Dream Finders Homes, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2021

 

OR

For the transition period from _________ to _________.

 

Commission file number 001-39916

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DREAM FINDERS HOMES, INC.

(Exact name of registrant as specified in its charter)

(904) 644-7670

(Registrant’s Telephone Number, Including Area Code)

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

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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, a 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.

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 10, 2021, there were 32,295,329 shares of the registrant’s Class A common stock, par value $0.01 per share, issued and outstanding and 60,226,153 shares of the registrant’s Class B common stock, par value $0.01 per share, issued and outstanding.

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DREAM FINDERS HOMES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

		Redeemable Preferred Units Mezzanine								Redeemable Common Units Mezzanine								Common Units Members'								Total Non-Controlling Interests				Total Equity
		Units				Amount				Units				Amount				Units				Amount
Balance December 31, 2019			49,555			$	58,269,166				5,774			$	16,248,246				76,655			$	56,502,464			$	30,471,371			$	161,491,247
Unit compensation			-				-				-				-				-				697,054				-				697,054
Contributions			-				-				1,236				-				-				-				-				-
Contributions from non-controlling interests			-				-				-				-				-				-				3,692,625				3,692,625
Conversion of units			-				-				-				-				-				-				-				-
Redemptions			(1,012	)			(13,000,000	)			-				-				-				-				-				(13,000,000	)
Distributions			-				(1,705,420	)			-				-				-				(12,908,913	)			(5,277,210	)			(19,891,543	)
Net income (loss)			-				6,794,352				-				2,854,600				-				31,216,244				3,474,116				44,339,312
Balance at September 30, 2020			48,543			$	50,358,098				7,010			$	19,102,846				76,655			$	75,506,849			$	32,360,902			$	177,328,695

		Redeemable Preferred Units Mezzanine								Redeemable Common Units Mezzanine								Common Units Members'								Common Stock - Class A								Common Stock - Class B								Additional Paid- in Capital				Retained Earnings				Total Non-Controlling Interests				Total Equity
		Units				Amount				Units				Amount				Units				Amount				Shares				Amount				Shares				Amount
Balance December 31, 2020			48,543			$	55,638,450				7,010			$	20,593,001				76,655			$	103,852,646				-			$	-				-			$	-			$	-			$	-			$	31,939,117			$	212,023,214
Unit compensation			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Contributions			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Contributions from non-controlling interests			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Conversion of units			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Redemptions			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Distributions			-				(3,617,390	)			-				(1,274,690	)			-				(18,384,243	)			-				-				-				-				-				-				(3,476,258	)			(26,752,581	)
Net income (loss)			-				(157,451	)			-				(91,043	)			-				(995,588	)			-				-				-				-				-				-				210,340				(1,033,742	)
Balance at January 20, 2021 - prior to reorganization transactions and IPO			48,543			$	51,863,609				7,010			$	19,227,268				76,655			$	84,472,815				-			$	-				-			$	-			$	-			$	-			$	28,673,199			$	184,236,891
Reorganization transactions			(15,400	)			(19,957,513	)			(7,010	)			(19,227,268	)			(76,655	)			(84,472,815	)			21,255,329				212,553				60,226,153				602,262				122,842,781				-				-				-
Issuance of common stock in IPO, net			-				-				-				-				-				-				11,040,000				110,400				-				-				129,886,962				-				-				129,997,362
Issuance of convertible preferred stock, net			150,000				147,995,200				-				-				-				-				-				-				-				-				-				-				-				147,995,200
Equity-based compensation			-				-				-				-				-				-				-				-				-				-				4,032,106				-				-				4,032,106
Contributions			-				-				-				-				-				-				-				-				-				-				-				-				2,000,000				2,000,000
Contributions from non-controlling interests			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Conversion of units			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Redemptions			(26,000	)			(25,530,504	)			-				-				-				-				-				-				-				-				-				-				-				(25,530,504	)
Distributions			-				-				-				-				-				-				-				-				-				-				-				-				(17,084,864	)			(17,084,864	)
Net income (loss)			-				521,773				-				-				-				-				-				-				-				-				-				64,552,332				9,183,283				74,257,388
Balance at September 30, 2021			157,143			$	154,892,565				-			$	-				-			$	-				32,295,329			$	322,953				60,226,153			$	602,262			$	256,761,849			$	64,552,332			$	22,771,618			$	499,903,579

DREAM FINDERS HOMES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

Nature of Business

Dream Finders Homes, Inc. (the “Company” or “DFH, Inc.”) was incorporated in the State of Delaware on September 11, 2020. The Company was formed for the purpose of completing an initial public offering (“IPO”) of its common stock and related transactions in order to carry on the business of Dream Finders Holdings LLC, a Florida limited liability company (“DFH LLC”), as a publicly-traded entity. Pursuant to a corporate reorganization and completion of the IPO on January 25, 2021, the Company became a holding company for DFH LLC and its subsidiaries.

