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Tri Pointe Homes (TPH)

Filed: 22 Oct 20, 4:15pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________ 
FORM 10-Q
_____________________________________________________________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
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
_____________________________________________________________________________________________ 

tph-20200930_g1.jpg 
TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 _____________________________________________________________________________________________ 
Delaware 61-1763235
(State or other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
_____________________________________________________________________________________________ 
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 438-1400
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________________________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareTPHNew York Stock Exchange
    Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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  
126,825,194 shares of the registrant's common stock were issued and outstanding as of October 12, 2020.



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





TRI POINTE GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
September 30, 2020
 

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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
September 30, 2020December 31, 2019
(unaudited)
Assets
Cash and cash equivalents$493,585 $329,011 
Receivables73,419 69,276 
Real estate inventories2,989,377 3,065,436 
Investments in unconsolidated entities36,880 11,745 
Goodwill and other intangible assets, net159,492 159,893 
Deferred tax assets, net30,752 49,904 
Other assets174,060 173,425 
Total assets$3,957,565 $3,858,690 
Liabilities  
Accounts payable$94,064 $66,120 
Accrued expenses and other liabilities332,147 322,043 
Loans payable250,000 250,000 
Senior notes, net1,083,254 1,033,985 
Total liabilities1,759,465 1,672,148 
Commitments and contingencies (Note 13)
Equity
Stockholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized; 0
   shares issued and outstanding as of September 30, 2020 and
   December 31, 2019, respectively
Common stock, $0.01 par value, 500,000,000 shares authorized;
   126,825,194 and 136,149,633 shares issued and outstanding at
   September 30, 2020 and December 31, 2019, respectively
1,268 1,361 
Additional paid-in capital425,753 581,195 
Retained earnings1,771,067 1,603,974 
Total stockholders’ equity2,198,088 2,186,530 
Noncontrolling interests12 12 
Total equity2,198,100 2,186,542 
Total liabilities and equity$3,957,565 $3,858,690 
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Homebuilding:
Home sales revenue$826,036 $746,269 $2,187,816 $1,931,110 
Land and lot sales revenue3,242 607 3,462 6,819 
Other operations revenue634 618 1,900 1,853 
Total revenues829,912 747,494 2,193,178 1,939,782 
Cost of home sales643,456 577,627 1,717,772 1,573,847 
Cost of land and lot sales3,214 495 3,790 7,552 
Other operations expense624 609 1,872 1,826 
Sales and marketing44,714 47,834 132,545 133,888 
General and administrative36,323 38,751 113,714 114,202 
Restructuring charges54 5,603 
Homebuilding income from operations101,527 82,178 217,882 108,467 
Equity in loss of unconsolidated entities106 18 67 (33)
Other (expense) income, net(3,120)325 (9,075)6,719 
Homebuilding income before income taxes98,513 82,521 208,874 115,153 
Financial Services:
Revenues2,552 901 6,442 1,959 
Expenses1,334 817 3,698 1,765 
Equity in income of unconsolidated entities3,273 2,114 7,761 4,861 
Financial services income before income taxes4,491 2,198 10,505 5,055 
Income before income taxes103,004 84,719 219,379 120,208 
Provision for income taxes(24,322)(21,858)(52,286)(31,014)
Net income$78,682 $62,861 $167,093 $89,194 
Earnings per share  
Basic$0.61 $0.45 $1.27 $0.63 
Diluted$0.61 $0.44 $1.27 $0.63 
Weighted average shares outstanding
Basic128,941,901 141,088,381 131,190,301 141,729,759 
Diluted129,515,114 141,533,546 131,672,652 142,128,786 
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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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 June 30, 2020130,325,865 $1,303 $482,111 $1,692,385 $2,175,799 $12 $2,175,811 
Net income— — — 78,682 78,682 — 78,682 
Shares issued under share-based awards162,067 2,190 — 2,191 — 2,191 
Stock-based compensation expense— — 3,477 — 3,477 — 3,477 
Share repurchases(3,662,738)(36)(62,025)— (62,061)— (62,061)
Balance at September 30, 2020126,825,194 $1,268 $425,753 $1,771,067 $2,198,088 $12 $2,198,100 
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, 2019136,149,633 $1,361 $581,195 $1,603,974 $2,186,530 $12 $2,186,542 
Net income— — — 167,093 167,093 — 167,093 
Shares issued under share-based awards896,622 3,103 — 3,112 — 3,112 
Minimum tax withholding paid on behalf of employees for restricted stock units— — (5,473)— (5,473)— (5,473)
Stock-based compensation expense— — 10,888 — 10,888 — 10,888 
Share repurchases(10,221,061)(102)(163,960)— (164,062)— (164,062)
Balance at September 30, 2020126,825,194 $1,268 $425,753 $1,771,067 $2,198,088 $12 $2,198,100 
Number of
Shares of Common
Stock (Note 1)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
Balance at June 30, 2019142,258,663 $1,423 $662,087 $1,423,120 $2,086,630 $13 $2,086,643 
Net income— — — 62,861 62,861 — 62,861 
Shares issued under share-based awards14,454 — 101 — 101 — 101 
Stock-based compensation expense— — 3,828 — 3,828 — 3,828 
Share repurchases(3,035,420)(31)(41,704)— (41,735)— (41,735)
Balance at September 30, 2019139,237,697 $1,392 $624,312 $1,485,981 $2,111,685 $13 $2,111,698 
Number of
Shares of Common
Stock (Note 1)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
Balance at December 31, 2018141,661,713 $1,417 $658,720 $1,396,787 $2,056,924 $13 $2,056,937 
Net income— — — 89,194 89,194 — 89,194 
Shares issued under share-based awards611,404 294 — 300 — 300 
Minimum tax withholding paid on behalf of employees for restricted stock units— — (3,612)— (3,612)— (3,612)
Stock-based compensation expense— 10,614 10,614 10,614 
Share repurchases(3,035,420)(31)(41,704)— (41,735)— (41,735)
Balance at September 30, 2019139,237,697 $1,392 $624,312 $1,485,981 $2,111,685 $13 $2,111,698 

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)
 
 Nine Months Ended September 30,
 20202019
Cash flows from operating activities:  
Net income$167,093 $89,194 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization19,196 18,357 
Equity in income of unconsolidated entities, net(7,828)(4,828)
Deferred income taxes, net19,152 10,493 
Amortization of stock-based compensation10,888 10,614 
Charges for impairments and lot option abandonments2,044 6,519 
Changes in assets and liabilities:  
Real estate inventories78,025 (142,599)
Receivables(4,134)(18,915)
Other assets(6,191)(9,086)
Accounts payable27,944 (34)
Accrued expenses and other liabilities12,667 (60,239)
Returns on investments in unconsolidated entities, net9,035 6,215 
Loss on extinguishment of debt10,243 
Net cash provided by (used in) operating activities338,134 (94,309)
Cash flows from investing activities:
Purchases of property and equipment(16,782)(22,392)
Proceeds from sale of property and equipment26 46 
Investments in unconsolidated entities(26,822)(712)
Net cash used in investing activities(43,578)(23,058)
Cash flows from financing activities:
Borrowings from debt850,000 400,000 
Repayment of debt(808,791)(381,895)
Debt issuance costs(4,768)(3,125)
Proceeds from issuance of common stock under share-based awards3,112 300 
Minimum tax withholding paid on behalf of employees for share-based awards(5,473)(3,612)
Share repurchases(164,062)(41,735)
Net cash used in financing activities(129,982)(30,067)
Net increase (decrease) in cash and cash equivalents164,574 (147,434)
Cash and cash equivalents–beginning of period329,011 277,696 
Cash and cash equivalents–end of period$493,585 $130,262 
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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

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

Organization
TRI Pointe is engaged in the design, construction and sale of innovative single-family attached and detached homes through its portfolio of 6 quality brands across 10 states, including Maracay in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California, Colorado and the Carolinas 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, 2019. In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 due to seasonal variations and other factors, such as the effects of the novel coronavirus (“COVID-19”) and its potential impacts on our future results.
The consolidated financial statements include the accounts of TRI Pointe Group and its wholly owned subsidiaries, as well as other entities in which TRI Pointe Group has a controlling interest and variable interest entities (“VIEs”) in which TRI Pointe Group is the primary beneficiary.  The noncontrolling interests as of September 30, 2020 and December 31, 2019 represent the outside owners’ interests in the Company’s consolidated entities.  All significant intercompany accounts have been eliminated upon consolidation.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, we apply the following steps to determine the timing and amount of revenue to recognize: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.
Home sales revenue
We generate the majority of our total revenues from home sales, which consists of our core business operation of building and delivering completed homes to homebuyers. Home sales revenue and related profit is generally recognized when title to and possession of the home is transferred to the homebuyer at the home closing date. Our performance obligation to deliver the agreed-upon home is generally satisfied in less than one year from the original contract date. Included in home sales revenue are forfeited deposits, which occur when homebuyers cancel home purchase contracts that include a nonrefundable deposit. Both revenue from forfeited deposits and deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers are immaterial.
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Land and lot sales revenue
Historically, we have generated land and lot sales revenue from a small number of transactions, although in some years we have realized a significant amount of revenue and gross margin. We do not expect our future land and lot sales revenue to be material, but we still consider these sales to be an ordinary part of our business, thus meeting the definition of contracts with customers. Similar to our home sales, revenue from land and lot sales is typically fully recognized when the land and lot sales transactions are consummated, at which time no further performance obligations are left to be satisfied. Some of our historical land and lot sales have included future profit participation rights. We will recognize future land and lot sales revenue in the periods in which all closing conditions are met, subject to the constraint on variable consideration related to profit participation rights, if such rights exist in the sales contract.
Other operations revenue
The majority of our homebuilding other operations revenue relates to a ground lease at our Quadrant Homes reporting segment. We are responsible for making lease payments to the landowner, and we collect sublease payments from the buyers of the buildings. This ground lease is accounted for in accordance with ASC Topic 842, Leases. We do not recognize a material profit on this ground lease.
Financial services revenues
TRI Pointe Solutions is a reportable segment and is comprised of our TRI Pointe Connect mortgage financing operations, TRI Pointe Assurance title and escrow services operations, and TRI Pointe Advantage property and casualty insurance agency operations.
Mortgage financing operations
TRI Pointe Connect was formed as a joint venture with an established mortgage lender and is accounted for under the equity method of accounting.  We record a percentage of income earned by TRI Pointe Connect based on our ownership percentage in this joint venture. TRI Pointe Connect activity appears as equity in income of unconsolidated entities under the Financial Services section of our consolidated statements of operations.
Title and escrow services operations
TRI Pointe Assurance provides title examinations for our homebuyers in Austin (Texas), Colorado and Maryland and both title examinations and escrow services for our homebuyers in Arizona, Nevada, Texas and Virginia.  TRI Pointe Assurance is a wholly owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company. Revenue from our title and escrow services operations is fully recognized at the time of the consummation of the home sales transaction, at which time no further performance obligations are left to be satisfied. TRI Pointe Assurance revenue is included in the Financial Services section of our consolidated statements of operations.
Property and casualty insurance agency operations
TRI Pointe Advantage is a wholly owned subsidiary of TRI Pointe and provides property and casualty insurance agency services that help facilitate the closing process in all of the markets in which we operate. The total consideration for these services, including renewal options, is estimated upon the issuance of the initial insurance policy, subject to constraint. TRI Pointe Advantage revenue is included in the Financial Services section of our consolidated statements of operations.
Restructuring Charges
In May 2020, due to the existing and anticipated future impact of the COVID-19 pandemic on our business, we implemented a workforce reduction plan. As a result of the workforce reduction plan, we incurred $54,000 and $5.6 million of pre-tax restructuring charges consisting of severance and related costs for the three and nine months ended September 30, 2020, respectively.
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning after December 15, 2020. We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements.
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Adoption of New Accounting Standards
In January 2017, the FASB issued ASU No. 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. We adopted ASU 2017-04 on January 1, 2020 and our adoption did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses for financial instruments, including receivables from community facilities districts or similar municipalities. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. We adopted ASU 2016-13 on January 1, 2020 and our adoption did not have a material impact on our consolidated financial statements.


2.    Segment Information
We operate 2 principal businesses: homebuilding and financial services.
Our homebuilding operations consist of 6 homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon these factors, our homebuilding operations are comprised of the following 6 reportable segments: Maracay, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California and Colorado, as well as early stage operations in the Carolinas; and Winchester Homes, consisting of operations in Maryland and Virginia.
Our TRI Pointe Solutions financial services operation is a reportable segment and is comprised of our TRI Pointe Connect mortgage financing operations, our TRI Pointe Assurance title and escrow services operations, and our TRI Pointe Advantage property and casualty insurance agency operations. For further details, see Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies.
Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance, internal audit and risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.
The reportable segments follow the same accounting policies used for our consolidated financial statements, as described in Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

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Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenues  
Maracay$95,109 $70,860 $253,535 $166,074 
Pardee Homes253,199 321,922 673,883 651,484 
Quadrant Homes72,951 49,875 154,323 164,812 
Trendmaker Homes106,955 103,428 324,332 296,212 
TRI Pointe Homes202,648 154,737 567,792 519,280 
Winchester Homes99,050 46,672 219,313 141,920 
Total homebuilding revenues829,912 747,494 2,193,178 1,939,782 
Financial services2,552 901 6,442 1,959 
Total$832,464 $748,395 $2,199,620 $1,941,741 
Income (loss) before income taxes
Maracay$11,535 $6,179 $24,139 $10,355 
Pardee Homes54,784 73,790 137,243 87,734 
Quadrant Homes8,477 1,600 13,420 4,154 
Trendmaker Homes10,055 5,578 25,364 10,888 
TRI Pointe Homes20,682 7,245 40,783 29,734 
Winchester Homes8,811 (71)14,527 1,718 
Corporate(15,831)(11,800)(46,602)(29,430)
Total homebuilding income before income taxes98,513 82,521 208,874 115,153 
Financial services4,491 2,198 10,505 5,055 
Total$103,004 $84,719 $219,379 $120,208 
 
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Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
September 30, 2020December 31, 2019
Real estate inventories
Maracay$356,763 $338,259 
Pardee Homes1,166,332 1,218,384 
Quadrant Homes255,773 264,437 
Trendmaker Homes250,605 268,759 
TRI Pointe Homes753,948 737,662 
Winchester Homes205,956 237,935 
Total$2,989,377 $3,065,436 
Total assets
Maracay$372,977 $382,262 
Pardee Homes1,237,628 1,300,047 
Quadrant Homes300,923 331,187 
Trendmaker Homes292,510 353,610 
TRI Pointe Homes937,887 930,348 
Winchester Homes256,266 291,456 
Corporate522,298 241,357 
Total homebuilding assets3,920,489 3,830,267 
Financial services37,076 28,423 
Total$3,957,565 $3,858,690 


3.    Earnings Per Share
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Numerator:    
Net income$78,682 $62,861 $167,093 $89,194 
Denominator:    
Basic weighted-average shares outstanding128,941,901 141,088,381 131,190,301 141,729,759 
Effect of dilutive shares:   
Stock options and unvested restricted stock units573,213 445,165 482,351 399,027 
Diluted weighted-average shares outstanding129,515,114 141,533,546 131,672,652 142,128,786 
Earnings per share    
Basic$0.61 $0.45 $1.27 $0.63 
Diluted$0.61 $0.44 $1.27 $0.63 
Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share1,666,469 2,459,868 2,550,475 2,916,252 
  
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4.    Receivables
Receivables consisted of the following (in thousands):
September 30, 2020December 31, 2019
Escrow proceeds and other accounts receivable, net$34,597 $29,282 
Warranty insurance receivable (Note 13)38,822 39,994 
Total receivables$73,419 $69,276 

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 $367,000 and $426,000 as of September 30, 2020 and December 31, 2019, respectively.
 

