Hilltop Holdings Inc (HTH) 2005 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Affordable Residential Communities, Incorporated, first quarter 2005 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Please limit yourself to one question and one follow-up at that time. Following the presentation, instructions will be provided at that time for you to queue for your questions.

I would now like to remind everyone that today's conference is being recorded, and would now like to turn the conference over to Mr. Brad Cohen of Integrated Corporate Relations. Please go ahead.

Thank you very much. At this time, management would like to inform you that certain statements made during the conference call which are not historical facts may be deemed forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, and Section 21-E of the Securities and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Although the Company believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, they are subject to economic risks and uncertainties. The Company can provide no assurance that expectations will be achieved and actual results may vary.

Factors and risks that could cause actual results to differ materially from expectations are detailed in today's press release and from time to time in the Company's periodic filings with the SEC. The Company undertakes no obligation to revise or update any forward-looking statements reflected in any circumstances after the date of this earnings release. Having said that, I would like now to introduce Mr. Scott Jackson, Chairman and CEO, and Mr. Larry Kreider, Chief Financial Officer. Scott, please go ahead.

Thank you, Brad. Good afternoon to everyone. After my opening remarks remarks, Larry will review financial result, then I'll wrap up, and at conclusion, with questions and answers. I'm pleased to say that our '05 first quarter results demonstrated the slow but steady progress we intended to make this year. First and foremost, I think the structural charges we undertook in '04 made us more responsive to the needs of the marketplace, as our first quarter results will demonstrate. We now have a corporate structure that allows us to focus on each community relative to where it stands on a performance basis, while aligning our people to meet our corporate goals.

Last week, we approved and put into place an incentive compensation program for all operating and administrative managers that align their goals with the attainment of our operating objectives: Increasing occupancy, improving operating margins at the community level, and focusing on the customer to create value for both our customers and shareholders. We believe the greater focus from our regional and district managers are in community sales organizations, and our field operators as well as our sales and leasing tools we now have should continue to drive greater occupancy, margin improvement, and stable cash flow. We have previously discussed BFFR on our operating philosophy, which stands for buy, fix, fill and run, of which we will continue to operate our Company. This simple acronym is the foundation of our business model and the framework we use to assess progress within our communities.

Each one of our 315 communities now has a business plan that is driven by that asset's current stage of operation in relationship to find, fix, fill and run. Specifically, we have 204 communities with 39,000 homesites, with an average occupancy of 90.3%. In these communities, our primary impetus is to improve operating margins through expense and overhead management, utility recovery and creation of additional revenue streams, while we fill the remaining vacant homesites within these communities. We fill these communities by focusing on our inventory management, resident retention, and as well as our sales and leasing activities. We have organized and committed significant resources to our remaining 111 high focus communities, with roughly 24,600 homesites with an average occupancy of 69.1%.

These are the assets that we expect to have the greatest improvement appreciation and value over the coming months and years, and these communities' growth is a function of man power, capital spending, inventory, and finally, time. We've also introduced several new companywide initiatives to increase occupancy and cash flow that are based on our BFFR strategy. In our high occupancy communities, we will focus on rapid fill and improving operating margins in the communes that have occupancy of 90% or greater over the course of the last three quarters of '05. In our medium occupancy communities, we will focus on tenant retention and value creation through affordable product offerings. In addition, we will continue to fill these communities and provide a fulfilling customer experience within those communes to not only our existing customers, but new customers.

In our low occupancy communities -- and these are marked -- these are marked by a high commitment focus of the Company's resources they will require, and we have dedicated significant man power, along with investments in marketing and sales. In addition, these low occupancy communities require constant evaluation of each asset in each community's business plan. While this is an intensive process, it is necessary and it's important to think outside the box in order to optimize the assets' long term performance. This model is exactly how historically that we created the framework as we acquired and turned around over 200 distressed communities over the course of the last 10 years. We're also focused on beginning to sell new homes with financing in a way that mitigates our credit exposure, through a value oriented home sales price approach, with community level monitoring of customer payments and our proximity to the collateral, a process that we call soft servicing, and is basically built around our fairly successful history of collections within our own communities.

