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Tri Pointe Homes, Inc. - Quarter Report: 2017 March (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________ 
FORM 10-Q
_____________________________________________________________________________________________ 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-35796
_____________________________________________________________________________________________ 

tphlogo.jpg 
TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 _____________________________________________________________________________________________ 
 
Delaware
 
61-1763235
(State or other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)

_____________________________________________________________________________________________ 
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 438-1400
_____________________________________________________________________________________________ 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically 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  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
☐
 
 
Emerging Growth Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
158,765,743 shares of common stock were issued and outstanding as of April 17, 2017.

- 1 -


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



- 2 -


TRI POINTE GROUP, INC.
FORM 10-Q
INDEX
March 31, 2017
 
 
 
Page
Number
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 


- 2 -


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 
March 31, 2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
128,519

 
$
208,657

Receivables
65,999

 
82,500

Real estate inventories
3,046,092

 
2,910,627

Investments in unconsolidated entities
17,113

 
17,546

Goodwill and other intangible assets, net
161,361

 
161,495

Deferred tax assets, net
122,105

 
123,223

Other assets
58,527

 
60,592

Total assets
$
3,599,716

 
$
3,564,640

Liabilities
 
 
 
Accounts payable
$
74,115

 
$
70,252

Accrued expenses and other liabilities
251,891

 
263,845

Unsecured revolving credit facility
250,000

 
200,000

Seller financed loan
—

 
13,726

Senior notes, net
1,169,914

 
1,168,307

Total liabilities
1,745,920

 
1,716,130

 
 
 
 
Commitments and contingencies (Note 13)

 

 
 
 
 
Equity
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no
   shares issued and outstanding as of March 31, 2017 and
   December 31, 2016, respectively
—

 
—

Common stock, $0.01 par value, 500,000,000 shares authorized;
   159,047,862 and 158,626,229 shares issued and outstanding at
   March 31, 2017 and December 31, 2016, respectively
1,590

 
1,586

Additional paid-in capital
882,352

 
880,822

Retained earnings
955,232

 
947,039

Total stockholders’ equity
1,839,174

 
1,829,447

Noncontrolling interests
14,622

 
19,063

Total equity
1,853,796

 
1,848,510

Total liabilities and equity
$
3,599,716

 
$
3,564,640

 
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 March 31,
 
2017
 
2016
Homebuilding:
 
 
 
Home sales revenue
$
392,004

 
$
423,055

Land and lot sales revenue
578

 
355

Other operations revenue
568

 
580

Total revenues
393,150

 
423,990

Cost of home sales
318,404

 
324,499

Cost of land and lot sales
654

 
779

Other operations expense
560

 
566

Sales and marketing
26,700

 
26,321

General and administrative
34,649

 
28,531

Homebuilding income from operations
12,183

 
43,294

Equity in income (loss) of unconsolidated entities
138

 
(14
)
Other income, net
77

 
115

Homebuilding income before income taxes
12,398

 
43,395

Financial Services:
 
 
 
Revenues
241

 
148

Expenses
74

 
58

Equity in income of unconsolidated entities
266

 
715

Financial services income before income taxes
433

 
805

Income before income taxes
12,831

 
44,200

Provision for income taxes
(4,614
)
 
(15,490
)
Net income
8,217

 
28,710

Net income attributable to noncontrolling interests
(24
)
 
(160
)
Net income available to common stockholders
$
8,193

 
$
28,550

Earnings per share
 

 
 

Basic
$
0.05

 
$
0.18

Diluted
$
0.05

 
$
0.18

Weighted average shares outstanding
 
 
 
Basic
158,769,478

 
161,895,640

Diluted
159,390,586

 
162,192,610

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 4 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
 
 
Number of
Shares of Common
Stock (Note 1)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2015
161,813,750

 
$
1,618

 
$
911,197

 
$
751,868

 
$
1,664,683

 
$
21,780

 
$
1,686,463

Net income
—

 
—

 
—

 
195,171

 
195,171

 
962

 
196,133

Shares issued under share-based awards
373,332

 
4

 
583

 
—

 
587

 
—

 
587

Excess tax deficit of share-based awards, net
—

 
—

 
(165
)
 
—

 
(165
)
 
—

 
(165
)
Minimum tax withholding paid on behalf of employees for restricted stock units
—

 
—

 
(1,359
)
 
—

 
(1,359
)
 
—

 
(1,359
)
Stock-based compensation expense
—

 
—

 
12,612

 
—

 
12,612

 
—

 
12,612

Share repurchases
(3,560,853
)
 
(36
)
 
(42,046
)
 
—

 
(42,082
)
 
—

 
(42,082
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(3,363
)
 
(3,363
)
Net effect of consolidations, de-consolidations and other transactions
—

 
—

 
—

 
—

 
—

 
(316
)
 
(316
)
Balance at December 31, 2016
158,626,229

 
1,586

 
880,822

 
947,039

 
1,829,447

 
19,063

 
1,848,510

Net income
—

 
—

 
—

 
8,193

 
8,193

 
24

 
8,217

Shares issued under share-based awards
461,020

 
4

 
742

 
—

 
746

 
—

 
746

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

 
—

 
(2,561
)
 
—

 
(2,561
)
 
—

 
(2,561
)
Stock-based compensation expense
—

 
—

 
3,841

 
—

 
3,841

 
—

 
3,841

Share repurchases
(39,387
)
 
—

 
(492
)
 
—

 
(492
)
 
—

 
(492
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(415
)
 
(415
)
Net effect of consolidations, de-consolidations and other transactions
—

 
—

 
—

 
—

 
—

 
(4,050
)
 
(4,050
)
Balance at March 31, 2017
159,047,862

 
$
1,590

 
$
882,352

 
$
955,232

 
$
1,839,174

 
$
14,622

 
$
1,853,796

 
See accompanying condensed notes to the unaudited consolidated financial statements.


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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
8,217

 
$
28,710

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
822

 
1,792

Equity in income of unconsolidated entities, net
(404
)
 
(701
)
Deferred income taxes, net
1,118

 
3,845

Amortization of stock-based compensation
3,841

 
2,605

Charges for impairments and lot option abandonments
321

 
182

Changes in assets and liabilities:
 
 
 
Real estate inventories
(138,011
)
 
(180,540
)
Receivables
16,702

 
11,141

Other assets
2,326

 
2,871

Accounts payable
3,863

 
2,761

Accrued expenses and other liabilities
(11,952
)
 
(14,828
)
Returns on investments in unconsolidated entities, net
866

 
2,486

Net cash used in operating activities
(112,291
)
 
(139,676
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(1,173
)
 
(411
)
Proceeds from sale of property and equipment
5

 
—

Investments in unconsolidated entities
(231
)
 
(13
)
Net cash used in investing activities
(1,399
)
 
(424
)
Cash flows from financing activities:
 
 
 
Borrowings from debt
50,000

 
75,000

Repayment of debt
(13,726
)
 
(2,434
)
Net repayments of debt held by variable interest entities
—

 
(132
)
Contributions from noncontrolling interests
—

 
808

Distributions to noncontrolling interests
(415
)
 
(2,527
)
Proceeds from issuance of common stock under share-based awards
746

 
6

Minimum tax withholding paid on behalf of employees for share-based awards
(2,561
)
 
(1,087
)
Share repurchases
(492
)
 
—

Net cash provided by financing activities
33,552

 
69,634

Net decrease in cash and cash equivalents
(80,138
)
 
(70,466
)
Cash and cash equivalents - beginning of period
208,657

 
214,485

Cash and cash equivalents - end of period
$
128,519

 
$
144,019

 
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
TRI Pointe Group is engaged in the design, construction and sale of innovative single-family attached and detached 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.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. 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 consolidated financial statements include the accounts of TRI Pointe Group and its wholly owned subsidiaries, as well as other entities in which TRI Pointe Group has a controlling interest and variable interest entities (“VIEs”) in which TRI Pointe Group is the primary beneficiary.  The noncontrolling interests as of March 31, 2017 and December 31, 2016 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.
Use of Estimates
The preparation of our 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.
Reclassifications
Certain amounts in our consolidated financial statements for the prior year period have been reclassified to conform to the current year period presentation, including the Company's reclassification of restructuring charges, which was presented as a separate line item on the consolidated statement of operations in the prior year, and has been reclassified to general and administrative expense for both the current and prior years. This reclassification had no material impact on the Company's condensed consolidated financial statements.

- 7 -


Recently Issued Accounting Standards
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, and we expect to adopt the new standard under the modified retrospective approach. We are still evaluating the accounting for marketing costs and it is possible that the adoption of ASU 2014-09 will impact the timing of recognition and classification in our consolidated financial statements of certain marketing costs that we incur to obtain sales contracts from our customers. For example, we currently capitalize and amortize various marketing costs with each home delivered in a community. Under the new guidance, these costs may need to be expensed when incurred. Although we are still evaluating our contracts, we do not believe the adoption of ASU 2014-09 will have a material impact on the amount or timing of our home sales revenue, but could impact the amount and timing of land and lot sales. We are continuing to evaluate the exact impact the new standard will have on recording revenue and our marketing costs in our consolidated financial statements and related disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, (“ASU 2016-02”), Leases (Topic 842): Leases, which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and, at that time, we will adopt the new standard using a modified retrospective approach. We are currently evaluating the impact that the adoption of ASU 2016-02 may have on our consolidated financial statements and disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, (“ASU 2016-09”), Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. On January 1, 2017, we adopted ASU 2016-09. This new guidance requires that we record excess tax benefit and tax deficiencies related to the settlement of employee stock-based compensation to the income tax expense line item on our consolidated statement of operations. We previously recorded the excess tax benefits and tax deficiencies to the additional paid-in capital line item on our consolidated balance sheets. Under the new guidance, the Company elected the option to no longer apply a forfeiture rate to our stock-based compensation expense, and to recognize forfeitures as they occur. The adoption of the aforementioned amendments in ASU 2016-09 were applied using the modified retrospective approach and did not have a material impact on our current or prior year financial statements, with no resulting cumulative-effect adjustment to retained earnings. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. Additionally, ASU 2016-09 requires that the minimum tax withholding paid on behalf of employees for share-based awards be classified as a financing activity in the statement of cash flows. Adoption of ASU 2016-09 did not result in any adjustments to prior period disclosures on the statement of cash flows.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact that adoption of ASU 2016-15 may have on our consolidated financial statements and disclosures, however we do not believe the guidance will have a material impact on our financial statements upon adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, (“ASU 2017-04”), Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We do not expect ASU 2017-04 to have a material impact on our financial statements.
 


- 8 -


2.
Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon the above factors, our homebuilding operations are comprised of 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.
Our financial services operation (“TRI Pointe Solutions”) is a reportable segment and is comprised of mortgage financing operations (“TRI Pointe Connect”) and title services operations (“TRI Pointe Assurance”). While our homebuyers may obtain financing from any mortgage provider of their choice, TRI Pointe Connect, which was formed as a joint venture with an established mortgage lender, can act as a preferred mortgage broker to our homebuyers in all of the markets in which we operate, providing mortgage originations that help facilitate the sale and closing process as well as generate additional fee income for us. TRI Pointe Assurance provides title examinations for our homebuyers in our Trendmaker Homes and Winchester Homes brands. TRI Pointe Assurance is a wholly owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company.
Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance, internal audit and risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.
The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1, Organization and Summary of Significant Accounting Policies. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

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

- 9 -


 
Three Months Ended March 31,
 
2017
 
2016
Revenues
 
 
 
Maracay Homes
$
51,060

 
$
45,437

Pardee Homes
83,699

 
118,933

Quadrant Homes
40,552

 
46,058

Trendmaker Homes
52,362

 
43,786

TRI Pointe Homes
130,836

 
131,957

Winchester Homes
34,641

 
37,819

Total homebuilding revenues
393,150

 
423,990

Financial services
241

 
148

Total
$
393,391

 
$
424,138

 
 
 
 
Income (loss) before income taxes
 
 
 
Maracay Homes
$
1,757

 
$
2,636

Pardee Homes
9,893

 
32,131

Quadrant Homes
3,744

 
3,696

Trendmaker Homes
1,882

 
2,058

TRI Pointe Homes
6,439

 
10,715

Winchester Homes
400

 
661

Corporate
(11,717
)
 
(8,502
)
Total homebuilding income before income taxes
12,398

 
43,395

Financial services
433

 
805

Total
$
12,831

 
$
44,200

 
Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
 
March 31, 2017
 
December 31, 2016
Real estate inventories
 
 
 
Maracay Homes
$
238,546

 
$
228,965

Pardee Homes
1,180,308

 
1,098,608

Quadrant Homes
246,568

 
221,386

Trendmaker Homes
212,809

 
211,035

TRI Pointe Homes
870,895

 
868,088

Winchester Homes
296,966

 
282,545

Total
$
3,046,092

 
$
2,910,627

 
 
 
 
Total assets
 
 
 
Maracay Homes
$
257,341

 
$
255,466

Pardee Homes
1,266,810

 
1,201,302

Quadrant Homes
273,001

 
242,208

Trendmaker Homes
223,768

 
225,025

TRI Pointe Homes
1,047,762

 
1,052,400

Winchester Homes
321,200

 
305,379

Corporate
202,471

 
275,923

Total homebuilding assets
3,592,353

 
3,557,703

Financial services
7,363

 
6,937

Total
$
3,599,716

 
$
3,564,640



- 10 -



3.
Earnings Per Share
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
 
Three Months Ended March 31,
 
2017
 
2016
Numerator:
 

 
 

Net income available to common stockholders
$
8,193

 
$
28,550

Denominator:
 

 
 

Basic weighted-average shares outstanding
158,769,478

 
161,895,640

Effect of dilutive shares:
 

 
 
Stock options and unvested restricted stock units
621,108

 
296,970

Diluted weighted-average shares outstanding
159,390,586

 
162,192,610

Earnings per share
 

 
 

Basic
$
0.05

 
$
0.18

Diluted
$
0.05

 
$
0.18

Antidilutive stock options and unvested restricted stock not included in diluted earnings per share
4,823,402

 
5,449,790

  

4.
Receivables
Receivables consisted of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
Escrow proceeds and other accounts receivable, net
$
19,124

 
$
35,625

Warranty insurance receivable (Note 13)
46,875

 
46,875

Total receivables
$
65,999

 
$
82,500


Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables when collection becomes doubtful.  Receivables were net of allowances for doubtful accounts of $286,000 as of both March 31, 2017 and December 31, 2016.
 

