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Tri Pointe Homes, Inc. - Quarter Report: 2015 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 1-35796

 

TRI Pointe Group, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

61-1763235

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

19540 Jamboree Road, Suite 300

Irvine, California 92612

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (949) 438-1400

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

Accelerated filer

x

 

 

 

 

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

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

Registrant’s shares of common stock outstanding at November 1, 2015: 161,813,750

 

 

 

 


NOTE REGARDING THIS QUARTERLY REPORT

On July 7, 2015, TRI Pointe Homes, Inc., a Delaware corporation (“TRI Pointe Homes”), reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”).  As a result of the reorganization, each share of common stock, par value $0.01 per share, of TRI Pointe Homes (“Homes Common Stock”) was cancelled and converted automatically into the right to receive one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of TRI Pointe Group (“Group Common Stock”), each share having the same designations, rights, powers and preferences, and the qualifications, limitations and restrictions thereof as the shares of Homes Common Stock being so converted.  TRI Pointe Group, as the successor issuer to TRI Pointe Homes (pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), began making filings under the Securities Act of 1933, as amended, and the Exchange Act on July 7, 2015.

In connection with the Reorganization, TRI Pointe Group (i) became a co-issuer of TRI Pointe Homes’ 4.375% Senior Notes due 2019 and TRI Pointe Homes' 5.875% Senior Notes due 2024; and (ii) replaced TRI Pointe Homes as the borrower under TRI Pointe Homes’ existing unsecured revolving credit facility.

The business, executive officers and directors of TRI Pointe Group, and the rights and limitations of the holders of Group Common Stock immediately following the Reorganization were identical to the business, executive officers and directors of TRI Pointe Homes, and the rights and limitations of holders of Homes Common Stock immediately prior to the Reorganization.

References to “TRI Pointe”, “ the Company”, “we”, “us”, or “our” in this Quarterly Report on Form 10-Q (including in the  consolidated financial statements and condensed notes thereto in this report) have the following meanings, unless the context otherwise requires:

 

·

For periods prior to July 7, 2015: TRI Pointe Homes and its subsidiaries

 

·

For periods from and after July 7, 2015: TRI Pointe Group and its subsidiaries

 

 

 


 

TRI POINTE GROUP, INC.

FORM 10-Q

INDEX

September 30, 2015

 

 

 

Page
Number

PART I.  FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements for TRI Pointe Group, Inc.

3

 

 

 

 

Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014

3

 

 

 

 

Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014)

4

 

 

 

 

Consolidated Statements of Equity for the Year Ended December 31, 2014 and the Nine Months Ended September 30, 2015 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)

6

 

 

 

 

Condensed Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

 

 

 

Item 4.

Controls and Procedures

52

 

Part II.  OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

53

 

 

 

Item 1A.

Risk Factors

53

 

 

 

Item 6.

Exhibits

54

 

 

 

SIGNATURES

56

 

 

 

 

- 2 -


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

TRI POINTE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

96,993

 

 

$

170,629

 

Receivables

 

 

32,921

 

 

 

20,118

 

Real estate inventories

 

 

2,576,402

 

 

 

2,280,183

 

Investments in unconsolidated entities

 

 

17,340

 

 

 

16,805

 

Goodwill and other intangible assets, net

 

 

162,162

 

 

 

162,563

 

Deferred tax assets

 

 

141,479

 

 

 

157,821

 

Other assets

 

 

84,516

 

 

 

105,405

 

Total assets

 

$

3,111,813

 

 

$

2,913,524

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

67,747

 

 

$

68,860

 

Accrued expenses and other liabilities

 

 

210,707

 

 

 

210,009

 

Unsecured revolving credit facility

 

 

349,392

 

 

 

260,000

 

Seller financed loans

 

 

7,572

 

 

 

14,677

 

Senior notes

 

 

888,657

 

 

 

887,502

 

Total liabilities

 

 

1,524,075

 

 

 

1,441,048

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued

   and outstanding as of September 30, 2015 and December 31, 2014,  respectively

 

 

 

 

 

 

Common stock, $0.01 par value, 500,000,000 shares authorized; 161,813,750 and

   161,355,490 shares issued and outstanding at September 30, 2015 and

   December 31, 2014, respectively

 

 

1,618

 

 

 

1,614

 

Additional paid-in capital

 

 

907,762

 

 

 

906,159

 

Retained earnings

 

 

666,796

 

 

 

546,407

 

Total stockholders’ equity

 

 

1,576,176

 

 

 

1,454,180

 

Noncontrolling interests

 

 

11,562

 

 

 

18,296

 

Total equity

 

 

1,587,738

 

 

 

1,472,476

 

Total liabilities and equity

 

$

3,111,813

 

 

$

2,913,524

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 3 -


 

TRI POINTE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

642,352

 

 

$

471,801

 

 

$

1,443,855

 

 

$

1,023,312

 

Land and lot sales

 

 

4,876

 

 

 

5,550

 

 

 

74,366

 

 

 

36,449

 

Other operations

 

 

913

 

 

 

569

 

 

 

2,695

 

 

 

8,854

 

Total revenues

 

 

648,141

 

 

 

477,920

 

 

 

1,520,916

 

 

 

1,068,615

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

507,543

 

 

 

385,400

 

 

 

1,149,191

 

 

 

819,377

 

Cost of land and lot sales

 

 

3,451

 

 

 

2,317

 

 

 

17,324

 

 

 

30,245

 

Other operations

 

 

570

 

 

 

556

 

 

 

1,724

 

 

 

2,755

 

Sales and marketing

 

 

30,038

 

 

 

28,393

 

 

 

78,958

 

 

 

73,096

 

General and administrative

 

 

26,783

 

 

 

20,951

 

 

 

83,261

 

 

 

57,140

 

Restructuring charges

 

 

2,010

 

 

 

7,024

 

 

 

2,730

 

 

 

9,202

 

Total expenses

 

 

570,395

 

 

 

444,641

 

 

 

1,333,188

 

 

 

991,815

 

Income from operations

 

 

77,746

 

 

 

33,279

 

 

 

187,728

 

 

 

76,800

 

Equity in loss of unconsolidated entities

 

 

(3

)

 

 

(82

)

 

 

(84

)

 

 

(219

)

Transaction expenses

 

 

 

 

 

(16,710

)

 

 

 

 

 

(17,216

)

Other income (loss), net

 

 

47

 

 

 

499

 

 

 

272

 

 

 

(242

)

Income before taxes

 

 

77,790

 

 

 

16,986

 

 

 

187,916

 

 

 

59,123

 

Provision for income taxes

 

 

(28,021

)

 

 

(6,021

)

 

 

(66,088

)

 

 

(16,352

)

Net income

 

 

49,769

 

 

 

10,965

 

 

 

121,828

 

 

 

42,771

 

Net (income) loss attributable to noncontrolling interests

 

 

393

 

 

 

 

 

 

(1,439

)

 

 

 

Net income available to common stockholders

 

$

50,162

 

 

$

10,965

 

 

$

120,389

 

 

$

42,771

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

Diluted

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

161,772,893

 

 

 

158,931,450

 

 

 

161,651,177

 

 

 

139,550,891

 

Diluted

 

 

162,366,744

 

 

 

159,158,706

 

 

 

162,299,282

 

 

 

140,213,655

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 4 -


 

TRI POINTE GROUP, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(in thousands, except share amounts)

 

 

 

Number of

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Shares (Note 1)

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at December 31, 2013

 

 

129,700,000

 

 

$

1,297

 

 

$

333,589

 

 

$

462,210

 

 

$

797,096

 

 

$

28,421

 

 

$

825,517

 

Net income

 

 

 

 

 

 

 

 

 

 

 

84,197

 

 

 

84,197

 

 

 

 

 

 

84,197

 

Capital contribution by Weyerhaeuser, net

 

 

 

 

 

 

 

 

63,355

 

 

 

 

 

 

63,355

 

 

 

 

 

 

63,355

 

Common shares issued in connection with

   the Merger (Note 2)

 

 

31,632,533

 

 

 

317

 

 

 

498,656

 

 

 

 

 

 

498,973

 

 

 

 

 

 

498,973

 

Shares issued under share-based awards

 

 

22,957

 

 

 

 

 

 

176

 

 

 

 

 

 

176

 

 

 

 

 

 

176

 

Excess tax benefit of share-based awards, net

 

 

 

 

 

 

 

 

1,757

 

 

 

 

 

 

1,757

 

 

 

 

 

 

1,757

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

8,626

 

 

 

 

 

 

8,626

 

 

 

 

 

 

8,626

 

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,248

)

 

 

(17,248

)

Net effect of consolidations, de-consolidations

   and other transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,123

 

 

 

7,123

 

Balance at December 31, 2014

 

 

161,355,490

 

 

 

1,614

 

 

 

906,159

 

 

 

546,407

 

 

 

1,454,180

 

 

 

18,296

 

 

 

1,472,476

 

Net income

 

 

 

 

 

 

 

 

 

 

 

120,389

 

 

 

120,389

 

 

 

1,439

 

 

 

121,828

 

Adjustment to capital contribution by

   Weyerhaeuser, net

 

 

 

 

 

 

 

 

(6,747

)

 

 

 

 

 

(6,747

)

 

 

 

 

 

(6,747

)

Shares issued under share-based awards

 

 

458,260

 

 

 

4

 

 

 

1,612

 

 

 

 

 

 

1,616

 

 

 

 

 

 

1,616

 

Excess tax benefit of share-based awards, net

 

 

 

 

 

 

 

 

392

 

 

 

 

 

 

392

 

 

 

 

 

 

392

 

Minimum tax withholding paid on behalf of

   employees for restricted stock units

 

 

 

 

 

 

 

 

(2,190

)

 

 

 

 

 

(2,190

)

 

 

 

 

 

(2,190

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

8,536

 

 

 

 

 

 

8,536

 

 

 

 

 

 

8,536

 

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,917

)

 

 

(4,917

)

Net effect of consolidations, de-consolidations

   and other transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,256

)

 

 

(3,256

)

Balance at September 30, 2015

 

 

161,813,750

 

 

$

1,618

 

 

$

907,762

 

 

$

666,796

 

 

$

1,576,176

 

 

$

11,562

 

 

$

1,587,738

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 5 -


 

TRI POINTE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

121,828

 

 

$

42,771

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,416

 

 

 

10,578

 

Equity in loss of unconsolidated entities, net

 

 

84

 

 

 

219

 

Deferred income taxes, net

 

 

16,342

 

 

 

21,937

 

Amortization of stock-based compensation

 

 

8,536

 

 

 

7,518

 

Charges for impairments and lot option abandonments

 

 

1,903

 

 

 

1,124

 

Bridge commitment fee

 

 

 

 

 

10,322

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Real estate inventories

 

 

(305,889

)

 

 

(249,890

)

Receivables

 

 

(12,803

)

 

 

34,107

 

Other assets

 

 

25,490

 

 

 

(6,484

)

Accounts payable

 

 

(1,113

)

 

 

(822

)

Accrued expenses and other liabilities

 

 

195

 

 

 

(11,874

)

Other operating cash flows

 

 

 

 

 

65

 

Net cash used in operating activities

 

 

(140,011

)

 

 

(140,429

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,059

)

 

 

(6,068

)

Cash acquired in the Merger

 

 

 

 

 

53,800

 

Proceeds from sale of property and equipment

 

 

 

 

 

22

 

Investments in unconsolidated entities

 

 

(1,458

)

 

 

(573

)

Distributions from unconsolidated entities

 

 

319

 

 

 

 

Net cash (used in) provided by investing activities

 

 

(2,198

)

 

 

47,181

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings from debt

 

 

140,000

 

 

 

50,000

 

Repayment of debt

 

 

(57,713

)

 

 

 

Debt issuance costs

 

 

(2,688

)

 

 

(23,003

)

Proceeds from issuance of senior notes

 

 

 

 

 

886,698

 

Bridge commitment fee

 

 

 

 

 

(10,322

)

Repayment of debt payable to Weyerhaeuser

 

 

 

 

 

(623,589

)

Decrease in book overdrafts

 

 

 

 

 

(22,492

)

Distributions to Weyerhaeuser

 

 

 

 

 

(8,860

)

Net (repayments) proceeds of debt held by variable interest entities

 

 

(5,927

)

 

 

5,120

 

Contributions from noncontrolling interests

 

 

4,281

 

 

 

 

Distributions to noncontrolling interests

 

 

(9,198

)

 

 

(18,703

)

Proceeds from issuance of common stock under share-based awards

 

 

1,616

 

 

 

 

Excess tax benefits of share-based awards

 

 

392

 

 

 

1,572

 

Minimum tax withholding paid on behalf of employees for share-based awards

 

 

(2,190

)

 

 

 

Net cash provided by financing activities

 

 

68,573

 

 

 

236,421

 

Net (decrease) increase in cash and cash equivalents

 

 

(73,636

)

 

 

143,173

 

Cash and cash equivalents - beginning of period

 

 

170,629

 

 

 

4,510

 

Cash and cash equivalents - end of period

 

$

96,993

 

 

$

147,683

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 6 -


 

TRI POINTE GROUP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1.

Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

The Company is engaged in the design, construction and sale of innovative single-family homes through its portfolio of six quality brands across eight states, including Maracay Homes in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado and Winchester Homes in Maryland and Virginia.  

Reorganization

On July 7, 2015, TRI Pointe Homes, Inc., a Delaware corporation, (“TRI Pointe Homes”) reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”).  See “Note Regarding This Quarterly Report” for information concerning the reorganization effected on July 7, 2015.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as described in “Reverse Acquisition” below, as well as other entities in which the Company has a controlling interest and variable interest entities (“VIEs”) in which the Company is the primary beneficiary.  The noncontrolling interests as of September 30, 2015 and December 31, 2014 represent the outside owners’ interests in the Company’s consolidated entities and the net equity of the VIE owners.  All significant intercompany accounts have been eliminated upon consolidation.  Subsequent events have been evaluated through the date the financial statements were issued.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The results of operations for the three or nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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. These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Reverse Acquisition

On July 7, 2014 (the “Closing Date”), TRI Pointe consummated the previously announced merger (the “Merger”) of our wholly owned subsidiary, Topaz Acquisition, Inc. (“Merger Sub”), with and into Weyerhaeuser Real Estate Company (“WRECO”), with WRECO surviving the Merger and becoming our wholly owned subsidiary, as contemplated by the Transaction Agreement, dated as of November 3, 2013 (the “Transaction Agreement”), by and among us, Weyerhaeuser Company (“Weyerhaeuser”), WRECO and Merger Sub. The Merger is accounted for in accordance with ASC Topic 805, Business Combinations (“ASC 805”). For accounting purposes, the Merger is treated as a “reverse acquisition” and WRECO is considered the accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer and therefore the accompanying consolidated financial statements reflect the historical consolidated financial statements of WRECO for all periods presented and do not include the historical financial statements of TRI Pointe prior to the Closing Date. Subsequent to the Closing Date, the consolidated financial statements reflect the results of the combined company.

 

- 7 -


 

See Note 2, Merger with Weyerhaeuser Real Estate Company, for further information on the Merger. In the Merger, each issued and outstanding WRECO common share was converted into 1.297 shares of TRI Pointe common stock. The historical issued and outstanding WRECO common shares (100,000,000 common shares for all periods presented prior to the Merger) have been recast (as 129,700,000 common shares of the Company for all periods prior to the Merger) in all periods presented to reflect this conversion.

Use of Estimates

The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.

Recently Issued Accounting Standards

In April 2014, the FASB issued amendments to Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The update requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. We adopted ASU 2014-08 on January 1, 2015 and the adoption had no impact on our current or prior year financial statements.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue-recognition requirements in ASC Topic 605, Revenue Recognition, most industry-specific guidance throughout the industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type contracts. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year and it is now effective for public entities for the annual periods ending after December 15, 2017, and for annual and interim periods thereafter.  Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09.  Early adoption is permitted, but can be no earlier than the original public entity effective date of fiscal years, and the interim periods within those years, beginning after December 15, 2016.  We are currently evaluating the approach for implementation and the potential impact of adopting this guidance on our consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We believe the adoption of this guidance will not have a material effect on our consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, (“ASU 2015-02”), Consolidation (Topic 810): Amendments to the Consolidation Analysis.   ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. We believe the adoption of ASU 2015-02 will not have a material effect on our consolidated financial statements.

 

- 8 -


 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, (“ASU 2015-03”), Interest - Imputation of Interest (Subtopic 835-30), and as amended in August 2015 by Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which changes the presentation of debt issuance costs related to a recognized debt liability in financial statements. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The FASB will permit debt issuance costs related to line-of-credit agreements to be deferred and presented as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.  Amortization of the costs is reported as interest expense.  ASU 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company plans to early adopt this guidance at the beginning of the fourth quarter of 2015.  Had the Company early adopted ASU 2015-03, the impact for the period ended September 30, 2015 on our consolidated balance sheet would have been a balance sheet reclassification of deferred loan costs currently included in Other Assets resulting in a decrease to Other Assets of $23.6 million, a decrease to Senior Notes of $21.2 million and a decrease to unsecured revolving credit facility of $2.4 million. The impact for the period ended December 31, 2014, would have been a decrease to Other Assets of $23.7 million and a decrease to Senior Notes of $23.7 million.

Reclassifications

Certain amounts in our consolidated financial statements for prior years have been reclassified to conform to the current period presentation.

 

 

2.

Merger with Weyerhaeuser Real Estate Company

In the Merger, TRI Pointe issued 129,700,000 shares of TRI Pointe common stock to the former holders of WRECO common shares, together with cash in lieu of any fractional shares. On the Closing Date, WRECO became a wholly owned subsidiary of TRI Pointe. Immediately following the consummation of the Merger, the ownership of TRI Pointe common stock on a fully diluted basis was as follows: (i) the WRECO common shares held by former Weyerhaeuser shareholders were converted into the right to receive, in the aggregate, 79.6% of the then outstanding TRI Pointe common stock, (ii) the TRI Pointe common stock outstanding immediately prior to the consummation of the Merger represented 19.4% of the then outstanding TRI Pointe common stock, and (iii) the outstanding equity awards of WRECO and TRI Pointe employees represented the remaining 1.0% of the then outstanding TRI Pointe common stock. On the Closing Date, the former direct parent entity of WRECO paid TRI Pointe $31.5 million in cash in accordance with the Transaction Agreement.  Following the Merger, WRECO changed its name to TRI Pointe Holdings, Inc.

Assumption of Senior Notes

On the Closing Date, TRI Pointe Homes assumed WRECO’s obligations as issuer of $450 million aggregate principal amount of its 4.375% Senior Notes due 2019 (the “2019 Notes”) and $450 million aggregate principal amount of its 5.875% Senior Notes due 2024 (the “2024 Notes” and together with the 2019 Notes, the “Senior Notes”). Additionally, WRECO and certain of its subsidiaries (collectively, the “Guarantors”) entered into supplemental indentures pursuant to which they guaranteed TRI Pointe’s obligations with respect to the Senior Notes. The Guarantors also entered into a joinder agreement to the Purchase Agreement, dated as of June 4, 2014, among WRECO, TRI Pointe, and the initial purchasers of the Senior Notes (collectively, the “Initial Purchasers”), pursuant to which the Guarantors became parties to the Purchase Agreement. Additionally, TRI Pointe and the Guarantors entered into joinder agreements to the Registration Rights Agreements, dated as of June 13, 2014, among WRECO and the Initial Purchasers with respect to the Senior Notes, pursuant to which TRI Pointe and the Guarantors were joined as parties to the Registration Rights Agreements. In connection with the Reorganization, TRI Pointe Group became a co-issuer with TRI Pointe Homes of the Senior Notes.

The net proceeds of $861.3 million from the offering of the Senior Notes were deposited into two separate escrow accounts following the closing of the offering on June 13, 2014. Upon release of the escrowed funds on the Closing Date and prior to the consummation of the Merger, WRECO paid $743.7 million in cash to its former direct parent, which cash was retained by Weyerhaeuser and its subsidiaries (other than WRECO and its subsidiaries). The payment consisted of the $739.0 million Payment Amount (as defined in the Transaction Agreement) as well as $4.7 million in payment of all unpaid interest on the debt payable to Weyerhaeuser that accrued from November 3, 2013 to the Closing Date. The remaining $117.6 million of proceeds was retained by TRI Pointe.

 

- 9 -


 

Fair Value of Assets Acquired and Liabilities Assumed

The following table summarizes the calculation of the fair value of the total consideration transferred and the provisional amounts recognized as of the Closing Date (in thousands, except shares and closing stock price):

 

Calculation of consideration transferred

 

 

 

 

TRI Pointe shares outstanding

 

 

31,632,533

 

TRI Pointe closing stock price on July 7, 2014

 

$

15.85

 

Consideration attributable to common stock

 

$

501,376

 

Consideration attributable to TRI Pointe share-based

   equity awards

 

 

1,072

 

Total consideration transferred

 

$

502,448

 

Assets acquired and liabilities assumed

 

 

 

 

Cash and cash equivalents

 

$

53,800

 

Accounts receivable

 

 

654

 

Real estate inventories

 

 

539,677

 

Intangible asset

 

 

17,300

 

Goodwill

 

 

139,304

 

Other assets

 

 

28,060

 

Total assets acquired

 

 

778,795

 

Accounts payable

 

 

26,105

 

Accrued expenses and other liabilities

 

 

23,114

 

Notes payable and other borrowings

 

 

227,128

 

Total liabilities assumed

 

 

276,347

 

Total net assets acquired

 

$

502,448

 

 

Cash and cash equivalents, accounts receivable, other assets, accounts payable, accrued payroll liabilities, and accrued expenses and other liabilities were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Notes payable and other borrowings are stated at carrying value due to the limited amount of time since the notes payable and other borrowings were entered into prior to the Closing Date.

