M/I Homes Inc

NYSE:MHO

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to M/I Homes First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Thank you.

I would now like to hand the conference over to your Mr. Phil Creek. Sir, the floor is yours.

[Phil Creek]

Thank you. And thanks for joining us today. Joining me on the call from various locations today are Bob Schottenstein, our CEO and President; Tom Mason, EVP; Derek Klutch, President of our Mortgage Company; Ann Marie Hunker, VP, Corporate Controller; and Kevin Hake, Senior VP.

First, to address Regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call, because we are prohibited from discussing significant nonpublic items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call, including comments related to COVID-19. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call.

Also during this call, we disclose certain non-GAAP financial measures. A presentation of the most directly comparable financial measure calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP financial measure and the GAAP measure, which was included in our earnings release issued earlier today that is available on our Web site.

With that I'll turn the call over to Bob.

[Bob Schottenstein, CEO and President]

Thank you, Phil. Good afternoon. And thank you all for joining us to review our first quarter results. We had an outstanding first quarter, highlighted by record income, record revenue, record deliveries, record new contracts, and record backlog. However, as we report our results today, we all know that the world is dramatically different now than it was for most of the first quarter. And we are all continue to grapple with the effects of the COVID-19 pandemic, both in terms of a widespread illness and loss of life that are impacting so many throughout our country, as well as the severe financial effects caused by the substantial shutdown of our economy.

This is a time unlike anything we've ever faced. And since early March, our primary concern has been and continues to be the health and well being of our employees, trade partners, customers and their families. We are closely monitoring updates from the CDC, along with guidance from state, local and federal authorities, and continually adapting our operations and business to safeguard our employees, customers and work environment.

Today, the vast majority of our employees are operating remotely and all are practising appropriately distancing. At the same time, we're doing everything we can as a company to safely continue selling, building and delivering homes. In order to operate and to continue to operate in the current environment, we are leveraging our existing digital platform and tools and continuing to use creative ways to interact with our customers, as well as our business partners.

Homebuilding and mortgage services have been designated as essential in all of our markets with the exception of Detroit. Detroit accounts for slightly less than 5% of our business. So, most of our communities, greater than 95% and our sales and construction efforts therein, remain open for business. That said, where we are open, our operations are constrained. Our sales offices are now open by appointment only. So far, this has been a somewhat effective method of selling. But clearly, our business has been adapted as there has been a marked decline in foot traffic and sales since the last half of March.

Having said that, we are encouraged by the fact that in most of our markets, our online traffic particularly since this March, has increased significantly year-over-year. Our success in cultivating online leads and converting them to appointments is a critically important part of our operations and has been for some time. This is something that we give great focus to day-in and day-out.

At the beginning of the year, housing conditions were very good as good as we've seen in a long time, and we entered 2020 with tremendous operating momentum. As Phil will discuss shortly, we had record setting sales in both January and February and up until mid March that trend continued. As noted in this morning's release, the COVID-19 pandemic first began to impact our business in the second half of March. Traffic declined and our cancellation rate increased to 28%, resulting in our new contracts being down roughly 50% for the last half of March compared to prior year levels.

In recent weeks, we've seen a slight but noticeable improvement in conditions, reflecting the improvement in the so called flattening of the pandemic curve and the early stages of return to work for select businesses in select markets. Specifically, our new contracts for the first three weeks of April have improved, aided by a slight decline in the cancellation rate. Specifically, April month to-date new contrast are roughly 35% below the prior year level. Because of the unknown overall effects of an economic slowdown on homebuyer demand, we have taken a number of measures to extend or delay a significant number of our land purchases and lock take downs across our markets. In a few cases, we've actually terminated contracts.

