Taylor Morrison Home Corp (TMHC) Q4 2020 Earnings Call Transcript

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Taylor Morrison Home Corp (TMHC -2.02%)
Q4 2020 Earnings Call
Feb 10, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Taylor Morrison's Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to introduce Mackenzie Aron, Vice President of Investor Relations.

Mackenzie Aron -- Vice President, Investor Relations.

Thank you. We appreciate your interest in our fourth quarter 2020 earnings conference call. I am joined by Sheryl Palmer, Chairman and Chief Executive Officer; and Dave Cone, Executive Vice President and Chief Financial Officer. Sheryl will provide an overview of our performance and strategic priorities, while Dave will share the highlights of our financial results, after which we will be happy to take your questions. We ask that you please limit yourself to one question and one follow-up.

Let me remind you that today's call, including the question-and-answer session, includes forward-looking statements that are subject to the safe harbor statement for forward-looking information that you will find in today's earnings release, which is available on the Investor Relations portion of our website. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the Securities and Exchange Commission and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release.

With that, let me turn the call over to Sheryl.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you, Mackenzie, and good morning, everyone. We appreciate your time this morning and sincerely hope that you and your families have managed to stay healthy and safe. To kick in today's call, I want to thank the Taylor Morrison team for their tremendous efforts and dedication to our customers and organization over the past year. Their commitment allowed us to navigate 2020's many challenges to deliver our strong fourth quarter results to cap off a pivotal year for our company and further position us to capitalize on our enhanced scale and expanding business opportunities.

To recap some of the highlights, during the year, we delivered over 12,500 homes, adopted new industry-leading digital capabilities that allow us to operate more effectively and pave the way for future innovation and expanded our growing build-to-rent operations. Our financial services team achieved record financial results and a mortgage capture rate over 80%, providing critical visibility into our backlog and highlighting the strong value and service our mortgage company offers our buyers.

Collectively, these strong results helped to drive our operating cash flow to a record high of $1.1 billion after investing $1.4 billion in new land and development. Additionally, we exceeded our deleveraging targets with a nearly 300 basis point sequential decline in our net debt-to-capitalization ratio to just under 39% and ended the year with ample financial flexibility.

This month also marks the one-year anniversary of our closing on William Lyon Homes, the largest and most transformative of our six acquisitions over the last seven years. I'm proud of the progress our team made to fully integrate into one company on schedule, despite having to do so almost entirely remotely through the pandemic. As a result, we are well on track to achieve our annualized synergy target of $80 million.

And lastly but surely not least, I'm very proud that Taylor Morrison was recently recognized as America's Most Trusted Home Builder by Lifestory Research in 2021 for the sixth consecutive year based on survey responses by nearly 50,000 home shoppers. To earn this trust, even during a pandemic, highlights our unwavering commitment to integrity and a differentiated experience for our home buyers that is core to who we are as an organization. These successes position us for an even stronger 2021 and beyond.

This morning, I would like to share with you our vision for the company's next chapter as we turn the page on our integration efforts and transition into the value creation phase of our strategic journey. After seven years of growth into the nation's fifth largest homebuilder, we are now focused entirely on pulling through the financial benefits of the enhanced scale, local market depth and consumer and geographic diversification that we have achieved along this journey. Our driving thesis behind our growth strategy has been our conviction in the benefits of our market share at the local and regional level.

With a top five market position in 14 of our 21 markets, including top three in seven of those markets, we have meaningful opportunities to drive top-line growth, improve efficiency and reduce costs. Our strategy playbook is grounded in a commitment to delivering attractive sustainable returns through operational effectiveness, and balance sheet efficiency. Our strong fourth quarter performance and 2021 guidance reflects the early results of our strategic growth, which we expect we will continue to build upon in the quarters ahead.

With our targeted market footprint and product portfolio now in place, the key to our future success rely largely in our operational efficiencies. While this has always been in the central pillar of our strategy, we recognize the opportunity to ensure the organization is operating at a level reflective of our enhanced size, industry-leading customer experience and valuable land positions. Topping our list of priorities is a drive toward stronger per unit profitability through improved gross margin and asset efficiency, which were temporarily impacted by our numerous acquisitions. Over time, we strive to again deliver margins that are competitive with our industry and expect our performance over the next two years to narrow the gap with our peers.

While the opportunity is greatest within our newly acquired communities where there is still meaningful runway to enhance construction and purchasing efficiencies to offset their high land residuals, there is also opportunity to improve our legacy margins to reflect the full benefit of our greater procurement capability, and other strategic benefits of our increased market presence. Now with William Lyon -- now that William Lyon is fully integrated, we expect our new starts to increasingly reflect these competitive advantages, which will drive improving performance as recently started homes convert to deliveries in the coming quarters.

Among the many ways we are focused on achieving this enhanced profitability is a renewed emphasis on scalable, repeatable processes, that ensure our best practices are fully utilized across our team, especially within our newer divisions. This encompasses everything from optimizing our strategic selling process, reducing our build cost through further planned rationalization and value engineering, maximizing our purchasing contracts and standardizing our option pallets, all with the intention of maximizing revenue, reducing costs and managing our cycle time.

In addition to these operational enhancements, we have also been focused on the management of our land portfolio. With our emphasis on driving returns, we have managed our land supply to ensure an appropriate level of lots to meet demand, while also taking advantage of opportunities to improve our capital efficiency. We have successfully driven our years of lot supply down to one of the lowest and most efficient levels in our company's history, while also growing our total lot supply to nearly 70,000 mocks. At year-end, this represented five and a half years of supply, which we believe is just slightly ahead of the optimal range for our product mix and community development expertise.

Most importantly, we have also expanded the share of our lots controlled via options and other arrangements to over 31% from a low of 21% in the third quarter of 2019, driving our own lot supply to 3.8 years. Within the next two years we're targeted -- we are targeting a controlled share of 40% as we look to further minimize risk and maximize returns. In 2020, we laid the groundwork for further progress on this front with more than 40% of our approved lots during the year controlled via options, joint ventures or other arrangements. We also restructured a number of William Lyon's previous ventures and land banking arrangements that will further enhance the cash flow and return profile of some of the acquired assets.

