MDC Holdings Inc (MDC) 2003 Q3 法說會逐字稿

Good morning, ladies and gentleman, and welcome to the MDC Holdings third-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct an answer question-and-answer session. I would now like to turn the call over to Mr. Joe Fretz, who will read the statements concerning forward-looking statements. Mr. Fretz, you may begin.

Before introducing Larry Mizel and Paris Reece, it should be noted that certain statements made during this conference call, including those related to MDC's anticipated home closings, home gross margins, backlog value, revenues and profits and responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that may cause the Company's results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These and other factors that could impact the Company's actual performance are set forth in the Company's 2002 Form 10-K. It should also be noted that SEC regulation G requires that certain information accompany the use of non-GAAP financial measures. Should a non-GAAP financial measure be discussed, the information required by Regulation G will be posted on the investor relations section of our website, RichmondAmerican.com. I will now introduce Larry Mizel, Chairman of the Board and Chief Executive Officer of MDC Holdings.

Thank you, Joe. Good morning. We would like to welcome you and thank you for your participating in MDC's third-quarter 2003 conference call and Web cast. We are pleased to report the strongest third-quarter and nine-month operating results in our more than 31 years in business. Our 2003 third-quarter home closings and revenues were the highest for any quarter in our Company's history. Late in the quarter, we delivered our 100,000th home since our company began building homes in 1977. We're proud to have achieved this milestone which is a symbol of our long-standing commitment to success in this industry. Our net income and earnings per share were quarterly highs, and 50 percent greater than the same period a year ago, supported by record profits from growth in our home building and financial services businesses. These results contributed to a Company-high quarterly return on revenues of 8.2 percent, and an improved return on the average equity of more than 24 percent. These strong operating results enabled us to continue our position among the industry leaders in measures of financial strength. Our stockholders' equity increased over the last year by 25 percent to $941 million, and our leverage ratios continue to rank among the lowest of our peers.

Finally, we ended the 2003 third quarter with $514 million in cash and borrowing capacity under our lines of credit, 65 percent higher than at this time last year. Our primary objective has been to translate the strength of our balance sheet and our superior returns into shareholder value through a balanced program focused on investment in our Company's growth, augmented by our authorized share repurchase program and the payment of dividends. Consistent with this objective, in August, we increased our quarterly dividend on a year-over-year basis by 72 percent, which among other things, permits our shareholders to take advantage of the more favorable tax treatment afforded (ph) dividends under the new tax law.

The continued strength of the single-family housing market, despite the upward movement in mortgage interest rates in July and August, is reflected in our robust home orders in this quarter and throughout the first nine months of this year. We achieved a third-quarter high for new home orders, completing our 19th consecutive month of record orders. In fact, our home orders for the first nine months of 2003 already exceed the record orders received for the entire year in 2002. These strong orders enabled us to accumulate a backlog at September 30th of 6277 homes with a future sales value approaching $1.7 million.

The strength and geographic diversification of our home building reflect our commitment to a three-pronged growth strategy. First, we seek to expand our market share organically in our existing markets, which we achieved this year in virtually every one of our markets. This organic expansion will fuel most of our expected growth for 2004.

Second, we consider opportunities to enter new markets on a greenfield basis by hiring experienced leaders in the given markets to build their teams, find lots, and develop their business from the ground up. We did this successfully in Dallas/Fort Worth in 2002. We announced earlier this year the opening of a similar operations in Houston and Philadelphia. This quarter, we launched startups in Chicago, Western Florida, and San Antonio. What we anticipate that only the Texas market startup will produce a few closings in 2004, we expect all of these new markets to make meaningful contributions to our growth in 2005.

