MDC Holdings Inc (MDC) 2009 Q4 法說會逐字稿

Good morning. We are ready to begin the MDC Holdings fourth quarter 2009 earnings call. I will now turn it over to Bob Martin, Vice President of Finance and Business Development. Sir, you may begin your call.

Thank you. Good morning, ladies and gentlemen, and welcome to MDC holdings 2009 fourth quarter earnings conference call. On the call with me today is Larry Mizel, Chairman and Chief Executive Officer, and Chris Anderson, Senior Vice President and Chief Financial Officer. At this time, all participants are in a listen-only mode. After finishing our prepared remarks we will conduct a question-and-answer session at which time we request that participants limit themselves to one question and one follow-up question. Please note that this conference is being recorded and will be available for replay. For information on how to access that replay please visit our website at MDCHoldings.com.

Before turning the call over to Larry, it should be noted that certain statements made during this conference call, including those related to MDC's business, financial condition, results of operation, cash flows, strategies and prospects 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 actual 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 2009 Form 10-K which was filed with the SEC earlier this morning.

It should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures. Any information required by Regulation G will be posted on our website.

And now I will turn the call over to Mr. Mizel for opening remarks.

Good morning and welcome. Although the homebuilding industry continues to face significant obstacles to recover in the fourth quarter of 2009, we increased our home orders year over year for the third consecutive quarter. This helped us achieve an increase in our full year home orders for the first time in four years. As a result, we ended 2009 with 826 homes in backlog, a 55% increase from a year ago.

Throughout 2009 we have invested considerable effort into activities designed to help us achieve sustained profitability in the future with an emphasis on product and process. This effort showed in the fourth quarter as our offering of more affordable homes that we introduced earlier in the year accounted for more than 30% of our new home orders. Furthermore, we have enhanced the mix of the product we have available for sale. Generally we now stop construction on unsold units at the drywall stage. Once construction is restarted these homes can typically close within 45 days in direct competition with finished homes on the market. However, by holding the units at drywall we offer our buyers the opportunity to personalize their homes at one of our home galleries. This operating strategy helped to us decrease our exposure to finished speculative homes by more than 90% in 2009 while we increased our supply of homes available for personalization by 35%. We believe that this effort to shift the mix of our product away from speculative inventory was a key factor in improvement of our fourth quarter home gross margins.

These are just two examples of our review of product and process. We have closely examined many other aspects of our business during 2009 and we intend to continue doing so in 2010. We expect to realize the benefits of streamlined process and better information in the future allowing us to operate more efficiently. During the fourth quarter our owned and option lots supply increased for the first time in 17 quarters as we secured control of more than 2,700 lots across 52 new communities. Even after spending $100 million on land acquisition during the quarter we ended the year with $1.56 billion in cash and investments, up 10% from the end of 2008. Furthermore, shortly after the end of the year we issued $250 million of 10-year notes at a low interest rate and we expect to receive $143 million tax refund before the end of the first quarter of 2010. Given these enhancements to our liquidity we are well positioned to continue making investments in 2010 as we build our land pipeline to support future home closings.

I'll now turn the call over to Chris Anderson for more specific financial highlights of our 2009 fourth quarter.

Thanks, Larry, and good morning, everyone. As Bob mentioned, we filed our 10-K earlier this morning which should give you more information on our full year results. The slides that I'm going go through here are more focused on our fourth quarter results. In the fourth quarter we received 637 net home orders which was an 82% improvement over the same period last year. Each of our segments showed improvement in orders year over year but the most significant increase was in the mountain segment. The improvement is especially notable given that active subdivisions were down 30% year over year to 133 at year-end. It's important to note that we don't consider a subdivision to be active until it has at least five sales and the startup of a new subdivision takes some time. So the total you see here at year-end does not include most of the communities we took control of in the third and fourth quarters.

