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--12-31 FY 2020

 

 

 

 

For the fiscal year ended December 31, 2020 or

 

 

 

 

 

 

 

 

 

 

 

Registrant’s telephone number, including area code (602)767-1426

 

Securities registered pursuant to Section 12(b) of the Act:

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒ 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

 

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2020, based on the closing price of $3.36 as reported by the New York Stock Exchange was $46,031,980.

 

There were 18,109,101 shares of the registrant's common stock issued and outstanding as of March 22, 2021. 

 

 

 

 

 

 

 

 

 

 

 

As used in this annual report on Form 10-K, unless the context otherwise requires or indicates, references to "the Company," "our company," "we," "our" and "us" refer to The New Home Company Inc. and its subsidiaries.  You should read the following in conjunction with the section titled "Risk Factors", which is included in Part I, Item 1A in this annual report on Form 10-K. 

 

 

We are a new generation homebuilder focused on the design, construction and sale of innovative and consumer-driven homes in major metropolitan areas within select growth markets in California and Arizona, including Southern California, the San Francisco Bay area, metro Sacramento and the greater Phoenix area. We were founded in 2009, towards the end of an unprecedented downturn in the U.S. homebuilding industry, as The New Home Company LLC.  In January 2014, we renamed our company The New Home Company Inc. and completed our initial public offering of shares of our common stock. Since our initial public offering, we have transformed from a primarily high-end builder in California with a majority of revenues derived from joint venture projects to a more diversified builder with expanded product offerings to include more affordably priced homes and geographic diversification with the vast majority of revenues derived from wholly owned communities.  Despite a move down in price point, we continue to emphasize quality, design and customer service as integral to our brand. Among the numerous customer service, quality and design awards we have received, Eliant Homebuyer Survey Company has rated our company in the top two of overall homebuyer satisfaction for the past eight years, as well as America’s top builder in four of the past eight years. We’ve been recognized as having one of the top communities or master plans in the United States for five consecutive years.  Since we were founded, we've been awarded over 300 other architectural, design, sales and customer service awards including over 25 community of the year awards.

 

We are organized into three reportable segments: Arizona homebuilding, California homebuilding and fee building. Our California homebuilding operation is comprised of divisions in Northern California and Southern California.  Our primary business focus is building and selling homes for our own account and we also have a fee building business. For financial information about our segments, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 15 to the Consolidated Financial Statements.

 

 

The New Home Company is a premium brand that emphasizes and has a reputation for customer service, quality and design, as well as strong relationships with key land sellers and developers within each of our local markets, that we believe differentiates us from our competitors.  We seek sites where we are rewarded for thoughtful land planning and architecture, quality construction, leading design, and excellent customer experience. Our core operating philosophy is to provide a positive, memorable experience for our home buyers by actively engaging with them in the building process, including through our design studios which allow buyers to personalize our home offerings. We believe that customer-focused community creation and product development, our reputation for high quality construction, as well as exemplary customer service, are key components of the lifestyle connection we seek to establish with each homebuyer. While we have strategically expanded our portfolio to include more affordable product offerings, we remain committed to our premium brand through The New Home Company credo, which we believe is critical to our success, comprised of the following pillars:

 

 

 

 

 

 

We seek to reduce upfront capital and exposure to land risk through the use of land options and other flexible land acquisition and development arrangements. The Company owned approximately 1,340 lots and had options to purchase an additional 678 lots as of December 31, 2020. We believe our lot option strategy allows us to leverage and establish a homebuilding platform focused on high-growth, land-constrained markets. In addition, we believe that our professional reputation and long-standing relationships with key land sellers, including masterplan community developers, brokers and other builders enable us to acquire well-positioned land parcels in our existing markets as well as new target markets. 

 

In addition, we also have a fee building business comprised primarily of building for third party landowners for a fee with such third party landowners paying or reimbursing the Company for all costs associated with construction. We believe our fee building business complements our business strategy as it leverages overhead and supplements income using nominal capital. 

