Wildbilly
11 years ago
Beazer Homes Is All In
http://seekingalpha.com/article/1622742-beazer-homes-is-all-in?source=email_rt_article_readmore
about: BZH (Beazer Homes USA, Inc.)
Editor's notes: Strong growth potential at BZH should lead to multiple expansion and improving earnings. With the help of deferred tax assets, shares could see 90% upside by the end of FY14.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Beazer Homes USA (BZH), the once $3.5 billion market cap homebuilder, is not afraid to show its hand. While the memory of overbuilding real estate remains etched in the minds of many CEOs, the significantly smaller Beazer Homes (current market cap now just over $400 million) has decided to go all in. With the housing recovery in this country still estimated to be in the early innings, the move appears well timed and could provide significant upside potential for equity holders. Beazer CEO Allan Merrill is enthusiastic about the company poised to report full-year profitability for the first time in nearly a decade during FY14.
The stock price has significantly lagged the rest of the industry over the past decade (see chart below) and many analysts and Wall Street research firms have discontinued coverage due to the asset class change from small-cap to micro-cap. But like any poker player will tell you, the longer you keep playing the game, the greater your odds of winning become. Beazer has made it through the roughest housing downturn in the company's history and been severely beaten down, but not knocked out. The housing game is still being played and with a growing backlog, massive inventory purchase program and significant deferred tax asset, Beazer Homes is extremely well positioned to impress shareholders over the next few years.
BZH data by YCharts
Brief Overview
Atlanta, Georgia based Beazer Homes has been building homes across the United States for over 35 years. Operating in 16 states across three geographic regions, the company caters towards entry level, move-up (both first and second time), and retirement oriented consumers. With a marketing pitch towards energy efficient homes, the company differentiates itself from many competitors.
Unlike many publicly traded homebuilders, Beazer does not have a captive mortgage agency. The company works with a small number of preferred lenders to offer multiple competitive rates to would be home buyers. This process actually causes the lenders to compete against one another for the business, ultimately benefiting the borrower.
Similar to many builders in the industry, Beazer overbuilt during the housing boom and has taken significant inventory writedowns in the past few years. The company has since re-emerged and is much more financially sound. Investors looking at the company today have upside potential via the rising tide of a housing market coupled with significant net operating losses from prior years to offset most taxable income moving forward. Beazer Homes is positioning itself to take advantage of this housing recovery and making bold moves to accomplish this.
Leverage
With almost every publicly traded homebuilder borrowing in this extremely low interest rate environment, leverage in this industry is a common practice. While the offering size and type of debt vary by the issuing company's credit quality, we rarely see debt-to-capital (debt-to-total assets) cross above 50%. Beazer Homes is clearly a believer in this housing market and currently pushing the limits at 77%. However, in spite of tipping the liability side of the balance sheet, in January 2013, Moody's increased the company's long-term debt rating to Caa1, S&P reaffirmed B- in December 2012, and Fitch upgraded the debt one notch to B- in September 2012. The strengthening housing market is giving Beazer some help, exactly what you are looking for when taking on such high levels of debt. Given the following statement from Beazer Homes' recent 10-Q filing, the company is truly all in, "As of June 30, 2013, we were not able to incur additional indebtedness, except refinancing and non-recourse indebtedness."
BZH Debt to Total Assets data by YCharts
Keep in mind that Beazer still has access to $150 million of additional borrowings under a secured revolving credit facility if necessary. Additionally, with just under $300 million in cash on the balance sheet as of 6/30/13, they have ample liquidity if unexpected expenditures were to arise. Regardless of the high debt, cash flow problems do not appear evident for the company.
Below is a snapshot of the current debt profile. While the next maturity date is not for another three years, the June 2016 bonds are callable beginning next year and refinancing may be in line. While management has not given any explicit comments towards calling the bonds, lengthening the maturity and lowering the interest payments would be very beneficial for equity holders. Note: the TEU (tangible equity units) Senior Amortizing Notes, maturing in August '13 and '15 will be settled in stock, not cash.
(click to enlarge)
Source: Beazer Homes SEC Filings
Before you immediately pass on Beazer Homes given their substantial leverage, consider the environment they are operating in. With new home sales roughly half of pre-crisis levels, demand for new homes far outpacing supply, home prices growing at double digit rates year-over-year, and home price affordability at record levels (even with higher interest rates), the homebuilding space offers substantial growth potential. If Beazer is correct in leveraging up during this growth phase, the long-term results could be significant.
New Orders and Backlog
If you were to evaluate Beazer based upon new orders alone, the recent quarterly and full-year results would be disappointing. New homes ordered fell to 1,381 from 1,555 in the same quarter a year prior and are expected to show no gain for the full year. At first glance, this would appear to be negative, but impressively, the company was able to increase revenue and profit margins substantially as a result of selling higher priced homes from a smaller base of communities. As you can see in the table below, the community count has dropped significantly over the past five quarters. This was expected and clearly communicated by management a few quarters earlier; 2013 was anticipated to be a year of strengthening the income statement and controlling costs before bringing the number of communities back up to 170 by FY14 end.
(click to enlarge)
Source: Beazer Homes Investor Presentations
Even though the community count is dropping, the backlog value continues to grow at very impressive rates. Homebuilding is seasonal in nature with the fall and winter (Beazer FQ1 and FQ4) quarters exhibiting much less order flow. When you smooth out the backlog (below) you can see a clear upward trend in the backlog order value. As of the recent quarter end, the backlog has increased to $646 million. Keep in mind that we have seen this rise come in the presence of a lower community count.
(click to enlarge)
Source: Beazer Homes SEC Filings
During the recent quarterly earnings call, CFO Robert Saloman provided guidance as to what the community count will look like moving forward, "In addition to the 144 active communities at June 30, we had 50 communities in various stages of development that were not yet opened and 21 communities that have been approved, but whose transactions had not yet closed. During July, we approved another 11 communities for acquisition, several of which should contribute their first sales in fiscal 2014." When Beazer begins opening more communities over the next few quarters we are likely to see the backlog exhibit substantial growth rates. Couple this with an increase in the average selling price (see chart below), and profitability for Beazer Homes is not far off.