In connection with the IPO, and pursuant to the terms of the Agreement and Plan of Merger by and among DFH, Inc., DFH LLC and DFH Merger Sub LLC, a Delaware limited liability company and direct, wholly owned subsidiary of DFH, Inc., DFH Merger Sub LLC merged with and into DFH LLC with DFH LLC as the surviving entity (the “Merger”). As a result of the Merger, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC converted into 21,255,329 shares of Class A common stock of DFH, Inc., all of the outstanding common units of DFH LLC converted into 60,266,152 shares of Class B common stock of DFH, Inc. and all of the outstanding Series B Preferred Units and Series C Preferred Units of DFH LLC remained outstanding. We refer to this and certain other related events and transactions, as the “Corporate Reorganization”.

The Company successfully completed its IPO of 11,040,000 shares of Class A common stock (which included full exercise of the over-allotment option) at an IPO price of $13.00 per share. Shares of the Company’s Class A common stock began trading on the NASDAQ Global Select Market under the ticker symbol “DFH” on January 21, 2021, and the IPO closed on January 25, 2021. The Company is the sole manager of DFH LLC and owns 100% of the voting membership interest in DFH LLC.

The accompanying statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for a complete set of financial statements. As such, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission on March 30, 2021.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of DFH LLC, the Company’s wholly owned subsidiaries and its investments that qualify for consolidation treatment (see Note 9). All intercompany accounts and transactions have been eliminated in consolidation. There are no other components of comprehensive income not already reflected in net and comprehensive income on our Condensed Consolidated Statements of Comprehensive Income.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the valuation and impairment of goodwill, impairment of inventories and business combination estimates. Actual results could differ materially from those estimates.

Accounts Receivable

Accounts receivable are included on the Condensed Consolidated Balance Sheets and consist primarily of closing proceeds in transit. Of the total $31,845,905 balance as of September 30, 2021, $10,858,907 is related to proceeds in transit from various title companies, which is typically received in the first week of the subsequent month.

 

Other Assets

Contingent Consideration

In connection with the acquisition of Village Park Homes, LLC (“VPH”) in May 2019, the Company recorded contingent consideration based on estimated pre-tax income of the acquired entity for fiscal years 2019, 2020, 2021 and 2022. In connection with the acquisition of H&H Constructors of Fayetteville, LLC (“H&H”) in October 2020 (Note 2), the Company recorded contingent consideration based on estimated pre-tax income of the acquired entity for the fourth quarter of 2020, fiscal years 2021, 2022, 2023 and the first three quarters of 2024. The measurement of contingent consideration was based on projected cash flows such as revenues, gross margin, overhead expenses and pre-tax income and discounted back using the discounted cash flow method. The Company recorded the fair value of the contingent consideration as a liability on the respective acquisition dates. The estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired entities. The contingent consideration for each acquisition is scheduled to be paid out each year subsequent to the anniversary of the respective acquisition closing date.

As of September 30, 2021 and December 31, 2020, the Company remeasured contingent consideration related to the acquisition of VPH and adjusted the liability to $7,387,429 and $6,847,524, respectively, based on revised pre-tax income forecasts as of the balance sheet date. The Company recorded contingent consideration adjustments resulting in $78,665 of expense and $204,251 of expense for the three months ended September 30, 2021 and 2020, and $539,905 of expense and $112,521 of income for the nine months ended September 30, 2021 and 2020, respectively. These adjustments are included in other expenses related to contingent consideration revaluations on the Condensed Consolidated Statements of Comprehensive Income.

