Republic Bancorp Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 10, 2023

There are 10 speakers on the call.

Operator

Thank you for standing by. Welcome to the Legacy Housing Corporation Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised today's conference is being recorded.

Operator

I would now like to turn the conference over to your speaker today, Duncan Bates. Please go ahead.

Speaker 1

Good morning. This is Duncan Bates, Legacy's President and CEO. Thanks for joining our Q3 2023 Conference Call. Max Aferick, Legacy's General Counsel, will read the Safe Harbor disclosure before getting started. Max?

Speaker 2

Thanks, Duncan. Before we begin, may I remind our listeners that management's prepared remarks today will contain forward looking statements, which are subject to risks and uncertainties, and management may make additional forward looking statements in response to your questions. Therefore, the company claims the protection The Safe Harbor for forward looking statements is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. We therefore refer you to a more detailed discussion of the risks and uncertainties in the company's annual report filed with the Securities and Exchange Commission.

Speaker 2

In addition, any projections as to the company's future performance represent management's estimates as of today's call.

Speaker 1

Thanks, Max. I'm joined today by Jeff Fiedelman, Legacy's Chief Financial Officer. Jeff will discuss our Q3 performance, then I will provide additional corporate updates and open the call for Q and A. Jeff?

Speaker 3

Thanks Duncan. Product sales decreased $11,700,000 or 24% During the 3 months ended September 30, 2023, as compared to the same period in 2022. This decrease was driven by an industry wide decrease in unit volumes, a decrease in net revenue per unit and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements and other market factors. For the 3 months ended September 30, 2023, our net revenue per unit sold decreased 1.6% to $63,600 Consumer and MHP Loans interest income Increased to $8,800,000 or 25.7 percent during the 3 months ended September 30, 2023 as compared to the same period in 2022. This increase was driven by increased balances in the MHP and Between September 30, 2023 September 30, 2022, Our MHP note portfolio increased by $47,800,000 and our consumer loan portfolio increased by $16,800,000 This is net of principal payments and loan loss allowances.

Speaker 3

This does not include floor plan Other revenue primarily consists of contract deposit forfeitures, Dealer finance fees and commercial lease rents and increased to $4,100,000 or 150.8 percent in the Q3 of 2023 compared to the Q3 of 2022. This increase was primarily due to an increase in forfeited deposits and an increase in floorplan financing fees. The cost of product sales decreased $8,700,000 or 25.9 percent during the 3 months ended September 30, 2023, as compared to the same period in 2022. The decrease in costs is primarily related to the decrease in units sold. Product gross margin was 32.9% for the Q3 of 2023, up expenses decreased 9.2% during the 3 months ended September 30, 2023, as compared to the same period in 2022.

Speaker 3

This decrease was primarily due to a decrease in warranty costs and a decrease in other miscellaneous costs, partially offset by increased legal expenses and an increase in loan loss provision. Net income increased 9.2 percent to $16,100,000 in the Q3 of 2023 compared to the Q3 of 2022. Net income margin was 32.2% for the Q3 of 2023, up From 25.7 percent for the Q3 of 2022. We ended the quarter with $500,000 in cash And $13,000,000 drawn on our line of credit. On July 28, 2023, we closed a new revolving credit facility with The facility is for $50,000,000 with a $25,000,000 accordion feature.

Speaker 3

It is secured by our consumer loan portfolio. Legacy delivered an 18.6% return on shareholders' equity over the last 12 months. At the end of the Q3 of 2023, Legacy's book value per basic share outstanding was $17.61

Speaker 1

Thanks, Jeff. We're happy to have you on the team. Let's start with the market, Then I'll discuss Legacy's financial performance and provide an update on strategic initiatives. According to Manufactured Housing Institute data, Industry home shipments through September of 2023 are down 25.7% year to date. However, housing affordability in the U.

Speaker 1

S. Continues to deteriorate and large numbers of potential homebuyers are priced out of the traditional housing market. We held our 2023 fall show in Fort Worth in early October. As I mentioned in the press release, The 2023 show was one of the most successful sales events in the company's history. The show orders extend backlogs at our Texas facilities well into the Q1 of 2024 at a higher production rate In the Q3 of 2023, both dealer and park customers ordered homes at the fall show.