Now, I'd like to talk briefly about our occupancy during the first quarter. We gained approximately 380 units of occupancy compared to a loss of 691 units in the fourth quarter of last year. This was our first positive net absorption since our first quarter of '03. Our total occupancy increased 60 basis points to 82.1 as of March 31, 2005, from 81.5 as of December 31, '04. We showed a broad range of growth in our top 10 markets with average increase in occupancy of 1.6% to 83.2, and from 81.6 in the fourth quarter of '04. Most notably, in Dallas and Atlanta, two of our most difficult markets, we increased occupancy 2.4% and 1.9%, respectively.

Let me now provide an update on home sales. During the first quarter of '05, we sold 774 homes -- mostly older homes rolling out of our lease suite -- compared to 946 homes sold in the fourth quarter of last year. Most of those sales were for cash, and we were able to increase our average selling price of them to approximately $10,300, an increase of approximately 1,200 from the prior quarter. I mentioned to Bob, we are beginning to sell newer homes that will be financed by our $125 million consumer finance line of credit. The sales in the first quarter provided tremendous value to our new residents. Assuming proper follow through on our part of our field force in fulfillment of these customer needs, these new customers should create significant referral referral business in the coming months.

Net home leasing activities improved significantly in the first quarter of '05 as compared to the fourth quarter of '04. In the first quarter of '05, we gained 561 new -- net new renters, as compared to a reduction of 238 in the fourth quarter of '04. Equally important, in the first quarter of '05, we increased our lease to own transaction, to 48% of our total leasing -- of our total leasing activity from 31% in the fourth quarter. We completed a total of 813 lease to own contracts during the quarter. We began this program in late third quarter of '04. The intent of the program is to extend the duration of our renters' stay and produce significant renter to owner conversions over the longer terms of these leases.

We have generated positive marketing activity with our New American program, which makes home ownership easier for newcomers to the United States. With the new American program, we have simplified the process and the requirements to buy a home and are now beginning to see new financed home sales from this large demographic. We continue to address the capital needs of the Company. While we believe our working capital provided by operating activities will be sufficient to meet our operating requirements, we intend to invest significant funds in home purchase and related -- purchases and related expenditures as demand warrants.

We now have a number of funding source, $50 million floor plan line of credit that has $34.2 million outstanding, an $85 a million revolving credit mortgage facility that has 58.8 million outstanding, $75 million lease receivable line of credit that is currently unused, $125 million consumer finance facility that is unused, and a $25 million trust preferred security that was fully borrowed in March. Full implementation of our growth plan will require additional funding to which we are actively pursuing various alternatives. Additionally, we will continue to explore the sale of communities that either do not meet our criteria for investment, or meet our operating platform requirements. Before I turn the call over to Larry, I wanted to address corporate governance. We think that the good corporate governance is part of our daily lives and that that extends to our board of directors.

During 2004 and early '05, we have made changes at the board level and expect additional changes to the board's composition. At this time, we are still finalizing these changes to our board of directors, and in the end our audit committee, comp committee and corporate governance committees will be comprised of independent directors who are elected to one-year of non-staggered terms. With that, I will turn it over to Larry for the financial run down.

Thanks, Scott. Let me start by saying we had no new discontinued operations in the first quarter, and we have also posted our supplemental package on our website, www.aboutarc.com, under the Investor Relations tab, then you tab on to SEC, then Annual and Quarterly Reports. For the three months ended March 31, 2005, our net loss available to the common stockholders improved to 15.9 million, or $0.39 per share on a fully diluted basis, compared to net loss of $35.4 million or $0.87 a share in the fourth quarter, and a net loss of $35.0 million or $1.20 per share in the first quarter last year. We reported FFO available to common stockholders of positive $1.6 million or $0.04 per share on a fully diluted basis in the first quarter, versus FFO of negative $13.2 million or $0.32 per share in the fourth quarter of 2004. This equates to a $0.36 increase from the fourth quarter. Total revenue for the first quarter of 2005 was $64.6 million, compared to $64.5 million in the fourth quarter 2004, and $42.9 million in the first quarter of 2004.