5.    Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
September 30, 2020December 31, 2019
Real estate inventories owned:
Homes completed or under construction$1,069,640 $951,974 
Land under development1,401,858 1,641,354 
Land held for future development152,633 122,847 
Model homes274,539 275,204 
Total real estate inventories owned2,898,670 2,991,379 
Real estate inventories not owned:
Land purchase and land option deposits90,707 74,057 
Total real estate inventories not owned90,707 74,057 
Total real estate inventories$2,989,377 $3,065,436 
 
Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future. The increase in land held for future development is attributable to two projects located in the Inland Empire in California at our Pardee Homes reporting segment that were transferred from land under development.
Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements, as well as consolidated inventory held by variable interest entities. For further details, see Note 7, Variable Interest Entities.
Interest incurred, capitalized and expensed were as follows (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Interest incurred$20,063 $22,405 $62,670 $67,740 
Interest capitalized(20,063)(22,405)(62,670)(67,740)
Interest expensed$$$$
Capitalized interest in beginning inventory$196,335 $197,295 $192,356 $184,400 
Interest capitalized as a cost of inventory20,063 22,405 62,670 67,740 
Interest previously capitalized as a cost of
inventory, included in cost of sales
(23,538)(19,234)(62,166)(51,674)
Capitalized interest in ending inventory$192,860 $200,466 $192,860 $200,466 
 
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Interest is capitalized to real estate inventory during development and other qualifying activities. During all periods presented, we capitalized all interest incurred to real estate inventory in accordance with ASC Topic 835, Interest, as our qualified assets exceeded our debt. Interest that is capitalized to real estate inventory is included in cost of home sales or cost of land and lot sales as related units or lots are delivered.  Interest that is expensed as incurred is included in other (expense) income, net.
Real Estate Inventory Impairments and Land Option Abandonments
Real estate inventory impairments and land and lot option abandonments and pre-acquisition charges consisted of the following (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Real estate inventory impairments$$$$
Land and lot option abandonments and pre-acquisition charges315 1,029 2,044 6,519 
Total$315 $1,029 $2,044 $6,519 
 
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.
In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time. 
Real estate inventory impairments and land option abandonments are recorded in cost of home sales and cost of land and lot sales on the consolidated statements of operations.
  

6.    Investments in Unconsolidated Entities
As of September 30, 2020, we held equity investments in 6 active homebuilding partnerships or limited liability companies and 1 financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 7% to 65%, depending on the investment, with no controlling interest held in any of these investments.
Unconsolidated Financial Information
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investments in unconsolidated entities or on our consolidated statements of operations as equity in income of unconsolidated entities.
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Assets and liabilities of unconsolidated entities (in thousands):
 
September 30, 2020December 31, 2019
Assets
Cash$10,171 $8,537 
Receivables2,785 7,393 
Real estate inventories200,357 116,760 
Other assets556 703 
Total assets$213,869 $133,393 
Liabilities and equity
Accounts payable and other liabilities$40,518 $11,009 
Company’s equity36,880 11,745 
Outside interests’ equity136,471 110,639 
Total liabilities and equity$213,869 $133,393 
 
Results of operations from unconsolidated entities (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net sales$8,993 $8,617 $23,689 $19,081 
Other operating expense(4,166)(5,466)(12,322)(11,746)
Other income, net173 (4)174 
Net income$4,827 $3,324 $11,363 $7,509 
Company’s equity in income of unconsolidated entities$3,379 $2,132 $7,828 $4,828 
  

7.    Variable Interest Entities
In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. These deposits are recorded as land purchase and land option deposits under real estate inventories not owned on the accompanying consolidated balance sheets.
We analyze each of our land and lot option agreements and other similar contracts under the provisions of ASC 810, Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is generally limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the landowner and budget shortfalls and savings will be borne by us. Additionally, we have entered into land banking arrangements which require us to complete development work even if we terminate the option to procure land or lots.
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The following provides a summary of our interests in land and lot option agreements (in thousands):
 September 30, 2020December 31, 2019
DepositsRemaining
Purchase
Price
Consolidated
Inventory
Held by VIEs
DepositsRemaining
Purchase
Price
Consolidated
Inventory
Held by VIEs
Consolidated VIEs$$$$$$
Unconsolidated VIEs49,021 492,628 N/A42,896 440,974 N/A
Other land option agreements41,686 409,218 N/A31,161 358,345 N/A
Total$90,707 $901,846 $$74,057 $799,319 $
 
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land and lot option contracts consisted of capitalized pre-acquisition costs of $7.7 million and $6.0 million as of September 30, 2020 and December 31, 2019, respectively. These pre-acquisition costs are included in real estate inventories as land under development on our consolidated balance sheets.  
  

8.    Goodwill and Other Intangible Assets
As of September 30, 2020 and December 31, 2019, $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 2 intangible assets as of September 30, 2020, comprised of an existing trade name from the acquisition of Maracay in 2006, which has a 20 year useful life, and a TRI Pointe Homes trade name resulting from the acquisition of Weyerhaeuser Real Estate Company in 2014, which has an indefinite useful life.
Goodwill and other intangible assets consisted of the following (in thousands):
September 30, 2020December 31, 2019
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 names27,979 (7,791)20,188 27,979 (7,390)20,589 
Total$167,283 $(7,791)$159,492 $167,283 $(7,390)$159,893 
 
The net carrying amount of our amortizing intangible asset related to the Maracay trade name was $2.9 million and $3.3 million as of September 30, 2020 and December 31, 2019, respectively. Amortization expense related to this intangible asset was $134,000 for each of the three-month periods ended September 30, 2020 and 2019, respectively, and $401,000 for each of the nine-month periods ended September 30, 2020 and 2019, respectively. Amortization of this intangible was charged to sales and marketing expense. The remaining useful life of the Maracay trade name was 6.2 years as of December 31, 2019.

On October 22, 2020 the Company announced that it would consolidate our homebuilding brands into one unified name, TRI Pointe Homes. As such, we expect the remaining balance of $2.9 million related to the Maracay trade name to be amortized ratably over the next nine months, as our existing communities transition to the unified name by June 30, 2021. Expected amortization related to the Maracay trade name for the three months ending December 31, 2020 is $963,000. Expected amortization related to this intangible asset for the six months ending June 30, 2021 is $1.9 million.

Our $17.3 million indefinite life intangible asset related to the TRI Pointe Homes trade name is not amortizing.  All trade names and goodwill are evaluated for impairment on an annual basis or more frequently if indicators of impairment exist.



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9.    Other Assets
Other assets consisted of the following (in thousands):
September 30, 2020December 31, 2019
Prepaid expenses$19,225 $24,070 
Refundable fees and other deposits30,121 30,242 
Development rights, held for future use or sale1,702 2,213 
Deferred loan costs—loans payable3,391 4,345 
Operating properties and equipment, net55,809 57,803 
Lease right-of-use assets48,384 50,947 
Income tax receivable12,193 
Other3,235 3,805 
Total$174,060 $173,425 


10.    Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
September 30, 2020December 31, 2019
Accrued payroll and related costs$30,477 $42,798 
Warranty reserves (Note 13)
81,867 76,607 
Estimated cost for completion of real estate inventories78,739 90,899 
Customer deposits38,802 20,390 
Income tax liability to Weyerhaeuser346 346 
Accrued income taxes payable5,458 1,530 
Liability for uncertain tax positions (Note 15)486 486 
Accrued interest20,248 11,952 
Other tax liability8,479 8,448 
Lease liabilities53,045 56,125 
Other14,200 12,462 
Total$332,147 $322,043 


11.    Senior Notes and Loans Payable
Senior Notes
The Company’s outstanding senior notes (together, the “Senior Notes”) consisted of the following (in thousands):
September 30, 2020December 31, 2019
4.875% Senior Notes due July 1, 2021$$300,000 
5.875% Senior Notes due June 15, 2024450,000 450,000 
5.250% Senior Notes due June 1, 2027300,000 300,000 
5.700% Senior Notes due June 15, 2028350,000 
Discount and deferred loan costs(16,746)(16,015)
Total$1,083,254 $1,033,985 
 
In June 2020, TRI Pointe Group issued $350 million aggregate principal amount of 5.700% Senior Notes due 2028 (the “2028 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $345.2 million, after debt issuance costs and discounts. The 2028 Notes mature on June 15, 2028 and interest is paid semiannually in arrears on June 15 and December 15.
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In June 2017, TRI Pointe Group issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1.
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million, after debt issuance costs and discounts. The 2021 Notes were scheduled to mature on July 1, 2021 and interest was paid semiannually in arrears on January 1 and July 1. On June 3, 2020, the Company commenced a cash tender offer for any and all of the outstanding 2021 Notes at a price of $1,025 per $1,000 principal amount of 2021 Notes tendered before the expiration of the tender offer. The principal amount of 2021 Notes tendered was $216.3 million, or 72% of the outstanding principal amount, after which $83.7 million principal amount of 2021 Notes remained outstanding as of June 30, 2020. The remaining outstanding principal amount of $83.7 million was fully paid in July 2020 in connection with the redemption of the remaining 2021 Notes.
TRI Pointe Group and its wholly owned subsidiary TRI Pointe Homes, Inc. (“TRI Pointe Homes”) are co-issuers of the $450 million aggregate principal amount 5.875% Senior Notes due 2024 (the “2024 Notes”). The 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering of the 2024 Notes was $429.0 million, after debt issuance costs and discounts. The 2024 Notes mature on June 15, 2024, with interest payable semiannually in arrears on June 15 and December 15.
As of September 30, 2020, there were $13.0 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 $19.1 million and $9.8 million as of September 30, 2020 and December 31, 2019, respectively.
Loans Payable
The Company’s outstanding loans payable consisted of the following (in thousands):
September 30, 2020December 31, 2019
Term loan facility$250,000 $250,000 
Total$250,000 $250,000 

On March 29, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated the Company’s Amended and Restated Credit Agreement, dated as of July 7, 2015. The Credit Facility (as defined below), which matures on March 29, 2023, consists of a $600 million revolving credit facility (the “Revolving Facility”) and a $250 million term loan facility (the “Term Facility” and together with the Revolving Facility, the “Credit Facility”). The Term Facility includes a 90-day delayed draw provision that allowed the Company to draw the full $250 million from the Term Facility in June 2019 in connection with the maturity of the 4.375% Senior Notes that matured on June 15, 2019. The Company may increase the Credit Facility to not more than $1 billion in the aggregate, at its request, upon satisfaction of specified conditions. The Revolving Facility contains a sublimit of $75 million for letters of credit. The Company may borrow under the Revolving Facility in the ordinary course of business to repay senior notes and fund its operations, including its land acquisition, land development and homebuilding activities. Borrowings under the Revolving Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Revolving Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.25% to 2.00%, depending on the Company’s leverage ratio. Interest rates on borrowings under the Term Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio.
As of September 30, 2020, we had 0 outstanding debt under the Revolving Facility and there was $533.2 million of availability after considering the borrowing base provisions and outstanding letters of credit. As of September 30, 2020, we had $250 million outstanding debt under the Term Facility with an interest rate of 1.51%. As of September 30, 2020, there were $3.4 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the remaining term of the Credit Facility.  Accrued interest, including loan commitment fees, related to the Credit Facility was $742,000 and $1.2 million as of September 30, 2020 and December 31, 2019, respectively.
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At September 30, 2020 and December 31, 2019, we had outstanding letters of credit of $66.8 million and $32.6 million, respectively.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.
Interest Incurred
During the three months ended September 30, 2020 and 2019, the Company incurred interest of $20.1 million and $22.4 million, respectively, related to all debt during the period.  Included in interest incurred are amortization of deferred financing and Senior Note discount costs of $1.1 million and $1.2 million for the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, the Company incurred interest of $62.7 million and $67.7 million, respectively, related to all debt during the period.  Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $3.5 million and $5.0 million for the nine months ended September 30, 2020 and 2019, respectively. Accrued interest related to all outstanding debt at September 30, 2020 and December 31, 2019 was $20.2 million and $12.0 million, respectively. 
Covenant Requirements
The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.
Under the Credit Facility, the Company is required to comply with certain financial covenants, including those relating to consolidated tangible net worth, leverage, liquidity or interest coverage, and a spec unit inventory test. The Credit Facility also requires that at least 97.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.
The Company was in compliance with all applicable financial covenants as of September 30, 2020 and December 31, 2019.

12.    Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
Level 1—Quoted prices for identical instruments in active markets
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date
Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date
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Fair Value of Financial Instruments
A summary of assets and liabilities at September 30, 2020 and December 31, 2019, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
September 30, 2020December 31, 2019
HierarchyBook ValueFair ValueBook ValueFair Value
Senior Notes (1)
Level 2$1,096,270 $1,190,750 $1,045,072 $1,104,750 
Term loan facility (2)
Level 2$250,000 $250,000 $250,000 $250,000 
 __________
(1)The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $13.0 million and $11.1 million as of September 30, 2020 and December 31, 2019, respectively. The estimated fair value of the Senior Notes at September 30, 2020 and December 31, 2019 is based on quoted market prices.
(2)The estimated fair value of the Term Loan Facility as of September 30, 2020 approximated book value due to the variable interest rate terms of this loan.

At September 30, 2020 and December 31, 2019, the carrying value of cash and cash equivalents and receivables approximated fair value due to their short-term nature and variable interest rate terms.
Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicating the carrying value is not recoverable. The following table presents impairment charges and the remaining net fair value for nonfinancial assets that were measured during the periods presented (in thousands):
Nine Months Ended September 30, 2020Year Ended December 31, 2019
HierarchyImpairment
Charge
Fair Value
Net of
Impairment
Impairment
Charge
Fair Value
Net of
Impairment
Real estate inventories (1)
Level 3$$$10,078 $9,735 
 __________
(1)     Fair value of real estate inventories, net of impairment charges represents only those assets whose carrying     values were adjusted to fair value in the respective periods presented.
The impairment charges recorded during the year ended December 31, 2019 relate to 4 communities where the carrying value of each community exceeded the fair value based on a discounted cash flow analysis.