Our average monthly net orders in active subdivisions improved to 1.3 for the 2009 fourth quarter compared with 0.4 in the quarter a year ago with improvements in every market. Sequentially our pace declined but we attribute this to the expiration of the original tax credit combined with the typical seasonality we see in the fourth quarter. Our gross orders were up about 25% for the quarter and our cancellation rate of 30% was much less than the 52% in the fourth quarter of '08. The rate also decreased, if you look at the cancellations as a percentage of beginning backlog, to 21% compared with 34% a year ago. As Larry mentioned earlier, the smaller more affordable homes we started selling earlier this year continue to have a definite impact on our results. They represented just over 30% of our gross home orders during the quarter with some individual markets reaching almost 70%. Finally, the average price of net home orders increased approximately 1% year over year to roughly $287,000.

Turning to backlog, I'm not going to spend a lot of time on this one, but I wanted to show where we stand on backlog going into 2010 compared to where we were a year ago. As you can see, though our backlog declined sequentially, we are up year over year by about 55%. Our average price in backlog is down 1% from $325,000 at December of '08 to $320,000 at December of '09.

Turning to our income statement, total revenue for the fourth quarter increased 9% to $324 million partly due to a $14 million increase in our home sales revenue, but also due to a $13 million increase in land sales revenue as we sold about 1,200 lots during the quarter compared with about 500 a year ago. The improvement in revenue combined with a significant year-over-year decline in impairments in SG&A and an increase in our gross margin percentage allowed us to narrow our loss from operations by $78 million. We have further detail and drivers behind the change in loss from operations for you on upcoming slides.

Looking at the full year you can see a $319 million improvement in our loss from operations. Again, SG&A and impairment declines, coupled with an improved gross margin percentage, were the keys to this improvement. Unlike the fourth quarter, for the full year revenues declined significantly by almost 40% because home sales revenue was year over year for the first nine months of the year. Looking at the other loss line item where we have a charge of nearly $7 million for the fourth quarter and $26 million for the year, this is mostly interest expense we couldn't capitalize during the quarter, net of interest income we earned on our cash. This figure gives you a sense of what the cost is to maintain the option value of our liquidity. It's important to note that we're one of just a couple of homebuilders in a net cash position. So if we really wanted to do so we've got enough cash to pay off our entire balance of debt obligations.

Overall our pre-tax loss for the fourth quarter was $15 million, better than the $86 million loss during the same period last year. However, our net income had jumped to $127 million in the fourth quarter compared with a net loss of $89 million in the fourth quarter of '08 largely due to $143 million tax benefit that we recognized because of recently enacted tax legislation that extended the carryback period of net operating losses from two to five years.

Moving on to closings, we were excited to finally turn the corner as we switched to a 17% year-over-year increase in closings for the fourth quarter. The increase came after two consecutive quarters of year-over-year order growth which gave us a good backlog to work with going into the fourth quarter. The average selling price of our closings decreased by 11% year-over-year to roughly $268,000. This was the result of a decrease in the average base price and average upgrades for the homes that we closed during the quarter, consistent with our strategy to improve the affordability of our homes coupled with the continued year-over-year decrease in market values in most markets across the country.

Moving on to gross margin, this slide shows our trends since the fourth quarter of '08. Looking at our margins as reported, the graph on the upper left 18.8% in the fourth quarter of '09 is 590 basis points higher than the 12.9% we experienced in the fourth quarter of '08, and roughly even with the 18.9% in the third quarter of '09. However, these percentages include two items that have been somewhat volatile over the last five quarters -- interest and cost of sales and warranty adjustments. If you remove these two items, the graph on the lower left, the story is a bit different. Adjusted gross margin of 20.3% for the fourth quarter of '09 is significantly improved compared with both the fourth quarter of '08 and the third quarter of '09 by 410 basis points and 340 basis points, respectively. We've provided a reconciliation in the webcast presentation for your reference.

The improvement in margin is related largely to a decline in hard costs and interest costs for the fourth quarter of '08 as compared with the third quarter of '09 and the fourth quarter of '08, both on a per unit basis and as a percentage of revenue. Also of note in all three periods, lot costs were relatively stable at roughly $50,000 per home, meaning that the improvement in gross profit is not simply related to a decline in lot price. We believe the improving trend is closely related to our efforts to reduce our exposure to finished speculative inventory. In both the fourth quarter of '08 and the third quarter of '09 homes sold as finished specs accounted for more than 30% of home closings. For the fourth quarter of '09 this percentage dropped only 11%. This analysis gives us comfort that we're on the right track with regard to our current inventory policy which, as you heard from Larry earlier, promotes the strategic use of unsold homes available for personalization.

