Taylor Morrison Home Corp - Quarter Report: 2022 September (Form 10-Q)

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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, 2022


☐			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: 001-35873

TAYLOR MORRISON HOME CORPORATION

(Exact name of registrant as specified in its Charter)


Delaware						83-2026677
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


4900 N. Scottsdale Road, Suite 2000		85251
Scottsdale,	Arizona
(Address of principal executive offices)		(Zip Code)

(480) 840-8100

(Registrant’s telephone number, including area code)

N/A

(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, $0.00001 par value

TMHC

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 ý 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 ý 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

☐

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 ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding as of October 26, 2022
Common stock, $0.00001 par value						108,346,617

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TAYLOR MORRISON HOME CORPORATION

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			Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements of Taylor Morrison Home Corporation (Unaudited)			2

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021			2

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021			3



Condensed Consolidated Statement s of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021			4

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021			6

Notes to the Unaudited Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24

Item 3. Quantitative and Qualitative Disclosures About Market Risk			38

Item 4. Controls and Procedures			39

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			40

Item 1A. Risk Factors			40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40

Item 3. Defaults Upon Senior Securities			40

Item 4. Mine Safety Disclosures			40

Item 5. Other Information			40

Item 6. Exhibits			41

SIGNATURES			42

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	September 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	329,244	$	832,821
Restricted cash	578		3,519
Total cash, cash equivalents, and restricted cash	329,822		836,340

Owned inventory	5,904,344		5,444,207
Consolidated real estate not owned	54,733		55,314
Total real estate inventory	5,959,077		5,499,521
Land deposits	290,340		229,535
Mortgage loans held for sale	161,264		467,534
Derivative assets	23,832		2,110
Lease right of use assets	82,226		85,863
Prepaid expenses and other assets, net	188,671		314,986
Other receivables, net	214,282		150,864
Investments in unconsolidated entities	306,081		171,406
Deferred tax assets, net	151,240		151,240
Property and equipment, net	223,594		155,181

Goodwill	663,197		663,197

Total assets	$	8,593,626	$	8,727,777
Liabilities
Accounts payable	$	264,190	$	253,348
Accrued expenses and other liabilities	456,632		525,209
Lease liabilities	91,554		96,172
Income taxes payable	27,757		—
Customer deposits	527,412		485,705
Estimated development liabilities	37,958		38,923
Senior notes, net	2,173,798		2,452,322
Loans payable and other borrowings	409,791		404,386
Revolving credit facility borrowings	—		31,529
Mortgage warehouse borrowings	146,335		413,887
Liabilities attributable to consolidated real estate not owned	54,733		55,314

Total liabilities	$	4,190,160	$	4,756,795
COMMITMENTS AND CONTINGENCIES (Note 13)
Stockholders’ Equity










Total stockholders’ equity	4,403,466		3,970,982
Total liabilities and stockholders’ equity	$	8,593,626	$	8,727,777

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Home closings revenue, net	$	1,983,775	$	1,772,495	$	5,511,204	$	4,780,304
Land closings revenue	14,225		42,228		66,651		79,174
Financial services revenue	27,749		38,046		98,419		119,503
Amenity and other revenue	8,895		5,982		56,517		16,862
Total revenue	2,034,644		1,858,751		5,732,791		4,995,843
Cost of home closings	1,438,164		1,397,319		4,084,748		3,838,602
Cost of land closings	11,571		36,439		50,139		68,604
Financial services expenses	20,395		26,202		66,092		76,136
Amenity and other expenses	6,574		6,341		39,264		16,907
Total cost of revenue	1,476,704		1,466,301		4,240,243		4,000,249
Gross margin	557,940		392,450		1,492,548		995,594
Sales, commissions and other marketing costs	94,692		97,185		279,950		280,697
General and administrative expenses	52,357		70,425		189,905		201,975
Net loss/(income) from unconsolidated entities	1,180		(1,482)		2,986		(9,269)
Interest expense, net	4,382		710		13,823		594
Other expense/(income), net	5,751		47		(4,720)		1,067

Gain on extinguishment of debt, net	(71)		—		(13,542)		—

Income before income taxes	399,649		225,565		1,024,146		520,530
Income tax provision	90,418		53,098		243,300		120,865







Net income before allocation to non-controlling interests	309,231		172,467		780,846		399,665
Net loss/(income) attributable to non-controlling interests	548		(4,333)		(3,377)		(9,363)


Net income available to Taylor Morrison Home Corporation	$	309,779	$	168,134	$	777,469	$	390,302
Earnings per common share
Basic	$	2.75	$	1.35	$	6.63	$	3.07
Diluted	$	2.72	$	1.34	$	6.56	$	3.02
Weighted average number of shares of common stock:
Basic	112,701		124,378		117,242		127,217
Diluted	113,780		125,770		118,438		129,043

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)


For the three months ended September 30, 2022

	Common Stock			Additional Paid-in Capital	Treasury Stock			Stockholders' Equity
	Shares	Amount			Amount		Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Income		Non-controlling Interest		Total Stockholders’ Equity
Balance – June 30, 2022	113,640,725	$	1		$	3,008,619	45,556,244	$	(991,276)	$	2,156,505	$	689	$	19,357	$	4,193,895
Net income	—	—			—		—	—		309,779		—		(548)		309,231

Exercise of stock options	77,951	—			1,512		—	—		—		—		—		1,512
Issuance of restricted stock units, net of shares withheld for tax(1)	2,757	—			—		—	—		—		—		—		—


Repurchase of common stock	(4,213,256)	—			—		4,213,256	(104,999)		—		—		—		(104,999)

Stock compensation expense	—	—			5,333		—	—		—		—		—		5,333


Distributions to non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(1,515)		(1,515)
Changes in non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		9		9
Balance – September 30, 2022	109,508,177	$	1		$	3,015,464	49,769,500	$	(1,096,275)	$	2,466,284	$	689	$	17,303	$	4,403,466

(1) Dollar amount represents the value of shares withheld for taxes.


For the three months ended September 30, 2021


	Common Stock			Additional Paid-in Capital	Treasury Stock			Stockholders' Equity
	Shares	Amount			Amount		Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total Stockholders’ Equity
Balance – June 30, 2021	125,910,318	$	1		$	2,977,269	32,167,192	$	(624,615)	$	1,247,957	$	(1,166)	$	69,403	$	3,668,849
Net income	—	—			—		—	—		168,134		—		4,333		172,467

Exercise of stock options	276,595	—			5,778		—	—		—		—		—		5,778
Issuance of restricted stock units, net of shares withheld for tax(1)	8,789	—			(13)		—	—		—		—		—		(13)

Repurchase of common stock	(3,309,196)	—			—		3,309,196	(91,659)		—		—		—		(91,659)

Stock compensation expense	—	—			4,793		—	—		—		—		—		4,793


Distributions to non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(14,311)		(14,311)
Changes in non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(8)		(8)
Balance – September 30, 2021	122,886,506	$	1		$	2,987,827	35,476,388	$	(716,274)	$	1,416,091	$	(1,166)	$	59,417	$	3,745,896

(1) Dollar amount represents the value of shares withheld for taxes.

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For the nine months ended September 30, 2022

	Common Stock			Additional Paid-in Capital	Treasury Stock			Stockholders' Equity
	Shares	Amount			Amount		Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Income		Non-controlling Interest		Total Stockholders’ Equity
Balance – December 31, 2021	121,833,649	$	1		$	2,997,211	36,828,559	$	(760,863)	$	1,688,815	$	689	$	45,129	$	3,970,982
Net income	—	—			—		—	—		777,469		—		3,377		780,846

Exercise of stock options	209,940	—			4,424		—	—		—		—		—		4,424
Issuance of restricted stock units, net of shares withheld for tax(1)	405,529	—			(3,645)		—	—		—		—		—		(3,645)


Repurchase of common stock	(12,940,941)	—			—		12,940,941	(335,412)		—		—		—		(335,412)

Stock compensation expense	—	—			17,474		—	—		—		—		—		17,474


Distributions to non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(30,443)		(30,443)
Changes in non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(760)		(760)
Balance – September 30, 2022	109,508,177	$	1		$	3,015,464	49,769,500	$	(1,096,275)	$	2,466,284	$	689	$	17,303	$	4,403,466

(1) Dollar amount represents the value of shares withheld for taxes.


For the nine months ended September 30, 2021


	Common Stock			Additional Paid-in Capital	Treasury Stock			Stockholders' Equity
	Shares	Amount			Amount		Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total Stockholders’ Equity
Balance – December 31, 2020	129,476,914	$	1		$	2,926,773	25,884,756	$	(446,856)	$	1,025,789	$	(1,166)	$	89,209	$	3,593,750
Net income	—	—			—		—	—		390,302		—		9,363		399,665

Exercise of stock options	908,221	—			18,212		—	—		—		—		—		18,212
Issuance of restricted stock units, net of shares withheld for tax(1)	388,798	—			(4,870)		—	—		—		—		—		(4,870)
Warrant Exercises	1,704,205	—			32,584		—	—		—		—		—		32,584
Repurchase of common stock	(8,565,933)	—			—		8,565,933	(236,831)		—		—		—		(236,831)
Common stock surrendered in connection with warrant exercise	(1,025,699)	—			—		1,025,699	(32,587)		—		—		—		(32,587)
Stock compensation expense	—	—			15,128		—	—		—		—		—		15,128
Distributions to non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(39,155)		(39,155)

Balance – September 30, 2021	122,886,506	$	1		$	2,987,827	35,476,388	$	(716,274)	$	1,416,091	$	(1,166)	$	59,417	$	3,745,896

(1) Dollar amount represents the value of shares withheld for taxes.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before allocation to non-controlling interests	$	780,846	$	399,665
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net loss/(income) from unconsolidated entities	2,986		(9,269)
Stock compensation expense	17,474		15,128
Gain on extinguishment of debt, net	(13,542)		—
Gain on land transfers	(14,508)		—
Distributions of earnings from unconsolidated entities	5,318		9,050
Depreciation and amortization	25,448		29,726
Operating lease expense	20,543		12,167
Debt issuance costs amortization	1,574		355
Change in Urban Form assets due to sale	11,675		—


Land held for sale write-downs	—		4,590


Changes in operating assets and liabilities:
Real estate inventory and land deposits	(610,346)		(678,809)
Mortgages held for sale, prepaid expenses and other assets	245,633		(216,121)
Customer deposits	41,707		209,290
Accounts payable, accrued expenses and other liabilities	(82,578)		97,129
Income taxes payable	27,757		23,554
Net cash provided by/(used in) operating activities	459,987		(103,545)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(22,478)		(15,698)

Distributions of capital from unconsolidated entities	95,517		14,237
Investments of capital into unconsolidated entities	(91,846)		(31,843)
Investments in equity securities	—		(10,000)
Net cash used in investing activities	(18,807)		(43,304)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans payable and other borrowings	33,495		103,805
Repayments on loans payable and other borrowings	(50,761)		(89,635)
Borrowings on revolving credit facilities	182,548		126,692
Repayments on revolving credit facilities	(214,077)		—
Borrowings on mortgage warehouse facilities	1,783,748		2,287,791
Repayments on mortgage warehouse facilities	(2,051,300)		(2,179,395)