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 $1.3 million and $419,000 of legal reserves as of September 30, 2020 and December 31, 2019, respectively.
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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 $38.8 million and $40.0 million as of September 30, 2020 and December 31, 2019, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheets.
Warranty reserve activity consisted of the following (in thousands):
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Warranty reserves, beginning of period$79,190 $71,471 $76,607 $71,836 
Warranty reserves accrued7,025 6,826 19,169 17,481 
Warranty expenditures(4,348)(5,404)(13,909)(16,424)
Warranty reserves, end of period$81,867 $72,893 $81,867 $72,893 
 
Performance Bonds
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. The beneficiaries of the bonds are various municipalities. As of September 30, 2020 and December 31, 2019, the Company had outstanding surety bonds totaling $630.7 million and $611.6 million, respectively. As of September 30, 2020 and December 31, 2019, our estimated cost to complete obligations related to these surety bonds was $423.7 million and $382.3 million, respectively.
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Lease Obligations
Under ASC 842 we recognize a right-of-use lease asset and a lease liability for contracts deemed to contain a lease at the inception of the contract. Our lease population is fully comprised of operating leases, which are now recorded at the net present value of future lease obligations existing at each balance sheet date. At the inception of a lease, or if a lease is subsequently modified, we determine whether the lease is an operating or financing lease. Key estimates involved with ASC 842 include the discount rate used to measure our future lease obligations and the lease term, where considerations include renewal options and intent to renew. Lease right-of-use assets are included in other assets and lease liabilities are included in accrued expenses and other liabilities on our consolidated balance sheet.
Operating Leases
We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms of up to ten years and generally provide renewal options. In most cases, we expect that, in the normal course of business, leases that expire will be renewed or replaced by other leases. Equipment leases are typically for terms of three to four years.
Ground Leases
In 1987, we obtained 2 55-year ground leases of commercial property that provided for 3 renewal options of ten years each and 1 45-year renewal option.  We exercised the 3 ten-year extensions on 1 of these ground leases to extend the lease through 2071.  The commercial buildings on these properties have been sold and the ground leases have been sublet to the buyers.
For one of these leases, we are responsible for making lease payments to the landowner, and we collect sublease payments from the buyers of the buildings. This ground lease has been subleased through 2041 to the buyers of the commercial buildings. For the second lease, the buyers of the buildings are responsible for making lease payments directly to the landowner, however, we have guaranteed the performance of the buyers/lessees. See below for additional information on leases (dollars in thousands):
Three Months Ended September 30, 2020Three Months Ended September 30, 2019Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Lease Cost
Operating lease cost (included in SG&A expense)$2,300 $2,755 $7,094 $6,965 
Ground lease cost (included in other operations expense)624 609 1,872 1,826 
Sublease income, operating leases— 
Sublease income, ground leases (included in other operations revenue)(634)(618)(1,900)(1,853)
Net lease cost$2,290 $2,746 $7,066 $6,938 
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash flows (included in operating cash flows)$2,109 $1,556 $6,343 $4,806 
Ground lease cash flows (included in operating cash flows)$624 $609 $1,872 $1,826 
Right-of-use assets obtained in exchange for new operating lease liabilities$290 $311 $1,445 $2,364 
September 30, 2020December 31, 2019
Weighted-average discount rate:
Operating leases5.8 %5.9 %
Ground leases10.2 %10.2 %
Weighted-average remaining lease term (in years):
Operating leases5.76.1
Ground leases47.548.1
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The future minimum lease payments under our operating leases are as follows (in thousands):
Property, Equipment and Other Leases
Ground Leases (1)
Remaining in 2020$2,219 $767 
20218,412 3,070 
20225,607 3,070 
20234,503 3,070 
20242,779 3,070 
Thereafter6,410 83,516 
Total lease payments$29,930 $96,563 
Less: Interest4,366 69,083 
Present value of operating lease liabilities$25,564 $27,480 
 __________
(1)     Ground leases are fully subleased through 2041, representing $64.7 million of the $96.6 million future ground lease obligations.
14.    Stock-Based Compensation
2013 Long-Term Incentive Plan
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by TRI Pointe in January 2013 and amended, with the approval of our stockholders, in 2014 and 2015. In addition, our board of directors amended the 2013 Incentive Plan in 2014 to prohibit repricing (other than in connection with any equity restructuring or any change in capitalization) of outstanding options or stock appreciation rights without stockholder approval. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, bonus stock, restricted stock, restricted stock units (“RSUs”) and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.
As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under the 2013 Incentive Plan. As of September 30, 2020, there were 5,501,078 shares available for future grant under the 2013 Incentive Plan.
The following table presents compensation expense recognized related to all stock-based awards (in thousands):
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Total stock-based compensation$3,477 $3,828 $10,888 $10,614 
 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of September 30, 2020, total unrecognized stock-based compensation related to all stock-based awards was $22.3 million and the weighted average term over which the expense was expected to be recognized was 1.9 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the nine months ended September 30, 2020:
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OptionsWeighted
Average
Exercise
Price
Per Share
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2019891,343 $15.03 3.4$994 
Granted— — 
Exercised(240,573)$13.00 — — 
Forfeited(8,257)$14.37 — — 
Options outstanding at September 30, 2020642,513 $15.80 2.7$1,084 
Options exercisable at September 30, 2020642,513 $15.80 2.7$1,084 
 
The intrinsic value of each stock option award outstanding or exercisable is the difference between the fair market value of the Company’s common stock at the end of the period and the exercise price of each stock option award to the extent it is considered “in-the-money”. A stock option award is considered to be “in-the-money” if the fair market value of the Company’s stock is greater than the exercise price of the stock option award. The aggregate intrinsic value of options outstanding and options exercisable represents the value that would have been received by the holders of stock option awards had they exercised their stock option award on the last trading day of the period and sold the underlying shares at the closing price on that day.

Summary of Restricted Stock Unit Activity
The following table presents a summary of RSUs for the nine months ended September 30, 2020:
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 20193,384,351 $12.39 $52,694 
Granted1,464,261 $18.45 
Vested(990,929)$13.36 — 
Forfeited(783,521)$11.09 — 
Nonvested RSUs at September 30, 20203,074,162 $15.29 $53,706 

RSUs that vested, as reflected in the table above, during the nine months ended September 30, 2020 include previously granted time-based RSUs. RSUs that were forfeited, as reflected in the table above, during the nine months ended September 30, 2020 include performance-based RSUs and time-based RSUs that were forfeited for no consideration.

On July 28, 2020, the Company granted an aggregate of 5,632 time-based RSUs to certain employees. The RSUs granted vest in equal installment annually beginning on February 20, 2021 over a three-year period. The fair value of each RSU granted on July 28, 2020 was measured using a price of $16.79 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 April 27, 2020, the Company granted an aggregate of 47,080 time-based RSUs to the non-employee members of its board of directors. The RSUs granted to non-employee directors vest in their entirety on the day immediately prior to the Company’s 2021 annual meeting of stockholders. The fair value of each RSU granted on April 27, 2020 was measured using a price of $10.62 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

On March 9, 2020 and February 20, 2020, the Company granted an aggregate of 17,692 and 639,395, respectively, time-based RSUs to certain employees and officers. The RSUs granted vest in equal installment annually on the anniversary of the grant date over a three-year period. The fair value of each RSU granted on March 9, 2020 and February 20, 2020 was measured using a price of $14.13 and $18.39 per share, respectively, which were the closing stock prices on the dates of grant. Each award will be expensed on a straight-line basis over the vesting period.

On February 20, 2020, the Company granted an aggregate of 547,166 performance-based RSUs to the Company’s Chief Executive Officer, Chief Operating Officer and President, Chief Financial Officer, General Counsel, Chief Marketing Officer and Chief Human Resources Officer. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) 50% to homebuilding revenue, and (ii) 50% to pre-tax earnings. The vesting, if at all, of these performance-based
- 23 -


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. Any award earned based on performance achieved may be increased or decreased by 25% based on the Company’s total stockholder return (“TSR'”) relative to its peer-group homebuilders. The performance period for these performance-based RSUs is January 1, 2020 to December 31, 2022. The fair value of these performance-based RSUs was determined to be $19.36 per share based on a Monte Carlo simulation. Each award will be expensed over the requisite service period.

On February 20, 2020, the Company granted an aggregate of 207,300 performance-based RSUs to the Company’s division presidents. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) 50% to homebuilding revenue of the applicable Company division, and (ii) 50% to pre-tax earnings of the applicable Company division. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the applicable Company division’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2020 to December 31, 2022. The fair value of these performance-based RSUs was measured using a price of $18.39, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.

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

On February 28, 2019, the Company granted 247,619, 238,095 and 114,285 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) 30% to TSR, with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (ii) 70% to earnings per share. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2019 to December 31, 2021. The fair value of the performance-based RSUs related to the TSR metric was determined to be $8.16 per share based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $12.60 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.
As RSUs vest for employees, a portion of the shares awarded is generally withheld to cover employee tax withholdings. As a result, the number of RSUs vested and the number of shares of TRI Pointe common stock issued will differ.

15.    Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered.  Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.
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We had net deferred tax assets of $30.8 million and $49.9 million as of September 30, 2020 and December 31, 2019.  We had a valuation allowance related to those net deferred tax assets of $3.5 million as of September 30, 2020 and December 31, 2019.  The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company’s future operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company’s estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company’s deferred tax assets.
TRI Pointe has certain liabilities to Weyerhaeuser Company (“Weyerhaeuser”) related to a tax sharing agreement.  As of both September 30, 2020 and December 31, 2019, we had an income tax liability to Weyerhaeuser of $346,000. The income tax liability to Weyerhaeuser is recorded in accrued expenses and other liabilities on the accompanying consolidated balance sheets. During the second quarter of 2019 we amended our existing tax sharing agreement with Weyerhaeuser, pursuant to which the parties agreed, among other things, that we had no further obligation to remit payment to Weyerhaeuser in connection with any potential utilization of certain deductions or losses associated with certain Weyerhaeuser entities with respect to federal and state taxes. As a result of the amendment, during the three months ended March 31, 2019, we decreased our income tax liability to Weyerhaeuser and recorded other income of $6.0 million, which is included in other income, net in the accompanying consolidated statements of operations.
Our provision for income taxes totaled $24.3 million and $21.9 million for the three months ended September 30, 2020 and 2019, respectively and $52.3 million and $31.0 million for the nine months ended September 30, 2020 and 2019, respectively. The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense.  The Company had $486,000 of uncertain tax positions recorded as of September 30, 2020 and December 31, 2019.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years. 
  
16.    Related Party Transactions
We had 0 related party transactions for the nine months ended September 30, 2020 and 2019.

17.    Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
Nine Months Ended September 30,
20202019
Supplemental disclosure of cash flow information:
Interest paid (capitalized), net$(11,832)$(11,599)
Income taxes paid (refunded), net$41,400 $23,731 
Supplemental disclosures of noncash activities:
Amortization of senior note discount capitalized to real estate inventory$800 $1,409 
Amortization of deferred loan costs capitalized to real estate inventory$2,737 $4,112 
  
- 25 -


18.    Supplemental Guarantor Information
2021 Notes, 2027 Notes and 2028 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes, on June 5, 2017, TRI Pointe Group issued the 2027 Notes and on June 10, 2020, TRI Pointe Group issued the 2028 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including TRI Pointe Homes, are party to supplemental indentures pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to these Notes. Each Guarantor of the 2021 Notes, the 2027 Notes and the 2028 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, the 2027 Notes and the 2028 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of TRI Pointe Group or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.
A Guarantor of the 2021 Notes, the 2027 Notes and the 2028 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, the 2027 Notes or the 2028 Notes; (vi) TRI Pointe Group exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.
2024 Notes
TRI Pointe Group and TRI Pointe Homes are co-issuers of 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 2024 Notes. Each Guarantor of 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 2024 Notes, as described below.
A Guarantor of 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 2024 Notes; (vi) TRI Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.
Presented below are the condensed consolidating balance sheets at September 30, 2020 and December 31, 2019, condensed consolidating statements of operations for the three and nine months ended September 30, 2020 and 2019 and condensed consolidating statement of cash flows for the nine months ended September 30, 2020 and 2019. 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 2024 Notes, is presented together in the column titled “Issuer”.
- 26 -


Condensed Consolidating Balance Sheet (in thousands):
 
September 30, 2020
IssuerGuarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Assets
Cash and cash equivalents$484,490 $9,095 $$493,585 
Receivables19,054 54,365 73,419 
Intercompany receivables178,690 (178,690)
Real estate inventories753,947 2,235,430 2,989,377 
Investments in unconsolidated entities36,880 36,880 
Goodwill and other intangible assets, net156,604 2,888 159,492 
Investments in subsidiaries2,041,698 (2,041,698)
Deferred tax assets, net9,021 21,731 30,752 
Other assets2,504 171,556 174,060 
Total assets$3,646,008 $2,531,945 $(2,220,388)$3,957,565 
Liabilities
Accounts payable$22,361 $71,703 $$94,064 
Intercompany payables178,690 (178,690)
Accrued expenses and other liabilities92,305 239,842 332,147 
Loans payable250,000 250,000 
Senior notes1,083,254 1,083,254 
Total liabilities1,447,920 490,235 (178,690)1,759,465 
Equity
Total stockholders’ equity2,198,088 2,041,698 (2,041,698)2,198,088 
Noncontrolling interests12 12 
Total equity2,198,088 2,041,710 (2,041,698)2,198,100 
Total liabilities and equity$3,646,008 $2,531,945 $(2,220,388)$3,957,565 


- 27 -


Condensed Consolidating Balance Sheet (in thousands):
 
 December 31, 2019
IssuerGuarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Assets    
Cash and cash equivalents$186,200 $142,811 $$329,011 
Receivables26,016 43,260 69,276 
Intercompany receivables576,846 (576,846)
Real estate inventories737,662 2,327,774 3,065,436 
Investments in unconsolidated entities11,745 11,745 
Goodwill and other intangible assets, net156,604 3,289 159,893 
Investments in subsidiaries1,870,885 (1,870,885)
Deferred tax assets, net9,020 40,884 49,904 
Other assets14,676 158,749 173,425 
Total assets$3,577,909 $2,728,512 $(2,447,731)$3,858,690 
Liabilities    
Accounts payable$14,915 $51,205 $$66,120 
Intercompany payables576,846 (576,846)
Accrued expenses and other liabilities92,479 229,564 322,043 
Loans payable250,000 250,000 
Senior notes1,033,985 1,033,985 
Total liabilities1,391,379 857,615 (576,846)1,672,148 
Equity    
Total stockholders’ equity2,186,530 1,870,885 (1,870,885)2,186,530 
Noncontrolling interests12 12 
Total equity2,186,530 1,870,897 (1,870,885)2,186,542 
Total liabilities and equity$3,577,909 $2,728,512 $(2,447,731)$3,858,690 





- 28 -


Condensed Consolidating Statement of Operations (in thousands):
 
 Three Months Ended September 30, 2020
IssuerGuarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:    
Home sales revenue$202,648 $623,388 $$826,036 
Land and lot sales revenue3,242 3,242 
Other operations revenue634 634 
Total revenues202,648 627,264 829,912 
Cost of home sales164,915 478,541 643,456 
Cost of land and lot sales3,214 3,214 
Other operations expense624 624 
Sales and marketing10,019 34,695 44,714 
General and administrative19,539 16,784 36,323 
Restructuring charges47 54 
Homebuilding income from operations8,168 93,359 101,527 
Equity in gain of unconsolidated entities106 106 
Other (expense) income, net(3,318)198 (3,120)
Homebuilding income before income taxes4,850 93,663 98,513 
Financial Services:    
Revenues2,552 2,552 
Expenses1,334 1,334 
Equity in income of unconsolidated entities3,273 3,273 
Financial services income before income taxes4,491 4,491 
Income before income taxes4,850 98,154 103,004 
Equity of net income (loss) of subsidiaries73,832 (73,832)
Provision for income taxes(24,322)(24,322)
Net income$78,682 $73,832 $(73,832)$78,682 