We've also pulled back on our pace of land development to align with our expected needs. We will continue to monitor market conditions and our face of home sales and deliveries, and will adjust our land and related overheads accordingly. In a similar fashion, we also quickly pulled back on starting the construction of new inventory or so called spec homes that are not subject to a purchase contract. We will continue moving forward to be very selective in starting these inventory homes. Overall, it's safe to say that we're managing very carefully, leaning on the extensive experience of our management teams in each of our markets to continue to execute and move forward in these unprecedented times.

Now I'll mention just a few highlights of our first quarter results before turning it over to Phil who will describe them in more detail. As I mentioned at the outset, we had many records. We achieved record first quarter revenue of $578 million, an increase of 20% from last year's first quarter, driven by first quarter record level of 1,495 home closings during the quarter. This was 26% better than a year ago. Pretax income for the quarter was 76 better than a year ago, and net income for the quarter increased by 79%. Our diluted earnings per share increased to $1.09 compared to $0.63 per share last year.

We have continued to expand our most affordably priced smart series line of homes, which has been very successful for us in achieving both above average pace and above average margin. At the end of the quarter, our smart series homes were offered in 63 of our active communities, or 28% of total M/I communities and that represents all 15 of our markets and aggregates 30% of our total sales before during the first quarter.

Company wide, our backlog sales value at the end of the quarter was an all-time record $1.3 billion. Units of backlog were up 23% to a quarterly record 3,265 homes, while the average sale price of backlog was relatively flat, down 1% due to a shift in mix and the impact of our smart series communities. Importantly, our balance sheet and liquidity remain very strong. We ended the quarter with shareholders equity in excess of $1 billion and a very healthy homebuildings debt to capital ratio of 39%, down significantly from 47% at the end of the first quarter a year ago.

I will wrap up my comments by expressing my deep appreciation for all our employees and our management teams across our divisions for their perseverance and capabilities in meeting this situation head on and for their dedication and resilience. We entered this crisis in the best shape in company history and as I previously mentioned with significant operating momentum. I have every confidence that we will get through this and emerge as an even stronger and better homebuilding company.

With that, I'll turn it over to Phil.

[Phil Creek]

Thanks, Bob. New contracts for the first quarter increased 27% to 2,089 at all time quarterly record compared to 1,644 for last year's first quarter. And our sales pace for community improved to 3.1 per month in the first quarter from 2.6 in quarter one last year. Our new contracts were up 66% in January, up 58% in February and down 17% in March.

In the second half of March, our new contracts were down 50% and for the first three weeks of April, our new contracts were down 35%. Our cancellation rate was 28% for the last half of March and 26% for the first three weeks of April. As to our buyer profile, about 50% of our first quarter sales were to first time buyers compared to 49% in last year's fourth quarter, and about 50% of our first quarter sales were inventory homes compared to 44% in last year's fourth quarter.

Our community count was 223 at the end of the first quarter, up 4% versus 2019’s first quarter and the breakdown by region is 98 in the Northern region and 125 in the Southern region. During the quarter, we opened 17 new communities while closing '19. Due to the uncertainty of the current environment, we are withdrawing our previous estimate and not providing estimated information for the remainder of the year. We delivered a first quarter record of 1,495 homes in the first quarter, delivering 56% of our backlog compared to 54% a year ago.

Revenue increased 20% in the first quarter, reaching a first quarter record of $578 million. Our average closing price for the first quarter was $374,000, a 5% decrease when compared to last year's first quarter average closing price of $393,000. And our backlog sale price is $399,000, down 1% from a year ago and our backlog average sale price of our smart series product is $305,000. Our first quarter margin was 20.2%, up 90 basis points year-over-year and up 100 basis points from last year's fourth quarter. And our construction and labor costs were flat when compared to last year's first quarter.

Our first quarter SG&A expenses were 12.2 of revenue improving 70 basis points compared to 12.9 a year ago, reflecting, grading, operating leverage. Interest expense decreased $2.1 million for the quarter comparing to last year. Interest incurred for the quarter was $11.9 million compared to $12.9 million a year ago. And the decrease in interest is due to lower outstanding borrowings in the first quarter, as well as lower weighted average borrowing rate. And during the quarter, we generated $59 million of EBITDA compared to $40 million in last year's first quarter.

