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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-38545
Landsea Homes Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware82-2196021
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification Number)
660 Newport Center Drive, Suite 300
Newport Beach, CA
92660
(Address of Principal Executive Offices,(Zip Code)
(949) 345-8080
(Registrant’s Telephone Number, Including Area Code)

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

Title of each classTrading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.0001 per shareLSEA 
The Nasdaq Capital Market
Warrants exercisable for Common StockLSEAW 
The Nasdaq Capital Market
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, 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.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of November 10, 2021, 46,281,091 Class A common stock, par value $0.0001 per share, were issued and outstanding.


Landsea Homes Corporation
Form 10-Q Index
For the Nine Months Ended September 30, 2021

PART I - FINANCIAL INFORMATIONPage
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020
Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020
Notes to the Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Signatures




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Landsea Homes Corporation
Consolidated Balance Sheets - (Unaudited)
(in thousands, except share and per share amounts)
September 30, 2021December 31, 2020
Assets
Cash and cash equivalents$82,360 $105,778 
Cash held in escrow14,538 11,618 
Restricted cash 4,270 
Real estate inventories (including related party interest of $9,091 and $18,721, respectively)
907,937 687,819 
Due from affiliates4,151 2,663 
Investment in and advances to unconsolidated joint ventures (including related party interest of $278 and $1,320, respectively)
4,301 21,342 
Goodwill24,457 20,705 
Other assets35,367 41,569 
Total assets$1,073,111 $895,764 
 
Liabilities
Accounts payable$55,345 $36,243 
Accrued expenses and other liabilities59,603 62,869 
Due to affiliates2,358 2,357 
Warrant liability14,520  
Notes and other debts payable, net 361,735 264,809 
Total liabilities493,561 366,278 
 
Commitments and contingencies
 
Equity
Stockholders' equity:
Preferred stock, $0.0001 par value, 50,000,000 shares authorized, none issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
  
Common stock, $0.0001 par value, 500,000,000 shares authorized, 46,281,091 and 32,557,303 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
5 3 
Additional paid-in capital531,887 496,171 
Retained earnings46,398 32,011 
Total stockholders' equity578,290 528,185 
Noncontrolling interests1,260 1,301 
Total equity579,550 529,486 
Total liabilities and equity$1,073,111 $895,764 
See accompanying notes to the consolidated financial statements.
- 1 -


Landsea Homes Corporation
Consolidated Statements of Operations - (Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue
Home sales$208,916 $218,517 $603,281 $449,870 
Lot sales and other5,213  21,541  
Total revenue214,129 218,517 624,822 449,870 
 
Cost of sales
Home sales (including related party interest of $2,571, $4,113, $9,813 and $8,653, respectively)
175,349 188,724 511,177 394,200 
Inventory impairments   3,413 
Lot sales and other3,419  16,929  
Total cost of sales178,768 188,724 528,106 397,613 
 
Gross margin
Home sales33,567 29,793 92,104 52,257 
Lot sales and other1,794  4,612  
Total gross margin35,361 29,793 96,716 52,257 
 
Sales and marketing expenses12,299 13,905 34,880 31,523 
General and administrative expenses16,905 11,382 45,826 31,332 
Total operating expenses29,204 25,287 80,706 62,855 
 
Income (loss) from operations6,157 4,506 16,010 (10,598)
 
Other income, net 394 277 3,927 347 
Equity in net income (loss) of unconsolidated joint ventures (including related party interest of $278, $278, $1,042 and $903, respectively)
168 (616)814 (16,229)
Gain (loss) on remeasurement of warrant liability7,040  (3,245) 
Pretax income (loss)13,759 4,167 17,506 (26,480)
 
Provision (benefit) for income taxes2,977 993 3,160 (6,738)
 
Net income (loss)10,782 3,174 14,346 (19,742)
Net loss attributable to noncontrolling interests(15)(10)(41)(120)
Net income (loss) attributable to Landsea Homes Corporation$10,797 $3,184 $14,387 $(19,622)
 
Income (loss) per share:
Basic$0.23 $0.10 $0.31 $(0.60)
Diluted$0.23 $0.10 $0.31 $(0.60)
 