- 29 -


Condensed Consolidating Statement of Operations (in thousands):
 
 Three Months Ended September 30, 2019
IssuerGuarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:    
Home sales revenue$154,737 $591,532 $$746,269 
Land and lot sales revenue607 607 
Other operations revenue618 618 
Total revenues154,737 592,757 747,494 
Cost of home sales130,248 447,379 577,627 
Cost of land and lot sales495 495 
Other operations expense609 609 
Sales and marketing9,716 38,118 47,834 
General and administrative19,353 19,398 38,751 
Homebuilding (loss) income from operations(4,580)86,758 82,178 
Equity in income of unconsolidated entities18 18 
Other income, net21 304 325 
Homebuilding (loss) income before income taxes(4,559)87,080 82,521 
Financial Services:    
Revenues901 901 
Expenses817 817 
Equity in income of unconsolidated entities2,114 2,114 
Financial services income before income taxes2,198 2,198 
(Loss) income before income taxes(4,559)89,278 84,719 
Equity of net income of subsidiaries67,420 (67,420)
Provision for income taxes(21,858)(21,858)
Net income$62,861 $67,420 $(67,420)$62,861 







- 30 -


Condensed Consolidating Statement of Operations (in thousands):

Nine Months Ended September 30, 2020
Issuer (1)Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
Home sales revenue$567,791 $1,620,025 $$2,187,816 
Land and lot sales revenue3,462 3,462 
Other operations revenue1,900 1,900 
Total revenues567,791 1,625,387 2,193,178 
Cost of home sales472,901 1,244,871 1,717,772 
Cost of land and lot sales3,790 3,790 
Other operations expense1,872 1,872 
Sales and marketing31,121 101,424 132,545 
General and administrative58,757 54,957 113,714 
Restructuring charges1,118 4,485 5,603 
Homebuilding income from operations3,894 213,988 217,882 
Equity in income of unconsolidated entities67 67 
Other (loss) income, net(9,446)371 (9,075)
Homebuilding (loss) income before income taxes(5,552)214,426 208,874 
Financial Services:
Revenues6,442 6,442 
Expenses3,698 3,698 
Equity in income of unconsolidated entities7,761 7,761 
Financial services income before income taxes10,505 10,505 
(Loss) income before income taxes(5,552)224,931 219,379 
Equity of net income (loss) of subsidiaries172,645 (172,645)
Provision for income taxes(52,286)(52,286)
Net income$167,093 $172,645 $(172,645)$167,093 
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Condensed Consolidating Statement of Operations (in thousands):

Nine Months Ended September 30, 2019
Issuer (1)Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
Home sales revenue$519,280 $1,411,830 $$1,931,110 
Land and lot sales revenue6,819 6,819 
Other operations revenue1,853 1,853 
Total revenues519,280 1,420,502 1,939,782 
Cost of home sales438,679 1,135,168 1,573,847 
Cost of land and lot sales7,552 7,552 
Other operations expense1,826 1,826 
Sales and marketing28,976 104,912 133,888 
General and administrative57,223 56,979 114,202 
Homebuilding (loss) income from operations(5,598)114,065 108,467 
Equity in loss of unconsolidated entities(33)(33)
Other income, net6,169 550 6,719 
Homebuilding income before taxes571 114,582 115,153 
Financial Services:
Revenues1,959 1,959 
Expenses1,765 1,765 
Equity in income of unconsolidated entities4,861 4,861 
Financial services income from operations before taxes5,055 5,055 
Income before taxes571 119,637 120,208 
Equity of net income of subsidiaries88,628 (88,628)
Provision for income taxes(5)(31,009)(31,014)
Net income$89,194 $88,628 $(88,628)$89,194 
- 32 -



Condensed Consolidating Statement of Cash Flows (in thousands):
 
 Nine Months Ended September 30, 2020
IssuerGuarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities:    
Net cash provided by operating activities$33,229 $304,905 $$338,134 
Cash flows from investing activities:    
Purchases of property and equipment(6,533)(10,249)(16,782)
Proceeds from sale of property and equipment26 26 
Investments in unconsolidated entities(26,822)(26,822)
Intercompany401,576 (401,576)
Net cash provided by (used in) investing activities395,043 (37,045)(401,576)(43,578)
Cash flows from financing activities:    
Borrowings from debt850,000 850,000 
Repayment of debt(808,791)(808,791)
Debt issuance costs(4,768)(4,768)
Proceeds from issuance of common stock under
   share-based awards
3,112 3,112 
Minimum tax withholding paid on behalf of employees for
   restricted stock units
(5,473)(5,473)
Share repurchases(164,062)(164,062)
Intercompany(401,576)401,576 
Net cash (used in) financing activities(129,982)(401,576)401,576 (129,982)
Net increase (decrease) in cash and cash equivalents298,290 (133,716)164,574 
Cash and cash equivalents–beginning of period186,200 142,811 329,011 
Cash and cash equivalents–end of period$484,490 $9,095 $$493,585 



- 33 -


Condensed Consolidating Statement of Cash Flows (in thousands):
 
 Nine Months Ended September 30, 2019
IssuerGuarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities:    
Net cash provided by (used in) operating activities$5,678 $(99,987)$$(94,309)
Cash flows from investing activities:   
Purchases of property and equipment(7,088)(15,304)(22,392)
Proceeds from sale of property and equipment46 46 
Investments in unconsolidated entities— (712)(712)
Intercompany(81,969)81,969 
Net cash used in investing activities(89,057)(15,970)81,969 (23,058)
Cash flows from financing activities:   
Borrowings from notes payable400,000 400,000 
Repayment of notes payable(381,895)(381,895)
Debt issuance costs(3,125)(3,125)
Proceeds from issuance of common stock under
   share-based awards
300 300 
Minimum tax withholding paid on behalf of employees for restricted stock units(3,612)(3,612)
Share repurchases(41,735)(41,735)
Intercompany81,969 (81,969)
Net cash (used in) provided by financing activities(30,067)81,969 (81,969)(30,067)
Net decrease in cash and cash equivalents(113,446)(33,988)(147,434)
Cash and cash equivalents–beginning of period148,129 129,567 277,696 
Cash and cash equivalents–end of period$34,683 $95,579 $$130,262 




- 34 -


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on our current intentions, beliefs, expectations and predictions for the future, and you should not place undue reliance on these statements. These statements use forward-looking terminology, are based on various assumptions made by us, and may not be accurate because of risks and uncertainties surrounding the assumptions that are made.
Factors listed in this section—as well as other factors not included—may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee what effect it will have on our operations, financial condition, or share price.
We undertake no, and hereby disclaim any, obligation to update or revise any forward-looking statements, unless required by law. However, we reserve the right to make such updates or revisions from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Quarterly Report on Form 10-Q. No such update or revision shall be deemed to indicate that other statements not addressed by such update or revision remain correct or create an obligation to provide any other updates or revisions.
Forward-Looking Statements
Forward-looking statements that are included in this Quarterly Report on Form 10-Q are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “goal,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements may include, but are not limited to, statements regarding our strategy, projections and estimates concerning the timing and success of specific projects and our future production, land and lot sales, the outcome of legal proceedings, the anticipated impact of natural disasters or contagious diseases on our operations, operational and financial results, including our estimates for growth, financial condition, sales prices, prospects and capital spending.
Risks, Uncertainties and Assumptions
The major risks and uncertainties—and assumptions that are made—that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
the effects of the ongoing novel coronavirus (“COVID-19”) pandemic, which are highly uncertain and subject to rapid change, cannot be predicted and will depend upon future developments, including the severity and duration of the outbreak, the duration of existing and future social distancing and shelter-in-place orders, further mitigation strategies taken by applicable government authorities, the availability and efficacy of a vaccine, adequate testing and treatments and the prevalence of widespread immunity to COVID-19;
the effects of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;
market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;
the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such parcels;
access to adequate capital on acceptable terms;
geographic concentration of our operations, particularly within California;
levels of competition;
the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;
raw material and labor prices and availability;
oil and other energy prices;
the effects of U.S. trade policies, including the imposition of tariffs and duties on homebuilding products and retaliatory measures taken by other countries;
the effects of weather, including the re-occurrence of drought conditions in California;  
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the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters;
the risk of loss from acts of war, terrorism, civil unrest or outbreaks of contagious diseases, such as COVID-19;
transportation costs;
federal and state tax policies;
the effects of land use, environment and other governmental laws and regulations;
legal proceedings or disputes and the adequacy of reserves;
risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;
changes in accounting principles;
risks related to unauthorized access to our computer systems, theft of our homebuyers’ confidential information or other forms of cyber-attack; and
other factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in other filings we make with the Securities and Exchange Commission (“SEC”).
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge investors to review and consider carefully the various disclosures made by us in this report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2019 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
Third quarter housing demand was strong as evidenced by the 50% increase in our new home orders and on a 65% increase in monthly absorption rates compared to the prior-year period. Mortgage interest rates have been hovering around historical lows, new and existing home inventory levels remain low and consumer cash savings is up, due in part to a widespread decrease in discretionary spending. This strong housing backdrop has been boosted even further by unforeseen positive effects of various forced stay-at-home restrictions, which we believe has facilitated positive momentum associated with owning a new home, particularly in areas outside of dense urban zones. We believe the foregoing factors have contributed to the current robust demand environment for new homes, and we are cautiously optimistic as we look forward to 2021. Despite this optimism, we continue to assess macroeconomic risks that could negatively impact housing demand, such as uncertainty surrounding the upcoming election results, the failure of the federal government to pass an additional fiscal stimulus package, or the passage of an insufficient one, higher inflation associated with deglobalization and the threat of further restrictions related to COVID-19 as we enter the fall and winter months.
Highlights of the quarter include an increase in homebuilding gross margin percentage to 22.1% and a reduction in selling, general and administrative expense as a percentage of home sales revenue to 9.8%. Our monthly absorption rate for the quarter was 4.8, a record high for any quarter since the Company's inception. These results, along with a slight increase in average sales price of homes delivered to $634,000, helped us achieve net income of $78.7 million, representing a 25% increase compared to the prior-year period. While housing demand remains strong and our homebuilding gross margin percentage increased in the third quarter compared to the prior-year period, rising material costs, particularly with respect to lumber, could negatively impact our future homebuilding gross margins going forward. As of September 30, 2020, our backlog units and dollar value of backlog were at record company highs of 3,188 units and $2.1 billion, respectively, up 38% and 39% from the prior-year period, respectively. In addition, we ended the quarter with total liquidity of $1.0 billion, including cash and cash equivalents of $493.6 million and $533.2 million of availability under our Credit Facility.
Our results for the three months ended September 30, 2020 may not be indicative of trends that will persist, as uncertainty caused by COVID-19 and government responses to the pandemic have impacted, and will continue to impact, our business and operations.


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Impact of COVID-19 and Business Outlook
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic, and on March 13, 2020, the United States issued a proclamation declaring a national emergency concerning COVID-19. As a result of the pandemic, a number of states and local governments issued shelter-in-place orders or guidance for individuals not engaged in essential activities to remain at home other than for essential needs. While our TRI Pointe Homes—Bay Area and Quadrant Homes divisions were prohibited from engaging in residential construction activities in the Bay Area in California and Seattle, Washington, respectively, for several weeks beginning in late March 2020, residential homebuilding operations are currently designated as an essential business activity and remain exempt from the application of “stay-at-home” orders in all of our markets. However, there can be no assurance that our homebuilding operations will continue to remain exempt in all of our markets.
In response to the COVID-19 pandemic and measures taken by applicable governmental authorities, in mid-March 2020, we implemented new operating measures relating to our sales, construction and other operations, including protocols relating to social distancing, enhanced sanitation, monitoring of symptoms related to COVID-19 and other processes. Under these measures, we encouraged employees at our corporate and division offices whose duties could be performed from home to work remotely; our new home galleries and design studios transitioned to virtual appointments or appointment-only with pre-screened individuals, as permitted by law; we instituted social distancing, hygiene and sanitation guidelines in accordance with recommended protocols throughout the organization (including in our new home sales galleries and design studios, and with respect to trade partners and their employees on our jobsites); and we postponed non-essential customer care service and warranty requests. As of the date of this report, as permitted by applicable government orders or guidelines, we have transitioned substantially all of our employees back to our corporate and division offices (in many cases, using staggered or flexible schedules to limit the number of individuals in our offices on a given day), have resumed non-essential customer care service and warranty requests in substantially all of our markets, and are no longer appointment-only in many of our new home galleries. Our field-based team members continue to report to their assigned communities in all jurisdictions where homebuilding has been deemed an essential activity or is otherwise permitted by applicable government authorities. We have also encouraged our employees to use our virtual working and communication platforms in lieu of holding in-person meetings whenever possible.
The COVID-19 outbreak and the measures taken by governmental authorities to delay and contain its spread have resulted in substantial adverse effects on the United States economy and could result in a severe and/or prolonged economic recession. The ongoing impact of COVID-19 on the United States economy and our business and operations is unknown, as the velocity of this economic slowdown and the subsequent job losses are unprecedented. While demand for new homes has rebounded substantially over the last several months, given the dynamic nature of the situation, we cannot estimate the duration and severity of the impact of COVID-19 on the homebuilding industry or whether the current demand environment will persist. To the extent we experience further negative impacts, however, we anticipate that such impacts may include reduced consumer confidence, difficulties in obtaining financing for potential homebuyers, shortages of or increased costs associated with obtaining building materials, increased unemployment levels, declining wage growth and fluctuating interest rates. The uncertainty surrounding the containment of this virus, in the form of testing, vaccination and/or treatments, is a key unknown, and the ultimate strategy adopted to address the pandemic, if any, will substantially impact the form of any resulting economic recovery. Similarly, the extent of the impact of COVID-19 on our liquidity and operational and financial performance will depend on, among other things, existing and future federal, state and local restrictions regarding virus containment, as we believe these factors are highly correlated with consumer strength as it relates to employment and economic well-being.
As of the date of this report, we continue to build and sell homes in all of our markets, and net new orders and traffic in our sales offices have increased significantly as compared to the beginning of the second quarter. Notwithstanding, the new protocols we implemented in response to the COVID-19 outbreak and the measures taken by governmental authorities to contain its spread continue to affect our business and operations as of the date of this report, in many regards, including by requiring a substantial investment of time and resources by our management and organization and causing other material disruptions to our normal operations.
As noted above, as of September 30, 2020, we had total liquidity of $1.0 billion. We have implemented a strategy to maximize operating cash flows and maintain our existing liquidity by reducing or deferring cash expenditures as much as possible, including negotiating with land sellers and developers to extend the closing date of land acquisitions and lot take-downs, as well as postponing land development activities for certain communities.
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Consolidated Financial Data (in thousands, except per share amounts):
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Homebuilding:  
Home sales revenue$826,036 $746,269 $2,187,816 $1,931,110 
Land and lot sales revenue3,242 607 3,462 6,819 
Other operations revenue634 618 1,900 1,853 
Total revenues829,912 747,494 2,193,178 1,939,782 
Cost of home sales643,456 577,627 1,717,772 1,573,847 
Cost of land and lot sales3,214 495 3,790 7,552 
Other operations expense624 609 1,872 1,826 
Sales and marketing44,714 47,834 132,545 133,888 
General and administrative36,323 38,751 113,714 114,202 
Restructuring charges54 — 5,603 — 
Homebuilding income from operations101,527 82,178 217,882 108,467 
Equity in income (loss) of unconsolidated entities106 18 67 (33)
Other (expense) income, net(3,120)325 (9,075)6,719 
Homebuilding income before income taxes98,513 82,521 208,874 115,153 
Financial Services:
Revenues2,552 901 6,442 1,959 
Expenses1,334 817 3,698 1,765 
Equity in income of unconsolidated entities3,273 2,114 7,761 4,861 
Financial services income before income taxes4,491 2,198 10,505 5,055 
Income before income taxes103,004 84,719 219,379 120,208 
Provision for income taxes(24,322)(21,858)(52,286)(31,014)
Net income$78,682 $62,861 $167,093 $89,194 
Earnings per share  
Basic$0.61 $0.45 $1.27 $0.63 
Diluted$0.61 $0.44 $1.27 $0.63 
Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
 
