Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Green Brick Partners Inc (NASDAQ:GRBK)
Q2 2020 Earnings Call
Aug 5, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon everyone and welcome to Green Brick Partners Earnings Call for the Second Quarter ended June 30, 2020. Following today's remarks, we will hold a question-and-answer session. As a reminder, this call is being recorded and will be available for playback. A slideshow supporting today's presentation is available on Green Brick Partners website, www.greenbrickpartners.com. Go to Investors and Governance, then click on the option that says reporting, and then scroll down the page until you see the Second Quarter Investor Call Presentation.

The Company reminds you that during this conference call, it may make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including its financial and operational expectations for 2020 and the future. Investors are cautioned that such forward-looking statements, with respect to revenues, earnings, performance, strategies, including but not limited to, comments related to the anticipated impact of COVID-19 on our future operations, prospects and other aspects of the business of Green Brick Partners, are based on current expectations and are subject to risks and uncertainties. Those factors that could cause actual results or outcomes to differ materially from those expected, are set forth in our press release, which was released on Tuesday, August 4th, 2020 and the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission. Green Brick Partners' undertakes no duty or update any forward-looking statements that are made during the call. In addition, our comments will include non-GAAP financial metrics, the reconciliation of these metrics and the other information required by Regulation G regarding these metrics can be found in the earnings release that Green Brick issued yesterday and the presentation available on the Company's website.

I would now like to turn the call over to Green Bricks' CEO, Jim Brickman. Please go ahead sir.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Thank you. Hi, everyone. I hope this call finds everyone well. With me is Rick Costello, our CFO; and Jed Dolson, our President of the Texas Region. Thanks for joining our call. As the operator mentioned, the presentation that accompanies this earnings call can be found on our webpage at greenbrickpartners.com. At the top of the web page, click on Investors and Governance then click on the option that says Reporting, and then scroll down the page until you see the second quarter investor call presentation. I'll give everyone a second to do this.

Okay. Despite the challenges of operating during the COVID-19 pandemic, our Q2 2020 results are by far the best in the company's history and continue to demonstrate the remarkable growth trajectory of the company. Our Q2 2020 revenues, EPS and ending backlog were at all-time records and we could not be more thrilled with the results. The 69% year-over-year growth in pre-tax income is especially noteworthy, as these results were achieved while reducing our net debt to total capital to 23.7%. Throughout the current health crisis, we have continued to build and sell and close homes in all of our markets. After recognizing the increased market activity commencing in May and accelerating into June, we reinitiated much of the previously planned capital expenditures that we had placed on hold in March. This activity included construction of unsold units, purchase of lots and land, and development of previously acquired land that we are actively managing, in order to keep pace with the current sales progress.

As we move into the third quarter, we continue to see strong sales growth, as evidenced by July 2020, showing a 29% increase in net sales over July 2019. We have initiated moderate pricing with some of the cost input increases, like lumber, and expect to maintain our industry-leading high margins. We continue to monitor our fixed costs, to position ourselves to be responsive to changing market conditions, and we have delivered this growth, without returning to our prior overhead levels.

We remain optimistic that the pro-business markets in which we operate and the wide range of quality homes offered by our Team Builders, will continue to drive future success, despite the market disruptions caused by COVID-19. This optimism is grounded on the outstanding year-over-year sales growth we witnessed this May and June, where each month exceeded the same month in the prior year by 52% and 82%.

Please flip to slide 4 of our presentation. We are a diversified builder with eight brands in four major markets. Our diversification includes a wide array of product types and price ranges, including homes priced as low as $200,000 to homes priced in excess of $1 million. We believe the stratification of products will continue to appeal to a broad base of homebuyers, and expect our entry-level segment to continue expanding through the growth of our Trophy Signature and CB JENI brands.

Beginning in the fourth quarter of 2019, Green Brick made the decision to increase our equity ownership in most of our Texas builders. At the end of Q2 2020, our CB JENI, Normandy and Southgate Team Builders are now all wholly owned by Green Brick Partners and Centre Living Homes is 90% owned. We believe this increased control will lead to a more adaptable and efficient operation of our Texas region, that will empower our experienced management team and local operators to continue to produce superior risk-adjusted returns.

