (such as the present outbreak and worldwide spread of COVID-19), or similar public threat, or fear of such an event, and the measures that federal, state and local governments and other authorities implement to address it.

An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, along with any associated economic and social instability or distress, have a material adverse impact on our business, financial condition, results of operations, cash flows, strategies or prospects.

On March 11, 2020, the World Health Organization declared the current outbreak of the novel strain of coronavirus (“COVID-19”) to be a global pandemic, and on March 13, 2020, the United States declared a national emergency.

In response to these declarations and the rapid spread of COVID-19, federal, state and local governments imposed varying degrees of

restrictions on business and social activities to contain COVID-19, including business shutdowns and closures, travel restrictions, quarantines, curfews, shelter-in-place orders and “stay-at-home” orders in certain of our markets.

State and local authorities have also implemented multi-step policies with the goal of re-opening various sectors of the economy.

However, certain jurisdictions began re-opening only to return to restrictions in the face of increases in new COVID-19 cases, while other jurisdictions are continuing to re-open or have nearly completed the re-opening process despite increases in COVID-19 cases.

The COVID-19 outbreak may significantly worsen in the United States during the upcoming months, which may cause federal, state and local governments to reconsider restrictions on business and social activities.

In the event governments increase restrictions, the re-opening of the economy may be further curtailed.

We have experienced some resulting disruptions to our business operations, as these restrictions have significantly impacted, and may continue to impact, many sectors of the economy, with various businesses curtailing or ceasing normal operations and subsequently attempting to resume operations.

In March 2020, we were required to temporarily stop our construction of homes in certain markets in which we do business.

Beginning in April 2020, we resumed construction of homes in those markets.

Although we continued to build and sell homes in all of our markets, at that time the pace of sales declined and we experienced an increase in the rate of contract cancellations.

Since May 2020, the pace of sales has rebounded and we have experienced a sustained increase in demand in our markets.

However, as a result of reducing starts in March 2020 and April 2020 to preserve cash, our availability of completed homes was reduced, which slowed the pace of our home closings in the second and third quarter.

Further, our inventory of owned or controlled lots decreased during the first half of 2020 primarily due to certain cash management policies we implemented beginning in March 2020, which included delaying or canceling land acquisitions to manage our overall inventory.

From time to time during the COVID-19 outbreak, we have had to close individual sales offices for a limited period of time, as a result of potential or actual exposure to COVID-19 by one or more of our employees.

The economic impact of COVID-19 may be reduced by financial assistance under COVID-19 related federal and state programs;

however, such programs may not have a positive impact on our business.

The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the impact of government actions designed to prevent the spread of COVID-19, the availability and timely distribution of effective treatments and vaccines, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 decrease consumer confidence generally or with respect to purchasing a home;

cause civil unrest;

negatively impact mortgage availability or the federal government’s mortgage loan-related programs or policies;

delay mortgage originations;

tighten mortgage lending standards;

or precipitate a prolonged economic downturn or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products;

negatively impact general consumer interest in purchasing a home compared to choosing other housing alternatives;

impair our ability to sell and build homes in a typical manner or at all, generate revenues and cash flows or access the Credit Agreement (as defined herein) or the capital or lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business;

increase the costs or decrease the supply of building materials or the financial viability or availability of subcontractors, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts;

and result in our recognizing charges in future periods, which may be material, for inventory impairments or land option contract abandonments, or both, related to our current inventory assets.

The inherent uncertainty surrounding COVID-19, due in part to changing governmental directives (including as a result of the change in the U.S.

presidential administration), public health challenges and progress and market reactions thereto, also makes it more challenging for our management to estimate the future performance of our business and develop strategies to generate growth or achieve our objectives for the remainder of 2021.

Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, decreases in our net orders, homes closed, average sales prices per home closed, revenues and profitability, and such impacts could be material to our business, financial condition, results of operations, cash flows, strategies or prospects in future quarters.

