What changed in this filing

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Item 1A. Risk Factors

2024-02-20 compared with 2023-02-21 · 124 added, 82 removed, 537 unchanged (28% of the section changed)

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• Operational Risks Related to Our Business:

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

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

◦ the impact of the COVID-19 pandemic;

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

◦ the impact of an epidemic or pandemic;

• Industry and Economic Risks:

◦ rising mortgage interest rates, and the tightening of mortgage lending standards and mortgage financing requirements;

◦ the housing market may continue its recent decline or decline further;

◦ higher mortgage interest rates, and the tightening of mortgage lending standards and mortgage financing requirements;

◦ a significant downturn in our housing markets or in the homebuilding industry;

◦ the homebuilding industry is highly competitive;

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◦ access to financing sources may not be available on favorable terms, or at all;

◦ the impact of financial industry and capital markets turmoil.

Operational Risks Related to Our Business

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We have substantial real estate inventories that regularly remain on our balance sheet for significant periods of time prior to their sale, during which time we are exposed to the risk of adverse market developments.

Real estate investments are relatively difficult to sell quickly.

As a result, our ability to promptly sell one or more properties for reasonable prices in response to changing economic, financial and investment conditions may be limited, and we may be forced to hold non-income producing properties for extended periods of time.

Our business model is based on building homes before a sales contract is executed and a customer deposit is received.

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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 ongoing COVID-19 pandemic.

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.

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Such government-imposed tariffs and trade regulations on imported building supplies, and retaliatory measures by other countries, may in the future have significant impacts on the cost to construct our homes and on our customers’ budgets, including by causing disruptions or shortages in our supply chain.

We have also experienced labor shortages, price fluctuations and increased labor costs, including as a result of inflation or wage increases, particularly over the past year due to historic inflation rates in the United States.

We have also experienced labor shortages, price fluctuations and increased labor costs, including as a result of inflation or wage increases, particularly over the past two years due to historic inflation rates in the United States.

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

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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, 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.

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.

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Despite our quality control and jobsite safety efforts, we may discover from time to time that our subcontractors have engaged in improper construction or safety practices or have installed defective materials in our homes.

When we discover these issues, we utilize our subcontractors to repair the homes in accordance with our new home warranty and as required by law.

When we discover these issues, we typically utilize our subcontractors to repair the homes in accordance with our new home warranty.

The adverse costs of satisfying our warranty and other legal obligations in these instances may be significant and we may be unable to recover the costs of warranty-related repairs from subcontractors, suppliers and insurers, which could have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.

We may also suffer reputational damage from the actions of subcontractors, which are beyond our control.

We may also suffer reputational damage, and may be exposed to potential liability, from the actions of subcontractors or their failure to comply with applicable laws, including matters which are beyond our control.

Attempts at mitigation may not be successful, and we could be subject to claims relating to actions of, or matters relating to, our subcontractors.

If we are unable to develop our communities successfully or within expected time-frames, our results of operations could be adversely affected.

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Further, the coverage offered by, and the availability of, general liability insurance for completed operations and construction defects are currently limited and costly.

We cannot provide assurance that coverage will not be further restricted, increasing our risks and financial exposure to claims, and/or become costlier.

cannot provide assurance that coverage will not be further restricted, increasing our risks and financial exposure to claims, and/or become costlier.

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

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The regulatory environment for mortgage lending is complex and ever changing and has led to an increase in the number of audits, examinations and investigations in the industry.

The 2008 housing downturn resulted in numerous changes in the regulatory framework of the financial services industry.

More recently, in response to COVID-19, federal agencies, state governments and private lenders are proactively providing relief to borrowers in the housing market by, subject to requirements, suspending home foreclosures and granting payment forbearance, among other

These relief measures are temporary, but these changes and others could become incorporated into the current regulatory framework.

The 2008 housing

downturn resulted in numerous changes in the regulatory framework of the financial services industry.