The Company determined the fair value of real estate inventories on a community-by-community basis primarily using a combination of market-comparable land transactions, land residual analysis and discounted cash flow models. The estimated fair value is significantly impacted by estimates related to expected average selling prices, sales pace, cancellation rates and construction and overhead costs. Such estimates must be made for each individual community and may vary significantly between communities.

The fair value of the acquired intangible asset was determined based on a valuation performed by an independent valuation specialist. The $17.3 million intangible asset is related to the TRI Pointe Homes trade name which is deemed to have an indefinite useful life.

Goodwill is primarily attributed to expected synergies from combining WRECO’s and TRI Pointe’s existing businesses, including, but not limited to, expected cost synergies from overhead savings resulting from streamlining certain redundant corporate functions, improved operating efficiencies, including provision of certain corporate level administrative and support functions at a lower cost than was historically allocated to WRECO for such services by its former direct parent, and growth of ancillary operations in various markets as permitted under applicable law, including a mortgage business, a title company and other ancillary operations. The Company also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional brands.  The acquired goodwill is not deductible for income tax purposes.

The Company completed its business combination accounting during the first quarter of 2015.

 

- 10 -


 

Supplemental Pro Forma Information (Unaudited)

The following represents unaudited pro forma operating results as if the acquisition had been completed as of January 1, 2014 (in thousands, except per share amounts):

 

 

 

Three Months Ended

September 30, 2014

 

 

Nine Months Ended

September 30, 2014

 

Total revenues

 

$

479,879

 

 

$

1,230,722

 

Net income

 

$

21,934

 

 

$

66,902

 

Earnings per share – basic

 

$

0.14

 

 

$

0.41

 

Earnings per share – diluted

 

$

0.14

 

 

$

0.41

 

 

The unaudited pro forma operating results have been determined after adjusting the operating results of TRI Pointe to reflect the purchase accounting and other acquisition adjustments including interest expense associated with the debt used to fund a portion of the Merger. The unaudited pro forma results do not reflect any cost savings, operating synergies or other enhancements that we may achieve as a result of the Merger or the costs necessary to integrate the operations to achieve these cost savings and synergies. Accordingly, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations had the Merger been completed at the beginning of the period or be indicative of the results we will achieve in the future.

 

 

3.

Restructuring

In connection with the Merger, the Company initiated a restructuring plan to reduce duplicate corporate and divisional overhead costs and expenses. In addition, WRECO previously recognized restructuring expenses related to general cost reduction initiatives. Restructuring costs were comprised of the following (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Employee-related costs

 

$

1,433

 

 

$

6,817

 

 

$

1,568

 

 

$

8,124

 

Lease termination costs

 

 

577

 

 

 

207

 

 

 

1,162

 

 

 

1,078

 

Total

 

$

2,010

 

 

$

7,024

 

 

$

2,730

 

 

$

9,202

 

 

Employee-related costs incurred during the three months ended September 30, 2014 included employee retention and severance-related expenses of $5.5 million and stock-based compensation expense of $1.3 million for employees terminated during the period.  Employee-related costs incurred during the nine months ended September 30, 2014 included employee retention and severance-related expenses of $6.8 million and stock-based compensation expense of $1.3 million for employees terminated during the period.  Lease termination costs for the three and nine months ended September 30, 2015, and 2014, respectively, relate to contract terminations as a result of general cost reduction initiatives.

Changes in employee-related restructuring reserves were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Accrued employee-related costs, beginning of

   period

 

$

109

 

 

$

 

 

$

3,844

 

 

$

4,336

 

Current year charges

 

 

1,433

 

 

 

5,550

 

 

 

1,568

 

 

 

6,857

 

Adjustments to pre-existing reserves

 

 

(83

)

 

 

 

 

 

(83

)

 

 

 

Payments

 

 

(1,004

)

 

 

(1,576

)

 

 

(4,874

)

 

 

(7,219

)

Accrued employee-related costs, end of period

 

$

455

 

 

$

3,974

 

 

$

455

 

 

$

3,974

 

 

 

- 11 -


 

Changes in lease termination related restructuring reserves were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Accrued lease termination costs, beginning of

   period

 

$

644

 

 

$

2,454

 

 

$

1,394

 

 

$

3,506

 

Current year charges

 

 

577

 

 

 

207

 

 

 

1,162

 

 

 

1,078

 

Payments

 

 

(705

)

 

 

(902

)

 

 

(2,040

)

 

 

(2,825

)

Accrued lease termination costs, end of period

 

$

516

 

 

$

1,759

 

 

$

516

 

 

$

1,759

 

 

Employee and lease termination restructuring reserves are included in accrued expenses and other liabilities on our consolidated balance sheets.

 

 

4.

Segment Information

Our operations consist of six homebuilding companies that acquire and develop land and construct and sell single-family homes.  In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply.  Based on our aggregation analysis, we have not exercised any aggregation of our operating segments, which are represented by the following six reportable segments: Maracay Homes, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California and Colorado; and Winchester Homes, consisting of operations in Maryland and Virginia.

Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance and risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.

The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

 

- 12 -


 

Total revenues and income before taxes for each of our reportable segments were as follows (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

$

50,505

 

 

$

37,301

 

 

$

116,556

 

 

$

107,576

 

Pardee Homes

 

 

172,957

 

 

 

134,409

 

 

 

424,680

 

 

 

352,118

 

Quadrant Homes

 

 

48,173

 

 

 

32,919

 

 

 

132,698

 

 

 

96,958

 

Trendmaker Homes

 

 

81,044

 

 

 

69,711

 

 

 

203,235

 

 

 

198,867

 

TRI Pointe Homes

 

 

224,544

 

 

 

123,445

 

 

 

462,136

 

 

 

123,445

 

Winchester Homes

 

 

70,918

 

 

 

80,135

 

 

 

181,611

 

 

 

189,651

 

Total

 

$

648,141

 

 

$

477,920

 

 

$

1,520,916

 

 

$

1,068,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

$

3,750

 

 

$

2,212

 

 

$

5,858

 

 

$

8,222

 

Pardee Homes

 

 

39,749

 

 

 

21,787

 

 

 

121,041

 

 

 

47,580

 

Quadrant Homes

 

 

3,982

 

 

 

649

 

 

 

6,329

 

 

 

6,889

 

Trendmaker Homes

 

 

7,496

 

 

 

7,327

 

 

 

17,896

 

 

 

21,529

 

TRI Pointe Homes

 

 

29,556

 

 

 

8,685

 

 

 

55,251

 

 

 

8,685

 

Winchester Homes

 

 

1,726

 

 

 

6,941

 

 

 

8,064

 

 

 

17,978

 

Corporate

 

 

(8,469

)

 

 

(30,615

)

 

 

(26,523

)

 

 

(51,760

)

Total

 

$

77,790

 

 

$

16,986

 

 

$

187,916

 

 

$

59,123

 

 

Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Real estate inventories

 

 

 

 

 

 

 

 

Maracay Homes

 

$

205,432

 

 

$

153,577

 

Pardee Homes

 

 

1,013,792

 

 

 

924,362

 

Quadrant Homes

 

 

193,374

 

 

 

153,493

 

Trendmaker Homes

 

 

191,803

 

 

 

176,696

 

TRI Pointe Homes

 

 

678,564

 

 

 

613,666

 

Winchester Homes

 

 

293,437

 

 

 

258,389

 

Total

 

$

2,576,402

 

 

$

2,280,183

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

Maracay Homes

 

$

221,190

 

 

$

170,932

 

Pardee Homes

 

 

1,080,599

 

 

 

1,000,489

 

Quadrant Homes

 

 

206,986

 

 

 

167,796

 

Trendmaker Homes

 

 

219,869

 

 

 

195,829

 

TRI Pointe Homes

 

 

847,013

 

 

 

781,301

 

Winchester Homes

 

 

312,932

 

 

 

281,547

 

Corporate

 

 

223,224

 

 

 

315,630

 

Total

 

$

3,111,813

 

 

$

2,913,524

 

 

 

 

- 13 -


 

5.

Earnings Per Share 

The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

50,162

 

 

$

10,965

 

 

$

120,389

 

 

$

42,771

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

161,772,893

 

 

 

158,931,450

 

 

 

161,651,177

 

 

 

139,550,891

 

Effect of dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and unvested restricted

   stock units

 

 

593,851

 

 

 

227,256

 

 

 

648,105

 

 

 

662,764

 

Diluted weighted-average shares

   outstanding

 

 

162,366,744

 

 

 

159,158,706

 

 

 

162,299,282

 

 

 

140,213,655

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

Diluted

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

Antidilutive unvested restricted stock units and

   stock options not included in diluted earnings

   per share

 

 

2,260,532

 

 

 

3,634,614

 

 

 

2,462,268

 

 

 

 

 

 

6.

Receivables

Receivables consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Escrow proceeds and other accounts receivable, net

 

$

22,128

 

 

$

9,771

 

Warranty insurance receivable (Note 15)

 

 

10,493

 

 

 

10,047

 

Notes and contracts receivable

 

 

300

 

 

 

300

 

Total receivables

 

$

32,921

 

 

$

20,118

 

 

 

7.

Real Estate Inventories

Real estate inventories consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Real estate inventories owned:

 

 

 

 

 

 

 

 

Homes completed or under construction

 

$

749,852

 

 

$

461,712

 

Land under development

 

 

1,380,298

 

 

 

1,391,303

 

Land held for future development

 

 

257,610

 

 

 

245,673

 

Model homes

 

 

127,815

 

 

 

103,270

 

Total real estate inventories owned

 

 

2,515,575

 

 

 

2,201,958

 

Real estate inventories not owned:

 

 

 

 

 

 

 

 

Land purchase and land option deposits

 

 

42,329

 

 

 

44,155

 

Consolidated inventory held by VIEs

 

 

18,498

 

 

 

34,070

 

Total real estate inventories not owned

 

 

60,827

 

 

 

78,225

 

Total real estate inventories

 

$

2,576,402

 

 

$

2,280,183

 

 

Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future.

 

- 14 -


 

Real estate inventories not owned represents deposits related to land purchase and land option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 9, Variable Interest Entities.

During the second quarter ended June 30, 2015 the Company sold a 15.72 acre employment center located in the Pacific Highlands Ranch community in the San Diego, California division of our Pardee Homes reporting segment.  The land sold under this sale was classified as land under development and represented $53.0 million of land and lot sales revenue in the consolidated statement of operations for the nine months ended September 30, 2015. 

Interest incurred, capitalized and expensed were as follows (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Interest incurred

 

$

15,454

 

 

$

15,129

 

 

$

45,779

 

 

$

25,718

 

Interest capitalized

 

 

(15,454

)

 

 

(14,839

)

 

 

(45,779

)

 

 

(22,987

)

Interest expensed

 

$

 

 

$

290

 

 

$

 

 

$

2,731

 

Capitalized interest in beginning inventory

 

$

140,106

 

 

$

113,765

 

 

$

124,461

 

 

$

138,233

 

Interest capitalized as a cost of inventory

 

 

15,454

 

 

 

14,839

 

 

 

45,779

 

 

 

22,987

 

Interest previously capitalized as a cost of

   inventory, included in cost of sales

 

 

(13,339

)

 

 

(7,835

)

 

 

(28,019

)

 

 

(40,451

)

Capitalized interest in ending inventory

 

$

142,221

 

 

$

120,769

 

 

$

142,221

 

 

$

120,769

 

 

Interest is capitalized to real estate inventory during development and other qualifying activities. Interest that is capitalized to real estate inventory is included in cost of home sales as related units are delivered.  Interest that is expensed as incurred is included in other income (expense).

Real estate inventory impairments and land and lot option abandonments

Real estate inventory impairments and land option abandonments consisted of the following (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Real estate inventory impairments

 

$

29

 

 

$

248

 

 

$

1,073

 

 

$

300

 

Land and lot option abandonments and

   pre-acquisition costs

 

 

336

 

 

 

304

 

 

 

830

 

 

 

824

 

Total

 

$

365

 

 

$

552

 

 

$

1,903

 

 

$

1,124

 

 

Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale. Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less cost to sell are also included in the total impairment charges above.  Charges for inventory impairments are expensed to cost of sales.

In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time. Charges for such forfeitures are expensed to cost of sales.

 

 

8.

Investments in Unconsolidated Entities

As of September 30, 2015, we held equity investments in six active real estate partnerships or limited liability companies. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 7% to 55%, depending on the investment, with no controlling interest held in any of these investments.

 

- 15 -


 

Investments Held

Our cumulative investment in entities accounted for on the equity method, including our share of earnings and losses, consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Limited liability company interests

 

$

14,079

 

 

$

13,710

 

General partnership interests

 

 

3,261

 

 

 

3,095

 

Total

 

$

17,340

 

 

$

16,805

 

 

Unconsolidated Financial Information

Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investment in unconsolidated entities or on our consolidated statement of operations as equity in loss of unconsolidated entities.

Assets and liabilities of unconsolidated entities (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

19,282

 

 

$

17,154

 

Receivables

 

 

12,916

 

 

 

9,550

 

Real estate inventories

 

 

91,712

 

 

 

95,500

 

Other assets

 

 

882

 

 

 

620

 

Total assets

 

$

124,792

 

 

$

122,824

 

Liabilities and equity

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

14,293

 

 

$

10,914

 

Company’s equity

 

 

17,340

 

 

 

16,805

 

Outside interests’ equity

 

 

93,159

 

 

 

95,105

 

Total liabilities and equity

 

$

124,792

 

 

$

122,824

 

 

Results of operations from unconsolidated entities (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net sales

 

$

1,217

 

 

$

184

 

 

$

2,670

 

 

$

591

 

Other operating expense

 

 

(1,479

)

 

 

(1,215

)

 

 

(4,020

)

 

 

(3,372

)

Other income

 

 

(263

)

 

 

2

 

 

 

(256

)

 

 

16

 

Net loss

 

$

(525

)

 

$

(1,029

)

 

$

(1,606

)

 

$

(2,765

)

Company’s equity in loss of unconsolidated entities

 

$

(3

)

 

$

(82

)

 

$

(84

)

 

$

(219

)

 

 

9.

Variable Interest Entities

In the ordinary course of business, we enter into land option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such deposits are recorded as land purchase and land option deposits under real estate inventories not owned in the accompanying consolidated balance sheets.

 

- 16 -


 

We analyze each of our land option agreements and other similar contracts under the provisions of ASC 810 Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.

Creditors of the entities with which we have land option agreements have no recourse against us. The maximum exposure to loss under our land option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the land owner and budget shortfalls and savings will be borne by us.

The following provides a summary of our interests in land option agreements (in thousands):

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

 

 

 

 

Remaining

 

 

Consolidated

 

 

 

 

 

 

Remaining

 

 

Consolidated

 

 

 

 

 

 

 

Purchase

 

 

Inventory

 

 

 

 

 

 

Purchase

 

 

Inventory

 

 

 

Deposits

 

 

Price

 

 

Held by VIEs

 

 

Deposits

 

 

Price

 

 

Held by VIEs

 

Consolidated VIEs

 

$

4,696

 

 

$

14,140

 

 

$

18,498

 

 

$

8,071

 

 

$

43,432

 

 

$

34,070

 

Unconsolidated VIEs

 

 

8,150

 

 

 

22,781

 

 

N/A

 

 

 

13,309

 

 

 

129,637

 

 

N/A

 

Other land option agreements

 

 

34,179

 

 

 

308,438

 

 

N/A

 

 

 

30,846

 

 

 

284,819

 

 

N/A

 

Total

 

$

47,025

 

 

$

345,359

 

 

$

18,498

 

 

$

52,226

 

 

$

457,888

 

 

$

34,070

 

 

Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not considered VIEs.

In addition to the deposits presented in the table above, our exposure to loss related to our land option contracts consisted of capitalized pre-acquisition costs of $4.6 million and $5.3 million as of September 30, 2015 and December 31, 2014, respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.  

 

 

10.

Goodwill and Other Intangible Assets

In connection with the Merger, $139.3 million of goodwill has been recorded as of September 30, 2015.  For further details on the goodwill, see Note 2, Merger with Weyerhaeuser Real Estate Company.

We have two intangible assets recorded as of September 30, 2015, including an existing trade name from the acquisition of Maracay Homes in 2006 which has a 20 year useful life, and TRI Pointe Homes, resulting from the Merger in 2014 which has an indefinite useful life. For further details on the TRI Pointe Homes trade name see Note 2, Merger with Weyerhaeuser Real Estate Company.

Goodwill and other intangible assets consisted of the following (in thousands):

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

Gross

 

 

 

 

 

 

Net

 

 

Gross

 

 

 

 

 

 

Net

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Goodwill

 

$

139,303

 

 

$

 

 

$

139,303

 

 

$

139,304

 

 

$

 

 

$

139,304

 

Trade names

 

 

27,979

 

 

 

(5,120

)

 

 

22,859

 

 

 

27,979

 

 

 

(4,720

)

 

 

23,259

 

Total

 

$

167,282

 

 

$

(5,120

)

 

$

162,162

 

 

$

167,283

 

 

$

(4,720

)

 

$

162,563

 

 

The remaining useful life of our amortizing intangible asset related to the Maracay Homes trade name was 10.4 and 11.2 years as of September 30, 2015 and December 31, 2014, respectively. Amortization expense related to this intangible asset was $134,000 for each of the three month periods ended September 30, 2015 and 2014, respectively and was $400,000 for each of the nine month periods ended September 30, 2015 and 2014, respectively.  Amortization of this intangible asset was charged to sales and marketing expense.  Our $17.3 million indefinite life intangible asset related to the TRI Pointe Homes trade name is not amortizing.  All trade names are evaluated for impairment on an annual basis or more frequently if indicators of impairment exist.

 

- 17 -


 

Expected amortization of our intangible asset related to Maracay Homes for the remainder of 2015, the next four years and thereafter is (in thousands):

 

Remainder of 2015

 

$

134

 

2016

 

 

534

 

2017

 

 

534

 

2018

 

 

534

 

2019

 

 

534

 

Thereafter

 

 

3,289

 

Total

 

$

5,559

 

 

 

11.

Other Assets

Other assets consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Prepaid expenses

 

$

20,989

 

 

$

29,111

 

Refundable fees and other deposits

 

 

16,576

 

 

 

15,581

 

Development rights, held for future use or sale

 

 

6,447

 

 

 

7,409

 

Deferred loan costs

 

 

23,617

 

 

 

23,686

 

Operating properties and equipment, net

 

 

8,869

 

 

 

11,719

 

Income tax receivable

 

 

1,808

 

 

 

10,713

 

Other

 

 

6,210

 

 

 

7,186

 

Total

 

$

84,516

 

 

$

105,405

 

 

 

12.

Accrued Expenses and Other Liabilities

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Accrued payroll and related costs

 

$

21,544

 

 

$

24,717

 

Warranty reserves (Note 15)

 

 

36,743

 

 

 

33,270

 

Estimated cost for completion of real estate inventories

 

 

62,047

 

 

 

54,437

 

Customer deposits

 

 

19,734

 

 

 

14,229

 

Debt (nonrecourse) held by VIEs

 

 

3,286

 

 

 

9,512

 

Income tax liability to Weyerhaeuser (Note 18)

 

 

8,600

 

 

 

15,659

 

Liability for uncertain tax positions (Note 17)

 

 

16,563

 

 

 

13,797

 

Accrued interest

 

 

13,976

 

 

 

3,059

 

Accrued insurance expense

 

 

1,975

 

 

 

9,180

 

Other

 

 

26,239

 

 

 

32,149

 

Total

 

$

210,707

 

 

$

210,009

 

 

 

13.

Senior Notes, Unsecured Revolving Credit Facility and Seller Financed Loans

Senior Notes

Senior Notes consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

4.375% Senior Notes due June 15, 2019, net of discount

 

$

446,186

 

 

$

445,501

 

5.875% Senior Notes due June 15, 2024, net of discount

 

 

442,471

 

 

 

442,001

 

Total

 

$

888,657

 

 

$

887,502

 

 

 

- 18 -


 

As discussed in Note 2, Merger with Weyerhaeuser Real Estate Company, on the Closing Date, TRI Pointe assumed WRECO’s obligations as issuer of the Senior Notes. The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds of $861.3 million, after debt issuance costs and discounts, from the offering were deposited into two separate escrow accounts following the closing of the offering on June 13, 2014.

The 2019 Notes and the 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually in arrears on June 15 and December 15. As of September 30, 2015, no principal has been paid on the Senior Notes, and there was $21.2 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $13.5 million and $1.9 million as of September 30, 2015 and December 31, 2014, respectively.

