Company: SDHC
Filing Date: 2025-05-14
Form Type: 10-Q
Source: 0001982518-25-000020
Chunk: 62

Company: Smith Douglas Homes Corp.
Filing Date: 2025-05-14
Form: 10-Q
Item: Part I, Item 1
Chunk 62
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 developers as part of our land-light operating strategy comes at an additional cost, we believe our lot acquisition strategy reduces our operating and financial risk relative to other homebuilders that own and develop a higher percentage of their land supply. As of March 31, 2025, we had 888 owned unstarted lots in real estate inventory on our balance sheet which represented only 4.3% of our total controlled lot supply.

Under the umbrella of our land-light strategy, we generally seek to avoid engaging in land development. Where possible, we prefer to work with third-party developers that will sell us finished lots under lot-option contracts. In situations where we cannot find a developer partner, we will work with third-party land bankers. Under these land bank arrangements, we typically assign the land or lots we have under contract to the land banker. The land banker will acquire the land or lots directly, and if land development is necessary, we will simultaneously enter into a development agreement to complete the lots for the land banker. Additionally, we will enter a lot-option contract to acquire the finished lots on a takedown to match our projected sales absorption and starts pace. Typically, we are required to put up a deposit ranging between 5-20% on our lot-option contracts.

Our asset-light and capital efficient lot acquisition strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a significant number of lots for a relatively low capital cost. These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled by these option contracts for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, any related fees paid to the land bank partner. We do not have any financial guarantees and we typically do not guarantee lot purchases on a specific performance basis under these agreements. In certain circumstances, we may have a completion obligation under development agreements with land bankers where we may be at-risk for certain cost overruns.

As of March 31, 2025, we had $114.5 million of non-refundable cash deposits under land and lot-option contracts pertaining to 13,385 lots with a remaining aggregate purchase price of approximately $920.1 million.

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Surety Bonds and Letters of Credit

From time to time, we may enter into surety bond and letter of credit arrangements with local municipalities, government agencies and