Turning to the real estate segment, revenue from our real estate segment for the three months ended March 31, 2005, was $56.4 million compared to $55.6 million in the three months ended December 31, 2004. The 1.3% increase resulted from the rise in occupancy to 82.1% in the first quarter, from 81.5% in the fourth quarter of last year. Expenses for our real estate segment for the three months ended March 31, 2005, were 24.5 million as compared to $29.0 million for the three months ended December 31, 2004. As a result, our real estate net segment income rose to $31.9 million versus $26.6 million in the fourth quarter of 2004.

The improvement in our real estate segment income was due to a $2.4 million reduction in repairs and maintenance expense -- expense -- and $820,000 reduction in real estate taxes, mostly because the fourth quarter included a reassessment of our acquired communities; a $550,000 reduction in bad debt expense, reflecting the improvement in collections at acquired community, and a $140,000 reduction in utilities and telephone expenses, reflecting a focus on operating margins. On a same community basis, comparing the first quarter of 2005 to the first quarter of 2004, real estate net segment income was $20.4 million as compared to $21.8 million. Same communities -- community revenues were $35.5 million, as compared to $35.3 million, reflecting lower occupancy offset by higher rental home revenue. Same community real estate expenses increased 11.7%, primarily from increased repairs and maintenance and salaries and benefits expenses that we incurred to support our occupancy growth initiatives and our higher rental home inventories.

Now, turning to our retail segment, revenue from the retail segment for the three months ended March 31, 2005, was $8 million, compared to $8.6 million for the three months ended December 31, 2004. This resulted primarily from the decrease in the number of homes sold from 946 in the fourth quarter, to 774 in the first quarter this year, partially offset by an increase in average home sale price to $10,300 from $9,100. Expenses for the retail segment for the three months ended March 31, 2005, were $10.8 million, compared to $14.8 million for the three months ended December 31, 2004. As a result, the retail home sales segment loss for the three months ended March 31, 2005, decreased to $2.8 million, compared to $6.1 million for the three months ended December 31, 2004. The significant improvement in operating margins of $3.3 million is the result of improved gross margin on off sales.

Other retail marketing and selling expenses were essentially unchanged as compared to the fourth quarter of 2004. Now, turning to other expenses, in terms of other expenses, property management expenses were $2.3 million during the first quarter of 2005, compared to $2.1 million in the fourth quarter of 2004. General and administrative expenses fell by $466,000 to $5.4 million in the first quarter as compared to $5.8 million in the fourth quarter, primarily due to the absence of severance costs, offset by the inclusion of costs related to our new chief operating officers and regional vice presidents' management group, and increases in professional fees related to Sarbanes-Oxley. Depreciation and amortization fell by $1.2 million to $20 million for the first quarter, from $21.2 million in the fourth quarter, 2004, primarily because of an adjustment to amortization of loan origination costs in the fourth quarter of last year.

Interest expense decreased by $590,000 in the first quarter to $15.3 million versus $15.9 million in the fourth quarter last year, primarily due to interest rate swap income, and miscellaneous adjustments, offset by slightly higher average outstanding loan balances. In terms of our discontinued operations, we had $928,000 in operating income, partially offset by $730,000 of additional loss on sale and basis adjustments on fourth quarter 2004 community sales that closed at the end of the first quarter. For the first quarter of 2005, the board of directors declared a 31.25 cent common dividend per share. The dividend was paid on April 15, 2005, through shareholders of record on March 31, 2005.