Finally, we continued to pursue opportunistic acquisitions of the assets of smaller home builders as a means of expanding in our existing markets or entering new markets. We accomplished both last year when we acquired the assets from John Lane homes for our existing Las Vegas and Northern Virginia operations, and in our new Salt Lake City market. We did this again last month when we acquired the assets of Crawford Homes, making our entry into Jacksonville. We expect this acquisition to contribute approximately 400 home closings in our growth in 2004 as we seek to become a major builder in that market in the near future. We are pleased of our progress towards achieving our short-term and long-term goal objective. On the strength of our September 30th backlog, we are poised to close as many 11,100 homes in 2003 and to produce record annual revenues and net income for the sixth consecutive year. Further, the success we already had realized in executing our growth strategy should help us achieve our goal of increasing our home closings by 15 percent and reaching new highs for operating performance in 2004.

I will now turn the call over to Paris Reece, our Chief Financial Officer, who will describe more specific financial highlights of our 2003 third quarter.

Thank you, Larry. As Larry said, this is the best quarter we've had from a profitability standpoint of any quarter in our history. During the third quarter, we realized net income of $65.5 million, which is 50 percent higher than net income of $43.6 million in the third quarter of last year. Our earnings per share were up on a similar basis $2.16 a share compared to $1.43 per share, all realized on revenues, which are also an all-time quarterly record, of $799 million here in the third quarter compared with $581.7 million a year ago. On the nine-month side, we're also sitting at the highest nine-month levels we've ever seen -- $145.2 million in net income, which is up 32 percent; $4.83 a share, up 34 percent, on just short of 2.1 billion in revenues, which is up 33 percent. This is all driven by record performances by both our home building and our financial services segments.

On the home building side, we saw home sales revenues increase to 779 million, up 37 percent, to produce the highest profits for any quarter for our home building segment at $118.1 million, which is 57 percent higher than the $75 million we realized a year ago. What is driving this is severalfold. We saw our closing levels reach the highest levels for any quarter, at 3113 units. We saw our gross margins increase by 143 basis points, which drove 190 basis point increase in our home-building operating profit margins.

We have slide here for you that shows a breakdown of our home closings here in the third quarter, which as I mentioned, were up 37 percent. These closing levels -- higher closing levels -- were driven first by the active subdivision growth that we experienced during the latter half of last year, and the record home orders that we've experienced on the heels of that. You would expect that the markets from which we are seeing this growth are really as expected; as we've talked about in the past, Las Vegas being up 90 percent; our Virginia market up 80 percent; and our Arizona market is up 51 percent.

Another driver for our strong performance this quarter were our average selling prices, which were slightly higher than we anticipated coming into the quarter; although we do have a graph here that shows the trend that we had expected, which is a downward trend from the first quarter, when we piqued at over $263,000 per home, steadily declining as we see more and more of our closings coming from markets below our company average. We have also broken out for you on a slide the average selling prices we experienced here in the third quarter from our various markets. And you'll see from this slide something very interesting, that with the exception of Virginia, Maryland and California, all of our other markets actually produced closings at average selling prices below our average. And we are starting to pick up a larger percentage of closings out of the Las Vegas and Arizona markets, consistent with our growth, which are averaging between $180,000 and $190,000 per home.

Home gross margins were also a major driver, as I mentioned. This is something we did talk about in the press release. But I just wanted to reinforce it. Of course, these margins at 24.8 percent, are the highest for any quarter. On a pre-interest basis, they're at 25.7 percent, 140 basis points above where we were a year ago. These margins this quarter were impacted favorably by strong improvements in margins in Southern California and Las Vegas, as we continue to see the ability be increase prices there, to a greater degree than any of our other markets.

But in addition to that, we included in this quarter some non-recurring items, in particular, an insurance recovery, related to warranty expenses incurred in prior years, and the reversal of certain expenses in relation to the revision of estimates to complete development and construction costs in certain of our markets -- all impacted margins in total by about 100 basis points.

Our financial services segment also experienced a record quarter, with $7.2 million in profit, up 23 percent from a year ago, driven by higher gains on sales of mortgage loans at 7.9 million, which is up 62 percent. Our unit total, in terms of units, is at an all-time high over, 2500 mortgages originated and brokered, which is up 34 percent. And the highest volume for any quarter in our history, at over -- close to $530 million, up 37 percent from a year ago. These higher originations produced increases in origination fees, up 27 percent, on a capture rate of right around 80 percent, which is consistent with recent quarters. In terms of our volume, it's also important to note that this is primarily conventional product. We have less than 30 percent of our total product, which is FHAVA (ph).

