Q4 2023 Green Brick Partners Inc Earnings Call

Participants

Rick Costello; CFO; Green Brick Partners, Inc.

Jim Brickman; CEO & Director; Green Brick Partners, Inc.

Jed Dolson; President & COO; Green Brick Partners, Inc.

Alex Rygiel; Analyst; B. Riley Financial Inc.

Carl Reichardt; Analyst; BTIG LLC

Jay McCanless; Analyst; Wedbush Securities Inc.

Alex Barron; Analyst; Housing Research Center, LLC

Presentation

Operator

Good afternoon. Thank you for standing by, and welcome to the Green Brick Partners Fourth Quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question again, press star one. I would now like to turn the conference over to Rick Costello, Chief Financial Officer.

Rick Costello

Pete go ahead Good afternoon, and welcome to Green Brick Partners earnings call for the fourth quarter ended December 31st, 2023. Following today's remarks, we will hold a Q&A session as a reminder, this call is being recorded and will be available for playback. In addition, a presentation will accompany today's webcast and is also available on the company's website at investors dot Green Brick Partners.com.
On the call today is Jim Brickman, Co-Founder and Chief Executive Officer, Jed Dolson, President and Chief Operating Officer, and myself, Rick Costello, Chief Financial Officer. Some of the information discussed on this call is forward-looking, including the Company's financial and operational expectations for 2024 and beyond. In yesterday's press release and SEC filings, the Company detailed material risks that may cause our future results to differ from its expectations. The Company's statements are as of today, March first, 2024, and the Company has no obligation to update any forward-looking statements it may make comments also include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G can be found in the earnings release that the Company issued yesterday and in the presentation available on the company's website.
With that, I'll turn the call over to Jim. Jim?