Unsecured Revolving Credit Facility

Unsecured revolving credit facility consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Unsecured revolving credit facility

 

$

349,392

 

 

$

260,000

 

 

In May 2015, the Company amended its unsecured revolving credit facility (the “Credit Facility”) from $425 million to $550 million.  The Credit Facility matures on May 18, 2019, and contains a sublimit of $75 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Credit Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20%, depending on the Company’s leverage ratio. As of September 30, 2015, the outstanding balance under the Credit Facility was $349.4 million with an interest rate of 2.16% per annum and $192.4 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of September 30, 2015 there was $2.4 million of capitalized debt financing costs, included in Other Assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the life of the Credit Facility, maturing on May 18, 2019.  Accrued interest related to the Credit Facility was $376,000 and $620,000 as of September 30, 2015 and December 31, 2014, respectively.

At September 30, 2015 we had outstanding letters of credit of $8.2 million.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.

Seller Financed Loans

Seller financed loans consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Seller financed loans

 

$

7,572

 

 

$

14,677

 

 

As of September 30, 2015, the Company had $7.6 million outstanding related to seller financed loans to acquire lots for the construction of homes.  Principal and interest payments on these loans are due at various maturity dates, including at the time individual homes associated with the acquired land are delivered.  As of September 30, 2015, the seller financed loans accrue interest at a weighted average rate of 6.95% per annum, with interest calculated on a daily basis. Any remaining unpaid balance on these loans is due in May 2016. Accrued interest on these loans was $122,000 and $517,000 as of September 30, 2015 and December 31, 2014, respectively.

 

- 19 -


 

Interest Incurred

During the three month periods ended September 30, 2015 and 2014, the Company incurred interest of $15.5 million and $15.1 million, respectively, related to all notes payable and Senior Notes outstanding during the period. Of the interest incurred, $15.5 million and $14.8 million was capitalized to inventory for the three month period ended September 30, 2015 and 2014, respectively. Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $1.5 million and $1.0 million for the three months ended September 30, 2015 and 2014, respectively.  During the nine month periods ended September 30, 2015 and 2014, the Company incurred interest of $45.8 million and $25.7 million, respectively, related to all notes payable, Senior Notes and debt payable to Weyerhaeuser outstanding during the period.   Of the interest incurred, $45.8 million and $23.0 million was capitalized to inventory for the nine months ended September 30, 2015 and 2014, respectively.  Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $3.9 million and $ 1.1 million for the nine months ended September 30, 2015 and 2014, respectively.  Accrued interest related to all outstanding debt at September 30, 2015 and December 31, 2014 was $14.0 million and $3.1 million, respectively.  

Covenant Requirements

The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.

Under the Credit Facility, the Company is required to comply with certain financial covenants, including but not limited to (i) a minimum consolidated tangible net worth; (ii) a maximum total leverage ratio; and (iii) a minimum interest coverage ratio.

The Company was in compliance with all applicable financial covenants as of September 30, 2015 and December 31, 2014.

 

 

14.

Fair Value Disclosures

Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

 

·

Level 1—Quoted prices for identical instruments in active markets

 

·

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date

 

·

Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date

Fair Value of Financial Instruments

A summary of assets and liabilities at September 30, 2015 and December 31, 2014, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):

 

 

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

Hierarchy

 

Book Value

 

 

Fair Value

 

 

Book Value

 

 

Fair Value

 

Receivables (1)

 

Level 3

 

$

32,921

 

 

$

32,921

 

 

$

20,118

 

 

$

20,118

 

Senior Notes (2)

 

Level 2

 

 

888,657

 

 

 

878,625

 

 

 

887,502

 

 

 

896,625

 

Unsecured revolving credit facility (3)

 

Level 3

 

 

349,392

 

 

 

349,392

 

 

 

260,000

 

 

 

260,000

 

Seller financed loans (4)

 

Level 3

 

 

7,572

 

 

 

7,572

 

 

 

14,677

 

 

 

14,677

 

 

At September 30, 2015 and December 31, 2014, the carrying value of cash and cash equivalents approximated fair value.

(1)

The book value of our receivables equaled the fair value as of September 30, 2015 and December 31, 2014 due to the short-term nature of the remaining receivables.

(2)

The estimated fair value of our Senior Notes at September 30, 2015 and December 31, 2014 is based on quoted market prices.

 

- 20 -


 

(3)

We believe that the carrying value of our Credit Facility approximates fair value based on the short term nature of the current market rate amended on May 18, 2015. 

(4)

We believe that the carrying value of our Seller financed loans approximates fair value based on a two year treasury curve analysis.

Fair Value of Nonfinancial Assets

Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicate the carrying value is not recoverable. The following table presents impairment charges and the remaining net fair value for nonfinancial assets that were measured during the periods presented (in thousands):

 

 

 

 

 

Nine Months Ended

 

 

Year Ended

 

 

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

 

 

 

Fair Value

 

 

 

 

 

Impairment

 

 

Net of

 

 

Impairment

 

 

Net of

 

 

 

Hierarchy

 

Charge

 

 

Impairment

 

 

Charge

 

 

Impairment

 

Real estate inventories

 

Level 3

 

$

1,073

 

 

$

20,409

 

 

$

931

 

 

$

20,329

 

 

 

15.

Commitments and Contingencies

Legal Matters

Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements.  For matter as to which the Company believes a loss is probable and reasonably estimable, it had legal reserves of $468,000 and $273,000 at September 30, 2015 and December 31, 2014, respectively.

Warranty

Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.

We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy. Included in our warranty reserve accrual are allowances to cover our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable insurance or indemnities.  Estimation of these accruals include consideration of our claims history, including current claims and estimates of claims incurred but not yet reported.  In addition, we record expected recoveries from insurance carriers when proceeds are probable and estimable.  Outstanding warranty insurance receivables were $10.5 million and $10.0 million as of September 30, 2015 and December 31, 2014, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.

There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.

 

- 21 -


 

Warranty reserves consisted of the following (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Warranty reserves, beginning of period

 

$

35,375

 

 

$

24,324

 

 

$

33,270

 

 

$

24,449

 

Warranty reserves accrued

 

 

4,201

 

 

 

3,691

 

 

 

10,427

 

 

 

7,455

 

Liabilities assumed in the Merger

 

 

 

 

 

7,481

 

 

 

 

 

 

7,481

 

Adjustments to pre-existing reserves

 

 

(14

)

 

 

(809

)

 

 

1,286

 

 

 

209

 

Warranty expenditures

 

 

(2,819

)

 

 

(2,596

)

 

 

(8,240

)

 

 

(7,503

)

Warranty reserves, end of period

 

$

36,743

 

 

$

32,091

 

 

$

36,743

 

 

$

32,091

 

 

Performance Bonds

We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of September 30, 2015 and December 31, 2014, the Company had outstanding surety bonds totaling $422.3 million and $355.2 million, respectively. The beneficiaries of the bonds are various municipalities.

 

 

16.

Stock-Based Compensation

2013 Long-Term Incentive Plan

The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by TRI Pointe in January 2013 and amended with the approval of our stockholders in 2014. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, common stock, restricted stock, restricted stock units and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.

As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under the 2013 Incentive Plan. As of September 30, 2015 there were 9,563,491 shares available for future grant under the 2013 Incentive Plan.

Converted Awards

Under the Transaction Agreement, each outstanding Weyerhaeuser equity award held by an employee of WRECO was converted into a similar equity award with TRI Pointe, based on the final exchange ratio of 2.1107 (the “Exchange Ratio”), rounded down to the nearest whole number of shares of common stock. The Company filed a registration statement on Form S-8 (Registration No. 333-197461) on July 16, 2014 to register 4,105,953 shares related to these equity awards. The converted awards have the same terms and conditions as the Weyerhaeuser equity awards except that all performance share units were surrendered in exchange for time-vesting restricted stock units without any performance-based vesting conditions or requirements and the exercise price of each converted stock option is equal to the original exercise price divided by the Exchange Ratio. There will be no future grants under the WRECO equity incentive plans.  Refer to Note 2, Merger with Weyerhaeuser Real Estate Company, for additional information on the Merger.

The following table presents compensation expense recognized related to all stock-based awards (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Total stock-based compensation

 

$

2,994

 

 

$

3,547

 

 

$

8,536

 

 

$

6,250

 

 

As of September 30, 2015, total unrecognized stock-based compensation related to all stock-based awards was $19.2 million and the weighted average term over which the expense was expected to be recognized was 1.90 years.

 

- 22 -


 

Summary of Stock Option Activity

The following table presents a summary of stock option awards for the nine months ended September 30, 2015:

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Average

 

 

Aggregate

 

 

 

 

 

 

 

Exercise

 

 

Remaining

 

 

Intrinsic

 

 

 

 

 

 

 

Price

 

 

Contractual

 

 

Value

 

 

 

Options

 

 

Per Share

 

 

Life

 

 

(in thousands)

 

Options outstanding at December 31, 2014

 

 

3,467,086

 

 

$

13.05

 

 

 

6.0

 

 

$

7,642

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(171,716

)

 

 

11.54

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(65,356

)

 

 

14.00

 

 

 

 

 

 

 

 

 

Options outstanding at September 30, 2015

 

 

3,230,014

 

 

 

13.12

 

 

 

5.2

 

 

 

 

Options exercisable at September 30, 2015

 

 

2,791,472

 

 

 

12.42

 

 

 

4.7

 

 

 

1,884

 

 

Summary of Restricted Stock Unit Activity

The following table presents a summary of restricted stock units (“RSUs”) for the nine months ended September 30, 2015:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Aggregate

 

 

 

Restricted

 

 

Grant Date

 

 

Intrinsic

 

 

 

Stock

 

 

Fair Value

 

 

Value

 

 

 

Units

 

 

Per Share

 

 

(in thousands)

 

Nonvested RSUs at December 31, 2014

 

 

900,547

 

 

$

15.62

 

 

$

13,461

 

Granted

 

 

1,580,499

 

 

 

11.59

 

 

 

18,315

 

Vested

 

 

(453,685

)

 

 

13.85

 

 

 

 

 

Forfeited

 

 

(66,918

)

 

 

14.56

 

 

 

 

 

Nonvested RSUs at September 30, 2015

 

 

1,960,443

 

 

 

12.21

 

 

 

25,662

 

 

On March 5, 2015, the Company granted an aggregate of 440,800 restricted stock units to employees and officers. The restricted stock units granted vest annually on the anniversary of the grant date over a three year period.  The fair value of each restricted stock award granted on March 5, 2015 was measured using a price of $14.97 per share, which was the closing stock price on the date of grant.  Each award will be expensed on a straight-line basis over the vesting period.

On March 9, 2015, the Company granted 411,804, 384,351, and 274,536 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively, with 1/3 of the performance-based RSU amounts being allocated to each of the three following separate performance goals: total shareholder return (compared to a group of similarly sized homebuilders); earnings per share; and stock price. The performance-based restricted stock units granted will vest in each case, if at all, based on the percentage of attainment of the applicable performance goal. The performance periods for the performance-based RSUs with vesting based on total shareholder return and earnings per share are January 1, 2015 to December 31, 2017. The performance period for the performance-based RSUs with vesting based on stock price is January 1, 2016 to December 31, 2017. The fair value of the performance-based RSUs related to the total shareholder return and stock price performance goals was determined to be $7.55 and $7.90 per share, respectively, based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $14.57 per share, which was the closing stock price on the date of grant. Each grant will be expensed on a straight-line basis over the expected vesting period.

 

On August 12, 2015, the Company granted an aggregate of 69,008 restricted stock units to members of its board of directors. The restricted stock units granted to directors on August 12, 2015 vest in their entirety on the day immediately prior to the Company’s 2016 Annual Meeting of Stockholders. The fair value of each restricted stock award granted on August 12, 2015 was measured using $14.49 per share, which was the closing price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

As restricted stock units vest, a portion of the shares awarded is generally withheld to cover employee taxes. As a result, the number of restricted stock units vested and the number of shares of TRI Pointe common stock issued will differ.

 

 

 

- 23 -


 

17.

Income Taxes 

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered.  Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.

We had net deferred tax assets of $141.5 million and $157.8 million as of September 30, 2015 and December 31, 2014, respectively.  We had a valuation allowance related to those net deferred tax assets of $4.3 million and $6.2 million as of September 30, 2015 and December 31, 2014, respectively.  The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company's future operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company's estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company's consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company's deferred tax assets.

Our provision for income taxes totaled $28.0 million and $6.0 million for the three months ended September 30, 2015 and 2014, respectively.  Our provision for income taxes totaled $66.1 million and $16.4 million for the nine months ended September 30, 2015 and 2014, respectively.  The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense.  The Company had $16.6 million and $13.8 million of liabilities for uncertain tax positions recorded as of September 30, 2015 and December 31, 2014, respectively.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years. 

 

 

18.

Related Party Transactions

Prior to the Merger, WRECO was a wholly owned subsidiary of Weyerhaeuser.  Weyerhaeuser provided certain services including payroll processing and related employee benefits, other corporate services such as corporate governance, cash management and other treasury services, administrative services such as government relations, tax, internal audit, legal, accounting, human resources and equity-based compensation plan administration, lease of office space, aviation services and insurance coverage. WRECO was allocated a portion of Weyerhaeuser corporate general and administrative costs on either a proportional cost or usage basis.

Weyerhaeuser-allocated corporate general and administrative expenses were as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Weyerhaeuser-allocated costs

 

$

 

 

$

 

 

$

 

 

$

10,735

 

 

These expenses are not indicative of the actual level of expense WRECO would have incurred if it had operated as an independent company or of expenses expected to be incurred in the future after the Closing Date.

TRI Pointe has certain liabilities with Weyerhaeuser related to a tax sharing agreement.   As of September 30, 2015 and December 31, 2014, we had an income tax liability to Weyerhaeuser of $8.6 million and $15.7 million, respectively, which is recorded in accrued expenses and other liabilities on the accompanying balance sheet.

In January of 2015, TRI Pointe acquired 46 lots located in Castle Rock, Colorado, for a purchase price of approximately $2.8 million from an entity managed by an affiliate of the Starwood Capital Group. The chairman of the Company’s board of directors is Barry Sternlicht who is also the chairman of the Starwood Capital Group.  This acquisition was approved by TRI Pointe independent directors.

 

 

 

- 24 -


 

19.

Supplemental Disclosure to Consolidated Statements of Cash Flow 

The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2015

 

 

2014

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

 

 

$

1,372

 

Income taxes

 

$

44,394

 

 

$

14,962

 

Supplemental disclosures of noncash activities:

 

 

 

 

 

 

 

 

Increase in real estate inventory due to distribution of land

   from an unconsolidated joint venture

 

$

 

 

$

5,132

 

Distribution to Weyerhaeuser of excluded assets and

   liabilities

 

$

 

 

$

125,019

 

Amounts owed to Weyerhaeuser related to the tax sharing

   agreement

 

$

 

 

$

15,688

 

Noncash settlement of debt payable to Weyerhaeuser

 

$

 

 

$

70,082

 

Accrued liabilities related to the purchase of operating

   properties and equipment

 

$

1,877

 

 

$

 

Amortization of senior note discount

 

$

1,155

 

 

$

 

Effect of net consolidation and de-consolidation of

   variable interest entities:

 

 

 

 

 

 

 

 

(Decrease) increase in consolidated real estate

   inventory not owned

 

$

(3,556

)

 

$

4,497

 

Increase in accrued expenses and other liabilities

 

$

300

 

 

$

 

Decrease (increase) in noncontrolling interests

 

$

3,256

 

 

$

(4,497

)

 

 

20.

Supplemental Guarantor Information

On the Closing Date, the TRI Pointe Homes assumed WRECO’s obligations as issuer of the Senior Notes.  Additionally, all of TRI Pointe’s wholly owned subsidiaries that are guarantors of the Company’s unsecured $550 million revolving credit facility, including WRECO and certain of its wholly owned subsidiaries, entered into supplemental indentures pursuant to which they jointly and severally guaranteed TRI Pointe’s obligations with respect to the Senior Notes.  In connection with the Reorganization, TRI Pointe Group became a co-issuer with TRI Pointe Homes of the Senior Notes.

Presented below are the condensed consolidating balance sheets at September 30, 2015 and December 31, 2014, condensed consolidating statements of operations for the three and nine months ended September 30, 2015 and 2014 and condensed consolidating statement of cash flows for the nine month periods ended September 30, 2015 and 2014.  TRI Pointe’s non-guarantor subsidiaries represent less than 3% on an individual and aggregate basis of consolidated total assets, total revenues, and income from operations before taxes and cash flow from operating activities.  Therefore, the non-guarantor subsidiaries’ information is not separately presented in the tables below, but included with the guarantor subsidiaries.

As discussed in Note 1, the Merger was treated as a “reverse acquisition” with WRECO being considered the accounting acquirer.  Accordingly, the financial statements reflect the historical results of WRECO for all periods and do not include the historical financial information of TRI Pointe prior to the Closing Date.  Subsequent to the Closing Date, the consolidated financial statements reflect the results of the combined company.  

 

- 25 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Balance Sheet (in thousands):

 

 

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Group, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,015

 

 

$

59,978

 

 

$

 

 

$

96,993

 

Receivables

 

 

11,225

 

 

 

21,696

 

 

 

 

 

 

32,921

 

Intercompany receivables

 

 

872,290

 

 

 

 

 

 

(872,290

)

 

 

 

Real estate inventories

 

 

675,914

 

 

 

1,900,488

 

 

 

 

 

 

2,576,402

 

Investments in unconsolidated entities

 

 

 

 

 

17,340

 

 

 

 

 

 

17,340

 

Goodwill and other intangible assets, net

 

 

162,162

 

 

 

 

 

 

 

 

 

162,162

 

Investments in subsidiaries

 

 

1,045,130

 

 

 

 

 

 

(1,045,130

)

 

 

 

Deferred tax assets

 

 

23,630

 

 

 

117,849

 

 

 

 

 

 

141,479

 

Other assets

 

 

76,629

 

 

 

7,887

 

 

 

 

 

 

84,516

 

Total Assets

 

$

2,903,995

 

 

$

2,125,238

 

 

$

(1,917,420

)

 

$

3,111,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,821

 

 

$

52,926

 

 

$

 

 

$

67,747

 

Intercompany payables

 

 

 

 

 

872,290

 

 

 

(872,290

)

 

 

 

Accrued expenses and other liabilities

 

 

67,777

 

 

 

142,930

 

 

 

 

 

 

210,707

 

Unsecured revolving credit facility

 

 

349,392

 

 

 

 

 

 

 

 

 

349,392

 

Seller financed loans

 

 

7,172

 

 

 

400

 

 

 

 

 

 

7,572

 

Senior notes

 

 

888,657

 

 

 

 

 

 

 

 

 

888,657

 

Total Liabilities

 

 

1,327,819

 

 

 

1,068,546

 

 

 

(872,290

)

 

 

1,524,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

1,576,176

 

 

 

1,045,130

 

 

 

(1,045,130

)

 

 

1,576,176

 

Noncontrolling interests

 

 

 

 

 

11,562

 

 

 

 

 

 

11,562

 

Total Equity

 

 

1,576,176

 

 

 

1,056,692

 

 

 

(1,045,130

)

 

 

1,587,738

 

Total Liabilities and Equity

 

$

2,903,995

 

 

$

2,125,238

 

 

$

(1,917,420

)

 

$

3,111,813

 

 

 

(1)

 References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

- 26 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Balance Sheet (in thousands):

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Homes, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

105,888

 

 

$

64,741

 

 

$

 

 

$

170,629

 

Receivables

 

 

5,050

 

 

 

15,068

 

 

 

 

 

 

20,118

 

Intercompany receivables

 

 

797,480

 

 

 

 

 

 

(797,480

)

 

 

 

Real estate inventories

 

 

613,665

 

 

 

1,666,518

 

 

 

 

 

 

2,280,183

 

Investments in unconsolidated entities

 

 

 

 

 

16,805

 

 

 

 

 

 

16,805

 

Goodwill and other intangible assets, net

 

 

156,603

 

 

 

5,960

 

 

 

 

 

 

162,563

 

Investments in subsidiaries

 

 

941,397

 

 

 

 

 

 

(941,397

)

 

 

 

Deferred tax assets

 

 

23,630

 

 

 

134,191

 

 

 

 

 

 

157,821

 

Other assets

 

 

55,199

 

 

 

50,206

 

 

 

 

 

 

105,405

 

Total Assets

 

$

2,698,912

 

 

$

1,953,489

 

 

$

(1,738,877

)

 

$

2,913,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

25,800

 

 

$

43,060

 

 

$

 

 

$

68,860

 

Intercompany payables

 

 

 

 

 

797,480

 

 

 

(797,480

)

 

 

 

Accrued expenses and other liabilities

 

 

57,353

 

 

 

152,656

 

 

 

 

 

 

210,009

 

Unsecured revolving credit facility

 

 

260,000

 

 

 

 

 

 

 

 

 

260,000

 

Seller financed loans

 

 

14,077

 

 

 

600

 

 

 

 

 

 

14,677

 

Senior notes

 

 

887,502

 

 

 

 

 

 

 

 

 

887,502

 

Total Liabilities

 

 

1,244,732

 

 

 

993,796

 

 

 

(797,480

)

 

 

1,441,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

1,454,180

 

 

 

941,397

 

 

 

(941,397

)

 

 

1,454,180

 

Noncontrolling interests

 

 

 

 

 

18,296

 

 

 

 

 

 

18,296

 