In addition, I'm excited to announce that in 2021 we expect to further improve the capital efficiency of our business with the introduction of new land financing vehicles and we will share more details in the coming quarters. Overall, we expect the land initiatives we have under way will support improved returns and enhance cash flow generation, while also reducing our long-term risk profile. These efforts will allow us to participate even more competitively in the land market, while remaining disciplined in our underwriting to acquire land where we see opportunities to drive profitable growth over the full cycle.

Before turning the call over to Dave, I want to share some comments on the current market. In the fourth quarter, we experienced strong sales growth across each of our consumer groups led unsurprisingly by the entry level. However, our active adult buyers are also increasingly reengaged in the market, and the early traction that we noted last quarter during the early winter selling season, drove strong sales activity through year-end. Additionally, our move-up communities are enjoying healthy demand among buyers eager to find a home well suited to their evolving needs and strong price appreciation has fueled mobility within our move-up price points.

In total, our fourth quarter net sales orders increased 46% year-over-year, driving our monthly absorption pace to 3.4 sales per community, tied with the second highest level in our Company's history and well ahead of normal seasonality. This strength has continued into the new year with net order growth accelerating to just over 50% in January, putting us on a strong path as we head into the spring selling season.

While we are leaning heavily on price in the current environment, where supply is extremely limited and demand is very strong, we do so in recognition of the importance of maintaining affordability, especially at our entry-level communities. As always, our diverse price points drive our approach to balancing price and pace at a community level with the intention of fully maximizing returns on each asset.

In addition, we are mindful of the marketwide limitations on capacity to efficiently deliver the industry-significant backlog of sold homes. With ongoing labor tightness, delays with the municipalities, and other supply side constraint unlikely to change in the near term, I think it's important to acknowledge the many bottlenecks constraining the industries' production machine.

At Taylor Morrison, I believe the operational priorities I laid out along with our enhanced scale that has further improved our access to land and labor is allowing us to navigate these challenges successfully. In addition, our teams are carefully monitoring sales and lot releases to align with the production capacity to avoid overextending our backlog. We're also working closely to manage our production paces and construction timelines by leveraging our long-standing relationships with our trade base to ensure our business continues to run effectively. Lastly, we're also remaining disciplined in our strategic selling and pricing strategies to ensure recovering construction cost pressures and maximizing our margin opportunity. With this backdrop in mind, we expect to increase our home closings by as much as 20% year-over-year in 2021, while also generating significantly stronger margin and return metrics.

Now, let me turn the call over to Dave, for his financial review.

Dave Cone -- EVP, Chief Financial Officer

Thanks, Sheryl, and good morning, everyone. In the fourth quarter, our adjusted earnings was $0.87 per diluted share after excluding transaction-related and other certain expenses. Our GAAP earnings was $0.72 per diluted share, up 41% from the prior-year quarter. Demand remained strong with our fourth quarter net orders of 46% year-over-year, driven by strength across our markets and consumer groups.

Our fourth quarter monthly absorption pace increased 31% year-over-year to 3.4 net orders per community, which was tied with the second-highest level in our company history, behind only last quarter's record-breaking sales pace. This strong success drove our average community count to 368 as faster than expected community close-outs due to elevated absorption levels outpace new community openings.

As a result in the first quarter, our average community count is anticipated to be between 360 to 365. For the full year, based by continuation of strong sales paces and planned community openings, we now expect our average community count in 2021 to moderate to between 360 to 365 before modestly rebounding in late 2022 and inflecting higher in 2023.

While we expect to open nearly 150 new communities this year, this strong growth will be partially offset by faster close-outs of existing communities than originally anticipated given the continuation of elevated sales paces. We ended the quarter with a company record backlog of 8,403 homes. This represented a sales value of $4.2 billion, which was up 86% year-over-year, positioning us for strong revenue growth in 2021.

We are accelerating our level of new home starts, closely managing our construction schedules, and working closely with our teams and trades to increase capacity to deliver our sold backlog and gradually rebuild our spec inventory. On a per community basis, our total spec inventory equaled 2.8 homes at the end of the quarter, including less than one completed spec home. This is below our typical run rate due to strong demand for new rent-ready homes as our spec starts are converting to sales at a faster than normal rate.

Based on our homes under contract and in production, we expect our first quarter closings to be between 2,850 and 2,950. In 2021, our full-year deliveries are expected to be in the range of 14,500 to 15,000, which would be up 18% at the midpoint compared to 2020.

Turning now to gross margin. Our fourth quarter adjusted home closings gross margin was 19% after excluding the impact of purchase accounting and inventory impairment. This was up 120 basis points sequentially from the third quarter. Our GAAP home closings gross margin was 18.3% up 110 basis points sequentially. Building on this strength, we expect our first quarter GAAP home closings gross margin to improve to the mid 18% range, which would be up from 15.4% in the first quarter of 2020.

As Sheryl mentioned, we have significant opportunity to drive operational efficiency across the organization and began to more fully realize the cost and operational synergies from our acquisitions. Additionally, we do not anticipate any material impact from purchase accounting in 2021. As a result, coupled with broad-based strength in the housing market, we anticipate our full-year 2021 GAAP home closings gross margin to improve to about 19% from 16.6% in 2020. This expected margin improvement accounts for the rising cost of lumber, other materials and labor, which we have so far been able to successfully offset with home price appreciation.

On a reported basis, SG&A as a percentage of home closings revenue improved 40 basis points year-over-year to 9.6%. We are committed to continuing to gain leverage with the increased scale of our business and anticipate our 2021 full-year SG&A to be in the mid 9% range. It is also worth noting that we incurred $17 million in transaction expenses during the quarter. This was ahead of our prior expectation due to costs related to the buyout of one of William Lyon's legacy joint ventures, that Sheryl mentioned, will enhance the long-term performance of the acquired assets.