Repayments on senior notes	(264,935)		—



Proceeds from stock option exercises	4,424		18,212




Payment of principal portion of finance lease	(1,340)		(1,325)
Repurchase of common stock, net	(335,412)		(236,831)
Payment of taxes related to net share settlement of equity awards	(3,645)		(5,494)
Cash and distributions to non-controlling interests of consolidated joint ventures, net	(30,443)		(36,095)
Net cash used in financing activities	(947,698)		(12,275)
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	$	(506,518)	$	(159,124)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period	836,340		534,109
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period	$	329,822	$	374,985
SUPPLEMENTAL CASH FLOW INFORMATION:
Income tax payments	$	(176,683)	$	(96,753)
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in loans payable issued to sellers in connection with land purchase contracts	$	184,458	$	174,297
Change in inventory not owned	$	(581)	$	(64,344)
Investments of land in unconsolidated joint ventures, net	$	146,649	$	—



Net non-cash distributions from non-controlling interests	$	—	$	(3,060)

Common stock surrendered in connection with warrant exercises	$	—	$	32,587
Common stock issued in connection with warrant exercises	$	—	$	(32,584)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Description of the Business — Taylor Morrison Home Corporation “TMHC” through its subsidiaries (together with TMHC referred to herein as “we,” “our,” “the Company” and “us”), owns and operates a residential homebuilding business and is a developer of lifestyle communities. We operate in the states of Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. We provide an assortment of homes across a wide range of price points to appeal to an array of consumer groups. We design, build and sell single and multi-family detached and attached homes in traditionally high growth markets for entry level, move-up and resort lifestyle (formerly referred to as 55-plus active lifestyle) buyers. We are the general contractors for all real estate projects and retain subcontractors for home construction and land development. Our homebuilding segments operate under our Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade brand names. We operate a “Build-to-Rent” homebuilding business where we serve as a land acquirer, developer, and homebuilder. In addition, we develop and construct multi-use properties consisting of commercial space, retail, and multi-family properties under the “Urban Form” brand. We also have operations which provide financial services to customers through our wholly owned mortgage subsidiary, Taylor Morrison Home Funding, Inc. (“TMHF”), title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”), and homeowner’s insurance policies through our insurance agency, Taylor Morrison Insurance Services, LLC (“TMIS”). Our business is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West, and Financial Services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”). In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.

We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The loss/income from the percentage of the joint ventures not owned by us is presented as “Net loss/income attributable to non-controlling interests” on the unaudited Condensed Consolidated Statements of Operations.

Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and these accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of goodwill, valuation of development liabilities, valuation of equity awards, valuation allowance on deferred tax assets, and reserves for warranty and self-insured risks. Actual results could differ from those estimates.

Goodwill — The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC Topic 350, Intangibles — Goodwill and Other. ASC 350 requires that goodwill and intangible assets that do not have finite lives not be amortized, but rather assessed for impairment at least annually or more frequently if certain impairment indicators are present. We perform our annual impairment test during the fourth quarter or whenever impairment indicators are present. We did not perform an impairment test during the third quarter of 2022 as indicators of impairment were not present.

Real Estate Inventory — Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, all of which are stated at cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home vertical construction costs are accumulated and charged to Cost of home closings at the time of home closing using the specific identification method. Land acquisition, development, interest, and real estate taxes are allocated to homes and units generally using the relative sales value method. Generally, all overhead costs relating to purchasing, vertical construction of a home, and construction utilities are considered overhead costs and allocated on a per unit basis. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated

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costs to be incurred in a community are generally allocated to the remaining lots on a prospective basis. For those communities that have been temporarily closed or development has been discontinued, we do not allocate interest or other costs to the community’s inventory until activity resumes. Such costs are expensed as incurred.

The life cycle of a typical community generally ranges from two to five years, commencing with the acquisition of unentitled or entitled land, continuing through the land development phase and concluding with the sale, construction and delivery of homes. Actual community duration will vary based on the size of the community, the sales absorption rate and whether we purchased the property as raw land or as finished lots.

We capitalize qualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to cost of home closings when the related inventory is charged to cost of home closings.

We assess the recoverability of our inventory in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment. We review our real estate inventory for indicators of impairment on a community-level basis during each reporting period. If indicators of impairment are present for a community, an undiscounted cash flow analysis is generally prepared in order to determine if the carrying value of the assets in that community exceeds the estimated undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, the assets are potentially impaired, requiring a fair value analysis. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. However, fair value can be determined through other methods, such as appraisals, contractual purchase offers, and other third party opinions of value. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the three and nine months ended September 30, 2022 and 2021, no impairment charges were recorded.

In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. We refer to such communities as long-term strategic assets. The decision may be based on financial and/or operational metrics as determined by us. If we decide to cease development, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized. Our assessment of the carrying value of our long-term strategic assets typically includes subjective estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of September 30, 2022 and December 31, 2021, we had no inactive projects.

In the ordinary course of business, we enter into various option agreements to acquire lots in staged takedowns which may require a significant cash deposit. We are not legally obligated to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots are not purchased. Real estate not owned under these agreements is reflected in Consolidated real estate not owned with a corresponding liability in Liabilities attributable to consolidated real estate not owned in the unaudited Condensed Consolidated Balance Sheets.

Land held for sale — In some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. Land is considered held for sale once management intends to actively sell a parcel within the next 12 months or the parcel is under contract to sell. Land held for sale is recorded at the lower of cost or fair value less costs to sell. In determining the value of land held for sale, we consider recent offers received, prices for land in recent comparable sales transactions, and other factors. We record fair value adjustments for land held for sale within Cost of land closings on the unaudited Condensed Consolidated Statements of Operations.

Land banking arrangements — We have land purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources, we may transfer our right under certain specific performance agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions from their owners and/or incur debt to finance the acquisition and development of the land. The entities grant us an option to acquire lots in staged takedowns. In consideration for this option, we make a non-refundable deposit. We are not legally obligated to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots were not purchased. We do not have an ownership interest in these entities or title to their assets and do not guarantee their liabilities. These land banking arrangements help us manage the financial and market risk associated with land holdings.

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Investments in Consolidated and Unconsolidated Entities

Consolidated Entities — In the ordinary course of business, we enter into land purchase contracts, lot option contracts and land banking arrangements in order to procure land or lots for the construction of homes. Such contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. In accordance with ASC Topic 810, Consolidation, we have concluded that when we enter into these agreements to acquire land or lots and pay a non-refundable deposit, a Variable Interest Entity (“VIE”) may be created because we are deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. If we are the primary beneficiary of the VIE, we will consolidate the VIE and reflect such assets and liabilities as Consolidated real estate not owned within our real estate inventory balance in the unaudited Condensed Consolidated Balance Sheets.

Unconsolidated Joint Ventures — We use the equity method of accounting for entities over which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that the partners have substantive participating rights that preclude the presumption of control. Our share of net earnings or losses is included in Net income/loss from unconsolidated entities when earned and distributions are credited against our investment in the joint venture when received. These joint ventures are recorded in Investments in unconsolidated entities on the unaudited Condensed Consolidated Balance Sheets.

We evaluate our investments in unconsolidated entities for indicators of impairment semi-annually. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized, if any, is the excess of the investment's carrying amount over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners. If we believe that the decline in the fair value of the investment is temporary, then no impairment is recorded. We recorded no material impairment charges related to the investments in unconsolidated entities for the three and nine months ended September 30, 2022 and 2021.

Revenue Recognition — We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.

Home and land closings revenue

Under Topic 606, the following steps are applied to determine the proper home closings revenue and land closings revenue recognition: (1) we identify the contract(s) with our customer; (2) we identify the performance obligations in the contract; (3) we determine the transaction price; (4) we allocate the transaction price to the performance obligations in the contract; and (5) we recognize revenue when (or as) we satisfy the performance obligation. For our home sales transactions, we have one contract, with one performance obligation, with each customer to build and deliver the home purchased (or develop and deliver land). Based on the application of the five steps, the following summarizes the timing and manner of home and land sales revenue:

•Revenue from closings of residential real estate is recognized when closings have occurred, the buyer has made the required minimum down payment, obtained necessary financing, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow. Revenue is reported net of any discounts and incentives.

•Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable, if any, is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

Amenity and other revenue

We own and operate certain amenities such as golf courses, club houses, and fitness centers, which require us to provide club members with access to the facilities in exchange for the payment of club dues. We collect club dues and other fees from the club members, which are invoiced on a monthly basis. Revenue from our golf club operations is also included in amenity and

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other revenue. Amenity and other revenue also includes revenue from the sale of assets which include multi-use properties as part of our Urban Form operations.

Financial services revenue

Mortgage operations and hedging activity related to financial services are not within the scope of Topic 606. Loan origination fees (including title fees, points, and closing costs) are recognized at the time the related real estate transactions are completed, which is usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, on a non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, Sales of Financial Assets. TMHF does not have continuing involvement with the transferred assets; therefore, we derecognize the mortgage loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale. Also included in Financial services revenue/expenses are realized and unrealized gains and losses from hedging instruments.

Recently Issued Accounting Pronouncements — In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients for applying U.S. GAAP to contracts affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The guidance was effective beginning March 12, 2020 and entities may elect to apply the amendments prospectively through December 31, 2022. The use of LIBOR is primarily limited to our financial services mortgage warehouse facilities and our Revolving Credit Facilities. Our warehouse facilities have been modified to directly replace the reference rate and did not change the amount or timing of contractual cash flows. As such, we have elected the use of the practical expedient and treated such modification as a continuation of the debt agreement. Our Revolving Credit Facilities provide the option to continue the use of LIBOR until its expiration. The adoption of ASU 2020-04 has not had a material impact on our unaudited Condensed Consolidated Financial Statements.

3. EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all outstanding dilutive equity awards to issue shares of Common Stock were exercised or settled.

The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator:
Net income available to TMHC	$	309,779	$	168,134	$	777,469	$	390,302
Denominator:
Weighted average shares – basic	112,701		124,378		117,242		127,217
Restricted stock units	629		796		659		833
Stock Options	450		596		537		756
Warrants	—		—		—		237
Weighted average shares – diluted	113,780		125,770		118,438		129,043
Earnings per common share – basic:
Net income available to Taylor Morrison Home Corporation	$	2.75	$	1.35	$	6.63	$	3.07
Earnings per common share – diluted:
Net income available to Taylor Morrison Home Corporation	$	2.72	$	1.34	$	6.56	$	3.02

The above calculations of weighted average shares exclude 1,560,934 and 1,470,941 anti-dilutive stock options and unvested restricted stock units (“RSUs”) for the three and nine months ended September 30, 2022, respectively, and 1,218,781 and 1,063,586 anti-dilutive stock options and unvested RSUs for the three and nine months ended September 30, 2021, respectively.

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4. REAL ESTATE INVENTORY AND LAND DEPOSITS

Inventory consists of the following (in thousands):


	As of
	September 30, 2022		December 31, 2021
Real estate developed and under development	$	3,787,988	$	3,895,681
Real estate held for development or held for sale (1)	44,177		70,305
Operating communities (2)	1,881,718		1,309,551
Capitalized interest	190,461		168,670
Total owned inventory	5,904,344		5,444,207
Consolidated real estate not owned	54,733		55,314
Total real estate inventory	$	5,959,077	$	5,499,521

(1) Real estate held for development or held for sale includes properties which are not in active production.

(2) Operating communities consist of all vertical construction costs relating to homes in progress and completed homes.

