Prompt:
Human: Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made.
I hope you and your families are all well.
We are happy to have kicked off the new year in strong fashion.
Our rent collections continue to tick higher.
We continue to benefit from the multiyear mark-to-market opportunity and strong demand at our centers.
We recently closed on our new net lease platform and are now under contract on our first property in the Boston market that we expect to allocate between RPT's balance sheet and the new platform.
We believe we now have the capital and the platforms to generate strong external growth as well as the portfolio quality and leasing demand to drive above-trend internal growth as we move past the pandemic.
While the pandemic has created many hardships, it has also created opportunities that we have been able to capitalize on.
For instance, COVID-19 has had a negative impact on many tenant categories.
But unlike during the global financial crisis, it has also had a positive impact on many other tenant categories, like grocery, home improvement, electronics, wholesale clubs, general merchandise and medical use.
It has also boosted some businesses that were struggling pre pandemic, like pets, office supply and hobby.
Ironically, many of the big-box tenants that were not in favor pre pandemic have thrived sense, enough so that we think credit center is a more apt description for the power center category.
One of the biggest opportunities that we saw after the onset of COVID was an acceleration of the widening valuation gap between different segments of retail real estate.
It soon became clear that there were numerous value creation opportunities to unlock if we could figure out a way to monetize the various dislocations between single- versus multi-tenant properties, larger versus smaller footprints and between essential and high credit but nonessential tenant categories.
Our solution was our new net lease retail real estate platform with our partners, GIC, Zimmer and Monarch, that we are calling RGMZ until we rebrand later this year.
Given the relationship with RPT and our existing operating and development capabilities, the new platform gives access to proprietary deal flow from multi-tenant assets, larger-scale sale-leaseback transactions with national tenants, blended extends of shorter-term leases on strong real estate, remerchandising of expiring leases and build-to-suit opportunities.
The net lease platform and our R2G joint venture should allow us to grow AUM and expand in target markets faster than we could do on our own.
Our joint ventures also add a new, sustainable and diversified cash flow stream to RPT and we believe will improve our FFO growth profile by enhancing our returns and increasing the economic spread on our deployed capital as we take advantage of the valuation dislocations I mentioned earlier.
As we've previously noted, the $151 million initial seed sale to RGMZ will close in tranches over the course of 2021.
The first tranche of 13 parcels closed on March five for just over $36 million.
I won't go into all the transactional details, but overall, we couldn't be more excited about the net lease platform.
Our Northborough Crossing deal in the Boston MSA as currently under contract for $104 million is a perfect example of what we are trying to achieve with the net lease platform.
Here, we are buying a premier shopping center that, upon close, will be accretive to RPT's earnings from day one.
But by selling parcels to RGMZ, we have the opportunity to materially lower our basis and enhance our yield.
Our expectations are that we could sell up to $75 million of the center to RGMZ, resulting in a significantly reduced basis for RPT.
Consistent with our thesis regarding the value dislocation between multi-tenant and net lease properties, our effective acquisition yield on the retained multi-tenant asset could improve by up to 300 basis points after the acquisition and parcelization processes close.
There is real synergy between RPT and the new platform that benefits both sides in a way that is difficult to replicate.
For RGMZ, they get access to high-quality tenants and a location with household incomes of about $148,000 that no other triple-net investor has access to.
For RPT, we gain entry into the attractive Boston MSA on a deal that we would likely have passed on without the potential parcel sales to RGMZ.
Equally important is that, as a net lease platforms manager, RPT maintains equal control of the net lease components of the center.
This type of control is not available to multi-tenant owners that sell pads to unaffiliated entities.
The synergies of the two platforms give us a unique opportunity that we believe will result in outsized future earnings growth.
We look forward to providing more details on the Northborough and subsequent parcel sales over the next several weeks.
Turning to our acquisition pipeline.
Since we announced our net lease platform, we have engaged with many of you, and a consistent question that comes up is how quickly we can deploy the capital raised at both our RGMZ and R2G joint ventures.
Keep in mind that while we only recently announced RGMZ, we had been working on the deal for almost a year, and we're actively cultivating an investment pipeline throughout the pandemic.
Our ability to go to contract on Northborough so quickly after closing the new JV is a testament to the strong groundwork that was laid over the past year.
Additionally, we are in active contract negotiations on several other deals and have embedded a total of $100 million of net acquisitions at our pro rata share and after parcel sales to RGMZ into our guidance.
We remain optimistic that we will be able to deploy the vast majority of our current cash and future proceeds from the rest of the net lease platform seed sale by year-end, reflecting about $150 million of upside to what is currently reflected in our guidance range.
We are currently tracking a diverse pipeline of over $2 billion in markets like Boston, Atlanta, Tampa, Nashville, Miami, Jacksonville and Orlando.
Pipeline consisting of RPT, R2G and RGMZ deals runs the gamut from single-property, locally owned deals to institutionally owned portfolios.
The tie that binds each of these deals is the durability of underlying property cash flows and our ability to grow future NOI by buying under-market rents or properties with redevelopment opportunities.
Tyler Sorenson, who's heading up acquisitions for the net lease platform, brings a wealth of experience to RPT that we believe will further accelerate our net lease acquisition program and our pipeline.
Last quarter, we outlined 11 remerchandising opportunities consisting of redemising, expansions or combinations.
With the exact lifts will fluctuate as deals move into and out of the pipeline, these larger leasing deals continue to reflect the best risk-adjusted use of our capital, and we will allocate accordingly.
We have made very good progress since last quarter with the grocery deal at Troy Marketplace moving from the shadow pipeline to the active pipeline.
three other projects were also added this quarter, bringing the total in-progress pipeline to over $13 million with expected returns in the high single digits.
It's no secret that COVID-19 put pressure on certain experiential tenants.
But as I noted earlier, this pressure has created opportunities as was the case at our Troy Marketplace property outside of Detroit.
Troy Marketplace is a dominant power center that has maintained a high level of occupancy throughout the pandemic, was 97% leased at quarter end.
Because of COVID's impact on a recreation tenant, we were able to get the space back without a buyout and replace them with a new, premier, first-to-state investment-grade grocer.
We were able to generate an 88% rent spread on the new lease.
Although the incremental return on capital is tighter than our typical underwriting, we believe that attracting a premier grocer at this already strong center will create significant value via cap rate compression of almost 200 basis points and position the asset for success for years to come.
As I've previously said, we see a lot of value creation from the addition of a grocer component to these credit centers and are looking forward to executing more of these.
We also continue to see strong leasing demand from our former Stein Mart space in St. Louis and are now in lease negotiation with a leading retailer.
At Winchester in Detroit, we are finalizing a lease with a quality national off-price tenant to take our only other Stein Mart box.
Florida has continued to be a robust leasing market for RPT.
We are seeing great activity across the board at our centers within the state and are close to deals that will significantly upgrade the tenant credit at West Broward and Shoppes of Lakeland.
There is also strong demand at the Marketplace of Delray, which is creating friction at this property that could result in a significant improvement in the tenant mix.
As we continue to move past the heart of the pandemic, we are again revisiting our development program we had put on hold pre COVID-19.
Although we are still not ready to put shovels in the ground just yet, we have reengaged with potential partners on a few of our properties that we previously flagged for potential residential use in Florida.
We are seeing extremely strong demand for residential at both River City and Parkway Shops in Jacksonville.
As we've stated in the past, although the highest and best use of certain parts of our centers may not be retail, we will remain focused on our core retail competencies and will look to monetize non-retail components through ground leases, land sales or potentially even land contributions into partnerships with leading residential players to retain some future upside.
Today, I will discuss our first quarter results, our strong balance sheet and liquidity position and end with a commentary on our updated guidance.
First quarter operating FFO per share of $0.19 was up $0.01 versus last quarter, driven by our improving rent collections as we experienced a decline in rent not probable collection and abatement, which totaled $3.2 million in the quarter, down from $4.4 million last quarter.
Further, as disclosed on page 33 of our supplemental, our first quarter rental income, excluding prior year amounts, has ticked up since last quarter and is now only down 5% from first quarter of 2020 despite the continued nonpayment of our theater tenants who have remained closed since the onset of the pandemic.
Our four Regals are slated to open in late May and account for about 75% of our total theater exposure.
Given Regal's reopening plans and recent liquidity infusions, we expect in our forecasting resumption of rent payments in the next few weeks.
We continue to take a conservative stance with uncollected rents and have reserved nearly 80% of our uncollected first quarter recurring billings.
Additionally, we effectively have no exposure to tenants in bankruptcy left in the portfolio.
As of quarter end, $18 million of our recurring billings for the trailing 12 months remain outstanding, of which $12 million has been reserved with the majority of the $6 million balance expected to be repaid over the course of '21 and 2022.
Operationally, we continue to execute and put runs on the board.
We started 2021 on a high note, signing 62 deals in the quarter covering 556,000 square feet.
This was the highest number of deals signed in the quarter in almost two years.
Blended rent spreads were up 9% as we achieved a 51% comparable new lease spread, our best quarterly spread in almost three years, driven by our Troy Marketplace grocery deal that Brian previously noted.
While the TI related to this deal was outsized, it was more than offset by the value of nearly $20 million that was created by cap rate compression.