In fact, we are already seeing the impact of these trends -- I'm sorry, sorry, I jumped ahead of there. On slide 5, we highlight the resilience of our key markets of Dallas-Fort Worth and Atlanta. Like every other economy in the country, the COVID-19 pandemic created major disruption in commercial activity and led to a significant rise in unemployment during the second quarter. However, as shown on the graph on this page. Our DFW and Atlanta markets ended the quarter with the lowest and third lowest employment rates, out of the 10 largest metro areas in the United States. Additionally, the Dallas-Plano and Irving submarket had the second-lowest year-over-year increase in its unemployment rate in the nation. With 82% our ending active selling communities in these core markets of DFW and Atlanta, Green Brick is fully prepared to capture new homebuyers in these markets, as demonstrated in our robust sales growth in the latter half of Q2 2020. We believe the strong bounce back from the low seen in April 2020, is further proof that our focus on business-friendly, pro-growth markets is the correct choice, and will continue to differentiate us from peers.

Thanks to the superior markets in which we operate, Green Brick is poised to capitalize on what we believe are long-term positive shifts in homeownership. As seen on slide 6, the national home ownership participation rate has risen, since the Fed began reducing interest rates in August 2019. As of June 30, 2020, the National ownership rate now sits at 67.9%. This is a rate not seen since September 30 of 2008.

With interest rates expected to remain low for the foreseeable future, and an increased appreciation and demand for larger homes with dedicated work from home spaces, we fully expect this trend to continue. Strikingly, this quarter saw the ownership rate of buyers under 35 exceeding 40% for the first time since December 31, 2009, with the ownership rates increasing 30 basis points from Q1 2020 to end at 40.6%. Millennials currently represent the fastest growing ownership segment, and we believe this age group will continue to drive further increases in home ownership. While this trend will be constrained by the available supply of housing, we are of the opinion that this higher ownership rate, especially related to younger homebuyers, should at a minimum, be considered a new normal.

With homeownership of buyers under the age of 35 still 300 basis points below its peak in the mid-2000s, we feel that this shift represents a true secular change in the homebuilding marketplace that Green Brick Partners is fully prepared to address. In fact, we are seeing the impact of these trends in our current operating results as discussed on slide 7.

At Centre Living Homes, our urban single family and townhouse builder in Dallas, we have seen home sales to buyers moving out of apartments roughly double and have achieved some of the highest sales months in the brand's history. This trend is in line with the one-third of urban residents that have expressed desire to move out of high density apartments, and into less dense single family communities. At the same time, we have seen the average age of our loan applicants through our mortgage joint venture drop by 5%, as millennial buyers become more willing to purchase a home. This shift to a younger buyer has resulted from a 188% growth in our revenues generated by our Trophy Signature and CB JENI brands, measured by year-over-year for the second quarter of 2020. These Team Builders have grown to represent 40% of our home closing revenues in the current quarter, and are well-established to capture future demand in the DFW market.

With the median age of the Dallas and Atlanta populations well under the national average, we believe Green Brick is well positioned to meet the expanding needs of younger homebuyers. Further, as working from home has become more permanent among employers, we believe commute times will become a much smaller consideration for many homebuyers. As such, we expect buyers to find the larger floor plans, that have dedicated office spaces and minimal maintenance requirements offered in our suburban communities to be in much higher demand.

Jed Dolson, our President of the Texas Region will now speak in greater detail to our land position, and our gross margins. Jed?

Jed Dolson -- President of Texas Region

Thanks Jim. Please move to slide 8. John Burns Real Estate Consulting has published maps of our Atlanta and Dallas metropolitan areas, where they have designated grades on submarkets of most desirable being in A market, through most affordable being an F market, based on the variety of subjective factors, such as quality of schools, proximity of jobs and the existence of infrastructure for quality of life. We have overlaid the locations of our Green Brick communities, with green dots. The preponderance of our communities are in the submarkets rated as most desirable. In the current market environment, we believe that our superior market positioning will be key in differentiating our results from peers. This positioning is further strengthened by the lot supply shortage in both northern suburbs of Dallas and Atlanta, which we believe will be a strategic advantage for us, as we expect land development activity will slow in the coming months.