Jim Brickman

Thank you, Rick. 2023 was an absolutely stellar year for Green Brick. We closed out 2023 with record results that reflect our strategic advantages, our disciplined approach and the successful execution of our strategy by our talented and dedicated team members, I wanted to express my deepest gratitude to every employee will embrace our values set forth in our acronym, Paul, which represents honesty, objectivity, maturity and efficiency our year was highlighted by the following record performance that we set in 2023 for the full year, record home closings revenue for the year of $1.77 billion and homebuilding gross margin of 30.9% and record diluted EPS of $6.14. We also set a record for the number of homes closed for any fourth quarter at 825 units significantly, our net new orders for the full year increased over 70% year over year to a record 3,356 homes sold.
As you can see in Slides 4, five and six, our net new order growth rate ranked the highest among our public builder homebuilding peers. We also again achieved the highest gross margin of the public homebuilders in the fourth quarter and experienced the largest homebuilding revenue growth for the full year in 2023, we grew our book value by 26% to $27.94 per share. Additionally, we achieved a return on average equity of 24.9% despite having low leverage with a net debt to total capital of all the 11.4%.
Looking ahead, we believe that our ability to source and entitle land, rigorous land underwriting and continued operational improvements at our division management and land development teams will continue to provide superior risk-adjusted returns. Consumer confidence remained resilient in 2023 despite higher mortgage rates. We continue to see healthy demand for new homes in our markets, driven by demographic tailwinds and the lack of supply of existing homes entering the marketplace. More importantly, DFW, our largest market, representing 71% of homebuilding revenues has continued to be among the nation's leaders in building starts and economic growth according to U-Haul. Based on the rental of one-way U-Haul equipment, Texas netted the largest number of movers in 2023, making the third consecutive year. It has finished at the top incollect, Dallas and Austin ranking in the top 10 cities with Neurodex as shown on slide 7, DFW was number one of the nation's 12 largest metropolitan statistical areas in terms of job growth as of November 2023 with almost 140,000 new non-farm payroll employment added in the trailing 12 month period, if W. had a 3.3% job gains rate, that was almost double the 1.8% national increase being the third largest homebuilder in one of the biggest homebuilding markets. Green Brick continued to benefit from favorable demographic trends and job growth in the region. We also believe there's a large pool of talent, national demand of 3 million additional millennials and Gen Z members entering the homebuilding market over the next decade.
As reflected on slide 10, we believe that bodes well for DFW Austin of the Atlanta metro areas, all of which have a younger population compared to US average. According to U.S. Census, 45% of the U.S. population is under the age of 35. The percentage is up 49% for DFW, 48% for Austin and 47% for Atlanta. Sales of existing homes in 2023 dropped 19% year over year and fell to the lowest level in almost 30 years, highlighting the persistent sold in hand fact on existing homeowners or are locked into low fixed rate mortgages. They're unwilling to relinquish, as shown on slide 8, the impact is more prominent in desirable infill and infill adjacent submarkets where we have a strong presence, broadening our industry-leading results. Over 80% of our revenues in 2023 were generated in the infill submarket. We believe that Green Brick is uniquely equipped to take advantage of the current market conditions. With our strategic advantages and land position and development entitlement expertise, we consider ourselves to have one of the best land positions through years of consistent strategic land acquisitions in infill and infill adjacent submarkets. Our decentralized approach in sourcing, land acquisitions and land development has allowed us to unlock more high-quality land opportunities. We amplify the strength of each bill. Each of our builders is unique and has decades of market niche advantages from deep and extensive connections in the local markets that positions them to source strong land and lot position. Our builders extensive local knowledge also enables them to address more complicated entitlement, regulatory and development processes, an infill location. We believe that our ability to self develop in markets where land developers are scarce gives us an upper hand in generating the highest homebuilding gross margins in the industry as well as having better control over lot delivery scheduling and cost. As a result, approximately 83% of our total lots were owned on our balance sheet at the end of 2023. We believe we can continue to generate better returns than most peers who adopt land-light models that carry a hidden cost, high capital paid to the providers of off-balance sheet. And after on February first, 2024 as previously announced, we sold a 49.9% interest in Challenger Homes back to its founder. We intend to use the proceeds of that approximately $64 million for investment in our other builders for other potential opportunities in larger markets for Green Brick is the control owner. Our current focus is on the growth and expansion of our Trophy Signature Homes brand in the Austin market and other potential new markets. Our goal is to invest in large markets, strong economic and demographic fundamentals where we can achieve scale and similar operating metrics as we do in our current markets. With this in mind, we are excited to announce that we just closed our first land transaction in Hoffman, Texas 25 miles northeast of downtown Houston. The neighborhood will be co-developed with one of the largest public builders in the country, 920 homes community has excellent access to the newly-constructed Grand Parkway, which provides proximity to major employment centers in the oil and gas industries, such as the Exxon corporate headquarters, coffee Signature Homes will have 460 home sites, but lots with ranging from 40 to 50 feet. Construction of the homes is currently slated to start in the second quarter of 2025, and we anticipate opening for sales in the late summer of 2025. This is our first community in the Houston market and is in a location into which we have been interested in expanding for several years Houston, the fourth most populous city in the US was the largest homebuilding market with the most new-home construction in 2023. Similar to DFW, Houston has a young and growing population and a strong market that we believe will create demand tailwinds for entry-level and move-up homes. Coffee is an excellent position to capture this demand with their value rich products with that, I'll now turn it over to Rick to provide more detail regarding our financial results.

