TPH 10-Q Quarterly Report Sept. 30, 2019 | Alphaminr
TRI Pointe Group, Inc.
ALPHAMINR

TPH 10-Q Quarter ended Sept. 30, 2019

Balance Sheet
Cash Flow
Income Statement
Debt
TRI POINTE GROUP, INC.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________ 
FORM 10-Q
_____________________________________________________________________________________________ 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-35796
_____________________________________________________________________________________________ 

logoa07.jpg 
TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 _____________________________________________________________________________________________ 
 
Delaware
 
61-1763235
(State or other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
_____________________________________________________________________________________________ 
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 438-1400
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________________________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
TPH
 
New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐ 
Smaller reporting company
☐
 
 
Emerging growth company
☐

- 1 -


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
139,237,697 shares of the registrant's common stock were issued and outstanding as of October 14, 2019.

- 2 -


EXPLANATORY NOTE
As used in this Quarterly Report on Form 10-Q, references to “TRI Pointe”, the “Company”, “we”, “us”, or “our” (including in the consolidated financial statements and related notes thereto in this report) refer to TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”) and its consolidated subsidiaries.



- 3 -


TRI POINTE GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
September 30, 2019
 
 
 
Page
Number
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 


- 2 -


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
 
September 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
130,262

 
$
277,696

Receivables
70,507

 
51,592

Real estate inventories
3,345,390

 
3,216,059

Investments in unconsolidated entities
4,207

 
5,410

Goodwill and other intangible assets, net
160,026

 
160,427

Deferred tax assets, net
57,275

 
67,768

Other assets
173,804

 
105,251

Total assets
$
3,941,471

 
$
3,884,203

Liabilities
 
 
 
Accounts payable
$
81,279

 
$
81,313

Accrued expenses and other liabilities
315,436

 
335,149

Loans payable
400,000

 
—

Senior notes, net
1,033,058

 
1,410,804

Total liabilities
1,829,773

 
1,827,266

 
 
 
 
Commitments and contingencies (Note 13)

 

 
 
 
 
Equity
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no
   shares issued and outstanding as of September 30, 2019 and
   December 31, 2018, respectively
—

 
—

Common stock, $0.01 par value, 500,000,000 shares authorized;
   139,237,697 and 141,661,713 shares issued and outstanding at
   September 30, 2019 and December 31, 2018, respectively
1,392

 
1,417

Additional paid-in capital
624,312

 
658,720

Retained earnings
1,485,981

 
1,396,787

Total stockholders’ equity
2,111,685

 
2,056,924

Noncontrolling interests
13

 
13

Total equity
2,111,698

 
2,056,937

Total liabilities and equity
$
3,941,471

 
$
3,884,203

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 3 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
746,269

 
$
771,768

 
$
1,931,110

 
$
2,123,135

Land and lot sales revenue
607

 
2,225

 
6,819

 
3,966

Other operations revenue
618

 
598

 
1,853

 
1,795

Total revenues
747,494

 
774,591

 
1,939,782

 
2,128,896

Cost of home sales
577,627

 
607,053

 
1,573,847

 
1,661,651

Cost of land and lot sales
495

 
2,234

 
7,552

 
4,163

Other operations expense
609

 
590

 
1,826

 
1,781

Sales and marketing
47,834

 
44,854

 
133,888

 
128,881

General and administrative
38,751

 
38,109

 
114,202

 
111,406

Homebuilding income from operations
82,178

 
81,751

 
108,467

 
221,014

Equity in income (loss) of unconsolidated entities
18

 
15

 
(33
)
 
(384
)
Other income (expense), net
325

 
(477
)
 
6,719

 
(379
)
Homebuilding income before income taxes
82,521

 
81,289

 
115,153

 
220,251

Financial Services:
 
 
 
 
 
 
 
Revenues
901

 
480

 
1,959

 
1,154

Expenses
817

 
125

 
1,765

 
391

Equity in income of unconsolidated entities
2,114

 
1,986

 
4,861

 
4,972

Financial services income before income taxes
2,198

 
2,341

 
5,055

 
5,735

Income before income taxes
84,719

 
83,630

 
120,208

 
225,986

Provision for income taxes
(21,858
)
 
(19,661
)
 
(31,014
)
 
(55,457
)
Net income
$
62,861

 
$
63,969

 
$
89,194

 
$
170,529

Earnings per share
 

 
 

 
 
 
 
Basic
$
0.45

 
$
0.43

 
$
0.63

 
$
1.13

Diluted
$
0.44

 
$
0.43

 
$
0.63

 
$
1.13

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
141,088,381

 
147,725,074

 
141,729,759

 
150,377,472

Diluted
141,533,546

 
148,318,032

 
142,128,786

 
151,482,456

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 4 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
 
 
Number of
Shares of Common
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at June 30, 2019
142,258,663

 
$
1,423

 
$
662,087

 
$
1,423,120

 
$
2,086,630

 
$
13

 
$
2,086,643

Net income
—

 
—

 
—

 
62,861

 
62,861

 
—

 
62,861

Shares issued under share-based awards
14,454

 
—

 
101

 
—

 
101

 
—

 
101

Minimum tax withholding paid on behalf of employees for restricted stock units
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation expense
—

 
—

 
3,828

 
—

 
3,828

 
—

 
3,828

Share repurchases
(3,035,420
)
 
(31
)
 
(41,704
)
 
—

 
(41,735
)
 
—

 
(41,735
)
Balance at September 30, 2019
139,237,697

 
$
1,392

 
$
624,312

 
$
1,485,981

 
$
2,111,685

 
$
13

 
$
2,111,698

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares of Common
Stock (Note 1)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2018
141,661,713

 
$
1,417

 
$
658,720

 
$
1,396,787

 
$
2,056,924

 
$
13

 
$
2,056,937

Net income
—

 
—

 
—

 
89,194

 
89,194

 
—

 
89,194

Shares issued under share-based awards
611,404

 
6

 
294

 
—

 
300

 
—

 
300

Minimum tax withholding paid on behalf of employees for restricted stock units
—

 
—

 
(3,612
)
 
—

 
(3,612
)
 
—

 
(3,612
)
Stock-based compensation expense
—

 
—

 
10,614

 
—

 
10,614

 
—

 
10,614

Share repurchases
(3,035,420
)
 
(31
)
 
(41,704
)
 
—

 
(41,735
)
 
—

 
(41,735
)
Balance at September 30, 2019
139,237,697

 
$
1,392

 
$
624,312

 
$
1,485,981

 
$
2,111,685

 
$
13

 
$
2,111,698

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares of Common
Stock (Note 1)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at June 30, 2018
152,027,014

 
$
1,520

 
$
796,746

 
$
1,233,436

 
$
2,031,702

 
$
604

 
$
2,032,306

Net income
—

 
—

 
—

 
63,969

 
63,969

 
—

 
63,969

Shares issued under share-based awards
27,308

 
1

 
309

 
—

 
310

 
—

 
310

Stock-based compensation expense
—

 
—

 
3,765

 
—

 
3,765

 
—

 
3,765

Share repurchases
(9,852,009
)
 
(99
)
 
(139,250
)
 
—

 
(139,349
)
 
—

 
(139,349
)
Balance at September 30, 2018
142,202,313

 
$
1,422

 
$
661,570

 
$
1,297,405

 
$
1,960,397

 
$
604

 
$
1,961,001

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares of Common
Stock (Note 1)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2017
151,162,999

 
$
1,512

 
$
793,980

 
$
1,134,230

 
$
1,929,722

 
$
605

 
$
1,930,327

Cumulative effect of accounting change
—

 
—

 
—

 
(7,354
)
 
(7,354
)
 
—

 
(7,354
)
Net income
—

 
—

 
—

 
170,529

 
170,529

 
—

 
170,529

Shares issued under share-based awards
891,323

 
9

 
1,934

 
—

 
1,943

 
—

 
1,943

Minimum tax withholding paid on behalf of employees for restricted stock units
—

 
—

 
(6,049
)
 
—

 
(6,049
)
 
—

 
(6,049
)
Stock-based compensation expense
 
 
—

 
10,955

 
 
 
10,955

 
 
 
10,955

Share repurchases
(9,852,009
)
 
(99
)
 
(139,250
)
 
—

 
(139,349
)
 
—

 
(139,349
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Balance at September 30, 2018
142,202,313

 
$
1,422

 
$
661,570

 
$
1,297,405

 
$
1,960,397

 
$
604

 
$
1,961,001


See accompanying condensed notes to the unaudited consolidated financial statements.

- 5 -






- 6 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
89,194

 
$
170,529

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
18,357

 
19,581

Equity in income of unconsolidated entities, net
(4,828
)
 
(4,588
)
Deferred income taxes, net
10,493

 
19,729

Amortization of stock-based compensation
10,614

 
10,955

Charges for impairments and lot option abandonments
6,519

 
1,500

Changes in assets and liabilities:
 
 
 
Real estate inventories
(142,599
)
 
(315,825
)
Receivables
(18,915
)
 
40,612

Other assets
(9,086
)
 
(14,486
)
Accounts payable
(34
)
 
10,841

Accrued expenses and other liabilities
(60,239
)
 
(17,716
)
Returns on investments in unconsolidated entities, net
6,215

 
6,778

Net cash used in operating activities
(94,309
)
 
(72,090
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(22,392
)
 
(24,547
)
Proceeds from sale of property and equipment
46

 
8

Investments in unconsolidated entities
(712
)
 
(1,812
)
Net cash used in investing activities
(23,058
)
 
(26,351
)
Cash flows from financing activities:
 
 
 
Borrowings from debt
400,000

 
100,000

Repayment of debt
(381,895
)
 
(57,931
)
Debt issuance costs
(3,125
)
 
—

Distributions to noncontrolling interests
—

 
(1
)
Proceeds from issuance of common stock under share-based awards
300

 
1,943

Minimum tax withholding paid on behalf of employees for share-based awards
(3,612
)
 
(6,049
)
Share repurchases
(41,735
)
 
(139,349
)
Net cash used in financing activities
(30,067
)
 
(101,387
)
Net decrease in cash and cash equivalents
(147,434
)
 
(199,828
)
Cash and cash equivalents–beginning of period
277,696

 
282,914

Cash and cash equivalents–end of period
$
130,262

 
$
83,086

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 7 -


TRI POINTE GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 

1.
Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization
TRI Pointe is engaged in the design, construction and sale of innovative single-family attached and detached homes through its portfolio of six quality brands across nine states, including Maracay in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California, Colorado and North Carolina and Winchester Homes in Maryland and Virginia.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019 due to seasonal variations and other factors.
The consolidated financial statements include the accounts of TRI Pointe Group and its wholly owned subsidiaries, as well as other entities in which TRI Pointe Group has a controlling interest and variable interest entities (“VIEs”) in which TRI Pointe Group is the primary beneficiary.  The noncontrolling interests as of September 30, 2019 and December 31, 2018 represent the outside owners’ interests in the Company’s consolidated entities.  All significant intercompany accounts have been eliminated upon consolidation.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, we apply the following steps to determine the timing and amount of revenue to recognize: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.
Home sales revenue
We generate the majority of our total revenues from home sales, which consists of our core business operation of building and delivering completed homes to homebuyers. Home sales revenue and related profit is generally recognized when title to and possession of the home is transferred to the homebuyer at the home closing date. Our performance obligation to deliver the agreed-upon home is generally satisfied in less than one year from the original contract date. Included in home sales revenue are forfeited deposits, which occur when homebuyers cancel home purchase contracts that include a nonrefundable deposit. Both revenue from forfeited deposits and deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers are immaterial.
Land and lot sales revenue
Historically, we have generated land and lot sales revenue from a small number of transactions, although in some years we have realized a significant amount of revenue and gross margin. We do not expect our future land and lot sales revenue to

- 8 -


be material, but we still consider these sales to be an ordinary part of our business, thus meeting the definition of contracts with customers. Similar to our home sales, revenue from land and lot sales is typically fully recognized when the land and lot sales transactions are consummated, at which time no further performance obligations are left to be satisfied. Some of our historical land and lot sales have included future profit participation rights. We will recognize future land and lot sales revenue in the periods in which all closing conditions are met, subject to the constraint on variable consideration related to profit participation rights, if such rights exist in the sales contract.
Other operations revenue
The majority of our homebuilding other operations revenue relates to a ground lease at our Quadrant Homes reporting segment. We are responsible for making lease payments to the land owner, and we collect sublease payments from the buyers of the buildings. This ground lease is accounted for in accordance with ASC Topic 842, Leases. We do not recognize a material profit on this ground lease.
Financial services revenues
TRI Pointe Solutions is a reportable segment and is comprised of our TRI Pointe Connect mortgage financing operations, TRI Pointe Assurance title and escrow services operations, and TRI Pointe Advantage property and casualty insurance agency operations.
Mortgage financing operations
TRI Pointe Connect was formed as a joint venture with an established mortgage lender and is accounted for under the equity method of accounting.  We record a percentage of income earned by TRI Pointe Connect based on our ownership percentage in this joint venture. TRI Pointe Connect activity appears as equity in income of unconsolidated entities under the Financial Services section of our consolidated statements of operations.
Title and escrow services operations
TRI Pointe Assurance provides title examinations for our homebuyers in Austin, Colorado and Maryland and both title examinations and escrow services for our homebuyers in Arizona, Nevada, Texas and Virginia.  TRI Pointe Assurance is a wholly owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company. Revenue from our title and escrow services operations is fully recognized at the time of the consummation of the home sales transaction, at which time no further performance obligations are left to be satisfied. TRI Pointe Assurance revenue is included in the Financial Services section of our consolidated statements of operations.
Property and casualty insurance agency operations
TRI Pointe Advantage is a wholly owned subsidiary of TRI Pointe and provides property and casualty insurance agency services that help facilitate the closing process in all of the markets in which we operate. The total consideration for these services, including renewal options, is estimated upon the issuance of the initial insurance policy, subject to constraint. TRI Pointe Advantage revenue is included in the Financial Services section of our consolidated statements of operations.
Recently Issued Accounting Standards Not Yet Adopted
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We do not expect the adoption of ASU 2017-04 to have a material impact on our financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. We are still evaluating the impact ASU 2016-13 will have on our consolidated financial statements.


- 9 -


Adoption of New Accounting Standards
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Codified as “ASC 842”), which requires an entity to recognize a lease right-of-use asset and lease liability on the balance sheet for the rights and obligations created by leases with durations of greater than 12 months. Right-of-use lease assets represent our right to use the underlying asset for the lease term and the lease obligation represents our commitment to make the lease payments arising from the lease. The guidance also requires more disclosures about leases in the notes to financial statements. We adopted ASC 842 on January 1, 2019, using a modified retrospective approach resulting in the recognition of a cumulative effect adjustment to the opening balance sheet of $57.4 million, which included a lease right-of-use asset offset by a lease liability on our consolidated balance sheet. No prior period adjustment was recorded. Additionally, we have elected the transition package of three practical expedients permitted under ASC 842, which among other things, allows us to retain the current operating classification for all of our existing leases prior to January 1, 2019. For further details on the adoption of ASC 842, see Note 13, Commitments and Contingencies.


2.
Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon these factors, our homebuilding operations are comprised of the following six reportable segments: Maracay, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California, Colorado and North Carolina; and Winchester Homes, consisting of operations in Maryland and Virginia.
Our TRI Pointe Solutions financial services operation is a reportable segment and is comprised of our TRI Pointe Connect mortgage financing operations, our TRI Pointe Assurance title and escrow services operations, and our TRI Pointe Advantage property and casualty insurance agency operations. For further details, see Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies.
Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance, internal audit and risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.
The reportable segments follow the same accounting policies used for our consolidated financial statements, as described in Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.


- 10 -


Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
Maracay
$
70,860

 
$
66,730

 
$
166,074

 
$
182,134

Pardee Homes
321,922

 
224,452

 
651,484

 
648,208

Quadrant Homes
49,875

 
66,174

 
164,812

 
193,481

Trendmaker Homes
103,428

 
78,606

 
296,212

 
197,730

TRI Pointe Homes
154,737

 
264,499

 
519,280

 
710,561

Winchester Homes
46,672

 
74,130

 
141,920

 
196,782

Total homebuilding revenues
747,494

 
774,591

 
1,939,782

 
2,128,896

Financial services
901

 
480

 
1,959

 
1,154

Total
$
748,395

 
$
775,071

 
$
1,941,741

 
$
2,130,050

 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
 
 
 
 
 
Maracay
$
6,179

 
$
6,260

 
$
10,355

 
$
15,665

Pardee Homes
73,790

 
36,087

 
87,734

 
122,195

Quadrant Homes
1,600

 
9,269

 
4,154

 
25,206

Trendmaker Homes
5,578

 
7,379

 
10,888

 
13,977

TRI Pointe Homes
7,245

 
30,945

 
29,734

 
69,651

Winchester Homes
(71
)
 
4,122

 
1,718

 
9,908

Corporate
(11,800
)
 
(12,773
)
 
(29,430
)
 
(36,351
)
Total homebuilding income before income taxes
82,521

 
81,289

 
115,153

 
220,251

Financial services
2,198

 
2,341

 
5,055

 
5,735

Total
$
84,719

 
$
83,630

 
$
120,208

 
$
225,986

 

- 11 -


Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
 
September 30, 2019
 
December 31, 2018
Real estate inventories
 
 
 
Maracay
$
346,337

 
$
293,217

Pardee Homes
1,343,809

 
1,286,877

Quadrant Homes
293,220

 
279,486

Trendmaker Homes
274,130

 
271,061

TRI Pointe Homes
803,339

 
812,799

Winchester Homes
284,555

 
272,619

Total
$
3,345,390

 
$
3,216,059

 
 
 
 
Total assets
 
 
 
Maracay
$
379,817

 
$
318,703

Pardee Homes
1,451,879

 
1,391,503

Quadrant Homes
350,305

 
313,947

Trendmaker Homes
320,998

 
325,943

TRI Pointe Homes
995,806

 
987,610

Winchester Homes
317,583

 
298,602

Corporate
101,365

 
228,010

Total homebuilding assets
3,917,753

 
3,864,318

Financial services
23,718

 
19,885

Total
$
3,941,471

 
$
3,884,203




3.
Earnings Per Share
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 

 
 

 
 

 
 

Net income
$
62,861

 
$
63,969

 
$
89,194

 
$
170,529

Denominator:
 

 
 

 
 

 
 

Basic weighted-average shares outstanding
141,088,381

 
147,725,074

 
141,729,759

 
150,377,472

Effect of dilutive shares:
 

 
 
 
 

 
 

Stock options and unvested restricted stock units
445,165

 
592,958

 
399,027

 
1,104,984

Diluted weighted-average shares outstanding
141,533,546

 
148,318,032

 
142,128,786

 
151,482,456

Earnings per share
 

 
 

 
 

 
 

Basic
$
0.45

 
$
0.43

 
$
0.63

 
$
1.13

Diluted
$
0.44

 
$
0.43

 
$
0.63

 
$
1.13

Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share
2,459,868

 
2,008,612

 
2,916,252

 
1,280,500


  

- 12 -



4.
Receivables
Receivables consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Escrow proceeds and other accounts receivable, net
$
33,106

 
$
13,995

Warranty insurance receivable (Note 13)
37,401

 
37,597

Total receivables
$
70,507

 
$
51,592



Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables when collection becomes doubtful.  Receivables were net of allowances for doubtful accounts of $451,000 and $667,000 as of September 30, 2019 and December 31, 2018, respectively.
 