In addition, should the surge in COVID-19 cases or the public health effort related thereto intensify to such an extent that we cannot operate in most or all of our markets, we could generate few or no orders and deliver few, if any, homes during the applicable period, which could be prolonged.

Along with a potential increase in cancellations of home purchase contracts, if prolonged government restrictions on our business and our customers return in response to increases in COVID-19 cases, or if there is an extended economic recession, we could be unable to produce revenues and cash flows sufficient to conduct our business;

meet the terms of our covenants and other requirements under the Credit Agreement, the Senior Notes and the related indenture, and/or mortgages and land contracts due to land sellers and other loans;

or service our outstanding indebtedness.

Such a circumstance could, among other things, exhaust our available liquidity and ability to access liquidity sources or trigger an acceleration to pay a significant portion or all of our then-outstanding debt obligations, which we may be unable to do.

The long-term sustainability and growth in our home closings depends in part upon our ability to acquire finished lots and land parcels suitable for residential homebuilding at reasonable prices.

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If suitable lots or land at reasonable prices become less available, the number of homes we may be able to build and sell could be reduced, and the cost of land could be increased substantially, which could adversely impact us.

As competition for suitable land increases, the cost of undeveloped lots and the cost of developing owned land could also rise and the availability of suitable land at acceptable prices may decline, which could adversely impact us.

As competition for suitable land increases, the cost of undeveloped lots and the cost of developing owned land could also rise and the availability of suitable land at

acceptable prices may decline, which could adversely impact us.

The availability of suitable land assets could also affect the success of our land acquisition strategy, which may impact our ability to maintain or increase the number of our active communities, as well as to sustain and grow our revenues and margins, and achieve or maintain profitability.

Additionally, developing undeveloped land is capital intensive and time consuming and we may develop land based upon forecasts and assumptions that prove to be inaccurate, resulting in projects that are not economically viable.

In recent years, it has become more difficult to acquire finished lots in attractive locations and therefore we have been acquiring more undeveloped land that we need to develop as compared to finished lots.

This shift in our land procurement has resulted in longer lead time between when we acquire the land and when we can start construction of a home on the land and thus a longer time that these land assets are on our balance sheet.

Risks associated with our land and lot inventories could adversely affect our business or financial results.

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The recording of a significant inventory impairment could negatively affect our reported earnings per share and negatively impact the market perception of our business.

Labor and raw material shortages and price fluctuations could delay or increase the cost of home construction, which could materially and adversely affect us.

Labor and raw material shortages, price fluctuations and supply chain constraints could delay or increase the cost of home construction, which could materially and adversely affect us.

The residential construction industry experiences labor and raw material shortages from time to time, including shortages in qualified subcontractors and tradespeople and supplies of insulation, drywall, cement, steel and lumber.

These labor and raw material shortages can be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential and commercial structures or as a result of broader economic disruptions, such as the COVID-19 pandemic.

The current strong demand for homes and the effects of the COVID-19 pandemic have caused multiple disruptions in our supply chain and have resulted in shortages in certain building materials and tightness in the labor market.

It is uncertain whether these shortages will continue as is, improve or worsen.

In addition, pricing for labor and raw materials can be affected by the factors discussed above and various other national, regional, local, economic and political factors, including changes in immigration laws, trends in labor migration and tariffs.

Specifically, during the second half of 2020, we saw a significant increase in the cost of our lumber related to undersupply as a result of increased demand and shutdowns of lumber mills due to the COVID-19 pandemic.

Specifically, during the second and third quarters of 2021, we saw a significant increase in the cost of our lumber related to undersupply as a result of increased demand and shutdowns of lumber mills due to the COVID-19 pandemic.

We may see additional lumber cost pressures in future quarters.

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In the event of shortages in labor or raw materials in such markets, local subcontractors, tradespeople and suppliers may choose to allocate their resources to homebuilders with an established presence in the market and with whom they have longer-standing relationships.

Labor and raw material shortages and price increases for labor and raw materials could cause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Labor and raw material shortages, price increases for labor and raw materials and supply chain constraints could cause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Our business and results of operations are dependent on the availability, skill and performance of subcontractors.