5.
Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
Real estate inventories owned:
 
 
 
Homes completed or under construction
$
754,733

 
$
659,210

Land under development
1,942,597

 
1,824,989

Land held for future development
135,688

 
226,915

Model homes
168,771

 
155,039

Total real estate inventories owned
3,001,789

 
2,866,153

Real estate inventories not owned:
 
 
 
Land purchase and land option deposits
30,203

 
26,174

Consolidated inventory held by VIEs
14,100

 
18,300

Total real estate inventories not owned
44,303

 
44,474

Total real estate inventories
$
3,046,092

 
$
2,910,627

 

- 11 -


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.
Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 7, Variable Interest Entities.
Interest incurred, capitalized and expensed were as follows (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Interest incurred
$
18,873

 
$
15,149

Interest capitalized
(18,873
)
 
(15,149
)
Interest expensed
$
—

 
$
—

Capitalized interest in beginning inventory
$
157,329

 
$
140,311

Interest capitalized as a cost of inventory
18,873

 
15,149

Interest previously capitalized as a cost of inventory,
   included in cost of sales
(9,687
)
 
(8,830
)
Capitalized interest in ending inventory
$
166,515

 
$
146,630

 
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 or cost of land and lot sales as related units or lots are delivered.  Interest that is expensed as incurred is included in other income, net.
Real estate inventory impairments and land option abandonments
Real estate inventory impairments and land and lot option abandonments and pre-acquisition charges consisted of the following (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Real estate inventory impairments
$
—

 
$
—

Land and lot option abandonments and pre-acquisition charges
321

 
182

Total
$
321

 
$
182

 
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.  There were no real estate inventory impairments for the three months ended March 31, 2017 or 2016, respectively.
In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time. 
Real estate inventory impairments and land option abandonments are recorded in cost of home sales and cost of land and lot sales on the consolidated statements of operations.
  


- 12 -


6.
Investments in Unconsolidated Entities
As of March 31, 2017, we held equity investments in five active homebuilding partnerships or limited liability companies and one financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 7% to 55%, depending on the investment, with no controlling interest held in any of these investments.
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):
 
March 31, 2017
 
December 31, 2016
Limited liability company interests
$
13,897

 
$
14,327

General partnership interests
3,216

 
3,219

Total
$
17,113

 
$
17,546

Unconsolidated Financial Information
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investments in unconsolidated entities or on our consolidated statements of operations as equity in income (loss) of unconsolidated entities.
Assets and liabilities of unconsolidated entities (in thousands):
 
 
March 31, 2017
 
December 31, 2016
Assets
 
 
 
Cash
$
9,957

 
$
9,796

Receivables
5,446

 
10,203

Real estate inventories
97,748

 
97,402

Other assets
1,061

 
1,087

Total assets
$
114,212

 
$
118,488

Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
8,711

 
$
12,844

Company’s equity
17,113

 
17,546

Outside interests' equity
88,388

 
88,098

Total liabilities and equity
$
114,212

 
$
118,488

 
Results of operations from unconsolidated entities (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Net sales
$
5,090

 
$
3,209

Other operating expense
(2,603
)
 
(2,150
)
Other income
2

 
1

Net income
$
2,489

 
$
1,060

Company’s equity in income of unconsolidated entities
$
404

 
$
701

  


- 13 -


7.
Variable Interest Entities
In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such deposits are recorded as land purchase and land option deposits under real estate inventories not owned in the accompanying consolidated balance sheets.
We analyze each of our land and lot option agreements and other similar contracts under the provisions of ASC 810 Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is 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 and lot option agreements (in thousands):
 
March 31, 2017
 
December 31, 2016
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
Consolidated VIEs
$
250

 
$
13,850

 
$
14,100

 
$
400

 
$
17,900

 
$
18,300

Unconsolidated VIEs
1,850

 
106,555

 
N/A

 
2,375

 
49,016

 
N/A

Other land option agreements
28,353

 
296,530

 
N/A

 
23,799

 
246,658

 
N/A

Total
$
30,453

 
$
416,935

 
$
14,100

 
$
26,574

 
$
313,574

 
$
18,300

 
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land and lot option contracts consisted of capitalized pre-acquisition costs of $3.7 million and $3.6 million as of March 31, 2017 and December 31, 2016, respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.  
  

8.
Goodwill and Other Intangible Assets
As of March 31, 2017 and December 31, 2016, $139.3 million of goodwill is included in goodwill and other intangible assets, net on each of the consolidated balance sheets. The Company's goodwill balance is included in the TRI Pointe Homes reporting segment in Note 2, Segment Information. 
We have two intangible assets as of March 31, 2017, comprised of an existing trade name from the acquisition of Maracay Homes in 2006, which has a 20 year useful life, and a TRI Pointe Homes trade name resulting from the acquisition of Weyerhaeuser Real Estate Company (“WRECO”) in 2014, which has an indefinite useful life.

- 14 -


Goodwill and other intangible assets consisted of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Goodwill
$
139,304

 
$
—

 
$
139,304

 
$
139,304

 
$
—

 
$
139,304

Trade names
27,979

 
(5,922
)
 
22,057

 
27,979

 
(5,788
)
 
22,191

Total
$
167,283

 
$
(5,922
)
 
$
161,361

 
$
167,283

 
$
(5,788
)
 
$
161,495

 
The remaining useful life of our amortizing intangible asset related to the Maracay Homes trade name was 8.9 and 9.2 years as of March 31, 2017 and December 31, 2016, respectively. Amortization expense related to this intangible asset was $134,000 for each of the three month periods ended March 31, 2017 and 2016, respectively, and 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.
Expected amortization of our intangible asset related to Maracay Homes for the remainder of 2017, the next four years and thereafter is (in thousands):
Remainder of 2017
$
400

2018
534

2019
534

2020
534

2021
534

Thereafter
2,221

Total
$
4,757



9.
Other Assets
Other assets consisted of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
Prepaid expenses
$
22,671

 
$
24,495

Refundable fees and other deposits
17,442

 
17,731

Development rights, held for future use or sale
2,569

 
2,569

Deferred loan costs - unsecured revolving credit facility
1,884

 
2,101

Operating properties and equipment, net
11,208

 
10,884

Other
2,753

 
2,812

Total
$
58,527

 
$
60,592

 


- 15 -


10.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
Accrued payroll and related costs
$
14,996

 
$
33,761

Warranty reserves (Note 13)
80,953

 
83,135

Estimated cost for completion of real estate inventories
53,939

 
59,531

Customer deposits
19,747

 
13,437

Income tax liability to Weyerhaeuser (Note 16)
8,610

 
8,589

Accrued income taxes payable
4,693

 
1,200

Accrued interest
17,595

 
11,570

Accrued insurance expense
529

 
529

Other tax liability
35,537

 
34,961

Other
15,292

 
17,132

Total
$
251,891

 
$
263,845



11.
Senior Notes, Unsecured Revolving Credit Facility and Seller Financed Loans
Senior Notes
The Senior Notes consisted of the following (in thousands):
 
 
March 31, 2017
 
December 31, 2016
4.375% Senior Notes due June 15, 2019
$
450,000

 
$
450,000

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

 
300,000

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

 
450,000

Discount and deferred loan costs
(30,086
)
 
(31,693
)
Total
$
1,169,914

 
$
1,168,307

 
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the "2021 Notes") at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.
TRI Pointe Group and its 100% owned subsidiary TRI Pointe Homes, Inc. ("TRI Pointe Homes") are co-issuers of the 4.375% Senior Notes due 2019 (the "2019 Notes") and the 5.875% Senior Notes due 2024 (the "2024 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 from the offering were $861.3 million, after debt issuance costs and discounts. 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 March 31, 2017, no principal has been paid on the 2019 Notes, 2021 Notes and 2024 Notes (together, the "Senior Notes"), and there was $19.8 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $17.2 million and $10.7 million as of March 31, 2017 and December 31, 2016, respectively.
Unsecured Revolving Credit Facility
Unsecured revolving credit facility consisted of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
Unsecured revolving credit facility
$
250,000

 
$
200,000

 

- 16 -


On April 28, 2016, the Company partially exercised the accordion feature under its existing unsecured revolving credit facility (the “Credit Facility”) to increase the total commitments under the Credit Facility to $625 million from $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 acquisition, 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 March 31, 2017, the outstanding balance under the Credit Facility was $250.0 million with an interest rate of 2.64% per annum and $370.5 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of March 31, 2017 there was $1.9 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 $445,000 and $658,000 as of March 31, 2017 and December 31, 2016, respectively.
At March 31, 2017 we had outstanding letters of credit of $4.5 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):
 
March 31, 2017
 
December 31, 2016
Seller financed loans
$
—

 
$
13,726

 
Accrued interest on a seller financed loan outstanding as of December 31, 2016 was $519,000.
Interest Incurred
During the three month periods ended March 31, 2017 and 2016, the Company incurred interest of $18.9 million and $15.1 million, respectively, related to all debt during the period. All interest incurred was capitalized to inventory for the three month periods ended March 31, 2017 and 2016, respectively. Included in interest incurred was amortization of deferred financing and Senior Notes discount costs of $1.8 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively.  Accrued interest related to all outstanding debt at March 31, 2017 and December 31, 2016 was $17.6 million and $11.6 million, respectively. 
Covenant Requirements
The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.
Under the Credit Facility, the Company is required to comply with certain financial covenants, including 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 March 31, 2017 and December 31, 2016.


12.
Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
•
Level 1—Quoted prices for identical instruments in active markets

- 17 -


•
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 March 31, 2017 and December 31, 2016, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
 
 
 
March 31, 2017
 
December 31, 2016
 
Hierarchy
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Senior Notes (1)
Level 2
 
$
1,189,682

 
$
1,226,295

 
$
1,189,180

 
$
1,219,125

Unsecured revolving credit facility (2)
Level 2
 
$
250,000

 
$
219,245

 
$
200,000

 
$
177,410

Seller financed loan (3)
Level 2
 
$
—

 
$
—

 
$
13,726

 
$
13,189

 __________
(1) 
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $19.8 million and $20.9 million as of March 31, 2017 and December 31, 2016, respectively. The estimated fair value of the Senior Notes at March 31, 2017 and December 31, 2016 is based on quoted market prices.
(2) 
The estimated fair value of the Credit Facility at March 31, 2017 and December 31, 2016 is based on a treasury curve analysis.
(3) 
The estimated fair value of the seller financed loan at December 31, 2016 is based on a treasury curve analysis.

At March 31, 2017 and December 31, 2016, the carrying value of cash and cash equivalents and receivables approximated fair value.
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. We did not measure any such assets at fair value as of March 31, 2017 or December 31, 2016.


13.
Commitments and Contingencies
Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements.  For matters as to which the Company believes a loss is probable and reasonably estimable, we had legal reserves of $225,000 as of both March 31, 2017 and December 31, 2016.
On April 3, 2017, Pardee Homes was named as a defendant in a lawsuit filed in San Diego County Superior Court by Scripps Health (“Scripps”) related to the April 1989 sale by Pardee Homes of real property located in Carmel Valley, California to Scripps pursuant to a purchase agreement dated December 18, 1987 (as amended, the “Purchase Agreement”). In March 2003, Scripps contacted Pardee Homes and alleged Pardee Homes had breached a covenant in the Purchase Agreement by failing to record a restriction against the development of the surrounding property then owned by Pardee Homes for medical office use. In November 2003, the parties entered into a tolling agreement, pursuant to which the parties agreed to toll any applicable statutes of limitation from November 3, 2003 until the expiration of the agreement. The tolling agreement did not revive any cause of action already time barred by a statute of limitation as of November 3, 2003. The tolling agreement was

- 18 -


terminated as of February 21, 2017. Pardee Homes became an indirect, wholly owned subsidiary of TRI Pointe on July 7, 2014 in connection with TRI Pointe’s acquisition of WRECO.
We intend to vigorously defend the action, and intend to continue challenging Scripps' claims. Although we cannot predict or determine the timing or final outcome of the lawsuit or the effect that any adverse findings or determinations may have on us, we believe Scripps has no actionable claims against Pardee Homes and that this dispute will not have a material impact on our business, liquidity, financial condition and results of operations. An unfavorable determination could result in the payment by us of monetary damages, which could be significant. The complaint does not indicate the amount of relief sought, and an estimate of possible loss or range of loss cannot presently be made with respect to this matter. No reserve with respect to this matter has been recorded on our consolidated financial statements.
Warranty
Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.
We maintain general liability insurance designed to protect us against a portion of our risk of loss from warranty and construction defect-related claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy. 
Our warranty reserve and related estimated insurance recoveries are based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs and related recoveries. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a warranty or construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
We also record expected recoveries from insurance carriers based on actual insurance claims made and actuarially determined amounts that depend on various factors, including, the above-described reserve estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated. Outstanding warranty insurance receivables were $46.9 million as of both March 31, 2017 and December 31, 2016. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.

- 19 -


Warranty reserve activity consisted of the following (in thousands):
 
 
Three Months Ended March 31,
 
2017
 
2016
Warranty reserves, beginning of period(1)
$
83,135

 
$
45,948

Warranty reserves accrued
1,880

 
2,073

Adjustments to pre-existing reserves
(78
)
 
—

Warranty expenditures
(3,984
)
 
(2,602
)
Warranty reserves, end of period
$
80,953

 
$
45,419

 __________
(1) 
Included in the 2017 opening balance is approximately $38.0 million of additional warranty liabilities estimated to be covered by our insurance policies that were adjusted to present the warranty reserves and related estimated warranty insurance receivable on a gross basis at December 31, 2016. Of the $38.0 million, approximately $36.5 million related to prior year estimated warranty insurance recoveries.

