Century Communities Inc

NYSE:CCS

Earnings Call Transcript 2017-Q4

[Operator]

Greetings, and welcome to the Century Communities Fourth Quarter and Full Year 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I’d now like to turn the conference over to your host, Mr. Scott Dixon. Thank you, you may begin.

[Scott Dixon, Chief Accounting Officer]

Good afternoon, we would like to thank you for joining us today for Century Communities Fourth Quarter and Full year 2017 Earnings Conference Call. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management’s current expectations and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. The company undertakes no duty to update any forward-looking statements that are made during this call. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company’s presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Management will be available after the call should you have any questions that did not get answered. Hosting the call today are Dale Francescon, Chairman and Co-Chief Executive Officer; Rob Francescon, Co-Chief Executive Officer; and David Messenger, Chief Financial Officer.

With that, I will turn the call over to Dale.

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Thank you, Scott. Today on the call, I will review our operating highlights and business updates. Rob will then discuss our homebuilding markets. Afterwards, Dave will follow up with further details on our financial results, balance sheet and 2018 outlook. Following our prepared remarks, we will open the lines for questions.

2017 was an exciting year of significant growth for Century Communities. We achieved record levels of net new home contracts, revenue, deliveries and backlog and accomplished this, while maintaining stable gross margin performance within an environment of increasing costs. We executed our strategy of dynamic growth through both strong performance in our legacy operations as well as the acquisitions of UCP and Sundquist Homes in the second half of the year, which further expanded and diversified our geographic footprint into a variety of additional attractive U.S. markets.

As a result, we delivered our 15th consecutive year of profitable performance. Since 2012, we have expanded home sales revenue, operating income and adjusted EBITDA, each by a factor of over 11 times and our geographic presence has grown from one to 10 states. Our Number 1 ranked in annual revenue growth and is the 26th fastest growing company in The United States as recognized by Fortune Magazine, along with double-digit growth in earnings per share is reflected in the strong performance of our total returns over the past several years.

Our business today has a variety of favorable underlying attributes, which did not exist when we began our transformation five years ago. Our dramatically expanded business and geographical scale has and does allow us to generate impressive year-over-year results as evidenced by our record growth in 2017. We have increasingly stable and predictable performance and better forward visibility as a result of our more established operations, and we have realized sustained enhancements in returns on equity and expect to generate even greater investment returns in 2018 and beyond.

Excluding the impact of one-time charges related to the remeasurement of our deferred tax asset and our homebuilder acquisitions. Our adjusted net income was $28.8 million an increase of approximately 90% from the prior year’s quarter. Net income for the quarter was $17.2 million.

We grew home sales revenues to record $517 million, an improvement of 77% from the prior year quarter led by a 62% increase in home deliveries. This progress is a result of our continued multi-year execution on our business strategy, which includes, creation of a dynamic and scalable national homebuilding platform, a focus on pinpointing operations in attractive markets with sound economic fundamentals; maintaining a strong capital position to support accretive strategic investments; the acquisition of attractive land parcels to capitalize on the robust demand in our markets; and a commitment to driving continual execution improvement in all aspects of our business.

Beyond our core homebuilding operations, our joint venture and financing divisions have each surpassed our expectations, contributing pretax income in excess of $13 million during 2017 and meaningful returns on investment. The performance of our joint venture partnership with Wade Jurney Homes has been extremely positive and allows us to further benefit from the increasing demand from first-time buyers through a high returning asset-light model. Since the inception of the joint venture in November 2016, our share of income from the venture has reached over $12 million, more than validating our initial investment of $18 million.

During 2017, the venture sold 3,319 homes and closed 1,742 homes for $258.8 million in revenue, representing year-over-year increases of 101%, 54% and 60%, respectively. We’re also pleased with the results of our financial services group, which provides mortgage and title services in order to create a one-stop solution for our homebuyers. We began this operation in the fourth quarter of 2016 and continued to scale it throughout 2017. This effort was profitable for both the fourth quarter and the full year, incrementally contributing to our earnings. We continue to view this business as an attractive driver of ancillary profits and enhanced returns that will become a meaningful contributor to the company’s results beginning in 2018.

The tremendous success of all of our strategic efforts gives us added confidence as we look to continue the advancement of our long-term growth strategy. Looking to 2018 and beyond, we are confident in our prospects for continued growth and profitability in this positive homebuilding environment.

I’d now like to turn the call over to Rob to discuss our markets in greater detail.