 Three Months Ended September 30, 2020Three Months Ended September 30, 2019Percentage 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
Maracay244 18.7 4.3 157 15.5 3.4 55 %21 %29 %
Pardee Homes696 40.0 5.8 424 43.0 3.3 64 %(7)%76 %
Quadrant Homes78 8.5 3.1 68 6.8 3.3 15 %25 %(8)%
Trendmaker Homes318 30.5 3.5 192 37.0 1.7 66 %(18)%101 %
TRI Pointe Homes422 25.3 5.6 293 29.7 3.3 44 %(15)%69 %
Winchester Homes175 11.0 5.3 157 15.5 3.4 11 %(29)%57 %
Total1,933 134.0 4.8 1,291 147.5 2.9 50 %(9)%65 %
 
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Net new home orders for the three months ended September 30, 2020 increased by 642 orders, or 50%, to 1,933, compared to 1,291 during the prior-year period.  The increase in net new home orders was due to a 65% increase in monthly absorption rates. New home order demand was exceptionally strong throughout the quarter as mortgage interest rates fell to historically low levels.
Maracay reported a 55% increase in net new home orders driven by a 29% increase in monthly absorption rate and a 21% increase in average selling communities. The Phoenix market has remained strong as evidenced by the monthly absorption rate of 4.3. Pardee Homes reported a 64% increase in net new home orders driven by a 76% increase in monthly absorption rates offset by a 7% decrease in average selling communities. The absorption rates in the Inland Empire, Los Angeles and San Diego improved significantly compared to the prior-year period, and while Las Vegas experienced a decrease in absorption rate, its monthly absorption rate for the quarter was 3.1. Net new home orders increased 15% at Quadrant Homes due to a 25% increase in average selling communities offset by an 8% decrease in monthly absorption rate as compared to the prior-year period. Trendmaker Homes’ net new home orders increased 66% due to a 101% increase in monthly absorption rate, offset by an 18% decrease in average selling communities. Despite being impacted by COVID-19 and the volatility in the oil market earlier in the year, our Houston division has been resilient and achieved a monthly absorption rate of 3.2 for the current quarter, which far exceeds the 1.8 absorption rate in the prior-year period. Our sales pace in both our Austin and Dallas–Fort Worth markets improved on a year-over-year basis as well, achieving a monthly absorption rate of 4.3 and 3.6, respectively. TRI Pointe Homes’ net new home orders increased 44% due to a 69% increase in monthly absorption rate, offset by a 15% decrease in average selling communities. The increase in TRI Pointe Homes’ monthly absorption rate was driven by stronger market conditions in each of our Southern California, Bay Area, Sacramento and Colorado markets compared to the prior-year period. Winchester Homes reported an 11% increase in net new home orders as a result of a 57% increase in monthly absorption rate offset by a 29% decrease in average selling communities. The increase in Winchester Homes’ monthly absorption rate was due to strong order demand and more favorable overall market conditions compared to the prior-year period.
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)
 As of September 30, 2020As of September 30, 2019Percentage 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
Maracay501 $317,887 $635 404 $218,424 $541 24 %46 %17 %
Pardee Homes1,067 696,520 653 753 542,370 720 42 %28 %(9)%
Quadrant Homes228 222,394 975 89 77,426 870 156 %187 %12 %
Trendmaker Homes404 184,507 457 367 184,563 503 10 %— %(9)%
TRI Pointe Homes682 461,574 677 451 306,337 679 51 %51 %— %
Winchester Homes306 184,484 603 248 162,332 655 23 %14 %(8)%
Total3,188 $2,067,366 $648 2,312 $1,491,452 $645 38 %39 %— %
 
Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of homebuyers who contracted to buy a home but cancelled prior to delivery of the home (as a percentage of overall orders) was 9% and 17% during the three-month periods ended September 30, 2020 and 2019, respectively. The dollar value of backlog was $2.1 billion as of September 30, 2020, an increase of $575.9 million, or 39%, compared to $1.5 billion as of September 30, 2019.  This increase was due to an increase in backlog units of 876, or 38%, to 3,188 as of September 30, 2020, compared to 2,312 as of September 30, 2019.
Maracay’s backlog dollar value increased 46% compared to the prior-year period due to a 24% increase in backlog units and a 17% increase in average sales price. The increase in backlog units is due to the strong market conditions in Arizona for most of the current-year period and the success of recently opened communities. In addition, we opened the current-year period with a higher number of backlog units, which resulted in higher carryforward of opening backlog units in the current-year period compared to the prior-year period, which had been impacted by the housing slowdown in late 2018. Pardee Homes’ backlog dollar value increased 28% due to an increase in backlog units of 42% offset by a decrease in backlog average sales price of 9%. The increase in backlog units is largely due to the increase in net new home orders we experienced during the quarter as low interest rates helped accelerate orders, with particularly strong success at our Inland Empire division. Quadrant Homes’ backlog dollar value increased 187% as a result of a 156% increase in backlog units and a 12% increase in average
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sales price. The increase in backlog units was a result of starting the current-year period with an increase in backlog units. Trendmaker Homes’ backlog dollar value remained flat compared to the prior-year period due to an offsetting increase in backlog units of 10% and a decrease in average sales price of 9%. The increase in backlog units resulted primarily from the significantly higher absorption rate in the current year period. TRI Pointe Homes’ backlog dollar value increased 51% due to a 51% increase in backlog units. The increase in backlog units resulted from a strong demand environment across this reporting segment. Winchester Homes’ backlog dollar value increased 14% due to a 23% increase in backlog units offset by an 8% decrease in average sales price. The increase in backlog units is a result of starting the current-year period with an increase in backlog units.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
 Three Months Ended September 30, 2020Three Months Ended September 30, 2019Percentage 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
Maracay170 $95,109 $559 138 $70,860 $513 23 %34 %%
Pardee Homes368 250,294 680 461 321,922 698 (20)%(22)%(3)%
Quadrant Homes78 72,317 927 56 49,258 880 39 %47 %%
Trendmaker Homes235 106,619 454 224 102,821 459 %%(1)%
TRI Pointe Homes292 202,647 694 226 154,737 685 29 %31 %%
Winchester Homes160 99,050 619 82 46,671 569 95 %112 %%
Total1,303 $826,036 $634 1,187 $746,269 $629 10 %11 %%
 
Home sales revenue increased $79.8 million, or 11%, to $826.0 million for the three months ended September 30, 2020. The increase was comprised of (i) $72.9 million related to an increase of 116 new homes delivered in the three months ended September 30, 2020 compared to the prior-year period, and (ii) $6.8 million related to an increase of $5,000 in average sales price of homes delivered in the three months ended September 30, 2020 compared to the prior-year period.
Maracay home sales revenue increased 34% due to a 23% increase in new homes delivered and a 9% increase in average sales price during the current-year period. The increase in new homes delivered is due to higher backlog units to start the current-year period compared to the prior-year period. Pardee Homes’ home sales revenue decreased 22% due to a 20% decrease in new homes delivered and a 3% decrease in average sales price. The decrease in new homes delivered was due to lower backlog units to start the current-year period compared to the prior-year period and timing. Quadrant Homes’ home sales revenue increased 47% due to a 39% increase in new homes delivered and a 5% increase in average sales price. The increase in new homes delivered was due to a higher number of backlog units at the start of the current-year period compared to the prior-year period. Trendmaker Homes’ home sales revenue increased 4% due to a 5% increase in new homes delivered offset by a 1% decrease in average sales price. TRI Pointe Homes’ home sales revenue increased 31% due primarily to a 29% increase in new homes delivered and a 1% increase in average sales price. The increase in new homes delivered was driven by the timing of deliveries and the higher backlog leading into the current year period. Home sales revenue increased at Winchester Homes by 112% due to a 95% increase in new homes delivered. The increase in new homes delivered was due to a higher number of backlog units at the start of the current-year period compared to the prior-year period.
Homebuilding Gross Margins (dollars in thousands)
 Three Months Ended September 30,
 2020%2019%
Home sales revenue$826,036 100.0 %$746,269 100.0 %
Cost of home sales643,456 77.9 %577,627 77.4 %
Homebuilding gross margin182,580 22.1 %168,642 22.6 %
Add:  interest in cost of home sales23,495 2.8 %19,240 2.6 %
Add:  impairments and lot option abandonments315 0.0 %1,029 0.1 %
Adjusted homebuilding gross margin(1)
$206,390 25.0 %$188,911 25.3 %
Homebuilding gross margin percentage22.1 % 22.6 % 
Adjusted homebuilding gross margin percentage(1)
25.0 % 25.3 % 
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__________
(1)Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage decreased to 22.1% for the three months ended September 30, 2020 as compared to 22.6% for the prior-year period.  The decrease in gross margin percentage was due to mix, with both comparable periods including high revenue from some of our long-dated California assets, which produce gross margins above the Company average. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 25.0% for the three months ended September 30, 2020, compared to 25.3% for the prior-year period.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the most directly comparable GAAP measure.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
Three Months Ended September 30,As a Percentage of
Home Sales Revenue
 2020201920202019
Sales and marketing$44,714 $47,834 5.4 %6.4 %
General and administrative (G&A)36,323 38,751 4.4 %5.2 %
Total sales and marketing and G&A$81,037 $86,585 9.8 %11.6 %
 
Total sales and marketing and general and administrative (“SG&A”) as a percentage of home sales revenue decreased to 9.8% for the three months ended September 30, 2020, compared to 11.6% in the prior-year period. Total SG&A expense decreased $5.5 million to $81.0 million for the three months ended September 30, 2020 from $86.6 million in the prior-year period.  
Sales and marketing expense as a percentage of home sales revenue decreased to 5.4% for the three months ended September 30, 2020, compared to 6.4% for the prior-year period. The decrease was due primarily to lower advertising expense and higher leverage on the fixed components of sales and marketing expense as a result of the 11% increase in homebuilding revenue compared to the prior-year period. In addition, we realized some cost savings related to the workforce reduction plan implemented in May 2020. Sales and marketing expense decreased to $44.7 million for the three months ended September 30, 2020 compared to $47.8 million in the prior-year period due primarily to the decrease in advertising expense.
General and administrative (“G&A”) expense as a percentage of home sales revenue decreased to 4.4% of home sales revenue for the three months ended September 30, 2020 compared to 5.2% for the prior-year period largely due to higher leverage on our G&A expense as a result of the 11% increase in homebuilding revenue compared to the prior-year period. In addition, G&A expense was favorably impacted by the realization of cost savings related to our workforce reduction plan implemented in May 2020.  G&A expense decreased to $36.3 million for the three months ended September 30, 2020 compared to $38.8 million for the prior-year period.
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Other (Expense) Income, Net
Other (expense) income, net for the three months ended September 30, 2020 included a $3.4 million charge in connection with the early extinguishment of a portion of our 4.875% Senior Notes due 2021 (the “2021 Notes”). In June 2020, we commenced and settled a cash tender offer for any and all of our then outstanding $300 million principal amount of 2021 Notes as part of a plan to refinance our long-term debt due in 2021 with longer maturity financing. The principal amount of 2021 Notes tendered was $216.3 million, or 72% of the outstanding principal amount, after which $83.7 million principal amount of 2021 Notes remained outstanding as of June 30, 2020. The $3.4 million charge in the current quarter was related to the full repayment of this remaining balance outstanding.
Interest
Interest, which we incurred principally to finance land acquisitions, land development and home construction, totaled $20.1 million and $22.4 million for the three months ended September 30, 2020 and 2019, respectively.  All interest incurred in both periods was capitalized.  
Income Tax
For the three months ended September 30, 2020, we recorded a tax provision of $24.3 million based on an effective tax rate of 23.6%.  For the three months ended September 30, 2019, we recorded a tax provision of $21.9 million based on an effective tax rate of 25.8%. The increase in provision for income taxes is due to a $18.3 million increase in income before income taxes to $103.0 million for the three months ended September 30, 2020, compared to $84.7 million for the prior-year period.
Financial Services Segment
Income before income taxes from our financial services operations increased to $4.5 million for the three months ended September 30, 2020 compared to $2.2 million for the prior-year period.  This increase is due to higher home sales volume in the three months ended September 30, 2020 compared to the prior-year period, resulting in a corresponding increase in financial services captured in the current-year period. We experienced higher financial services profit in all three areas of our financial services segment, represented by mortgage financing, title and escrow services, and property and casualty insurance operations.
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
 
 Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019Percentage 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
Maracay646 17.4 4.1 571 14.0 4.5 13 %24 %(9)%
Pardee Homes1,594 41.5 4.3 1,379 43.9 3.5 16 %(5)%23 %
Quadrant Homes309 8.2 4.2 210 6.9 3.4 47 %19 %24 %
Trendmaker Homes757 30.3 2.8 682 38.1 2.0 11 %(20)%40 %
TRI Pointe Homes1,163 29.2 4.4 882 29.7 3.3 32 %(2)%33 %
Winchester Homes457 12.2 4.2 379 14.7 2.9 21 %(17)%45 %
Total4,926 138.8 3.9 4,103 147.3 3.1 20 %(6)%26 %
 