Turning now to selling expenses, we've reduced these expenses by nearly 10% year over year. Reduction in marketing expenses is related largely to the reduction of both active subdivisions and model homes. Over the past year our model home count declined 45% outpacing our 30% decline in active subdivisions. As a result, we've experienced a decrease in costs related to operating, staffing and advertising these model homes in communities. The decrease in marketing expenses was partially offset by an increase in commissions which increased in line with our home sales revenue.

Moving on to G&A expenses, we're down 11% as compared with last year's fourth quarter. We've done this primarily through significant adjustments to our employee headcount which is down by approximately 15% from last year. We also had a $2 million decrease in bank fees after reducing our homebuilding line of credit in the third quarter of '09 and our restructuring expenses also fell year over year by approximately $2 million.

Here's our update on impairments. This shows the history of our impairments since the beginning starting in the third quarter of '06. Although we increased a little bit in the fourth quarter to $14 million, we're still down 77% year over year. Most of the fourth quarter impairments occurred in our mountain segment which represents our largest homebuilding segment in terms of total assets. We anticipate that our impairment levels will remain low going forward given our low exposure to land inventory.

This next slide gives you a picture of our unsold home inventory which tells a compelling story about our strategy. As we have mentioned earlier on our calls for the last two quarters, we believe that the use of unsold inventory can be a very effective strategy if managed properly. Our experience tells us that a home that has been personalized for its ultimate buyer at one of our home galleries or design centers is much more profitable than a home that is sold after it is finished. So we've concentrated on building the supply of unsold homes that fit with this strategy while reducing our exposure to unsold finished homes.

On this slide you can see that a combined number of unsoled homes in the foundation and frame categories, which we call unsold homes available for personalization, has increased by 35% since the end of '08. While we decreased our finished unsold inventory by 90%. As Larry mentioned earlier, we believe that this strategy is a great thing for our buyers. We typically stop an unsold home at drywall and at that point it can close in about 45 days once we restart which competes nicely against finished homes on the market. However, by stopping construction at drywall, we give our buyers the opportunity to personalize their homes in one of our home galleries or design centers which is a fantastic selling point. Also as you saw earlier in our presentation, the shift from finished speculative inventory to homes available for personalization has had a very positive impact on our gross margin.

Related to land acquisition, we're proud to report that we put more than 2,700 lots under control in 52 new communities during the fourth quarter of 2009 which is more than twice the 1,300 lots we secured in the third quarter. We acquired roughly 2/3 of the lots directly and the remaining 1/3 through option contracts. In addition, we acquired about 230 lots through option contracts that were already in place at the beginning of the quarter. In total we spent approximately $100 million on land acquisition during the quarter. In contrast, we sold approximately 1,200 lots during the fourth quarter which added roughly $17 million in revenue and $4 million in income. Despite the impact of those land sales our supply of owned and option lots increased sequentially for the first time in 17 quarters.

We're pleased with what we've accomplished in the fourth quarter including the increase in our home orders, gross margin and land acquisition activity. As we have move into 2010, we're focused on continuing to make progress on this strategic initiatives that we believe will allow to us progress towards sustained profitability and our ultimate goal of creating long term value for our shareholders. As always, I want to thank our MDC team from across the country for the work they do every day to put our Company at the top of the homebuilding industry. I'd also like to thank everyone on the call for their continued support and interest.

And at this time we'll open the line for any questions you may have.

(Operator Instructions). Your first question comes from the line of Ivy Zelman from Zelman & Associates. Your line is open.

Hi, guys. It's actually Alan on for Ivy. Nice job on the order in March and improvement in the quarter. Larry, I was hoping you can perhaps provide a little bit more detail on the land acquisition in the quarter. I know the 52 communities you quantified there. Can you give us any indication on when those are going to start to come online? And thinking about 2010 and your total community count, should we expect that to increase throughout the year or are you expecting close-outs to equal roughly what you're bringing online?