The board of directors also declared a dividend of 51.56 cents per share on its Series A cumulative redeemable preferred stock, and a dividend of $0.39 per unit on its Series B and Series C preferred operating partnership units. These dividends were paid on April 29, 2005, to shareholders of record on April 15, 2005. In terms of our capital structure, we had slightly more than $1 billion in debt at March 31, 2005, including approximately $34.2 million drawn under our $50 million floor plan facility, and $58.8 million outstanding on our $85 million revolving credit mortgage facility. In March and early April, we secured an additional $100 million in finance and consisting of an unsecured $25 million trust preferred security, and a $75 million lease receivables facility secured by substantially all of our rental homes and related leases. The $25 million trust preferred security was borrowed in full on March 15, 2005. Matures in 30 years, and bears interest at three-month LIBOR plus 3.25%.

We are beginning to draw against the lease receivable facility in the second quarter. We also have a $125 million channel facility for making consumer loans, which was unused as of March 31, 2005. We expect to begin drawing upon this line of credit in the second quarter. The weighted average interest rate was 6.4%, and 86% of our outstanding debt is not due until 2008 or later, Assuming our senior variable rate debt due 2006 is extended in accordance with the terms of the current debt agreement. Fixed rate debt amounted to 85% of total debt, including the impact of the Company's interest rate swaps. And now, I will turn over the call to Scott Jackson for concluding remarks.

Thank you. Now that our business model, management team and the majority of our capital and financing needs are in place, we should be able to meet our occupancy objectives in 2005 and beyond. This will result in higher cash flow, greater FFO, and enhanced shareholder value. And at the appropriate time when the wind is at our back, we will once again begin to grow this Company. To survive in a challenging operating environment, we realized that we needed to provide alternative occupancy drivers independent of the industry, as well as financing tools to compel customers to make long-term commitments to our communities.

We've created market recognition for our product offerings, and we have refined our message to our identified markets. Wev'e reduced our cost of delivery and we're now building customer awareness, traffic, value recognition and most importantly, a very significant referral base within our communities. We have invested heavily and now have completed the majority of our acquired community cleanup while creating curb appeal for marketing and retention purposes. We've established a network of word of mouth marketing, which is important to our Hispanic demographic. We've retooled our financing products to drive new home sales and to better capture the demand of each.

And finally, we've added new management and focus where needed, increasing our costs in the short term but hopefully results in expediting improvements in occupancy and increasing our FFO over time. Above all, we have confidence in the attractiveness of our business. Our communities provide an economical housing solution for our customers. With flexible terms of ownership, we provide our customers with housing they want and need at pricing that affords those customers the true value for their dollars allocated to housing. We would think that our compelling value proposition is well positioned among the various home ownership alternatives, both now and in the future. Demand is not the issue for the industry; delivery of customer value is. While our industry continues to struggle, we believe the initiatives that we have implemented have effectively positioned ARC within the industry.

We remain optimistic about the Company's long-term prospects, and are confident in our ability to maximize our results over the long term. In closing, I would like to thank our employees for their hard work over the last 14 months and in getting the ball moving in the right direction, and our shareholders for their continued support; and of course, our customers, to which -- to which our efforts are all about. We would now like to take any questions that any of you might have.

Thank you. The question and answer session will be conducted electronically. If you do wish to signal for a question, you may do so by pressing the star key followed by the digit one on your touch-tone telephone. Once again, that is star one on your touch-tone phone to signal for any questions. If you are using a speaker phone today, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one on your touch-tone phone to signal for any questions. And please remember to limit yourself to only one question and one follow up. We will pause for a moment. Our first question today will come from Steve Sakwa with Merrill Lynch.

Good afternoon, Scott. I guess two questions. One, could you maybe talk a little bit more about the incentive comp plan? Maybe how many people does it reach? What are the kind of dollar values attached to it? The goals that are associated with that? And, you know, maybe kind of how it's split up between senior management and people in the field? And then the second question, I was just trying to figure out what exactly you sold in the quarter, because I see that the balance sheet shows that the assets held for sale went down, but the number of homesites didn't really change. I was a little confused.