Our community count grew 20% from Q2 2019 to 90 active selling communities, as of June 30, 2020. As we continue to open more communities geared toward first time homebuyers. However, this increased focus on affordability, has not been at the cost of an increased risk. Based on our Q2 2020 home closings with our unconsolidated mortgage venture, Green Bricks saw an average FICO score of 758, with 85% of fundings exceeding a FICO score of 700. The creditworthiness of our average buyer profile is a fundamental strength of many of the A sub-markets where we operate, which we believe will continue to mitigate risk for our business.

Slide 9 of our presentation compares our year-to-date Q2 2020 gross margins with available peer data. Our gross margin reported for the six months ending June 30, 2020 was 23.1%. This was 170 basis points over the year-to-date results for Q2 of 2019, and with the second quarter gross margins up 10 basis points over our strong margins reported in Q1 of 2020. We believe our superior margin experience, is evidence that our conservative land underwriting and prudent planning or winning strategy that has left the company well prepared to manage pace and price during the remainder of 2020.

The next two slides demonstrate the significant improvements Green Brick has made in diversifying our product lines over the past two years. Let's first look at slide 10. As Jim mentioned earlier, with the addition of GHO Homes in 2018 and Trophy Signature Homes in 2019, we now offer eight unique brands, a robust single family growth in the year-to-date revenues of 108% from Q2 2018 to Q2 2020, is highlighted by GHO's net revenue growth of $36.8 million and Trophy's additional revenues of $71.5 million in the current year. GHO's and Trophy's homes sell at lower average sales prices, with more affordable age targeted product, and affordable products respectively. As a result of this product diversification, our ASP has decreased 7% since the end of the second quarter of 2018, all while maintaining higher-than-average industry gross margins and profitability. This improved affordability will be crucial in preserving, and hopefully improving our market share under the current economic conditions.

Slide 11 visually demonstrates that we have grown our revenues and provided stable earnings, by not concentrating on any one homebuyer segment. We now address six distinct customer segments, which all experienced strong revenue growth and sales volumes through June 30, 2020. This revenue growth is in line with our 35% year-over-year growth and year-to-date net new orders and demonstrates the health of our markets, despite the COVID-19 pandemic.

Our net new order growth breaks down as follows; net new orders of entry-level single-family homes and townhomes were up 341% in Q2 2020 versus Q2 2019, thanks to the terrific expansion of our Trophy Signature brand and the successful migration of our CB JENI townhome product to lower average sales price. Likewise, our net orders for the first time move up of single-family homes were up 96% year-over-year, due to the, due to the strong reception in our DFW market to Trophy's value oriented homes, in highly desirable suburbs of North Dallas.

Finally, our second time move up of single-family homes and urban homes in Q2 2020, was up 11% and 77% respectively over Q2 2019. This growth is driven by the move of urban millennials away from dense apartment living, as well as a demand for larger more intentional living spaces, as Jim mentioned earlier. Our expectation is for the entry-level segment, those homes priced under $300,000 to grow in size, in terms of community count, sales orders and closings. In that regard, during the rest of the calendar year 2020, Trophy's Signature Homes is expected to open eight additional entry level communities, up from the current 11 active entry level communities, across all Green Brick brands. In total, Trophy expects to open 15 new selling communities by the end of 2020, with most of these openings occurring in the third quarter of 2020.

Next Rick Costello, our CFO will discuss our first quarter and annual results in more detail.

Richard A. Costello -- Chief Financial Officer

Thanks Jed, and thank you all for joining us today to review our 2020 second quarter financial results. Please move to slide 12 related to our financial highlights. For the second quarter of 2020 versus the second quarter of 2019 and for year-to-date comparisons, here are some key operational metrics. Net new orders increased by 28.5% for the quarter. Now this increase was a function of a 6.8% increase in the absorption rate of net orders per community, as well as a 19.5% increase in average selling communities.