The development status of our land inventory is as follows (dollars in thousands):


	As of
	September 30, 2022			December 31, 2021
	Owned Lots	Book Value of Land and Development		Owned Lots	Book Value of Land and Development
Homebuilding owned lots
Undeveloped	15,238	$	517,929	17,671	$	636,385
Under development	11,345	1,051,698		11,446	964,353
Finished	19,874	2,257,495		18,896	2,266,309

Total homebuilding owned lots	46,457	3,827,122		48,013	3,867,047
Other assets(1)	—	5,043		5,298	98,939
Total owned lots	46,457	$	3,832,165	53,311	$	3,965,986

(1)The remaining book value of land and development as of September 30, 2022 relates to parcels of commercial assets which are. excluded from the owned lots presented in the table.

The homebuilding owned lots presented above as of December 31 2021 have been recast as a result of an operational change in classification in the current period. Undeveloped lots are those where no phase specific development work has commenced. Under development lots include land where phase specific development has commenced. Finished lots are fully developed for which vertical construction can commence. Our current classification allows for multi-phase or master planned communities to be presented in more than one lot status based on their development compared to our prior process which grouped all phases of a multi-phase or master planned community into one category based on the phase that was most developed. We believe this operational change provides better transparency into lot status and the book value of such lots.

We have land option purchase contracts, land banking arrangements and other controlled lot agreements. We do not have title to the properties, and the property owner and its creditors generally only have recourse against us in the form of retaining any non-refundable deposits. We are also not legally obligated to purchase the balance of the lots. Deposits related to these lots are capitalized when paid and classified as Land deposits until the associated property is purchased. The table below presents a summary of our controlled lots for the following periods (dollars in thousands):

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	As of
	September 30, 2022					December 31, 2021
	Controlled Lots	Purchase Price		Land Deposit (1)		Controlled Lots	Purchase Price		Land Deposit (1)
Homebuilding controlled lots
Land option purchase contracts	7,193	$	474,383	$	57,919	8,360	$	507,161	$	57,554
Land banking arrangements	6,982	1,037,293		154,502		5,731	749,813		117,721
Other controlled lots	19,520	1,197,006		64,618		14,671	1,338,284		38,505
Total controlled lots	33,695	$	2,708,682	$	277,039	28,762	$	2,595,258	$	213,780

(1) Land deposits are non-refundable and represent exposure to loss related to our contracts with third parties, unconsolidated entities, and land banking arrangements.. In addition, at September 30, 2022 and December 31, 2021 we had refundable deposits of $13.3 million and $15.7 million respectively.

Capitalized Interest — Interest capitalized, incurred and amortized is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest capitalized - beginning of period	$	185,364	$	180,520	$	168,670	$	163,780
Interest incurred and capitalized(1)	38,871		37,991		119,415		116,126
Interest amortized to cost of home closings	(33,774)		(37,951)		(97,624)		(99,346)
Interest capitalized - end of period	$	190,461	$	180,560	$	190,461	$	180,560

(1) Excludes Interest expense, net on the unaudited Condensed Consolidated Statement of Operations as such amounts are not capitalizable.

5. INVESTMENTS IN CONSOLIDATED AND UNCONSOLIDATED ENTITIES

Unconsolidated Entities

We have investments in a number of joint ventures with third parties. These entities are generally involved in real estate development, homebuilding, Build-to-Rent, and/or mortgage lending activities. The primary activity of the real estate development joint ventures is development and sale of lots to joint venture partners and/or unrelated builders. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.

During the three and nine months ended September 30, 2022, we transferred land at fair value as part of an initial investment in existing unconsolidated joint ventures . In accordance with ASC 606 this was considered a transfer as we have no continuing involvement and the joint venture obtained title, physical possession, maintains risks and rewards of the property and has accepted the property. Included in Other expense/(income), net on the unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 is a gain of $0.8 million and $14.5 million, respectively, related to land transfers and represents the difference between the fair value and carrying value of the land at the time of contribution.

Summarized, unaudited combined financial information of unconsolidated entities that are accounted for by the equity method are as follows (in thousands):

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	As of
	September 30, 2022		December 31, 2021
Assets:
Real estate inventory	$	717,667	$	414,687
Other assets	132,990		118,990
Total assets	$	850,657	$	533,677
Liabilities and owners’ equity:
Debt	$	137,386	$	167,842
Other liabilities	31,961		16,245
Total liabilities	169,347		184,087
Owners’ equity:
TMHC	306,081		171,406
Others	375,229		178,184
Total owners’ equity	681,310		349,590
Total liabilities and owners’ equity	$	850,657	$	533,677


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues	$	25,495	$	21,833	$	150,062	$	101,458
Costs and expenses	(27,310)		(16,647)		(145,238)		(73,705)
(Loss)/income of unconsolidated entities	$	(1,815)	$	5,186	$	4,824	$	27,753
TMHC’s share in (loss)/income of unconsolidated entities	$	(1,180)	$	1,482	$	(2,986)	$	9,269
Distributions to TMHC from unconsolidated entities	$	10,006	$	2,945	$	100,835	$	23,287

Consolidated Entities

We have several joint ventures for the purpose of real estate development and homebuilding activities, which we have determined to be VIEs. As the managing member, we oversee the daily operations and have the power to direct the activities of the VIEs, or joint ventures. For this specific subset of joint ventures, based upon the allocation of income and loss per the applicable joint venture agreements and certain performance guarantees, we have potentially significant exposure to the risks and rewards of the joint ventures. Therefore, we are the primary beneficiary of these joint venture VIEs, and these entities are consolidated.

As of September 30, 2022, the assets of the consolidated joint ventures totaled $273.0 million, of which $35.3 million was cash and cash equivalents, $62.6 million was owned inventory and $125.3 million was fixed assets. The fixed asset balance is held for sale as of September 30, 2022. As of December 31, 2021, the assets of the consolidated joint ventures totaled $291.8 million, of which $22.3 million was cash and cash equivalents, $147.6 million was owned inventory and $74.3 million was fixed assets. The liabilities of the consolidated joint ventures totaled $159.2 million and $165.1 million as of September 30, 2022 and December 31, 2021, respectively, and were primarily comprised of notes payable, accounts payable and accrued liabilities.

6. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):

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	As of September 30, 2022		As of December 31, 2021
Real estate development costs to complete	$	42,384	$	49,833
Compensation and employee benefits	113,877		166,272
Self-insurance and warranty reserves	139,991		141,839
Interest payable	35,112		48,551
Property and sales taxes payable	31,648		29,384
Other accruals	93,620		89,330
Total accrued expenses and other liabilities	$	456,632	$	525,209

Self-Insurance and Warranty Reserves – We accrue for the expected costs associated with our limited warranty, deductibles and self-insured amounts under our various insurance policies within Beneva Indemnity Company (“Beneva”), a wholly owned subsidiary. A summary of the changes in our reserves are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Reserve - beginning of period	$	137,491	$	116,121	$	141,839	$	118,116



Additions to reserves	2,514		19,459		34,917		50,244
Cost of claims incurred	(3,541)		(19,313)		(43,743)		(54,245)
Changes in estimates to pre-existing reserves	3,527		279		6,978		2,431

Reserve - end of period	$	139,991	$	116,546	$	139,991	$	116,546

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7. DEBT

Total debt consists of the following (in thousands):


	As of
	September 30, 2022						December 31, 2021
	Principal		Unamortized Debt Issuance (Costs)/Premium		Carrying Value		Principal		Unamortized Debt Issuance (Costs)/Premium		Carrying Value


5.875% Senior Notes due 2023(1)	$	350,000	$	(307)	$	349,693	$	350,000	$	(733)	$	349,267

5.625% Senior Notes due 2024	350,000		(763)		349,237		350,000		(1,166)		348,834

5.875% Senior Notes due 2027	500,000		(3,655)		496,345		500,000		(4,243)		495,757
6.625% Senior Notes due 2027	35,040		1,789		36,829		300,000		17,718		317,718
5.75% Senior Notes due 2028	450,000		(3,341)		446,659		450,000		(3,814)		446,186
5.125% Senior Notes due 2030	500,000		(4,965)		495,035		500,000		(5,440)		494,560
Senior Notes subtotal	$	2,185,040	$	(11,242)	$	2,173,798	$	2,450,000	$	2,322	$	2,452,322
Loans payable and other borrowings	409,791		—		409,791		404,386		—		404,386
$1 Billion Revolving Credit Facility(2)	—		—		—		—		—		—
$100 Million Revolving Credit Facility(2)	—		—		—		31,529		—		31,529
Mortgage warehouse borrowings	146,335		—		146,335		413,887		—		413,887
Total debt	$	2,741,166	$	(11,242)	$	2,729,924	$	3,299,802	$	2,322	$	3,302,124

(1)As of September 30, 2022, notice of full redemption for the entire outstanding principal amount of the notes was issued. The full notice of redemption states that the entire outstanding principal amount of the 2023 Notes will be redeemed on October 31, 2022 at a redemption price equal to 100.000% of the aggregate principal amount of the 2023 Notes to be redeemed plus the applicable premium (as defined in the indenture governing the 2023 Notes) and accrued and unpaid interest through the redemption date.

(2)The $1 Billion Revolving Credit Facility Agreement together with the $100 Million Revolving Credit Facility Agreement, the “Revolving Credit Facilities”

Debt Instruments

Excluding the debt instruments discussed below, the terms governing all other debt instruments listed in the table above have not substantially changed from the year ended December 31, 2021. For information regarding such instruments, refer to Note 8 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021. As of September 30, 2022, we were in compliance with all of the covenants in the debt instruments listed in the table above.

6.625% Senior Notes due 2027

Following our exchange offer in the first quarter of 2020 (the “Exchange Offer”), whereby Taylor Morrison Communities, Inc (“TM Communities”) offered to exchange any and all outstanding senior notes issued by William Lyon Homes (“WLH”), we had $290.4 million aggregate principal amount of 6.625% Senior Notes due 2027 issued by TM Communities (the “2027 6.625% TM Communities Notes”) and $9.6 million aggregate principal amount of 6.625% Senior Notes due 2027 issued by WLH (the “2027 6.625% WLH Notes” and together with the 2027 6.625% TM Communities Notes, the “2027 6.625% Senior Notes”). The 2027 6.625% TM Communities Notes are obligations of TM Communities and are guaranteed by Taylor Morrison Home III Corporation, Taylor Morrison Holdings, Inc. and their homebuilding subsidiaries (collectively, the “Guarantors”).

In connection with the consummation of the Exchange Offer, WLH entered into a supplemental indenture to eliminate substantially all of the covenants in the indenture governing the 2027 6.625% WLH Notes, including the requirements to offer to purchase such notes upon a change of control, and to eliminate certain other restrictive provisions and events that constitute an “Event of Default” in such indenture.

On June 13, 2022, TM Communities announced a cash tender offer to purchase any and all of the $290.4 million outstanding aggregate principal amount of the 2027 6.625% TM Communities Notes (the “Tender Offer”), which expired July 12, 2022. As of June 30, 2022, TM Communities had purchased $264.1 million of the 2027 6.625% TM Communities Notes pursuant to the Tender Offer using cash on hand and borrowings on our $1 Billion Revolving Credit Facility at a price equal to 100% of the principal amount, plus accrued and unpaid interest up to, but excluding, the settlement date. As a result of the Tender Offer, we recorded a total net gain on extinguishment of debt of approximately $13.5 million on the unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022. During the three months ended September 30, 2022,

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TM Communities repurchased an additional $0.8 million of the 2027 6.625% TM Communities Notes at a price equal to 97% of the principal amount, resulting in a total of $265.0 million in aggregate principal amount of outstanding 2027 6.625% TM Communities Notes being repurchased pursuant to the Tender Offer.