Excluding this deal, our new lease spread would have been up 26%, highlighting a solid, broad-based demand and mark-to-market opportunities in our portfolio.
Our renewal spreads also continued to improve, up 3.9%, making the third consecutive quarter of improving renewal spreads.
Given our strong leasing activity, we ended the first quarter with a signed not open backlog of $3.3 million, the majority of which will come online over the next 12 months.
We also have a full pipeline of deals with over $2 million of leases in advanced legal negotiations.
Additionally, as Brian touched on, we have identified several remerchandising deals that will generate well into double-digit return on cost in addition to cap rate compression across certain properties.
In the spirit of transparency, we have outlined these active and pipeline remerchandising opportunities on page 19 and 20 of our supplemental.
Occupancy for the quarter was 90.6%, down 90 basis points sequentially due primarily to the proactive and planned recapture of our space at our Troy Marketplace and West Broward properties that will facilitate new grocer deals.
Given the lack of bankruptcy exposure in our portfolio, our signed not open backlog, our robust leasing pipeline and our remerchandising opportunities, we believe occupancy has troughed and expect it to track upward over the next several quarters as we march toward restabilization of our portfolio.
The closing of the first tranche of the initial seed sale to our net lease platform benefited both our leverage and liquidity levels in the quarter.
We ended the first quarter with net debt to annualized adjusted EBITDA of 7.2 times, down from 7.6 times last quarter.
Looking forward, we continue to target leverage in the 5.5 to 6.5 times range, which will be driven by the normalization of EBITDA as the impacts of COVID-19 reverse course in '21 and 2022, the stabilization of our portfolio and as future tranches of the RGMZ seed close in 2021.
However, it is important to keep in mind that the timing of acquisitions and subsequent net lease parcel sales may have a temporary impact on reported quarterly leverage levels.
From a liquidity perspective, we ended the first quarter with a cash balance of $143 million and a fully unused $350 million unsecured line of credit.
Including the expected proceeds from the remaining RGMZ seed sales, our pro forma cash balance would be about $250 million.
In short, we have a war chest of cash and a deep acquisition pipeline that we expect will generate strong external growth for RPT shareholders.
Regarding our pending debt maturities through 2022, we have just one $37 million private placement note that matures in June and a $52 million mortgage that is prepayable starting in November and carries an above-market 5.7% interest rate.
Based on the positive feedback from our unsecured debt partners, we expect to refinance both these notes later this year.
However, given our strong liquidity position and as an interim step, we may repay our $37 million private placement note due in June ahead of our expected refinancing.
As with any debt issuance, we look to maintain a flat maturity ladder with a goal of having no more than 15% of our debt stack maturing in any given year.
The last topic I want to touch on is our updated 2021 OFFO per share guidance of $0.81 to $0.89, which is up $0.03 at the midpoint of our prior guidance range of $0.77 to $0.87.
Our updated range includes the impact from the sale of the remaining tranches of initial RGMZ seed.
Also assumed in our forecast are $100 million of net acquisitions at our pro rata share.
Included in this assumption is the gross purchase price of Northborough that is expected to close in the second quarter.
However, it's important to again note that we expect to sell certain net lease parcels at Northborough to RGMZ in the fourth quarter that will lower our basis, as Brian mentioned.
The net impact of the initial seed sales and net acquisition activity of $100 million is expected to add $0.02 of upside relative to the midpoint of prior guidance.
The other $0.01 of upside stems from outperformance in the first quarter that we are now projecting in future periods.
Like last quarter, the range around the midpoint of our updated guidance is largely driven by our performance on the bad debt front, particularly from our theaters.
Also, it should be noted that our guidance does not include any assumptions of recovery for prior period bad debt or straight-line rent reserves.
And lastly, although we have $100 million of net acquisitions formally built into guidance, we believe we can deploy as much as $250 million into opportunistic acquisitions within our target markets that meet our disciplined underwriting standards, representing upside to our guidance range.
 Assistant:

Chosen response:
q1 operating ffo per share $0.19.
sees fy 2021 operating ffo per share $0.81 to $0.89.


Prompt:
Human: The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP.
A reconciliation between GAAP and non-GAAP financial measures is provided in our fourth quarter Redwood Review available on our website.
Also note that the content of this conference call contains time-sensitive information that is accurate only as of today.
The company does not intend and undertakes no obligation to update this information to reflect subsequent events or circumstances.
Finally, today's call is being recorded and will be available on the company's website later today.
As I reflected on the past year, it's hard to contextualize what our country has been through in the opening weeks of 2021, let alone all of 2020.
With unprecedented turmoil in Washington, an economy still rocked by the coronavirus pandemic, now seemingly populist revolt under way on Wall Street, it's hard for any investor to navigate all the tumult and volatility.
So we feel all the more fortunate to have emerged from such an unprecedented year in a renewed position of strength.
It's motivated us to make 2021 the best year in our company's history.
We exited 2020 with momentum building across both of our platforms, including record lock volumes in residential lending and very strong originations and contribution from business purpose lending.
GAAP earnings for the fourth quarter were $0.42 per share, well in excess of our $0.14 per share dividend, and our GAAP book value increased $0.50 per share from the third quarter to $9.91 in the fourth quarter.
Based on the trajectory of our operating businesses and our expectations for sustainably higher net interest income throughout the year, we are confident that we can safely support a stable to growing dividend in 2021.
We plan to announce our first quarter dividend in March.
Looking ahead, our strategic priorities for 2021 include allocating ample capital to our residential consumer and business purpose lending platforms, doubling down on our technology investments to scale our business and continuing to support and develop our team members.
Strategically speaking, the COVID-19 pandemic has only further validated our core investment thesis, as demand for single-family detached housing has grown significantly.
We expect much of that demand to be durable, as families choose to move away from dense urban areas, and more people are able to work remotely out of their homes regardless of proximity to the workplace.
This has already caused ripple effects across both the residential and commercial property sectors, especially in major metropolitan areas.
That's why our primary focus for 2021 will remain on our operating platforms.
The operating capital we allocate to these businesses is expected to generate returns on equity north of 20% post tax levels very difficult to come by when sourcing third-party investments in today's compressed yield environment.
Most importantly, these businesses serve large and growing markets not covered by government lending programs, and as such are positioned to generate scalable and repeatable sources of future earnings, even in a less accommodative interest rate environment.
Since they are earned within our taxable subsidiaries, the earnings generated can also be retained to provide a steady stream of internally sourced investment capital that can be deployed to further grow earnings and book value.
Turning to our investment portfolio, our portfolio remains a strategic element of our business model, so that supports our operating platforms and third-party investing activities.
Overall credit performance of the book remained strong as delinquencies have continued to decrease since their peak in the summer and strong home price appreciation has kept the actual credit losses low.
This means that, even if we retrace back to "preCOVID-19" valuations, we continue to expect significant further upside in these investments.
Coupled with positive credit trends, high prepayment speeds have begun to unlock additional value on most of our credit investments held at a discount to par.
And to channel the late Yogi Berra, I'll remind everybody that "loans that prepay, don't default.
On the technology front, speed and disruption are top of mind in 2021 across the Redwood enterprise.
The goal is not simply to grow volume or issue more securitizations.
We aim to fundamentally change how the non-Agency sector operates, from end-to-end.
That entails more speed and automation, and keeping technology at the forefront of our planning process.
In the past several months, we have launched several new technology initiatives through both organic and new venture investment strategies.
And just today, we are announcing the recent launch of RWT Horizons, a new venture investing strategy focused on early stage technology companies with business plan squarely focused on innovations that can disrupt the mortgage finance landscape.
The amount of capital deployed through this new platform will likely be smaller at first, however, the investments are designed to have an outsized impact on how our business operates.
Our strategy centers on creating new efficiencies across the mortgage value chain, thereby making us a more meaningful partner to the broad network of market constituents to whom we provide liquidity.
Paramount to our success are our people and the core values by which we conduct our business.
Caring for our employees has never been as important, as we continue to support our team members and their families through the impacts of COVID-19.
Investments in our employee programs and stewardship of our culture remain strategic priorities, and we're proud of the work that we've done to engage, develop and retain our workforce over such a challenging year.
We stand behind our core values, including an earnest focus on diversity, equity and inclusion, and a commitment to strong corporate citizenship, both socially and environmentally.
Our commitment to our larger communities through volunteerism and charitable giving have also remained in sharp focus for us, particularly as our shared humanity has been amplified by the COVID-19 pandemic.
We believe our strategy will enable us to scale our business and take market share, grow durable and repeatable earnings and serve our mission to help make quality housing whether rented our owned, accessible to all Americans.
With optimism on the horizon for 2021, we're looking forward to the positive impact that Redwood can make for our collective stakeholders, including our shareholders, our employees and our communities.
With record performances from our operating businesses during the second half of 2020, we entered 2021 in a position of strength.
Our fourth quarter results reflect continued improvement in the broader credit markets, the depth and breadth of our competitive advantages and opportunities for our business to further build market share and growing segments of housing finance.
Our crisp execution during the quarter was supported by progress on key technology initiatives and increased efficiency in turning our capital.
Before getting into our results, I will further discuss some of the key housing industry trends we are observing.
The theme as we saw in the third quarter have continued and tailwinds for our operating businesses remain strong.
Secular trends driving single-family housing demand do not appear to be abating.