5.
Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Real estate inventories owned:
 
 
 
Homes completed or under construction
$
1,217,154

 
$
959,911

Land under development
1,654,172

 
1,743,537

Land held for future development
129,880

 
201,874

Model homes
273,173

 
238,828

Total real estate inventories owned
3,274,379

 
3,144,150

Real estate inventories not owned:
 
 
 
Land purchase and land option deposits
71,011

 
71,909

Total real estate inventories not owned
71,011

 
71,909

Total real estate inventories
$
3,345,390

 
$
3,216,059


 
Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future. The decrease in land held under development as of September 30, 2019 compared to December 31, 2018 is attributable to two communities in which we commenced development activity during the three months ended September 30, 2019.
Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 7, Variable Interest Entities.
Interest incurred, capitalized and expensed were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Interest incurred
$
22,405

 
$
23,942

 
$
67,740

 
$
67,089

Interest capitalized
(22,405
)
 
(23,942
)
 
(67,740
)
 
(67,089
)
Interest expensed
$
—

 
$
—

 
$
—

 
$
—

Capitalized interest in beginning inventory
$
197,295

 
$
185,589

 
$
184,400

 
$
176,348

Interest capitalized as a cost of inventory
22,405

 
23,942

 
67,740

 
67,089

Interest previously capitalized as a cost of
inventory, included in cost of sales
(19,234
)
 
(20,293
)
 
(51,674
)
 
(54,199
)
Capitalized interest in ending inventory
$
200,466

 
$
189,238

 
$
200,466

 
$
189,238



- 13 -


 
Interest is capitalized to real estate inventory during development and other qualifying activities. During all periods presented, we capitalized all interest incurred to real estate inventory in accordance with ASC Topic 835, Interest, as our qualified assets exceeded our debt. Interest that is capitalized to real estate inventory is included in cost of home sales or cost of land and lot sales as related units or lots are delivered.  Interest that is expensed as incurred is included in other (expense) income, net.
Real Estate Inventory Impairments and Land Option Abandonments
Real estate inventory impairments and land and lot option abandonments and pre-acquisition charges consisted of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Real estate inventory impairments
$
—

 
$
—

 
$
—

 
$
—

Land and lot option abandonments and pre-acquisition charges
1,029

 
643

 
6,519

 
1,500

Total
$
1,029

 
$
643

 
$
6,519

 
$
1,500


 
Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale. Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less cost to sell are also included in the total impairment charges. No real estate inventory impairments were recorded for the three or nine-month periods ended September 30, 2019 or 2018.
In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time. 
Real estate inventory impairments and land option abandonments are recorded in cost of home sales and cost of land and lot sales on the consolidated statements of operations.
  

6.
Investments in Unconsolidated Entities
As of September 30, 2019, we held equity investments in four active homebuilding partnerships or limited liability companies and one financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 7% to 65%, depending on the investment, with no controlling interest held in any of these investments.
Unconsolidated Financial Information
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investments in unconsolidated entities or on our consolidated statements of operations as equity in income of unconsolidated entities.

- 14 -


Assets and liabilities of unconsolidated entities (in thousands):
 
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
Cash
$
9,740

 
$
13,337

Receivables
5,250

 
4,674

Real estate inventories
102,878

 
99,864

Other assets
672

 
811

Total assets
$
118,540

 
$
118,686

Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
7,743

 
$
11,631

Company’s equity
4,207

 
5,410

Outside interests’ equity
106,590

 
101,645

Total liabilities and equity
$
118,540

 
$
118,686

 
Results of operations from unconsolidated entities (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net sales
$
8,617

 
$
6,185

 
$
19,081

 
$
19,900

Other operating expense
(5,466
)
 
(2,951
)
 
(11,746
)
 
(13,510
)
Other income, net
173

 
1

 
174

 
85

Net income
$
3,324

 
$
3,235

 
$
7,509

 
$
6,475

Company’s equity in income of unconsolidated entities
$
2,132

 
$
2,001

 
$
4,828

 
$
4,588


  

7.
Variable Interest Entities
In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. These deposits are recorded as land purchase and land option deposits under real estate inventories not owned on the accompanying consolidated balance sheets.
We analyze each of our land and lot option agreements and other similar contracts under the provisions of ASC 810, Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is generally limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the land owner and budget shortfalls and savings will be borne by us. Additionally, we have entered into land banking arrangements which require us to complete development work even if we terminate the option to procure land or lots.

- 15 -


The following provides a summary of our interests in land and lot option agreements (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
Consolidated VIEs
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Unconsolidated VIEs
45,243

 
403,246

 
N/A

 
41,198

 
433,720

 
N/A

Other land option agreements
25,768

 
327,033

 
N/A

 
30,711

 
307,498

 
N/A

Total
$
71,011

 
$
730,279

 
$
—

 
$
71,909

 
$
741,218

 
$
—


 
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land and lot option contracts consisted of capitalized pre-acquisition costs of $7.2 million and $7.5 million as of September 30, 2019 and December 31, 2018, respectively. These pre-acquisition costs are included in real estate inventories as land under development on our consolidated balance sheets.  
  

8.
Goodwill and Other Intangible Assets
As of September 30, 2019 and December 31, 2018, $139.3 million of goodwill is included in goodwill and other intangible assets, net on each of the consolidated balance sheets. The Company’s goodwill balance is included in the TRI Pointe Homes reporting segment in Note 2, Segment Information. 
We have two intangible assets as of September 30, 2019, comprised of an existing trade name from the acquisition of Maracay in 2006, which has a 20 year useful life, and a TRI Pointe Homes trade name resulting from the acquisition of Weyerhaeuser Real Estate Company in 2014, which has an indefinite useful life.
Goodwill and other intangible assets consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Goodwill
$
139,304

 
$
—

 
$
139,304

 
$
139,304

 
$
—

 
$
139,304

Trade names
27,979

 
(7,257
)
 
20,722

 
27,979

 
(6,856
)
 
21,123

Total
$
167,283

 
$
(7,257
)
 
$
160,026

 
$
167,283

 
$
(6,856
)
 
$
160,427


 
The remaining useful life of our amortizing intangible asset related to the Maracay trade name was 6.4 and 7.2 years as of September 30, 2019 and December 31, 2018, respectively. The net carrying amount related to this intangible asset was $3.4 million and $3.8 million as of September 30, 2019 and December 31, 2018, respectively. Amortization expense related to this intangible asset was $133,000 for each of the three-month periods ended September 30, 2019 and 2018, respectively, and $401,000 for each of the nine-month periods ended September 30, 2019 and 2018, respectively. Amortization of this intangible was charged to sales and marketing expense.  Our $17.3 million indefinite life intangible asset related to the TRI Pointe Homes trade name is not amortizing.  All trade names are evaluated for impairment on an annual basis or more frequently if indicators of impairment exist.

- 16 -


Expected amortization of our intangible asset related to Maracay for the remainder of 2019, the next four years and thereafter is (in thousands):
Remainder of 2019
$
133

2020
534

2021
534

2022
534

2023
534

Thereafter
1,153

Total
$
3,422




9.
Other Assets
Other assets consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Prepaid expenses
$
26,943

 
$
31,983

Refundable fees and other deposits
24,556

 
12,376

Development rights, held for future use or sale
2,250

 
845

Deferred loan costs–loans payable
4,663

 
2,424

Operating properties and equipment, net
59,367

 
54,198

Lease right-of-use assets
52,462

 
—

Other
3,563

 
3,425

Total
$
173,804

 
$
105,251



Lease right-of-use assets was impacted by our one-time cumulative adjustment resulting from the adoption of ASC 842. As a result of our cumulative adjustment, the December 31, 2018 balance increased by $57.4 million on January 1, 2019. For further details, see Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies and Note 13, Commitments and Contingencies.


10.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Accrued payroll and related costs
$
28,660

 
$
44,010

Warranty reserves (Note 13)
72,893

 
71,836

Estimated cost for completion of real estate inventories
86,232

 
114,928

Customer deposits
23,587

 
17,464

Income tax liability to Weyerhaeuser
577

 
6,577

Accrued income taxes payable
4,315

 
8,335

Liability for uncertain tax positions (Note 15)
972

 
972

Accrued interest
19,135

 
12,572

Other tax liability
8,003

 
21,892

Lease liabilities
57,513

 
3,196

Other
13,549

 
33,367

Total
$
315,436

 
$
335,149



Lease liabilities was impacted by our one-time cumulative adjustment resulting from the adoption of ASC 842. As a result of our cumulative adjustment, the December 31, 2018 balance increased by $57.4 million on January 1, 2019. For further details, see Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies and Note 13, Commitments and Contingencies.

- 17 -




11.
Senior Notes and Loans Payable
Senior Notes
The Company’s outstanding senior notes (together, the “Senior Notes”) consisted of the following (in thousands):

 
September 30, 2019
 
December 31, 2018
4.375% Senior Notes due June 15, 2019
$
—

 
$
381,895

4.875% Senior Notes due July 1, 2021
300,000

 
300,000

5.875% Senior Notes due June 15, 2024
450,000

 
450,000

5.250% Senior Notes due June 1, 2027
300,000

 
300,000

Discount and deferred loan costs
(16,942
)
 
(21,091
)
Total
$
1,033,058

 
$
1,410,804


 
In June 2017, TRI Pointe Group issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1.
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.
TRI Pointe Group and its wholly owned subsidiary TRI Pointe Homes, Inc. (“TRI Pointe Homes”) are co-issuers of the 5.875% Senior Notes due 2024 (the “2024 Notes”) and the 4.375% Senior Notes that matured on June 15, 2019 (the “2019 Notes”). The 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering of the 2019 Notes and the 2024 Notes were $861.3 million, after debt issuance costs and discounts. The 2024 Notes mature on June 15, 2024, with interest payable semiannually in arrears on June 15 and December 15. In June 2019, we repaid the remaining $381.9 million of principal balance of the 2019 Notes upon maturity. During the year ended December 31, 2018, we repurchased and cancelled an aggregate principal amount of $68.1 million of the 2019 Notes.
As of September 30, 2019, there was $11.7 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $16.7 million and $11.5 million as of September 30, 2019 and December 31, 2018, respectively.
Loans Payable
The Company’s outstanding loans payable consisted of the following (in thousands):

 
September 30, 2019
 
December 31, 2018
Term loan facility
$
250,000

 
$
—

Unsecured revolving credit facility
150,000

 
—

Total
$
400,000

 
$
—



On March 29, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated the Company’s Amended and Restated Credit Agreement, dated as of July 7, 2015. The Credit Facility (as defined below), which matures on March 29, 2023, consists of a $600 million revolving credit facility (the “Revolving Facility”) and a $250 million term loan facility (the “Term Facility” and together with the Revolving Facility,

- 18 -


the “Credit Facility”). The Term Facility includes a 90-day delayed draw provision that allowed the Company to draw the full $250 million from the Term Facility in June 2019 in connection with the maturity of the 2019 Notes. The Company may increase the Credit Facility to not more than $1 billion in the aggregate, at its request, upon satisfaction of specified conditions. The Revolving Facility contains a sublimit of $75 million for letters of credit. The Company may borrow under the Revolving Facility in the ordinary course of business to repay senior notes and fund its operations, including its land acquisition, land development and homebuilding activities. Borrowings under the Revolving Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Revolving Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.25% to 2.00%, depending on the Company’s leverage ratio. Interest rates on borrowings under the Term Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio.
As of September 30, 2019, we had $150 million outstanding debt under the Revolving Facility with an interest rate of 3.85% per annum and there was $418.6 million of availability after considering the borrowing base provisions and outstanding letters of credit. As of September 30, 2019, we had $250 million outstanding debt under the Term Facility with an interest rate of 3.45%. As of September 30, 2019, there was $4.7 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the remaining term of the Credit Facility.  Accrued interest, including loan commitment fees, related to the Credit Facility was $754,000 and $402,000 as of September 30, 2019 and December 31, 2018, respectively.
At September 30, 2019 and December 31, 2018, we had outstanding letters of credit of $31.4 million and $31.8 million, respectively.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.
Interest Incurred
During the three months ended September 30, 2019 and 2018, the Company incurred interest of $22.4 million and $23.9 million, respectively, related to all debt during the period.  Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $1.2 million and $2.0 million for the three months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019 and 2018, the Company incurred interest of $67.7 million and $67.1 million, respectively, related to all debt during the period. Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $5.0 million and $6.1 million for the nine months ended September 30, 2019 and 2018, respectively. Accrued interest related to all outstanding debt at September 30, 2019 and December 31, 2018 was $19.1 million and $12.6 million, respectively. 
Covenant Requirements
The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.
Under the Credit Facility, the Company is required to comply with certain financial covenants, including those relating to consolidated tangible net worth, leverage, liquidity or interest coverage, and a spec unit inventory test. The Credit Facility also requires that at least 97.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.
The Company was in compliance with all applicable financial covenants as of September 30, 2019 and December 31, 2018.

12.
Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
•
Level 1—Quoted prices for identical instruments in active markets
•
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date

- 19 -


•
Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date
Fair Value of Financial Instruments
A summary of assets and liabilities at September 30, 2019 and December 31, 2018, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
 
 
 
September 30, 2019
 
December 31, 2018
 
Hierarchy
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Senior Notes (1)
Level 2
 
$
1,044,775

 
$
1,084,875

 
$
1,425,397

 
$
1,308,826

Unsecured revolving credit facility (2)
Level 2
 
$
150,000

 
$
150,000

 
$
—

 
$
—

Term loan facility (2)
Level 2
 
$
250,000

 
$
250,000

 
$
—

 
$
—

 __________
(1) 
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $11.7 million and $14.6 million as of September 30, 2019 and December 31, 2018, respectively. The estimated fair value of the Senior Notes at September 30, 2019 and December 31, 2018 is based on quoted market prices.
(2) 
The estimated fair value of the Credit Facility and Term Loan Facility as of September 30, 2019 approximated book value due to the variable interest rate terms of these loans.

At September 30, 2019 and December 31, 2018, the carrying value of cash and cash equivalents and receivables approximated fair value due to their short-term nature and variable interest rate terms.
Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicating the carrying value is not recoverable. No carrying values were adjusted to fair value for the nine months ended September 30, 2019 or the year ended December 31, 2018.


13.
Commitments and Contingencies
Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements.  For matters as to which the Company believes a loss is probable and reasonably estimable, we had no legal reserve as of September 30, 2019. As of December 31, 2018, we had a $17.5 million legal reserve related to a settlement in connection with a previously disclosed lawsuit involving a land sale that occurred in 1987, included in accrued expenses and other liabilities on our consolidated balance sheet. This settlement was paid on February 4, 2019.
Warranty
Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.
We maintain general liability insurance designed to protect us against a portion of our risk of loss from warranty and construction defect-related claims. We also generally require our subcontractors and design professionals to indemnify us for

- 20 -


liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy. 
Our warranty reserve and related estimated insurance recoveries are based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs and related recoveries. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a warranty or construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
We also record expected recoveries from insurance carriers based on actual insurance claims made and actuarially determined amounts that depend on various factors, including the above-described reserve estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated. Outstanding warranty insurance receivables were $37.4 million and $37.6 million as of September 30, 2019 and December 31, 2018, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheets.
Warranty reserve activity consisted of the following (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Warranty reserves, beginning of period
$
71,471

 
$
72,342

 
$
71,836

 
$
69,373

Warranty reserves accrued
6,826

 
6,257

 
17,481

 
17,669

Warranty expenditures
(5,404
)
 
(4,604
)
 
(16,424
)
 
(13,047
)
Warranty reserves, end of period
$
72,893

 
$
73,995

 
$
72,893

 
$
73,995


 
Performance Bonds
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. The beneficiaries of the bonds are various municipalities. As of September 30, 2019 and December 31, 2018, the Company had outstanding surety bonds totaling $592.1 million and $685.7 million, respectively. As of September 30, 2019 and December 31, 2018, our estimated cost to complete obligations related to these surety bonds was $398.2 million and $423.4 million, respectively.
Lease Obligations
Under ASC 842 we recognize a right-of-use lease asset and a lease liability for contracts deemed to contain a lease at the inception of the contract. Our lease population is fully comprised of operating leases, which are now recorded at the net present value of future lease obligations existing at each balance sheet date. At the inception of a lease, or if a lease is subsequently modified, we determine whether the lease is an operating or financing lease. Key estimates involved with ASC 842 include the discount rate used to measure our future lease obligations and the lease term, where considerations include renewal options and intent to renew. Lease right-of-use assets are included in other assets and lease liabilities are included in accrued expenses and other liabilities on our consolidated balance sheet.
Operating Leases
We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms of up to ten years and generally provide renewal options. In most cases, we expect that, in the normal course of business, leases that expire will be renewed or replaced by other leases. Equipment leases are typically for terms of three to four years.