Speaker 1

The retail or dealer side of our business is showing signs of life. Foot traffic is up and dealers are selling homes. Although it varies by geography, we believe that most of the destocking issues from early 2023 are largely behind us. The reorder rate is lower than we would like, but inventory carrying costs are also higher. One important data point on the dealer side, Legacy's consumer finance business closed more loans in October of 2023 than any other month in the company's history.

Speaker 1

On the community or park side of the business, Sales to community owners and developers remain stable. Like other manufacturers, we have battled delayed shipments due to setup related issues. Discriminatory zoning practices and high interest rates are headwinds for new developments. We secured a few large Park orders with deliveries extending through mid-twenty 24. I'm proud of our Our team's performance to date in 2023, despite a 25.7% decline in industry wide shipments through September, Legacy's net income is only down 1.5% year to date through the Q3.

Speaker 1

We are driving sales and managing expenses effectively. Interest income from 12 months of reinvesting our profits back into the loan portfolios drove a meaningful portion of the year to date profits as product sales declined in 2023. At September 30, 2023, Over 99.3 percent of MHP notes and 98.5 percent of our consumer loans are current We monitor these numbers closely and are confident in the strength of our loan portfolios. I received positive feedback from the last call about discussing projects that the team is working on. Here's where I'm focused.

Speaker 1

Hiring. We made a big we're making a big push to hire young hungry individuals that are committed to a Career at Legacy. Our team is lean, aging and possesses a tremendous amount of industry knowledge. Our goal is to create a path for motivated individuals to harness this information and advance within the company. Number 2, working capital.

Speaker 1

Our working capital is too high. We have too much raw material and finished goods inventory. We are working to reduce inventory and free up capital that can be reinvested back into the business. 3rd, Georgia sales. The Texas plants are in good shape from a sales standpoint.

Speaker 1

Our team in Georgia has done a great job with product quality And we are now building the highest quality homes that have come out of the Eatonton plant. Now we need to accelerate sales. Most of the sales team is new and learning. Kenny and I have been heavily involved and we are starting to see results. We need to keep the hammer down though.

Speaker 1

Number 4, Workforce Housing. We have 40 plus floor plans and have not historically made a push in this space. We continue to bid on large projects with well known disaster relief service providers. Legacy has the balance sheet to hold and lease large amounts of inventory. It's too early to discuss specific projects and numbers, but I continue to believe the workforce housing is a huge opportunity for legacy.

Speaker 1

Number 5, land development. We hired a dedicated team to prioritize and accelerate land development. Completing Phase 1 of DelVal or Bastrop County Outside of Austin is our top priority. Water and electricity are in, road construction and construction of the water treatment plant Begin in November. Delaying construction at several properties may have helped us.

Speaker 1

For example, some properties were in very rural areas When purchased, now 5 plus years later, there are plans to run City Sewer and other services that will increase value and provide flexibility. We continue to evaluate ways to maximize the value of these projects for our shareholders. In addition to these internal projects, we are consistently evaluating inorganic growth opportunities. The new bank line gives us the flexibility to pursue these opportunities if they hit our returns threshold. One final thought on valuation.

Speaker 1

We are growing book value or shareholders' equity at about 19% a year. Legacy was started with $700,000 and we have grown that equity to $429,500,000 in 18 years. Make it, save it, invest it, again and again. Our book value primarily consists of finance notes At par with the reserve, inventory at cost and land developments at cost. Our facilities and equipment are mostly depreciated.

Speaker 1

We believe that our book value is conservatively stated and is near the company's liquidation value. We publish our book value per share each quarter. As of September 30, 2023, our book value per share was 17 point $0.61 That number is a month and a half stale and our stock is trading in the $19 range. It's not much of a premium. If the stock trades at or below book value per share, we will use the full extent of our balance sheet to repurchase shares.

Speaker 1

I believe that we can continue growing shareholders' equity at 18% to 19% a year in this high interest rate environment and that our share price will begin to reflect this. If you do the math, the numbers get large quickly. Any strategic moves are icing on the cake. Operator, this concludes our prepared remarks. Please begin the Q and A.

Speaker 4

Thank you.