We have $22 million of capitalized interest on our balance sheet, that is about 1% of our total assets. And our effective tax rate was 23% in the first quarter compared to 25% in last year's first quarter. Our first quarter rate benefited from energy tax credit and we currently estimate our annual effective rate for 2020 to be around 24%. Our earnings per diluted share for the quarter increased to $1.09 per share from $0.63 per share last year. And during the first quarter of this year, we repurchased $2 million of our outstanding shares. Now Derek Klutch will address our mortgage company results.

[Derek Klutch, President, Mortgage Company]

Thanks Phil. We have a strong and experienced team in our mortgage and title operations across our markets, and they've already stepped up to serve our customers with care in this challenging environment. The technology we invested in over the past few years is allowing us to work remotely from one application throughout the entire mortgage process. And we implemented some changes to allow us to conduct closings, while maintaining social distancing guidelines.

First quarter pretax income for financial services was $5.6 million, a 14% increase compared to 2019’s first quarter. Revenue was also up 14% to $13.5 million due to a higher volume of loans closed and sold. Our results were impacted by a reduction in the value of our mortgage servicing rights and margins caused by the disruption in the mortgage market. The loan to value on our mortgages for the first quarter was 84% in 2020, up slightly from 82% in 2019’s first quarter. 72% of the loans closed in the quarter were conventional and 28% were FHA or VA, and this compares to 76% and 24% respectively in 2019’s first quarter.

Our average mortgage amount decreased to $306,000 in 2020’s first quarter compared to $315,000 last year. Originations increased to a first quarter record of 1,131 loans and the volume of loans sold increased by 15%. For the quarter the average borrower credit score on mortgages originated by M/I Financial was 741, down from 744 last quarter. Our mortgage operations captured about 85% of our business in the first quarter, a significant increase from 79% last year.

We maintained two separate mortgage warehouse credit facilities, which provide us with funding for our mortgage originations prior to the sale to investors. At March 31st, we had $105 million outstanding under the MIF warehousing agreement, which is a $125 million commitment that expires in June of 2020, and we also had $40 million outstanding under separate $65 million repo facility, which expires in October of this year. Both facilities are typical 364 day mortgage warehouse lines that we extend annually. We're working with our lenders on the warehousing agreement that expires in June, and we expect approval and closing in May.

With that I will turn the call back to Phil.

[Phil Creek]

Thanks Derek. As far as the balance sheet summary, our financial condition continues to be strong with $1 billion in equity, homebuilding debt to cap ratio of 39% and $448 million of available liquidity at quarter end. We are carefully monitoring our cash and expenses as always along with our balance sheet.

Total homebuilding inventory at March 31, ‘20 was $1.8 billion, an increase of $92 million above last year. And our unsold land investment at March 31st is $809 million compared to $796 million a year ago. At March 31, we had $396 million of raw land and land under development and $413 million of finished unsold lots. We owned 5,169 unsold finished lots with an average cost of 80,000 per lot and this average lot cost 20% of about $399,000 backlog for sale price. Our goal is to maintain about a one year supply of finished lots and to own a two to three year supply.

Lots owned and controlled as at March 31 totaled more than 33,800 lots, 14,800 of which were owned and 19,000 under contract. We own 6,800 lots in our Northern region and 8,000 lots in our Southern region. A year ago, we owned 14,500 lots and controlled an additional 13,500 lots for a total of 28,000 lots. The increase in controlled lots is due primarily to additional positions for our smart series product. And during 2020’s first order, we spent $76 million on land purchases and $62 million on land development for a total of $138 million and about 45% of the purchase amount was for raw land.