 

 

 

We are currently focused on identifying unique sites and creating communities that allow us to design, construct and sell consumer-driven, single-family detached and attached homes in major metropolitan areas in Southern California, metro Sacramento, the San Francisco Bay area and the greater Phoenix area. Defining characteristics of our markets generally include barriers to entry, job growth, high employment to building permit ratios and increasing populations, which can create growing demand for new housing.  We have more recently expanded our portfolio to include more affordable offerings in strong locations, but remain committed to delivering a premium product and experience, which we believe differentiates us from our competitors.  As of December 31, 2020, the homes that we build range in price from approximately $300,000 to $1.3 million, with home sizes ranging from approximately 1,000 to 4,200 square feet. Our homebuilding operations are comprised of two reportable segments, Arizona homebuilding and California homebuilding.  Total homebuilding revenue contributed to 84%, 86%, and 76% of total revenue for the years ended December 31, 2020, 2019 and 2018, respectively. For the years ended December 31, 2020, 2019 and 2018, the average sales price of homes delivered from our wholly owned communities was approximately $768,000, $927,000, and $1.0 million, respectively.  

 

Additionally, we strive to enhance the home-buying experience and buyers’ personal investment in their homes by actively engaging them in the selection of design options and upgrades in many of our communities. We believe that our on-site design studios in such communities allow buyers to personalize our home offerings with dedicated designers who are knowledgeable about the attributes of the homes offered in the community. We believe that the active participation of buyers in selecting options and upgrades results in buyers becoming more personally invested in their homes. We also believe our emphasis on customer care provides us a competitive advantage. Our commitment to customer satisfaction is a key element of company culture, which fosters an environment where team members can innovate.

 

 

Although our primary business focus is building and selling homes for our own account, we also selectively provide general contracting, construction management and coordination services, sales and marketing services and escrow coordination services as part of agreements with third-parties and the Company’s unconsolidated joint ventures. We refer to these projects as “fee building projects.”  Our fee business is comprised primarily of building for third party landowners for a fee with such third party landowners paying or reimbursing the Company for all costs associated with construction. Our fee building segment also includes our management fee revenues that we receive for serving as the managing member or other similar role in our joint ventures.  For the year ended December 31, 2020, 97% of our fee building revenue represents billings to third-party land owners for general contracting and construction management services and 3% represents management fees from unconsolidated joint ventures and third-party land owners for construction and sales management services. 

 

We believe our fee building business complements our homebuilding business as it leverages overhead and supplements income using nominal capital.  Our services with respect to fee building projects may include design, development, construction, escrow, and sales and marketing services. We earn revenue on our fee building projects either as a flat fee for the project or as a percentage of the cost or revenue of the project depending upon the terms of the agreement with our customer.  Under some fee arrangements we may also take title to lots immediately prior to the close of escrows with homebuyers in exchange for a warranty fee based on a percentage of the final sales price of the home. We usually act as the general contractor for our and our unconsolidated joint ventures’ projects and engage third party subcontractors for home construction and land development.

 

For the years ended December 31, 2020, 2019 and 2018, fee building revenue contributed to 16%, 14%, and 24%, respectively, of total revenue.  The Company’s fee building revenues have historically been concentrated with a small number of customers including Irvine Pacific, LP ("Irvine Pacific") who accounted for 15%, 14%, and 23% of our total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively.  However, in August 2020, Irvine Pacific made a decision to begin building homes using their own general contractor’s license, effectively terminating the Company’s fee building arrangement with Irvine Pacific moving forward. Although we do not expect to be engaged for new fee building contracts with them going forward, we are currently in the process of finishing certain existing homes under construction and generating revenues in connection therewith, which we expect will be completed in the first quarter of 2021.  The Company is actively seeking and entering into new fee building opportunities with other land developers with the objective of at least partially offsetting the expected reduction in Irvine Pacific business in future years, such as our new fee building relationship with FivePoint.  See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Fee Building", Note 1 "Revenue Recognition - Fee Building" to the Consolidated Financial Statements, and Item 1A, "Risk Factors - Risks Related to Our Business - A large proportion of our fee building revenue has been from one customer, and that customer relationship is ending" for further discussion of this revenue concentration.