Turning now to our balance sheet. At year-end, we had $1.3 billion of total liquidity. This included $533 million of cash on hand and $736 million of available capacity on our revolving credit facility, which was undrawn outside of normal course letters of credit as we paid off the remaining outstanding balance during the fourth quarter. This drove our net debt-to-capital ratio down nearly 300 basis points sequentially to 38.7%. Given the faster than expected progress in reducing the leverage we assumed in the William Lyon acquisition, we now expect to drive further deleveraging to the low 30% range by year-end versus our prior expectation in the high 30% range.

We will continue to be proactive in managing our balance sheet as market opportunities dictate and are targeting a net debt-to-capital ratio in line with our peers over the next two years. Overall, our capital and liquidity position are in solid shape and we will continue to manage the business within the context of our disciplined capital allocation framework. We aim to enhance long-term value of our company being balanced and opportunistic in our approach to investing in the business, managing our balance sheet and deploying excess capital to shareholders via share repurchases.

Our top capital allocation priority is investing in our land portfolio to support profitable growth. Since 2015, we have invested more than $6 billion in land acquisition and development, including $1.4 billion in 2020 before the consideration of our numerous acquisitions. In 2021, we are targeting an increase in our land and development investment to approximately $2 billion, which we believe is appropriate for the enhanced size of our business. We will continue to be prudent in our underwriting process and expect this investment to drive community count expansion beginning in late 2022 as we already own or control nearly all of the loss needed to support our strong anticipated growth over the next two years.

Lastly, our Board of Directors authorized the renewal of our share repurchase program for up to $100 million through year-end 2021. In December and January, we spent $32 million to repurchase 1.3 million shares at a 6% discount to our fourth quarter book value per share. Since 2015, we have spent approximately $670 million to repurchase a total of nearly 30% of our company shares at an average discount of 29% to our fourth quarter book value per share. Going forward, we will continue to utilize share buybacks as a means to return value to our shareholders.

To wrap up, I want to echo Sheryl's appreciation to our team for their hard work this past year that has positioned us to continue the positive momentum in the coming quarters. Thanks, and I'll now turn the call back over to Sheryl.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you, Dave. As we embark on this next chapter of our company's evolution, I'm excited about the opportunity before us to make further progress in achieving our vision of building a consumer-centric homebuilding operation that generates strong sustainable returns over the course of the housing cycle. The next phase of our journey began to knit a dynamic housing market, propelled by strong tailwinds that we expect will continue to drive healthy absorption levels and pricing power for the foreseeable future.

In addition, the new administration appears committed to finding new ways to further support affordability and housing development. At Taylor Morrison, we are well-positioned to capitalize on this strong environment through our traditional homebuilding operations, as well as our growing build-to-rent business. We recently announced the entry of our build-to-rent operations into Austin and have two additional markets slated for expansion later this year, which would bring our build-to-rent market count to nine of our 21 total markets.

While we remain mindful of the continued uncertainty amid the ongoing pandemic, I'm confident 2021 will be a defining year for our organization that begins a multi-year opportunity to drive improving returns. In 2021, we expect our focus on operational effectiveness and ongoing shift to lay on lighter balance sheet to drive our return on equity to the mid-teens range followed by further expansion in 2022 before considering the anticipated benefit from our evolving land financing vehicles. I look forward to updating you on our progress and sincerely wish you all health and the best of luck in 2021.

Now, I'd like to open the call to your questions. Operator, please provide our participants with instructions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jack Micenko with SIG. Your line is open.

Jack Micenko -- Susquehanna International Group -- Analyst

Hi, good morning. Dave, I wanted to just kind of go back to some of the margin commentary on the backlog. The purchase accounting benefit going forward, it sounds like it's going to fade and the walk from sort of an 18.3% GAAP to a 19%-ish GAAP on the guide. Is that just all now pricing power going forward or is there some sort of legacy tail benefit from a starting point at the beginning of the year on the gross margin as we look through '20 -- through '21?

Dave Cone -- EVP, Chief Financial Officer

Yeah, Jack, good morning. It's really two things, definitely pricing power, that's helping. But I think just equally as important, we're starting to see the margin improvement coming from the William Lyon acquisition as well. That was a big focus obviously getting that scale and now we're focused on operational excellence. So those are the two big drivers.

Jack Micenko -- Susquehanna International Group -- Analyst

Okay. Okay. And then, Sheryl, it sounds like at the corporate level, there is a pivot here somewhat from growth to returns. And you talked about some community count reacceleration in '22 and '23, do you expect returns to improve in the face of that community count growth? And then, when you think about '21, it sounds like you're maybe pivoting a bit more toward price than pace than maybe you had been in prior quarters, just given the backlog. Could you just talk about some of those moving parts?

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah, thanks. I certainly can, Jack. I think when you look at Taylor Morrison over the last few years, you're right, there's been a lot of growth as we talk about our six acquisitions, and you've seen a great deal of community count acceleration. But I think we've been talking for the last 12,18 months about really making sure that we optimize each and every asset that we have and making sure that the pace is appropriate to that asset when you look at all the competitive conditions and the runway that asset has.

So it's a combination, but return has always been at the forefront of our strategy, but obviously with every acquisition you take a slight step backward. So as I look today, it really is about optimizing each asset and that's a balance, that's a balance of price and pace. And I'll tell you that we deploy slightly different strategies on each asset but when I look at the whole and I look at the backdrop of market -- the market, you're absolutely right. I'm going to really take a slight pivot to price to make sure I can one, maximize each asset, two, to offset some of the pressures that we're seeing from the cost side and you just -- you have to take it when it's fair, Jack, and it's fair right now.

Dave Cone -- EVP, Chief Financial Officer

Yeah. And I'd say, it's also our strong ability to generate cash flow, that plays a significant factor. When you look at what we're doing, we're working up our margin just through the enhancements of scale, but we are definitely prioritizing cash and returns. We're looking at lightening our balance sheet going forward. We're going to use that excess cash to continue to reduce our debt, which we have debt not due until '23. So we have some flexibility, but then also couple that with buying back shares. And we're going to pivot between debt reduction and buying back shares based on market conditions, but it's all going to be focused on maximizing our returns.