The Company measured contingent consideration related to the acquisition of H&H on October 5, 2020, which approximated the value at December 31, 2020 of $16,310,000. As of September 30, 2021, the Company remeasured contingent consideration for the H&H acquisition and adjusted the liability to $20,325,141. The Company recorded contingent consideration adjustments resulting in $523,425 and $0 of expense for the three months ended September 30, 2021 and 2020, and $5,221,910 and $0 of expense for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, total contingent consideration on the Consolidated Balance Sheets is $27,712,570. The Company’s contingent consideration related to acquisition earn-out payments is based on a percentage of pre-tax net and comprehensive income achieved by the acquired entity, and as such, is revised accordingly. In addition, the payment of the H&H earn-out is subject to certain minimum earnings thresholds which must be met by H&H before an earn-out payment occurs.

Maximum potential exposure for contingent consideration is not estimable based on the contractual terms of the contingent consideration agreements, which allow for a percentage payout based on a potentially unlimited range of pre-tax income. In April 2021, the Company paid $1,206,769 in contingent consideration to H&H. There were no other payments of contingent consideration for the nine months ended September 30, 2021 and 2020, respectively.

 

Variable Interest Entities

The Company participates in joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where the Company’s homebuilding operations are located.  The Company’s investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement. Additionally, the Company, in the ordinary course of business, enters into contracts with third parties and unconsolidated entities for the ability to acquire rights to land for the construction of homes. Under these contracts, the Company typically makes a specified earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. Consideration paid for these contracts is recorded as lot deposits on the Consolidated Balance Sheets.

Pursuant to Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 810 and subtopics related to the consolidation of variable interest entities, the Company analyzes its joint ventures under the variable interest model to determine if such are required to be consolidated in the Company’s condensed consolidated financial statements. The accounting standard requires a VIE to be consolidated by a company if that company is determined to be the primary beneficiary. The primary beneficiary is defined as the entity having both of the following characteristics: 1) the power to direct the activities that most significantly impact the VIE’s performance, and 2) the obligation to absorb losses and rights to receive the returns from the VIE that would be potentially significant to the VIE. See Note 9 for a description of the Company’s joint ventures, including those that were determined to be VIEs, and the related accounting treatment. Management determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion continually. To make this determination, management considers factors such as whether the Company should direct finance, determine or limit the scope of the entity, sell or transfer property, direct development or direct other operating decisions.

 

Joint ventures for which the Company is not identified as the primary beneficiary are accounted for as equity method investments. The Company and its unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to each party’s respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents. Partners in these unconsolidated joint ventures are unrelated homebuilders, land developers or other real estate entities.

 

For distributions received from these unconsolidated joint ventures, the Company has elected to use the cumulative earnings approach for the Condensed Consolidated Statements of Cash Flows. Under the cumulative earnings approach, distributions up to the amount of cumulative equity in earnings recognized are treated as returns on investment within operating cash flows and those in excess of that amount are treated as returns of investment within investing cash flows.

 

The Company typically has obtained options to acquire portions of the land held by the unconsolidated joint ventures in which the Company currently participates. When an unconsolidated joint venture sells land to the Company, the Company defers recognition of its share of such unconsolidated joint venture’s earnings (losses) until the Company recognizes revenues on the corresponding home sale. At that time, the Company accounts for the earnings (losses) as a reduction (increase) to the cost of purchasing the land from the unconsolidated joint venture.

 

The Company shares in the earnings (losses) of these unconsolidated joint ventures generally in accordance with its respective equity interests. In some instances, the Company recognizes earnings (losses) that differ from its equity interest in the unconsolidated joint venture. This typically arises from the Company’s deferral of the unconsolidated joint venture’s earnings (losses) from land sales to the Company.

 

Non-Controlling Interests

The equity interests in DFH Leyden LLC, DFH Amelia LLC, DFH Clover LLC, DFH Leyden II LLC, DFH MOF Eagle Landing LLC, DCE DFH JV LLC, DFH Capitol LLC, DFC Mandarin Estates LLC, DFC East Village LLC, DFC Wilford LLC, DFC Amelia Phase III LLC, DFC Sterling Ranch LLC and DFC Grand Landings LLC have been reflected as non-controlling interests in the Consolidated Balance Sheets. Income attributable to these non-controlling interests are presented in the Condensed Consolidated Statements of Comprehensive Income as net income attributable to non-controlling interests.