 

 

The following table shows the percentage of each segment’s revenue in relation to our consolidated total revenues for the years ended December 31, 2020, 2019 and 2018.  For additional information related to geographic location of our homebuilding revenues, see Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

As of December 31, 2020, we owned or controlled an aggregate of 2,018 lots in our homebuilding segment and 54 lots through our fee building segment. The following table presents certain information with respect to our wholly owned and fee building lots as of December 31, 2020. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Lots Owned and Controlled” for further detail.

 

 

 

 

 

At December 31, 2020 and 2019, homes under contract, but not yet delivered (“backlog”) totaled 410 and 149, respectively, with an estimated sales value of $236.0 million and $125.8 million, respectively. We expect to deliver all of the homes in backlog at December 31, 2020 during 2021 under existing home order contracts or through the replacement of an existing contract with a new home order contract. The estimated backlog sales value at December 31, 2020 may be impacted by, among other things, subsequent home order cancellations, incentives provided, and/or options and upgrades selected. 

 

 

Our land acquisition strategy focuses on purchasing entitled finished, or partially improved land sufficient for construction of homes over a two- to three-year period from the initiation of homebuilding activity. We also selectively acquire parcels that require land development activities. Our acquisition process generally includes the following steps aimed at reducing development and market cycle risk:

 

 

 

 

 

 

 

 

 

We also differentiate our acquisition strategy based on whether the land is in a masterplan community, or part of a larger development. For land which is not part of a larger development or masterplan, we generally enter into a purchase agreement with the land owner and deliver a deposit, which becomes nonrefundable upon the expiration of a specified due diligence period. The closing is generally tied to the date on which we have obtained development entitlements for the land. For land which is part of a larger development being developed by a master developer, we generally enter into a purchase agreement with the master developer and pay a deposit that becomes nonrefundable upon expiration of the due diligence period. The closing in master developments is generally tied to the issuance of final land development entitlements and completion of certain infrastructure and other improvements by the master developer. In master developments we may acquire all of the land at the closing or we may acquire the land in "phases". In master developments we may be required to (a) pay to the master developer a share of our net profit in excess of a specified margin (b) pay to the master developer marketing fees and/or (c) grant the master developer the right to repurchase the land if we fail to develop the land in accordance with applicable development requirements or wish to sell the land in bulk. Our acquisition and development financing is generally obtained using one or more of the following: (i) proceeds from the sale of debt securities, (ii) unsecured lines of credit; (iii) secured acquisition and development loans; and/or (iv) land bank arrangements with providers who take title to the land at closing subject to agreements which obligate us to perform all development activities with respect to the land and provide us with an option to purchase the land.

 

 

We typically develop communities in phases based upon projected sales. We seek to control the timing of construction of subsequent phases in the same community based on sales demand in prior phases. Our construction process is driven by sales contracts that often precede the start of the construction of homes, however, depending on the price point, product, and buyer demand we also engage in some speculative building. The determination that a potential home buyer is qualified to obtain the financing necessary to complete the purchase is an integral part of our process. Once qualified, our designers, which are often at on-site design centers, work with the buyer to tailor the home to meet the buyer’s needs and budget. With the onset of COVID-19, we've focused on transforming our customer experience through digital options, including meeting virtually to review design center selections.  We use and our business relies upon general contractors' licenses and corporate real estate broker's licenses in order to build and sell homes.

 

 

We customarily acquire improved or unimproved land zoned for residential use. To control larger land parcels or gain access to certain desirable parcels, we sometimes form land development joint ventures with third parties in order to provide us with a pipeline of land to acquire from the joint venture when the lots are developed. If we purchase raw land or partially developed land, we will perform development work that may include negotiating with governmental agencies and local communities to obtain any necessary zoning, environmental and other regulatory approvals and permits, and constructing, as necessary, roads, water, sewer and drainage systems and recreational facilities like parks, community centers, pools, and hiking and biking trails.