In connection with the Tender Offer, TM Communities also solicited consents from holders of the 2027 6.625% TM Communities Notes to amend the indenture governing such notes to, among other things, eliminate substantially all of the restrictive covenants of the indenture (the “Proposed Amendments”). As of June 27, 2022, TM Communities had received the requisite consents to effect the Proposed Amendments and, as a result, a supplemental indenture was executed to effect the Proposed Amendments, which became effective on June 29, 2022.

The remaining 2027 6.625% Senior Notes mature on July 15, 2027. On or after July 15, 2022, the remaining 2027 6.625% Senior Notes are redeemable at a price equal to 103.313% of principal (plus accrued and unpaid interest). On or after July 15, 2023, the 2027 6.625% Senior Notes are redeemable at a price equal to 102.208% of principal (plus accrued and unpaid interest). On or after July 31, 2024, the 2027 6.625% Senior Notes are redeemable at a price equal to a 101.104% of principal (plus accrued and unpaid interest). On or after July 15, 2025, the remaining 2027 6.625% Senior Notes are redeemable at a price equal to 100% of principal (plus accrued and unpaid interest).

$1 Billion Revolving Credit Facility

On September 9, 2022, we entered into an agreement to exercise the accordion feature under our existing Amended and Restated Credit Agreement (the “Credit Agreement”) increasing the aggregate commitments from $800.0 million to $1.0 billion. The commitments established have the same terms and conditions as the existing commitments under the Credit Agreement.

Our $1 Billion Revolving Credit Facility has a maturity date of March 11, 2027. We had no outstanding borrowings under our $1 Billion Revolving Credit Facility as of September 30, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021, we had $3.8 million and $1.1 million, respectively, of unamortized debt issuance costs relating to our $1 Billion Revolving Credit Facility, which are included in Prepaid expenses and other assets, net, on the unaudited Condensed Consolidated Balance Sheets. As of September 30, 2022 and December 31, 2021, we had $61.2 million and $58.7 million, respectively, of utilized letters of credit, resulting in $938.8 million and $741.3 million, respectively, of availability under the $1 Billion Revolving Credit Facility.

The $1 Billion Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level, currently of at least $2.8 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the $1 Billion Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the $1 Billion Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the $1 Billion Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the $1 Billion Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.

The $1 Billion Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, the payment of dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The $1 Billion Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control.

As of September 30, 2022, we were in compliance with all of the covenants under the $1 Billion Revolving Credit Facility.

Mortgage Warehouse Borrowings

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The following is a summary of our mortgage warehouse borrowings (in thousands):

As of September 30, 2022

Facility

Amount
Drawn

Facility
Amount

Interest Rate(1)

Expiration Date

Collateral (2)

Warehouse A

24,612

60,000

Daily SOFR + 1.70%

On Demand

Mortgage Loans

Warehouse B

20,578

75,000

BSBY 1M + 1.65%

On Demand

Mortgage Loans

Warehouse C

37,671

75,000

Term SOFR + 1.65%

On Demand

Mortgage Loans and Restricted Cash

Warehouse D

26,177

70,000

Daily SOFR + 1.50%

September 6, 2023

Mortgage Loans

Warehouse E

37,297

70,000

Term SOFR + 1.60%

On Demand

Mortgage Loans

Total

146,335

350,000

As of December 31, 2021

Facility

Amount Drawn

Facility Amount

Interest Rate(3)

Expiration Date

Collateral (2)

Warehouse A

10,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse B

86,409

150,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse C

116,601

250,000

LIBOR + 2.05%

On Demand

Mortgage Loans and Restricted Cash

Warehouse D

105,065

150,000

LIBOR + 1.65%

November 20, 2022

Mortgage Loans

Warehouse E

105,800

200,000

LIBOR + 1.50%

On Demand

Mortgage Loans

Total

413,887

760,000

(1) As of September 30, 2022, our warehouse borrowings transitioned from LIBOR to the Secured Overnight Financing Rate (SOFR), and the Bloomberg Short-Term Bank Yield Index (BSBY).

(2) The mortgage warehouse borrowings outstanding as of September 30, 2022 and December 31, 2021 were collateralized by $161.3 million and $467.5 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage loans held for sale, and approximately $0.6 million and $3.5 million, respectively, of cash which is restricted cash on our unaudited Condensed Consolidated Balance Sheets.

(3) Subject to certain interest rate floors.

Loans Payable and Other Borrowings

Loans payable and other borrowings as of September 30, 2022 and December 31, 2021 consist of project-level debt due to various land sellers and financial institutions for specific projects. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot closings or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at each of September 30, 2022 and December 31, 2021.

8. FAIR VALUE DISCLOSURES

ASC Topic 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:

Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.

Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.

Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.

The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of derivative assets and liabilities includes interest rate lock commitments (“IRLCs”) and mortgage backed securities (“MBS”). The fair value of IRLCs is based on the value of the underlying mortgage loan, quoted MBS prices and the

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probability that the mortgage loan will fund within the terms of the IRLCs. We estimate the fair value of the forward sales commitments based on quoted MBS prices. The fair value of our mortgage warehouse borrowings, loans payable and other borrowings, the borrowings under our Revolving Credit Facilities approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. The fair value of our Equity Security Investment in a public company is based upon quoted prices for identical assets in an active market. There were no changes to or transfers between the levels of the fair value hierarchy for any of our financial instruments as of September 30, 2022, when compared to December 31, 2021.

The carrying value and fair value of our financial instruments are as follows:


		September 30, 2022				December 31, 2021
(Dollars in thousands)	Level in Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Description:
Mortgage loans held for sale	2	$	161,264	$	161,264	$	467,534	$	467,534
IRLCs	3	(12,792)		(12,792)		2,110		2,110
MBSs	2	23,832		23,832		(449)		(449)

Mortgage warehouse borrowings	2	146,335		146,335		413,887		413,887
Loans payable and other borrowings	2	409,791		409,791		404,386		404,386


5.875% Senior Notes due 2023 (1)	2	349,693		350,476		349,267		365,890

5.625% Senior Notes due 2024 (1)	2	349,237		342,675		348,834		372,750

5.875% Senior Notes due 2027 (1)	2	496,345		465,625		495,757		560,000
6.625% Senior Notes due 2027 (1)	2	36,829		33,736		317,718		315,750
5.75% Senior Notes due 2028(1)	2	446,659		394,362		446,186		502,875
5.125% Senior Notes due 2030(1)	2	495,035		403,605		494,560		550,000

$100 Million Revolving Credit Facility	2	—		—		31,529		31,529
Equity Security	1	1,210		1,210		6,400		6,400

(1) Carrying value for Senior Notes, as presented, includes unamortized debt issuance costs and premiums. Debt issuance costs are not factored into the fair value calculation for the Senior Notes.

9. INCOME TAXES

The effective tax rate for the three and nine months ended September 30, 2022 was 22.6% and 23.8%, respectively, compared to 23.5% and 23.2%, respectively, for the same periods in 2021. For both the three and nine months ended September 30, 2022 and 2021 the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible executive compensation, excess tax benefits related to stock-based compensation and special deductions and credits relating to homebuilding activities.

At both September 30, 2022 and December 31, 2021, there were no unrecognized tax benefits.

10. STOCKHOLDERS’ EQUITY

Capital Stock

The Company’s authorized capital stock consists of 400,000,000 shares of common stock, par value $0.00001 per share (the “Common Stock”), and 50,000,000 shares of preferred stock, par value $0.00001 per share.

Stock Repurchase Program

On May 31, 2022, the Board of Directors authorized a new stock repurchase program which permits the Company to repurchase up to $500.0 million of the Company's Common Stock until December 31, 2023. The new stock repurchase program replaced the Company’s prior $250.0 million repurchase program, which had been scheduled to expire on June 30, 2024. Repurchases under the new program may occur from time to time through open market purchases, privately negotiated transactions or other transactions. The timing, manner, price and amount of any common stock repurchases will be determined by us in our discretion and will depend on a variety of factors, including prevailing market conditions, our liquidity, the terms

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of our debt instruments, legal requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. The program does not require us to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time.

The following table summarizes share repurchase activity for the periods presented:



	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Amount available for repurchase — beginning of period	$	425,000	$	191,659	$	230,413	$	86,831
Amount cancelled from expired or unused authorizations	—		—		(75,000)		—
Additional amount authorized for repurchase	—		—		500,000		250,000

Amount repurchased	(104,999)		(91,659)		(335,412)		(236,831)
Amount available for repurchase — end of period	$	320,001	$	100,000	$	320,001	$	100,000

The Company repurchased 4,213,256 and 12,940,941 shares under the share repurchase program during the three and nine months ended September 30, 2022, respectively. The number of shares repurchased were 3,309,196 and 8,565,933 during the three and nine months ended September 30, 2021, respectively.

11. STOCK BASED COMPENSATION

Equity-Based Compensation

In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the “Plan”). The Plan

was most recently amended and restated in May 2022. The Plan provides for the grant of stock options, restricted stock units

(“RSUs”), performance-based restricted stock units (“PRSUs”), and other equity-based awards deliverable in shares of our

Common Stock. As of September 30, 2022, we had an aggregate of 5,534,816 shares of Common Stock available for future

grants under the Plan.

The following table provides the outstanding balance of time-based and performance based RSUs and stock options as of September 30, 2022:


	Restricted Stock Units (time and performance)			Stock Options
	Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Exercise Price Per Share




Balance at September 30, 2022	1,618,601	$	27.34	3,397,097	$	23.24

The following table provides information regarding the amount and components of stock-based compensation expense, all of which is included in General and administrative expenses in the unaudited Condensed Consolidated Statements of Operations (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Restricted stock units (1)	$	4,215	$	3,746	$	14,133	$	12,108
Stock options	1,118		1,047		3,341		3,020

Total stock compensation	$	5,333	$	4,793	$	17,474	$	15,128

(1) Includes compensation expense related to time-based RSUs and performance-based RSUs.

At September 30, 2022 and December 31, 2021, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $32.3 million and $26.5 million, respectively.

12. REPORTING SEGMENTS

We have multiple homebuilding operating components which are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer service. We aggregate our homebuilding operating components into three reporting segments, East, Central, and West, based on similar long-term

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economic characteristics. The activity from our Build-to-Rent and Urban Form operations are included in our Corporate segment. We also have a financial services reporting segment. We have no inter-segment sales as all sales are to external customers.

Our reporting segments are as follows:


East			Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa
Central			Austin, Dallas, Denver, and Houston
West			Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial Services			Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services

Segment information is as follows (in thousands):


	Three Months Ended September 30, 2022
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Total revenue	$	649,058	$	522,846	$	831,409	$	27,749	$	3,582	$	2,034,644

Gross margin	176,015		141,076		231,100		7,354		2,395		557,940
Selling, general and administrative expenses	(42,126)		(32,589)		(39,193)		—		(33,141)		(147,049)
Net (loss)/income from unconsolidated entities	—		(86)		(899)		546		(741)		(1,180)
Interest and other income/(expense), net(2)	(4,180)		(1,325)		(4,065)		—		(563)		(10,133)
Gain on extinguishment of debt, net	—		—		—		—		71		71
Income/(loss) before income taxes	$	129,709	$	107,076	$	186,943	$	7,900	$	(31,979)	$	399,649

(1) Includes the activity from our Build-To-Rent and Urban Form operations.

(2) Interest and other income/(expense), net includes pre-acquisition write-offs of terminated projects.


