13 Feb Green Brick Partners: BUILDING the Future
Green Brick Partners, Inc. (NYSE: GRBK) is a diversified homebuilding and land development company. They acquire and develop land and build homes through their eight brands of builders in four major markets.
The Company
The Company’s core markets are in the high growth U.S. metropolitan areas of Dallas-Forth Worth (DFW), Texas and Atlanta, Georgia, as well as the Treasure Coast, Florida area. They also own a non-controlling interest in a builder in Colorado Springs, Colorado. They are engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, title and mortgage services, marketing and sales and the creation of brand images at our residential neighborhoods and master planned communities.
Green Brick Partners, Inc. (NYSE: GRBK)
Market Cap: $1.45B; Current Share Price: $31.44
Data by YCharts
We’ll discuss three factors based on which the Company’s future prospects seem promising:
- Sound Business Strategy
The Company follows an effective six-pronged business strategy –
Image Source: FY21 Annual Report
The Company currently operates in Texas, Colorado, Florida, and Georgia, which were four of the top seven states in terms of population growth per the 2020 census data. Each of these states experienced double-digit growth over the preceding ten years while the population for the US only grew 7.3%.
The Company intends to pursue targeted expansion of their entry-level builder, Trophy Signature Homes, into markets within current states because Trophy’s more affordable product and quicker inventory turns makes its platform uniquely scalable to expand outside of the DFW metroplex. In this regard, the Company has already announced its expansion into the Austin, TX market.
The Company seeks to maximize value over the long-term and operate the business to mitigate risks in the event of a downturn by controlling costs and focusing on regional and local market trends. For this, they target a debt to total capitalization ratio of approximately 30% to 35% – as of December 31, their debt to total capitalization ratio was 27.7%. In fact, the Company has consistently had one of the lowest debt-to-total capital ratios among peers at 28.0%.
Image Source: Company
- Deliver Superior Designs, Broad Product Ranges and Enhanced Homebuying Experience:
The Company researches and designs a diversified range of products for various levels and price points, in consultation with nationally and locally recognized architecture firms, interior and exterior consultants, and homeowner focus groups. This approach helps it cater to a wide variety of customer groups. - Strategically Increase Market Positions in Existing Markets:
For example, in Dallas and Atlanta, they seek to acquire land with convenient access to metropolitan areas which have diverse economic and employment bases and demographics that will support long-term growth. - Consistent, Outstanding Financial Results
- Footprint in the best markets – Demographic shift, job creation, and in-migration provide long-term tailwinds.
- High exposure in in-fill submarkets – where there is limited competition due to scarcity of land. In fact, over 80% of Green Brick’s YTD 2022 revenues were from in-fill communities.
- Strong balance sheet – with substantial liquidity, strong cash flows and low cost of debt with weighted average interest rate of 3.5% as of September 30, 2022. The Company even repurchased almost 10% of outstanding common stock year-to-date without increasing debt-to-total capital ratio.
- Superior lot and land position – this ensures sustained operations and brings about opportunities for growth.
- Upcoming Growth in Industry
Thus, the business strategy adopted by the Company seems to be quite effective at helping the Company grow and at the same time ensuring that it stays ahead of the competition.
Green Brick has been consistently delivering outstanding financial results. For the most recent quarter, Q3 FY22, it’s gross margin percentage stood at 32.4% – and it was well above peers of all sizes.
Image Source: Company
While Q3 FY22 total revenue grew 19.2% YoY, Q3 FY22 average sales price of homes delivered was up 32.6% YoY to $607,000, and average sales price of backlog was up 20.5% YoY to $671,000. Income before taxes was up 49.8% YoY while diluted EPS was up 65.3% YoY.
For FY22, total revenues stood at $1402.9 million, an increase of 43.7% YoY. Diluted EPS stood at $3.72, indicating a growth of 66.1% YoY.
More specifically, Net Income Return on Average Common Equity has shown significant growth over the last three years.
Image Source: Company
Going forward, it seems that the Company is well positioned to navigate the upcoming rising interest rate environment and maintain its industry position. This is primarily because the Company has
Covid-19 has changed the way people live and work – starting 2020, many people were sent home to quarantine by their employers, while others were asked to work from home.
As time progressed, many employees were given the choice to work remotely on a permanent basis. Hence, many families chose to relocate to more affordable communities with more variety in housing options, land, space and proximity to family and friends. Small suburban communities saw an increase in population, along with demand for housing.
It seems that the work-from-home trend is here to stay, and hence it can be expected that the on-going demand for homes will continue to build.
In fact, due to the strong demand for housing, Single-Family Existing And New Home Inventory in the Dallas Forth-Worth area of late has remained low.
Image Source: Company
Another factor that is expected to contribute to the growth in the real estate industry is that millennials are now entering the prime home buying age. With the 35-44 year-old demographic considered the most active homebuyer, growth of this buyer segment also indicates future strong demand.
Image Source: Company
Thus, in the upcoming years, the real estate sector seems poised for growth, and owing to its string fundamentals and superior competitive advantages, Green Brick Partners seems well poised to benefit from the trend.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1373670/000137367022000050/grbk-20220930.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1373670/000137367022000008/grbk-20211231.htm
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