We also put a slide in here to show you the consistent improvement in operating profit for the financial services segment since 1998. This Company has been existent since 1984, and has been profitable in every year. But its profits have accelerated over the last few years. And you can see here through 2002, a consistent improvement. Here through the first nine months of this year, we have almost reached the level of total-year profits of a year ago at $23.4 million, which is up 45 percent from the first nine months of 2002. While this is an important part of our business in terms of our ability to manage our home buyers and make sure that they are at the closing table when the house is finished, this is a business that has consistently been profitable. But as many of you have asked, how reliant are you are on these profits? We added a slide here -- the next slide shows that this has been a consistent contributor to our profitability, comprising over the last five years, somewhere between 7 and 8 percent, generally, the total operating profits of the Company. So it's very profitable, but not a significant part of our business.

The other important factor on this slide that's mentioned that's important to note in this day and age of significant increases and decreases in refinancing activity that our mortgage company is almost entirely for our home buyers. We are not dependent on refinancing activity; and so therefore, our profitability in this business does not go up or down with refinancings.

Another thing that many of you may have noticed in looking at the release is that -- and I've seen in some of the comments that have already come out this morning -- is an expectation that our SG&A would be higher. The fact is that our SG&A for the company in absolute dollars is higher than it was a year ago and in recent quarters. However, with the strong increases in closings and improvements in revenues, we have leveraged those revenues to produce -- in the third quarter here -- our SG&A as a percentage of revenues is flat with where it was a year ago; notwithstanding the fact that we are expending dollars to open new divisions, as we talked about previously, in six new markets already this year. We are expanding our existing divisions. We are setting up new regional structures -- five regions across the country -- to manage our growing operations. We are also increasing our spending for technology, with increased profitability, higher performance bonuses. So notwithstanding those increases in costs, we're leveraging our higher revenues to keep those percentages the same here in the third quarter.

Our balance sheet continues to be a strong point for our Company, and we continue to make improvement here in the 2000 third quarter. Our equity increased, as Larry mentioned, to $941 million percent, up 25 percent, which is $32.16 a share compared with $25.70 a year ago. Our debt to capital ratio continues to rank among the lowest in our industry. What's unusual about this particular period, with the strength of our profitability, and a relatively flat level of investment in our land inventories here in the third quarter, our debt to capital ratio actually dropped from where it was in June, which is not the usual trend. So we are very proud to see that, as we continue to maintain a relatively liquid position and liquid balance sheet. I think you'll -- we've also included here on a slide -- something that many of you who listen to our presentations and who we've met with we pointed out -- to show just -- it shows an example of the strength of our balance sheet. As we see here on the left-hand side a breakdown of our inventories -- $923 million of work-in-process of mortgage loan inventories, and 720 million of land. On the right-hand side, there being our capital structure, having $486 million in debt and 941 million of equity. When we consider that maybe land is our long-term asset, although it's a relatively short with a two-year duration, and all of which is active, that's our long-term asset; it only comprises about 77 percent of our long-term capital. So we are covering our long-term assets with longer-term capital.

But then looking at the current side, we have $923 million in assets that, in a relatively short period of time, will be converted to cash at a significant profit. But even at book value, the book value of these assets exceeds our total debt burden by almost 200 percent. So it's something that we are very proud of, and I think reflects the continued strength of our balance sheet.

Our lot acquisition continues to be strong. We have control of over 21,200 lots, approximately 30 percent of which are under option, which we control with only $18 million at risk. In terms of the balance sheet, we have not included a full balance sheet in this press release, as we are continuing to review the implications of FEN 46, consistent with our review in the second quarter, which produced no need to consolidate anything. But we have a requirement to look at the option contracts we have and have entered into, subsequent to June 30; and we will complete that review here before the 10-Q is filed. We do not believe the impact will be material. In addition to the lots that we control directly, we also have another 20,000 plus lots in the pipeline that that are in various stages of review, and we will provide the type of lot supply we need to fuel our growth in the future.