Net new home orders for the nine months ended September 30, 2020 increased by 823 orders, or 20%, to 4,926, compared to 4,103 during the prior-year period.  The increase in net new home orders was due to a 26% increase in monthly absorption rates, offset by a 6% decrease in average selling communities. New home order demand was exceptionally strong through January and February of 2020, followed by a significant decline in March and April, a slow and steady improvement in May followed again by exceptionally strong demand in June through September. This unusual volatility was due to the COVID-19 pandemic and the measures taken to contain its spread, as well as the impacts on consumers and the overall economy. Historically low interest rate levels have been present for much of the year, providing a significant boost in demand.
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Maracay reported a 13% increase in net new home orders driven by a 24% increase in average selling communities, offset by a 9% decrease in monthly absorption rates. Despite the decrease, the monthly absorption rate was strong at 4.1 for the nine months ended September 30, 2020 due to strong market conditions, despite the slowdown we experienced during March and April due to COVID-19. Further, the strong current year absorption rate demonstrates strong demand for Maracay’s new community openings during the current-year period. Pardee Homes reported a 16% increase in net new home orders driven by a 23% increase in monthly absorption rates, offset by a 5% decrease in average selling communities. The increase in monthly absorption rate was experienced across all of our California divisions, with particular strength from the Inland Empire where we landed at a rate of 5.6 for the current-year period, compared to 3.6 in the prior-year period. Net new home orders increased 47% at Quadrant Homes due to a 24% increase in monthly absorption rate and a 19% increase in average selling communities during the current-year period as compared to the prior-year period. The increase in monthly absorption rate to 4.2 was due to an exceptionally strong demand environment in January and February of the current-year period, as well as a significant improvement in market conditions during the latter half of May and through September, notwithstanding reduced demand in the month of April due to COVID-19. Trendmaker Homes’ net new home orders increased 11% due to a 40% increase in monthly absorption rate, offset by a 20% decrease in average selling communities. Though we experienced stronger monthly absorption rates at each of our Houston, Austin and Dallas–Fort Worth markets in the current-year period, COVID-19 and the volatility in the oil market negatively impacted our sales pace in the current-year period, particularly in March and April. TRI Pointe Homes’ net new home orders increased 32% due to an 33% increase in the monthly absorption rate. The increase in TRI Pointe Homes’ monthly absorption rate was driven by stronger market conditions in each of our California markets as well as our Colorado market, compared to the prior-year period. Winchester Homes reported a 21% increase in net new home orders as a result of a 45% increase in monthly absorption rate offset by a 17% decrease in average selling communities. The increase in Winchester Homes’ monthly absorption rate was due to strong order demand and more favorable overall market conditions compared to the prior-year period.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
 Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019Percentage 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
Maracay475 $253,535 $534 318 $166,074 $522 49 %53 %%
Pardee Homes987 670,978 680 1,028 651,484 634 (4)%%%
Quadrant Homes170 152,423 897 167 162,960 976 %(6)%(8)%
Trendmaker Homes698 323,996 464 628 289,951 462 11 %12 %— %
TRI Pointe Homes810 567,791 701 749 519,280 693 %%%
Winchester Homes350 219,093 626 236 141,361 599 48 %55 %%
Total3,490 $2,187,816 $627 3,126 $1,931,110 $618 12 %13 %%
 
Home sales revenue increased $256.7 million, or 13%, to $2.2 billion for the nine months ended September 30, 2020. The increase was comprised of (i) $224.9 million related to an increase of 364 new homes delivered in the nine months ended September 30, 2020 compared to the prior-year period, and (ii) $31.8 million related to an increase of $9,000 in average sales price of homes delivered in the nine months ended September 30, 2020 compared to the prior-year period.
Maracay home sales revenue increased 53% due to a 49% increase in new homes delivered during the current-year period. The increase in new homes delivered is due to a 119% increase in backlog units to start the current-year period compared to the prior-year period. Pardee Homes’ home sales revenue increased 3% due to a 7% increase in average sales price, offset by a 4% decrease in new homes delivered. The increase in average sales price was due to a product mix shift that included a greater proportion of deliveries from our higher-priced California assets in the current-year period, particularly from our San Diego market. Quadrant Homes’ home sales revenue decreased 6% due to an 8% decrease in average sales price, offset by a 2% increase in new homes delivered. Quadrant opened the year with a 93% increase in backlog units compared to the prior year opening backlog. New homes delivered in the current-year period has been impacted by COVID-19-related construction delays. Trendmaker Homes’ home sales revenue increased 12% due to an 11% increase in new homes delivered. The increase in new homes delivered was due to the timing of deliveries. Home sales revenue increased at Winchester Homes by 55% due to a 48% increase in new homes delivered and a 5% increase in average sales price. The increase in new homes delivered was due to a higher number of backlog units at the start of the current-year period compared to the prior-year period.
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Homebuilding Gross Margins (dollars in thousands)
 Nine Months Ended September 30,
 2020%2019%
Home sales revenue$2,187,816 100.0 %$1,931,110 100.0 %
Cost of home sales1,717,772 78.5 %1,573,847 81.5 %
Homebuilding gross margin470,044 21.5 %357,263 18.5 %
Add:  interest in cost of home sales62,118 2.8 %51,502 2.7 %
Add:  impairments and lot option abandonments2,044 0.1 %6,519 0.3 %
Adjusted homebuilding gross margin(1)
$534,206 24.4 %$415,284 21.5 %
Homebuilding gross margin percentage21.5 %18.5 %
Adjusted homebuilding gross margin percentage(1)
24.4 %21.5 %
__________
(1)Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage increased to 21.5% for the nine months ended September 30, 2020 as compared to 18.5% for the prior-year period.  The increase in gross margin percentage was due to a decrease in incentives as compared to the prior-year period, during which we delivered homes impacted by the weaker pricing trends experienced in the second half of 2018. In addition, we benefited from the favorable impact of higher current-year period revenue from some of our long-dated California assets, which produce gross margins above the Company average. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.4% for the nine months ended September 30, 2020, compared to 21.5% for the prior-year period.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the most directly comparable GAAP measure.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
Nine Months Ended September 30,As a Percentage of
Home Sales Revenue
 2020201920202019
Sales and marketing$132,545 $133,888 6.1 %6.9 %
General and administrative (G&A)113,714 114,202 5.2 %5.9 %
Total sales and marketing and G&A$246,259 $248,090 11.3 %12.8 %
 
Total SG&A as a percentage of home sales revenue decreased to 11.3% for the nine months ended September 30, 2020, compared to 12.8% in the prior-year period. Total SG&A expense decreased $1.8 million to $246.3 million for the nine months ended September 30, 2020 from $248.1 million in the prior-year period.  
Sales and marketing expense as a percentage of home sales revenue decreased to 6.1% for the nine months ended September 30, 2020, compared to 6.9% for the prior-year period. The decrease was due primarily to higher leverage on the fixed components of sales and marketing expense as a result of the 13% increase in homebuilding revenue compared to the prior-year period. In addition, we realized some cost savings related to the workforce reduction plan implemented in May 2020. Sales and marketing expense decreased to $132.5 million for the nine months ended September 30, 2020 compared to $133.9 million in the prior-year period due primarily to lower advertising expense, offset by higher variable commission costs associated with higher home sales revenue.
G&A expense as a percentage of home sales revenue decreased to 5.2% of home sales revenue for the nine months ended September 30, 2020 compared to 5.9% for the prior-year period largely due to higher leverage on our G&A expense as a result of the 13% increase in homebuilding revenue compared to the prior-year period.  In addition, G&A expense was favorably
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impacted by the realization of cost savings related to our workforce reduction plan implemented in May 2020. G&A expense decreased to $113.7 million for the nine months ended September 30, 2020 compared to $114.2 million for the prior-year period.
Restructuring Charges
In May 2020, due to the existing and anticipated future impact of the COVID-19 pandemic on our business, we implemented a workforce reduction plan. As a result of the workforce reduction plan, we have incurred $5.6 million of pre-tax restructuring charges during the nine months ended September 30, 2020, consisting of severance and related costs, substantially all of which had been paid as of September 30, 2020.
Interest
Interest, which we incurred principally to finance land acquisitions, land development and home construction, totaled $62.7 million and $67.7 million for the nine months ended September 30, 2020 and 2019, respectively.  All interest incurred in both periods was capitalized.  
Income Tax
For the nine months ended September 30, 2020, we recorded a tax provision of $52.3 million based on an effective tax rate of 23.8%.  For the nine months ended September 30, 2019, we recorded a tax provision of $31.0 million based on an effective tax rate of 25.8%. The increase in provision for income taxes is due to a $99.2 million increase in income before income taxes to $219.4 million for the nine months ended September 30, 2020, compared to $120.2 million for the prior-year period.
Financial Services Segment
Income before income taxes from our financial services operations increased to $10.5 million for the nine months ended September 30, 2020 compared to $5.1 million for the prior-year period.  This increase is due to higher home sales volume in the nine months ended September 30, 2020 compared to the prior-year period, resulting in a corresponding increase in financial services captured in the current-year period. We experienced higher financial services profit in all three areas of our financial services segment, represented by mortgage financing, title and escrow services, and property and casualty insurance operations.
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Lots Owned or Controlled by Segment
Excluded from owned and controlled lots are those related to Note 6, Investments in Unconsolidated Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. The table below summarizes our lots owned or controlled by segment as of the dates presented:
 September 30,Increase
(Decrease)
 20202019Amount%
Lots Owned    
Maracay1,925 2,095 (170)(8)%
Pardee Homes12,287 13,631 (1,344)(10)%
Quadrant Homes932 1,029 (97)(9)%
Trendmaker Homes3,226 2,131 1,095 51 %
TRI Pointe Homes3,057 2,954 103 %
Winchester Homes770 1,188 (418)(35)%
Total22,197 23,028 (831)(4)%
Lots Controlled(1)
    
Maracay1,892 1,395 497 36 %
Pardee Homes1,419 296 1,123 379 %
Quadrant Homes— 398 (398)(100)%
Trendmaker Homes1,219 1,012 207 20 %
TRI Pointe Homes4,243 2,235 2,008 90 %
Winchester Homes890 392 498 127 %
Total9,663 5,728 3,935 69 %
Total Lots Owned or Controlled(1)
31,860 28,756 3,104 11 %
__________
(1)As of September 30, 2020 and 2019, lots controlled represented lots that were under land or lot option contracts or purchase contracts.

Liquidity and Capital Resources
Overview
Our principal uses of capital for the nine months ended September 30, 2020 were operating expenses, land purchases, land development, home construction and repurchases of our common stock. We used funds generated by our operations to meet our short-term working capital requirements. We monitor financing requirements to evaluate potential financing sources, including bank credit facilities and note offerings. In March 2020, we borrowed a total of $500 million under our revolving credit facility to, in part, safeguard our balance sheet as the credit and banking market showed signs of distress in the wake of the COVID-19 outbreak. In June 2020, we determined that any concerns regarding near term access to liquidity had sufficiently receded and, as a result, we repaid all outstanding amounts under our revolving credit facility. While the current economic environment resulting from the COVID-19 pandemic is unprecedented, and the ultimate effects of COVID-19 and the related restrictions imposed on businesses and individuals across the world remain unknown, we continue to monitor the credit markets as we remain focused on generating positive margins in our homebuilding operations. While acquiring desirable land positions is critical to our long-term growth initiatives, under the current conditions we are focused on maintaining a strong balance sheet while maximizing flexibility as to future land spend. As of September 30, 2020, we had total liquidity of $1.0 billion, including cash and cash equivalents of $493.6 million and $533.2 million of availability under our Credit Facility, as described below, after considering the borrowing base provisions and outstanding letters of credit.
Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the availability of particular assets, and our Company as a whole, to generate cash flow to cover the expected debt service.
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Senior Notes
In June 2020, TRI Pointe Group issued $350 million aggregate principal amount of 5.700% Senior Notes due 2028 (the “2028 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $345.2 million, after debt issuance costs and discounts. The 2028 Notes mature on June 15, 2028 and interest is paid semiannually in arrears on June 15 and December 15.
In June 2017, TRI Pointe Group issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1.
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million, after debt issuance costs and discounts. The 2021 Notes were scheduled to mature on July 1, 2021 and interest was paid semiannually in arrears on January 1 and July 1. On June 3, 2020, the Company commenced a cash tender offer for any and all of the outstanding 2021 Notes at a price of $1,025 per $1,000 principal amount of 2021 Notes tendered before the expiration of the tender offer. The principal amount of 2021 Notes tendered was $216.3 million, or 72% of the outstanding principal amount, after which $83.7 million principal amount of 2021 Notes remained outstanding as of June 30, 2020. The remaining outstanding principal amount of $83.7 million was fully paid in July 2020 in connection with the redemption of the remaining 2021 Notes.
TRI Pointe Group and its wholly owned subsidiary TRI Pointe Homes, Inc. (“TRI Pointe Homes”) are co-issuers of the $450 million aggregate principal amount 5.875% Senior Notes due 2024 (the “2024 Notes”). The 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering of the 2024 Notes was $429.0 million, after debt issuance costs and discounts. The 2024 Notes mature on June 15, 2024, with interest payable semiannually in arrears on June 15 and December 15.
Our outstanding senior notes (the “Senior Notes”) contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions. As of September 30, 2020, we were in compliance with the covenants required by our Senior Notes.
Loans Payable
On March 29, 2019, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated our Amended and Restated Credit Agreement, dated as of July 7, 2015. The Credit Facility (as defined below), which matures on March 29, 2023, consists of a $600 million revolving credit facility (the “Revolving Facility”) and a $250 million term loan facility (the “Term Facility” and together with the Revolving Facility, the “Credit Facility”). The Term Facility includes a 90-day delayed draw provision, which allowed us to draw the full $250 million from the Term Facility in June 2019 in connection with the maturity of the 4.375% Senior Notes that matured on June 15, 2019. We may increase the Credit Facility to not more than $1 billion in the aggregate, at our request, upon satisfaction of specified conditions. The Revolving Facility contains a sublimit of $75 million for letters of credit. We may borrow under the Revolving Facility in the ordinary course of business to repay senior notes and fund our operations, including our land acquisition, land development and homebuilding activities. Borrowings under the Revolving Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Revolving Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.25% to 2.00%, depending on our leverage ratio. Interest rates on borrowings under the Term Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio.
As of September 30, 2020, we had no outstanding debt under the Revolving Facility and there was $533.2 million of availability after considering the borrowing base provisions and outstanding letters of credit. As of September 30, 2020, we had $250 million outstanding debt under the Term Facility with an interest rate of 1.51%. As of September 30, 2020, there were $3.4 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Agreement that will amortize over the remaining term of the Credit Agreement.  Accrued interest, including loan commitment fees, related to the Credit Agreement was $742,000 and $1.2 million as of September 30, 2020 and December 31, 2019, respectively.
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At September 30, 2020 and December 31, 2019, we had outstanding letters of credit of $66.8 million and $32.6 million, respectively.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.
Under the Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands):
Actual at
September 30,
Covenant
Requirement at
September 30,
Financial Covenants20202020
Consolidated Tangible Net Worth$2,038,596 $1,537,140 
(Not less than $1.35 billion plus 50% of net income and
   50% of the net proceeds from equity offerings after
   December 31, 2018)
  
Leverage Test29.8 %≤55%
(Not to exceed 55%)  
Interest Coverage Test6.4 ≥1.5
(Not less than 1.5:1.0)  
 