- 21 -


Ground Leases
In 1987, we obtained two 55-year ground leases of commercial property that provided for three renewal options of ten years each and one 45-year renewal option.  We exercised the three ten-year extensions on one of these ground leases to extend the lease through 2071.  The commercial buildings on these properties have been sold and the ground leases have been sublet to the buyers.
For one of these leases, we are responsible for making lease payments to the land owner, and we collect sublease payments from the buyers of the buildings. This ground lease has been subleased through 2041 to the buyers of the commercial buildings. For the second lease, the buyers of the buildings are responsible for making lease payments directly to the land owner, however, we have guaranteed the performance of the buyers/lessees. See below for additional information on leases (dollars in thousands):

 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Lease Cost
 
 
 
Operating lease cost (included in SG&A expense)
$
2,755

 
$
6,965

Ground lease cost (included in other operations expense)
609

 
1,826

Sublease income, ground leases (included in other operations revenue)
(618
)
 
(1,853
)
Net lease cost
$
2,746

 
$
6,938

 
 
 
 
Other information
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating lease cash flows (included in operating cash flows)
$
1,556

 
$
4,806

Ground lease cash flows (included in operating cash flows)
$
609

 
$
1,826

Right-of-use assets obtained in exchange for new operating lease liabilities
$
311

 
$
2,364

 
September 30, 2019
Weighted-average discount rate:
 
Operating leases
6.0
%
Ground leases
10.2
%
Weighted-average remaining lease term (in years):
 
Operating leases
6.1

Ground leases
48.5


The future minimum lease payments under our operating leases are as follows (in thousands):
 
Property, Equipment and Other Leases
 
Ground Leases (1)
Remaining in 2019
$
2,278

 
$
746

2020
8,594

 
2,984

2021
7,182

 
2,984

2022
5,591

 
2,984

2023
4,484

 
2,984

Thereafter
9,155

 
84,266

Total lease payments
$
37,284

 
$
96,948

Less: Interest
6,708

 
70,011

Present value of operating lease liabilities
$
30,576

 
$
26,937

(1)     Ground leases are fully subleased through 2041, representing $65.9 million of the $96.9 million future ground lease obligations.

- 22 -






- 23 -


14.
Stock-Based Compensation
2013 Long-Term Incentive Plan
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by TRI Pointe in January 2013 and amended, with the approval of our stockholders, in 2014 and 2015. In addition, our board of directors amended the 2013 Incentive Plan in 2014 to prohibit repricing (other than in connection with any equity restructuring or any change in capitalization) of outstanding options or stock appreciation rights without stockholder approval. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, bonus stock, restricted stock, restricted stock units (“RSUs”) and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.
As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under the 2013 Incentive Plan. As of September 30, 2019, there were 5,835,420 shares available for future grant under the 2013 Incentive Plan.
The following table presents compensation expense recognized related to all stock-based awards (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Total stock-based compensation
$
3,828

 
$
3,765

 
$
10,614

 
$
10,955


 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of September 30, 2019, total unrecognized stock-based compensation related to all stock-based awards was $21.8 million and the weighted average term over which the expense was expected to be recognized was 1.9 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the nine months ended September 30, 2019:
 
Options
 
Weighted
Average
Exercise
Price
Per Share
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2018
953,905

 
$
14.58

 
4.2

 
$
296

Granted
—

 
—

 
—

 
—

Exercised
(46,940
)
 
$
6.66

 
—

 
—

Forfeited
(3,625
)
 
$
14.29

 
—

 
—

Options outstanding at September 30, 2019
903,340

 
$
15.00

 
3.6

 
$
786

Options exercisable at September 30, 2019
903,340

 
$
15.00

 
3.6

 
$
786


 
The intrinsic value of each stock option award outstanding or exercisable is the difference between the fair market value of the Company’s common stock at the end of the period and the exercise price of each stock option award to the extent it is considered “in-the-money”. A stock option award is considered to be “in-the-money” if the fair market value of the Company’s stock is greater than the exercise price of the stock option award. The aggregate intrinsic value of options outstanding and options exercisable represents the value that would have been received by the holders of stock option awards had they exercised their stock option award on the last trading day of the period and sold the underlying shares at the closing price on that day.

Summary of Restricted Stock Unit Activity
The following table presents a summary of RSUs for the nine months ended September 30, 2019:

- 24 -


 
Restricted
Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Per Share
 
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 2018
3,341,848

 
$
11.05

 
$
36,526

Granted
1,656,333

 
$
12.15

 
—

Vested
(844,534
)
 
$
12.95

 
—

Forfeited
(756,672
)
 
$
5.32

 
—

Nonvested RSUs at September 30, 2019
3,396,975

 
$
12.39

 
$
51,091



RSUs that vested, as reflected in the table above, during the nine months ended September 30, 2019 include previously granted time-based RSUs. RSUs that were forfeited, as reflected in the table above, during the nine months ended September 30, 2019 include performance-based RSUs and time-based RSUs that were forfeited for no consideration.

On May 6, 2019, the Company granted an aggregate of 61,488 time-based RSUs to the non-employee members of its board of directors and 1,098 time-based RSUs to certain employees. The RSUs granted to non-employee directors vest in their entirety on the day immediately prior to the Company's 2020 Annual Meeting of Stockholders and the RSUs granted to employee’s vest in equal installments annually on the anniversary of the grant date over a three-year period. The fair value of each RSU granted on May 6, 2019 was measured using a price of $13.66 per share which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.
On March 11, 2019 and February 28, 2019, the Company granted an aggregate of 3,025 and 990,723, respectively, of time-based RSUs to certain employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three-year period.  The fair value of each RSU granted on March 11, 2019 and February 28, 2019 was measured using a price of $13.22 and $12.60 per share, respectively, which were the closing stock prices on the dates of grant. Each award will be expensed on a straight-line basis over the vesting period.

On February 28, 2019, the Company granted 247,619, 238,095 and 114,285 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) thirty percent to total stockholder return (“TSR”), with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (ii) seventy percent to earnings per share. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2019 to December 31, 2021. The fair value of the performance-based RSUs related to the TSR metric was determined to be $8.16 per share based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $12.60 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.

On April 30, 2018, the Company granted an aggregate of 40,910 RSUs to the non-employee members of its board of directors. On July 23, 2018, the Company granted 6,677 RSUs to a non-employee member of its board of directors in connection with such individual's appointment to the board of directors. These RSUs vested in their entirety on April 29, 2019. The fair value of each RSU granted on April 30, 2018 and July 23, 2018 was measured using a price of $17.11 and $16.37 per share, respectively, which were the closing stock prices on the dates of grant. Each award was expensed on a straight-line basis over the vesting period.
On May 7, 2018 and February 22, 2018, the Company granted an aggregate of 4,258 and 633,107, respectively, of time-based RSUs to certain employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three-year period.  The fair value of each RSU granted on May 7, 2018 and February 22, 2018 was measured using a price of $17.61 and $16.94 per share, respectively, which were the closing stock prices on the date of grants. Each award will be expensed on a straight-line basis over the vesting period.


- 25 -


On February 22, 2018, the Company granted 184,179, 177,095, and 85,005 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated in equal parts to two separate performance metrics: (i) TSR, with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (ii) earnings per share. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2018 to December 31, 2020. The fair value of the performance-based RSUs related to the TSR metric was determined to be $10.97 per share based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $16.94 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.
As RSUs vest for employees, a portion of the shares awarded is generally withheld to cover employee tax withholdings. As a result, the number of RSUs vested and the number of shares of TRI Pointe common stock issued will differ.

15.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered.  Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.
We had net deferred tax assets of $57.3 million and $67.8 million as of September 30, 2019 and December 31, 2018.  We had a valuation allowance related to those net deferred tax assets of $3.4 million as of both September 30, 2019 and December 31, 2018.  The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company’s future operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company’s estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company’s deferred tax assets.
TRI Pointe has certain liabilities to Weyerhaeuser Company (“Weyerhaeuser”) related to a tax sharing agreement.  As of September 30, 2019 and December 31, 2018, we had an income tax liability to Weyerhaeuser of $577,000 and $6.6 million, respectively. The income tax liability to Weyerhaeuser is recorded in accrued expenses and other liabilities on the accompanying consolidated balance sheets. During the three months ended March 31, 2019, we amended our existing tax sharing agreement with Weyerhaeuser, pursuant to which the parties agreed, among other things, that we had no further obligation to remit payment to Weyerhaeuser in connection with any potential utilization of certain deductions or losses associated with certain Weyerhaeuser entities with respect to federal and state taxes. As a result of the amendment, during the three months ended March 31, 2019, we decreased our income tax liability to Weyerhaeuser and recorded other income of $6.0 million, which is included in other income, net in the accompanying consolidated statements of operations.
Our provision for income taxes totaled $21.9 million and $19.7 million for the three months ended September 30, 2019 and 2018, respectively. Our provision for income taxes totaled $31.0 million and $55.5 million for the nine months ended September 30, 2019 and 2018, respectively. The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense.  The Company had $1.0 million of uncertain tax positions recorded as of both September 30, 2019 and December 31, 2018.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years. 
  
16.
Related Party Transactions
We had no related party transactions for the nine months ended September 30, 2019 and 2018.


- 26 -


17.
Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
 
Nine Months Ended September 30,
 
2019
 
2018
Supplemental disclosure of cash flow information:
 
 
 
Interest paid (capitalized), net
$
(11,599
)
 
$
(12,807
)
Income taxes paid (refunded), net
$
23,731

 
$
81,417

Supplemental disclosures of noncash activities:
 
 
 
Amortization of senior note discount capitalized to real estate inventory
$
1,409

 
$
1,738

Amortization of deferred loan costs capitalized to real estate inventory
$
4,112

 
$
4,841

Increase in other assets related to adoption of ASC 606
$
—

 
$
39,534


  
18.
Supplemental Guarantor Information
2021 Notes and 2027 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes. On June 5, 2017, TRI Pointe Group issued the 2027 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including TRI Pointe Homes, are party to supplemental indentures pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to the 2021 Notes and the 2027 Notes. Each Guarantor of the 2021 Notes and the 2027 Notes is 100% owned by TRI Pointe Group, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2021 Notes and the 2027 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of TRI Pointe Group or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.
A Guarantor of the 2021 Notes and the 2027 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe Group or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe Group or another Guarantor, with TRI Pointe Group or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe Group or any other Guarantor which gave rise to such Guarantor guaranteeing the 2021 Notes or the 2027 Notes; (vi) TRI Pointe Group exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.
2019 Notes and 2024 Notes
TRI Pointe Group and TRI Pointe Homes are co-issuers of the 2019 Notes and the 2024 Notes. All of the Guarantors (other than TRI Pointe Homes) have entered into supplemental indentures pursuant to which they jointly and severally guarantee the obligations of TRI Pointe Group and TRI Pointe Homes with respect to the 2019 Notes and the 2024 Notes. Each Guarantor of the 2019 Notes and the 2024 Notes is 100% owned by TRI Pointe Group and TRI Pointe Homes, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2019 Notes and the 2024 Notes, as described below. The 2019 Notes matured on June 15, 2019, at which time the Company repaid the remaining principal balance of $381.9 million.
A Guarantor of the 2019 Notes and the 2024 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe or another Guarantor, with TRI Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe or any other Guarantor which gave rise to such Guarantor guaranteeing the 2019 Notes and 2024 Notes; (vi) TRI Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.
Presented below are the condensed consolidating balance sheets at September 30, 2019 and December 31, 2018, condensed consolidating statements of operations for the three and nine months ended September 30, 2019 and 2018 and

- 27 -


condensed consolidating statement of cash flows for the nine months ended September 30, 2019 and 2018.  Because TRI Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, the non-Guarantor subsidiaries’ information is not separately presented in the tables below, but is included with the Guarantors. Additionally, because TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X, the condensed consolidated financial information of TRI Pointe Group and TRI Pointe Homes, the co-issuers of the 2019 Notes and 2024 Notes, is presented together in the column titled “Issuer”.
Condensed Consolidating Balance Sheet (in thousands):
 
 
September 30, 2019
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
34,683

 
$
95,579

 
$
—

 
$
130,262

Receivables
25,703

 
44,804

 
—

 
70,507

Intercompany receivables
843,814

 
—

 
(843,814
)
 
—

Real estate inventories
803,339

 
2,542,051

 
—

 
3,345,390

Investments in unconsolidated entities
—

 
4,207

 
—

 
4,207

Goodwill and other intangible assets, net
156,604

 
3,422

 
—

 
160,026

Investments in subsidiaries
1,760,138

 
—

 
(1,760,138
)
 
—

Deferred tax assets, net
14,822

 
42,453

 
—

 
57,275

Other assets
18,925

 
154,879

 
—

 
173,804

Total assets
$
3,658,028

 
$
2,887,395

 
$
(2,603,952
)
 
$
3,941,471

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
20,098

 
$
61,181

 
$
—

 
$
81,279

Intercompany payables
—

 
843,814

 
(843,814
)
 
—

Accrued expenses and other liabilities
93,187

 
222,249

 
—

 
315,436

Loans payable
400,000

 
—

 
—

 
400,000

Senior notes
1,033,058

 
—

 
—

 
1,033,058

Total liabilities
1,546,343

 
1,127,244

 
(843,814
)
 
1,829,773

 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Total stockholders’ equity
2,111,685

 
1,760,138

 
(1,760,138
)
 
2,111,685

Noncontrolling interests
—

 
13

 
—

 
13

Total equity
2,111,685

 
1,760,151

 
(1,760,138
)
 
2,111,698

Total liabilities and equity
$
3,658,028

 
$
2,887,395

 
$
(2,603,952
)
 
$
3,941,471




- 28 -


Condensed Consolidating Balance Sheet (in thousands):
 
 
December 31, 2018
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
148,129

 
$
129,567

 
$
—

 
$
277,696

Receivables
16,589

 
35,003

 
—

 
51,592

Intercompany receivables
758,501

 
—

 
(758,501
)
 
—

Real estate inventories
812,799

 
2,403,260

 
—

 
3,216,059

Investments in unconsolidated entities
—

 
5,410

 
—

 
5,410

Goodwill and other intangible assets, net
156,604

 
3,823

 
—

 
160,427

Investments in subsidiaries
1,672,635

 
—

 
(1,672,635
)
 
—

Deferred tax assets, net
14,822

 
52,946

 
—

 
67,768

Other assets
12,984

 
92,267

 
—

 
105,251

Total assets
$
3,593,063

 
$
2,722,276

 
$
(2,431,136
)
 
$
3,884,203

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
13,433

 
$
67,880

 
$
—

 
$
81,313

Intercompany payables
—

 
758,501

 
(758,501
)
 
—

Accrued expenses and other liabilities
111,902

 
223,247

 
—

 
335,149

Senior notes
1,410,804

 
—

 
—

 
1,410,804

Total liabilities
1,536,139

 
1,049,628

 
(758,501
)
 
1,827,266

 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Total stockholders’ equity
2,056,924

 
1,672,635

 
(1,672,635
)
 
2,056,924

Noncontrolling interests
—

 
13

 
—

 
13

Total equity
2,056,924

 
1,672,648

 
(1,672,635
)
 
2,056,937

Total liabilities and equity
$
3,593,063

 
$
2,722,276

 
$
(2,431,136
)
 
$
3,884,203








- 29 -


Condensed Consolidating Statement of Operations (in thousands):
 
 
Three Months Ended September 30, 2019
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
154,737

 
$
591,532

 
$
—

 
$
746,269

Land and lot sales revenue
—

 
607

 
—

 
607

Other operations revenue
—

 
618

 
—

 
618

Total revenues
154,737

 
592,757

 
—

 
747,494

Cost of home sales
130,248

 
447,379

 
—

 
577,627

Cost of land and lot sales
—

 
495

 
—

 
495

Other operations expense
—

 
609

 
—

 
609

Sales and marketing
9,716

 
38,118

 
—

 
47,834

General and administrative
19,353

 
19,398

 
—

 
38,751

Homebuilding (loss) income from operations
(4,580
)
 
86,758

 
—

 
82,178

Equity in income of unconsolidated entities
—

 
18

 
—

 
18

Other income, net
21

 
304

 
—

 
325

Homebuilding (loss) income before income taxes
(4,559
)
 
87,080

 
—

 
82,521

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
901

 
—

 
901

Expenses
—

 
817

 
—

 
817

Equity in income of unconsolidated entities
—

 
2,114

 
—

 
2,114

Financial services income before income taxes
—

 
2,198

 
—

 
2,198

(Loss) income before income taxes
(4,559
)
 
89,278

 
—

 
84,719

Equity of net income of subsidiaries
67,420

 
—

 
(67,420
)
 
—

Provision for income taxes
—

 
(21,858
)
 
—

 
(21,858
)
Net income
$
62,861

 
$
67,420

 
$
(67,420
)
 
$
62,861





- 30 -


 
Condensed Consolidating Statement of Operations (in thousands):
 
 
Three Months Ended September 30, 2018
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
264,499

