Green Brick Partners Inc (GRBK) 2018 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to Green Brick Partners earnings call for the fourth quarter ended December 31, 2018. (Operator Instructions) As a reminder, this call is being recorded and will be available for playback. A slide show supporting today's presentation is available on Green Brick Partners' website, www.greenbrickpartners.com. Go to Investors & Governance, then click on the option that says Reporting, and then scroll down to the page until you see the fourth quarter investor call presentation. The company reminds you that during this conference call, it will make various forward-looking statements within the meanings of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of Green Brick Partners are based on current expectations and are subject to risks and uncertainties.

A few factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the cautionary statement regarding forward-looking statements contained in the company's press release, which was released on Monday, March 4, and the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission. Green Brick Partners undertakes no duty to update any forward-looking statements that are made during this call. Today, the company will be referring to adjusted EPS and adjusted homebuilding gross margin, which are non-GAAP financial measures.

The reconciliation of adjusted EPS to the net income attributable to the Green Brick and adjusted homebuilding gross margin to the -- homebuilding gross margin are contained in the earnings release that Green Brick issued yesterday.

I would now like to turn the conference call over to Green Brick's CEO, Jim Brickman. Please go ahead, sir.

Hi, everybody. With me is Rick Costello, our CFO; Jed Dolson, our President of the Texas region; and Summer Loveland, our CAO.

Thank you for joining our call. As the operator mentioned, the presentation that accompanies this earnings call can be found on our webpage at greenbrickpartners.com. At the top of our webpage, click on Investors & Governance, then click on the option that says Reporting, and then scroll down the page until you see the fourth quarter investor call presentation.

I'll give everybody a few minutes to do this. I'm excited to announce that our full year adjusted net income attributable to Green Brick of $51.6 million was up 52% year-over-year with an increase in our return on equity to 11.7%, despite having one of the lowest debt-to-capital ratios among the public builders.

Green Brick's total revenues increased 35% in Q4 2018 over Q4 2017, and 36% year-over-year. Significantly, our backlog is up 74% year-over-year, despite the more competitive environment.

As we mentioned last quarter, having GHO Homes join our family of team builders has been a very positive development. In addition to diversifying our offerings to include the lower price point, we have recorded $57.8 million in year-over-year homebuilding revenues from GHO Homes since inception in late April.

And they also added $73.4 million to our backlog as of December 31, 2018, which in total was up $113 million or over 74%. Even without GHO, our backlog increased 26% year-over-year.

Please flip to Slide 5. Two of the best markets in the country are our core markets of Dallas and Atlanta. During the last 12 months, Dallas and Atlanta continue to be 2 of the largest markets in terms of generating job growth. On Slide 6, you can see that Dallas continues to be the #1 new housing market in the nation, adding almost 35,000 starts. Atlanta is the fourth largest market and our Challenger Homes [division]operates in Colorado Springs, part of the sixth largest market.

Slide 7 spotlights our Dallas submarket in Frisco, Texas, which is among the top 5 markets by starts within the Dallas Metroplex.

Frisco is one of the top submarkets for homes ranging $4,000 a month with 8 top-rated high schools and the legacy commercial core immediately to the south, being the center of suburban employment. Employers there include Toyota, Liberty Mutual, Frito Lay, JP Morgan Chase, Intuit, JC Penney and USAA. Green Brick owns or controls approximately 1,300 lots in Frisco. Slide 8 demonstrates what we mean by A-rated submarkets. John Burns Real Estate Consulting has published maps of our Atlanta and Dallas metropolitan areas, where they have designated grades on the submarkets of A through E, based on a variety of subjective factors, such as quality of schools, proximity of jobs and the existence of infrastructure for quality of life. We have taken those maps and overlaid the locations of our Green Brick communities with green dots.

As you can see, the preponderance of our communities is in the very best A-rated submarkets. What the prior graphs do not tell you is how supply constrained lots are in most of these locations. Green Brick owner-controls about 5,300 lots in the Dallas Metroplex and almost 2,000 lots in Atlanta. These are primarily in A locations. Some investors have asked us if margin and compression has impacted land prices?