Total Equity

 

 

1,454,180

 

 

 

959,693

 

 

 

(941,397

)

 

 

1,472,476

 

Total Liabilities and Equity

 

$

2,698,912

 

 

$

1,953,489

 

 

$

(1,738,877

)

 

$

2,913,524

 

 

 

(1)

  References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

- 27 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Statement of Operations (in thousands):

 

 

 

Three Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Group, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

224,244

 

 

$

418,108

 

 

$

 

 

$

642,352

 

Land and lot sales

 

 

 

 

 

4,876

 

 

 

 

 

 

4,876

 

Other operations

 

 

 

 

 

913

 

 

 

 

 

 

913

 

Total revenues

 

 

224,244

 

 

 

423,897

 

 

 

 

 

 

648,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

182,754

 

 

 

324,789

 

 

 

 

 

 

507,543

 

Cost of land and lot sales

 

 

 

 

 

3,451

 

 

 

 

 

 

3,451

 

Other operations

 

 

 

 

 

570

 

 

 

 

 

 

570

 

Sales and marketing

 

 

7,286

 

 

 

22,752

 

 

 

 

 

 

30,038

 

General and administrative

 

 

12,942

 

 

 

13,841

 

 

 

 

 

 

26,783

 

Restructuring charges

 

 

(83

)

 

 

2,093

 

 

 

 

 

 

2,010

 

Total expenses

 

 

202,899

 

 

 

367,496

 

 

 

 

 

 

570,395

 

Income from operations

 

 

21,345

 

 

 

56,401

 

 

 

 

 

 

77,746

 

Equity in loss of unconsolidated entities

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Other income, net

 

 

(37

)

 

 

84

 

 

 

 

 

 

47

 

Income before taxes

 

 

21,308

 

 

 

56,482

 

 

 

 

 

 

77,790

 

Provision for income taxes

 

 

(9,070

)

 

 

(18,951

)

 

 

 

 

 

(28,021

)

Equity of net income of subsidiaries

 

 

37,924

 

 

 

 

 

 

(37,924

)

 

 

 

Net income

 

 

50,162

 

 

 

37,531

 

 

 

(37,924

)

 

 

49,769

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

393

 

 

 

 

 

 

393

 

Net income available to common stockholders

 

$

50,162

 

 

$

37,924

 

 

$

(37,924

)

 

$

50,162

 

 

 

(1)

  References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

- 28 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Statement of Operations (in thousands):

 

 

 

Three Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Homes, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

123,456

 

 

$

348,345

 

 

$

 

 

$

471,801

 

Land and lot sales

 

 

 

 

 

5,550

 

 

 

 

 

 

5,550

 

Other operations

 

 

(11

)

 

 

580

 

 

 

 

 

 

569

 

Total revenues

 

 

123,445

 

 

 

354,475

 

 

 

 

 

 

477,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

108,687

 

 

 

276,713

 

 

 

 

 

 

385,400

 

Cost of land and lot sales

 

 

 

 

 

2,317

 

 

 

 

 

 

2,317

 

Other operations

 

 

 

 

 

556

 

 

 

 

 

 

556

 

Sales and marketing

 

 

3,956

 

 

 

24,437

 

 

 

 

 

 

28,393

 

General and administrative

 

 

7,246

 

 

 

13,705

 

 

 

 

 

 

20,951

 

Restructuring charges

 

 

 

 

 

7,024

 

 

 

 

 

 

7,024

 

Total expenses

 

 

119,889

 

 

 

324,752

 

 

 

 

 

 

444,641

 

Income from operations

 

 

3,556

 

 

 

29,723

 

 

 

 

 

 

33,279

 

Equity in loss of unconsolidated entities

 

 

 

 

 

(82

)

 

 

 

 

 

(82

)

Transaction expenses

 

 

(6,381

)

 

 

(10,329

)

 

 

 

 

 

 

(16,710

)

Other income, net

 

 

9

 

 

 

490

 

 

 

 

 

 

499

 

(Loss) income before taxes

 

 

(2,816

)

 

 

19,802

 

 

 

 

 

 

16,986

 

Benefit (provision) for income taxes

 

 

2,032

 

 

 

(8,053

)

 

 

 

 

 

(6,021

)

Equity of net income of subsidiaries

 

 

11,749

 

 

 

 

 

 

(11,749

)

 

 

 

Net income available to common stockholders

 

$

10,965

 

 

$

11,749

 

 

$

(11,749

)

 

$

10,965

 

 

 

(1)

  References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

- 29 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Statement of Operations (in thousands):

 

 

 

Nine Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Group, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

461,654

 

 

$

982,201

 

 

$

 

 

$

1,443,855

 

Land and lot sales

 

 

 

 

 

74,366

 

 

 

 

 

 

74,366

 

Other operations

 

 

 

 

 

2,695

 

 

 

 

 

 

2,695

 

Total revenues

 

 

461,654

 

 

 

1,059,262

 

 

 

 

 

 

1,520,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

376,100

 

 

 

773,091

 

 

 

 

 

 

1,149,191

 

Cost of land and lot sales

 

 

 

 

 

17,324

 

 

 

 

 

 

17,324

 

Other operations

 

 

 

 

 

1,724

 

 

 

 

 

 

1,724

 

Sales and marketing

 

 

17,714

 

 

 

61,244

 

 

 

 

 

 

78,958

 

General and administrative

 

 

38,874

 

 

 

44,387

 

 

 

 

 

 

83,261

 

Restructuring charges

 

 

(169

)

 

 

2,899

 

 

 

 

 

 

2,730

 

Total expenses

 

 

432,519

 

 

 

900,669

 

 

 

 

 

 

1,333,188

 

Income from operations

 

 

29,135

 

 

 

158,593

 

 

 

 

 

 

187,728

 

Equity in loss of unconsolidated entities

 

 

 

 

 

(84

)

 

 

 

 

 

(84

)

Other (loss) income, net

 

 

(149

)

 

 

421

 

 

 

 

 

 

272

 

Income before taxes

 

 

28,986

 

 

 

158,930

 

 

 

 

 

 

187,916

 

Provision for income taxes

 

 

(12,285

)

 

 

(53,803

)

 

 

 

 

 

(66,088

)

Equity of net income of subsidiaries

 

 

103,688

 

 

 

 

 

 

(103,688

)

 

 

 

Net income

 

 

120,389

 

 

 

105,127

 

 

 

(103,688

)

 

 

121,828

 

Net income attributable to noncontrolling interests

 

 

 

 

 

(1,439

)

 

 

 

 

 

(1,439

)

Net income available to common stockholders

 

$

120,389

 

 

$

103,688

 

 

$

(103,688

)

 

$

120,389

 

 

 

(1)

  References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

- 30 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Statement of Operations (in thousands):

 

 

 

Nine Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Homes, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

123,456

 

 

$

899,856

 

 

$

 

 

$

1,023,312

 

Land and lot sales

 

 

 

 

 

36,449

 

 

 

 

 

 

36,449

 

Other operations

 

 

(11

)

 

 

8,865

 

 

 

 

 

 

8,854

 

Total revenues

 

 

123,445

 

 

 

945,170

 

 

 

 

 

 

1,068,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

108,687

 

 

 

710,690

 

 

 

 

 

 

819,377

 

Cost of land and lot sales

 

 

 

 

 

30,245

 

 

 

 

 

 

30,245

 

Other operations

 

 

 

 

 

2,755

 

 

 

 

 

 

2,755

 

Sales and marketing

 

 

3,956

 

 

 

69,140

 

 

 

 

 

 

73,096

 

General and administrative

 

 

7,246

 

 

 

49,894

 

 

 

 

 

 

57,140

 

Restructuring charges

 

 

 

 

 

9,202

 

 

 

 

 

 

9,202

 

Total expenses

 

 

119,889

 

 

 

871,926

 

 

 

 

 

 

991,815

 

Income from operations

 

 

3,556

 

 

 

73,244

 

 

 

 

 

 

76,800

 

Equity in loss of unconsolidated entities

 

 

 

 

 

(219

)

 

 

 

 

 

(219

)

Transaction expenses

 

 

(6,381

)

 

 

(10,835

)

 

 

 

 

 

 

(17,216

)

Other income (loss), net

 

 

9

 

 

 

(251

)

 

 

 

 

 

(242

)

(Loss) income before taxes

 

 

(2,816

)

 

 

61,939

 

 

 

 

 

 

59,123

 

Benefit (provision) for income taxes

 

 

2,032

 

 

 

(18,384

)

 

 

 

 

 

(16,352

)

Equity of net income of subsidiaries

 

 

43,555

 

 

 

 

 

 

(43,555

)

 

 

 

Net income available to common stockholders

 

$

42,771

 

 

$

43,555

 

 

$

(43,555

)

 

$

42,771

 

 

 

(1)

 References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

- 31 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Statement of Cash Flows (in thousands):

 

 

 

Nine Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Group, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(69,362

)

 

$

(70,649

)

 

$

 

 

$

(140,011

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(382

)

 

 

(677

)

 

 

 

 

 

(1,059

)

Investments in unconsolidated entities

 

 

 

 

 

(1,458

)

 

 

 

 

 

(1,458

)

Distributions from unconsolidated entities

 

 

 

 

 

319

 

 

 

 

 

 

319

 

Intercompany

 

 

(78,354

)

 

 

 

 

 

78,354

 

 

 

 

Net cash used in investing activities

 

 

(78,736

)

 

 

(1,816

)

 

 

78,354

 

 

 

(2,198

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings from debt

 

 

140,000

 

 

 

 

 

 

 

 

 

140,000

 

Repayment of debt

 

 

(57,513

)

 

 

(200

)

 

 

 

 

 

(57,713

)

Debt issuance costs

 

 

(2,688

)

 

 

 

 

 

 

 

 

(2,688

)

Net proceeds (repayments) of debt held by variable interest

   entities

 

 

 

 

 

(5,927

)

 

 

 

 

 

(5,927

)

Contributions from noncontrolling interests

 

 

 

 

 

4,281

 

 

 

 

 

 

4,281

 

Distributions to noncontrolling interests

 

 

 

 

 

(9,198

)

 

 

 

 

 

(9,198

)

Proceeds from issuance of common stock under share-based

   awards

 

 

1,616

 

 

 

 

 

 

 

 

 

1,616

 

Excess tax benefits of share-based awards

 

 

 

 

 

392

 

 

 

 

 

 

392

 

Minimum tax withholding paid on behalf of employees for

   restricted stock units

 

 

(2,190

)

 

 

 

 

 

 

 

 

(2,190

)

Intercompany

 

 

 

 

 

78,354

 

 

 

(78,354

)

 

 

 

Net cash provided by financing activities

 

 

79,225

 

 

 

67,702

 

 

 

(78,354

)

 

 

68,573

 

Net decrease in cash and cash equivalents

 

 

(68,873

)

 

 

(4,763

)

 

 

 

 

 

(73,636

)

Cash and cash equivalents - beginning of period

 

 

105,888

 

 

 

64,741

 

 

 

 

 

 

170,629

 

Cash and cash equivalents - end of period

 

$

37,015

 

 

$

59,978

 

 

$

 

 

$

96,993

 

 

 

(1)

 References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

- 32 -


 

20.

Supplemental Guarantor Information (continued) 

Condensed Consolidating Statement of Cash Flows (in thousands):

 

 

 

Nine Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

Guarantor

 

 

Consolidating

 

 

TRI Pointe

 

 

 

Issuer (1)

 

 

Subsidiaries

 

 

Adjustments

 

 

Homes, Inc.

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(26,882

)

 

$

(113,547

)

 

$

 

 

$

(140,429

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(659

)

 

 

(5,409

)

 

 

 

 

 

(6,068

)

Cash acquired in the Merger

 

 

53,800

 

 

 

 

 

 

 

 

 

53,800

 

Proceeds from sale of property and equipment

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Investments in unconsolidated entities

 

 

 

 

 

(573

)

 

 

 

 

 

(573

)

Intercompany

 

 

(850,977

)

 

 

 

 

 

850,977

 

 

 

 

Net cash used in investing activities

 

 

(797,836

)

 

 

(5,960

)

 

 

850,977

 

 

 

47,181

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings from debt

 

 

50,000

 

 

 

 

 

 

 

 

 

50,000

 

Debt issuance costs

 

 

(23,003

)

 

 

 

 

 

 

 

 

(23,003

)

Proceeds from issuance of senior notes

 

 

886,698

 

 

 

 

 

 

 

 

 

886,698

 

Bridge commitment fee

 

 

 

 

 

(10,322

)

 

 

 

 

 

(10,322

)

Changes in debt payable to Weyerhaeuser

 

 

 

 

 

(623,589

)

 

 

 

 

 

(623,589

)

Change in book overdrafts

 

 

 

 

 

(22,492

)

 

 

 

 

 

(22,492

)

Distributions to Weyerhaeuser

 

 

 

 

 

(8,860

)

 

 

 

 

 

(8,860

)

Net proceeds (repayments) of debt held by variable interest

   entities

 

 

 

 

 

5,120

 

 

 

 

 

 

5,120

 

Distributions to noncontrolling interests

 

 

 

 

 

(18,703

)

 

 

 

 

 

(18,703

)

Excess tax benefits of share-based awards

 

 

 

 

 

1,572

 

 

 

 

 

 

1,572

 

Intercompany

 

 

 

 

 

 

850,977

 

 

 

(850,977

)

 

 

 

Net cash provided by financing activities

 

 

913,695

 

 

 

173,703

 

 

 

(850,977

)

 

 

236,421

 

Net increase in cash and cash equivalents

 

 

88,977

 

 

 

54,196

 

 

 

 

 

 

143,173

 

Cash and cash equivalents - beginning of period

 

 

 

 

 

4,510

 

 

 

 

 

 

4,510

 

Cash and cash equivalents - end of period

 

$

88,977

 

 

$

58,706

 

 

$

 

 

$

147,683

 

 

 

(1)

References to “Issuer” in Note 20, Supplemental Guarantor Information have the following meanings:

 

a.

for periods prior to July 7, 2015: TRI Pointe Homes only

 

b.

for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers

 

 

 

- 33 -


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain statements relating to future events of our intentions, beliefs, expectations, predictions for the future and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.

These statements:

 

·

use forward-looking terminology;

 

·

are based on various assumptions made by TRI Pointe; and

 

·

may not prove to be accurate because of risks and uncertainties surrounding the assumptions that are made.

Factors listed in this section – as well as other factors not included – may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee of what effect it will have on our operations or financial condition.

We will not update the forward-looking statements contained in this Quarterly Report on Form 10-Q, unless otherwise required by law.

Forward-Looking Statements

These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes, including, without limitation, our transaction with Weyerhaeuser Real Estate Company (WRECO). These forward-looking statements include, but are not limited to, statements regarding expected benefits of the WRECO transaction, integration plans and expected synergies therefrom, and our anticipated future financial and operating performance and results, including our estimates for growth.

Forward-looking statements are based on a number of factors, including the expected effect of:

 

·

the economy;

 

·

laws and regulations;

 

·

adverse litigation outcome and the adequacy of reserves;

 

·

changes in accounting principles;

 

·

projected benefit payments; and

 

·

projected tax rates and credits.

Risks, Uncertainties and Assumptions

The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:

 

·

the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;

 

·

market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;

 

·

levels of competition;

 

·

the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;

 

·

global economic conditions;

 

·

raw material prices;

 

- 34 -


 

 

·

energy prices; 

 

·

the effect of weather, including the continuing drought in California;

 

·

the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters;

 

·

transportation costs;

 

·

federal and state tax policies;

 

·

the effect of land use, environment and other governmental regulations;

 

·

legal proceedings;

 

·

risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;

 

·

the risk that disruptions from the transaction with WRECO will harm our business;

 

·

our ability to achieve the benefits of the transaction with WRECO in the estimated amount and the anticipated timeframe, if at all;

 

·

our ability to integrate WRECO successfully and to achieve the anticipated synergies therefrom;

 

·

change in accounting principles;

 

·

risks related to unauthorized access to our computer systems, theft of our customers’ confidential information or other forms of cyber-attack; and

 

·

other factors described in “Risk Factors.”

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2014, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2015 and June 30, 2015, and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to invest in, or maintain your investment in, our common stock.

Reverse Acquisition and Formation of TRI Pointe Group, Inc.

On July 7, 2014 (the “Closing Date”), TRI Pointe Homes, Inc. consummated the previously announced merger (the “Merger”) of our wholly owned subsidiary, Topaz Acquisition, Inc. (“Merger Sub”), with and into WRECO, with WRECO surviving the Merger and becoming our wholly owned subsidiary, as contemplated by the Transaction Agreement, dated as of November 3, 2013 (the “Transaction Agreement”), by and among us, Weyerhaeuser Company (“Weyerhaeuser”), the Company, WRECO and Merger Sub. The Merger is accounted for in accordance with ASC Topic 805, Business Combinations (“ASC 805”). For accounting purposes, the Merger is treated as a “reverse acquisition” and WRECO is considered the accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer and therefore the accompanying consolidated financial statements reflect the historical consolidated financial statements of WRECO for all periods presented and do not include the historical financial statements of TRI Pointe prior to the Closing Date. Subsequent to the Closing Date, the consolidated financial statements reflect the results of the combined company.

For further information on the Merger, see Note 2, Merger with Weyerhaeuser Real Estate Company, of the condensed notes to the unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.  In the Merger, each issued and outstanding WRECO common share was converted into 1.297 shares of TRI Pointe common stock. The historical issued and outstanding WRECO common shares (100,000,000 common shares for all periods presented prior to the Merger) have been recast as 129,700,000 common shares of the Company for all periods prior to the Merger) in all periods presented to reflect this conversion.

On July 7, 2015, TRI Pointe Homes, Inc., a Delaware corporation (“TRI Pointe Homes”), reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”).  Please see "Note Regarding this Quarterly Report" above regarding the reorganization of our corporate structure on July 7, 2015.

 

- 35 -


 

Consolidated Financial Data (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

642,352

 

 

$

471,801

 

 

$

1,443,855

 

 

$

1,023,312

 

Land and lot sales

 

 

4,876

 

 

 

5,550

 

 

 

74,366

 

 

 

36,449

 

Other operations

 

 

913

 

 

 

569

 

 

 

2,695

 

 

 

8,854

 

Total revenues

 

 

648,141

 

 

 

477,920

 

 

 

1,520,916

 

 

 

1,068,615

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

507,543

 

 

 

385,400

 

 

 

1,149,191

 

 

 

819,377

 

Cost of land and lot sales

 

 

3,451

 

 

 

2,317

 

 

 

17,324

 

 

 

30,245

 

Other operations

 

 

570

 

 

 

556

 

 

 

1,724

 

 

 

2,755

 

Sales and marketing

 

 

30,038

 

 

 

28,393

 

 

 

78,958

 

 

 

73,096

 

General and administrative

 

 

26,783

 

 

 

20,951

 

 

 

83,261

 

 

 

57,140

 

Restructuring charges

 

 

2,010

 

 

 

7,024

 

 

 

2,730

 

 

 

9,202

 

Total expenses

 

 

570,395

 

 

 

444,641

 

 

 

1,333,188

 

 

 

991,815

 

Income from operations

 

 

77,746

 

 

 

33,279

 

 

 

187,728

 

 

 

76,800

 

Equity in loss of unconsolidated entities

 

 

(3

)

 

 

(82

)

 

 

(84

)

 

 

(219

)

Transaction expenses

 

 

 

 

 

(16,710

)

 

 

 

 

 

(17,216

)

Other income (expense), net

 

 

47

 

 

 

499

 

 

 

272

 

 

 

(242

)

Income before taxes

 

 

77,790

 

 

 

16,986

 

 

 

187,916

 

 

 

59,123

 

Provision for income taxes

 

 

(28,021

)

 

 

(6,021

)

 

 

(66,088

)

 

 

(16,352

)

Net income

 

 

49,769

 

 

 

10,965

 

 

 

121,828

 

 

 

42,771

 

Net (income) loss attributable to noncontrolling interests

 

 

393

 

 

 

 

 

 

(1,439

)

 

 

 

Net income available to common stockholders

 

$

50,162

 

 

$

10,965

 

 

$

120,389

 

 

$

42,771

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

Diluted

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

 

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment

 

 

 

Three Months Ended

September 30, 2015

 

 

Three Months Ended

September 30, 2014

 

 

Percentage Change

 

 

 

Net New

 

 

Average

 

 

Monthly

 

 

Net New

 

 

Average

 

 

Monthly

 

 

Net New

 

 

Average

 

 

Monthly

 

 

 

Home

 

 

Selling

 

 

Absorption

 

 

Home

 

 

Selling

 

 

Absorption

 

 

Home

 

 

Selling

 

 

Absorption

 

 

 

Orders

 

 

Communities

 

 

Rates

 

 

Orders

 

 

Communities

 

 

Rates

 

 

Orders

 

 

Communities

 

 

Rates

 

Maracay Homes

 

 

150

 

 

 

17.2

 

 

 

2.9

 

 

 

88

 

 

 

17.3

 

 

 

1.7

 

 

 

71

%

 

 

(1

)%

 

 

71

%

Pardee Homes

 

 

291

 

 

 

25.0

 

 

 

3.9

 

 

 

264

 

 

 

21.3

 

 

 

4.1

 

 

 

10

%

 

 

17

%

 

 

(6

)%

Quadrant Homes

 

 

87

 

 

 

11.8

 

 

 

2.5

 

 

 

82

 

 

 

12.3

 

 

 

2.2

 

 

 

6

%

 

 

(4

)%

 

 

11

%

Trendmaker Homes

 

 

125

 

 

 

25.0

 

 

 

1.7

 

 

 

127

 

 

 

24.8

 

 

 

1.7

 

 

 

(2

)%

 

 

1

%

 

 

(2

)%

TRI Pointe Homes

 

 

234

 

 

 

28.3

 

 

 

2.8

 

 

 

152

 

 

 

16.0

 

 

 

3.2

 

 

 

54

%

 

 

77

%

 

 

(13

)%

Winchester Homes

 

 

109

 

 

 

13.5

 

 

 

2.7

 

 

 

90

 

 

 

15.3

 

 

 

2.0

 

 

 

21

%

 

 

(12

)%

 

 

37

%

Total

 

 

996

 

 

 

120.8

 

 

 

2.7

 

 

 

803

 

 

 

107.0

 

 

 

2.5

 

 

 

24

%

 

 

13

%

 

 

10

%

 

Net new home orders for the three months ended September 30, 2015 increased by 193 units or 24% to 996, compared to 803 during the prior year period.  The overall increase in net new home orders was due to a 13% increase in average selling communities and a 10% increase in absorption rates.  Net new home orders increased at all but one of our reporting segments, highlighted by a 71% increase at our Maracay Homes segment which was driven by a 71% increase in our absorption rate and a 54% increase at TRI Pointe Homes primarily due to a 77% increase in average selling communities.  Trendmaker Homes reported a slight decline in net new home orders compared to the prior year period resulting from a slowdown in the premium housing market in Houston as a result of uncertainty around oil prices.