We are carefully monitoring our land spend. And due to the uncertainty of the current environment, we are withdrawing our previous estimates and not providing an estimate for the year. And at the end of the quarter, we had 556 completed inventory homes, which is about two per community and 1,322 total inventory homes. And of the total inventory, 582 are in Northern region and 740 are in the Southern region. At March 31, ‘19 we had 560 completed an inventory homes and 1,278 total inventory homes.

This completes our presentation. We'll now open the call for any questions or comments.

[Operator]

[Operator Instructions] And your first question will come from the line of Alan Ratner from Zelman and Associates. Sir, your line is now live. Please proceed.

[Alan Ratner, Zelman and Associates]

I'm glad to hear everyone's doing okay. Hopefully everyone in the company is as well. And thank you for all the great detail as always. So obviously, the April results are encouraging and I think we're seeing similar momentum from other that have reported over the last few days. I'm curious if you can maybe just talk a little bit about where you're seeing that improving demand and just kind of thinking about your portfolio both geographically as well as product type. One of the things that seem to be benefiting right now is spec inventory, you're seeing a lot less competition on the resell side. So I'm curious, you know as buyers are coming in and buying houses today. Is that being skewed more towards spec inventory than perhaps it had been leading up to this pandemic here? And you mentioned kind of curtailing the new spec starts. But are you planning on kind of shifting the mix of your business between spec and to be built going forward? Just given that the risk profile and dynamics in the market?

[Bob Schottenstein, CEO and President]

Let me try and answer both of those questions. I think that with a few exceptions, the increased sales velocity, obviously, nowhere near where we'd like it to be but certainly better than it was as you've noticed. We've seen that in quite a number of our 15 markets. Exceptions would be Detroit, which is effectively been closed. I think things have been a little slower in Florida very honestly, and I would particularly note Orlando. Clearly, the significant furloughing of employees as Disney has created a little bit of a cloud over that market. Not as robust -- robust is the wrong word, but probably not as good as you'd expect it to otherwise be in this environment. I think that the impact there's been a little greater.

I think Dallas is a little bit for us of a bright spot, it appears to be holding up maybe even comparatively better than some of the other markets. But we're seeing good activity in Columbus, and Indianapolis, and Minneapolis and Chicago, we’ve had pretty good results Austin. So, I think that the uptick has been pretty well shared calling out maybe Orlando on the one hand, and on the low end and Dallas on the higher end. As far as facts goes, I think your point is an interesting one. Broadly speaking, I think we're in really good shape in terms of our spec inventory.

That said, given where we are and are maybe slightly more optimistic than in a few weeks ago outlook on the year we managed the business subdivision by subdivision , not only is every market different but within markets, communities tend to have their differences and in some cases significant. We will be very carefully looking at all of our communities within each market and it's possible that we could be increasing our spec inventory where we think it makes sense to do so.

[Alan Ratner, Zelman and Associates]

Second question, you gave some great data on the mortgage side of the business. We've heard obviously the tightening that's been going on in the market, and it would seem like just based on your averages, you're not being overly impacted by that. But I don't know if you can provide some color just in terms of what tightening have you seen in terms of maybe overlays or FICO scores, anything that is limiting your ability to get loans done, and roughly what percentage of either your backlog or your orders, however, you want to think about it, would those overlay supply to?

[Derek Klutch, President, Mortgage Company]

Yes, the industry has definitely tightened the credit standards, the credit score and DTI ratios. One thing to keep in mind though is the investors have raised minimum credit scores on purchasing government loans, but FHA and VA have not raised credit scores, so they will still insure them. We've just had to kind of modify how we're selling the government loans and who we're selling them to. But we have not had any restrictions on being able to deliver the government loans.

As far as percentages, our average credit score mentioned is about 740 plus credit score. Over 75% of the loans that we do are above 700 credit score and only about 10%, a little more than 10%, are below a 680 credit score. So in the big scheme of things, we haven't really had much of a negative effect due to the tightening.

[Alan Ratner, Zelman and Associates]

And when you mentioned kind of changing how you sell the loans. Do you sell directly to Ginnie Mae and Fannie and Freddie in those situations where you're maybe bypassing the investors that are instituting those overlays?