Yes. I will let Larry address that stuff that we sold. Let me quickly go over sort of this incentive program, and I really don't want to get into a lot of detail; but essentially, it covers literally every operating person, including all of the administrative people. That would include from accounting, finance, consumer finance operations, legal, things like titling even, throughout our sales organization as well as our community operations organization, as well as our inventory management, and marketing. And it essentially aligns all of those groups on specific occupancy objectives, vis-a-vis different buckets of occupancy, meaning our high focus communities that generally have occupancy of 70% or below, and our higher occupancy communities, specifically those communities 90 to 100% occupancy, and those communities 80 to 90% occupancy, with it sort of moving back and forth between the kinds of goals that we want to achieve for each one of those groups.

But in general, what it basically does is align all of the Company towards really three specific objectives: One, occupancy growth -- and that's quality occupancy growth by year end '05; two, operating margin improvement specifically within those communities that are 80% or better occupied where we believe we can make significant headway on the quality of earnings within those groups; and then three, finally, is on certain other aspects, i.e., like cost of inventory, how quickly we get a home from a factory and into the field and into production, whether that's through a sale, a lease to own, or a lease, and general overall better management of how things flow through the organization to meet those occupancy goals and those operating margin goals.

Okay. But are you going to share any specific numbers with us, or are you keeping that internally?

That is -- I think it will be reflected in financials, and it is -- what I would say is that in the senior ranks -- that would be DM and above -- it is highly SKUed towards specific goals and objectives, and it is built so that if those objectives aren't attained that is very little incentive comp, and if those objectives are obtained, the incentive comp is very significant. And one group can't get there without the other group getting there, also, so it really ties everyone together.

Okay. And with respect to -- Steve, with respect to the discontinued operations, we -- we collected -- we completed the sale of the communities that we sold at discontinued in the fourth quarter of 2004. There were no new communities discontinued in the first quarter, and the reason the occupancy and all the community homesite counts did not change is because upon discontinuance, we reflected all of those communities sold for all time periods, and we took them out of all the historical data in accordance with accounting procedures.

So in other words, everything that got sold was counted in the fourth quarter, even if it closed in the first quarter.

And our next question comes from David Rodgers with Key McDonald.

Hey, guys. On the last conference call, it sounded like you had anticipated higher operating expenses, kind of coming into the first couple of periods of the year related to marketing and maybe promotions related to home sales. That didn't seem to materialize quite as much. Could you address that a little bit more?

One is that there were -- we significantly preloaded the musket in the fourth quarter of '04. Secondly, remember that the first quarter of '05, you -- sales activity is somewhat limited by things like weather and the ability to get inventory into certain communities because of that weather, and have promotions that are focused on that. So I think what you will see is that we will have more activity in those areas -- hopefully we should have significantly better sales in the second and third quarters, which are really the significant selling quarters, especially in those communities that are in the northern part of the United States. And therefore, we'll have also expenses associated with that activity.

Okay, in the rental home portfolio, what are you seeing in terms of cost to refurbish the home? And then also in the rental home portfolio, what's your break down between new and -- or in your inventory, I should say -- what's the break down between your new and used homes?

Can you ask that one more time?

Sure. Yes, I guess the first part of the question is just, are you seeing any changes in the cost related to refurbishing homes coming out of or returning to the rental portfolio?

Well, I think we're -- I think we're pretty well -- I think we have a pretty good handle on our cost of refurbishment. We've basically had those costs associated with refurbishment now for the better part of the entire history of the Company, and certainly in fairly significant size since 2001. What I would tell you is that these cash sales are freshening that rental inventory aging; and so therefore, we should tend to see that the overall absolute dollar amount per the portfolio will continue to decrease.

And I guess the second part of that question was, in your inventory of homes, what's your break down between new and existing homes?

Well, today, I think we have roughly -- call it 6,000, approximately, 7,000 homes on the books. And I'd rather not call it a rental portfolio, because it really, when we order a new home, that new home arrives to the community, and it could be designated for sale, it could be designated for lease to own, it could be designated for leasing. But in general, if you look at our historic model, our business plan was always to hold that home from anywhere from three to four years, and then towards that fourth year, move that home into a held for sale position so that it could then be sold at a depreciated price.