	Three Months Ended September 30, 2021
	East		Central		West		Financial Services		Corporate and Unallocated (1)		Total
Total revenue	$	571,879	$	401,948	$	846,082	$	38,046	$	796	$	1,858,751

Gross margin	129,234		78,292		173,062		11,844		18		392,450
Selling, general and administrative expenses	(43,439)		(31,325)		(48,627)		—		(44,219)		(167,610)
Net (loss)/income from unconsolidated entities	—		(15)		143		1,354		—		1,482
Interest and other income/(expense), net (2)	(419)		(803)		254		—		211		(757)


Income/(loss) before income taxes	$	85,376	$	46,149	$	124,832	$	13,198	$	(43,990)	$	225,565

(1) Includes the activity from our Build-To-Rent and Urban Form operations.

(2) Interest and other income/(expense), net includes pre-acquisition write-offs of terminated projects.



	Nine Months Ended September 30, 2022
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Total revenue	$	1,810,041	$	1,351,093	$	2,433,893	$	98,419	$	39,345	$	5,732,791

Gross margin	476,241		332,440		635,318		32,327		16,222		1,492,548
Selling, general and administrative expenses	(127,041)		(95,527)		(125,086)		—		(122,201)		(469,855)
Net income/(loss) from unconsolidated entities	—		(40)		(7,004)		4,799		(741)		(2,986)
Interest and other income/(expense), net(2)	5,498		(4,262)		(9,734)		—		(605)		(9,103)
Gain on extinguishment of debt, net	—		—		—		—		13,542		13,542
Income/(loss) before income taxes	$	354,698	$	232,611	$	493,494	$	37,126	$	(93,783)	$	1,024,146

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(1) Includes the activity from our Build-To-Rent and Urban Form operations.

(2) Interest and other income/(expense), net includes pre-acquisition write-offs of terminated projects.



	Nine Months Ended September 30, 2021
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Total revenue	$	1,606,603	$	1,110,399	$	2,158,251	$	119,503	$	1,087	$	4,995,843

Gross margin	336,542		212,076		404,093		43,367		(484)		995,594
Selling, general and administrative expenses	(128,402)		(92,225)		(137,384)		—		(124,661)		(482,672)
Net (loss)/income from unconsolidated entities	—		(85)		2,139		7,225		(10)		9,269
Interest and other income/(expense), net (2)	(328)		(1,694)		(1,165)		—		1,526		(1,661)


Income/(loss) before income taxes	$	207,812	$	118,072	$	267,683	$	50,592	$	(123,629)	$	520,530

(1) Includes the activity from our Build-To-Rent and Urban Form operations.

(2) Interest and other income/(expense), net includes pre-acquisition write-offs of terminated projects.


	As of September 30, 2022
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Real estate inventory and land deposits	$	2,039,049	$	1,538,310	$	2,672,058	$	—	$	—	$	6,249,417
Investments in unconsolidated entities	46,629		92,884		119,752		4,673		42,143		306,081
Other assets	168,229		245,508		610,596		278,890		734,905		2,038,128
Total assets	$	2,253,907	$	1,876,702	$	3,402,406	$	283,563	$	777,048	$	8,593,626

(1) Includes corporate cash and the assets from our Build-To-Rent and Urban Form operations.


	As of December 31, 2021
	East		Central		West		Financial Services		Corporate and Unallocated (1)		Total
Real estate inventory and land deposits	$	1,781,948	$	1,282,024	$	2,665,084	$	—	$	—	$	5,729,056
Investments in unconsolidated entities	—		87,600		79,531		4,275		—		171,406
Other assets	196,126		221,906		588,520		559,233		1,261,530		2,827,315
Total assets	$	1,978,074	$	1,591,530	$	3,333,135	$	563,508	$	1,261,530	$	8,727,777

(1) Includes corporate cash and the assets from our Build-To-Rent and Urban Form operations.

13. COMMITMENTS AND CONTINGENCIES

Letters of Credit and Surety Bonds — We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $1.2 billion as of September 30, 2022 and December 31, 2021. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding letters of credit or surety bonds as of September 30, 2022 will be drawn upon.

Purchase Commitments —We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in the routine conduct of our business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors of the property owner generally have no recourse. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. At September 30, 2022 and December 31, 2021, the aggregate purchase price of these contracts was $1.5 billion and $1.3 billion, respectively.

Legal Proceedings — We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal

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laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, title and insurance agency operations, safety and other employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.

We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. At September 30, 2022 and December 31, 2021, our legal accruals were $20.5 million and $21.7 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. Predicting the ultimate resolution of the pending matters, the related timing or the eventual loss associated with these matters is inherently difficult. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the recorded reserves relating to such matters. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.

On April 26, 2017, a class action complaint was filed in the Circuit Court of the Tenth Judicial Circuit in and for Polk County, Florida by Norman Gundel, William Mann, and Brenda Taylor against Avatar Properties, Inc. (an acquired AV Homes entity), generally alleging that our collection of club membership fees in connection with the use of one of our amenities in our East homebuilding segment violates various laws relating to homeowner associations and other Florida-specific laws. The class action complaint seeks an injunction to prohibit future collection of club membership fees. On November 2, 2021, the court determined that the club membership fees were improper and that plaintiffs were entitled to $35.0 million in fee reimbursements. We appealed the court’s ruling to the Second District Court of Appeal on November 29, 2021, and as of September 30, 2022, our appeal remains pending. Plaintiffs have agreed to continue to pay club membership fees pending the outcome of the appeal. We believe, based on our assessment and the opinion of external legal counsel, that the court’s legal interpretation constitutes legal error and the court incorrectly ruled on this matter. In accordance with ASC Topic 450, Contingencies, we evaluated the range of loss and the likelihood of each potential amount of loss within the range. While the ultimate outcome and the costs associated with litigation are inherently uncertain and difficult to predict, in evaluating the potential outcomes, we believe the more likely outcome is that we win the appeal. This belief is based on our review of the legal merit of the judgement, as well as the opinion of external legal counsel. Accordingly, in assessing the range of possible loss, we believe the more likely outcome is that we win on appeal and will have zero liability.

Leases — Our leases primarily consist of office space, construction trailers, model home leasebacks, a ground lease, equipment, and storage units. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC 842, Leases. Lease obligations were $91.6 million and $96.2 million as of September 30, 2022 and December 31, 2021, respectively. We recorded lease expense of approximately $6.9 million and $20.5 million for the three and nine months ended September 30, 2022, and $4.2 million and $12.2 million for the three and nine months ended September 30, 2021, respectively, within General and administrative expenses on our unaudited Condensed Consolidated Statement of Operations.

14. MORTGAGE HEDGING ACTIVITIES

We enter into IRLCs to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between 30 and 60 days), with customers who have applied for a loan and meet certain credit and underwriting criteria. These IRLCs meet the definition of a derivative and are reflected on the balance sheet at fair value with changes in fair value recognized in Financial Services revenue/expenses on the unaudited Condensed Consolidated Statements of Operations. Unrealized gains and losses on the IRLCs, reflected as derivative assets or liabilities, are measured based on the fair value of the underlying mortgage loan, quoted Agency MBS prices, estimates of the fair value of the mortgage servicing rights and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The fair value of the forward loan sales commitment and mandatory delivery commitments being used to hedge the IRLCs and mortgage loans held for sale not committed to be purchased by investors are based on quoted Agency MBS prices.

The following summarizes derivative instrument assets (liabilities) as of the periods presented:

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	As of
	September 30, 2022				December 31, 2021
(Dollars in thousands)	Fair Value		Notional Amount (1)		Fair Value		Notional Amount (1)
IRLCs	$	(12,792)	$	651,953	$	2,110	$	158,299
MBSs	23,832		596,000		(449)		407,000
Total	$	11,040			$	1,661

(1) The notional amounts in the table above include mandatory and best effort mortgages, that have been locked and approved.

Total commitments to originate loans approximated $716.6 million and $173.7 million as of September 30, 2022 and December 31, 2021, respectively. This amount represents the commitments to originate loans that have been locked and approved by underwriting. The notional amounts in the table above includes mandatory and best effort loans that have been locked and approved by underwriting.

We have exposure to credit loss in the event of contractual non-performance by our trading counterparties in derivative instruments that we use in our rate risk management activities. We manage this credit risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple counterparties, placing contractual limits on the amount of unsecured credit extended to any single counterparty, and entering into netting agreements with counterparties, as appropriate. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For purposes of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “the Company,” “we,” “us,” or “our” refer to Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries. The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements included elsewhere in this quarterly report.

Forward-Looking Statements

This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or management’s intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business and operations strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “can,” “could,” “might,” “project” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”) and in our subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”). Although we believe that these forward-looking statements are based upon reasonable assumptions and currently available information, you should be aware that many factors, including those described under the heading “Risk Factors” in the Annual Report and in our subsequent filings with the SEC, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law.

Business Overview

Our principal business is residential homebuilding and the development of lifestyle communities with operations geographically focused in Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. We serve a wide array of consumer groups from coast to coast, including entry-level, move-up, and resort lifestyle (formerly referred to as 55-plus active lifestyle) buyers, building single and multi-family attached and detached homes. Our homebuilding company operates under our Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade brand names. We operate a “Build-to-Rent” homebuilding business where we serve as a land acquirer, developer, and homebuilder. We also operate Urban Form Development, LLC (“Urban Form”), which primarily develops and constructs multi-use properties consisting of commercial space, retail, and multi-family units. We have operations which provide financial services to customers through our wholly owned mortgage subsidiary, Taylor Morrison Home Funding, INC (“TMHF”), title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”), and homeowner’s insurance policies through our insurance agency, Taylor Morrison Insurance Services, LLC (“TMIS”). Our business as of September 30, 2022 is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West and Financial Services, as follows:


East						Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa
Central						Austin, Dallas, Denver, and Houston
West						Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial Services						Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services

Community development includes the acquisition and development of land, which may include obtaining significant planning and entitlement approvals and completing construction of off-site and on-site utilities and infrastructure. We generally operate as community developers, but in some communities we operate solely as merchant builders, in which case we acquire fully entitled and developed lots. We remain disciplined in our underwriting to acquire land where we see opportunities to drive

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profitable growth over the full cycle, with the land acquisitions we are approving today largely expected to impact deliveries in the next 24 to 48 months.

In our homebuilding operations, we either directly, or indirectly through our subcontractors, purchase the significant materials necessary to construct a home such as drywall, cement, steel, lumber, insulation and the other building materials. While these materials are generally widely available from a variety of sources, from time to time we experience material shortages on a localized basis which can substantially increase the price for such materials and our construction process can be slowed.

As of September 30, 2022, we employed approximately 3,000 full-time equivalent persons. Of these, approximately 2,550 were engaged in corporate and homebuilding operations, and the remaining approximately 450 were engaged in financial services.

Factors Affecting Comparability of Results

For the three and nine months ended September 30, 2022, we recognized a $0.8 million and $14.5 million gain on land transfers relating to our unconsolidated joint ventures, respectively, which is included in Other expense/(income), net on the unaudited Condensed Consolidated Statements of Operations. In addition, for the three and nine months ended September 30, 2022, we recognized a $71 thousand and $13.5 million net gain on extinguishment of debt relating to our partial redemption of our 6.625% Senior Notes due 2027 which is included in Gain on extinguishment of debt, net on our unaudited Condensed Consolidated Statements of Operations. We did not incur such costs for the three or nine months ended September 30, 2021.