[Derek Klutch, President, Mortgage Company]

We do have the ability to sell directly to the agencies to offer to Ginnie, Fannie and Freddie, either on a servicing released or servicing retained basis.

[Operator]

Thank you. And your next question will come from the line of Alex Barron from Housing Research . Sir, please go ahead.

[Alex Barron, Housing Research]

I wanted to ask about bill times. Have you seen any noticeable tension of bill times because of labor constraints or social distancing? That's my first question.

[Phil Creek]

Not really. I mean, every market has a challenge here and there with some products and there's a little problem here and there. But as far as overall, not really any significant changes.

[Alex Barron, Housing Research]

And how about on the incentives front. Have you guys seen an increase in the level of incentives you've had to offer under the current circumstances or felt more competition from other builders that you have to try to match?

[Phil Creek]

Alex, that’s always a subdivision by subdivision type of question. In general, not really. We have been selling a few more specs the last few weeks. In the comments I made, we’re about 50% inventory homes in the first quarter that's moved up to the 55% to 60% range, but that kind of moves now and then. There's always kind of some incentives on maybe some older spec inventory, but overall not really any change.

[Alex Barron, Housing Research]

And last question, what would you guys need to see or feel and what are you looking for to maybe reengage on the land side and on opening new communities?

[Bob Schottenstein, CEO and President]

We have not disengaged on the land side by any measure, and I don't think you meant to imply that, nor have we walked away from opening any new communities. What we have done and it's deal by deal and we have many, many deals throughout our 15 divisions is we thoroughly analyzed each one. And much of this work was done about a month ago when we were in the very early innings of this pandemic. And in reviewing those deals, our belief was and I suspect it was widely shared by a lot of our competitors, is that we need more time and we knew we would know more than 30, 60, or 90 days that we knew now.

So where we had negotiated the right to do so by virtue of the contracts that were in place, as you know, most of our land is under control and not yet owned. We went back to sellers and/or developers and on a deal by deal basis, didn't do it on every deal but we were able to do it on a pretty good number of them, we’re able to secure more time, either time to decide whether or not to sign off on a contingency period, time to close whatever stage the contract might have been in.

There has been very few deals that we've actually walked from and there are quite a few that we have actually closed on during the last 30 days, because after having gone through that very exhaustive process, we made the decision that it absolutely made sense to do so because of the price, the product, the price point of the market, all those sorts of things. As far as new community openings, just to reiterate what I said. We have opened a number of new communities this year and we have plans to open quite a few more throughout the course of the year. Phil, I don't know if you want to add anything more on the new community side.

[Phillip Creek]

The only I'll add in general, Bob is if you look at owned lots, we're only up about 300 lots where we were a year ago. And if you look at total unsold inventory, we're only up about 3%, even though our first quarter volume was quite a bit higher than a year ago. So we think we've done a pretty good job managing those investment levels and we'll continue to.

[Operator]

Thank you. And your next question will come from the line of Mr. Jay McCandless from Wedbush. Sir, please proceed.

[Jay McCandless, Wedbush]

My first question just staying on land for a minute, if you think about what you've walked away from or what you're trying to acquire now. Is this an opportunity maybe for you guys to get deeper in smart series or deeper into some more affordable product?

[Bob Schottenstein, CEO and President]

That really wasn't our thinking. That may be that may happen. We've continued to grow smart series to the point where it's now about is, as you know, 30% of first quarter business pretty close to what we’ve projected it to be 90 or 180 days ago. I suspect it'll continue to grow somewhere between 30% and 40% of the business. We've had a great business it's not smart to that that is very successful for us. As far as our thinking on land, admittedly when this health crisis came upon us, we pivoted quite quickly to from almost full time offense as a company to significant defense, not full time defense though. Whether we remain 10% or 15% offensive, we wanted to keep it very quick on just how bad things might get, but we also knew there would still be some opportunities out there.