Operator

We will pause for a moment while we compile our Q and A roster. Our first question comes from Mark Smith with Lake Street. Your line is open.

Speaker 5

Hi, guys. Duncan, first, I want to dig into gross profit margin just a little bit more, Really solid execution there. Can you talk about any additional drivers there, maybe what you saw? Is Inflationary pressures gone down, what you're looking at for labor, any insights there would be great.

Speaker 1

Yes, sure. Hey, Mark. So a couple of thoughts for you. Obviously, volume was down pretty significantly in the Q3. So managing Expenses is extremely important.

Speaker 1

We've been able to hold price even at lower volumes And material prices have come down. Labor and overhead On the other side of things, have continued to go up and they're not accelerating at a Quick rate, but it certainly has had an impact on gross margin. I would expect as we ramp up production And continue to manage our costs that we can we're trying to hold these margins where they are, but obviously managing Inventory as well as labor.

Speaker 5

Okay. And Solid performance on the consumer finance loan business. Did you guys use Rate there at all to kind of help drive that? It looks like maybe we saw rates down a little bit. Any discussion around that?

Speaker 1

Yes. We're I think our rates across the loan portfolios have been pretty attractive And certainly helped us drive sales. We are taking rates up a little bit on the consumer loan portfolio, But we've not those won't be included in the 3rd quarter numbers. So I think we've got an opportunity to pick rates up A little bit here to get back in line with the market.

Speaker 5

Okay. And then Any you guys have done a good job kind of managing charge offs and any issues within the portfolio. Any changes in kind of your underwriting Policies or is everything kind of stayed the same there?

Speaker 1

They've stayed the same. I feel pretty good about our underwriting processes. We have added additional collections personnel to the team just in the event that You did start to see some cracks in the loan portfolios, but we're keeping an eye on it and We make a lot of calls. We monitor it closely. And we've Continue to perform with managing those portfolios.

Speaker 5

Okay, great. Thank you.

Speaker 1

Thanks, Mark.

Operator

One moment for our next question. Our next question comes from Alex Rygiel with B. Riley Securities. Your line is open.

Speaker 6

Thank you. Good quarter Duncan and team. Nice quarter there. A couple of quick questions here. First, You've been holding your average selling price at a nice level here.

Speaker 6

Any reason for that to change sort of over the intermediate term?

Speaker 1

No. We plan to continue to hold it. I think the one thing that has changed, remember last quarter, We saw a pretty significant drop in average selling price quarter over quarter. I think that's stabilized And it's stabilized toward kind of smaller, less optioned homes. But I feel Pretty good about where it is now.

Speaker 1

I don't think we'll see another major drop. But as far as pricing goes, I mean, we're now ramping up Production at both of the Texas plants, we've got a nice backlog well into the Q1. And so I don't plan to see any Price degradation, ended 2024.

Speaker 6

And then you've been talking about Larger kind of commercial customer orders and that's super exciting. Kind of two questions. I suspect it's a little bit different of a product, But can you talk about that as it relates to average selling price and margin kind of at the end of the day, the margin on that product? And is there any risk that it's a different margin and creates a headwind?

Speaker 1

Yes. So we're still in the early stages of this. And all this came about by Obviously, orders were pretty slow through the year and Kenny and I hit the road and have been Meeting with as many people as we can to sell all the product that we can. And we've actually we've got we build this product already, Alex. So but we're typically selling it to dealers in South Texas and in West Texas who have relationships with Mainly oilfield services companies to house their workers.

Speaker 1

And so for us, it's always been 4 homes here, 10 homes there and never a focus from a direct sales standpoint. But as we dug in, I mean, there's a lot of these projects and we're primarily competing against A different product, skid mounted metal product that's more expensive to manufacturers. So I think from A price standpoint, we're pretty competitive. The margins on that product look similar to Our other products, I mean, it's just it's essentially large single wides with Individual studio type apartments with or without kitchenettes and all with bathrooms. And so it's something that we're we have experienced building.

Speaker 1

It's not built to a different code or anything like that, that would significantly Increase the price, but really the interesting thing to us is a lot of this product is leased. And From what we can tell, the lease terms are pretty attractive on larger products. And so it's still It's a little early. I want to get contracts signed on a couple of things before we talk about it. But I think there is A large opportunity, and I think it does help diversify the business as well as potentially growing the recurring revenue side of our business.