Even with the promise of a vaccine, consumers are embracing the flexibility of the work-from-home model, detethering them from urban centers and creating a substantial pocket of fresh demand for housing.
The need for space and functionality to conduct business in private homes has driven higher home values at all price points, in turn fueling the potential for expansion in both the owner occupied and an investor-owned segments of the market.
Home price appreciation continues at pace as demand for single-family homes as far outstripping supply.
Market observers estimate that US housing stock and a total of $2.5 trillion in value in 2020, including $2.2 trillion from appreciation and existing homes.
Nationwide home prices were up over 10% year-on-year in December.
And while the number of homes sold rose over 20%, inventory available for sale fell over 40%.
Resale inventories at its tightest level ever in many top markets and on average stands at less than two months of supply.
Once more mortgage rates have remained at or near record lows, even as 10-year treasury rates now stand more than 25 basis points higher than in late December.
And while the pandemic continues to impact certain segments of the labor market in different ways, the personal savings rate at year end was up 90% from the end of 2019.
As such, a key outcome of Fed stimulus has been meaningful upward pressure on bank deposit levels, a phenomenon that among other things has important ramifications for bank appetite for assets.
This data coupled with the demand trends we are seeing for our products and the performance of our portfolio makes us optimistic about our immediate and long-term opportunities for growth.
In many ways, we will measure our success in 2021 by the velocity with which we enter 2022.
We believe our competitive positioning, commitment to technology solutions and deep client base will allow our businesses to operate at a steadily increasing capacity as the year progresses.
Now I'll turn to some key metrics from the fourth quarter.
Sparkling results from our residential and BPL platforms coupled with strong performance in our investment portfolio drove a 20% annualized return on equity for the quarter.
In our residential business, we recorded a record $3.8 billion of locks with over 90 discrete sellers, up 81% from the third quarter.
Loan purchase commitments, those adjusted for potential pipeline fallout during the quarter were $2.5 billion, more than double the amount in the third quarter.
Momentum has continued into 2021, as January locks totaled $1.6 billion.
The vast majority of our locks continue to be select loans, which are reflecting some of the strongest credit metrics we have seen since the great financial crisis.
Including average FICOs in the high-700s and debt ratios of 30% or lower.
These record volumes were well balanced by our multi-channel distribution model.
During the quarter, we achieved strong execution on two securitizations backed by $669 million of loans in aggregate, including a $345 million single-investor securitization placed with an insurance company.
We also sold over $800 million of loans during the fourth quarter and entered into agreements to sell forward an additional $1 billion, expected to settle in the coming weeks.
We believe that in 2021, we will see a pronounced increase in consumer demand for jumbo loans, and that we are in the early stages of historically significant refinancing wave.
With rates remaining low, we are seeing our seller network continue to hire additional loan officers to support pent-up demand in the jumbo pipeline and an increase in participation in our seller training sessions.
In December, we officially launched a new seller initiative, Redwood Rapid Funding, demand has exceeded our expectations.
And as of January 31st, we had funded nearly $120 million of loans through the program.
We are in the process of onboarding several more sellers as we transition from the pilot phase into a more formal program for a broader set of our clients.
Additionally, we recently launched the pilot phase of Redwood Live, an app-based tool designed to give our sellers visibility into the underwriting process with live status updates for each of their loans.
Also during the fourth quarter, we launched a new initiative to modernize our workflow on the Capital Markets' desk, which will include an end-to-end solution for accessing, reporting and analyzing standardized loan level data for our Sequoia securitizations.
This platform will provide secure real-time data and transparency on the underlying loan performance within our existing securitizations and a portal for potential investors during the marketing period.
In the coming months, we look forward to sharing more on these and other new programs, including the automation of certain portions of our underwriting process.
Turning to CoreVest, our investment thesis for entering the business purpose lending segment continues to be supported by origination growth and clean credit performance.
CoreVest continues to post truly differentiated operating results, fueled by growing consumer demand for single-family homes for rent and institutional investor appetite for the asset class.
We originated $448 million in BPL loans during the quarter, up 71% from the third quarter.
Almost 80% of this production was in single-family rental loans, for which demand from the securitization markets remains a highlight.
We completed two securitizations in the fourth quarter, including an innovative single-investor transaction placed with a leading insurance company.
Our broadly distributed deal was backed by $274 million of SFR loans and was particularly well received by the market.
Certificates placed with third-party investors represented 91% of the capital structure with the weighted average yield of 1.48%.
This was 20 basis point improvement upon the already strong execution of our previous issuance.
The single-investor securitization provides $200 million in financing for SFR loans, and includes a unique ramp up feature that enhances capital efficiency and reduces our reliance on traditional warehouse funding.
During the fourth quarter, we distributed $60 million in SFR loans into the structure and expect to complete the ramp up later this month.
We intend to pursue similar deals in 2021, which would accelerate our ability to grow the business with more efficient use of capital and reduced market risk.
Additionally, in the fourth quarter, we called one of our previously issued SFR securitizations, which has $75 million of outstanding loans, the majority of these loans have either been refinanced or resecuritized, and the call allowed us to recycle our capital at a significantly improved cost of funds.
Our BPL borrowers are encouraged by the resilience of tenant performance this past year, and continue to raise additional capital to expand their portfolios.
Importantly, we continue to believe that there is a deep group of potential borrowers, many of which are seasoned real estate investors that remains unserved by these types of lending products.
The tailwinds that fueled our residential and BPL businesses have also positively impacted our investment portfolio.
During the quarter, the fair value of our securities book increased approximately 3%, supported by of our securities book increased approximately 3%, supported by continued improvement in credit spreads and strength in underlying credit performance.
Overall, 90-plus day delinquencies in our securitized portfolios across both jumbo and SFR are now below 2%.
Additionally, elevated prepayment speeds are accelerating our ability to unlock the value of many of our subordinate bonds.
The majority of which we have the right to call at specified dates or once the underlying pools pay down to a certain size.
These call rights are generally at par reflecting a discount to our current estimate of the fair value of the underlying loans.
In total, the net discount on our securities portfolio as of year-end was well in excess of $400 million.
And while expected losses will to an extent influence its full realization, this discount reflects substantial potential upside to book value.
All in all, we remain very pleased with how our firm is positioned as we start the year.
Against the favorable backdrop for our businesses, we are committed to the use of technology to facilitate scale, reduce customer acquisition costs and serve our growing client base more efficiently.
These high-quality operating earnings are complemented by more proprietary deployment opportunities for our portfolio, which should help to drive net interest income higher through time.
As Chris and Dash discussed, our fourth quarter earnings and book value benefited from strong results across our operating businesses and investment portfolio, contributing to GAAP earnings of $0.42 per share for the quarter and generating a 7% economic return on book value for the quarter.
After the payment of our $0.14 dividend, our book value increased to $9.91 per share, representing a 5% increase for the quarter.
That was primarily driven by the strong earnings at our operating businesses.
As Chris mentioned, these businesses are operated within our taxable subsidiary, giving us the optionality to retain and reinvest that income or distribute it through a dividend.
Focusing in on some of the operating results within the business, our residential mortgage banking team achieved record lock volumes while increasing gross margins relative to the prior quarter to generate $24 million of mortgage banking income.
CoreVest also saw a large sequential volume growth and improved securitization execution during the quarter, which helped to generate $33 million of mortgage banking income.
And a similar dynamic to the third quarter, though to a lesser extent, business purpose mortgage banking results included a benefit from spread tightening on the $286 million of SFR loan inventory it carried into the fourth quarter.
In our investment portfolio, net interest income remained relatively stable as capital deployment into CoreVest and Sequoia investments was outpaced by pay-downs, which have remain elevated due to higher prepayment fees.
As dash mentioned, higher prepay speeds, along with tighter spreads continue to benefit our subordinate securities that we hold at discount, and we saw a positive fair value changes across our portfolio.
Shifting to the tax side, in the fourth quarter, we had REIT taxable income of $0.05 per share and $0.37 per share of taxable income at our TRS.
Our fourth quarter REIT taxable income was negatively impacted by a year-end adjustments and we expect it will shift up in the first quarter of 2021, and continue growing as we deploy capital into our investment portfolio, which is generally held at 3.
[Phonetic] Given our full-year net taxable loss at the REIT, we currently expect all of our dividends paid in 2020 to be characterized as a return of capital for tax purposes.
Turning to our balance sheet, we ended the fourth quarter with unrestricted cash of $461 million.
After allocating incremental working capital to our mortgage banking operations during the fourth quarter and net of other corporate and risk capital, we estimate we had approximately $200 million of capital available for investment at December 31st.
Our financing structure remained stable in the fourth quarter, after significant changes in prior quarters.
Overall, we saw non-recourse leverage decreased slightly to 1.3 times at the end of the year from 1.4 times at the end of the third quarter.
This decrease was primarily due to some effective deleveraging within our investment portfolio from higher levels of paydowns and fair value increases during the quarter.
Additionally, as we completed several securitizations near the end of the year, we held at relatively low balance of loans in inventory, which helped to keep overall leverage down.
As we discussed, we generally expect our overall leverage to increase as we continue to build inventory levels at our mortgage banking operations.
We may also explore adding incremental non-marginable leverage to our investment portfolio, which currently has less than one times direct leverage excluding our long-term corporate unsecured debt.