Weighted average common shares outstanding:
Basic45,281,091 32,557,303 45,077,015 32,557,303 
Diluted45,329,891 32,557,303 45,146,552 32,557,303 
See accompanying notes to the consolidated financial statements.
- 2 -


Landsea Homes Corporation
Consolidated Statements of Equity - (Unaudited)
(in thousands, except shares)
Common Stock
SharesAmountAdditional paid-in capitalRetained earningsNoncontrolling
interests
Total stockholders' equity
Balance at June 30, 202146,281,091 $5 $530,660 $35,601 $1,275 $567,541 
Stock-based compensation expense— — 1,227 — — 1,227 
Net income (loss)— — — 10,797 (15)10,782 
Balance at September 30, 202146,281,091 $5 $531,887 $46,398 $1,260 $579,550 
Common Stock
SharesAmountAdditional paid-in capitalRetained earningsNoncontrolling
interests
Total stockholders' equity
Balance at December 31, 20201,000 $ $496,174 $32,011 $1,301 $529,486 
Retroactive application of recapitalization32,556,303 3 (3)— —  
Adjusted balance, beginning of period32,557,303 $3 $496,171 $32,011 $1,301 $529,486 
Recapitalization transaction, net of fees and deferred taxes13,673,722 2 31,660 — — 31,662 
Vesting of restricted stock units50,066 — — — — — 
Stock-based compensation expense— — 4,056 — — 4,056 
Net income (loss)— — — 14,387 (41)14,346 
Balance at September 30, 202146,281,091 $5 $531,887 $46,398 $1,260 $579,550 
 
Common Stock
SharesAmountAdditional paid-in capitalRetained earningsNoncontrolling
interests
Total stockholders' equity
Balance at June 30, 20201,000 $ $490,992 $18,156 $1,313 $510,461 
Retroactive application of recapitalization32,556,303 3 (3)— —  
Adjusted balance, beginning of period32,557,303 $3 $490,989 $18,156 $1,313 $510,461 
Net income (loss)— — — 3,184 (10)3,174 
Net transfers to parent— — 2,754 —  2,754 
Balance at September 30, 202032,557,303 $3 $493,743 $21,340 $1,303 $516,389 
See accompanying notes to the consolidated financial statements.
- 3 -


Landsea Homes Corporation
Consolidated Statements of Equity - (Unaudited)
(in thousands, except shares)
Common Stock
SharesAmountAdditional paid-in capitalRetained earningsNoncontrolling
interests
Total stockholders' equity
Balance at December 31, 20191,000 $ $524,516 $40,962 $17,892 $583,370 
Retroactive application of recapitalization32,556,303 3 (3)— —  
Adjusted balance, beginning of period32,557,303 $3 $524,513 $40,962 $17,892 $583,370 
Contributions from noncontrolling interests— — — — 187 187 
Distributions to noncontrolling interests— — — — (15,414)(15,414)
Net loss— — — (19,622)(120)(19,742)
Net transfers to parent— — (30,770)— (1,242)(32,012)
Balance at September 30, 202032,557,303 $3 $493,743 $21,340 $1,303 $516,389 
See accompanying notes to the consolidated financial statements.
- 4 -


Landsea Homes Corporation
Consolidated Statements of Cash Flows - (Unaudited)
(in thousands)
Nine Months Ended September 30,
20212020
(dollars in thousands)
Cash flows from operating activities:
Net income (loss)$14,346 $(19,742)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization3,240 2,684 
Loss on remeasurement of warrant liability3,245  
Inventory impairments 3,413 
Stock-based compensation expense4,056  
Gain on forgiveness of PPP loans(4,265) 
Abandoned project costs380 78 
Equity in net (income) loss of unconsolidated joint ventures(814)16,229 
Deferred taxes(1,221)(5,637)
Changes in operating assets and liabilities:
Cash held in escrow(2,920)1,332 
Real estate inventories(123,874)(60,722)
Due from affiliates(1,488)(17)
Other assets(5,982)(160)
Accounts payable17,461 16,497 
Accrued expenses and other liabilities(28,110)(2,879)
Due to affiliates 100 
Net cash used in operating activities(125,946)(48,824)
 