As we look for the future, the visibility is really reflected in our orders, our backlog and our subdivision growth. We have a slide here that provides all of you with a little more detail -- something that you could probably calculate from the press release. But to show you where this growth is coming from, in terms of orders -- these are the highest levels of third quarter orders that we've ever seen, at 2910 units. As Larry also mentioned, that our nine-month total of 9,940 orders already exceeds the orders we received for all of last year. We are seeing a 19 percent increase here in the third quarter, and we are up approximately 25 percent for the entire year. Again, where the increase are occurring are in the markets that we would anticipate, and we talked about for future growth where we've added subdivisions. Las Vegas was up almost 100 percent here in the quarter, and on a same-store basis, was up almost 50 percent. In Utah, strong performance as we've added subdivisions, up 130 percent and 32 percent on a same-store basis. Virginia and Maryland is up 15 percent, but is actually down approximately 30 percent on a same-store basis. This is really a result of -- it has nothing to do with demand; in fact, demand continues to be very strong there. We have had some delays as we've talked about before, in terms of weather-related matters up there, related to the hurricane. Because of that, we have sold out ahead of our ability to deliver homes; and we have intentionally slowed down the releases of some of the homes that we have available for sale. So there again, it is a situation where we don't have the product to offer for sale right now.

The markets that are down -- California, we talked about with fewer active subdivisions, is actually up, 28 percent on a same-store basis. Colorado and Arizona, which are both flat --Colorado is actually up almost 10 percent on a same-store basis. And Arizona is down on a same-store basis, really because they are in a supply constrained situation also, with a number of subdivisions that are moving toward the closeout position.

In terms of traffic for the quarter, we were actually down slightly in terms of traffic, but a lot of that had to do with California not having product out there. We had a fairly significant drop in traffic related to the drop in subdivision count. If you pull California out, our traffic levels were actually up for the quarter by about 15 percent. These strong orders have contributed to the highest third quarter backlog we've ever at 6277 units; $1,650,000,000 in future sales value, which is up 22 percent. The backlog is up in these markets that are going to provide the growth -- Las Vegas, Virginia, Maryland, Arizona -- and we are actually lower in Southern California due to the strong closings this quarter and fewer active subdivisions.

Again, looking at the future growth of our company will be reflected in the stores that we have available. We've actually increased our store count from 175 to 198, which is up 13 percent. We had talked about this community count in the last conference call. And we had talked about being flat at around 190; we are right on there. We did not at the time anticipate the acquisition in Florida, which added seven active subdivisions. We have given you a slide here that breaks out what our subdivision count is by market, and what the increases are. And you can see that Virginia is actually showing the largest increase, year-over-year, in active subdivision count, which will put us in a good position for strong order growth and earnings growth in 2004 in that market. We've increased in Texas by eight; Florida by seven; Utah, Nevada by three; and then as we've talked about, we're down in Colorado and California.

I want to talk a little bit about looking forward into the fourth quarter next year. We have shown and demonstrated, over the last five years, our ability to grow and to grow effectively, and organically and in a disciplined fashion. We have included a slide here to reflect that. Over the last several years, since 1998, we have actually experienced a compound annual growth rate, in closings, of about 12 percent. Much higher than that here in 2003 -- we've actually seen a 24 percent growth to make up for a much smaller growth level in 2002. But at the same time we're growing our closings at 12 percent, our earnings have actually increased, on a compound basis, 40 percent. And that's driven by continued increases over this period of time in average selling prices, and improved home gross margins. You will note that the earnings per share over the last 12 months, in relation to 2002, is actually very similar to our growth in closings. So it's more in line here, as our margins have been fairly consistent over the last couple of years. So we are seeing, over the last 12 months, and increase over the previous year, of about 24 percent as well. But that's our history, which doesn't necessarily mean the future. But it does show our success in the past.