 
$
507,269

 
$
—

 
$
771,768

Land and lot sales revenue
—

 
2,225

 
—

 
2,225

Other operations revenue
—

 
598

 
—

 
598

Total revenues
264,499

 
510,092

 
—

 
774,591

Cost of home sales
214,759

 
392,294

 
—

 
607,053

Cost of land and lot sales
—

 
2,234

 
—

 
2,234

Other operations expense
—

 
590

 
—

 
590

Sales and marketing
11,434

 
33,420

 
—

 
44,854

General and administrative
19,427

 
18,682

 
—

 
38,109

Homebuilding income from operations
18,879

 
62,872

 
—

 
81,751

Equity in income of unconsolidated entities
—

 
15

 
—

 
15

Other (loss) income, net
(572
)
 
95

 
—

 
(477
)
Homebuilding income before income taxes
18,307

 
62,982

 
—

 
81,289

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
480

 
—

 
480

Expenses
—

 
125

 
—

 
125

Equity in income of unconsolidated entities
—

 
1,986

 
—

 
1,986

Financial services income before income taxes
—

 
2,341

 
—

 
2,341

Income before income taxes
18,307

 
65,323

 
—

 
83,630

Equity of net income of subsidiaries
45,662

 
—

 
(45,662
)
 
—

Provision for income taxes
—

 
(19,661
)
 
—

 
(19,661
)
Net income
$
63,969

 
$
45,662

 
$
(45,662
)
 
$
63,969












- 31 -




Condensed Consolidating Statement of Operations (in thousands):
 
Nine Months Ended September 30, 2019
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
519,280

 
$
1,411,830

 
$
—

 
$
1,931,110

Land and lot sales revenue
—

 
6,819

 
—

 
6,819

Other operations revenue
—

 
1,853

 
—

 
1,853

Total revenues
519,280

 
1,420,502

 
—

 
1,939,782

Cost of home sales
438,679

 
1,135,168

 
—

 
1,573,847

Cost of land and lot sales
—

 
7,552

 
—

 
7,552

Other operations expense
—

 
1,826

 
—

 
1,826

Sales and marketing
28,976

 
104,912

 
—

 
133,888

General and administrative
57,223

 
56,979

 
—

 
114,202

Homebuilding (loss) income from operations
(5,598
)
 
114,065

 
—

 
108,467

Equity in loss of unconsolidated entities
—

 
(33
)
 
—

 
(33
)
Other income, net
6,169

 
550

 
—

 
6,719

Homebuilding income before income taxes
571

 
114,582

 
—

 
115,153

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
1,959

 
—

 
1,959

Expenses
—

 
1,765

 
—

 
1,765

Equity in income of unconsolidated entities
—

 
4,861

 
—

 
4,861

Financial services income before income taxes
—

 
5,055

 
—

 
5,055

Income before income taxes
571

 
119,637

 
—

 
120,208

Equity of net income of subsidiaries
88,628

 
—

 
(88,628
)
 
—

Provision for income taxes
(5
)
 
(31,009
)
 
—

 
(31,014
)
Net income
$
89,194

 
$
88,628

 
$
(88,628
)
 
$
89,194















- 32 -


Condensed Consolidating Statement of Operations (in thousands):
 
Nine Months Ended September 30, 2018
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
710,561

 
$
1,412,574

 
$
—

 
$
2,123,135

Land and lot sales revenue
—

 
3,966

 
—

 
3,966

Other operations revenue
—

 
1,795

 
—

 
1,795

Total revenues
710,561

 
1,418,335

 
—

 
2,128,896

Cost of home sales
586,852

 
1,074,799

 
—

 
1,661,651

Cost of land and lot sales
—

 
4,163

 
—

 
4,163

Other operations expense
—

 
1,781

 
—

 
1,781

Sales and marketing
33,943

 
94,938

 
—

 
128,881

General and administrative
55,527

 
55,879

 
—

 
111,406

Homebuilding income from operations
34,239

 
186,775

 
—

 
221,014

Equity in loss of unconsolidated entities
—

 
(384
)
 
—

 
(384
)
Other (loss) income, net
(537
)
 
158

 
—

 
(379
)
Homebuilding income before income taxes
33,702

 
186,549

 
—

 
220,251

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
1,154

 
—

 
1,154

Expenses
—

 
391

 
—

 
391

Equity in income of unconsolidated entities
—

 
4,972

 
—

 
4,972

Financial services income before income taxes
—

 
5,735

 
—

 
5,735

Income before income taxes
33,702

 
192,284

 
—

 
225,986

Equity of net income of subsidiaries
136,827

 
—

 
(136,827
)
 
—

Provision for income taxes
—

 
(55,457
)
 
—

 
(55,457
)
Net income
$
170,529

 
$
136,827

 
$
(136,827
)
 
$
170,529


















- 33 -


Condensed Consolidating Statement of Cash Flows (in thousands):
 
 
Nine Months Ended September 30, 2019
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities:
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
5,678

 
$
(99,987
)
 
$
—

 
$
(94,309
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(7,088
)
 
(15,304
)
 
—

 
(22,392
)
Proceeds from sale of property and equipment
—

 
46

 
—

 
46

Investments in unconsolidated entities
—

 
(712
)
 
—

 
(712
)
Intercompany
(81,969
)
 
—

 
81,969

 
—

Net cash used in investing activities
(89,057
)
 
(15,970
)
 
81,969

 
(23,058
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Borrowings from debt
400,000

 
—

 
—

 
400,000

Repayment of debt
(381,895
)
 
—

 
—

 
(381,895
)
Debt issuance costs
(3,125
)
 
—

 
—

 
(3,125
)
Proceeds from issuance of common stock under
   share-based awards
300

 
—

 
—

 
300

Minimum tax withholding paid on behalf of employees for
   restricted stock units
(3,612
)
 
—

 
—

 
(3,612
)
Share repurchases
(41,735
)
 
—

 
—

 
(41,735
)
Intercompany
—

 
81,969

 
(81,969
)
 
—

Net cash (used in) provided by financing activities
(30,067
)
 
81,969

 
(81,969
)
 
(30,067
)
Net decrease in cash and cash equivalents
(113,446
)
 
(33,988
)
 
—

 
(147,434
)
Cash and cash equivalents–beginning of period
148,129

 
129,567

 
—

 
277,696

Cash and cash equivalents–end of period
$
34,683

 
$
95,579

 
$
—

 
$
130,262





- 34 -


Condensed Consolidating Statement of Cash Flows (in thousands):
 
 
Nine Months Ended September 30, 2018
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities:
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
60,315

 
$
(132,405
)
 
$
—

 
$
(72,090
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(6,603
)
 
(17,944
)
 
—

 
(24,547
)
Proceeds from sale of property and equipment
—

 
8

 
—

 
8

Investments in unconsolidated entities
—

 
(1,812
)
 
—

 
(1,812
)
Intercompany
(108,780
)
 
—

 
108,780

 
—

Net cash used in investing activities
(115,383
)
 
(19,748
)
 
108,780

 
(26,351
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Borrowings from notes payable
100,000

 
—

 
—

 
100,000

Repayment of notes payable
(57,931
)
 
—

 
—

 
(57,931
)
Distributions to noncontrolling interests
—

 
(1
)
 
—

 
(1
)
Proceeds from issuance of common stock under
   share-based awards
1,943

 
—

 
—

 
1,943

Minimum tax withholding paid on behalf of employees for restricted stock units
(6,049
)
 
—

 
—

 
(6,049
)
Share repurchases
(139,349
)
 
—

 
—

 
(139,349
)
Intercompany
—

 
108,780

 
(108,780
)
 
—

Net cash (used in) provided by financing activities
(101,386
)
 
108,779

 
(108,780
)
 
(101,387
)
Net decrease in cash and cash equivalents
(156,454
)
 
(43,374
)
 
—

 
(199,828
)
Cash and cash equivalents–beginning of period
176,684

 
106,230

 
—

 
282,914

Cash and cash equivalents–end of period
$
20,230

 
$
62,856

 
$
—

 
$
83,086







- 35 -


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

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on our current intentions, beliefs, expectations and predictions for the future, and you should not place undue reliance on these statements. These statements use forward-looking terminology, are based on various assumptions made by us, and may not be accurate because of risks and uncertainties surrounding the assumptions that are made.
Factors listed in this section–as well as other factors not included–may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee what effect it will have on our operations, financial condition, or share price.
We undertake no, and hereby disclaim any, obligation to update or revise any forward-looking statements, unless required by law. However, we reserve the right to make such updates or revisions from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Quarterly Report on Form 10-Q. No such update or revision shall be deemed to indicate that other statements not addressed by such update or revision remain correct or create an obligation to provide any other updates or revisions.
Forward-Looking Statements
Forward-looking statements that are included in this Quarterly Report on Form 10-Q are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “goal,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements may include, but are not limited to, statements regarding our strategy, projections and estimates concerning the timing and success of specific projects and our future production, land and lot sales, the outcome of legal proceedings, the anticipated impact of natural disasters on our operations, operational and financial results, including our estimates for growth, financial condition, sales prices, prospects and capital spending.
Risks, Uncertainties and Assumptions
The major risks and uncertainties–and assumptions that are made–that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
•
the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;
•
market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;
•
the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such parcels;
•
access to adequate capital on acceptable terms;
•
geographic concentration of our operations, particularly within California;
•
levels of competition;
•
the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;
•
raw material and labor prices and availability;
•
oil and other energy prices;
•
the effect of U.S. trade policies, including the imposition of tariffs and duties on homebuilding products and retaliatory measures taken by other countries;
•
the effect of weather, including the re-occurrence of drought conditions in California;  
•
the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters;
•
transportation costs;
•
federal and state tax policies;

- 36 -


•
the effect of land use, environment and other governmental laws and regulations;
•
legal proceedings or disputes and the adequacy of reserves;
•
risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;
•
changes in accounting principles;
•
risks related to unauthorized access to our computer systems, theft of our homebuyers’ confidential information or other forms of cyber-attack; and
•
other factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2018 and in other filings we make with the Securities and Exchange Commission (“SEC”).
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge investors to review and consider carefully the various disclosures made by us in this report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2018 and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. Investors should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to invest in, or maintain an investment in, our common stock.
Overview and Outlook
We remain encouraged by current economic conditions. Mortgage interest rates have declined in 2019 compared to rising rates in the back half of 2018, which has provided support to a generally healthy homebuying market as evidenced by the 25% increase in our net new home orders for the three months ended September 30, 2019 compared to the prior-year period. Lower mortgage interest rates are accompanied by low unemployment, positive wage growth and increasing household formations. In addition, the backdrop of housing remains favorable as supply remains low compared to historical levels. While the U.S. economy has been resilient against international trade conflicts and the predictions of a global economic slowdown, we remain cautious as we guide our Company through the current phase of the economic cycle. While the global economic front remains uncertain and deteriorating global conditions could negatively impact the U.S. economy, we remain confident heading into the fourth quarter of 2019 and looking outward into 2020. Based on the latest economic data and commentary by the Federal Reserve, we expect fiscal and monetary policy to remain favorable to our industry throughout the remainder of 2019.






- 37 -


Consolidated Financial Data (in thousands, except per share amounts):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Homebuilding:
 

 
 

 
 
 
 
Home sales revenue
$
746,269

 
$
771,768

 
$
1,931,110

 
$
2,123,135

Land and lot sales revenue
607

 
2,225

 
6,819

 
3,966

Other operations revenue
618

 
598

 
1,853

 
1,795

Total revenues
747,494

 
774,591

 
1,939,782

 
2,128,896

Cost of home sales
577,627

 
607,053

 
1,573,847

 
1,661,651

Cost of land and lot sales
495

 
2,234

 
7,552

 
4,163

Other operations expense
609

 
590

 
1,826

 
1,781

Sales and marketing
47,834

 
44,854

 
133,888

 
128,881

General and administrative
38,751

 
38,109

 
114,202

 
111,406

Homebuilding income from operations
82,178

 
81,751

 
108,467

 
221,014

Equity in income (loss) of unconsolidated entities
18

 
15

 
(33
)
 
(384
)
Other income (expense), net
325

 
(477
)
 
6,719

 
(379
)
Homebuilding income before income taxes
82,521

 
81,289

 
115,153

 
220,251

Financial Services:
 
 
 
 
 
 
 
Revenues
901

 
480

 
1,959

 
1,154

Expenses
817

 
125

 
1,765

 
391

Equity in income of unconsolidated entities
2,114

 
1,986

 
4,861

 
4,972

Financial services income before income taxes
2,198

 
2,341

 
5,055

 
5,735

Income before income taxes
84,719

 
83,630

 
120,208

 
225,986

Provision for income taxes
(21,858
)
 
(19,661
)
 
(31,014
)
 
(55,457
)
Net income
$
62,861

 
$
63,969

 
89,194

 
170,529

Earnings per share
 
 
 

 
 
 
 

Basic
$
0.45

 
$
0.43

 
$
0.63

 
$
1.13

Diluted
$
0.44

 
$
0.43

 
$
0.63

 
$
1.13

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
 
 
Three Months Ended September 30, 2019
 
Three Months Ended September 30, 2018
 
Percentage Change
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
Maracay
157

 
15.5

 
3.4

 
97

 
11.0

 
2.9

 
62
%
 
41
 %
 
15
%
Pardee Homes
424

 
43.0

 
3.3

 
357

 
36.8

 
3.2

 
19
%
 
17
 %
 
2
%
Quadrant Homes
68

 
6.8

 
3.3

 
64

 
7.0

 
3.0

 
6
%
 
(3
)%
 
9
%
Trendmaker Homes
192

 
37.0

 
1.7

 
139

 
27.5

 
1.7

 
38
%
 
35
 %
 
3
%
TRI Pointe Homes
293

 
29.7

 
3.3

 
266

 
30.3

 
2.9

 
10
%
 
(2
)%
 
12
%
Winchester Homes
157

 
15.5

 
3.4

 
112

 
14.7

 
2.5

 
40
%
 
5
 %
 
33
%
Total
1,291

 
147.5

 
2.9

 
1,035

 
127.3

 
2.7

 
25
%
 
16
 %
 
8
%
 
Net new home orders for the three months ended September 30, 2019 increased by 256 orders, or 25%, to 1,291, compared to 1,035 during the prior-year period.  The increase in net new home orders was due to a 16% increase in average selling communities and an 8% increase in monthly absorption rates.

- 38 -


Maracay reported a 62% increase in net new home orders driven by a 41% increase in average selling communities and a 15% increase in monthly absorption rates. The increase in Maracay’s monthly absorption rate to 3.4 for the three months ended September 30, 2019 was driven by strong demand for Maracay’s new community openings during the current-year period as well as continued strong market fundamentals in Arizona. Pardee Homes reported a 19% increase in net new home orders largely driven by a 17% increase in average selling communities. The increase in average selling communities was a result of increased community count in our Los Angeles, Inland Empire and San Diego markets. Net new home orders increased 6% at Quadrant Homes due primarily to a 9% increase in monthly absorption rate during the current-year period as compared to the prior-year period. The increase in monthly absorption rate was due to a more stable demand environment compared to the prior-year period. Trendmaker Homes’ net new home orders increased 38% due to a 35% increase in average selling communities and a 3% increase in monthly absorption rate. The increase in net new home orders and average selling communities was largely the result of the acquisition of a Dallas–Fort Worth-based homebuilder in the fourth quarter of 2018. During the three months ended September 30, 2019, Trendmaker Homes reported 54 net new home orders from 12.5 average selling communities in Dallas–Fort Worth. TRI Pointe Homes’ net new home orders increased 10% due to a 12% increase in the monthly absorption rate. The increase in TRI Pointe Homes’ monthly absorption rate was primarily driven by stronger market conditions in our California markets compared to the prior-year period. Winchester Homes reported a 40% increase in net new home orders as a result of a 33% increase in monthly absorption rate and a 5% increase in average selling communities. The increase in Winchester Homes’ monthly absorption rate was due to strong order demand for certain new community openings during the quarter and more favorable overall market conditions compared to the prior-year period.
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)
 
As of September 30, 2019
 
As of September 30, 2018
 
Percentage Change
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
Maracay
404

 
$
218,424

 
$
541

 
216

 
$
122,617

 
$
568

 
87
 %
 
78
 %
 
(5
)%
Pardee Homes
753

 
542,370

 
720

 
698

 
451,398

 
647

 
8
 %
 
20
 %
 
11
 %
Quadrant Homes
89

 
77,426

 
870

 
129

 
127,136

 
986

 
(31
)%
 
(39
)%
 
(12
)%
Trendmaker Homes
367

 
184,563

 
503

 
239

 
143,000

 
598

 
54
 %
 
29
 %
 
(16
)%
TRI Pointe Homes
451

 
306,337

 
679

 
627

 
460,700

 
735

 
(28
)%
 
(34
)%
 
(8
)%
Winchester Homes
248

 
162,332

 
655

 
192

 
126,374

 
658

 
29
 %
 
28
 %
 
—
 %
Total
2,312

 
$
1,491,452

 
$
645

 
2,101

 
$
1,431,225

 
$
681

 
10
 %
 
4
 %
 
(5
)%
 
Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of homebuyers who contracted to buy a home but cancelled prior to delivery of the home (as a percentage of overall orders) was 17% and 19% during the three-month periods ended September 30, 2019 and 2018, respectively. The dollar value of backlog was $1.5 billion as of September 30, 2019, an increase of $60.2 million, or 4%, compared to $1.4 billion as of September 30, 2018.  This increase was due to an increase in backlog units of 211, or 10%, to 2,312 as of September 30, 2019, compared to 2,101 as of September 30, 2018, offset by a 5% decrease in the average sales price of homes in backlog to $645,000 as of September 30, 2019, compared to $681,000 as of September 30, 2018.
Maracay’s backlog dollar value increased 78% compared to the prior-year period due to an 87% increase in backlog units. The increase in backlog units is due to strong market conditions in Arizona and the success of recently opened communities. Pardee Homes’ backlog dollar value increased 20% due to an increase in average sales price of 11% and an increase in backlog units of 8%. The increase in average sales price is largely due to a higher priced mix of homes in backlog from our San Diego, California division. The increase in backlog units was due to the 19% increase in net new home orders for the current quarter. Quadrant Homes’ backlog dollar value decreased 39% as a result of a 31% decrease in backlog units and a 12% decrease in average sales price. The decrease in backlog units was a result of starting the quarter with lower backlog units resulting from generally slower year over year market conditions in the Seattle area. Trendmaker Homes’ backlog dollar value increased 29% due to a 54% increase in backlog units, offset by a 16% decrease in average sales price. The increase in backlog units and the decrease in average sales price resulted primarily from our expansion into Dallas–Fort Worth, where we had 109 homes in backlog as of September 30, 2019 at an average sales price of $381,000 which is lower than our legacy Houston and Austin operations. TRI Pointe Homes’ backlog dollar value decreased 34% mainly due to a 28% decrease in backlog units as a result of starting the quarter with lower backlog units. Winchester Homes’ backlog dollar value increased 28% due to a 29%