 

Income Taxes

We are a corporation subject to income taxes in the United States. Our proportional share of the Company’s subsidiaries’ provisions are included in our condensed consolidated financial statements. Our deferred income tax assets and liabilities are computed for differences between the asset and liability method and financial statement amounts that will result in taxable or deductible amounts in the future. We compute deferred balances based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine we would be able to realize our deferred tax assets for which a valuation allowance had been recorded, then we would adjust the deferred tax asset valuation allowance, which would reduce our provision for income taxes. We evaluate the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions. Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized is recognized. Interest and penalties related to unrecognized tax benefits are recorded in income tax benefit. We have no uncertain tax positions that qualify for inclusion in our condensed consolidated financial statements. See “Note 10—Income Taxes.”

 

Equity-Based Compensation

Certain individuals on our executive-level management team are eligible for equity-based compensation, which is awarded according to the terms of individual contracts with those managers. The Company records compensation cost for stock awarded to employees in return for employee service. The cost is measured at the grant-date fair value of the award and recognized as compensation expense over the employee service period, which is normally the vesting period. The Company does not estimate forfeitures. In the event of forfeitures, the compensation expense recognized would be adjusted.

 

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Report (Topic 848), which provides practical expedients and exceptions for applying GAAP when modifying contracts and hedging relationships that use LIBOR as a reference rate. In addition, these amendments are not applicable to contract modifications made and hedging relationship entered into or evaluated after December 31, 2022. We do not anticipate a material increase in interest rates from our creditors as a result of the shift away from LIBOR as a reference rate, and we are currently evaluating the impact of the shift and this guidance on our financial statements and disclosures.

 

 

On October 5, 2020, the Company acquired 100% of the issued and outstanding membership interests in H&H, an operative homebuilder, for a purchase price of $44,096,448, net of a $1,710,275 in purchase price reduction related to customary closing adjustments. To fund the acquisition, the Company obtained a $20,000,000 bridge loan from Boston Omaha Corporation, LLC, with an interest rate of 14% per annum maturing on May 1, 2021, paid cash of $9,496,723 and agreed to pay contingent consideration estimated in the amount of $16,310,000 if H&H met certain financial metrics.

Accordingly, the Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $16,357,450. The goodwill arising from the acquisition consists largely of synergies and economies of scale from H&H’s operating footprint, which includes owned properties, increased future revenue and earnings from organic growth, new business opportunities and strategic initiatives. Transaction costs were not material and were expensed as incurred.

 

The business combination was accounted for under the acquisition method, and the acquisition has been included in the Company’s consolidated results of operations since the date of acquisition. The fair value of assets acquired included cash of $10,956,359, other assets of $8,253,966, tradename of $2,660,000, inventories of $143,817,075 and liabilities assumed of $137,949,737, including $116,894,907 of construction lines of credit.

 

On January 31, 2021, the Company completed the acquisition of Century Homes from Tavistock Development Company. The Company paid $35,500,000 to acquire 134 units under construction and 229 finished lots on which the Company has begun construction during 2021 and will continue to release into production throughout 2022. The Company evaluated the Century Homes acquisition for significance under SEC Rule 3-05, and determined the acquisition did not meet the significance threshold.

The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and have been presented as if the H&H and Century Homes acquisitions had occurred on January 1, 2020. This unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the future.

3.	Construction Lines of Credit

On January 25, 2021, the Company entered into a $450,000,000 syndicated credit facility with Bank of America, N.A. (the “Credit Agreement”), and subsequently repaid $340,000,000 in outstanding debt, including the $20,000,000 bridge loan with Boston Omaha Corporation, LLC, and terminated all then-existing construction lines of credit. Under the Credit Agreement, the Company has the option to enter into Base Rate or LIBOR Rate contracts. The interest is payable based on the contract terms and is variable dependent on the Company’s debt to capitalization ratio, and applicable interest rates in the market (LIBOR Rate, Prime Rate, etc.).

Our indebtedness as of December 31, 2020, was fully collateralized by homes under construction and, to a much smaller extent, finished lots. Under the Credit Agreement, the funds available are unsecured and availability under the borrowing base is calculated based on work-in-progress inventory.

 

The outstanding lines of credit were paid in full during 2021 (in connection with the Company entering into the Credit Agreement), are no longer active and the Company does not intend to renew these facilities. The outstanding balance in the lines of credit were payable upon the delivery of the collateralized individual homes to end-home buyers.