Third Quarter 2022 Highlights (all comparisons are of the current quarter to the prior year quarter, unless otherwise indicated):

•Home closings revenue increased 12 percent to $2.0 billion.

•Home closings gross margin improved 630 basis points to 27.5 percent.

•SG&A as a percentage of home closings revenue improved 210 basis points to 7.4 percent.

•Homebuilding lot supply increased three percent to approximately 80,000 owned and controlled homesites.

•Controlled lots as a percentage of total lot supply increased approximately 600 basis points to 42 percent.

•Repurchased 4.2 million shares outstanding for $105 million.

•Return on equity improved 1,300 basis points to 25.8 percent.

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Results of Operations

The following table sets forth our results of operations for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2022			2021			2022			2021
Statements of Operations Data:
Home closings revenue, net	$	1,983,775		$	1,772,495		$	5,511,204		$	4,780,304
Land closings revenue	14,225			42,228			66,651			79,174
Financial services revenue	27,749			38,046			98,419			119,503
Amenity and other revenue	8,895			5,982			56,517			16,862
Total revenue	2,034,644			1,858,751			5,732,791			4,995,843
Cost of home closings	1,438,164			1,397,319			4,084,748			3,838,602
Cost of land closings	11,571			36,439			50,139			68,604
Financial services expenses	20,395			26,202			66,092			76,136
Amenity and other expenses	6,574			6,341			39,264			16,907
Gross margin	557,940			392,450			1,492,548			995,594
Sales, commissions and other marketing costs	94,692			97,185			279,950			280,697
General and administrative expenses	52,357			70,425			189,905			201,975
Net loss/(income) from unconsolidated entities	1,180			(1,482)			2,986			(9,269)
Interest expense, net	4,382			710			13,823			594
Other expense/(income), net	5,751			47			(4,720)			1,067

Gain on extinguishment of debt, net	(71)			—			(13,542)			—

Income before income taxes	399,649			225,565			1,024,146			520,530
Income tax provision	90,418			53,098			243,300			120,865







Net income before allocation to non-controlling interests	309,231			172,467			780,846			399,665
Net loss/(income) attributable to non-controlling interests — joint ventures	548			(4,333)			(3,377)			(9,363)



Net income available to Taylor Morrison Home Corporation	$	309,779		$	168,134		$	777,469		$	390,302
Home closings gross margin	27.5		%	21.2		%	25.9		%	19.7		%

Sales, commissions and other marketing costs as a percentage of home closings revenue, net	4.8		%	5.5		%	5.1		%	5.9		%
General and administrative expenses as a percentage of home closings revenue, net	2.6		%	4.0		%	3.4		%	4.2		%

Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this quarterly report relating to: (i) adjusted net income and adjusted earnings per common share, (ii) adjusted income before income taxes and related margin, (iii) EBITDA and adjusted EBITDA and (iv) net homebuilding debt to capitalization ratio.

Adjusted net income, adjusted earnings per common share and adjusted income before income taxes and related margin are non-GAAP financial measures that reflect the net income/(loss) available to the Company excluding the impact of gains on land transfers and extinguishment of debt, net, and in the case of adjusted net income and adjusted earnings per common share, the tax impact due to such items. EBITDA and Adjusted EBITDA are non-GAAP financial measures that measure performance by adjusting net income before allocation to non-controlling interests to exclude interest expense/(income), net, amortization of capitalized interest, income taxes, depreciation and amortization (EBITDA), non-cash compensation expense, if any, gains on land transfers and extinguishment of debt, net. Net homebuilding debt to capitalization ratio is a non-GAAP financial measure we calculate by dividing (i) total debt, plus unamortized debt issuance cost/(premium), net, and less mortgage warehouse borrowings, net of unrestricted cash and cash equivalents, by (ii) total capitalization (the sum of net homebuilding debt and total stockholders’ equity).

Management uses these non-GAAP financial measures to evaluate our performance on a consolidated basis, as well as the performance of our regions, and to set targets for performance-based compensation. We also use the ratio of net homebuilding

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debt to total capitalization as an indicator of overall leverage and to evaluate our performance against other companies in the homebuilding industry. In the future, we may include additional adjustments in the above-described non-GAAP financial measures to the extent we deem them appropriate and useful to management and investors.

We believe that adjusted net income, adjusted earnings per common share, adjusted income before income taxes and related margin, as well as EBITDA and adjusted EBITDA, are useful for investors in order to allow them to evaluate our operations without the effects of various items we do not believe are characteristic of our ongoing operations or performance and also because such metrics assist both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted EBITDA also provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, or unusual items. Because we use the ratio of net homebuilding debt to total capitalization to evaluate our performance against other companies in the homebuilding industry, we believe this measure is also relevant and useful to investors for that reason.

These non-GAAP financial measures should be considered in addition to, rather than as a substitute for, the comparable U.S. GAAP financial measures of our operating performance or liquidity. Although other companies in the homebuilding industry may report similar information, their definitions may differ. We urge investors to understand the methods used by other companies to calculate similarly-titled non-GAAP financial measures before comparing their measures to ours.



Adjusted Net Income and Adjusted Earnings Per Common Share
	Three Months Ended September 30,
(Dollars in thousands, except per share data)	2022		2021








Net income available to TMHC	$	309,779	$	168,134





Gain on land transfers	(808)		—
Gain on extinguishment of debt, net	(71)		—
Tax impact due to above non-GAAP reconciling items	205		—
Adjusted net income	$	309,105	$	168,134

Basic weighted average number of shares	112,701		124,378
Adjusted earnings per common share - Basic	$	2.74	$	1.35

Diluted weighted average number of shares	113,780		125,770
Adjusted earnings per common share - Diluted	$	2.72	$	1.34

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Adjusted Income Before Income Taxes and Related Margin
	Three Months Ended September 30,
(Dollars in thousands)	2022			2021
Income before income taxes	$	399,649		$	225,565



Gain on land transfers	(808)			—
Gain on extinguishment of debt, net	(71)			—
Adjusted income before income taxes	$	398,770		$	225,565

Total revenue	$	2,034,644		$	1,858,751

Income before income taxes margin	19.6		%	12.1		%
Adjusted income before income taxes margin	19.6		%	12.1		%


EBITDA and Adjusted EBITDA Reconciliation
	Three Months Ended September 30,
(Dollars in thousands)	2022			2021
Net income before allocation to non-controlling interests	$	309,231		$	172,467
Interest expense, net	4,382			710
Amortization of capitalized interest	33,774			37,951
Income tax provision	90,418			53,098
Depreciation and amortization	1,484			2,164
EBITDA	$	439,289		$	266,390
Non-cash compensation expense	5,333			4,793



Gain on land transfers	(808)			—
Gain on extinguishment of debt, net	(71)			—
Adjusted EBITDA	$	443,743		$	271,183

Total revenue	$	2,034,644		$	1,858,751
Net income before allocation to non-controlling interests as a percentage of total revenue	15.2		%	9.3		%
EBITDA as a percentage of total revenue	21.6		%	14.3		%
Adjusted EBITDA as a percentage of total revenue	21.8		%	14.6		%

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Net Homebuilding Debt to Capitalization Ratio Reconciliation
(Dollars in thousands)	As of September 30, 2022			As of June 30, 2022			As of September 30, 2021
Total debt	$	2,729,924		$	2,950,744		$	3,221,569
Plus: unamortized debt issuance cost/(premium), net	11,242			11,891			(2,333)
Less: mortgage warehouse borrowings	(146,335)			(179,555)			(235,685)
Total homebuilding debt	$	2,594,831		$	2,783,080		$	2,983,551
Less: cash and cash equivalents	(329,244)			(378,340)			(373,407)
Net homebuilding debt	$	2,265,587		$	2,404,740		$	2,610,144
Total equity	4,403,466			4,193,895			3,745,896
Total capitalization	$	6,669,053		$	6,598,635		$	6,356,040

Net homebuilding debt to capitalization ratio	34.0		%	36.4		%	41.1		%

Three and nine months ended September 30, 2022 compared to three and nine months ended September 30, 2021

The results for the three and nine months ended September 30, 2022 and 2021 were impacted by various macro economic conditions. From the second half of 2020 through the first quarter of 2022, demand for housing increased nationwide. Subsequently, multiple increases in mortgage interest rates beginning in March 2022 have caused buyer apprehension and affordability concerns, resulting in an increase in cancellations. We believe these have impacted us throughout the year, however the multiple increases in interest rates by the Federal Reserve in recent months impacted our net sales orders and cancellations, for the three months ended September 30, 2022 in particular. The overall strong demand for housing in the prior year and first half of 2022 allowed us to utilize pricing strategies that mitigated increases in costs. The average sales price for 2022 net sales orders, backlog, and homes closed all increased compared to the prior year. We continue to experience market-wide supply chain disruptions, trade labor shortages, and high costs related to materials due to inflationary impacts. However, these supply chain delays and labor shortages have extended our build cycle times. To combat this, several markets have shifted to a strategy of selling spec homes, which allows the homes to be further along the cycle time before releasing them to be sold. Operational information related to each period is presented below:

Ending Active Selling Communities


	As of September 30, 2022	As of June 30, 2022	Change
East	118	117	0.9	%
Central	105	104	1.0
West	103	102	1.0
Total	326	323	0.9	%

Net Sales Orders


	Three Months Ended September 30,
	Net Sales Orders (1)				Sales Value (1)						Average Selling Price
(Dollars in thousands)	2022	2021	Change		2022		2021		Change		2022		2021		Change
East	1,041	1,279	(18.6)	%	$	640,093	$	742,449	(13.8)	%	$	615	$	580	6.0	%
Central	450	921	(51.1)		267,681		577,477		(53.6)		595		627		(5.1)
West	578	1,172	(50.7)		372,223		840,963		(55.7)		644		718		(10.3)
Total	2,069	3,372	(38.6)	%	$	1,279,997	$	2,160,889	(40.8)	%	$	619	$	641	(3.4)	%

(1) Net sales orders and sales value represent the number and dollar value, respectively, of new sales contracts executed with customers, net of cancellations.

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	Nine Months Ended September 30,
	Net Sales Orders (1)				Sales Value (1)						Average Selling Price
(Dollars in thousands)	2022	2021	Change		2022		2021		Change		2022		2021		Change
East	3,189	4,358	(26.8)	%	$	1,976,798	$	2,334,431	(15.3)	%	$	620	$	536	15.7	%
Central	1,979	2,843	(30.4)		1,294,106		1,661,934		(22.1)		654		585		11.8
West	2,509	4,085	(38.6)		1,878,886		2,680,460		(29.9)		749		656		14.2
Total	7,677	11,286	(32.0)	%	$	5,149,790	$	6,676,825	(22.9)	%	$	671	$	592	13.3	%

Net sales orders and sales value decreased by 38.6% and 40.8%, for the three months ended September 30, 2022, and 32.0% and 22.9%, for the nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. We believe the decreases were primarily the result of the change in economic conditions and home buyer apprehensions due to rising mortgage interest rates and inflationary pressures. We experienced sales price appreciation over recent quarters driving an increase in average selling price for the nine months ended September 30, 2022 compared to the same period in the prior year. However, during the three months ended September 30, 2022 we began offering pricing incentives or discounts in certain markets which caused the overall average selling price to decrease for the quarter compared to the same quarter in the prior year.