We engage subcontractors to perform the construction of our homes and, in many cases, to select and obtain the raw materials used in constructing our homes.

Accordingly, the timing and quality of our construction depend on the availability and skill of our subcontractors.

While we anticipate being able to obtain sufficient materials and reliable subcontractors and believe that our relationships with subcontractors are good, we do not have long-term contractual commitments with any subcontractors, and we can provide no assurance that skilled subcontractors will continue to be available at reasonable rates and in our markets.

Accordingly, the timing and quality of our construction depend on the availability

and skill of our subcontractors.

While we anticipate being able to obtain sufficient materials and reliable subcontractors and believe that our relationships with subcontractors are good, we do not have long-term contractual commitments with any subcontractors, and we can provide no assurance that skilled subcontractors will be available at reasonable rates and in our markets.

In addition, as we expand into new markets, we typically must develop new relationships with subcontractors in such markets, and there can be no assurance that we will be able to do so in a cost-effective and timely manner, or at all.

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It can take several years from the time we acquire control of an undeveloped property to the time we make our first home sale on the site.

Delays in the development of communities, including delays associated with subcontractors performing the development activities or entitlements, expose us to the risk of changes in market conditions for homes.

Delays in the development of communities, including delays associated with subcontractors performing the development activities or entitlements, labor and raw material shortages or supply chain disruptions, expose us to the risk of changes in market conditions for homes.

A decline in our ability to develop and market one of our new undeveloped communities successfully and to generate positive cash flow from these operations in a timely manner could have a material adverse effect on our business and results of operations and on our ability to service our debt and to meet our working capital requirements.

In addition, higher than expected absorption rates in existing communities may result in lower than expected inventory levels until the development for replacement communities is completed.

We could be adversely affected by efforts to impose joint employer liability on us for labor law violations committed by our subcontractors.

Our homes are constructed by employees of subcontractors and other third parties.

We do not have the ability to control what these parties pay their employees or the rules they impose on their employees.

However, various governmental agencies have taken actions to hold parties like us responsible for violations of wage and hour laws and other labor laws by subcontractors.

Governmental rulings that hold us responsible for labor practices by our subcontractors could create substantial

exposures for us under our subcontractor relationships, which could have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.

We may be unable to obtain suitable bonding for the development of our housing projects.

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In addition, we could be required to make material expenditures related to the settlement of such issues or disputes or to modify our community development plans, which could adversely affect our results of operations.

We could be adversely affected by efforts to impose joint employer liability on us for labor law violations committed by our subcontractors.

Our homes are constructed by employees of subcontractors and other third parties.

We do not have the ability to control what these parties pay their employees or the rules they impose on their employees.

However, various governmental agencies have taken actions to hold parties like us responsible for violations of wage and hour laws and other labor laws by subcontractors.

Governmental rulings that hold us responsible for labor practices by our subcontractors could create substantial exposures for us under our subcontractor relationships, which could have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.

Any joint venture investments that we make could be adversely affected by our lack of sole decision making authority, our reliance on the financial condition of our joint venture partners and disputes between us and our joint venture partners.

We may co-invest in the future with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a land acquisition and/or a development.

During 2021, we established LGI Mortgage Solutions, a joint venture with one of our long-time, third-party preferred lenders.

We may co-invest in the future with third parties through other partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a land acquisition and/or a development.

In this event, we would not be in a position to exercise sole decision-making authority regarding the acquisition and/or development, and our investment may be illiquid due to our lack of control.

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In addition, we may in certain circumstances be liable for the actions of our joint venture partners.

Our business could be materially and adversely disrupted by an epidemic, pandemic (such as COVID-19) or similar public health threat.

For instance, the outbreak of COVID-19 and its development into a global pandemic in March 2020 resulted in federal, state and local governments imposing varying degrees of restrictions on business and social activities to contain COVID-19, including business shutdowns and closures, travel restrictions, quarantines, shelter-in-place orders and “stay-at-home” orders in certain of our markets.