The Credit Agreement contains restrictive covenants and financial covenants. The Company was in compliance with all debt covenants as of September 30, 2021 and December 31, 2020. The Company expects to remain in compliance with all debt covenants over the next twelve months.

 

Notes payable consisted of the following as of September 30, 2021 and December 31, 2020:

 

							As of September 30,								As of December 31,
Maturity Date					Payment Terms		2021				2021 Effective Rate				2020				2020 Effective Rate
May 1, 2021					Interest is payable monthly at 14.00%		$	-				-			$	20,000,000				14.00	%
February 28, 2022			(1)		Non-interest bearing			1,216,000				0.00	%			832,000				0.00	%
April 1, 2022			(1)		Interest is payable monthly at 12.50%			717,642				12.50	%			1,735,161				12.50	%
July 31, 2022			(1)		Interest is payable monthly at 9.25%			1,979,389				9.25	%			3,984,174				9.25	%
March 25, 2023			(1)		Interest is payable monthly at 5.00%			-				-				3,101,947				5.00	%
Total notes payable							$	3,913,031							$	29,653,282
Less: Debt issuance costs from notes payable								-								(15,444	)
Notes payable, net of discount							$	3,913,031							$	29,637,838

(1) These notes payable relate to our consolidated joint ventures and are non-recourse to the Company.

 

Included within notes payable as of December 31, 2020, is a $20,000,000 bridge loan from Boston Omaha Corporation, LLC, which was utilized to fund a portion of the purchase price of the H&H Homes acquisition (Note 2). This note was paid off in January 2021.

 

The principal balance on all notes payable is payable upon the sale of project specific collateral, and is collateralized by a real estate mortgage and a limited guarantee ensuring project completeness and the nonexistence of fraudulent acts.

 

During the nine months ended September 30, 2021 and 2020, there were no material changes in the contractual maturities of our notes payable.

 

Inventories consist of entitled  raw land, finished lots, and construction in process (“CIP”), including capitalized interest. Raw land is purchased with the intent to develop such land into finished lots. Finished lots are held with the intent of building and selling a home. The asset is owned by the Company either as a result of developing purchased raw land or purchasing developed lots. CIP represents the homebuilding activity associated with both homes to be sold and speculative homes. CIP includes the cost of the developed lot as well as all of the direct costs incurred to build the home. The cost of the home is expensed on a specific identification basis when the home is closed to the end customer.

 

 

		As of September 30,				As of December 31,
		2021				2020
Construction in process		$	595,643,030			$	396,630,945
Finished lots and land			50,140,666				46,839,616
Inventories owned by the Company			645,783,696				443,470,561
Inventories owned by VIEs			20,708,390				40,900,552
Total inventories		$	666,492,086			$	484,371,113
Percentage of inventories owned by the Company
Construction in process			92	%			89	%
Finished lots and land			8	%			11	%

 

Interest is capitalized and included within each inventory category above. Capitalized interest activity is summarized in the table below for the three months ended September 30, 2021 and 2020 and for the nine months ended September 30, 2021 and 2020.

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2021				2020				2021				2020
Capitalized interest at the beginning of the period		$	18,790,661			$	27,094,143			$	21,091,297			$	25,335,924
Interest incurred			9,671,286				6,126,791				23,668,584				19,765,176
Interest expensed			(14,496	)			(42,373	)			(672,153	)			(124,026	)
Interest charged to cost of contract revenues earned			(5,600,052	)			(7,763,661	)			(21,240,329	)			(19,562,174	)
Capitalized interest at the end of the period		$	22,847,399			$	25,414,900			$	22,847,399			$	25,414,900

 

In April 2020, the Company received proceeds from the Paycheck Protection Program (“PPP”) in the amount $7,220,207, which was classified in accrued expenses on the Consolidated Balance Sheets and accounted for as an in-substance grant as of March 31, 2021. The Company utilized all of the PPP proceeds to pay payroll and permissible operating expenses. On June 16, 2021, approximately the total amount of the PPP proceeds were forgiven by the Small Business Association (“SBA”). As such, the Company has included the PPP proceeds as other income on the condensed Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2021.