At our mortgage banking operations to support growing volumes, we increased our residential warehouse capacity from $600 million to $1.3 billion and maintain $1 billion of capacity for BPL operations, with nearly 70% of this total capacity being non-marginable.
I'll close with our outlook, which is also detailed in the new 2021 financial outlook section of our fourth quarter Redwood Review.
We expect demand for single-family housing to remain robust throughout 2021, which should benefit both of our operating platforms.
Though we may experience a rising rate environment, we expect most existing jumbo loans will remain in the money and refinanceable in 2021.
Before 2021, we'll continue to focus on growth, technological efficiency and increased profitability in our operating businesses, which should allow us to retain more capital within our taxable subsidiary and grow book value.
We also expect these activities to support incremental capital deployment into our investment portfolio, which should drive higher net interest income and support a stable to growing dividend.
Looking forward, we have arranged our outlook to focus on our operating businesses, which we run out of our taxable subsidiary and our investment portfolio, which we generally hold at our REIT.
We think it's important to make this distinction as our operating businesses generate higher returns and have a steeper growth trajectory.
And with the ability to retain earnings from these operations, over time, we expect a significant capital we have allocated to these platforms to be valued as a function of their forecasted earnings streams.
On that note, at December 31st, we had approximately $375 million of capital allocated to our operating businesses, including $215 million for residential mortgage banking and $160 million for BPL mortgage banking.
And in 2021, we expect after-tax returns on this capital to 20%.
We may allocate additional capital to each of these businesses to support growth in volumes throughout the year with similar return expectations.
Shifting to our investment portfolio, at December 31st, we had approximately $1.1 billion of capital deployed here, which we expect can generate returns on capital in 2021 between 10% to 12% relative to our year-end basis.
We expect net interest income to trend higher throughout 2021 as we deploy incremental capital into largely proprietary portfolio investments at returns consistent with or higher than our in-place portfolio.
Additionally, given current market conditions, we forecast the average cost of funds on our secured debt to continue improving throughout 2021.
To support our operating businesses and investment portfolio, we expect corporate operating expenses to be between $50 million and $55 million for 2021, with variable compensation commensurate with company performance.
And we expect long-term unsecured debt service costs over 2021 to remain consistent with 2020, at approximately $40 million annually.
I'll note that while this outlook provides for a strong returns in 2021, we expect that to return potential of the businesses will grow throughout the year as we deploy additional capital and continue to expand our operating platforms, positioning the business to generate even higher overall returns in 2022.
Operator, you can open the call for Q&A.
 Assistant:

Chosen response:
q4 gaap earnings per share $0.42.
gaap book value per common share was $9.91 at december 31, 2020.


Prompt:
Human: These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.
Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors.
I'll also discuss today's announcement of our plan to acquire Midwest Warehouse & Distribution System.
John will take you through our third quarter results, which exceeded our expectation again this quarter and review our disciplined capital allocation strategy focused on returns.
I'll then discuss our updated 2021 outlook.
Let me start with some key highlights about the market and our results.
Long term transportation and logistics outsourcing trends continue to support our growth strategy and investments.
Trends in warehousing and distribution as well as in e-commerce fulfillment and last mile delivery of big and bulky items have continued to accelerate since the pandemic began.
Our strategic investments remain focused on leveraging these favorable outsourcing trends.
Unprecedented challenges impacting labor, supply chains and truck production are providing us with additional growth opportunities because they help drive companies to make long term outsourcing decisions.
We're seeing record new contract wins in supply chain and dedicated, which we fully expect will contribute to long term profitable growth.
FMS is also benefiting as companies are looking to source truck capacity in this extremely tight market.
Consistent with our disciplined capital allocation strategy, we're investing in our higher return logistics businesses through our planned acquisition of Midwest Warehouse & Distribution System, which adds multi client warehousing capabilities in supply chain and accelerates growth.
We also announced plans to return capital to shareholders over time through discretionary and anti dilutive share repurchase programs.
Use of the new discretionary program is anticipated to occur over time, dependent on several factors, including balance sheet leverage, the availability of quality acquisitions and the stock price.
We now expect to achieve ROE in the range of 18% to 19% for the full year.
The team has done an excellent job of leveraging favorable pricing trends in used vehicle sales and rental resulting in outperformance in both these areas.
In addition, we've continued to increase lease pricing resulting in improved portfolio returns and a 4% increase in revenue per average active lease vehicle.
We expect additional benefits going forward as leases are renewed and repriced and as we utilize data analytics to further segment customer pricing based on application, equipment type and other key drivers of lease returns.
Moving to cash flow.
We generated strong year to date free cash flow of over $800 million and have increased our full year free cash flow forecast to $1 billion to $1.1 billion, up from our prior forecast of $650 million to $750 million.
Our full year forecast reflects an estimated cash flow benefit of $400 million from deferred capital expenditures due to OEM delivery delays as well as record proceeds from the sale of our used vehicles.
With balance sheet leverage currently well below our target range, we have additional capacity to enhance shareholder value by deploying capital consistent with our disciplined capital allocation strategy.
slide five provides an overview of the investments we're making to drive accelerated growth in supply chain and dedicated, a key element of our strategy to generate higher returns.
Developing new and enhanced products such as Ryder Last Mile, e-commerce fulfillment and freight brokerage provides opportunities to leverage profitable growth areas.
Innovative technology enables us to deliver value added logistics solutions that are in high demand.
Last quarter, I highlighted Ryder Last Mile offering.
This quarter, I'll discuss RyderShare, our real time freight visibility and collaboration tool that has proven to be a key differentiator in winning new business.
Sales and marketing are key to our brand awareness and ensuring customers are aware of our full array of supply chain capabilities.
Our Ever better campaign and the increased digital marketing presence have driven a significant increase in qualified sales leads.
We're also expanding our sales force and investing in their capabilities to drive additional growth opportunities.
Strategic M&A opportunities, such as our planned acquisition of Midwest, are focused on adding new capabilities, geographies and/or industry verticals.
These opportunities are an important way to accelerate growth especially in Supply Chain and Dedicated.
Ryder Ventures, our corporate venture capital fund aims to invest $50 million over five years through direct investment in start-ups.
Our investments here advanced strategic relationships where we typically are working together to develop new products and capabilities that benefit our customers and solidify our position as an industry leader.
We've made investments in numerous exciting areas such as e-commerce micro fulfillment and digital driver staffing and are working with these start-ups to address important customer needs.
We also recently announced strategic alliances with several autonomous technology firms, which enables us to leverage our expertise in asset management, maintenance and transportation, positioning us as an innovative leader in this emerging space.
slide six takes a closer look at RyderShare, an innovative digital product that combines Ryder's nearly 90 years of logistics experience with best in class technology.
RyderShare provides users with real time freight visibility throughout the life cycle of an order as well as the opportunity to share information between suppliers, carriers and shippers on one platform with Ryder's team of supply chain experts managing exceptions.
RyderShare users benefit from improved service, from their, for their customers, increased employee productivity and the ability to readily access information from one source for decision making.
Almost 70% of Ryder's transportation volume and supply chain and dedicated now runs through RyderShare.
The platform has processed over 4.4 million transactions and has over 5,300 users to date.
We're also excited about our recent launch of RyderShare for warehousing.
This enhancement makes RyderShare, the only visibility platform that connects transportation with warehousing.
We expect this will be a key differentiator in winning new business.
Total company results for the third quarter on page seven.
Operating revenue of $2 billion in the third quarter increased 11% from the prior year, reflecting revenue growth across all three of our business segments.
Comparable earnings per share from continuing operations was $2.55 in the third quarter as compared to $1.21 in the prior year.
Higher earnings reflect improved performance in aftermaths from higher rental, used vehicle sales and lease results, as well as a declining depreciation expense impact related to prior residual value estimate changes.
Return on equity, our primary financial metric, reached 15.7% for the trailing 12 month period.
ROE reflects higher earnings from rental, used vehicle sales and declining depreciation expense impact.
Improved lease performance also contributed to higher ROE and reflects the impact of our pricing initiatives.
year to date free cash flow was strong at $829 million, although down from the prior year when capital expenditures were unusually low due to COVID.
Turning to FMS results on page eight.
Fleet Management Solutions operating revenue increased 8%, reflecting 37% higher rental revenue, driven by strong demand and higher pricing.
Rental pricing increased 9%, primarily due to higher rates across all vehicle classes.
FMS realized pre-tax earnings of $186 million, up by $170 million from the prior year.
$93 million of this improvement is from higher gains on used vehicles sold and a lower depreciation expense related to prior residual value estimate changes.
Improved rental and lease results also significantly contributed to increased FMS earnings.
Rental utilization on the power fleet was a record 83% in the quarter and well above the prior year's 71%.
Results also benefited from ongoing momentum from lease pricing initiatives, partially offset by a 3% smaller average active lease fleet.
FMS EBT as a percentage of operating revenue was 14.9% in the third quarter and surpassed the company's long term target of high single digits.
For the trailing 12 month period, it was in line with the target at 9.7%.
page nine highlights global used vehicle sales results for the quarter.
Used vehicle market conditions remain robust due to strong freight activity and timing supply from truck production constraints.
Higher sales proceeds reflect significantly improved market pricing.