Rick Costello

Thank you, Jim. Please turn to Slides 11 and 12 of the presentation for home closings. Revenue for the fourth quarter grew 4.6 year over year to $448 million, bringing full year home closings revenues to record high of $1.77 billion. This represents a growth rate of 4.2%, the highest among public homebuilders. Our public peers experienced an average home closings revenue decline of 5.6% revenue growth was driven by a 13% year-over-year increase in homes delivered to 825 units, partially offset by an 8% decline in ASP to $544,000. The anticipated decline in ASP. was predominantly driven by year over year increase and the percentage of Trophy Signature Homes closed homes in more perimeter locations as well as by a change in product mix. Within trophy property represented 45% of the total number of closings in 2023 versus 38% in 2022 for homebuilding gross margin continued to lead our public homebuilding peers, as shown on slide 4. During the fourth quarter, gross margin remained elevated at 31.4%, 520 basis points year over year. The sequential decline of 190 basis points from Q. three was due to higher incentives on spec homes. When mortgage rates peaked in October. Full year gross margin was 30.9%, the highest full-year margin in Company history and the highest among our public homebuilding peers. Net income attributable to Green Brick and diluted earnings per share for the fourth quarter increased 31.5% and 33.9% respectively, to $73 million and $1.58 per share.
For the full year. Diluted EPS increased 2% year over year to $6.14 per share during the fourth quarter. Net new home orders increased 61% year over year to 679 homes sold. For the full year 2023, net new orders increased 70.1% year over year to 3,356, the highest growth rate in the homebuilding industry and the highest number of annual new orders in company history. Ken will provide more detail on the sales environment shortly, but limited competition from both existing homes and new construction in our infill and infill adjacent locations have allowed us to meet the unmet demand in the sought after locations. Active selling communities at the end of Q4 increased 14% year over year to 91. Our quarterly absorption rate increased 38% to 7.6 homes for average active selling communities. For the full year, our quarterly absorption rate was 9.9 homes for average active selling communities. Our cancellation rate for the fourth quarter remained low at 7.2%, the lowest among public homebuilding peers.
As shown on slide 13, our backlog value at the end of the fourth quarter increased 50% year over year to $555 million. Backlog ASP. slightly increased 4.9% to $721,000. Brophy is one as a spec homebuilder with high inventory turn rates and now represents a low percentage of overall backlog value at approximately 10% spec units under construction as a percentage of total units under construction increased sequentially to 70% at the end of the fourth quarter due to the higher number of specs at trophy, which reflects our intentional strategy to provide loans nearing completion to qualified buyers ready to close, I showed graphically on slide 13 to satisfy the appetite for homes in our target markets. We ramped up starts further to 948 units during the fourth quarter over triple the starts in 4Q '22 and up 8% sequentially. For the full year, we started 34% more homes year over year for a total of 3,327 starts. Our home starts for the last nine months have now averaged almost 900 homes per quarter. Our industry-leading results would not have been possible without our financial discipline and investment grade balance sheet. We believe that our strong balance sheet demonstrates our ability to manage capital effectively operate and execute our strategies efficiently withstand challenges and capitalize on opportunities for growth.
At the end of the year, our net debt to total capital ratio was 11.4% and our debt to capital ratio was only 21.1%, one of the lowest among our public homebuilding peers, as shown on slide 6, 100% of our debt outstanding at year end is fixed rate and with a weighted average interest rate of 3.3%, our low leverage and cost of debt, it enables us to retain more profits to fund our growth. Additionally, we have 180 million of cash on hand at the end of the year, ready to deploy for strategic opportunities that we believe will produce strong returns for our shareholders.
With that, I'll now turn it over to jet.