Speaker 6

And then lastly, as it relates to community development, obviously, Belleville is your most attractive kind of near Can you help us to understand when homes might get delivered to that site? And then as it relates to other real estate that you own, any opportunities Sell these land assets and redeploy that capital into a share buyback?

Speaker 1

Yes. Well, I'm putting them in 3 buckets. I think that there is a bucket for that makes sense to sell. There are some properties that are just raw land Well, we haven't made a lot of progress and they're smaller, maybe not suited for Development or there's some reason why they're cost prohibitive. So I think on those, We can sell them when we feel like the market is right and make a nice return.

Speaker 1

There is a second bucket and I mentioned this on the call where Since these projects have taken a long time, there have been developments. And so We've got a situation where we're seeing the area that this was Grow pretty significantly and their city sewer and water come in, in the near term. And so I think that That bucket are we'll have to look at hard on what's the best use Of these projects, could be MH, could be single family, but we want to maximize the value. And so that's bucket number 2. And then bucket number 3 is DelVal and And Horseshoe Bay and some of the other projects that are further along.

Speaker 1

And I think we've got to accelerate those To create value, we've now got a full time team working on these projects. And I'd still they're newer. They're getting up to speed on what's been done historically and what needs to happen. I'm hesitant to give you a timeline for DelVal because we've shattered it so many times in the past. But I think by year end, as we start to get the roads in And the water treatment plant is being built.

Speaker 1

I think next call, I'll have a really good idea of when homes actually start getting placed on those slots.

Speaker 6

Very helpful. Thank you very much.

Speaker 1

Yes. Thanks, Alex.

Operator

One moment for our next question. Our next question comes from Tim Moore with EF Hutton. Your line is open.

Speaker 7

Thanks and congratulations on the continued good operational execution. Yes. It's vastly improved since you took over Duncan. I just want to kind of follow-up on a thread that's probably on all the investors' minds. I mean, your gross margin has done Impressively, if not surprisingly well, the past three quarters despite the industry volumes downturn and Even the minor ASP drop in the spring for the industry.

Speaker 7

So just for the September quarter you just reported, Anyway, Duncan or Jeff, to maybe parse out how much of that gross margin expansion in the quarter came from maybe cost Deflation versus any benefit you might have had from some conversion of floor financing?

Speaker 1

Yes. There's no floor financing in this quarter. And so really, I'd say the majority of it is just from better execution on the purchasing side. And I think we still have a ways to go. I think that vendors are obviously reluctant to get Price decreases unless you really push for them.

Speaker 1

And so the majority of that margin expansion Came from purchasing, but labor has continued to go up. And I think the market has softened a little bit and It's not accelerating like it was through COVID, but that's something that we're certainly keeping a close eye on is In our labor cost per square foot produced, and we track it pretty closely. But I'd say over the last 5 years, you see a continued increase in your labor costs. And as we talk about ramping up production and hiring people, we're certainly paying higher wages than we did 4 or 5 years ago. So the goal is to continue to push on purchasing And add labor to ramp up production in an organized way instead of just You pay a bunch of laborers a lot of money to stand around.

Speaker 7

That makes sense. I mean, It really is very impressive what you've done with the gross margin. So, Duncan, maybe you mentioned in your prepared remarks that legacy closed more loans In October than any other month in legacy's history, consumer loan front. Can you maybe share with us just The cadence, the monthly cadence during September quarter, in other words, was it incrementally better every month with the volume and the orders from July through September? Just trying to get a sense maybe if you're kind of seeing a bottom.

Speaker 1

Yes. I mean, I feel like Internal sentiment from a sales standpoint was the lowest I've seen in the Q3. I think we're In a much better place now. And I think that the success of the fall show was a big step in the right direction. And that was something that I was pretty concerned about.

Speaker 1

And we sold a lot of homes and that's great. How can I answer your question better? Sorry,

Speaker 7

No, no. I'm just trying to think, now that you have if you kind of parse out that amazing show you just had and demand in orders, I mean, do You kind of feel like the floor is in for the industry maybe on volume and consumer sentiment?