 

The design of our homes must conform to zoning requirements, building codes and energy efficiency laws. As a result, we contract with a number of architects, engineers, and other consultants in connection with the design process. We act as a general contractor (and certain of our wholly owned subsidiaries hold the general contractor's licenses in California and Arizona) with our supervisory employees coordinating most of the land development and construction work on a project. Independent architectural design, engineering and other consulting firms are generally engaged on a project-by-project basis to assist in project planning and community and home design, and subcontractors and trade partners are engaged to perform all of the physical development and construction work. Although we generally do not have long-term contractual commitments with our subcontractors, trade partners, suppliers or laborers, we maintain strong and long-standing relationships with many of our subcontractors and trade partners. We believe that our relationships with subcontractors and trade partners have been enhanced through involving them prior to the start of a new community, maintaining our schedules and making timely payments. 

 

 

In connection with the sale and marketing of our homes, we make extensive use of advertising and other promotional activities, including through our website, social-media, brochures, direct mail and other community-specific collateral materials.  We expend great effort and cost in designing and merchandising our model homes, which play an important role in our marketing. Interior merchandising varies among the models and is carefully selected to reflect the lifestyles of prospective buyers. With the onset of the COVID-19 pandemic and a general shift in consumer behaviors, we have focused on transforming our customer experience online through innovative digital options through our website www.NWHM.com, including (i) shifting to a remote selling environment through the use of our online sales concierges; and (ii) providing virtual options for online home tours, design center selections and new home demonstrations.  The information contained in, or that can be accessed through,  our website is not incorporated by reference and is not a part of this annual report on Form 10-K.

 

We sell our homes through our own sales representatives and through the use of outside brokers. It is also fairly common that a third party broker representing a homebuyer receives co-broker commissions in connection with a sale. One of our wholly owned subsidiaries holds the corporate broker's licenses in California and Arizona. Our in-house sales force works from sales offices located in model homes or sales centers close to, or within each community. Sales representatives assist potential buyers by providing them with floor plan, price and community amenity information, construction timetables, and tours of model homes. As a result of COVID-19, we also began providing for self-guided tour options to allow homebuyers to tour model homes safely, privately and at their leisure. In addition, our sales offices operated "by appointment only" and at limited capacity frequently throughout the 2020 year.

 

Generally, we build model homes at each project and have them professionally decorated and landscaped to display design features and options available for purchase in the design center. We believe that model homes play a significant role in helping homebuyers understand the efficiencies and value provided by each floor plan type. Structural changes in design from the model homes, other than those predetermined, are not generally permitted, but homebuyers may select various other optional construction and design amenities. The specific options selected for each community are based upon the price of the home and anticipated buyer preferences. Options include structural (room configurations or pre-determined additional square footage), electrical, plumbing and finish options (flooring, cabinets, fixtures). 

 

We typically sell homes using sales contracts that include cash deposits by the purchasers. Most homebuyers utilize long-term mortgage financing to purchase a home, and mortgage lenders will usually make loans only to qualified borrowers. Before entering into sales contracts, we pre-qualify many of our customers through a third party preferred mortgage provider, which provider varies depending on the market. However, purchasers can generally cancel sales contracts if they are unable to sell their existing homes, if they fail to qualify for financing, or under certain other circumstances. For our communities, the cancellation rate of buyers who contracted to buy a home but did not close escrow as a percentage of overall orders was 9%, 11%, and 10% for the years ended December 31, 2020, 2019 and 2018, respectively. Cancellation rates are subject to a variety of factors, including those beyond our control, such as adverse economic or housing market conditions and increases in mortgage interest rates. The cancellation rate for 2020 was impacted by increased cancellations in March and April 2020 as a result of the economic impact COVID-19 had on our buyers’ confidence. However, consumer confidence rebounded in the latter part of the 2020 second quarter with the 2020 cancellation rate declining compared to 2019.  

