WCI Communities' (WCIC) CEO Keith Bass on Q1 2016 Results - Earnings Call Transcript

| About: WCI Communities, (WCIC)

WCI Communities, Inc. (NYSE:WCIC)

Q1 2016 Results Earnings Conference Call

April 27, 2016, 08:30 AM ET

Executives

Scott Bowles - VP of Finance

Keith Bass - President and CEO

Russell Devendorf - CFO

Analysts

Mike Dahl - Credit Suisse

Alan Ratner - Zelman & Associates

Will Randall - Citigroup

Michael Rea - JPMorgan

Buck Horne - Raymond James

Jay McCanless - Sterne, Agee

Patrick Keeley - FBR

Alex Barron - Housing Research Center

Operator

Greetings, and welcome to the WCI Communities' First Quarter 2016 Earnings Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Scott Bowles, Vice President of Finance for WCI Communities. Thank you, You many now begin.

Scott Bowles

Thank you and good morning. I’m joined on today's call by Keith Bass, President and Chief Executive Officer of WCI Communities; and Russ Devendorf, Senior Vice President and Chief Financial Officer.

During this call the company may make statements about its projections or expectations for the future. All such statements are forward-looking statements and while they reflect current expectations they involve risks and uncertainties and are not guarantees of future performance. You should review the company's filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. The company does not plan on updating or revising any forward-looking statements during the quarter.

In addition, the company also refers to certain non-GAAP financial measures for which you can find the reconciliations to the comparable GAAP financial measures in our earnings release, which has been posted at the company's website at wcicommunities.com. We will be referencing slides during this call, which are also available on our website.

I would now like to turn the call over to Keith.

Keith Bass

Thank you, Scott. And good morning to everyone joining us on today's call. Consistent with the strategy outlined almost three years ago when WCI went public, we continued to achieve growth in our overall business, while remaining disciplined with our balance sheet.

Throughout our many highly amenitized communities located throughout Coastal Florida, we strategically and successfully target the move-up, second home and active adult customer segments, with home prices ranging from the mid-100s to well over $1 million.

Over average selling price was $432,000 on our first quarter 2016 deliveries and nearly half our buyers paid all cash for their homes with the cancellation rate of low 5.2%.

We continue to underwrite new land investments to add to our already attractive portfolio and evaluate growth opportunities in our existing and adjacent Florida markets. We ended the March quarter with approximately 14,400 owned and controlled home sites, an increase of 13% over last year and up approximately 1,100 compared to yearend 2015.

Most of these home sites are planned for or are already within existing highly amenitized master plan communities. We believe the combination of our long land strategy and conservative balance sheet allows us to be highly strategic and selective with our future land acquisitions as we continue to grow the business.

Turning to Slide 4, you'll see that Florida remains a leading growth state, with healthy economic and demographic trends supporting the strength in the real estate market. Florida is well positioned as an ideal location for retiring baby boomers with a projected U.S. population of those over the age of 65 expected to rise by 18 million people over the next decade.

Florida's strong job creation, great weather, low taxes and its reputation as a premier retiring destination are just some of the reasons people are attracted to the state. In addition, job growth in the state has been robust and continues to outpace overall U.S. growth, while Florida's unemployment rate remains lower than the national average.

On the new housing market front, permit activity remains strong. In the first quarter permits increased by 10%, ahead of the national rate and the State of Florida continued to rank second in overall permit volume. Furthermore, as you can see from the chart on the lower right, while we saw good improvement in 2015, we see a long runway for permit growth as the current level remains well below the 20-year average.

Looking at the Florida resale market in the first quarter, total closings in the State were down approximately 2%. However meeting year-over-year sales prices were again higher and have now increased in each of the past 52 months.

Supply continues to remain constrained particularly in regard to the single family homes with only 4.5 months of supply as of the end of March.

In March, the median days to contract was approximately 50 days for both single family and multifamily resale homes, meaning that half the homes on the market in Florida could contract in less than two months after listing.

We remain positive on the long-term prospects of the Florida housing market, supported by the favorable demographics, improving economy and extended periods of permit shortfall.

However, we are mindful that macroeconomic and geopolitical factors could impact our domestic economy and weigh on the confidence of our buyers in the near term and cause our results to fluctuate from quarter-to-quarter.

Turning to Slide 5, I'll discuss some of the first quarter highlights from our home building business. Our home building deliveries were up 84% to 254 compared to the first quarter of 2015, partially offset by 11% decrease in ASP translating into a 64% increase in homebuilding revenues.

The year-over-year ASP decline is primarily attributed to the higher percentage of homes delivered in a relatively lower priced active adult customer segments during the quarter with a corresponding decrease coming out of the second home segment.

Our contract value of new orders increased by 9% to $154 million on 310 new orders, which was slightly down from the prior year while the average selling price per new order increased 11% to $496,000.

The new order ASP was driven higher in part by our Altaira Tower where new orders generated an ASP of $1.3 million. Excluding the Altaira Tower, ASP was still a robust $485,000 representing a 9% increase in the year-over-year new order ASP.

We saw a significant increase in the new order ASP from our active adult customer segment in the quarter due in part to new order mix and price increases over the past year.