In response to COVID-19, federal agencies, state governments and private lenders provided relief to borrowers in the housing market by, subject to requirements, suspending home foreclosures and granting payment forbearance, among other things.

These relief measures were temporary, but these changes and others could become incorporated into the current regulatory framework.

Any changes or new enactments could result in more stringent compliance standards, which could adversely affect our financial condition and results of operations and the market perception of our business.

Additionally, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.

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

Additionally, if we are unable to originate mortgages for any reason going forward, such as a cyberattack on our joint venture partners, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.

Our business could be materially and adversely disrupted by an epidemic, pandemic or similar public health threat.

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.

For instance, the COVID-19 pandemic 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 lifted 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.

To the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks described in this “Risk Factors” section.

There is no guarantee that a future outbreak of this or any other widespread epidemics or pandemics will not occur, or that the U.S.

For instance, the COVID-19 pandemic, at its peak, resulted in federal, state and local governments imposing varying degrees of restrictions on business and social activities to contain COVID-19.

To the extent that an epidemic, pandemic or similar public health threat adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks described in this “Risk Factors” section.

There is no guarantee that a future outbreak of any widespread epidemics or pandemics will not occur, or that the U.S.

economy will fully recover therefrom, either of which could materially and adversely affect our business.

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Inflation could adversely affect our business and financial results.

Currently, the United States is experiencing inflationary conditions.

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, 2022, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue into 2023.

We have experienced a significant increase in land, labor, materials and construction costs.

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.

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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.

Rising mortgage interest rates, 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.

Higher mortgage interest rates, tightening of mortgage lending standards and mortgage financing requirements, and untimely or incomplete mortgage loan originations for our homebuyers 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.

Almost all of our customers finance their home purchases through lenders that provide mortgage financing.

Mortgage interest rates have increased significantly during 2022, which has made the homes we sell less affordable.

Mortgage interest rates have increased significantly since January 2022, which has negatively impacted the overall housing market.

The current and continued macroeconomic conditions impacting the homebuilding industry are rapid inflation and rising interest rates.

The significant burden of inflation and the rise of mortgage interest rates for our customers during 2022 are viewed by us as the primary driver behind the sudden decrease in demand for new homes beginning in March 2022.

However, we cannot predict whether mortgage interest rates will continue to rise, remain high or fall.

If mortgage interest rates continue to increase, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly negatively impacted.

The significant burden of inflation and higher mortgage interest rates for our customers since January 2022 are viewed by us as the primary driver behind the subsequent decrease in demand for new homes.

However, we cannot predict whether mortgage interest rates will rise, remain high or fall.

If mortgage interest rates increase, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly negatively impacted.

Additionally, rapid increases in interest rates may negatively impact the affordability of a home purchase for existing buyers in backlog who still need to lock in a mortgage interest rate for their loan.

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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.

Department of Agriculture (“USDA”).

Department of

Agriculture (“USDA”).

FHA and USDA backing of mortgage loans has been particularly important to the mortgage finance industry and to our business.

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With the weakening of the housing market, we have experienced an increase in cancellation rates.

If economic conditions decline further, if mortgage financing becomes less available, or if our homes become less attractive due to market price declines or due to other conditions at or in the vicinity of our communities, we could experience an additional increase in homebuyers canceling their purchase contracts with us, which could have an adverse effect on our business and results of operations.

If economic conditions decline further, if mortgage financing becomes less available or more costly, or if our homes become less attractive due to market price declines or due to other conditions at or in the vicinity of our communities, we could experience an additional increase in homebuyers canceling their purchase contracts with us, which could have an adverse effect on our business and results of operations.

Any limitation on, or reduction or elimination of, tax benefits associated with homeownership would have an adverse effect upon the demand for homes, which could be material to our business.

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Any such future changes could also have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.

The housing market may continue its recent decline or decline further, and any such continuation or decline in our markets or for the homebuilding industry generally may materially and adversely affect our business and financial condition.