While many of the restrictions and measures initially implemented during 2020 have since been softened or lifted in varying degrees in the United States, and the manufacture and distribution of COVID-19 vaccines during 2021 helped to initiate a recovery from the pandemic, recent increases in COVID-19 cases, the uncertainty regarding new variants of COVID-19 and the success of any vaccines in respect thereof may in the future cause a significant reduction in economic activity or prompt the re-imposition of certain restrictions and measures.

The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the emergence of more infectious variants of COVID-19, the impact of government actions designed to prevent the spread of COVID-19 or the decrease in such actions and resulting increased business and social activities, the availability and timely distribution of, and willingness to accept, effective treatments and vaccines, vaccine hesitancy, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 decrease consumer confidence generally or with respect to purchasing a home;

cause civil unrest;

negatively impact mortgage availability or the federal government’s mortgage loan-related programs or policies;

delay mortgage originations;

tighten mortgage lending standards;

or precipitate a prolonged economic downturn or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products;

negatively impact general consumer interest in purchasing a home compared to choosing other housing alternatives;

further disrupt our supply chain or increase the costs or decrease the supply of building materials or the financial viability or availability of subcontractors, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts;

and result in our recognizing charges in future periods, which may be material, for inventory impairments or land option contract abandonments, or both, related to our current inventory assets.

The inherent uncertainty surrounding COVID-19, due in part to changing governmental directives (including as a result of the change in the U.S.

meet the terms of our covenants and other requirements under the Credit Agreement, the 2029 Senior Notes (as defined herein) and the related indenture, and/or mortgages and land contracts due to land sellers and other loans;

or service our outstanding indebtedness.

Industry and Economic Risks

Inflation could adversely affect our business and financial results.

Inflation could adversely affect our business and financial results by increasing the costs of land, raw materials and labor needed to operate our business.

Inflation may also accompany higher interest rates, which could adversely impact potential customers’ ability to obtain financing on favorable terms, thereby decreasing demand for our homes.

During the year ended December 31, 2021, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue into 2022.

In an inflationary environment, such as the current economic environment, depending on the homebuilding industry and other economic conditions, we may be unable to raise the sales prices of our homes enough to offset the increasing costs of our operations, which would decrease our profit margins.

Furthermore, if we need to lower the sales prices of our homes to meet demand, the value of our land inventory may decrease.

Inflation may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business.

Tightening of mortgage lending standards and mortgage financing requirements, untimely or incomplete mortgage loan originations for our homebuyers and rising mortgage interest rates could adversely affect the availability of mortgage loans for potential purchasers of our homes and thereby materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.

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The financial documentation, down payment amounts and income to debt ratio requirements are subject to change and could become more restrictive.

The federal government has a significant role in supporting mortgage lending through its conservatorship of Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), both of which purchase or insure mortgage loans and mortgage loan-backed securities, and its insurance of mortgage loans through or in connection with the Federal Housing Administration (“FHA”), the Veterans Administration (“VA”) and the U.S.

purchase or insure mortgage loans and mortgage loan-backed securities, and its insurance of mortgage loans through or in connection with the Federal Housing Administration (“FHA”), the Veterans Administration (“VA”) and the U.S.

Department of Agriculture (“USDA”).

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Legislation to extend such tax credits beyond December 31, 2021 has not been adopted, and it is uncertain whether an extension or similar tax credit will be adopted in the future.

Federal energy efficient homes tax credits recognized during the year ended December 31, 2020 totaled $41.2 million, of which $29.7 million related to homes closed in prior open tax years.

Federal energy efficient homes tax credits recognized during the year ended December 31, 2021 totaled $16.2 million.

If legislation to extend such tax credits for periods after December 31, 2021 is not adopted, our effective income tax rates in future periods may increase, potentially materially.

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Regional factors affecting the homebuilding industry in our current markets could materially and adversely affect us.

Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia and Pennsylvania.