Year-over-year on a same-store basis for the company we saw an approximate 9% increase in total purchase price with significant increases particularly on lot premium and auction revenue as we strategically identified opportunities outside of the headline base price to increase revenue.

In regards to our relatively flat new order count, although the demand trend moderated in both the home building and brokerage business in the quarter, further evidenced by the closed resale numbers discussed on the previous slide we believe our markets remain healthy although not immune to short-term volatility.

As we discussed during our February call, the quarter began as a typical season, a little slower in the beginning of January then building into a stronger February. Sales velocity in March was not as strong as anticipated possibly caused by stock market volatility and global economic events that may have given our buyers some thoughts.

Additionally, we believe the mild weather at North coupled with the early Easter holiday likely played a part in some of the slowness as we have previously seen a March Easter holiday impact sales activity.

Given the choppiness we witnessed and the fact that we were relatively in line with our internal budgeted sales numbers, we felt it was prudent to remain disciplined on our pricing and avoid any reactionary discount in order to drive sales volume and in fact, our incentives were actually down 40 basis points from the first quarter of 2015.

We were pleased to have added 10 gross new neighborhoods, nine net, as we closed out one neighborhood during the quarter, which brought our total neighborhood count to 56. Almost all of these new neighborhoods were without furnished models for the full quarter as we push to get them open for previewing during the peak traffic period.

Due to their early opening stage, only one of these neighborhoods recorded more than three sales in the quarter. As these neighborhoods progress we expect a more normalize contribution. In addition, we currently have a handful of neighborhoods that are working their way through their final 10 home sites.

In regard to the Altaira projects in Bonita Springs, we continue to make steady progress as construction remains on track if not slightly ahead of schedule and we continue to plan for deliveries in the second half of next year. We added another seven floors since we spoke on the last call and the tower is poured to the 12 floor.

We recorded four new orders during the quarter and an aggregate our orders now represent 25% of the sellout value of the building.

We've had limited opportunity to bring prospectus into the building to experience the views, but expect to have a lower floor furnished model for previewing in the third quarter of this year. We remain confident in the future success of the building particularly once customers have the ability to walk through their units and experience the spectacular views of the Stairway in the Gulf of Mexico.

In April traffic continues to be in line with seasonal expectations. The return traffic remains engaged; however, it appears buyers are taking longer to commit to a purchase. The market does appear to be easing somewhat from a very strong 2015.

With that said, we'll continue to monitor demand trends as we wrap up the spring selling season and head into the typically slower summer months and make necessary adjustments to our sales incentives on a community by community basis in order to achieve the appropriate balance of velocity and margins throughout the remainder of the year.

On Slide 6, we turn to some of the first quarter highlight from our real estate services business, which represented approximately 16% of WCIs total revenue during the quarter. The Berkshire Hathaway HomeServices Florida Realty Brokerage business currently has 40 offices with approximately 1,700 independent agents throughout Florida.

Real estate services is coming off a very solid 2015, but we did experience some softness during the first quarter this year with a 4.8% decline in revenue and just over $500,000 in gross margin.

The decline was driven by lower number of brokerage transactions, partially offset by a slightly higher average selling price on brokerage transactions. The decrease in volume was fairly consistent with what we saw across our brokerage markets.

Our title business, which is also included in our real estate services numbers performed well with a 15% revenue growth as a result of higher average selling prices and title premiums.

Moving to Slide 7, we highlight our first quarter progress on some key P&L metrics over the past four years. Our homebuilding operation was the primary driver of WCIs 42% increase in revenue on the first quarter, more than offsetting some modest declines in our other segments.

With compounded annual revenue growth of 37% since 2013, we continue to scale the business and better leverage our cost structure. This has resulted in continued improvement in our bottom line, consistent with the strategy we have discussed since the IPO.

As expected our gross margin of 27.7% dropped by approximately 230 basis points year-over-year as the shift of more deliveries coming from non-legacy land is working through our model. During the quarter [audio gap] of our deliveries were from legacy land as compared to 71% in the prior year quarter.

Despite the gross margin trending lower SG&A leverage continues to improve fueling a 52% increase in our adjusted EBITDA compared to year ago period. Looking forward to the balance of the year our goal for 2016 continues to be 1,200-plus deliveries nearly doubling the volume of what we achieved in 2014.

We continue to expect to end the year between 55 and 60 active selling neighborhoods and are well positioned given the 56 neighborhoods at the end of the first quarter. The trajectory of our neighborhood count will be uneven throughout the balance of the year as we expect to add neighborhoods in the second quarter and then possibly pull back in the third and fourth quarter as we successfully close out a number of neighborhoods with limited loss supply.

Given our backlog, first quarter sales and our expected future sales mix, we expect our full year 2016 ASP will now be approximately $430,000 to $440,000, slightly better than the previous guidance.

In terms of gross margin we've previously commented that as mix of deliveries on legacy land declines as proportion of the total deliveries, we would expect margin compression. As a result, we continue to see full year 2016 adjusted gross margin about 200 basis points lower than the full year 2015.

We feel strongly about our strategy and our positioning in the attractive Florida market and believe we are on track to achieve our full year guidance for 2016.