Cash flows from investing activities:
Purchases of property and equipment(2,309)(1,499)
Distributions of capital from unconsolidated joint ventures17,855  
Payments for business acquisition, net of cash acquired(44,537)(128,528)
Net cash used in investing activities(28,991)(130,027)
 
Cash flows from financing activities:
Borrowings from notes and other debts payable491,535 442,392 
Repayments of notes and other debts payable(424,006)(305,655)
Proceeds from merger, net of fees and other costs64,434  
Repayment of convertible note(1,500) 
Contributions from noncontrolling interests 187 
Distributions to noncontrolling interests (15,414)
Deferred offering costs paid(1,832)(6,025)
Debt issuance costs paid(1,382)(2,678)
Cash distributed to parent, net (3,476)
Net cash provided by financing activities127,249 109,331 
 
Net increase (decrease) in cash, cash equivalents, and restricted cash(27,688)(69,520)
Cash, cash equivalents, and restricted cash at beginning of period110,048 156,378 
Cash, cash equivalents, and restricted cash at end of period$82,360 $86,858 
See accompanying notes to the consolidated financial statements.
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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)

1.    Company
Landsea Homes Corporation (“LHC” or the “Company”), a majority owned subsidiary of Landsea Holdings Corporation (“Landsea Holdings”), together with its subsidiaries, is engaged in the acquisition, development, and sale of homes and lots in Arizona, California, Florida, New Jersey, New York, and Texas. The Company's operations are organized into the following five reportable segments: Arizona, California, Florida, Metro New York, and Texas.
On August 31, 2020, LHC and its parent, Landsea Holdings, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LF Capital Acquisition Corp. (“LF Capital”) and LFCA Merger Sub, Inc. (the “Merger Sub”), a direct, wholly-owned subsidiary of LF Capital. The Merger Agreement provided for, among other things, the merger of Merger Sub with and into Landsea Homes Incorporated ("LHI"), previously a wholly-owned subsidiary of Landsea Holdings, with LHI continuing as the surviving corporation (the "Merger").
On January 7, 2021 (the "Closing Date"), the Merger was consummated pursuant to the Merger Agreement (the "Closing"). The name of the surviving company, LF Capital Acquisition Corp., was changed at that time to Landsea Homes Corporation. Subject to the terms of the Merger Agreement, Landsea Holdings received $343.8 million of stock consideration, consisting of 32.6 million newly issued shares of LF Capital Acquisition Corp.’s publicly-traded Class A common stock. The shares were valued at $10.56 per share for purposes of determining the aggregate number of shares payable to Landsea Holdings (the “Stock Consideration”).
Upon Closing, Level Field Capital, LLC (the “Sponsor”) held 1.0 million shares that are subject to surrender and forfeiture for no consideration in the event the common stock does not reach certain thresholds during the twenty-four month period following the closing of the Merger (“Earnout Shares”). The Sponsor transferred 0.5 million Earnout Shares to Landsea Holdings. Additionally, the Sponsor forfeited 2.3 million private placement warrants and transferred 2.2 million private placement warrants to Landsea Holdings (such private placement warrants, each exercisable to purchase one share of Common Stock at an exercise price of $11.50 per share, are referred to as the “Private Placement Warrants”, and together with the public warrants they are referred to as the "Warrants").

In connection with the Merger, the Company received $64.4 million from the Merger after payments of $28.7 million related to the public warrant amendment and of $7.5 million in transaction expenses incurred. The Company incurred direct and incremental costs of approximately $16.7 million related to the equity issuance, consisting primarily of investment banking, legal, accounting and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. The Company recorded $2.7 million in general and administrative expenses in the nine months ended September 30, 2021 related to the accelerated vesting of the phantom awards. The Company paid cash of $2.9 million for the phantom stock awards and issued 0.2 million shares with an issuance date value of $1.9 million at the time of the Merger.
The Merger was accounted for as a reverse recapitalization. Under this method of accounting, LF Capital is treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the current stockholder of LHC, Landsea Holdings, having a relative majority of the voting power of the combined entity, the operations of LHI prior to the Merger comprising the only ongoing operations of the combined entity, and senior management of LHI comprising the senior management of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of LHI with the acquisition being treated as the equivalent of LHI issuing stock for the net assets of LF Capital, accompanied by a recapitalization. The net assets of LHI are stated at historical cost, with no goodwill or other intangible assets recorded. The shares and net (loss) income per share available to holders of the LHI’s common stock, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.


