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Standard Pacific Corp. (NYSE:SPF)

6th Annual J.P. Morgan Homebuilding and Building Products Conference

May 21, 2013 2:55 pm ET

Executives

Scott D. Stowell - Chief Executive Officer, President, Director and Chairman of Executive Committee

Jeffrey J. McCall - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

All right. We're going to continue with the next presentation if you go on and find your seats. So again good afternoon. My name is Mike Rehaut, homebuilding and building products analyst for JPMorgan and the equity research group. Really thrilled to have so far a great first day for our Sixth Annual Homebuilding & Building Products Conference.

Tomorrow, we have another packed day, a little bit more heavy on the building products side of the equation, not by design just by how the scheduling worked out. Also a couple of homebuilders presenting tomorrow as well, those being Meritage Homes and D.R. Horton. We also have a great lunch speaker tomorrow for those, if you haven't seen the schedule, in CEO of the Chase Mortgage Finance business, Kevin Watters. So looking forward to hearing his comments on the industry.

But right now, we have Standard Pacific Homes and CEO Scott Stowell and CFO Jeff McCall. As in previous presentations, hopefully, the prepared remarks will be roughly 20 minutes, so there's plenty of time for Q&A. Scott and Jeff have really created a great position for the company, continuing on some of the strategic planning from the previous management team or at least on a CEO level -- Scott has been with the company for many, many years, in terms of positioning the company over the next several years from a longer-term land view. And the fruits of that planning has already coming out in spades so far this year.

And without any further ado, I'll turn it over to Scott.

Scott D. Stowell

Thank you, Mike. We're delighted to be here. With me today is Jeff McCall. As Mike said, he's our Chief Financial Officer. But before I begin the presentation, I promised our General Counsel that I would handle a couple of housekeeping items. So wanted to just have everybody direct your attention to the Standard Pacific Safe Harbor statement. The presentation may contain some forward-looking statements, including future financial and operational performance and actual results may differ. And for information regarding the risk factors in our business, you can see the company's SEC filings Form 10-K and 10-Q under the Risk Factors.

So with that, for those of who may not know Standard Pacific very well, I wanted to give you just a brief overview. We are the 10th largest homebuilder if you measure size by revenue with nearly a 50-year history in California. We delivered over 115,000 homes since our founding in 1965 and 3,600 homes during the last 12 months. We're actively building in 24 markets in 162 communities in 8 states with strong long-term housing demand supported by a strong land inventory, as Mike mentioned, where we own and control over 32,000 lots.

We are a builder-developer, and it's our development expertise that's contributed to our strong margins. So with our roots in California as a builder-developer, we've spent the last 5 years developing and building this competency throughout our entire company and across all our markets. We have the second-highest ASP in the group with a brand recognized for building high-quality homes to a move-up homebuyer.

Before we jump into company specific strategy and performance, I'd like to just spend a minute reviewing some of the housing market drivers and why I feel that we are well positioned heading into this recovery. We shared the macro view that the national new home sales will return to the long-term trend line of somewhere between 800,000 and 1 million home sales. The unanswered question is when and how fast will the recovery occur.

Based on the current 2013 projections of somewhere around 450,000 new home sales, we're only halfway back to the trend line. And if you assumed a 20% growth rate, it would take less than 4 years to return -- to get there. Now that's not unprecedented. You'll notice in this dark blue box there, where we've listed the past 5 housing recoveries, they each averaged about a 25% seasonally annually adjusted growth rate. So 20% is actually on the low end of that range. So we believe that builders who are well positioned in the early innings of the recovery are going to benefit from this strong growth trajectory.

Now employment growth is one of the most important drivers of housing demand. That's no news to anybody here at this conference. Job growth in each of our markets is expected to outperform the national average on a percentage basis, in some cases, by a significant amount. And if you also note that in the largest housing markets, California, Texas and Florida, the volume of the job growth is also very high. And that's a particular benefit in supply constrained California.

According to John Burns, the single-family permit activity is expected to grow at an annual compounded rate of about 22% between 2013 and 2015. Many of our markets are projected to exceed that national rate by a significant amount. If you'll note, Phoenix is projected to grow 20 -- excuse me, 42%; the Inland Empire, 37%; and South Florida, 32%.

The Western markets are experiencing higher home price appreciation. Our own market attractiveness analysis and our capital allocation modeling is weighted to these Western markets. Home price appreciation is a key driver to profitability improvement. And during the last 12 months, home prices nationwide, as depicted in this slide, improved 5.7% more than most economists had originally projected. Most of our markets outperformed the national average, and some by a significant amount. Phoenix rose 22%, and that was well-publicized and still today is closely watched by many people. Sacramento rose 15%. Now that was no surprise to us as we, in our own business, grew by more than that, and we saw that come in fairly early. Inland Empire, San Diego and the Bay Area each grew over 12%. So those are some of the reasons why believe that we're strategically positioned to be the beneficiary of this housing recovery.

We're in the right housing markets with strong long-term housing fundamentals, with a well positioned strategic landholdings and a seasoned management team. But we also continue to invest in attractive housing markets with the greatest growth potential, mostly in the Sun Belt states and Mountain States, with good long-term housing drivers, where the ASPs are high and the consumer lifestyles match up really well with our move-up focus.

Now we've been executing on a clear and consistent strategy focused on driving earnings per share growth. In fact, this is the same slide that I presented at this conference last year. Our objective is to create value for shareholders via earnings per share growth by positioning the company to capitalize on the growth potential of the housing recovery. We believe that better positioning or if you could command the best positioning in your market, you'll have competitive advantage. And we believe that it was available to early movers.

To accomplish this positioning strategy, we focused on 2 strategic objectives, which leveraged our strengths and drove the 4 elements of our strategy. The first objective was to buy land early, and then to maintain land-buying discipline throughout the cycle. And the second strategic objective was to solidify our upmarket positioning. As I mentioned, the 4 elements of our strategy to grow earnings per share remain unchanged. And each of these elements are linked together, amplifying the others to drive earnings and ultimately shareholder value. This, for example, disciplined land-buying translates into community count growth and drives gross margin performance. Community count growth and executing against a move-up strategy to a higher ASP drives top line revenue growth, which also is a significant contributor to gross margin and operating margin performance.

So let's talk about these strategic objectives in just a little bit more detail. Our early land-buying call was criticized by some and thought to be contrarian by others, at least at the time. But we were very deliberate in our strategy to buy land early to jump-start our community count, which we needed to do to return to profitability and to gain this positioning advantage that I discussed. When community count is combined with a higher ASP associated with a move-up buyer segment in that positioning, we enhance our revenue growth and our profitability. This strategy has us well positioned today with a very attractive strategic land supply.

We recognized early that having a strategic land supply had an attractive basis, which you get when you buy land early, would be essential to our future success. This is why we moved early to acquire land at favorable prices in the right locations. Going early allowed us to stay ahead of the demand curve and out of the fray, where the worst of the hypercompetitive competition followed. Our first opportunity was targeted at finished lots. And you can see in the slide that 90% of our purchases in 2009 were finished lots and they declined to roughly 25% today. Then we leveraged our strong master plan and development capabilities to pursue raw land, when others weren't pursuing that opportunity. So while others are fighting for near-term lots, our operators are positioned to think longer-term and to focus on 2015 and later deliveries. I don't want to oversell this point, but it's a significant position to know as a CEO that you have all of your operators not under pressure to generate near-term community count in the short run in this land-buying environment.

Our appetite for land has not diminished. We still are targeting a total 2013 land spend of somewhere between $600 million and $900 million. And today, we continue to identify both finished lots and raw land opportunities. And we're remaining opportunistic in our focus, but we expect that the majority of the attractive land opportunities will be for raw or partially developed land. It's our opinion that a longer land supply in an appreciating market is truly an asset. Since 2009, we've grown our strategic land supply approximately 67%. And our current land supply is approximately 9 years based on the last 12 months of closings. At this stage of the cycle, we're comfortable being longer on land, but we will be looking to reduce the years of our land that we own as we progress through the cycle.

Good land buying, of course, translates into new communities and community count growth is a key component to our strategy and it's closely linked to our move-up strategy. After our average community count trough at around 124 communities in the fourth quarter of 2009, we've been steadily increasing our community count to 162 communities today, as I mentioned. Early land buying enabled us to open 69 new communities in 2011 and 52 new communities in 2012. This year, in 2013, we plan to open somewhere between 65 and 70 new communities and anticipate an overall mid-single-digit increase to our average community count. And today, we already own or control 130 communities that will open in 2014 and beyond.

Now moving-up market is another differentiated aspect of our positioning strategy, and it's been a core strength of ours for nearly 50 years. As a company, we saw a significant opportunity to solidify this position in the move-up market by focusing all of our divisions, including the divisions that we acquired later in the last cycle to move-up market. We've been making great progress in this strategy to date, but this is still an opportunity where I think we can improve. Targeting this position is what we do best and it's what I know best. Style and design matter more today than they ever have. And in fact, according to a survey by John Burns, location and home design are battling for the top spot as the most important factor when purchasing a new home. And we believe this plays right into our strength.

We're uniquely positioned to exploit the opportunity gap between us and Toll and leverage our strength as we continue to migrate our product mix toward higher move-up and luxury percentages. The economics of a higher ASP are generally more profitable and are a much better match for our operating philosophy and our margin-oriented business model. There's less competition, and the builders that we do compete with generally share the same economic motives that we do, making it a more profitable segment. We have every division increasing their ASPs as they execute on this strategy. In fact, that $448,000 mark in the dashed box represents the ASP of all the land that we purchased since January of 2010. And this is evidence that we're continuing to execute against this strategy.

Moving-up market is not something you can do overnight. We've spent the past several years buying the right land to cater to this buyer. Serving this buyer requires you to deliver an exceptional value on each of the components of the value proposition, great locations, a different customer experience, higher architectural and design standards and a differentiated quality. Ascending [ph] a marketplace to our strengths. We're getting great buy-in from all of our divisions. We know this buyer well and it's a profitable, fun segment for us. These are the homes that we like to build, and it's a tremendous source of pride for our people.

Let's take a look, if you'll just indulge me, to share with you some of the images of our projects. This is in a move-up Italianate home in San Diego. This would not -- this wouldn't be a bad place to enjoy a Saturday afternoon. This segment provides us with unique opportunities to create some special details and spaces. This home design and construction here at Shady Oaks in Dallas, Texas recently won custom home of the year, along with 13 other awards recognizing outstanding design and merchandising for our division, including builder of the year. This is an interior shot of Shady Oaks, where you can see the transparency and enjoy that indoor-outdoor living, which is the hallmark of some of our new designs. This is a photograph of an interior shot in Phoenix of a great room and demonstrates our execution at the $600,000 price point in that market.

And for those of you who have joined us on our Southern California product tours, you might recognize the next 2 slides. This single story is targeted to empty nesters and move-down buyers, who still demand a very high-quality experience in home. This is a shot -- not a bad way to enjoy moving night at home. This picture of a home in Charlotte is one of the many new move-up homes that we've designed and resulted in our Charlotte division winning for consecutive years now the builder of the year recognition. And the Beach Collection in Venice Beach, demonstrates our ability to execute even in an urban setting, a move-up opportunity. Now I could go on for the rest of the day showing you wonderful pictures that we're proud of, but I'm not going to do that out of an interest of time because I've got to keep this to 20 minutes.

But I said in opening, our focus has been on driving top line revenue growth and profitability. Our business model emphasizes margin over sales pace and the objective of maximizing the value of every home sold. We carefully manage pricing to capture every increment of additional revenue. We're increasing base prices where we can as demand allows us to. We increased base prices in 95% of our communities in the first quarter of '13. Incentives, which are generally the first opportunity to improve net revenue, and we reduced incentives in the homes delivered in the first quarter to 4.3%. And the incentives in our backlog is 3.5%, suggesting that there's continuing improvement in pricing strength in our markets. And we've done this all while increasing our absorptions to 2.9 sales per community per month, our highest quarterly rate in over 5 years. So this focus on net revenue dollars is contributing to a steady trend in our gross margins.

Our industry-leading preinterest gross margins is further evidenced that our well-defined strategy is leveraging our strength and our competitive advantages, from buying landing to our move-up product focus to our leading home designs and our cost-control efforts. Now while we recognize the virtue of inventory turn and we're focused on improving our return on inventory, everyone at Standard Pacific knows that our positioning strategy requires that we deliver margin, and everyone is aligned to deliver this result. So given our position to significantly leverage our overhead as the market improves and as we grow our revenues, we believe that our industry-leading margins are going to bode very well for our future.

Now all this discussion around strategy is interesting, and I like our strategy. But if it's not translating into profits and earnings per share growth, then it's just talk and we don't have the competitive advantages that the strategy seeks. In fact, if we're creating competitive advantage, then it should show up as relative outperformance. And during the housing downturn, we quickly and aggressively attacked our cost structures and we operated around breakeven in 2010 and '11 during very depressed levels of demand. And the company returned to profitability in late 2011 and has shown material year-over-year improvement in profitability each quarter since then.

In 2012, we made $78 million of pretax profit on 2 -- on $1.2 billion of revenue as the market recovery had clearly started and our strong land position began to take hold. The strong operating momentum we experienced in 2012 has accelerated into the first quarter. Our revenues were up 61% year-over-year. Our gross margins topped 21%. Our SG&A was down 410 basis points and our pretax income was up over 300%. Our forward-looking metrics show that the momentum has continued. Our first quarter backlog was up 91% and 117% in dollar value. Our April orders were up 47%, and our April month-end gross margin and backlog is up to 23.8%, an approximately 280 basis point improvement over the first quarter gross margin.

On this slide, we break down our first quarter performance across our 3 regions. While order volume and order ASP were up nicely across all of our regions, the real story was California. Despite pushing same-store prices up 15% year-over-year, our absorption rates jumped 71% in California. In the first quarter alone, we pushed base prices over 10% on average to attempt to slow absorptions down to our target of plus or minus 3 homes per month.

Now this is one of my favorite charts in the presentation as it illustrates the positive year-over-year improvement that we're delivering over the past several quarters, highlighting that our performance is not just a one-act play. The chart illustrates strong year-over-year growth despite difficult comps. It's an example of what can be achieved with the right strategy, the right team, strong execution in a tailwind of a relatively weak but improving housing market. The operating leverage inherent in a homebuilder is well-documented. Our SG&A as a percent of revenue improved 410 basis points with revenue up over $130 million, our "fixed" G&A increased about $1 million. With growing gross margin and our cost-control efforts to manage our SG&A, our operating margins have increased from 2.9% a year ago to 8% last quarter. With gross margins and backlog showing material increases from the first quarter, it's reasonable to expect continued operating margin expansion.

We have all seen the solid year-over-year improvements in our business. And all builders, many, if not most, are enjoying that. But the real measure of our performance is how we stack up against our competitors. And we've got very good competitors in our group. As I said earlier, if we've gained any competitive advantage from our strategy, it's going to show up in this relative performance. And for us, we want our results to be in the top quartile of the key metrics that we think are the -- such as gross margin and operating margin, revenue, order and backlog growth.

Let's see how that we're performing to date. This is our public builder report card for the year 2012, which we use to measure our relative performance. Standard Pacific was the only builder to rank in the top 5 in all 6 categories. One other builder ranked in the top 5 in 5 of the 6 and 2 builders ranked in the top 5 in 3 of the 6 categories. And if you turn to the first quarter scorecard, we stack up even better. Standard Pacific was the only builder in the top third across all 6 categories and the next best builder ranked in the top third in 3 of the 6 categories.

So we have the balance sheet and the financial flexibility to continue to support our growth plans. We have over $650 million of liquidity between our cash and our untapped revolver. We have over $2 billion of inventory with almost 9 years supply of lots and a solid debt maturity runway with less than $40 million due in the next 36 months.

So why invest in Standard Pacific? We've got a well-defined growth strategy that's driving profitability and producing consistent results. Early land buying and a strong move-up brand have us well positioned to continue to benefit from the current housing market recovery. Our quarterly performance demonstrated significant operating momentum in the last several quarters, including the first quarter of 2013, where orders were up 49%, our deliveries were up 48% year-over-year, our home sale revenues were up 61% and backlog value up 117%. Last, a strong balance sheet leaves us poised for growth through the housing recovery with liquidity of over $600 million and less than $40 million of debt due before 2016.

To sum it all up, we believe we've got the right strategy, proven track of execution, the financial flexibility and the experienced management team to capitalize on this housing market recovery. So that, Mike, will conclude the presentation.

Question-and-Answer Session

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

14 minutes to go, so not so bad. Well, I'm going to ask one quick one, and then turn it over to the floor. You mentioned the gross margin, Scott, and it's certainly an area of strength. There's been focus in the last set of conference calls about how -- where that can go over the next few years. And there are several builders that are at or rapidly approaching mid-cycle margins of the past cycle and certainly, you're in that group or towards the higher end of that group. So how do you think about next 2, 3 years? Certainly, there's a lot of price appreciation. You referred to that in the backlog gross margins that you currently have. So I mean, obviously, having given out specific guidance in terms of what you think you could do in the back half of this year or next year. So let me ask you from another point of view, what would prevent, let's say, over the next 2 to 3 years StanPac itself from not achieving something closer to even -- on the way to -- certainly, you're already at near mid-cycle margins. But what would prevent you from approaching or getting within earshot of peak margins?

Scott D. Stowell

Jeff, you want to start with this one?

Jeffrey J. McCall

No, I'd love to. I think one of the keys to this cycle is at the beginning of the cycle, we're starting at a much higher gross margin than we were in previous cycle. So from that standpoint, we do sit poised to benefit from price appreciation. And I think really the big wild card out there is what level of price appreciation is there. We like our land bases. We have a long land position. And we stand pretty well positioned to benefit from that appreciation.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

And so I mean, on the counterargument side to that, I mean, you mentioned price appreciation. I noticed you didn't mention cost inflation. And it's always been our view that when costs are going up, home prices are going up to more than offset that. And I know that's something that you've seen already. So just playing devil's advocate, some people talk about maybe the first-time buyer coming back in more and affecting mix and margin on a broader composition. Any other factors that you might think certainly in a rising rate environment that create some upward limit on price appreciation to a degree? So on that counterargument, what would be, if you were kind of -- what would keep you up at night in terms of impediments to that margin expenditure over the next few years? What will be the top few couple of things that come to mind?

Scott D. Stowell

Well, I would say if there's some negative economic news that would get us off our current trajectory, slowing job growth, those things would probably slow down home price appreciation. I don't think that's likely, but that would worry me. A sharp change in interest rates would impact affordability, although we analyze interest rates at varying levels to understand that impact. Given today's high level of affordability, interest rates would have to rise significantly to have a meaningful impact to home price appreciation. Just the valuations are so favorable today, given the big falloff of pricing in the last cycle, I think we're positioned to see some pretty good appreciation.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Great. With that, I'll turn it over to the floor, to the audience if there's any questions for Scott or Jeff.

Unknown Analyst

Scott, I think you said in your presentation that you're comfortable with the long land position now. But as you go through the cycle, you don't want to operate with such a long land position. I was wondering if you could talk about what's the right mix, how many years down the road is that. And I guess, also if you can also talk about the land buying out there. I mean, obviously you guys how to develop land. What's the competitive environment out there? What are you seeing out there in terms of future price increases being embedded in? Any color like that would be helpful.

Scott D. Stowell

Okay. I'll start first with the back half of the question. The land market is competitive, but it's always been competitive in our business. I think the public builders clearly have competitive advantage today. We won't have that forever, but we have competitive advantage today. We are, however, seeing sufficient opportunities coming. We've grown our LOI pipeline since the fourth quarter of 2012. And we haven't adjusted our thresholds to grow that pipeline, so we're seeing sufficient opportunities. I think the real message we want to leave with you is, is that because we're long on land today, we're in a strong position to look at opportunities where we can create value. And whether leveraging our own development capability or just solving problems that others may not be looking at is something that we're able to do. And then I would say that to the first half of the question, over the life of the cycle, as we manage our land strategies, we will start to take a 9-year owned land supply looking backwards and start to take that down to 2 to 3 years owned late cycle. And we'll also be leveraging our net debt-to-cap or leverage down so that we strengthen our balance sheet later in the cycle. So what that means is, is that we'll be looking for some of the deals that we're passing on today. So for example, in Southern California, we're not doing deals to the extent we have historically on some of the ranches that are offering a takedown, better inventory turns but a lower gross margin. And then they're taking much of the upside in their PAPA. Today, we'd rather allocated our capital to deals where we capture all the upside ourselves and we act as developer, not as merchant builder. We can create value. So we will definitely be assessing where we're at in the cycle, and then starting to shift our land strategy to more options, shorter cycles, smaller size of deals.

Unknown Analyst

Is your land inventory based off of trailing 12-month sales? Or is there a projecting out as to what you think the revenue CAGR is going to be?

Scott D. Stowell

The 9-year number, that's trailing 12 months.

Unknown Analyst

To focus on your comment on your capital structure that you'd like to take leverage down, I assume step-by-step as you get later into the cycle. In previous cycles, people always seem to get caught out. How will you know when you're getting to the end of them? Are we smarter this time around?

Scott D. Stowell

We'd like to think so, wouldn't we? Jeff, you want to...

Unknown Analyst

I mean, what's happened previously, the bottom falls down and people just stopped buying land. And whatever they are selling reduces revolver debt or buying debt or what-have-you. And it's interesting to hear that maybe you have a better forward look this time.

Jeffrey J. McCall

Yes. I think if we define over a macro cycle just as far as total new home sales. Right now, at 450,000 new home sales, at least the estimate for '13. As that progresses close to that longer-term norm in that 800 000 to 900,000, that's where we'll be driving and then leveraging or deleveraging at that point.

Unknown Analyst

Right. And I'm a debt guy, but I'm curious as to how equity guys look at things. Do you create value as you shrink your balance sheet? Will there be a return of capital to the shareholders or dividends or share repurchases? Or do you grow value long-term but essentially growing EBITDA with a cycle growing book and getting some kind of multiple on those 2 without a cash return?

Jeffrey J. McCall

The answer is yes. Right. It's doing both, right? At that point, we can also return back to the shareholder, once we have leveraged to the proper levels.

Scott D. Stowell

That's like also a cycle-related strategy that -- Jeff and I are committed -- we've committed ourselves to be more thoughtful about how to manage the cycle. And we've got much better information available to us and we're tracking data better and trends better.

Unknown Analyst

I just wanted to ask a question about your -- of the 9 years of supply that you currently have, could you give like a breakdown in tier by what could be delivered to the market in the next year or 2? And then what is sort of other, whether it be like totally mothballed or somewhere in between?

Scott D. Stowell

Yes. Jeff is looking for that page right now, so we'll give that to you.

Jeffrey J. McCall

Go to the next one, then I'll come back to him.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

A couple of questions over here.

Unknown Analyst

You mentioned pricing. That you've taken pricing to slow down absorptions in the first quarter. Have you continued to take pricing? And have you kind of identified the elasticity around that? Or do you need to continue to raise prices?

Scott D. Stowell

We are continuing to raise prices where we can. And the market is taking price increases currently. It's easy for us to sit up here and talk about pushing a price lever to adjust absorption rates in theory. But it's really difficult when you're in the marketplace trying to do that because it's such a hyper local dynamic. We have some projects, where the demand is so strong and there's so little competition that every time we release a phase, we're selling it out with significant price increases and the market still is accepting that. So we're working carefully with small releases and lots of discussion to try to get to that market price as quickly as we can. And the answer to your question is yes, we're still taking price increases in the market to date.

Unknown Analyst

Do you think current absorption rates are acceptable? Or do you need to slow down further?

Scott D. Stowell

I think 2.9 is acceptable for us. That was the company's absorption rate. We have some projects, where we're selling too fast. And we have some projects, where we're selling 2 a month, which is probably acceptable in the current demand environment. So we get back to the prior question, Jeff?

Jeffrey J. McCall

Yes. To jump back to the inventory question, if you set aside the option lots, which we can take down, let's assume they'd available, that would be 5,800 option lots. But on the owned lots, we have roughly 81% of those are either finished or currently under development. And there's 19% of those of that are raw. So that development phase, we can push that and actually that's been helping our community count. This year, we've accelerated development phase and are able to bring about -- not much, 5 to 10 additional communities into 2013 that were previously slated for 2014 because the demand has given us the opportunity to do so.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

I think one of the key things in terms of long land positions, just to add on, is that different strategies can work in this industry as long as they're thought of correctly in terms of from a balance sheet perspective to support that strategy. And what we saw in the downturn was long land builders that you wouldn't have thought have done well. Some did very well because they had the balance sheet to support themselves, some didn't. And similarly, on the flip side of coming out, you had short land builders that you would've thought that would've been very well positioned that were just either had too much overhead or just even not enough leverage going up that would have -- that was contrary to expectations. So it's our view that different builders can -- the different types of mousetraps, they can be successful as long as the risks are understood within each of those approaches.

Scott D. Stowell

Yes. Absolutely, couldn't agree more.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Yes. So I think we have time for one more question. Yes?

Unknown Analyst

Ask about the private equity investor. What's their plan? Do they have a plan to exit sometime in the near future?

Scott D. Stowell

Well, you probably saw that they sold roughly 20 million shares recently. Beyond that, they're not -- they're like any other investor, they don't talk to us about their exit plan specifically. So you'd have to ask them about their timing and how and when they would exit.

Jeffrey J. McCall

Just to be clear. They actually sold 23 million. [indiscernible] So they sold 23 million shares. They've got a little over 210 million shares remaining, so a little bit less than 10% of their holdings.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Great. Well, thanks very much, Scott and Jeff, appreciate it as always. Great to see you. And we'll be continuing in 5 minutes with Brookfield Residential.

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