Slide 8 provides some additional perspective on our land position. During the quarter we added approximately 1100 home sites to our controlled lot position and net of deliveries finished the period with a total of 14,400 owned or controlled home sites representing a 13% increase over the same period of 2015.

At the end of March approximately 53% of our home sites were owned and the remaining optioned. The portfolio also includes approximately 3800 legacy home sites that were subject to fresh start accounting in 2009.

Collectively our strong land position provides us with the ample supply to bring to market in the coming years and gives us the luxury to continue to be highly strategic in our future land acquisitions.

With that I would like to turn the call over to Russ to walk you through the financial results in more detail.

Russell Devendorf

Thanks Keith. Moving to Slide 9, I will provide more details regarding our results for the first quarter of 2016. Total revenues were $138.3 million and increase of 41.6% over Q1 of 2015 as homebuilding revenue drove the entire increase with a 63.9% improvement.

This was primarily driven by the better-than-expected strength of our backlog conversion, which came in at 45% compared to 35% in the prior year period. Real estate service and amenities were down moderately year-over-year.

First quarter net income was $6.7 million or $0.25 per diluted share, an increase of 17.5%. As a remainder, included in the prior year period was a $1.8 million or $0.07 per diluted share reduction in income tax expense attributable a favorable adjustment under section 162M of the internal revenue code, which provided certain tax relief pertaining to executive compensation for newly public companies.

Excluding that adjustment, our diluted earnings per share was up over 75% versus the year ago period. Adjusted EBITDA for the quarter totaled $15.2 million, a 52% increase from the prior year. Our adjusted EBITDA margin in Q1 of 2016 grew 70 basis points compared to Q1 of 2015.

Revenue from our real estate services business contracted by 4.8% to $21.7 million and our gross margin was 524,000 compared to 882,000 as decreases in brokerage transactions offset improvement in brokerage ASPs and growth in the title business.

Our Amenities segment generated revenue of $6.8 million in Q1 of 2016, a decrease of 13.9% over Q1 of 2015. The gross margin was essentially breakeven down 700,000 from prior year. Both the revenue and margin variances are primarily due to the deconsolidation of one of our amenity joint venture as we now account for this JV under the equity method in accordance with previously issued accounting guidance.

As a reminder, our Amenity segment should be viewed as an extension of our homebuilding operations as it helps drive the lifestyle within our communities and the premiums we expect to receive for our homes.

For the quarter total SG&A expenses increased by $4.5 million to $17.6 million. The growth in total SG&A dollar is directly correlated to supporting our growing operation, which is reflected by the 42% increase in the homes under construction an approximate 10% increase in backlog units over the prior year.

As a percentage of homebuilding revenue, SG&A improved 350 basis points compared to the year ago period. The sales and marketing component of our SG&A, which includes commissions paid to our licensed in house sales personnel and third party real estate brokers increased by approximately $2.6 million primarily due to our increased deliveries.

Commission expense as a percentage of revenue from homes delivered was 4% for the year, up 20 basis points from Q1 of 2015. The increase is related to a higher percentage of deliveries with broker participation and a slightly higher average rate pay.

General and administrative expenses increased $1.9 million in Q1 of '16 primarily due to additional compensation and employee benefits to support the growing operations and an increase in the stock-based compensation expense.

Turning to our balance sheet discussion on Slide 10, we ended the quarter with cash and cash equivalents of $107 million, total debt of $247 million and total equity of $480 million, resulting in a net debt to net capital of 23%.

In the first quarter we invested $30 million in land acquisitions and land development contributing to a 9% increase in our real estate inventory, which was $602 million at the end of the quarter.

As mentioned on our last call, we completed an amendment and extension of our unsecured revolving credit facility in February, increasing the facility size by $40 million to $115 million and pushing up the maturity date until 2020, four years from the date of the amendment. In addition we lowered our LIBOR base borrowing rate by 25 basis points and added tower construction assets to the calculation of our borrowing base.

This increase in extension in inductive of the support of our banking partners and we're very appreciative of the new and continued relationships on our facility. Our ending cash balance and our $115 million undrawn revolving credit facility continues to provide as with the flexibility to pursue our path of growth.

Now I will turn it back to Keith for some closing remarks.

Keith Bass

Thanks Russ. 2016 is off to a good start and our homebuilding operations continue to deliver strong growth and profitability as we further scale our operations. We made strong progress early opening new neighborhoods this quarter, which will contribute to our growth over the remainder of the year.

While we believe the financial markets and global economic concerns among other things contributed to the moderating demand trends during the quarter, we continue to monitor our market metrics closely and gauge by our behavior.

We remain cautiously optimistic for the remainder of the year as one quarter does not yet make a trend and while short term disruptions are always to be expected in the cyclical business, there is nothing we have seen to date that would lead us to change or give pause on the long-term view of demand trends in Florida based on the profile of our target customers and the economic and demographic fundamentals of our housing markets.

Before I turn it over to the operator for questions, I would once again like to acknowledge the hard work for all of the WCI team members as we continue to grow the organization and bring our differentiated homes to the market.

With that, we’re ready to take your questions and I’d like to turn the call back over the operator to open up the lines.