For the six months ended June 30th, 2020, our 35.2% growth is even more impressive, driven by a 22.4% increase in average selling communities, and a 10.2% improvement in absorption. Home deliveries increased by 40.4%, with residential unit revenues, up by 30.6% for the quarter. Year-to-date residential revenues improved by 24.7%, due to a 31% increase in homes closed. Our average sales price of homes delivered declined by 6.3% for the quarter and 4.5% year-to-date versus the comparable periods in 2019. These declines over that one-year period in ASP, are attributable to the increasing contribution of Trophy Signature Homes and CB JENI Homes Townhome division to our total revenues. Both of these builders sell homes at average sales prices that are below the average price for the company, and as Jed emphasized we believe this improved affordability will serve to preserve and improve our market share.

Year-over-year, homes under construction are up 4.9%, with homes started on a last 12-month basis, up by 20%. Our pause in construction starts related to the onset of the COVID pandemic was temporary, as we expect home starts to significantly expand over the balance of the year. The dollar value of units in backlog increased by 34.8% year-over-year and 4.5% sequentially. Now with the start shifting from pause to go, we expect our year-to-date growth in backlog in our expanding community count to drive closing growth next year.

As Jeff highlighted, homebuilding gross margin was up 130 basis points over Q2 of 2019, and adjusted homebuilding gross margin was up 110 basis points quarter-over-quarter, and sequentially was up 10 basis points over Q1 of '20. For the six months ended June 30, 2020, our homebuilding consolidated margin and adjusted homebuilding gross margins were up 170 basis points and 190 basis points respectively. So those year-to-date margins are even higher than our Q2 expansion.

Turning to operating leverage; Green Brick experienced a 120 basis point improvement and quarterly SG&A expense as a percentage of total revenues, as the ratio dropped to 11% in Q2 2020 from 12.2% in Q2 2019. Year-to-date, our SG&A expense dropped a similar 110 basis points from 12.9% in 2019 year-to-date to 11.8% this year for the six months ended June 30th. In addition to strong revenue growth in both the quarter and year-to-date of almost 27% each, we also benefited from the large reduction in overhead that we implemented at the end of the first quarter. Now that 18% reduction in employee headcount, which we enacted effective April 1, is largely still in place, as we have increased headcount from those reduced levels by less than 3% as of the end of the second quarter.

Our interest coverage of 14.3 for Q2 2020 represents a 96% growth over Q2 of '19, and clearly demonstrates our capacity to generate positive cash flow, well above our needs. Year-to-date, our interest coverage of 11.3 represents a 64% improvement year-over-year. And last, and most important, our bottom line Q2 2020 EPS set a new all-time record, obliterated it, up $0.67 for the quarter, an increase of 131% over Q2 of '19. And even without the benefit of the energy tax credits of $6.7 million, our EPS would approximate $0.53 for the quarter, and would still set an all-time record with 66% growth over the same prior-year quarter. Likewise, on a year-to-date basis, our EPS of $0.98 is 85% higher than the same period last year. Again, without the tax credits recognized this quarter, year-to-date EPS would still have been approximately $0.85, a remarkable 60% improvement over Q2 '19 year-to-date EPS.

Now please turn to slide 13; here we have compared our performance versus our small cap and mid cap peers, to show that our risk-adjusted growth and returns are uniquely strong. We've provided five measures on this slide. I should let you know that you can flip back to slide 20 in our appendix, which includes the calculation of how we equal weight of these measures and why Green Brick is at the top of the chart.

In the previous slide, we already discussed a remarkable 30.6% growth in residential unit revenues during the second quarter, which as Jim mentioned earlier, was primarily driven by organic growth at our CB JENI and Trophy Signature Brands. With both Team Builders focused on increasing our offerings of affordable product, this growth is expected to bring further diversification and reductions in our overall average sales price, that dynamic growth rate can be seen in the first data column, where our growth rate ranks very high among our peers. And as we demonstrated again this quarter, our industry-leading gross margins drove excellent returns on revenues again this quarter.

Also included on slide 13, is our year-to-date interest coverage of 11.3 times EBITDA, which is a function of great earnings combined with conservative lower levels of financial leverage and lower price deck. This lower leverage is reflected -- is also reflected in our low net debt-to-capital, the fourth metric, which indicates our reliance on organic growth, rather than leverage, to maintain strong operating cash flows. And finally, the last column we include pre-tax return on average invested capital to measure each builder's return, disregarding capitalization, the difference in leverage and tax rates.