We cannot predict whether and to what extent the housing markets in the geographic areas in which we operate will grow, particularly if interest rates for mortgage loans, land costs, and construction costs continue to rise.

housing market remained strong throughout the COVID-19 pandemic, but began softening during the second quarter of 2022 and continued to decline through the remainder of 2022 primarily due to inflationary pricing, rapidly rising interest rates for mortgage loans, and construction costs.

Other factors that might impact the homebuilding industry include uncertainty in domestic and international financial, credit and consumer lending markets amid slow economic growth or recessionary conditions in various regions or industries around the world, including as a result of the COVID-19 pandemic, the conflict between Russia and Ukraine, tight lending standards and practices for mortgage loans that limit consumers’ ability to qualify for mortgage financing to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other fees and required down payment amounts, higher home prices, more conservative appraisals, changing consumer preferences, higher loan-to-value ratios and extensive buyer income and asset documentation requirements, changes to mortgage regulations, slower rates of population growth or population decline in our markets, or Federal Reserve policy changes.

If there is limited economic growth, declines in employment and consumer income, changes in consumer behavior, including as a result of the COVID-19 pandemic, the conflict between Russia and Ukraine, and/or tightening of mortgage lending standards, practices and regulation in the geographic areas in which we operate, or if interest rates for mortgage loans or home prices continue to rise, there could likely be a corresponding adverse effect on our business, prospects, liquidity, financial condition and results of operations, including, but not limited to, the number of homes we sell, our average sales price per home closed , cancellations of home purchase contracts and the amount of revenues or profits we generate, and such effect may be material.

A significant downturn in our housing markets or in the homebuilding industry generally may materially and adversely affect our business and financial condition.

presidential and other elections, tight lending standards and practices for mortgage loans that limit consumers’ ability to qualify for mortgage financing to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other fees and required down payment amounts, higher home prices, more conservative appraisals, changing consumer preferences, higher loan-to-value ratios and extensive buyer income and asset documentation requirements, changes to mortgage regulations, slower rates of population growth or population decline in our markets, or Federal Reserve policy changes.

If there is limited economic growth, declines in employment and consumer income, changes in consumer behavior, including as a result of an epidemic or pandemic, the conflict between Russia and Ukraine, the conflict in the Middle East, or the 2024 U.S.

presidential and other elections, and/or tightening of mortgage lending standards, practices and regulation in the geographic areas in which we operate, or if interest rates for mortgage loans or home prices continue to rise or stay at similar levels, there could likely be a corresponding adverse effect on our business, prospects, liquidity, financial condition and results of operations, including, but not limited to, the number of homes we sell, our average sales price per home closed , cancellations of home purchase contracts and the amount of revenues or profits we generate, and such effect may be material.

The homebuilding industry is highly competitive and, if our competitors are more successful or offer better value to our customers, our business could decline.

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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, Pennsylvania and Maryland.

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.

A prolonged economic downturn in the future in one or more of these areas, or a particular industry that is fundamental to one or more of these areas, particularly within Texas, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

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Increases in interest rates can make it more difficult and/or expensive for us to obtain the funds we need to operate our business.

Increases in interest rates generally could increase the interest rates we must pay on borrowings under the Credit Agreement and on any subsequent issuances of debt securities.

Increases in interest rates generally could increase the interest rates we must pay on borrowings under the Credit Agreement (as defined herein) and on any subsequent issuances of debt securities.

Adverse economic conditions could also cause the terms on which we borrow to be unfavorable.

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The occurrence of any of these events could damage our land parcels and projects, cause delays in completion of our projects, reduce consumer demand for housing, increase mortgage default risk, and cause shortages and price increases in labor or raw materials, any of which could affect our sales and profitability.

In addition to directly damaging our land or projects, many of these natural events could damage roads and highways providing access to our assets or affect the desirability of our land or projects, thereby adversely affecting our ability to market homes or sell land in those areas and possibly increasing the costs of homebuilding completion.