Speaker 1

Yes. I think volumes We're ramping up volume. Sales are looking good in Texas. And back to your question, I lost my train of thought. On the lending portfolios, we haven't changed anything.

Speaker 1

I think The increase in applications and actually closing Loans speak to a little bit of a pickup on the dealer side of the business. These loans don't close Overnight, there's a whole underwriting process associated with them. So it's not perfectly Linear, but we had we saw originations this fall or applications Reaching pretty good numbers and Brandon and his team that run that business for us just did a good job of execution in October and Yes, we plan to keep it going.

Speaker 7

That's great. I remember meeting Brandon a year ago. And my last question is just regarding the CFO Role change, maybe can Jeff comment on maybe what he brings to enhance legacy housing. I read about his accounting background and his finance experience, but Maybe just give them a shot to do a little commercial on what he brings?

Speaker 1

Yes, sure. I'll turn it over to Jeff, but I'm happy to have him on.

Speaker 3

Thanks, Tim. Thanks for asking the question. I've got a pretty diverse background, Good operational background, especially in manufacturing and really good experience Helping businesses grow from one stage to the next in terms of Process and operations and scale. And Yes, I've had the benefit of getting exposed to legacy a couple of years ago, and learning the business a little In a consulting role and so coming in, it's been you always have that luxury Knowing the business pretty well before you come into something new. But it's a good team here and it's I feel like I bring Yes.

Speaker 3

Good solid experience across the board from an operations perspective, from Finance corporate finance perspective and on the accounting side and getting through some of the issues that the company has had historically.

Speaker 7

Great. Those are helpful insights. Thanks for sharing, Jeff. And Duncan, thanks for answering my questions. I'm all separate today.

Operator

Yes. Thanks, Tim. One moment for our next question. Our next question comes from Jay McCanless with Wedbush. Your line is open.

Speaker 4

Hey, good morning, guys. Welcome aboard, Jeff. Duncan, could you maybe walk us through, it sounds like the show went really well, but what was The feedback from the dealers, just a couple of 3 maybe high points you could give us. And it sounds like with the order rates, Sounds like they're getting more bullish as we think about the spring, but anything that stood out from your talks with the independents?

Speaker 1

Yes. Jay, 2023 was a pretty hard year for The independent dealers, I mean, you come off of just the market absolutely going gangbusters in 2020 2 up until the end of the year and backlogs being stretched out. So when they were selling a lot of homes, they were ordering a lot of homes, But they weren't able to get those immediately. And so you just you had a situation where The demand really dried up from the retail customer. And then as backlogs came I think that there was a lot of inventory that was forced on these dealers and they were having trouble selling it.

Speaker 1

And You've got the carrying cost going up as well. So I mean, I think a lot of these guys We're in pretty tough shape. And the show was surprisingly optimistic. I mean, We were pretty worried about turnout and about especially about orders. I mean, we Kind of thought that at a minimum people would come to party in Fort Worth with us, but we were worried about the order front.

Speaker 1

And so I think the good news is, we're seeing a lot of dealers sell homes and a lot of those homes have I've been sitting for a while, and so it's good to see them start to move. We had ran some specials, and I think the sales effort on the dealer side was great. And now they've just got to focus On executing and moving any aged inventory they have, but where What we haven't seen yet is a reorder rate that's as high as we like it. And I think that that's mainly driven by The carrying cost of the inventory being higher, but I think as these guys continue to sell homes, They'll continue to order homes and it's nice to have that piece of our business moving in the right direction, because at the beginning of the year, that certainly wasn't the case.

Speaker 4

Great. And then I guess you answered my price question, I think, but just this mid-sixty mid to low-60s, Steve, you think that's probably going to be a good number to use for the next couple of quarters for modeling in terms of average price?

Speaker 1

Yes, I think so. I think all the customers are a little squeezed. You've got on the retail side, Inflation has been tough for this customer. They probably like a little bit larger home, but the payments may not work. And so we're selling a lot of single wide, with that aren't, I'd say, fully optioned.

Speaker 1

And then we see the same thing on the park side where that some of the community owners are going to a little bit smaller homes to keep the monthly payments down for the financing. So I'd say that's a pretty good number. If we see a big pickup in double whites going out or we hit one of These workforce housing deals are a little bit higher units that could go up, but for right now from a base case standpoint, That feels like a good ASP to

Speaker 4

me. Okay. And then just one other question. We've heard about some commercial banks in the U. S.