- 39 -


increase in backlog units. The increase in backlog units is a result of the 40% increase in net new home orders for the three months ended September 30, 2019.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
 
Three Months Ended September 30, 2019
 
Three Months Ended September 30, 2018
 
Percentage Change
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
Maracay
138

 
$
70,860

 
$
513

 
137

 
$
66,730

 
$
487

 
1
 %
 
6
 %
 
5
 %
Pardee Homes
461

 
321,922

 
698

 
354

 
224,452

 
634

 
30
 %
 
43
 %
 
10
 %
Quadrant Homes
56

 
49,258

 
880

 
73

 
65,576

 
898

 
(23
)%
 
(25
)%
 
(2
)%
Trendmaker Homes
224

 
102,821

 
459

 
150

 
77,348

 
516

 
49
 %
 
33
 %
 
(11
)%
TRI Pointe Homes
226

 
154,737

 
685

 
367

 
264,500

 
721

 
(38
)%
 
(41
)%
 
(5
)%
Winchester Homes
82

 
46,671

 
569

 
124

 
73,162

 
590

 
(34
)%
 
(36
)%
 
(4
)%
Total
1,187

 
$
746,269

 
$
629

 
1,205

 
$
771,768

 
$
640

 
(1
)%
 
(3
)%
 
(2
)%
 
Home sales revenue decreased $25.5 million, or 3%, to $746.3 million for the three months ended September 30, 2019. The decrease was comprised of (i) $11.5 million related to a decrease of 18 new homes delivered in the three months ended September 30, 2019 compared to the prior-year period, and (ii) $14.0 million related to a decrease of $11,000 in average sales price of homes delivered in the three months ended September 30, 2019 compared to the prior-year period.
Maracay home sales revenue increased 6% due to a 5% increase in average sales price. The increase in average sales price is due to product mix. Pardee Homes’ home sales revenue increased 43% due to a 30% increase in new homes delivered and a 10% increase in average sales price. The increase in new homes delivered is due to a combination of timing and the increase in backlog units at the start of the current-year period compared to the prior-year period. The increase in average sales price was due to a product mix shift that included a greater proportion of deliveries from our higher priced California assets in the current-year period. Quadrant Homes’ home sales revenue decreased 25% due to a 23% decrease in new homes delivered. The decrease in new homes delivered was due to starting the current-year period with a lower number of backlog units compared to the prior-year period. Trendmaker Homes’ home sales revenue increased 33% due to a 49% increase in new homes delivered, offset by an 11% decrease in average sales price. The increase in new homes delivered was largely due to 82 deliveries from our Dallas–Fort Worth operations, along with higher volume in the Austin market. TRI Pointe Homes’ home sales revenue decreased 41% due to a 38% decrease in new homes delivered and a 5% decrease in average sales price. The decrease in new homes delivered was driven by lower backlog units at the start of the current-year period compared to the prior-year period. Home sales revenue decreased at Winchester Homes by 36% due to a 34% decrease in new homes delivered and a 4% decrease in average sales price. The decrease in new homes delivered was due to lower backlog units at the start of the current-year period compared to the prior-year period.
Homebuilding Gross Margins (dollars in thousands)
 
Three Months Ended September 30,
 
2019
 
%
 
2018
 
%
Home sales revenue
$
746,269

 
100.0
%
 
$
771,768

 
100.0
%
Cost of home sales
577,627

 
77.4
%
 
607,053

 
78.7
%
Homebuilding gross margin
168,642

 
22.6
%
 
164,715

 
21.3
%
Add:  interest in cost of home sales
19,240

 
2.6
%
 
20,128

 
2.6
%
Add:  impairments and lot option abandonments
1,029

 
0.1
%
 
568

 
0.1
%
Adjusted homebuilding gross margin(1)
$
188,911

 
25.3
%
 
$
185,411

 
24.0
%
Homebuilding gross margin percentage
22.6
%
 
 
 
21.3
%
 
 
Adjusted homebuilding gross margin percentage(1)
25.3
%
 
 
 
24.0
%
 
 
__________
(1) 
Non-GAAP financial measure (as discussed below).

- 40 -


Our homebuilding gross margin percentage increased to 22.6% for the three months ended September 30, 2019 as compared to 21.3% for the prior-year period.  The increase in gross margin percentage was due to higher revenue from some of our long-term California communities, which produce gross margins above the Company average. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 25.3% for the three months ended September 30, 2019, compared to 24.0% for the prior-year period.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the most directly comparable GAAP measure.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
 
Three Months Ended September 30,
 
As a Percentage of
Home Sales Revenue
 
2019
 
2018
 
2019
 
2018
Sales and marketing
$
47,834

 
$
44,854

 
6.4
%
 
5.8
%
General and administrative (G&A)
38,751

 
38,109

 
5.2
%
 
4.9
%
Total sales and marketing and G&A
$
86,585

 
$
82,963

 
11.6
%
 
10.7
%
 
Total sales and marketing and general and administrative (“SG&A”) as a percentage of home sales revenue increased to 11.6% for the three months ended September 30, 2019, compared to 10.7% in the prior-year period. Total SG&A expense increased $3.6 million to $86.6 million for the three months ended September 30, 2019 from $83.0 million in the prior-year period.  
Sales and marketing expense as a percentage of home sales revenue increased to 6.4% for the three months ended September 30, 2019, compared to 5.8% for the prior-year period. The increase was due primarily to advertising costs associated with the timing of current and future community openings. In addition, our ending community count increased to 150 as of September 30, 2019 from 125 as of September 30, 2018, resulting in higher fixed sales and marketing costs on a year over year basis. Sales and marketing expense increased to $47.8 million for the three months ended September 30, 2019 compared to $44.9 million in the prior-year period due to the higher costs associated with a higher community count.
General and administrative (“G&A”) expense as a percentage of home sales revenue increased to 5.2% of home sales revenue for the three months ended September 30, 2019 compared to 4.9% for the prior-year period largely due to lower leverage on our G&A expense as a result of the 3% decrease in homebuilding revenue compared to the same prior-year period.  G&A expense increased to $38.8 million for the three months ended September 30, 2019 compared to $38.1 million for the prior-year period primarily as a result of additional headcount to support future growth in our new and existing markets, including our organic expansion into North Carolina in October 2018 and our acquisition of a Dallas–Fort Worth-based homebuilder in December 2018.
Interest
Interest, which we incurred principally to finance land acquisitions, land development and home construction, totaled $22.4 million and $23.9 million for the three months ended September 30, 2019 and 2018, respectively.  All interest incurred in both periods was capitalized.  
Income Tax
For the three months ended September 30, 2019, we recorded a tax provision of $21.9 million based on an effective tax rate of 25.8%.  For the three months ended September 30, 2018, we recorded a tax provision of $19.7 million based on an effective tax rate of 23.5%. The increase in provision for income taxes is due to a $1.1 million increase in income before income taxes to $84.7 million for the three months ended September 30, 2019, compared to $83.6 million for the prior-year period.

- 41 -


Financial Services Segment
Income before income taxes from our financial services operations decreased to $2.2 million for the three months ended September 30, 2019 compared to $2.3 million for the prior-year period.  This decrease is due to higher expenses related to the early execution of growth initiatives at our TRI Pointe Assurance title and escrow services and our TRI Pointe Advantage property and casualty insurance agency operations. For the three months ended September 30, 2019, expense growth outpaced revenue growth, resulting in a decrease in profitability for these financial services.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
 
 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
Percentage Change
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
Maracay
571

 
14.0

 
4.5

 
382

 
12.6

 
3.4

 
49
 %
 
11
 %
 
32
 %
Pardee Homes
1,379

 
43.9

 
3.5

 
1,294

 
34.3

 
4.2

 
7
 %
 
28
 %
 
(17
)%
Quadrant Homes
210

 
6.9

 
3.4

 
226

 
6.8

 
3.7

 
(7
)%
 
1
 %
 
(8
)%
Trendmaker Homes
682

 
38.1

 
2.0

 
455

 
28.7

 
1.8

 
50
 %
 
33
 %
 
11
 %
TRI Pointe Homes
882

 
29.7

 
3.3

 
1,133

 
32.5

 
3.9

 
(22
)%
 
(9
)%
 
(15
)%
Winchester Homes
379

 
14.7

 
2.9

 
384

 
14.1

 
3.0

 
(1
)%
 
4
 %
 
(3
)%
Total
4,103

 
147.3

 
3.1

 
3,874

 
129.0

 
3.3

 
6
 %
 
14
 %
 
(6
)%
 
Net new home orders for the nine months ended September 30, 2019 increased by 229 orders, or 6%, to 4,103, compared to 3,874 during the prior-year period.  The increase in net new home orders was due to a 14% increase in average selling communities offset by a 6% decrease in monthly absorption rates.
Maracay reported a 49% increase in net new home orders driven by a 32% increase in monthly absorption rate and an 11% increase in average selling communities. For the current nine-month period, Maracay experienced strong market conditions in Arizona, as demonstrated by a monthly absorption rate of 4.5 homes per community. Pardee Homes increased net new home orders by 7% due to a 28% increase in average community count offset by a 17% decrease in monthly absorption rate. The increase in average selling communities was a result of increased community growth in the Los Angeles, Inland Empire and San Diego markets. Overall demand for the period was strong at Pardee Homes with a monthly absorption rate of 3.5 homes per community. Net new home orders decreased 7% at Quadrant Homes due primarily to an 8% decrease in monthly absorption rate. The decrease in the monthly absorption rate at Quadrant Homes was due primarily to the substantially strong absorptions we experienced in the early months of 2018 compared to the same current-year period. Trendmaker Homes’ net new home orders increased 50% due to a 33% increase in average selling communities and an 11% increase in monthly absorption rate. The increase in net new home orders and average selling communities was largely the result of the acquisition of a Dallas–Fort Worth-based homebuilder in the fourth quarter of 2018. During the nine months ended September 30, 2019, Trendmaker Homes reported 205 net new home orders from 13.1 average selling communities in Dallas–Fort Worth. The increase in the monthly absorption rate was due to improved market conditions in Houston and Austin during the nine months ended September 30, 2019 compared to the prior-year period. TRI Pointe Homes’ net new home orders decreased 22% due to a 15% decrease in monthly absorption rate and a 9% decrease in average selling communities. The decrease in monthly absorption rates was driven primarily by activity at our core Bay Area market where we experienced stronger market conditions in the early half of 2018 compared to 2019. The decrease in average selling communities was due to the timing of community openings and closings, particularly in our Southern California market. Winchester Homes’ net new home orders decreased 1% as a result of a 3% decrease in monthly absorption rate, offset by a 4% increase in average selling communities.

- 42 -


New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
Percentage Change
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
Maracay
318

 
$
166,074

 
$
522

 
383

 
$
182,134

 
$
476

 
(17
)%
 
(9
)%
 
10
 %
Pardee Homes
1,028

 
651,484

 
634

 
1,005

 
648,208

 
645

 
2
 %
 
1
 %
 
(2
)%
Quadrant Homes
167

 
162,960

 
976

 
241

 
191,686

 
795

 
(31
)%
 
(15
)%
 
23
 %
Trendmaker Homes
628

 
289,951

 
462

 
389

 
194,731

 
501

 
61
 %
 
49
 %
 
(8
)%
TRI Pointe Homes
749

 
519,280

 
693

 
983

 
710,561

 
723

 
(24
)%
 
(27
)%
 
(4
)%
Winchester Homes
236

 
141,361

 
599

 
343

 
195,815

 
571

 
(31
)%
 
(28
)%
 
5
 %
Total
3,126

 
$
1,931,110

 
$
618

 
3,344

 
$
2,123,135

 
$
635

 
(7
)%
 
(9
)%
 
(3
)%
 
Home sales revenue decreased $192.0 million, or 9%, to $1.9 billion for the nine months ended September 30, 2019. The decrease was comprised of (i) $138.4 million related to a decrease in new homes delivered to 3,126 for the nine months ended September 30, 2019 from 3,344 in the prior-year period, and (ii) $53.6 million related to a $17,000, or 3%, decrease in average sales price of homes delivered to $618,000 for the nine months ended September 30, 2019, from $635,000 in the prior-year period.
Maracay home sales revenue decreased 9% due to a 17% decrease in new homes delivered, offset by a 10% increase in average sales price. The decrease in new home deliveries was due to the timing of deliveries and the decrease in backlog units at the start of the current-year period compared to the prior-year period. Pardee Homes’ home sales revenue increased 1% due to a 2% increase in new homes delivered. Quadrant Homes’ home sales revenue decreased by 15% due to a 31% decrease in new homes delivered offset by a 23% increase in average sales price. The increase in average sales price was the result of delivering more units in some core greater Puget Sound markets, which tend to have higher price points. Trendmaker Homes’ home sales revenue increased 49% due to a 61% increase in new homes delivered offset by an 8% decrease in average sales price compared to the prior year. The increase in new homes delivered was largely due to 231 deliveries from our Dallas–Fort Worth operations that were acquired in December 2018, along with higher volume in the Austin market. TRI Pointe Homes’ home sales revenue decreased 27% due to a 24% decrease in new homes delivered and a 4% decrease in average sales price. The decrease in new homes delivered was driven by a lesser number of backlog units to start the current year compared to the prior-year period, and the decrease in average sales price was related to product mix in the quarter. Home sales revenue decreased at Winchester Homes by 28% due to a 31% decrease in homes delivered offset by a 5% increase in average sales price. The decrease in new homes delivered was due to lower backlog units at the start of the current-year period compared to the prior-year period with relatively flat net new home orders in the current-year period.
Homebuilding Gross Margins (dollars in thousands)
 
Nine Months Ended September 30,
 
2019
 
%
 
2018
 
%
Home sales revenue
$
1,931,110

 
100.0
%
 
$
2,123,135

 
100.0
%
Cost of home sales
1,573,847

 
81.5
%
 
1,661,651

 
78.3
%
Homebuilding gross margin
357,263

 
18.5
%
 
461,484

 
21.7
%
Add:  interest in cost of home sales
51,502

 
2.7
%
 
53,926

 
2.5
%
Add:  impairments and lot option abandonments
6,519

 
0.3
%
 
1,425

 
0.1
%
Adjusted homebuilding gross margin(1)
$
415,284

 
21.5
%
 
$
516,835

 
24.3
%
Homebuilding gross margin percentage
18.5
%
 
 
 
21.7
%
 
 
Adjusted homebuilding gross margin percentage(1)
21.5
%
 
 
 
24.3
%
 
 
__________
(1) 
Non-GAAP financial measure (as discussed below).

- 43 -


Our homebuilding gross margin percentage decreased to 18.5% for the nine months ended September 30, 2019 as compared to 21.7% for the prior-year period.  The decrease in gross margin percentage was primarily due to the mix of deliveries and increased incentives offered in the back half of 2018 and into the first half of 2019, which we offered due to slower market conditions experienced during that period. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 21.5% for the nine months ended September 30, 2019, compared to 24.3% for the prior-year period.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the most directly comparable GAAP measure.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
 
Nine Months Ended September 30,
 
As a Percentage of
Home Sales Revenue
 
2019
 
2018
 
2019
 
2018
Sales and marketing
$
133,888

 
$
128,881

 
6.9
%
 
6.1
%
General and administrative (G&A)
114,202

 
111,406

 
5.9
%
 
5.2
%
Total sales and marketing and G&A
$
248,090

 
$
240,287

 
12.8
%
 
11.3
%
 
Total SG&A as a percentage of home sales revenue increased to 12.8% for the nine months ended September 30, 2019, compared to 11.3% for the prior-year period. Total SG&A expense increased $7.8 million, to $248.1 million for the nine months ended September 30, 2019 from $240.3 million in the prior-year period.  
Sales and marketing expense as a percentage of home sales revenue increased to 6.9% for the nine months ended September 30, 2019, compared to 6.1% for the prior-year period. The increase was due primarily to lower operating leverage on the fixed components of sales and marketing expenses as a result of the 9% decrease in homes sales revenue and the community count growth we have experienced in the current year, resulting in higher fixed sales and marketing costs on a year over year basis. Sales and marketing expense increased to $133.9 million for the nine months ended September 30, 2019 compared to $128.9 million in the prior-year period due to the active community count.
G&A expenses as a percentage of home sales revenue increased to 5.9% of home sales revenue for the nine months ended September 30, 2019 compared to 5.2% for the prior-year period as a result of lower operating leverage due to the 9% decrease in home sales revenue.  G&A expenses increased to $114.2 million for the nine months ended September 30, 2019 compared to $111.4 million in the prior-year period primarily as a result of additional headcount to support future growth in our existing markets.
Interest
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $67.7 million and $67.1 million for the nine months ended September 30, 2019 and 2018, respectively.  All interest incurred in both periods was capitalized.  
Other Income (Expense), Net
Other income (expense), net for the nine months ended September 30, 2019 and 2018 was income of $6.7 million and expense of $379,000, respectively. During the three months ended March 31, 2019, we amended our existing tax sharing agreement with Weyerhaeuser Company (“Weyerhaeuser”), pursuant to which the parties agreed, among other things, that we had no further obligation to remit payment to Weyerhaeuser in connection with any potential utilization of certain deductions or losses associated with certain Weyerhaeuser entities with respect to federal and state taxes. As a result of the amendment, during the three months ended March 31, 2019, we recorded other income of $6.0 million related to the reduction of our income tax liability to Weyerhaeuser.

