Prospectus Supplement No. 8 Filed Pursuant to Rule 424(b)(3)
(to prospectus dated March 19, 2021) Registration No. 333-252569

 

 

 

Landsea Homes Corporation 

 

41,301,645 Shares of Common Stock 

5,500,000 Warrants to Purchase Common Stock

 

This prospectus supplement no. 8 is being filed to update and supplement information contained in the prospectus dated March 19, 2021 (the “Prospectus”) related to: (1) the issuance by us of up to 7,052,500 shares of our common stock, par value $0.0001 per share (“Common Stock”) that may be issued upon exercise of warrants to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, including the public warrants and the Private Placement Warrants (as defined in the Prospectus); and (2) the offer and sale, from time to time, by the Selling Holders (as defined in the Prospectus) identified in the Prospectus, or their permitted transferees, of (i) up to 41,301,645 shares of Common Stock and (ii) up to 5,500,000 Private Placement Warrants, with the information contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2021 (the “Report”). Accordingly, we have attached the Report to this prospectus supplement. Any document, exhibit or information contained in the Report that has been deemed furnished and not filed in accordance with Securities and Exchange Commission rules shall not be included in this prospectus supplement.

 

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and any prior amendments or supplements thereto and if there is any inconsistency between the information therein and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our Common Stock and warrants are traded on the Nasdaq Global Market under the symbols “LSEA” and “LSEAW,” respectively. On August 11, 2021, the closing price of our Common Stock was $8.95 per share and the closing price of our warrants was $0.27 per warrant.

 

Investing in our securities involves risks. See “Risk Factors” beginning on page 16 of the Prospectus and in any applicable prospectus supplement.

 

Neither the Securities and Exchange Commission nor any other regulatory body have approved or disapproved these securities, or passed upon the accuracy or adequacy of this prospectus supplement. Any representation to the contrary is a criminal offense.

 

The date of this prospectus supplement is August 12, 2021.

 

 


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 June 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)
Delaware 82-2196021
(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 class Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.0001 per share LSEA  
The Nasdaq Capital Market
Warrants exercisable for Common Stock LSEAW  
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 filer Accelerated filer
Non-accelerated filer Smaller 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 August 9, 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 Six Months Ended June 30, 2021

PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020
Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the Six Months Ended June 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)
June 30, 2021 December 31, 2020
Assets
Cash and cash equivalents $ 147,287  $ 105,778 
Cash held in escrow 10,761  11,618 
Restricted cash —  4,270 
Real estate inventories (including related party interest of $11,479 and $18,721, respectively)
877,883  687,819 
Due from affiliates 3,584  2,663 
Investment in and advances to unconsolidated joint ventures (including related party interest of $556 and $1,320, respectively)
11,604  21,342 
Goodwill 24,607  20,705 
Other assets 33,093  41,569 
Total assets $ 1,108,819  $ 895,764 
 
Liabilities
Accounts payable $ 54,912  $ 36,243 
Accrued expenses and other liabilities 70,786  62,869 
Due to affiliates 2,176  2,357 
Warrant liability 21,560  — 
Notes and other debts payable, net  391,844  264,809 
Total liabilities 541,278  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 June 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 June 30, 2021 and December 31, 2020, respectively
Additional paid-in capital 530,660  496,171 
Retained earnings 35,601  32,011 
Total stockholders' equity 566,266  528,185 
Noncontrolling interests 1,275  1,301 
Total equity 567,541  529,486 
Total liabilities and equity $ 1,108,819  $ 895,764 
See accompanying notes to the consolidated financial statements.
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Landsea Homes Corporation
Consolidated Statements of Operations - (Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenue
Home sales $ 239,600  $ 95,058  $ 394,365  $ 231,353 
Lot sales and other 10,674  —  16,328  — 
Total revenue 250,274  95,058  410,693  231,353 
 
Cost of sales
Home sales (including related party interest of $4,340, $1,694, $7,242 and $4,540, respectively)
198,987  85,908  335,828  205,476 
Inventory impairments —  3,413  —  3,413 
Lot sales and other 8,730  —  13,510  — 
Total cost of sales 207,717  89,321  349,338  208,889 
 
Gross margin
Home sales 40,613  5,737  58,537  22,464 
Lot sales and other 1,944  —  2,818  — 
Total gross margin 42,557  5,737  61,355  22,464 
 
Sales and marketing expenses 12,650  7,982  22,581  17,618 
General and administrative expenses 13,935  9,934  28,921  19,950 
Total operating expenses 26,585  17,916  51,502  37,568 
 
Income (loss) from operations 15,972  (12,179) 9,853  (15,104)
 
Other income (expense), net 3,594  (739) 3,533  70 
Equity in net income (loss) of unconsolidated joint ventures (including related party interest of $416, $347, $764 and $625, respectively)
667  (13,870) 646  (15,613)
Loss on remeasurement of warrant liability (5,335) —  (10,285) — 
Pretax income (loss) 14,898  (26,788) 3,747  (30,647)
 
Provision (benefit) for income taxes 4,248  (6,496) 183  (7,731)
 
Net income (loss) 10,650  (20,292) 3,564  (22,916)
Net loss attributable to noncontrolling interests (14) (22) (26) (110)
Net income (loss) attributable to Landsea Homes Corporation $ 10,664  $ (20,270) $ 3,590  $ (22,806)
 
Income (loss) per share:
Basic $ 0.23  $ (0.62) $ 0.08  $ (0.70)
Diluted $ 0.23  $ (0.62) $ 0.08  $ (0.70)
 
Weighted average common shares outstanding:
Basic 45,281,091  32,557,303  44,833,600  32,557,303 
Diluted 45,281,091  32,557,303  44,837,454  32,557,303 
See accompanying notes to the consolidated financial statements.
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Landsea Homes Corporation
Consolidated Statements of Equity - (Unaudited)
(in thousands, except shares)
Common Stock
Shares Amount Additional paid-in capital Retained earnings Noncontrolling
interests
Total stockholders' equity
Balance at March 31, 2021 46,231,025  $ $ 530,427  $ 24,937  $ 1,289  $ 556,658 
Recapitalization transaction, net of fees and deferred taxes —  —  (220) —  —  (220)
Vesting of restricted stock units 50,066  —  —  —  —  — 
Stock-based compensation expense —  —  453  —  —  453 
Net income (loss) —  —  —  10,664  (14) 10,650 
Balance at June 30, 2021 46,281,091  $ $ 530,660  $ 35,601  $ 1,275  $ 567,541 
Common Stock
Shares Amount Additional paid-in capital Retained earnings Noncontrolling
interests
Total stockholders' equity
Balance at December 31, 2020 1,000  $ —  $ 496,174  $ 32,011  $ 1,301  $ 529,486 
Retroactive application of recapitalization 32,556,303  (3) —  —  — 
Adjusted balance, beginning of period 32,557,303  $ $ 496,171  $ 32,011  $ 1,301  $ 529,486 
Recapitalization transaction, net of fees and deferred taxes 13,673,722  31,660  —  —  31,662 
Vesting of restricted stock units 50,066  —  —  —  —  — 
Stock-based compensation expense —  —  2,829  —  —  2,829 
Net income (loss) —  —  —  3,590  (26) 3,564 
Balance at June 30, 2021 46,281,091  $ $ 530,660  $ 35,601  $ 1,275  $ 567,541 
 