[Rob Francescon, Co-Chief Executive Officer]

Thank you Dale, and good afternoon everyone. We remain extremely optimistic on the homebuilding industry. Buyer confidence remains strong and higher FHA loan limits should allow new homebuyers to enter the market. To date, we haven’t seen a slowing in demand as a result of the recent interest rate increases.

Our record fourth quarter operating performance was driven by significant growth in net new home contracts, deliveries, home sales revenues and backlog. We experienced good results throughout our diverse mix of products supported by strong market fundamentals and newly acquired assets.

Fourth quarter net new home contracts grew 62% to 922 homes with organic growth accounting for approximately half of that increase led by our Texas and Southeast regions. We were encouraged that our absorption pace improved by 21%, which combined with more selling communities, allowed us to end the quarter with homes and backlog up 76% to 1,320 homes. This represented a backlog dollar value that was up 89% from the prior-year to $573 million. This significant increase in backlog homes and value positions us well for a continuation of strong results in earnings in 2018.

We ended the year with land inventory in excess of 30,000 lots in many of the most robust U.S. homebuilding markets. We have demonstrated our ability to deploy capital at attractive returns and see many opportunities to replicate that success in both new and legacy markets. At quarter end, approximately 50% of our land was controlled, rather than owned, compared to less than a third as recently as 2015. We expect to continue sourcing additional land parcels with a similar weighting towards controlled land to accelerate our scale, while preserving our financial flexibility.

Looking at our market portfolio, our increasingly diverse geographic footprint over 10 states provides us with balanced exposure to many vibrant economies, along with a more stable growth profile.

Starting with the West, the Seattle home-building climate is one of the strongest in the U.S., featuring robust job growth and demand for homes, which outstrip supply. Our performance in this market is benefiting from record low inventory and enhanced land positions due to our recent acquisition of Sundquist Homes. In California, we have also begun to strengthen our land positions by acquiring additional lots since entering that market. All of our California markets, which, include the Bay area, Central California and Southern California, are experiencing steady traffic, sales and price appreciation trends, driven by solid economic backdrops.

Our Mountain region experienced solid growth with homes sales revenues up 22% year-over-year. This improvement reflected solid demand in Colorado, along with steadily improving operations in Utah. In Las Vegas, a strengthening economy is creating constructive job growth and affordable product continues to outsell other segments.

Each of our markets in the Mountain region is benefiting from employment growth, home price appreciation and limited new home inventory as evidenced by low resale supply of less than three months supporting solid demand. These positive market conditions have been partially offset by a tightening supply of labor. In Texas, we increased our lot positions by 26% year-over-year.

Our pivot to lower price point homes has generated an increase in demand as highlighted by home sales revenues up 42%, net contracts up 50% and backlog up 42% year-over-year. Demand at the Houston market is generally recovered from the tragic impact of Hurricane Harvey. In San Antonio, stable conditions persist given the solid job growth and moderate price appreciation. In Austin, lower wage employment growth is helping sustained growth in the entry-level buyers.

Looking at the southeast, strong performance from new communities, along with the addition of UCP’s operations in Tennessee and the Carolinas, allowed us to produce favorable results across all metrics. This included a 47% increase in home sales revenues, 41% growth in backlog units and a 52% improvement in the backlog value. In Tennessee and the Carolinas, we recently opened new communities to take advantage of the robust demand in these attractive markets where home price appreciation has been steady as evidenced by an 8% increase in the average sales price of homes and backlog.

Supply is low in both Nashville and Charlotte, with the most popular homes selling between prices of $250,000 to $400,000. In Atlanta, sales pace has been steady at all price points. We are encouraged by the positive fundamentals in our markets. We believe our positions in these attractive regions of the country will continue to drive meaningful growth in new contracts, home deliveries and earnings. We are taking advantage of our strong local and national scale to carefully manage both labor and material inflation prevalent across the nation. We intend to continue implementing our strategy of dynamic growth and strengthening our presence in vibrant markets in order to continue growing revenue, profitability and returns on equity.

I will now turn the call over to Dave, who will provide greater detail on our financial results and outlook.

[David Messenger, Chief Financial Officer]

Thank you, Rob. During the fourth quarter of 2017, we continued to successfully integrate our recent acquisitions, experienced strong operational performance and ended the quarter with a stronger balance sheet. Net income for the quarter was $17.2 million, while adjusted net income excluding one-time acquisition charges, purchase price accounting and the impact of the remeasurement of a deferred tax asset was $28.8 million or $1.01 per share compared to $15.1 million or $0.71 per share in the prior year quarter. Our full year net income was $50.3 million and adjusted net income was $71.1 million or $2.87 per share compared to $50.1 million or $2.36 per share in the prior year.

