Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________________
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-35796
_____________________________________________________________________________________________
TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________________________________________________________________
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| | |
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)
____________________________________________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically 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.
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| | | |
Large accelerated filer | x | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
142,210,147 shares of the registrant's common stock were issued and outstanding as of April 12, 2019.
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
March 31, 2019
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION
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Item 1. | Financial Statements |
TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| (unaudited) | | |
Assets | | | |
Cash and cash equivalents | $ | 148,782 |
| | $ | 277,696 |
|
Receivables | 58,234 |
| | 51,592 |
|
Real estate inventories | 3,242,678 |
| | 3,216,059 |
|
Investments in unconsolidated entities | 4,191 |
| | 5,410 |
|
Goodwill and other intangible assets, net | 160,293 |
| | 160,427 |
|
Deferred tax assets, net | 67,761 |
| | 67,768 |
|
Other assets | 173,956 |
| | 105,251 |
|
Total assets | $ | 3,855,895 |
| | $ | 3,884,203 |
|
Liabilities | | | |
Accounts payable | $ | 66,605 |
| | $ | 81,313 |
|
Accrued expenses and other liabilities | 319,791 |
| | 335,149 |
|
Senior notes, net | 1,412,463 |
| | 1,410,804 |
|
Total liabilities | 1,798,859 |
| | 1,827,266 |
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| | | |
Commitments and contingencies (Note 13) |
| |
|
| | | |
Equity | | | |
Stockholders’ equity: | | | |
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | — |
| | — |
|
Common stock, $0.01 par value, 500,000,000 shares authorized; 142,210,147 and 141,661,713 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 1,422 |
| | 1,417 |
|
Additional paid-in capital | 658,743 |
| | 658,720 |
|
Retained earnings | 1,396,858 |
| | 1,396,787 |
|
Total stockholders’ equity | 2,057,023 |
| | 2,056,924 |
|
Noncontrolling interests | 13 |
| | 13 |
|
Total equity | 2,057,036 |
| | 2,056,937 |
|
Total liabilities and equity | $ | 3,855,895 |
| | $ | 3,884,203 |
|
See accompanying condensed notes to the unaudited consolidated financial statements.
TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Homebuilding: | | | |
Home sales revenue | $ | 492,703 |
| | $ | 582,572 |
|
Land and lot sales revenue | 1,029 |
| | 223 |
|
Other operations revenue | 598 |
| | 598 |
|
Total revenues | 494,330 |
| | 583,393 |
|
Cost of home sales | 421,536 |
| | 450,502 |
|
Cost of land and lot sales | 1,495 |
| | 503 |
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Other operations expense | 590 |
| | 602 |
|
Sales and marketing | 38,989 |
| | 38,283 |
|
General and administrative | 38,597 |
| | 36,814 |
|
Homebuilding (loss) income from operations | (6,877 | ) | | 56,689 |
|
Equity in loss of unconsolidated entities | (25 | ) | | (468 | ) |
Other income, net | 6,241 |
| | 171 |
|
Homebuilding (loss) income before income taxes | (661 | ) | | 56,392 |
|
Financial Services: | | | |
Revenues | 302 |
| | 283 |
|
Expenses | 321 |
| | 137 |
|
Equity in income of unconsolidated entities | 775 |
| | 1,002 |
|
Financial services income before income taxes | 756 |
| | 1,148 |
|
Income before income taxes | 95 |
| | 57,540 |
|
Provision for income taxes | (24 | ) | | (14,660 | ) |
Net income | $ | 71 |
| | $ | 42,880 |
|
Earnings per share | |
| | |
|
Basic | $ | 0.00 |
| | $ | 0.28 |
|
Diluted | $ | 0.00 |
| | $ | 0.28 |
|
Weighted average shares outstanding | | | |
Basic | 141,865,270 |
| | 151,464,547 |
|
Diluted | 142,390,163 |
| | 152,775,851 |
|
See accompanying condensed notes to the unaudited consolidated financial statements.
TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares of Common Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2018 | 141,661,713 |
| | $ | 1,417 |
| | $ | 658,720 |
| | $ | 1,396,787 |
| | $ | 2,056,924 |
| | $ | 13 |
| | $ | 2,056,937 |
|
Net income | — |
| | — |
| | — |
| | 71 |
| | 71 |
| | — |
| | 71 |
|
Shares issued under share-based awards | 548,434 |
| | 5 |
| | 193 |
| | — |
| | 198 |
| | — |
| | 198 |
|
Minimum tax withholding paid on behalf of employees for restricted stock units | — |
| | — |
| | (3,605 | ) | | — |
| | (3,605 | ) | | — |
| | (3,605 | ) |
Stock-based compensation expense | — |
| | — |
| | 3,435 |
| | — |
| | 3,435 |
| | — |
| | 3,435 |
|
Balance at March 31, 2019 | 142,210,147 |
| | $ | 1,422 |
| | $ | 658,743 |
| | $ | 1,396,858 |
| | $ | 2,057,023 |
| | $ | 13 |
| | $ | 2,057,036 |
|
| | | | | | | | | | | | | |
Balance at December 31, 2017 | 151,162,999 |
| | $ | 1,512 |
| | $ | 793,980 |
| | $ | 1,134,230 |
| | $ | 1,929,722 |
| | $ | 605 |
| | $ | 1,930,327 |
|
Cumulative effect of accounting change | — |
| | — |
| | — |
| | (7,354 | ) | | (7,354 | ) | | — |
| | (7,354 | ) |
Net income | — |
| | — |
| | — |
| | 42,880 |
| | 42,880 |
| | — |
| | 42,880 |
|
Shares issued under share-based awards | 759,460 |
| | 7 |
| | 968 |
| | — |
| | 975 |
| | — |
| | 975 |
|
Minimum tax withholding paid on behalf of employees for restricted stock units | — |
| | — |
| | (6,049 | ) | | — |
| | (6,049 | ) | | — |
| | (6,049 | ) |
Stock-based compensation expense | — |
| | — |
| | 3,470 |
| | — |
| | 3,470 |
| | — |
| | 3,470 |
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Distributions to noncontrolling interests, net | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Balance at March 31, 2018 | 151,922,459 |
| | $ | 1,519 |
| | $ | 792,369 |
| | $ | 1,169,756 |
| | $ | 1,963,644 |
| | $ | 604 |
| | $ | 1,964,248 |
|
See accompanying condensed notes to the unaudited consolidated financial statements.
TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Cash flows from operating activities: | | | |
Net income | $ | 71 |
| | $ | 42,880 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | |
Depreciation and amortization | 5,085 |
| | 5,488 |
|
Equity in income of unconsolidated entities, net | (750 | ) | | (534 | ) |
Deferred income taxes, net | 7 |
| | 5,024 |
|
Amortization of stock-based compensation | 3,435 |
| | 3,470 |
|
Charges for impairments and lot option abandonments | 5,202 |
| | 248 |
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Changes in assets and liabilities: | | | |
Real estate inventories | (29,695 | ) | | (87,107 | ) |
Receivables | (6,642 | ) | | 70,351 |
|
Other assets | (5,476 | ) | | 2,308 |
|
Accounts payable | (14,708 | ) | | 3,379 |
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Accrued expenses and other liabilities | (73,446 | ) | | 2,165 |
|
Returns on investments in unconsolidated entities, net | 1,992 |
| | 2,214 |
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Net cash (used in) provided by operating activities | (114,925 | ) | | 49,886 |
|
Cash flows from investing activities: | | | |
Purchases of property and equipment | (7,224 | ) | | (2,170 | ) |
Proceeds from sale of property and equipment | 7 |
| | — |
|
Investments in unconsolidated entities | (231 | ) | | (947 | ) |
Net cash used in investing activities | (7,448 | ) | | (3,117 | ) |
Cash flows from financing activities: | | | |
Repayment of debt | (10 | ) | | — |
|
Debt issuance costs | (3,124 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | (1 | ) |
Proceeds from issuance of common stock under share-based awards | 198 |
| | 975 |
|
Minimum tax withholding paid on behalf of employees for share-based awards | (3,605 | ) | | (6,049 | ) |
Net cash used in financing activities | (6,541 | ) | | (5,075 | ) |
Net (decrease) increase in cash and cash equivalents | (128,914 | ) | | 41,694 |
|
Cash and cash equivalents–beginning of period | 277,696 |
| | 282,914 |
|
Cash and cash equivalents–end of period | $ | 148,782 |
| | $ | 324,608 |
|
See accompanying condensed notes to the unaudited consolidated financial statements.
TRI POINTE GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| |
1. | Organization, Basis of Presentation and Summary of Significant Accounting Policies |
Organization
TRI Pointe is engaged in the design, construction and sale of innovative single-family attached and detached homes through its portfolio of six quality brands across ten 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, 2018. In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included. The results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019 due to seasonal variations and other factors.
The consolidated financial statements include the accounts of TRI Pointe Group and its wholly owned subsidiaries, as well as other entities in which TRI Pointe Group has a controlling interest and variable interest entities (“VIEs”) in which TRI Pointe Group is the primary beneficiary. The noncontrolling interests as of March 31, 2019 and December 31, 2018 represent the outside owners’ interests in the Company’s consolidated entities. All significant intercompany accounts have been eliminated upon consolidation.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Codified as “ASC 606”). Under ASC 606, we apply the following steps to determine the timing and amount of revenue to recognize: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.
Home sales revenue
We generate the majority of our total revenues from home sales, which consists of our core business operation of building and delivering completed homes to homebuyers. Home sales revenue and related profit is generally recognized when title to and possession of the home is transferred to the homebuyer at the home closing date. Our performance obligation to deliver the agreed-upon home is generally satisfied in less than one year from the original contract date. Included in home sales revenue are forfeited deposits, which occur when homebuyers cancel home purchase contracts that include a nonrefundable deposit. Both revenue from forfeited deposits and deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers are immaterial.
Land and lot sales revenue
Historically, we have generated land and lot sales revenue from a small number of transactions, although in some years we have realized a significant amount of revenue and gross margin. We do not expect our future land and lot sales revenue to
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 other homebuilding operations revenue relates to a ground lease at our Quadrant Homes reporting segment. We are responsible for making lease payments to the land owner, and we collect sublease payments from the buyers of the buildings. This ground lease is accounted for in accordance with ASC Topic 842, Leases. We do not recognize a material profit on this ground lease.
Financial services revenues
TRI Pointe Solutions is a reportable segment and is comprised of our TRI Pointe Connect mortgage financing operations, TRI Pointe Assurance title 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 services operations
TRI Pointe Assurance provides title examinations for our homebuyers in Texas, Maryland 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. At the time of the consummation of the home sales transactions, we recognize a percentage of revenue captured by First American Title Insurance Company. TRI Pointe Assurance revenue is included in the Financial Services section of our consolidated statements of operations.
Property and casualty insurance agency operations
TRI Pointe Advantage is a wholly owned subsidiary of TRI Pointe and provides property and casualty insurance agency services that help facilitate the closing process in all of the markets in which we operate. The total consideration for these services, including renewal options, is estimated upon the issuance of the initial insurance policy, subject to constraint. TRI Pointe Advantage revenue is included in the Financial Services section of our consolidated statements of operations.
Recently Issued Accounting Standards Not Yet Adopted
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We do not expect the adoption of ASU 2017-04 to have a material impact on our financial statements.
Adoption of New Accounting Standards
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Codified as “ASC 842”), which requires an entity to recognize a lease right-of-use asset and lease liability on the balance sheet for the rights and obligations created by leases with durations of greater than 12 months. Right-of-use lease assets represent our right to use the underlying asset for the lease term and the lease obligation represents our commitment to make the lease payments arising from the lease. The guidance also requires more disclosures about leases in the notes to financial statements. We adopted ASC 842 on January 1, 2019, using a modified retrospective approach resulting in the recognition of a cumulative effect adjustment to the opening balance sheet of $57.4 million, which included a lease right-of-use asset offset by a lease liability on our consolidated balance sheet. No prior period adjustment was recorded. Additionally, we have elected the transition package of three practical expedients permitted under ASC 842, which among other things, allows us to retain the current operating classification for all of our existing leases prior the effective adoption date. For further details on the adoption of ASC 842, see Note 13, Commitments and Contingencies.
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon these factors, our homebuilding operations are comprised of the following six reportable segments: Maracay, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California, Colorado and 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 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.
Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Revenues | | | |
Maracay | $ | 39,561 |
| | $ | 58,455 |
|
Pardee Homes | 134,863 |
| | 180,470 |
|
Quadrant Homes | 43,871 |
| | 61,903 |
|
Trendmaker Homes | 70,821 |
| | 41,408 |
|
TRI Pointe Homes | 171,791 |
| | 190,420 |
|
Winchester Homes | 33,423 |
| | 50,737 |
|
Total homebuilding revenues | 494,330 |
| | 583,393 |
|
Financial services | 302 |
| | 283 |
|
Total | $ | 494,632 |
| | $ | 583,676 |
|
| | | |
Income (loss) before income taxes | | | |
Maracay | $ | 1,190 |
| | $ | 4,391 |
|
Pardee Homes | (791 | ) | | 39,191 |
|
Quadrant Homes | (2,639 | ) | | 8,140 |
|
Trendmaker Homes | (1,598 | ) | | 370 |
|
TRI Pointe Homes | 10,209 |
| | 14,531 |
|
Winchester Homes | (766 | ) | | 1,607 |
|
Corporate | (6,266 | ) | | (11,838 | ) |
Total homebuilding (loss) income before income taxes | (661 | ) | | 56,392 |
|
Financial services | 756 |
| | 1,148 |
|
Total | $ | 95 |
| | $ | 57,540 |
|
Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Real estate inventories | | | |
Maracay | $ | 320,459 |
| | $ | 293,217 |
|
Pardee Homes | 1,300,853 |
| | 1,286,877 |
|
Quadrant Homes | 273,621 |
| | 279,486 |
|
Trendmaker Homes | 284,734 |
| | 271,061 |
|
TRI Pointe Homes | 780,568 |
| | 812,799 |
|
Winchester Homes | 282,443 |
| | 272,619 |
|
Total | $ | 3,242,678 |
| | $ | 3,216,059 |
|
| | | |
Total assets | | | |
Maracay | $ | 352,968 |
| | $ | 318,703 |
|
Pardee Homes | 1,404,466 |
| | 1,391,503 |
|
Quadrant Homes | 346,697 |
| | 313,947 |
|
Trendmaker Homes | 315,713 |
| | 325,943 |
|
TRI Pointe Homes | 966,252 |
| | 987,610 |
|
Winchester Homes | 312,636 |
| | 298,602 |
|
Corporate | 136,689 |
| | 228,010 |
|
Total homebuilding assets | 3,835,421 |
| | 3,864,318 |
|
Financial services | 20,474 |
| | 19,885 |
|
Total | $ | 3,855,895 |
| | $ | 3,884,203 |
|
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Numerator: | |
| | |
|
Net income | $ | 71 |
| | $ | 42,880 |
|
Denominator: | |
| | |
|
Basic weighted-average shares outstanding | 141,865,270 |
| | 151,464,547 |
|
Effect of dilutive shares: | |
| | |
Stock options and unvested restricted stock units | 524,893 |
| | 1,311,304 |
|
Diluted weighted-average shares outstanding | 142,390,163 |
| | 152,775,851 |
|
Earnings per share | |
| | |
|
Basic | $ | 0.00 |
| | $ | 0.28 |
|
Diluted | $ | 0.00 |
| | $ | 0.28 |
|
Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share | 2,864,509 |
| | 1,248,483 |
|
Receivables consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Escrow proceeds and other accounts receivable, net | $ | 20,715 |
| | $ | 13,995 |
|
Warranty insurance receivable (Note 13) | 37,519 |
| | 37,597 |
|
Total receivables | $ | 58,234 |
| | $ | 51,592 |
|
Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables when collection becomes doubtful. Receivables were net of allowances for doubtful accounts of $456,000 and $667,000 as of March 31, 2019 and December 31, 2018, respectively.
| |
5. | Real Estate Inventories |
Real estate inventories consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Real estate inventories owned: | | | |
Homes completed or under construction | $ | 1,037,271 |
| | $ | 959,911 |
|
Land under development | 1,668,075 |
| | 1,743,537 |
|
Land held for future development | 203,476 |
| | 201,874 |
|
Model homes | 258,545 |
| | 238,828 |
|
Total real estate inventories owned | 3,167,367 |
| | 3,144,150 |
|
Real estate inventories not owned: | | | |
Land purchase and land option deposits | 75,311 |
| | 71,909 |
|
Total real estate inventories not owned | 75,311 |
| | 71,909 |
|
Total real estate inventories | $ | 3,242,678 |
| | $ | 3,216,059 |
|
Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future.
Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 7, Variable Interest Entities.
Interest incurred, capitalized and expensed were as follows (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Interest incurred | $ | 23,373 |
| | $ | 21,520 |
|
Interest capitalized | (23,373 | ) | | (21,520 | ) |
Interest expensed | $ | — |
| | $ | — |
|
Capitalized interest in beginning inventory | $ | 184,400 |
| | $ | 176,348 |
|
Interest capitalized as a cost of inventory | 23,373 |
| | 21,520 |
|
Interest previously capitalized as a cost of inventory, included in cost of sales | (14,333 | ) | | (14,242 | ) |
Capitalized interest in ending inventory | $ | 193,440 |
| | $ | 183,626 |
|
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 March 31, |
| 2019 | | 2018 |
Real estate inventory impairments | $ | — |
| | $ | — |
|
Land and lot option abandonments and pre-acquisition charges | 5,202 |
| | 248 |
|
Total | $ | 5,202 |
| | $ | 248 |
|
Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale. Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less cost to sell are also included in the total impairment charges. No real estate inventory impairments were recorded for the three-month periods ended March 31, 2019 or 2018, respectively.
In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time.
Real estate inventory impairments and land option abandonments are recorded in cost of home sales and cost of land and lot sales on the consolidated statements of operations.
| |
6. | Investments in Unconsolidated Entities |
As of March 31, 2019, we held equity investments in four active homebuilding partnerships or limited liability companies and one financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 7% to 65%, depending on the investment, with no controlling interest held in any of these investments.
Unconsolidated Financial Information
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investments in unconsolidated entities or on our consolidated statements of operations as equity in income of unconsolidated entities.
Assets and liabilities of unconsolidated entities (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Assets | | | |
Cash | $ | 10,261 |
| | $ | 13,337 |
|
Receivables | 3,358 |
| | 4,674 |
|
Real estate inventories | 100,986 |
| | 99,864 |
|
Other assets | 746 |
| | 811 |
|
Total assets | $ | 115,351 |
| | $ | 118,686 |
|
Liabilities and equity | | | |
Accounts payable and other liabilities | $ | 6,930 |
| | $ | 11,631 |
|
Company’s equity | 4,191 |
| | 5,410 |
|
Outside interests’ equity | 104,230 |
| | 101,645 |
|
Total liabilities and equity | $ | 115,351 |
| | $ | 118,686 |
|
Results of operations from unconsolidated entities (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Net sales | $ | 4,111 |
| | $ | 4,390 |
|
Other operating expense | (2,752 | ) | | (3,287 | ) |
Other income | 8 |
| | 63 |
|
Net income | $ | 1,367 |
| | $ | 1,166 |
|
Company’s equity in income of unconsolidated entities | $ | 750 |
| | $ | 534 |
|
| |
7. | Variable Interest Entities |
In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. These deposits are recorded as land purchase and land option deposits under real estate inventories not owned on the accompanying consolidated balance sheets.