In a nutshell, we have -- are not seeing land sellers in prime locations lowering prices to offset builder margin compression. Land is generally held in strong hands in this cycle. Even in business-friendly markets, like Dallas and Atlanta, the entitlement and land development process has become more complicated where the cycle time from contract to completed lots has been extended.

These factors combined with an equilibrium of supply versus demand has kept land prices fairly stable.

That said, we are opportunistic buyers with decades of experience in our markets. Because of low leverage of our balance sheet and decades of experience, we usually get first look at deals because the sellers and broker knows that Green Brick as a buyer can close quickly in the event we see an opportunity.

Slide 9 takes a closer look at our growth story of annual revenue and the related investment in land and land development. And look at the chart, and you can see the direct correlation between our growth and total lots owned and controlled was the result of growth in annual revenues.

In the 2 full years since the end of 2016, we've grown our total revenues by 60%, and our total owned lots and controlled by 56%.

Next, Jed Dolson, our President of the Texas region, will discuss our growth drivers and our diversification outlook. Jed?

Thanks, Jim. Green Brick is truly one of the best growth stories in the public homebuilder space. Take a look at Slide 10, labeled Growth Drivers. The growth in total revenues from 2016 to 2018 is 60% over that 2-year period. But even more impressive is our setup for the future.

On a year-over-year basis, our backlog grew 74% to $264 million as of year-end.

During 2018, we also increased our lots owned and controlled by 30%, and grew the average number of selling communities by 22%. During 2018, we increased our number of units started by 31% versus 2017 with an increase up to 1,524 units.

In fact, we have averaged starting over 410 units per quarter from Q2 to Q4 of 2018.

As of year-end, 2018, we have 1,127 units under construction, an increase of 53% year-over-year from the end of 2017.

So Green Brick has the backlog construction starts and lot inventory to sustain further dynamic growth.

On Slide 11, we highlight the diversification of our product offerings. In 2017, we significantly increased our focus on townhome community, thanks to years of planning, land acquisition and development.

In fact, we've grown our townhome revenues by 84% over the last 2 years versus our single-family growth of 40% from 2016 to 2018.

Over this period, this has helped us control the growth of our average sales price. Over the last 2 years, our average sales price has risen by only 2.6% in total. This slide also highlights our significant diversification efforts.

In 2018 versus 2017, we saw balanced growth in both product categories, 36% in single-family homes and 26% growth in townhomes.

With our purchase of GHO Homes in 2018, we've entered Florida and specifically age targeted -- and specifically the age-targeted segment. After just 8 months, GHO is already 10% of consolidated 2018 homebuilding revenues.

During the second half of 2019, we will see our first closings of Trophy Signature Homes, offering entry-level price points and affordable first-time move-up price points. In 2018, we grew in 3 states: with 25% growth in Texas; 11% in Georgia; and 10% of our -- of new revenues with the introduction of our Florida segment.

Slide 12 demonstrates that we have limited our risk by not concentrating on any 1 homebuyer segment. We now address 5 distinct consumer segments, which all experienced strong revenue growth in 2018. Our top 3 consumer segments are growth in 2018 ranging from 11% to 23%. But please remember what you saw back on Slide 8, most of our communities are located the desirable A submarket locations. The additional move to include different consumer segments and product types are product Green Brick's longer-term strategy to diversify our offerings and limit risk without reliance on constantly growing sales prices of a single group of homebuyers. Next, Rick Costello, our CFO, will discuss our fourth quarter results in more detail.

Thanks, Jed, and thank you all for joining us today to review our 2018 fourth quarter financial results. First, let's review Slide 13. I'm going to start with highlights and then move into the details. For our Q4 of '18 versus Q4 of '17 and for year-over-year comparisons, here are some key operational metrics. Net new orders increased by 5% for the quarter and 31% for year-over-year.