Adjusted EBITDA in the fourth quarter of 2017 grew 90% to $58.6 million compared to $30.9 million in the prior year quarter. Adjusted EBITDA for the full year, was $150.5 million up 50% compared to $100.3 million in 2016.

Home sales revenues for the fourth quarter increased 77% to a record $516.5 million compared to $292.4 million in the prior year quarter. This improvement in revenues was mainly driven by 62% increase in home deliveries to a company high 1,311 compared to 812 homes in the prior year quarter. Our average selling price was up 9% to $394,000 in the fourth quarter of 2017, reflecting favorable product mix and core price momentum, along with a positive impact, primarily from the acquisitions of UCP and Sundquist in the West. For the full year, we grew home sales revenues by 44% to $1.4 billion in home deliveries by 29% to 3,640 homes.

Net new home contracts for the fourth quarter increased to 922 homes, an increase of 62% compared to 569 homes in the prior year quarter, mainly due to the addition of the new West region and stronger demand trends in all legacy regions driving an overall improvement in absorption rates. For the full year, net new home contracts rose 33% to 3,814 compared to 2,860 homes in the prior year.

Our adjusted homebuilding gross margin percentage, excluding capitalized interest and purchase accounting impacts from cost of sales expanded in the quarter to 21.7% compared to 21% in the third quarter and 21.4% in the prior year quarter. For the full year, adjusted homebuilding margin percentage – percent was stable at 21.4% compared to 21.7% in 2016.

As a reminder, during the first half of 2018, we will continue to see purchase pricing accounting impact on UCP and Sundquist deliveries from homes under construction prior to the acquisition. We expect nearly all of this inventory to roll through the system over the next two quarters. Excluding this onetime impact, we continue to project a stable margin profile for our portfolio, as we further monetize the UCP assets and benefit from national purchasing synergies and other cost-savings initiatives made possible by our enhanced scale.

While we continue to experience increases in labor and material input costs, we have been able to deliver a stable adjusted gross margin performance by attention to our business and taking advantage of our strong local and national scale.

SG&A as a percent of homebuilding revenues was 12.1% for the fourth quarter compared to 11.9% for the prior year quarter. This was a result of numerous investments in personnel to support our growth, the ramp-up of new divisions and the integration of the Sundquist and UCP portfolios. SG&A as a percent of homebuilding revenues for the full year was flat year-over- year, which includes our investments in 2017, I just mentioned. We made significant strides in expanding our financial services subsidiary, which began to contribute profitable results in the second half of 2017, including $5.2 million of revenue in the fourth quarter of 2017.

JV income during the fourth quarter was $4.5 million, as a result of 565 deliveries, which demonstrated the ventures continued success from focusing on the first-time buyer.

Now turning to our balance sheet and liquidity. During the full year 2017, we were able to issue 3.6 million shares under our ATM for $98.9 million or $27.31 per share with the proceeds used to match fund land acquisitions and improve our leverage profile consistent with our previously communicated goals.

As of December 31, 2017, we had total debt of $825 million with total liquidity of $527 million including $127 million of cash and the full availability of our $400 million unsecured revolver. Our net debt- to-capital ratio stood at 48.7% at December 31, marking an improvement of 51% from the end of the third quarter. We are pleased with the substantial improvement results across our increasingly diverse geographic footprint during 2047. The outstanding work of our entire Century’s team has been instrumental to our success, and we anticipated another strong year performance and record results by achieving sustained progress on all of our dynamic growth objectives.

As we move further into 2018, we plan to deliver another year of earnings improvement as we take advantage of strengthening positions in legacy markets and ramped-up activity in more recently entered markets. The additional stability provided by our expanded scale gives us confidence heading into 2018.

With these points in mind, we’re excited to introduce our full year 2018 outlook. We expect deliveries to be in the range of 4,500 to 5,000 homes and home sales revenues to be in the range of $1.75 billion to $2 billion. We expect to end the year with between 130 and 147 selling communities. While we do not provide guidance on a quarterly basis, we expect net income trends to be seasonally similar to 2017. Our first quarter will experience our lowest closings and net income. After the first quarter, we expect earnings to grow as the year progresses. In regards to our tax rate for 2018, we expect to incur an income tax rate of 25% compared to 35% in 2017 not including the DTA remeasurement.