Performance Bonds
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of March 31, 2017 and December 31, 2016, the Company had outstanding surety bonds totaling $427.3 million and $449.6 million, respectively. The beneficiaries of the bonds are various municipalities.

- 20 -


14.
Stock-Based Compensation
2013 Long-Term Incentive Plan
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by TRI Pointe in January 2013 and amended, with the approval of our stockholders, in 2014 and 2015. In addition, our board of directors amended the 2013 Incentive Plan in 2014 to prohibit repricing (other than in connection with any equity restructuring or any change in capitalization) of outstanding options or stock appreciation rights without stockholder approval. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, bonus stock, restricted stock, restricted stock units 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 March 31, 2017 there were 6,208,671 shares available for future grant under the 2013 Incentive Plan.
Converted Awards
On July 16, 2014, the Company filed a registration statement on Form S-8 (Registration No. 333-197461) to register 4,105,953 shares of common stock related to converted equity awards issued in connection with the Company's acquisition of WRECO. The converted awards have the same terms and conditions as the prior 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 an exchange ratio of 2.1107, rounded down to the nearest whole number of shares of common stock. There will be no future grants under the WRECO equity incentive plans.  
The following table presents compensation expense recognized related to all stock-based awards (in thousands):
 
 
Three Months Ended March 31,
 
2017
 
2016
Total stock-based compensation
$
3,841

 
$
2,605

 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of March 31, 2017, total unrecognized stock-based compensation related to all stock-based awards was $28.8 million and the weighted average term over which the expense was expected to be recognized was 2.1 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the three months ended March 31, 2017:
 
Options
 
Weighted
Average
Exercise
Price
Per Share
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2016
2,971,370

 
$
13.12

 
4.4

 
$
1,568

Granted
—

 
—

 
—

 
—

Exercised
(69,570
)
 
10.74

 
—

 
—

Forfeited
(588,859
)
 
14.40

 
—

 
—

Options outstanding at March 31, 2017
2,312,941

 
13.06

 
4.1

 
2,451

Options exercisable at March 31, 2017
2,196,561

 
13.00

 
5.2

 
2,451

 

- 21 -


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

Summary of Restricted Stock Unit Activity
The following table presents a summary of restricted stock units (“RSUs”) for the three months ended March 31, 2017:
 
Restricted
Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Per Share
 
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 2016
3,412,719

 
$
9.77

 
$
39,178

Granted
1,615,071

 
10.95

 
20,253

Vested
(599,395
)
 
12.03

 
—

Forfeited
(12,235
)
 
11.54

 
—

Nonvested RSUs at March 31, 2017
4,416,160

 
9.89

 
55,379

 
On March 1, 2016, the Company granted an aggregate of 1,120,677 time-vested RSUs to employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three year period.  The fair value of each RSU granted on March 1, 2016 was measured using a price of $10.49 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 1, 2016, the Company granted 297,426, 285,986 and 125,834 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The percentage of these performance-based RSUs that vest will be determined by comparing the Company’s total stockholder return (“TSR”) to the TSRs of a group of peer homebuilding companies. The performance period for these performance-based RSUs is January 1, 2016 to December 31, 2018. These performance-based RSUs will not vest if the Company’s total stockholder return from January 1, 2016 to December 31, 2018 is not a positive number, provided that the executive will thereafter become vested in the award units, or portion thereof, that would have otherwise vested on December 31, 2018 if on any day after December 31, 2018 and on or before December 31, 2020, the Company’s total stockholder return is greater than zero and the executive is employed by the Company on that date. If the performance-based RSUs have not vested on or before December 31, 2020, such performance-based RSUs shall be cancelled and forfeited for no consideration. The fair value of these performance-based RSUs was determined to be $4.76 per share based on a Monte Carlo simulation. Each award will be expensed over the requisite service period.
On June 6, 2016, the Company granted an aggregate of 74,466 RSUs to the non-employee members of its board of directors. These RSUs vest in their entirety on the day immediately prior to the Company's 2017 Annual Meeting of Stockholders. The fair value of each RSU granted on June 6, 2016 was measured using a price of $11.75 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 February 27, 2017, the Company granted an aggregate of 990,279 time-vested RSUs to employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three year period.  The fair value of each RSU granted on February 27, 2017 was measured using a price of $12.10 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.


- 22 -


On February 27, 2017, the Company granted 257,851, 247,933 and 119,008 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated in equal parts to two separate performance metrics: (1) TSR, with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (2) earnings per share (“EPS”). The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2017 to December 31, 2019. The fair value of these performance-based RSUs was determined to be $6.16 per share based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $12.10 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.
As RSUs vest for employees, a portion of the shares awarded is generally withheld to cover employee tax withholdings. As a result, the number of RSUs vested and the number of shares of TRI Pointe common stock issued will differ.


15.
Stock Repurchase Program
On January 26, 2016, our board of directors approved a stock repurchase program, authorizing the repurchase of our common stock with an aggregate value of up to $100 million through January 25, 2017 (the “2016 Repurchase Program”). The 2016 Repurchase Program expired on January 25, 2017 and no shares of common stock were repurchased under the 2016 Repurchase Program in the month of January, 2017.
On February 23, 2017, our board of directors approved a new stock repurchase program, authorizing the repurchase of our common stock with an aggregate value of up to $100 million through March 31, 2018 (the “2017 Repurchase Program”).  Purchases of common stock pursuant to the 2017 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  We are not obligated under the 2017 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. For the three months ended March 31, 2017, 39,387 shares of our common stock were repurchased and retired under the 2017 Repurchase Program at an average price of $12.49 per share for a total cost of $492,118. Subsequent to March 31, 2017 and through April 25, 2017, the Company repurchased and retired an additional 1,166,557 shares of our common stock under the 2017 Repurchase Program at an average price of $12.35 per share for a total cost of $14.4 million. As of April 25, 2017 the Company has $85.1 million of shares that may yet be purchased under the 2017 Repurchase Program.

16.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered.  Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.
We had net deferred tax assets of $122.1 million and $123.2 million as of March 31, 2017 and December 31, 2016, respectively.  We had a valuation allowance related to those net deferred tax assets of $323,000 as of both March 31, 2017 and December 31, 2016.  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.

- 23 -


TRI Pointe has certain liabilities with Weyerhaeuser Company (“Weyerhaeuser”) related to a tax sharing agreement.  As of March 31, 2017 and December 31, 2016, we had an income tax liability to Weyerhaeuser of $8.6 million, which is recorded in accrued expenses and other liabilities on the accompanying consolidated balance sheets.
Our provision for income taxes totaled $4.6 million and $15.5 million for the three months ended March 31, 2017 and 2016, respectively.  The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense.  The Company had no liabilities for uncertain tax positions recorded as of March 31, 2017 or December 31, 2016.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years. 
  
17.
Related Party Transactions
We had no related party transactions for the three months ended March 31, 2017.
In May of 2016, we entered into an agreement with an affiliate of Starwood Capital Group, a then greater than 5% holder of our common stock, to acquire 52 lots located in Azusa, California, for an aggregate purchase price of $18.4 million. In October of 2016, we acquired 27 of these lots for a purchase price of $9.6 million. Our former Chairman of the Board is also the Chairman and Chief Executive Officer of Starwood Capital Group. This acquisition was approved by our independent directors. In August of 2016, we entered into an agreement with an affiliate of Starwood Capital Group to purchase 257 lots located in Castle Rock, Colorado, for an aggregate purchase price of approximately $8.6 million. In October of 2016, we acquired 126 of these lots for a purchase price of $4.2 million. This acquisition was approved by our independent directors. As of March 27, 2017, Starwood Capital Group is no longer a related party.
In 2016, we acquired 93 lots located in Dublin, California, for a purchase price of approximately $25.5 million from an affiliate of BlackRock, Inc., a greater than 5% holder of our common stock. This acquisition was approved by a majority of our independent directors.

18.
Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized of $12,847 and $15,149 (Note 5)
$
—

 
$
—

Income taxes
$
—

 
$
19,876

Supplemental disclosures of noncash activities:
 
 
 
Amortization of senior note discount capitalized to real estate inventory
$
502

 
$
402

Amortization of deferred loan costs capitalized to real estate inventory
$
1,322

 
$
858

Effect of net consolidation and de-consolidation of variable interest entities:
 
 
 
(Decrease) increase in consolidated real estate inventory not owned
$
(4,050
)
 
$
5,865

Increase (decrease) in noncontrolling interests
$
4,050

 
$
(5,865
)
  
19.
Supplemental Guarantor Information
2021 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including TRI Pointe Homes and certain other of its 100% owned subsidiaries, are party to a supplemental indenture pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to the 2021 Notes. Each Guarantor of the 2021 Notes is 100% owned by TRI Pointe Group, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2021 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of TRI Pointe Group or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.

- 24 -


A Guarantor of the 2021 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe Group or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe Group or another Guarantor, with TRI Pointe Group or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe Group or any other Guarantor which gave rise to such Guarantor guaranteeing the 2021 Notes; (vi) TRI Pointe Group exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.
2019 Notes and 2024 Notes
TRI Pointe Group and TRI Pointe Homes are co-issuers of the 2019 Notes and the 2024 Notes. All of the Guarantors (other than TRI Pointe Homes) have entered into supplemental indentures pursuant to which they jointly and severally guarantee the obligations of TRI Pointe Group and TRI Pointe Homes with respect to the 2019 Notes and the 2024 Notes. Each Guarantor of the 2019 Notes and the 2024 Notes is 100% owned by TRI Pointe Group and TRI Pointe Homes, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2019 Notes and the 2024 Notes, as described below.
A Guarantor of the 2019 Notes and the 2024 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe or another Guarantor, with TRI Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe or any other Guarantor which gave rise to such Guarantor guaranteeing the 2019 Notes and 2024 Notes; (vi) TRI Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.
Presented below are the condensed consolidating balance sheets at March 31, 2017 and December 31, 2016, condensed consolidating statements of operations for the three months ended March 31, 2017 and 2016 and condensed consolidating statement of cash flows for the three months ended March 31, 2017 and 2016.  Because TRI Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, the non-Guarantor subsidiaries’ information is not separately presented in the tables below, but is included with the Guarantors. Additionally, because TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X, the condensed consolidated financial information of TRI Pointe Group and TRI Pointe Homes, the co-issuers of the 2019 Notes and 2024 Notes, is presented together in the column titled “Issuer”.

- 25 -


Condensed Consolidating Balance Sheet (in thousands):
 
 
March 31, 2017
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
70,668

 
$
57,851

 
$
—

 
$
128,519

Receivables
18,804

 
47,195

 
—

 
65,999

Intercompany receivables
887,105

 
—

 
(887,105
)
 
—

Real estate inventories
870,895

 
2,175,197

 
—

 
3,046,092

Investments in unconsolidated entities
—

 
17,113

 
—

 
17,113

Goodwill and other intangible assets, net
156,604

 
4,757

 
—

 
161,361

Investments in subsidiaries
1,294,461

 
—

 
(1,294,461
)
 
—

Deferred tax assets, net
15,644

 
106,461

 
—

 
122,105

Other assets
10,411

 
48,116

 
—

 
58,527

Total Assets
$
3,324,592

 
$
2,456,690

 
$
(2,181,566
)
 
$
3,599,716

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
19,167

 
$
54,948

 
$
—

 
$
74,115

Intercompany payables
—

 
887,105

 
(887,105
)
 
—

Accrued expenses and other liabilities
46,337

 
205,554

 
—

 
251,891

Unsecured revolving credit facility
250,000

 
—

 
—

 
250,000

Seller financed loans
—

 
—

 
—

 
—

Senior notes
1,169,914

 
—

 
—

 
1,169,914

Total Liabilities
1,485,418

 
1,147,607

 
(887,105
)
 
1,745,920

 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Total stockholders’ equity
1,839,174

 
1,294,461

 
(1,294,461
)
 
1,839,174

Noncontrolling interests
—

 
14,622

 
—

 
14,622

Total Equity
1,839,174

 
1,309,083

 
(1,294,461
)
 
1,853,796

Total Liabilities and Equity
$
3,324,592

 
$
2,456,690

 
$
(2,181,566
)
 
$
3,599,716




- 26 -


Condensed Consolidating Balance Sheet (in thousands):
 
 
December 31, 2016
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
141,568

 
$
67,089

 
$
—

 
$
208,657

Receivables
26,692

 
55,808

 
—

 
82,500

Intercompany receivables
775,321

 
—

 
(775,321
)
 
—

Real estate inventories
868,088

 
2,042,539

 
—

 
2,910,627

Investments in unconsolidated entities
—

 
17,546

 
—

 
17,546

Goodwill and other intangible assets, net
156,604

 
4,891

 
—

 
161,495

Investments in subsidiaries
1,285,295

 
—

 
(1,285,295
)
 
—

Deferred tax assets, net
15,644

 
107,579

 
—

 
123,223

Other assets
11,401

 
49,191

 
—

 
60,592

Total Assets
$
3,280,613

 
$
2,344,643

 
$
(2,060,616
)
 
$
3,564,640

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
20,637

 
$
49,615

 
$
—

 
$
70,252

Intercompany payables
—

 
775,321

 
(775,321
)
 
—

Accrued expenses and other liabilities
48,496

 
215,349

 
—

 
263,845

Unsecured revolving credit facility
200,000

 
—

 
—

 
200,000

Seller financed loans
13,726

 
—

 
—

 
13,726

Senior notes
1,168,307

 
—

 
—

 
1,168,307

Total Liabilities
1,451,166

 
1,040,285

 
(775,321
)
 
1,716,130

 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Total stockholders’ equity
1,829,447

 
1,285,295

 
(1,285,295
)
 
1,829,447

Noncontrolling interests
—

 
19,063

 
—

 
19,063

Total Equity
1,829,447

 
1,304,358

 
(1,285,295
)
 