Question-and-Answer Session

Operator

Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Mike Dahl with Credit Suisse. Please proceed with your question.

Mike Dahl

Hi, thanks for taking my questions. Keith, I wanted to start out with just couple questions around the overall sales environment and so, appreciate some of the impacts as you went through the quarter with some of the volatility and then the early Easter.

It sounded like from your commentary that sales haven’t necessarily rebounded in April and so just to the extent that at a minimum you're facing an easy comp from Easter being in April last year, could you quantify what you're seeing in April and elaborate a little bit more on what you're hearing back from customers and I have a couple others, but I'll start there.

Keith Bass

Okay. No, I would say April is probably trending flat with 2015. I think what we're seeing is certainly Naples is probably a little stronger so far in April than it was in March. And I would say the Sarasota and Naples markets are probably trending down from March.

So it's just -- what we're seeing is just certainly for us and I think in the market in general just on the evenness where market does well one month and a little bit slower the next month. So, I would say we're just seeing some unevenness in the markets going back and forth.

But, the traffic is still very strong. To beat that traffic is certainly strong. The percentages are the same. Certainly the internet traffic is up considerably.

So what we're seeing is buyer are out there. They're just taking a little bit longer to get them to the finished line. What they're not seeing is there is more inventory coming on the market. I think if you look in most of the markets you're seeing a little bit more resale inventory, certainly a little bit more builder inventory. So, there isn’t a rush in sales prices. There isn’t a rush in fear of loss and so people are just taking a little bit longer to pull the trigger.

Mike Dahl

Okay. And then I guess you mentioned some of the regional commentary for April, was there a significant difference in whether West Coast or East Coast within the first quarter in terms of market performance and also one thing where you've heard more broadly and some of these markets is the Canadian buyers has pulled back. So how much of this is a domestic buyer issue? How much is potentially a Canadian buyer issue?

Keith Bass

Again the Canadian buyer if you're talking about our homebuilding businesses is super small, It's certainly, there were less of them as a percentage of our foreign traffic this year but it's really not a big mover of the needle on our homebuilding operations at all.

So certainly you're seeing on Southeast Florida more in the resale business, you're certainly seeing some issues with foreign buyers, but we're not really seeing that dramatically through our homebuilding business.

Mike Dahl

Okay. And then I guess, last question is when you think about the guidance for still reaching 1200 deliveries for the year. If through April you're still starting off at may be a bit behind that pace or just given the backlog here.

At what point do you sit there and you mentioned balancing what you need to do on incentives. At what point in the year just given your build cycle do you have to address that and think about potentially raising incentives to drive some volume hit that goal or is your preference still just maintain price and if it means falling a little short of the 1200 so be it.

Keith Bass

I think we feel pretty good with the first quarter deliveries what we have in backlog certainly the spec inventory that we can close, we feel pretty good about the 1200 units.

Certainly ASPs have trended up, which helps us too if we had a small shortfall in units and we picked it up in the ASP and margin then I think we end up with the same number, but we still feel pretty good about 1200 units or we wouldn’t reiterate it.

I would tell you that on just as we raise prices on at least a monthly basis, I think last quarter we raised prices on 40% of the neighborhoods and our incentive actually trended down from 3.6 to 3.2 and it's showing up in margin to some extent where the margins doing pretty well we're going go community by community, neighborhood by neighborhood and make the right decision to make sure we're getting our fare share.

So I would tell you we do that on a monthly basis and we have done it and we continue to do it, but it is important for us to get the scale. So we have the room within the land portfolio to be a little bit more aggressive, but so far we haven’t really had the need to be super aggressive to achieve the sales.

Mike Dahl

Got it. Okay. Thank you.

Keith Bass

Thanks Mike.

Operator

Thank you. Our next question comes from the line of Alan Ratner with Zelman & Associates. Please proceed with your question.

Alan Ratner

Hey guys good morning. Keith, on the incentive question just curious what you're seeing out of other builders? Have you seen any other competition raise incentives and any commentary on differences of price point trends as well would be helpful both on pricing and volume.

Keith Bass

Well for us in the first quarter the higher price points actually performed fairly well and its why we had a much higher ASP and some of the communities that truly have a same-store basis to look at, our ASP were up dramatically.

Some of that is which house they were buying? Some of it what product line did better? Some of its what options and things and certainly our raising of the prices.

As far as incentives, I would say that we're not really up against a lot of guys directly with the communities that we have, but if you want to say broader in the marketplace, I would tell you that certainly projects that aren’t as well located this season got a little bit more aggressive.

So certainly there is a few in the Naples market that have gotten a little bit more aggressive and certainly you're always going to see that when you get up into the bed.

So our Sarasota market, I would say probably a little less so on the Southeast Coast, but remember we only have one active homebuilding operation. Primarily you're seeing it right now in some discounting, but probably a little bit more of real through participation incentives.

So, so far it's been disciplined unless somebody is really in a bad location I think then they're really struggling, they've got to do something, but for the most part it's been fairly orally, but some guys in certain markets are certainly paying another point to a realtor given away another $2,000, $3,000 on house, but we haven’t seen any wholesale changes.

