TRI POINTE GROUP, INC., 10-Q filed on 10/22/2020
Quarterly Report
v3.20.2
Cover Page - shares
9 Months Ended
Sep. 30, 2020
Oct. 12, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 1-35796  
Entity Registrant Name TRI Pointe Group, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 61-1763235  
Entity Address, Address Line One 19540 Jamboree Road  
Entity Address, Address Line Two Suite 300  
Entity Address, City or Town Irvine  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 92612  
City Area Code 949  
Local Phone Number 438-1400  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol TPH  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   126,825,194
Amendment Flag false  
Document Fiscal year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001561680  
Current Fiscal Year End Date --12-31  
v3.20.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents $ 493,585 $ 329,011
Receivables 73,419 69,276
Real estate inventories 2,989,377 3,065,436
Investments in unconsolidated entities 36,880 11,745
Goodwill and other intangible assets, net 159,492 159,893
Deferred tax assets, net 30,752 49,904
Other assets 174,060 173,425
Total assets 3,957,565 3,858,690
Liabilities    
Accounts payable 94,064 66,120
Accrued expenses and other liabilities 332,147 322,043
Loans payable 250,000 250,000
Senior notes, net 1,083,254 1,033,985
Total liabilities 1,759,465 1,672,148
Commitments and contingencies (Note 13)
Stockholders’ equity:    
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 0 0
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 capital 425,753 581,195
Retained earnings 1,771,067 1,603,974
Total stockholders’ equity 2,198,088 2,186,530
Noncontrolling interests 12 12
Total equity 2,198,100 2,186,542
Total liabilities and equity $ 3,957,565 $ 3,858,690
v3.20.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (shares) 50,000,000 50,000,000
Preferred stock, shares issued (shares) 0 0
Preferred stock, shares outstanding (shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (shares) 500,000,000 500,000,000
Common stock, shares issued (shares) 126,825,194 136,149,633
Common stock, shares outstanding (shares) 126,825,194 136,149,633
v3.20.2
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Other operations revenue $ 634 $ 618 $ 1,900 $ 1,853
Total revenues 832,464 748,395 2,199,620 1,941,741
Other operations expense 624 609 1,872 1,826
Sales and marketing 44,714 47,834 132,545 133,888
General and administrative 36,323 38,751 113,714 114,202
Restructuring charges 54 0 5,603 0
Homebuilding income from operations 101,527 82,178 217,882 108,467
Equity in loss of unconsolidated entities 106 18 67 (33)
Other (expense) income, net (3,120) 325 (9,075) 6,719
Homebuilding income before income taxes 98,513 82,521 208,874 115,153
Equity in income of unconsolidated entities 3,273 2,114 7,761 4,861
Financial services income before income taxes 4,491 2,198 10,505 5,055
Income before income taxes 103,004 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 (in dollars per share) $ 0.61 $ 0.45 $ 1.27 $ 0.63
Diluted (in dollars per share) $ 0.61 $ 0.44 $ 1.27 $ 0.63
Weighted average shares outstanding        
Basic (shares) 128,941,901 141,088,381 131,190,301 141,729,759
Diluted (shares) 129,515,114 141,533,546 131,672,652 142,128,786
Homebuilding        
Total revenues $ 829,912 $ 747,494 $ 2,193,178 $ 1,939,782
Home sales        
Home sales and land and lot sales revenue 826,036 746,269 2,187,816 1,931,110
Cost of sales and expenses 643,456 577,627 1,717,772 1,573,847
Land and lots        
Home sales and land and lot sales revenue 3,242 607 3,462 6,819
Cost of sales and expenses 3,214 495 3,790 7,552
Financial Services        
Home sales and land and lot sales revenue 2,552 901 6,442 1,959
Total revenues 2,552 901 6,442 1,959
Cost of sales and expenses $ 1,334 $ 817 $ 3,698 $ 1,765
v3.20.2
CONSOLIDATED STATEMENTS OF EQUITY (unaudited) - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Total Stockholders’ Equity
Noncontrolling Interests
Beginning balance at Dec. 31, 2018 $ 2,056,937 $ 1,417 $ 658,720 $ 1,396,787 $ 2,056,924 $ 13
Beginning balance (shares) at Dec. 31, 2018   141,661,713        
Increase (Decrease) in Stockholders' Equity            
Net income 89,194     89,194 89,194  
Shares issued under share-based awards 300 $ 6 294   300  
Shares issued under share-based awards (shares)   611,404        
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 (41,735) $ (31) (41,704)   (41,735)  
Share repurchases (Shares)   (3,035,420)        
Ending balance at Sep. 30, 2019 2,111,698 $ 1,392 624,312 1,485,981 2,111,685 13
Ending balance (shares) at Sep. 30, 2019   139,237,697        
Beginning balance at Jun. 30, 2019 2,086,643 $ 1,423 662,087 1,423,120 2,086,630 13
Beginning balance (shares) at Jun. 30, 2019   142,258,663        
Increase (Decrease) in Stockholders' Equity            
Net income 62,861     62,861 62,861  
Shares issued under share-based awards 101   101   101  
Shares issued under share-based awards (shares)   14,454        
Stock-based compensation expense 3,828   3,828   3,828  
Share repurchases (41,735) $ (31) (41,704)   (41,735)  
Share repurchases (Shares)   (3,035,420)        
Ending balance at Sep. 30, 2019 2,111,698 $ 1,392 624,312 1,485,981 2,111,685 13
Ending balance (shares) at Sep. 30, 2019   139,237,697        
Beginning balance at Dec. 31, 2019 $ 2,186,542 $ 1,361 581,195 1,603,974 2,186,530 12
Beginning balance (shares) at Dec. 31, 2019 136,149,633 136,149,633        
Increase (Decrease) in Stockholders' Equity            
Net income $ 167,093     167,093 167,093  
Shares issued under share-based awards 3,112 $ 9 3,103   3,112  
Shares issued under share-based awards (shares)   896,622        
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 (164,062) $ (102) (163,960)   (164,062)  
Share repurchases (Shares)   (10,221,061)        
Ending balance at Sep. 30, 2020 $ 2,198,100 $ 1,268 425,753 1,771,067 2,198,088 12
Ending balance (shares) at Sep. 30, 2020 126,825,194 126,825,194        
Beginning balance at Jun. 30, 2020 $ 2,175,811 $ 1,303 482,111 1,692,385 2,175,799 12
Beginning balance (shares) at Jun. 30, 2020   130,325,865        
Increase (Decrease) in Stockholders' Equity            
Net income 78,682     78,682 78,682  
Shares issued under share-based awards 2,191 $ 1 2,190   2,191  
Shares issued under share-based awards (shares)   162,067        
Stock-based compensation expense 3,477   3,477   3,477  
Share repurchases (62,061) $ (36) (62,025)   (62,061)  
Share repurchases (Shares)   (3,662,738)        
Ending balance at Sep. 30, 2020 $ 2,198,100 $ 1,268 $ 425,753 $ 1,771,067 $ 2,198,088 $ 12
Ending balance (shares) at Sep. 30, 2020 126,825,194 126,825,194        
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
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 amortization 19,196 18,357
Equity in income of unconsolidated entities, net (7,828) (4,828)
Deferred income taxes, net 19,152 10,493
Amortization of stock-based compensation 10,888 10,614
Charges for impairments and lot option abandonments 2,044 6,519
Changes in assets and liabilities:    
Real estate inventories 78,025 (142,599)
Receivables (4,134) (18,915)
Other assets (6,191) (9,086)
Accounts payable 27,944 (34)
Accrued expenses and other liabilities 12,667 (60,239)
Returns on investments in unconsolidated entities, net 9,035 6,215
Loss on extinguishment of debt 10,243 0
Net cash provided by (used in) operating activities 338,134 (94,309)
Cash flows from investing activities:    
Purchases of property and equipment (16,782) (22,392)
Proceeds from sale of property and equipment 26 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 debt 850,000 400,000
Repayment of debt (808,791) (381,895)
Debt issuance costs (4,768) (3,125)
Proceeds from issuance of common stock under share-based awards 3,112 300
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 equivalents 164,574 (147,434)
Cash and cash equivalents–beginning of period 329,011 277,696
Cash and cash equivalents–end of period $ 493,585 $ 130,262
v3.20.2
Organization, Basis of Presentation and Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Basis of Presentation and Summary of Significant Accounting Policies 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, 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.
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.
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.
v3.20.2
Segment Information
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Segment Information Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon 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 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.
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 
 