Common Stock
Shares Amount Additional paid-in capital Retained earnings Noncontrolling
interests
Total stockholders' equity
Balance at March 31, 2020 1,000  $ —  $ 517,781  $ 38,426  $ 17,954  $ 574,161 
Retroactive application of recapitalization 32,556,303  (3) — 
Adjusted balance, beginning of period 32,557,303  $ $ 517,778  $ 38,426  $ 17,954  $ 574,161 
Contributions from noncontrolling interests —  —  —  —  37  37 
Distributions to noncontrolling interests —  —  —  —  (15,414) (15,414)
Net loss —  —  —  (20,270) (22) (20,292)
Net transfers to parent —  —  (26,789) —  (1,242) (28,031)
Balance at June 30, 2020 32,557,303  $ $ 490,989  $ 18,156  $ 1,313  $ 510,461 
See accompanying notes to the consolidated financial statements.
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Landsea Homes Corporation
Consolidated Statements of Equity - (Unaudited)
(in thousands, except shares)
Common Stock
Shares Amount Additional paid-in capital Retained earnings Noncontrolling
interests
Total stockholders' equity
Balance at December 31, 2019 1,000  $ —  $ 524,516  $ 40,962  $ 17,892  $ 583,370 
Retroactive application of recapitalization 32,556,303  (3) —  —  — 
Adjusted balance, beginning of period 32,557,303  $ $ 524,513  $ 40,962  $ 17,892  $ 583,370 
Contributions from noncontrolling interests —  —  —  —  187  187 
Distributions to noncontrolling interests —  —  —  —  (15,414) (15,414)
Net loss —  —  —  (22,806) (110) (22,916)
Net transfers to parent —  —  (33,524) —  (1,242) (34,766)
Balance at June 30, 2020 32,557,303  $ $ 490,989  $ 18,156  $ 1,313  $ 510,461 
See accompanying notes to the consolidated financial statements.
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Landsea Homes Corporation
Consolidated Statements of Cash Flows - (Unaudited)
(in thousands)
Six Months Ended June 30,
2021 2020
(dollars in thousands)
Cash flows from operating activities:
Net income (loss) $ 3,564  $ (22,916)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 1,953  1,785 
Loss on remeasurement of warrant liability 10,285  — 
Inventory impairments —  3,413 
Stock-based compensation expense 2,829  — 
Gain on forgiveness of PPP loans (4,265) — 
Abandoned project costs 216  — 
Equity in net (income) loss of unconsolidated joint ventures (646) 15,613 
Deferred taxes 116  (4,986)
Changes in operating assets and liabilities:
Cash held in escrow 857  660 
Real estate inventories (94,614) (67,852)
Due from affiliates (921) (325)
Other assets (5,350) (3,342)
Accounts payable 17,028  10,148 
Accrued expenses and other liabilities (16,928) (7,030)
Due to affiliates (181) 281 
Net cash used in operating activities (86,057) (74,551)
 
Cash flows from investing activities:
Purchases of property and equipment (768) (1,042)
Distributions of capital from unconsolidated joint ventures 10,384  — 
Payments for business acquisition, net of cash acquired (44,537) (128,528)
Net cash used in investing activities (34,921) (129,570)
 
Cash flows from financing activities:
Borrowings from notes and other debts payable 369,787  318,054 
Repayments of notes and other debts payable (271,516) (166,102)
Proceeds from merger, net of fees and other costs 64,434  — 
Repayment of convertible note (1,500) — 
Contributions from noncontrolling interests —  187 
Distributions to noncontrolling interests —  (15,414)
Deferred offering costs paid (1,832) — 
Debt issuance costs paid (1,156) (2,552)
Cash distributed to parent, net —  (6,230)
Net cash provided by financing activities 158,217  127,943 
 
Net increase (decrease) in cash, cash equivalents, and restricted cash 37,239  (76,178)
Cash, cash equivalents, and restricted cash at beginning of period 110,048  156,378 
Cash, cash equivalents, and restricted cash at end of period $ 147,287  $ 80,200 
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 building of lots, homes, and condominiums 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 which 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 six months ended June 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 the 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 June 30, 2021, the Company had $6.2 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. The amount of the transaction price for lot sales and other contracts allocated to performance obligations that were unsatisfied, or partially unsatisfied, as of June 30, 2021 was $12.9 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.

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

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
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. The determination of the final purchase accounting allocation related to the fair value of acquired inventory and goodwill is in process as of the date the consolidated financial statements were available to be issued.
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 $3.9 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 $0.4 million related to the Vintage acquisition in the three and six months ended June 30, 2021.
The Company's results of operations include homebuilding revenues of $36.8 million, and income before tax inclusive of purchase price accounting and corporate general and administrative expense allocation, of $1.3 million, from Vintage in the accompanying consolidated statement of operations for the three and six months ended June 30, 2021.

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
The following is a summary of the preliminary 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 inventories 93,599 
Goodwill 3,902 
Trade name 1,550 
Other assets 3,906 
Total assets $ 113,020 
 
Liabilities Assumed
Accounts payable $ 1,641 
Accrued expenses 24,660 
Notes payable 32,119 
Total liabilities 58,420 
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 $0.1 million and $0.5 million related to the GWH acquisition during the three and six months ended June 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 inventories 119,466 
Goodwill 15,392 
Trade name 1,600 
Other assets 532 
Total assets $ 139,895 
 
Liabilities Assumed
Accounts payable $ 5,425 
Accrued expenses 1,037 
Total liabilities 6,462 
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.

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands)
Revenue $ 266,357  $ 136,661  $ 466,104  $ 306,244 
Pretax income (loss) 19,829  (22,936) 12,394  (35,043)
Provision (benefit) for income taxes 5,718  (6,805) 2,561  (8,840)
Net income (loss) $ 14,111  $ (16,131) $ 9,833  $ (26,203)
4.     Real Estate Inventories
Real estate inventories are summarized as follows:
June 30, 2021 December 31, 2020
(dollars in thousands)
Deposits and pre-acquisition costs $ 56,999  $ 34,102 
Land held and land under development 322,687  221,055 
Homes completed or under construction 470,634  395,926 
Model homes 27,563  36,736 
Total real estate inventory $ 877,883  $ 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 six months ended June 30, 2021 the Company recognized no real estate inventory impairments. For the three and six months ended June 30, 2020, the Company recognized real estate inventory impairments of $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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Related party interest pushed down $ —  $ 2,264  $ —  $ 4,893 
Other interest incurred 6,998  6,230  12,104  10,532 
Total interest incurred 6,998  8,494  12,104  15,425 
 
Related party interest capitalized —  2,264  —  4,893
Other interest capitalized 6,998  6,230  12,104  10,532 
Total interest capitalized 6,998  8,494  12,104  15,425 
 
Previously capitalized related party interest included in cost of sales $ 4,340  $ 1,694  $ 7,242  $ 4,540 
Previously capitalized other interest included in cost of sales 6,959  3,695  11,124  8,160 
Related party interest relieved to equity in earnings (loss) from unconsolidated joint ventures 416  347  764  625 
Other interest relieved to equity in earnings (loss) from unconsolidated joint ventures 11 
Other interest expensed 10  —  21  11 
Total interest expense included in pretax income (loss) $ 11,731  $ 5,741  $ 19,162  $ 13,345 
6.    Investment in and Advances to Unconsolidated Joint Ventures
As of June 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:
June 30, 2021 December 31, 2020
(dollars in thousands)
Cash and cash equivalents $ 7,760  $ 2,740 
Restricted cash —  4,870 
Real estate inventories 19,397  41,214 
Other assets 122  123 
Total assets $ 27,279  $ 48,947 
 