Alan Ratner

Got it, thank you. And second question if I could on the brokerage business your transactions were down about 10%. It looks like that underperforming the broader market. I think your slide before said in the quarter was down more like 2% and I want to say it's been underperforming the market for the past of couple of quarters. So any commentary what’s going on in the brokerage business and the outlook there?

Keith Bass

I think when you look at the brokerage business you have to break it down into the MSAs. So, if you look at the markets in which we operate, our performance compared to the markets themselves is actually probably pretty much right on target.

So, I think you really have to break it down. You can’t look at the aggregate Florida market. What’s really happened this year is the markets that performed extremely well both in volume and quite frankly ASP increases over the last two years are the ones that checked up a little bit in the first quarter both in closed units, but also in pending units.

And the markets that took a lot longer the real secondary, tertiary markets are the ones with a lower ASP they're actually finally coming around. I think Tampa would be fine example of last year was still was struggling a little bit.

Now with the job growth Tampa is actually doing fairly well compared to some of other market places where you're seeing Naples with the $422,000 median sales price is checking off a little bit.

So, it's just slowing down I think in some of those markets where you're just getting used to these higher ASPs. Its slowing down the ASP increase which I think long term is going to be a great thing for the marketplace to get little more normalized with little bit more inventory, little less of frenzy.

So it's a much longer return and we continue to slide, but you really should look at MSA and then where we overlap and I think in that situation, you will find that our realty business is performing on par with the market.

Alan Ratner

Got it, thank you.

Keith Bass

Welcome.

Operator

Thank you. Our next question comes from the line of Will Randall with Citigroup. Please proceed with your questions.

Will Randall

Hey, good morning, guys.

Keith Bass

Hey Will.

Will Randall

Just curious with Florida appearing to soften a bit at least in the first quarter, was there any thoughts pointed towards potentially scaling up with some of the other markets in Florida like the Southeast or East Coast? And are there any land opportunities that have become more attractive since things have backed up a little bit.

Keith Bass

Well for the last three years, we're looking to expand our footprint in the Florida market and so if you look at some of the land that we have under option that we should be closing on here fairly shortly, it's putting a lot more of our operations on the East Coast.

So if you look at the Melbourne area with our air product, certainly our Port Saint Lucy Traditions Community, those are bigger positions to get us a little bit more geographically diverse within the State. Certainly we're working on Jacksonville. Certainly we're working on Orlando and more in Tampa.

So we're looking to do that. We also this month opened up our Panhandle project up in Perdido Key. I know we released eight duplex tilt homes and I think we sold all eight. So I know it will be probably due it another release this month. So we are spreading out our geographic footprint within the State and we'll look to continue to do that. So that it would be a little bit more diverse in the marketplace.

Will Randall

And I may have missed it, but in terms of scaling up towers after the 17 closure, which I think will add about $0.70 or so to earnings, what's the thought for '18 and '19? Are there any plans in place to starting up the tower?

Keith Bass

We're in the planning and design stage now for a building up in Tampa that Club. So we're almost done with our mid-rise product and was sold out. So those are $700 to $1 million. So we're looking to doing a tower there. We have two tower pads.

We're in preliminary design on some of the other locations in certainly the Panhandle too and we've got two more behind Altaira. So depending on the timing of sale out at Altaira and where the marketplace is, we can make a decision at some point to decide when we should be bringing on another building and what it should be.

So we're actively looking in the marketplaces, looking at design concepts, deciding whether there is financially it's going to make the profitability threshold that we're looking for and so we're certainly going through that direction in all of the tower pads that we basically have.

Will Randall

And then just one last one from me, in terms of the vacation buyer some of the data we've been looking that somewhat suggests I realize the Canadian buyer is much earlier it there is a negative impact there, but it might have been if it's slower this year due to the unseasonably warm weather. Do you have any evidence that could point to that?

Keith Bass

Yeah I think if you're talking about not so much Canadian because I don't have the Canadian specific numbers with regard to visitors into the marketplace, but if you look at the numbers as far as what they say is heads and beds which is the Naples number to say, the occupancy rate on basically the hotels, which is where you're going to see that big push.

If you're running a unit down here for the season, you've got a -- you've better be signing the lease now for next season. If the weather all of a sudden gets cold in the Northeast and you haven't gotten a place and you want to take a week or two in Naples your only choice really is to rent hotel room.

So hotel stays were actually down and primarily the idea is due to weather and I would suggest that that's the case. But hotel stays are down and depending on how you look at the number 4% to 6% in the Naples area. And now they picked that up in room rate. But you do see hotels stays down and I would say that's probably the best way to determine whether throughout or weather the events in North East dictate what traffic shows up.

Now I would argue that just because they didn't come down for two weeks, I don't know how many of those people a spur make that moment million dollar decision by home. I am sure there is a few. But that traffic was off just a little bit this year too.

And if you recall, the weather actually in Naples during January was actually not so great. It was pretty rainy. So if you look at Naples weather was probably a little bit off in the January market. And you can see it in our rounds per golf course.

So you can see how we were down a little bit in January then up and they were down a little bit March and generally I think that's got more to do with Easter. So we can track it in our golf business too.