Sheryl Palmer -- Chairman and Chief Executive Officer

We have the flexibility to do that now.

Jack Micenko -- Susquehanna International Group -- Analyst

Thank you, and good luck.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you, Jack.

Operator

Our next question comes from Carl Reichardt with BTIG. Your line is open.

Carl Reichardt, Jr. -- BTIG Research -- Analyst

Thanks. Good morning, everybody. A lot today...

Sheryl Palmer -- Chairman and Chief Executive Officer

Good morning, Carl.

Carl Reichardt, Jr. -- BTIG Research -- Analyst

Good morning, Sheryl. Thank you for the time today. And one just short-term question, can you talk a little bit about pricing power or sales performance by product segments and then talk a little bit maybe about how entry-level, move-up and active adult flash move down performed during this quarter? Are you seeing more pricing power with segments outside entry-level and how sales were per segment?

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah, we are -- to your point, we are -- have a number of strategies across markets and consumer sets and they can defer within the market from community to community. Carl, we really are seeing pricing strength across each of the segments, though, and really across all geographies with very few exceptions. When I look across the portfolio, we have something like 85% to 90%, Carl, of our communities that we would have deployed either or some sort of sales cap by month, limited releases level of very controlling to make sure that we can manage that pace with production and with each of those limitations comes additional pricing opportunities.

When I look across things like our pre-qualifications, those are up significantly, 35%, 40% from week-over-week and we're seeing that in each of the consumers. We talked in the last quarter about beginning to see some real nice traction on the active adult returning. And I will tell you the actual stat. We actually saw a tremendous year-over-year sales in the active adult. When I look at the Florida communities, great strength. When I look at our first and second move-up communities, that's probably where we also have probably some of the highest pricing power.

And as I said in my prepared remarks, with that first-time consumer, there is some pricing power. We just need to be very mindful of also keeping an eye on affordability and making sure that we don't price consumers out.

Carl Reichardt, Jr. -- BTIG Research -- Analyst

Hey, thank you for that, Sheryl. And then, a bigger picture question, and you talked about going to move margins up to closer to peer average and gave us sort of the sense of our [Technical Issues] next year or so. Longer term, what -- do you have a long term ROE or ROIC target that you think the business produce on a sort of an inherent basis at optimization? And if so, what are the -- what's in your mind the lowest hanging fruit to improve returns out of the strategies and tactics that you outlined? Thanks, Sheryl.

Dave Cone -- EVP, Chief Financial Officer

So, I'll jump in on that and I'm sure Sheryl will add in there, Carl. Returns are a little bit of a moving target just based on market conditions. I would say if you take the kind of the setting that we see today, ideally, we would be in the high-teens over the next couple of years and then expand from there. But as market changes that could either increase or decrease that obviously, you have the balance that with our ability to continue to reinvest in land and development. But as we also talked about, we're exploring different ways to lighten the balance sheet, which should hopefully free up cash that we can put to use to drive returns even further.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah, I agree, Dave. I think you -- I want to point to just one, Carl. I think you have to look across the board, we have the opportunity on the balance sheet, on the land side. We absolutely, as we've articulated, hopefully, clearly in the prepared remarks, we also have it on the operational side. So we're going to get it from everywhere and I think you'll see that focus continue.

I do want to go back, if it's OK, Carl, and just kind of double-down on some of the affordability factors, because I know there's so much noise out there around affordability and especially at this first-time buyer. So interestingly enough, we took some pretty hard looks at the buying power the consumer has today versus one year ago. And just looking at the interest rates, our consumers have probably 15% improvement on the same ASP on their monthly mortgage payment and at the more affordable level, that's very, very important.

When I take an average $300,000 house, just looking at the interest rates, gives our customers something about $60,000 of additional buying power, which honestly, they're not taking advantage of because a stat that I share with you guys all the time is how much room our consumers have and their ability to look at either interest rates or overall price. And on our conforming -- our conventional loans, our customers have still over 700 basis points. When I look at what they're qualifying for versus what they're buying and on FHA over 500 basis points. So there is still a lot of room from a consumer standpoint, now, we can talk about the emotional piece of that and say, then they may not want to axe their selves out, but we still have some runway.

Carl Reichardt, Jr. -- BTIG Research -- Analyst

Great. Thank you so much for that color, Sheryl. Thanks, all.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Matthew Bouley with Barclays. Your line is open.

Matthew Bouley -- Barclays -- Analyst

Good morning. Wanted to ask about some of those scale benefits you're seeing in those markets where you -- over Atlanta and scaled up with William Lyon. Sheryl you spoke quite a bit about it in your opening remarks, certainly the synergies, I guess captures some of the discrete parts of that, but I'm curious if you're starting to see the other benefits of scale that are maybe less immediately discrete? Are you finding more access to land, maybe at some of these new land financing vehicles that you're speaking about are part of that, something else going on with cost control? I guess what else are you seeing or expecting beyond the synergies? Thank you.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you. It's really all of the above. I mean, I believe that our land teams have always had great access to land. And it's really about those relationships in each and every market and through this cycle, we make sure we always invest in our land teams because you can't slow the market, just when you think you want it. So I think that's always been there, but of course the larger you are, the bigger the player, it puts you in a position to be able to look at larger assets, to maybe look at different kinds of partnerships. We just had a very unique opportunity at an auction here in Arizona, where we partnered with another large builder and overcame some other very significant partnerships.

So it would be naive to say that, that doesn't exist at the land market and what you're seeing and really what was I think obvious in Dave's prepared comments on the margin, is about the synergies. And we talk a lot about the synergies of the new acquired business but when you do something in combination of AV and William Lyon, you actually have to look at the benefit it provides to legacy Taylor Morrison units as well.

So we're really starting to see the benefit and recognizing that we are just now really looking at new William Lyon production units that are going to start coming through the P&L, because the -- all of last year was really about burning off their existing inventory. So we're going to see it at the national level, we're going to see at the local level, from a purchasing power, we're absolutely going to see it in the land market, and then you can't -- you have to look at all the ancillary benefits of your marketing dollars, and what those are doing for you, your team synergies, it's across the business.