Yes. I love your questions. The 53 communities that we've acquired I believe almost all of them will come online this year at some level or another. And the close-out of existing ones I can give you better color after the completion of the first quarter. We're all waiting to see the seasonal selling season, if it comes back to seasonally showing up since it was missing for a couple years. You should assume that we will continue the aggressive acquisition of lots and subdivision opportunities going forward.

Okay, great. That's helpful. And then just in terms of the underwriting on these deals, what type of return thresholds are you underwriting it to? Are you targeting that 20% type of gross margin you're at right now or are you thinking about it differently?

I think market conditions really adjust what our gross profit margins can be. If concessions reduce, we would have an opportunity to expand gross profit margins. It seems to have a more firm tone now than a year ago and again let's see over the next couple months and we'll have a lot easier transparency after the end of the first quarter. It really will depend on market availability of new homes. I do expect that new home starts will probably go along generally at this level and those builders that are able to transact will have an opportunity for a substantial increase in market share without single family new home starts increasing to any important degree. But I think the public builders are positioned to substantially increase market share and that's what we're expecting to take place.

Your next question comes from the line of Nishu Sood from Deutsche Bank. Your line is open.

Thanks. Good morning, everyone. I wanted to ask about a very interesting filing you had on December 30th, the Form 40 app to the SEC to get, I suppose, an exemption, you'd call it, to the 40% Investment Company Act. I just wanted to understand, I was wondering if you could briefly talk us through that and the implications for the balance sheet as well as what sort of extra interest income you could generate. Because I don't understand exactly how that 40% rule works, but if you are applying it to total assets, that would imply that you might be able to shift something like up to $1 billion into these higher yielding securities. I'm probably not doing it correctly but maybe if you could help me out there as well.

I would say that one could write a treatise on the interpretation and application of the 40 Act. And being very conservative on how we do everything we thought the most conservative approach was to file an exemption and to go forward. I won't take everyone's time up today on the technical nuances of a 40 Act and how it works. Perhaps you can talk to Chris when he has some timely and we can send you to some printed material that's in the public domain in order for you to interpret it as you see fit.

It's not as simple as that calculation that you just did, Nishu. So I think we just want to be conservative and cautious and make sure, as much cash as we have. And what's happened is we've increased our cash so much and our land and the rest of our assets have come down so much that the portion in the mix that gets used in that calculation. We just want to make sure that we're not going to end up with some unintended consequence.

Okay. Got it, great. And a broader question, then, on your cash and your investment strategy, on the one hand as you describe in that application there's the concern about this cash balance and violating that rule because it will take a few years to allocate this amount of cash. I think you mentioned $400 million to $500 million a year. Even if I add in some healthy land spend like you had this quarter, it would still take a while to deploy it. So on the one hand there's that situation, but on the other hand, you're getting the windfall from the five-year look-back. You're out there opportunistically raising another $250 million. So those seem at odds. Now, if I were just interpreting the opportunistic raising and the amount of cash you have I might say that maybe you're keeping your options open in terms of more transformative allocations of this cash as opposed to the incremental community-type acquisitions that you've been making the last two quarters. I'm not asking you to tip your hand, Larry, but just what should we be expecting here? Is it more going to be like what we've had the last two quarters or is there that possibility open there?

Now anticipating I'd get that question, I found a quote that may or may not apply, but it was a quote from John Wooten. And it said, "The failure to prepare is to prepare for failure." You can interpret that a lot of ways, but I think MDC has a track record of being very prepared and with reasonably good insight on what opportunities might come our way. And I believe that the adequacy of our liquidity will be a compelling circumstance that will allow us to take advantage of market conditions on activities that may not be currently transparent but I have a high degree of confidence will take place over the next period of time.

Your next question comes from the line of Kenneth Zener from MacQuarie Capital, your line is open.

Good afternoon. I pick up, obviously, that the gross margin trends are improving based on stabilizing prices as well as the land that you're bringing in. I wonder if you could talk about the fixed G&A costs, though. My concern is that that seems to be diluting the success you're very likely to have on the gross margin. So what do you expect the dollar spend to be in homebuilding G&A as well as your corporate G&A for 2010?