Will Randall

Thanks a lot guys appreciate it.

Keith Bass

Thanks Will.

Operator

Thank you. Our next question comes from the line of Michael Rea with JPMorgan. Please proceed with your question.

Michael Rea

Thanks good morning everyone. So just wanted to circle back to some of the broad comments around the market and just get a sense of it just seems like what you're saying if I'm reading between the lines here is that things have taken a little bit of a softer pace.

Pricing at this point you're holding on to pricing. April orders flat year-over-year but as you go into the summer where you definitely have a little bit of a seasonally slowing period, how should we think about the back half if the current trends continue.

I know you've said that you're going to be -- it's going to be community by community, but to the extent that you're talking about flat orders in the first half of the year, how does that overall affect your pricing strategy and your growth plans for 2017 if you're talking about flat closings -- I'm sorry flat orders for the first half of '16?

Keith Bass

Well I think its couple things. I think first you have to understand our community count as we sit here today. We early opened 10 new projects, the vast majority of it you couldn't barely get to the sales center let alone any kind of lots or models.

So I think you have to look at our community count. Those communities as I continue to move through the year our belief is they'll continue to increase in their productiveness. So I think that helps us even though your absorption rate could potentially be lower. Obviously those communities coming online help you with your sales as you move through the year.

We also have a number of neighborhoods that are in their final stages that will fall off. But I think the increase in community count helps us as we continue to grow the business.

I would also tell you if you look at our quarterly trending incentives, they generally in the past unless the market has given us the opportunity not to do it still grow as you go through the summer months. And then all of that we have factored into our expectation guidance as to what we have to do.

We do more incentives to get people to come down here to look at houses and buy houses in summer time. So we'll track that. I don't want to give anybody the perception that the market has really contracted that much. It's just taking a little bit longer and I think you will see particularly in the markets that have the highest ASP increases many of which we're in, are going to probably be a little flattish on price on a year-over-year basis.

If you look at how many communities over the last probably six quarters that we've been able to raise prices is being going down for quite some time as prices have begun to moderate. So we'll watch the moderation trend there.

We've been pretty lucky on holding our incentives and actually contracting them a little bit but I think we have the ability inside of our margin to go the other direction if we need to, to make sure we get our fair share in then some.

We're not in the commodity housing business and so to the extent that we continue to execute on our plan, which we believe we will of creating one and only communities, it will be a choice as to whether someone who wants that type of lifestyle or not. And we think if you go back in time obviously the master plans outperform and the majority of our communities are large scale master plan.

So I don't want to give anyone the impression and certainly don't read between the lines that there is some big issue here. It's just the market was a little bit more moderate in the first quarter in some other markets that have the highest ASP increase and so we'll continue to watch that and we'll continue to make sure we get our fair share of sales in them.

I think our locations will allow us to get even a little higher than that. So people aren’t -- they didn't stop showing up to the sales center. They haven't stopped buying and the new communities I think will be very well received. We just need to work through that as we get through the year.

Michael Rea

I appreciate that and certainly over the long-term it's better to have a more evenly paced rate of appreciation which to the extent that the markets are able to shift towards, I think that just allows for much easier planning and such.

Just another question on the community count and I think I just missed this in your prepared remarks, so apologies, but can you just review again your plans? Did you reiterate your outlook for yearend community count of 55 to 60 and were there any types of changes and cadence? I thought I heard you saying in the second and third quarter in terms of what to expect from here?

Keith Bass

Yeah we brought the cadence forward to try to presale some of these communities or at least get them out there to have people aware of then the season because generally the gestation period is fairly long.

So we did bring them forward, which shows an outside increase in Q1, which was not necessarily what we planned. But I think the communities were at a point where we could do that.

I think you'll see it really is going to depend not so much on when we bring them on Mike, but when we sell out to some of the communities that are very close to sell out is going to probably the biggest fluctuation.

But it's the potential that we could be above the 56 and a little bit higher before we end the year somewhere between 55 and 60. So you'll see it go up a little bit and then I think you may see it trend down a little bit in the fourth quarter that's really just going to depend on when we sell out to the communities and how successful we maybe on bringing a few forward in from a next year.

So I think it's going to be up and then slide down and then neutralize, but we do believe that 55 to 60 is where we'll end up in the fourth quarter.

Michael Rea

Okay. And just one last one if I could, the tower coming online in '17 Altaira obviously have other stuff in the pipeline that you have alluded in a prior question. Is it wrong or right to think of that business and obviously there is a lot of variation, but plus or minus having one tower a year come on over the next few years starting in '17 is that a little too even of a cadence to expect or obviously there is a lot of adjustment to current market conditions, certainly you have to, we appreciate that, but was that kind of the thinking at one point over the last year or two and has that changed at all?

Keith Bass

Well, I think in the perfect world for everyone, if we could deliver a tower a year I think that would be great for all of us to be able to plan and go forward, but what I would say is the tower business can become uneven and there may be -- the market may give you two in one year and the next year not give you one.

So, the good news is we have a pretty long lead time as to when we start that building to be able to give you guys some kind of heads up. And I think that in theory we’ve got time to be able to start the building and certainly close one in 18 if the market gives that to us, we hope that, that will be in Tampa.