Lastly, please look at slide 14, which focuses on our lower leverage, which I just discussed and as Jim stressed at the start of the call, we were able to achieve a record setting Q2 '20 results, while also decreasing our net debt to capital by 420 basis points. Our net debt-to-capital remains one of the lowest in the industry, which positions Green Brick to continue limiting risk, while preserving profitability.

I'll now turn the call back to Jim, who will wrap up our part of the call, prior to opening things up for Q&A. Jim?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Thanks Rick. With over four decades in homebuilding, I can say with certainty that the last few months have been really historic by nearly every measure of economic performance. The challenges and opportunities our company has faced have been unprecedented, and in large part, still remain, as we enter the latter half of the year. The past few months have truly vindicated that Green Bricks core operating principles are our winning strategy. Our goal is and always has been, to provide the best risk adjusted returns to our investors, by focusing on consistent growth, while maintaining a conservative balance sheet. Our operations are executed by a highly experienced management team, with deep roots in some of the best markets in the country.

Through a foundation built on strong relationships with employees, contractors, land sellers and developers, each of our Team Builders has been successful in establishing an organization that embodies core values that are set forth in -- we call called HOME, which are Honesty, Objectivity, Maturity and Efficiency. This success has allowed Green Brick to continue to achieve record-breaking results and will be instrumental to our future accomplishments. Despite the uncertainty surrounding the COVID-19 pandemic, I believe Green Brick has a very bright future. With our core markets of Dallas and Atlanta leading the national economic recovery and our uniquely structured Team Builder model, designed in part to quickly adapt to shifting consumer trends, we are well poised and eagerly prepared to capitalize on the new demand for quality homes across all price points and product points.

I'll now turn the call back to the operator for questions.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from the line of Michael Rehaut with JP Morgan.

Margaret Wellborn -- JP Morgan -- Analyst

Hi guys, this is Maggie on for Mike. Congrats on the quarter. First, I was hoping you could talk about the demand dynamics, as you moved from June into July? Obviously, you said July orders were up 29%, which is a very impressive number, but still a bit of a step down from June. So could you talk about some of the factors in the difference there? Was that mostly a function of the spike in COVID cases across your markets, or are there some other factors that you could call out, such as maybe release of pent-up demand that you worked through in June or something like that?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Yeah. Maggie, this is Jim and anybody else can chime in. But I think you hit the nail on the head. I think part we had a bit -- well, first of all June was unbelievable, in terms of the growth over prior June. But you're correct and some of that was pent-up demand. And so it would be almost impossible to replicate what happened in June for us, in any month going forward, and we were just thrilled you have 29% growth in July, as a year-over-year comp. So yeah, I think it was pent-up demand, that is not repeatable and that we're really thrilled about the trajectory so far in July, that we've seen really starting to continue into August.

Margaret Wellborn -- JP Morgan -- Analyst

Okay, thank you. And next, I appreciate the color around the expectation for Trophy community openings through the rest of the year. Obviously, Trophy is going to be the main growth vehicle kind of over the near to medium term. But as you look out over the next year or two, how are you thinking about growth among your other builders, and as a -- maybe as a percentage of the overall business, where do you think Trophy might land, once you've expanded it a bit more to kind of a more normalized level?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Well, Jeff can chime in after me, since Trophy is really in his child here in Dallas, much more than mine, with Stewart Parker that runs that brand for us so successfully. But Trophy is going to be our growth engine, for many reasons. One of the most important is, I think we have standardized our processes, procedures, and where we can export that model. It's a simpler model. It is a higher return on capital model, where we can export that into other markets. Right now, we're really not focusing on that. Jed, we're talking about 900-ish closings with Trophy next year. Again to remind our listeners, Dallas is such a huge market. We're doing about 40,000 housing starts in Dallas. Over 25,000 of those starts are entry level first time move up that we view Trophy being a very significant player in Dallas. So Trophy can grow to 7% of its target market in Dallas and still be 1,500, 1,700 homes, which is what we're going to focus on for the next 12 months. But I'm also looking at acquisition opportunities in other markets and within Texas to expand the Trophy brand there, when we think it's the right time.

Jed, do you have anything you want to add to that?

Jed Dolson -- President of Texas Region

No, I think Jim pretty much covered it.