In addition, we own land or have entered into contracts for the right to purchase land or lots at a future point in time in additional states.

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Furthermore, if buyer demand for new homes in these markets decreases, home prices could decline, which would have a material adverse effect on our business.

Fluctuations in real estate values may require us to write-down the book value of our real estate assets.

The homebuilding and land development industries are subject to significant variability and fluctuations in real estate values.

As a result, we may be required to write-down the book value of our real estate assets in accordance with GAAP, and some of those write-downs could be material.

Any material write-downs of assets could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Interest rate changes may adversely affect us.

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We could be required to liquidate one or more of our assets at times which may not permit us to receive an attractive return on our assets in order to meet our debt service obligations.

Fluctuations in real estate values may require us to write-down the book value of our real estate assets.

The homebuilding and land development industries are subject to significant variability and fluctuations in real estate values.

As a result, we may be required to write-down the book value of our real estate assets in accordance with GAAP, and some of those write-downs could be material.

Any material write-downs of assets could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Any future government shutdowns or slowdowns may materially adversely affect our business or financial results.

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We are subject to a variety of local, state, federal and other laws, statutes, ordinances, rules and regulations concerning the environment, hazardous materials, the discharge of pollutants and human health and safety.

The particular environmental requirements that apply to any given site vary according to multiple factors, including the site’s location, its environmental conditions, the present and former uses of the site, the presence or absence of endangered plants or animals or sensitive habitats, and environmental conditions at adjoining or nearby properties.

The particular environmental requirements that apply to any given site vary according to multiple factors, including the site’s location, whether the site contains wetlands or other features that may create burdensome permitting requirements, its environmental conditions, the present and former uses of the site, the presence or absence of endangered plants or animals or sensitive habitats, and environmental conditions at adjoining or nearby properties.

We may not identify all of these concerns during any pre-acquisition or pre-development review of project sites.

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This legislation could relate to, for example, matters such as greenhouse gas emissions control and building and other codes that impose energy efficiency standards or require energy saving construction materials.

New building or other code requirements that impose stricter energy efficiency standards or requirements for building materials could significantly increase our cost to construct homes.

Certain state and local governments in areas such as California have passed, or are considering, legislation banning the use of natural gas-fired appliances in new homes, which could affect our costs to construct homes as well as consumer demand for the homes we construct.

New building or other code requirements that impose stricter energy efficiency standards or requirements for building materials could

significantly increase our cost to construct homes.

As climate change concerns continue to grow, legislation, regulations, mandates, standards and other requirements of this nature are expected to continue to be enacted and become costlier for us to comply with.

Similarly, energy-related initiatives affect a wide variety of companies throughout the United States and because our operations are heavily

dependent on significant amounts of raw materials, such as lumber, steel, and concrete, these initiatives could have an adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade or similar energy-related regulations.

Similarly, energy-related initiatives affect a wide variety of companies throughout the United States and because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, these initiatives could have an adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade or similar energy-related regulations.

Ownership, leasing or occupation of land and the use of hazardous materials carries potential environmental risks and liabilities.

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We generally close more homes in our second, third and fourth quarters.

Thus, our revenues may fluctuate on a quarterly basis, and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels.

Thus, our revenues may fluctuate on a quarterly basis, and we may have higher capital

requirements in our second, third and fourth quarters in order to maintain our inventory levels.

Accordingly, there is a risk that we will invest significant amounts of capital in the acquisition and development of land and construction of homes that we do not sell at anticipated pricing levels or within anticipated time frames.

If, due to market conditions, construction delays or other

causes, we do not complete home sales at anticipated pricing levels or within anticipated time frames, our business, prospects, liquidity, financial condition and results of operations would be adversely affected.

If, due to market conditions, construction delays or other causes, we do not complete home sales at anticipated pricing levels or within anticipated time frames, our business, prospects, liquidity, financial condition and results of operations would be adversely affected.

We expect this seasonal pattern to continue over the long term, but we can make no assurances as to the degree to which our historical seasonal patterns will occur in the future.