But we just have to play it by year because it really is a market by market, pad by pad decision, but in the perfect world yes, I would love to say to everyone we're going to deliver one tower per year and eventually potentially increase that as to size of the company continues to increase too.

But I think that’s the cadence we love to have, but whether I can always pull that off or not is going to be difficult, but we’ll try to give you as much lead time as we can. It’s a part of our business. We want it to continue to be a part of our business and as we go forward. So…

Michael Rea

Great. Thanks very much. Appreciate it.

Keith Bass

Thanks. Michael.

Operator

Thank you. Our next question comes from the line of Buck Horne with Raymond James. Please proceed with your question.

Keith Bass

Hey Buck?

Operator

Mr. Horne your line is live. Please check to see if you're muted.

Buck Horne

For the first quarter it seemed like you guys at least relative to consensus seem like you came in well ahead of expectations on the margin. I know you reiterated your guidance for the year, but can I help us understand how you expect the margin trends to play out through the year just as you would think normally seasonally little bit higher delivery from the backlog, you get a little bit more margin leverage just on the cadence here, but help us understand the progress to the year on the margins.

Keith Bass

We're still dealing Buck with some small numbers. So it's difficult to tell you exactly quarter by quarter where we're going to be. We're looking at the backlog here real quick and some of it is going to depend on what we sell this quarter and the third quarter from spec inventory and when that basically closed.

But I think as we look at it today its reasonably flat from quarter to quarter. There is nothing that shows up right now that specifically shows it moving in a great direction.

Russell Devendorf

Yeah, it’s going to be based on our backlog. It will be -- it could be up and down between second, third and even fourth quarter. It’s just going to be choppy. Again as you know we've got a pretty wide range of product mix and price points all with varying margins.

I am just looking at our forecast. So I think you'll see some unevenness. There is not going to be a consistent trend between the quarters, but I think our guidance as we said expect for the full year to be about 200 basis points off of the full year of 2015 we still feel pretty comfortable with that.

Keith Bass

Once we see what this quarter brings particularly for new sales that can actually start exactly where those are in the ASP, we may tighten that number up a little bit, but we just have to see what happens this quarter.

Buck Horne

Okay. And speaking of the diversity of product mix, could you may be distinguish a little bit in terms of the order trends that you saw if you could break it down for us by product type, how did active adult fair versus second homes, versus luxury homes.

And just a sneaky last one is just how do you think about stock buyback potentially given where the current share price is I think coming now below your stated book value? Is that something that might be on the table as well?

Keith Bass

It’s a conversation at every Board Meeting. We certainly look at the pros and cons of the share buybacks. I think at this point we’re truly focused on growing the business and making sure we have the balance sheet to be able to do that.

So we really haven’t made a decision at this point to do a share buyback and its really more focused on the growth of the business and as long as market gives us that growth, I think long term that's the right decision to make.

If you're talking about absorption per community by product type, we're looking that up right now. Yeah I think from a community count perspective, obviously the same-store sales was down somewhat on active adult, up little bit on second and primary was up.

So I would say that they were fairly normal. I think what we really saw interesting enough that the projects that really over-performed last year which probably give us our ability to raise our prices the most are the ones that were a little bit slower in this quarter and primarily that was in March, which again ties into the whole obviously Easter when we lose that few days and in most instance the people down here would have had company, you're losing that week. So it really is just more of a unevenness more than anything else on the absorptions.

And it depends on where you view your number from because obviously you talked about 10 gross neighborhoods that added in the month of March. So you have to take that into consideration when those 10 projects actually came online and what makes it come online for us is our sale. So if we get one sale in the last March it counts as a neighborhood for us. Thanks Buck.

Operator

Thank you. Our next question comes from the line of Jay McCanless with Sterne, Agee. Please proceed with your question.

Jay McCanless

Good morning, everyone. Thanks for taking my questions. The first question I had could you break out what Altaira represents in terms of dollars in the backlogging and how many of those units are sitting in backlog there?

Keith Bass

Yes there are 17 units sitting in backlog and the backlog value is just under $29 million.

Jay McCanless

And then the second question I had, could you remind us what percentage of communities now are active adult and then primary and second home and based on what you’re seeing with the land trends right now, where do you expect that mix to move over the next three to four quarters?

Russell Devendorf

Yes I would tell you just based on sales mix for the first quarter just over 50% of our sales were coming from active adult, about a third were coming from primary and then the balance was second home.

Jay McCanless

And that's how the communities -- that how the community mix shakes out as well.

Keith Bass

If we're sitting here today, I would tell you yes, that's probably fairly close to where the community count is as far as open communities today.

Jay McCanless

Okay. Okay. And where do you expect to move that over say the next three to four quarters? Do you want to do more active adult or a little bit less active adult?

Russell Devendorf

I think that we'll -- I think if we were able to keep the active adult at 50%, 60% of the business and again remember that it’s not age restricted product line, we only today have one community, which is six neighborhoods that are age restricted.

The others we age target them, but clearly families buy into the communities. But I think if we have ones that we’re targeting more towards a second home or retirement person, I think if that was 50% of our business, that would be perfect, but we have to take it where the land lets us go. So it's really going to be a function more of that.