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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
2.     Summary of Significant Accounting Policies
Basis of Presentation and Consolidation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and all subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Prior to the Merger, the Company was historically funded as part of Landsea Holdings' treasury program. Cash and cash equivalents were primarily centrally managed through bank accounts legally owned by Landsea Holdings. Accordingly, cash and cash equivalents held by Landsea Holdings at the corporate level were not attributed to the Company for any of the periods presented prior to the Merger. Only cash amounts legally owned by entities consolidated by the Company are reflected in the consolidated balance sheets. Transfers of cash, both to and from Landsea Holdings' treasury program, were reflected as a component of additional paid-in capital in the consolidated balance sheets and as a financing activity on the accompanying consolidated statements of cash flows. As the functional departments that made up the Company were not held by a single legal entity, balances between the Company and Landsea Holdings that were not historically cash settled were included in additional paid-in capital.
Landsea Holdings holds a series of notes payable to affiliated entities of its parent. The cash Landsea Holdings received from this debt was partially utilized to fund operations of the Company. Related party interest incurred by Landsea Holdings (the “Related Party Interest”) was historically pushed down to the Company and reflected on the consolidated balance sheets of the Company, primarily in real estate inventories, and on the consolidated statements of operations in cost of sales. Refer to Note 5 - Capitalized Interest for further detail. As the Company did not guarantee the notes payable nor have any obligations to repay the notes payable, and as the notes payable will not be assigned to the Company, the notes payable do not represent a liability of the Company and accordingly have not been reflected in the consolidated balance sheets. Additionally, in connection with the Merger, LHC is precluded from repaying Landsea Holdings' notes payable to the affiliated entities of its parent. Therefore, as of January 7, 2021, the Related Party Interest is no longer pushed down to LHC.

During the periods presented in the consolidated financial statements prior to the Merger, the Company was included in the consolidated U.S. federal, and certain state and local, income tax returns filed by Landsea Holdings, where applicable. Income tax expense and other income tax related information contained in these consolidated financial statements are presented on a separate return basis as if the Company had filed its own tax returns. Additionally, certain tax attributes such as net operating losses or credit carryforwards are presented on a separate return basis, and accordingly, may differ in the future. In jurisdictions where the Company has been included in the tax returns filed by Landsea Holdings, any income tax payables or receivables resulting from the related income tax provisions have been reflected in the consolidated balance sheets and the effect of the push down is reflected within additional paid-in capital.

Management of the Company believes that the assumptions underlying the consolidated financial statements reasonably reflect the utilization of services provided or benefit received by the Company during the periods presented. Nevertheless, the consolidated financial statements may not be indicative of the Company’s future performance and therefore periods prior to the Merger do not necessarily reflect the results of operations, financial position, or cash flows of the Company if it had been an independent entity during those periods.
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") and should be read in conjunction with our consolidated financial statements and notes thereto included in our Current Report on Form 8-K/A for the year ended December 31, 2020 filed with the SEC on March 12, 2021. The accompanying unaudited consolidated financial statements include all adjustments (consisting of normal recurring entries) necessary for the fair statement of our results for the interim periods presented. Results for the interim periods are not necessarily indicative of the results to be expected for the full year due to seasonal variations and other factors. 

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates.
Warrant liability—The Company’s outstanding Private Placement Warrants are presented on the consolidated balance sheets as a liability recorded at fair value with subsequent changes in fair value recognized in the consolidated statement of operations at each reporting date as a gain (loss) on remeasurement of the warrant liability. Each Private Placement Warrant is exercisable at $11.50 into one share of common stock. The Warrants will expire five years after the completion of the Merger or earlier upon redemption or liquidation. Refer to Note 16 - Stockholders' Equity for additional information on the Warrants. The fair value of the Private Placement Warrants is determined by a Black-Scholes options pricing model which includes Level 3 inputs as discussed further in Note 14 - Fair Value.
Lot Sales and Other Revenue and Profit Recognition
Revenues from lot sales and other revenue are recorded and a profit is recognized when performance obligations are satisfied, which includes transferring a promised good or service to a customer. Lot sales and other revenue is recognized when all conditions of escrow are met, including delivery of the real estate asset in the agreed-upon condition, passage of title, receipt of appropriate consideration, and collection of associated receivables, if any, is probable, and other applicable criteria are met. Based upon the terms of the agreement, when it is determined that the performance obligation is not satisfied, the sale and the related profit are deferred for recognition in future periods.