We do not give forward guidance, so I can't give you a 2010 number. I think from the presentation you can look at what our trend looks like from the SG&A chart, to kind of get a feeling for where we're at right now. I think we've said before that we want to maintain an operation and we're focused on growing our business, which you can see in our land acquisition activity for Q3 and Q4, that our focus certainly is to make sure that we're efficient in our spend. But we're not taking a defensive posture and just cutting the operation to where we can't grow. So we're going to keep an operation, keep the platform and our focus is really on growing and leveraging that G&A base.

Okay. And when I look at the lots that you picked up in the quarter simply looking at where you were last quarter relative to this quarter, less the closing, it looks like you picked up substantial lots in Nevada and you sold substantial lots out of the Philadelphia type market. Could you just go into perhaps a little more color there, if there was something regional or just opportunistic in terms of the focus?

Yes. I actually looked at the same numbers, thinking from your perspective. It's a little bit hard to draw the whole story together on just the numbers that you have in that one table. Most of our sales were focused in California and Arizona. The acquisition activity really happened across the board and there wasn't any one that was particularly dominant from a spend standpoint.

Your next question come from the line of Josh Levin from Citi. Your line is open.

Hi, guys. Larry, you said we should assume continued aggressive acquisition of lots going forward by MDC. I was wondering, your aggressive acquisition of lots in the past quarter selling going forward, are you being more aggressive because you're seeing more opportunities in the land market or because you're becoming more optimistic about the level of home sales going forward?

Both. Both.

Okay. Is one more predominant than the other?

No. They're coming together at the same time.

Okay. And with regard to the 2,500 lots you secured control of, did you use any unusual or creative financing arrangements? Did you, for example, partner with banks to build through their land inventory?

No, not really. The land that we want is, at least in our perception, is A locations. Like in all markets, the better the location, the better the price, the worse the terms.

Let me just sneak one more in, then. When you sold your lots you disposed of, who did you sell them to, what kind of parties?

Those that were willing to transact quickly.

Your next question come from the line of Dan Oppenheim from Credit Suisse. Your line is open.

Thanks very much. Was wondering if you can just talk about some of the land purchases and how much of the land came from other builders that might have been trying to sell land to get a tax refund and just outright in terms of the optimism that the transaction levels will continue in the next several quarters of the year.

We saw opportunities from across the board, other builders, banks, funds. I don't have the final count, but it was a multitude of different entities which I thought was really better than acquiring it from one or two sources. I don't know, there's 20, 30 sources.

From a seller standpoint. We have 20 or 30 different sellers but I think you grouped them right.

There was between 20 and 30 different sellers and what we have is an open buy order in every market on some term and some price and we want to encourage, whether it's our competitors, the banks, the regulators, whoever needs to get something done. They know that the probability of us closing a transaction is great and we're willing to do something on a tighter timeline than many and so we're geared up, as I have discussed over the last year or so. We have been building our infrastructure and our resources to be able to be scalable. I said after the third quarter, I said, look, we're back acquiring lots when we did 1,270 lots in the third quarter, and now we've gone to 2,700 in the fourth quarter. And we hope to have a very aggressive approach to it, but more important to everyone, we're open to business from anyone that brings a transaction in whether it's a broker or a principal. We're looking for business.

You had made a comment about having confidence in transactions that may not be currently apparent right now. Just wondering does that mean you would consider, because in the past you had not really looked at company acquisitions but more in terms of assets. Is there any change in thinking on that one where you would look at a large transaction now?

We look at large assets if they fit exactly in our business model. I don't know this moment what might come in the door later today.

Your next question comes from the line of Michael Rehaut from JPMorgan. Your line is open.

Thanks. Good morning out there on the west side. My question is first on the gross margins. I was wondering, given that you said it was over 30% of the home orders from the new plans, the new product that you've rolled out, if you could give us a sense of the differential in gross margins of that product versus the rest of the sales.