Globally, year over year proceeds more than doubled for both tractors and trucks.
While sequentially tractor proceeds were up 32% and truck proceeds were up 27% versus the second quarter 2021.
As you may recall, last year, we provided a sensitivity noting that a 10% price increase for trucks and a 30% price increase for tractors in the U.S. would be needed by 2022 in order to maintain current residual value estimates.
Our current tractor and truck proceeds significantly exceed these levels.
Average current pricing in the U.S. for tractors and trucks is well above our residual value estimates used for depreciation purposes.
As such, we are comfortable with our residual value estimates and we do not anticipate the need for any significant adjustments at this time.
During the quarter, we sold 4,900 used vehicles, down 44% versus the prior year and down 18% sequentially, reflecting lower inventory levels.
Used vehicle inventory was 3,500 vehicles at quarter end, below our target range of 7,000 to 9,000 vehicles.
Turning to supply chain on page 10.
Operating revenue versus the prior year increased 14% due to new business higher volumes and increased pricing.
Growth was partially offset by the impact of supply chain disruptions and automotive production activity.
We expect this disruption to continue to impact our automotive customers until global supply chains normalize, and we continue to work with our customers to mitigate the impact.
We have included an estimated impact from potential shutdowns in our balance of year forecast as the situation remains fluid.
SCS pre-tax earnings decreased 62% and trailing SCS EBT as a percent of op revenue of 6.2% was below target.
This reflects lower automotive earnings, higher labor costs and strategic investments, partially offset by positive earnings from these business.
We anticipate the pricing adjustments we're implementing to improve SCS EBT percentages in the first half of 2022 and to move around the target range or move to around the target range in the second half of next year.
Moving to dedicated on page 11.
Operating revenue increased 16% due to new business, higher volumes and increased pricing.
New contract wins and DTS continue to be robust with year to date sales results already reaching full year record levels.
New contract wins are driven by ongoing secular outsourcing trends as well as current labor and supply chain challenges that are driving companies to make long term outsourcing decisions.
We're signing larger deals across a diversified industry base and new contract wins are also benefiting from cross selling opportunities from FMS and SCS.
DTS pre-tax earnings decreased 54% and trailing DTS EBT as a percent of op revenue was below target at 5.3%.
This reflects increased labor and insurance costs partially offset by positive earnings from new business.
Although unprecedented labor challenges are affecting current results in DTS and SCS, we are increasing our recruiting efforts and successfully working with our customers to implement price adjustments to address higher market costs.
We're encouraged by the early progress we're making on these price adjustments as we continue to deliver the superior service our customers expect.
We're confident that our new and expanded customer base and pricing adjustments will improve DTS EBT percentages in the first half of '22 with it moving to around our target range in the second half.
Turning to slide 12.
Lease capital spending of $807 million was above prior year's plan due to increased lease sales activity in the year.
Lease returns are benefiting from pricing initiatives and support a more normalized lease capital investment.
Rental capital spending of $583 million increased significantly year-over-year, reflecting a higher planned investment in the rental fleet.
We plan to grow the rental fleet by approximately 15% in 2021 and in order to capture the increased demand we've seen from strong e-commerce and overall freight activity.
Our full year 2021 forecast for gross capital expenditures of $1.9 billion to $2 billion is below our initial forecast range.
This reflects an estimated impact of $400 million from deferred vehicle purchases due to OEM delivery delays that Robert highlighted earlier.
Turning to slide 13.
Our 2021 free cash flow forecast has increased to a range of $1 billion to $1.1 billion, up from our previous forecast of $650 million to $750 million.
The full year forecast reflects our strategy to balance moderate growth in the capital-intensive FMS business, while generating positive free cash flow over the cycle.
It also reflects the impact from delayed OEM deliveries and record proceeds from used vehicles sold and, as noted earlier.
Balance sheet leverage declined due to higher earnings and cash flow and is expected to remain below the low end of our target range this year.
Importantly, we now expect to achieve ROE of 18% to 19% this year due to stronger than expected performance in FMS and a declining depreciation impact.
Higher year to date comparable EBITDA, which excludes the impact of gains and losses on used vehicle sales, reflects revenue growth and improved operating performance.
Turning to slide 14.
I'd like to review our capital allocation priorities which are focused on creating long term shareholder value by investing in high return opportunities that generate positive free cash flow over the cycle.
Our first priority for capital is investing in high return organic growth opportunities, which includes moderate FMS lease fleet growth and accelerating growth in SCS and DTS.
In our FMS business, we estimate investments of between $1.8 billion to $2.1 billion annually, and that is the amount needed to replace leased vehicles as contracts are renewed and to refresh the existing rental fleet.
We also estimate investing between $200 million to $500 million in annual fleet growth, which represents lease fleet growth of approximately 2,000 to 4,000 vehicles with commensurate growth in rental.
Returns in both lease and rental are expected to continue to benefit from ongoing pricing initiatives.
Investments to accelerate growth in our higher return and less capital intensive supply chain and dedicated businesses as well as technology investments that expand or enhance our capabilities are also key priorities for organic growth capital.
Targeted acquisitions such as our planned acquisition of Midwest, are focused on adding new services capabilities or industry verticals and provide us with important opportunities for long-term profitable growth.
Accretive tuck-in acquisitions that supplement our base business as well as investments by RyderVentures provide additional opportunities for us.
Our capital allocation strategy is also focused on returning capital to shareholders through dividends and share repurchases.
Ryder has made an uninterrupted quarterly dividend payments for more than 45 years.
Our dividend growth rate over the past 10 years is 7% and our current dividend yield is around 3%.
The new share repurchase programs discussed earlier allow for both anti-dilutive and discretionary share repurchases.
We remain committed to offsetting dilution through the use of the anti-dilutive program.
The discretionary program is planned to be utilized over time to manage leverage and its usage will be dependent on several factors, including balance sheet leverage, the availability of quality acquisitions and stock price.
Our capital allocation priorities are focused on achieving ROE of 15% or higher over the cycle while generating positive free cash flow and maintaining target leverage.
Turning now to our earnings per share outlook on page 15.
We're raising our full year comparable earnings per share forecast to $8.40 to $8.50, up from our prior forecast of $7.20 to $7.50 and well above a loss of $0.27 in the prior year.
We're also providing a fourth quarter comparable earnings per share forecast of $2.36 to $2.46, significantly above the prior year of $0.83.
Used vehicle sales, rental and lease are the key drivers of higher expected full year results.
Gains are expected to be down slightly in the fourth quarter compared to the third quarter, reflecting strong pricing, partially offset by fewer vehicles sold due to low inventory levels.
Looking ahead to 2022, we expect both higher revenue and earnings.
Record new contract wins in 2021 in supply chain and dedicated are expected to benefit 2022 revenue growth.
Supply chain and dedicated margins are expected to improve in the first half of next year and move toward the target range in the second half, reflecting price increases to address higher labor costs, barring any further market disruptions.
We expect strong freight conditions and truck production challenges to continue into 2022 benefiting FMS results.
Declining depreciation expense impact is expected to benefit year over year earnings comparisons by $85 million.
However, this is expected to be fully offset by higher book values on vehicles being sold next year.
Used vehicle sales volumes are expected to be flat to modestly higher.
Used truck pricing for the year is expected to be flat to modestly higher in 2022, remaining strong through at least the middle of the year and potentially declining in the second half if new truck production ramps up and used vehicle inventories and the overall market begin to normalize.
Free cash flow next year is expected to decline, largely reflecting the $400 million capital expenditure deferral from 2021 into 2022 due to OEM delivery delays.
Given the unusual OEM production situation, it would be appropriate to look at combined free cash flows in 2021 and 2022.
Overall, we're pleased with the trends that favor outsourcing and our efforts in sales, marketing and new product development.
We're confident in the actions we're taking to increase returns, including higher pricing to offset labor challenges, positioning us well for 2022.
Before we go to questions, please note that we expect to file our 10-Q later today.
 Assistant:

Chosen response:
q3 non-gaap earnings per share $2.55 from continuing operations.
increased fy comparable earnings per share (non-gaap) forecast to $8.40 - $8.50.
continue to work closely with scs automotive customers to mitigate impact from their supply chain disruptions.
now anticipate achieving roe of 18% - 19% in 2021 while generating free cash flow of $1.0 billion - $1.1 billion.


Prompt:
Human: This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company.
I'm pleased to kick the 2021 third quarter earnings call for The Boston Beer Company.
Joining the call from Boston Beer are Jim Koch, Founder and Chairman; Dave Burwick, our CEO; and Frank Smalla, our CFO.
Before we discuss our business, I'll start with our disclaimer.
I will now pass it over to Jim for some introductory comments.
Our intent today is to provide some additional context around our third quarter earnings, discuss our views on trends, we see driving results at Boston Beer and in our industry and talk about how we see performance going forward.
After I discuss a few highlights from the third quarter, I'll hand it over to Dave who will provide an overview of our business.
Frank will then provide details of the third quarter financial results and how these results have been impacted by slower than anticipated hard seltzer growth, as well as our outlook for the remainder of 2021 and 2022.
Then I will share with you our longer term view of the business.
I'll begin with some context.
In measured off-premise channels year-to-date through October 10, where our brand portfolio represents only 4.4 of the total industry volume, we've delivered more than 41% of the total industry volume growth, the highest by far of all brewers.
