LGI income up as demand for homes jumps
The Woodlands-based homebuilder LGI Homes saw its net income more than double year over year in the fourth quarter as the pandemic drove jawdropping growth by pushing home sales and home prices to record levels, encouraging investors to snap up new homes wholesale to rent to those who did not buy and lowering administrative costs.
LGI’s net income in the fourth quarter increased 110 percent to $136 million ($5.34 per diluted share) from $64.9 million ($2.52) the year earlier. Revenue for the three months ended Dec. 31 reached $897 million, up from $606 million in the final quarter of 2019.
“LGI Homes delivered another record-breaking quarter, capping off the best year in our company’s history,” said Eric Lipar, the company’s chief executive.
The average sales price per LGI home closed in the fourth quarter was $263,321, and increase
of 9.3 percent, or $22,506, from the same period the year before. The surge was in keeping with a surge in home sales prices nationwide — in December, the S&P CoreLogic Case-Shiller Index, which measures home price growth, surged 10.4 percent from the year before, according to data released Tuesday morning.
LGI’s top markets, in terms of numbers of closings per community per month, were the DallasFort Worth, Austin, Houston, San Antonio and Phoenix regions, in that order.
LGI’s success in the Houston market reflects the divergence between the single-family home and apartment markets over the past year. Camden Property Trust, which specializes in multifamily properties, announced in its annual earnings report that it had seen net operating income in the Houston area fall 8.3 percent in 2020 from the year before. Its weighted average monthly rental rate fell 0.4 percent over the period.
That’s because while some call Houston’s apartment market overbuilt, especially for a recession and a pandemic, the need to socially distance and ability to work remotely has driven
many to seek out homes.
LGI is profiting not only from homebuyers taking advantage of record-low interest rates, but also from renters looking for less dense environments and investors buy homes wholesale with the intention to rent. As of Dec. 31, the company had 1,139 homes ordered by wholesale investors, 2.4 times the number from the year before. One in 10 LGI homes sold in 2020 was to a wholesale investor, up from in 20 in 2019.
The homebuilder’s backlog at the end of the year suggested that 2021 is off to a strong start. It ended 2020 with a backlog of 2,964 homes, up 140 percent from the year before. The homes in that backlog are valued at $775 million, up 167 percent from the year before.
The company last year embarked on a share buyback program. On an earnings call, Charles Merdian, the company’s chief financial officer, said that if the company continued to generate a positive cash flow, it would invest in building more homes in more communities and might explore merger and acquisitions or further share buybacks.