Dave Cone -- EVP, Chief Financial Officer

I'll just add, maybe going back to the cost side, as Sheryl said, we're able to double down a little bit because we're looking at the total scale of the organization, especially at national and regional level. And that's really important, especially in more challenging times created by the pandemic, and now we're seeing about increased demand. That just gives you a lot more power when you're out talking to your suppliers and your trades as far as getting access to material, and I just -- that can't be overlooked as well.

Sheryl Palmer -- Chairman and Chief Executive Officer

That's a really important piece, Dave. I mean, in today's environment the trades can go anywhere they want, and so they have to want to come to our job sites.

Matthew Bouley -- Barclays -- Analyst

Okay, got it. No, that's really helpful color. Thank you, both. Second one, I have to ask back on the pricing side, just because of the order ASP of $527,000. It's just such a larger number compared to where you're closing prices are and I don't know if you're -- I guess you're not guiding on closing ASPs, but any commentary on like-for-like versus mix? And then, just kind of how we can think about closing ASPs in '21 in light of where you're selling today? Thank you.

Dave Cone -- EVP, Chief Financial Officer

Yeah, I think from a modeling perspective, where we are it's probably going to be somewhere in the 5-10 range from a closing perspective for '21. We definitely continue to see the pricing as you mentioned, you see it in the new orders coming through. Some of that is going to be partially offset by mix though as we move through the year. Ultimately, it will just be determined based on the strength of demand as we move through the year, but the 5-10 range is what we're thinking right now.

Matthew Bouley -- Barclays -- Analyst

Perfect. Thank you, Dave.

Operator

Thank you. Our next question comes from Ivy Zelman with Zelman & Associates. Your line is open.

Ivy Zelman -- Zelman & Associates -- Analyst

Thanks, guys. Congratulations on a great year. Sheryl, maybe you can dig in a little for us and I'm looking at your footprint, when you look at buyers that have come from out of state, have you measured where they are -- where that level is today as we've seen a lot of -- as we call the Great American shuffle continuing and where it compare -- where is it -- where it compared to prior periods? Have you guys tracked that? That's my first question.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah, of course, we do, Ivy. It's a great question, so I appreciate you asking it. Talking to the divisions and just looking at the data that's been coming through month-over-month, I would tell you the most significant shift I'm seeing in many of our markets and I would put Arizona, Colorado, Nevada and Texas at the top of the list, is the disproportionate amount of California in migration. In places like Las Vegas that could be 60% to 70% of our traffic. Then, what's really interesting...

Ivy Zelman -- Zelman & Associates -- Analyst

Wow.

Sheryl Palmer -- Chairman and Chief Executive Officer

Is you think about -- combine that with your pricing discussion, Ivy, and as you're seeing these kind of pricing ramp up, I'll take a market like Las Vegas, it's a little bit of sticker shock to the local consumer but to the California, it's actually still very, very affordable to the Californian. So we're seeing a great deal of California traffic. When I go to the East Coast, the good news that we talked about, we hoped we would see at the end of last quarter is we're actually seeing the same traffic...

Ivy Zelman -- Zelman & Associates -- Analyst

Wait, Sheryl.

Sheryl Palmer -- Chairman and Chief Executive Officer

Challenge in our active -- Yeah.

Ivy Zelman -- Zelman & Associates -- Analyst

Can you just -- sorry, for that 60% of the traffic in Las Vegas is compared to -- how does that compare to history?

Sheryl Palmer -- Chairman and Chief Executive Officer

That -- I'd have to dig into that and, Ivy, only because look this is our first year in Nevada. If I think about my history in Nevada...

Ivy Zelman -- Zelman & Associates -- Analyst

Or take Texas...

Sheryl Palmer -- Chairman and Chief Executive Officer

But that was way down...

Ivy Zelman -- Zelman & Associates -- Analyst

Or you could take Texas...

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah.

Ivy Zelman -- Zelman & Associates -- Analyst

Maybe take Texas. Take any market and just give us a relative comparison to prior period...

Sheryl Palmer -- Chairman and Chief Executive Officer

My guess, and then, I'll certainly...

Ivy Zelman -- Zelman & Associates -- Analyst

So we can gauge how significant is...

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. My strong gut would tell me that we're seeing probably a California penetration of double of what we've seen in the past. If it is anything different than that I'll get back to you, but I can look at traffic in sales and we're seeing a tremendous penetration in both. I mean, it's a startling number. And then, the good news is...

Ivy Zelman -- Zelman & Associates -- Analyst

Got it.

Sheryl Palmer -- Chairman and Chief Executive Officer

When I look at Texas, we're starting to see just a greater out-of-state penetration. When I look at Florida, we're seeing the active adult return from those Midwestern markets, those East Coast markets, New Jersey where people can sell their houses, New York. So we are starting to see a normalization in those traffic patterns.

Ivy Zelman -- Zelman & Associates -- Analyst

No, that's very helpful. And any details maybe post call on more specifics on the market migration should be helpful. So Sheryl, when you guys spent $1.4 billion on land, I'm not sure how much of that was on actual raw land versus finished lots, but just thinking about when we look at your assumptions in your underwriting, are you assuming the current absorption pace you're using today and today's prices, and do you see risk that all of the input costs that are rising that gross margins just because of your more conservative underwriting are going to be lower than where you are right now in backlog, when you'd actually develop that land or build on those lots?

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. Now, another good question, Ivy. So first thing I would share is that if I look at our 2020 impact or 2020 spend, it's probably the first year that we've actually spent more on development than acquisition. We've been close, maybe 45-55, but we were actually higher on the development side in 2020. When I look at '21 and I look at the $2 billion that Dave talked about, that's probably going to be 50-50. So it gives you some confidence that we'll be developing land that we've had for some time.

Dave Cone -- EVP, Chief Financial Officer

And that's up from the historical, which was probably 60% land.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah...

Dave Cone -- EVP, Chief Financial Officer

For the development...

Sheryl Palmer -- Chairman and Chief Executive Officer

It's is a need for...