Speaker 4

Pulling back and exiting, doing floor plan lending for the MH space. Is there any opportunity for legacy to maybe go a little further afield and pick up some business as some of these banks have been exiting?

Speaker 1

Yes, absolutely. I mean, I think it's actually a pretty big opportunity for us. We've made some changes To our floor plan program and the team that executes it, but there's a lot of dealers that we don't floor. And so there's an opportunity to expand and add some more dealers. We've got other dealers that floor with Someone else but carry legacies.

Speaker 1

And so I think there's an opportunity to convert those Over to us as well as add more legacy homes on their lot. And I still think there's an opportunity to grow the consumer finance business. We've got a lot of dealers that I wouldn't say were their number one financing choice At this point, and so I think there's an opportunity to make a push there. So you're adding floorplan financing, but You're also pushing the consumer lending business as well.

Speaker 8

Okay.

Speaker 4

That sounds great. Thanks for taking my questions.

Speaker 1

Absolutely. Thanks, Jay.

Operator

One moment for our next question. Our next question comes from George Melas Krejciaga with MKH Management, your line is open.

Speaker 9

Great. Thank you. Good morning, gentlemen. I have a question on production and inventory. My understanding is that you were sort of increasing production in the quarter, but sales, of course, were rather soft And finished good inventory even though maybe it's pretty high, it was flat sequentially.

Speaker 9

So I'm trying to square that And try to understand if you actually did increase production in the September quarter or Sort of how did you handle that to manage to keep finished inventory flat?

Speaker 1

Yes. I mean production And the quarter was down pretty significantly. I mean, I felt like Q3 was about the lowest that we were running at all the plants. And we still we did miss a production day, but we were really building 3 homes On average at each plant, which was down pretty significantly from kind of mid-twenty 22 or Q3 of 2022. Now we've got a little bit of an easy comp because in the Q3 of 'twenty two, that's when we really started having the issues at Georgia.

Speaker 1

And so production was down in the Q3. We're taking it up in Texas now. We've still got some work to do in Georgia. We haven't ramped production up there. We've got too much finished good inventory At Georgia that we're working to move and I really feel like by Q1, we'll be back On track there, we'll get a lot of that finished goods inventory shipped and we should have the orders to start taking up production at that time.

Speaker 9

Okay. And remind me, Georgia, that's mostly park homes or is it also To the deal channel.

Speaker 1

Yes, it's both. We've got a couple of large part customers there. So we have built a lot of that product. And they've been just kind of large or I'd say good entrepreneurs that have large Real Estate Portfolios and they've bought a lot of homes from us and they've been pretty loyal. And so we're we appreciate them, but we've We have a Legacy has a dealer presence in the Southeast through Heritage Housing And we also have some independent dealers there.

Speaker 1

But as I add to that sales team, we've hired a lot of people. I mean, where I think we've Hired 7 or so salespeople in the past few months and we need to get back on track with the dealer business. It's just It's a large territory and so you can't have 2 people covering the entire Southeast for dealers effectively. So I think there's a lot of Opportunity there, now that we've gotten through the quality issues and the service issues and they're starting to regain our customers' trust.

Speaker 9

Okay. That's great news. That quality has improved. Question about So the cash, your loans and your line of credit. Your line of credit, of course, was unused at the beginning of the year.

Speaker 9

Now you have $13,000,000 So you seem to find good opportunities to increase your own portfolio. Do you think that continues or is there a limit to that?

Speaker 1

Yes. I mean, you know, cash is king right now. And so if you've got the ability to lend into this industry, there's plenty of opportunities. And We're being selective, but we have had some good opportunities to put money to work at Pretty attractive yield, even though the cost on anybody's bank line that's variable It's fairly high right now. And so, we'll be selective.

Speaker 1

We're not going to go crazy, but we're certainly not going to turn down Good opportunities to either invest in the loan portfolios or on the development loan side where we can put money to work With a lien on a property and a personal guarantee, it kind of high teens yield.

Speaker 9

Okay. Makes sense. And then just a final quick question. It seems like your own retail operation Seems to be doing a little bit better. Have you worked out some of the kinks there or?