In closing, housing fundamentals remain positive, and we believe, we are poised to capitalize on strong housing demand, job gains and increased economic activity in 2018. Our operating and financial progress to date has provided us with an exceptional platform and has turned Century into one of the largest and most respected homebuilders in the United States. We continue to expect to achieve meaningful synergies from the integration of UCP and Sundquist, generate financial advantages from our national purchasing initiatives and realize increased SG&A efficiency. We have a very strong pipeline of potential investments and new communities in order to achieve our strategic growth objectives, while improving our earnings and returns on equity.

Operator, please open the lines for questions.

[Operator]

[Operator Instructions] Our first question comes from Michael Rehaut of JP Morgan. Please proceed with your question.

[Neal Basumullick, JP Morgan]

Hey, good afternoon. This is Neal Basumullick for Mike. I guess, I wanted to start on the wage, which has been very impressive, especially considering the investment. So I guess, can you update us on your expectations, how it – for the JV, how it may have changed? And I guess, more broadly what are they doing right? And then maybe if you could also update us on your entry into Phoenix?

[Dale Francescon, Chairman and Co-Chief Executive Officer]

In terms of our expectations, we’ve really experienced better growth there than we had anticipated and that’s what’s translated into the better financial results. But it’s such a different model than what we operate in the Century platform as well as virtually everybody else operates. And as we’ve talked about it before, all the sales activities are done out of retail centers. They don’t use model homes. It’s very much of an asset-light model. There is very little land on the balance sheet that doesn’t have a house under construction on it. And the combination of all of those things, along with the focus on the entry level and sub-entry level buyers really what has continue to drive success there.

[Neal Basumullick, JP Morgan]

Okay. That’s helpful. I guess, just on SG&A, you’ve been obviously, you been investing there. And UCP is still early stages, but you’re still running a bit above where you might want too. So I guess, given the uptick in revenues you’re expecting, when do you see leverage starting to kick in?

[David Messenger, Chief Financial Officer]

Yes, this is Dave. I think you will start seeing leverage kick in over the course of 2018 consistent with what we’ve kind of messaged in the past couple of quarters. There we’re still expecting synergies, $10 million or so from the UCP transaction. And as we said over the past couple of years, we’ve really built Century to be able to withstand a variety of states, a larger amount of revenue, so as I said as that came in, we’d really start to feel to leverage the SG&A platform. And I think that heading into 2018 and 2019, we start to see that leverage at the bottom line.

[Neal Basumullick, JP Morgan]

Okay. That’s great to hear. That’s all for me.

[David Messenger, Chief Financial Officer]

Thank you.

[Operator]

Our next question comes from Will Randow of Citi Group. Please proceed with your question.

[Will Randow, Citi Group]

Hey good afternoon and congratulations on the progress.

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Thanks, good afternoon.

[Will Randow, Citi Group]

I guess, in terms of the strength in your absorption rates, do you feel like you’re pushing pricing aggressively enough? Or is it really a function of kind of fine-tuning, one, some of the acquisitions you guys have tucked in? And two, just improving the overall a precore business, if you will?

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Yes. It’s always a balance in terms of that. And there’s there is absorption rates at different at subdivisions. But in general, we’ve seen very strong demand trends in all of our markets. We saw it really throughout the fourth quarter. And when we look at each month during the fourth quarter, it was pretty consistent. The year-over- year increase with what we experienced for the entire quarter being up 62%. When we look at so far this year, January has really stayed very strong. Looking at our January year-over-year sales, we are up 82%. And if we exclude the West and just look at our legacy regions, we were still up 55%, just in those regions. So across the board, we’ve seen our demand stayed very strong.

[Will Randow, Citi Group]

Okay. And I guess, you guys mentioned a pipeline of investments. I understand that’s probably most likely land investments or options. But I also perceive that you’re still hungry for more M&A at this point. Can you kind of characterize, how big a fish you’re willing to swallow? And regionally, kind of where you’re focused today?

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Well, in terms of the size, let me back up. First of all, yes, we are still focused on looking for acquisitions that are accretive to the operation in the earnings. It’s been a cornerstone of the way we have grown to date, and it’s something that we intend to continue going forward. In terms of the size of it, it really depends on the opportunity and we’ve done transactions of varying sizes. We continue to look at transactions of varying sizes. And so without putting a size parameter on it, I just say, it’s something that has to make sense within the parameters of being accretive as well as making sure that our leverage stays in check. From a standpoint of geographic location, we very much are interested in continue to grow in all of our markets. All of our existing markets have very good underlying fundamentals.