I think, Michael, when we look at the margin, the bigger driver on margin and the improvement in margin is really on the homes that we sell as far as finished, speculative homes versus like a dirt sale or homes that are available for personalization. Where we get the benefit on our new home product is really on velocity and the price point and square footage where the market's at right now. So that new product is a bigger driver for the volume and our inventory strategy is the biggest driver on the gross margin percent.

Okay. So in other words, with the finished spec now getting down to 11% and a pretty relatively low number, in other words, you gain a lot of the benefit there, the future benefit would more be through volume leverage even in the gross margin side and perhaps as incentives continue to abate?

Right.

And where are you in terms of incentives as a percent of home price relative to last quarter and a year ago and what's normal for you guys?

We don't include that disclosure and haven't, but I've seen and you've published what's happening generally, is that there's a general trend that the incentives are tightening up. And, for us for as we've moved to inventory from finished unsold specs we've seen some benefits from that because there's just less negotiation on a finished. There's more on a finished unsold home than there is on a home available for personalization.

Your next question comes from the line of Buck Horn from Raymond James & Associates. Your line is open.

Hi. Good afternoon, gentlemen. Just thinking about your spec home strategy a little bit further. Going into this spring how many additional drywall hold specs do you think you'd like to have relative to your current position as you approach the March/April time frame? What's the right number for this spring? And also can you or care to share any January traffic patterns or indications on how January went?

We want to have as many as we can sell and we want to maximize the market opportunity, Buck. So we definitely have our eye focused on that to make sure that we capture the urgency and the buying opportunity that people have.

Any comment on January?

No, we don't have any comment on January. I'm happy to give that to you in a couple months.

Okay. Fair enough. Thanks, gentlemen.

(Operator Instructions). And your next question comes from the line of Carl Reichardt from Wells Fargo. Your line is open.

I had a question about, when you're moving a home up to drywall and holding it at drywall, how long does it sit at drywall on average? I'm sure it's very seasonally but how long typically does it sit a at drywall before you've got it personalized and then moved down the process?

Our experience so far, Carl, is it does not sit there that long. We had a great opportunity through September, October with the tax credit and a lot of these homes were sold before they hit the drywall, hold status. So, we're not holding a lot of homes, just stopped at that level. Our sales pace and our people are focused on selling those and restarting construction on a new home.

But of the ones that get there, Chris, how long do they stay?

I don't have the specific days here with me, Carl, but it's not very long. It's not like 90 days, it's not 45, but I don't have the specific days with me.

Your next question come from the line of Michael Rehaut from JPMorgan. Your line is open.

Thanks. I'll try a couple more here. With the comments around land acquisition and it appears that your community count has begun to stabilize, any type of guidance in terms of where you might be in terms of year-end, by the time you get to year-end 2010 year-over-year growth?

You're asking us that have not provided guidance before. So I won't give you a number, but certainly, and we don't have a chart to project out what communities come off, but our focus has been on adding new communities. You can see that with the spend we did in Q3, Q4, Mike, and our intent is to continue to grow that. We think that we have the opportunity and we certainly have the balance sheet in line to capture the opportunity.

And what potential amount of communities could close out over the next 12 months?

There are a pretty fair amount of communities that will be closing out, as we move through 2010. Some of these are from a few years ago and we'll probably have a pretty large number of communities that close out.

Your next question comes from the line of Chris Graja from Argus Research. Your line is open.

Okay. We can move on to the next one.

Your next question comes from the line of Jim Wilson from JMP Securities. Your line is open.

Thanks. Good morning, guys. Was just wondering if you could give a little color on the land deals done for the quarter, even incorporating what you're seeing that you're currently looking at or analyzing as to where you're finding deals and I assume returns are driving, of course, where you're picking deals but how returns to you might look like they vary by locale.

Generally the better the location, the lower the return. And so you have to have an expectation of continued tightening of the markets. And the availability in the Mid-Atlantic is tighter than the availability elsewhere. However, we're seeing and transacting in every market that we're involved with and I expect that to continue.

So it was pretty balanced geographically in what you purchased during Q4?

Correct.

Okay, good. That's all I have. Thanks.

Your next question comes from the line of Alex Barron from Housing Research. Your line is open.