Under the terms of certain lot sale and other contracts, the Company is obligated to perform certain development activities after the close of escrow. Due to this continuing involvement, the Company recognizes lot sales and other revenue under the percentage-of-completion method, whereby revenue is recognized in proportion to total costs incurred divided by total costs expected to be incurred. As of September 30, 2021, the Company had $0.6 million deferred revenue from lot sales and other revenue. As of December 31, 2020, the Company had no deferred revenue. The Company recognizes these amounts as development progresses and the related performance obligations are completed. As of September 30, 2021, the Company had contract assets of $2.4 million from lot sales and other contracts. As of December 31, 2020, the Company had no contract asset balance. The contract asset balance represents cash to be received for work already performed on lot sale and other contracts. The amount of the transaction price for lot sales and other contracts allocated to performance obligations that were unsatisfied, or partially unsatisfied, as of September 30, 2021 was $15.2 million. There was no outstanding amount related to unsatisfied performance obligations as of December 31, 2020.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application for fiscal years beginning after December 15, 2020. The Company adopted the amendments in this update on January 1, 2021. The adoption did not have a material impact on the Company's consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company adopted the amendments in this update on January 1, 2021. The adoption did not have a material impact on the Company's consolidated financial statements.


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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform, particularly the cessation of the London Interbank Offered Rate ("LIBOR"), on financial reporting. ASU 2020-04 is effective upon issuance, and the provisions generally can be applied prospectively as of January 1, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of Topic 848 and clarifies some of its guidance. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which provides clarity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. Particularly, the update states that an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The adoption is not expected to have a material impact on the Company's consolidated financial statements.
3.     Business Combinations
On May 4, 2021, the Company acquired 100% of Mercedes Premier Homes, LLC (also known as Vintage Estate Homes, LLC, or “Vintage”), a Florida- and Texas-based homebuilder, for an aggregate cash purchase price of $54.6 million. In addition, we assumed $32.1 million of debt, of which we paid down $3.8 million in connection with the acquisition. The total assets of Vintage included approximately 20 development projects and 1,800 lots in various stages of development.
In accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations, the assets acquired and liabilities assumed from our acquisitions of Vintage and Garrett Walker Homes ("GWH") were measured and recognized at fair value as of the date of the acquisitions to reflect the purchase price paid.
Acquired inventories consist of land, land deposits, and work in process inventories. The Company determined the estimate of fair value for acquired land inventory using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate were future development costs, construction and overhead costs, mix of products, as well as average selling price ("ASP"), and absorption rates. The Company estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a profit margin that a market participant would require to complete the remaining production and requisite selling efforts. On the acquisition date, the stage of production for each lot ranged from recently started lots to fully completed homes. The intangible asset acquired relates to the Vintage trade name, which is estimated to have a fair value of $1.6 million and is being amortized over one year. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed and relates primarily to the assembled workforce. Goodwill of $3.8 million was recorded on the consolidated balance sheets as a result of this transaction and is expected to be deductible for tax purposes over 15 years. The acquired goodwill is included in the Florida reporting segment in Note 13, Segment Reporting. The Company incurred transaction related costs of $0.3 million and $0.8 million related to the Vintage acquisition in the three and nine months ended September 30, 2021.
The Company's results of operations include homebuilding revenues from the Vintage acquisition of $38.6 million and $75.4 million for the three and nine months ended September 30, 2021, respectively. The accompanying consolidated statement of operations before tax also includes a loss of $0.1 million and income of $1.2 million, during the three and nine months ended September 30, 2021, respectively, inclusive of purchase price accounting and an allocation of corporate general and administrative expenses.

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
The following is a summary of the allocation of the purchase price based on the fair value of assets acquired and liabilities assumed (dollars in thousands).