And so, we’re focused on growing there, both organically as well as looking at potential add-on acquisitions as we did with the Sundquist transaction up in Seattle. We’ve been pretty consistent in terms of where we have been looking. I mean, we’re very focused on the West. We are – when we look at the Southeast, we think there is a lot of opportunity there. One of the very large markets in terms of states that we are not in, except through our joint venture with Wade Jurney is in Florida. And so when we look at it, we think we have a lot of geographic opportunity to continue expand as well as the opportunity to organically expand in each of our markets.

[Will Randow, Citi Group]

Thanks for that and congratulations on the progress.

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Thanks Will.

[Operator]

Our next question comes from Alex Rygiel of B. Riley FBR. Please proceed with your question.

[Alex Rygiel, B. Riley FBR]

Thanks and congratulations on another fantastic quarter.

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Thank you.

[Rob Francescon, Co-Chief Executive Officer]

Thank you, Alex.

[Alex Rygiel, B. Riley FBR]

First, on the macro side, are you hearing anything from your customers, your homebuyers saying anything about how to tax bill is motivating either their purchase or their avoidance?

[Dale Francescon, Chairman and Co-Chief Executive Officer]

No, not really. It’s – there’s been – a fair amount that has transpired over the last couple of months, when you look at the change in the tax legislation and then you look at the upward tick that’s occurred in interest rates and so it’s something that we monitor closely. And as indicated by our sales in January, we’re not seeing any adverse impact from either one of those today.

[Alex Rygiel, B. Riley FBR]

And as it relates to some more specifics on numbers, directionally, can you talk a little bit about gross margins in 2018 and SG&A as a percentage of revenue in 2018? And maybe some of the goals you want to achieve throughout the year?

[David Messenger, Chief Financial Officer]

Yes. It’s as we look at our businesses where we were underwriting what we see in the markets today, we don’t think it will be too dissimilar than what we’ve been experiencing in the past several quarters. From an SG&A perspective, as I just mentioned to – earlier on the call, we expect SG&A that it really start to improve throughout the course of 2018 and 2019. And now in terms of certain size and scale from a market delivery revenue standpoint, we think that we can really start to make some progress on our leverage from that side of the platform.

[Alex Rygiel, B. Riley FBR]

And last question. What was your capture rate on your financing business in the quarter?

[David Messenger, Chief Financial Officer]

It’s pretty still, pretty minimal given that we are just finishing rolling out to – rolling out loan officers and the operations to all of our market. For example, we rolled out people to the West Coast, but didn’t have any loans, as they are primarily to-be-built model that we move into production in 2018. As we go after the course of 2018, you’ll rate to start to move up. So as by the end of the year, we should be at a somewhat of a run rate number. I’ll update you as we go.

[Alex Rygiel, B. Riley FBR]

Thank you, very much.

[Operator]

Our next question comes from Jay McCanless of Wedbush Securities. Please proceed with your question.

[Jay McCanless, Wedbush Securities]

Hey good afternoon guys. Great quarter. The first question I had, on the community count growth, a little bit higher than what we were looking for. Can you talk about how that’s going to rollout? Is it going to be pretty steady? Or is it going to be back half weighted? How should we think about that?

[David Messenger, Chief Financial Officer]

It’s really going to depend on how we – how soon we close out some of the other communities. It’s a net number, obviously. But I think that as we’re all being new communities, it will be somewhat ratable throughout the course of 2018.

[Jay McCanless, Wedbush Securities]

And congratulations also on Wade Jurney, that investment continues to pay off. Is there any – can you give us any color since it is becoming a more meaningful part of the earnings stream, what you guys are expecting internally for 2018? And how we should think about the profits there?

[David Messenger, Chief Financial Officer]

Right now we’re not providing any kind of guidance on our investment there. But we continue to expect it to experience great returns throughout the course of the year.

[Jay McCanless, Wedbush Securities]

And then the last question I had, what should we be modeling one-time cost related to Sundquist and UCP for say, the first half of 2018? And also, in terms of purchase accounting impact on the gross margin, any help there would be appreciated.