Home deliveries increased by 31% with home sales revenues, up by 28% for the quarter, and then for year-over-year, home deliveries increased by 30% for all of 2018 with home sales revenues up by 32%. Year-over-year homes under construction are up 53%, like Jed just said, with homes started on the last 12 months basis, up by 31%. The total value of the units in backlog increased by 74% year-over-year.

Our adjusted pretax income was flat for the quarter, but up 29% for year-over-year, and our adjusted net income was up 24% for the quarter, and up 52% for year-over-year.

Now for more details. For Q4, the number of net new homeowners was 279 homes, an increase of 5% compared to the fourth quarter of 2017.

For year-over-year 2018 versus 2017, our net new home orders grew by 31% from 1,063 to 1,397. Green Brick closed 382 homes for the quarter, 31% more than the fourth quarter of 2017.

And for year-over-year 2018 versus 2017, Green Brick closed 1,287 homes, a 30% increase over 2017. You get to hear a 30x percent number quite a bit here with our growth drivers. Homebuilding revenues were $172 million for the quarter, an increase of 28% over the fourth quarter of 2017. Year-over-year, Green Brick's home sales revenues grew to $578.9 million, up 32% over 2017.

Similarly, total revenues grew 35% over Q4 2017 to $185.1 million in Q4 2018, and 36% year-over-year to $623.6 million for all of 2018.

The average sales price for homes delivered was about $443,800 for both the quarter and the full year, down 3% from Q4 2017 and up 1% versus all of 2017.

Most of the decline in the ASP of closed units for the quarter is because of the addition of GHOs -- GHO Homes, whose homes are at lower price points than our other builders.

At December 31, 2018, our Builder Operations segment had a backlog of 582 sold but unclosed homes with a total value of approximately $264.3 million, an increase of 74% from December 31, 2017.

At December 31, the average sales price of homes in backlog was approximately $454,000, a decrease of 7% to the prior year.

This change in the ASP is, again, primarily a function of the acquisition of GHO Homes, which sells its home at lower price points. Let's introduce and review some of our key growth metrics on a last 12-month basis. Regarding sales, net new orders for the last 12 months stand at 1,397, up 31% from 1,063 homes as of the end of Q4 '17.

Again, our backlog is up 74% year-over-year. For Q4 2018, Green Brick had an average of 76 active selling communities, a year-over-year increase of 36%. Regarding lots inventory, the number of lots owned and controlled has grown to just under 8,100 lots, up from about 6,200 lots from the year ago period for an increase of 30% as of December 31, 2018.

And this was accomplished despite starting over 1,500 homes in the last 12 months. Homes under construction increased 53% to 1,127 units as of December 31, compared to 736 units as of December 31, 2017.

And in the last 12 months, we started 1,524 homes versus 1,162 homes as of December 31 of 2017, an increase of 31%.

Our full year homebuilding gross margin is 21.0%, down 0.5% year-over-year from 21.5% due December 31, 2017.

Purchase accounting adjustments related to our acquisition of GHO Homes represented about half of that decline.

During Q4, our homebuilding gross margin declined to 20.1% for the fourth quarter of 2018 from 21.3% for Q4 of 2017.

About half of this decline is due to more amortization of capitalized interest and to the purchase accounting adjustments related to GHO, but the other half or portion of our Q4 gross margin decline was a temporary increase in homes sold and lots developed by third parties, as well as increase in sales incentives. As discussed last quarter, our homebuilding gross margins are higher when Green Brick is the developer of the lots because of land development profits in our cost structure. We constantly evaluate house margin versus sales price to produce the best returns for our business. Now Slide 14 is new and demonstrates our performance as measured against our peers. There are 3 measures here. The chart begins on the left with 2 critical measures of pretax income performance.

Pretax income takes into consideration both building margins as well as operating expenses. As you can see, pretax income as a percentage of revenues, or our pretax margin, stands at 11.1% for 2018. This puts us far above our small-cap and mid-cap peers and approaches the performance of the largest builders.