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 
v3.20.2
Earnings Per Share
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Earnings Per Share 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 
v3.20.2
Receivables
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
Receivables 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.
v3.20.2
Real Estate Inventories
9 Months Ended
Sep. 30, 2020
Inventory Disclosure [Abstract]  
Real Estate Inventories 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 
 
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.
v3.20.2
Investments in Unconsolidated Entities
9 Months Ended
Sep. 30, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Entities Investments in Unconsolidated Entities
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. 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):
 
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, net— 173 (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 
v3.20.2
Variable Interest Entities
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Variable Interest Entities 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.
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.
v3.20.2
Goodwill and Other Intangible Assets
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets 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 two 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.
v3.20.2
Other Assets
9 Months Ended
Sep. 30, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Other Assets 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 
v3.20.2
Accrued Expenses and Other Liabilities
9 Months Ended
Sep. 30, 2020
Payables and Accruals [Abstract]  
Accrued Expenses and Other Liabilities 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 
v3.20.2
Senior Notes and Loans Payable
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Senior Notes and Loans Payable 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, 2024
450,000 450,000 
5.250% Senior Notes due June 1, 2027
300,000 300,000 
5.700% Senior Notes due June 15, 2028
350,000 — 
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.
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 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 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.
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.
v3.20.2
Fair Value Disclosures
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Disclosures Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
Level 1—Quoted prices for identical instruments in active markets
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date
Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date
Fair Value of Financial Instruments
A summary of assets and liabilities at September 30, 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 four communities where the carrying value of each community exceeded the fair value based on a discounted cash flow analysis.
v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies 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.
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.
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 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
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.
v3.20.2
Stock-Based Compensation
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation 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:
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
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.
v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income TaxesWe 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 $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 $486,000 of uncertain tax positions recorded as of September 30, 2020 and December 31, 2019.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years.
v3.20.2
Related Party Transactions
9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
Related Party Transactions Related Party TransactionsWe had no related party transactions for the nine months ended September 30, 2020 and 2019.
v3.20.2
Supplemental Disclosure to Consolidated Statements of Cash Flows
9 Months Ended
Sep. 30, 2020
Supplemental Cash Flow Elements [Abstract]  
Supplemental Disclosure to Consolidated Statements of Cash Flows Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
Nine Months Ended September 30,
20202019
Supplemental disclosure of cash flow information:
Interest paid (capitalized), net$(11,832)$(11,599)
Income taxes paid (refunded), net$41,400