Margaret Wellborn -- JP Morgan -- Analyst

And if I could sneak one more in, you said you're looking at possible acquisition targets in other markets, could you tell us what those -- which markets you're potentially looking at?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

We don't discuss particular markets and let me just preface that in that, I'm always looking at builders to buy, because we can learn every time we look and we see what fits and doesn't fit. But we don't have any specific markets I have a conversation tomorrow. Typically, these deals don't work. Generally, we're much more interested in growing organically for cultural reasons, and because in most instances, when we really go through the underwriting process, most of the private builders don't meet our return on invested capital hurdle rates. But we did make two wonderful acquisitions, one with Bill Handler, and GHO in Florida, that is this performing marvelously and the other is a minority investor with Brian Bahr and Tom Hennessy who runs that platform, and where we have a 49% ownership in Challenger, and those have been great deals for us. But they're just few and far between.

Margaret Wellborn -- JP Morgan -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Carl Reichardt with BTIG.

Carl Reichardt -- BTIG -- Analyst

Hey guys. Hope you're well? Thanks, as always. Jed, I just wanted to have one clarification question. You mentioned I think a slowdown or moderation and lot development activity in Dallas, and you've referred to that compared to your a lot position, which is, is quite solid. Can you just expand on what you meant by that, and what you're seeing right now in terms of developers getting back into the market or builders doing more self-development?

Jed Dolson -- President of Texas Region

Yeah, Carl. Thanks. Currently the Metro study and RSI and Dallas are projecting that we have a 18 month supply of lots, given the uptick in starts. So 24 months is typically standard lot supplies or undersupplied today, as we speak. And we're just seeing very -- we're seeing a lot of difficulties with the municipalities being able to hold public hearings with the staff being able to review plans. So we are very confident that there is going to be a lot shortage, and at least Dallas and possibly Atlanta.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

And Carl, one of the things we've done and we don't generally talk about prospectively, deals that we put under contract. But I can tell you that in May, when we started seeing things turn around, some sellers that we've been working with for a very long time, we had talked to and have -- where first, we usually get first looks or certainly among the first looks of any deals in the market, and we've been very aggressive in tying up some really nice properties to fund Trophy and our other builders growth into 2021 and beyond.

Carl Reichardt -- BTIG -- Analyst

Thank you, Jim. Appreciate that. Thanks Jed. And then back to Trophy Signature for a second and making sure I understand, I know Trophy is not just -- at pure entry level, there is that there is a first time move up element to it and some of the very first communities, where may be even slightly higher end then that. As you look at Trophy Signature sort of now and versus the end of the year, what is sort of the mix between what you'd consider true entry level versus a higher-spec entry level?

Jed Dolson -- President of Texas Region

So, Carl. I'll answer it this way. This is Jed again. Trophy sells currently from $225,000 to $575,000 price point. So we like the diversification. We look at it opportunistically, based on lot position. We feel like we have in that price range, we have a plethora of product to meet consumer demand, and so really at the end of the day, we are working backwards to, do we like the lot position, because we feel like we can deliver the vertical component.

Carl Reichardt -- BTIG -- Analyst

That makes sense.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

That being said, we're seeing more opportunities in the pure entry level spectrum.

Richard A. Costello -- Chief Financial Officer

Yeah Carl, this is Rick. As we said on one of our charts and I think, briefly, during the call, if Trophy is opening 15 new communities by the end of the year, eight of those 15 are going to be in the entry. So that's their increment at least for this portion of the year. But Jed's mentioning, what's coming up in 2021.

Carl Reichardt -- BTIG -- Analyst

Okay. Thanks Rick. And then last, just on the starts numbers that you've got, I think you're up 4% on starts, as it sits here with backlog having inflated some, Rick. How are you thinking about ramping vertical activity over the course of the next sort of two to three months to get that backlog delivered? Can we expect your cycle times to mix adjust? Can we expect your cycle times to extend or are you going to rush to get through that? A number of builders are sitting with very heavy backlogs on their light contractors right now. So I'm just trying to think about what your plans are to ramp starts to get those backlog units delivered?