 

 

We pay particular attention to the product design process and carefully consider quality and choice of materials in order to attempt to eliminate building deficiencies. The quality and workmanship of the subcontractors and trade partners we employ are monitored using our personnel and third-party consultants. We make regular inspections and evaluations of our subcontractors and trade partners to seek to ensure that our standards are met.

 

 

We utilize a third party quality control provider and maintain customer service staff whose role includes providing a positive experience for each customer throughout the delivery and post-delivery periods. These employees are responsible for providing after-sales customer service, including the coordination of warranty requests. Our quality and service initiatives include taking homebuyers on a comprehensive tour of their home during construction and prior to delivery. In addition, we generally use a third party, Eliant, to conduct homebuyer surveys in order to improve our performance and evaluate our standards of quality and customer satisfaction.

 

 

We provide a limited one-year warranty to our homeowners covering workmanship and materials. In addition, we generally provide a more limited warranty, which generally ranges from a minimum of two years up to the period covered by the applicable statute of repose, that covers certain defined construction defects. The limited warranty covering construction defects is transferable to subsequent buyers and provides for the resolution of unresolved construction-related disputes through binding arbitration. Additionally, we have dedicated customer service staff that work with our homebuyers and coordinate with subcontractors and trade partners, as necessary, during the warranty period. While our subcontractors who perform our homebuilding work generally provide us with an indemnity for claims relating to their workmanship and materials, we also purchase general liability insurance that covers development and construction activity at each of our communities. Our subcontractors are usually covered by these programs through an owner-controlled insurance program, or "OCIP." Consultants such as engineers and architects are generally not covered by the OCIP but are required to maintain their own insurance. In general, we maintain insurance, subject to deductibles and self-insured retentions, to protect us against various risks associated with our activities, including, among others, general liability, "all-risk" property, construction defects, workers’ compensation, automobile, and employee fidelity. Our warranty and litigation reserves are presented on a gross basis before coverage from insurance, and expected recoveries from insurance carriers are presented as a receivable, the net result of which is equivalent to our expected costs associated with the deductibles and self-insured amounts for warranty and construction defect claims.  For a further discussion of the risks associated with our warranty and insurance program, please see the risk factor under the heading "Risks Related to Laws and Regulations - We are subject to construction defect, warranty, and personal injury claims arising in the ordinary course of business that can be significant and could adversely affect our financial position and results of operations."

 

 

We have experienced seasonal variations in our quarterly operating results and capital requirements in each of our California and Arizona homebuilding reportable segments as well as our fee building reportable segment. We typically take orders for more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the second and third quarters to build our inventories to satisfy the deliveries in the second half of the year. Historically, our revenues and cash flows (exclusive of the amount and timing of land purchases and land sales, if applicable) from homebuilding operations are generally higher in the second half of the calendar year, particularly in the fourth quarter. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry and the opening, timing of closeout of communities, and other market factors.  For example, we experienced high demand during the fourth quarter of 2020, which we attribute to current market factors including low interest rates, a continued undersupply of homes, and consumers’ increased focus on the importance of home amid the COVID-19 pandemic.  Accordingly, as a result of the ongoing uncertainties and evolution of COVID-19, our traditional seasonal pattern was significantly impacted during 2020.  The homebuilding industry is cyclical. We continue to make investments in land, which is likely to utilize a significant portion of our cash resources, so long as we believe such investments will yield results that meet our investment criteria. 