Dave Cone -- EVP, Chief Financial Officer

So it's a marked shift.

Sheryl Palmer -- Chairman and Chief Executive Officer

Especially at these numbers, right. But then if you look at our underwriting and another really important topic, because we're in a unique place today. But first, I tell you that we're maintaining our long-term strategy around location. There is a lot of movement out to the fringe and we'll put our toe in there and we'll structure some deal, but very purposefully, we're going to be very careful at what level of our portfolio find its way out there, because when things do slow down and -- or when interest rates move, those will be the places most affected.

We're going to retain our strong processes and approvals, no appreciation in our underwriting, and we're back in a place where we're doing a lot of kind of hedging with sensitivities both around cost and pace and price, because if we were to take today's price and pace assumptions, that would be the way to put yourselves in future harm's way.

When I look at our 2020 underwriting, interestingly enough, and I compare it over the last 10 years, our land residual is actually lower in 2020 than our 10-year average. Now you can say, once again, maybe that's because prices have moved but that's over the full course of the year before we really start seeing that appreciation. So I actually feel real good about that. The duration of land we brought in and it improved in 2020 is slightly higher and maybe a month or two on our 10-year average. But once again, when you look at the approvals covering 40% being controlled, that also hedges our bet.

About 80% of the land we approved in 2020 was raw. And when I look at, once again, across just overall last 10 years, both our return and margin expectations are higher than we've seen in a number of years. I think price is a larger conversation, Ivy. And once again, that's why the sensitivities play such a key role, and what our land teams do is really ground their self on the forecast. So if you have a forecast that you've submitted at certain pace or price expectation, we're not going to do new underwriting at 20% higher, 10% higher of either. So hopefully that helps.

Ivy Zelman -- Zelman & Associates -- Analyst

Yeah. I guess, just more directly, if you could just thinking about what would be getting delivered in this period and in '22 based on what you bought land in '20. Will the margins be sustained where you have margins and backlog right now or assuming no future price increases?

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. I mean, if you want to talk specifically to '22, I would expect that our margin should move with the market. And given the pricing power, I would expect slightly higher. If nothing's stable because then I would expect our pricing power to be offset by cost pressures. So I would say same or better.

Dave Cone -- EVP, Chief Financial Officer

Yeah, I agree with that. From a margin perspective, there are still things that we put in place in Q4 of '20, Ivy, that just given the production cycle times. By the time those closings start to come out, they're going to be more late '21 and then definitely into '22. So that additional scale and benefit we get from scale will continue to come through at least through 2022.

Sheryl Palmer -- Chairman and Chief Executive Officer

When you think about your '22 closings, Ivy, a good chunk of that land is '19 land. So...

Ivy Zelman -- Zelman & Associates -- Analyst

Right.

Sheryl Palmer -- Chairman and Chief Executive Officer

As we articulated in the comments, we feel we have nice runway both on the margin and the return profile for the -- for a number of years ahead.

Ivy Zelman -- Zelman & Associates -- Analyst

Good. Good luck, guys. Thank you so much for your answers. Thank you.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you. Appreciate it.

Operator

Our next question comes from Michael Rehaut with J.P. Morgan. Your line is open.

Michael Rehaut -- J.P. Morgan -- Analyst

Thanks. Good morning, everyone. First question I had, I'd love to get a little bit better sense, Sheryl and Dave, when you talk about, in your prepared remarks, at the beginning, the opportunities to improve on the operational side and on the margin side, what -- and I believe you kind of put it in a two-year time frame. So talking about between now and the end of '22, what that can mean in terms of the amount of improvement that you're looking at?

And particularly, I am thinking about the gross margins here, which are kind of at the lower end of our universe range. You're guiding to about 19%, which is obviously a great improvement off of '20, but a lot of that is the purchase accounting burning off and again, you're still kind of at the lower end. So I was hoping to get a little more quantification in terms of where that 19% specifically could be over the next few years? And I know that you're looking at many different facets and also balance sheet and you underwrite to returns. But when you talk about the operational improvements, I was hoping to get better clarity in terms of maybe the top two or three buckets or areas and what that can mean from a margin standpoint?

Dave Cone -- EVP, Chief Financial Officer

Sure, Mike. Let me jump in, and Sheryl, I'm sure will add. It is hard to say what the margin rate will actually be in the future. You take something just like pricing, the dynamic around pricing and some of the cost increases we're seeing that makes it hard. So I'm going to look at it relative to our peer set, I'd tell you that we are where we want to be from a scale perspective now. And our focus is maximizing our margins through operational excellence.

Maybe a couple of the big buckets for that is definitely on the cost side. So again, we're beating the drum on this. The advantage that we get from a cost side with a larger scale, we've done a lot of that work in '20 and it will come through in '21 and '22. There is other things where we can simplify our process to help take costs further out, that's a large focus of us.

So I look at where we want our margin to be, we expect to be among the top performers in our industry, that's where we're focused, especially from a return perspective, but we know that we have the gap to close on margins and we have the plans in place to do just that. But it will take us a couple of years.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. And I would -- I think, that's right, Dave, and I pile on that just a couple of things, Michael. When you do acquisitions, the size of an AV and a William Lyon, and when -- I'm sure you remember those entered into the portfolio at a much lower margin rate, and you've got 10s of thousands of lots, and you can never change your basis on those lots. So all the things that we do in those first few years and you've seen it with our smaller acquisitions, I can go back and take you to Atlanta or Charlotte where we bought single market acquisitions, Michael.

And it's two or three years before you really see the traction because first, you have to start with your products, you're going to get your -- some of your initial efficiencies really quick with perfecting the product, you're going to get your national purchasing, you're going to get the benefits of that scale, but you still have to burn through that land. And where you really start to see the benefits is when you start bringing new land into that market, which gets the benefit of all of those operational efficiencies. So it's the simplification that Dave talked about, it's the national purchasing, it's making sure of the plan line-ups are adequate.

And if you think about the timing on that 19% margin, we're a year in. So we're just really now going to start to see our very first closings from William Lyon that we built and we're a year in on AV. And that's why when I look kind of to -- I mean, a year-in...