Assets Acquired
Cash$10,063 
Real estate inventories93,699 
Goodwill3,752 
Trade name1,550 
Other assets3,956 
Total assets$113,020 
 
Liabilities Assumed
Accounts payable$1,641 
Accrued expenses24,660 
Notes payable32,119 
Total liabilities58,420 
Net assets acquired$54,600 
On January 15, 2020, the Company acquired 100% of the membership interest of GWH for cash consideration of approximately $133.4 million. GWH is a residential homebuilder located in Phoenix, Arizona focused on building entry-level, single-family detached homes in the Northwest Valley and Phoenix metropolitan. The total assets of GWH included approximately 20 development projects and 1,750 lots in various stages of development. The intangible asset acquired relates to the GWH trade name, which is estimated to have a fair value of $1.6 million and is being amortized over three years. Goodwill of $15.4 million was recorded on the consolidated balance sheets as a result of this transaction and is expected to be deductible for tax purposes over 15 years. The acquired goodwill is included in the Arizona reporting segment in Note 13, Segment Reporting. The Company incurred transaction related costs of $0.2 million and $0.7 million related to the GWH acquisition during the three and nine months ended September 30, 2020, respectively. The following is a summary of the allocation of the purchase price based on the fair value of assets acquired and liabilities assumed (dollars in thousands).
Assets Acquired
Cash$2,905 
Real estate inventories119,466 
Goodwill15,392 
Trade name1,600 
Other assets532 
Total assets$139,895 
 
Liabilities Assumed
Accounts payable$5,425 
Accrued expenses1,037 
Total liabilities6,462 
Net assets acquired$133,433 
Unaudited Pro Forma Financial Information
Unaudited pro forma revenue and net (loss) income for the following periods presented give effect to the results of the acquisitions of Vintage and GWH as though the respective acquisition dates were as of January 1, 2020 and January 1, 2019, the beginning of the year preceding the respective acquisitions. Unaudited pro forma net (loss) income adjusts the operating results of Vintage and GWH to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the year preceding the year of acquisition including the tax-effected amortization of the acquired trade name and transaction related costs.

- 10 -


Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(dollars in thousands)
Revenue$214,129 $259,345 $680,233 $565,588 
Pretax income (loss)12,650 2,907 26,838 (32,136)
Provision (benefit) for income taxes2,284 663 4,844 (8,177)
Net income (loss)$10,366 $2,244 $21,994 $(23,959)
4.     Real Estate Inventories
Real estate inventories are summarized as follows:
September 30, 2021December 31, 2020
(dollars in thousands)
Deposits and pre-acquisition costs$54,797 $34,102 
Land held and land under development317,323 221,055 
Homes completed or under construction511,643 395,926 
Model homes24,174 36,736 
Total real estate inventory$907,937 $687,819 
Deposits and pre-acquisition costs include land deposits and other due diligence costs related to potential land acquisitions. Land held and land under development includes costs incurred during site development such as development, indirect costs, and permits. Homes completed or under construction and model homes include all costs associated with home construction, including land, development, indirect costs, permits, materials and labor.
In accordance with ASC 360, inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its estimated fair value. The Company reviews each real estate asset at the community-level, on a quarterly basis or whenever indicators of impairment exist. We generally determine the estimated fair value of each community by using a discounted cash flow approach based on the estimated future cash flows at discount rates that reflect the risk of the community being evaluated. The discounted cash flow approach can be impacted significantly by our estimates of future home sales revenue, home construction costs, and the applicable discount rate, all of which are Level 3 inputs, refer to Note 14 - Fair Value for additional information.
For the three and nine months ended September 30, 2021 the Company recognized no real estate inventory impairments. For the three and nine months ended September 30, 2020, the Company recognized real estate inventory impairments of $0 and $3.4 million related to two communities in the California segment. In both instances, the Company determined that additional incentives were required to sell the remaining homes at estimated aggregate sales prices below the communities' previous carrying values. The fair values for the communities impaired were calculated using discounted cash flow models using discount rates ranging from 7%-10%.
5.     Capitalized Interest
Interest is capitalized to real estate inventories and investment in unconsolidated joint ventures during development and other qualifying activities. Interest capitalized as a cost of real estate inventories is included in cost of sales as related inventories are delivered. Interest capitalized to investments in unconsolidated joint ventures is relieved to equity in net (loss) income of unconsolidated joint ventures as related joint venture homes close.