 

 

Typically, the raw materials and most of the components used in our business are available in the United States. Most are standard items carried by major suppliers. However, our industry experiences shortages in both raw materials and labor from time to time which is particularly acute in the markets in which we build in California and Arizona. In particular, in part due to the impacts of COVID-19 and also due to increasing demand, we have seen an increase in the costs and/or a decrease in the available supply of certain building materials, particularly with respect to lumber, and in certain cases supply chain disruptions causing delays. Increases in the cost of building materials and subcontracted labor may reduce gross margins from home sales to the extent that market conditions prevent the recovery of increased costs through higher home sales prices. These shortages and delays may result in delays in the delivery of homes under construction, reduced gross margins from home sales, or both. We continue to monitor the supply markets to achieve favorable prices. In addition, the imposition of tariffs on building materials frequently impacts the cost of construction and increases in costs may not be recovered by raising home prices due to affordability and market demand constraints.

 

 

 

 

Joint ventures were initially a significant part of our operations by assisting in leveraging our entity-level capital. Over the last year, joint ventures have become a much less meaningful component of our business. We own a minority interest in our unconsolidated joint ventures, but serve as the managing member or general partner of each of our joint ventures and typically earn a management fee. We currently have investments in six homebuilding and three land development joint ventures.  We consider a joint venture to be "active" if active homebuilding or land development activities are ongoing and the entity continues to own homebuilding lots or homes remaining to be sold. Joint ventures that are not "active" are considered "inactive" and generally only have warranty or limited close-out management and development obligations ongoing. As of the date of this filing, of our nine joint ventures, none of our joint ventures are "active". During the 2020 fourth quarter, our land development joint venture in Folsom, CA sold its remaining homebuilding lots, consisting of phases 2 and 3 of its masterplan, to a third party purchaser. In addition, we delivered the remaining homes in our homebuilding joint venture in Arizona in January of 2021 and we sold and closed the three remaining lots in our Cannery land development joint venture.  Additional information related to our unconsolidated joint ventures is set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance Sheet Arrangements and Contractual Obligations -- Joint Ventures."  For a further discussion of the risks associated with our joint ventures, please see the risk factor regarding our joint venture investments under the heading "Risks Related to Financing and Indebtedness."

 

 

The homebuilding industry is fragmented and highly competitive. We compete with numerous other residential construction companies, including large national and regional firms, for customers, land, financing, raw materials, skilled labor, and employees. A number of our primary competitors are significantly larger, have a longer operating history and may have greater resources or lower cost of capital than us. We compete for customers primarily on the basis of home design and location, price, customer satisfaction, construction quality, reputation, and the availability of mortgage financing. We also compete for sales with individual resales of existing homes and with available rental housing. In the past several years, we have expanded our product offerings to include more affordably-priced homes to reach a deeper pool of qualified buyers and in connection with growing our overall community count. We anticipate that we will continue to build more affordably-priced homes. We believe there is more competition among homebuilding companies in more affordable product offerings than in the luxury and move-up segments, however, we also believe this is a prudent strategy as there is a larger population of qualified buyers in more affordable price points.  Our homes are competitively priced, but are not designed to be the lowest priced option in the market as we seek to attract consumers drawn to premium product and experience. For risks associated with the competition we face, please see the risk factor under the heading "Risks Related to Our Business - We may not be able to compete effectively against competitors in the homebuilding industry".

 

 

We are subject to numerous local, state, and federal statutes, ordinances, rules, and regulations concerning zoning, development, building design, construction, and similar matters, including local regulations that impose restrictive zoning and density requirements. In a number of our markets, there has been an increase in state and local legislation authorizing the acquisition of land as dedicated open space, mainly by governmental, quasi-public, and nonprofit entities. We may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or "slow-growth" or "no-growth" initiatives that could be implemented. Local governments also have broad discretion regarding the imposition of development fees and exactions for communities in their jurisdiction. Communities for which we have received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process. In addition, we are subject to various licensing, registration, and filing requirements in connection with the construction, advertisement, and sale of homes in our communities, including requirements imposed by Federal Housing Administration (FHA)-insured or Veterans Affairs (VA) for homes that will be sold with FHA or VA loans. The impact of these laws, regulations, and requirements has been to increase our overall costs, and they have delayed, and in the future may delay, the opening of communities, or have caused, and in the future may cause, us to conclude that development of particular communities would not be economically feasible, even if any or all necessary governmental approvals were obtained. A building moratorium can have the effect of precluding us entirely from building on one or more areas in which we operate.