And as I mentioned in response to the last question, we have closed on quite a number of land deals over the last 30 days and are very glad that we have. Not just because things have gotten slightly better and we think that probably will continue to get a little bit better with each passing several weeks, but because those deals made sense and they're the right thing for us and they were negotiated in a way that we think will produce very good results.

Even when the deals that we canceled, there's been a few. As we look out over the next 12 to 24 months, we're very bullish on our business, we’re very bullish on home building as an industry. I think that there could be an unintended maybe but nonetheless positive tailwind to home ownership rates cutting out of this crisis, even if there isn't. We think that a lot of just and probably heard this from so many other builders, and I think it's widely viewed that the macro fundamentals most point in the right direction for improved housing conditions over the next several years. And we're poised to grow. We haven't cut back on our growth goals. We'll see how this year turns out. We were poised to have another record year this year. This obviously has caused the pause in that thinking. Depending upon how quickly we can emerge from this, we'll have a better feel for it.

But the land that we own and that we have under our control give us the ability to reengage very effectively with our growth goals as we begin to see more light at the end of the tunnel, coming out of this crisis and have a better feel for what the recovery will look like. I'm a whole lot more optimistic now than I was a month ago. I don't think we're being silly. I think we're being smart. And I think that like I said, I really believe in homebuilding, I always have but I really believe in it. And I think that the home ownership rate's going to be positively impacted from this.

And we all know, even if that rate goes up just a quarter percent or half a percent, that's a lot more households living in the home and it's just a small fraction of them choose to buying rather than -- buy new rather than buy used. That's a good tailwind for our industry and we expect to get our fair share.

[Jay McCandless, Wedbush]

Yes, I'd agree. April 29th, for whatever reason, feels a lot better than March 29th. I guess my second question on the same line, thinking forward to maybe some people whose credit needle we’re fixing up or need a little more time to actually become homeowners. Has any of what you've seen the last two months maybe pushed you in the direction of doing some single-family build for rent, or partnering up with a single family rental organization to help keep your volumes up if things were to get a little bit slower from here?

[Bob Schottenstein, CEO and President]

No, it's a great question. But for all the reasons that we've been saying in response to that question, I know other builders look at it differently and that's what makes it an interesting game. But we think we can put a lot of points on the board doing what we're doing. We haven't put a lot of points on the board. My guess is we would have had some of the strongest sales comps in the industry before March 15th. And we've got a lot of confidence that we've got the right strategy and the right focus. And as far as credit impaired buyers, we do a lot with that now to try and get them into our product as a buyer. It’s something we've been focused on for almost two years with internally we call it our welcome home club, that's a part of the M/I Financial operation.

[Jay McCandless, Wedbush]

And it maybe too early to ask this question, but here it goes anyway. Are you seeing an increase in potential private builders for sale, or the opportunity to expand? And if you were to do so, would you look to grow in some new markets or expand out where you have a footprint now?

[Bob Schottenstein, CEO and President]

I personally am not aware of anybody who's on the blocks, it's pretty hard for me I guess just reacting to your questions and think about that at this moment. But, we would like to be in additional markets. We have floored with opening and one or two over the last six, nine months, haven't been able to find the right deal. But we'll be back at that kind of thinking sooner than later I hope, because that will mean that we're closer to the all clear sign.

We want to continue to be prudent from a balance sheet standpoint for the near-term, even though we've got tremendous amount of liquidity, and our public debt the nearest maturity isn’t until 2025. So we're in great shape from a balance sheet standpoint, and certainly could do something if the right opportunity presented itself. But we want to make sure we have a lot of daylight on what the long-term impact is of this current situation.

[Jay McCandless, Wedbush]

And then the last one for me. So, nice improvement in the cancellation from second half March to the beginning of April. Could you talk about how many homes actually have canceled in April? And maybe also some builders have given out a staff where they talked about what the cancellations looked like as a percentage of the beginning backlog. Would you all be able to give me that stat as well?