Accounts payable $ 224  $ 188 
Accrued expenses and other liabilities 4,719  3,928 
Due to affiliates 825  5,735 
Total liabilities 5,768  9,851 
Members' capital 21,511  39,096 
Total liabilities and members' capital $ 27,279  $ 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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands) (dollars in thousands)
Revenues $ 15,883  $ 7,911  $ 29,963  $ 18,472 
Cost of sales and expenses (13,756) (7,646) (27,187) (20,752)
Impairment of real estate inventories —  (27,094) —  (27,094)
Net income (loss) of unconsolidated joint ventures $ 2,127  $ (26,829) $ 2,776  $ (29,374)
Equity in net income (loss) of unconsolidated joint ventures (1)
$ 667  $ (13,870) $ 646  $ (15,613)
(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 $1.1 million income and $13.5 million loss for the three months ended June 30, 2021 and 2020, respectively, and $1.4 million income and $15.0 million loss for the six months ended June 30, 2021 and 2020, respectively. In addition, expenses related to capitalized interest and other costs were $0.4 million and $0.4 million for the three months ended June 30, 2021 and 2020, respectively, and $0.8 million and $0.6 million for the six months ended June 30, 2021 and 2020, respectively.

For the three and six months ended June 30, 2021, no impairment charges were recorded related to either of the unconsolidated joint ventures. For the three and six months ended June 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.
7.    Other Assets
Other assets consist of the following:
June 30, 2021 December 31, 2020
(dollars in thousands)
Deferred tax asset, net $ 2,621  $ 13,248 
Property, equipment and capitalized selling and marketing costs, net 6,321  6,386 
Right-of-use asset 6,471  5,973 
Deferred offering costs —  7,617 
Prepaid income taxes 4,048  1,003 
Intangible asset, net 2,173  1,046 
Prepaid expenses 8,544  3,029 
Other 2,915  3,267 
Total other assets $ 33,093  $ 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:
June 30, 2021 December 31, 2020
(dollars in thousands)
Land development and home construction accrual $ 23,668  $ 25,910 
Warranty accrual 13,595  11,730 
Accrued compensation and benefits 5,653  10,966 
Lease liabilities 6,949  6,396 
Interest payable 2,080  1,134 
Income tax payable 2,839  1,355 
Deferred revenue 6,173  — 
Sales tax payable 916  1,867 
Other deposits and liabilities 8,913  3,511 
Total accrued expenses and other liabilities $ 70,786  $ 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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands)
Beginning warranty accrual $ 12,020  $ 9,296  $ 11,730  $ 8,693 
Warranty provision 1,948  686  2,865  1,393 
Warranty payments (373) (97) (1,000) (201)
Ending warranty accrual $ 13,595  $ 9,885  $ 13,595  $ 9,885 

9.     Notes and Other Debts Payable, net
Amounts outstanding under notes and other debts payable, net consist of the following:
June 30, 2021 December 31, 2020
(dollars in thousands)
Construction loans $ 107,300  $ 67,757 
Line of credit facilities 289,818  199,358
Loan payable 862  5,144 
Notes Payable 397,980  272,259
Deferred loan costs (6,136) (7,450)
Notes and other debts payable, net $ 391,844  $ 264,809 
The Company has various construction loan agreements secured by various real estate developments (“Construction Loans”) with maturity dates extending from February 2022 through March 2024. The Construction Loans have variable interest rates based on Prime or LIBOR. As of June 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 June 30, 2021, the interest rate on both loans was 8.25%. The Company has certain construction loans sourced from EB-5 investors with maturity dates ranging from June 2023 through May 2024. As of June 30, 2021, the loans have fixed interest rates of 5.30% to 6.00%.
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 June 30, 2021 the total commitment on the LOC was

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
$195.0 million and it had an outstanding balance of $114.5 million. The LOC has a variable interest rate of Prime plus 1.25% with a floor of 5.25%. As of June 30, 2021, the interest rate was 5.25%.
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 June 30, 2021 the total commitment on the LOC2 was $150.0 million and it had an outstanding balance of $128.1 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 June 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 June 30, 2021, the Company was in compliance with all financial loan agreement covenants.
The aggregate maturities of the principal balances of the notes and other debts payable during the five years subsequent to June 30, 2021 are as follows (dollars in thousands):
2021 $ 21 
2022 86,402 
2023 36,470 
2024 274,384 
2025 703 
Thereafter — 
  $ 397,980 

10.    Commitments and Contingencies
Legal—We are subject to various legal and regulatory actions that arise from time to time and may be subject to similar or other claims in the future. In addition, we are currently involved in various other legal actions and proceedings. We are currently unable to estimate the likelihood of an unfavorable result in any such proceeding that could have a material adverse effect on our results of operations, financial position, or liquidity.
Performance Obligations—In the ordinary course of business, and as part of the entitlement and development process, the Company’s subsidiaries are required to provide performance bonds to assure completion of certain public facilities. The Company had $97.6 million and $78.0 million of performance bonds outstanding as of June 30, 2021 and December 31, 2020, respectively.

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
Operating Leases—The Company has various operating leases, most of which relate to office facilities. Future minimum payments under the noncancelable operating leases in effect at June 30, 2021 were as follows (dollars in thousands):
2021 $ 896 
2022 1,828 
2023 1,609 
2024 1,400 
2025 1,079 
Thereafter 1,245 
Total lease payments 8,057 
Less: Discount (1,108)
Present value of lease liabilities $ 6,949 
Operating lease expense for the three and six months ended June 30, 2021 was $0.4 million and $0.8 million, respectively, and is included in general and administrative expense on the consolidated statements of operations. For the three and six months ended June 30, 2020 operating lease expense was $0.6 million and $1.1 million, respectively.
The Company primarily enters into operating leases for the right to use office space and computer and office equipment, which have remaining lease terms that range from one to seven years and often include one or more options to renew. The weighted average remaining lease term as of June 30, 2021 and December 31, 2020 was 4.6 and 4.4 years, respectively. Renewal terms are included in the lease term when it is reasonably certain the option will be exercised.
The Company established a right-of-use asset and a lease liability based on the present value of future minimum lease payments at the later of January 1, 2019, the commencement date of the lease, or, if subsequently modified, the date of modification for active leases. As the rate implicit in each lease is not readily determinable, the Company's incremental borrowing rate is used in determining the present value of future minimum payments as of the commencement date. The weighted average rate as of June 30, 2021 was 5.9%. Lease components and non-lease components are accounted for as a single lease component. As of June 30, 2021, the Company had $6.5 million and $6.9 million recognized as a right-of-use asset and lease liability, respectively, which are presented on the consolidated balance sheets within other assets and accrued expenses and other liabilities, respectively. As of December 31, 2020, the Company had $6.0 million and $6.4 million recognized as a right-of-use asset and lease liability, respectively.
11.    Related Party Transactions
The Company has entered into agreements with its unconsolidated joint ventures to provide management services related to underlying projects for a management fee and reimbursement of agreed upon out of pocket operating expenses. As of June 30, 2021 and December 31, 2020, the Company had a net receivable due from affiliates balance of $1.4 million and $0.3 million, respectively.
On June 30, 2020, the Company transferred its interest in a consolidated real estate joint venture that was previously included in the Metro New York segment to LHC. The interest was removed from the consolidated financial

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
statements of the Company on a prospective basis. The real estate joint venture had net assets at the date of transfer of $28.9 million and a noncontrolling interest of $1.2 million as follows (dollars in thousands):
Assets Transferred
Cash $ 338 
Real estate inventories 49,705 
Other assets 174 
Total assets $ 50,217 
 
Liabilities Transferred
Accounts payable $ 1,416 
Construction loan 17,825 
Accrued expenses and other liabilities 2,102 
Total liabilities 21,343 
Net assets transferred 28,874 
Noncontrolling interest transferred $ 1,242 

In connection with the Merger we transferred a deferred tax asset ("DTA") to Landsea Holdings, our majority shareholder, of $12.1 million. The DTA represented the deferred tax on interest expensed through Cost of Sales from a related party loan which remained with Landsea Holdings during the Merger.