We analyze each of our land and lot option agreements and other similar contracts under the provisions of ASC 810, Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is generally limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the land owner and budget shortfalls and savings will be borne by us. Additionally, we have entered into land banking arrangements which require us to complete development work even if we terminate the option to procure land or lots.
The following provides a summary of our interests in land and lot option agreements (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| Deposits | | Remaining Purchase Price | | Consolidated Inventory Held by VIEs | | Deposits | | Remaining Purchase Price | | Consolidated Inventory Held by VIEs |
Consolidated VIEs | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Unconsolidated VIEs | 49,589 |
| | 390,757 |
| | N/A |
| | 41,198 |
| | 433,720 |
| | N/A |
|
Other land option agreements | 25,722 |
| | 271,299 |
| | N/A |
| | 30,711 |
| | 307,498 |
| | N/A |
|
Total | $ | 75,311 |
| | $ | 662,056 |
| | $ | — |
| | $ | 71,909 |
| | $ | 741,218 |
| | $ | — |
|
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land and lot option contracts consisted of capitalized pre-acquisition costs of $7.0 million and $7.5 million as of March 31, 2019 and December 31, 2018, respectively. These pre-acquisition costs are included in real estate inventories as land under development on our consolidated balance sheets.
| |
8. | Goodwill and Other Intangible Assets |
As of March 31, 2019 and December 31, 2018, $139.3 million of goodwill is included in goodwill and other intangible assets, net on each of the consolidated balance sheets. The Company’s goodwill balance is included in the TRI Pointe Homes reporting segment in Note 2, Segment Information.
We have two intangible assets as of March 31, 2019, comprised of an existing trade name from the acquisition of Maracay in 2006, which has a 20 year useful life, and a TRI Pointe Homes trade name resulting from the acquisition of Weyerhaeuser Real Estate Company in 2014, which has an indefinite useful life.
Goodwill and other intangible assets consisted of the following (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Goodwill | $ | 139,304 |
| | $ | — |
| | $ | 139,304 |
| | $ | 139,304 |
| | $ | — |
| | $ | 139,304 |
|
Trade names | 27,979 |
| | (6,990 | ) | | 20,989 |
| | 27,979 |
| | (6,856 | ) | | 21,123 |
|
Total | $ | 167,283 |
| | $ | (6,990 | ) | | $ | 160,293 |
| | $ | 167,283 |
| | $ | (6,856 | ) | | $ | 160,427 |
|
The remaining useful life of our amortizing intangible asset related to the Maracay trade name was 6.9 and 7.2 years as of March 31, 2019 and December 31, 2018, respectively. The net carrying amount related to this intangible asset was $3.7 million and $3.8 million as of March 31, 2019 and December 31, 2018, respectively. Amortization expense related to this intangible asset was $134,000 for each of the three-month periods ended March 31, 2019 and 2018, respectively. Amortization of this intangible was charged to sales and marketing expense. Our $17.3 million indefinite life intangible asset related to the TRI Pointe Homes trade name is not amortizing. All trade names are evaluated for impairment on an annual basis or more frequently if indicators of impairment exist.
Expected amortization of our intangible asset related to Maracay for the remainder of 2019, the next four years and thereafter is (in thousands):
|
| | | |
Remainder of 2019 | $ | 400 |
|
2020 | 534 |
|
2021 | 534 |
|
2022 | 534 |
|
2023 | 534 |
|
Thereafter | 1,153 |
|
Total | $ | 3,689 |
|
Other assets consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Prepaid expenses | $ | 30,414 |
| | $ | 31,983 |
|
Refundable fees and other deposits | 18,071 |
| | 12,376 |
|
Development rights, held for future use or sale | 2,288 |
| | 845 |
|
Deferred loan costs–loans payable | 5,298 |
| | 2,424 |
|
Operating properties and equipment, net | 56,462 |
| | 54,198 |
|
Lease right-of-use assets | 58,088 |
| | — |
|
Other | 3,335 |
| | 3,425 |
|
Total | $ | 173,956 |
| | $ | 105,251 |
|
Lease right-of-use assets was impacted by our one-time cumulative adjustment resulting from the adoption of ASC 842. As a result of our cumulative adjustment, the December 31, 2018 balance increased by $57.4 million on January 1, 2019. For further details, see Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies.
| |
10. | Accrued Expenses and Other Liabilities |
Accrued expenses and other liabilities consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Accrued payroll and related costs | $ | 17,458 |
| | $ | 44,010 |
|
Warranty reserves (Note 13) | 70,947 |
| | 71,836 |
|
Estimated cost for completion of real estate inventories | 77,533 |
| | 114,928 |
|
Customer deposits | 21,051 |
| | 17,464 |
|
Income tax liability to Weyerhaeuser | 577 |
| | 6,577 |
|
Accrued income taxes payable | 10,853 |
| | 8,335 |
|
Liability for uncertain tax positions (Note 15) | 972 |
| | 972 |
|
Accrued interest | 24,345 |
| | 12,572 |
|
Other tax liability | 21,171 |
| | 21,892 |
|
Lease liabilities | 61,284 |
| | 3,196 |
|
Other | 13,600 |
| | 33,367 |
|
Total | $ | 319,791 |
| | $ | 335,149 |
|
Lease liabilities was impacted by our one-time cumulative adjustment resulting from the adoption of ASC 842. As a result of our cumulative adjustment, the December 31, 2018 balance increased by $57.4 million on January 1, 2019. For further details, see Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies.
| |
11. | Senior Notes and Loans Payable |
Senior Notes
The Company’s outstanding senior notes (together, the “Senior Notes”) consisted of the following (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
4.375% Senior Notes due June 15, 2019 | $ | 381,885 |
| | $ | 381,895 |
|
4.875% Senior Notes due July 1, 2021 | 300,000 |
| | 300,000 |
|
5.875% Senior Notes due June 15, 2024 | 450,000 |
| | 450,000 |
|
5.250% Senior Notes due June 1, 2027 | 300,000 |
| | 300,000 |
|
Discount and deferred loan costs | (19,422 | ) | | (21,091 | ) |
Total | $ | 1,412,463 |
| | $ | 1,410,804 |
|
In June 2017, TRI Pointe Group issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1.
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.