Four of our five major brands are growing depletions and gaining share in off-premise measured channels over the last 13 weeks.
We have a broad portfolio of healthy brands which we will further build in 2022 to continue driving our growth.
Our success had been recognized by our most important customers, our distributors, who recently voted us the top beer supplier in 2021 in the latest Tamarron survey.
This is the 10th time in the last 12 years that our most important customers have recognized us as the top supplier in our industry.
But despite these ongoing strengths, we experienced very large unanticipated costs as the result anticipated costs as the result of the sudden unexpected slowing of growth in hard seltzer.
Based on our growth projections, we moved aggressively to build inventory to try to avoid the out of stocks that we experienced in 2019 and in 2020 and to secure capacity both short term and long term to be ready for growth through 2023.
Dave will share our perspective on the decisions that led to these unanticipated costs, and Frank will share a fuller accounting of them.
I'll now pass it over to Dave for a more detailed overview of our business.
Let me start by addressing where we are strategically, how we're viewing the future of the hard seltzer category, and how we plan to grow our portfolio going forward, even without high-double-digit hard seltzer category growth.
There's no question that hard seltzers have generated tremendous growth for the beer category over the last five years and will remain a very important beer industry segment in the future.
Hard seltzers are 11% of total beer dollars year-to-date, up from 9% during the same period in 2020.
Consumer metrics remain favorable.
Social media sentiment continues to trend positively.
And household penetration, frequency, and buy rate, all are increasing over the past 13 weeks.
Volume growth has slowed this year, but we continue to believe that hard seltzers can reach 15% to 20% of total beer dollars in the next five years.
We believe the ability to create alcoholic beverages from a beer base with the range and variety of flavors previously only available to mixed drinks, coupled with the convenience and portability of beer and beers tax and distribution levels will be a platform for long term growth for Boston Beer.
We've been playing to win and we've reaped many benefits.
So far this year, Truly has achieved the second highest household penetration in all of beer, behind only Bud Light beer and ahead of all its other hard seltzer and beer industry competitors.
Truly has generated 54% of all hard seltzer category growth so far in 2021, 2.3 times the next highest brand.
We've gained 23 share points against the Category Leader since January 2020.
We've led the category in innovation and brand building and outgrow beer category for 13 straight months.
We also believe the Truly is blazing its own path and not following the category of like so many other entries.
Thus, we believe we are well-positioned to succeed in the future when it will be much harder for new entrants to gain share.
We've created $1 billion dollar brand in only five years and we're confident we'll continue to grow it going forward.
Slowing hard seltzer category growth has certainly impacted our business.
Earlier in the year, we had expected the category to grow at over 70% and Truly to gain share.
The Truly brand did gain share but the category did not grow as we had expected.
Because of our higher demand projections earlier in the year and our commitment to avoid the out of stocks that we experienced during the summers of 2019 and 2020, we added significant capacity and pre-built inventories of cans and finished goods to levels that ended up exceeding actual needs as the category slow down.
As a result, we are currently faced with significant temporary costs as we adjust to the new category trends.
These cost impacts are reflected in our third quarter financials.
Building our capacity and inventory levels was an essential part of playing to win.
In that strategic context, we believe the risk of undersupply was bigger than that of oversupply.
So we resourced against a high growth scenario, securing supply constrained materials and capacity to gain market share in a highly competitive and fast-growing category.
Having said this, we've updated and evolved our own category growth model and believe the category could be flat to plus 10% growth in our most likely 2022 scenarios.
Clarity will probably not increase until we start to lap June and July 2021 when the category started to decelerate rapidly especially in the two year volumes stack which we look at closely.
Regardless of which scenarios proved most accurate, we fully intend to extend our streak of outgrowing the category throughout the year driven by innovation, continued brand building and superior retail execution and distributor support.
As Jim mentioned, we have a balanced portfolio of healthy, well-positioned brands.
As we look toward 2022 and beyond, our aim is to continue double digit depletions growth on the foundation of this portfolio, especially as consumers drink more Beyond Beer products.
We are the number two player in Beyond Beer with a 26% share driven by the number one FMB and Twisted Tea, the strong number two hard seltzer in Truly and the number one hard cider in Angry Orchard.
Twisted Tea has overcome this past summer supply chain issues and out of stocks.
It has grown 22% in the last 13 weeks and measured our premise channels.
Twisted Tea is the second fastest growing brand year to date among the top 25 in beer, while Truly remains number one in percentage and absolute volume growth.
We will have industry leading innovation again with Truly starting with a holiday party pack next month and followed by the January 2022 launch of Truly Margarita Style, which has received a terrific response and initial discussions with our distributor partners and retailers.
As Twisted Tea expands its consumer base, we're launching a new Twisted Tea Light with only 109 calories.
With our innovations go beyond Truly and Twisted Tea for 2022, we're introducing new brands the Bevy Long Drink, Salsa Agave Cocktails and Hard Mountain Dew.
We're also expanding our lineup of award winning Dogfish Head canned cocktails with new vodka and gin crush styles and we're launching a new tropical fruit extension for Angry Orchard in addition to adding an Angry Orchard Hard Core, an 8% ABV product.
Meanwhile, our Sam Adams, Your Cousin from Boston Campaign is paying dividends.
As Sam Adams grew double digits in the third quarter fueled by both on premise and off premise gains while also gaining share of craft in the off premise.
Now, I'll hand it over to Frank to discuss our third quarter financials as well as our outlook for 2021 and our initial thoughts on 2022.
Before I get into the financial review of our third quarter results and financial outlook, I'd like to provide more detail on the third quarter charges and other costs related to the hard seltzer slowdown.
As Dave explained, we strategically resource against the high side of our internal category growth and market share projections to ensure we would not be constrained in our efforts to build our share position in the hyper-growth hard seltzer category.
Resourcing against our high-side scenario included adding internal and external capacity, pre-building distributor and internal inventory ahead of the peak summer season, and securing tight supply materials such as cans and flavors.
This strategy enabled us to gain share in 2020 and 2021 in a supply constrained environment.
Following the rapid slowdown this summer, extra hard seltzer category growth fell below our internal low-side projections and resulted in excess capacity and higher-than-planned inventory levels of input materials and finished goods.
As a result, we have taken $102.4 million third quarter charge related to direct costs of the hard seltzer slowdown consisting of inventory obsolescence and destruction -- and related destruction costs of $54.3 million; contract termination costs, primarily for excess third-party contract production of $35.4 million; and equipment impairments of $12.7 million.
In addition, the third quarter results include indirect costs resulting from the slowing hard seltzer category growth of $30.6 million.
These costs include negative absorption impacts at company-owned breweries and downtime charges at third-party breweries of $11.4 million; increased raw material sourcing and warehousing costs of $11.8 million; and distributor return provisions for out of code or damaged products of $5.4 million; and other costs of $2 million.
The negative absorption impacts are the result of shipments lagging depletions to reduce distributor inventories to target levels and production lagging shipments to reduce internal inventory levels.
With this background and in the third quarter financial impact of the slowdown in hard seltzer, I will now turn to our overall third quarter results and our current outlook for full year 2021 and 2022.
For the third quarter, we reported a net loss of $58.4 million, a decrease of $139.2 million from the third quarter of 2020.
Loss per diluted share was $4.76, a decrease of $11.27 per diluted share from the third quarter of 2020.
This decrease was due to the combined direct and indirect costs related to slowing hard seltzer category growth of $133 million or $7.73 per diluted share, net of the related tax benefit and high operating expenses, partially offset by increased net revenue.
Depletions for the quarter increased 11% from the prior year, reflecting increases in our Twisted Tea, Truly hard seltzer, Samuel Adams and Dogfish Head brands, partially offset by decreases in our Angry Orchard brand.
Shipment volume for the quarter was approximately 2.3 million barrels an 11.2% increase from the prior year, reflecting increase in our Twisted Tea, Samuel Adams and Angry Orchard brands, partially offset by decreases in our Truly hard seltzer and Dogfish Head brand.
We believe distributor inventory as of September 25, 2021 average approximately six weeks on the hand and was at an appropriate level for each of our brands, except for Truly which had significantly higher than planned distributor inventory levels for certain styles and packages.
To address the slowing demand and continued volatility of future volume projections for Truly, we're working closely with our distributors to reduce Truly distributor inventory levels.
We adjust the production and shipments during the third quarter and expect to continue to do so during the remainder of the year.
Our third quarter gross margin of 30.7% decreased from 48.8% margin realized in the third quarter of 2020, primarily due to the $84.9 million direct and indirect volume adjustment costs as a result of slowing hard seltzer growth described and higher materials costs partially offset by price increases.
Advertising, promotional and selling expenses increased by $58.8 million or 54.4% from the third quarter of 2020, primarily due to increased brand investments of $37.6 million, mainly driven by a media production and local marketing costs, and increased freight to distributors of $21.2 million that was primarily due to higher rates and volumes.
Based on information of which we are currently aware, we're not targeting full-year 2021 earnings per diluted share of between $2 and $6.
However, actual results could vary significantly from this target.
This projection excludes the impact of ASU 2016-09 and is highly sensitive to changes in volume projections, particularly related to the hard seltzer category.