Jed Dolson

Thank you, Rick. Net orders for the full year grew 70% year over year the highest growth rate in the industry to achieve this growth. We constantly assess our sales each day and all communities. We monitor demand, mortgage rates and our competitors and then adjust pricing and incentives as needed. Incentives peaked in October when mortgage rates hit a 23 year high. However, demand quickly resumed in November and December as some buyers were ready to take advantage of the decline in mortgage rates. As a result, incentives dropped from 6% in October to 5.2 in December. Net orders remained steady in November and December despite the typical sales slowdown around the holiday season, we won't be specific on early 2020 for orders other than to say, sales velocity thus far in the quarter has meaningfully accelerated from our Q4 levels. And as always, we remain diligent on monitoring any shifts in the market dynamics. The lack of supply in affordable homes has created a favorable backdrop for our value proposition builder Trophy Signature Homes trophy was founded in 2018 and offers more affordable products that cater to both entry-level and first-time move-up homebuyers. We believe homebuyers targeted by trophy represent a deep and growing pool of potential customers. Since its founding, trophy has grown from 33 closings in 2019 to 1,378 in 2023. As shown on slide 14, its share of Green Brick's revenues has also grown from less than 2% in its 1st year to more than 38% in 2023 and 2023 protein was individually ranked as the seventh largest homebuilder in DFW. Based on number of starts, we believe that 2023 was more than just a successful year for Cherokee. It can also serve as a springboard for sustainable growth going forward based on our lot inventory product desirability, operational efficiency and scalability, Brookfield Homes feature Aerie open space and resonate with customers for wide-ranging backgrounds, especially among our younger buyers. Many features that come standard or trophy are expensive upgrades with other builders. Trophy is also a leading builder in constructing energy-efficient homes that bring savings to homebuyers for years to come, including offering in many homes, fully encapsulated spray foam insulation, tankless water heaters and Energy Star appliances. Trophy is designed to be efficient on spec heavy. This strategy is critical and the mortgage rate environment as many homebuyers today favor move in rate homes. Our streamline home-buying process including a high level standard features eliminates decision fatigue for many buyers. This approach also creates predictability in material selection and costs, enabling trophy to be efficient in managing the construction process with purchase orders and simplified start package shipments. As a result, the current cycle time for Turkey is 3.9 months compared to a peak cycle time of nine months in 2022 for Glenborough. Overall, current cycle time is 5.7 months, down from peak cycle time of 10 months in 2022. Trophies construction model is also highly scalable and location agnostic. We were able to successfully place trophy display growth across the DFW Metroplex as well as often a more challenging market than DFW in 2023. We have had great success in Austin since we opened our first community at the end of July of 2023. Sales pace in Austin during the fourth quarter averaged 4.5 homes per month, while incentives were consistent with trophies DFW market, and we look to recreate that same success in Houston in 2025. As we look forward, we remain focused on investing in land in a disciplined way. In 2023, we spent a total of approximately $425 million in purchases of land and finished lots as well as land development. We expect to ramp up our spend in 2024 for raw land acquisitions and finished lot purchases and land development to approximately $700 million in total. Ultimately, the strong buyer demand we've seen across all of our brands confirms our belief that strategically located infill and infill adjacent communities represent a significant opportunity for growth and high sales velocity with strong starts and shorter cycle times. We believe that Green Brick is entering 2024 with a strong platform for generating growth and continuing to provide strong returns to our shareholders.
Lastly, during the fourth quarter, we resumed stock buybacks and repurchased approximately 374,000 shares of stock at $47.9 per share. For the full year, we repurchased 1.18 million shares of stock at $38.46 per share for a total of $45.3 million, representing approximately 2% of our shares outstanding. Share repurchases will remain on our toolbox as we continue to evaluate other investment opportunities as we strive to continue to deliver one of the best risk adjusted returns in the industry.
With that, I'll turn it over to Jim for closing remarks. Jim?

Jim Brickman

Thank you, Jed. 2023 was a phenomenal year for Green Brick marked by record results. Despite a challenging high interest rate environment. I would like to extend my heartfelt appreciation to our employees for their collective efforts in delivering exceptional homes to thousands of homebuyers as well as generating industry-leading performance. We remain steadfast in our commitment in delivering long-term value to our shareholders. As we look forward into 2024 the dynamic housing landscape creates many opportunities for our land and lot positions, financial strength and highly motivated and experienced employees sets the stage for an exciting future.
In closing, I am extremely pleased with our fourth quarter results, and we look forward to building on this momentum in the quarters to come.
This concludes our prepared remarks, and we will now open the line for questions.

Question and Answer Session

Operator

Thank you. The floor is now open for questions. So to ask a question this time, please press star then the number one on your telephone keypad. At this moment pause for just a moment to compile the Q&A roster. Your first question comes from the line of Alex Rygiel with B. Riley, please.

Alex Rygiel

So thank you, and congratulations, gentlemen, on a nice hear a few questions here. First definitely sounds like sales activity in this early part of this year has started off very, very strong. It appears that the first quarter over the past three years has been newer, highest new order period throughout the year. So I guess my question here is two parts a one, and maybe you can kind of help us to understand that sort of quarterly cadence that you've realized over the last three years and why that is relative to your business? And then secondly, do you anticipate that the first quarter of 2024 could also be the biggest quarter of the year for net new home orders?