12.    Income Taxes
During the periods presented herein prior to the Merger, the Company reported income taxes on the consolidated income tax returns of Landsea Holdings since it was a wholly owned subsidiary of Landsea Holdings. The income tax provision and related balances in these consolidated financial statements have been calculated as if the Company filed a separate tax return and was operating as a separate business from Landsea Holdings. Therefore, cash tax payments and items of current and deferred taxes during that period may not be reflective of the Company’s actual tax balances.
The effective tax rate of the Company was 28.5% and 4.9% for the three and six months ended June 30, 2021 with a benefit rate of 24.2% and 25.2% for the three and six months ended June 30, 2020, respectively. The difference between the statutory tax rate and the effective tax rate for the six months ended June 30, 2021 is primarily related to state income taxes net of federal income tax benefits, estimated deduction limitations for executive compensation, warrant fair market value adjustments, the gain on forgiveness of the PPP loan, and tax credits for energy efficient homes. The difference between the statutory tax rate and the effective tax rate for the six months ended June 30, 2020 is primarily related to state income taxes net of federal income tax benefits and tax credits for energy efficient homes.
13. Segment Reporting

The Company is engaged in the development, design, construction, marketing and sale of single-family homes and condos in multiple states across the country. The Company is managed by geographic location and each of the five geographic regions targets a wide range of buyer profiles including: first time, move-up, and luxury homebuyers.

The management of the five geographic regions report to the Company's chief operating decision makers (“CODMs”), the Chief Executive Officer and Chief Operating Officer of the Company. The CODMs review the results of operations, including total revenue and income before income tax expense to assess profitability and to allocate resources. Accordingly, the Company has presented its operations as the following five reportable segments:

Arizona
California
Florida


Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
Metro New York
Texas
The Company has also identified Corporate operations as a non-operating segment, as it serves to support the homebuilding operations through functional departments such as executive, finance, treasury, human resources, accounting and legal. The majority of the corporate personnel and resources are primarily dedicated to activities relating to the homebuilding operations and are allocated based on each segment's respective percentage of assets, revenue and dedicated personnel. 

The following table summarizes total revenue and income before income tax expense by segment:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands)
Revenue
Arizona $ 71,922  $ 53,298  $ 137,248  $ 106,352 
California 141,541  41,760  236,634  125,001 
Florida 28,358  —  28,358  — 
Metro New York (1)
—  —  —  — 
Texas 8,453  —  8,453  — 
Total revenue $ 250,274  $ 95,058  $ 410,693  $ 231,353 
 
Pretax income (loss)
Arizona $ 3,835  $ (1,168) $ 5,268  $ (2,140)
California 14,900  (8,789) 14,741  (7,297)
Florida 885  —  885  — 
Metro New York (1)
(139) (14,467) (970) (17,263)
Texas 395  —  395  — 
Corporate (4,978) (2,364) (16,572) (3,947)
Total pretax income (loss) $ 14,898  $ (26,788) $ 3,747  $ (30,647)
(1)     The Metro New York reportable segment does not currently generate any revenue. Included in income (loss) before income tax expense is income from unconsolidated joint ventures of $0.7 million and $0.6 million for the three and six months ended June 30, 2021, respectively, and losses of $13.9 million and $15.6 million for the three and six months ended June 30, 2020, respectively.

The following table summarizes total assets by segment:
June 30, 2021 December 31, 2020
(dollars in thousands)
Assets
Arizona $ 308,146  $ 268,141 
California 451,051  409,705 
Florida 95,371  — 
Metro New York 124,246  120,168 
Texas 19,068  — 
Corporate 110,937  97,750 
Total assets $ 1,108,819  $ 895,764 

As of June 30, 2021 goodwill of $20.7 million and $3.9 million were allocated to the Arizona and Florida segments, respectively. As of December 31, 2020, goodwill of $20.7 million was allocated to the Arizona segment.


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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
14. Fair Value

ASC 820 defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date.

Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date.

The following table presents carrying values and estimated fair values of financial instruments:
June 30, 2021 December 31, 2020
Hierarchy Carrying Value Fair Value Carrying Value Fair Value
(dollars in thousands)
Liabilities:
Construction loans (1)
Level 2 $ 107,300  $ 107,300  $ 67,757  $ 67,757 
Line of credit facilities (1)
Level 2 $ 289,818  $ 289,818  $ 199,358  $ 199,358 
Loan payable (2)
Level 2 $ 862  $ 862  $ 5,144  $ 5,144 
Warrant liability Level 3 $ 21,560  $ 21,560  $ —  $ — 
(1)     Carrying amount approximates fair value due to the variable interest rate terms of these loans.
(2)     Carrying amount approximates fair value due to recent issuances of debt having similar characteristics, including interest rate.

The carrying values of accounts and other receivables, restricted cash, deposits and accounts payable and accrued liabilities approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the instruments and their expected realization. The fair value of cash and cash equivalents is classified in Level 1 of the fair value hierarchy. Non-financial assets such as real estate inventories are measured at fair value on a nonrecurring basis using a discounted cash flow approach with Level 3 inputs within the fair value hierarchy. This measurement is performed when events and circumstances indicate the asset's carrying value is not recoverable.

The Private Placement Warrants are measured at fair value on a recurring basis using a Black-Scholes option pricing model. The significant unobservable input as of June 30, 2021 was the volatility rate implied from the public warrants, which are exchanged on an open market, of 68.7%.

The following table reconciles the beginning and ending balances for the Level 3 recurring fair value measurements during the periods presented:

Six Months Ended June 30,
2021 2020
Warrant liability (dollars in thousands)
Beginning balance(1)
$ 11,275  $ — 
Changes in fair value 10,285  — 
Ending balance $ 21,560  $ — 
(1)     The beginning balance for the period ended June 30, 2021 represents the balance as of January 7, 2021, the Closing Date of the Merger.


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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
15. Stock-Based Compensation

During 2018, Landsea Holdings created a long-term incentive compensation program designed to align the interests of Landsea Holdings, the Company, and its executives by enabling key employees to participate in the Company’s future growth through the issuance of phantom equity awards. Landsea Holdings’ phantom equity awards issued on or after January 1, 2018 were accounted for pursuant to ASC 710, Compensation, as the value was not based on the shares of comparable public entities or other equity, but was based on the book value of Landsea Holdings' equity. Landsea Holdings measured the value of phantom equity awards on a quarterly basis using the intrinsic value method and pushed down the expense to the Company as the employees participating in the long-term incentive compensation program primarily benefit the Company. In connection with the Merger all of the phantom equity awards vested and were either paid out in cash or were converted to stock of LHC and the program was terminated. The Company recorded $2.7 million in general and administrative expenses in the six months ended June 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 granted 0.2 million shares with a grant date value of $1.9 million at the time of the Merger.