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
For the periods reported, interest incurred, capitalized, and expensed was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(dollars in thousands)(dollars in thousands)
Related party interest incurred or pushed down$183 $2,407 $183 $7,300 
Other interest incurred6,597 5,440 18,701 15,972 
Total interest incurred6,780 7,847 18,884 23,272 
 
Related party interest capitalized183 2,407 183 7,300
Other interest capitalized6,597 5,440 18,701 15,972 
Total interest capitalized6,780 7,847 18,884 23,272 
 
Previously capitalized related party interest included in cost of sales$2,571 $4,113 $9,813 $8,653 
Previously capitalized other interest included in cost of sales4,711 6,765 15,835 14,925 
Related party interest relieved to equity in earnings (loss) from unconsolidated joint ventures278 278 1,042 903 
Other interest relieved to equity in earnings (loss) from unconsolidated joint ventures3 3 14 12 
Other interest expensed11  32 11 
Total interest expense included in pretax income (loss)$7,574 $11,159 $26,736 $24,504 
6.    Investment in and Advances to Unconsolidated Joint Ventures
As of September 30, 2021 and December 31, 2020, the Company had two unconsolidated joint ventures with ownership interests of 51% and 25% in LS-NJ Port Imperial JV LLC and LS-Boston Point LLC, respectively, and concluded that these joint ventures were variable interest entities. The Company concluded that it was not the primary beneficiary of the variable interest entities and, accordingly, accounted for these entities under the equity method of accounting. The Company's maximum exposure to loss is limited to the investment in the unconsolidated joint venture amounts included on the consolidated balance sheets.
The condensed combined balance sheets for the Company’s unconsolidated joint ventures accounted for under the equity method are as follows:
September 30, 2021December 31, 2020
(dollars in thousands)
Cash and cash equivalents$2,592 $2,740 
Restricted cash 4,870 
Real estate inventories10,903 41,214 
Other assets122 123 
Total assets$13,617 $48,947 
 
Accounts payable$26 $188 
Accrued expenses and other liabilities5,045 3,928 
Due to affiliates809 5,735 
Total liabilities5,880 9,851 
Members' capital7,737 39,096 
Total liabilities and members' capital$13,617 $48,947 

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
The condensed combined statements of operations for the Company’s unconsolidated joint ventures accounted for under the equity method are as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(dollars in thousands)(dollars in thousands)
Revenues$10,981 $9,937 $40,944 $28,409 
Cost of sales and expenses(10,106)(10,601)(37,293)(31,353)
Impairment of real estate inventories   (27,094)
Net income (loss) of unconsolidated joint ventures$875 $(664)$3,651 $(30,038)
Equity in net income (loss) of unconsolidated joint ventures (1)
$168 $(616)$814 $(16,229)
(1)     The equity in net income (loss) of unconsolidated joint ventures consists of two pieces. The allocation of the Company's proportionate share of income or loss from the unconsolidated joint ventures of $0.5 million income and $0.3 million loss for the three months ended September 30, 2021 and 2020, respectively, and $1.9 million income and $15.3 million loss for the nine months ended September 30, 2021 and 2020, respectively. In addition, expenses related to capitalized interest and other costs were $0.3 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $1.1 million and $0.9 million for the nine months ended September 30, 2021 and 2020, respectively.

For the three and nine months ended September 30, 2021, no impairment charges were recorded related to either of the unconsolidated joint ventures. For the nine months ended September 30, 2020, one of the Company's unconsolidated joint ventures recorded an impairment charge of $27.1 million, related to slowing absorption and weaker pricing than expected. The impairment charge, based on the Company's ownership percentage of 51%, was $13.8 million and is reflected in the equity in net income (loss) of unconsolidated joint ventures line in the consolidated statements of operations. No impairment charge was recorded for the three months ended September 30, 2020.
7.    Other Assets
Other assets consist of the following:
September 30, 2021December 31, 2020
(dollars in thousands)
Deferred tax asset, net$3,958 $13,248 
Property and equipment, net6,879 6,386 
Right-of-use asset6,117 5,973 
Deferred offering costs 7,617 
Prepaid income taxes4,048 1,003 
Intangible asset, net1,917 1,046 
Prepaid expenses7,145 3,029 
Other5,303 3,267 
Total other assets$35,367 $41,569 