- 44 -


Income Tax
For the nine months ended September 30, 2019, we recorded a tax provision of $31.0 million based on an effective tax rate of 25.8%.  For the nine months ended September 30, 2018, we recorded a tax provision of $55.5 million based on an effective tax rate of 24.5%. The decrease in provision for income taxes is due to a $105.8 million decrease in income before income taxes to $120.2 million for the nine months ended September 30, 2019, compared to $226.0 million for the prior-year period.
Financial Services Segment
Income before income taxes from our financial services operations decreased to $5.1 million for the nine months ended September 30, 2019 compared to $5.7 million for the prior-year period.  The decrease in financial services income for the nine months ended September 30, 2019 compared to the prior-year period relates to the decline in new home deliveries we have experienced, which resulted in fewer opportunities to capture financial services income, as well as higher expenses related to the early execution of growth initiatives at our TRI Pointe Assurance title and escrow services and our TRI Pointe Advantage property and casualty insurance agency operations.  
Lots Owned or Controlled by Segment
Excluded from owned and controlled lots are those related to Note 6, Investments in Unconsolidated Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. The table below summarizes our lots owned or controlled by segment as of the dates presented:
 
September 30,
 
Increase
(Decrease)
 
2019
 
2018
 
Amount
 
%
Lots Owned
 
 
 
 
 
 
 
Maracay
2,095

 
2,501

 
(406
)
 
(16
)%
Pardee Homes
13,631

 
14,427

 
(796
)
 
(6
)%
Quadrant Homes
1,029

 
1,002

 
27

 
3
 %
Trendmaker Homes
2,131

 
1,393

 
738

 
53
 %
TRI Pointe Homes
2,954

 
3,107

 
(153
)
 
(5
)%
Winchester Homes
1,188

 
1,460

 
(272
)
 
(19
)%
Total
23,028

 
23,890

 
(862
)
 
(4
)%
Lots Controlled(1)
 
 
 
 
 
 
 
Maracay
1,395

 
710

 
685

 
96
 %
Pardee Homes
296

 
977

 
(681
)
 
(70
)%
Quadrant Homes
398

 
853

 
(455
)
 
(53
)%
Trendmaker Homes
1,012

 
428

 
584

 
136
 %
TRI Pointe Homes
2,235

 
1,107

 
1,128

 
102
 %
Winchester Homes
392

 
436

 
(44
)
 
(10
)%
Total
5,728

 
4,511

 
1,217

 
27
 %
Total Lots Owned or Controlled(1)
28,756

 
28,401

 
355

 
1
 %
__________
(1) 
As of September 30, 2019 and 2018, lots controlled represented lots that were under land or lot option contracts or purchase contracts.

- 45 -



Liquidity and Capital Resources
Overview
Our principal uses of capital for the nine months ended September 30, 2019 were the repayment of debt, operating expenses, land purchases, land development, home construction and repurchases of our common stock. We used funds generated by our operations to meet our short-term working capital requirements. We monitor financing requirements to evaluate potential financing sources, including bank credit facilities and note offerings. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth. As of September 30, 2019, we had total liquidity of $548.9 million, including cash and cash equivalents of $130.3 million and $418.6 million of availability under our Credit Facility, as described below, after considering the borrowing base provisions and outstanding letters of credit.
Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the availability of particular assets, and our Company as a whole, to generate cash flow to cover the expected debt service.
Senior Notes
In June 2017, TRI Pointe Group issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1.
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.
TRI Pointe Group and its wholly owned subsidiary TRI Pointe Homes, Inc. (“TRI Pointe Homes”) are co-issuers of the 5.875% Senior Notes due 2024 (the “2024 Notes”) and the 4.375% Senior Notes that matured on June 15, 2019 (the “2019 Notes”). The 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering of the 2019 Notes and the 2024 Notes were $861.3 million, after debt issuance costs and discounts. The 2024 Notes mature on June 15, 2024, with interest payable semiannually in arrears on June 15 and December 15. During the three months ended June 30, 2019, we repaid the remaining $381.9 million of principal balance of the 2019 Notes upon maturity. During the year ended December 31, 2018, we repurchased and cancelled an aggregate principal amount of $68.1 million of the 2019 Notes.
Our outstanding senior notes (the “Senior Notes”) contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions. As of September 30, 2019, we were in compliance with the covenants required by our Senior Notes.
Loans Payable
On March 29, 2019, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated our Amended and Restated Credit Agreement, dated as of July 7, 2015. The Credit Facility (as defined below), which matures on March 29, 2023, consists of a $600 million revolving credit facility (the “Revolving Facility”) and a $250 million term loan facility (the “Term Facility” and together with the Revolving Facility, the “Credit Facility”). The Term Facility includes a 90-day delayed draw provision, which allowed us to draw the full $250 million from the Term Facility in June 2019 in connection with the maturity of the 2019 Notes. We may increase the Credit Facility to not more than $1 billion in the aggregate, at our request, upon satisfaction of specified conditions. The Revolving Facility contains a sublimit of $75 million for letters of credit. We may borrow under the Revolving Facility in the ordinary course of business to repay senior notes and fund our operations, including our land acquisition, land development and homebuilding activities. Borrowings under the Revolving Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Revolving Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.25% to 2.00%, depending on our leverage ratio. Interest rates on borrowings under the Term Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio.

- 46 -


As of September 30, 2019, we had $150 million outstanding debt under the Revolving Facility with an interest rate of 3.85% per annum and there was $418.6 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of September 30, 2019, we had $250 million outstanding debt under the Term Facility with an interest rate of 3.45%. As of September 30, 2019, there was $4.7 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the remaining term of the Credit Facility.  Accrued interest, including loan commitment fees, related to the Credit Facility was $754,000 and $402,000 as of September 30, 2019 and December 31, 2018, respectively.
At September 30, 2019 and December 31, 2018, we had outstanding letters of credit of $31.4 million and $31.8 million, respectively.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.
Under the Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands):
 
 
Actual at
September 30,
 
Covenant
Requirement at
September 30,
Financial Covenants
2019
 
2019
Consolidated Tangible Net Worth
$
1,951,659

 
$
1,394,598

(Not less than $1.35 billion plus 50% of net income and
   50% of the net proceeds from equity offerings after
   December 31, 2018)
 
 
 

Leverage Test
40.5
%
 
≤55%

(Not to exceed 55%)
 
 
 

Interest Coverage Test
4.4

 
≥1.5

(Not less than 1.5:1.0)
 
 
 

 
In addition, the Credit Facility limits the aggregate number of single family dwellings (where construction has commenced) owned by the Company or any guarantor that are not presold or model units to no more than the greater of (i) 50% of the number of housing unit closings (as defined) during the preceding 12 months; or (ii) 100% of the number of housing unit closings during the preceding 6 months. However, a failure to comply with this “Spec Unit Inventory Test” will not be an event of default or default, but will be excluded from the borrowing base as of the last day of the quarter in which the non-compliance occurs. The Credit Facility further requires that at least 97.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.
As of September 30, 2019, we were in compliance with all of these financial covenants.
Stock Repurchase Program
On February 21, 2019, our board of directors discontinued and cancelled our 2018 Repurchase Program and approved our 2019 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $100 million through March 31, 2020. Purchases of common stock pursuant to the 2019 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2019 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2019 Repurchase Program at any time. Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. During the three and nine months ended September 30, 2019, we repurchased and retired an aggregate of 3,035,420 shares of our common stock under the 2019 Repurchase Program for $41.7 million.
Leverage Ratios
We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-net capital are calculated as follows (dollars in thousands):  

- 47 -


 
September 30, 2019
 
December 31, 2018
Loans Payable
$
400,000

 
$
—

Senior Notes
1,033,058

 
1,410,804

Total debt
1,433,058

 
1,410,804

Stockholders’ equity
2,111,685

 
2,056,924

Total capital
$
3,544,743

 
$
3,467,728

Ratio of debt-to-capital(1)
40.4
%
 
40.7
%
 
 
 
 
Total debt
$
1,433,058

 
$
1,410,804

Less: Cash and cash equivalents
(130,262
)
 
(277,696
)
Net debt
1,302,796

 
1,133,108

Stockholders’ equity
2,111,685

 
2,056,924

Net capital
$
3,414,481

 
$
3,190,032

Ratio of net debt-to-net capital(2)
38.2
%
 
35.5
%
__________
(1) 
The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.
(2) 
The ratio of net debt-to-net capital is a non-GAAP financial measure and is computed as the quotient obtained by dividing net debt (which is total debt less cash and cash equivalents) by the sum of net debt plus stockholders’ equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-net capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.  Because the ratio of net debt-to-net capital is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.
Cash Flows—Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
For the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, the comparison of cash flows is as follows:
•
Net cash used in operating activities increased by $22.2 million to $94.3 million for the nine months ended September 30, 2019, from net cash used of $72.1 million for the nine months ended September 30, 2018. The change was comprised of offsetting activity, including (i) a decrease in net income to $89.2 million for the nine months ended September 30, 2019 compared to $170.5 million in the prior-year period, (ii) a decrease in cash collected to cash used of $18.9 million in the nine months ended September 30, 2019 compared to cash provided of $40.6 million in the prior-year period, (iii) an increase in cash used for accrued expenses and other liabilities to $60.2 million in the nine months ended September 30, 2019 compared to $17.7 million in the prior-year period, offset by (iv) a decrease in cash used for real estate inventory to $142.6 million in the nine months ended September 30, 2019 compared to $315.8 million in the prior-year period.
•
Net cash used in investing activities was $23.1 million for the nine months ended September 30, 2019, compared to $26.4 million for the prior-year period.  The decrease in cash used in investing activities was due mainly to a decrease in purchases of property and equipment.
•
Net cash used in financing activities was $30.1 million for the nine months ended September 30, 2019, compared to $101.4 million for the same period in the prior year. The decrease in cash used was due to share repurchases of $41.7 million for the nine months ended September 30, 2019 compared to $139.3 million for the prior-year period, offset by lower net borrowings in the current year, down approximately $24.0 million from the prior-year period.
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we enter into purchase contracts in order to procure lots for the construction of our homes.  We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots.  These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers and land banking arrangements as a method of acquiring land in

- 48 -


staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.  These option contracts and land banking arrangements generally require a non-refundable deposit for the right to acquire land and lots over a specified period of time at pre-determined prices.  We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller.  In some cases, however, we may be contractually obligated to complete development work even if we terminate the option to procure land or lots. As of September 30, 2019, we had $71.0 million of cash deposits, the majority of which are non-refundable, pertaining to land and lot option contracts and purchase contracts with an aggregate remaining purchase price of $730.3 million (net of deposits). See Note 7, Variable Interest Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
Our utilization of land and lot option contracts and land banking arrangements is dependent on, among other things, the availability of land sellers or land banking firms willing to enter into such arrangements, the availability of capital to finance the development of optioned land and lots, general housing market conditions, and local market dynamics.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
Inflation
Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.  In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.  While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices. 
Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.  We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.  Since it typically takes three to nine months to construct a new home, the number of homes delivered and associated home sales revenue typically increases in the third and fourth quarters of our fiscal year as new home orders sold earlier in the year convert to home deliveries.  Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters of our fiscal year, and the majority of cash receipts from home deliveries occur during the second half of the year.  We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.

Description of Projects and Communities Under Development
The following table presents project information relating to each of our markets as of September 30, 2019 and includes information on current projects under development where we are building and selling homes.

- 49 -


Maracay
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
September 30,
2019
 
Lots
Owned as of
September 30, 2019(3)
 
Backlog as of
September 30,
2019(4)(5)
 
Homes
Delivered
for the Nine
Months Ended
September 30,
2019
 
Sales Price
Range
(in thousands)(6)
Phoenix, Arizona
 
 
 
 
 
 
 
 
 
 
 
 
 
City of Buckeye:
 
 
 
 
 
 
 
 
 
 
 
 
 
Verrado Victory
2015
 
98

 
95

 
3

 
1

 
15

 
 $373 - $405
Arroyo Seco
2020
 
44

 
—

 
44

 
—

 
—

 
 $419 - $479
City of Chandler:
 
 
 
 
 
 
 
 
 
 
 
 
 
Hawthorn Manor
2017
 
84

 
78

 
6

 
5

 
19

 
 $490 - $564
Mission Estates
2019
 
26

 
5

 
21

 
12

 
5

 
 $537 - $598
Windermere Ranch
2019
 
91

 
3

 
88

 
30

 
3

 
 $505 - $545
City of Gilbert:
 
 
 
 
 
 
 
 
 
 
 
 
 
Marathon Ranch
2018
 
63

 
46

 
17

 
13

 
37

 
$520 - $563
Lakes At Annecy
2019
 
216

 
15

 
201

 
37

 
15

 
$264 - $354
Annecy P3
2021
 
250

 
—

 
250

 
—

 
—

 
$226 - $301
Lakeview Trails
2019
 
92

 
16

 
76

 
45

 
16

 
$552 - $633
Lakeview Trails II
2020
 
68

 
—

 
68

 
—

 
—

 
$554 - $629
Copper Bend
2020
 
38

 
—

 
38

 
6

 
—

 
$482 - $501
Waterston
2020
 
331

 
—

 
331

 
—

 
—

 
$487 - $775
City of Goodyear:
 
 
 
 
 
 
 
 
 
 
 
 
 
Villages at Rio Paseo
2018
 
117

 
47

 
70

 
13

 
29

 
 $190 - $221
Cottages at Rio Paseo
2018
 
93

 
62

 
31

 
10

 
31

 
 $231 - $252
City of Mesa:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Vista at Granite Crossing
2018
 
37

 
37

 
—

 
—

 
12

 
 $438 - $513
Electron at Eastmark
2019
 
53

 
20

 
33

 
29

 
20

 
 $364 - $441
City of Peoria:
 
 
 
 
 
 
 
 
 
 
 
 
 
Legacy at The Meadows
2017
 
74

 
68

 
6

 
—

 
2

 
 $425 - $451
Estates at The Meadows
2017
 
272

 
145

 
127

 
43

 
45

 
 $509 - $598
Enclave at The Meadows
2018
 
126

 
53

 
73

 
40

 
24

 
 $397 - $492
Deseo
2019
 
94

 
—

 
94

 
23

 
—

 
 $504 - $598
City of Phoenix:
 
 
 
 
 
 
 
 
 
 
 
 
 
Navarro Groves
2018
 
54

 
49

 
5

 
4

 
25

 
 $439 - $484
Loma @ Avance
2019
 
124

 
2

 
122

 
39

 
2

 
 $371 - $430
Ranger @ Avance
2020
 
145

 
—

 
145

 
26

 
—

 
 $411 - $483
Piedmont @ Avance
2019
 
99

 
—

 
99

 
22

 
—

 
 $498 - $513
Alta @ Avance
2020
 
26

 
—

 
26

 
5

 
—

 
 $607 - $636
Town of Queen Creek:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pathfinder South At Spur Cross
2020
 
53

 
—

 
53

 
—

 
—

 
 $474 - $494
Pathfinder North At Spur Cross
2020
 
65

 
—

 
65

 
—

 
—

 
 $565 - $579
Closed Communities
N/A
 
—

 
—

 
—

 
—

 
—

 
 
Phoenix, Arizona Total
 
 
2,833

 
741

 
2,092

 
403

 
300

 
 
Tucson, Arizona
 
 
 
 
 
 
 
 
 
 
 
 
 
Oro Valley:
 
 
 
 
 
 
 
 
 
 
 
 
 
Desert Crest - Center Pointe Vistoso
2016
 
103

 
100

 
3

 
1

 
13

 
$262 - $307
The Cove - Center Pointe Vistoso
2016
 
83

 
83

 
—

 
—

 
1

 
$345 - $405
Summit N & S - Center Pointe Vistoso
2016
 
88

 
88

 
—

 
—

 
3

 
$397 - $432
The Pinnacle - Center Pointe Vistoso
2016
 
69

 
69

 
—

 
—

 
1

 
$448 - $480
Tucson, Arizona Total
 
 
343

 
340

 
3

 
1

 
18

 
 
Maracay Total
 
 
3,176

 
1,081

 
2,095

 
404

 
318

 
 


- 50 -


Pardee Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
September 30,
2019
 
Lots
Owned as of
September 30, 2019(3)
 
Backlog as of
September 30,
2019(4)(5)
 
Homes
Delivered
for the Nine
Months Ended
September 30,
2019
 
Sales Price
Range
(in thousands)(6)
California
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Almeria
2017
 
80

 
80

 
—

 
—

 
5

 
$1,440 - $1,560
Vista Santa Fe
2019
 
44

 
—

 
44

 
17

 
—

 
$1,760 - $1,950
Sendero
2019
 
112

 
35

 
77

 
46

 
35

 
$1,150 - $1,365
Terraza
2019
 
81

 
29

 
52

 
29

 
29

 
$1,260 - $1,400
Carmel
2019
 
105

 
21

 
84

 
26

 
21

 
$1,380 - $1,510
Vista Del Mar
2019
 
79

 
17

 
62

 
17

 
17

 
$1,530 - $1,730
Pacific Highlands Ranch Future
2020
 
115

 
—

 
115

 
—

 
—

 
TBD
Sandstone
2018
 
81

 
81

 
—

 
—

 
32

 
$640 - $710
Lake Ridge
2018
 
129

 
71

 
58

 
11

 
37

 
$710 - $860
Veraz
2018
 
111

 
31

 
80

 
4

 
21

 
$380 - $465
Moderna
2018
 
44

 
44

 
—

 
—

 
34

 
$355 - $440
Marea
2020
 
143

 
—

 
143

 
—

 
—

 
$370 - $470
Solmar
2019
 
74

 
—

 
74

 
8

 
—

 
$365 - $465
Solmar Sur
2019
 
108

 
—

 
108

 
—

 
—

 
$365 - $465
PA61 Townhomes
2021
 
170

 
—

 
170

 
—

 
—

 
TBD
Meadowood
TBD
 
844

 
—

 
844

 
—

 
—

 
$390 - $630
South Otay Mesa
TBD
 
893

 
—

 
893

 
—

 
—

 
TBD
Los Angeles County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Verano
2017
 
95

 
49

 
46

 
8

 
12

 
$575 - $670
Arista
2017
 
143

 
82

 
61

 
11

 
14

 
$725 - $790
Cresta
2018
 
67

 
30

 
37

 
4

 
20

 
$790 - $890
Lyra
2019
 
84

 
14

 
70

 
21

 
14

 
 $650 - $720
Sola
2019
 
104

 
31

 
73

 
38

 
31

 
 $545 - $600
Skyline Ranch Future
TBD
 
882

 
—

 
882

 
—

 
—

 
 $550 - $810
Riverside County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Vantage
2016
 
101

 
101

 
—

 
—

 
2

 
$390 - $410
Aura
2017
 
100

 
100

 
—

 
—

 
3

 
$370 - $385
Starling
2017
 
68

 
60

 
8

 
5

 
20

 
$425 - $440
Canyon Hills Future 70 x 115
TBD
 
125

 
—

 
125

 
—

 
—

 
TBD
Westlake
2020
 
163

 
—

 
163

 
—

 
—

 
$310 - $325
Elara
2016
 
260

 
234

 
26

 
24

 
32

 
$310 - $345
Daybreak
2017
 
159

 
93

 
66

 
33

 
19

 
$350 - $370
Cascade
2017
 
194

 
137

 
57

 
18

 
37

 
$330 - $345
Abrio
2018
 
113

 
53

 
60

 
24

 
21

 
$400 - $435
Beacon
2018
 
106

 
54

 
52

 
19

 
36

 
$485 - $525
Alisio
2019
 
84

 
30

 
54

 
18

 
30

 
$295 - $330
Vita
2019
 
113

 
17

 
96

 
6

 
17

 
$310 - $335
Avid
2019
 
69

 
12

 
57

 
8

 
12

 
$340 - $365
Elan
2019
 
102

 
6

 
96

 
15

 
6

 
$400 - $420
Mira
2019
 
90

 
8

 
82

 
5

 
8

 
$365 - $395
Sundance Future Active Adult
TBD
 
330

 
—

 
330

 
—

 
—

 
TBD
Avena
2018
 
84

 
45

 
39

 
10

 
20

 
$450 - $475
Tamarack
2018
 
84

 
71

 
13

 
5

 
16

 
$480 - $520
Braeburn
2018
 
82

 
25

 
57

 
29

 
17

 
$405 - $440
Canvas
2018
 
89

 
33

 
56

 
30

 
25

 
$390 - $415
Kadence
2018
 
85

 
26

 
59

 
30

 
18

 
$410 - $425
Newpark
2018
 
93

 
25

 
68

 
17

 
17

 
$440 - $485
Easton
2018
 
92

 
23

 
69

 
14

 
18

 
$465 - $520
Tournament Hills Future
TBD
 
268

 
—

 
268

 
—

 
—

 
TBD
Banning
2020
 
4,348

 
—

 
4,348

 
—

 
—

 
TBD

- 51 -


San Joaquin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Bear Creek
TBD
 
1,252

 
—

 
1,252

 
—

 
—

 
TBD
California Total
 
 
13,242

 
1,768

 
11,474

 
550

 
696

 
 
Nevada
 
 
 
 
 
 
 
 
 
 
 
 
 
Clark County:
 
 
 
 
 
 
 
 
 
 
 
 
 
North Peak
2015
 
176

 
176

 
—

 
—

 
1

 
$312 - $370
Castle Rock
2015
 
183

 
183

 
—

 
—

 
4

 
$365 - $455
Escala
2016
 
64

 
64

 
—

 
—

 
1

 
 $520 - $590
Strada
2017
 
83

 
65

 
18

 
15

 
6

 
 $425 - $490
Strada 2.0
2019
 
92

 
—

 
92

 
9

 
—

 
 $430 - $545
Linea
2018
 
123

 
94

 
29

 
17

 
46

 
 $365 - $405
Arden
2020
 
79

 
—

 
79

 
—

 
—

 
 $360 - $400
Capri
2020
 
114

 
—

 
114

 
—

 
—

 
 TBD
Arden 2.0
2021
 
154

 
—

 
154

 
—

 
—

 
 TBD
Capri 2.0
2021
 
214

 
—

 
214

 
—

 
—

 
 TBD
Meridian
2016
 
62

 
62

 
—

 
—

 
1

 
 $595 - $690
Pebble Estate Future
TBD
 
8

 
—

 
8

 
—

 
—

 
TBD
Encanto
2016
 
51

 
51

 
—

 
—

 
2

 
 $475 - $530
Luma
2018
 
63

 
63

 
—

 
—

 
22

 
 $490 - $530
Evolve
2019
 
74

 
—

 
74

 
35

 
—

 
 $300 - $325
Corterra
2018
 
53

 
18

 
35

 
13

 
15

 
 $450 - $550
Highline
2020
 
59

 
—

 
59

 
 
 
 
 
 
Keystone
2017
 
70

 
69

 
1

 
1

 
6

 
 $465 - $550
Cobalt
2017
 
107

 
68

 
39

 
8

 
22

 
 $380 - $455
Onyx
2018
 
88

 
40

 
48

 
12

 
26

 
 $460 - $490
Axis
2017
 
52

 
49

 
3

 
1

 
16

 
 $860 - $1,125
Axis at the Canyons
2019
 
26

 
1

 
25

 
13

 
1

 
 $780 - $905
Midnight Ridge
2019
 
104

 
—

 
104

 
10

 
—

 
 $510 - $630
Pivot
2017
 
88

 
76

 
12

 
—

 
32

 
 $405 - $470
Strada at Pivot
2017
 
27

 
27

 
—

 
9

 
2

 
 $450 - $480
Nova Ridge
2017
 
81

 
60

 
21

 
7

 
21

 
 $680 - $840
Nova Ridge at the Cliffs
2019
 
27

 
—

 
27

 
6

 
—

 
 $680 - $840
Tera Luna
2018
 
116

 
20

 
96

 
12

 
16

 
 $545 - $660
Indogo
2018
 
202

 
61

 
141

 
12

 
39

 
 $300 - $355
Larimar
2018
 
106

 
24

 
82

 
7

 
20

 
$350 - $405
Blackstone
2018
 
105

 
36

 
69

 
12

 
31

 
$415 - $500
35 x 90 Product
TBD
 
140

 
—

 
140

 
—

 
—

 
TBD
Cirrus
2019
 
54

 
2

 
52

 
4

 
2

 
$360 - $395
Silverado
2020
 
305

 
—

 
305

 
—

 
—

 
TBD
Sandalwood
2020
 
116

 
—

 
116

 
—

 
—

 
$685 - $815
Nevada Total
 
 
3,466

 
1,309

 
2,157

 
203

 
332

 
 
Pardee Total
 
 
16,708

 
3,077

 
13,631

 
753

 
1,028

 
 


- 52 -


Quadrant Homes 
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
September 30,
2019
 
Lots
Owned as of
September 30, 2019(3)
 
Backlog as of
September 30,
2019(4)(5)
 
Homes
Delivered
for the Nine
Months Ended
September 30,
2019
 
Sales Price
Range
(in thousands)(6)
Washington
 
 
 
 
 
 
 
 
 
 
 
 
 
Snohomish County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Grove North, Bothell
2019
 
43

 
5

 
38

 
6

 
5

 
$770 - $880
Grove South, Bothell
2019
 
9

 
1

 
8

 
4

 
1

 
$770 - $820
King County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Vareze, Kirkland
2020
 
82

 
—

 
82

 
—

 
—

 
$690 - $880
Inglewood Landing, Sammamish
2019
 
21

 
15

 
6

 
5

 
15

 
$1,115 - $1,295
Kirkwood Terrace, Sammamish
2018
 
12

 
11

 
1

 
1

 
6

 
$1,800
Cedar Landing, North Bend
2019
 
138

 
4

 
134

 
30

 
4

 
$740 - $880
Monarch Ridge, Sammamish
2019
 
59

 
—

 
59

 
8

 
—

 
$970 - $1,245
Overlook at Summit Park, Maple Valley
2019
 
126

 
17

 
109

 
15

 
17

 
$570 - $750
Aurea, Sammamish
2019
 
41

 
1

 
40

 
2

 
1

 
$675 - $846
Aldea, Newcastle
2019
 
129

 
30

 
99

 
14

 
30

 
$665 - $900
Lario, Bellevue
2020
 
46

 
—

 
46

 
—

 
—

 
$765 - $1,030
Lakeview Crest, Renton
2020
 
17

 
—

 
17

 
—

 
—

 
$1,450 - $1,620
Eagles Glen, Sammamish
2020
 
10

 
—

 
10

 
—

 
—

 
$1,100 - $1,700
Proctor Willows (Mira), Redmond
2023
 
173

 
—

 
173

 
—

 
—

 
$680 - $890
Perrinville Townhomes, Lynnwood
2021
 
42

 
—

 
42

 
—

 
—

 
$535 - $655
Finn Meadows, Kirkland
2020
 
10

 
—

 
10

 
—

 
—

 
$880 - $1,100
Hazelwood Gardens, Newcastle
2021
 
15

 
—

 
15

 
—

 
—

 
$1,100 - $1,260
Kitsap County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Lone Pine, Poulsbo
2019
 
15

 
6

 
9

 
4

 
6

 
$474 - $530
Blue Heron, Poulsbo
2021
 
85

 
—

 
85

 
—

 
—

 
$489 - $664
Poulsbo Meadows, Poulsbo
2021
 
46

 
—

 
46

 
—

 
—

 
$494 - $530
Closed Communities
N/A
 
—

 
—

 
—

 
—

 
82

 
N/A
Washington Total
 
 
1,119

 
90

 
1,029

 
89

 
167

 
 
Quadrant Total
 
 
1,119

 
90

 
1,029

 
89

 
167

 
 






- 53 -


Trendmaker Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
September 30,
2019
 
Lots
Owned as of
September 30, 2019(3)
 
Backlog as of
September 30,
2019(4)(5)
 
Homes
Delivered
for the Nine
Months Ended
September 30,
2019
 
Sales Price
Range
(in thousands)(6)
Texas
 
 
 
 
 
 
 
 
 
 
 
 
 
Brazoria County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pomona, Manvel
2015
 
49

 
47

 
2

 
1

 
12

 
$446 - $489
Rise Meridiana
2016
 
47

 
39

 
8

 
3

 
9

 
$292 - $350
Fort Bend County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross Creek Ranch 60', Fulshear
2013
 
34

 
3

 
31

 
13

 
8

 
$415 - $500
Cross Creek Ranch 65', Fulshear
2013
 
77

 
47

 
30

 
4

 
13

 
$442 - $559
Cross Creek Ranch 70', Fulshear
2013
 
89

 
67

 
22

 
12

 
15

 
$510 - $587
Cross Creek Ranch 80', Fulshear
2013
 
63

 
41

 
22

 
15

 
16

 
$600 - $655
Cross Creek Ranch 90', Fulshear
2013
 
37

 
30

 
7

 
1

 
2

 
$695 - $829
Fulshear Run 1/2 Acre, Richmond
2016
 
145

 
47

 
98

 
1

 
16

 
$573 - $699
Harvest Green 75', Richmond
2015
 
53

 
37

 
16

 
7

 
6

 
$449 - $574
Sienna Plantation 85', Missouri City
2015
 
54

 
35

 
19

 
1

 
5

 
$546 - $717
Grayson Woods 60'
TBD
 
17

 
(9
)
 
26

 
—

 
—

 
$400 - $480
Grayson Woods 70'
TBD
 
10

 
—

 
10

 
4

 
—

 
$480 - $555
Katy Gaston
TBD
 
129

 
—

 
129

 
—

 
—

 
TBD
Harris County:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Groves, Humble
2015
 
117

 
86

 
31

 
6

 
14

 
$298 - $360
Lakes of Creekside
2015
 
38

 
26

 
12

 
2

 
10

 
$460 - $611
Balmoral 50'
2019
 
24

 
1

 
23

 
4

 
1

 
$270 - $351
Bridgeland '80, Cypress
2015
 
118

 
91

 
27

 
14

 
15

 
$555 - $683
Bridgeland 70'
2018
 
41

 
13

 
28

 
6

 
6

 
$511 - $574
Villas at Bridgeland 50'
2018
 
48

 
13

 
35

 
1

 
11

 
$356 - $409
Elyson 70', Cypress
2016
 
20

 
20

 
—

 
—

 
2

 
$463 - $482
Falls at Dry Creek
2019
 
7

 
—

 
7

 
3

 
—

 
TBD
Hidden Arbor, Cypress
2015
 
129

 
102

 
27

 
—

 
—

 
$419 - $599
Clear Lake, Houston
2015
 
722

 
508

 
214

 
54

 
75

 
$350 - $698
Montgomery County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Northgrove, Tomball
TBD
 
25

 
7

 
18

 
—

 
—

 
TBD
Bender's Landing Estates, Spring
2014
 
104

 
104

 
—

 
—

 
13

 
$553 - $555
The Woodlands, Creekside Park
2015
 
127

 
104

 
23

 
13

 
38

 
$423 - $729
Royal Brook, Porter
2018
 
25

 
1

 
24

 
2

 
1

 
$393 - $479
Waller County:
 
 
 
 
 
 
 
 
 
 
 
 
 
LakeHouse
2019
 
350

 
12

 
338

 
28

 
12

 
$263 - $575
Williamson County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Crystal Falls
2016
 
29

 
25

 
4

 
—

 
—

 
$150
Rancho Sienna 60'
2016
 
51

 
32

 
19

 
4

 
14

 
$339 - $446
Rancho Sienna 80'
2018
 
5

 
5

 
—

 
—

 
3

 
$456 - $519
Highlands at Mayfield Ranch 50'
2018
 
46

 
23

 
23

 
8

 
15

 
$282 - $375
Highlands at Mayfield Ranch 60'
2018
 
23

 
3

 
20

 
7

 
11

 
$335 - $406
Rancho Sienna 50'
2019
 
38

 
3

 
35

 
4

 
3

 
$291 - $394
Palmera Ridge
2019
 
30

 
7

 
23

 
20

 
7

 
$272 - $344
Hays County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Belterra 60', Austin
2017
 
36

 
41

 
(5
)
 
—

 
10

 
$419 - $458
Belterra 80', Austin
2016
 
37

 
37

 
—

 
—

 
3

 
$552 - $562
Headwaters, Dripping Springs
2017
 
30

 
30

 
—

 
—

 
7

 
$453 - $485
6 Creeks 50' Section 1 & 2
2019
 
35

 
—

 
35

 
—

 
—

 
$269
6 Creeks 60' Section 1 & 2
2019
 
15

 
—

 
15

 
—

 
—

 
$328
Travis County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Lakes Edge 70'
2018
 
45

 
27

 
18

 
13

 
19

 
$645 - $830
Lakes Edge 80'
2018
 
14

 
7

 
7

 
7

 
3

 
$742 - $792
Turner's Crossing (Land)
TBD
 
—

 
—

 
324

 
—

 
—

 
TBD

- 54 -


Collin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Miramonte, Frisco
2016
 
62

 
49

 
13

 
5

 
13

 
$475 - $560
Retreat at Craig Ranch, McKinney
2012
 
165

 
152

 
13

 
4

 
9

 
$375 - $415
Dallas County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Vineyards, Rowlett
2017
 
40

 
22

 
18

 
9

 
10

 
$368 - $480
Denton County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Glenview, Frisco
2017
 
50

 
25

 
25

 
4

 
17

 
$345 - $485
Paloma Creek, Little Elm
 
 
267

 
169

 
98

 
9

 
25

 
$275 - $390
Parks at Legacy, Prosper
2017
 
55

 
28

 
27

 
5

 
14

 
$384 - $495
Shadow Creek, Hickory Creek
2016
 
40

 
40

 
—

 
—

 
4

 
$360 - $400
Valencia, Little Elm
2016
 
82

 
51

 
31

 
5

 
14

 
$350 - $444
Villages of Carmel, Denton
2017
 
96

 
71

 
25

 
13

 
29

 
$290 - $360
Kaufman County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Park Trails, Forney
2015
 
85

 
84

 
1

 
—

 
11

 
$240 - $280
Rockwall County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Heath Golf and Yacht, Heath
2016
 
100

 
68

 
32

 
9

 
11

 
$294 - $490
Woodcreek, Fate
2017
 
107

 
81

 
26

 
12

 
19

 
$267 - $330
Tarrant County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Chisholm Trail Ranch, Fort Worth
2017
 
90

 
62

 
28

 
7

 
18

 
$270 - $375
Lakes of River Trails, Fort Worth
2011
 
158

 
140

 
18

 
16

 
19

 
$317 - $416
Ventana, Benbrook
2017
 
78

 
47

 
31

 
11

 
18

 
$318 - $430
Closed Communities
N/A
 
—

 
—

 
—

 
—

 
2

 
 