The Company adopted the Landsea Homes Corporation 2020 Stock Incentive Plan ("the Plan") which provides for the grant of Options, Stock Appreciation Rights, Restricted Stock Units and Restricted Stock, any of which may be performance-based, as determined by the Company's Compensation Committee.

During the three and six months ended June 30, 2021, the Company granted 0.1 million and 0.6 million restricted stock units (“RSUs”), respectively, covering shares of common stock with a weighted grant date fair value of $9.44 and $9.63, respectively, per share.

During the three and six months ended June 30, 2021, the Company granted 0.2 million long term performance share unit awards (“PSUs”) to certain executives under the Plan with a grant date fair value of $9.44 per share. The PSUs are earned based upon the Company’s performance over three years, measured by adjusted earnings per share ("EPS") over fiscal years 2021, 2022 and 2023 (the "Performance Periods"). Each award is conditioned upon the Company achieving adjusted EPS targets over the Performance Periods. Target awards of 100% will be earned if the Company’s adjusted EPS meets set thresholds in each of the Performance Periods ("Target Goals"). If adjusted EPS exceeds the target thresholds by defined amounts, 200% of Target Goals will be earned (“Maximum Goals”).

Our stock compensation expense is presented below.

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Stock compensation expense (dollars in thousands)
RSUs and PSUs $ 453  $ —  $ 2,829  $ — 



Stock-based compensation expense is included in general and administrative expenses on our consolidated statements of operations. The Company did not grant any RSUs or PSUs and did not recognize any stock-based compensation expense during the three and six months ended June 30, 2020.

A summary of our outstanding RSUs and PSUs, assuming current estimated level of performance achievement, are as follows (in thousands, except years):

June 30, 2021
(in thousands, except period)
Unvested units 755 
Remaining cost on unvested units $ 6,776 
Remaining vesting period 2.81 years

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)

In accordance with ASC 718, the PSUs were valued on the date of grant at their fair value. The fair value of these grants was equal to the closing price of our stock on the date of grant. ASC 718 does not permit recognition of expense associated with performance-based stock awards until achievement of the performance targets are probable of occurring.

16. Stockholders' Equity

The Company’s authorized capital stock consists of 500.0 million shares of common stock with a par value of $0.0001 per share, and 50.0 million shares of preferred stock with a par value of $0.0001 per share. As of June 30, 2021, there were 46.3 million shares of common stock issued and outstanding, and no shares of preferred stock outstanding.

On January 7, 2021, the Merger was consummated pursuant to the Merger Agreement. Prior to the Merger, LF Capital was authorized to issue, and had outstanding, two classes of common shares, Class A and Class B. Upon the consummation of the Merger, all issued and outstanding shares of Class B common stock converted to shares of Class A. Public stockholders were offered the opportunity to redeem, upon closing of the Merger, shares of Class A common stock for cash. All outstanding shares of Common Stock are validly issued, fully paid and nonassessable. Following the merger, the Company's equity was retroactively adjusted to reflect the 32.6 million shares issued to Landsea Holdings.

As of June 30, 2021 there were 21,025,000 outstanding Warrants, consisting of 15,525,000 public warrants and 5,500,000 Private Placement Warrants. At the time of the Merger, the Warrant Agreement was amended so that each public warrant is exercisable at $1.15 into one tenth share of common stock. As part of the amendment, each holder of the public warrants received $1.85 for a total of $28.7 million paid by the Company upon closing of the Merger. 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.

The Private Placement Warrants are identical to the public warrants, except for the rate of exchange upon exercise. Additionally, the Private Placement Warrants will be non-redeemable as long as they are held by the initial purchasers or such purchasers’ permitted transferees. If the Private Placement Warrants are held by someone other than the initial stockholders or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants, except that they will retain their rate of exchange as one-for-one.

The Company may call the public warrants for redemption (except with respect to the Private Placement Warrants):

in whole and not in part;
at a price of $0.01 per warrant;
upon a minimum of 30 days’ prior written notice of redemption; and
if, and only if, the last reported closing price of the shares equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

If the Company calls the public warrants for redemption, management will have the option to require all holders that wish to exercise the public warrants to do so on a “cashless basis,” as described in the Warrant Agreement.

The exercise price and number of common shares issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for issuance of common shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Warrants shares. Accordingly, the Warrants may expire worthless.


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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
17. Earnings Per Share

We use the treasury stock method to calculate EPS as our currently issued Warrants do not have participating rights.

The following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands, except share and per share amounts)
Numerator
Net income (loss) attributable to Landsea Homes Corporation $ 10,664  $ (20,270) $ 3,590  $ (22,806)
Less: undistributed earnings allocated to participating shares (236) —  (78) — 
Net income (loss) attributable to common stockholders $ 10,428  $ (20,270) $ 3,512  $ (22,806)
Denominator
Weighted average common shares outstanding - basic 46,281,091  32,557,303  45,800,267  32,557,303 
Adjustment for weighted average participating shares outstanding (1,000,000) —  (966,667) — 
Adjusted weighted average common shares outstanding under two class method - basic 45,281,091  32,557,303  44,833,600  32,557,303 
Dilutive effect of warrants —  —  —  — 
Dilutive effect of share-based awards —  —  3,854  — 
Adjusted weighted average common shares outstanding under two class method - diluted 45,281,091  32,557,303  44,837,454  32,557,303 
Earnings per share
Basic $ 0.23  $ (0.62) $ 0.08  $ (0.70)
Diluted $ 0.23  $ (0.62) $ 0.08  $ (0.70)

Warrants are excluded from the calculation of diluted EPS as they are antidilutive. We excluded 7.1 million common stock unit equivalents from our diluted EPS during the three and six months ended June 30, 2021.

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Landsea Homes Corporation
Notes to Consolidated Financial Statements - (unaudited)
18.    Supplemental Disclosures of Cash Flow Information
The following table presents certain supplemental cash flow information:
Six Months Ended June 30,
2021 2020
(dollars in thousands)
Supplemental disclosures of cash flow information
Interest paid, net of amounts capitalized $ 21  $ 11 
Income taxes paid $ 3,416  $ 89 
 
Supplemental disclosures of non-cash investing and financing activities
Transfer of deferred tax asset to Landsea Holdings $ 12,119  $ — 
Conversion of deferred offering costs to additional paid-in-capital $ 9,229  $ — 
Amortization of deferred financing costs $ 2,066  $ 2,083 
Distribution of real estate joint venture to LHC, net of cash provided $ —  $ 27,294 
Business acquisition holdback $ —  $ 2,000 
Right-of-use assets obtained in exchange for operating lease liabilities for new or modified operating leases $ —  $ 1,053 
 
Cash, cash equivalents, and restricted cash reconciliation:
Cash and cash equivalents $ 147,287  $ 80,182 
Restricted cash —  18 
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 147,287  $ 80,200 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with and is qualified in its entirety by the consolidated financial statements and notes thereto included elsewhere in this document. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in the section entitled “Risk Factors” of our Annual Report on Form 10-K/A, filed with the Securities and Exchange Commission (the “SEC”) on July 6, 2021, as well as our Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 17, 2021, and in this report. This section discusses certain items in the three- and six-month periods ended June 30, 2021 and 2020 and year-to-year comparisons between those 2021 and 2020 periods.