(click to enlarge)
Source: Beazer Homes SEC Filings
Inventory
Beazer Homes is not just hording cash, they are actively putting their borrowings to work. Over the recent quarter, the company spent $162 million on land and land development, bringing the year-to-date total to $314 million (compared to $141 million over the first three quarters of last year). Expectations for the final quarter of FY13 are $170-$190 million, bringing the full year total to roughly $500 million. This money is not being spent in speculative markets, however, the lion's share of this investment is being spent in some of the hottest growing markets in the country; California, Florida, Texas, and the Mid-Atlantic.
The company is also looking to build more condominium and multi-family properties rather than free standing single family homes. This shift to what the market is currently demanding shows a management team which is capable of adjusting to consumer preferences and not getting stuck in their old ways. Below is a table showing the breakdown of Beazer Homes' current inventory. Note that the company (like all others in the industry) capitalizes interest costs, I have subtracted this from total inventory on the balance sheet to provide an adjusted inventory level to measure tangible assets.
(click to enlarge)
Source: Beazer Homes SEC Filings
West: Arizona, California, Nevada, Texas
East: Indiana, Maryland, Delaware, New Jersey, Pennsylvania, New York, Tennessee, Virginia
Southeast: Florida, Georgia, North Carolina, South Carolina
Valuation
If Beazer Homes is correct in their robust land purchases funded with borrowed dollars, the company is poised to deliver substantial profits in the years to come. Additionally, if the best case scenario plays out, shares offer some of the most attractive valuations in the industry. Since we cannot evaluate earnings quite yet (Beazer still has negative earnings), and use of the deferred tax asset (to be described later) will significantly alter earnings per share among competitors, I prefer to evaluate this industry utilizing a price-to-sales and price-to-book value ratio. As you can see in the first chart below, shares of Beazer Homes trade significantly below the industry utilizing a P/S ratio. I believe this stock is mis-priced given the limited coverage amongst analysts and a very small market cap.
BZH Price / Sales Ratio TTM data by YCharts
When looking at a price-to-book value ratio, it appears Beazer Homes is fairly priced within the industry. This is somewhat misleading; however, Beazer homes has been recording declining shareholders equity for the past few quarters while their share price has been range bound with an average of roughly $16. Given that many competitors have much less debt and have been utilizing their deferred tax assets to increase profitability (i.e. growing shareholder equity), if Beazer were to run similar financial statements as the rest of the industry, one could argue they should have a significantly higher P/BV multiple. Given that they trade in line with the industry today and have the potential to outperform the industry on both equity growth and share price appreciation over the next twelve months, we are likely to see the market award shares of BZH with a higher multiple moving forward.
BZH Price / Book Value data by YCharts
Given the combination of a depressed share price compared to the industry, significantly lower P/S ratio and artificially low P/BV ratio, shares of BZH are extremely undervalued. If the company is successful in implementing its growth strategies moving forward, shares could see the $30 range before FY14 comes to an end.
Concluding Remarks
While we are likely to see continued volatility in the homebuilding space due to interest rate fears and differing results in the multitude of housing reports released each month, the overall trend of housing continues to remains strong. If you remove the "noise" which the media bombards us with, you see an industry that currently has the ability to increase home prices without affecting demand. In fact, demand has actually proven stronger when average selling prices are raised (over the past few years). I also recommend investors keep a close eye on the monthly employment data released from the Bureau of Labor Statistics to see how construction hiring is trending. Below is a chart of residential building jobs created each month since January 2011, when the housing market unofficially bottomed and began recovering.
Source: Bureau of Labor Statistics
Investors looking to acquire homebuilders in today's market have another valuable incentive, deferred tax assets. The massive inventory impairments over the past few years have turned into substantial net operating losses which can be used to offset most taxable gains moving forward. Beazer Homes has a current valuation allowance of $505 million which if converted into a deferred tax asset is estimated to be worth $454 million, roughly $13 a share. Without getting into the intricate details of what a deferred tax asset and valuation allowance are, to simplify my point, profitability from Beazer in the future is highly unlikely to have taxable consequences at the corporate level.
Consider your investment goals and objectives before initiating a position in Beazer Homes and remember that the value of investments in equity securities, like BZH, will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. Given what appears to be a sustainable recovery in housing and a company levering up to take advantage of this, if management is correct in their bets, the share price has significant upside potential.
Note: All data reported and graphed is pulled directly from Beazer Homes SEC Filings, Press Releases, and Investor Presentations.
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Wildbilly
12 years ago
Beazer Homes USA Management Discusses Q2 2013 Results - Earnings Call Transcript
May 2 2013, 19:30
Beazer Homes USA (BZH) Q2 2013 Earnings Call May 2, 2013
Operator
Good morning, and welcome to the Beazer Homes earnings conference call for the quarter ended March 31, 2013. Today's call is being recorded and a replay will be available on the company's website later today. In addition, PowerPoint slides intended to accompany this call are available on the Investor Relations section of the company's website at www.beazer.com. At this point, I will now turn the call over to Carey Phelps, Director of Investor Relations. You may begin.
Carey Phelps - Director of Investor Relations & Corporate Communications
Thank you, Tanya. Good morning, and welcome to the Beazer Homes conference call discussing our results for the second quarter of fiscal 2013.
Before we begin, you should be aware that during this call, we will be making forward-looking statements.
Such statements involve known and unknown risks, uncertainties and other factors, which are described in our SEC filings, including our Form 10-K, that may cause actual results to differ materially. Any forward-looking statement speaks only as of the date on which such statement is made. And except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
New factors emerge from time to time, and it is not possible for management to predict all such factors.
Joining me today are Allan Merrill, our President and Chief Executive Officer; and Bob Salomon, our Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will take questions in the time remaining. I will now turn the call over to Allan.
Allan P. Merrill - Chief Executive Officer, President and Director
Thank you, Carey, and thank you for joining us. We had a very productive second quarter. Our operational improvements and better market conditions, which began to emerge last fall, have continued into the start of our spring selling season. Traffic is encouraging, and our efforts are delivering solid results.
Overall for the quarter, adjusted EBITDA was $15 million, an improvement of over $16 million from last year. We recorded 3.4 sales per community per month, which exceeded our expectations. Despite a 20% decline in our average community count and an intense focus on increasing our margins, orders were up slightly year-over-year based on the stronger-than-anticipated performance.
Our cancellation rate declined 380 basis points to 18.7%. Closings were up 34%, with an average sales price that was 13% higher than a year ago.