In addition to directly damaging our land or projects, many of these natural events could damage roads and highways providing access to our assets, affect the desirability of our land or projects or result in potential buyers facing higher costs for, or being unable to obtain, fire, flood or other hazard insurance coverage in certain areas, thereby adversely affecting our ability to market homes or sell land in those areas and possibly increasing the costs of homebuilding completion.

Furthermore, the occurrence of natural disasters, severe weather and other adverse geological conditions has increased in recent years due to climate change and may continue to increase in the future.

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Projects for which we have not received land use and development entitlements or approvals may be subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas due to government regulations.

We may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or zoning changes.

Such moratoriums generally relate to insufficient water supplies, sewage facilities, delays in utility hook-ups, or inadequate road capacity within specific market areas or subdivisions.

We may also be subject to periodic delays or incur additional costs or may be precluded entirely from developing in certain communities due to building moratoriums or zoning changes.

Such moratoriums generally relate to availability of utilities, such as insufficient water supplies, sewage facilities and delays in utility hook-ups, or inadequate road capacity within specific market areas or subdivisions.

Local governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction.

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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.

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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In some instances, regulators from different governmental agencies do not concur on development, remedial standards or property use restrictions for a project, and the resulting delays or additional costs can be material for a given project.

From time to time, the EPA and similar federal, state or local agencies review land developers’ and homebuilders’ compliance with environmental laws and may levy fines and penalties, among other sanctions, for failure to strictly comply with applicable environmental laws, including those applicable to control storm water discharges during construction, or impose additional requirements for future compliance as a result of past failures.

Any such actions taken with respect to us may increase our costs and result in project delays.

From time to time, the EPA and similar federal, state or local agencies review land developers’ and homebuilders’ compliance with environmental laws and may levy fines and penalties, among other sanctions, for failure to strictly comply with applicable environmental laws, including those applicable to the control of storm water discharges during construction, or impose additional requirements for future compliance as a result of past failures.

Any such actions taken with respect to us may

increase our costs and result in project delays.

Further, we expect that increasingly stringent requirements will be imposed on land developers and homebuilders in the future.

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Government mandates, standards and regulations enacted in response to these projected climate change impacts and concerns could result in restrictions on land development in certain areas or increased energy, transportation and raw material costs.

On January 20, 2021, President Biden signed an instrument that will lead to the United States’ reentry into the Paris Agreement, which requires countries to review and “represent a progression” in their intended nationally determined contributions, which set greenhouse gas emission reduction goals, every five years.

We anticipate that a variety of new legislation may be enacted or considered for enactment at the federal, state and local levels relating to climate change and energy, including in response to the United States’ reentry into the Paris Agreement.

On January 20, 2021, President Biden signed an instrument that led to the United States’ reentry into the Paris Agreement, which requires countries to review and “represent a progression” in their intended nationally determined contributions, which set greenhouse gas emission reduction goals, every five years.

The Paris Agreement requires the parties to complete a global stocktake, assessing members’ collective efforts and achievements in reducing greenhouse gas emissions and adapting to the impacts of climate change, every five years.

On December 13, 2023, the 28th annual UN Climate Change Conference (“COP 28”) issued its first global stocktake, which calls on parties, including the

United States, to contribute to transitioning away from fossil fuels, reduce methane emissions, and increase renewable energy

capacity, amongst other things, to achieve net zero by 2050.

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.

On June 1, 2022, the Biden Administration launched the National Initiative to Advance Building Codes, an initiative to modernize building codes, improve climate resilience, and reduce energy costs and the recent Inflation Reduction Act of 2022, through various grants and tax incentives, encourages municipalities to adopt stricter energy codes, both of which could increase the cost to construct homes and cause delays.