 

- 36 -


 

Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)

 

 

 

As of September 30, 2015

 

 

As of September 30, 2014

 

 

Percentage Change

 

 

 

 

 

 

 

Backlog

 

 

Average

 

 

 

 

 

 

Backlog

 

 

Average

 

 

 

 

 

 

Backlog

 

 

Average

 

 

 

Backlog

 

 

Dollar

 

 

Sales

 

 

Backlog

 

 

Dollar

 

 

Sales

 

 

Backlog

 

 

Dollar

 

 

Sales

 

 

 

Units

 

 

Value

 

 

Price

 

 

Units

 

 

Value

 

 

Price

 

 

Units

 

 

Value

 

 

Price

 

Maracay Homes

 

 

293

 

 

$

118,164

 

 

$

403

 

 

 

143

 

 

$

57,202

 

 

$

400

 

 

 

105

%

 

 

107

%

 

 

1

%

Pardee Homes

 

 

448

 

 

 

296,477

 

 

 

662

 

 

 

415

 

 

 

222,929

 

 

 

537

 

 

 

8

%

 

 

33

%

 

 

23

%

Quadrant Homes

 

 

169

 

 

 

79,955

 

 

 

473

 

 

 

163

 

 

 

78,317

 

 

 

480

 

 

 

4

%

 

 

2

%

 

 

(2

)%

Trendmaker Homes

 

 

205

 

 

 

108,250

 

 

 

528

 

 

 

254

 

 

 

131,611

 

 

 

518

 

 

 

(19

)%

 

 

(18

)%

 

 

2

%

TRI Pointe Homes

 

 

567

 

 

 

388,336

 

 

 

685

 

 

 

282

 

 

 

240,872

 

 

 

854

 

 

 

101

%

 

 

61

%

 

 

(20

)%

Winchester Homes

 

 

174

 

 

 

118,685

 

 

 

682

 

 

 

183

 

 

 

139,434

 

 

 

762

 

 

 

(5

)%

 

 

(15

)%

 

 

(10

)%

Total

 

 

1,856

 

 

$

1,109,867

 

 

$

598

 

 

 

1,440

 

 

$

870,365

 

 

$

604

 

 

 

29

%

 

 

28

%

 

 

(1

)%

 

Backlog units reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into sales contracts with customers but for which we have not yet delivered the homes. Homes in backlog are generally delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of buyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 16% for the three months ended September 30, 2015 compared to 18% for the same prior year period.  The dollar value of backlog was $1.1 billion as of September 30, 2015, an increase of $239.5 million, or 28%, compared to $870.4 million as of September 30, 2014.  This increase in dollar value of backlog is due to a 29% increase in the number of homes in backlog to 1,856 homes as of September 30, 2015 from 1,440 homes as of September 30, 2014.  The increase was slightly offset by a decrease in the average sales price of homes in backlog of $6,000, or 1%, to $598,000 as of September 30, 2015 compared to $604,000 as of September 30, 2014.  The increase of 416 homes in backlog was driven by TRI Pointe Homes and Maracay Homes with increases of 285 units and 150 units, respectively, as of September 30, 2015 compared to the same prior year period.  

New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)

 

 

 

Three Months Ended

September 30, 2015

 

 

Three Months Ended

September 30, 2014

 

 

Percentage Change

 

 

 

New

 

 

Home

 

 

Average

 

 

New

 

 

Home

 

 

Average

 

 

New

 

 

Home

 

 

Average

 

 

 

Homes

 

 

Sales

 

 

Sales

 

 

Homes

 

 

Sales

 

 

Sales

 

 

Homes

 

 

Sales

 

 

Sales

 

 

 

Delivered

 

 

Revenue

 

 

Price

 

 

Delivered

 

 

Revenue

 

 

Price

 

 

Delivered

 

 

Revenue

 

 

Price

 

Maracay Homes

 

 

131

 

 

$

50,504

 

 

$

386

 

 

 

94

 

 

$

37,301

 

 

$

397

 

 

 

39

%

 

 

35

%

 

 

(3

)%

Pardee Homes

 

 

314

 

 

 

170,450

 

 

 

543

 

 

 

277

 

 

 

129,608

 

 

 

468

 

 

 

13

%

 

 

32

%

 

 

16

%

Quadrant Homes

 

 

117

 

 

 

47,560

 

 

 

406

 

 

 

74

 

 

 

32,338

 

 

 

437

 

 

 

58

%

 

 

47

%

 

 

(7

)%

Trendmaker Homes

 

 

163

 

 

 

80,732

 

 

 

495

 

 

 

135

 

 

 

69,711

 

 

 

516

 

 

 

21

%

 

 

16

%

 

 

(4

)%

TRI Pointe Homes

 

 

298

 

 

 

224,243

 

 

 

752

 

 

 

158

 

 

 

123,456

 

 

 

781

 

 

 

89

%

 

 

82

%

 

 

(4

)%

Winchester Homes

 

 

115

 

 

 

68,863

 

 

 

599

 

 

 

104

 

 

 

79,387

 

 

 

763

 

 

 

11

%

 

 

(13

)%

 

 

(22

)%

Total

 

 

1,138

 

 

$

642,352

 

 

$

564

 

 

 

842

 

 

$

471,801

 

 

$

560

 

 

 

35

%

 

 

36

%

 

 

1

%

 

Home sales revenue increased $170.6 million, or 36%, to $642.4 million for the three months ended September 30, 2015 from $471.8 million for the prior year period. The increase was comprised of: (i) $165.9 million related to a 35% increase in homes delivered to 1,138 for the three months ended September 30, 2015 from 842 in the prior year period; and (ii) $4.7 million due to an increase in average sales price of $4,000 per home to $564,000 for the three months ended September 30, 2015 from $560,000 in the prior year period.

 

- 37 -


 

Homebuilding Gross Margins (dollars in thousands)

 

 

 

Three Months Ended September 30,

 

 

 

2015

 

 

%

 

 

2014

 

 

%

 

Home sales

 

$

642,352

 

 

 

100.0

%

 

$

471,801

 

 

 

100.0

%

Cost of home sales

 

 

507,543

 

 

 

79.0

%

 

 

385,400

 

 

 

81.7

%

Homebuilding gross margin

 

 

134,809

 

 

 

21.0

%

 

 

86,401

 

 

 

18.3

%

Add:  interest in cost of home sales

 

 

13,189

 

 

 

2.1

%

 

 

7,702

 

 

 

1.6

%

Add:  impairments and lot option

   abandonments

 

 

366

 

 

 

0.1

%

 

 

490

 

 

 

0.1

%

Adjusted homebuilding gross margin(1)

 

$

148,364

 

 

 

23.1

%

 

$

94,593

 

 

 

20.0

%

Homebuilding gross margin percentage

 

 

21.0

%

 

 

 

 

 

 

18.3

%

 

 

 

 

Adjusted homebuilding gross margin percentage(1)

 

 

23.1

%

 

 

 

 

 

 

20.0

%

 

 

 

 

 

(1)

Non-GAAP financial measure (as discussed below).

Our homebuilding gross margin percentage increased to 21.0% for the three months ended September 30, 2015 as compared to 18.3% for the prior year period. The prior year margin was impacted by a $13.0 million or 280 basis point noncash purchase accounting adjustment related to the fair value increase to TRI Pointe’s inventory as a result of the Merger.  Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 23.1% for the three months ended September 30, 2015, compared to 20.0% for the prior year period. The increase in the adjusted homebuilding gross margin was consistent with the change in homebuilding gross margin.

Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.

Land and Lot Gross Margins (dollars in thousands)

 

 

 

Three Months Ended September 30,

 

 

 

2015

 

 

%

 

 

2014

 

 

%

 

Land and lot sales

 

$

4,876

 

 

 

100.0

%

 

$

5,550

 

 

 

100.0

%

Cost of land and lot sales

 

 

3,451

 

 

 

70.8

%

 

 

2,317

 

 

 

41.7

%

Land and lot gross margin

 

$

1,425

 

 

 

29.2

%

 

$

3,233

 

 

 

58.3

%

 

Land and lot gross margin percentage decreased to 29.2% for the three months ended September 30, 2015 as compared to 58.3% for the prior year period.  Land and lot sales gross margin percentage can vary significantly due to the type of land and its related cost basis.

Sales and Marketing, General and Administrative Expense (dollars in thousands)

 

 

 

Three Months Ended

 

 

As a Percentage of

 

 

 

September 30,

 

 

Home Sales Revenue

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Sales and marketing

 

$

30,038

 

 

$

28,393

 

 

 

4.7

%

 

 

6.0

%

General and administrative (G&A)

 

 

26,783

 

 

 

20,951

 

 

 

4.2

%

 

 

4.4

%

Total sales and marketing and G&A

 

$

56,821

 

 

$

49,344

 

 

 

8.8

%

 

 

10.5

%

 

 

- 38 -


 

Sales and marketing expense as a percentage of home sales revenue decreased to 4.7% for the three months ended September 30, 2015 from 6.0% for the three months ended September 30, 2014.  This decrease is primarily attributable to greater leverage achieved as a result of a 36% increase in home sales revenue to $642.4 million for the three months ended September 30, 2015 compared to $471.8 million in the same prior year period.  Sales and marketing expense as a percentage of home sales revenue decreased at all six operating segments in the current year period.  Total sales and marketing expense increased by $1.6 million to $30.0 million for the three months ended September 30, 2015 compared to $28.4 million in the same prior year period, and is primarily attributable to direct selling costs related to the 35% increase in new home deliveries.

General and administrative expenses as a percentage of home sales revenue decreased to 4.2% of home sales revenue for the three months ended September 30, 2015 compared to 4.4% for the prior year period.  The decrease is due primarily to higher operating leverage resulting from increased home sales revenue. General and administrative expenses increased $5.8 million to $26.8 million for the three months ended September 30, 2015 compared to $21.0 million in the same prior year period.   This increase is due primarily to employee related costs to support our long term growth.

Total sales and marketing and G&A (“SG&A”) as a percentage of home sales revenue decreased to 8.8% for the three month period ended September 30, 2015 compared to 10.5% in the prior year period, due primarily to higher home sales revenue in the current year period.  Total SG&A expense increased $7.4 million, or 15.0%, to $56.8 million for the three months ended September 30, 2015 from $49.4 million in the prior year period.  

Restructuring Charges

Restructuring charges decreased to $2.0 million for the three months ended September 30, 2015 compared to $7.0 million in the same period in the prior year.  The decrease was mainly due to higher employee-related restructuring costs in 2014, largely related to retention, severance and related costs in connection with the Merger.  

Interest

Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $15.5 million and $15.1 million for the three months ended September 30, 2015 and 2014, respectively.  The capitalized portion of interest incurred was $15.5 million and $14.8 million for the three months ended September 30, 2015 and 2014, respectively.  The increase in interest incurred during the three months ended September 30, 2015 as compared to the prior year period was primarily attributable to an increase in our outstanding unsecured revolving credit facility debt incurred to fund the overall growth of the Company.

Income Tax

For the three months ended September 30, 2015, we recorded a tax provision of $28.0 million based on an effective tax rate of 36.0%.  For the three months ended September 30, 2014, we recorded a tax provision of $6.0 million based on an effective tax rate of 35.4%. The increase in provision for income taxes is due to an increase in income before taxes of $60.8 million to $77.8 million for the three months ended September 30, 2015 compared to $17.0 million for the prior year period.

 

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment

 

 

 

Nine Months Ended

September 30, 2015

 

 

Nine Months Ended

September 30, 2014

 

 

Percentage Change

 

 

 

Net New

 

 

Average

 

 

Monthly

 

 

Net New

 

 

Average

 

 

Monthly

 

 

Net New

 

 

Average

 

 

Monthly

 

 

 

Home

 

 

Selling

 

 

Absorption

 

 

Home

 

 

Selling

 

 

Absorption

 

 

Home

 

 

Selling

 

 

Absorption

 

 

 

Orders

 

 

Communities

 

 

Rates

 

 

Orders

 

 

Communities

 

 

Rates

 

 

Orders

 

 

Communities

 

 

Rates

 

Maracay Homes

 

 

495

 

 

 

17.3

 

 

 

3.2

 

 

 

313

 

 

 

16.4

 

 

 

2.1

 

 

 

58

%

 

 

5

%

 

 

50

%

Pardee Homes

 

 

954

 

 

 

22.8

 

 

 

4.6

 

 

 

793

 

 

 

20.3

 

 

 

4.3

 

 

 

20

%

 

 

12

%

 

 

7

%

Quadrant Homes

 

 

353

 

 

 

10.8

 

 

 

3.6

 

 

 

286

 

 

 

12.8

 

 

 

2.5

 

 

 

23

%

 

 

(16

)%

 

 

46

%

Trendmaker Homes

 

 

381

 

 

 

26.0

 

 

 

1.6

 

 

 

436

 

 

 

23.5

 

 

 

2.1

 

 

 

(13

)%

 

 

11

%

 

 

(21

)%

TRI Pointe Homes

 

 

935

 

 

 

27.0

 

 

 

3.8

 

 

 

152

 

 

 

6.4

 

 

 

2.6

 

 

 

515

%

 

 

322

%

 

 

46

%

Winchester Homes

 

 

310

 

 

 

13.5

 

 

 

2.6

 

 

 

253

 

 

 

19.1

 

 

 

1.5

 

 

 

23

%

 

 

(29

)%

 

 

73

%

Total

 

 

3,428

 

 

 

117.4

 

 

 

3.2

 

 

 

2,233

 

 

 

98.5

 

 

 

2.5

 

 

 

54

%

 

 

19

%

 

 

29

%

 

 

- 39 -


 

Net new home orders for the nine months ended September 30, 2015 increased 54% to 3,428, compared to 2,233 during the prior year period.  The overall increase in net new home orders was due to a 29% increase in absorption rates and a 19% increase in average selling communities.  Net new home orders increased at all but one of our reporting segments, highlighted by the addition of TRI Pointe Homes for the full nine month period ended September 30, 2015 resulting in 935 net new home orders compared to 152 in the prior year period and a 58% increase net new home orders at Maracay Homes, primarily driven by a 50% increase in absorption.   Trendmaker Homes in Houston reported a 13% decline in net new home orders compared to the prior year period resulting from a slowdown in the premium housing market in Houston as a result of uncertainty around oil prices.

New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)

 

 

 

Nine Months Ended

September 30, 2015

 

 

Nine Months Ended

September 30, 2014

 

 

Percentage Change

 

 

 

New

 

 

Home

 

 

Average

 

 

New

 

 

Home

 

 

Average

 

 

New

 

 

Home

 

 

Average

 

 

 

Homes

 

 

Sales

 

 

Sales

 

 

Homes

 

 

Sales

 

 

Sales

 

 

Homes

 

 

Sales

 

 

Sales

 

 

 

Delivered

 

 

Revenue

 

 

Price

 

 

Delivered

 

 

Revenue

 

 

Price

 

 

Delivered

 

 

Revenue

 

 

Price

 

Maracay Homes

 

 

307

 

 

$

116,555

 

 

$

380

 

 

 

286

 

 

$

107,576

 

 

$

376

 

 

 

7

%

 

 

8

%

 

 

1

%

Pardee Homes

 

 

724

 

 

 

366,339

 

 

 

506

 

 

 

658

 

 

 

315,910

 

 

 

480

 

 

 

10

%

 

 

16

%

 

 

5

%

Quadrant Homes

 

 

297

 

 

 

126,585

 

 

 

426

 

 

 

219

 

 

 

88,607

 

 

 

405

 

 

 

36

%

 

 

43

%

 

 

5

%

Trendmaker Homes

 

 

394

 

 

 

201,592

 

 

 

512

 

 

 

404

 

 

 

198,867

 

 

 

492

 

 

 

(3

)%

 

 

1

%

 

 

4

%

TRI Pointe Homes

 

 

611

 

 

 

461,654

 

 

 

756

 

 

 

158

 

 

 

123,456

 

 

 

781

 

 

 

287

%

 

 

274

%

 

 

(3

)%

Winchester Homes

 

 

271

 

 

 

171,130

 

 

 

631

 

 

 

253

 

 

 

188,896

 

 

 

747

 

 

 

7

%

 

 

(9

)%

 

 

(15

)%

Total

 

 

2,604

 

 

$

1,443,855

 

 

$

554

 

 

 

1,978

 

 

$

1,023,312

 

 

$

517

 

 

 

32

%

 

 

41

%

 

 

7

%

 

Home sales revenue increased $420.5 million, or 41%, to $1.4 billion for the nine months ended September 30, 2015 from $1.0 billion for the prior year period. The increase was comprised of: (i) $323.9 million due to a 32% increase in homes delivered to 2,604 for the nine months ended September 30, 2015 from 1,978 in the same prior year period; and (ii) $96.6 million due to a 7% increase in average sales price of $37,000 per home to $554,000 for the nine months ended September 30, 2015 from $517,000 in the prior year period. The increase in new home deliveries was primarily attributable to the addition of TRI Pointe Homes with no comparable amounts in the prior year period before the Merger in addition to a 36% increase at Quadrant Homes. The average sales price of homes delivered increased at all but two of our reporting segments due to a change in product mix.  The average sales price at Winchester declined 15% for the nine months ended September 30, 2015 compared to the same prior year period primarily due to a change in mix to more attached product.  

Homebuilding Gross Margins (dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

%

 

 

2014

 

 

%

 

Home sales

 

$

1,443,855

 

 

 

100.0

%

 

$

1,023,312

 

 

 

100.0

%

Cost of home sales

 

 

1,149,191

 

 

 

79.6

%

 

 

819,377

 

 

 

80.1

%

Homebuilding gross margin

 

 

294,664

 

 

 

20.4

%

 

 

203,935

 

 

 

19.9

%

Add:  interest in cost of home sales

 

 

27,540

 

 

 

1.9

%

 

 

16,342

 

 

 

1.6

%

Add:  impairments and lot option

   abandonments

 

 

1,593

 

 

 

0.1

%

 

 

897

 

 

 

0.1

%

Adjusted homebuilding gross margin(1)

 

$

323,797

 

 

 

22.4

%

 

$

221,174

 

 

 

21.6

%

Homebuilding gross margin percentage

 

 

20.4

%

 

 

 

 

 

 

19.9

%

 

 

 

 

Adjusted homebuilding gross margin percentage(1)

 

 

22.4

%

 

 

 

 

 

 

21.6

%

 

 

 

 

 

(1)

Non-GAAP financial measure (as discussed below).

Our homebuilding gross margin percentage increased to 20.4% for the nine months ended September 30, 2015 as compared to 19.9% for the prior year period. The prior year margin was impacted by a $13.0 million or 130 basis point noncash purchase accounting adjustment related to the fair value increase to TRI Pointe’s inventory as a result of the Merger.   Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 22.4% for the nine months ended September 30, 2015, compared to 21.6% for the prior year period. The increase in the adjusted homebuilding gross margin was consistent with the change in homebuilding gross margin described above.

 

- 40 -


 

Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP. See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.

Land and Lot Gross Margins (dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

%

 

 

2014

 

 

%

 

Land and lot sales

 

$

74,366

 

 

 

100.0

%

 

$

36,449

 

 

 

100.0

%

Cost of land and lot sales

 

 

17,324

 

 

 

23.3

%

 

 

30,245

 

 

 

83.0

%

Land and lot gross margin

 

$

57,042

 

 

 

76.7

%

 

$

6,204

 

 

 

17.0

%

 

Our land and lot gross margin percentage increased to 76.7% for the nine months ended September 30, 2015 as compared to 17.0% for the same prior year period. The increase in land and lot sales revenue and gross margin percentage were mainly due to the sale of a 15.72 acre employment center located in the Pacific Highlands Ranch community in the San Diego, California division of our Pardee Homes reporting segment.  The sale was completed in June of 2015 for $53 million in cash.  The transaction included significant gross margins due to the low land basis of the Pacific Highlands Ranch community which was acquired in 1981.  