 

We can also be impacted by unforeseen health, safety and welfare issues, regulated by local and state agencies. For example, as a result of the COVID-19 pandemic, local and state regulators implemented many restrictions, including social distancing, to prevent the spread of the virus. While most "stay at home" orders in the markets in which we operate have deemed homebuilding an essential business, any change to this designation could materially and adversely impact our operations if we were unable to sell and/or construct homes for any period of time.

 

In order to secure certain approvals in some areas, we may be required to provide affordable housing at below market rental or sales prices. The impact of these requirements on us depends on how the various state and local governments in the areas in which we engage, or intend to engage, in development implement their programs for affordable housing. To date, these restrictions have not had a material impact on us.

 

We are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the environment. The particular environmental laws which apply to any given homebuilding site vary according to multiple factors, including the site’s location, its environmental conditions and the present and former uses of the site, as well as adjoining properties. In addition, in those cases where an endangered or threatened species is involved, environmental rules and regulations can result in the restriction or elimination of development in identified environmentally sensitive areas. In some instances, we may be required to investigate and clean up hazardous or toxic substances or petroleum product releases, and may be held liable to a governmental entity or to third parties for related damages, including for bodily injury, and for investigation and clean-up costs incurred by such parties in connection with the contamination. A mitigation system may be installed during the construction of a home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition such as methane. Some buyers may not want to purchase a home with a mitigation system. Legislation related to climate change and energy efficiency can impose stricter building standards, which may increase our cost to build. From time to time, the EPA and similar federal or state agencies review homebuilders’ compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials such as lumber. Environmental laws and regulations and their enforcement may result in delays, may cause us to incur substantial compliance and other costs, and could prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas. We manage compliance with environmental laws at the division level with assistance and oversight from our corporate office. As part of the land acquisition due diligence process, we utilize environmental assessments to identify environmental conditions that may exist on potential acquisition properties. Presently, environmental assessments or our compliance with environmental laws and regulations have not had a material adverse effect on our operations, although they may do so in the future.

 

We use and our business relies upon general contractors' licenses and corporate real estate broker's licenses in order to build and sell homes. Failure to comply with laws regulating these licenses could result in loss of licensing and a restriction of our business activities in the applicable jurisdiction.

 

For a further discussion of the impact of govern regulations on our business, including the impact of environmental regulations, please see the risk factors included under the heading "Risks Related to Laws and Regulations."

 

 

Homebuilding impacts the environment in a variety of ways, including through the use of water, gas and electricity, transportation of building materials, and the increase in density by constructing homes in areas that were previously undeveloped. However, our new homes utilize innovative technologies and systems to vastly improve the energy and water efficiency of our homes compared to resale homes. For example, beginning in 2020, all of our homes constructed in California are equipped with a solar electric system.  We believe that the standards for new home construction mitigate impacts to the environment by increasing home energy efficiency and reducing the impact of construction on the environment (such as limiting discharge of storm water and impacts to wetlands), all while addressing the serious need for housing in this country.

 

California is at the forefront when it comes to sustainability, including green energy, water conservation and efficient construction standards. As a builder with much of its operations in California, we have made a dedicated effort to implement a variety of sustainable best practices in many of our communities, including the masterplan communities which we and our joint venture partners have created. For example, our Cannery master planned community features a working urban farm which serves as a training ground for beginning farmers while supplying the community with fresh seasonal produce when available. Non-potable water from an onsite agricultural well was designed to irrigate landscaped areas along roadways and within open-space greenbelts, parks and the urban farm. In January 2020, we launched "EVO Home Tech", our advanced home automation technology packages which provide our homebuyers with advanced connectivity and features such as smart light controls and thermostats to allow for more convenient control of energy consumption and enhanced sustainability. We believe these eco-friendly, thoughtful community features not only enhance the living experiences for our homebuyers but also promote a lifestyle that's good for the environment. 