Jed Dolson

Alex, this is Jed Dolson. Yes, you are correct that this the spring is looking a lot like last spring for us, which is looks like the spring before that. I think historically the spring market in real estate has been the biggest quarter, and we're no different than probably other builders and seen that same trend.

Rick Costello

Alex, this is Rick. Thanks. Thanks for joining in 2021, early 2021. That's one price wasn't stopping anybody from from buying. We were raising price and people were just pounding down the doors of last year. It ended up being the high mark for the year because what happened to rates in Q2. And basically for the last six, seven months of the year, nobody was selling houses. So that was a little bit of an anomaly. And by 2023, the virus woke up. And like Jeff said, they've woken up again, certainly the movements in stabilization in rates last year and then actually coming down early this year would have been certainly blessings for the buyers.

Alex Rygiel

And then secondly, when you think about the increase in land spend, have you witnessed any land price inflation out there in the marketplace or do you anticipate any?

Jim Brickman

This is Jim. We have seen land price inflation. It's a competitive business for the better sites from a lot of the large peers, just like Green Brick have deleveraged. They have a lot of cash. We think that we still have strategic advantage in the land side of our business because particularly in some larger neighborhoods where they have mixed product types that we can put us off gate homes, and that's a higher price point, a CB, Jenny, that's a town house price point and really unlike a pure lot developer, when we're going through the entitlement process, we can actually show the municipalities product that we're going to build. It's not product, it might sell to some other builders. It's a townhouse builder or a volume production builder. And we think that's really a huge advantage when you're going through the entitlement process plus it's not like it's the first time we've built a neighborhood in many of these communities where we're doing entitlement. It may be art, how many communities we done in Frisco, that's very difficult.

Alex Rygiel

Each at 14?

Jed Dolson

Yes, 14, 15. And so we have a long track record in these larger, very active communities of doing what we say we're going to do and they have a long, good history with us.

Rick Costello

I'm Alex, this is Rick again. One of the dynamics here is that Green Brick really is different from most of the homebuilders out there. We're not doing anything off balance sheet. We don't have a double digit cost of capital on buying finished lots. When we're talking about land prices. These are not these are deals that are being underwritten now that we're looking at bringing the loss to the market in 2025, 2026?
Yes, we have a huge number of lots on our balance sheet that we've been developing. We are not because we're not buying finished lots. Most everything is self-developed. We're not going to see that what's happening on the land side and until '25, '26. And on the lot side, we're going to look like last year in terms cost perspective.
Yes. Thanks, Alex. Appreciate your questions.

Operator

Our next question comes from the line of Carl Reichardt of BTIG.

Carl Reichardt

Thanks, guys, hope you're doing well. And so agenda, whoever wants to answer this, we've seen a lot of your peers move over the last few years, pretty aggressively into what would be considered entry level housing, low end price points. So as you look at what they're doing and you contrast trophy signatures, product and strategy tactics are where you want to put it. What do you think the relative advantages of trophy are over the product that other builders are putting up for that similar CONSUMER?

Jim Brickman

Yes, sure, Karl. I'll start with just reminding everybody that 60% of our business is non trophy today and is in yellow. Those are infill locations where we face very little competition, 40% is currently. And we think the advantages there are that we are infill adjacent. We're in really attractive lot prices and better locations than say these D and F locations. Additionally, we our homes are very energy-efficient compared to most most every peer and we utilize or we get the 45 L. rebate credit back on about 100% of trophy homes this year and a on the architectures a little bit newer and fresher than some of the stuff that older builders that have been doing this for a long time have have been doing so as we mentioned during the call, trophy square into the seventh biggest builder in DFW, which is the largest housing market in the country. Very proud of that fact and returned to climb even further up that ranking.
Okay. Thank you, Carl. We were pleasantly surprised that one of the top three builders and keep it at three in the group, sitting on almost kind of dumbed down and copied some of our more contemporary elevations. We found that many of the millennial buyers really don't want to live in their parents' entry-level home. And that's really been branding typically is an interesting things don't analyze, but they really don't want to but live in their parents' home for the largest builders home.