As we look at the fourth quarter, we, as mentioned in the press release, we did have stronger than expected deliveries in the third quarter, which did pulled some closings out of the fourth quarter in certain markets. We are expecting to see delays of approximately 100 units in Virginia and Maryland, which happen to be the highest margin operations in our Company. Those were delayed due to the hurricane affect. Those will be move out of the fourth quarter, but will put us in a good position in that market to begin the first quarter of 2004. We are expecting for the year, as Larry mentioned, to deliver around 11,100 homes, that implies a conversion rate of our backlog that is lower than we have seen historically, because of the two factors I've previously mentioned.

But we do expect here in the fourth quarter, while it may -- the lower closing levels may make it more difficult for us to exceed the record performance we experienced here in the third quarter, we do anticipate that we will generate higher year-over-year home closings revenues and net income here in the fourth quarter on our way to producing our sixth consecutive year of record performance.

Looking at 2004, we are expecting to begin to see an increase in our active subdivision count next year, as we see Las Vegas start to add subdivisions -- Virginia and Maryland as well. Phoenix should begin to come back, as well as Southern California. So those will contribute to subdivision count growth early in the year, on our way to putting us in a position to achieve a goal of increasing our home closings by 15 percent in 2004 relative to 2003, putting us in a position to record record revenues and earnings in 2004.

That concludes my prepared remarks. I would now like to open the floor for questions.

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from Steve Kim from Smith Barney. Please go ahead.

Hey guys. It's Steve Kim.

Hey, Steve.

Congratulations on a strong quarter. Really, I just basically had one sort of broader question for either yourself or Larry. And it really relates to the Company's reacceleration and growth, particularly as we head into '04 and '05. It looks like you've positioned the Company nicely in terms of you know, expansion geographically. I guess, you know, from an outsider's perspective, you know, one of the things that I've heard from some investors is -- geez, is this really the right time to be expanding? You know, does the management feel that we're sort of at the trough of a cycle? And as a result, I'd like to sort of pose that question to you. Did you perceive that the timing of this expansion is particularly attractive, given your view that the housing cycle is at a somewhat depressed point at this stage? Or do you feel that the position, where we are in the cycle right now, is somewhat irrelevant due to certain unique characteristics that we are seeing right now as it relates to the largest builders?

Steve, we definitely believe that the public builders are continuing to increase market share, really, on a -- by osmosis -- on a daily basis, fraction rate, because of the consolidation that's taking place amongst the private builders really being forced out of the market through not having adequate capital available from the banking sector. and the large public builders continuing to produce in a more efficient form. The growth that we're positioning is predicated, in our views, that this is a low-risk entry point into the other markets we've had. Different parts of the country, over the last several years, have slowed down. But we see pretty much stability in all of the markets. And that stability gives us an opportunity for a low-risk, low price entry into a multitude of markets, which allows us to take a position for the future; and we are speaking of really accelerating by 2005 and positioning in 2004. As you can note from the information, we've hired seasoned, experienced managers that are -- have a history of running large divisions. And that should give a clear indication of what we expect to do in these various markets. This is a unique time. Some economists say we might see rates growing up. And the reason why rates would be going up because there'll be job creation; as we saw, I think there was 40,000 reported last month. I don't know that one month means anything. But we see, as the economy improves, with job creation, we could see further acceleration in the housing industry from this level. And in the event that things just continue the way they are, business is very good for really all the public builders. And so we believe that this is a good opportunity. If things stay the way they are, business is very, very good. If things improve, business will be better. So consequently, and with having the very low debt to cap and the high degree of liquidity, we've really positioned ourselves to be very opportunistic, predicated on those things that are presented to us on an ongoing basis.

Great. I appreciate that. And obviously, the Company, over quite a long period of time has, been among the most conservatively managed in the space; you can see that in a lot of different metrics, one of which, of course, is your debt to cap. At this juncture though, one would think that your debt to cap probably has reached a point where it doesn't need to be a whole lot lower. And therefore, I guess, should we expect, going forward, that to the degree that your performance outstrips maybe your expectations, or to the degree that we see the kind of robust earnings and earning growth that we've been seeing, that we're going to start to find the company get more aggressive in acquisitions, or in inventory build over the next couple of years? Or do you anticipate that you might continue to see increases in your dividend or other forms of cash dispersion to shareholders?