Sales and Marketing, General and Administrative Expense (dollars in thousands)

 

 

 

Nine Months Ended

 

 

As a Percentage of

 

 

 

September 30,

 

 

Home Sales Revenue

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Sales and marketing

 

$

78,958

 

 

$

73,096

 

 

 

5.5

%

 

 

7.1

%

General and administrative (G&A)

 

 

83,261

 

 

 

57,140

 

 

 

5.8

%

 

 

5.6

%

Total sales and marketing and G&A

 

$

162,219

 

 

$

130,236

 

 

 

11.2

%

 

 

12.7

%

 

Sales and marketing expense decreased to 5.5% of home sales revenue for the nine months ended September 30, 2015 from 7.1% for the nine months ended September 30, 2014 mainly due to a strong sales absorption pace driving higher deliveries and higher average sales prices for homes delivered during the period.  Total sales and marketing expense increased by $5.9 million to $79.0 million for the nine months ended September 30, 2015 compared to $73.1 million in the same prior year period and is primarily attributable to the addition of TRI Pointe Homes with no comparable amounts in the prior year before the Merger and direct selling costs associated with the 32% increase in new home deliveries.

General and administrative expense increased by $26.2 million to $83.3 million for the nine month period ended September 30, 2015 from $57.1 million for the nine month period ended September 30, 2014.   General and administrative expenses were 5.8% of home sales revenue for the nine months ended September 30, 2015 compared to 5.6% of home sales revenue for the same period in the prior year.  The increase in general and administrative expenses is primarily related to the addition of TRI Pointe Homes with no comparable amounts in the prior year before the Merger.  

Total SG&A expense increased $32.0 million, or 24.6%, to $162.2 million for the nine months ended September 30, 2015 from $130.2 million in the prior year period due primarily to the addition of TRI Pointe Homes in the current year as discussed above, but improved to 11.2% of home sales revenue from 12.7% for the nine months ended September 30, 2015 and 2014, respectively.

Restructuring Charges

Restructuring charges decreased to $2.7 million for the nine months ended September 30, 2015 compared to $9.2 million in the same period in the prior year.  The decrease was mainly due to higher employee-related restructuring costs in 2014 related to retention, severance and related costs in connection with the Merger.  

 

- 41 -


 

Interest

Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $45.8 million and $25.7 million for the nine months ended September 30, 2015 and 2014, respectively.  The capitalized portion of interest incurred was $45.8 million and $23.0 million for the nine months ended September 30, 2015 and 2014, respectively.  The increase in interest incurred during the nine months ended September 30, 2015 as compared to the prior year period was primarily attributable to an increase in our outstanding debt and higher interest rates as a result of the issuance of the Senior Notes in connection with the Merger.

Income Tax

For the nine months ended September 30, 2015, we recorded a tax provision of $66.1 million based on an effective tax rate of 35.2%.  For the nine months ended September 30, 2014, we recorded a tax provision of $16.4 million based on an effective tax rate of 27.7%.  The increase in provision for income taxes is due to an increase in income before taxes of $128.8 million to $187.9 million for the nine months ended September 30, 2015 compared to $59.1 million for the prior year period. The increase in our effective rate was due to a non-recurring tax benefit recorded during the second quarter 2014 related the establishment of a $5.8 million deferred tax asset for a tax over book basis asset sale.  This non-recurring tax benefit reduced our effective rate for the nine months ended September 30, 2014 by 9.8%.  Without the non-recurring tax benefit our effective rate for the nine months ended September 30, 2014 would have been 37.5% which is comparable to our effective rate for the nine months ended September 30, 2015.

Lots Owned or Controlled by Segment

Excluded from owned and controlled lots are those related to Note 8, Investments in Unconsolidated Entities.  The table below summarizes our lots owned or controlled by segment as of the dates presented:

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

 

September 30,

 

 

(Decrease)

 

 

 

 

2015

 

 

 

2014

 

 

Amount

 

 

%

 

Lots Owned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

 

1,582

 

 

 

1,275

 

 

 

307

 

 

 

24

%

Pardee Homes

 

 

16,835

 

 

 

17,657

 

 

 

(822

)

 

 

(5

)%

Quadrant Homes

 

 

1,087

 

 

 

1,055

 

 

 

32

 

 

 

3

%

Trendmaker Homes

 

 

1,158

 

 

 

757

 

 

 

401

 

 

 

53

%

TRI Pointe Homes

 

 

2,644

 

 

 

2,762

 

 

 

(118

)

 

 

(4

)%

Winchester Homes

 

 

2,178

 

 

 

2,382

 

 

 

(204

)

 

 

(9

)%

Total

 

 

25,484

 

 

 

25,888

 

 

 

(404

)

 

 

(2

)%

Lots Controlled(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

 

216

 

 

 

477

 

 

 

(261

)

 

 

(55

)%

Pardee Homes

 

 

240

 

 

 

440

 

 

 

(200

)

 

 

(45

)%

Quadrant Homes

 

 

335

 

 

 

427

 

 

 

(92

)

 

 

(22

)%

Trendmaker Homes

 

 

818

 

 

 

1,311

 

 

 

(493

)

 

 

(38

)%

TRI Pointe Homes

 

 

749

 

 

 

1,016

 

 

 

(267

)

 

 

(26

)%

Winchester Homes

 

 

398

 

 

 

552

 

 

 

(154

)

 

 

(28

)%

Total

 

 

2,756

 

 

 

4,223

 

 

 

(1,467

)

 

 

(35

)%

Total Lots Owned or Controlled(1)

 

 

28,240

 

 

 

30,111

 

 

 

(1,871

)

 

 

(6

)%

 

(1)

As of September 30, 2015 and 2014, lots controlled included lots that were under land option contracts or purchase contracts.

 

 

Liquidity and Capital Resources

Overview

Our principal uses of capital for the three and nine months ended September 30, 2015 were operating expenses, land purchases, land development and home construction. We used funds generated by our operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth. As of September 30, 2015, we had $97.0 million of cash and cash equivalents. We believe we have sufficient cash and sources of financing to fund operations for at least the next twelve months.

 

- 42 -


 

Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. Our charter does not contain a limitation on the amount of debt we may incur and our board of directors may change our target debt levels at any time without the approval of our stockholders.

Assumption of Senior Notes

On the Closing Date, TRI Pointe assumed WRECO’s obligations as issuer of $450 million aggregate principal amount of its 4.375% Senior Notes due 2019 (“2019 Notes”) and $450 million aggregate principal amount of its 5.875% Senior Notes due 2024 (“2024 Notes” and together with the 2019 Notes, the “Senior Notes”). The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds of $861.3 million, after debt issuance costs and discounts, from the offering were deposited into two separate escrow accounts following the closing of the offering on June 13, 2014. Upon release of the escrowed funds on the Closing Date, and prior to the consummation of the Merger, WRECO paid $743.7 million in cash to the former direct parent entity of WRECO, which cash was retained by Weyerhaeuser and its subsidiaries (other than WRECO and its subsidiaries). The payment consisted of the $739 million Payment Amount (as defined in the Transaction Agreement) as well as $4.7 million in payment of all unpaid interest on the debt payable to Weyerhaeuser that accrued from November 3, 2013 to the Closing Date. The remaining $117.6 million of proceeds was retained by TRI Pointe and used for general corporate purposes.

The 2019 Notes and 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually in arrears on June 15 and December 15.  As of September 30, 2015, no principal has been paid on the Senior Notes, and there was $21.2 million of capitalized debt financing costs related to the Senior Notes, included in other assets on our consolidated balance sheet. These costs will amortize over the respective lives of the Senior Notes.

Unsecured Revolving Credit Facility

In May 2015, the Company amended its unsecured revolving credit facility (the “Credit Facility”) from $425 million to $550 million.  The Credit Facility matures on May 18, 2019, and contains a sublimit of $75 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. The Credit Facility contains customary affirmative and negative covenants, including financial covenants relating to consolidated tangible net worth, leverage, and liquidity or interest coverage. Interest rates on borrowings will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20% depending on the Company’s leverage ratio.

As of September 30, 2015, the outstanding balance under the Credit Facility was $349.4 million with an interest rate 2.16% per annum and $192.4 million of availability after considering the borrowing base provisions and outstanding letters of credit.  At September 30, 2015 we had outstanding letters of credit of $8.2 million.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.

Seller Financed Loan

As of September 30, 2015, the Company had $7.6 million outstanding related to seller financed loans to acquire lots for the construction of homes.  Principal and interest payments on these loans are due at various maturity dates, including at the time individual homes associated with the acquired land are delivered.  As of September 30, 2015, the seller financed loans will accrue interest at a weighted average rate of 6.95% per annum, with interest calculated on a daily basis. Any remaining unpaid balance on these loans is due in May 2016.

 

- 43 -


 

Covenant Compliance

Under our Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands):

 

 

 

 

 

 

Covenant

 

 

 

Actual at

 

 

Requirement at

 

 

 

September 30,

 

 

September 30,

 

Financial Covenants

 

2015

 

 

2015

 

Consolidated Tangible Net Worth

 

$

1,414,014

 

 

$

928,431

 

(Not less than $875.9 million plus 50% of net

   income and 50% of the net proceeds from equity

   offerings after March 31, 2015)

 

 

 

 

 

 

 

 

Leverage Test

 

 

45

%

 

<55

%

(Not to exceed 55%)

 

 

 

 

 

 

 

 

Interest Coverage Test

 

 

5.3

 

 

>1.5

 

(Not less than 1.5:1.0)

 

 

 

 

 

 

 

 

 

As of September 30, 2015, we were in compliance with all of these financial covenants.

Leverage Ratios

We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-capital are calculated as follows (dollars in thousands):  

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Unsecured revolving credit facility

 

$

349,392

 

 

$

260,000

 

Seller financed loans

 

 

7,572

 

 

 

14,677

 

Senior Notes

 

 

888,657

 

 

 

887,502

 

Total debt

 

 

1,245,621

 

 

 

1,162,179

 

Stockholders’ equity

 

 

1,576,176

 

 

 

1,454,180

 

Total capital

 

$

2,821,797

 

 

$

2,616,359

 

Ratio of debt-to-capital(1)

 

 

44.1

%

 

 

44.4

%

 

 

 

 

 

 

 

 

 

Total debt

 

$

1,245,621

 

 

$

1,162,179

 

Less: Cash and cash equivalents

 

 

(96,993

)

 

 

(170,629

)

Net debt

 

 

1,148,628

 

 

 

991,550

 

Stockholders’ equity

 

 

1,576,176

 

 

 

1,454,180

 

Total capital

 

$

2,724,804

 

 

$

2,445,730

 

Ratio of net debt-to-capital(2)

 

 

42.2

%

 

 

40.5

%

 

(1)

The ratio of debt-to-capital is computed as the quotient obtained by dividing debt by the sum of total debt plus equity.

(2)

The ratio of net debt-to-capital is a non-GAAP measure and is computed as the quotient obtained by dividing net debt (which is debt less cash and cash equivalents) by the sum of net debt plus equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.  Because the ratio of net debt-to-capital is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

 

- 44 -


 

Cash Flows—Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

For the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, the comparison of cash flows is as follows:

 

·

Net cash used in operating activities decreased by $418,000 to $140.0 million for the nine months ended September 30, 2015 from $140.4 million used for the nine months ended September 30, 2014. The change was comprised of offsetting activity, including (i) an increase in real estate inventories of $305.9 million in 2015 compared to an increase of $249.9 million in 2014 and (ii) an increase in receivables of $12.8 million in 2015 compared to a decrease of $34.1 million in 2014.  Other offsetting activity included changes in other assets, accounts payable, accrued expenses, and net income.

 

·

Net cash used in investing activities was $2.2 million for the nine months ended September 30, 2015 compared to $47.2 million of cash provided by investing activities for the same prior year period. Cash provided by investing activities for the prior year period was primarily related to $53.8 million of cash acquired in the Merger.

 

·

Net cash provided by financing activities decreased to $68.6 million for the nine months ending September 30, 2015 from $236.4 million for the same period in the prior year. The change was primarily a result of prior year activity associated with proceeds from the issuance of senior notes of $886.7 million, offset by payments of debt payable to Weyerhaeuser of $623.6 million and offset by higher current period debt borrowings of $90.0 million.

As of September 30, 2015, our cash and cash equivalents balance was $97.0 million.

Off-Balance Sheet Arrangements and Contractual Obligations

In the ordinary course of business, we enter into land option contracts in order to procure lots for the construction of our homes.  We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots.  These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.  Option contracts generally require a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices.  We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller.  As of September 30, 2015, we had $47.0 million of cash deposits, the majority of which are non-refundable, pertaining to land option contracts and purchase contracts with an aggregate remaining purchase price of $345.4 million (net of deposits).

Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to finance the development of optioned lots, general housing market conditions, and local market dynamics.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

As of September 30, 2015, we had $192.4 million of availability under our Credit Facility after considering the borrowing base provisions and outstanding letters of credit.

Inflation

Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.  In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.  While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.  We typically experience the highest new home order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.  Since it typically takes three to nine months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries.  Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occur during the second half of the year.  We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.

 

 

- 45 -


 

 

Description of Projects and Communities under Development

The following table presents project information relating to each of our markets as of September 30, 2015 and includes information on current projects under development where we are building and selling homes.

Maracay Homes

 

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

Homes Delivered

 

 

 

 

 

 

 

 

 

 

 

Homes

 

 

Lots

 

 

 

 

 

for the Nine

 

 

 

 

 

Year of

 

Total

 

 

Delivered as of

 

 

Owned as of

 

Backlog as of

 

 

Months Ended

 

 

Sales Price

 

 

First

 

Number of

 

 

September 30,

 

 

September 30,

 

September 30,

 

 

September 30,

 

 

Range

County, Project, City

 

Delivery(1)

 

Lots(2)

 

 

2015

 

 

2015(3)

 

2015(4)(5)

 

 

2015

 

 

(in thousands)(6)

Phoenix, Arizona

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Town of Buckeye:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Verrado Tilden

 

2012

 

 

102

 

 

 

91

 

 

 

11

 

 

5

 

 

 

18

 

 

$239 - $304

Verrado Palisades

 

2015

 

 

63

 

 

 

13

 

 

 

50

 

 

3

 

 

 

13

 

 

$305 - $378

Verrado Victory

 

2015

 

 

98

 

 

 

9

 

 

 

89

 

 

10

 

 

 

9

 

 

$368 - $375

City of Chandler:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Artesian Ranch

 

2013

 

 

90

 

 

 

49

 

 

 

41

 

 

25

 

 

 

19

 

 

$338 - $394

Vaquero Ranch

 

2013

 

 

74

 

 

 

57

 

 

 

17

 

 

13

 

 

 

19

 

 

$298 - $373

Maracay at Layton Lakes

 

2015

 

 

47

 

 

 

1

 

 

 

46

 

 

21

 

 

 

1

 

 

$470 - $510

Sendera Place

 

2015

 

 

34

 

 

 

7

 

 

 

27

 

 

12

 

 

 

7

 

 

$260 - $307

Town of Gilbert:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arch Crossing at Bridges of Gilbert

 

2014

 

 

67

 

 

 

42

 

 

 

25

 

 

17

 

 

 

21

 

 

$283 - $341

Trestle Place at Bridges of Gilbert

 

2014

 

 

73

 

 

 

53

 

 

 

20

 

 

16

 

 

 

25

 

 

$344 - $424

Artisan at Morrison Ranch

 

2016

 

 

105

 

 

 

 

 

 

105

 

 

 

 

 

 

 

$285 - $338

Marquis at Morrison Ranch

 

2016

 

 

66

 

 

 

 

 

 

66

 

 

 

 

 

 

 

$355 - $424

City of Goodyear:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calderra at Palm Valley

 

2013

 

 

81

 

 

 

74

 

 

 

7

 

 

7

 

 

 

18

 

 

$275 - $352

Los Vientos at Palm Valley

 

2013

 

 

57

 

 

 

57

 

 

 

 

 

 

 

 

5

 

 

Closed

City of Mesa:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kinetic Point at Eastmark

 

2013

 

 

80

 

 

 

48

 

 

 

32

 

 

22

 

 

 

19

 

 

$265 - $345

Lumiere Garden at Eastmark

 

2013

 

 

85

 

 

 

50

 

 

 

35

 

 

14

 

 

 

15

 

 

$314 - $384

Aileron Square at Eastmark

 

2016

 

 

58

 

 

 

 

 

 

58

 

 

4

 

 

 

 

 

$314 - $384

Curie Court at Eastmark

 

2016

 

 

106

 

 

 

 

 

 

106

 

 

4

 

 

 

 

 

$265 - $345

Town of Peoria:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Reserve at Plaza del Rio

 

2013

 

 

162

 

 

 

74

 

 

 

88

 

 

19

 

 

 

24

 

 

$205 - $253

Maracay at Northlands

 

2014

 

 

48

 

 

 

23

 

 

 

25

 

 

23

 

 

 

15

 

 

$316 - $397

Meadows - 5500's

 

2017

 

 

81

 

 

 

 

 

 

81

 

 

 

 

 

 

 

$355 - $437

Meadows - 6500's

 

2017

 

 

56

 

 

 

 

 

 

56

 

 

 

 

 

 

 

$417 - $535

Meadows - Oversized

 

2017

 

 

37

 

 

 

 

 

 

37

 

 

 

 

 

 

 

$417 - $535

Town of Queen Creek:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Montelena

 

2012

 

 

59

 

 

 

59

 

 

 

 

 

 

 

 

7

 

 

$375 - $447

The Preserve at Hastings Farms

 

2014

 

 

89

 

 

 

32

 

 

 

57

 

 

24

 

 

 

17

 

 

$282 - $367

Villagio

 

2013

 

 

135

 

 

 

80

 

 

 

55

 

 

22

 

 

 

20

 

 

$280 - $338

Phoenix, Arizona Total

 

 

 

 

1,953

 

 

 

819

 

 

 

1,134

 

 

261

 

 

 

272

 

 

 

Tucson, Arizona

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marana:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tortolita Vistas

 

2014

 

 

43

 

 

 

19

 

 

 

24

 

 

9

 

 

 

10

 

 

$449 - $506

Oro Valley:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rancho del Cobre

 

2014

 

 

68

 

 

 

29

 

 

 

39

 

 

15

 

 

 

16

 

 

$402 - $470

Desert Crest - Center Pointe Vistoso

 

2016

 

 

103

 

 

 

 

 

 

103

 

 

 

 

 

 

 

$232 - $285

The Cove - Center Pointe Vistoso

 

2016

 

 

83

 

 

 

 

 

 

83

 

 

 

 

 

 

 

$295 - $359

Summit (South) - Center Pointe

   Vistoso

 

2016

 

 

87

 

 

 

 

 

 

87

 

 

 

 

 

 

 

$349 - $382

The Pinnacle - Center Pointe Vistoso

 

2016

 

 

70

 

 

 

 

 

 

70

 

 

 

 

 

 

 

$395 - $439

Tucson:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deseo at Sabino Canyon

 

2014

 

 

39

 

 

 

31

 

 

 

8

 

 

8

 

 

 

9

 

 

$419 - $505

Ranches at Santa Catalina

 

2016

 

 

34

 

 

 

 

 

 

34

 

 

 

 

 

 

 

$395 - $415

Tucson, Arizona Total

 

 

 

 

527

 

 

 

79

 

 

 

448

 

 

32

 

 

 

35

 

 

 

Maracay Homes Total

 

 

 

 

2,480

 

 

 

898

 

 

 

1,582

 

 

293

 

 

 

307

 

 

 

 

 

- 46 -


 

Pardee Homes

 

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

Homes Delivered

 

 

 

 

 

 

 

 

 

 

 

Homes

 

 

Lots

 

 

 

 

 

 

for the Nine

 

 

 

 

 

Year of

 

Total

 

 

Delivered as of

 

 

Owned as of

 

 

Backlog as of

 

 

Months Ended

 

 

Sales Price

 

 

First

 

Number of

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

Range

County, Project

 

Delivery(1)

 

Lots(2)

 

 

2015

 

 

2015(3)

 

 

2015(4)(5)

 

 

2015

 

 

(in thousands)(6)

California

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

San Diego County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alta Del Mar Homes

 

2013

 

 

117

 

 

 

65

 

 

 

52

 

 

 

27

 

 

 

27

 

 

$1,800 - $2,300

Sorrento Heights Prestige Collection

 

2014

 

 

20

 

 

 

20

 

 

 

 

 

 

 

 

 

2

 

 

$890 - $950

Watermark

 

2013

 

 

160

 

 

 

106

 

 

 

54

 

 

 

40

 

 

 

43

 

 

$1,200 - $1,310

Canterra

 

2015

 

 

89

 

 

 

6

 

 

 

83

 

 

 

 

 

 

6

 

 

$850 - $920

Casabella

 

2015

 

 

122

 

 

 

3

 

 

 

119

 

 

 

36

 

 

 

3

 

 