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Consolidated Financial Data

The following table summarizes our results of operations for the three and six months ended June 30, 2021 and 2020.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(dollars in thousands, except per share amounts) (dollars in thousands, except per share amounts)
Revenue
Home sales $ 239,600  $ 95,058  $ 394,365  $ 231,353 
Lot sales and other 10,674  —  16,328  — 
Total revenue 250,274  95,058  410,693  231,353 
 
Cost of sales
Home sales (including related party interest of $7,242 and $4,540, respectively)
198,987  85,908  335,828  205,476 
Inventory impairments —  3,413  —  3,413 
Lot sales and other 8,730  —  13,510  — 
Total cost of sales 207,717  89,321  349,338  208,889 
 
Gross margin
Home sales 40,613  5,737  58,537  22,464 
Lot sales and other 1,944  —  2,818  — 
Total gross margin 42,557  5,737  61,355  22,464 
 
Sales and marketing expenses 12,650  7,982  22,581  17,618 
General and administrative expenses 13,935  9,934  28,921  19,950 
Total operating expenses 26,585  17,916  51,502  37,568 
 
Income (loss) from operations 15,972  (12,179) 9,853  (15,104)
 
Other income (expense), net 3,594  (739) 3,533  70 
Equity in net (loss) income of unconsolidated joint ventures (including related party interest of $764 and $625, respectively)
667  (13,870) 646  (15,613)
Loss on remeasurement of warrant liability (5,335) —  (10,285) — 
Pretax income (loss) 14,898  (26,788) 3,747  (30,647)
 
Provision (benefit) for income taxes 4,248  (6,496) 183  (7,731)
 
Net income (loss) 10,650  (20,292) 3,564  (22,916)
Net loss attributable to noncontrolling interests (14) (22) (26) (110)
Net income (loss) attributable to Landsea Homes Corporation $ 10,664  $ (20,270) $ 3,590  $ (22,806)
 
Income (loss) per share:
Basic $ 0.23  $ (0.62) $ 0.08  $ (0.70)
Diluted $ 0.23  $ (0.62) $ 0.08  $ (0.70)
Weighted average common shares outstanding:
Basic 45,281,091  32,557,303  44,833,600  32,557,303 
Diluted 45,281,091  32,557,303  44,837,454  32,557,303 

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Business Overview

Driven by a pioneering commitment to sustainability, Landsea Homes Corporation ("LHC") designs and builds homes and communities in Arizona, California, Florida, Texas and the Metro New York area that reflect modern living–inspired spaces and features, built in vibrant, prime locations where they connect seamlessly with their surroundings and enhance the local lifestyle for living, working and playing. The defining principle, “Live in Your Element®,” creates the foundation for our customers to live where they want to live, how they want to live – in a home created especially for them.

The Company's operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in the states of Arizona, California, Florida, New Jersey, New York, and Texas. The Company's operations are organized into five reportable segments: Arizona, California, Florida, Metro New York, and Texas. The Company builds and sells an extensive range of home types across a variety of price points.

In response to the novel strain of coronavirus ("COVID-19") pandemic and government restrictions, we shifted our sales process to offer additional virtual online tours and appointments and, where permitted, appointment-only in-person meetings that comply with social distancing and other health and safety requirements and protocols. There is still uncertainty regarding the extent, duration, and lasting effects of the COVID-19 pandemic, as the situation has continued to evolve, even as vaccinations become wide-spread. We have seen a general lack of housing inventory that has allowed us to increase prices and derive additional revenue from our home deliveries; however, we frequently see those increased revenues offset by higher costs associated with labor and supply shortages for certain key materials.

The industry continued to see a shift in focus to entry-level homes with more attractive price points as housing prices rise across the nation. The Company continues to capitalize on opportunities to shift inventory and product to more affordable offerings through our recent growth in Arizona, Florida, and Texas primarily through acquisitions. During May 2021, we completed the acquisition of Vintage Estate Homes ("Vintage"), a Florida- and Texas-based homebuilder. The Vintage acquisition added the Florida and Texas reportable segments. During January 2020, we completed our second homebuilder acquisition in the Phoenix, Arizona market within the last three years by purchasing 100% of the membership interests of Garrett Walker Homes ("GWH"). These acquisitions fit with and continue to advance our overall business strategy by expanding into new geographic and diverse markets.

Strategy

Our strategy is focused on maximizing stockholder returns through profitability and efficiency, while balancing appropriate amounts of leverage. In general, we are focused on the following long-term strategic objectives:

Expand community count in current markets and enhance operating returns
Maintain an appropriate supply of lots
Continue to focus on entry-level product offerings
Continue geographic expansion and diversification into new markets
Leverage existing SG&A base to enhance stockholder returns and profitability
Become a top-ten homebuilder in the United States

Non-GAAP Financial Measures

Non-GAAP financial measures are defined as numerical measures of a company’s performance that exclude or include amounts so as to be different than the most comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”). The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for the Company’s related financial results prepared in accordance with GAAP.

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We present non-GAAP financial measures of adjusted home sales gross margin, net debt to net capital, EBITDA and adjusted EBITDA, and adjusted net income in their respective sections below to enhance an investor’s evaluation of the ongoing operating results and to facilitate meaningful comparison of the results between periods. Management uses these non-GAAP measures to evaluate the ongoing operations and for internal planning and forecasting.

Summary Results of Operations

For the six months ended June 30, 2021, home sales revenue increased 70% and home deliveries increased 43% to 726 units from 507 units as compared to the same prior year period. The increase in home deliveries and home sales revenue year-over-year is derived primarily from our California segment which saw significant demand and price appreciation during 2021. During 2020, our California operations were negatively impacted by the COVID-19 mandatory stay at home orders, which caused meaningful delays in our operations and in some communities prohibited us from delivering homes to our customers. The most restrictive of these government orders were lifted towards the end of 2020. We also saw price appreciation in the Arizona segment, and we had 74 home deliveries generating revenue of $28.4 million from our Vintage acquisition.

We remain focused on growth and view our leverage ratios as a key factor in allowing us to expand. Even as the Company has grown organically and through acquisitions in recent years we remain in a position to act on our strategy and to be opportunistic about acquisitions and other growth opportunities. Our debt-to-capital ratio increased to 40.8% as of June 30, 2021 compared to 33.3% as of December 31, 2020. We believe the strength of our balance sheet and operating platform have positioned us well to continue to execute our growth strategy. 

We anticipate the homebuilding markets in each of our operating segments to be tied to both the local economy and the macro-economic environment. Accordingly, net orders, home deliveries, and average selling prices ("ASPs") in future years could be negatively affected by economic conditions, such as decreases in employment and median household incomes, as well as decreases in household formations and increasing supply of inventories. Shortages in labor or materials could also significantly increase costs, reduce gross margins, and lower our overall profitability. During the second quarter of 2021 we experienced increases in our production cycle times due to labor and material shortages that have caused us to reduce our absorption rate in certain markets. Additionally, the results could be impacted by a decrease in home affordability as a result of price appreciation, increases in mortgage interest rates, or tightening of mortgage lending standards.