Gross margin improved to 19.1%, with each closing contributing $48,000 in gross profit. Ending backlog was 12% higher in units and 26% higher in dollars than a year ago.
And finally, we spent $63 million in land and land development during the quarter, entered into a $150 million land banking arrangement and activated a $12 million asset out of land held for future development, all in support of our drive to return to profitability as soon as possible.
Last November, we introduced target ranges for our 4 primary operational metrics, illustrating our path to profitability. There's progress to report on all 4 fronts.
First, taking a look at our sales per community. For the 4 quarters ended March 31, we averaged 2.7 sales per community per month, comfortably within our target range of 2.5 to 2.75, and 87% of our communities qualified as performing, with at least 1 sale per month. Both metrics reflect improvement from this time last year when we recorded 2 sales per community per month, with 73% of our communities performing.
I'm very proud of the 3.4 sales per month absorption rate achieved by our sales teams this spring, even as they have embraced our priority to drive margin expansion.
While we don't expect to repeat absorptions over 3 per month in another quarter this year, we are raising the top end of our target range to 3 sales per community per month measured on a trailing 12-month basis.
The second path to profitability strategy relates to our G&A costs. For the 12 months ended March 31, we reduced G&A as a percentage of revenues by 440 basis points from 13.9% last year to 9.5% this year, at the midpoint of our target range.
As we continue to grow our top line, I anticipate staying within this band of 9% to 10%.
Our third path to profitability strategy is to drive higher gross profit dollars per closing. As we've discussed before, achieving this objective is a function of increasing both our margin percentage, which we hope to expand to at least 20%, and realizing higher ASPs.
With continued improvement in all 3 reporting segments, our gross margin percentage for the quarter was 19.1% compared with 17.5% last year. Despite continuing material and labor cost pressures, I anticipate positive year-over-year gross margin comparisons in each of the next 2 quarters.
Average sales prices are also notably improved over last year. For the second quarter, our ASP grew to $253,000, up $29,000 or 13%, and our ASP in backlog at the end of the quarter was $264,000, up 12% over last year.
Together, our improved margin percentage and increased ASPs are driving our gross profit dollars per closing higher. For the 12 months ended March 31, we recorded an average of $41,500 of gross profit per closing, up 16% from a year ago and moving us closer to our target range of $45,000 to $50,000 on a trailing 12-month basis.
On this slide, you can see that our performance for the second quarter was even stronger, with $48,000 of gross profit per closing. Because of this solid performance, we are raising the top end of our target range to $55,000 per closing, stretching our goals to reflect our improving trends.
Moving now to the fourth strategy in our path to profitability plan. As we guided on our last call, our active community count has remained relatively stable as our 18 new community openings during the second quarter were offset by 20 community closeouts.
At March 31, we had 148 active communities, and our average for the quarter was 150, below our longer-term target range of 190 to 210.
The good news is that with the improvements we've made in our other path to profitability metrics, we'll be able to return to profitability well before we return to 190 communities. For that reason, we've lowered the bottom end of our target range to 170 communities, which is an achievable target in the next 12 months.
We are making the investments necessary to grow community count next year, emphasizing investments in California, Florida, Texas and the Mid-Atlantic region. I'll let Bob provide a few more details on these activities before I discuss our expectations for the remainder of the year. Bob?
Robert L. Salomon - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Controller
Thanks, Allan. We spent $62.6 million in land and land development during the quarter. Year-to-date, we have spent $152.6 million or 52% more than we spent for the same 6-month period last year. While there is competition for the best sites, we are finding and aggressively pursuing those deals that meet our investment criteria to generate deliveries beginning in fiscal 2014 or 2015.
As Allan said, at March 31, we had 148 active communities. In addition, we also had 33 communities under development but not yet open and 24 new communities approved for acquisition but that have not yet closed. Since the end of the quarter, our land community approved an additional 11 communities for acquisition. These new communities will add to our average community count next year but will be partially offset by community closeouts.
To further enhance our efforts to grow our community count, at the end of March, we entered into a $150 million land banking arrangement with GSO. This relationship has nothing to do with existing assets. Instead, it should enable us to open approximately 20 more communities than we had planned using our own capital, and we're off to fast start. We expect to have several land deals in the land bank by the end of the third quarter.
Based on our current pipeline, I expect to spend an excess of $120 million on land and land development during the third quarter. And for the full year of fiscal 2013, I expect our total land and land development spend to meet the $550 million range of which $450 million or so will be from our own cash and at least $100 million will be part of the land banking arrangement.
At March 31, we controlled nearly 24,700 lots, including 6,500 that were immediately available for use and almost 12,000 lots that are under development or under option, which are available in the near term. During the quarter, we activated a $12 million asset in Phoenix from land held for future development containing over 500 lots. When fully developed, these lots will have a basis below current market prices for lots in this particular submarket. We will likely activate additional communities in fiscal 2013, with more expected next year.
There are several assets located in Sacramento valued at approximately $80 million that are impacted by levy repairs. These assets will remain in land held for future development until those repairs are complete.
Turning now to our balance sheet. We ended the quarter with $426 million of unrestricted cash and an undrawn $150 million revolver. With these available resources and no significant debt maturities until fiscal 2016, we feel very good about our liquidity position, capital structure and ability to meet our path to profitability objective.
Similar to most of our competitors, we have a very large deferred tax asset, which will allow us to avoid paying cash taxes on a significant amount of our net income in the future. We currently estimate the realizable savings to be in the order of $450 million or $13 a share. This asset is subject to a valuation allowance. It is not in our balance sheet until we return to sustainable profitability. Regardless of when we remove the valuation allowance, the ability to avoid cash taxes represents an important financial attribute of the company.
Overall, I'm very pleased with our performance this quarter and the significant strides we're making to return the company to profitability. With that, I'll turn the call over to Allan to go through our expectations for the rest of the year.
Allan P. Merrill - Chief Executive Officer, President and Director
Thanks, Bob. Across all of our markets, we are executing our path to profitability strategies. We have improved our sales per community even as we have successfully expanded our gross margins. Based on this progress and our current backlog, we now expect to report positive net income for our fiscal fourth quarter, allowing us to be profitable for the second half of fiscal 2013. That would be the first time since 2006 that we were profitable from operations for any cumulative 6-month period.