Speaker 1

Yes, we're working on it. I think heritage has a lot of potential. I mean, we haven't added additional locations in Couple of years and we're seeing some opportunities to do that, but the key is getting the management team in place. We've made a few changes at the senior management team. We've got a few Additions that we need to make, but I feel pretty good about how Heritage is being managed.

Speaker 1

And we're selling more production through Heritage Then we have in the past, and I think but it's still lower than where we would like to be. And so that's another area that I feel like we have a with the right team, we've got a good opportunity to grow that side of our business. And it's still Significantly below where our peers are in terms of production that we are selling through our company owned retail So I just I think there's a big opportunity in Heritage.

Speaker 9

Great. Thank you very much.

Operator

Yes, thanks. One moment for our next question. Your next question comes from Ramon Nemtsov who is a private investor. Your line is open.

Speaker 8

Thank you. Hey, Duncan and Jeff, congrats on a great quarter. I wanted to ask a question related to the land development. Maybe if you can give us a little bit more specificity Regarding who you hired as part of this new team and sort of what your overall vision is for that whole business?

Speaker 1

Yes. I mean, we're still we're in kind of the early stages of it. We broke the developments up into regions and we've got essentially a regional manager with some team members below him And each region. And the goal right now is just Prioritize and accelerate the development on these properties. And so like I was speaking about earlier, we've got Three buckets we're looking at.

Speaker 1

I think some of them as we dig a little bit deeper may make sense to sell. There are some that may make sense to hold and then they're certainly the ones that we've made good progress on that we're really trying to push forward And so I'll continue to provide updates. I understand it's kind of it's high level, but I'm still getting my arms around it And making sure that whatever decision we make on these properties, they're all being Executed from the lens of creating the most value for the shareholders. And so it's not going to be overnight, but I think that The easy ones are either, hey, we need to accelerate this or hey, we should just look at selling at this Selling this and what's it worth and if there's something that makes sense to sell and you can make 3, 4, 5 times your money, it's probably Good opportunity to do that.

Speaker 8

Thanks. That's helpful. I guess my question is, do

Speaker 6

you see this As like a vertical

Speaker 8

of the business, like is this going to be a full rent type A product that's going to be held on the balance sheet for a long time and you're just going to sort of accelerate Or is this something that's more of I guess, I'm trying to figure out if this is a trade or is this a low term hold?

Speaker 1

Yes. It's I'm trying to figure that out too. Okay. Look, The biggest headwind of this in this entire industry is where to put these homes. And so I think if you can Create a model that is that you can replicate over and over again That allows our customers to sell homes into communities.

Speaker 1

That's a pretty good model, But it's going to take some time to get there. And so that's I mean, you hit the nail on the head. That's what I'm trying to understand now. I'd like to think that we can come up with something pretty creative where this is a model that we can replicate and solve the largest headwind for our industry. But I'm not and we have a good starting point.

Speaker 1

We just have to execute on that and use the knowledge to create something that we can replicate over and over again. And so That is precisely what I'm trying to figure out.

Speaker 8

And so one more question on this. What do you think is the biggest headwind for you to sort of figure this out? Is it capital? Is it time? I mean, What is the limited capital to sort

Speaker 1

of I think we've got the capital. I think we've just got to understand how it's viewed and from a public market stand And how the cash flows will be valued, then and that's going to determine if these are Long holds or are these can you get them to a point where you can maximize the value for the shareholders? Because If I add, if I finished DelVal and I've got 1100 spaces and Rents coming off of those, and are investors going to value that at 7 times earnings? Are they going to value it like Sun Communities 30 times earnings. And so I don't know the answer to that question yet.

Speaker 8

Understood. Thank you so much.

Speaker 1

Yes. Thank you.

Operator

And I'm not showing any further questions At this time, I'd like to turn the call back

Speaker 8

over to Duncan for any

Speaker 1

closing remarks. Sure. Thank you. I'd like to thank everybody, who joined today's earnings call. We certainly appreciate your interest in legacy.

Speaker 1

And operator, this concludes our call.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful

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Earnings Conference Call
Republic Bancorp Q3 2023
00:00 / 00:00
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