Richard A. Costello -- Chief Financial Officer

Great question. We definitely are going to ramp up in the second half of the year, but on a community-by-community basis, there is nothing excessive about it at the individual level. It matches the demand that we have seen. It's going to push revenues into next year. But you'll see some higher than sustainable levels in total during Q3 and Q4. It's not just the next two or three months, but it's through the rest of the year, that will spread this across. We'll see it throughout our markets, including in Atlanta. But most predominantly, in the Dallas market. So the backlog and the -- typically, we don't look at backlog conversion rates. But what you can look at, is the units under construction, and typically what closes in the next -- from two quarters past to the current quarter that you're looking at, it's about 75% to 80%, and that seems to be reasonable on a going forward basis. But we are going to see that -- those levels increase through the end of the year to what you would have expected our year-over-year growth and ending units under construction would be, to match the growth and demand.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

And Carl, this is Jim. To answer your question about cycle times. We're seeing our cycle times improve. There are a lot more starts right now I think. As we look at all of our builders, in Dallas in particular, we're building how many homes a year right now, Jed and...?

Jed Dolson -- President of Texas Region

We're on pace for 2,000 in Dallas.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

And by combining basically purchasing, we move some key vendors relationships. We're seeing cycle times improve. We have seen some cost input pressure on some materials, particularly lumber, that's always hard to guess how that's going to play out throughout the year, but we're able to pass through, basically the input costs and the materials and higher prices on our houses right now. So it's really kind of a Goldilocks situation there. So we're very pleased with cycle times and input costs, which is why I think when we talked earlier, we think we're going to maintain really nice margins.

Carl Reichardt -- BTIG -- Analyst

Thank you, Jim. Thanks everybody.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Thanks Carl.

Operator

Your next question comes from the line of Matt Dhane with Tieton Capital Management.

Matthew Dhane -- Tieton Capital Management -- Analyst

Thank you. I was curious, I know in the past, workforce availability has been a real challenge with growing the starts. I was curious with the changed unemployment situation, Hat are you seeing today? Are you seeing people that are moving to the construction industry, as a workforce and making that a little less daunting for you folks?

Jed Dolson -- President of Texas Region

Yeah, Matt, this is Jed. Thanks for the question. Yes, we are seeing a migration. For example, the restaurant workers. We are now seeing get -- hired on by painting, and tile laying companies. The other thing that kind of gets lost in the start numbers is, most of these homes being started, are simpler and smaller square footage homes than were previously built in the past two years to even five years ago. So the simplicity of our -- we have really done a good job of simplifying our product, to make it easier on our vendors. Our plans are better today. They can get through the -- as Jim mentioned, they can build the houses faster. We're using larger subs, with more availability of workforce personnel. So yes, we are seeing some migration, and -- but we're also building smaller square footage homes.

Matthew Dhane -- Tieton Capital Management -- Analyst

Great. Thank you, Jed.

Operator

Your next question comes from the line of Aaron Hecht with JMP Securities.

Aaron Hecht -- JMP Securities -- Analyst

Hey guys, thanks for taking my questions. I like the insight that was provided on the buyer profile mix, and obviously, moving toward millennials, getting younger. But wondering if you're also seeing more single people buying homes? And are people from out of state becoming a higher percentage of the mix yet?

Jed Dolson -- President of Texas Region

Aaron, this is Jed. I'll take that. In our most recent mortgage data, we are seeing the preponderance of our buyers being renters today, and a little bit younger than they have historically been. Now just because they are a renter, doesn't mean they are in an apartment. But for example, our in-town division, we see that all of our buyers are apartment renters in that division. As we work our way to the suburbs, some are renters in stand-alone house, and with the mortgage rates are seeing -- are seeing this as the time to buy, given the low mortgage rates. We're seeing a little bit of immigration from out of state, but I think given the travel restrictions and just everybody's hesitancy to fly, we're not seeing that as strong, as we have in years past.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Aaron, this is Jim. Let me add one thing to that and it was so interesting. About three weeks ago, we had a buyer buy home from us, that was relocating from a major northeastern city. The buyer hired a national firm, Compass. We have a strong relationship with Compass here in Dallas. The buyer contracted for the house, never seeing. The buyer made all of the selections carpet, paint, colors, all of that over zoom. The buyer closed the home, never having visited the house or seen the neighborhood before. Now that's probably an anomaly, but technology has made all this possible. Our title can be really on top of how to close homes with COVID-19, and I think these kind of trends, I don't want to say this is going to be a universal thing, but I think our industry, we're going to see a lot more of these type of transactions possible that we never thought would have been possible. five years ago.