[David Messenger, Chief Financial Officer]

Yes, I think, in the fourth quarter, we had about $9.3 million of purchase price accounting rolled through in Q4. We expect roughly a similar number over the course of the next quarters in 2018. And then in terms of one-time expenditures, such as like acquisition cost, we think the majority of that is rolled through. We will still have transition costs and integration costs rolling through, but right now we’re comfortable which is the purchase price accounting.

[Jay McCanless, Wedbush Securities]

Okay, that’s sounds great. Thanks for taking my questions.

[David Messenger, Chief Financial Officer]

You’re welcome. Thanks.

[Operator]

The next question comes from Alex Barron of Housing Research Center. Please proceed with your question.

[Alex Barron, Housing Research Center]

Yes. Thanks. I think I missed your comments on the January orders, so can you repeat it, that would be appreciated. And also, you mentioned that the interest rates, I guess, to date haven’t impacted demand. Is it your sense that any of these people are just rushing to buy before rates go higher? And if anything, if rates were just being at these levels or go higher, how do you anticipate the customers would adapt to that?

[Rob Francescon, Co-Chief Executive Officer]

So Alex, let me answer your second question first, and that is, do we see people coming off the sidelines because of concern about rising rates? And the answer is, no. We’ve not really seen that or heard that out in the sales office. Now, is there some of that? I’m sure, there is, but that doesn’t seem to be a motivating factor. In terms of the numbers that I provided earlier in terms of January, year-over-year, the entire portfolio was up 82% in terms of net sales. If we exclude the West region, since we didn’t have that in January of last year, the balance of the company was still up 55% year-over-year in January.

[Alex Barron, Housing Research Center]

Okay. Great. Thanks a lot.

[Rob Francescon, Co-Chief Executive Officer]

You’re welcome.

[Operator]

Our next question comes from Nishu Sood of Deutsche Bank. Please proceed with your question.

[Nishu Sood, Deutsche Bank]

Thank you. On the 4,500, 5,000 closings in 2018, just wanted to get a sense of, obviously a tremendous sales pace even if you look at it on an organic basis recently. So as we think about that closings guidance, what kind of absorption pace are you kind of anticipating here? How much of that might be from some accelerated closing of the backlog as you integrate acquisitions? So how should we think about those two components in driving the closing slots [ph]?

[David Messenger, Chief Financial Officer]

Yes. This is Dave. I don’t know that we’re going to necessarily drive our absorption rates significantly higher than where they are today. If you take the midpoint of both our community count and our guidance range, I call it, absorption pace of roughly 2.8, 2.9 per community. And so when you look at that, we’re comfortable with where that is. Today, I think as we look at each community, each division, each region and whether we’re pushing price or pace, we’re comfortable with those numbers.

[Nishu Sood, Deutsche Bank]

Got it, got it. Okay. And the communities that you’re adding this year, how much of that in UCP, obviously, that you’ve talked previously about how there’s going to be some maybe some maybe some delays in bringing those communities out of that portfolio online. So as we think about your community growth next year, is it mostly from your legacy portfolios? Or will there be an incremental contribution from some of the more recent acquisitions like UCP in that number?

[Dale Francescon, Chairman and Co-Chief Executive Officer]

It’s really the additional community count is going to come across the board. When we look at the West, which is all former UCP, some of that is coming from their existing legacy communities that, now there is the capital to develop those and bringing those online, we’ve purchased some additional land positions that will be opening in 2018 and that’s pretty consistent across the portfolio. So when we look at it, it’s not concentrated in any one region. And so we really expect all of our regions are going to be contributing in that area.

[Nishu Sood, Deutsche Bank]

Got it. And final one on the lower tax rates, obviously, meaningful cash flow benefit from that. Leverage, I mean, is that reducing the leverage, new acquisitions, accelerated land investment, where is that going to end up?

[Dale Francescon, Chairman and Co-Chief Executive Officer]

I think, first and foremost, we still view ourselves as a growth company. And we were able to bring our leverage down in the fourth quarter where it was at the end of the third quarter after the UCP acquisition closed. So when we look at it, we’re still very much focused on investing in our business, growing in each of our markets, and potentially, if we find the right opportunities, growing in new markets.

[Nishu Sood, Deutsche Bank]

Okay, great. Thank you very much.

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Welcome. Thanks.

[Operator]

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back to Dale Francescon for closing comments.

[Dale Francescon, Chairman and Co-Chief Executive Officer]

Thank you, operator. And thank you, again, to everyone for joining us today. We look forward to speaking with you again next quarter.

[Operator]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.