Yes, hi guys, how you doing? I wanted to ask you, so over the last couple years or so you've expressed that you've been investing into the Company and that's why the SG&A has remained pretty high, relatively speaking. And as I look at your SG&A in absolute dollars versus other similar size companies, it seems to me there's still an opportunity for that amount to come down. So I'm wondering if you guys are done with these investments and if we can expect that the absolute dollars should come down. Or are you basically saying that the absolute dollars are going to stay at similar levels and you just expect the leverage to come from higher revenues?

I'd say that we're aggressively implementing our plan and I expect that it will be a work in process and that we will receive both the leverage from our growth, more likely than not concurrently at a time that we will have a reduction in those expenses that we're currently incurring for the development aspects of what we're doing. And they will probably come together, which should materialize in better leveraging the overhead.

I'll just add one point to that. Keep in mind, and we've said this before, we are making investments in changing our business. We're in the middle of doing a pretty significant change with our internal systems, and there's some dollars in that G&A that are just through investment dollars that we're incurring right now to put us in a position where we're just more scalable and more efficient.

Okay. My other question, somebody asked a similar one, but by my count you guys already have about $1.7 billion of cash investments, tax refund, et cetera, so liquidity. So I'm really struggling to understand why you need another $250 million. You mentioned that you had some opportunities you're looking at, but you guys have never done an acquisition of another company. So are you only talking about buying land or is there something else?

There is circumstances happening in the world economy that is different. In my four decades of being in this business I've never found that you can have too much money and found that if you have adequate resources, opportunity doesn't come to you. And since there's fewer people with the degree of liquidity than there normally is, I would expect that we will have some of those unique opportunities over the next period of time.

Your next question comes from the line of Carl Reichardt from Wells Fargo. Your line is open. Mr. Reichardt your line is open. And your last question comes from the line of Eric Landry from Morningstar. Your line is open.

Good morning, thank you. I want to approach the land thing again. It looks like the land you've put under control has roughly doubled. Is that a function of relatively static bid activity and your hit rate has gone up or has your bidding activity increased substantially fourth quarter relative to third quarter?

I'd say we have more deal flow. Where many entities who were holding off exposing their assets for transactions, whether it was regulatory or pricing or facing reality or end of a tax period, every aspect of the business that motivates the seller probably other than being profitable because most of their basis, I'm sure, were substantially greater than what we paid them, is in play. And as the banks across the country and other developers have a necessity to create a liquidity event, we do believe and we're continuing to see deal flow. And just like your business, the greater the deal flow, the greater opportunities we will have and we're staffed accordingly.

If I hear you correctly, you're implying that the environment got easier due to maybe not an introduction of more sellers, but more selling on behalf of current sellers. Does that sound accurate?

I wouldn't say it got easier because every transaction seems to be really hard, but there's more transactions available. And we're getting at least our share of opportunities and we're in a position to transact as they come in at the levels that we think are attractive.

Is there any other questions? I think we're done.

Operator, are there any more questions?

Your next question comes from line of Michael Rehaut from JPMorgan. Your line is open.

You got away from me. I know you have a long queue after the call, so I thought I'd just try and get these two ones in and I can be done. Just going back to a couple quick things, talking before about the incentives, Chris, is it safe to say that you guys are still a ways away from a normal level of incentives?

It's hard to think about what's normal over the last four or five years, Mike. Going back multiple years. I think we're still in such a change, with are we stabilized across the markets. And with a lot of activity I think it's hard to say that we're normalized at this point. But my comment before I think is the best comment to think about where we're at. We've certainly seen some improvement in that and we think that one way for us to help manage that best is our inventory strategy.

And lastly, I just want to circle back to the community count question. I know I'm trying to pin you to an answer here, but, again you have a lot coming on. You said you also have a lot coming off. From where you are today, is it fair to assume you're going end the year higher than where you are right now on a net basis?

From an activity standpoint we're certainly bringing many communities on and you can extrapolate that activity, but I think that's pretty fair.

There are no further questions at this time.

We thank you for joining us on the call today and we look forward to speaking with you on our next call following the announcement of our first quarter earnings results in April.

Thanks, everybody. This concludes today's conference call. You may now disconnect.