Carl Reichardt

Yes, I understand. Thank you for that, and I appreciate the comprehensive answer. And then, Jed, you also I think it was Jay, you said something kind of interesting about Boston and its ramp and the sales pace that's strong. But you said that incentives there were kind of consistent with what you saw I assume you meant with with trophy in Dallas, and it seems like the Dallas market generally speaking, has held up better sort of if you look at the macro data than then that Dallas has. So I'm interested in that dynamic.
And then the follow on related to incentives. As I know you're not talking about order cadence and first quarter yet, but can you talk about the trend in sales incentives or pricing across the Green Brick portfolio in the first quarter thus far?

Jim Brickman

We can all take that title. We're actually in Boston right now. We do plan on property tours all day yesterday and looked at some properties we have under contracts and it's tougher than Dallas margins are lower than Dallas incentives are higher than towers. At the same time, we think Austin is sixth or seventh largest housing market in the country. We're very excited about the long term. You know, I think we look at things differently than many public builders. We aren't trying to juice any quarter up or any next quarter up. We're really looking what's the best for our business four and five years down the road. And so yes, incentives are greater here. Margins are lower here, but we think our job is going to be really a top builder or eventually four or five years down the road of calls of.

Rick Costello

Hey, this is Rick. Thanks for your questions from from a directional standpoint and incentives are down in the first quarter from where they were up through Q4. Like Jeff said, over 60% of our business is not trophy and which means that all in infill infill adjacent pretty much we have seen demand through the first quarter and every single price point, we're selling 300,000 to 2,000,002. So we're it's not just a trophy story, but certainly from a sales force standpoint. We have everybody hitting stride. We sell success and margin success.

Carl Reichardt

Thank you, Rick. I'll get back in queue, guys.

Operator

Thanks. Our next question comes from the line of Jay McCanless with Wedbush.

Jay McCanless

Hey, good afternoon. The first question I had you called out the co-broker being up and that was the reason SG&A delevered order. What does are those trends doing in the first quarter similar or getting any better?

Rick Costello

It's been consistent. A chance for a carrier doing has been consistent since really the end of 22 that we've seen, we've seen the Co-Broke activity back to where it was and the payments are back to work where they were. So there really were no surprises that are our SG&A has been consistently higher throughout 2023 by about a percentage point, maybe a little bit higher for the full year, a little bit less for Q4. And I saw you had a comment today. There are no SG&A surprises, but I think that's it. When you look at non-controlling interest, it was a little bit higher in Q4 but year over year, that number is right on top of 20 two's number in 23. So I think that that fall to the bottom line is one of the reasons that you saw a little bit of an earnings differential between the analysts and what Gary Greenberg accomplished. Also the other factor there was the average selling price where we're now we were 551, I believe in Q3 and 544 in Q4. We should continue at that level throughout 2024. Mine to mix on the close is going to be a little bit higher than a lot of builders will experience. And you might see some variation around that mid five hundreds number simply because when you're selling houses from $300 million to $2 million, you're going to get that variation. But, you know, we believe we're in a stable environment from a cost standpoint as in a stable environment. Hopefully on the depending on interest rates on the incentive side. And we should see a fairly consistent ASP as well. But volumes are looking good. You know, as we've said, we're hitting around 900 a quarter on starts right now. So the 2024 is looking good.

Jay McCanless

So what then you're saying mid-500s for NASP. is what we should expect?

Rick Costello

Correct.

Jay McCanless

Okay.

Rick Costello

Now you won't see that in our ASP. on backlog because trophy is only 10% of our backlog now because it is a spec ready model. So we're carrying a lot of homes late in the construction process. Houses sold by trophy are a lot of them are going straight to the closing table. So that ASP. is an anomaly and a trophy sold and closed in the same quarter, 59% of our homes in Q4. So it's that's a dynamic that you just can't take much of a read from that backlog ASP.