You should note that our pretax income for 2018 was up 29% year-over-year, rising from $53.9 million in 2017 to $69.4 million in 2018.

A second measure of adjusted pretax income performance is based on return on total invested capital. Again, here, Green Brick's return of 11.6% in 2018 stands heads-and-shoulders above our mid-cap and small-cap peers as reflected in pretax income, ROIC, return on invested capital. Now most important is the bottom line. Green Brick's 2018 EPS was $0.26 per share for Q4, an increase of 24% over 2017. That's once you adjust 2017 for last year's write-off of our deferred tax asset for the tax law change in the amount of $19 million. For the full year, EPS was $1.02 per share for all of 2018 versus $0.69 per share for 2017, an increase of 48%.

Our net income return on equity stands at 11.7% for 2018, which is in-line with our mid-cap and small-cap peers, but let's consider Slide 15 for the rest of the story. As shown on Slide 15, our return on equity has been accomplished despite keeping one of the lowest net debt-to-capital ratios of any public builder. We've been able to grow rapidly, while increasing our financial leverage through low interest rate revolving lines of credit. As of year-end 2018, we have continued that gradual increase to the point where our net debt-to-capital ratio, where net debt is debt minus cash, has increased to 25.7%. Note that other peer builders have leveraged to an average of 39%. But look more closely at this chart. This slide shows that the 7 builders on the left side or the wrong side of the chart are all small-cap and mid-cap peer builders. The net debt-to-capital ratios of those 7 peers ranges between 37% to 62% for an average of 48%, 48% versus Green Brick's 25.7%. They are accomplishing a return on equity that is similar to our return on equity but with over 75% more financial leverage than Green Brick.

I'll now turn the call back over to Jim who will wrap up this part of the call prior to opening things up for Q&A, Jim?

Okay. Thanks, Rick. Slide 16 provides concrete examples of how we can continue to increase our return on equity through financial and operational leverage and through the expansion of financial services. We'll be glad to further discuss any of these drivers during the Q&A session.

Going forward, we expect the market to be more competitive.

Fortunately, our backlog is up 74% from December 31, 2017, and we still have some of the highest margins in the industry and returns on total invested capital that are above many of our mid-cap and small-cap peers.

I also want to remind our investors that we received lot and lending profit before most of our controlled team builders receive profits that we share. Hence, only 50% of any margin compression until breakeven is absorbed by Green Brick.

In summary, we believe we are in the best markets. We expect continued growth, and we are far less impacted by the more competitive marketplace than many peers because of our business model. We are very excited about the addition of Trophy Signature Homes to our family of builders and believe this will be a very accretive builder over the coming years. I look forward to sharing more of its development and impact to the coming quarters. I'll now turn the call back to the operator for questions. Operator?

(Operator Instructions) Your first question comes from the line of Tim Daley from Deutsche Bank.

So my first one is regarding the volume growth in the quarter. So I was just curious, could you guys help us understand how the growth rates trended when you compare the central and the Southeast region if we were to take out the GHO acquisition? And as well, how did challenger volumes perform in the quarter?

Challengers had strong performance. One of the things that happened inside the challenger numbers for the quarter was that they have an earn-out once they exceed a certain return on invested capital. That's not something that we can estimate early in the year, but by the end of the year, they had earned that because the performance was, so far, above expectations. So our take of that fourth quarter share doesn't show as much because they had an earn-out calculation in that quarter, but owing to excellent performance. In terms of relative performance on a quarter-to-quarter basis -- your question was related to specifically in each of the...

Yes, the 2 regions. Like the organic growth trends and net orders between kind of central...

This is Jim. Again, the good growth trends in Dallas are greater than Atlanta right now, and they are projected to be greater going into this year than Atlanta. We are very pleased with the Providence Group in Atlanta. They're probably one of the best performing builders in their market, but we have not expanded that platform, nor do we expect to expand that platform as much going into 2019, as we do in Dallas. And one of the big drivers in Dallas is going to be Trophy Signature Homes. Jed, how many lots have we bought for Trophy?