On June 1, 2022, the Biden Administration launched the National Initiative to Advance Building Codes, an initiative to modernize building codes, improve climate resilience, and reduce energy costs and the Inflation Reduction Act of 2022, through various grants and tax incentives, encourages municipalities to adopt stricter energy codes, both of which could increase the cost to construct homes and cause delays.

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.

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These matters could adversely affect our business, prospects, liquidity, financial condition and results of operations.

As a homebuilding and land development business with a wide variety of historic ownership, development, homebuilding and construction activities, we could be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials or fixtures known or suspected to be hazardous or to contain hazardous materials or due to use of building materials or fixtures that are associated with mold.

to use of building materials or fixtures that are associated with mold.

Any such claims may adversely affect our business, prospects, financial condition and results of operations.

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Unfavorable ESG ratings may lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital.

Climate change is a focus of both the SEC and investors.

In March 2022, the SEC proposed extensive climate-related

disclosure requirements that, if adopted, would require U.S.

public companies to dramatically expand the climate-related

disclosures in their SEC filings, including the disclosure of scope 1, 2, and 3 emissions for some companies.

These rules are

expected to be finalized in the first half of 2024.

In September 2023, California passed climate-related disclosure mandates that

are broader than the SEC’s proposed rules.

Compliance with these disclosure rules may be costly and subject a company to

criticism by regulators, investors, the media or other stakeholders for the accuracy, adequacy or completeness of its ESG

disclosures and could adversely impact a company’s reputation and financial position.

Changes in tax law could adversely affect our business.

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If the homebuilding industry experiences another significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.

In the second half of 2022, the Federal Reserve’s aggressive actions to stem inflation caused mortgage interest rates to more than double between the end of 2021 and September 2022.

In 2022, the Federal Reserve’s aggressive actions to stem inflation caused mortgage interest rates to increase significantly.

The resulting increased costs of borrowing negatively impacted customer sentiment and accelerated existing affordability constraints for potential homebuyers.

As a result, many homebuyers paused their home purchasing decisions.

Additionally, challenges from ongoing supply chain disruptions and higher construction and development costs persisted during 2022.

We anticipate this dynamic could continue in 2023, resulting in lower net orders and higher cancellation rates when compared to prior periods.

Additionally, we experienced continued challenges from ongoing supply chain disruptions and higher construction and development costs during 2023.

The potential difficulties described above can cause demand and prices for our homes to fall or cause us to take longer and incur more costs to develop the land and build our homes.

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A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.

Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent health and safety risks.

Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent health and safety risks, including exposure to hazardous substances.

Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of our business.

Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result.

Any failure in health and safety performance on our building sites may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result.

Such a failure could generate significant negative publicity and have a corresponding impact on our reputation and our relationships with relevant regulatory agencies, governmental authorities and local communities, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

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Since the global recession in 2008, credit and capital markets have, from time to time, experienced unusual volatility.

If we are required to seek additional financing to fund our operations, continued volatility in

these markets may restrict our flexibility to access such financing.

Furthermore, any downgrade of our credit ratings or other negative rating actions by credit agencies may make it more difficult and costly for us to access capital.

If we are required to seek additional financing to fund our operations, continued volatility in these markets may restrict our flexibility to access such financing.

Furthermore, any downgrade of our credit ratings or other

negative rating actions by credit agencies may make it more difficult and costly for us to access capital.

If we are not successful in obtaining sufficient funding for our planned capital and other expenditures or if we do not properly allocate our funding, we may be unable to acquire additional land for development and/or to construct new housing.

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In particular, local knowledge and relationships are critical to our ability to source attractive land acquisition opportunities.

Experienced employees working in the homebuilding, development

and construction industries are highly sought after.

Failure to attract and retain such personnel or to ensure that their experience and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations.

Experienced employees working in the homebuilding, development and construction industries are highly sought after.

Failure to attract and retain such personnel or to ensure that their experience

and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations.

Termination of the employment agreement with our Chief Executive Officer could be costly and prevent a change in control of our company.