Dave Cone -- EVP, Chief Financial Officer

Beyond that.

Sheryl Palmer -- Chairman and Chief Executive Officer

I see 100% our own new starts that would be built, start at refine and built on the Taylor Morrison brand. So when I look at, like I said, other markets where we've done Orleans or Atlanta businesses over a two to four-year period, we've improved those margins by hundreds of basis points. So yeah, I know where we are. I'm very delighted with the 240 basis point improvement year-over-year from '19 to -- '20 to '21 that we're expecting and I think you'll see continued runway from there.

Dave Cone -- EVP, Chief Financial Officer

And I think when you look at -- for us -- our East region, that is primarily impacted by AV, no William Lyon in that number. And you can see quarter-by-quarter the progress on those margins and we actually continue to still expect more progress from here as well. So it just kind of to me it helps articulate Sheryl's point that after a couple of years you really start to see the benefit, not necessarily in the first 12 months.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. So the long game.

Michael Rehaut -- J.P. Morgan -- Analyst

Okay. I appreciate it. I guess, secondly, I wanted to switch gears to the sales pace. And you mentioned that your meter in sales right now in -- I believe you said 85%, 95% of your community. When you look at your sales pace, again I guess compared to the peer set, you're at a point in the back half doing 3.5 plus or minus per month. That's reasonable and I guess very much puts with your fairly and certainly as you're running a lot harder and other peers who have done so. So kind of looking at 2021, how would you characterize your ability to hold on to the current sales pace that you have? I mean, others are facing obviously very tough comps when they look into the back half of the year, but to the extent that you're kind of undervalue, so you could [Technical Issues] any idea. Just wanted to get a sense if you could give us an idea of what you think you could do in terms of sales per month on average in '21 and if you can kind of hold on to this mid-3s level throughout the year given that demand hasn't really fallen off at all?

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah, and there is a lot in there, Mike. So I'll give it my best shot. Because there's a lot that goes into that, right. You have a different strategy on every asset and it's hard. I appreciate your comments about the peer group but we all have various product profiles, different price points, and so it's hard to look at those direct compare. When I look at our sales pace in Q4, we have strong -- if you think about how the business has turned over the last few years, you're seeing 40%-50% in sales pace. When I look at January, our sales rate was very strong, I'm very pleased with the performance. It is stronger than what we saw in the fourth quarter and it came out the gate like January 2nd. I mean, the demand is out there. So right now, we're balancing that pace but even with stripping releases and capping sales, we are running higher paces. I'm going to balance that at some level, there is a direct correlation, Michael, as I sell more, I can't just replace that community count. So that's why you see some volatility in the community count numbers.

So I feel very good about our ability to retain the paces that we saw in the back half of last year. But at the same time, make sure that I don't let it get ahead of ourselves and we understand what those homes are going to cost us to build. So we'll continue to manage that down to the asset level. It's a different business today than what you saw one, two, three years ago, Michael. I mean, obviously when you look at the percentage of our more affordable product, we're running those at different paces, we are running those harder. So I think the paces that you've seen these last few quarters is more indicative of where you'll see us go in the future.

Michael Rehaut -- J.P. Morgan -- Analyst

Great, thank you so much.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you. Have a good one.

Operator

Our next question comes from Jay McCanless with Wedbush. Your line is open.

Jay McCanless -- Wedbush Securities -- Analyst

Hey, good morning. Thanks for taking my questions. The first one and I think you all touched on this a little bit, but it sounds like the mix in the backlog and potentially the mix of the communities going forward is going to be a little more heavier weighted toward move-up. Could you talk about what your split is now between move-up, active adult and first-time and where you think that's going to evolve through the year?

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. I don't really expect, Jay, a marked difference. I mean, if you look at our sales orders in 2020, it was about a third of entry-level, probably a quarter of active adult, and those would be your specified active adult 55-plus branded communities, lifestyle communities. And then, the balance is that first, second time move-up. There's a lot of blurriness between that first-time move-up and that first-time buyer because we're seeing a much more kind of financially capable, kind of waiting longer first-time buyer. So I would expect you'll see that blend generally continue.

Jay McCanless -- Wedbush Securities -- Analyst

Okay. That sounds great. And then, my other question -- and I apologize, I got disconnected during the call, but can you talk about some of these new land financing ventures and what type of impacts you're going to expect that have on gross margin?

Sheryl Palmer -- Chairman and Chief Executive Officer

You always --we are always looking at ways to enhance our performance and minimize balance sheet impacts. So we're working on a number of strategies to do just that. As I'm sure you know, Jay, we have very -- quite a few different relationships on the JV side, land sellers, with the absolute goal to lighten the balance sheet, enhance returns, and mitigate risk at this point in the cycle. So there is a few things we're working on, and I'll be excited to share with you over the next couple of quarters.

Dave Cone -- EVP, Chief Financial Officer

Yeah. What I would add is these kind of arrangements typically put pressure on margins but for everything we've talked about regarding our operational enhancements, we think we're going to be able to offset that. But this is definitely prioritizing cash and returns...

Jay McCanless -- Wedbush Securities -- Analyst

Sure.

Dave Cone -- EVP, Chief Financial Officer

Ahead margin. That said, we still believe we can drive accretive margins from where we are right now.

Jay McCanless -- Wedbush Securities -- Analyst

Sounds great. Thank you for taking my questions.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Mike Dahl with RBC Capital Markets. Your line is open.

Mike Dahl -- RBC Capital Markets -- Analyst

Hi, thanks for fitting me in, and appreciate the color so far. Sheryl, Dave, I wanted to go back with my first question to kind of the pace, but also kind of the community count and land discussion, and I'm definitely a big advocate for the returns' focus but to play some of that because if you look at your peer group, there has been a lot of reinvestment in land, there are tough comps across the industry.