Texas Total
 
 
4,608

 
2,801

 
2,131

 
367

 
628

 
 
Trendmaker Homes Total
 
 
4,608

 
2,801

 
2,131

 
367

 
628

 
 


- 55 -


TRI Pointe Homes
 
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
September 30,
2019
 
Lots
Owned as of
September 30, 2019(3)
 
Backlog as of
September 30,
2019(4)(5)
 
Homes
Delivered
for the Nine
Months Ended
September 30,
2019
 
Sales Price
Range
(in thousands)(6)
Southern California
 
 
 
 
 
 
 
 
 
 
 
 
 
Orange County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Aria, Rancho Mission Viejo
2016
 
151

 
151

 
—

 
—

 
5

 
 $687 - $719
Viridian
2018
 
72

 
37

 
35

 
22

 
20

 
 $895 - $994
Sterling Row Townhomes, Irvine
2017
 
96

 
96

 
—

 
—

 
1

 
 $572 - $779
Varenna at Orchard Hills, Irvine
2016
 
111

 
93

 
18

 
6

 
20

 
 $1,225 - $1,343
Alston, Anaheim
2017
 
75

 
75

 
—

 
—

 
15

 
 $828 - $869
StrataPointe, Buena Park
2017
 
149

 
148

 
1

 
1

 
23

 
 $549 - $737
Lyric
2019
 
70

 
28

 
42

 
8

 
28

 
 $790 - $943
Citron at Bedford
2019
 
101

 
23

 
78

 
22

 
23

 
 $370 - $415
Windbourne
2020
 
19

 
—

 
19

 
13

 
—

 
 $1,026 - $1,201
Cerise
2020
 
8

 
—

 
8

 
—

 
—

 
 TBD
Violet
2020
 
11

 
—

 
11

 
—

 
—

 
 TBD
Claret
2020
 
6

 
—

 
6

 
—

 
—

 
 TBD
San Diego County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Prism at Weston
2018
 
142

 
69

 
73

 
27

 
35

 
 $574 - $632
Talus at Weston
2018
 
63

 
56

 
7

 
2

 
24

 
 $680 - $730
Riverside County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Terrassa Court, Corona
2015
 
94

 
94

 
—

 
—

 
1

 
 $421 - $499
Terrassa Villas, Corona
2015
 
52

 
52

 
—

 
—

 
6

 
 $491 - $554
Cassis at Rancho Soleo
2020
 
79

 
—

 
79

 
—

 
—

 
 TBD
Cava at Rancho Soleo
2020
 
63

 
—

 
63

 
—

 
—

 
 TBD
Cerro at Rancho Soleo
2020
 
103

 
—

 
103

 
—

 
—

 
 TBD
Los Angeles County:
 
 
 
 
 
 
 
 
 
 
 
 
 
VuePointe, El Monte
2017
 
102

 
102

 
—

 
—

 
15

 
 $479 - $654
Bradford @ Rosedale, Azusa
2017
 
52

 
52

 
—

 
—

 
1

 
 $816 - $906
Lucera at Aliento
2017
 
67

 
67

 
—

 
—

 
5

 
 $622 - $648
Tierno at Aliento
2017
 
63

 
49

 
14

 
—

 
—

 
 $667 - $695
Tierno II at Aliento
2018
 
63

 
26

 
37

 
8

 
16

 
 $642 - $708
Paloma at West Creek
2018
 
155

 
93

 
62

 
30

 
43

 
 $444 - $530
Mystral
2019
 
78

 
21

 
57

 
22

 
21

 
 $635 - $684
Celestia
2019
 
72

 
30

 
42

 
16

 
30

 
 $597 - $626
San Bernardino County:
 
 
 
 
 
 
 
 
 
 
 
 
 
St. James at Park Place, Ontario
2015
 
125

 
119

 
6

 
6

 
—

 
 $509 - $560
St. James III at Park Place, Ontario
2018
 
82

 
65

 
17

 
13

 
28

 
 $509 - $560
Ivy at The Preserve
2020
 
113

 
—

 
113

 
2

 
—

 
 $395 - $440
Hazel at The Preserve
2020
 
133

 
—

 
133

 
2

 
—

 
 $360 - $430
Tempo at The Resort
2020
 
80

 
—

 
80

 
—

 
—

 
 TBD
Southern California Total
 
 
2,650

 
1,546

 
1,104

 
200

 
360

 
 
Northern California
 
 
 
 
 
 
 
 
 
 
 
 
 
Contra Costa County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Wynstone at Barrington, Brentwood
2017
 
92

 
92

 
—

 
—

 
15

 
 $640 - $675
Greyson Place
2019
 
44

 
7

 
37

 
9

 
7

 
 $805 - $905
Santa Clara County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Madison Gate
2018
 
65

 
30

 
35

 
13

 
6

 
 $729 - $1,134
Blanc at Glen Loma
2019
 
49

 
—

 
49

 
5

 
—

 
 $765 - $815
Noir at Glen Loma
2019
 
64

 
—

 
64

 
6

 
—

 
 $870 - $920
Lotus at Urban Oak
2022
 
43

 
—

 
43

 
—

 
—

 
 $930 - $1,054
Solano County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Bloom at Green Valley, Fairfield
2018
 
91

 
52

 
39

 
22

 
21

 
 $548 - $588
Harvest at Green Valley, Fairfield
2018
 
56

 
41

 
15

 
8

 
13

 
 $550 - $630

- 56 -


Lantana, Fairfield
2019
 
133

 
29

 
104

 
28

 
29

 
 $478 - $523
San Joaquin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sundance, Mountain House
2015
 
113

 
108

 
5

 
—

 
—

 
 $648 - $721
Sundance II, Mountain House
2017
 
138

 
82

 
56

 
14

 
23

 
 $648 - $721
Alameda County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, Alameda Landing
2019
 
2

 
2

 
—

 
—

 
2

 
$550
Blackstone at the Cannery, Hayward SFA
2016
 
105

 
105

 
—

 
—

 
1

 
$666 - $776
Slate at Jordan Ranch, Dublin
2017
 
56

 
56

 
—

 
—

 
5

 
$1,125 - $1,225
Onyx at Jordan Ranch, Dublin
2017
 
105

 
71

 
34

 
8

 
17

 
$914 - $966
Quartz at Jordan Ranch, Dublin
2018
 
45

 
45

 
—

 
—

 
15

 
$958 - $1,098
Apex, Fremont
2018
 
77

 
51

 
26

 
1

 
12

 
$684 - $946
Palm, Fremont
2019
 
31

 
8

 
23

 
3

 
8

 
$2,150 - $2,292
Ellis at Central Station, Oakland
2020
 
128

 
—

 
128

 
—

 
—

 
$728 - $813
Sacramento County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Natomas
TBD
 
94

 
—

 
94

 
—

 
—

 
$344 - $410
Mangini - Brookstone
2020
 
50

 
—

 
50

 
—

 
—

 
$582 - $654
Mangini - Waterstone
2020
 
37

 
—

 
37

 
—

 
—

 
$638 - $705
Placer County:
 
 
 
 
 
 
 
 
 
 
 
 
 
La Madera
2019
 
102

 
—

 
102

 
18

 
—

 
$451 - $531
San Francisco County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Lofton at NOPO, San Francisco
2020
 
54

 
—

 
54

 
—

 
—

 
$1,145 - $1,388
Northern California Total
 
 
1,774

 
779

 
995

 
135

 
174

 
 
California Total
 
 
4,424

 
2,325

 
2,099

 
335

 
534

 
 
Colorado
 
 

 

 

 

 

 
 
Douglas County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Terrain Ravenwood Village (3500)
2018
 
157

 
76

 
81

 
21

 
42

 
 $375 - $427
Terrain Ravenwood Village (4000)
2018
 
100

 
60

 
40

 
16

 
27

 
 $403 - $479
Trails at Crowfoot
2020
 
100

 
—

 
100

 
—

 
—

 
 TBD
Sterling Ranch
2020
 
80

 
—

 
80

 
—

 
—

 
 TBD
The Canyons
2020
 
89

 
—

 
89

 
—

 
—

 
 TBD
Terrain Sunstone
2020
 
74

 
—

 
74

 
—

 
—

 
 TBD
Jefferson County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Candelas 6000 Series, Arvada
2015
 
76

 
76

 
—

 
—

 
1

 
 $516 - $656
Candelas 3500 Series, Arvada
2016
 
97

 
97

 
—

 
—

 
16

 
 $408 - $466
Candelas 5000 Series, Arvada
2017
 
62

 
62

 
—

 
—

 
18

 
 $516 - $584
Candelas 4020 Series, Arvada
2019
 
98

 
35

 
63

 
21

 
35

 
 $458 - $520
Candelas TH, Arvada
2020
 
92

 
—

 
92

 
—

 
—

 
 TBD
Crown Point, Westminster
2019
 
64

 
18

 
46

 
31

 
18

 
 $430 - $485
Arapahoe County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Whispering Pines, Aurora
2016
 
115

 
86

 
29

 
17

 
22

 
 $611 - $681
Adonea 3500, Aurora
2020
 
71

 
—

 
71

 
—

 
—

 
 
Adams County:
 
 

 

 

 

 

 
 
Amber Creek, Thornton
2017
 
121

 
104

 
17

 
10

 
36

 
 $398 - $490
Reunion Alley
2020
 
50

 
—

 
50

 
—

 
—

 
 
Colorado Total
 
 
1,446

 
614

 
832

 
116

 
215

 
 
North Carolina
 
 
 
 
 
 
 
 
 
 
 
 
 
Wake County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Lakeview Townhomes, Raleigh
2020
 
23

 
—

 
23

 
—

 
—

 
 TBD
North Carolina Total
 
 
23

 
—

 
23

 
—

 
—

 
 
TRI Pointe Total
 
 
5,893

 
2,939

 
2,954

 
451

 
749

 
 


- 57 -


Winchester Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
September 30,
2019
 
Lots
Owned as of
September 30, 2019(3)
 
Backlog as of
September 30,
2019(4)(5)
 
Homes
Delivered
for the Nine
Months Ended
September 30,
2019
 
Sales Price
Range
(in thousands)(6)
Maryland
 
 
 
 
 
 
 
 
 
 
 
 
 
Anne Arundel County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Two Rivers Townhomes, Crofton
2017
 
132

 
56

 
76

 
13

 
17

 
$450 - $560
Two Rivers Cascades SFD, Crofton
2018
 
43

 
25

 
18

 
1

 
9

 
$550 - $610
Watson's Glen, Millersville
2015
 
103

 
4

 
99

 
—

 
—

 
TBD
Frederick County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Landsdale, Monrovia
 
 
—

 
 
 
 
 
 
 
 
 
 
Landsdale SFD
2015
 
222

 
141

 
81

 
30

 
16

 
$495 - $597
Landsdale Townhomes
2015
 
100

 
89

 
11

 
5

 
13

 
$330 - $383
Landsdale TND Neo SFD
2015
 
77

 
50

 
27

 
14

 
6

 
$440 - $473
Montgomery County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cabin Branch, Clarksburg
 
 
 
 
 
 
 
 
 
 
 
 
 
Cabin Branch SFD
2014
 
359

 
227

 
132

 
19

 
23

 
 $700 - $775
Cabin Branch Avenue Townhomes
2017
 
86

 
72

 
14

 
8

 
20

 
$420 - $488
Cabin Branch Crossings Townhomes
2019
 
98

 
—

 
98

 
2

 
—

 
 $420 - $490
Cabin Branch Manor Townhomes
2014
 
444

 
329

 
115

 
17

 
30

 
 $393 - $474
Preserve at Stoney Spring - Lots for Sale
N/A
 
3

 
—

 
3

 
—

 
—

 
 N/A
Glenmont MetroCenter, Silver Spring
2016
 
171

 
111

 
60

 
24

 
36

 
 $435 - $513
Chapman Row, Rockville
2019
 
61

 
1

 
60

 
8

 
1

 
 $700 - $750
North Quarter, North Bethesda
2019
 
104

 
—

 
104

 
3

 
—

 
 $620 - $670
Closed Communities
N/A
 
—

 
—

 
—

 
—

 
1

 
 
Maryland Total
 
 
2,003

 
1,105

 
898

 
144

 
172

 
 
Virginia
 
 
 
 
 
 
 
 
 
 
 
 
 
Fairfax County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stuart Mill, Oakton - Lots for Sale
N/A
 
5

 
—

 
5

 
—

 
—

 
N/A
Westgrove, Fairfax
2018
 
24

 
13

 
11

 
7

 
12

 
$1,001 - $1,107
West Oaks Corner, Fairfax
2019
 
188

 
—

 
188

 
40

 
—

 
$670 - $770
Bren Pointe SFA, Fairfax
2020
 
7

 
—

 
7

 
—

 
—

 
TBD
Loudoun County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Brambleton, Ashburn
 
 
 
 
 
 
 
 
 
 
 
 
 
West Park SFD
2018
 
53

 
36

 
17

 
17

 
16

 
$700 - $724
Birchwood Bungalows AA
2018
 
46

 
25

 
21

 
12

 
16

 
$577 - $634
Birchwood Carriages AA
2019
 
17

 
—

 
17

 
14

 
—

 
$524 - $553
Willowsford Grant II, Aldie
2016
 
55

 
31

 
24

 
14

 
8

 
$950 - $1,226
Closed Communities
N/A
 
—

 
—

 
—

 
—

 
12

 
 N/A
Virginia Total
 
 
395

 
105

 
290

 
104

 
64

 
 
Winchester Total
 
 
2,398

 
1,210

 
1,188

 
248

 
236

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined Company Total
 
 
33,902

 
11,198

 
23,028

 
2,312

 
3,126

 
 
__________
(1) 
Year of first delivery for future periods is based upon management’s estimates and is subject to change.
(2) 
The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.
(3) 
Owned lots as of September 30, 2019 include owned lots in backlog as of September 30, 2019.
(4) 
Backlog consists of homes under sales contracts that have not yet been delivered, and there can be no assurance that delivery of sold homes will occur.
(5) 
Of the total homes subject to pending sales contracts that have not been delivered as of September 30, 2019, 1,602 homes are under construction, 318 homes have completed construction, and 392 homes have not started construction.
(6) 
Sales price range reflects base price only and excludes any lot premium, buyer incentives and buyer-selected options, which may vary from project to project. Sales prices for homes required to be sold pursuant to affordable housing requirements are excluded from sales price range. Sales prices reflect current pricing and might not be indicative of past or future pricing.

- 58 -


Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. Our condensed notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. The preparation of our financial statements requires our management to make estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there is a material difference between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the condensed notes to the unaudited consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
Except for accounting policies related to our adoption of ASC 842, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q for the critical accounting policies resulting from our adoption of ASC 842.
Recently Issued Accounting Standards
See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks related to fluctuations in interest rates on our outstanding debt.  We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the nine months ended September 30, 2019. We did not enter into during the nine months ended September 30, 2019, and currently do not hold, derivatives for trading or speculative purposes.

Item 4.
Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019.
Our management, including our Principal Executive Officer and Principal Financial Officer, has evaluated our internal control over financial reporting to determine whether any change occurred during the three months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the three months ended September 30, 2019.

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PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
The information required with respect to this item can be found under Note 13, Commitments and Contingencies–Legal Matters, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 1.

Item 1A.
Risk Factors

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.  If any of the risks discussed in our Annual Report on Form 10-K occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline significantly and you could lose all or a part of your investment.  Some statements in this Quarterly Report on Form 10-Q constitute forward-looking statements.  Please refer to Part I, Item 2 of this Quarterly Report on Form 10-Q entitled “Cautionary Note Concerning Forward-Looking Statements.”

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On February 21, 2019, our board of directors discontinued and cancelled our 2018 Repurchase Program and approved our 2019 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $100 million through March 31, 2020. Purchases of common stock pursuant to the 2019 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2019 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2019 Repurchase Program at any time. Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. During the three and nine months ended September 30, 2019, we repurchased and retired an aggregate of 3,035,420 shares of our common stock under the 2019 Repurchase Program for $41.7 million.
During the three months ended September 30, 2019, we repurchased and retired the following shares pursuant to our 2019 Repurchase Program:
 
Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced program
 
Approximate dollar value of shares that may yet be purchased under the program
July 1, 2019 to July 31, 2019
—

 
$
—

 
—

 
$
—

August 1, 2019 to August 31, 2019
1,705,620

 
$
13.58

 
1,705,620

 
$
76,844,670

September 1, 2019 to September 30, 2019
1,329,800

 
$
13.97

 
1,329,800

 
$
58,265,017

Total
3,035,420

 
$
13.75

 
3,035,420

 
 



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Item 6.
Exhibits 
Exhibit
Number
 
Exhibit Description
 
 
 
 
Amended and Restated Certificate of Incorporation of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed July 7, 2015))
 
 
 
 
Amended and Restated Bylaws of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed October 27, 2016))
 
 
 
10.1†
 
Letter agreement by and between TRI Pointe Group, Inc. and Michael D. Grubbs, dated as of July 1, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 1, 2019))
 
 
 
 
Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
 
Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
 
Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
 
Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
101
 
The following materials from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2019, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Cash Flows, and (v) Condensed Notes to Consolidated Financial Statement.
 
 
 
104
 
Cover page from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (and contained in Exhibit 101).
 
 
 
†
 
Management Contract or Compensatory Plan or Arrangement


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
TRI Pointe Group, Inc.
 
 
 
Date: October 31, 2019
By:
/s/ Douglas F. Bauer
 
 
Douglas F. Bauer
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
Date: October 31, 2019
By:
/s/ Michael D. Grubbs
 
 
Michael D. Grubbs
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)

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TABLE OF CONTENTS