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Results of Operations and Assets by Segment

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Pretax income (loss) (dollars in thousands) (dollars in thousands)
Arizona $ 3,835  $ (1,168) $ 5,268  $ (2,140)
California 14,900  (8,789) 14,741  (7,297)
Florida 885  —  885  — 
Metro New York (139) (14,467) (970) (17,263)
Texas 395  —  395  — 
Corporate (4,978) (2,364) (16,572) (3,947)
Total $ 14,898  $ (26,788) $ 3,747  $ (30,647)
June 30, 2021 December 31, 2020
Assets (dollars in thousands)
Arizona $ 308,146  $ 268,141 
California 451,051  409,705 
Florida 95,371  — 
Metro New York 124,246  120,168 
Texas 19,068  — 
Corporate 110,937  97,750 
Total assets $ 1,108,819  $ 895,764 

Our Arizona segment recorded pretax income for the three and six months ended June 30, 2021 compared to a pretax loss in the comparable periods during 2020 primarily due to an increase in gross margins stemming from high demand which has allowed us to increase pricing.

Our California segment incurred pretax income for the three and six months ended June 30, 2021 due to significantly more home deliveries than the comparable periods in 2020 as shown below. This was partially due to strengthening market conditions in the current periods while the prior periods were impacted by COVID-19 related restrictions and delays. Additionally the California segment recorded real estate inventory impairments of $3.4 million in the three and six months ended June 30, 2020.

The Company began operations in the Florida and Texas segments in May 2021 following the acquisition of Vintage.

The Metro New York segment experienced a decrease in pretax loss for the three and six months ended June 30, 2021 as compared to the same prior periods, due to lower loss from unconsolidated joint venture at the LS-NJ Port Imperial JV LLC ("Avora") unconsolidated joint venture. This was primarily due to strengthening market conditions in the current periods while the prior periods were impacted by COVID-19 related delays and pricing pressure. Avora recorded an impairment charge of $27.1 million in the three and six months ended June 30, 2020 resulting in a $13.8 million loss on unconsolidated joint venture.

We have also identified the Company's Corporate operations as a non-operating segment, as it serves to support the operations through functional departments such as executive, finance, treasury, human resources, accounting, and legal. The majority of the corporate personnel and resources are primarily dedicated to activities relating to the business operations and are allocated accordingly.

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Home Deliveries and Home Sales Revenue

Changes in home sales revenue are the result of changes in the number of homes delivered and the ASP of those delivered homes. Commentary on significant changes for each of the segments in these metrics is provided below.

Three Months Ended June 30,
2021 2020 % Change
Homes Dollar Value ASP Homes Dollar Value ASP Homes Dollar Value ASP
(dollars in thousands)
Arizona 207  $ 69,672  $ 337  191  $ 53,298  $ 279  % 31  % 21  %
California 144  141,541  983  46  41,760  908  213  % 239  % %
Florida 71  25,100  354  —  —  N/A N/A N/A N/A
Metro New York —  —  N/A —  —  N/A N/A N/A N/A
Texas 3,287  1,096  —  —  N/A N/A N/A N/A
Total 425  $ 239,600  $ 564  237  $ 95,058  $ 401  79  % 152  % 41  %

Six Months Ended June 30,
2021 2020 % Change
Homes Dollar Value ASP Homes Dollar Value ASP Homes Dollar Value ASP
(dollars in thousands)
Arizona 389  $ 129,344  $ 333  386  $ 106,352  $ 276  % 22  % 21  %
California 263  236,634  900  121  125,001  1,033  117  % 89  % (13) %
Florida 71  25,100  354  —  —  N/A N/A N/A N/A
Metro New York —  —  N/A —  —  N/A N/A N/A N/A
Texas 3,287  1,096  —  —  N/A N/A N/A N/A
Total 726  $ 394,365  $ 543  507  $ 231,353  $ 456  43  % 70  % 19  %

Our Arizona segment delivered 207 and 389 homes and generated $69.7 million and $129.3 million in home sales revenue for the three and six months ended June 30, 2021, respectively. The growth in home sales revenue was primarily attributable to an increase in ASP which increased 21% for the six months ended June 30, 2021 over the same period in 2020. The increase was primarily due to price appreciation in the Arizona market and a larger number of homes delivered in communities with higher-end products.

Our California segment delivered 144 and 263 homes and generated $141.5 million and $236.6 million in home sales revenue for the three and six months ended June 30, 2021, respectively, compared to 46 and 121 homes delivered with $41.8 million and $125.0 million in home sales revenue for the three and six months ended June 30, 2020. The year-over-year increase in deliveries and home sales revenue within our California segment for the three and six months ended June 30, 2021 was the result of strengthening market conditions, including strong demand and rising prices in the current period while the prior period was impacted by COVID-19 related restrictions and delays in the average construction period. The decrease in ASP was partially offset by a change in mix of homes delivered during the six months ended June 30, 2021 with a lower price point compared to the same period in 2020.

The Company began operations in the Florida and Texas segments in May 2021 following the acquisition of Vintage.

The Metro New York segment has not yet delivered any homes, other than those through unconsolidated joint ventures. Therefore, there are no home sale revenues or deliveries for the six months ended June 30, 2021 and 2020.

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Home Sales Gross Margins

Home sales gross margin measures the price achieved on delivered homes compared to the costs needed to build the home. In the following table, we calculate gross margins adjusting for interest in cost of sales, inventory impairments (if applicable), and purchase price accounting for acquired work in process inventory (if applicable). We believe the below information is meaningful as it isolates the impact that indebtedness and acquisitions have on the gross margins and allows for comparability to previous periods and competitors. See Note 3 - Business Combinations within the accompanying notes to the consolidated financial statements for additional discussion regarding acquired work in process inventory.
Three Months Ended June 30,
2021 % 2020 %
(dollars in thousands)
Home sales revenue $ 239,600  100.0  % $ 95,058  100.0  %
Cost of home sales 198,987  83.0  % 89,321  94.0  %
Home sales gross margin 40,613  17.0  % 5,737  6.0  %
Add: Interest in cost of home sales 11,276  4.7  % 5,389  5.7  %
Add: Inventory impairments —  —  % 3,413  3.6  %
Adjusted home sales gross margin excluding interest and inventory impairments (1)
51,889  21.7  % 14,539  15.3  %
Add: Purchase price accounting for acquired inventory 4,328  1.8  % 2,794  2.9  %
Adjusted home sales gross margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory (1)
$ 56,217  23.5  % $ 17,333  18.2  %

Six Months Ended June 30,
2021 % 2020 %
(dollars in thousands)
Home sales revenue $ 394,365  100.0  % $ 231,353  100.0  %
Cost of home sales 335,828  85.2  % 208,889  90.3  %
Home sales gross margin 58,537  14.8  % 22,464  9.7  %
Add: Interest in cost of home sales 18,289  4.6  % 12,700  5.5  %
Add: Inventory impairments —  —  % 3,413  1.5  %
Adjusted home sales gross margin excluding interest and inventory impairments (1)
76,826  19.5  % 38,577  16.7  %
Add: Purchase price accounting for acquired inventory 7,129  1.8  % 5,579  2.4  %
Adjusted home sales gross margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory (1)
$ 83,955  21.3  % $ 44,156  19.1  %
(1)     This non-GAAP financial measure should not be used as a substitute for the Company's operating results in accordance with GAAP. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. We believe this non-GAAP measure is meaningful because it provides insight into the impact that financing arrangements and acquisitions have on our homebuilding gross margin and allows for comparability of our gross margins to competitors that present similar information.