I think your peers are still largely speaking, expecting some return to growth in community count, even while improving margins by the end of call it this year or maybe early next year. You guys have spent money on land, I mean, you talked about the acceleration and spend. So I wanted to ask, is there some sort of organized -- organizational constraint that's different for you than your peer group? Is it your development mix that's higher? Is it the -- is it that you're being more disciplined, staying close to the core versus going out to the fringes? Just any more color you can give on what to me seems to be a bit of a disconnect on the growth path there.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. I probably can't see it exactly the same way, Michael, as far as the disconnect. I think, right now, land in the markets, I think everyone's out there spending and it's a competitive market. We are going to stay disciplined in our underwriting, and as I've talked about, we'll retain our strategy of how far in the peripheral we'll go. We think that makes great sense as you go through the kind of the full cycle.

Having said that, there might be a couple of things that if I look at some of the assets with William Lyon that we've opted not to move forward on, but on the margin, not real different. We have a good appetite for new land. Having said that, we're going to underwrite it the right way. We have sold it at a much faster pace and we're not going to be able to replace those communities any quicker. But no, I wouldn't say there's any inherent differences in the structure, the financing of our land acquisition.

Dave Cone -- EVP, Chief Financial Officer

I think in the prepared remarks, we mentioned we are opening about 150 new communities. So we're focused on that, we are shipping the development dollars, as Sheryl mentioned earlier, 50-50 toward development. This is as much to do with the fact that we are selling through faster, coupled with A2R are some industry constraints with municipalities and the like as far as bringing in communities, openings. It's harder to accelerate those.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah, and we all have those.

Dave Cone -- EVP, Chief Financial Officer

And we -- yeah, we all have that challenge.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah. So think about the pace over two years, Mike, we've gone from running something in the low-2s to something in the mid-3s, it's a significant pace and we're just not going to replace those at that same speed.

Mike Dahl -- RBC Capital Markets -- Analyst

Right, so -- OK, makes sense. And certainly, I mean, understand the entire industry is seeing similar issues and maybe comps from others and upcoming and close to years as well. And in terms of -- and the up-seeing some more pressure than what some current expectations are, I guess, just as a follow-up to that, if the expectation is to maintain pace around the mid-3s, which makes sense given your mix and current trends, as we kind of look forward, I know you're not giving specific guide around '22 but conceptually, once we hit a point where absorptions flatten out and there is not community count growth until later next year, should we expect '22 to be more of a plateau year when we're thinking about revenues? Maybe there is a little lift from ASPs but from a volume standpoint, potentially a plateau on closings?

Dave Cone -- EVP, Chief Financial Officer

Yeah, Mike, it's a good question. I mean, I think first, I don't think you'll see a plateau on the revenue dollars, because I think we'll continue to see pricing power. But from a community count standpoint, as we mentioned, based on our current pace expectations, we'll see a little bit of growth in '22, but more so that inflection in '23. If paces beyond what we expect for this year, that's obviously going to put a little incremental pressure on community count going forward, but we'll just have to adjust and adapt to that but I would assume if that's happening, demand is good, and pricing remains strong, which should hopefully lead to our margin story of continuing to see margin accretion.

Sheryl Palmer -- Chairman and Chief Executive Officer

Yeah, I mean, we're going to continue to pace, Mike, the way we are and we'll make the decision asset by asset if we let it run harder given the market condition and wanting to take people out of the market. But outside of running the machine faster and putting, like Dave said, some timing pressure, I don't see it the plateau.

Mike Dahl -- RBC Capital Markets -- Analyst

Okay, got it. Thank you.

Operator

Thank you. Our last question comes from Alex Barron with Housing Research Center. Your line is open.

Alex Barron -- Housing Research Center -- Analyst

Yeah, thank you. So I guess over the last couple of years, you guys doubled your size through the AV Homes and the William Lyon acquisitions, I'm kind of wondering going forward, are you still open to more M&A or is it -- is the focus going to be more on organic growth?

Sheryl Palmer -- Chairman and Chief Executive Officer

Today, Alex, I would tell you, we are head down and we're going to make sure that we operationalize this -- these last two large acquisitions and fully get the benefit of the dollars we spend coming through the business. You never say never, but it's not something we're spending time on today, so we can talk about the future if that gets here. But right now, we are appropriately busy on making sure that -- and focused on making sure that we get the benefit, the scale that we integrate our teams. I mean, I'm looking forward to the day where I get to bring the William Lyon team members back to work because we sent them home almost immediately after the acquisition.

So, no, we're pretty busy with what we're on and as Dave said, we've got about $2 billion of organic growth plan for 2021, about half of that is new land and about half of that is developing the land we've been acquiring over the last couple of years.

Alex Barron -- Housing Research Center -- Analyst

Okay, thanks. And on the share repurchases, I think you guys just mentioned you were going to do that, but is that going to be more systematic or just more opportunistic?

Dave Cone -- EVP, Chief Financial Officer

We've been very consistent over the last many years buying back stock, but it's been at varying levels and it's because we try to be a bit more opportunistic but we do see that as a critical component of our plan to continue to drive our returns higher.

Alex Barron -- Housing Research Center -- Analyst

Okay, great. Well, best of luck. Thank you.

Sheryl Palmer -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. This concludes your question-and-answer session. I would now like to turn the call back over to Sheryl Palmer for closing remarks.

Sheryl Palmer -- Chairman and Chief Executive Officer

Well, thank you. Really appreciate everyone joining us for our wrap-up for 2020, I'm excited about what 2021 brings and look forward to speaking to you next quarter. Take care of yourselves.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Mackenzie Aron -- Vice President, Investor Relations.

Sheryl Palmer -- Chairman and Chief Executive Officer

Dave Cone -- EVP, Chief Financial Officer

Jack Micenko -- Susquehanna International Group -- Analyst

Carl Reichardt, Jr. -- BTIG Research -- Analyst

Matthew Bouley -- Barclays -- Analyst

Ivy Zelman -- Zelman & Associates -- Analyst

Michael Rehaut -- J.P. Morgan -- Analyst

Jay McCanless -- Wedbush Securities -- Analyst

Mike Dahl -- RBC Capital Markets -- Analyst

Alex Barron -- Housing Research Center -- Analyst

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