Full-year 2021 depletions growth is now estimated to be between 18% and 22%.
We project increases in revenue per barrel of between 2% and 3%.
Full-year 2021 gross margins are expected to be between 40% and 42%.
The gross margin impact related to the combined full-year direct and indirect costs of the hard seltzer slowdown is estimated at $132.6 million of which $95.8 million have been incurred in the first nine months and the remainder of $36.8 million estimated to be incurred in the fourth quarter.
Our full-year 2021 investments in advertising, promotional, and selling expenses are expected to increase between $80 million and $100 million.
This does not include any increases in freight costs for the shipment of products or distributors.
I will now turn to 2022.
We're in the process of completing our 2022 plan and will provide further guidance and present our full year 2021 results.
Based on information of which we are currently aware, we are using the following preliminary assumptions and targets for 2022 fiscal year which are highly sensitive to changes in volume projections, particularly related to the hard seltzer category.
We're targeting depletions and shipments percentage increases of between mid-single digits and low double digits.
We project increases in revenue per barrel of between 3% and 6%.
Full year 2022 to gross margins are expected to be between 45% and 48%.
We plan increased investment in advertising, promotion and selling expenses of between $10 million and $30 million for the full year 2022, not including any changes in freight costs for the shipment of products to our distributors.
We expected our cash balance of $86.5 million as of September 25, 2021 along with our future operating cash flow and unused line of credit of $150 million will be sufficient to fund future cash requirements.
Now, I'll hand it back to Jim for some closing remarks.
Remind us all, we have a tremendous track record of growth at Boston Beer Company.
For the past 20 years we've grown our revenue at over a 12% compounded annual growth rate and have increased total shareholder returns at a 20% compounded annual growth rate.
That growth doesn't always come in a straight line.
The numbers are a beautiful thing but the actual results sometimes aren't pretty, but it has come over 20-years compounded because we've demonstrated the ability to consistently innovate and grow great brands in our niche, the high end of the beer and beyond category.
That brings us to where we are today.
Truly is the number two hard seltzer in closing the gap this year with the current category leader.
Twisted Tea is number one in hard tea and now the number one F&B and is continuing to gain share.
The Sam Adams brand is gaining share for the first time in several years, and Angry Orchard is number one in hard cider and maintaining close to a 50% market share.
We intend to grow these four brands and Dogfish Head as well in 2022 through brand building and executing at retail, the things that we've been doing for decades.
We believe we have the best brewers, the best high-end brands with potential yet to be fully tapped, the best sales force and the best innovation, again, for 2022.
We're fixing our capacity and supply chain issues.
Our marketing is hitting its stride and we have the best distributor network behind us.
That's why we've been the fastest growing company in all of alcohol for the last few years.
We have a company and culture that not only delivers double digit growth, but also demonstrates resilience and agility when faced with challenges.
As Dave mentioned, we've been playing to win in the hard seltzer category.
We will continue to play to win, to nourish our brands, to exploit their untapped growth potential, as we're seeing with our 20-plus year old Twisted Tea brand and to innovate with new ones in the months ahead.
Today, we hope to put the turbulence of the hard seltzer category slowdown behind us and continue to prove our ability to outgrow the beer category for many years to come.
 Assistant:

Chosen response:
compname reports q3 loss per share of $4.76.
q3 loss per share $4.76.


Prompt:
Human: This is Debbie Young, director of investor relations for SCI.
With that out of the way, let me pass it on now to our chairman and CEO, Tom Ryan.
We hope you and your families are staying safe and healthy.
Then I'll offer some commentary on our 2021 outlook, with the understanding that there remains substantial uncertainty surrounding these effects of the COVID-19 pandemic, which could change guidance significantly.
However, before I begin, I would like to say a few words about this past year.
2020 has certainly been one of the most uncertain and challenging periods that any of us can remember.
As I reflect back on the last 10 months, I can say with certainty that our results are a testament to our team's incredible hard work and to the resilience of our underlying business.
I'm extremely proud of our entire SCI team for going above and beyond the call of duty in 2020.
In this difficult period, we stayed relentlessly focused on what we do best, helping our client families gain closure and healing through the process of grieving, remembrance and celebration.
The health, safety, and well-being of our SCI family was a top priority.
And not only were we able to avoid any layoffs, mandatory furloughs or reductions in pay as a result of the impact of COVID-19, we were able to recognize the incredible efforts of our frontline associates with hero bonuses and provide special bonuses for every associate that does not participate in our annual incentive plan.
In 2020, our services were needed more than ever, and I am proud that we were able to perform significantly increased number of services without any disruptions to our business, which highlights the power of our scale.
One thing that became clear throughout 2020 is that our fundamental business has not changed.
We did not see a wholesale shift in the consumer preferences, and our cremation remains stable.
Although we were greatly restricted in our ability to have large gatherings in 2020, we heard loud and clear from our consumers that they still have a desire to memorialize and to celebrate the lives of their loved ones.
Virtual arrangements, live streaming of services, outdoor services, drive-through visitations, radio transmitted graveside services, and many more unique memorialization and celebration of life ideas are now a normal part of what we do.
The success and acceleration of these enhanced service offerings have highlighted the importance of innovation in our industry.
We will continue to invest in technologies that enhance how we interact with consumers digitally, providing a better customer experience -- contact to the arrangement conference and beyond while also enhancing efficiencies in our operations.
As the year unfolded, actions we took in response to in-person meetings limitations yielded noncustomer-facing efficiencies.
We more effectively utilize our labor force using the virtual training, our customer relationship management system and other technology tools instead of incurring travel-related costs.
We also drove down our lead cost per sale by accelerating the growth of digital leads and making significant improvements to our direct mill program to drive record growth.
All of the many learnings from this year will make us a better company going forward.
As a result, we're positioned to enter the post pandemic world as a more agile and efficient company.
Now let's shift and provide you with some color about the core.
experienced in late November and December.
Just to give you a little color on the cadence of the quarter, our same-store funeral volumes were up 7% in October, then grew to 13% in November and an unprecedented 31% in December, which is the highest monthly growth rate we experienced all year.
And as a result of this surge late in the quarter, we finished the fourth quarter with adjusted earnings per share of $1.13 compared to $0.60 in the prior year, well above the range we provided to you in October.
Both funeral and cemetery segments had margin improvement of over 600 basis points, driven by double-digit top line percentage growth applied against a more efficient cost structure.
We also benefited from a lower share count and a lower tax rate.
Let's now take a look at funeral operations in the quarter.
Total comparable funeral revenues grew approximately $49 million or 10% during the quarter.
Both core and nonfuneral home channels performed very well and were slightly offset by lower general agency revenues caused by a decline in insurance funded preneed funeral sales production.
Core revenues grew $53 million, driven by a 17% increase in the number of cases, partially offset by a 3.4% decline in the funeral sales average.
The predominant reason for the increase in services performed was due to the direct impact of COVID-19, and, to a lesser extent, to an increase in non-COVID related deaths such as heart disease, stroke, cancer, drug overdose and suicide, perhaps a consequence of a lack of access to healthcare during 2020.
Words cannot convey the level of our appreciation and respect I have for our frontline team.
The tremendous care you provided record numbers of our client families during such a stressful time can only be described as heroic.
The decline in the funeral sales average of 3.4% was due to the local jurisdictions reimposing restrictions on gatherings, given the surge in deaths of November and December.
This resulted in a decline in a number of cases with the service.
The cremation mix shift was a moderate 120 basis points and had a minimal impact on the quarter-over-quarter funeral average decline.
Preneed funeral sales production for the quarter was down 1.6% versus the prior year, which is just a significant improvement of our results posted in earlier quarters this year.
While we saw record growth in production from our digital and direct mail leads, we continued to be hampered by a decline in preplanning seminars due to local restrictions and consumer reluctance on in-person gatherings in restaurants.
From a profit perspective, funeral gross profit increase of $45 million, and the gross profit percentage increased 640 basis points to 27.5%, realizing a 92% incremental margin on our revenue growth.
Growth in our high incremental margin core business more than offset slight declines in our lower-margin revenue streams.
We also continue to benefit by the efficient management of labor hours with fewer and smaller services as well as the reductions in noncustomer-facing costs and certain marketing and promotional expenses.
Now shifting to cemetery.
Comparable cemetery revenue increased $64 million or 18% in the fourth quarter.
Atneed cemetery revenue accounted for $25 million of the growth, driven by more burials performed due to some effects of COVID-19.
Recognized preneed revenues accounted for $35 million of growth, mainly due to higher preneed cemetery sales production during the quarter.
Preneed cemetery sales production grew $40 million or 16% in the fourth quarter, driven by increased lead sources associated with the higher atneed services and burials performed.
The preponderance of the growth, $25 million or about 60%, was from a 12% increase in velocity with a number of contracts sold.
The remaining growth of about $15 million was primarily due to large sales activity.
We continue to see this more productive and efficient sales force with better utilization of our customer relationship management system and improved conversion rates from our direct mail and digital lead campaigns.
Consumer reception to having a preplanning discussion remains very high.
I want to take a moment to recognize the tremendous efforts of our sales team.
For the full year 2020, they wrote more than $1 billion in cemetery preneed sales production.
This is our new company record, so hats off to the entire sales organization.