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The potential difficulties described above could also lead some homebuyers to cancel or refuse to honor their home purchase contracts altogether.

Inflation could adversely affect our business and financial results.

Inflation could adversely affect our business and financial results by increasing the costs of land, raw materials and labor needed to operate our business.

If our markets have an oversupply of homes relative to demand, we may be unable to offset any such increases in costs with corresponding higher sales prices for our homes.

Inflation may also accompany higher interest rates, which could adversely impact potential customers’ ability to obtain financing on favorable terms, thereby further decreasing demand.

If we are unable to raise the prices of our homes to offset the increasing costs of our operations, our margins could decrease.

Furthermore, if we need to lower the price of our homes to meet demand, the value of our land inventory may decrease.

Inflation may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business.

Difficulties with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale.

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We have expanded our business through selected investments in new geographic markets and by diversifying our products in certain markets.

Investments in land, finished lots and home inventories can expose us to risks of economic loss and inventory impairments if housing conditions weaken or we are unsuccessful in implementing our growth strategies.

Investments in land, finished lots, home inventories and rental properties can expose us to risks of economic loss and inventory impairments if housing conditions weaken or we are unsuccessful in implementing our growth strategies.

We may develop communities in which we build townhomes or other multi-family homes in addition to single-family homes, sell acreage home sites as a part of the development, sell homes to investors or portfolio management companies, or develop commercial properties that may be complementary to our communities.

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We can give no assurance that we will be able to successfully identify, acquire or implement these new strategies in the future.

Accordingly, any such expansion, including

through acquisitions, could expose us to significant risks, beyond those associated with operating our existing business, including understanding and complying with the laws and regulations of new jurisdictions, diversion of our management’s attention from ongoing business concerns, difficulties in integrating an acquired business, and incurrence of unanticipated liabilities and expenses and may materially adversely affect our business, prospects, liquidity, financial condition and results of operations.

Accordingly, any such expansion, including through acquisitions, could expose us to significant risks, beyond those associated with operating our existing business, including understanding and complying with the laws and regulations of new jurisdictions, diversion of our management’s attention from ongoing business concerns, difficulties in integrating an acquired business, and incurrence of unanticipated liabilities and expenses and may materially adversely affect our business, prospects, liquidity, financial condition and results of operations.

We may incur a variety of costs to engage in future growth or expansion of our operations, including through add-on acquisitions, and the anticipated benefits may never be realized.

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We depend on key management personnel and other experienced employees.

Our success depends to a significant degree upon the contributions of certain key management personnel, including, but not limited to, Eric Lipar, our Chief Executive Officer and Chairman of our board of directors.

Although we have entered into an employment agreement with Mr.

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Our existing indebtedness is recourse to us, and we anticipate that future indebtedness will likewise be recourse.

As of December 31, 2020, we had a $650.0 million revolving credit facility (the “Credit Agreement”) to finance our construction and development activities.

As of December 31, 2021, we had a $850.0 million revolving credit facility under the Credit Agreement to finance our construction and development activities.

As of December 31, 2021, we had outstanding borrowings of $517.4 million under the Credit Agreement and we could borrow an additional $321.3 million under the Credit Agreement.

As of December 31, 2021, borrowings under the Credit Agreement bore interest at a rate of the London Interbank Offered Rate (“LIBOR”) plus 1.45% per annum.

In addition, as of December 31, 2020, we had outstanding $300.0 million aggregate principal amount of our 6.875% Senior Notes due 2026 (the “Senior Notes”).

Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, if any, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service.

In addition, as of December 31, 2021, we had outstanding $300.0 million aggregate principal amount of the 2029 Senior Notes.

The Board will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, if any, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service.

As a means of sustaining our long-term financial health and limiting our exposure to unforeseen dislocations in the debt and financing markets, we currently expect to remain conservatively capitalized.