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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, 2022, we had a $1.1 billion revolving credit facility under the Credit Agreement (as defined herein) to finance our construction and development activities.

As of December 31, 2023, we had a $1.205 billion revolving credit facility under the Credit Agreement to finance our construction and development activities.

As of December 31, 2023, we had outstanding borrowings of $569.6 million under the Credit Agreement and we could borrow an additional $354.8 million under the Credit Agreement.

As of December 31, 2023, borrowings under the Credit Agreement bore interest at a rate of the Secured Overnight Financing Rate (“SOFR”) plus 1.85% per annum.

In addition, as of December 31, 2022, we had outstanding $300.0 million aggregate principal amount of the 2029 Senior Notes (as defined herein).

In addition, as of December 31, 2023, we had outstanding $300.0 million aggregate principal amount of the 2029 Senior Notes (as defined herein) and $400.0 million aggregate principal amount of the 2028 Senior Notes (as defined herein).

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.

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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 $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.

In particular, the Credit Agreement requires us to maintain (i) a tangible net worth of not less than $1,218.2 million plus 50% of the net proceeds of equity issuances after December 31, 2022 plus 50.0% of our positive consolidated earnings after taxes for each fiscal quarter ended after December 31, 2022, (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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If we default on one or more of our debt agreements, it could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

In addition, during the year ended December 31, 2022, we entered into several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns.

While we are not legally obligated to purchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased.

In addition, we have several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns.

While we are not legally obligated to purchase the balance of the lots, we are subject to certain performance obligations, financial and other penalties if the lots are not purchased.

We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.

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As of December 31, 2023, borrowings under the Credit Agreement bore interest at a rate of SOFR plus 1.85% per annum.

In addition, as of December 31, 2022, we had outstanding $300.0 million aggregate principal amount of the 2029 Senior Notes, which bear interest at a fixed rate of 4.000%.

In addition, as of December 31, 2023, we had outstanding $300.0 million aggregate principal amount of the 2029 Senior Notes, which bear interest at a fixed rate of 4.000%, and $400.0 million aggregate principal amount of the 2028 Senior Notes, which bear interest at a fixed rate of 8.750%.

If our operations do not generate sufficient cash from operations at levels currently anticipated, we may seek additional capital in the form of debt financing.

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We rely on accounting, financial, operational, management and other information systems, including the Internet and third-party hosted services, to conduct our operations, store personal data and sensitive data, process financial information and results of operations for internal reporting purposes and comply with financial reporting, legal and tax requirements.

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, such as denial-of-service or ransomware attacks, natural disasters, usage errors by employees and other related risks.

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, data security, or 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.

Our information systems, and those of our business partners, vendors and service providers, are subject to damage or interruption from power outages;

computer and telecommunication failures;

computer viruses;

security breaches, including due to malware and phishing;

cyberattacks, such as denial-of-service or ransomware attacks;

natural disasters;

usage errors by employees and other related risks.

Any cyber incident, attack, 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, data security, or other laws;

significant legal and financial exposure;

damage to our reputation;

or a loss of confidence in our security measures which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

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

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Although we have implemented these safeguards, 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.

Beyond our service providers, we depend on third parties to handle certain processes required to complete land purchases and home closings, including title insurers and escrow/settlement companies.

Third parties, as well as independent mortgage lenders and other firms involved in real property transactions, could experience their own cybersecurity incidents or IT resource failures that disrupt or prevent their performance of necessary real estate transaction services.

For example, the third-party lender in our mortgage solutions joint venture recently identified a cybersecurity incident that included unauthorized third-party access to its systems.

Such cybersecurity incidents or IT resource failures could significantly disrupt our ability to close on land transactions or our customers’ ability to close on their homes, as well as our production schedules and delivery forecasts, and could have a material impact on our operations or consolidated financial statements, including by causing home sales contract cancellations.

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

laws and regulations regarding privacy and data security.

As part of our normal business activities, we collect and store certain information, including information specific to homebuyers, customers, employees, vendors and suppliers.