Jay McCanless

And then in terms of raising prices, have you been able to raise prices at all with trophy and or with some of the infill locations. How is that trending now?

Jim Brickman

This is Jim. And on our infill locations, and it's inversely related the incentives, our ability to raise prices. We're raising prices very quickly and the triple-A infill locations, there's no incentives and our what I would consider our most remote from volume production, exterior perimeter locations, incentives could be 7% to 8%. So they're zero raising prices aggressively to maintaining prices and still having to deal with incentives with with a much more marginal buyer and a trophy perimeter location for Jay.

Jed Dolson

We have seen since Bill said, Bill, I think we mentioned in the script, December incentives were less than October incentives and that trend's continued through the spring Okay.

Jay McCanless

That sounds great. Thanks for taking my questions.
Our next question comes from the line of Alex Barron with Housing Research Center.

Alex Barron

Got it. Yes, thank you, gentlemen, and great job this year on best wishes for the for this new year on some looking at your starts for 2023, and it looks like you guys were over 3,700 units from obviously much lower deliveries and order. Some just wondering is that is in the ballpark of what you guys are expecting for deliveries this year in other words, is there just basically on lag effect?

Jim Brickman

Yes, yes, I think that is what we're expecting. We really don't plan to broadcast what, but we expect though we're not starting homes that we don't expect to close, and we're still seeing some increasing demand for our business. What do you want to add on that, Jed?

Jed Dolson

Yes, I'd just say we're very excited because ever since the start of COVID, we really have been facing have you lot delivery bottlenecks. And we really feel for the first time that we have all the lots that we need on the ground to execute our business plan for this year and we have more neighborhoods, great company, more neighborhoods.

Jim Brickman

Do we have we have enough at 90 now?

Rick Costello

Correct.

Jim Brickman

Versus 83 on the average last year? We can erify that, Rick.

Rick Costello

Yeah.

Alex Barron

Now in terms of backlog conversion, you had some pretty high numbers throughout 2023. Do you believe there's any reason that wouldn't be similar this year?

Rick Costello

And we do, Alex, we really don't look at backlog conversion in order to figure out what our run rate is going to be. The best thing you can do is look at what our starts are and how those are pacing with the with only 10% of backlog being in our highest volume builder. It appears that there is a high backlog percentage, but it just doesn't equate. And we have a chart in our slide deck that shows quarterly starts for the last eight quarters. And you can see pretty clearly that we're stabilizing in that around 900 number. So that's that's our expectation from a from a closing velocity standpoint, rather than looking at backlog.

Jim Brickman

And the other thing I want to add, Alex, that backlogs are not created equally when you take a look at our backlog because we take a lot more earnest money deposits from a buyer, even that trophy in Dallas, it's $5,000 versus a wish and a prayer by some of our competitors. And we have a very low cancellation rate. So when you look at our backlog, it's a much less risky backlog to analyze and some peers.

Alex Barron

Right. Maybe slightly differently from is your tendency to build more spec, you know, likely to go up or stay the same and give your build time improving or is it likely to stay the same?

Jim Brickman

It's improved. You know, a trophy it's down to about 120 days. We don't see a lot of improvement from that going forward. Jed, your thoughts?

Jed Dolson

Yes, there's a correlation between our results and one store or two stores, we can shave a little bit more time if we're selling one stores, we are seeing, yes, with the supply chain, the efficiencies of the move up and second time move up and buyers, which represent, you know, our other brands other than trophy. We see now those buyers select the appropriate materials at the design center and the suppliers being able to provide that material were able to close those houses. So as we mentioned earlier in our call, we're seeing improvement in the in the upper-end brands as well Yes, Alex, we should remain about where we're at right now.

Rick Costello

When you think when you look at Green Brick, you have to remember that we have CB Jenny, the largest townhome builder in DFW and our builder in Atlanta, the Providence Group builds a lot of townhomes to. So we've got two townhome models out there as well as trophy and all of those by their nature are heavy spec in Europe, you released a building at a time to sales and a townhouse community, and we're releasing the houses in late later stages of construction at trophy. So we will continue to be a high spec builder you serve.