I think we think long term obviously, particularly for the next 10-plus years, the active adult market or aged targeted market in Florida is a super strong market, but we also think in Parkland that primary family buyers is a very strong market and Tampa that tower would be selling to a primary buyer, not a vacation home buyer.

And the luxury second home really is land dependent. It's got to have a view. It's got to be on a great golf course and when it works and you get the right community, it's great to have, but you can't force it into a neighborhood. So it will fluctuate. Perfect world is a third, a third, a third, but it's going to be difficult to get that certainly with the size of the company.

Jay McCanless

Got you. And then the last question I had, could you give us some info on what percentage of your closing on average are spec and what type of gross margin difference you're seeing on the spec sales versus starts?

Keith Bass

This quarter I think it was one third, two thirds and the margin was actually less than half a point difference, which is up from in the past there would have been a bigger spread, but right now the specs are doing pretty good and a lot of that is if you're selling at yesterday's cost and today's sales price and a lot of it is there is a -- you're not having a discount for specs because of the inventory situation.

So we're doing pretty good on our spec to non-spec and we work pretty hard for that.

Jay McCanless

Got you. All right. Thanks guys. Appreciate it.

Operator

Thank you. Our next question comes from the line of Patrick Keeley with FBR. Please proceed with your question.

Patrick Keeley

Good morning. Thanks for taking my question.

Keith Bass

Hey Patrick.

Patrick Keeley

So when I am thinking about your margin guidance for the year and appreciate the colors, legacy land as a percentage of closings. So how should we think about that obviously trended throughout the year or with that 200 plus basis point decline, what do you think for full year legacy land will be as a percentage of closings?

Keith Bass

Carried to about 50% maybe a little bit less, but right in that 50% area and that's down from about two thirds last year.

Patrick Keeley

Okay. Great and on the flip side when we're thinking about capital allocation, obviously you guys have been purchasing land. How should we think about potential acquisitions as you move to 2016? Have you seen any changes in pricing in the market given the volatility you spoke to or should we continue to think about you as a land purchaser with more deals penciling today?

Keith Bass

I would say that if you're talking about raw land increases, I would say that there has been moderation prior to the last 18 months in increases for land and in some markets like that are really hot with people looking for stores I would say it probably decreased a little bit or at least better terms.

As far as acquisitions on other companies, there is product out there. We look at it. Nothing is really fit and certainly the prices don't necessarily make sense for us to change our direction, but we continue to look. So everyday if the package comes across, we're certainly looking hard at it to see if it's beneficial to the company, but today we've certainly not found that.

Patrick Keeley

Okay. Great. Thank you.

Keith Bass

Thanks Patrick.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.

Alex Barron

Thanks guys. Good morning.

Keith Bass

Good morning, Alex.

Alex Barron

I wanted to ask, I am not sure if I missed it. How much effect do you guys think dropped in the stock market had on your buyers that happened this quarter?

Keith Bass

It's tough to tell. Certainly that type of uncertainty particularly for maybe our Northeastern buyers could show some fluctuation. So it's really a tough one to tell you and then when does it really affect them and generally the gestation period is fairly long.

So whether that delayed somebody who was looking in February because of the volatility, clearly that can affect the buyers psyche, but it's tough to tell you that we would have sold six more houses -- to the same extent the market is doing pretty well right now and it's not like sales are going up 40% either.

So it's really kind of tough to tell. I certainly think that that with all kinds of other issues can affect whether somebody buys out their rates a month or two to do it.

The bottom line is they're continuing to move forward in their life and they're continuing the desire to have a second home or a desire to retire and unless the Northeast and Midwest cuts their taxes to zero and figures out a way to make it warm every winter, I feel like we're going to be in pretty good shape in Florida.

Alex Barron

Okay. Switching gears to Altaira, just in terms of modeling purposes, I guess you guys are still on track to deliver that in the second half of next year right.

Keith Bass

Yes.

Alex Barron

And in terms of an overall -- have you guys given any kind of growth margin guidance or how it would compare to your normal homes. I imagine it's going to be like a lumpy thing probably that bumps up gross margin in the fourth quarter or so?

Keith Bass

I don't think we've given guidance on other than guiding down from some high numbers. I don't think we've given any guidance on the margin for the tower. I think it's probably in line with the rest of our business is all I would say. Maybe it's a tad higher, but…

Russell Devendorf

Yes, we probably said that the margins, our adjusted gross margin today for the quarter was 27 and change, I think the towers are few percentage points higher than that, few basis points higher than that. I think we've probably said right around that 30 level.

Alex Barron

Okay.

Keith Bass

Let's stay corrected on our prior guidance.

Alex Barron

Okay. And in terms of I think you said that you sold four units this quarter. What was the ASP or dollar value associated with that?

Russell Devendorf

$1.3 million average on the sales.

Alex Barron

Okay. Thanks a lot.

Keith Bass

Okay. Thanks Alex.

Keith Bass

All right. Well thanks everyone for participating on today's call and for your interest in WCI Communities. We look forward to updating you on our next quarterly conference call. Have a great day.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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