TRI Pointe Group and its wholly owned subsidiary TRI Pointe Homes, Inc. (“TRI Pointe Homes”) are co-issuers of the 4.375% Senior Notes due 2019 (the “2019 Notes”) and the 5.875% Senior Notes due 2024 (the “2024 Notes”). The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering of the 2019 Notes and the 2024 Notes were $861.3 million, after debt issuance costs and discounts. The 2019 Notes and 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually in arrears on June 15 and December 15. During the three months ended March 31, 2019, we repurchased and cancelled an aggregate principal amount of $10,000 of the 2019 Notes. During the year ended December 31, 2018, we repurchased and cancelled an aggregate principal amount of $68.1 million of the 2019 Notes.
As of March 31, 2019, there was $13.4 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 $23.3 million and $11.5 million as of March 31, 2019 and December 31, 2018, respectively.
Loans Payable
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. The Company plans to draw $250 million from the Term Facility in June of 2019 in connection with the maturity of the 2019 Notes. The Company may increase the Credit Facility to not more than $1 billion in the aggregate, at its request, upon satisfaction of specified conditions. The Revolving Facility contains a sublimit of $75 million for letters of credit. The Company may borrow under the Revolving Facility in the ordinary course of business to 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 March 31, 2019, we had no outstanding debt under the Credit Facility and $818.8 million of availability after considering the borrowing base provisions and outstanding letters of credit. As of March 31, 2019, there was $5.3 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 $432,000 and $402,000 as of March 31, 2019 and December 31, 2018, respectively.
At March 31, 2019 and December 31, 2018, we had outstanding letters of credit of $31.2 million and $31.8 million, respectively. These letters of credit were issued to secure various financial obligations. We believe it is not probable that any outstanding letters of credit will be drawn upon.
Interest Incurred
During the three months ended March 31, 2019 and 2018, the Company incurred interest of $23.4 million and $21.5 million, respectively, related to all debt during the period. Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $1.9 million and $2.0 million for the three months ended March 31, 2019 and 2018, respectively. Accrued interest related to all outstanding debt at March 31, 2019 and December 31, 2018 was $24.3 million and $12.6 million, respectively.
Covenant Requirements
The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.
Under the Credit Facility, the Company is required to comply with certain financial covenants, including those relating to consolidated tangible net worth, leverage, liquidity or interest coverage, and a spec unit inventory test. The Credit Facility also requires that at least 97.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.
The Company was in compliance with all applicable financial covenants as of March 31, 2019 and December 31, 2018.
| |
12. | Fair Value Disclosures |
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
| |
• | Level 1—Quoted prices for identical instruments in active markets |
| |
• | Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date |
| |
• | Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date |
Fair Value of Financial Instruments
A summary of assets and liabilities at March 31, 2019 and December 31, 2018, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | March 31, 2019 | | December 31, 2018 |
| Hierarchy | | Book Value | | Fair Value | | Book Value | | Fair Value |
Senior Notes (1) | Level 2 | | $ | 1,425,892 |
| | $ | 1,395,794 |
| | $ | 1,425,397 |
| | $ | 1,308,826 |
|
__________
| |
(1) | The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $13.4 million and $14.6 million as of March 31, 2019 and December 31, 2018, respectively. The estimated fair value of the Senior Notes at March 31, 2019 and December 31, 2018 is based on quoted market prices. |
At March 31, 2019 and December 31, 2018, the carrying value of cash and cash equivalents and receivables approximated fair value due to their short-term nature and variable interest rate terms.
Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicating the carrying value is not recoverable. No carrying values were adjusted to fair value for the three months ended March 31, 2019 or the year ended December 31, 2018.
| |
13. | Commitments and Contingencies |
Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary. In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements. For matters as to which the Company believes a loss is probable and reasonably estimable, we had no legal reserve as of March 31, 2019. As of December 31, 2018, we had a $17.5 million legal reserve related to a settlement in connection with a previously disclosed lawsuit involving a land sale that occurred in 1987. This settlement was paid on February 4, 2019.
Warranty
Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.
We maintain general liability insurance designed to protect us against a portion of our risk of loss from warranty and construction defect-related claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy.
Our warranty reserve and related estimated insurance recoveries are based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs and related recoveries. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a warranty or construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
We also record expected recoveries from insurance carriers based on actual insurance claims made and actuarially determined amounts that depend on various factors, including the above-described reserve estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated. Outstanding warranty insurance receivables were $37.5 million and $37.6 million as of March 31, 2019 and December 31, 2018, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheets.
Warranty reserve activity consisted of the following (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Warranty reserves, beginning of period | $ | 71,836 |
| | $ | 69,373 |
|
Warranty reserves accrued | 4,270 |
| | 4,746 |
|
Warranty expenditures | (5,159 | ) | | (3,637 | ) |
Warranty reserves, end of period | $ | 70,947 |
| | $ | 70,482 |
|
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 March 31, 2019 and December 31, 2018, the Company had outstanding surety bonds totaling $653.9 million and $685.7 million, respectively. As of March 31, 2019 and December 31, 2018, our estimated cost to complete obligations related to these surety bonds was $415.2 million and $423.4 million, respectively.
Lease Obligations
Under ASC 842 we recognize a right-of-use lease asset and a lease liability for contracts deemed to contain a lease at the inception of the contract. Our lease population is fully comprised of operating leases, which are now recorded at the net present value of future lease obligations existing at each balance sheet date. At the inception of a lease, or if a lease is subsequently modified, we determine whether the lease is an operating or financing lease. Key estimates involved with ASC 842 include the discount rate used to measure our future lease obligations and the lease term, where considerations include renewal options and intent to renew. Lease right-of-use assets are included in other assets and lease liabilities are included in accrued expenses and other liabilities on our consolidated balance sheet.
Operating Leases
We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms of up to ten years and generally provide renewal options. In most cases, we expect that, in the normal course of business, leases that expire will be renewed or replaced by other leases. Equipment leases are typically for terms of three to four years.
Ground Leases
In 1987, we obtained two 55-year ground leases of commercial property that provided for three renewal options of ten years each and one 45-year renewal option. We exercised the three ten year extensions on one of these ground leases extending the lease through 2071. The commercial buildings on these properties have been sold and the ground leases have been sublet to the buyers.