Alex Barron

Okay. And if I could ask one more on. Obviously, you guys lead the industry with gross margins this year on at the same time, you know, things kind of slowed in the fourth quarter with mortgage rates hitting 8%. So is there any reason that your margins are going to start contracting from here? Or do you believe they're somewhat sustainable will tell us what's going to happen with interest rates?

Jim Brickman

So I can tell you that we haven't seen margin degradation going into this year so far, and we're keeping our fingers crossed that that's going to continue. We have a good lot position and I don't want to give and roll into one, 15 minutes explanation of how we underwrite lots and others, they're stable in the longer life neighborhood. We actually gained ground versus a builder that often Slack, but we're still feeling very confident we're going to have industry-leading margins in 24.

Alex Barron

Well, thank you very much and best of luck.

Operator

As a reminder, you'd like to ask a question again, please press star looking at the queue. Our next question comes from the line of Carl Reichardt of BTIG..

Carl Reichardt

Thanks. I had two more follow-ups for you guys on one just on on a number of neighborhoods. I think you were up 16% on the on average, Q4 versus I think that's the fastest you've grown since back right right after the pandemic.
And how are you feeling about community count growth in 24, recognizing that you're going to have a few more long life communities and the mix of stores is different product to product. But in terms of growth rate there, maybe you can give me sort of a sense of what you're thinking through as you look at your book?

Jim Brickman

I don't think we're really going to guide on that. We'd like you suggested, Carl. It really is very different for trophy. We have many more long term communities with multiple phases where we're rolling from phase to phase in, so in at other builders that those might be new communities. But for us, we're just not gapping out as these this end up being really long lived communities. Again, the best thing that you can look at from a growth rate is our starts.

Carl Reichardt

Okay, sure. And I'm thinking really just more about modeling quarters, but fair enough. I'm assuming there'll be growth this year. That would be that that would be the thinking just given what looks like it's in the book in terms of inventory. So that's where I'm headed.
And then, Rick, you also mentioned talking about your cash position and opportunities that you might see in the marketplace? Well, okay. So we could look at potential acquisitions, we could look at more share repurchase activity jumping up, we could look at just continued focus on growing the land pool. As you think about the alternatives for for your for capital spare capital that you have? Where would you sort of rank those options right now?

Rick Costello

Well, actually, we rank them internally but not external license. So, I really can't show --

Carl Reichardt

Well, here's your chance to do an externality, Jim.

Jim Brickman

(laughter) But it's an interesting process, you know, and I'll give you an example, we were looking at a very large land transaction in Austin yesterday. That's unique. We've been working on it for a very long time. We have a very similar deal in Dallas that we've been working on for a very long time. We have a very long-term deal. We've been looking at Atlanta. We've been trying working on the entitlement for two years. And we're waiting to see how all those things play out against buying stocks and investing more in our business.
I can't say that we probably aren't going to be an acquirer of a private builder, everybody has. How is your A&D looking? I look at deals, actually, the deal flows have slowed down because I think all of the boutique brokers know that any of the deals that they show us are not going to be accretive to our earnings.So our deal flow from an acquisition of a private builder is virtually stopped.

Rick Costello

And call, as you call it, as see from I believe Jed mentioned that our land lot finished lot and up land development spend is going to go up from $430 million to us over $700 million or approximately $700 million. That's subject to deals penciling out and getting ready to close, like Jim just mentioned, as these things require constant attention, but that's quite an increase.
Our cash flow is exceedingly strong given our margins, given our increasing volumes, et cetera. So it's a good problem to have. We're still with 180 million on the balance sheet and nothing drawn on 360 million lines of credit. We have tremendous liquidity and the ability to move in a moment. So it's clearly a function of what presents itself in terms of being ready to close on the land side, it makes a lot of sense.

Operator

Makes a lot of sense. Thanks so much. Appreciate the time.

Rick Costello

Thanks, Karl.

Operator

Since there are no further questions at this time and does conclude today's conference call. Thank you so much and you may now disconnect.