At a more detailed level, I'm pleased to announce that we have raised our expectations for adjusted EBITDA for this year. Based on our solid results to date, we now expect adjusted EBITDA of at least $70 million, up $20 million from our previous projection and nearly $50 million higher than we reported last year. These improvements are driven by year-over-year growth in closings, increases in our ASP, improvements in our gross margin percentage and dollars and modest additional leverage of our overhead cost.
Year-to-date, our orders are up about 10% as a result of better-than-expected absorption rates. With the continuing headwind of the smaller community count, for the second half of the year, we'll be happy to simply match last year's orders, implying full year growth of about 5%. More precisely, we expect Q3 orders to be below last year, with the resumption of order growth in Q4.
As we've said many times, our top priority is to return to profitability as quickly as possible. And almost as often as we've said that, we have been asked when that objective will be achieved. Although it is still very early to make forecasts about next year, we now believe that full year profitability for fiscal 2014 is attainable. It's not a layup, and a substantial downturn in housing demand or home prices would clearly make it less likely. But if we sustain our path to profitability improvements and successfully launch our new communities, 2014 should be our first profitable year in almost a decade. Thank you for your interest today, and I look forward to sharing our continued progress in the quarters to come. And at this point, we'll be happy to take your questions in the time remaining. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Ivy Zelman with Zelman & Associates.
Ivy Lynne Zelman - Zelman & Associates, LLC
I think what we'd like to drill in on, first, just to clarify, your percentages increases in pricing, how much of that is mix-related? And then if you can just give us a sense, I mean, your goals and your path to profitability are clearly coming to fruition and you're closing the gap. When you look at your 19% gross margin, the improvement is impressive. But recognizing that it's still below the 20% gross margins that you say you're underwriting to. So what can we expect going forward that will be dependent upon price for gross margin improvement as opposed to just the operational improvements that you continue to obviously bring to the finish line? And how much more kind of low hanging fruit is there? That's my first question.
Allan P. Merrill - Chief Executive Officer, President and Director
Okay. That's a lot of questions. I'll try and weave through some of that. Let's talk about margins. There are a couple of things that we said this morning, I think, that are important. We're very confident that we can drive additional gross margin percentages and dollars. That's why we've raised our target for where we want to get in the next year or 2. And I think the $48,000 in this quarter was a clear function of both the percentage and the sales prices. I think the other thing we said, and this isn't really in your question, but I want to make sure I point it out, we've always cautioned folks against making sequential gross margin comparisons. And it's why we really are focused on the year-over-year. As we look at our backlog, as we look at what we've been selling this spring, I'm very confident we're going to be up nicely year-over-year in both Q3 and Q4 in terms of gross margins. But I'm a little cautious about the sequential trends. Just because in prior years, in fact, looking back 3 or 4 years, our Q3 has been a little lower than our Q2. So I think it's important to kind of keep context here. It isn't necessarily a hockey stick in a single direction. We're going to be pulling the LTM numbers up, I think, for some period of time, but we want to be careful about trying to perform unnatural acts in 90-day periods. In terms of what's driving margin, I still think we have an awful lot of room on the operational side, and it's nice to have the price as well. And I wish I could tell you a nice tidy soundbite about how much each component is. But of course, in every market and each community, it's a somewhat different answer. It's clearly the case that feature levels in homes are moving up. And as we change feature levels, as we meet customer demand more accurately, I think that's giving us a good margin enhancement opportunity. If we look at the price side, what's really happened for us with price is a couple of things. The mix of closings has been part of it. But we started raising prices last fall, and we are now seeing the benefit of that. So I don't think that mix is a huge part of it. One of the metrics I look at is the average house size. Our average house size, I think, is up about 100 square feet year-over-year. So it isn't a mix change in that sense, but it may be a mix change that the features within the home are creeping up a little bit. And so that's where it gets very difficult to peel how much of it is feature price increase versus base price increase. So I don't know. I probably hit about half your question there, Ivy.
Ivy Lynne Zelman - Zelman & Associates, LLC
No, I think it's helpful. I think that, it would seem as if that your conviction should be higher sequentially if there were those operational improvements and the benefits of things that you put in place, and that you would see more of a hockey stick, frankly, you can comment, but I'll ask my second question first, which would be, your community count growth, obviously, we see the challenges this year. And with all of the benefits from your land bank initiative and further capital spend on more land parcels, can you give us an idea when do you resume to more of the double-digit growth rate with respect to order activity? Where is the inflection point going to come to fruition?
Allan P. Merrill - Chief Executive Officer, President and Director
It's a great question. Let's talk about community count. So we are at 148 at the end of the quarter. We averaged 150. I think that will trough in Q4 a little bit below 150, and I think we'll start to see good community count growth in the first quarter with, at some point during fiscal '14, we'll clearly get through 170. Exactly the timing of that is challenging. And I think I want to tie that back to the land spend. I know that the amount of money that we spent in the second quarter was more or less than different people's estimates. But the fact is, it's very difficult to just spend the money quickly and wisely. And I feel very, very good about the 33 deals that Bob talked about that we have under development, the further 24 that we have contracted for but not yet closed and then the 11 additional in April. All of which gives us pretty good confidence that this Q3 land spend number over $100 million is real and the Q4 land spending will be even larger than that. And that's just our money, in addition to the GSO money. So I really feel pretty good about the fact that we can drive a community count growth from where it's going to trough a little below 150 above 170, but it's a bit of fool's errand for me to guess exactly what that mix of community count growth is going to be quarter by quarter by quarter. But I think all through fiscal '14, we should see community count growth on a year-over-year basis. In terms of conviction back on the margin question, I feel pretty good about our margins. But I have to say, being a little bit of a student in history, I mean, the fact is for 4 or 5 years in a row, with Q3 margins a little bit below Q2, even if we're up materially year-over-year, we can be flattish to this quarter. And I feel very good about that. Because the mix by geographies that we tend to see in the third quarter is a little different mix margin-wise than we see in Q2. So I would certainly not want to leave you or anyone else with the impression that we don't have conviction in our ability both operationally and to reprice to drive margin. We're headed in a single direction. It's just, I think the quarterly comparisons, particularly around a business that's as small as ours is right now, it's a little tricky. And I want to just argue for a bit of caution so folks don't make linear kind of extrapolations and then feel disappointed.
Operator
Our next question comes from David Goldberg with UBS.
David Goldberg - UBS Investment Bank, Research Division
My first question is about the land banking arrangement. And I'm trying to get an idea on how you're thinking about the permanency of the land banking arrangement. Is this kind of a bridge to get you guys to the point where you get this throughput you need, you get back to profitability, you do this for a couple of years and then you kind of go back to the model where you're controlling more land yourself? Or is this kind of a longer-term, we think this is part of the business in a way to defer some of the risk?
Allan P. Merrill - Chief Executive Officer, President and Director
Thank you for asking that, David, because it's something I wanted to comment on in a more public way since we announced that deal at the end of March, which was really at a period, we were in a quiet period and I couldn't talk much about it. Here's how I think about it. And I think there are regulatory issues that may change and, therefore, my view may change. But if we look back on our company or, frankly, any company in our industry over the last 5, 10, 15 years, all of us would have pursued some mix of owned assets and rolling lot option-type assets. We know the names of the companies that had more rolling lot options. We know the names of the companies that had less. These all had a history over a long period of time of being close to 50-50, 60-40, where rolling lot options were a meaningful part of what the lot supply or the land use was. Well, set aside for a moment the relative attractiveness of that and let's deal with the practical reality, which is that bank capital to land developers to provide rolling lot options to homebuilders essentially doesn't exist. I've talked to a lot of land developers in the big markets and they'll tell you what the banks are telling them. The capital requirements for those kinds of loans, the liquidity reserves for those kinds of loans, the loan losses in the loan books for those kinds of loans, are still too recent. So what I really look at the land bank as is a way to synthetically replace what had been a portion of our business that was on rolling lot options. But there are a couple of important improvements, actually. For one thing, when you do rolling lot option deals, you have to only -- you can only option those lots that are available. So they pick where they are, and we have to figure out a way to make them work. The one nice thing about the land bank is we identify the sites we want to acquire. The other thing, and it's closely related, is that when you're optioning somebody else's lots, you're paying a retail price with some kind of a price inflator on it. When we do a deal on the land bank, we're getting that wholesale cost basis plus the cost of funds for our partner. And I think when we look at what the effect on our lot cost is comparing the 2 kind of head-to-head, we're actually pretty happy with where the lot cost is. Now it's clearly higher than if we just owned it on our balance sheet, but I think it's somewhat lower than what a traditional rolling lot option would be. Now $150 million is a fraction of our total spend over any 12-month time period, and I think time will tell whether or not that facility or others like it become a meaningful part of our land acquisition strategy. But I think optimistically and, frankly, it is my perspective that it's going to be very difficult for the land developers to get back into the bank market the way they used to. And as a result, I think we and others are going to have to use these kinds of strategies if we want a portion of our lots available to us other than wholly owned. So that's kind of how I look at it. I think it's a little bit more permanent. And I've seen others trying to guess about the percentage that it might represent. For us right now, options are a relatively small part of our business. Even with this $150 million fully deployed, it would be a relatively small percentage of our business. So I don't think it really changes the overall dynamics very much, but I think the margin is very helpful to have that source of capital for an increment of lots other than those that are wholly-owned.
David Goldberg - UBS Investment Bank, Research Division
Great. My follow-up question, and I imagine you don't want to get too specific on it. But obviously, there's been some personnel changes over the last 12 to 18 months, kind of getting the right teams in place. A really good quarter this quarter. Do you feel like you have the right people in place now? Do you feel like the teams are right? And we're not going to see a lot of changes at the division level, or do you feel like there's still more to come?
Allan P. Merrill - Chief Executive Officer, President and Director
We've changed such a high percentage of our divisional leadership. I think it's very likely that we will have low turnover at the division level. And when I look at the core markets for us from an investment standpoint, when I talk about California, Texas, Florida, the Mid-Atlantic region, and talk about Arizona, North Carolina sort of in a second tier, in terms of incremental capital, we have fantastic teams. In fact, I think one of the things I'm most proud of, and I think it sets us up well for this improving market, is there are a couple of very big markets that we were essentially irrelevant in and not present. That's Dallas and Orlando. And if I look at where we are today, because of the leadership teams that we have, the land deals that we've done over the last 2 years, I mean, we're not recognizable to the company that was in those markets 2 or 3 years ago. So I think it's the people, but I also think it's the land positions that we've taken in these core markets that are setting us up nicely for the next several years.
Operator
Your next question comes from Michael Rehaut from JPMorgan.
Michael Jason Rehaut - JP Morgan Chase & Co, Research Division
First question I had was on gross margins. And I guess just to take at it another way, if you could just remind us, as now you're expecting, I guess, as you said earlier, community count to trough out later this year and eventually get to that higher target, with those new communities coming online, I guess, number one, can you give us a sense of by the time you get to that 170 number, what percent of your overall communities would be purchased in the last 18 months and what type of different margin profile those communities have versus your current mix?
Allan P. Merrill - Chief Executive Officer, President and Director
Okay. So that's a complicated question, sort of speculation, and I don't mean that in a pejorative way. But trying to estimate exactly when the existing communities run out, which is dependent on sales paces prospectively, so it's a bit tricky. I think if you look at the math, Bob talked about 33, 24 and 11. As 33 communities under construction but not yet opened, 24 more and then 11, which gives us what, 67? 68? Those 68 are going to be active, I believe, next year, at some point during the year. So just those communities, forget what we did 2 and 3 quarters ago, are going to represent a meaningful chunk of a number like 170 or greater. So I think that's maybe a context to think about it. I'll tell you from an underwriting standpoint with really very few exceptions, in fact, I'm not sure I can think of one off the top of my head. We're targeting gross margins above 20% in the new deals that we're buying on current pricing. It's challenging at some places. And in fact, I think one of the great lies in our business is, well, so and so bought a deal and they're going to settle for lower margins. And I look at my team and say, "Hey, look guys. We'd not got stellar margins compared to our peer group." So when we lose a deal, it's not because they're dumb and they're going to settle for lower margins. What it really reflects is they were better dialed into what product for the particular buyer profile would maximize the value of that particular piece of dirt. And so where we've got to be better and where we've got to be able to compete is do we have the ability to deliver the product to the buyer that allows us to get that kind of margin. And I feel like the plan 2 years ago, the No Community Left Behind, which was, I admit, very hokey, that kind of getting the ratio of communities that are performing, working, that was an important learning lesson for us about what makes a community tick and how to fix product and the people and the promotion, not just the price. So I feel pretty good that, that skill set is translating into our land approval process. So that we're not having to bid stupidly by accepting low margins to win deals. That we're having to be intelligent, and I credit our peers for making us smarter to figure out what is it going to take to make a particular deal work and meet our margin targets. So I'm not worried that this community count growth has got a bias towards lower margins.
Michael Jason Rehaut - JP Morgan Chase & Co, Research Division
No, I mean, I certainly wasn't implying that. I was I thought implying a positive impact. But just I guess second question is might be more for Bob. From a modeling perspective, the interest expense amortization, how should that trend through the rest of the year? I mean, you've had -- it's been down $3 million, $4 million year-over-year for the first couple of quarters, and how should we think about that for 2014? And also any comments on D&A, if that should be kind of keep it at the same run rate more or less?
Robert L. Salomon - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Controller
Sure. I think that when we talk about cap interest, as we continue to add assets, we're going to continue to capitalize more interest. So the below-the-line interest, obviously, will decrease. And the run rate through COGS will probably be similar to what it's been in the last couple of quarters, I think, as we look out.
Michael Jason Rehaut - JP Morgan Chase & Co, Research Division
On a dollar basis?
Robert L. Salomon - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Controller
No, on a percentage of revenue basis. Because obviously, as you relieve more assets, your dollars, that go through will be higher.
Michael Jason Rehaut - JP Morgan Chase & Co, Research Division
Okay. And as we look into next year, would the percent decline as you build up the inventory?
Robert L. Salomon - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Controller
I think once you get to a point where your, let's call them, qualified assets are equal to your debt, then you're not going to have anything below the line. So then you will kind of shift some of that, where you'll start to relieve maybe a smaller, a little bit higher percentage through COGS on a go-forward basis, as you get all of your interest running through cost of sales. Because you will get to a point where everything that we incur will flow through COGS.
Michael Jason Rehaut - JP Morgan Chase & Co, Research Division
Okay. So it would kind of stay more similar on a percentage basis ostensibly at '14 as you probably won't surpass your debt?
Robert L. Salomon - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Controller
Yes, it's hard to predict when that time will cross over. But certainly, once you get to that point in the model, then you'll probably flip to that a little bit.
Operator
Next question comes from Dan Oppenheim with Crédit Suisse.
Daniel Oppenheim - Crédit Suisse AG, Research Division
I was wondering if you can talk a little bit more -- I think there's been enough in terms of the margin questions. But I guess, just thinking about in terms of the sales ahead of expectations and with the community count where it is, it does sort of bring up the question, are you doing enough in terms of pushing pricing. And I think you're pretty clear in terms of talking about the geographic mix of closings is going to be different and clearly one would expect to see a different turnover of the land and margins in Texas versus some of the coastal markets. But I guess, trying to think about margins on a same house basis or adjusting for that, how do you look at that sort of as we go forward on a sequential basis here? Just trying to understand that in the context of, obviously, the improvement in the market that we're seeing now.
Allan P. Merrill - Chief Executive Officer, President and Director
It's such a tricky thing. I mean, we spend a lot of time trying to make sure that we can answer these kind of questions. But really it's so difficult to split because you never really sell exactly the same house twice, because the lot's different. There may be a lot premium, the feature level may be a bit different. So you start peeling it down and say, "Well, what was the margin on the Lexington model in this community a year ago? What is it today?" Well, maybe something has changed other than your input cost and your base price has changed or your features are higher. So it's tricky. I think the -- so I'm not really sure how to give you American [ph] hold on that. I definitely do not believe that it is just geographic mix driving margin. We are seeing margin improvements in every single division. And so while the mix may accentuate or attenuate that, the fact is, every division is seeing improvement in margin.
Daniel Oppenheim - Crédit Suisse AG, Research Division
Okay. And then, I guess, I'm wondering -- you talked about bringing on land in Phoenix and then talked about some land in Sacramento that won't come on for a bit. But is there other land in California that you expect in terms of the community to spring on soon or as you get into fiscal '14?
Allan P. Merrill - Chief Executive Officer, President and Director
Yes, I think in that land held bucket, there's other than the 80 million behind or affected by the levy work up in Sacramento, there are some other assets. And I think we will have some of those California assets activated in the next several quarters.
Operator
Next question comes from Adam Rudiger with Wells Fargo Securities.
Adam Rudiger - Wells Fargo Securities, LLC, Research Division
I wanted to ask about the back half of the year profitability in light of some of your commentary with Ivy's question about not expecting a linear kind of gross margin ramp. If I don't know, and at least in the way I model, if I don't take those gross margins up sequentially, I have a difficult time getting to that back half of the year profitability. So could you tell me what I might be missing maybe or what the other drivers of that might be?
Allan P. Merrill - Chief Executive Officer, President and Director
Sales price is a big one. So you got to make sure that you're thinking about that. The number of closings, obviously, is a big one. I do think, as I said, we're going to be up nicely year-over-year in each of those quarters. And frankly, it's within the realm of possible, we'll be up sequentially. I just want to be a bit cautious about that because the pattern has not been that we would be sequentially up. I think G&A as a percentage may trend down just a little bit. We've talked about kind of staying in that 9 to 10 range so I think we've got a bit of room there. But that mix of drivers gives us pretty good confidence in that fourth quarter, which allows us, I think, to make the full back half GAAP profitable.
Adam Rudiger - Wells Fargo Securities, LLC, Research Division
I guess maybe following up on that then, for the closing price, should we expect, but I'm not trying -- I guess, I am asking specific guidance, but not trying to, but should we expect the kind of ramp we've seen sequentially the last couple of quarters to continue on the average closing price?
Allan P. Merrill - Chief Executive Officer, President and Director
Here's what I'd recommend. Take a look at -- because it's not -- I mean, you can do the same thing that I can do, which is look at the relationship between closing ASPs in the quarter and the backlog ASP a quarter and 2 quarters earlier. And I think if you map that out a little bit, what you'll see is the ability to predict within a decent range kind of where closing ASPs ought to be. It's not insignificant that the backlog ASP at $264,000 is $10,000 above where it was as a closing ASP this quarter. So -- but it's not necessarily a next 90-day phenomenon, which is why I'm telling you, go look 1 quarter back and 2 quarters back and sort of roll that, and I think that will help you with your pricing modeling.
Adam Rudiger - Wells Fargo Securities, LLC, Research Division
Great. The other question I had was one could argue that you guys might have more of a margin versus volume focus than some of your peers, as now you have your orders in the desired range. Although I know you just took the range up and you have different community count trajectory. I was wondering what you thought that might, if you thought about that at all, in the context of market share and orders relative to competitors in existing markets. Meaning, if you have a greater focus on margins than peers, if lead there might be more or less likely to raise prices as much as you then you lose some orders.
Allan P. Merrill - Chief Executive Officer, President and Director
Yes, that could happen. I think, let me just reset back to summer 2011, and a candid assessment would be that our sales per month per community were last and our gross margins were last. 2 years later, our sales per month per community are near the top of the peer group and our gross margins are no longer last, but we're not bragging about them. We still got a lot of room for improvement. And I think that the importance of that sequencing from our perspective was learning how to compete, learning how to make the sale. And having done that and seeing the benefit of that in the absorption rates now, I think that's given us the momentum. It's frankly given us something that is very powerful with homebuyers, which sticks in the air. Sticks in the air is one of the great things working for any builder in terms of driving activity and enthusiasm, creating a sense of urgency, which gives you some pricing power. So I don't think that the rate of improvement in our sales per month per community is going to continue. In fact, I said I don't think we'll do another quarter of 3.4. We weren't really trying to do 3.4 this most recent quarter. So yes, we will probably plateau out there a little bit. We could go back a little bit, and I'd still be very comfortable with where we are with respect to the range that we've given. We've got more work to do on the margin side. And to Ivy's question, that is both a mix issue, a price issue and it's an operational execution issue. It's just being smarter about what we put in the home and how we merchandise. So I don't know exactly how to put that in the context of other builders. You spend more time than I do by far thinking about them. But I would tell you that I feel like getting competitive selling at an aggressive rate gives us the opportunity to now drive margin. I don't think that they're either ors, I think that they play off of each other.
Operator
Next question comes from Jay McCanless with Sterne Agee.
James McCanless - Sterne Agee & Leach Inc., Research Division
First question, what are the reasons for the big increase in the East segment gross margins on a year-over-year basis?
Robert L. Salomon - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Controller
This is Bob. I think the biggest reason in the East could be, to be honest is, we've executed a lot better. We had some issues a year ago, our margins were lower, and we have improved our teams out there over the last 12 months, and they have executed at a higher rate. And the mix of closings in that East segment have also trended a little bit more towards Maryland and Virginia, which naturally have higher ASPs and higher margins than maybe some of the other markets in that segment, but they have operated at a much better rate.
James McCanless - Sterne Agee & Leach Inc., Research Division
Okay. Second question, with almost 400 basis point year-over-year decline in the cancellation rate, is there any read through we can make to better availability for first-time buyers in terms of getting financed for a mortgage, or is it just generally better mortgage availability out there? What can we take away from that?
Allan P. Merrill - Chief Executive Officer, President and Director
We've been in a transition over the last year with our mortgage choice program, where we went from having not a captive but an affiliated relationship or a marketing relationship with a single lender to a program now where we've got lenders literally competing for each prospect in every community. And that list of lenders is small. It's hand selected. It's based on their ability to service buyers of that profile in that location. And I have to say, I think that the lower can [cancellation] rate is largely a function of the fact that those lenders are aggressive. They are working to earn the business of the customer. They are not feeling in any way compelled to try and do business that they don't want to do. So we've got some lenders that in a particular division are very aggressive for a particular buyer profile in one subdivision and they are not on our list in another subdivision. And yes, it's a little tougher for us to manage, but it sure gives the buyer what the buyer needs and what the buyer wants. And I attribute a big part of our can rate reduction to that dynamic.
James McCanless - Sterne Agee & Leach Inc., Research Division
Okay. And if I could sneak one more in, what do you think the mix of entry-level versus move-up customers was this quarter and where do you expect it to go over the next couple of quarters?
Allan P. Merrill - Chief Executive Officer, President and Director
I don't know how to define those things anymore. First-time homebuyers are older and wealthier than they ever have been, which is kind of a part of the legacy of the depression in housing that we've had. So it's very hard for us to tell the difference between a move-up home or a first-time buyer and a repeat buyer. And there is some consequence to us of not having a mortgage company because we're not dealing with their individual credit files, and so it's a bit harder to extract that. I don't think we tried to effect a change really in the profile that we've got. I will tell you that in our 2 markets where we have historically been an entry-level builder predominantly the very lowest price points, we had built through those communities over the last 2 years, and they're simply not replaceable. It's not that we are too good to go and work in that price point, but we can't get the lots to be at that price point. So I think that, that's one of the things that's affecting us. But I'd say our business is still more heavily weighted to first-time buyers, but that definition of a first-time buyer has expanded materially over the last couple of years.
Operator
Next question comes from David Williams with Williams Financial Group.
David Neil Williams - Williams Financial Group, Inc., Research Division
I wanted to talk a little bit about the releasing or the activating of communities out in Arizona and what that means maybe for the other submarkets and maybe are you beginning to take a closer look at some of the sub-tier markets today thinking about where that transition is. And are you seeing anything in terms of buyers that are more willing today to maybe move out away from those city centers or maybe into those second tier markets, and just kind of your general thoughts there?
Allan P. Merrill - Chief Executive Officer, President and Director
Well, the asset that we activated in Phoenix, in the submarket that we're in, is one that we have consistently been in. But the fact of the matter was over the last 3 or 4 years, we could buy distressed finished lots more cheaply than we could develop that land held asset. Market conditions have changed. The finished lots at distressed prices or otherwise have been absorbed. And so that asset is still in the right location, but it is now economically pretty attractive. It requires land development dollars. 2 or 3 years ago, if we could buy a finished lot at a lower all-in cost than what it would have been to develop those lots, I think we did the economically rational thing. But it's not so much that the location of the piece of dirt changed. That piece of dirt in relation to what other opportunities existed, that's what changed. Does that makes sense?
David Neil Williams - Williams Financial Group, Inc., Research Division
It does. And then secondly, what are you seeing in terms of cycle times and how those are holding up, thinking about the labor constraints that are in the market today? And are you seeing anything maybe on the development side as well as far as cycle times and how long it's taking to bring some of that land to market?
Allan P. Merrill - Chief Executive Officer, President and Director
Well, I don't want to jinx us on the land development side. So I will say I'm very wary of that. So far, we haven't seen too much of an effect there. We've got some bigger deals and some more land development dollars over the next 6 months. So I'll just predict now, in advance of it happening, that we'll have a few challenges there, as others are ramping up their community counts as well. But we haven't really seen it yet. On the construction side, there are clearly labor peaks and valleys. And those availability peaks and valleys can affect cycle time. I think in our bigger markets, in the Southwest in particular, we've seen a week, 10 days at certain times of the year where we have had some cycle time expansion. We'll say that, that's after a concerted effort over the last 2 years to quite dramatically reduce cycle time. So we're still a lot better than we were even 2 years ago, but it's definitely widened out in the market like Phoenix or Las Vegas in the last 5 or 6 months.
David Neil Williams - Williams Financial Group, Inc., Research Division
Great. And one more if I could. Could you kind of quantify the incentives this quarter, and then maybe how the input cost were off maybe on a square foot basis?
Allan P. Merrill - Chief Executive Officer, President and Director
I don't have the incentive number at my fingertips so I can't do that for you. I will tell you that they were down both sequentially and year-over-year. One of the big factors in our quarter, in the March quarter, is always February. Well, the reason it's a big factor is that for the last 6 years, we have been running an annual sales event in February. And I could tell you, '06 through '12, that was a period where we sold a lot of homes but there was a significant amount of discounting. Initially, it was moving through finished specs. And frankly, at the very trough of the market, it was allowing us to recover our bases in land really more than profit from the home sales. That was really different this year. So February for us was not a discounting opportunity. It was an enthusiasm and an urgency opportunity, get the last lot on the lake, get the first lot against the open space, be the first owner of the new 2-story master down, those kinds of things as opposed to trying to discount. So I just know that our discounts and incentives are materially lower. We've also, through our CMA process, gotten, I think, a bit smarter. I think we were a bit lazy about high prices and big incentives. On a net basis, we were okay. That's a pretty bad way to compete. And those gaps get very large, the incentives become very large. It undermines buyer confidence. So I think we've tightened up pricing over the last year as we've really used our CMA process, where we probably bought a lot of base prices down but then more than offset that with reductions and incentives. So hopefully, that gives you a little color. I'm sorry I can't be very authoritative on the percentage or the dollars. I just know it's less. I think the build cost -- well, Bob can talk a little bit about that. I think he's done some work on it.
Robert L. Salomon - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Controller
Yes, I think there certainly has been some increases in materials and labor. Everybody knows that lumber has been up quite significantly over the last 6 months. We've seen increases in drywall and concrete and the labor associated with framing and drywall and plumbing. However, I think that the throughput raise, you can see by our -- the margins that have risen, we've been able to capture that and then some with the lower unit incentive than in increasing our house prices.
Allan P. Merrill - Chief Executive Officer, President and Director
Our best guess is over a 12-month time period, we've seen a several dollar per square foot increase. But the challenge with that is the features have changed. And so the build costs are higher, but it's not apples-to-apples. So at a couple of bucks a foot, I'd say you have a good guess of the net effect, but it is kind of a guess. Because even at the category level, if you're building a bonus room for somebody as an example, your lumber package is higher. Well, is your lumber package higher because it's more 2x4s or is your lumber package higher because its 2x4 was more? And at a point, pulling that out house by house becomes challenging. That's why I'd say it's about several dollars per square foot. It's probably more on the order of $2 that really is associated just with material and labor increases.
Operator
Our last question comes from Joel Locker with FBN Securities.
Joel Locker - FBN Securities, Inc., Research Division
Just basically I wanted to check in on your backlog conversion rates. I guess your finished specs being only about 5% of your backlog is the lowest number possible or lowest number by a long shot in a while. And just going forward, if you look at the third and fourth quarter, if that dynamic is going to slow backlog conversion a little bit.
Allan P. Merrill - Chief Executive Officer, President and Director
Yes, I think what we said Joel in November is that we thought our backlog conversion rates would mirror pretty reasonably with what we converted in fiscal '12. And I still believe that. And I think we've been pretty close to those numbers the first 2 quarters. We've got a much lower spec count today than we had even a year ago. Our to-be-built homes in backlog are about 80%. So I continue to think that we'll be pretty close to what last year's conversion rates were. And I can tell you that Q3 of fiscal '12 was about 56% and were about 66% in the fourth quarter a year ago.
Joel Locker - FBN Securities, Inc., Research Division
Right. And then also on -- just about California. If you were looking to maybe strategically diversify because some of your land is weighted in certain areas versus maybe sell pieces to other builders because the land prices have gone up, and maybe redeploy that asset to take some, I guess, risk off the table, and maybe diversify in other parts of California, if that was a plan.
Allan P. Merrill - Chief Executive Officer, President and Director
The positions where we are actively building right now, I like a lot. We're very active in that I-10 corridor, east of L.A. And we've got a number of communities in that area, really, starting in as close in as Fullerton and then going at I-10. And the things that we've got there, and we have some land held assets that are in comparable submarkets. I think those are going to be excellent positions for us in the years ahead. So I'm not overwhelmed about changing anything there. I think up north, we'll keep our eye on the levy situation. Obviously, it's very difficult to predict when that will be fully appropriated and constructed, and we'll have to make a decision about that market. We happen to own, what I believe is among the very best parcels in Sacramento. I mean, we're at the 2 of the 4 possible interchanges or quadrants at one of the busiest freeway intersections in the state. A very significant position. They're very valuable positions. We'll make a decision about what to do with those when we're a little closer to being able to put them into production.
Joel Locker - FBN Securities, Inc., Research Division
Right. And what about the land in Temecula? I know you've got a large piece there, just was wondering if you were...
Allan P. Merrill - Chief Executive Officer, President and Director
Yes, we like that Temecula corridor. I mean, gosh, it's amazing what's happened to the land prices down there. I saw something a couple of weeks ago when I was out there, that an investor had paid x and had just laid them off at 3.5x x in relatively short order. It made me feel very good about our, we call it, French Valley, our French Valley assemblage.
Okay. Well, I think that was the last question. Thank you, all, for joining us this morning. We look forward to talking to you in about 90 days.
Operator
Thank you for joining today's conference call. You may disconnect at this time.
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