However, our certificate of incorporation does not contain a limitation on the amount of indebtedness we may incur, and our board of directors may change our target debt levels at any time without the approval of our stockholders.

our certificate of incorporation does not contain a limitation on the amount of indebtedness we may incur, and the Board may change our target debt levels at any time without the approval of our stockholders.

Incurring substantial indebtedness could subject us to many risks that, if realized, would adversely affect us, including the risk that:

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Our current financing agreements contain, and the financing arrangements we enter into in the future likely will contain, provisions that limit our ability to do certain things.

In particular, the Credit Agreement requires us to maintain (i) a tangible net worth of not less than $625.0 million plus 75% of the net proceeds of all equity issuances plus 50.0% of the amount of our positive net income in any fiscal quarter after December 31, 2019, (ii) a leverage ratio of not greater than 60.0%, (iii) liquidity of at least $50.0 million and (iv) a ratio of EBITDA to interest expense for the most recent four quarters of at least 1.75 to 1.00.

In particular, the Credit Agreement requires us to maintain (i) a tangible net worth of not less than $850.0 million plus 75% of the net proceeds of all equity issuances after December 31, 2020 plus 50.0% of the amount of our positive net income in each fiscal quarter ending after March 31, 2021, (ii) a leverage ratio of not greater than 60.0%, (iii) liquidity of at least $50.0 million and (iv) a ratio of EBITDA to interest expense for the most recent four quarters of at least 1.75 to 1.00.

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

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On July 27, 2017, the Financial Conduct Authority in the United Kingdom (the “FCA”), which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021.

On November 30, 2020, the FCA and ICE Benchmark Administration, which administers LIBOR quotations, announced a consultation on the extension of the quotation of most LIBOR tenors to June 30, 2023 for legacy contracts only.

The Credit Agreement, which, at the present time, has a term that extends to May 31, 2023 with respect to 87% of the commitments thereunder and to May 31, 2022 with respect to 13% of the commitments thereunder, provides for a mechanism to amend the Credit Agreement to reflect the establishment of an alternate rate of interest upon the

occurrence of certain events related to the phase-out of any applicable interest rate.

On November 30, 2020, the FCA and ICE Benchmark Administration, which administers LIBOR quotations, announced a consultation on the extension of the quotation of certain LIBOR tenors to June 30, 2023 for legacy contracts only.

The Credit Agreement, which, at the present time, has a term that extends to April 28, 2025, provides for a mechanism to amend the Credit Agreement to reflect the establishment of an alternate rate of interest upon the occurrence of certain events related to the phase-out of any applicable interest rate.

However, we have not yet pursued any technical amendment or other contractual alternative to address this matter and are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate on the Credit Agreement.

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Our ability to service our debt depends on the results of operations of our subsidiaries and upon the ability of such subsidiaries to provide us with cash, whether in the form of dividends, loans or other distributions, to pay amounts due on our obligations.

Future financing arrangements may contain negative covenants, limiting the ability of our subsidiaries to declare or pay dividends or make distributions.

Future financing arrangements may contain negative covenants that limit the ability of our subsidiaries to declare or pay dividends or make distributions.

Our subsidiaries are separate and distinct legal entities;

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We may change our operational policies, investment guidelines and our business and growth strategies without stockholder consent, which may subject us to different and more significant risks in the future.

Our board of directors will determine our operational policies, investment guidelines and our business and growth strategies.

Our board of directors may make changes to, or approve transactions that deviate from, those policies, guidelines and strategies without a vote of, or notice to, our stockholders.

This could result in us conducting operational matters, making investments or pursuing different business or growth strategies than those contemplated in this Annual Report on the Form 10-K.

The Board will determine our operational policies, investment guidelines and our business and growth strategies.

The Board may make changes to, or approve transactions that deviate from, those policies, guidelines and strategies without a vote of, or notice to, our stockholders.

This could result in us conducting operational matters, making investments or pursuing different business or growth strategies than those contemplated in this Annual Report on Form 10-K.

Under any of these circumstances, we may expose ourselves to different and more significant risks in the future, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

We participate in certain unconsolidated entities where we may be adversely impacted by the failure of the limited partnership or joint venture or its participants to fulfill their obligations.