Home sales gross margin increased 11.0% and 5.1% for the three and six months ended June 30, 2021, respectively, compared to the corresponding periods in 2020 primarily due to price appreciation and an impairment charge of $3.4 million recorded in 2020. Adjusted home sales gross margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory increased 5.3% and 2.2% for the three and six months ended June 30, 2021, primarily due to price appreciation and an increase in gross margins within our California segment, partially offset by higher costs.

Lot Sales and Other Revenue

Lot sales and other revenue and gross margin can vary significantly between reporting periods based on (1) the number of lots sold, and (2) the percentage of completion related to the development activities required as part of the lot sales and other contracts. For the three and six months ended June 30, 2021 we recognized $10.7 million and $16.3 million, respectively, of lot sales and other revenue from the sale of lots in our Arizona, Florida and Texas
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segments and the subsequent development of the lots and homes under contract. For the three and six months ended June 30, 2020, we did not have any lot sales or revenue from lot sales and other contracts.

Sales, Marketing, and General and Administrative Expenses
Three Months Ended June 30, As a Percentage of Home Sales
2021 2020 2021 2020
(dollars in thousands)
Sales and marketing expenses $ 12,650  $ 7,982  5.3  % 8.4  %
General and administrative expenses 13,935  9,934  5.8  % 10.5  %
Total sales, marketing, and G&A expenses $ 26,585  $ 17,916  11.1  % 18.9  %

Six Months Ended June 30, As a Percentage of Home Sales
2021 2020 2021 2020
(dollars in thousands)
Sales and marketing expenses $ 22,581  $ 17,618  5.7  % 7.6  %
General and administrative expenses 28,921  19,950  7.3  % 8.6  %
Total sales, marketing, and G&A expenses $ 51,502  $ 37,568  13.0  % 16.2  %

For the three and six months ended June 30, 2021, the sales, marketing, and general and administrative ("SG&A") expense rate as a percentage of home sales revenue was 11.1% and 13.0%, respectively, a decrease of 7.8% and 3.2%, respectively, from the prior periods due to the increase in home sales revenue during the current periods. The increase in total SG&A expenses was primarily due to higher closing costs due to the increase in home deliveries. $4.2 million of transaction related expenses related to the Merger were incurred in the six months ended June 30, 2021, and the Vintage acquisition and other potential acquisitions, along with an increase in SG&A expenses related to being a publicly traded company also drove the increase in the both the three and six months ended June 30, 2021.

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Net New Home Orders, Dollar Value of Orders, and Monthly Absorption Rates

Changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the ASP of those homes. Monthly Absorption Rate is calculated as total net new orders per period, divided by the average active communities during the period, divided by the number of months per period.

Three Months Ended June 30,
2021 2020 % Change
Homes Dollar Value ASP Monthly Absorption Rate Homes Dollar Value ASP Monthly Absorption Rate Homes Dollar Value ASP Monthly Absorption Rate
(dollars in thousands)
Arizona 150  $ 60,267  $ 402  4.3  327  $ 99,223  $ 303  5.5  (54  %) (39  %) 33  % (22  %)
California 137  120,151  877  4.2  132  107,756  816  3.7  % 12  % % 14  %
Florida(1)
47  21,687  461  2.2  —  —  N/A —  N/A N/A N/A N/A
Metro New York 13,298  2,660  2.4  —  —  N/A —  N/A N/A N/A N/A
Texas(1)
(9) (8,071) 897  (4.5) —  —  N/A —  N/A N/A N/A N/A
Total 330  $ 207,332  $ 628  3.5  459  $ 206,979  $ 451  4.8  (28  %) —  % 39  % (27  %)
(1)    Monthly absorption rates for Florida and Texas in 2021 are based on two months, for the time subsequent to the acquisition of Vintage in May 2021.

Six Months Ended June 30,
2021 2020 % Change
Homes Dollar Value ASP Monthly Absorption Rate Homes Dollar Value ASP Monthly Absorption Rate Homes Dollar Value ASP Monthly Absorption Rate
(dollars in thousands)
Arizona 433  $ 165,985  $ 383  5.4  717  $ 209,941  $ 293  6.0  (40  %) (21  %) 31  % (10  %)
California 280  272,537  973  4.1  255  244,020  957  3.9  10  % 12  % % %
Florida(1)
47  21,687  461  2.2  —  —  N/A —  N/A N/A N/A N/A
Metro New York 13,298  2,660  2.8  —  —  N/A —  N/A N/A N/A N/A
Texas(1)
(9) (8,071) 897  (4.5) —  —  N/A —  N/A N/A N/A N/A
Total 756  $ 465,436  $ 616  4.3  972  $ 453,961  $ 467  5.3  (22  %) % 32  % (19  %)
(1)    Monthly absorption rates for Florida and Texas in 2021 are based on two months, for the time subsequent to the acquisition of Vintage in May 2021.

For the three and six months ended June 30, 2021, the decrease in net new orders and dollar value in Arizona is primarily due to a decrease in the number of active selling communities. In certain circumstances we may also delay entering into sales contracts to allow for constraints in our production processes due to labor and material shortages for homes currently under construction. The decrease in the dollar value of net new home orders was partially offset by a 31% increase in ASP during the six months ended June 30, 2021 compared to the same period in 2020, primarily due to price appreciation in the Arizona market and a larger number of homes delivered in communities with higher-end products.

For the three and six months ended June 30, 2021, the increase in net new orders in California was primarily due to an increase in the number of active communities and home inventory shortages across the segment.

The Company began operations in the Florida and Texas segments in May 2021 following the acquisition of Vintage. Our Texas segment had nine cancellations due to older sales contracts that did not reflect current costs.

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The Metro New York segment began selling homes during the three and six months ended June 30, 2021 at its one active community.

Average Selling Communities

Average Selling Communities is the sum of communities actively selling homes each month, divided by the total months in the calculation period.
Three Months Ended June 30, Six Months Ended June 30,
2021 % Change 2020 2021 % Change 2020
Arizona 11.7  (42  %) 20.0  13.3  (34  %) 20.0 
California 11.0  (8  %) 12.0  11.5  % 10.8 
Florida(1)
10.5  N/A —  10.5  N/A — 
Metro New York(2)
0.7  N/A —  0.3  N/A — 
Texas(1)
1.0  N/A —  1.0  N/A — 
Total 31.0  (3  %) 32.0  29.0  (6  %) 30.8 
(1)    Average selling communities calculations for Florida and Texas in 2021 are based on two months, for the time subsequent to the acquisition of Vintage in May 2021.
(2)    Metro New York began selling at one community in May 2021.

Backlog

Backlog reflects the number of homes, net of cancellations, for which we have entered into a sales contract with a customer but have not yet delivered the home. 
June 30, 2021 June 30, 2020 % Change
Homes Dollar Value ASP Homes Dollar Value ASP Homes Dollar Value ASP
(dollars in thousands)
Arizona 552  $ 209,573  $ 380  660  $ 190,791  $ 289  (16) % 10  % 31  %
California 259  252,314  974  196  185,523  947  32  % 36  %