[Phil Creek]

Jay, there’s a lot of different ways to come at that. I mean, we analyzed cancellations very carefully as far as at what point in the process are they coming from. A big part of our cancellations continue to come before the houses are started. The part that’s kind of moved up a little bit is that even though about 90% of the people that are scheduled to close are still closing and normally those closings are all scheduled two, three weeks prior to the closing date. So the good news is 90% or so the people are closing. We are seeing a few more people cancel right at the pre-closing process. And again, I think just back to Bob's comments about being careful on starting specs.

The the couple years our TAM has been in the 10% to 15% range, so it's obviously been a little higher than that. I mean, we have a record backlog of over 3,000 units. But the way we try to approach it is we're constantly scrubbing our backlog. We're trying to be very careful as far as we do not have many houses to sale contingency in our backlog. So we try to be careful with that and make sure our backlog do the process. But the good news is it is coming down a little bit and that's just something we stay focused on every day.

[Jay McCandless, Wedbush]

So how much do you think if your backlog has a contingency behind it right now or with it right now?

[Phil Creek]

As far as a house for sale or whatever, it's less than 10%.

[Operator]

Thank you [Operator Instructions] Your next question will come from the line of Art Winston from Pilot Advisors. Please go ahead.

[Art Winston, Pilot Advisors]

It was good to hear that everybody in the company is safe and healthy. I wanted to just thank you for sensational first quarter that was terrific. I think I heard in the prepared remarks that you said that the smart houses have a slightly high profit margin than the rest of the houses. Did I hear that right or did I hear it wrong?

[Bob Schottenstein, CEO and President]

You heard it correctly there were two things there. In our own average, our smart series communities have better pace that which is sales per month, as well as slightly better gross margins.

[Art Winston, Pilot Advisors]

My next question on the land, it sounded like that in effect there's no values, no discounting in terms of what you could buy basically the cost of what you're acquiring is the same as you thought it would be three months ago, it sounds like.

[Bob Schottenstein, CEO and President]

I think that's right, but not completely. There's been a few deals. I don't know if I can give too many specifics. I don't want to mislead. But that I can think of several deals where we've been able not that it was our goal but as a result of these conversations about wanting more time, we've been able to get a price discount also, maybe we didn't get quite the time we wanted, but we got a discount. I can think of one in particular where it was 10% reduction in price, roughly 400 grand against the $4 million plus acquisition. There may be one or two others but I think, which is good, I mean we obviously if we didn't like when we say no and just terminate. But I think we've gotten maybe in two or three or four instances, some kind of price concession.

[Art Winston, Pilot Advisors]

My next question is on the mortgage servicing rights, which were detracted to the profits. I assume that's a noncash charge. And I was wondering if that should become bigger or a bigger problem going forward rather than sort of becoming less of a problem for the time being?

[Derek Klutch, President, Mortgage Company]

Yes, it was a noncash write down. We run some shock tests against it. At the level interest rates are right now, we don't think it will be a big problem going forward. We run into 25 basis points increments on interest rates and don't really see, not a big impairment coming up.

[Art Winston, Pilot Advisors]

And my last, less of the question. But how bad are spending a small amount of your usual liquidity on buying back some shares given that you probably -- you could buy your land cheaper by buying the shares than buying somebody else's land, just a small amount of share repurchase?

[Bob Schottenstein, CEO and President]

Well, as we did disclosed, we did spend about 2 million bucks on stock during the quarter. Right now, there's just so much uncertainty going on. But again, with the stock even with the good runs they still being significantly below book. It's something that we will continue to look at, but we want banks to kind of stabilize a little bit before we get back into that.

[Operator]

[Operator Instructions] There are no further questions at this time. Please continue.

[Phil Creek]

Thanks for joining us. Look forward to talking to you next quarter.

[Operator]

Thank you everyone for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.