1,848,510

Total Liabilities and Equity
$
3,280,613

 
$
2,344,643

 
$
(2,060,616
)
 
$
3,564,640







- 27 -


Condensed Consolidating Statement of Operations (in thousands):
 
 
Three Months Ended March 31, 2017
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
130,837

 
$
261,167

 
$
—

 
$
392,004

Land and lot sales revenue
—

 
578

 
—

 
578

Other operations revenue
—

 
568

 
—

 
568

Total revenues
130,837

 
262,313

 
—

 
393,150

Cost of home sales
112,258

 
206,146

 
—

 
318,404

Cost of land and lot sales
—

 
654

 
—

 
654

Other operations expense
—

 
560

 
—

 
560

Sales and marketing
6,483

 
20,217

 
—

 
26,700

General and administrative
17,249

 
17,400

 
—

 
34,649

Homebuilding (loss) income from operations
(5,153
)
 
17,336

 
—

 
12,183

Equity in income of unconsolidated entities
—

 
138

 
—

 
138

Other income, net
9

 
68

 
—

 
77

Homebuilding (loss) income before income taxes
(5,144
)
 
17,542

 
—

 
12,398

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
241

 
—

 
241

Expenses
—

 
74

 
—

 
74

Equity in income of unconsolidated entities
—

 
266

 
—

 
266

Financial services income before income taxes
—

 
433

 
—

 
433

(Loss) income before income taxes
(5,144
)
 
17,975

 
—

 
12,831

Equity of net income of subsidiaries
9,037

 
—

 
(9,037
)
 
—

Benefit (provision) for income taxes
4,300

 
(8,914
)
 
—

 
(4,614
)
Net income
8,193

 
9,061

 
(9,037
)
 
8,217

Net income attributable to noncontrolling interests
—

 
(24
)
 
—

 
(24
)
Net income available to common stockholders
$
8,193

 
$
9,037

 
$
(9,037
)
 
$
8,193





- 28 -


 
Condensed Consolidating Statement of Operations (in thousands):
 
 
Three Months Ended March 31, 2016
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
131,957

 
$
291,098

 
$
—

 
$
423,055

Land and lot sales revenue
—

 
355

 
—

 
355

Other operations revenue
—

 
580

 
—

 
580

Total revenues
131,957

 
292,033

 
—

 
423,990

Cost of home sales
110,452

 
214,047

 
—

 
324,499

Cost of land and lot sales
—

 
779

 
—

 
779

Other operations expense
—

 
566

 
—

 
566

Sales and marketing
6,064

 
20,257

 
—

 
26,321

General and administrative
13,212

 
15,319

 
—

 
28,531

Homebuilding income from operations
2,229

 
41,065

 
—

 
43,294

Equity in loss of unconsolidated entities
—

 
(14
)
 
—

 
(14
)
Other income (loss), net
357

 
(242
)
 
—

 
115

Homebuilding income before income taxes
2,586

 
40,809

 
—

 
43,395

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
148

 
—

 
148

Expenses
—

 
58

 
—

 
58

Equity in income of unconsolidated entities
—

 
715

 
—

 
715

Financial services income before income taxes
—

 
805

 
—

 
805

Income before income taxes
2,586

 
41,614

 
—

 
44,200

Equity of net income of subsidiaries
27,231

 
—

 
(27,231
)
 
—

Provision for income taxes
(1,267
)
 
(14,223
)
 
—

 
(15,490
)
Net income
28,550

 
27,391

 
(27,231
)
 
28,710

Net income attributable to noncontrolling interests
—

 
(160
)
 
—

 
(160
)
Net income available to common stockholders
$
28,550

 
$
27,231

 
$
(27,231
)
 
$
28,550















- 29 -


Condensed Consolidating Statement of Cash Flows (in thousands):
 
 
Three Months Ended March 31, 2017
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
6,533

 
$
(118,824
)
 
$
—

 
$
(112,291
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(871
)
 
(302
)
 
—

 
(1,173
)
Proceeds from sale of property and equipment
—

 
5

 
—

 
5

Investments in unconsolidated entities
—

 
(231
)
 
—

 
(231
)
Intercompany
(110,529
)
 
—

 
110,529

 
—

Net cash (used in) provided by investing activities
(111,400
)
 
(528
)
 
110,529

 
(1,399
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Borrowings from debt
50,000

 
—

 
—

 
50,000

Repayment of debt
(13,726
)
 
—

 
—

 
(13,726
)
Distributions to noncontrolling interests
—

 
(415
)
 
—

 
(415
)
Proceeds from issuance of common stock under
   share-based awards
746

 
—

 
—

 
746

Minimum tax withholding paid on behalf of employees for
   restricted stock units
(2,561
)
 
—

 
—

 
(2,561
)
Share repurchases
(492
)
 
—

 
—

 
(492
)
Intercompany
—

 
110,529

 
(110,529
)
 
—

Net cash provided by (used in) financing activities
33,967

 
110,114

 
(110,529
)
 
33,552

Net decrease in cash and cash equivalents
(70,900
)
 
(9,238
)
 
—

 
(80,138
)
Cash and cash equivalents - beginning of period
141,568

 
67,089

 
—

 
208,657

Cash and cash equivalents - end of period
$
70,668

 
$
57,851

 
$
—

 
$
128,519





- 30 -



Condensed Consolidating Statement of Cash Flows (in thousands):
 
 
Three Months Ended March 31, 2016
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities
 
 
 
 
 
 
 
Net cash used in operating activities
$
(73,056
)
 
$
(66,620
)
 
$
—

 
$
(139,676
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(216
)
 
(195
)
 
—

 
(411
)
Investments in unconsolidated entities
—

 
(13
)
 
—

 
(13
)
Distributions from unconsolidated entities
—

 
—

 
—

 
—

Intercompany
(89,524
)
 
—

 
89,524

 
—

Net cash (used in) provided by investing activities
(89,740
)
 
(208
)
 
89,524

 
(424
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Borrowings from notes payable
75,000

 
—

 
—

 
75,000

Repayment of notes payable
(2,034
)
 
(400
)
 
—

 
(2,434
)
Debt issuance costs
—

 
(132
)
 
—

 
(132
)
Contributions from noncontrolling interests
—

 
808

 
—

 
808

Distributions to noncontrolling interests
—

 
(2,527
)
 
—

 
(2,527
)
Proceeds from issuance of common stock under
   share-based awards
6

 
—

 
—

 
6

Minimum tax withholding paid on behalf of employees for restricted stock units
(1,087
)
 
—

 
—

 
(1,087
)
Intercompany
—

 
89,524

 
(89,524
)
 
—

Net cash provided by (used in) financing activities
71,885

 
87,273

 
(89,524
)
 
69,634

Net decrease increase in cash and cash equivalents
(90,911
)
 
20,445

 
—

 
(70,466
)
Cash and cash equivalents - beginning of period
147,771

 
66,714

 
—

 
214,485

Cash and cash equivalents - end of period
$
56,860

 
$
87,159

 
$
—

 
$
144,019






- 31 -


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 that are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements are based on our current intentions, beliefs, expectations and predictions for the future, and you should not place undue reliance on these statements. These statements use forward-looking terminology, are based on various assumptions made by us, and may not be accurate because of risks and uncertainties surrounding the assumptions that are made.
Factors listed in this section–as well as other factors not included–may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee what effect it will have on our operations, financial condition, or share price.
We undertake no, and hereby disclaim any, obligation to update or revise any forward-looking statements, unless required by law. However, we reserve the right to make such updates or revisions from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Quarterly Report on Form 10-Q. No such update or revision shall be deemed to indicate that other statements not addressed by such update or revision remain correct or create an obligation to provide any other updates or revisions.
Forward-Looking Statements
These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “target,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements may include, but are not limited to, statements regarding our strategy, projections and estimates concerning the timing and success of specific projects and our future production, land and lot sales, the outcome of legal proceedings, operational and financial results, including our estimates for growth, financial condition, sales prices, prospects and capital spending.
Risks, Uncertainties and Assumptions
The major risks and uncertainties–and assumptions that are made–that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
•
the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;
•
market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;
•
levels of competition;
•
the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;
•
global economic conditions;
•
raw material prices;
•
oil and other energy prices;
•
the effect of weather, including the re-occurrence of drought conditions in California;  
•
the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters;
•
transportation costs;
•
federal and state tax policies;
•
the effect of land use, environment and other governmental laws and regulations;
•
legal proceedings or disputes and the adequacy of reserves;
•
risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;
•
change in accounting principles;
•
risks related to unauthorized access to our computer systems, theft of our homebuyers’ confidential information or other forms of cyber-attack; and
•
other factors described in “Risk Factors.”

- 32 -


The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge investors to review and consider carefully the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2016 and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. Investors should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to invest in, or maintain an investment in, our common stock.
Overview and Outlook
We continue to be encouraged by the strength of the overall U.S. new-home market, which continues to improve on a slow, sustainable growth trajectory, supported by stronger general economic conditions, low unemployment levels, modest wage gains, low interest rates, and increasing consumer confidence combined with a limited supply of new homes.  We believe the new presidential administration will lend support to the homebuilding industry and we are encouraged by the prospect of a deregulated financial services industry, and believe this trend will offset any new pressure created from a steady rise in interest rates. We believe demand will continue to be strong across the U.S. in general and in a majority of the markets in which we operate over the next several years. Nevertheless, we continue to see variability from market to market with demand generally driven by general local market economic conditions.  Homebuilding activity in many markets continues to be constrained by land and labor availability, as well as fee increases and delays imposed by local municipalities, which we expect will continue to constrict supply.  We expect these demand and supply trends will result in a continued slow and steady recovery in the homebuilding market, with consumer, job and household formation growth serving as leading indicators of positive demand. See "Cautionary Note Concerning Forward-Looking Statements".



- 33 -


Consolidated Financial Data (in thousands, except per share amounts):
 
 
Three Months Ended March 31,
 
2017
 
2016
Homebuilding:
 

 
 

Home sales revenue
$
392,004

 
$
423,055

Land and lot sales revenue
578

 
355

Other operations revenue
568

 
580

Total revenues
393,150

 
423,990

Cost of home sales
318,404

 
324,499

Cost of land and lot sales
654

 
779

Other operations expense
560

 
566

Sales and marketing
26,700

 
26,321

General and administrative
34,649

 
28,531

Homebuilding income from operations
12,183

 
43,294

Equity in income (loss) of unconsolidated entities
138

 
(14
)
Other income, net
77

 
115

Homebuilding income before income taxes
12,398

 
43,395

Financial Services:
 

 
 

Revenues
241

 
148

Expenses
74

 
58

Equity in income of unconsolidated entities
266

 
715

Financial services income before income taxes
433

 
805

Income before income taxes
12,831

 
44,200

Provision for income taxes
(4,614
)
 
(15,490
)
Net income
8,217

 
28,710

Net income attributable to noncontrolling interests
(24
)
 
(160
)
Net income available to common stockholders
$
8,193

 
$
28,550

Earnings per share
 

 
 

Basic
$
0.05


$
0.18

Diluted
$
0.05


$
0.18

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
 
 
Three Months Ended March 31, 2017
 
Three Months Ended March 31, 2016
 
Percentage Change
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
Maracay Homes
184

 
16.5

 
3.7

 
201

 
18.5

 
3.6

 
(8
)%
 
(11
)%
 
3
 %
Pardee Homes
378

 
28.5

 
4.4

 
313

 
23.5

 
4.4

 
21
 %
 
21
 %
 
—
 %
Quadrant Homes
120

 
7.5

 
5.3

 
133

 
9.5

 
4.7

 
(10
)%
 
(21
)%
 
14
 %
Trendmaker Homes
151

 
32.0

 
1.6

 
122

 
24.3

 
1.7

 
24
 %
 
32
 %
 
(6
)%
TRI Pointe Homes
353

 
29.3

 
4.0

 
265

 
25.5

 
3.5

 
33
 %
 
15
 %
 
16
 %
Winchester Homes
113

 
11.7

 
3.2

 
115

 
13.2

 
2.9

 
(2
)%
 
(11
)%
 
11
 %
Total
1,299

 
125.5

 
3.5

 
1,149

 
114.5

 
3.3

 
13
 %
 
10
 %
 
3
 %
 

- 34 -


Net new home orders for the three months ended March 31, 2017 increased by 150 orders or 13% to 1,299, compared to 1,149 during the prior year period.  The increase in net new home orders was due to a 10% increase in average selling communities and a 3% increase in absorption rates.
Maracay Homes reported an 8% decrease in net new home orders driven by an 11% decrease in average selling communities which was slightly offset by a 3% increase in monthly absorption rate. The decrease in average selling communities was due to the timing of community opening and closings compared to the prior year period. Pardee Homes increased net new home orders by 21% due to a 21% increase in average community count while maintaining its strong absorption rate of 4.4 orders per community per month. Net new home orders decreased 10% at Quadrant Homes, largely due to the timing of new community openings and closings. Average selling communities decreased 21% compared to the prior year while absorption rates increased 14%, to 5.3 homes per community, per month, as a result of our well located communities and continued strong market fundamentals. Trendmaker Homes increased net new home orders by 24% primarily based on an increase in average community count. Absorption rates in the Houston market have been challenged due to the decrease in oil prices and the related impact on job growth in that sector. TRI Pointe Homes’ net new home orders increased 33% due to a 15% increase in average selling communities and a 16% increase in absorption rates. Demand remains strong for TRI Pointe Homes, as evidenced by absorptions of 4.0 homes per community, per month, at average selling prices above the company average. Winchester Homes experienced a 2% decrease in net new home orders as a result of an 11% decrease in average selling communities that was nearly offset by an 11% increase in monthly absorption rates.
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)
 
As of March 31, 2017
 
As of March 31, 2016
 
Percentage Change
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
Maracay Homes
313

 
$
153,389

 
$
490

 
289

 
$
121,130

 
$
419

 
8
 %
 
27
%
 
17
 %
Pardee Homes
442

 
248,621

 
562

 
379

 
242,278

 
639

 
17
 %
 
3
%
 
(12
)%
Quadrant Homes
158

 
111,551

 
706

 
184

 
99,170

 
539

 
(14
)%
 
12
%
 
31
 %
Trendmaker Homes
208

 
107,860

 
519

 
170

 
90,870

 
535

 
22
 %
 
19
%
 
(3
)%
TRI Pointe Homes
443

 
283,986

 
641

 
354

 
238,669

 
674

 
25
 %
 
19
%
 
(5
)%
Winchester Homes
170

 
108,756

 
640

 
158

 
99,415

 
629

 
8
 %
 
9
%
 
2
 %
Total
1,734

 
$
1,014,163

 
$
585

 
1,534

 
$
891,532

 
$
581

 
13
 %
 
14
%
 
1
 %
 
Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of homebuyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) increased slightly to 14% from 13% for the same period in 2016. The dollar value of backlog was approximately $1.0 billion as of March 31, 2017, an increase of $122.6 million, or 14%, compared to $891.5 million as of March 31, 2016.  This increase was largely due to the increase in backlog of 200 homes, or 13%, to 1,734 as of March 31, 2017, compared to 1,534 as of March 31, 2016.
Maracay Homes’ backlog dollar value increased 27% compared to the prior year largely as a result of an increase in average sales price. The increase in average sales price was due to a product mix shift to more move-up product compared to the prior year. Pardee Homes' backlog dollar value increased 3% due to an increase in units, offset by a decrease in average selling price. The increase in backlog units was mainly due to a 21% increase in net new home orders while the decrease in average sales price was the result of less homes in backlog from our higher end coastally located homes in San Diego, California, which have higher price points, due to the timing of community openings and orders. Quadrant Homes’ backlog dollar value increased 12% as a result of a 31% increase in average sales price, offset by a decrease in units. The increase in average sales price was related to a higher mix of homes in backlog from the core Seattle markets of King and Snohomish counties which have higher price points. The decrease in backlog units was directly related to the decrease in net new home orders during the quarter as a result of a lower number of active selling communities. Trendmaker Homes' backlog dollar value increased 19% primarily due to a 22% increase in backlog units. The increase in backlog units was related to the 24% increase in net new home orders. TRI Pointe Homes’ backlog dollar value increased 19% mainly due to an increase in backlog units as a result of the 33% increase in net new home orders. Winchester Homes’ backlog dollar value increased 9% largely driven by the increase in backlog units. Backlog units increased by 12 homes largely due to timing of deliveries compared to the prior year period.

- 35 -


New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
 
Three Months Ended March 31, 2017
 
Three Months Ended March 31, 2016
 
Percentage Change
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
Maracay Homes
119

 
$
51,060

 
$
429

 
115

 
$
45,437

 
$
395

 
3
 %
 
12
 %
 
9
 %
Pardee Homes
196

 
83,699

 
427

 
208

 
118,933

 
572

 
(6
)%
 
(30
)%
 
(25
)%
Quadrant Homes
63

 
39,883

 
633

 
92

 
45,478

 
494

 
(32
)%
 
(12
)%
 
28
 %
Trendmaker Homes
106

 
51,939

 
490

 
88

 
43,786

 
498

 
20
 %
 
19
 %
 
(2
)%
TRI Pointe Homes
208

 
130,837

 
629

 
201

 
131,957

 
657

 
3
 %
 
(1
)%
 
(4
)%
Winchester Homes
66

 
34,586

 
524

 
67

 
37,464

 
559

 
(1
)%
 
(8
)%
 
(6
)%
Total
758

 
$
392,004

 
$
517

 
771

 
$
423,055

 
$
549

 
(2
)%
 
(7
)%
 
(6
)%
 
Home sales revenue decreased $31.1 million, or 2%, to $392.0 million for the three months ended March 31, 2017. The decrease was comprised of: (i) $23.9 million related to a $32,000, or 6%, decrease in the average sales price of homes delivered to $517,000 for the three months ended March 31, 2017, from $549,000 in the prior year, and (ii) a decrease in homes delivered by 2%, or 13 homes, to 758 for the three months ended March 31, 2017, from 771 in the prior year period.
Maracay Homes had a 12% increase in home sales revenue mainly due to an increase in average sales price. The increase in average sales price was driven by a product mix shift to more move-up product compared to the prior year period. Pardee Homes’ home sales revenue decreased by 30% largely due to a decrease in average sales price. The decrease in average sales price was due to a lower mix of Pardee Homes’ higher priced coastally located homes in San Diego, California, which have higher price points, due to the timing of deliveries compared to the prior year period. Quadrant Homes decreased home sales revenue by 12%, a result of a decrease in deliveries, somewhat offset by an increase in average sales price. The large decrease in deliveries was due to starting the quarter with a lower number of backlog units compared to the prior year period largely due to lower average selling communities. The large increase in average sales price was the result of delivering more units in the core Seattle markets of King and Snohomish counties, which have higher price points. Home sales revenue increased 19% at Trendmaker Homes mainly due to an increase in new homes delivered. The increase in new homes delivered was a result of a higher number of backlog units at the beginning of the quarter compared to the prior year period and the 24% increase in net new home orders during the quarter. Home sales revenue was relatively flat at TRI Pointe Homes due to a small increase in new home deliveries offset by a small decrease in average sales price. Home sales revenue decreased at Winchester Homes by 8% mainly due to a decrease in average sales price. The decrease in average sales price was due to a product mix shift to more attached product during the quarter, which sells at lower price points.
Homebuilding Gross Margins (dollars in thousands)
 
Three Months Ended March 31,
 
2017
 
%
 
2016
 
%
Home sales revenue
$
392,004

 
100.0
%
 
$
423,055

 
100.0
%
Cost of home sales
318,404

 
81.2
%
 
324,499

 
76.7
%
Homebuilding gross margin
73,600

 
18.8
%
 
98,556

 
23.3
%
Add:  interest in cost of home sales
9,680

 
2.5
%
 
8,830

 
2.1
%
Add:  impairments and lot option abandonments
288

 
0.1
%
 
182

 
0.0
%
Adjusted homebuilding gross margin(1)
$
83,568

 
21.3
%
 
$
107,568

 
25.4
%
Homebuilding gross margin percentage
18.8
%
 
 
 
23.3
%
 
 
Adjusted homebuilding gross margin percentage(1)
21.3
%
 
 
 
25.4
%
 
 
__________
(1) 
Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage decreased to 18.8% for the three months ended March 31, 2017 as compared to 23.3% for the prior year period.  The decrease in gross margin percentage was primarily due to the mix of deliveries, in particular a lower portion of overall deliveries were from our long-dated California communities, which produce gross margins above the Company average. The change in mix was primarily based on the timing of deliveries, and we expect more deliveries from these communities in the second quarter. Excluding interest and impairment and lot option abandonments in

- 36 -


cost of home sales, adjusted homebuilding gross margin percentage was 21.3% for the three months ended March 31, 2017, compared to 25.4% for the prior year period.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
 
Three Months Ended March 31,
 
As a Percentage of
Home Sales Revenue
 
2017
 
2016
 
2017
 
2016
Sales and marketing
$
26,700

 
$
26,321

 
6.8
%
 
6.2
%
General and administrative (G&A)
34,649

 
28,531

 
8.8
%
 
6.7
%
Total sales and marketing and G&A
$
61,349

 
$
54,852

 
15.7
%
 
13.0
%
 
Sales and marketing expense as a percentage of home sales revenue increased to 6.8% for the three month period ended March 31, 2017, compared to 6.2% for the prior year period. The increase was the result of lower operating leverage on the fixed components of sales and marketing expenses as a result of the 7% decrease in homes sales revenue. Total sales and marketing expense increased by $379,000 to $26.7 million for the three months ended March 31, 2017 compared to $26.3 million in the same prior year period.
General and administrative (“G&A”) expenses as a percentage of home sales revenue increased to 8.8% of home sales revenue for the three months ended March 31, 2017 compared to 6.7% for the prior year period.  The increase was due primarily to decreased operating leverage resulting from the 7% decrease in home sales revenue. G&A expenses increased to $34.6 million for the three months ended March 31, 2017 compared to $28.5 million in the prior year period primarily as a result of additional headcount to support future growth, along with our continued expansion into Austin, Texas and Los Angeles, California.
Total sales and marketing and G&A (“SG&A”) as a percentage of home sales revenue increased to 15.7% for the three month period ended March 31, 2017, compared to 13.0% in the prior year period. Total SG&A expense increased $6.5 million, to $61.3 million for the three months ended March 31, 2017 from $54.9 million in the prior year period.  
Interest
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $18.9 million and $15.1 million for the three months ended March 31, 2017 and 2016, respectively.  All interest incurred in both periods was capitalized.  The increase in interest incurred during the three months ended March 31, 2017 as compared to the prior year period was primarily attributable to an increase in our debt balance and our weighted average interest rate as a result of the issuance of our 2021 Notes in May of 2016.
Income Tax
For the three months ended March 31, 2017, we recorded a tax provision of $4.6 million based on an effective tax rate of 36.0%.  For the three months ended March 31, 2016, we recorded a tax provision of $15.5 million based on an effective tax rate of 35.0%. The decrease in provision for income taxes is due to a decrease in income before income taxes of $31.4 million to $12.8 million for the three months ended March 31, 2017, compared to $44.2 million for the prior year period.

- 37 -


Lots Owned or Controlled by Segment
Excluded from owned and controlled lots are those related to Note 6, Investments in Unconsolidated Entities.  The table below summarizes our lots owned or controlled by segment as of the dates presented:
 
March 31,
 
Increase
(Decrease)
 
2017
 
2016
 
Amount
 
%
Lots Owned
 
 
 
 
 
 
 
Maracay Homes
1,645

 
1,476

 
169

 
11
 %
Pardee Homes
16,083

 
16,296

 
(213
)
 
(1
)%
Quadrant Homes
1,089

 
1,082

 
7

 
1
 %
Trendmaker Homes
1,637

 
1,388

 
249

 
18
 %
TRI Pointe Homes
2,936

 
2,865

 
71

 
2
 %
Winchester Homes
1,744

 
1,920

 
(176
)
 
(9
)%
Total
25,134

 
25,027

 
107

 
—
 %
Lots Controlled(1)
 
 
 
 
 
 
 
Maracay Homes
966

 
804

 
162

 
20
 %
Pardee Homes
399

 
161

 
238

 
148
 %
Quadrant Homes
711

 
428

 
283

 
66
 %
Trendmaker Homes
265

 
389

 
(124
)
 
(32
)%
TRI Pointe Homes
619

 
760

 
(141
)
 
(19
)%
Winchester Homes
666

 
360

 
306

 
85
 %
Total
3,626

 
2,902

 
724

 
25
 %
Total Lots Owned or Controlled(1)
28,760

 
27,929

 
831

 
3
 %
__________
(1) 
As of March 31, 2017 and 2016 lots controlled included lots that were under land or lot option contracts or purchase contracts.

Liquidity and Capital Resources
Overview
Our principal uses of capital for the three months ended March 31, 2017 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 March 31, 2017, we had $128.5 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.
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.
Senior Notes
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance was $293.9 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.

- 38 -


TRI Pointe Group and TRI Pointe Homes are co-issuers of $450 million aggregate principal amount of 4.375% Senior Notes due 2019 (“2019 Notes”) and $450 million aggregate principal amount of 5.875% Senior Notes due 2024 (“2024 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 from the offering were $861.3 million, after debt issuance costs and discounts. The 2019 Notes and 2024 Notes mature on June 15, 2019 and June 15, 2024. Interest is payable semiannually in arrears on June 15 and December 15.
As of March 31, 2017, no principal has been paid on the 2019 Notes, 2021 Notes and 2024 Notes (together, the "Senior Notes"), and there was $19.8 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $17.2 million and $10.7 million as of March 31, 2017 and December 31, 2016, respectively.
Unsecured Revolving Credit Facility
On April 28, 2016, the Company partially exercised the accordion feature under its existing unsecured revolving credit facility (the “Credit Facility”) to increase the total commitments under the Credit Facility to $625 million from $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 March 31, 2017, the outstanding balance under the Credit Facility was $250.0 million with an interest rate 2.64% per annum and $370.5 million of availability after considering the borrowing base provisions and outstanding letters of credit.  At March 31, 2017, we had outstanding letters of credit of $4.5 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.
Stock Repurchase Program
On January 26, 2016, our board of directors approved the 2016 Repurchase Program. The 2016 Repurchase Program expired on January 25, 2017 and no shares of common stock were repurchased under the 2016 Repurchase Program in the month of January, 2017.
On February 23, 2017, our board of directors approved the 2017 Repurchase Program.  Purchases of common stock pursuant to the 2017 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the 2017 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. For the three months ended March 31, 2017, 39,387 shares of our common stock were repurchased and retired under this program at an average price of $12.49 per share for a total cost of $492,118.

- 39 -


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):
 
 
Actual at
March 31,
 
Covenant
Requirement at
March 31,
Financial Covenants
2017
 
2017
Consolidated Tangible Net Worth
$
1,677,813

 
$
1,072,649

(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
44.0
%
 
≤55%

(Not to exceed 55%)
 
 
 

Interest Coverage Test
4.7

 
≥1.5

(Not less than 1.5:1.0)
 
 
 

 
As of March 31, 2017, 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):  
 
March 31, 2017
 
December 31, 2016
Unsecured revolving credit facility
$
250,000

 
$
200,000

Seller financed loans
—

 
13,726

Senior Notes
1,169,914

 
1,168,307

Total debt
1,419,914

 
1,382,033

Stockholders’ equity
1,839,174

 
1,829,447

Total capital
$
3,259,088

 
$
3,211,480

Ratio of debt-to-capital(1)
43.6
%
 
43.0
%
 
 
 
 
Total debt
$
1,419,914

 
$
1,382,033

Less: Cash and cash equivalents
(128,519
)
 
(208,657
)
Net debt
1,291,395

 
1,173,376

Stockholders’ equity
1,839,174

 
1,829,447

Total capital
$
3,130,569

 
$
3,002,823

Ratio of net debt-to-capital(2)
41.3
%
 
39.1
%
__________
(1) 
The ratio of debt-to-capital is computed as the quotient obtained by dividing total 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 total 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.

- 40 -


Cash Flows—Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
For the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, the comparison of cash flows is as follows:
•
Net cash used in operating activities decreased by $27.4 million to $112.3 million for the three months ended March 31, 2017, from $139.7 million for the three months ended March 31, 2016. The change was comprised of offsetting activity, including (i) an increase in real estate inventories of $138.0 million in 2017 compared to an increase of $180.5 million in 2016 and (ii) other offsetting activity included changes in other assets, receivables, accounts payable, accrued expenses, and net income. The offsetting increase in accounts receivable and accrued expenses and other liabilities included $38.0 million of additional warranty liabilities estimated to be recovered by our insurance policies.
•
Net cash used in investing activities was $1.4 million for the three months ended March 31, 2017, compared to $424,000 for the same prior year period in 2016.  The increase in cash used in investing activities was due mainly to increased purchases of property and equipment.
•
Net cash provided by financing activities decreased to $33.6 million for the three months ending March 31, 2017, from $69.6 million for the same period in the prior year. The change was primarily a result of lower net borrowings from debt of $50.0 million during the three months ended March 31, 2017, compared to $75.0 million for the three months ended March 31, 2016, offset by higher cash used to repay debt of $13.7 million used during the three months ended March 31, 2017 compared to $2.4 million used during the three months ended March 31, 2016.
As of March 31, 2017, our cash and cash equivalents balance was $128.5 million.
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we enter into land and lot 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 land and lots over a specified period of time at pre-determined prices.  We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller.  As of March 31, 2017, we had $30.5 million of cash deposits, the majority of which are non-refundable, pertaining to land and lot option contracts and purchase contracts with an aggregate remaining purchase price of $416.9 million (net of deposits).
Our utilization of land and lot 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 land and lots, general housing market conditions, and local market dynamics.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
As of March 31, 2017, we had $370.5 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. 

- 41 -


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

Description of Projects and Communities under Development
The following table presents project information relating to each of our markets as of March 31, 2017 and includes information on current projects under development where we are building and selling homes.

- 42 -


Maracay Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
March 31,
2017
 
Lots
Owned as of
March 31,
2017(3)
 
Backlog as of
March 31,
2017(4)(5)
 
Homes
Delivered
for the Three
Months Ended
March 31,
2017
 
Sales Price
Range
(in thousands)(6)
Phoenix, Arizona
 
 
 
 
 
 
 
 
 
 
 
 
 
Town of Buckeye:
 
 
 
 
 
 
 
 
 
 
 
 
 
Verrado Palisades
2015
 
63

 
41

 
22

 
11

 
8

 
 $301 - $374
Verrado Victory
2015
 
98

 
34

 
64

 
12

 
4

 
 $357 - $392
City of Chandler:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sendera Place
2015
 
79

 
66

 
13

 
9

 
8

 
 $277 - $324
Hawthorn Manor
2017
 
84

 
—

 
84

 
21

 
—

 
 $511 - $544
Town of Gilbert:
 
 
 
 
 
 
 
 
 
 
 
 
 
Marquis at Morrison Ranch
2016
 
66

 
42

 
24

 
18

 
6

 
$414 - $501
Artisan at Morrison Ranch
2016
 
105

 
45

 
60

 
24

 
10

 
$326 - $379
The Preserve at Adora Trails
2017
 
82

 
—

 
82

 
14

 
—

 
$386 - $427
Marathon Ranch
2018
 
63

 
—

 
63

 
—

 
—

 
$477 - $501
City of Goodyear:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rio Paseo Villages
2018
 
117

 
—

 
117

 
—

 
—

 
 $200 - $220
Rio Paseo Cottages
2018
 
93

 
—

 
93

 
—

 
—

 
 $234 - $253
City of Mesa:
 
 
 
 
 
 
 
 
 
 
 
 
 
Kinetic Point at Eastmark
2013
 
80

 
75

 
5

 
1

 
—

 
 $283 - $361
Lumiere Garden at Eastmark
2013
 
85

 
77

 
8

 
3

 
2

 
 $327 - $403
Aileron Square at Eastmark
2016
 
58

 
29

 
29

 
18

 
5

 
 $327 - $403
Curie Court at Eastmark
2016
 
106

 
33

 
73

 
14

 
3

 
 $283 - $361
Palladium Point
2016
 
53

 
8

 
45

 
11

 
4

 
 $310 - $379
The Vista at Granite Crossing
2018
 
37

 
—

 
37

 
—

 
—

 
 $381 - $456
Town of Peoria:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Reserve at Plaza del Rio
2013
 
162

 
143

 
19

 
13

 
8

 
 $227 - $270
Maracay at Northlands
2014
 
90

 
89

 
1

 
1

 
12

 
 $330 - $411
Legacy at The Meadows
2017
 
74

 
2

 
72

 
15

 
2

 
 $400 - $426
Estates at The Meadows
2017
 
99

 
2

 
97

 
33

 
2

 
 $463 - $537
Meadows 1 & 3
2018
 
299

 
—

 
299

 
—

 
—

 
 $365 - $523
City of Phoenix:
 
 
 
 
 
 
 
 
 
 
 
 
 
Navarro Groves
2018
 
54

 
—

 
54

 
—

 
—

 
 $373 - $406
Town of Queen Creek:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Preserve at Hastings Farms
2014
 
89

 
89

 
—

 
—

 
1

 
 $300 - $385
Villagio
2013
 
135

 
135

 
—

 
—

 
6

 
 $291 - $352
Phoenix, Arizona Total
 
 
2,271

 
910

 
1,361

 
218

 
81

 
 
Tucson, Arizona
 
 
 
 
 
 
 
 
 
 
 
 
 
Marana:
 
 

 

 

 

 

 
 
Tortolita Vistas
2014
 
55

 
44

 
11

 
11

 
3

 
$458 - $515
Oro Valley:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rancho del Cobre
2014
 
68

 
59

 
9

 
4

 
4

 
$410 - $478
Desert Crest - Center Pointe Vistoso
2016
 
103

 
19

 
84

 
16

 
6

 
$255 - $300
The Cove - Center Pointe Vistoso
2016
 
83

 
23

 
60

 
13

 
5

 
$335 - $395
Summit N & S - Center Pointe Vistoso
2016
 
88

 
28

 
60

 
23

 
5

 
$389 - $424
The Pinnacle - Center Pointe Vistoso
2016
 
69

 
35

 
34

 
14

 
13

 
$446 - $478
Tucson:
 
 
 
 
 
 
 
 
 
 
 
 
 
Ranches at Santa Catalina
2016
 
34

 
8

 
26

 
14

 
2

 
$411 - $457
Tucson, Arizona Total
 
 
500

 
216

 
284

 
95

 
38

 
 
Maracay Total
 
 
2,771

 
1,126

 
1,645

 
313

 
119

 
 


- 43 -


Pardee Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
March 31,
2017
 
Lots
Owned as of
March 31,
2017(3)
 
Backlog as of
March 31,
2017(4)(5)
 
Homes
Delivered
for the Three
Months Ended
March 31,
2017
 
Sales Price
Range
(in thousands)(6)
California
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Casabella
2015
 
139

 
104

 
35

 
31

 
4

 
$900 - $1,000
Casavia
2017
 
83

 
9

 
74

 
24

 
9

 
$980 - $1,020
Artesana
2017
 
56

 
—

 
56

 
18

 
—

 
$1,680 - $1,910
Almeria
2017
 
80

 
—

 
80

 
—

 
—

 
$1,390 - $1,480
Olvera
2017
 
84

 
—

 
84

 
—

 
—

 
$1,260 - $1,350
Pacific Highlands Ranch Future
TBD
 
605

 
—

 
605

 
—

 
—

 
TBD
Olive Hill Estate
2016
 
37

 
20

 
17

 
8

 
4

 
$650 - $770
Sandstone (Castlerock)
2018
 
81

 
—

 
81

 
—

 
—

 
$630 - $660
Castlerock 47x90
2018
 
63

 
—

 
63

 
—

 
—

 
TBD
Lake Ridge (Castlerock)
2018
 
129

 
—

 
129

 
—

 
—

 
$700 - $780
Castlerock - 42x63
2018
 
142

 
—

 
142

 
—

 
—

 
TBD
Meadowood
TBD
 
844

 
—

 
844

 
—

 
—

 
$290 - $590
Parkview Condos
2016
 
73

 
56

 
17

 
16

 
20

 
$435 - $515
Luna
2017
 
96

 
—

 
96

 
19

 
—

 
$370 - $450
Azul
2017
 
121

 
—

 
121

 
19

 
—

 
$360 - $450
Ocean View HillsFuture
2017
 
700

 
—

 
700

 
—

 
—

 
TBD
South Otay Mesa
TBD
 
893

 
—

 
893

 
—

 
—

 
$185 - $530
Los Angeles County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Aliento - Verano
2017
 
95

 
—

 
95

 
—

 
—

 
$495 - $615
Aliento - Arista
2017
 
112

 
—

 
112

 
13

 
—

 
$695 - $756
Aliento - 55x100
2018
 
94

 
—

 
94

 
—

 
—

 
$665 - $700
Aliento - 70x100
2018
 
67

 
—

 
67

 
—

 
—

 
$810 - $860
Skyline Ranch
TBD
 
1,260

 
—

 
1,260

 
—

 
—

 
 $510 - $640
Riverside County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Meadow Glen
2014
 
142

 
142

 
—

 
—

 
2

 
$350 - $410
Senterra
2016
 
82

 
34

 
48

 
14

 
9

 
$390 - $480
Vantage
2016
 
83

 
25

 
58

 
5

 
10

 
$350 - $390
Viewpoint
2016
 
75

 
32

 
43

 
15

 
14

 
$290 - $325
Overlook
2016
 
112

 
30

 
82

 
23

 
6

 
$305 - $340
Aura
2017
 
79

 
—

 
79

 
24

 
—

 
$340 - $370
Starling
2018
 
107

 
—

 
107

 
—

 
—

 
$385 - $400
Canyon Hills Future 70 x 115
2018
 
125

 
—

 
125

 
—

 
—

 
TBD
Tournament Hills Future
TBD
 
268

 
—

 
268

 
—

 
—

 
TBD
Northstar
2015
 
102

 
79

 
23

 
4

 
13

 
$300 - $340
Skycrest
2015
 
115

 
74

 
41

 
13

 
6

 
$330 - $390
Flagstone
2016
 
79

 
38

 
41

 
8

 
4

 
$380 - $450
Lunetta
2016
 
89

 
66

 
23

 
10

 
11

 
$270 - $310
Elara
2016
 
118

 
29

 
89

 
42

 
9

 
$260 - $310
Daybreak
2017
 
139

 
—

 
139

 
—

 
—

 
$322 - $340
Cascade
2017
 
105

 
—

 
105

 
—

 
—

 
$296 - $312
Sundance Future
TBD
 
1,109

 
—

 
1,109

 
—

 
—

 
TBD
Avena
2017
 
84

 
—

 
84

 
—

 
—

 
$390 - $430
Tamarack
2017
 
84

 
—

 
84

 
—

 
—

 
TBD
Manifee Heights
TBD
 
359

 
—

 
359

 
—

 
—

 
TBD
Banning
TBD
 
4,318

 
—

 
4,318

 
—

 
—

 
$170 - $250
Sacramento County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Natomas
TBD
 
120

 
—

 
120

 
—

 
—

 
TBD
San Joaquin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Bear Creek
TBD
 
1,252

 
—

 
1,252

 
—

 
—

 
TBD
California Total
 
 
15,000

 
738

 
14,262

 
306

 
121

 
 

- 44 -


Nevada
 
 
 
 
 
 
 
 
 
 
 
 
 
Clark County:
 
 
 
 
 
 
 
 
 
 
 
 
 
LivingSmart Sandstone
2013
 
145

 
145

 
—

 
—

 
1

 
 $228 - $255
North Peak
2015
 
171

 
70

 
101

 
19

 
13

 
$286 - $340
Castle Rock
2015
 
188

 
71

 
117

 
15

 
10

 
$330 - $420
Camino
2016
 
86

 
37

 
49

 
17

 
14

 
$255 - $270
Solano
2014
 
132

 
123

 
9

 
4

 
6

 
 $300 - $335
Alterra
2014
 
47

 
45

 
2

 
1

 
—

 
 $425 - $505
Bella Verdi
2015
 
57

 
49

 
8

 
—

 
2

 
 $375 - $440
Escala
2016
 
154

 
19

 
135

 
11

 
—

 
 $515 - $590
Montero
2016
 
74

 
13

 
61

 
13

 
5

 
 $420 - $500
Strada
2017
 
116

 
—

 
116

 
9

 
—

 
 $395 - $430
POD 5-1/2-2 Future
2017
 
23

 
—

 
23

 
—

 
—

 
TBD
Meridian
2016
 
82

 
21

 
61

 
8

 
1

 
 $590 - $680
Encanto
2016
 
102

 
14

 
88

 
3

 
3

 
 $470 - $525
Encanto Townhomes
2018
 
70

 
—

 
70

 
—

 
—

 
 TBD
Horizon Terrace
2014
 
165

 
104

 
61

 
9

 
10

 
 $407 - $460
Horizon Valle Verde
2018
 
53

 
—

 
53

 
—

 
—

 
 $450 - $470
Summerglen
2014
 
140

 
120

 
20

 
15

 
7

 
 $300 - $305
Keystone
2017
 
70

 
4

 
66

 
9

 
3

 
 $450 - $530
Cobalt
2017
 
107

 
—

 
107

 
—

 
—

 
 $340 - $370
Axis
2017
 
78

 
—

 
78

 
3

 
—

 
 $825 - $1,035
The Canyons at MacDonald Ranch - Parcel R
2017
 
22

 
—

 
22

 
—

 
—

 
 $535 - $565
Pivot
2017
 
88

 
—

 
88

 
—

 
—

 
 $420- $450
Strada at Pivot
2017
 
27

 
—

 
27

 
—

 
—

 
 $400 - $430
Nova Ridge
2018
 
112

 
—

 
112

 
—

 
—

 
 $680 - $715
Tera Luna
2017
 
116

 
—

 
116

 
—

 
—

 
 $540 - $590
Skye Canyon Parcel 2
TBD
 
88

 
—

 
88

 
—

 
—

 
 TBD
Commerce & Deer Springs
TBD
 
143

 
—

 
143

 
—

 
—

 
 TBD
Nevada Total
 
 
2,656

 
835

 
1,821

 
136

 
75

 
 
Pardee Total
 
 
17,656

 
1,573

 
16,083

 
442

 
196

 
 


- 45 -


Quadrant Homes 
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
March 31,
2017
 
Lots
Owned as of
March 31,
2017(3)
 
Backlog as of
March 31,
2017(4)(5)
 
Homes
Delivered
for the Three
Months Ended
March 31,
2017
 
Sales Price
Range
(in thousands)(6)
Washington
 
 
 
 
 
 
 
 
 
 
 
 
 
Snohomish County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Evergreen Heights, Monroe
2016
 
71

 
13

 
58

 
32

 
10

 
$450 - $532
The Grove at Canyon Park, Bothell
2017
 
60

 
—

 
60

 
30

 
—

 
$645 - $754
Greenstone Heights, Bothell
2017
 
41

 
—

 
41

 
—

 
—

 
$889 - $979
King County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Vintner's Place, Kirkland
2016
 
35

 
33

 
2

 
2

 
13

 
$769 - $847
Copperwood, Renton
2016
 
46

 
36

 
10

 
7

 
15

 
$669 - $737
Viscaia, Bellevue
2017
 
18

 
—

 
18

 
16

 
—

 
$750 - $880
Trailside, Redmond
2017
 
9

 
—

 
9

 
—

 
—

 
$955 - $1,249
Parkwood Terrace, Woodinville
2017
 
15

 
—

 
15

 
8

 
—

 
$759 - $960
Hazelwood Ridge, Newcastle
2017
 
30

 
—

 
30

 
22

 
—

 
$805 - $1,025
Inglewood Landing, Sammamish
2018
 
21

 
—

 
21

 
—

 
—

 
$1,003 - $1,138
Jacobs Landing, Issaquah
2017
 
20

 
—

 
20

 
—

 
—

 
$1,062 - $1,132
Kirkwood Terrace, Sammamish
2018
 
12

 
—

 
12

 
—

 
—

 
$1,425 - $1,750
English Landing P2, Redmond
2017
 
25

 
—

 
25

 
—

 
—

 
$1,030 - $1,120
English Landing P1, Redmond
2018
 
50

 
—

 
50

 
—

 
—

 
$1,079 - $1,264
Heathers Ridge South, Redmond
2017
 
8

 
—

 
8

 
8

 
—

 
$725 - $1,008
Cedar Landing, North Bend
2018
 
138

 
—

 
138

 
—

 
—

 
$610 - $760
Monarch Ridge, Sammamish
2018
 
59

 
—

 
59

 
—

 
—

 
$880 - $995
Ray Meadows, Redmond
2018
 
27

 
—

 
27

 
—

 
—

 
$974 - $1,124
Wynstone, Federal Way
TBD
 
4

 
—

 
4

 
—

 
—

 
TBD
Breva, Bellevue
2017
 
29

 
—

 
29

 
—

 
—

 
$820 - $900
Canton Crossing, Maple Valley
2017
 
51

 
—

 
51

 
—

 
—

 
$560 - $655
Aurea, Sammamish
2018
 
41

 
—

 
41

 
—

 
—

 
$655 - $775
Aldea (Avalon Townhomes), Newcastle
2018
 
129

 
—

 
129

 
—

 
—

 
$554 - $794
Pierce County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Harbor Hill S-9, Gig Harbor
2014
 
40

 
39

 
1

 
1

 
—

 
$422
Harbor Hill S-8, Gig Harbor
2015
 
33

 
32

 
1

 
 
 
—

 
$431
Harbor Hill S-7, Gig Harbor
2016
 
16

 
11

 
5

 
3

 
3

 
$432 - $472
The Enclave at Harbor Hill, Gig Harbor
2016
 
33

 
22

 
11

 
10

 
5

 
$495 - $550
Harbor Hill S-2, Gig Harbor
2017
 
41

 
—

 
41

 
—

 
—

 
$425 - $508
Harbor Hill S-5/6, Gig Harbor
2017
 
72

 
—

 
72

 
1

 
—

 
$453 - $508
Kitsap County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mountain Aire, Poulsbo
2016
 
145

 
44

 
101

 
18

 
15

 
$405 - $462
Closed Communities
N/A
 
—

 
—

 
—

 
—

 
2

 
N/A
Washington Total
 
 
1,319

 
230

 
1,089

 
158

 
63

 
 
Quadrant Total
 
 
1,319

 
230

 
1,089

 
158

 
63

 
 






- 46 -


Trendmaker Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
March 31,
2017
 
Lots
Owned as of
March 31,
2017(3)
 
Backlog as of
March 31,
2017(4)(5)
 
Homes
Delivered
for the Three
Months Ended
March 31,
2017
 
Sales Price
Range
(in thousands)(6)
Texas
 
 
 
 
 
 
 
 
 
 
 
 
 
Brazoria County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sedona Lakes, Pearland
2014
 
34

 
22

 
12

 
2

 
1

 
 $400 - $458
Pomona, Manvel
2015
 
34

 
10

 
24

 
8

 
5

 
 $360 - $455
Rise Meridiana
2016
 
21

 
6

 
15

 
7

 
5

 
 $300 - $339
Fort Bend County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross Creek Ranch 60', Fulshear
2013
 
35

 
9

 
26

 
1

 
5

 
 $370 - $465
Cross Creek Ranch 65', Fulshear
2013
 
61

 
36

 
25

 
10

 
3

 
 $428 - $488
Cross Creek Ranch 70', Fulshear
2013
 
88

 
63

 
25

 
6

 
3

 
 $485 - $548
Cross Creek Ranch 80', Fulshear
2013
 
67

 
53

 
14

 
6

 
1

 
 $551 - $666
Cross Creek Ranch 90', Fulshear
2013
 
27

 
17

 
10

 
3

 
4

 
 $627 - $700
Villas at Cross Creek Ranch, Fulshear
2013
 
101

 
101

 
—

 
—

 
1

 
 $454 - $496
Fulshear Run, Richmond
2016
 
31

 
1

 
30

 
10

 
—

 
 $569 - $668
Harvest Green 75', Richmond
2015
 
21

 
10

 
11

 
3

 
1

 
 $426 - $482
Sienna Plantation 85', Missouri City
2015
 
25

 
17

 
8

 
2

 
7

 
 $546 - $645
Villas at Sienna South, Missouri City
2015
 
19

 
10

 
9

 
1

 
1

 
 $445 - $507
Lakes of Bella Terra, Richmond
2013
 
109

 
102

 
7

 
2

 
1

 
 $465 - $553
Villas at Aliana, Richmond
2013
 
117

 
89

 
28

 
3

 
2

 
 $380 - $497
Riverstone 55', Sugar Land
2013
 
97

 
96

 
1

 
—

 
—

 
 $437 - $467
Riverstone Avanti at Avalon 100', Sugar Land
2015
 
5

 
4

 
1

 
1

 
—

 
$1,197
Harris County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Towne Lake Living Views, Cypress
2013
 
122

 
122

 
—

 
—

 
4

 
 $468 - $561
The Groves, Humble
2015
 
55

 
32

 
23

 
9

 
3

 
 $451 - $527
Lakes of Creekside
2015
 
21

 
4

 
17

 
1

 
3

 
 $501 - $585
Bridgeland '80, Cypress
2015
 
106

 
86

 
20

 
13

 
2

 
 $522 - $611
Bridgeland Patio, Cypress
2017
 
20

 
2

 
18

 
6

 
1

 
 $343 - $413
Elyson 70', Cypress
2017
 
16

 
1

 
15

 
1

 
1

 
 $454 - $510
Hidden Arbor, Cypress
2015
 
129

 
41

 
88

 
34

 
17

 
 $337 - $618
Clear Lake, Houston
2015
 
770

 
203

 
567

 
39

 
17

 
 $375 - $670
Montgomery County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Woodtrace, Woodtrace
2014
 
37

 
20

 
17

 
6

 
2

 
 $430 - $479
Northgrove, Tomball
2015
 
25

 
3

 
22

 
2

 
2

 
 $475 - $530
Bender's Landing Estates, Spring
2014
 
104

 
43

 
61

 
6

 
4

 
 $427 - $563
The Woodlands, Creekside Park
2015
 
92

 
19

 
73

 
4

 
5

 
 $410 - $624
Waller County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cane Island, Katy
2015
 
23

 
15

 
8

 
3

 
1

 
 $493 - $574
Mustang Estates
2017
 
350

 
—

 
350

 
—

 
—

 
 TBD
Williamson County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Crystal Falls
2016
 
29

 
4

 
25

 
6

 
1

 
 $460 - $535
Rancho Sienna 60'
2016
 
28

 
12

 
16

 
—

 
—

 
 $370 - $422
Hays County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Belterra 60', Austin
2017
 
16

 
—

 
16

 
1

 
—

 
 $375 - $466
Belterra 80', Austin
2016
 
38

 
9

 
29

 
1

 
3

 
 $535 - $603
Headwaters, Dripping Springs
2017
 
22

 
—

 
22

 
8

 
—

 
 $420 - $479
Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
Avanti Custom Homes
2007
 
125

 
121

 
4

 
3

 
—

 
 $480 - $856
Texas Total
 
 
3,020

 
1,383

 
1,637

 
208

 
106

 
 
Trendmaker Homes Total
 
 
3,020

 
1,383

 
1,637

 
208

 
106

 
 


- 47 -


TRI Pointe Homes
 
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
March 31,
2017
 
Lots
Owned as of
March 31,
2017(3)
 
Backlog as of
March 31,
2017(4)(5)
 
Homes
Delivered
for the Three
Months Ended
March 31,
2017
 
Sales Price
Range
(in thousands)(6)
Southern California
 
 
 
 
 
 
 
 
 
 
 
 
 
Orange County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Messina, Irvine
2014
 
59

 
50

 
—

 
—

 
—

 
 $1,515 - $1,660
Messina II, Irvine
2016
 
43

 
24

 
19

 
7

 
4

 
 $1,515 - $1,660
Aria, Rancho Mission Viejo
2016
 
87

 
58

 
29

 
10

 
10

 
 $618 - $671
Aria II, Rancho Mission Viejo
2017
 
64

 
—

 
64

 
—

 
—

 
 TBD
Aubergine, Rancho Mission Viejo
2016
 
66

 
27

 
39

 
10

 
4

 
 $1,046 - $1,158
Aubergine II, Rancho Mission Viejo
2017
 
57

 
—

 
57

 
—

 
—

 
 TBD
Carlisle 10-Pack Garden Court, Irvine
2017
 
74

 
—

 
74

 
10

 
—

 
 $685 - $770
Sterling Row Townhomes, Irvine
2017
 
96

 
—

 
96

 
—

 
—

 
 $590 - $703
Varenna at Orchard Hills, Irvine
2016
 
71

 
12

 
25

 
9

 
4

 
 $1,160 - $1,235
Alston, Anaheim
2017
 
75

 
—

 
75

 
—

 
—

 
 $780 - $820
StrataPointe, Buena Park
2017
 
149

 
—

 
149

 
6

 
—

 
 $496 - $615
Riverside County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Kite Ridge, Riverside
2014
 
87

 
77

 
10

 
6

 
15

 
 $459 - $487
Serrano Ridge at Sycamore Creek, Riverside
2015
 
87

 
74

 
13

 
11

 
11

 
 $403 - $429
Terrassa Court, Corona
2015
 
94

 
19

 
75

 
30

 
6

 
 $400 - $448
Terrassa Villas, Corona
2015
 
52

 
7

 
45

 
5

 
1

 
 $438 - $478
Los Angeles County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 Grayson at Five Knolls, Santa Clarita
2015
 
119

 
57

 
62

 
23

 
8

 
 $520 - $553
Garvey Square, El Monte
2017
 
102

 
—

 
102

 
—

 
—

 
 TBD
Bradford @ Rosedale, Azusa
2017
 
52

 
—

 
27

 
1

 
—

 
 $846 - $891
Golden Valley/ Lucera at Aliento
2017
 
67

 
—

 
67

 
7

 
—

 
 $620 - $645
Golden Valley/Tierno at Aliento
2017
 
63

 
—

 
63

 
7

 
—

 
 $731 - $766
San Bernardino County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sedona at Parkside, Ontario
2015
 
152

 
107

 
45

 
30

 
15

 
 $384 - $421
Kensington at Park Place, Ontario
2015
 
67

 
58

 
9

 
8

 
13

 
 $492 - $524
St. James at Park Place, Ontario
2015
 
57

 
51

 
6

 
—

 
—

 
 $456 - $468
St. James II at Park Place, Ontario
2017
 
68

 
—

 
34

 
34

 
—

 
 $463 - $480
Ventura County:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Westerlies, Oxnard
2015
 
116

 
55

 
61

 
33

 
10

 
 $393 - $517
Southern California Total
 
 
2,024

 
676

 
1,246

 
247

 
101

 
 
Northern California
 
 
 
 
 
 
 
 
 
 
 
 
 
Contra Costa County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Berkshire at Barrington, Brentwood
2014
 
89

 
86

 
3

 
—

 
—

 
 $508 - $587
Hawthorne at Barrington, Brentwood
2014
 
105

 
100

 
5

 
3

 
6

 
 $572 - $620
Marquette at Barrington, Brentwood
2015
 
90

 
53

 
37

 
4

 
9

 
 $480 - $750
Wynstone at Barrington, Brentwood
2017
 
92

 
—

 
92

 
14

 
—

 
 $480 - $610
Penrose at Barrington, Brentwood
2016
 
34

 
28

 
6

 
6

 
8

 
 $508 - $587
Santa Clara County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Derose, Morgan Hill
2018
 
65

 
—

 
65

 
—

 
—

 
 $575 - $780
Solano County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Redstone, Vacaville
2015
 
141

 
72

 
69

 
12

 
12

 
 $460 - $533
Green Valley-Lewis, Fairfield
2018
 
91

 
—

 
91

 
—

 
—

 
 $475 - $510
Green Valley-Westgate, Fairfield
2018
 
56

 
—

 
56

 
—

 
—

 
 $527 - $572
San Joaquin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Ventana, Tracy
2015
 
93

 
64

 
29

 
10

 
8

 
 $447 - $552
Sundance, Mountain House
2015
 
113

 
84

 
29

 
15

 
10

 
 $595 - $675

- 48 -


Alameda County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cadence, Alameda Landing
2015
 
91

 
62

 
29

 
17

 
—

 
 $1,125 - $1,300
Linear, Alameda Landing
2015
 
106

 
64

 
42

 
2

 
—

 
 $784 - $1,020
Symmetry, Alameda Landing
2016
 
56

 
29

 
27

 
2

 
3

 
 $880 - $965
Commercial, Alameda Landing
 
 
2

 
—

 
2

 
—

 
—

 
$620
Parasol, Fremont
2016
 
39

 
34

 
5

 
1

 
10

 
$770 - $1,050
Blackstone at the Cannery, Hayward SFA
2016
 
105

 
31

 
74

 
11

 
7

 
$586 - $686
Blackstone at the Cannery, Hayward SFD
2016
 
52

 
23

 
29

 
13

 
4

 
$689 - $749
Coopers Place, Livermore
2017
 
31

 
—

 
31

 
4

 
—

 
$660 - $670
Slate at Jordan Ranch, Dublin
2017
 
56

 
—

 
56

 
—

 
—

 
$1,025 - $1,144
Onyx at Jordan Ranch, Dublin
2017
 
105

 
—

 
105

 
—

 
—

 
$885 - $950
Jordan Ranch II, Dublin
2018
 
45

 
—

 
45

 
—

 
—

 
$855 - $1,035
Mission Stevenson, Fremont
2018
 
77

 
—

 
77

 
—

 
—

 
$650 - $965
Palm Avenue, Fremont
2018
 
31

 
—

 
31

 
—

 
—

 
$2,030 - $2,176
Northern California Total
 
 
1,765

 
730

 
1,035

 
114

 
77

 
 
California Total
 
 
3,789

 
1,406

 
2,281

 
361

 
178

 
 
Colorado
 
 
 
 
 
 
 
 
 
 
 
 
 
Douglas County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Terrain 4000 Series, Castle Rock
2013
 
149

 
145

 
4

 
1

 
3

 
 $358 - $411
Terrain 3500 Series, Castle Rock
2015
 
67

 
64

 
3

 
—

 
—

 
 $327 - $350
Terrain Ravenwood Village (3500)
2017
 
157

 
—

 
88

 
—

 
—

 
 $379 - $426
Terrain Ravenwood Village (4000)
2017
 
100

 
—

 
38

 
—

 
—

 
 $400 - $463
Jefferson County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Leyden Rock 5000 Series, Arvada
2015
 
67

 
67

 
—

 
—

 
3

 
 $454 - $509
Candelas 6000 Series, Arvada
2015
 
76

 
25

 
51

 
24

 
4

 
 $511 - $658
Candelas 3500 Series, Arvada
2016
 
97

 
11

 
86

 
13

 
7

 
 $401 - $463
Candelas 5000 Series, Arvada
2017
 
62

 
—

 
62

 
—

 
—

 
 $498 - $565
Crown Pointe, Westminster
2018
 
64

 
—

 
64

 
—

 
—

 
$415 - $482
Larimer County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Centerra 5000 Series, Loveland
2015
 
79

 
47

 
32

 
16

 
8

 
 $411 - $453
Arapahoe County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Whispering Pines, Aurora
2015
 
115

 
7

 
108

 
13

 
4

 
 $569 - $635
Adams County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Amber Creek, Thornton
2017
 
121

 
2

 
119

 
15

 
1

 
 $391 - $464
Colorado Total
 
 
1,154

 
368

 
655

 
82

 
30

 
 
TRI Pointe Total
 
 
4,943

 
1,774

 
2,936

 
443

 
208

 
 


- 49 -


Winchester Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
March 31,
2017
 
Lots
Owned as of
March 31,
2017(3)
 
Backlog as of
March 31,
2017(4)(5)
 
Homes
Delivered
for the Three
Months Ended
March 31,
2017
 
Sales Price
Range
(in thousands)(6)
Maryland
 
 
 
 
 
 
 
 
 
 
 
 
 
Anne Arundel County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Two Rivers, Crofton
2017
 
20

 
—

 
20

 
—

 
—

 
TBD
Watson's Glen, Millersville
2015
 
103

 
4

 
99

 
—

 
—

 
Closed
Frederick County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Landsdale, Monrovia
 
 
 
 
 
 
 
 
 
 
 
 
 
Landsdale SFD
2015
 
222

 
48

 
174

 
20

 
8

 
$490 - $592
Landsdale Townhomes
2015
 
100

 
27

 
73

 
1

 
1

 
$335 - $375
Landsdale TND Neo SFD
2015
 
77

 
17

 
60

 
7

 
3

 
$440 - $468
Howard County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Walnut Creek, Ellicott City
2014
 
25

 
24

 
1

 
—

 
—

 
$1,209
Montgomery County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cabin Branch, Clarksburg
 
 
 
 
 
 
 
 
 
 
 
 
 
Cabin Branch SFD
2014
 
359

 
95

 
264

 
36

 
4

 
 $504 - $735
Cabin Branch Avenue Townhomes
TBD
 
121

 
—

 
121

 
—

 
—

 
TBD
Cabin Branch Townhomes
2014
 
507

 
146

 
361

 
22

 
15

 
 $384 - $437
Preserve at Stoney Spring
N/A
 
5

 
—

 
5

 
—

 
—

 
 N/A
Poplar Run, Silver Spring
 
 
 
 
 
 
 
 
 
 
 
 
 
Poplar Run SFD
2010
 
305

 
256

 
49

 
19

 
7

 
 $625 - $771
Poplar Run Single Family Neos
2016
 
29

 
15

 
14

 
13

 
—

 
 $545 - $635
Potomac Highlands, Potomac
2017
 
23

 
1

 
22

 
3

 
1

 
 $1,191 - $1,289
Glenmont MetroCenter, Silver Spring
2016
 
171

 
14

 
157

 
2

 
7

 
 $455 - $538
Twinbrook Metro, Rockville
2018
 
61

 
—

 
61

 
—

 
—

 
 TBD
Maryland Total
 
 
2,128

 
647

 
1,481

 
123

 
46

 
 
Virginia
 
 
 
 
 
 
 
 
 
 
 
 
 
Fairfax County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stuart Mill & Timber Lake, Oakton
2014
 
14

 
7

 
7

 
5

 
—

 
$1,363 - $1,675
Stuart Mill -Lots for Sale, Oakton
N/A
 
5

 
—

 
5

 
—

 
—

 
N/A
Prince William County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Villages of Piedmont, Haymarket
2015
 
168

 
55

 
113

 
26

 
6

 
$370 - $432
Loudoun County:
 
 
 
 
 
 
 
 
 
 
 
 
 
English Manor Villas
2014
 
58

 
56

 
2

 
1

 
7

 
$495 - $545
Glenmere at Brambleton SFD
2014
 
100

 
100

 
—

 
—

 
4

 
$650 - $733
West Park SFD
2018
 
1

 
—

 
1

 
—

 
—

 
TBD
Vistas at Lansdowne, Lansdowne
2015
 
120

 
39

 
81

 
8

 
1

 
$569 - $670
Westgrove, Fairfax
2018
 
24

 
—

 
24

 
—

 
—

 
TBD
Willowsford Grant II, Aldie
2017
 
24

 
—

 
24

 
6

 
—

 
$1,200 - $1,326
Willowsford Greens, Aldie
2014
 
33

 
32

 
1

 
1

 
2

 
$760 - $840
Willowsford Greens-Lots for Sale
N/A
 
5

 
—

 
5

 
—

 
—

 
N/A
Virginia Total
 
 
552

 
289

 
263

 
47

 
20

 
 
Winchester Total
 
 
2,680

 
936

 
1,744

 
170

 
66

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined Company Total
 
 
32,487

 
7,022

 
25,134

 
1,734

 
758

 
 
__________
(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 March 31, 2017 include owned lots in backlog as of March 31, 2017.
(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 March 31, 2017, 1,065 homes are under construction, 298 homes have completed construction, and 371 homes have not started construction.

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(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.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our condensed notes to the unaudited consolidated financial statements contained elsewhere in this report and the audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2016 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. The preparation of our financial statements requires our management to make estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there is a material difference between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the condensed notes to the unaudited consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
Recently Issued Accounting Standards
See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, 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 debt.  We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the three months ended March 31, 2017. We did not enter into during the three months ended March 31, 2017, and currently do not hold, derivatives for trading or speculative purposes.

Item 4.
Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2017.
Our management, including our Principal Executive Officer and Principal Financial Officer, has evaluated our internal control over financial reporting to determine whether any change occurred during the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the three months ended March 31, 2017.

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PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
On April 3, 2017, Pardee Homes was named as a defendant in a lawsuit filed in San Diego County Superior Court by Scripps Health (“Scripps”) related to the April 1989 sale by Pardee Homes of real property located in Carmel Valley, California to Scripps pursuant to a purchase agreement dated December 18, 1987 (as amended, the “Purchase Agreement”). In March 2003, Scripps contacted Pardee Homes and alleged Pardee Homes had breached a covenant in the Purchase Agreement by failing to record a restriction against the development of the surrounding property then owned by Pardee Homes for medical office use. In November 2003, the parties entered into a tolling agreement, pursuant to which the parties agreed to toll any applicable statutes of limitation from November 3, 2003 until the expiration of the agreement. The tolling agreement did not revive any cause of action already time barred by a statute of limitation as of November 3, 2003. The tolling agreement was terminated as of February 21, 2017. Pardee Homes became an indirect, wholly owned subsidiary of TRI Pointe on July 7, 2014 in connection with TRI Pointe’s acquisition of WRECO.
We intend to vigorously defend the action, and intend to continue challenging Scripps' claims. Although we cannot predict or determine the timing or final outcome of the lawsuit or the effect that any adverse findings or determinations may have on us, we believe Scripps has no actionable claims against Pardee Homes and that this dispute will not have a material impact on our business, liquidity, financial condition and results of operations. An unfavorable determination could result in the payment by us of monetary damages, which could be significant. The complaint does not indicate the amount of relief sought, and an estimate of possible loss or range of loss cannot presently be made with respect to this matter. No reserve with respect to this matter has been recorded on our consolidated financial statements.

Item 1A.
Risk Factors
See Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016.  If any of the risks discussed in our Annual Report on Form 10-K or Quarterly Reports on Form 10-Q occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline significantly and you could lose all or a part of your investment.  

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On January 27, 2016 we announced that our board of directors approved the 2016 Repurchase Program. Purchases of common stock pursuant to the 2016 Repurchase Program were made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. The 2016 Repurchase Program expired on January 25, 2017 and no shares of common stock were repurchased under the 2016 Repurchase Program in the month of January, 2017.
On February 28, 2017, we announced that our board of directors approved the 2017 Repurchase Program.  Purchases of common stock pursuant to the 2017 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the 2017 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements.
During the three months ended March 31, 2017, we repurchased the following shares pursuant to our repurchase programs:

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Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced program
 
Approximate dollar value of shares that may yet be purchased under the program (1)
January 1, 2017 to January 31, 2017(2)
 
—

 
$
—

 
—

 
$
57,918,332

February 1, 2017 to February 28, 2017(3)
 
—

 
$
—

 
—

 
$
100,000,000

March 1, 2017 to March 31, 2017
 
39,387

 
$
12.49

 
39,387

 
$
99,507,882

Total
 
39,387

 
$
12.49

 
39,387

 
 
__________
(1)     During the three months ended March 31, 2017, there was an aggregate of 39,387 shares of common stock repurchased for $492,118.
(2)    The 2016 Repurchase Program expired on January 25, 2017 and no shares of common stock were repurchased under the 2016 Repurchase Program in the month of January 2017.
(3)    The 2017 Repurchase Program, announced on February 28, 2017, authorizes the repurchase of shares of common stock with an aggregate value of up to $100 million through March 31, 2018.


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Item 6.
Exhibits 
Exhibit
Number
 
Exhibit Description
 
 
 
 
Amended and Restated Certificate of Incorporation of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))
 
 
 
 
Amended and Restated Bylaws of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed October 27, 2016))
 
 
 
 
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))
 
 
 
 
Form of Performance-Based Cash Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (filed February 28, 2017))
 
 
 
 
Form of Performance-Based Restricted Stock Unit Award Agreement (total shareholder return) (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K (filed February 28, 2017))
 
 
 
 
Form of Performance-Based Restricted Stock Unit Award Agreement (earnings per share) (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K (filed February 28, 2017))
 
 
 
 
Form of Time-Vested Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K (filed February 28, 2017))
 
 
 
 
Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
 
Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
 
Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
 
Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
101
 
The following materials from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the three months ended March 31, 2017, 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.
*Management Contract or Compensatory Plan or Arrangement

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
TRI Pointe Group, Inc.
 
 
 
 
By:
/s/ Douglas F. Bauer
 
 
Douglas F. Bauer
 
 
Chief Executive Officer
 
By:
/s/ Michael D. Grubbs
 
 
Michael D. Grubbs
Date: April 26, 2017
 
Chief Financial Officer

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