For one of these leases, we are responsible for making lease payments to the land owner, and we collect sublease payments from the buyers of the buildings. This ground lease has been subleased through 2041 to the buyers of the commercial buildings. For the second lease, the buyers of the buildings are responsible for making lease payments directly to the land owner, however, we have guaranteed the performance of the buyers/lessees. See below for additional information on leases (dollars in thousands):
|
| | | |
| Three Months Ended March 31, 2019 |
Lease cost | |
Operating lease cost (included in SG&A expense) | $ | 2,044 |
|
Ground lease cost (included in other operations expense) | 590 |
|
Sublease income, ground leases (included in other operations revenue) | (598 | ) |
Net lease cost | $ | 2,036 |
|
| |
Other information | |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating lease cash flows (included in operating cash flows) | $ | 1,609 |
|
Ground lease cash flows (included in operating cash flows) | $ | 608 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 1,707 |
|
|
| | |
| March 31, 2019 |
Weighted-average discount rate: | |
Operating leases | 6.0 | % |
Ground leases | 10.2 | % |
Weighted-average remaining lease term (in years): | |
Operating leases | 6.3 |
|
Ground leases | 49.2 |
|
The future minimum lease payments under our operating leases are as follows (in thousands):
|
| | | | | | | |
| Property, Equipment and Other Leases | | Ground Leases (1) |
Remaining in 2019 | $ | 6,347 |
| | $ | 2,238 |
|
2020 | 8,322 |
| | 2,984 |
|
2021 | 7,048 |
| | 2,984 |
|
2022 | 5,453 |
| | 2,984 |
|
2023 | 4,349 |
| | 2,984 |
|
Thereafter | 8,799 |
| | 84,266 |
|
| $ | 40,318 |
| | $ | 98,440 |
|
(1) Ground leases are fully subleased through 2041, representing $67.4 million of the $98.4 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 March 31, 2019, there were 5,886,605 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 March 31, |
| 2019 | | 2018 |
Total stock-based compensation | $ | 3,435 |
| | $ | 3,470 |
|
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations. As of March 31, 2019, total unrecognized stock-based compensation related to all stock-based awards was $29.6 million and the weighted average term over which the expense was expected to be recognized was 2.3 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the three months ended March 31, 2019:
|
| | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value (in thousands) |
Options outstanding at December 31, 2018 | 953,905 |
| | $ | 14.58 |
| | 4.2 |
| | $ | 296 |
|
Granted | — |
| | — |
| | — |
| | — |
|
Exercised | (32,486 | ) | | $ | 6.50 |
| | — |
| | — |
|
Forfeited | — |
| | $ | — |
| | — |
| | — |
|
Options outstanding at March 31, 2019 | 921,419 |
| | $ | 14.87 |
| | 4.1 |
| | $ | 350 |
|
Options exercisable at March 31, 2019 | 921,419 |
| | $ | 14.87 |
| | 4.1 |
| | $ | 350 |
|
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 three months ended March 31, 2019:
|
| | | | | | | | | | |
| Restricted Stock Units | | Weighted Average Grant Date Fair Value Per Share | | Aggregate Intrinsic Value (in thousands) |
Nonvested RSUs at December 31, 2018 | 3,341,848 |
| | $ | 11.05 |
| | $ | 36,526 |
|
Granted | 1,593,747 |
| | $ | 12.10 |
| | — |
|
Vested | (795,528 | ) | | $ | 12.70 |
| | — |
|
Forfeited | (745,756 | ) | | $ | 5.20 |
| | — |
|
Nonvested RSUs at March 31, 2019 | 3,394,311 |
| | $ | 12.45 |
| | $ | 42,904 |
|
On March 11, 2019 and February 28, 2019, the Company granted an aggregate of 3,025 and 990,723, respectively, of time-vested 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 was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.
On February 28, 2019, the Company granted 247,619, 238,095 and 114,285 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated to two separate performance metrics, as follows: (i) thirty percent to total stockholder return (“TSR”), with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (ii) seventy percent to earnings per share. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2019 to December 31, 2021. The fair value of the performance-based RSUs related to the TSR metric was determined to be $8.16 per share based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $12.60 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.
RSUs that vested, as reflected in the table above, during the three months ended March 31, 2019 included time-based RSUs that were previously granted. RSUs that were forfeited, as reflected in the table above, during the three months ended March 31, 2019 included performance-based RSUs and time-based RSUs that were forfeited for no consideration.
On April 30, 2018, the Company granted an aggregate of 40,910 RSUs to the non-employee members of its board of directors. On July 23, 2018, the Company granted 6,677 RSUs to a non-employee member of its board of directors in connection with such individual's appointment to the board of directors. These RSUs vest in their entirety on the day immediately prior to the Company's 2019 Annual Meeting of Stockholders. The fair value of each RSU granted on April 30, 2018 and July 23, 2018 was measured using a price of $17.11 and $16.37 per share, respectively, which 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 May 7, 2018 and February 22, 2018, the Company granted an aggregate of 4,258 and 633,107, respectively, of time-vested RSUs to certain employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three-year period. The fair value of each RSU granted on May 7, 2018 and February 22, 2018 was measured using a price of $17.61 and $16.94 per share, respectively, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.
On February 22, 2018, the Company granted 184,179, 177,095, and 85,005 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated in equal parts to two separate performance metrics: (i) TSR, with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (ii) earnings per share. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2018 to December 31, 2020. The fair value of the performance-based RSUs related to the TSR metric was determined to be $10.97 per share based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $16.94 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.
As RSUs vest for employees, a portion of the shares awarded is generally withheld to cover employee tax withholdings. As a result, the number of RSUs vested and the number of shares of TRI Pointe common stock issued will differ.
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered. Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.
We had net deferred tax assets of $67.8 million as of both March 31, 2019 and December 31, 2018. We had a valuation allowance related to those net deferred tax assets of $3.4 million as of both March 31, 2019 and December 31, 2018. The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company’s future operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company’s estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company’s deferred tax assets.
TRI Pointe has certain liabilities to Weyerhaeuser Company (“Weyerhaeuser”) related to a tax sharing agreement. As of March 31, 2019 and December 31, 2018, we had an income tax liability to Weyerhaeuser of $577,000 and $6.6 million, respectively. The income tax liability to Weyerhaeuser is recorded in accrued expenses and other liabilities on the accompanying consolidated balance sheets. During the three months ended March 31, 2019, we amended our existing tax sharing agreement with Weyerhaeuser, pursuant to which the parties agreed, among other things, that we had no further obligation to remit payment to Weyerhaeuser in connection with any potential utilization of certain deductions or losses associated with certain Weyerhaeuser entities with respect to federal and state taxes. As a result of the amendment, during the three months ended March 31, 2019, we decreased our income tax liability to Weyerhaeuser and recorded other income of $6.0 million, which is included in other income, net in the accompanying consolidated statements of operations.