In addition, the Credit Facility limits the aggregate number of single family dwellings (where construction has commenced) owned by the Company or any guarantor that are not presold or model units to no more than the greater of (i) 50% of the number of housing unit closings (as defined) during the preceding 12 months; or (ii) 100% of the number of housing unit closings during the preceding 6 months. However, a failure to comply with this “Spec Unit Inventory Test” will not be an event of default or default, but will be excluded from the borrowing base as of the last day of the quarter in which the non-compliance occurs. The Credit Facility further requires that at least 97.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.
As of September 30, 2020, we were in compliance with all of these financial covenants.
Stock Repurchase Program
On February 13, 2020, our board of directors discontinued and cancelled our 2019 Repurchase Program and approved our 2020 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $200 million through March 31, 2021. Purchases of common stock pursuant to the 2020 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2020 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2020 Repurchase Program at any time. Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. During the three months ended September 30, 2020, we repurchased and retired an aggregate of 3,662,738 shares of our common stock at an average price of $16.94 under the 2020 Repurchase Program for $62.1 million. For the nine months ended September 30, 2020, we repurchased and retired an aggregate of 10.2 million shares of common stock under the 2019 Repurchase Program and 2020 Repurchase Program for a total of $164.1 million.
Leverage Ratios
We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-net capital are calculated as follows (dollars in thousands):  
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September 30, 2020December 31, 2019
Loans Payable$250,000 $250,000 
Senior Notes1,083,254 1,033,985 
Total debt1,333,254 1,283,985 
Stockholders’ equity2,198,088 2,186,530 
Total capital$3,531,342 $3,470,515 
Ratio of debt-to-capital(1)
37.8 %37.0 %
Total debt$1,333,254 $1,283,985 
Less: Cash and cash equivalents(493,585)(329,011)
Net debt839,669 954,974 
Stockholders’ equity2,198,088 2,186,530 
Net capital$3,037,757 $3,141,504 
Ratio of net debt-to-net capital(2)
27.6 %30.4 %
__________
(1)The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.
(2)The ratio of net debt-to-net capital is a non-GAAP financial measure and is computed as the quotient obtained by dividing net debt (which is total debt less cash and cash equivalents) by the sum of net debt plus stockholders’ equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-net capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.  Because the ratio of net debt-to-net capital is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.
Cash Flows—Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
For the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019:
Net cash provided by operating activities increased by $432.4 million to $338.1 million for the nine months ended September 30, 2020, from net cash used of $94.3 million for the nine months ended September 30, 2019. The change was comprised of offsetting activity, including (i) a decrease in cash used for real estate inventory purchases of $220.6 million, (ii) an increase in net income to $167.1 million for the nine months ended September 30, 2020 compared to $89.2 million in the prior-year period, (iii) a decrease in cash used for accrued expenses and other liabilities of $72.9 to cash provided of $12.7 million in the nine months ended September 30, 2020 compared to a cash use of $60.2 million in the prior-year period, (iv) offset by changes in other assets, receivables, accounts payable, deferred income taxes and returns on investments in unconsolidated entities. 
Net cash used in investing activities was $43.6 million for the nine months ended September 30, 2020, compared to $23.1 million for the prior-year period.  The increase in cash used in investing activities was due mainly to an increase in investments in unconsolidated entities.
Net cash used in financing activities was $130.0 million for the nine months ended September 30, 2020, compared to net cash used of $30.1 million for the prior-year period. Net cash used in financing activities in the current-year period was primarily comprised of $164.1 million of cash used for share repurchases, offset by a net borrowing of $41.2 million related to the issuance of upsized $350 million 2028 Notes used to replace and retire the $300 million 2021 Notes.
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we enter into purchase contracts in order to procure lots for the construction of our homes.  We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots.  These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers and land banking arrangements as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.  These option contracts and land banking arrangements generally require a non-
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refundable deposit for the right to acquire land and lots over a specified period of time at pre-determined prices.  We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller.  In some cases, however, we may be contractually obligated to complete development work even if we terminate the option to procure land or lots. As of September 30, 2020, we had $90.7 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 $901.8 million (net of deposits). See Note 7, Variable Interest Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
Our utilization of land and lot option contracts and land banking arrangements is dependent on, among other things, the availability of land sellers or land banking firms willing to enter into such arrangements, the availability of capital to finance the development of optioned land and lots, general housing market conditions, and local market dynamics.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
As of September 30, 2020, we held equity investments in six 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. See Note 6, Investments in Unconsolidated Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
Inflation
Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.  In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.  While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices. 
Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.  We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.  Since it typically takes three to nine months to construct a new home, the number of homes delivered and associated home sales revenue typically increases in the third and fourth quarters of our fiscal year as new home orders sold earlier in the year convert to home deliveries.  Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters of our fiscal year, and the majority of cash receipts from home deliveries occur during the second half of the year.  We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry and the impacts of the COVID-19 pandemic.

Description of Projects and Communities Under Development
The following table presents project information relating to each of our markets as of September 30, 2020 and includes information on current projects under development where we are building and selling homes.
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Maracay
County, Project, City
Year of
First
Delivery(1)
Total
Number of
Lots(2)
Cumulative
Homes
Delivered
as of
September 30, 2020
Lots
Owned as of
September 30, 2020(3)
Backlog as of September 30, 2020(4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30, 2020
Sales Price
Range
(in thousands)(6)
Phoenix, Arizona
City of Buckeye:
Arroyo Seco202044 — 44 33 —  $435 - $499
City of Chandler:
Windermere Ranch201991 51 40 35 31  $553 - $593
Canopy North2020129 — 25 16 —  $484 - $553
Canopy South2020112 21 19  $580 - $602
City of Gilbert:
Lakes At Annecy2019216 90 126 46 54 $316 - $382
Annecy P32021251 — 251 — — $265 - $325
Lakeview Trails201992 77 15 10 36 $600 - $698
Lakeview Trails II202168 — 68 19 — $600 - $698
Copper Bend202038 19 19 19 19 $492 - $511
Avocet at Waterston2020115 110 36 $546 - $631
Brighton at Waterston202088 86 35 $652 - $696
Domaine at Waterston2020128 — 128 27 — $803 - $848
City of Goodyear:
Villages at Rio Paseo2018117 112 51  $204 - $234
Cottages at Rio Paseo201893 86  $243 - $264
Sedella202175 — 75 — —  $441 - $521
City of Mesa:
Cadence2021127 — 127 — —  $312 - $345
City of Peoria:
Legacy at The Meadows201774 68 —  $425 - $451
Estates at The Meadows2017272 198 74 29 36  $555 - $641
Enclave at The Meadows2018126 118 48  $417 - $512
Deseo201994 36 58 32 30  $548 - $642
City of Phoenix:
Loma @ Avance2019124 58 66 13 36  $415 - $474
Ranger @ Avance2019145 42 103 31 40  $457 - $534
Piedmont @ Avance201999 28 71 12 26  $554 - $572
Alta @ Avance202026 19 11  $668 - $697
Town of Queen Creek
Madera 50's2022105 — 105 — —  $330 - $410
Madera 60's202270 — 70 — —  $391 - $453
Madera 75's202291 — 91 — —  $463 - $510
Pathfinder South At Spur Cross202053 48 42  $523 - $543
Pathfinder North At Spur Cross202065 59 19  $605 - $622
Closed CommunitiesN/A— — — — 34 
Phoenix, Arizona Total3,128 1,010 1,925 501 473 
Tucson, Arizona
Closed CommunitiesN/A— — — — 
Tucson, Arizona Total    2 
Maracay Total3,128 1,010 1,925 501 475 

- 51 -


Pardee Homes
County, Project, City
Year of
First
Delivery(1)
Total
Number of
Lots(2)
Cumulative
Homes
Delivered
as of
September 30, 2020
Lots
Owned as of
September 30, 2020(3)
Backlog as of September 30, 2020(4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30, 2020
Sales Price
Range
(in thousands)(6)
California
San Diego County:
Sendero2019112 95 17 14 34 $1,470 - $1,610
Vista Santa Fe201944 37 10 19 $1,910 - $2,010
Terraza201981 80 34 $1,360 - $1,430
Carmel2019105 65 40 19 18 $1,600 - $1,800
Vista Del Mar201979 47 32 28 14 $1,750 - $1,900
Highlands202152 — 52 12 — $1,900 - $2,100
Sendero Collection202176 — 76 — — $1,350 - $1,400
Pacific Highlands Ranch PA 9C202142 — 42 — — TBD
Lake Ridge2018129 102 27 19 25 $800 - $880
Veraz2018111 90 21 17 44 $440 - $520
Solmar201974 58 16 10 49 $410 - $510
Solmar Sur2021108 — 108 — — $410 - $510
Marea2020143 — 143 — — $365 - $435
PA61 Rancho Las Brisas & Affordable2021203 — 203 — — TBD
MeadowoodTBD844 — 844 — — $370 - $650
South Otay MesaTBD893 — 893 — — TBD
Los Angeles County:
Cresta201867 44 23 16 10 $830 - $900
Verano201795 68 27 15 13 $550 - $650
Arista2017143 109 34 19 18 $740 - $810
Lyra2019141 65 76 39 32  $660 - $740
Sola2019189 101 88 38 40  $560 - $620
Luna2020114 — 114 45 —  $615 - $690
Strata2021292 — 292 — —  $550 - $670
Skyline Ranch FutureTBD334 — 334 — —  TBD
Riverside County:
Canyon Hills Future 70 x 115TBD125 — 125 — — TBD
Westlake2020163 — 163 84 — $315 - $350
Daybreak2017159 151 28 $360 - $390
Abrio2018113 94 19 18 24 $415 - $450
Cascade2017194 177 17 17 19 $335 - $360
Beacon2018106 89 17 16 18 $510 - $560
Alisio201984 83 32 $300 - $335
Elan201995 25 70 17 13 $390 - $425
Mira201996 18 78 11 $365 - $395
Avid201968 23 45 $340 - $365
Vita2019115 40 75 17 12 $315 - $340
Sundance Future Active AdultTBD330 — 330 — — TBD
Avena201884 71 13 11 19 $455 - $485
Braeburn201882 73 28 $415 - $450
Overland202185 — 85 — $485 - $515
Canvas201889 86 28 $405 - $430
Kadence201885 76 27 $425 - $435
Newpark201893 57 36 33 15 $450 - $500
Easton201892 54 38 33 20 $495 - $535
Compass202152 — 52 — $450 - $515
Tournament Hills FutureTBD268 — 268 — — TBD
Terramor202275 — 75 — — TBD
Arroyo2020110 — 110 96 — $300 - $335
Cienega2020106 98 87 $300 - $335
- 52 -


Centerstone2021120 — 120 35 — $315 - $330
Landmark2021130 — 130 — $350 - $380
Horizon2021130 — 130 15 — $380 - $430
Atwell FutureTBD3,742 — 3,742 — — TBD
San Joaquin County:
Bear CreekTBD1,252 — 1,252 — — TBD
Closed CommunitiesN/A— — — — 11 
California Total12,714 2,086 10,628 838 666 
Nevada
Clark County:
Tera Luna201863 45 18 16  $620 - $670
Tera Luna Ridge202153 — 53 — —  $620 - $670
Linea2018123 122 14  $370 - $410
Strada 2.0201962 30 32 27 25  $460 - $555
Strada III202130 — 30 — — 
Arden202079 75 15 $400 - $440
Capri2020114 105 19  $320 - $350
Arden 2.02022154 — 154 — —  $370 - $400
Capri 2.02022214 — 214 — —  $300 - $325
Pebble Estate FutureTBD— — — TBD
Evolve201974 61 13 36  $305 - $340
Midnight Ridge2020104 17 87 27 17 $550 - $700
Axis201752 53 — —  $860 - $1,125
Axis at the Canyons201926 18  $840 - $960
Cobalt2017107 88 19 14  $385 - $465
Onyx201888 81 29  $480 - $510
Nova Ridge201778 75  $700 - $900
Nova Ridge at the Cliffs201930 10 20  $700 - $900
Corterra201853 51 17  $455 - $545
Highline202059 53 10  $490 - $600
Indogo2018202 109 93 20 32  $340 - $390
Larimar2018106 56 50 25 $370 - $440
Blackstone2018105 68 37 16 19 $425 - $525
35 x 90 ProductTBD140 — 140 — — TBD
Cirrus201954 30 24 14 23 $380 - $420
Sandalwood2020116 109 33 $765 - $940
Latitude202196 — 96 — — $390 - $430
Atlas202193 — 93 — — $450 - $490
Contour2021116 — 116 — — $300 - $320
Closed CommunitiesN/A— — — — 
Nevada Total2,599 940 1,659 229 321 
Pardee Total15,313 3,026 12,287 1,067 987 

- 53 -


Quadrant Homes 
County, Project, City
Year of
First
Delivery(1)
Total
Number of
Lots(2)
Cumulative
Homes
Delivered
as of
September 30, 2020
Lots
Owned as of
September 30, 2020(3)
Backlog as of September 30, 2020(4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30, 2020
Sales Price
Range
(in thousands)(6)
Washington
Snohomish County:
Grove North, Bothell201943 35 24 $805 - $910
Trailside at Meadowdale Beach, Edmonds202138 — 38 — — $750 - $800
Cypress, Lynnwood202142 — 42 — — $545 - $655
King County:
Vareze, Kirkland202082 22 60 29 22 $755 - $930
Cedar Landing, North Bend2019138 47 91 42 23 $795 - $930
Monarch Ridge, Sammamish201959 27 32 30 14 $1,000 - $1,285
Overlook at Summit Park, Maple Valley2019126 55 71 37 26 $610 - $780
Aurea, Sammamish201941 26 15 14 17 $675 - $821
Aldea, Newcastle2019129 59 70 22 21 $665 - $920
Lario, Bellevue202046 13 33 26 13 $905 - $1,197
Lakeview Crest, Renton202017 — 17 11 —  $1,400 - $1,875
Eagles Glen, Sammamish202010  $1,150 - $1,555
Willows 124, Redmond2023173 — 173 — — $720 - $930
Finn Meadows, Kirkland202010 $1,050 - $1,245
Woodlands Reserve, Kirkland202237 — 37 — — $945 - $1,350
Hazelwood Gardens, Newcastle202115 — 15 — — $1,200 - $1,360
Kitsap County:
Blue Heron, Poulsbo202285 — 85 — — $556 - $726
McCormick Village, Port Orchard202188 88 — — $483 - $538
Poulsbo Meadows, Poulsbo202146 — 46 — — $528 - $564
Closed CommunitiesN/A— — — — N/A
Washington Total1,225 293 932 228 170 
Quadrant Total1,225 293 932 228 170 