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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
8.     Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
September 30, 2021December 31, 2020
(dollars in thousands)
Land development and home construction accrual$12,485 $25,910 
Warranty accrual14,266 11,730 
Accrued compensation and benefits6,935 10,966 
Lease liabilities6,605 6,396 
Interest payable2,438 1,134 
Income tax payable4,662 1,355 
Deferred revenue575  
Sales tax payable848 1,867 
Other deposits and liabilities10,789 3,511 
Total accrued expenses and other liabilities$59,603 $62,869 

Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Changes in the Company’s warranty accrual are detailed in the table below:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(dollars in thousands)
Beginning warranty accrual$13,595 $9,885 $11,730 $8,693 
Warranty provision1,107 1,327 3,972 2,720 
Warranty payments(436)(183)(1,436)(384)
Ending warranty accrual$14,266 $11,029 $14,266 $11,029 

9.     Notes and Other Debts Payable, net
Amounts outstanding under notes and other debts payable, net consist of the following:
September 30, 2021December 31, 2020
(dollars in thousands)
Construction loans$119,452 $67,757 
Line of credit facilities246,933 199,358
Loan payable852 5,144 
Notes Payable367,237 272,259
Deferred loan costs(5,502)(7,450)
Notes and other debts payable, net$361,735 $264,809 
The Company has various construction loan agreements secured by various real estate developments (“Construction Loans”) with maturity dates extending from June 2022 through March 2024. The Construction Loans have variable interest rates based on Prime or LIBOR. As of September 30, 2021, interest rates on the Construction Loans ranged from 4.00% to 5.50%. In 2018, the Company assumed two loans from a third-party land seller in connection with the acquisition of real estate inventories. Both loans have a variable interest rate of LIBOR plus 6.50% with a floor of 8.25%. As of September 30, 2021, the interest rate on both loans was 8.25%. As of September 30, 2021, the Company paid off all loans sourced from EB-5 investors.
In 2018, the Company entered into a secured line of credit (“LOC”) with a bank. In 2020, the Company extended the LOC resulting in a new maturity date of February 2024. As of September 30, 2021 the total commitment on the LOC was $195.0 million and it had an outstanding balance of $125.2 million. The LOC has a variable interest rate of Prime plus 1.25% with a floor of 5.25%. As of September 30, 2021, the interest rate was 5.25%.

- 14 -


Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
In connection with the acquisition of GWH, the Company entered into an additional line of credit ("LOC2") with a bank as part of the transaction. On the date of acquisition, the Company drew $70.0 million from the LOC2. As of September 30, 2021 the total commitment on the LOC2 was $150.0 million and it had an outstanding balance of $121.8 million. The LOC2 has an interest rate of Prime plus 1.00% with a floor of 5.00% and matures in January 2024. As of September 30, 2021, the interest rate was 5.00%.
On April 15, 2020, Landsea Holdings entered into a Paycheck Protection Program (“PPP”) Note evidencing an unsecured loan in the amount of $4.3 million made to the Company under the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act and is administered by the U.S. Small Business Association. The proceeds from the PPP Note were restricted to only being used for payroll costs (including benefits), interest on mortgage obligations, rent, utilities and interest on certain other debt obligations. The proceeds from the PPP Note were used in the operation of the Company and therefore the debt was included in the consolidated balance sheets of the Company. We fully utilized the proceeds from this loan to satisfy certain payroll and benefit obligations and applied for relief of the full amount of the loan under the PPP. In June 2021, the PPP loan was forgiven and the liability removed from the Company's consolidated balance sheets. The forgiveness was recorded as a gain on debt forgiveness and is included in other income (expense), net in the consolidated statements of operations of the Company.
The Company’s loans have certain financial covenants, such as requirements for the Company to maintain a minimum liquidity balance, minimum tangible net worth, gross profit margin, leverage and interest coverage ratios. The Company's loans are secured by the assets of the Company and contain various representations, warranties, and covenants that are customary for these types of agreements. As of September 30, 2021, the Company was in compliance with all financial loan agreement covenants.
The aggregate maturities of the principal