Our provision for income taxes totaled $24,000 and $14.7 million for the three months ended March 31, 2019 and 2018, respectively. The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense. The Company had $1.0 million of uncertain tax positions recorded as of both March 31, 2019 and December 31, 2018. The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years.
| |
16. | Related Party Transactions |
We had no related party transactions for the three months ended March 31, 2019 and 2018.
| |
17. | Supplemental Disclosure to Consolidated Statements of Cash Flows |
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Supplemental disclosure of cash flow information: | | | |
Interest paid (capitalized), net | $ | (13,697 | ) | | $ | (13,858 | ) |
Income taxes paid (refunded), net | $ | (2,538 | ) | | $ | 30 |
|
Supplemental disclosures of noncash activities: | | | |
Amortization of senior note discount capitalized to real estate inventory | $ | 505 |
| | $ | 531 |
|
Amortization of deferred loan costs capitalized to real estate inventory | $ | 1,415 |
| | $ | 1,492 |
|
Increase in other assets related to adoption of ASC 606 | $ | — |
| | $ | 39,534 |
|
| |
18. | Supplemental Guarantor Information |
2021 Notes and 2027 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes. On June 5, 2017, TRI Pointe Group issued the 2027 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including TRI Pointe Homes, are party to supplemental indentures pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to the 2021 Notes and the 2027 Notes. Each Guarantor of the 2021 Notes and the 2027 Notes is 100% owned by TRI Pointe Group, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2021 Notes and the 2027 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of TRI Pointe Group or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.
A Guarantor of the 2021 Notes and the 2027 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe Group or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe Group or another Guarantor, with TRI Pointe Group or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe Group or any other Guarantor which gave rise to such Guarantor guaranteeing the 2021 Notes or the 2027 Notes; (vi) TRI Pointe Group exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.
2019 Notes and 2024 Notes
TRI Pointe Group and TRI Pointe Homes are co-issuers of the 2019 Notes and the 2024 Notes. All of the Guarantors (other than TRI Pointe Homes) have entered into supplemental indentures pursuant to which they jointly and severally guarantee the obligations of TRI Pointe Group and TRI Pointe Homes with respect to the 2019 Notes and the 2024 Notes. Each Guarantor of the 2019 Notes and the 2024 Notes is 100% owned by TRI Pointe Group and TRI Pointe Homes, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2019 Notes and the 2024 Notes, as described below.
A Guarantor of the 2019 Notes and the 2024 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe or another Guarantor, with TRI Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe or any other Guarantor which gave rise to such Guarantor
guaranteeing the 2019 Notes and 2024 Notes; (vi) TRI Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.
Presented below are the condensed consolidating balance sheets at March 31, 2019 and December 31, 2018, condensed consolidating statements of operations for the three months ended March 31, 2019 and 2018 and condensed consolidating statement of cash flows for the three months ended March 31, 2019 and 2018. Because TRI Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, the non-Guarantor subsidiaries’ information is not separately presented in the tables below, but is included with the Guarantors. Additionally, because TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X, the condensed consolidated financial information of TRI Pointe Group and TRI Pointe Homes, the co-issuers of the 2019 Notes and 2024 Notes, is presented together in the column titled “Issuer”.
Condensed Consolidating Balance Sheet (in thousands):
|
| | | | | | | | | | | | | | | |
| March 31, 2019 |
| Issuer | | Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated TRI Pointe Group, Inc. |
Assets | | | | | | | |
Cash and cash equivalents | $ | 55,854 |
| | $ | 92,928 |
| | $ | — |
| | $ | 148,782 |
|
Receivables | 20,616 |
| | 37,618 |
| | — |
| | 58,234 |
|
Intercompany receivables | 858,286 |
| | — |
| | (858,286 | ) | | — |
|
Real estate inventories | 780,568 |
| | 2,462,110 |
| | — |
| | 3,242,678 |
|
Investments in unconsolidated entities | — |
| | 4,191 |
| | — |
| | 4,191 |
|
Goodwill and other intangible assets, net | 156,603 |
| | 3,690 |
| | — |
| | 160,293 |
|
Investments in subsidiaries | 1,668,464 |
| | — |
| | (1,668,464 | ) | | — |
|
Deferred tax assets, net | 14,822 |
| | 52,939 |
| | — |
| | 67,761 |
|
Other assets | 20,894 |
| | 153,062 |
| | — |
| | 173,956 |
|
Total assets | $ | 3,576,107 |
| | $ | 2,806,538 |
| | $ | (2,526,750 | ) | | $ | 3,855,895 |
|
| | | | | | | |
Liabilities | | | | | | | |
Accounts payable | $ | 11,973 |
| | $ | 54,632 |
| | $ | — |
| | $ | 66,605 |
|
Intercompany payables | — |
| | 858,286 |
| | (858,286 | ) | | — |
|
Accrued expenses and other liabilities | 94,648 |
| | 225,143 |
| | — |
| | 319,791 |
|
Senior notes | 1,412,463 |
| | — |
| | — |
| | 1,412,463 |
|
Total liabilities | 1,519,084 |
| | 1,138,061 |
| | (858,286 | ) | | 1,798,859 |
|
| | | | | | | |
Equity | | | | | | | |
Total stockholders’ equity | 2,057,023 |
| | 1,668,464 |
| | (1,668,464 | ) | | 2,057,023 |
|
Noncontrolling interests | — |
| | 13 |
| | — |
| | 13 |
|
Total equity | 2,057,023 |
| | 1,668,477 |
| | (1,668,464 | ) | | 2,057,036 |
|
Total liabilities and equity | $ | 3,576,107 |
| | $ | 2,806,538 |
| | $ | (2,526,750 | ) | | $ | 3,855,895 |
|
Condensed Consolidating Balance Sheet (in thousands):
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Issuer | | Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated TRI Pointe Group, Inc. |