I think we will evaluate all of those options predicated on market conditions. Nothing is either included or precluded. The market will really tell us where to go. One of the key notes, though, of whatever we do -- we've worked hard to become investment grade with two out of the three rating agencies. We expect, eventually, to have three out of three. And we think that has been good for our Company and we keep that in mind. Separate from that, we will manage the company in a manner that we believe is a benefit to the shareholders. And that is something you can see by our increased dividends or time to time share buyback, and our conservative but aggressive growth that we have focused on creating value for the shareholders, and that's the lead area of emphasis that we will continue.

Great. Well, congratulations on a good quarter.

Thanks, Steve.

Thank you. And our next question comes from Ivy Zelman from CS First Boston.

Good morning. Garry, what's the community count growth rate for 2004?

Ivy, we haven't talked specifically about it; but you can see from the implied rate would be something consistent with where our closings are headed. And so, we obviously saw an opportunity here with Florida that gave us a chance to kind of get a little boost here at the end. But, to maintain a 15 percent growth rate, we have -- we are going to need to increase our subdivision count somewhere in that neighborhood.

Okay. And secondly, with respect to lumber prices going up, will that have any impact on your business in 2004 that you foresee?

It will have an impact. We believe that, depending on where it goes from here, it generally will come down. But the impact over the past few months we estimate has somewhere between a three-quarter and 100 basis point impact on our margins with everything else kept even. So that will not materialize to a material degree here in 2003. It will impact closings coming in early next year, with hopes of other factors and initiatives that we have in an attempt to mitigate the net impact of that one item.

And did you guide -- I got on late -- 2004 -- I know closings, you said 15 percent is the guideline. But what about margins?

We did not provide guidance on margins or specifically for earnings next year, Ivy.

Well, just qualitatively, do you expect that margins, given the pricing environment you're enjoying, can actually increase from current levels? Or is the cost of the lots that are running through the P&L that much higher than where you purchased previous lots so that offsets the price increases? Or we will we see margin expansion from other factors like you mentioned?

We are looking to -- there are so many factors going both ways, Ivy, we're going to -- we've been able, as you see this year, we've continued to see land costs go up. But we've been able to maintain margins and even improve them slightly with the pricing power we've seen thus far. It's largely dependent on our ability to raise prices, because we know for a fact that we are dealing with the larger -- the higher lumber costs. We know that labor costs are going up in a number of markets because of higher insurance costs. And we know the land costs are going up. So, those are givens; the unknown is the pricing. So we are hopeful that that will continue.

Okay. In terms of your decision to move into new markets through organic expansion as opposed to buying private builders, is there any reason why you're not buying private builders like others are, and you're doing it through an organic method?

It's largely driven by opportunities. We recognize and are timing our entry based on what we see in these various markets, and our ability to hire the right people to get it started. We are looking to really prepare for growth in 2005 and 2006. And we need to get started right now. It doesn't mean that we would not take advantage of an opportunity to buy assets of a smaller builder in those markets where we have started on a greenfield bases. But and at least get those opportunities to come up, we will have someone on the ground who can evaluate them. But we're not going to wait for an entry until that opportunity comes. We were fortunate that the opportunity arose in Jacksonville. We've had our eye on Jacksonville for several years. And this opportunity for entry came up, and that's something that we jumped on. So we are open, Ivy, to acquiring assets of smaller builders in all of these markets, when and if those opportunities present themselves.

And you've made it pretty clear that you won't record goodwill if you do acquire any assets of any private builder. Why don't you think goodwill is a good thing?