Cemetery gross profits in the quarter grew by approximately $49 million, and the gross profit percentage increased 680 basis points to 39%.
Growth in revenues and strategic cost reductions combined to drive margins beyond normalized incremental levels.
For the full year 2020, we reported an adjusted earnings per share of $2.91, a 53% increase over 2019 in a one-of-a-kind year.
Obviously, the speed and efficacy of the vaccine rollout could have a significant impact on the spread of the virus, hospitalizations and, ultimately, on the number of deaths.
This, combined with the willingness of the consumer to transact on a preneed basis may have a material effect on our 2021 results.
There is no doubt that in 2020, we serviced deaths that were pulled forward from a future year.
While we know that the timing of the pull forward is impossible to accurately predict, we have developed models are based on data from the IHME and the CBC, which incorporate historical trends and current COVID-related deaths by age group as well as by comorbidity factors in determining what future years are impacted by accelerated deaths and by how much.
Based on all these assumptions, we also believe adjusted earnings per share in 2021 will likely range between $2.50 and $2.90 per share.
We have provided a wider than normal range based on the uncertainties surrounding the impact of COVID-19.
Let's take a deeper dive into our assumptions for the 2021 earnings per share guidance.
We are modeling funeral volume to be down versus 2020, but mid single-digit percentage is higher than the 2019 levels due to the expected impact on funeral volumes in the first few months of 2021 associated with COVID-19.
We anticipate double-digit year-over-year percentage increases through March.
Then while we expect the continued impact from COVID-19 deaths, we predict comparable volumes to trend lower for the rest of the year as compared to the very active final nine months of 2020.
We expect the funeral average to be down low single-digit percentages in January and February and begin to see favorable trends as we compare back to the early months of the COVID outbreak in 2020.
While we anticipate growth year over year, we still believe we will struggle to get back to 2019 levels as we now believe that many people will continue to be reluctant to gather in large groups.
We expect preneed funeral sales production to begin to rebound in the back half of the year and for the full year to grow in the mid- to high single-digit percentage range.
Cemetery atneed revenues should see significant year-over-year growth in the first quarter, followed by a comparable decline in the last three quarters as we face a significant hurdle from the 2020 results.
For this year, we expect cemetery atneed revenue to be down versus 2020 but still show significant growth over 2019 pre-COVID levels.
Cemetery preneed sales production grew an unprecedented rate in the back half of 2020, and we believe that momentum will carry over into the first half of 2021.
We expect double-digit percentage growth for the first four months of the year before confronting challenging year-over-year comparisons beginning in May.
For the full year, we anticipate preneed cemetery sales production are to be down in the mid single-digit percentage range versus 2020 but still be delivering solid growth as compared to our 2019 levels.
So in closing, in spite of experiencing the most challenging environment, our team continued to deliver.
We rose to meet challenges never faced by our company before, and you have been an extraordinary example of commitment, professionalism and agility.
It's an honor to work with such great people.
As we look ahead, I'm extremely optimistic about our future.
While we do not anticipate the impact from COVID to completely go away, it is our belief that we should see a more muted effect on our results for 2022.
Therefore, we expect a decline in case volume and atneed cemetery revenues and, therefore, on the associated earnings and cash flow from the pull-forward effects of 2020 and 2021.
However, this knowledge that we gained from this awful COVID experience is anticipated to produce a more competitive and profitable operating platform in the years to come.
Therefore, we predict an impressive earnings-per-share growth for 2023 approaching $3 per share, resulting from a combination of enhanced market share and a leaner infrastructure, leveraging technology and a more efficient sales structure.
As the pull forward impact wanes and the baby boomers begin to enter their late 70s, we expect a further acceleration of earnings growth.
With our eyes on the longer term, we are now also continuing to invest in technology and new service offerings that allow us to remain relevant with our consumers, enhance digital clients experience and more efficiently and effectively serve our customers.
And like I've done many times over the past few quarters, I'm going to start by providing you with an update on the strength of our financial position that has supported us through these very volatile times.
I will then move on to address our cash flow results during the fourth quarter as well as the full year of 2020, followed by capital deployment activities for the year.
And then I'll end by providing some details of our outlook for 2021.
But I think more importantly than any of that, before we begin, when we are reporting our 2019 earnings almost exactly a year ago today, I don't think any of us could have anticipated what we would be facing in 2020.
During the year, our frontline associates helped our communities deal with this rapidly moving virus with unparalleled poise and dignity, particularly earlier on in the year when there was more speculation than there were facts available about coronavirus.
But even to this day, teams across our network are coming together and sacrificing their personal time, being away from home, all to support their colleagues and their broader communities as well who are managing in current COVID hotspots.
Now I'll shift to the financial update.
So while we entered the pandemic, anchored by a strong financial position and a favorable debt profile, we continue to be very well positioned with a significant amount of liquidity of roughly $670 million at the end of the year, consisting approximately $230 million of cash on hand plus $440 million available on our long-term bank credit facility.
On the higher EBITDA resulting from the strong Q4 results we're talking about today, our leverage remains low at 3.19x at the end of the year.
And as we look beyond the impacts of this pandemic, we still intend to manage leverage in a range of 3.5 to four times net debt to EBITDA.
So let's move to cash flow, which has been resilient for us throughout 2020.
Cash flow in the fourth quarter marked a much stronger-than-expected finish to the year, supported by the earnings outperformance that Tom just mentioned, associated with the surge of COVID-related deaths particularly in late November and in December.
We generated operating cash flow of $245 million during the quarter, representing an increase of $88 million or 56% over the prior year.
This increase is primarily related to the growth in cash earnings in the quarter as well as the decrease in cash interest payments of about $28 million, predominantly as a result of recent debt refinancing transactions.
Also remember, we continue to benefit from the deferral of our payroll tax payments as allowed under the CARES Act, which benefited the quarter by about $13 million and for the full year by about $41 million.
These positive inflows were partially offset by $25 million of higher cash tax payments on the higher earnings as well as a net use of preneed working capital, which we have seen all year on the growth in cemetery preneed property sales sold on an installment basis.
And as we step back and look at the full year, we have generated over $800 million in operating cash flow, representing an increase of $170 million over the prior year.
So let's talk about how we deployed this free cash flow.
During the quarter, we had a very robust capital program, deploying nearly $325 million of capital to reinvest in and grow our businesses as well as return value to our shareholders.
So regarding the breakdown, we invested $56 million in our businesses through maintenance and the cemetery development capital spend, which was about $2 million more than the prior year quarter but in line with our expectations.
Full-year spend was approximately $185 million, which represents a 9% decline from the prior year as we curtailed or deferred certain expenditures during the very early stages of the COVID-19 pandemic, which we expect to make up in 2021, as I'll address later in my remarks.
During the quarter, we deployed about $35 million toward acquisitions, which was a nice pickup in activity at the end of the year.
For the full-year 2020, we deployed just over $100 million in both acquisitions and growth capex for construction of new funeral homes.
Then finally, in the quarter, we returned nearly $225 million to shareholders in the form of dividends and share repurchases.
With our strong liquidity and cash flow as a backdrop, along with our favorable leverage profile, we took the opportunity to deploy a very healthy amount of capital to share repurchases in 2020.
In the fourth quarter, we bought back about 2% of our outstanding shares, bringing the full year reduction in outstanding shares to about 6%.
Now let's shift to our outlook for 2021 and in terms of cash flow and capital deployment.
Tom just gave you some color on the ever-evolving pandemic, making it challenging to forecast with great precision where our results will land in 2021.
There are a few items that I'd like to highlight when thinking about cash flow from ops in 2021.
We will incur three full quarters of what I would consider regular payroll taxes of about $40 million, which we're able to defer in 2020 as allowed under the CARES Act.
Additionally, we will also be required to pay half or about $20 million of our deferred payroll taxes in the third quarter of 2021, and the remainder will be due in 2022.
These two items then collectively create a $60 million impact to cash flow in 2021 when you compare it to 2020 associated with payroll taxes.
Federal cash tax payments and state tax payments together are also anticipated to be about $25 million higher than 2020 at about $160 million in '21.
This increase is mostly related to the timing of cash tax payments associated with our stronger-than-expected Q4 2020 financial results that will be paid in early 2021.
And from an effective tax rate standpoint, we continue to model in the range of 24% to 25% in '21.
So moving on to some thoughts about capital deployment as we move forward.
Our expectation for maintenance and cemetery development capital spending in '21 is $235 million to $255 million, which is about $40 million higher than our pre-COVID level spend as we proceed with certain projects deferred from last year.
In addition to these recurring capital expenditures of $245 million at the midpoint, we also expect to deploy $50 million to $100 million toward acquisitions and roughly $50 million to $60 million in new funeral home construction opportunities, which, together, drive low to mid-teen aftertax internal rates of return, well in excess of our cost of capital.
And so with those remarks in closing, 2020 was by far the most difficult backdrop we faced in a very long time.
Fortunately, we went into it with a superior balance sheet, and it stayed strong for the duration.
Despite everything that has occurred, 2020 has been an extremely successful year for us, while managing through many unforeseen and unexpected challenges.
 Assistant:

Chosen response:
service corporation international q4 adj shr $1.13.
q4 adjusted earnings per share $1.13.
sees 2021 diluted earnings per share excluding special items $2.50 - $2.90.