Over 1,300.

Yes, so we've invested -- we've loaded the rifle -- over 1,300 lots for Trophy. 2 communities are going to start coming on stream where we're going to get revenues this year, and I think you really are going to see that growth in 2020. Whereas in Atlanta, we're not really -- I think we're projecting less than 5% growth going into 2020 because of our land position.

All right, that's very helpful. And then my second question is regarding the kind of SG&A leverage that we should be thinking about for '19. Obviously, very helpful laying out new drivers for the increase on return on equity that -- in Slide 16 there. So just thinking about the operating leverage that was in the fourth quarter, obviously, wasn't the kind of improvement on the year-over-year basis that we were expecting. But were there any one-offs in that SG&A expense in the quarter? Or was this kind of the same drag from GHO that we experienced -- that we saw you experience in 3Q '18?

Well, you have a couple of things happening there. There certainly was an impact from the increase in community count on a year-over-year basis and even starting in advance of opening some of the communities that, that occurs just organically during the year. But there was also probably an increase in the -- our finished units as of the end of the year. We did have an increase in completed specs. But we also had an increase in completed backlog homes that really were because of weather issues and just completion issues did not close in Q4. If those homes had closed, I think Q4 would've shown even stronger top-line growth as well as better SG&A leverage.

Okay. And then just thinking about the rest of the year in terms of the SG&A line. Obviously, you -- the slide does call out that it's going to be more of a kind of growth rather than any sort of synergies, given the regional differences across GHO and the other brands. But is it reasonable to assume as we start lapping the GHO transaction in the latter half of the year that we could see a return of the overhead leverage? And see that kind of SG&A as percent of total revenues come down a bit on a year-over-year basis versus '18?

Absolutely, absolutely. When you see how we've ramped up our construction and just have the communities in place, the lot inventories in place. We feel like we -- and we actually showed this on Slide 16. Green Brick's overhead should not increase anywhere near close to our overall revenue growth rate. So that gives us leverage. And then each of the builders that grew by a dynamic amount in terms of contributing those new units under construction, like CB Jeni Homes, Normandy Homes, for instance, they should also experience some additional positive SG&A leverage.

This is Jim, again. Let me provide just a little bit more color, I think that would help you understand our business, not just quarter-to-quarter but longer-term. We think that we can grow our business $400 million, $500 million of revenue with our home office SG&A only increasing $4 million, plus or minus. And that's where over the next 4 years, where I think we can really start picking up SG&A leverage and moving us to the top of peers.

And so our goal is threefold: One is reverse engineer the business with SG&A leverage, like we just talked about; two, the expansion of our financial services; and three, we are finding tremendous cost efficiencies right now as we've grown to be, with Challenger, a 2,000 home a year builder and operational in purchasing efficiencies.

Your next question comes from the line of Susan Maklari from Crédit Suisse.

This is actually Chris on for Susan. First question is just on the order trends you've seen so far this year. This morning we've heard from a competitor that orders roughly flat? Is that in-line with what you've seen? And are you able to break-out the monthly order growth from last quarter?

We're able to break out the monthly order growth, but we don't typically share that breakout. But generally, I think everybody saw a soft fourth quarter. Our orders and backlog were up. In January, they're up, in February, up. They're not up as much as we'd like, we're seeing sales really start to pick up. Everybody's wondering, I think every investor call I listen to is, what's going to happen with Spring sales? We saw a pretty good pickup over the last 2 weeks, and we just hope that, that continues.

Got it. And then just my second question is just on the competitive environment on the ground. Given that some of your larger peers are going to sacrifice in margins to maintain share. Just wanted to see how is that -- how that compares with what you're seeing? And what ways you're able to address these pressures?