We are trying to -- whenever we make an acquisition, we justify that acquisition based upon our return on our investment. And we evaluate these acquisitions just like we do any other asset that we buy. And because of that and because of the competition in the market, we're paying market value for these assets. And if we pay in excess of market value, it's going to have a diminishing impact on our cash on cash returns. And that's something that has driven the ratings improvements that we've seen and the industry leading returns that we have enjoyed. And it's not a discipline that we're going to compromise as we grow.

Okay. Thank you.

You bet.

Thank you. Our next question comes from Larry Horan from Parker Hunter. Please go ahead with your question.

Hi, folks. You commented on strong pricing power in Las Vegas and in California. Could you comment on what the pricing situation is in some of your other state markets?

In virtually every market we're in Larry -- really, I'd say every market we're in, we're raising prices to different degrees. These two market, Las Vegas and Southern California, are the strongest. But, you know, we're probably right behind it is Virginia/Maryland. And we continue to be able to raise prices in Arizona. And during the first half of the year, we were really not raising prices to any degree in Texas and Salt Lake City. But here recently and for the balance of this year, we have and have plans to increase, on a selective basis, prices in those markets.

Okay, thank you.

(OPERATOR INSTRUCTIONS). Our next question comes from Joseph Sroka from Merrill Lynch.

Hey, good morning, everyone. Garry, this is sort of a laundry list, so let me see if I've got it right. But other markets you've mentioned that you've entered -- Philadelphia, Houston., Tampa, Chicago, San Antonio -- it doesn't look like you're recording orders in any of those yet. Do you anticipate that in this subdivision count for 2004 and orders that you'd anticipate taking in 2004 (ph) for those markets you are going to be open for business? Or are some of them on very long lead times where you are still kind of kicking around?

The Philadelphia and Chicago markets in particular are going to be longer lead times. We may not see much -- we don't expect closings. We may see some orders, but not a meaningful number out of those two markets in 2004. But we should have active subdivisions up for business in 2005. Tampa is another market that may be -- we may be slightly ahead of those two. But it too will probably not contribute any closings until 2005. San Antonio and Houston are certainly markets that we do expect to see closings out of. We do have active subdivisions in Houston right now, and are growing that very quickly. We will have closings probably first quarter of next year in Houston. And San Antonio is another market where we're just getting started. We don't own any lots there yet; but it's a market not unlike these other Texas markets where you can get going, buy some lots and build an operation fairly quickly. So I would expect some closings, although not significant from that operation in 2004. Really for growth next year, we're not counting on any of these markets, other than Jacksonville, for meaningful contributions next year.

Okay, and did I miss any?

I don't believe so.

Okay. Fair enough, guys. Thanks.

You bet.

Thank you. Our next question comes from Craig Kucera from FBR.

Thank you. Good morning.

Good morning, Craig.

I wanted to know -- in the, past you've said that -- I believe on previous phone calls -- that you're seeing more demand from the entry-level, and first move up. And I'm just trying to get a sense of where you're seeing the demand in your existing markets. And in some of the new markets, if you anticipate pricing more of a lower-priced product in those markets?

The first-time, first-time move up is showing the most strength. And that's pretty much the case across the board. Although in markets like Virginia and Maryland, you can see from the slide there that our price point there is probably geared on average more to the second time move up, and that is very, very strong, just because of the constraints in supply that we are seeing. As we enter these new markets, our focus will be on the first-time, first-time buyer; and that may be in Chicago and Philadelphia; that may be in the mid-threes -- the low to mid-threes. But it still -- it will be geared toward whatever is going on in that marketplace. As we grow in Jacksonville, we will see prices below $200,000; certainly below that level in Houston and San Antonio and Texas as we grow, and Salt Lake City as we grow. And of course, continuing to see those levels in Las Vegas and Arizona.

Okay, great. Thanks.

(OPERATOR INSTRUCTIONS). At this time, I actually show no further questions. Do we have any final statements or closing remarks?

Yes. We would like to thank you again for joining our call today. We look forward to speaking with you again in January following the announcement of our 2003 fourth quarter and annual results. Have a nice day, everyone. Thank you.

Thank you. Ladies and gentlemen, this does conclude our conference call. You may disconnect, and thank you for participating.