We currently participate through a real estate investment fund as a limited partner and operate through a mortgage service joint venture with independent third parties in which we do not have a controlling interest.

As of December 31, 2021 and 2020, we have contributed a total of $5.6 million and $3.9 million, respectively, relating to our investment in the real estate

investment fund and the mortgage joint venture.

Contributions into these unconsolidated entities are used by the entities to invest in certain real estate transactions and residential mortgage services, respectively.

As a result of not having a controlling interest in these entities, we have limited influence over decisions made with regard to these entities and are not able to require these entities or their participants to honor their obligations.

If these entities or their participants do not honor their obligations, we may be required to expend additional resources or suffer losses of our investments in these entities.

General Risk Factors

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Our information systems, and those of our vendors and service providers, are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches, including malware and phishing, cyberattacks, natural disasters, usage errors by employees and other related risks.

Any cyber incident or attack or other disruption or failure in these information systems, or other systems or infrastructure upon which they rely, could adversely affect our ability to conduct our business and could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Any cyber incident or attack or breach or other disruption or failure in these information systems, or other systems or infrastructure upon which they rely, could adversely affect our ability to conduct our business and could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Furthermore, any failure or security breach of information systems or data could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, or a loss of confidence in our security measures, which could harm our business and could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Although we have implemented systems and processes intended to secure our information systems, there can be no assurance that our efforts to maintain the security and integrity of our information systems will be effective or that future attempted security breaches or disruptions would not be successful or damaging.

We have been the target of a number of unsuccessful cyber-attacks and we expect these attacks to continue into the foreseeable future.

Although we have implemented systems and processes intended to secure our information systems, there can be no assurance that our efforts to maintain the security and integrity of our

information systems will be effective or that future attempted security breaches or disruptions would not be successful or damaging.

Our business is subject to complex and evolving U.S.

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Furthermore, federal, state and local government bodies or agencies have in the past adopted, and may in the future adopt, more laws and regulations affecting data privacy.

Laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including recently-implemented and

forthcoming California legislation, may significantly impact our business activities and require substantial compliance costs, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including recently-implemented and forthcoming California legislation, may significantly impact our business activities and require substantial compliance costs, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Any failure, or perceived failure, by us to adequately address privacy and data security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations and policies could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.

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For the past decade, the domestic financial markets have experienced a high degree of volatility, uncertainty and, during certain periods, tightening of liquidity in both the high yield debt and equity capital markets, resulting in certain periods where new capital has been both more difficult and more expensive to access.

If we are unable to access the credit markets, we could be required to defer or eliminate important business strategies

and growth opportunities in the future.

If we are unable to access the credit markets, we could be required to defer or eliminate important business strategies and growth opportunities in the future.

In addition, if there is prolonged volatility and weakness in the capital and credit markets, potential lenders may be unwilling or unable to provide us with financing that is attractive to us or may increase collateral requirements or may charge us prohibitively high fees in order to obtain financing.

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The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:

• the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers, and the markets in which we operate, U.S.

• adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage interest rates, supply chain disruptions, inflation and decreases in housing prices;

• the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions), and the markets in which we operate, U.S.

and world financial markets, mortgage availability, potential regulatory actions, changes in customer and stakeholder behaviors and impacts on and modifications to our operations, business and financial condition relating to COVID-19;

• a slowdown in the homebuilding industry or changes in population growth rates in our markets;

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• our ability to develop our projects successfully or within expected timeframes;

• our ability to identify potential acquisition targets and close such acquisitions;

• our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions;

• our ability to successfully integrate any acquisitions with our existing operations;

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• our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond December 31, 2021;

• information system failures, cyber incidents or breaches in security;

• negative publicity or poor relations with the residents of our projects;

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• availability of qualified personnel and third-party contractors and subcontractors;

• information system failures, cyber incidents or breaches in security;

• our ability to retain our key personnel;

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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