Aaron Hecht -- JMP Securities -- Analyst

Right. It's definitely interesting as to how the technology is playing out in your space today. Are you seeing a similar demographic dynamic going on with the buyers, looking at attached product versus detached? Obviously the detached demand way up, but still attached is up year-over-year, and despite people wanting to be in less dense environments. So any thoughts around the demand profiles there, and how you see it holding up?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Aaron, we're seeing an equally strong across our across our attached and detached. I think obviously attached, you're going to be in a little bit more urban environment. So I think the buyer profile is -- really they're choosing do they -- do they want the amenities and do they think the amenities of kind of, live, work environment are coming back or do they think they're going to be working from home for the next five years, and they want to get a dog and move out some place where they have a yard.

Aaron Hecht -- JMP Securities -- Analyst

Right. And then obviously you guys got as much demand as you could have wanted, as we got later into the quarter. But was wondering your thoughts on relationships with single-family rental companies to drive volume in the future? Seems like if more renters want to own or be in a single family home, percentage of them might be renters. So, any thoughts there?

Jed Dolson -- President of Texas Region

Well, we've been contacted by a number of rental housing companies, to ask, we would be interested in being in either joint venture, some kind of partner, and let me address that right off the bat, and -- we're a return on capital driven business, and we made a little over 14% return on capital, and we're never seeing a rental -- we've never seen a rental for sale community provide anywhere near that kind of opportunity. So I doubt whether we're going to get into that space, and we really haven't seen because the rental for home community, we really haven't seen that buyer show up and want to buy many of our homes, whether it's a Trophy Home, entry-level or one of our townhouses. So we haven't seen a lot of transferring from the rental homebuyer to our single-family buyer, or a townhouse buyer.

Richard A. Costello -- Chief Financial Officer

Aaron, this is Rick. Specifically on the married versus single, its fairly flat on that particular statistic year-over-year for Q2, where we are up maybe from 42% to 45% along those ranges.

Aaron Hecht -- JMP Securities -- Analyst

Okay. I appreciate those insights, guys. Nice quarter.

Richard A. Costello -- Chief Financial Officer

Thank you. Good hearing from you Aaron. Thank you.

Aaron Hecht -- JMP Securities -- Analyst

Thanks.

Operator

[Operator Instructions]. We have a follow-up question from Carl Reichardt with BTIG.

Carl Reichardt -- BTIG -- Analyst

Thanks. So I had one other question for you, Rick, actually. The valuation allowance reversal for lot options which we saw this quarter, are you anticipating potentially any more of those in Q3?

Richard A. Costello -- Chief Financial Officer

No. I think we're where we need to be and we have -- like Jim and Jed were talking about, we've got lots of new deals under LOI, that we're evaluating. So we don't expect to see any more allowance changes.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

I'd say the opposite. We have builders, Carl, calling us all the time, [Indecipherable].

Carl Reichardt -- BTIG -- Analyst

I figured as much, I think the question really is, of the significant alteration in thought process and strategy that happened over the course of like, basically four or five weeks, impacted the decision to reverse the valuation allowances. So I just wanted to make sure. Thanks guys.

Richard A. Costello -- Chief Financial Officer

You bet.

Operator

[Operator Instructions]. At this time there are no additional questions in the queue.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Okay. Well that concludes our call. So thank you everybody for joining us and we look forward to hearing from you this coming quarter. Thanks.

Operator

[Operator closing remarks].

Duration: 50 minutes

Call participants:

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Jed Dolson -- President of Texas Region

Richard A. Costello -- Chief Financial Officer

Margaret Wellborn -- JP Morgan -- Analyst

Carl Reichardt -- BTIG -- Analyst

Matthew Dhane -- Tieton Capital Management -- Analyst

Aaron Hecht -- JMP Securities -- Analyst

More GRBK analysis

All earnings call transcripts

AlphaStreet Logo

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.