Well, I guess -- this is Jim, again. So it's always pace versus price to some extent. We're a little bit more protected because we're in more supply-constrained markets. For example, in Alpharetta, where we are doing some single-family homes in $600,000 and $700,000 price range. We're expecting -- we had really strong sales with no concessions. But flip side of that story is in a -- what we consider an A- lot market, or B+ market in McKinney, Texas, where we have townhomes that are competing with small-lot single-family product. We're having to offer a lot more inducements to homes. So it's pretty much across the board. But the saving grace, I guess, for our business is that we have some of the highest margins. As we've mentioned a lot of that hit comes off of our builders 50%. And we're just going to grow the top-line and still have a good bottom-line, I think, this year.

Your next question comes from line of Michael Rehaut from JP Morgan .

It's Mike Rehaut. Just was hoping to get a few questions here. First of all, how are you guys thinking about 2019 from a growth perspective? And I understand obviously, a lot of your peers, just about all of them have refrained on giving out most of the typical guidance metrics at this point in time, given the flux and demand trends that we've seen over the last few months. But specifically, some have been able to kind of maybe to start off, giving some thoughts around where you think community count could be by the end of 2019, and directionally, how gross margins might be shaping up for the first quarter. So I was hopeful to see if you could give us some at least directional thoughts around those 2 metrics? Again, community count by '19 end and given your backlog -- and at this point, you're already 2 months into the first quarter, what you think gross margins might be doing?

Okay. I'm going to address community count in Atlanta and Florida. They're -- Atlanta, they're about stable. In Florida, they're probably going to be go up slightly. Jed, why don't you talk about Dallas?

Yes, we think Dallas, we have more growth opportunities, as Jim previously mentioned. So I think we can see community count in Dallas grow 15%, 20% year-over-year.

And so with -- up 15% to 20% -- and I apologize, I don't have all the numbers right in front of me, the Dallas community count, I assume, it's roughly half of the business been -- you just prorate that for the full year?

Yes. I believe it's a little more than half of our company-wide community count.

Okay. And then on gross margins? For the first quarter, any thoughts around directionally -- Jim, I think you mentioned that you do expect 2019 to -- the market to be more competitive, and you kind of referenced little bit of an increase in incentives as part of the drivers for the 4Q gross margin. Just thinking in terms of where you -- your 4Q gross margin, you ended it around 20% after interest, roughly 21% pre-interest. Should that kind of be the new base as we go into 2019? Or are you thinking higher, lower? Any directional thoughts there would be helpful.

Well, I wish I had a crystal ball that I could help you with that answer. I think we're going to see 2 things happening. I think in some markets like McKinney, Texas, for example, in our townhouse, we're going to continue to see a very competitive market and margin compression. We have a large community in Flower Mound that's pretty supply-constrained. I think that's going to produce really great margins for a long time. We have a neighborhood in Coppell that's an AAA school district, that has very little competition. And that's going to be a high margin. So I think the net effect is we're hoping that between taking lower margins in some communities and getting some of these new communities ramped up that we're going to mitigate margin compression. But all I can tell you is we -- -- I don't know the answer to that.

And there's certainly price discovery that goes on, on the consumer side and the competitive side. The -- one of the positive impacts on margin is because starts are down for the competition, in Atlanta for instance, or in some submarkets in Dallas, there is an opportunity to re-trace our subcontractor base, and we're constantly doing that. But the big question mark is going to be, what's going to happen with interest rates and ultimately, the demand coming back? Traffic has been good. So we're optimistic, but our crystal ball is clouded.

Well, actually traffic -- it's really interesting. Traffic is actually up quite a bit, and we just got our traffic reports last week. And we are seeing more traffic than last year, but the buyers are still wanting the deal, and it's affecting pricing and the way you see all that inventory clears in the Spring.

Okay. One last question on margin. I apologize if I'm pushing the point, and then I just had a quick one on sales pace. Just as you look into the first quarter, you obviously have your backlog already setup. You've kind of booked the first 2 months of this quarter. Any thoughts directionally on how 1Q gross margins might be shaping up versus 4Q?

We're probably not going to share the details of that directionally. We still do have that pressure on the portion of backlog that were -- is not allocated to Q1. You can see what our start pace is, so you can estimate what our revenues are going to be, but that's harder to say on the margin side.