$920 - $1,000

Verana

 

2015

 

 

78

 

 

 

11

 

 

 

67

 

 

 

33

 

 

 

11

 

 

$990 - $1,140

Pacific Highlands Ranch Future

 

TBD

 

 

963

 

 

 

 

 

 

963

 

 

 

 

 

 

 

 

TBD

Olive Hill Estate

 

2015

 

 

37

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

$688 - $800

Castlerock

 

TBD

 

 

415

 

 

 

 

 

 

415

 

 

 

 

 

 

 

 

$490 - $730

Meadowood

 

TBD

 

 

844

 

 

 

 

 

 

844

 

 

 

 

 

 

 

 

$290 - $600

Sea View Terrace

 

2014

 

 

40

 

 

 

40

 

 

 

 

 

 

 

 

 

39

 

 

$308 - $370

Parkview Condos

 

2016

 

 

73

 

 

 

 

 

 

73

 

 

 

 

 

 

 

 

$400 - $460

Ocean View HillsFuture

 

TBD

 

 

1,020

 

 

 

 

 

 

1,020

 

 

 

 

 

 

 

 

TBD

South Otay Mesa

 

TBD

 

 

893

 

 

 

 

 

 

893

 

 

 

 

 

 

 

 

$185 - $530

Alta Del Mar Custom Lots

 

2013

 

 

29

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

$895 - $1,950

Los Angeles County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LivingSmart at Fair Oaks Ranch

 

2011

 

 

124

 

 

 

124

 

 

 

 

 

 

 

 

 

1

 

 

$483 - $509

Golden Valley

 

TBD

 

 

498

 

 

 

 

 

 

498

 

 

 

 

 

 

 

 

$499 - $807

Skyline Ranch

 

TBD

 

 

1,260

 

 

 

 

 

 

1,260

 

 

 

 

 

 

 

 

$510 - $640

Ventura County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LivingSmart at Moorpark Highlands,

   Moorpark

 

2013

 

 

133

 

 

 

123

 

 

 

10

 

 

 

10

 

 

 

39

 

 

$587 - $650

Riverside County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hillside

 

2012

 

 

182

 

 

 

182

 

 

 

 

 

 

 

 

 

2

 

 

$284 - $301

Meadow Ridge

 

2013

 

 

132

 

 

 

98

 

 

 

34

 

 

 

13

 

 

 

42

 

 

$360 - $460

Amberleaf

 

2014

 

 

131

 

 

 

68

 

 

 

63

 

 

 

20

 

 

 

47

 

 

$300 - $350

Meadow Glen

 

2014

 

 

142

 

 

 

79

 

 

 

63

 

 

 

19

 

 

 

37

 

 

$340 - $400

Summerfield

 

2015

 

 

85

 

 

 

30

 

 

 

55

 

 

 

27

 

 

 

30

 

 

$290 - $310

Canyon Hills Future

 

TBD

 

 

581

 

 

 

 

 

 

581

 

 

 

 

 

 

 

 

TBD

Christensen

 

2016

 

 

82

 

 

 

 

 

 

82

 

 

 

 

 

 

 

 

$338 - $437

LivingSmart Tournament Hills

 

2010

 

 

235

 

 

 

235

 

 

 

 

 

 

 

 

 

2

 

 

$261 - $334

Lakeside

 

2012

 

 

167

 

 

 

167

 

 

 

 

 

 

 

 

 

19

 

 

$260 - $282

Tournament Hills Future

 

TBD

 

 

268

 

 

 

 

 

 

268

 

 

 

 

 

 

 

 

TBD

LivingSmart Sundance

 

2013

 

 

152

 

 

 

146

 

 

 

6

 

 

 

4

 

 

 

36

 

 

$280 - $332

LivingSmart Estrella

 

2013

 

 

127

 

 

 

127

 

 

 

 

 

 

 

 

 

6

 

 

$214 - $237

Woodmont

 

2014

 

 

84

 

 

 

55

 

 

 

29

 

 

 

15

 

 

 

44

 

 

$320 - $390

Cielo

 

2015

 

 

92

 

 

 

48

 

 

 

44

 

 

 

31

 

 

 

48

 

 

$240 - $270

Northstar

 

2015

 

 

123

 

 

 

 

 

 

123

 

 

 

19

 

 

 

 

 

$290 - $310

Skycrest

 

2015

 

 

125

 

 

 

2

 

 

 

123

 

 

 

33

 

 

 

2

 

 

$311 - $350

Sundance Future

 

TBD

 

 

1,603

 

 

 

 

 

 

1,603

 

 

 

 

 

 

 

 

TBD

Banning

 

TBD

 

 

4,318

 

 

 

 

 

 

4,318

 

 

 

 

 

 

 

 

$167 - $250

Sacramento County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natomas

 

TBD

 

 

120

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

TBD

San Joaquin County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bear Creek

 

TBD

 

 

1,252

 

 

 

 

 

 

1,252

 

 

 

 

 

 

 

 

TBD

California Total

 

 

 

 

16,916

 

 

 

1,735

 

 

 

15,153

 

 

 

327

 

 

 

486

 

 

 

Nevada

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clark County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LivingSmart at Eldorado Ridge

 

2012

 

 

169

 

 

 

147

 

 

 

22

 

 

 

14

 

 

 

24

 

 

$260 - $310

LivingSmart at Eldorado Heights

 

2013

 

 

135

 

 

 

111

 

 

 

24

 

 

 

16

 

 

 

25

 

 

$310 - $392

LivingSmart Sandstone

 

2013

 

 

145

 

 

 

77

 

 

 

68

 

 

 

13

 

 

 

34

 

 

$220 - $250

Ridgeview

 

2015

 

 

4

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

$227 - $283

North Peak

 

2015

 

 

150

 

 

 

 

 

 

150

 

 

 

4

 

 

 

 

 

$280 - $330

Castle Rock

 

2015

 

 

150

 

 

 

 

 

 

150

 

 

 

7

 

 

 

 

 

$350 - $400

Eldorado Future

 

TBD

 

 

145

 

 

 

 

 

 

145

 

 

 

 

 

 

 

 

TBD

Horizon Terrace

 

2014

 

 

165

 

 

 

47

 

 

 

118

 

 

 

11

 

 

 

19

 

 

$400 - $455

Solano

 

2014

 

 

132

 

 

 

43

 

 

 

89

 

 

 

9

 

 

 

38

 

 

$289 - $320

Alterra

 

2014

 

 

106

 

 

 

19

 

 

 

87

 

 

 

5

 

 

 

19

 

 

$440 - $505

Bella Verdi

 

2015

 

 

106

 

 

 

4

 

 

 

102

 

 

 

11

 

 

 

4

 

 

$375 - $440

Milennial

 

TBD

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

TBD

Escala

 

2016

 

 

78

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

$545 - $591

POD 5-1 Future

 

TBD

 

 

215

 

 

 

 

 

 

215

 

 

 

 

 

 

 

 

TBD

Durango Ranch

 

2012

 

 

153

 

 

 

137

 

 

 

16

 

 

 

10

 

 

 

28

 

 

$460 - $560

Durango Trail

 

2014

 

 

77

 

 

 

64

 

 

 

13

 

 

 

11

 

 

 

23

 

 

$380 - $410

Meridian

 

2016

 

 

78

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

$455 - $530

LivingSmart at Providence

 

2012

 

 

106

 

 

 

106

 

 

 

 

 

 

 

 

 

1

 

 

$260 - $323

Encanto

 

2015

 

 

129

 

 

 

 

 

 

129

 

 

 

 

 

 

 

 

$406 - $468

Summerglen

 

2014

 

 

140

 

 

 

55

 

 

 

85

 

 

 

10

 

 

 

23

 

 

$293 - $299

The Canyons at MacDonald Ranch

 

TBD

 

 

115

 

 

 

 

 

 

115

 

 

 

 

 

 

 

 

TBD

Nevada Total

 

 

 

 

2,500

 

 

 

810

 

 

 

1,682

 

 

 

121

 

 

 

238

 

 

 

Pardee Homes Total

 

 

 

 

19,416

 

 

 

2,545

 

 

 

16,835

 

 

 

448

 

 

 

724

 

 

 

 

 

- 47 -


 

Quadrant Homes

 

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

Homes Delivered

 

 

 

 

 

 

 

 

 

 

 

Homes

 

 

Lots

 

 

 

 

 

 

for the Nine

 

 

 

 

 

Year of

 

Total

 

 

Delivered as of

 

 

Owned as of

 

 

Backlog as of

 

 

Months Ended

 

 

Sales Price

 

 

First

 

Number of

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

Range

County, Project, City

 

Delivery(1)

 

Lots(2)

 

 

2015

 

 

2015(3)

 

 

2015(4)(5)

 

 

2015

 

 

(in thousands)(6)

Washington

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Skagit County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Skagit Highlands, Mt Vernon

 

2005

 

 

423

 

 

 

398

 

 

 

25

 

 

 

18

 

 

 

38

 

 

$251 - $319

Skagit Clearwater Court, Mt Vernon

 

2016

 

 

11

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

$299 - $319

Skagit Surplus Pod E, Mt Vernon

 

TBD

 

 

4

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

TBD

Snohomish County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kings Corner 1&2, Mill Creek

 

2014

 

 

116

 

 

 

82

 

 

 

34

 

 

 

23

 

 

 

38

 

 

$457 - $510

Filbert Glen, Bothell

 

2015

 

 

16

 

 

 

9

 

 

 

7

 

 

 

5

 

 

 

9

 

 

$625

King's Corner 3, Mill Creek

 

2016

 

 

29

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

$453 - $489

Evergreen Heights, Monroe

 

2016

 

 

71

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

$359 - $407

Palm Creek, Bothell

 

2017

 

 

41

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

$845 - $905

King County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Garrison Glen, Kent

 

2014

 

 

30

 

 

 

25

 

 

 

5

 

 

 

4

 

 

 

20

 

 

$405

Sonata Hill, Auburn

 

2014

 

 

71

 

 

 

27

 

 

 

44

 

 

 

16

 

 

 

20

 

 

$351 - $399

The Gardens at Eastlake, Sammamish

 

2015

 

 

8

 

 

 

 

 

 

8

 

 

 

2

 

 

 

 

 

$816 - $933

Heathers Ridge, Kirkland

 

2015

 

 

41

 

 

 

2

 

 

 

39

 

 

 

23

 

 

 

2

 

 

$780 - $935

Hedgewood, Redmond

 

2015

 

 

11

 

 

 

 

 

 

11

 

 

 

3

 

 

 

 

 

$800 - $920

Grasslawn Estates, Redmond

 

2015

 

 

4

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

$930 - $985

Vintner's Place, Kirkland

 

2016

 

 

35

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

$610 - $780

Hedgewood East, Redmond

 

2016

 

 

15

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

$730 - $810

Trailside, Redmond

 

2016

 

 

9

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

$686 - $735

Copperwood, Renton

 

2016

 

 

46

 

 

 

 

 

 

46

 

 

 

 

 

 

 

 

$520 - $626

Parkwood Terrace, Woodinville

 

2017

 

 

15

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

$680 - $750

Hazelwood Ridge, Newcastle

 

2017

 

 

30

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

$605 - $790

Inglewood Landing, Sammamish

 

2017

 

 

21

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

$880 - $962

Jacobs Landing, Issaquah

 

2017

 

 

20

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

$834 - $929

Kirkwood Terrace, Sammamish

 

2017

 

 

12

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

$1,200 - $1,500

English Landing P2, Redmond

 

2017

 

 

25

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

$910 - $1,029

English Landing P1, Redmond

 

2017

 

 

51

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

$910 - $1,029

Heathers Ridge South, Redmond

 

2017

 

 

8

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

$590 - $890

Cedar Landing, North Bend

 

2017

 

 

123

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

$500 - $650

42nd Avenue Townhomes, Seattle

 

TBD

 

 

40

 

 

 

 

 

 

40

 

 

 

 

 

 

 

 

TBD

Pearl & Delores, Seattle

 

TBD

 

 

12

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

TBD

Monarch Ridge, Sammamish

 

2017

 

 

59

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

$761 - $961

Pierce County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harbor Hill S-9, Gig Harbor

 

2014

 

 

40

 

 

 

34

 

 

 

6

 

 

 

2

 

 

 

23

 

 

$379 - $447

Harbor Hill S-8, Gig Harbor

 

2015

 

 

33

 

 

 

 

 

 

33

 

 

 

11

 

 

 

 

 

$376 - $444

Chambers Ridge, Tacoma

 

2014

 

 

24

 

 

 

15

 

 

 

9

 

 

 

4

 

 

 

14

 

 

$480 - $525

Tehaleh, Bonney Lake

 

2013

 

 

85

 

 

 

82

 

 

 

3

 

 

 

2

 

 

 

27

 

 

$321

The Enclave at Harbor Hill, Gig

   Harbor

 

2015

 

 

33

 

 

 

 

 

 

33

 

 

 

5

 

 

 

 

 

$545 - $595

Thurston County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Campus Fairways, Lacey

 

2015

 

 

79

 

 

 

6

 

 

 

33

 

 

 

8

 

 

 

6

 

 

$365 - $425

Kitsap County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

McCormick Meadows, Poulsbo

 

2012

 

 

167

 

 

 

101

 

 

 

66

 

 

 

25

 

 

 

26

 

 

$280 - $357

Vinland Pointe, Poulsbo

 

2013

 

 

90

 

 

 

69

 

 

 

21

 

 

 

18

 

 

 

34

 

 

$334

Mountain Aire, Poulsbo

 

2016

 

 

145

 

 

 

 

 

 

145

 

 

 

 

 

 

 

 

$361 - $426

Closed Communities

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40

 

 

N/A

Washington Total

 

 

 

 

2,093

 

 

 

850

 

 

 

1,087

 

 

 

169

 

 

 

297

 

 

 

Quadrant Homes Total

 

 

 

 

2,093

 

 

 

850

 

 

 

1,087

 

 

 

169

 

 

 

297

 

 

 

 

 

- 48 -


 

Trendmaker Homes

 

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

Homes Delivered

 

 

 

 

 

 

 

 

 

 

 

Homes

 

 

Lots

 

 

 

 

 

 

for the Nine

 

 

 

 

 

Year of

 

Total

 

 

Delivered as of

 

 

Owned as of

 

 

Backlog as of

 

 

Months Ended

 

 

Sales Price

 

 

First

 

Number of

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

Range

County, Project, City

 

Delivery(1)

 

Lots(2)

 

 

2015

 

 

2015(3)

 

 

2015(4)(5)

 

 

2015

 

 

(in thousands)(6)

Texas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brazoria County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sedona Lakes, Pearland

 

2014

 

 

24

 

 

 

11

 

 

 

13

 

 

 

4

 

 

 

11

 

 

$452 - $506

Southern Trails, Pearland

 

2014

 

 

41

 

 

 

28

 

 

 

13

 

 

 

7

 

 

 

16

 

 

$493 - $569

Pomona, Manvel

 

2015

 

 

10

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

$420 - $480

Fort Bend County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cross Creek Ranch 60', Fulshear

 

2013

 

 

54

 

 

 

48

 

 

 

6

 

 

 

3

 

 

 

16

 

 

$421 - $447

Cross Creek Ranch 65', Fulshear

 

2013

 

 

45

 

 

 

33

 

 

 

12

 

 

 

 

 

 

14

 

 

$432 - $488

Cross Creek Ranch 70', Fulshear

 

2013

 

 

70

 

 

 

45

 

 

 

25

 

 

 

3

 

 

 

11

 

 

$497 - $567

Cross Creek Ranch 80', Fulshear

 

2013

 

 

90

 

 

 

62

 

 

 

28

 

 

 

6

 

 

 

12

 

 

$541 - $656

Cross Creek Ranch 90', Fulshear

 

2013

 

 

34

 

 

 

24

 

 

 

10

 

 

 

2

 

 

 

9

 

 

$627 - $755

Villas at Cross Creek Ranch, Fulshear

 

2013

 

 

106

 

 

 

89

 

 

 

17

 

 

 

2

 

 

 

22

 

 

$454 - $496

Cinco Ranch, Katy

 

2012

 

 

100

 

 

 

89

 

 

 

11

 

 

 

7

 

 

 

20

 

 

$349 - $420

Harvest Green 75', Richmond

 

2015

 

 

19

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

$438 - $518

Sienna Plantation 80', Missouri City

 

2013

 

 

57

 

 

 

47

 

 

 

10

 

 

 

4

 

 

 

19

 

 

$542 - $650

Sienna Plantation 85', Missouri City

 

2015

 

 

25

 

 

 

 

 

 

25

 

 

 

4

 

 

 

 

 

$531 - $650

Villas at Sienna South, Missouri City

 

2015

 

 

19

 

 

 

 

 

 

19

 

 

 

1

 

 

 

 

 

$445 - $507

Lakes of Bella Terra, Richmond

 

2013

 

 

116

 

 

 

80

 

 

 

36

 

 

 

4

 

 

 

18

 

 

$466 - $553

Villas at Aliana, Richmond

 

2013

 

 

81

 

 

 

56

 

 

 

25

 

 

 

5

 

 

 

19

 

 

$437 - $503

Riverstone 55', Sugar Land

 

2013

 

 

80

 

 

 

57

 

 

 

23

 

 

 

5

 

 

 

10

 

 

$397 - $460

Riverstone 80', Sugar Land

 

2013

 

 

50

 

 

 

44

 

 

 

6

 

 

 

5

 

 

 

17

 

 

$559 - $710

Riverstone Avanti at Avalon 100',

   Sugar Land

 

2015

 

 

5

 

 

 

1

 

 

 

4

 

 

 

1

 

 

 

1

 

 

$1,203 - $1,232

The Townhomes at Imperial, Sugar

   Land

 

2015

 

 

27

 

 

 

12

 

 

 

15

 

 

 

8

 

 

 

12

 

 

$396 - $530

Galveston County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harborwalk, Hitchcock

 

2014

 

 

13

 

 

 

4

 

 

 

9

 

 

 

3

 

 

 

2

 

 

$587 - $645

Harris County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fairfield, Cypress

 

2010

 

 

70

 

 

 

50

 

 

 

20

 

 

 

4

 

 

 

18

 

 

$474 - $573

Lakes of Fairhaven, Cypress

 

2008

 

 

263

 

 

 

247

 

 

 

16

 

 

 

11

 

 

 

28

 

 

$410 - $664

Towne Lake Living Views, Cypress

 

2013

 

 

52

 

 

 

29

 

 

 

23

 

 

 

4

 

 

 

15

 

 

$445 - $540

Calumet Townhomes, Houston

 

2015

 

 

4

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

 

$637

The Groves, Humble

 

2015

 

 

19

 

 

 

7

 

 

 

12

 

 

 

5

 

 

 

7

 

 

$454 - $505

Hidden Arbor, Cypress

 

2015

 

 

33

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

$480

Clear Lake, Houston

 

2015

 

 

521

 

 

 

3

 

 

 

518

 

 

 

34

 

 

 

3

 

 

$447 - $658

Montgomery County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barton Woods, Conroe

 

2013

 

 

66

 

 

 

48

 

 

 

18

 

 

 

3

 

 

 

13

 

 

$401 - $601

Villas at Oakhurst, Porter

 

2013

 

 

54

 

 

 

47

 

 

 

7

 

 

 

4

 

 

 

16

 

 

$375 - $458

Woodtrace, Woodtrace

 

2014

 

 

25

 

 

 

12

 

 

 

13

 

 

 

 

 

 

11

 

 

$485 - $536

Northgrove, Tomball

 

2015

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

$500

Bender's Landing Estates, Spring

 

2014

 

 

105

 

 

 

21

 

 

 

84

 

 

 

6

 

 

 

19

 

 

$458 - $621

Creekside Park, The Woodlands

 

2015

 

 

17

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

$488 - $641

Waller County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cane Island, Katy

 

2015

 

 

15

 

 

 

 

 

 

15

 

 

 

5

 

 

 

 

 

$560 - $647

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Avanti Custom Homes

 

2007

 

 

127

 

 

 

104

 

 

 

23

 

 

 

24

 

 

 

16

 

 

$416 - $643

Texas Casual Cottages - Round Top

 

2010

 

 

88

 

 

 

71

 

 

 

17

 

 

 

23

 

 

 

10

 

 

$203 - $443

Texas Casual Cottages - Hill Country

 

2012

 

 

46

 

 

 

41

 

 

 

5

 

 

 

8

 

 

 

5

 

 

$217 - $498

Texas Total

 

 

 

 

2,572

 

 

 

1,414

 

 

 

1,158

 

 

 

205

 

 

 

394

 

 

 

Trendmaker Homes Total

 

 

 

 

2,572

 

 

 

1,414

 

 

 

1,158

 

 

 

205

 

 

 

394

 

 

 

 

 

- 49 -


 

TRI Pointe Homes

 

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

Homes Delivered

 

 

 

 

 

 

 

 

 

 

 

Homes

 

 

Lots

 

 

 

 

 

 

for the Nine

 

 

 

 

 

Year of

 

Total

 

 

Delivered as of

 

 

Owned as of

 

 

Backlog as of

 

 

Months Ended

 

 

Sales Price

 

 

First

 

Number of

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

Range

County, Project, City

 

Delivery(1)

 

Lots(2)

 

 

2015

 

 

2015(3)