What I would tell you is this year, thus far, we have ordered I want to say about 3500 homes, and so roughly, today, half our portfolio is essentially brand new homes now, and many of those have already been either lease to own or leased or sold; and over the course of the remainder of the year, I believe depending on what demand is at any given time, and what our flow through is, we are on schedule to order about another 7,000 homes. So what happens is, sort of on -- if we're doing our job on a daily basis, that rental portfolio continues to get newer and newer and newer.

Thanks.

You bet.

And our next question comes from Jordan Sadler with Smith Barney.

Hi, guys. I'm here with Jon Lit.

Hi, guys.

Can you maybe give us some color on sort of the different drivers of occupancy during the quarter? Specifically, I noticed that move-ins, which I think are organic move-ins, were 290 during the quarter, which was significantly higher than we've seen in a while. Is that coming from the retail dealerships or what? Maybe you could give us a little bit more color on that.

You want to --

Well, yes, I -- we're -- we're not calling out a trend, but we are hopeful that we are beginning to see some independent third party move-ins; and in some cases, we're not convinced they come from the retail dealerships, but we think there is some local financing available out there for homes, especially as mortgage rates have gone upwards somewhat.

And we're also now, you know, getting a handle on sort of everything that we need to be doing, and our sales force and our regional sales people are now out, beginning once again to talk to the local dealers, offering various programs and letting them understand that we have, you know, the various programs that we have for sale, including things like referral fees and that sort of thing. So we are starting to see a little bit of that pick up.

And on the home sales, should we expect since half the portfolio is new now, and you expect to order a lot more new homes, that the prices being realized by you would be a little higher?

Well, you should expect that. Certainly, we expect -- and you know, it takes time to get all the training and that sort of thing out there -- but we are beginning to see fairly significant increase in new home sales, primarily financed -- although it's somewhat amazing sometimes how many cash new home sales that we do get -- and we think that that trend will increase over the course of the next, you know, eight months. I also -- as part of our business plan, when we have a home come vacant, we clearly look at that home, we look at the age, we look at the condition, we look at what we've got it on the books for, and if if makes sense, we generally attempt to sell that home to a customer who becomes an owner versus a renter. So it's a sort of a combination of a number of things; but clearly, if we're doing our job, we can expect to see new home sales increase, and we should expect to see new home -- financed home sales increase.

What would you say the mix was in terms of total -- just full cash payment on the 774 homes that you sold in the quarter? Were they all -- for all cash? I mean 50% --

[INAUDIBLE]. Yes, as we said, almost all of the homes that we sold in the first quarter were continuing to be for cash.

I think if you're looking for a break down, I think it was somewhere around 550 or 600 for cash, and the remainder were financed. And the majority of the financed sales were either new homes or recently used homes -- in other words, they were one to two years old.

I mean, we showed, for example, in the first quarter sales, 46 newer homes. New homes.

Okay. Right.

Brand new homes.

Brand new homes, yes.

And you mentioned in the release that there was 2.2 million of the -- I guess the impairment you recognized last quarter used up. So if I'm -- just from a P&L perspective, if the loss on the -- from the home sales division was a couple million bucks this quarter, should I add that couple million to it, just to see what the loss per home was? That would be the appropriate treatment?

That would be right. That comes from the impairment that we took in the fourth quarter.

Okay. So if I do that, it looks like you're -- it's costing you about 6500 bucks a home to get somebody into a --

There again, though, these were by far the majority of our older homes. They were homes that for one reason or another had issues with them that we felt it made more sense to be sellers of those, versus refurb or renting of those. And finally, some of those, in all candor, were homes that the years ago, certain things like two bedroom homes that aren't very successful; and for the most part, they were in our markets that were our most severely impacted, most specifically which --

Sure, sure. I understand. I just -- I guess I'm trying to get a sense of how much that should come in -- that margin -- as we go forward.