Assets | | | | | | | |
Cash and cash equivalents | $ | 148,129 |
| | $ | 129,567 |
| | $ | — |
| | $ | 277,696 |
|
Receivables | 16,589 |
| | 35,003 |
| | — |
| | 51,592 |
|
Intercompany receivables | 758,501 |
| | — |
| | (758,501 | ) | | — |
|
Real estate inventories | 812,799 |
| | 2,403,260 |
| | — |
| | 3,216,059 |
|
Investments in unconsolidated entities | — |
| | 5,410 |
| | — |
| | 5,410 |
|
Goodwill and other intangible assets, net | 156,604 |
| | 3,823 |
| | — |
| | 160,427 |
|
Investments in subsidiaries | 1,672,635 |
| | — |
| | (1,672,635 | ) | | — |
|
Deferred tax assets, net | 14,822 |
| | 52,946 |
| | — |
| | 67,768 |
|
Other assets | 12,984 |
| | 92,267 |
| | — |
| | 105,251 |
|
Total assets | $ | 3,593,063 |
| | $ | 2,722,276 |
| | $ | (2,431,136 | ) | | $ | 3,884,203 |
|
| | | | | | | |
Liabilities | | | | | | | |
Accounts payable | $ | 13,433 |
| | $ | 67,880 |
| | $ | — |
| | $ | 81,313 |
|
Intercompany payables | — |
| | 758,501 |
| | (758,501 | ) | | — |
|
Accrued expenses and other liabilities | 111,902 |
| | 223,247 |
| | — |
| | 335,149 |
|
Senior notes | 1,410,804 |
| | — |
| | — |
| | 1,410,804 |
|
Total liabilities | 1,536,139 |
| | 1,049,628 |
| | (758,501 | ) | | 1,827,266 |
|
| | | | | | | |
Equity | | | | | | | |
Total stockholders’ equity | 2,056,924 |
| | 1,672,635 |
| | (1,672,635 | ) | | 2,056,924 |
|
Noncontrolling interests | — |
| | 13 |
| | — |
| | 13 |
|
Total equity | 2,056,924 |
| | 1,672,648 |
| | (1,672,635 | ) | | 2,056,937 |
|
Total liabilities and equity | $ | 3,593,063 |
| | $ | 2,722,276 |
| | $ | (2,431,136 | ) | | $ | 3,884,203 |
|
Condensed Consolidating Statement of Operations (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| Issuer | | Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated TRI Pointe Group, Inc. |
Homebuilding: | | | | | | | |
Home sales revenue | $ | 171,791 |
| | $ | 320,912 |
| | $ | — |
| | $ | 492,703 |
|
Land and lot sales revenue | — |
| | 1,029 |
| | — |
| | 1,029 |
|
Other operations revenue | — |
| | 598 |
| | — |
| | 598 |
|
Total revenues | 171,791 |
| | 322,539 |
| | — |
| | 494,330 |
|
Cost of home sales | 145,075 |
| | 276,461 |
| | — |
| | 421,536 |
|
Cost of land and lot sales | — |
| | 1,495 |
| | — |
| | 1,495 |
|
Other operations expense | — |
| | 590 |
| | — |
| | 590 |
|
Sales and marketing | 9,299 |
| | 29,690 |
| | — |
| | 38,989 |
|
General and administrative | 19,479 |
| | 19,118 |
| | — |
| | 38,597 |
|
Homebuilding loss from operations | (2,062 | ) | | (4,815 | ) | | — |
| | (6,877 | ) |
Equity in loss of unconsolidated entities | — |
| | (25 | ) | | — |
| | (25 | ) |
Other income, net | 6,140 |
| | 101 |
| | — |
| | 6,241 |
|
Homebuilding income (loss) before income taxes | 4,078 |
| | (4,739 | ) | | — |
| | (661 | ) |
Financial Services: | | | | | | | |
Revenues | — |
| | 302 |
| | — |
| | 302 |
|
Expenses | — |
| | 321 |
| | — |
| | 321 |
|
Equity in income of unconsolidated entities | — |
| | 775 |
| | — |
| | 775 |
|
Financial services income before income taxes | — |
| | 756 |
| | — |
| | 756 |
|
Income (loss) before income taxes | 4,078 |
| | (3,983 | ) | | — |
| | 95 |
|
Equity of net (loss) of subsidiaries | (4,007 | ) | | — |
| | 4,007 |
| | — |
|
Provision for income taxes | — |
| | (24 | ) | | — |
| | (24 | ) |
Net income (loss) | $ | 71 |
| | $ | (4,007 | ) | | $ | 4,007 |
| | $ | 71 |
|
Condensed Consolidating Statement of Operations (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
| Issuer | | Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated TRI Pointe Group, Inc. |
Homebuilding: | | | | | | | |
Home sales revenue | $ | 190,420 |
| | $ | 392,152 |
| | $ | — |
| | $ | 582,572 |
|
Land and lot sales revenue | — |
| | 223 |
| | — |
| | 223 |
|
Other operations revenue | — |
| | 598 |
| | — |
| | 598 |
|
Total revenues | 190,420 |
| | 392,973 |
| | — |
| | 583,393 |
|
Cost of home sales | 159,055 |
| | 291,447 |
| | — |
| | 450,502 |
|
Cost of land and lot sales | — |
| | 503 |
| | — |
| | 503 |
|
Other operations expense | — |
| | 602 |
| | — |
| | 602 |
|
Sales and marketing | 10,517 |
| | 27,766 |
| | — |
| | 38,283 |
|
General and administrative | 18,159 |
| | 18,655 |
| | — |
| | 36,814 |
|
Homebuilding income from operations | 2,689 |
| | 54,000 |
| | — |
| | 56,689 |
|
Equity in loss of unconsolidated entities | — |
| | (468 | ) | | — |
| | (468 | ) |
Other income, net | 139 |
| | 32 |
| | — |
| | 171 |
|
Homebuilding income before income taxes | 2,828 |
| | 53,564 |
| | — |
| | 56,392 |
|
Financial Services: | | | | | | | |
Revenues | — |
| | 283 |
| | — |
| | 283 |
|
Expenses | — |
| | 137 |
| | — |
| | 137 |
|
Equity in income of unconsolidated entities | — |
| | 1,002 |
| | — |
| | 1,002 |
|
Financial services income before income taxes | — |
| | 1,148 |
| | — |
| | 1,148 |
|
Income before income taxes | 2,828 |
| | 54,712 |
| | — |
| | 57,540 |
|
Equity of net income of subsidiaries | 40,052 |
| | — |
| | (40,052 | ) | | — |
|
Provision for income taxes | — |
| | (14,660 | ) | | — |
| | (14,660 | ) |
Net income | $ | 42,880 |
| | $ | 40,052 |
| | $ | (40,052 | ) | | $ | 42,880 |
|
Condensed Consolidating Statement of Cash Flows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| Issuer | | Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated TRI Pointe Group, Inc. |
Cash flows from operating activities: | | | | | | | |
Net cash provided by (used in) operating activities | $ | 15,054 |
| | $ | (129,979 | ) | | $ | — |
| | $ | (114,925 | ) |
Cash flows from investing activities: | | | | | | | |
Purchases of property and equipment | (2,065 | ) | | (5,159 | ) | | — |
| | (7,224 | ) |
Proceeds from sale of property and equipment | — |
| | 7 |
| | — |
| | 7 |
|
Investments in unconsolidated entities | — |
| | (231 | ) | | — |
| | (231 | ) |
Intercompany | (98,723 | ) | | — |
| | 98,723 |
| | — |
|
Net cash (used in) provided by investing activities | (100,788 | ) | | (5,383 | ) | | 98,723 |
| | (7,448 | ) |
Cash flows from financing activities: | | | | | |
|