 

 

2015(4)(5)

 

 

2015

 

 

(in thousands)(6)

Southern California

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Orange County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rancho Mission Viejo

 

2013

 

 

105

 

 

 

105

 

 

 

 

 

 

 

 

 

24

 

 

Closed

Truewind, Huntington Beach

 

2014

 

 

49

 

 

 

32

 

 

 

17

 

 

 

17

 

 

 

23

 

 

$1,065 - $1,180

Arcadia, Irvine

 

2013

 

 

61

 

 

 

46

 

 

 

 

 

 

 

 

 

1

 

 

$1,189 - $1,420

Arcadia II, Irvine

 

2014

 

 

66

 

 

 

35

 

 

 

23

 

 

 

21

 

 

 

24

 

 

$1,189 - $1,271

Fairwind, Huntington Beach

 

2015

 

 

80

 

 

 

29

 

 

 

51

 

 

 

39

 

 

 

29

 

 

$822 - $1,012

Cariz, Irvine

 

2014

 

 

112

 

 

 

62

 

 

 

50

 

 

 

42

 

 

 

43

 

 

$507 - $617

Messina, Irvine

 

2014

 

 

59

 

 

 

30

 

 

 

13

 

 

 

10

 

 

 

22

 

 

$1,515 - $1,630

Aria-Rancho Mission Viejo

 

2016

 

 

87

 

 

 

 

 

 

87

 

 

 

 

 

 

 

 

$630 - $667

Auberine-Rancho Mission Viejo

 

2016

 

 

66

 

 

 

 

 

 

66

 

 

 

2

 

 

 

 

 

$1,005 - $1,115

San Diego County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Altana, San Diego

 

2013

 

 

45

 

 

 

45

 

 

 

 

 

 

 

 

 

1

 

 

Closed

Riverside County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Topazridge, Riverside

 

2012

 

 

68

 

 

 

63

 

 

 

5

 

 

 

1

 

 

 

 

 

$464 - $530

Topazridge II, Riverside

 

2014

 

 

49

 

 

 

32

 

 

 

17

 

 

 

15

 

 

 

9

 

 

$459 - $515

Alegre, Temecula

 

2014

 

 

96

 

 

 

59

 

 

 

37

 

 

 

26

 

 

 

40

 

 

$287 - $323

Aldea, Temecula

 

2014

 

 

90

 

 

 

56

 

 

 

34

 

 

 

25

 

 

 

33

 

 

$262 - $298

Kite Ridge, Riverside

 

2014

 

 

87

 

 

 

9

 

 

 

78

 

 

 

8

 

 

 

9

 

 

$435 - $460

Serrano Ridge at Sycamore Creek, Riverside

 

2015

 

 

87

 

 

 

 

 

 

87

 

 

 

3

 

 

 

 

 

 

Terrassa Courts, Corona

 

2015

 

 

94

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

$425 - $475

Terrassa Villas, Corona

 

2015

 

 

52

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

$485 - $535

Los Angeles County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Avenswood, Azusa

 

2013

 

 

66

 

 

 

66

 

 

 

 

 

 

 

 

 

12

 

 

Closed

Woodson, Playa Vista

 

2014

 

 

66

 

 

 

66

 

 

 

 

 

 

 

 

 

26

 

 

Closed

Grayson, Santa Clarita

 

2015

 

 

119

 

 

 

 

 

 

119

 

 

 

10

 

 

 

 

 

$517 - $550

San Bernardino County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sedona at Parkside, Ontario

 

2015

 

 

152

 

 

 

 

 

 

152

 

 

 

9

 

 

 

 

 

$355 - $390

Kensington at Park Place, Ontario

 

2015

 

 

67

 

 

 

4

 

 

 

63

 

 

 

4

 

 

 

4

 

 

$521 - $544

St. James at Park Place, Ontario

 

2015

 

 

57

 

 

 

10

 

 

 

47

 

 

 

8

 

 

 

10

 

 

$448 - $479

Ventura County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Westerlies, Oxnard

 

2015

 

 

116

 

 

 

 

 

 

116

 

 

 

 

 

 

 

 

$331 - $504

Southern California Total

 

 

 

 

1,996

 

 

 

749

 

 

 

1,208

 

 

 

240

 

 

 

310

 

 

 

Northern California

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contra Costa County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Berkshire at Barrington, Brentwood

 

2014

 

 

89

 

 

 

42

 

 

 

47

 

 

 

30

 

 

 

25

 

 

$506 - $553

Hawthorne at Barrington, Brentwood

 

2014

 

 

105

 

 

 

41

 

 

 

64

 

 

 

22

 

 

 

22

 

 

$549 - $605

Marquette at Barrington, Brentwood

 

2015

 

 

90

 

 

 

8

 

 

 

82

 

 

 

15

 

 

 

8

 

 

$480 - $700

Wynstone at Barrington, Brentwood

 

2016

 

 

92

 

 

 

 

 

 

92

 

 

 

 

 

 

 

 

$498 - $525

Penrose at Barrington, Brentwood

 

2016

 

 

34

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

$498 - $515

Santa Clara County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Avellino, Mountain View

 

2013

 

 

63

 

 

 

63

 

 

 

 

 

 

 

 

 

8

 

 

Closed

Cobblestone, Milpitas

 

2015

 

 

32

 

 

 

 

 

 

32

 

 

 

24

 

 

 

 

 

$960 - $1,163

San Mateo County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canterbury, San Mateo

 

2014

 

 

76

 

 

 

64

 

 

 

12

 

 

 

12

 

 

 

38

 

 

$940 - $1,230

Solano County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redstone, Vacaville

 

2015

 

 

141

 

 

 

15

 

 

 

126

 

 

 

16

 

 

 

15

 

 

$455 - $527

San Joaquin County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ventana, Tracy

 

2015

 

 

93

 

 

 

13

 

 

 

80

 

 

 

9

 

 

 

13

 

 

$438 - $540

Sundance, Mountain House

 

2015

 

 

113

 

 

 

 

 

 

113

 

 

 

28

 

 

 

 

 

$550 - $615

Alameda County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cadence, Alameda Landing

 

2015

 

 

91

 

 

 

29

 

 

 

38

 

 

 

7

 

 

 

29

 

 

$1,057 - $1,234

Linear, Alameda Landing

 

2015

 

 

106

 

 

 

15

 

 

 

58

 

 

 

40

 

 

 

15

 

 

$685 - $915

Symmetry, Alameda Landing

 

2016

 

 

56

 

 

 

 

 

 

56

 

 

 

 

 

 

 

 

$775 - $875

Commercial, Alameda Landing

 

N/A

 

 

2

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

$620

Parasol, Fremont

 

2016

 

 

39

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

$605 - $815

Blackstone SFA at the Cannery, Hayward

 

2016

 

 

105

 

 

 

 

 

 

105

 

 

 

 

 

 

 

 

$515 - $585

Blackstone SFD at the Cannery, Hayward

 

2016

 

 

52

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

$515 - $585

Northern California Total

 

 

 

 

1,379

 

 

 

290

 

 

 

1,031

 

 

 

203

 

 

 

173

 

 

 

California Total

 

 

 

 

3,375

 

 

 

1,039

 

 

 

2,239

 

 

 

443

 

 

 

483

 

 

 

Colorado

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Douglas County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terrain 4000 Series, Castle Rock

 

2013

 

 

149

 

 

 

93

 

 

 

56

 

 

 

24

 

 

 

37

 

 

$326 - $379

Terrain 3500 Series, Castle Rock

 

2015

 

 

67

 

 

 

21

 

 

 

46

 

 

 

29

 

 

 

21

 

 

$307 - $330

Jefferson County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leyden Rock 4000 Series, Arvada

 

2014

 

 

51

 

 

 

30

 

 

 

21

 

 

 

16

 

 

 

25

 

 

$385 - $441

Leyden Rock 5000 Series, Arvada

 

2015

 

 

67

 

 

 

17

 

 

 

50

 

 

 

25

 

 

 

17

 

 

$444 - $499

Candelas 6000 Series, Arvada

 

2015

 

 

76

 

 

 

3

 

 

 

73

 

 

 

7

 

 

 

3

 

 

$560 - $620

Denver County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platt Park North, Denver

 

2014

 

 

29

 

 

 

21

 

 

 

8

 

 

 

8

 

 

 

17

 

 

$611 - $615

Larimer County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Centerra 5000 Series, Loveland

 

2015

 

 

150

 

 

 

8

 

 

 

36

 

 

 

15

 

 

 

8

 

 

$390 - $422

Arapahoe County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whispering Pines, Aurora

 

2015

 

 

115

 

 

 

 

 

 

115

 

 

 

 

 

 

 

 

$518 - $588

Colorado Total

 

 

 

 

704

 

 

 

193

 

 

 

405

 

 

 

124

 

 

 

128

 

 

 

TRI Pointe Homes Total

 

 

 

 

4,079

 

 

 

1,232

 

 

 

2,644

 

 

 

567

 

 

 

611

 

 

 

 

 

- 50 -


 

Winchester Homes

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

 

Homes Delivered

 

 

 

 

 

 

 

 

 

 

Homes

 

 

Lots

 

 

 

 

 

 

for the Nine

 

 

 

 

Year of

 

Total

 

 

Delivered as of

 

 

Owned as of

 

 

Backlog as of

 

 

Months Ended

 

 

Sales Price

 

First

 

Number of

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

Range

County, Project, City

Delivery(1)

 

Lots(2)

 

 

2015

 

 

2015(3)

 

 

2015(4)(5)

 

 

2015

 

 

(in thousands)(6)

Maryland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anne Arundel County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hawthornes Grant, Arnold

N/A

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

N/A

Watson's Glen, Millersville

2015

 

 

103

 

 

 

2

 

 

 

101

 

 

 

 

 

 

2

 

 

TBD

Frederick County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landsdale, Monrovia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landsdale Village SFD

2015

 

 

222

 

 

 

8

 

 

 

214

 

 

 

9

 

 

 

8

 

 

$495 - $635

Landsdale Everson Townhomes

2015

 

 

100

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

$350 - $375

Landsdale TND Neo Everson SFD

2015

 

 

77

 

 

 

 

 

 

77

 

 

 

1

 

 

 

 

 

$465 - $595

Howard County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walnut Creek, Ellicott City

2014

 

 

19

 

 

 

13

 

 

 

6

 

 

 

7

 

 

 

4

 

 

$990 - $1,293

Montgomery County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cabin Branch, Clarksburg

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cabin Branch SFD

2014

 

 

359

 

 

 

39

 

 

 

320

 

 

 

17

 

 

 

23

 

 

$480 - $719

Cabin Branch Boulevard

   Townhomes

2016

 

 

61

 

 

 

 

 

 

61

 

 

 

 

 

 

 

 

TBD

Cabin Branch Everson Townhomes

2014

 

 

567

 

 

 

44

 

 

 

523

 

 

 

9

 

 

 

23

 

 

$375 - $390

Preserve at Stoney Spring-Lots for Sale

N/A

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

N/A

Preserve at Rock Creek, Rockville

2012

 

 

68

 

 

 

56

 

 

 

12

 

 

 

9

 

 

 

10

 

 

$685 - $964

Poplar Run, Silver Spring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Poplar Run Everson Townhomes

2013

 

 

136

 

 

 

84

 

 

 

52

 

 

 

27

 

 

 

15

 

 

$390 - $435

Poplar Run SFD

2010

 

 

326

 

 

 

197

 

 

 

129

 

 

 

19

 

 

 

32

 

 

$562 - $717

Poplar Run Lots for Sale

N/A

 

 

 

 

 

 

 

 

67

 

 

 

 

 

 

 

 

N/A

Potomac Highlands, Potomac

2016

 

 

23

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

TBD

Glenmont MetroCenter, Silver Spring

2016

 

 

89

 

 

 

 

 

 

89

 

 

 

 

 

 

 

 

TBD

Closed Communities

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

Maryland Total

 

 

 

2,150

 

 

 

443

 

 

 

1,790

 

 

 

98

 

 

 

120

 

 

 

Virginia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fairfax County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve at Waples Mill, Oakton

2013

 

 

28

 

 

 

21

 

 

 

7

 

 

 

4

 

 

 

4

 

 

$1,380 - $1,555

Stuart Mill & Timber Lake, Oakton

2014

 

 

19

 

 

 

4

 

 

 

15

 

 

 

1

 

 

 

2

 

 

$1,363 - $1,675

Henrico County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stable Hill, Glen Allen

2013

 

 

49

 

 

 

48

 

 

 

1

 

 

 

1

 

 

 

12

 

 

$517 - $620

Prince William County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Villages of Piedmont, Haymarket

2015

 

 

168

 

 

 

10

 

 

 

158

 

 

 

3

 

 

 

10

 

 

$370 - $422

Loudoun County:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brambleton, Ashburn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

English Manor Townhomes

2014

 

 

34

 

 

 

18

 

 

 

16

 

 

 

7

 

 

 

11

 

 

$492 - $532

Glenmere at Brambleton SFD

2014

 

 

73

 

 

 

46

 

 

 

27

 

 

 

23

 

 

 

24

 

 

$650 - $723

Glenmere at Brambleton

   Townhomes

2014

 

 

79

 

 

 

57

 

 

 

22

 

 

 

7

 

 

 

29

 

 

$461 - $465

West Park at Brambleton

2013

 

 

45

 

 

 

45

 

 

 

 

 

 

 

 

 

10

 

 

Sold Out

One Loudoun, Ashburn

2012

 

 

168

 

 

 

160

 

 

 

8

 

 

 

7

 

 

 

21

 

 

$675 - $710

Vistas at Lansdowne, Lansdowne

2015

 

 

120

 

 

 

8

 

 

 

112

 

 

 

15

 

 

 

8

 

 

$569 - $650

Willowsford Grant II, Aldie

2016

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

TBD

Willowsford Grant, Aldie

2013

 

 

36

 

 

 

34

 

 

 

2

 

 

 

1

 

 

 

7

 

 

$925 - $930

Willowsford Greens, Aldie

2014

 

 

38

 

 

 

19

 

 

 

19

 

 

 

7

 

 

 

10

 

 

$750 - $840

Closed Communities

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

Virginia Total

 

 

 

858

 

 

 

470

 

 

 

388

 

 

 

76

 

 

 

151

 

 

 

Winchester Homes Total

 

 

 

3,008

 

 

 

913

 

 

 

2,178

 

 

 

174

 

 

 

271

 

 

 

TRI Pointe Group Total

 

 

 

33,648

 

 

 

7,852

 

 

 

25,484

 

 

 

1,856

 

 

 

2,604

 

 

 

 

(1)

Year of first delivery for future periods is based upon management’s estimates and is subject to change.

(2)

The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.

(3)

Owned lots as of September 30, 2015 include owned lots in backlog as of September 30, 2015.

(4)

Backlog consists of homes under sales contracts that had not yet been delivered, and there can be no assurance that delivery of sold homes will occur.

(5)

Of the total homes subject to pending sales contracts that have not been delivered as of September 30, 2015, 1,325 homes are under construction, 264 homes have completed construction, and 267 homes have not started construction.

(6)

Sales price range reflects base price only and excludes any lot premium, buyer incentives and buyer-selected options, which may vary from project to project. Sales prices for homes required to be sold pursuant to affordable housing requirements are excluded from sales price range. Sales prices reflect current pricing and might not be indicative of past or future pricing.

 

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statement contained elsewhere in this report and the audited financial statements contained in our Form 10-K for the year ended December 31, 2014 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimate, judgements and assumptions. We believe that the estimates, judgements and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgements and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there is a material difference between these estimates, judgements and assumptions and actual facts, our financial statements may be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgement in its application. There are areas in which our judgement in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.

Recently Issued Accounting Standards

See Note 1 to the accompanying condensed notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

Related Party Transactions

See Note 18 to the accompanying condensed notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate debt.  In addition, our operations are interest rate sensitive as higher mortgage interest rates could negatively affect housing demand.  We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the three or nine months ended September 30, 2015. We have not entered into and currently do not hold derivatives for trading or speculative purposes. Many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading “Cautionary Note Concerning Forward-Looking Statements.”

Item 4.

Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on such evaluation, management has concluded that our disclosure controls and procedures were effective as of the Evaluation Date. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives.

 

As discussed under Item 9A. of our Annual Report on Form 10-K for the fiscal year ending December 31, 2014, we did not provide management’s report on internal control over financial reporting due to the nature and timing of changes to the Company’s internal controls as a result of the Merger with WRECO that was completed on July 7, 2014.  Our Annual Report on Form 10-K for the year ended December 31, 2015 will include a management’s report on internal control over financial reporting.

 

Our management is currently in the process of reviewing and refining accounting policies, processes and systems as a result of the Merger.  These efforts may lead to changes in our internal control over financial reporting.  Other than those noted above, there has not been any change in our internal control over financial reporting that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q.

 

 

 

 

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Various claims and actions that we consider normal to our business have been asserted and are pending against us. See Note 15, Commitments and Contingencies, of the condensed notes to the unaudited financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.  

Item 1A.

Risk Factors

There have been no significant changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014 or in Form 10-Q for the quarters ended March 31, 2015 and June 30, 2015, respectively.  

 

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Item 6.

Exhibits 

 

Exhibit
Number

 

Exhibit Description

 

 

 

2.1

 

Transaction Agreement, dated as of November 3, 2013, among TRI Pointe Homes, Inc., Weyerhaeuser Company, Weyerhaeuser Real Estate Company, and Topaz Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-4 (filed Mar. 28, 2014))

 

 

 

2.2

 

Agreement and Plan of Merger to Form Holding Company, dated as of July 7, 2015, by and among TRI Pointe Homes, Inc., TRI Pointe Group, Inc. and TPG Merger, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

3.2

 

Amended and Restated Bylaws of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (filed July 7, 2015))

 

 

 

4.1

 

Specimen Common Stock Certificate of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed Dec. July 7, 2015))

 

 

 

4.2

 

Investor Rights Agreement, dated as of January 30, 2013, by and among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas J. Bauer, Thomas J. Mitchell and Michael D. Grubbs. (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 (filed Jan. 9, 2014))

 

 

 

4.3

 

First Amendment to Investor Rights Agreement, dated as of November 3, 2013, by and among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F. Bauer, Thomas J. Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K (filed Nov. 4, 2013))

 

 

 

4.4

 

Registration Rights Agreement, dated as of January 30, 2013, among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., and certain TRI Pointe Homes, Inc. stockholders (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-4 (filed Jan. 9, 2014))

 

 

 

4.5

 

Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee (including form of 4.375% Senior Note due 2019) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed June 19, 2014))

 

 

 

4.6

 

First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed July 7, 2014))

 

 

 

4.7

 

Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (filed July 7, 2014))

 

 

 

4.8

 

Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee (including form of 5.875% Senior Note due 2024) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed June 19, 2014))

 

 

 

4.9

 

First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed July 7, 2014))

 

 

 

4.10

 

Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K (filed July 7, 2014))

 

 

 

4.11

 

Second Amendment to Investor Rights Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc. VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F. Bauer, Thomas J. Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K (filed July 7, 2015))

 

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Exhibit
Number

 

Exhibit Description

 

 

 

4.12

 

Third Supplemental Indenture, dated as of July 7, 2015, among TRI Point Group, Inc., TRI Pointe Homes, Inc. and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

4.13

 

Third Supplemental Indenture, dated as of July 7, 2015, among TRI Point Group, Inc., TRI Pointe Homes, Inc. and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

4.14

 

Amended and Restated Credit Agreement, dated as of July 7, 2015, among TRI Point Group, Inc., U.S. Bank National Association and the lenders party thereto (incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

4.15

 

First Amendment to Registration Rights Agreement, dated as of July 7, 2015 among TRI Pointe Homes, Inc., TRI Pointe Group, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Frankel Associates, L.P., Douglas F. Bauer, Thomas J. Mitchell, and Michael D. Grubbs (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K (filed July 7, 2015))

 

 

 

10.1

 

Form of Amendment to Indemnification Agreement of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

10.2

 

Omnibus Amendment to the TRI Pointe Homes, Inc. 2013 Long-Term Incentive Plan, TRI Pointe Group Short-Term Incentive Plan, Weyerhaeuser Real Estate Company 2004 Long-Term Incentive Plan and the Weyerhaeuser Real Estate Company 2013 Long-Term Incentive Plan and their related stock option, restricted stock unit, cash incentive award agreements and performance share unit agreements, dated as of July 7, 2015 (incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

10.3

 

First Amendment to Tax Sharing Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc., TRI Pointe Holdings, Inc. (f/k/a Weyerhaeuser Real Estate Company) and Weyerhaeuser Company (incorporated by reference to Exhibit 10.10 to the Company's Current Report on Form 8-K (filed July 7, 2015))

 

 

 

31.1

 

Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002

 

 

 

32.1

 

Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002

 

 

 

32.2

 

Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

The following materials from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Cash Flows, and (v) Condensed Notes to Consolidated Financial Statement.

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

TRI Pointe Group, Inc.

 

 

 

 

 

 

 

By:

 

/s/ Douglas F. Bauer

 

 

 

 

Douglas F. Bauer

 

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

By:

 

/s/ Michael D. Grubbs

 

 

 

 

Michael D. Grubbs

 

 

 

 

Chief Financial Officer

Date: November 6, 2015

 

 

 

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