- 54 -


Trendmaker Homes
County, Project, City
Year of
First
Delivery(1)
Total
Number of
Lots(2)
Cumulative
Homes
Delivered
as of
September 30, 2020
Lots
Owned as of
September 30, 2020(3)
Backlog as of September 30, 2020(4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30, 2020
Sales Price
Range
(in thousands)(6)
Texas
Fort Bend County:
Cross Creek Ranch 45', FulshearTBD10 — 10 — — TBD
Cross Creek Ranch 60', Fulshear201355 34 21 22 $460 - $545
Cross Creek Ranch 65', Fulshear201396 68 28 12 $498 - $717
Cross Creek Ranch 70', Fulshear2013112 95 17 10 24 $561 - $593
Cross Creek Ranch 80', Fulshear201371 70 21 $679
Cross Creek Ranch 90', Fulshear201352 43 $730 - $834
Fulshear Run 1/2 Acre, Richmond2016145 54 91 — $646
Harvest Green 75', Richmond201575 54 21 17 11 $494 - $637
Sienna Plantation 80', Missouri CityTBD25 — 25 — $593 - $670
Sienna Plantation 85', Missouri City201554 47 11 $601 - $727
Grayson Woods 60'201938 12 26 14 11 $463 - $542
Grayson Woods 70'201935 11 24 14 $537 - $612
Haven at Seven Lakes (Land)TBD129 — 129 — — TBD
Harris County:
The Groves, Humble2015117 103 14 14 $340 - $396
Lakes of Creekside 80'201617 15 $505 - $641
Lakes of Creekside 65'TBD18 — 18 — $425 - $526
Lakes at Creekside 60'2016135 134 — — TBD
Balmoral 50'201946 12 34 $265 - $347
Bridgeland '80, Cypress2015137 119 18 21 $656 - $914
Bridgeland 70'201830 23 17 $532 - $687
Villas at Bridgeland 50'201848 24 24 $350 - $418
Falls at Dry Creek201926 14 12 11 $566 - $675
Grant-Cyp-RosehillTBD428 — 428 — — TBD
Hidden Arbor Traditions, CypressTBD156 129 27 — $390 - $549
Clear Lake, Houston (Land)2015772 691 81 31 95 $401 - $608
Indian Hills (Land)TBD72 — 72 — — TBD
Northgrove, TomballTBD25 18 — — TBD
The Woodlands, Creekside Park2015131 128 11 $427 - $467
Montgomery County:
Grand Central ParkTBD17 — 17 — — $315 - $421
RodriguezTBD342 — 342 — — TBD
Villas at Royal Brook, Porter201926 13 13 10 $349 - $367
Waller County:
LakeHouse2019351 90 261 39 59 $289 - $608
Williamson County:
Rancho Sienna 60'201651 46 13 $363 - $495
Highlands at Mayfield Ranch 50'2019105 49 56 24 19 $312 - $408
Highlands at Mayfield Ranch 60'201946 35 11 10 21 $382 - $415
Meyer Ranch202033 29 11 $300 - $419
Rancho Sienna 50'201964 22 42 12 14 $308 - $449
Palmera Ridge201966 36 30 23 20 $310 - $345
Hays County:
6 Creeks 50' Section 1 & 2 50'202035 22 13 22 $347 - $356
6 Creeks 60' Section 1 & 2 60'202015 $374
Travis County:
Turner's Crossing (Land)TBD324 — 324 — — TBD
Williamson County:
Bar W (Land)TBD152 — 152 — — TBD
Cressman Tract (Land)TBD85 — 85 — — TBD
- 55 -


BrysonTBD12 — 12 — — TBD
Collin County:
Creeks of Legacy, Celina202061 — 61 17 — $319 - $400
Miramonte, Frisco201662 61 $475 - $560
Retreat at Craig Ranch, McKinney2012165 161 $375 - $415
Dallas County:
Vineyards, Rowlett201740 39 11 $368 - $480
Denton County:
Glenview, Frisco201750 47 15 $345 - $485
Paloma Creek, Little Elm2015267 199 68 16 22 $307 - $390
Parks at Legacy, Prosper201755 49 17 $384 - $495
Stark Farms, Denton2021— — — $285 - $342
Valencia, Little Elm201682 65 17 11 $350 - $444
Kaufman County:
Gateway Parks, Forney202024 — 24 13 — $270 - $370
Rockwall County:
Heath Golf and Yacht, Heath2016122 91 31 10 17 $400 - $510
Woodcreek, Fate2017165 110 55 20 22 $267 - $340
Tarrant County:
Chisholm Trail Ranch, Fort Worth2017111 80 31 16 $270 - $345
Lakes of River Trails, Fort Worth2011178 158 20 16 $335 - $420
Ventana, Benbrook201796 72 24 17 $318 - $430
View at the Reserve, Mansfield2022310 — 310 — — $318 - $422
Closed CommunitiesN/A— — — — 25 
Texas Total6,569 3,343 3,226 404 698 
Trendmaker Homes Total6,569 3,343 3,226 404 698 

- 56 -


TRI Pointe Homes
 
County, Project, City
Year of
First
Delivery(1)
Total
Number of
Lots(2)
Cumulative
Homes
Delivered
as of
September 30, 2020
Lots
Owned as of
September 30, 2020(3)
Backlog as of September 30, 2020(4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30, 2020
Sales Price
Range
(in thousands)(6)
Southern California
Orange County:
Varenna at Orchard Hills, Irvine2016135 119 16 18  $1,238 - $1,314
Lyric201970 66 25  $779 - $946
Windbourne201951 30 21 18 24  $1,164 - $1,276
Cerise at Canvas202056 50 14  $734 - $821
Violet at Canvas202065 11 54 23 11  $557 - $735
Claret at Canvas202072 12 60 25 12  $578 - $687
San Diego County:
Prism at Weston2018142 127 15 14 36  $574 - $644
Riverside County:
Citron @ Bedford2019101 73 28 27 27  $400 - $424
Cassis at Rancho Soleo202079 10 69 26 10  $496 - $511
Cava at Rancho Soleo202063 13 50 23 13  $395 - $441
Cerro at Rancho Soleo2020103 96 17  $376 - $435
Los Angeles County:
Tierno at Aliento201763 49 14 13 —  $704 - $732
Tierno II at Aliento201863 49 14 14 18  $704 - $732
Mystral201978 65 13 13 17  $629 - $685
Celestia201972 70 20  $597 - $633
San Bernardino County:
Ivy at The Preserve2019113 32 81 22 27  $367 - $445
Hazel at The Preserve2020133 28 105 44 28  $386 - $437
Tempo at The Resort202080 15 65 24 15  $519 - $582
Closed CommunitiesN/A— — — — 50 
Southern California Total1,539 782 757 331 364 
Northern California
Contra Costa County:
Greyson Place201944 36 20  $865 - $990
Santa Clara County:
Blanc at Glen Loma201949 23 26 24 18  $735 - $785
Noir at Glen Loma201964 22 42 28 13  $884 - $934
Lotus at Urban Oak2023123 — 123 — —  $940 - $1,064
Solano County:
Bloom at Green Valley201891 88 13  $557 - $597
Lantana at the Villages2019133 89 44 30 34  $503 - $553
Marigold at the Villages2021119 — 119 — —  $508 - $545
Shimmer at One Lake202145 — 45 — —  $570 - $605
Splash at One Lake202172 — 72 — —  $540 - $577
San Joaquin County:
Sundance, Mountain House2015113 111  $668 - $760
Sundance II, Mountain House2017138 132 33  $653 - $731
River Islands202044 — 44 33 —  $494 - $546
Alameda County:
Onyx at Jordan Ranch, Dublin2017105 97 17 $914 - $966
Palm, Fremont201931 17 14 12 $2,250 - $2,392
Ellis at Central Station, Oakland2020128 — 128 — $740 - $815
Sonoma County:
Riverfront Petaluma202120 — 20 — — $740 - $901
Sacramento County:
Natomas202194 — 94 — — $360 - $412
- 57 -


Mangini - Brookstone202096 26 70 28 26 $591 - $677
Mangini - Waterstone202077 23 54 26 23 $660 - $753
Placer County:
La Madera2019102 41 61 17 31 $463 - $548
Radiance2021103 — 103 — — $475 - $497
Illumination2021110 — 110 — — $434 - $465
Timbercove202118 — 18 — — $444 - $474
San Francisco County:
Cambridge Street (SFA)202154 — 54 — — $1,160 - $1,430
Closed CommunitiesN/A— — — — 40 
Northern California Total1,973 705 1,268 230 280 
California Total3,512 1,487 2,025 561 644 
Colorado
Douglas County:
Terrain Ravenwood Village (3500)2018157 119 38 31 31  $390 - $429
Trails at Crowfoot2021100 — 100 — —  TBD
Sterling Ranch Alley202097 95 16  $440 - $457
Sterling Ranch TH202146 — 46 — —  TBD
Canyons 4500202089 86 19  $600 - $660
Terrain Sunstone202174 — 74 — —  TBD
Sterling Ranch 5A202155 — 55 — —  TBD
Jefferson County:
Candelas 4020 Series, Arvada201998 83 15 14 37  $471 - $531
Crown Point, Westminster201964 63 32  $449 - $499
Candelas TH, Arvada202292 — 92 — —  TBD
Arapahoe County:
Adonea 3500, Aurora202071 69 31  $410 - $430
Adams County:
Reunion Alley, Commerce City202150 — 50 —  TBD
Reunion Ridge202197 — 97 — — 
Closed CommunitiesN/A— — — — 59 
Colorado Total1,090 272 818 115 166 
North Carolina
Wake County:
Waterside Townhomes, Raleigh, NC202023 — 23 — —  $335 - $351
Townes at North Salem St., Apex, NC202155 — 55 — —  $312 - $339
Mecklenburg County:
Mayes Hall, Davidson, NC202150 — 50 — —  $335 - $406
Everton, Charlotte, NC202120 — 20 — —  $524 - $570
North Carolina Total148  148   
South Carolina
York County:
Balsam, Rock Hill, SC202153 — 53 — —  $279 - $304
Ashburn, York County, SC202013 — 13 —  $258 - $294
South Carolina Total66  66 6  
TRI Pointe Total4,816 1,759 3,057 682 810 

- 58 -


Winchester Homes
County, Project, City
Year of
First
Delivery(1)
Total
Number of
Lots(2)
Cumulative
Homes
Delivered
as of
September 30, 2020
Lots
Owned as of
September 30, 2020(3)
Backlog as of September 30, 2020(4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30, 2020
Sales Price
Range
(in thousands)(6)
Maryland
Anne Arundel County:
Two Rivers Townhomes, Crofton2017152 87 65 19 22 $465 - $548
Watson's Glen, Millersville2015103 18 85 31 14 $386 - $419
Frederick County:
Landsdale, Monrovia
Landsdale SFD2015222 189 33 30 29 $515 - $624
Landsdale TND Neo SFD201577 72 13 $450 - $483
Montgomery County:
Cabin Branch, Clarksburg
Cabin Branch SFD2014359 266 93 23 29  $570 - $780
Cabin Branch Crossings Townhomes2019114 106 46  $438 - $508
Cabin Branch Manor Townhomes2014428 379 49 17 28  $393 - $467
Preserve at Stoney Spring - Lots for SaleTBD— — 
Glenmont MetroCenter, Silver Spring2016171 154 17 17 23  $460 - $518
Chapman Row, Rockville201961 26 35 26 16  $700 - $750
North Quarter, North Bethesda2020104 22 82 22  $620 - $675
Closed CommunitiesN/A— — — — 25 
Maryland Total1,793 1,221 572 223 228 
Virginia
Fairfax County:
Stuart Mill, Oakton - Lots for SaleTBD— — — TBD
West Oaks Corner, Fairfax2019188 78 110 34 52 $715 - $840
Bren Pointe SFA, Fairfax202035 — 35 — — TBD
Loudoun County:
Brambleton, Ashburn
Birchwood Bungalows AA201863 52 11 13 19 $587 - $644
Birchwood Carriages AA201954 32 22 30 31 $543 - $578
Downtown Bramleton2020— — 11 TBD
Willowsford Grant II, Aldie201755 49 — $1,000 - $1,255
Closed CommunitiesN/A— — — — 
Virginia Total409 211 198 83 122 
Winchester Total2,202 1,432 770 306 350 
Combined Company Total33,253 10,863 22,197 3,188 3,490 
__________
(1)Year of first delivery for future periods is based upon management’s estimates and is subject to change.
(2)The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.
(3)Owned lots as of September 30, 2020 include owned lots in backlog as of September 30, 2020.
(4)Backlog consists of homes under sales contracts that have not yet been delivered, and there can be no assurance that delivery of sold homes will occur.
(5)Of the total homes subject to pending sales contracts that have not been delivered as of September 30, 2020, 2,124 homes are under construction, 283 homes have completed construction, and 781 homes have not started construction.
(6)Sales price range reflects base price only and excludes any lot premium, buyer incentives and buyer-selected options, which may vary from project to project. Sales prices for homes required to be sold pursuant to affordable housing requirements are excluded from sales price range. Sales prices reflect current pricing and might not be indicative of past or future pricing.
- 59 -


Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. Our condensed notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 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.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Recently Issued Accounting Standards
See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks related to fluctuations in interest rates on our outstanding debt.  We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the nine months ended September 30, 2020. We did not enter into during the nine months ended September 30, 2020, and currently do not hold, derivatives for trading or speculative purposes.

Item 4.    Controls and Procedures
We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.
Our management, including our Principal Executive Officer and Principal Financial Officer, has evaluated our internal control over financial reporting to determine whether any change occurred during the three months ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the three months ended September 30, 2020.
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PART II. OTHER INFORMATION

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

Item 1A.    Risk Factors
    There have been no material changes to the risk factors in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as revised and supplemented by our Quarterly Reports on Form 10-Q filed with the SEC since the filing of our Annual Report on Form 10-K for the year ended December 31, 2019. If any of the risks discussed in our Annual Report on Form 10-K (as revised or supplemented by any 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. Some statements in this Quarterly Report on Form 10-Q constitute forward-looking statements. Please refer to Part I, Item 2 of this Quarterly Report on Form 10-Q entitled “Cautionary Note Concerning Forward-Looking Statements.”

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
On February 21, 2019, our board of directors approved our 2019 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $100 million through March 31, 2020. On December 16, 2019, we announced that our board of directors had authorized the repurchase of up to an additional $50 million through March 31, 2020, increasing the aggregate value of shares of common stock authorized to be repurchased under the 2019 Repurchase Program to $150 million from $100 million.
On February 13, 2020, our board of directors discontinued and cancelled the 2019 Repurchase Program and approved our 2020 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $200 million through March 31, 2021. Purchases of common stock pursuant to the 2020 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2020 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2020 Repurchase Program at any time. Our management will determine the timing and amount of repurchases 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 September 30, 2020, we repurchased and retired an aggregate of 3,662,738 shares of our common stock at an average price of $16.94 under the 2020 Repurchase Program for $62.1 million. For the nine months ended September 30, 2020, we repurchased and retired an aggregate of 10.2 million shares of common stock at an average price of $16.05 under the 2019 Repurchase Program and 2020 Repurchase Program for a total of $164.1 million.
During the three months ended September 30, 2020, we repurchased and retired the following shares pursuant to our repurchase programs:
Total number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced programApproximate dollar value of shares that may yet be purchased under the program
July 1, 2020 to July 31, 2020444,019 $16.96 444,019 $92,040,734 
August 1, 2020 to August 31, 20201,313,496 $16.87 1,313,496 $69,880,521 
September 1, 2020 to September 30, 20201,905,223 $16.99 1,905,223 $37,508,621 
Total3,662,738 $16.94 3,662,738 

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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))
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
101The following materials from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Condensed Notes to Consolidated Financial Statement.
104Cover page from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL (and contained in Exhibit 101).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
TRI Pointe Group, Inc.
Date: October 22, 2020By:/s/ Douglas F. Bauer
Douglas F. Bauer
Chief Executive Officer
(Principal Executive Officer)
Date: October 22, 2020By:/s/ Glenn J. Keeler
Glenn J. Keeler
Chief Financial Officer
(Principal Financial Officer)
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