Okay. No, I appreciate that. One last one, your sales pace in the fourth quarter, like the industry, took a tougher hit, down 22% for you guys on -- for the quarter. You still have a tough comp in the first quarter and most of the industry has been pointing to some sequential improvement. And you referenced that earlier, that pace has picked up over the last couple of weeks, but still down versus 2018 -- the Spring of 2018, which was viewed as a bit more robust. So sales pace remaining down year-over-year, is that something that we should expect for yourselves similar to other builders?

I think the -- like Jim mentioned before, if you take it down to the per average community, February was very similar between 2018 and 2019, but January was not, it was more like Q4. Yet to be seen, but we've got a real tough comp for the rest of the quarter. Probably looking a lot more like 2017 than 2018 -- yes, than 2018. Last year is real tough comp.

(Operator Instructions) Your next question comes from line of Carl Reichardt from BTIG.

Jed, I wanted to ask a couple of questions about Trophy Signature. I think you said 1,300 lots is what you've got now. I guess that's out of 8,000 in total, is that the base that we should be using? So at the end of the quarter, we were 1,300 out of 8,000. And can you talk a little bit about price points and square footage and just sort of the locations that you're expecting to roll out this year? Where they are? And then maybe the plans for 2020, 2021?

Yes, sure. So the neat deal was having a start-up like Trophy as we're opportunistic, and we're probably more opportunistic and a little bit more nimble than the average builder right now. So our first starts are going to be in Frisco, Texas. We've actually broken ground already, so we'll have in 2 different communities in Frisco where we've taken advantage of lot resets. We will have revenue strength this year. We'll also have revenue from -- in Q4 from our community in Princeton, Texas. And that will be in the low 200s. So Frisco, probably be a little bit higher ASP than typical, just given that there's an opportunistic situation, but long term, as Jim mentioned, we want Trophy to be entry-level and first-time move up.

What size last year?

1,800 square foot.

Great. And then, when I look at -- Rick or Jim, when I look at your lot count growth it's been accelerating to the upside. And I'm curious as you're looking at the market today, how do you feel about land spend -- new land spend for 2019? Do you think that growth trajectory is going to continue? Do you expect it to flatten out this year before a rebound? I'm thinking especially about the sort of the robustness of the backlog. You've got a lot of houses on lots already. So what are you -- what's your thinking right now as you look at the market for land spend in '19?

One of the things we're very encouraged about is that many of our peers, particularly those that have 50% and 60% invested capital aren't really in a position to buy land, and they are resorting to land banking and other expensive options that comes out of profit one way or another. And we're very cautiously looking at some land builds right now that we've been working on for a very long time. I'm going to Atlanta tomorrow, looking at 3 deals and deciding on 1, 2, or 3 of those closings. And we think we're in a really good position on all those deals. They've been in the entitlement and planning process for well over a year. And right now, we're not seeing as much competition for those kind of sites by other builders. So we're pretty encouraged about the land side of the business right now. We -- unlike a lot of guys that all say, well, our earning model is land-like which we're not really sure how that operates in long-term because it comes out of profit margin somehow at the end of the day, we're pretty excited about 2019 and 2020 in our land book.

Okay. And then last question, we haven't talked much about acquisitions. How does the environment look right now in terms of smaller builders? I think we've written a lot about your model being potentially attractive for them. Is that something you're looking at closely now? Is that sort of more off-the-table do you think for '19, how is the -- what's the status there?

Well, we are constantly looking. We have 2 builders we're looking at right now. There is a big spread between bid and ask still. They're private builders. And because they are very leveraged relative to our business, there's just a disconnect in how they look at their business and how we look at the business. And that's why we will only make 2 acquisitions going forward because we're not going to buy a private builder unless they have high-return on invested capital on a trailing basis. And we think that it's going to be -- take that return on capital that's been taking place going forward. So I would love to say we're going to have a deal on hand but there's just a spread between bid and ask right now.

There are no further questions. This concludes today's conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect.