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AV Homes (NASDAQ:AVHI)

Q4 2013 Results Conference Call

March 14, 2014 / 8:30 A.M. E.T.

Executives

Roger Cregg – President, CEO

Mike Burnett – CFO, Executive Vice President

Analysts

Jay McCanless – Sterne, Agee & Leach, Inc.

Alex Barron – Housing Research Center

Brendan – Lynch Sidoti & Company

Harsha Gowda – BlueShore

Jim Barrett – CL King & Associates

Operator

Good day, ladies and gentleman, and welcome to the AV Homes fourth quarter earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator's Instructions). As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, Chief Financial Officer, Mike Burnett. You may begin.

Mike Burnett

All right. Thank you, Nicole. Good morning and welcome to the AV Homes fourth quarter and full-year 2013 earnings call. On the call today, we will discuss the operational and financial results for the fourth quarter and year ended December 31, 2013. In addition to the press release in data sheets that we filed yesterday, we've also posted supplemental slides to the Investor Relations section of our website at avhomesinc.com, highlighting the Royal Oak Homes acquisition, as well as our operating trend to assist you in your analysis of the results.

With me on the call today is Roger Cregg, President and Chief Executive Officer of AV Homes.

But, before we begin, let me remind you that this conference call and webcast contain forward-looking statements within the meaning of U.S. Federal Securities law, which statements may include information regarding the plans, intentions, expectations, future financial performance or future operating performance of AV Homes Incorporated. Forward-looking statements are based on the expectations, estimates or projections of management as of the date of this news release, conference call and webcast. Although management believes these expectations, estimates or projections to be reasonable as of the date of this call, forward-looking statements are inherently subject to significant business risk, economic and competitive uncertainties or other contingencies which could cause our actual results or performance to differ materially from what maybe expressed or implied in the forward-looking statements.

Important factors that could cause our actual results or performance to differ materially from our forward-looking statements include those set forth in the risk factors of our annual report on Form 10-K for the year ended December 31, 2012, our quarterly report is on Form 10-Q for the 2013 period ended March 31st, June 30th and September 30th and then our other filings with the Securities and Exchange Commission, which are available online at sec.gov.

AV Homes disclaims any intention or obligation to update or revise any forward-looking statements to reflect subsequent events and circumstances, except to the extent required by applicable law.

With that, I will now turn the call over to Roger for a discussion of the business results.

Roger Cregg

Thank you, Mike. Good morning, everyone, and welcome to the AV Homes fourth quarter conference call and thank you for being with us today.

You've undoubtedly by now seen our announcement last evening on our purchase of the net assets of Royal Oak Homes in Orlando, Florida. We are extremely pleased that Royal Oak Homes officially became part of AV Homes, effective with our closing yesterday. Royal Oak Homes is a recognized home building leader with a well-respected management team in Greater Orlando and Central Florida market. They demonstrate their commitment to building exceptional homes in outstanding communities for many years.

This acquisition is an excellent fit from a geographic and product-offering standpoint giving us a more balanced company with broader customer segmentation focused in the Central Florida marketplace. Together our companies will be better positioned to profitably grow faster as a combined entity than either company independently. We think this is an excellent complement to our existing business and advances our growth strategy in the near term in the Central Florida market.

Royal Oak Homes a privately held homebuilder was formed in 2010 as a residential production builder serving the nine-county Central Florida market. The company was formed by the Orosz family, residents of Central Florida for more than 30 years and experience residential builders and developers. The family also operates an affiliated land company that focuses on purchasing suitable land for development positions for resale to Royal Oak Homes and other national and private builders. Royal Oak has nine active communities located in Central Florida and plan to have 14 active communities by year-end 2014 with all lots owned are currently under control.

Royal Oak has a current committed lot inventory of approximately 2,500 lots in Central Florida, many of which are off balance sheet. We have combined the takedown and purchase of a number of these communities and finish lots along with the net assets of Royal Oak Homes in this transaction. Royal Oak Homes serves the first-time move up and move up buyer segment, representing approximately 80% of the land portfolio and product offerings, but the remaining 20% focused on the first-time buyer segment. The selling prices range from $170,000 to over $350,000 and their average selling price is approximately $235,000. In 2013, they sold over 300 homes and closed on just over 270 homes.

The leadership team at Royal Oaks will remain the same with Matthew Orosz and Steven Orosz managing the operation as co-presidents. They will continue to do business as usual for the foreseeable future. They will be doing it under the brand of Royal Oak Homes, a division of AV Homes.

This acquisition will establish AV Homes as one of the five largest homebuilders in Central Florida and will complement our existing presence in the Pontianac [ph] market. With over 2,500 primary residential lots owned or controlled, Royal Oak enhances the AV Homes position in a key growth market.

To take a few minutes reflect on 2013, it was a busy year for AV Homes. We shifted our business strategy from not only focusing on the active adult segment, but also include the primary residential segment, targeting consumers of all ages. We further enhanced our internal operational performance to include systems, processes, procedures and methods improvement throughout the organization. We changed product designs, employed value engineering to lower our product cost and improve our margins. We raised $135 million in equity through an offering to TPG, giving us the necessary liquidity to invest and grow the business. We accelerate our growth strategy by developing and building on land we owned rather than selling it such as in Florida at our Bellalago and water view communities. We redeployed capital in some areas to leverage our core competencies. We added new model parks Solivita and CantaMia, in addition to a long-awaited amenity center at Vitalia at Tradition in Port St. Lucie, Florida.

We employed capital throughout the acquisition of over 1,300 lots to generate closings in 2014 and beyond in an effort to leverage our overheads and drive profitability. We established a new division in Raleigh and Charlotte, brought in a leadership team and have been acquiring land positions to grow the market. We closed 481 homes, an increase of 57% from last year, expanding gross margins by 550 basis points, leverage our home-building SG&A conversion to 12.6% from 23% and now at our loss for the year to $9 million and obviously with our announcement of Royal Oak Homes we've been looking for other strategic opportunities to advance our strategy.

Yes, we have been busy, but we still have a lot of work in front of us to improve our results and drive value for our shareholders. I want to thank the dedicated team in AV Homes for their enthusiasm and commitment to excellence as we strive to delight our homeowners.

After some comments on the quarter results, we continue to be pleased with our progress in the fourth quarter and throughout the full year of 2013. Our results reflect stronger momentum, including improved orders, closings, revenues, margins, overhead leverage, and the deployment of capital into the business. We made significant progress on the many key initiatives that are helping improve our operational efficiencies in addition to leveraging our size and scale, as we continue our drive to return to profitability.

As reported to the fourth quarter, we achieved revenue growth of 78% from homes delivered, increasing home units delivered by 68% in the quarter, compared to the prior year quarter.

For the quarter, our active adult segment home closings increased by 175% versus the prior year quarter. In addition, the primary residential segment decreased by 28% versus the prior year quarter. The decrease in primary residential is a direct result of strategically reducing our primary residential communities to focus on the active adult segment. A strategy we changed earlier in 2013 can now serve both segments, which give us a more balanced and broader footprint geographically and in consumer segments going forward.

During the fourth quarter, we grew our net – new orders by 21% year over year. Net new order is in our active adult communities increased to 114% versus the prior year quarter, mainly attributable to the increasing interest by active adult buyers and/or added active adult community at Vitalia at Tradition in Port St. Lucie, Florida.

In addition, our primary residential orders decreased by 70%, which is mainly attributed to the reduction in our community count as we sold out of a number of communities in Florida and Arizona markets and are now just beginning to feel our land pipeline by developing our previously owned land in addition to acquiring new land positions.

We continue to be pleased with the sales performance at our active adult community, Vitalia at Tradition in Port St. Lucie, Florida. We reintroduced the community in mid-February of 2013 and now posted 88 net sales for 2013 with 26 net sales in the fourth quarter. At our Solivita active adult community, we had 36 net sales in the fourth quarter increasing to 139 net sales for the full year, an increase of 40% compared to the other levels in 2012.

In the Phoenix market, our active adult community CantaMia in Australia sold 118 homes in 2013, compared to 62 homes for 2012. In addition, we sold 30 homes in the fourth quarter just above the pace achieving the third quarter of 2014 – excuse me 2013. Additionally, we recently held grand openings for the new model parks in both Solivita and CantaMia offering new and efficient floor plans, which have been well received by buyers in each community.

As I previously stated these results are still far from what we expect and need from communities of this size, but we’re encouraged by the continued momentum and improvement to both traffic and order patterns.

Gross margins continue to improve in the fourth quarter versus the same period last year. We are focused on selectively raising prices and reducing house cost. We are realizing margin improvement on certain floor plans and house design. Additionally, we continue to make progress leveraging our home building SG&A expense ratio in the fourth quarter versus the same quarter last year. We will continue to improve our leverage as we execute on our strategy to grow the revenue base through additional communities and home closings. At the present time, we continue to work on land – our land pipeline in all markets with potential land acquisition opportunities and engaged in diligence on a number of properties that will help accelerate our sales volumes and enhance our return to profitability.

At this time, I’d like to turn the call over to Mike Burnett who will discuss our financial results from the fourth quarter in more detail. Mike?

Mike Burnett: Thank you. I would also echo Roger’s comments on the success of the business in 2013 and the exciting start at 2014. Through the capital raise this past June which enabled us to enhance our capital structure and fund strategic finished lot positions in the Arizona market, accelerate residential development in our Florida market and ultimately acquire premier home building operation in Central Florida, we have established a strong asset position in each of our key markets within both the active adult and primary residential segments.

Moving on to review the fourth quarter and full-year results for 2013, for the quarter ended December 31, 2013 our revenues increased 63% to $54 million, compared to $33.2 million during the same period in 2012. This increase was due to a significant rise in the number of home closings, as well as an increase in our land sales activities.

We recorded net income of $1.8 million or $0.08 per share for the quarter ended December 31, 2013, as compared to a loss of $58.9 million or $4.67 per share in the fourth quarter of 2012. Last year’s loss included impairment charges of $51.7 million for the write down of land and inventory.

Focusing on the operating results in the fourth quarter of 2013, we closed 171 homes generating $45.2 million of revenue. This represents a 72% increase in revenue and a 68% increase in unit volume over the same period a year ago. Our average price per unit from homes closed during the fourth quarter of 2013 rose to $249,000, a 6% increase from the fourth quarter of 2012. During the quarter, the average closing price for our active adult segment was $253,000 per unit, which increased $3,000 from the closing price per unit in the fourth quarter last year. While in our primary residential segment, the average closing price per unit rose 6% to $236,000 from $222,000 in the fourth quarter of 2012. This increase reflects a change in the mix of homes closed and our ability to raise prices over the past year in this business segment.

A number of sales contracts signed net of cancellations during the fourth quarter were up 21% to 105 units from 87 units on the same period in 2012. In our active adult segment, the number of contracts signed increased 114% year over year, while our primary residential segment saw a 70% decrease.

The increase in sales in our active adult segment reflects improved buyer confidence from this market demographic. The decrease in sales in our primary residential segment were driven by the reduction in number of communities we’re actively selling. We expect this dynamic to continue in the first quarter of 2014.

However, as a result of the finished lot acquisitions that we completed in the second half of 2013, primarily in Arizona and the new residential communities is in Florida and North Carolina that are coming online later this year, we expect the primary residential sales in the second half of 2014 to be favorable to 2013.

Home building gross margin, excluding impairments and including commission expense, for the quarter ended December 31, 2013 were 16% compared to 14% in the year earlier quarter. The year-over-year increase in our gross margin as a result of the change in mix of homes closed, improvements in pricing and operational efficiencies.

In the fourth quarter of 2013, we reported $6.7 million of revenue from the sale of commercial, industrial and other land, which generated $4 million of operating income, compared to $5.8 million in revenue and $2.9 million of operating income during the fourth quarter of 2012. These results validate our continued asset rationalization program whereby we are opportunistically profitably monetizing noncore assets in land positions.

For the fourth quarter ended December 31, 2013, our corporate, general and administrative expenses were $4.1 million, a decrease of $1.8 million, compared to the fourth quarter of 2012. This continues to show our ability to leverage our existing cost structure while substantially growing the business.

Turning to a discussion of a full year result, we reported a net loss to common stockholders of $9.5 million for the year ended December 31, 2013 on $143.7 million of revenue, as compared to a net loss to common stockholders of $90.2 million on $107.5 million of revenue in 2012. The loss per share in 2013 of $1.34 includes a $0.75 negative impact of the noncash deemed dividend that we recorded in the third quarter of 2013, while a loss per share of $7.19 in 2012 includes a $59 million or $4.70 per share impairment charge for the write down of land and inventory.

For the year ended December 31, 2013, we closed 481 homes, generating $115 million of revenue, a 57% increase in closings and a 65% increase in revenue over 2012. Our average closing price per unit from homes closed in 2013 was $238,000, a 5% increase from the $227,000 average closing price in 2012.

For the full year 2013, we generated 463 signed contracts net of cancellations, an 18% increase over the prior year. Our backlog of homes sold, but not yet delivered at the end of 2013, was 167. Overall, this is down about 10% from the December 31, 2012 backlog of 185 homes.

When you look at the breakout by segment, you can clearly see the decrease as being driven by the primary residential segment, where the backlog is 40 units at the end of 2013, as compared to 122 units at the end of 2012. This is due to the reduction in active selling communities in Arizona between 2012 and 2013. With five new communities in Arizona coming online in the second half of 2014, we expect the primary residential backlog to improve significantly throughout the year.

Conversely, on the active adult backlog that increased by over 100% to 127 units at the end of 2013, compared to 63 at the end of 2012. This demonstrates a strong asset base and market position that we have in the active adult markets in both Florida and Arizona. The aggregate contract value of the total backlog is $39.9 million at the end of 2013, compared to $43.1 million at the end of 2012. For the year ended, 2013 our home building gross margins were 15.8% with a 16.3% margins in our active adult segment and 15% margins in our primary residential segment.

This represents a 550 basis point year-over -year increase on our gross margin and as the result of the change in mix of homes closed, along with our ability to raise prices throughout the past year while creating efficiencies in our building process.

Lastly turning to the balance sheet, as of December 31, 2013, we had cash and cash equivalents of $144.7 million, compared to $79.8 million at December 31st of 2012. The increase in cash is primarily attributable to the TPG investment in our common stock, partially offset by investments in land and other inventory, which increased to $240 million from $171 million at the end of 2012, due to the purchase and development of land and finished lots primarily in Arizona. Outstanding debt remains unchanged at $105 million giving us a debt to total capitalization rate of 27%. So as you can clearly see, we are well positioned to continue to invest in and grow the business.

With that, I’d like to turn back the call over to Nicole to open the lines for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Jay McCanless of Sterne Agee. Your line is now open.

Jay McCanless – Sterne, Agee & Leach, Inc.

Good morning, everyone. Hi, again. Congratulations on the Royal Oak deal. I wanted to see if we could get some idea what the backlog in units and also in dollar value as for modeling.

Roger Cregg

Yeah, Mike. Do you have their numbers at closing?

Mike Burnett

Yeah. It closed – well, in kind of about 150 homes. And with the dollar value of the backlog – I will have to get back to you on that.

Jay McCanless – Sterne, Agee & Leach, Inc.

Okay. That's great. And then on the primary community with the '14, well it looks like Royal Oaks are going to have by year-end and then the fab [ph] that you just spoke about, should we be in the 25-ish range? Is that a good range to use for year-end, primary community account that we're about 25?

Roger Cregg

Yeah. For next year – actually in 2013, if you look at AV alone, we had 10 communities. We closed out a four and we're adding another 10 through 2014. So if we look at our business standalone, we'll probably end up with about 16 communities in 2014 and then roughly another 14 on top of that so we're looking – pushing to the 30 communities of range with the combination.

Jay McCanless – Sterne, Agee & Leach, Inc.

Okay, okay. And then on the active adult, the gross margin active adult was up year over year but down sequentially on higher volume. Can you talk about what the causes were that? And how should we be thinking about gross margins for active adult in 2014?

Roger Cregg

A lot of that you have mix running through there. You got some older [ph] products, larger products so that's usually a driver in that. Nothing systemically, if you look at – continue to raise prices there we're actually been doing pretty well in the active adults segment. But again, if you got some older [ph] product, you've got different margins relative to the higher product.

Jay McCanless – Sterne, Agee & Leach, Inc.

Okay, okay. And then we've been hearing a lot about sales pressure in Arizona for the entire market that existing homes sales new home sales are slowing down. Can you talk about what you're seeing the Arizona market? And is the – or the current market conditions going to have an impact on your community up in plans?

Roger Cregg

Yeah. I don't think it's going to have an impact on so we continue to move forward. The acquisitions that we made at the end of last year, I think, overall, which is not big enough to have a big enough footprint. I would say that our strength really is in the active adult side. We're doing extremely well with the CantaMia project and we're feeling pretty good about that. You know other than that, we don't really have too much on the ground at this point to really have a big impact on the primary side.

Jay McCanless – Sterne, Agee & Leach, Inc.

Sure. And then two more questions for you. The first one – the order guidance that you gave about second-half quarters being favorable, compared to second half of '13, is that just on AV's legacy assets or does that also include Royal Oak in that guidance?

Roger Cregg

No, that would include.

Mike Burnett

Yes, yes.

Roger Cregg

Go ahead, Mike.

Mike Burnett

Yeah that was just on the AV standalone business.

Jay McCanless – Sterne, Agee & Leach, Inc.

Just AV. Okay. And then the last question is North Carolina – can you discuss how things are progressing there and how soon you expect to be open for business?

Roger Cregg

Yeah. It's going very well. We're putting on more land positions. You know we're really looking for finished lots but we've done a little bit of both so we're having some developed force [ph] there as well and most of that is going to be on the Charlotte area. The team is up and running and we're building out the team but we're also having projects. So we should actually see some deliveries out of the market towards the end of the year.

Jay McCanless – Sterne, Agee & Leach, Inc.

Okay, great. Thanks, guys. Appreciate it.

Mike Burnett

Thank you.

Roger Cregg

Thank you.

Operator

Thank you. And our next question comes from the line of Alex Barron of Housing Research Center. Your line is now open.

Alex Barron – Housing Research Center

Hi, good morning. I don't think I saw it in the press release but what was your community count for active adult versus primary in the quarter and I guess versus the year ago?

Roger Cregg

Well, we basically got three active adult communities and two in Florida – Solivita and down in Port St. Lucie and then the nature project in Phoenix so at CantaMia. So they have been the same.

In 2000, we brought on – as I mentioned, we brought on Vitalia and Port St. Lucie in 2013 – reintroduced that. Solivita has been in business for a long time. And then since 2010, we got CantaMia and Phoenix.

So those three have been really up and running for most of 2013. We don't anticipate any additional business coming off of the new one in Raleigh in 2014 and then again the rest of the movement was in primary segment.

Alex Barron – Housing Research Center

Thanks. So what was that community count in that primary project?

Mike Burnett

On the primary side, it was about seven. It was seven at the end of the year.

Alex Barron – Housing Research Center

In the year ago?

Mike Burnett

Well – let me take a look at that.

Roger Cregg

I think the year-ago is roughly the same.

Alex Barron – Housing Research Center

Okay. Where do you guys contribute the – I guess the (inaudible) in the order side and on the primary side? Is it just kind of the slowdown as the interest move? Or do you guys – are you kind of at tail end of some of those communities?

Roger Cregg

Yes. That strategy was to really move the business in the company to active adult primarily – all active adults – and we changed that earlier in 2013. We moved back but the communities were all running down so it's purely a community as we mentioned in the numbers when we started looking at both the sign-ups just fell off because we don't have the communities open. And...

Alex Barron – Housing Research Center

And...

Roger Cregg

So we're not going to replace some of the things. We focused on was to try to bring on as many as possible and finish lot-type communities that we could get, try to bridge back very quickly to profitability in 2014 by being able to build very quickly rather than developing a lot of land and just getting finished lots.

So that was the primary in 2013, which I think we were very successful at. Well, we've got a late start really from a capital standpoint and bringing it on. We closed the TPG equity raising effort in June and then went out and bought a lot of land towards the end of last year. That's helping us this year because we should do deliveries on that a little bit later in 2014.

Alex Barron – Housing Research Center

Okay and as far as the timing of the closing of this acquisition is that already part of first quarter or is that going to be in second quarter?

Roger Cregg

We closed on it yesterday, so it'll be half a month quite frankly and then really kick in on the start down April 1st, but we got purchase accounting to go through and the impacts on that but very pleased to have that done and moving forward from this point.

Alex Barron – Housing Research Center

Okay great, thanks.

Roger Cregg

Thanks, Alex.

Operator

Thank you our next question comes from Brendan Lynch of Sidoti. Your line is now open.

Brendan – Lynch Sidoti & Company

Good morning, Roger. Good morning Mike. How are you guys doing?

Roger Cregg

Good. Thank you. Good morning.

Brendan – Lynch Sidoti & Company

Good. My first question is on the Royal Oak acquisition. Can you just give us some color on what your current liquidity is after that acquisition and then also what your appetite or need maybe for additional debt financing as you look at other acquisitions and look to expand the business.

Roger Cregg

As we talked about, we ended the year with $145 million in cash and this transaction was about $65 million and again we'll be building out as the business continues to move forward in 2014 from the vertical side, but we're in pretty good shape at this point. Again, we're looking at the opportunities for bank revolver, as well as other opportunities in the capital markets as we move forward, but those are things that we'll be working on in the future here.

Brendan – Lynch Sidoti & Company

And with your debts total capital around 27%, are you willing to increase that a bit over the next couple of years?

Roger Cregg

Yes, I think so. You know I think my past has always been in the 40% range. That always gave us a lot of flexibility and things I've done before and I think that's a pretty good sweet spot to be able to do things that are opportunistic, but stay pretty solid. I think looking at profitability you can add more leverage as get more profitable and can add to the equity base and that's all of our effort. But in the short run again we're on a net debt to cap in pretty good shape there (inaudible) zero [ph] and I think we're pretty liquid at this point. But for added growth to the business, we got to be looking at other opportunities from the capital side as well.

Brendan – Lynch Sidoti & Company

You mentioned that there are some purchase accountings they're going to go through with this acquisition, yeah, will that entail mark-to-market all of the lots that you're acquiring?

Roger Cregg

Yes, typically. Yes, it does.

Brendan – Lynch Sidoti & Company

And can you just give us a little color on how you think that will impact the gross margins going forward?

Roger Cregg

I can't tell you specifically today but I would tell you that their gross margins are much higher than our gross margins. And so I would be looking for a slight improvement overall and gross margins for the company with that opportunity but again that's got to be our (inaudible) to move forward.

We've also got typically in the backlog, those margins get skinny down. Again, a lot of the county convention favors the land – or excuse me – the seller in net margins so the buyer gets really just kind of a selling margin on that. Again it all has to play through with how we actually close on everything yesterday.

So, yeah, we don't have a very specific but directionally feeling pretty good about the overall margin opportunities in front of us.

Brendan Lynch – Sidoti & Company

OK, great. And then just one more. Can you just give us a little color on where your sales and marketing spending is as a percent of revenue as you're growing the business at this point?

Roger Cregg

Yeah. It's almost non-existent. We do a little bit locally from the collateral and that type of stuff. We do have an agency that helps us but we're not spending great deal on the marketing side. That's been something that again we continue to look at and really want to drive from the local market standpoint, not necessarily from the corporate so we don't really have a corporate structure from the marketing team like that but just local.

Brendan Lynch – Sidoti & Company

Is that included in your G&A expenses $4.1 million in the quarter?

Roger Cregg

Yeah. It's why actually – it's not at the corporate level, it's more down to the operation so would be the SG&A at the homebuilder level.

Brendan Lynch – Sidoti & Company

OK. Very good. Thanks for your help.

Roger Cregg

Great. Thank you.

Operator

Thank you. Our next question comes from Harsha Gowda of BlueShore. Your line is now open.

Harsha Gowda – BlueShore

Good morning, gentlemen. How are you?

Roger Cregg

Fine. How's your (inaudible) today?

Harsha Gowda – BlueShore

I'm doing great. Thank you and congrats it looks like active adult – because it's finally back and back pretty strong. My first question for you is in regards to the strategy with the commercial industrial land and other, I guess, scattered lots with scattered acreages. What – you know, in the past AV has generated lot of operating income and cash from this – you know, sales of this properties. Do you have a strategy in how to deal with this? Because I see there's one that's non-core to the homebuilding side and also a source of pretty high funding for further acquisition if you chose to do that. So what is your strategy going forward?

Roger Cregg

Yeah. Our strategy – be opportunistic we're not trying to just dump it. Again there's not all of it has use immediately and so you can move a lot of it at very little opportunity – the profit from it.

So we're opportunistic. You know, we have a significant number of parcels out there that we do to try to market and again depending on the area the specifics of what was going on in that, whether, a convenient store kind of go on a property that might be important on a particular traffic pattern area.

So all of it is something that's just have to be work it's not something you can just push out there but we've got a fair number of amount there that would be marketed and you're constantly do that. And so our strategy is to continue to do that.

Scattered lots again – a little bit more limited. Again they're typically – they're cheaper houses. They're lower pricing housing and again there's a market there – isn't robust but we take opportunities when we can.

So our strategy is again be opportunistic with it, continue to market it but not just try to dump it.

Harsha Gowda – BlueShore

And so was it a choice to, I guess, have a fewer sales this year versus last year? I guess pricing has risen for these properties?

Roger Cregg

No, no. We take opportunity as it arises for us so again we continue to market it. What we didn't do is just – saw land that we could actually build residential housing on as for instance in water view or the Bellalago. When strategy was try to sell those, it looked like the market was turning in a better opportunity to build on it so we've taken that opportunity and I think we're very pleased with the success and the returns on those projects so far and the projected returns that we see coming in front of us.

But as far as the commercial and industrial again that's somewhat a hidden miss [ph] in the market, based on where it is and know a lot of that land is concentrated in – pointing in an area.

Harsha Gowda – BlueShore

Okay. And I noticed that over the last few quarters and from the 10th day, the unplotted scattered mix used, raw land category, the acreage has increased almost doubled in the most recent Q versus the last K. Could you just give me a little bit info on that and little color on that?

Roger Cregg

Yeah, Mike, do you have anything on that?

Harsha Gowda - BlueShore

15,000 [ph]?

Mike Burnett

I can take a look at that and get back with you.

Harsha Gowda - BlueShore

Okay, great. Thanks. And finally, can you give us some outlook on how this quarter is playing out listening to some other homebuilders to give some views on what was happening in these last few months? You know I'd love to hear some color on how these quarters playing and just traffic.

Roger Cregg

Yeah we're not giving projections or anything like that. I had to say our businesses is – a lot is restricted to the active adult segment and I think we're very pleased with what we've seen in that – definitely coming out of the fourth quarter – but much more limited on what everybody else is in and that's the primary segment or conventional housing. We don't have a lot there to be a (inaudible) of – in view of – it's better or worse, quite frankly, because we just have so many – so few communities.

But the most are in the active adult and we're very pleased with what we saw on the last, quite frankly, third quarter last year, the fourth quarter and, again, coming into this year. So, again, nothing specific but looking pretty good about where we are.

Harsha Gowda – BlueShore

Okay, great. And how do you feel about the Central Florida market? You know, I just heard recently that some PE land buyers and home buyers were talking how they are bringing down their purchases in the U.S. overall but in Tampa and Orlando and, I guess, Central Florida in general their sales are still – or their purchases are still increasing. Do you have any comments on this – the Central Florida market?

Roger Cregg

Yeah, definitely. I think if you look at Orlando, it means we're a very affordable market today, quite frankly. Population growth is expected to continue. You look at the projections over the next three to five years, I think your local economy continues to grow and again a lot of that's still driven by job growth.

I mean, I think they're looking at an average about 30,000 new jobs a year for the next three or four years. They're still study growth in the new home sales in the market and prices are projected to continue to increase so I think all of those are – bode well for the market.

You look at the active adult; the 55 and older still expect to increase in that market. I think we're on the pretty good position. We've got the primary segment covered now with Royal Oaks. We were doing a pretty good job quite frankly on the primary with the group that were having Pontianac [ph]. So we added the projects there in Bellalago and water view. We're very pleased so far with our approach there. And active adult – we got our significant presence there in Solivita and then as I mentioned the Talia is doing very well for ours.

And again we expect more out of them quite frankly as in not for the levels of what's demanded for those sized communities but we feel very good about the Central Florida market.

Harsha Gowda – BlueShore

Great. Thank you very much, gentlemen. Great job.

Roger Cregg

Thanks, Harsha.

Operator

Thank you. Our next question comes from the line of Jim Barrett of CL King & Associates. Your line is now open.

Jim Barrett – CL King & Associates

Good morning.

Mike Burnett

Morning.

Roger, going forward with the primary strategic focus and use of cash beyond active adults or and your last comment suggest it would be? And are there – is there (inaudible) of assets for sale in that space?

Roger Cregg

We're looking both. I think – yeah there are properties from more active adult in that particular buyer, as a buyer that takes time in an area so it takes a significant amount of diligence to look in those areas. You typically looking for 500-plus lot-type communities to build out and they have to be the wide area with the right opportunities with the right geographic patterns for the active adult buyer.

Price is important to them, lifestyle is more important for them and actually the house itself so it's about what kind of many surround that area, not just within your community.

But yeah there's opportunities still out there and they're very good. We're being selective with what we're doing, again, in our cash right now from the standpoint of how you develop some of those. They take a longer time period. Specifically, you're not buying 1,000 that are finished in an active adult community and develop it. It takes a year or plus, two years in order to get something out of that to be positive.

So in the short run, we'll then focus on the primary to get ourselves – to fill the gap that we had and that was really just a play in the market where it was right now hot. Coming in 2013 the primary was good. The active adult (inaudible) come back and so we wanted to do is try to cover our overheads so I'll leverage those. Saving a way to prosperity wasn't the answer. It was really growing our way there and I think we've been very successful to do that.

So it's going to be a balance. I don't know what to tell you, right now sitting here today, what our balance will be in the future. But 50/50, 60/40, 40/60, probably in that range. We'd certainly like to play the balance ourselves petty good between the active adult and the primary buyers. And they're going to move around, based on interest rates and the various segments that you pick, whether it be entry level or first move second move up or what segments you have but I think a good portfolio with a well-balanced community town is an opportunity to stay in the game.

Jim Barrett – CL King & Associates

Okay. Well, that's very helpful and thank you very much.

Roger Cregg

Welcome.

Operator

Thank you. (Operator's Instructions). Our next question is a follow up from the line of Jay McCanless of Sterne Agee. Your line is now open.

Jay McCanless – Sterne, Agee & Leach, Inc.

Right. Two quick follow ups and I apologize if you answered this already but are there any one-time deal costs we need to roll into our model for 1Q '14?

Mike Burnett

Yes. There will be cost associated with this transaction. We still have to go through that accounting because some of those will hit the PNL and others of those will be capitalized, as we go through that so we're really not in the position today to give you necessary number on that but we will certainly include that in the communication in the first quarter.

Jay McCanless – Sterne, Agee & Leach, Inc.

Okay. The second question, what was the deferred tax asset balance at 4Q '13?

Mike Burnett

At $140 million.

Jay McCanless – Sterne, Agee & Leach, Inc.

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Harsha Gowda of BlueShore. Your line is now open.

Harsha Gowda – Blueshore

Hi, guys. I just had a quick question. With the acquisition, it looks to me – can you give an idea of the quality of land and lots acquired versus AV's holdings in Central Florida. Are they very comparable?

Roger Cregg

How are you doing? They're very good markets when we think there's some A properties, B properties, some of the C properties but a majority of it where in the B area and I think good markets further north than where we are down in the Pontiac [ph] area.

So, yeah, we feel very good about it. As I mentioned, about 80% of is in the first move up and the second move up category – 20% in the entry level so a very good balance. I think geographically very well diversify. So, yeah, I think we complement where we are and again I think the quality is very good.

Harsha Gowda – Blueshore

Okay. And the reason I asked and this is just doing some quick math based upon the numbers that you've provided so far. You know, it seems like the value per lot of acquisition is higher than the value of AV's current lot holdings. Again, I've asked in the past is this due to just the lack of transactions to show a fair value of what truly AV's lots are worth? Or is it due to just better quality of the lots acquired? Could you speak upon that because one of the big aspects of AVs – the largest land holdings – and just doesn't seem that those holdings are being, I guess, properly valued by the market. I'd love to hear some though on that.

Roger Cregg

Yeah, when we start getting into looking at the book value on some of these, again, a lot of it has to do with write-ups and write-downs. Again, typically, we've got legacy land that's been written down on our books so when you start looking at the book value relative to the number of lots – but you have to see the marketability of those are in the current period as well. A lot of our land from AV, again, has been marked down because of the write-downs over the last few years and during the down turn and again we've got a lot of lots there but it's – the ability to get there is a little bit longer. The ability from something like a – Royal Oaks, who would bought it a little bit more recently certainly is more in the current period of what the values would be relative to what we're carrying.

So I think your observation is right to see ability to be able to monetize also is a very quick pace, especially in the geographical areas that they're located in today. But, again, we feel very good about it, I think in the Pontianac [ph] area. Again, when you look at where we are, again, the highway is going to come down through there. That's been approved. (inaudible) with that. That should be open and probably around 2016 so we think that's going to add a lot more value to that market was the traffic patterns in the quarter will open up where travels much easier to move from the north to the south. So some of that still in front of us and we still feel very good about the positions we have there.

Harsha Gowda – Blueshore

Great, great. Thanks a lot.

Operator

Thank you and I'm showing no further questions at this time. I'd like to hand the call back over Roger Cregg for the closing remarks.

Roger Cregg

Thank you, Nicole. Once again I'd like to thank you for joining us on this morning's call and we look forward updating you in our progress in the first quarter conference call so have a great day, everybody, and thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.

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