 

Redeemable Common Units, Redeemable Preferred Units and Common Units

All of the Company’s outstanding preferred units are classified in mezzanine equity as they can be redeemed in a deemed liquidation of the Company outside of the Company’s control. Additionally, prior to the Corporate Reorganization, the Company had certain non-voting common units that could have been redeemed outside the Company’s control, and therefore, were classified in mezzanine equity (the “Redeemable Common Units Mezzanine”).

 

Pursuant to the Corporate Reorganization effective January 25, 2021, the Company is authorized to issue 350,000,000 shares of common stock, par value of $0.01 per share, consisting of 289,000,000 shares of Class A common stock and 61,000,000 shares of Class B common stock. The Board of Directors of the Company (the “Board of Directors”) has the authority to issue one or more series of preferred stock, par value $0.01 per share, without stockholder approval.

 

As a result of the Corporate Reorganization, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC converted into 21,255,329 shares of the Company’s Class A common stock, all of the outstanding common units of DFH LLC converted into 60,266,153 shares of the Company’s Class B common stock and all of the outstanding Series B Preferred Units and Series C Preferred Units of DFH LLC remained outstanding. Following the Corporate Reorganization, the Company owns all of the voting membership interest of DFH LLC.

 

Redeemable Series A Preferred Units of DFH LLC

As a result of the Corporate Reorganization, all of the outstanding Series A Preferred Units of DFH LLC were converted into a total of 21,255,329 shares of the Company’s Class A common stock.

 

Redeemable Series B Preferred Units of DFH LLC

As of September 30, 2021 and December 31, 2020, the Company had 7,143 and 7,143, respectively, of Redeemable Series B Preferred Units (“Series B Preferred Units”) issued and outstanding with a carrying value of $6,897,365 and $6,333,036, respectively. In the event of a liquidation, dissolution or winding up of DFH LLC, the Series B Preferred Units have a liquidation preference of $1,000 per unit and are senior to common units. The Series B Preferred Units have an 8% annual cumulative preferred distribution on the liquidation preference that is payable if and when distributions are declared. The Series B Preferred units do not participate in discretionary distributions, and each unit has the right to one vote on any matter presented for a vote of the members of DFH LLC. As of September 30, 2021 and December 31, 2020, these units have an aggregate unpaid amount of cumulative preferred distributions of $2,667,021 and $2,102,692, respectively, which is $373.38 and $294.37, respectively, per unit.

The Series B Preferred Units can be redeemed at DFH LLC’s option for $1,000 per unit plus any accrued and unpaid preferred distributions per unit at any time prior to December 31, 2022. The units may also be redeemed at the option of the holder upon a sale of DFH LLC for $1,000 per unit plus any accrued and unpaid preferred distributions. As the units are not currently probable of becoming redeemable outside the Company’s control, no accretion has been recorded.

Redeemable Convertible Series C Preferred Units of DFH LLC

Dream Finders Homes, Inc.

On January 20, 2021, the Board of Directors approved and adopted the DFH, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan is administered by the Compensation Committee of the Board of Directors, and authorizes the Company to grant incentive stock-based awards. The Company granted 759,709 restricted stock grants to certain executives and directors, which had a weighted-average grant date fair value of $23.15 per share, in conjunction with the adoption of the 2021 Plan. These stock grants vest over a period of three years of continuous service, commencing on the date of the grant and vesting ratably in one third increments at the end of each quarter of a three-year term. The fair value of these grants was derived by using the closing stock price on the date of the grant. Expense related to equity-based compensation under the 2021 Plan was $1,472,037 and $0 for the three months ended September 30, 2021 and 2020, and $4,032,106 and $0 for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, and December 31, 2020, the total unrecognized compensation expense under the 2021 Plan was $13,488,366 and $0, which will be recognized over a weighted-average period of 2.3 years.

Dream Finders Holdings LLC

In January 2021, certain common non-voting units in DFH LLC were converted into shares of the Company’s Class A common stock and Class B common stock. As a result, DFH LLC expensed the remaining unrecognized stock compensation expense associated with these units in the amount of $0 for the three months ended September 30, 2021 and $1,240,309 for the nine months ended September 30, 2021. Expense related to equity-based compensation was $697,054 for the nine months ended September 30, 2020.

As of December 31, 2020, the Company had 3,532 non-vesting, non-common units issued to employees, valued at $4,741,657, which converted into shares of the Company’s Class A common stock on January 21, 2021.