Sales Order Cancellations


	Cancellation Rate(1)
	Three Months Ended September 30,				Nine Months Ended September 30,

	2022		2021		2022		2021
East	9.2	%	5.6	%	7.3	%	5.5	%
Central	22.5	%	7.5	%	12.8	%	6.7	%
West	20.2	%	7.4	%	12.7	%	6.4	%
Total Company	15.6	%	6.7	%	10.6	%	6.1	%

(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.

The total company cancellation rate increased for the three and nine months ended September 30, 2022 compared to the same periods in the prior year. This increase in cancellations is due to increases in mortgage interest rates, buyer apprehensions, and other macro economic conditions such as inflation.

Sales Order Backlog


	As of September 30,
	Sold Homes in Backlog (1)				Sales Value						Average Selling Price
(Dollars in thousands)	2022	2021	Change		2022		2021		Change		2022		2021		Change
East	3,256	3,729	(12.7)	%	$	2,121,673	$	2,090,661	1.5	%	$	652	$	561	16.2	%
Central	2,489	2,995	(16.9)		1,694,111		1,760,401		(3.8)		681		588		15.8
West	2,196	3,549	(38.1)		1,579,937		2,272,904		(30.5)		719		640		12.3
Total	7,941	10,273	(22.7)	%	$	5,395,721	$	6,123,966	(11.9)	%	$	679	$	596	13.9	%

(1) Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in cancellations.

Total sold homes in backlog and total sales value decreased by 22.7% and 11.9% at September 30, 2022 and September 30, 2021, respectively. The decrease in sold homes in backlog is primarily the result of a decrease in net sales as well as an increase in cancellations. Despite a lower number of sold homes in backlog and total sales value, the average selling price of homes in backlog increased by 13.9% as a result of sales price appreciation over the past several quarters.

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Home Closings Revenue


	Three Months Ended September 30,
	Homes Closed				Home Closings Revenue, Net						Average Selling Price
(Dollars in thousands)	2022	2021	Change		2022		2021		Change		2022		2021		Change
East	1,118	1,167	(4.2)	%	$	638,270	$	554,995	15.0	%	$	571	$	476	20.0	%
Central	835	764	9.3		522,247		398,762		31.0		625		522		19.7
West	1,097	1,396	(21.4)		823,258		818,738		0.6		750		586		28.0
Total	3,050	3,327	(8.3)	%	$	1,983,775	$	1,772,495	11.9	%	$	650	$	533	22.0	%



	Nine Months Ended September 30,
	Homes Closed				Home Closings Revenue, Net						Average Selling Price
(Dollars in thousands)	2022	2021	Change		2022		2021		Change		2022		2021		Change
East	3,152	3,464	(9.0)	%	$	1,757,444	$	1,564,206	12.4	%	$	558	$	452	23.5	%
Central	2,277	2,246	1.4		1,347,828		1,101,681		22.3		592		491		20.6
West	3,421	3,706	(7.7)		2,405,932		2,114,417		13.8		703		571		23.1
Total	8,850	9,416	(6.0)	%	$	5,511,204	$	4,780,304	15.3	%	$	623	$	508	22.6	%

The number of homes closed decreased by 8.3% and 6.0%, for the three and nine months ended September 30, 2022, respectively, while home closings revenue, net increased by 11.9% and 15.3%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The decrease in the number of homes closed is primarily due to an increase in cancellations in the current year periods compared to the prior year periods. The increase in home closings revenue, net is a result of sales price appreciation which caused average selling prices to increase by 22.0% and 22.6% for the three and nine months ended September 30, 2022, respectively.

Land Closings Revenue


	Three Months Ended September 30,
(Dollars in thousands)	2022		2021		Change
East	$	5,732	$	11,987	$	(6,255)
Central	599		3,186		(2,587)
West	7,894		27,055		(19,161)
Total	$	14,225	$	42,228	$	(28,003)



	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		Change
East	$	36,482	$	27,643	$	8,839
Central	3,265		8,718		(5,453)
West	26,904		42,813		(15,909)
Total	$	66,651	$	79,174	$	(12,523)

We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. Land and lot sales occur at various intervals and

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varying degrees of profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending upon market opportunities and our land management strategy. The land closings revenue in the East for the

nine months ended September 30, 2022 was due to the sale of certain commercial assets as well as the sale of residential lots in our Florida market. In the prior year, the land closings revenue in the West for the three months ended September 30, 2021 was due to the sale of certain projects in our Oregon market while the land closings revenue for the nine months ended September 30, 2021 also includes project sales in our Washington and Arizona markets.

Amenity and Other Revenue


	Three Months Ended September 30,
(Dollars in thousands)	2022		2021		Change
East	$	5,056	$	4,897	$	159
Central	—		—		—
West	257		289		(32)
Corporate	3,582		796		2,786
Total	$	8,895	$	5,982	$	2,913



	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		Change
East	$	16,115	$	14,754	$	1,361
Central	—		—		—
West	1,057		1,021		36
Corporate	39,345		1,087		38,258
Total	$	56,517	$	16,862	$	39,655

Several of our communities operate amenities such as golf courses, club houses, and fitness centers. We provide club members access to the amenity facilities and other services in exchange for club dues and fees. Our Corporate region also includes the activity relating to our Build-To-Rent and Urban Form operations. The increase in amenity and other revenue in Corporate for the nine months ended September 30, 2022 is due to the sale of an asset relating to our Urban Form operations.

Home Closings Gross Margin


	Three Months Ended September 30,
	East						Central						West						Consolidated
(Dollars in thousands)	2022			2021			2022			2021			2022			2021			2022			2021
Home closings revenue, net	$	638,270		$	554,995		$	522,247		$	398,762		$	823,258		$	818,738		$	1,983,775		$	1,772,495
Cost of home closings	460,137			428,908			381,181			320,783			596,846			647,628			1,438,164			1,397,319
Home closings gross margin	$	178,133		$	126,087		$	141,066		$	77,979		$	226,412		$	171,110		$	545,611		$	375,176



Home closings gross margin %	27.9		%	22.7		%	27.0		%	19.6		%	27.5		%	20.9		%	27.5		%	21.2		%

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	Nine Months Ended September 30,
	East						Central						West						Consolidated
(Dollars in thousands)	2022			2021			2022			2021			2022			2021			2022			2021
Home closings revenue, net	$	1,757,444		$	1,564,206		$	1,347,828		$	1,101,681		$	2,405,932		$	2,114,417		$	5,511,204		$	4,780,304
Cost of home closings	1,287,670			1,238,056			1,016,006			888,162			1,781,072			1,712,384			4,084,748			3,838,602
Home closings gross margin	$	469,774		$	326,150		$	331,822		$	213,519		$	624,860		$	402,033		$	1,426,456		$	941,702



Home closings gross margin %	26.7		%	20.9		%	24.6		%	19.4		%	26.0		%	19.0		%	25.9		%	19.7		%

Home closings gross margin increased 630 basis points to 27.5% for the three months ended September 30, 2022, compared to 21.2% in the prior year period and 620 basis points to 25.9% for the nine months ended September 30, 2022, compared to 19.7% in the prior year period. The increases for both the three and nine months ended September 30, 2022 is a reflection of pricing power in excess of inflationary cost pressure, operational enhancements, and acquisition synergies. In addition, we strategically metered sales releases to better manage supply chain and labor constraints in the earlier part of 2022.

Financial Services

The following is a summary for the periods presented of our financial services income before income taxes as well as supplemental data:



	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)		2022		2021		Change		2022		2021		Change
Financial services revenue		$	18,291	$	29,721	(38.5)	%	$	71,792	$	96,756	(25.8)	%


Title services and other revenue		9,458		8,325		13.6		26,627		22,747		17.1
Total financial services revenue		27,749		38,046		(27.1)	%	98,419		119,503		(17.6)	%
Financial services net income from unconsolidated entities		546		1,354		(59.7)		4,799		7,225		(33.6)
Total revenue		28,295		39,400		(28.2)		103,218		126,728		(18.6)
Financial services expenses		20,395		26,202		(22.2)		66,092		76,136		(13.2)

Financial services income before income taxes		$	7,900	$	13,198	(40.1)	%	$	37,126	$	50,592	(26.6)	%

Total originations:
Number of Loans		1,551		2,254		(31.2)	%	4,728		6,718		(29.6)	%
Principal		$	701,323	$	900,404	(22.1)	%	$	2,108,122	$	2,621,103	(19.6)	%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Supplemental data:
Average FICO score	752		752		753		751
Funded origination breakdown:
Government (FHA,VA,USDA)	18	%	17	%	17	%	18	%
Other agency	75	%	79	%	77	%	79	%
Total agency	93	%	96	%	94	%	97	%
Non-agency	7	%	4	%	6	%	3	%
Total funded originations	100	%	100	%	100	%	100	%

Total financial services revenue decreased by 27.1% and 17.6% for the three and nine months ended September 30, 2022 compared to the same periods in the prior year, respectively. The decrease in total financial services revenue was a result of lower home mortgage originations and lower home closings during the periods.

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Sales, Commissions and Other Marketing Costs

Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, decreased to 4.8% from 5.5%, and to 5.1% from 5.9% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The decrease was primarily driven by leverage in controllable sales and marketing costs.

General and Administrative Expenses

General and administrative expenses as a percentage of home closings revenue, net, decreased to 2.6% from 4.0% and to 3.4% from 4.2% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The decrease was primarily due to the increase in home closings revenue, along with decreases in general and administrative expenses.

Net Loss/(Income) from Unconsolidated Entities

We had a net loss from unconsolidated entities of $1.2 million and net income from unconsolidated entities of $1.5 million for the three months ended September 30, 2022 and 2021, respectively. We also had a net loss of $3.0 million and net income of $9.3 million for the nine months ended September 30, 2022 and 2021, respectively. Net loss/(income) generated from unconsolidated entities is dependent on the number of joint venture investments and the stage of our investment. We recently made several new investments in unconsolidated joint ventures which have yet to yield returns.

Other Expense/(Income), Net

Other expense, net was $5.8 million for the three months ended September 30, 2022 and other income, net was $4.7 million for the nine months ended September 30, 2022. Other expense, net was $47.0 thousand and $1.1 million for the same periods in the prior year, respectively. For the three months ended September 30, 2022, other expense was primarily related to the write-off of pre-acquisition costs during the period, and for the nine months ended September 30, 2022 other income was primarily related to $14.5 million in gains on land transferred at fair value as part of investments in two new joint ventures with third parties. The gain on land transferred represents the difference between the fair value and carrying value of the land at the time of transfer.

Gain on Extinguishment of Debt, Net

Gain on extinguishment of debt, net was $71 thousand for the three months ended September 30, 2022 and 13.5 million for the nine months ended September 30, 2022. This gain is due to the Tender Offer and purchase of our 6.625% Senior Notes due 2027 which was primarily executed in June 2022 and finalized in July 2022.

Income Tax Provision

The effective tax rate for the three and nine months ended September 30, 2022 was 22.6% and 23.8%, compared to 23.5% and 23.2%, respectively, for the same periods in the prior year. For both the three and nine months ended September 30, 2022 and September 30, 2021 the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible executive compensation, excess tax benefits related to stock-based compensation and special deductions and credits relating to homebuilding activities.

Net Income

Net income and diluted earnings per share for the three months ended September 30, 2022 was $309.8 million and $2.72, respectively. Net income and diluted earnings per share for the three months ended September 30, 2021 was $168.1 million and $1.34, respectively. The increases in net income and diluted earnings per share from the prior year were primarily attributable to higher home closing revenue, net and higher gross margin dollars.

Liquidity and Capital Resources

Liquidity

We finance our operations through the following:

•Cash generated from operations;

•Borrowings under our Revolving Credit Facilities;

•Our various series of Senior Notes;

•Mortgage warehouse facilities;

•Project-level real estate financing (including non-recourse loans, land banking, and joint ventures); and

•Performance, payment and completion surety bonds, and letters of credit.

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Cash flows for each of our communities depend on the status of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash expenditures for land acquisitions, on and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.

On September 28, 2022, we announced that our indirect wholly owned subsidiary, Taylor Morrison Communities, Inc. issued a notice of full redemption for the entire outstanding principal amount of the 5.875% Senior Notes due 2023 (the “2023 Notes”). The full notice of redemption states that the entire outstanding principal amount of the 2023 Notes will be redeemed on October 31, 2022 at a redemption price equal to 100.000% of the aggregate principal amount of the 2023 Notes to be redeemed plus the applicable premium (as defined in the indenture governing the 2023 Notes) and accrued and unpaid interest through the redemption date.

The table below summarizes our total cash and liquidity as of the dates indicated (in thousands):


	As of
(Dollars in thousands)	September 30, 2022		December 31, 2021
Total cash, excluding restricted cash	$	329,244	$	832,821
$1 Billion Revolving Credit Facility	1,000,000		800,000
$100 Million Revolving Credit Facility	100,000		100,000
Letters of credit outstanding	(61,242)		(58,738)
$1 Billion Revolving Credit Facility borrowings outstanding	—		—
$100 Million Revolving Credit Facility borrowings outstanding	—		(31,529)
Revolving Credit Facilities availability	1,038,758		809,733
Total liquidity	$	1,368,002	$	1,642,554

We believe we have adequate capital resources from cash generated from operations and sufficient access to external financing sources from borrowings under our Revolving Credit Facilities to conduct our operations for the next twelve months, including the redemption of our 2023 Notes mentioned above. Beyond the next twelve months, our primary demand for funds will be for payments of our long-term debt as it becomes due, land purchases, lot development, home and amenity construction, long-term capital investments, investments in our joint ventures, and repurchases of common stock. We believe we will generate sufficient cash from our operations to meet the demands for such payments, however we may also access the capital markets to obtain additional liquidity through debt and equity offerings or refinance debt to secure capital for such long-term demands.

Cash Flow Activities

Operating Cash Flow Activities

Our net cash provided by operating activities was $460.0 million for the nine months ended September 30, 2022, compared to $103.5 million of cash used in operating activities for the nine months ended September 30, 2021. The year-over-year increase in cash provided by operating activities is primarily driven by an increase in net income and a decrease in mortgage loans held for sale as a result of fewer home mortgage originations. These increases were partially offset by a decrease in accounts payable, accrued expenses and other liabilities; an increase in real estate inventory and deposits; and an increase in customer deposits.

Investing Cash Flow Activities

Net cash used in investing activities was $18.8 million for the nine months ended September 30, 2022, compared to $43.3 million of cash used in investing activities for the nine months ended September 30, 2021. The decrease in cash used in investing activities was primarily due to an increase in capital distributions from unconsolidated entities, partially offset by increased investments in new unconsolidated entities during the period.

Financing Cash Flow Activities

Net cash used in financing activities was $947.7 million for the nine months ended September 30, 2022, compared to $12.3 million for the nine months ended September 30, 2021. The increase in cash used in financing activities was primarily due to repayments on senior notes, Revolving Credit Facilities, and mortgage warehouse facilities as well as repurchases of common stock.

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Debt Instruments

For information regarding our debt instruments, including the terms governing our Senior Notes and our Credit Facilities, see Note 7 - Debt to the Unaudited Condensed Consolidated Financial Statements included in this quarterly report.

Off-Balance Sheet Arrangements as of September 30, 2022

Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities

We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. Our participation with these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. For example, in April 2022, we established a joint venture with Värde Partners (“Värde”), a leading global alternative investment firm, to develop rental properties as a part of our Build-To-Rent program. The venture includes $850 million in equity commitments, funded 60 percent by Värde and 40 percent by the Company. The venture provides Värde with the exclusive opportunity to invest in the acquisition and development of Build-To-Rent projects identified by the Company that meet the venture's investment guidelines.

In certain of our unconsolidated joint ventures, the joint ventures enter into loan agreements, whereby we or one of our subsidiaries will provide the joint venture lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.

For the nine months ended, September 30, 2022 and 2021, total cash contributions to unconsolidated joint ventures were $91.8 million and $31.8 million, respectively.

Land Option Contracts and Land Banking Agreements

We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in our routine business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors of the property owner generally have no recourse to the Company. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. At September 30, 2022 and December 31, 2021, the aggregate purchase price for land under these contracts was $1.5 billion and $1.3 billion, respectively.

Seasonality

Our business is seasonal. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a higher portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:

•the timing of the introduction and start of construction of new projects;

•the timing of project sales;

•the timing of closings of homes, lots and parcels;

•the timing of receipt of regulatory approvals for development and construction;

•the condition of the real estate market and general economic conditions in the areas in which we operate;

•mix of homes closed;

•construction timetables;

•the cost and availability of materials and labor; and

•weather conditions in the markets in which we build.

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As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect for the full year.

Inflation

We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of mortgage financing to prospective homebuyers. We attempt to pass through to our customers increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2022 compared to those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At September 30, 2022, approximately 95% of our debt was fixed rate and 5% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Revolving Credit Facility and borrowings by TMHF under its various warehouse facilities. As of September 30, 2022, we had no outstanding borrowings under our $1 Billion Revolving Credit Facility or our $100 Million Revolving Credit Facility. We had $1.0 billion of additional availability for borrowings under the Credit Facilities including $138.8 million of additional availability for letters of credit under our $1 Billion Revolving Credit Facility as of September 30, 2022 (giving effect to $61.2 million of letters of credit outstanding as of such date).

The London Interbank Offered Rate (“LIBOR”) was the primary basis for determining interest payments on borrowings under each of our warehouse facilities and our Revolving Credit Facilities. On March 5, 2021, ICE Benchmark Administration (“IBA”) confirmed it would cease publication of Overnight, 1, 3, 6 and 12 month US Dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023. The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the New York Federal Reserve, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended risk-free alternative rate for US Dollar LIBOR. In response to the planned discontinuation of LIBOR, our warehouse facilities agreements for facilities A, C, D, and E as well as our Revolving Credit Facilities have been restructured to begin using SOFR as the primary basis for determining interest payments. The agreement for warehouse facility B was also restructured to use the Bloomberg Short-Term Bank Yield Index (“BSBY”) as the primary basis for determining interest payments. The BSBY index is a proprietary index calculated daily as a credit sensitive supplement to manage the spread between funding costs and earned interest on loans. At this time, it is not possible to predict the full effect that the anticipated discontinuance of LIBOR, or the establishment of alternative reference rates such as SOFR and BSBY, will have on us or our borrowing costs. SOFR and BSBY are relatively new reference rates and their composition and characteristics are not the same as LIBOR. Given the limited history of these rates and potential volatility as compared to other benchmark or market rates, the future performance of these rates cannot be predicted based on historical performance. The consequences of using SOFR and BSBY could include an increase in the cost of our variable rate indebtedness.

We are required to offer to purchase all of our outstanding senior unsecured notes, as described in Note 7, Debt to the unaudited Condensed Consolidated Financial Statements included in this quarterly report, at 101% of their aggregate principal amount plus accrued and unpaid interest upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, we would not expect interest rate risk and changes in fair value to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.

The following table sets forth principal payments by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of September 30, 2022. The interest rate for our variable rate debt represents the interest rate on our mortgage warehouse facilities. Because the mortgage warehouse facilities are secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.


	Expected Maturity Date																					Fair Value
(In millions, except percentage data)	2022			2023			2024			2025			2026			Thereafter			Total
Fixed Rate Debt(1)	$	461.3		$	151.4		$	416.0		$	43.5		$	27.2		$	1,495.5		$	2,594.9		$	2,400.3
Weighted average interest rate(2)	5.0		%	3.0		%	5.2		%	3.0		%	3.0		%	5.6		%	5.2		%
Variable Rate Debt(3)	$	146.3		$	—		$	—		$	—		$	—		$	—		$	146.3		$	146.3
Weighted average interest rate	3.6		%	—			—			—			—			—			3.6		%

(1) Fixed Rate Debt includes our 5.875% Senior Notes due 2023. As discussed in Note 7 to the unaudited Condensed Consolidated Financial Statements, these will be redeemed on October 31, 2022 and is presented in the table above with a 2022 expected maturity date.

(2)Represents the coupon rate of interest on the full principal amount of the debt.

(3) Based upon the amount of variable rate debt outstanding at September 30, 2022, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $1.5 million per year.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2022. Based on this evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that, as of September 30, 2022, the Company's disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required with respect to this item can be found in Note 13 - Commitments and Contingencies under “Legal Proceedings” in the Notes to the unaudited Condensed Consolidated Financial Statements included in this report.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report. These risk factors may materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report and the other information set forth elsewhere in this quarterly report. You should be aware that these risk factors and other information may not describe every risk facing our Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information regarding repurchases by the Company of its Common Stock during the three months ended September 30, 2022.




Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
July 1 to July 31, 2022	—	$	—	—	$	425,000
August 1 to August 31, 2022	1,176,756	27.26		1,176,756	392,925
September 1 to September 30, 2022	3,036,500	24.02		3,036,500	320,001
Total	4,213,256			4,213,256

On May 31, 2022, we announced that our Board of Directors had authorized the repurchase of up to $500.0 million of the Company's Common Stock through December 31, 2023. Repurchases of the Company's Common Stock under the new program will occur from time to time, if at all, in open market purchases, privately negotiated transactions or other transactions.

Any stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, statutory requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. The program does not require us to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit No.						Description


3.1						Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 30, 2019).

3.2						Amended and Restated By-laws (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 13, 2021).

10.1*†						Amendment to Amended and Restated Employment Agreement, dated July 26, 2022, between Taylor Morrison, Inc. and Sheryl D. Palmer.

10.2*†						Amendment to Amended and Restated Employment Agreement, dated July 26, 2022, between Taylor Morrison, Inc. and Louis Steffens.

10.3*†						Amendment to Amended and Restated Employment Agreement, dated July 26, 2022, between Taylor Morrison, Inc. and Darrell C. Sherman.

10.4						Additional Facilities Assumption Agreement, dated as of September 9, 2022, by and among the Borrower, Taylor Morrison Home III Corporation, Taylor Morrison Holdings, Inc., Taylor Morrison Finance, Inc., the subsidiaries of the Borrower party thereto as guarantors, the lenders party thereto, the issuing banks party thereto and Citibank, N.A., as issuing bank and administrative agent (incorporated herein by reference to Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on September 13, 2022).

31.1*						Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

31.2*						Certification of Louis Steffens, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

32.1**						Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

32.2**						Certification of Louis Steffens, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*						Inline XBRL Taxonomy Extension Schema Document.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104.1*						Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in inline XBRL (and contained in Exhibit 101).

* Filed herewith

** Furnished herewith

† Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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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.


		TAYLOR MORRISON HOME CORPORATION
		Registrant
DATE:	October 26, 2022
		/s/ Sheryl D. Palmer
		Sheryl D. Palmer
		Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)

		/s/ Louis Steffens
		Louis Steffens
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

		/s/ Joseph Terracciano
		Joseph Terracciano
		Chief Accounting Officer (Principal Accounting Officer)