 

 

As of December 31, 2020, we had 209 employees, 92 of whom were executive, management and administrative personnel located in our offices, 47 of whom were sales and marketing personnel and 70 were involved in field construction. We believe our employees are among our most important resources and are critical to our continued success. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. Management also reviews employee engagement and satisfaction surveys to monitor employee morale and receive feedback on a variety of issues. Our most recent survey, from November 2020, had approximately 99% participation and reflected that approximately 96% of our employees are positively engaged, which was up from 91% in the 2019 survey. This score is based on affirmative responses to factors such as being proud to work for New Home, a willingness to recommend New Home, an intent to stay with New Home for at the least the next 12 months, and achieving a feeling of personal accomplishment associated with the employee's work. Annually, our CEO shares results with all team members at regional all-employee meetings and each regional leader is tasked with identifying improvement plans. The insights gained from our employee engagement surveys have helped us drive significant improvements in the way our employees work and engage with one another. We also pay our employees competitively and offer a broad range of company-paid benefits, which we believe are competitive with others in our industry. The Company engages in a variety of learning and development opportunities with its employees. Examples of such opportunities include construction best practices training, education for managers on delivering performance feedback, and sales coaching programs.

 

 

We strive to provide a safe and healthy work environment for all employees. We believe that corporate social responsibility is a significant factor for our overall success. This includes adopting ethical practices to direct how we do business while keeping the interests of our stakeholders and the environment in mind, including valuing and challenging the talented men and women who comprise our workforce. To that end, we have a comprehensive Code of Business Conduct and Ethics applicable to all employees and an actively-managed ethics hotline. The Company is committed to creating and maintaining a community in which its employees are free from all forms of harassment and discrimination. We require employee training and protocols for preventing, reporting and addressing behavior that is not in line with our business standards, our core values, including, but not limited to, discriminatory or harassing behavior and sexual misconduct. Further, we believe it is important to treat all employees with dignity and respect. Employee diversity and inclusion are embraced and opportunities for training, growth, and advancement are strongly encouraged.  We are also committed to maintaining high standards in health and safety at all of our sites. We have a health and safety audit system that includes comprehensive independent third-party inspections.  Our Risk Management team has a training system and a safety enforcement system in place in the field, which have led to an increase in safety awareness and effectiveness.  

 

During fiscal 2020, in response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect our employees, our subcontractors and our customers. These protocols include complying with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. In addition, we modified the way we conduct many aspects of our business to reduce the number of in-person interactions. For example, we significantly expanded the use of virtual interactions in all aspects of our business, including customer facing activities. Many of our administrative and operational functions during this time have required modification as well, including much of our office-based workforce working remotely. For a detailed discussion of the impact of the COVID-19 pandemic on our human capital resources, see our Risk Factor discussing the impacts of COVID-19 to our business under "Risks Related to Our Business" in Item 1A of this Form 10-K.

 

 

Our principal executive offices are located at 6370 N. Scottsdale Rd., Suite 290, Scottsdale, Arizona 85253. Our principal executive offices' telephone number is (602) 767-1426. We also have a corporate office in Irvine, California. Our internet website is www.NWHM.com. Our common stock is listed on the New York Stock Exchange (NYSE: NWHM). We make available through the "Investors" section of our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(d) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after filing with, or furnishing to, the SEC. Copies of these reports, and any amendment to them, are available free of charge upon request. We provide information about our business and financial performance, including our corporate profile, on our Investor Relations website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on our Investor Relations website. Further corporate governance information, including our Code of Business Conduct and Ethics, corporate governance guidelines, and board committee charters, is also available on our Investor Relations website. The information contained in, or that can be accessed through our website is not incorporated by reference and is not part of this annual report on Form 10-K.

 

 

 

 

 

 

 

 

 

 

 

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Date: March 26, 2021

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: