Lou Steffens: Yes we talked about in previous quarters, we take a look at impairments every quarter. There are always outliers on that bell curve, and as we mentioned in the prepared remarks, we had one community that accounted for over 50% of the impairments in a non-core location, that we made a conscious decision to accelerate and get out of there. We do not see any systemic impairments in our overall portfolio, but there are always going to be outliers here and there, so we felt they were pretty modest considering that one project that was the outlier. But we’ll continue to look forward, and as we’ve guided, I think we have a pretty strong margin profile going forward, so feel pretty good about where we sit.
Erik Heuser: Yes, I agree, and on that asset, Lou, I think it’s important to note that we had to make an adjustment given market conditions and some pressures from some competitive things going on in the market, all in the spirit of finding pace–
Sheryl Palmer: Which we have.
Erik Heuser: –which we’ve found, right? I think we’ve already sold half in January what we sold all of last year in that.
Lou Steffens: Good point.
Doug Wardlaw: Got it, thanks. Then secondly, in terms of you guys mentioned some positive momentum through the first few weeks of February and this quarter. Regarding that, how should we think about incentives moving forward? If demand is to stay where it is now, do you expect to taper slightly on incentives, or how would that balance with what you’re thinking about doing with price cuts moving forward?
Sheryl Palmer: Yes, as I said earlier, I think we’re already seeing some reduction in our incentives across the board, and we’ll start there. We have been very selective in where we’ve taken base price adjustments. We continue to use finance as a sales tool, and as we mentioned earlier, we had so many great programs to help our borrowers overcome their obstacles in closing, so even with the little movement that we’ve seen in rates this last couple weeks, we’re really able to help our buyers in any way that makes sense for them. Sometimes it’s about getting a rate down, sometimes it’s cash to close. The other thing is we have been very successful most recently being able to buy forward below-market interest rates to give our customers the certainty that they need, and we’ve been able to do that on quick closing.
We’ve also most recently launched a new program, Buy Build Secure, that gives them a below market rate for a one-year extended for to-be-builts, so we’re really putting our focus around our finance incentives. Once again, it really, I think long term, protects the value of our communities, at the same time gives us predictability and gives our customers confidence and peace of mind to be able to move forward in their home purchase.
Doug Wardlaw: Got it, thank you guys.
Operator: Thank you. Our next question comes from Mike Dahl from RBC Capital Markets. Mike, please go ahead.
Ryan Frank: Hi, this is Ryan Frank on for Mike. Thanks for taking my question. I just wanted to follow up, see if we can get any quantification on the incentives. Do you have or are you able to quantify the incentives that you’ve seen so far year to date for either 4Q or last year?
Sheryl Palmer: It’s really difficult, which is why we’ve not provided that color in the past, only because it falls into so many different categories. You have–in some places where we have not reduced prices, base prices at all, and so in that instance we might have a higher incentive. We have other communities where we have made some pricing adjustments, so then you’d have maybe just some closing cost incentives. As you blend those numbers, to be honest, it doesn’t give you great visibility. I think the visibility you get is in the strength of our margin profile. You really have to take a deep dive almost community by community to understand the impacts of incentives. I have many markets across the country, when I look at the fourth quarter incentives, they were actually lower year-over-year, and some were higher.
Ryan Frank: Thank you. Then I think you guys are unique in forecasting flat land spend year-over-year, so I just wanted to break that out. Is that–will you be more aggressive on actually acquiring land this year, or is it really just kind of development spend to ramp up communities?
Erik Heuser: Yes, I think Ryan, as we’ve shared in prior quarters, we really had to pivot where most of our dollars are dedicated to development given the market conditions, but we are absolutely looking to be opportunistic, so we definitely could see a pivot, but the market is going to let us know when and where that is. I would say right now, conservatively we’re expecting flat and you should see a bit more focus on development for this year unless we see market conditions pivot, where we’d be more aggressive on the land acquisition side.
Sheryl Palmer: Yes, when the opportunities are out there, we have the dry powder, and as you can imagine, our teams are being very aggressive in working with land sellers and, in some places, they’re seeing some momentum with land sellers and there’s some that the sellers are just sitting in the sidelines. I think we’ll continue to update you on this one each quarter as we see market movement.
Lou Steffens: I think as Erik said, our teams did a great job getting our balance sheet in a great place at the end of last year, so we can be very opportunistic as those opportunities present themselves.
Ryan Frank: Got it, thank you. Very helpful.
Operator: Thank you. Our next question comes from Alan Ratner from Zelman & Associates. Alan, please go ahead.
Alan Ratner: Hey guys, good morning. Thanks as always for the great color. First question on the specs, so I’m curious if you look at the 60%-plus of your orders this quarter that were specs, how many of those were started intentionally as a spec versus reselling cancelled units from the back half of the year, and the follow-on to that is where do you see the spec share going? I mean, of the guidance for 10,000 to 11,000 closings, do you have a number in mind – I assume you do because you’ve got to plan for that based on your starts, but how many of those are actually going to be specs?
Lou Steffens: Yes Alan, good question. We do manage our specs by community, so if for example, we have a cancellation, that means we don’t have to start another spec. I think we just look at our specs on total by community, what we believe is the right balance, and the mix–you know, we have been close to that 60/40 split for a while. We love to-be-builts, but we react to the market as time progresses. There aren’t a lot of buyers out there that are really looking favorably to having those units close to completion, but we still see a balance of people that like to build their dream home, so we’ll adjust accordingly as the market shifts. But it’s been around that 60/40 split for the last several quarters and we’ll continue to balance it because, over time, we’d like to drift back maybe a little higher to to-be-builts, but we’ll move with the market.
Sheryl Palmer: Don’t you think, Lou, it will generally follow our consumer split? You know, the first-time buyer, I would say where maybe to-be-builts turned into specs, Alan, it’s probably in that more first time, maybe first move-up buyer. But I would say when you look at the second move-up and active adult, those generally continue to be a preferred to-be-built builder. We’ll put the specs in for those first timers, but we’ll be much more, I think, cautious in the higher price points.
Lou Steffens: Yes, and as we mentioned on the prepared remarks, we are ramping up our starts. We’re really pleased with having less than one finished spec per community, so we have some extra room to get some additional starts in the ground.
Alan Ratner: Got it, that’s helpful. My second question, this might have been more appropriate to ask six weeks ago given trends have clearly improved, but when you talk to your sales people on the ground and try to figure out the biggest challenges to selling more homes today, how would you rank order them between people that don’t want to give up their low mortgage rate in a resale or an existing home, affordability challenges, just general skittishness about the direction of the economy? What do you see as the greatest challenges today to prevent sales from being even stronger than they are?
Sheryl Palmer: You know, you’re right – that would have probably been a very different answer six weeks ago than it is today. We got some really interesting color from the sales teams in January when we were all on the road talking to them, and I would say even in the last 30 days, their answers would be very different. If I were to go back to the start of the year, it was much more about sentiment and affordability with what was happening to the rates and the fear of paying top dollar on both price and rate. Today, I would say that has moved to making sure they can secure the right home in the right community. I really do think we’re doing a wonderful job overcoming some of the affordability concerns with our finance programs and giving them that peace of mind.
It could be our 3-2-1 buy down for some consumers, it could be that forward Buy Build Secure program that I just spoke of, so I think we’re helping them overcome that. The other thing I’d say, Alan, is just the mix of consumers that we’re seeing across the board is really changing, and so it’s really sitting down and making sure that we have the programs in place to help them get to the end game, but it’s very different. I think the confidence that we saw, the lack of confidence that we saw at the end of last year, where people really–you know, if you go back six months, there were a lot of people that wanted houses that ended up not buying them, and I think they pulled back. I think we’re seeing those folks come back into the market today, and just really understand it’s about working with each of them individually.