Well, we're having pretty good success in maintaining margins, as we go into the second quarter, and part of that is a function of we are also starting to stock out of a significant number of those older homes, as we define older homes sort of 2001 and older.

I mean, is there a point where you guys draw the line, where you -- you won't sell at a loss greater than X, or I should use as a benchmark?

I think to a certain extent, that's really what we've done here in the beginning of the second quarter. We still have I think roughly 60 or 65 two bedroom homes that we want to make sure that we move them off the books this quarter, and a few other things; but in general, we're starting to maintain the margins pretty good, against our net book value, as well as actually some administrative markups that we're taking to begin covering our marketing and sales expenses in addition to our commission expenses. And what I would say is that probably where you will see the majority of sort of impairment type sales prices would still be in just a couple of markets, and probably most specifically in that Wichita market.

Okay. Lastly, just looking at these -- the different drivers of occupancy, is there anything -- any of these drivers in particular you think is not a good indicator of what should happen in the next couple of quarters that sort of was an anomaly in the quarter?

Well, I think what the numbers don't tell on sales and occupancy pickup -- I mean, I do think that for the most part, we have sort of flushed through some of our sort of typical turn-around, distressed, move-out activity; although, you know, we continue to see repos in the marketplace, and we also continue to see people move their homes to land and finance them as real estate. But -- but in general, what I don't think the numbers indicate is that for the most part, and in a lot of our northern markets -- our Iowa marks, our northern Illinois, our northern Indiana markets, as well as our New York markets, and some of our markets in places like Wyoming and even here in Colorado -- that one, we were predominantly stocked out of inventory because of a number of things, including an inability to deliver homes into those markets during January and February and March, which tend to be pretty difficult weather months.

So in general, I think what we'll see hopefully in the coming months is that that -- those sales and that activity continues to pick up, as well as our southern and central regional type of homes. The other thing is that clearly, we had held back on inventory orders to make sure that we had sort of all of our ducks in a row and we understood where and how homes were going in. And I think what you'll see is in our first two orders that we released after our receivables financing are line was in place, the majority of those orders were into our very highest occupancy communities, where one would think our absorption should be fairly significant and fairly fast.

Once again, that is star one on your touch-tone phone to signal for any questions. And we will go next to William Atcheson.

Thank you. In terms of the margin that you can get on your home sale operation, what sort of margins are you looking for, you know, after the cost of the home, and after selling expenses?

We're in essence looking for break-even propositions. And that would not include the profit that we have built into our financing. But in essence, if we can -- over the long haul, if we can cover our costs of the home and of the home sale -- and that would be not only our straight selling costs but origination costs on the financing side, the administrative costs, and the marketing, and promotional costs -- that's really where we believe we need to get to.

Okay. Getting back to kind of on Steve's question, what sort of G&A run rate should we be hooking at now? Should we be looking at a run rate of over $5 million per quarter?

I would think -- you know, we don't give guidance on that kind of stuff, but I would think our present run rate is pretty reasonable. I would caution you with regard to Sarbanes-Oxley expenses. Those could continue there, and that's one item I could point to.

And I think in general, the profile is, you know, we have -- we have roughly 26,000 homesites that we've got to fill. That -- you can do it a number of different ways. But at the end of the day, it's a function of man power, and it's a function of time, and we've made the decision that we're going to drive that as quickly as we possibly can; and therefore, you see G&A associated with that driver. And over time, what one would expect, as those communities become fully occupied -- and that would be -- sort of our definition, is 90% or better -- then what you'll begin to see is a tail-off and a fairly significant tail-off of SG&A across the platform.

Round abouts, where is occupancy right now, in the total portfolio?

82.1%.

That was the March 31 number.

That was the end of March, yes.

And we had a reasonably positive April.

All right. Thank you.

And at this time, we have no further questions standing by. I'd like to turn the conference back to our speakers for any additional or closing comments.

That's it. We appreciate you guys listening in, and I guess we'll see you in about 90 days. Thanks.

Thank you for your participation in today's conference call. You may disconnect at this time.