As part of our normal business activities, we collect, process and store certain information, including information specific to homebuyers, customers, employees, vendors and suppliers.

We may share some of this information with third parties who assist us with certain aspects of our business.

Personal privacy and data security have become significant issues and the subject of rapidly evolving regulation in the United States.

Privacy and data security have become significant issues and the subject of rapidly evolving regulation in the United States.

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 California, Colorado, Utah and Virginia, legislation and implementing regulation, 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.

Such laws and regulations governing data privacy and the unauthorized disclosure of personal information, such as the California Consumer Privacy Act (CCPA), 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 actual or perceived failure by us to adequately address privacy and data security concerns 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.

If we are not able to adjust to changing laws, regulations and standards relating to privacy or data security, our business may be materially harmed.

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Acts of war or terrorism may seriously harm our business.

Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power, acts of terrorism, political uncertainty or conflicts, such as the conflict between Russia and Ukraine, or civil unrest may cause disruption to the U.S.

economy, or the local economies of the markets in which we operate, cause shortages of building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, result in uninsured losses, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our business, prospects, liquidity, financial condition and results of operations.

While we do not have any customer or direct supplier relationships in either Russia or Ukraine, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations ( e.g.

economy, or the local economies of the markets in which we operate, cause shortages of

building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, result in uninsured losses, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our business, prospects, liquidity, financial condition and results of operations.

While we do not have any customer or direct supplier relationships in any of the foreign countries or regions involved in the current military conflicts, such conflicts and any related sanctions, export controls or actions that may be initiated by nations ( e.g.

, potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels.

addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business.

In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business.

Negative publicity could adversely affect our reputation as well as our business, financial results and stock price.

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• general market conditions;

• the duration and effects of the COVID-19 pandemic;

• the market’s perception of our growth potential;

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We may not have access to such equity or debt capital on favorable terms at the desired times, or at all.

Financial industry and capital markets turmoil may materially and adversely affect our liquidity and consolidated financial statements.

In 2023, federal and state banking regulators closed several U.S.

banks, with which we had no banking, financing or other business relationships or dependencies, precipitating financial industry and capital markets turmoil centered on concerns about the stability and solvency of other banks and financial institutions and the attendant risk they may be closed and/or forced by governmental agencies into receivership or sale.

The failure of other banks and financial institutions, if it occurs, could have a material adverse effect on our liquidity or consolidated financial statements if we have placed cash and cash equivalent deposits at such banks or financial institutions, or if such banks or financial institutions, or any substitute or additional banks or financial institutions, participate in the Credit Agreement.

Under the Credit Agreement, non-defaulting lenders are not obligated to cover or acquire a defaulting lender’s respective commitment to fund loans or to issue letters of credit, and may not issue additional letters of credit if we do not enter into arrangements to address the risk with respect to the defaulting lender (which may include cash collateral).

If the non-defaulting lenders are unable or unwilling to cover or acquire a defaulting lender’s respective commitment, potentially due to other demands they face under other credit instruments to which they are party, or because of regulatory restrictions, among other factors, we may not be able to access the Credit Agreement’s full borrowing or letter of credit capacity.

Cautionary Statement about Forward-Looking Statements

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These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results may

differ materially from those expressed or implied by these statements.

Actual results may differ materially from those expressed or implied by these statements.

You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words.

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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:

• adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from volatility of mortgage rates, increases in unemployment, supply chain disruptions, inflation, the possibility of recession and decreases in housing prices, political uncertainty, civil unrest (including due to the conflict between Russia and Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials);

• 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 rates, supply chain disruptions (including due to the conflict between Russia and Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials and the conflict in the Middle East), inflation, the possibility of recession and decreases in housing prices;

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

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• our ability to retain our key personnel;

• the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions);

• the impact of an epidemic or pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions);

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

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All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Annual Report on Form 10-K.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1A. Risk Factors