TRI POINTE GROUP, INC., 10-Q filed on 7/24/2020
Quarterly Report
v3.20.2
Cover Page - shares
6 Months Ended
Jun. 30, 2020
Jul. 10, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 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 $0.01 per share  
Trading Symbol TPH  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   130,325,865
Entity Central Index Key 0001561680  
Amendment Flag false  
Document Fiscal Period Focus Q2  
Document Fiscal year Focus 2020  
Current Fiscal Year End Date --12-31  
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents $ 474,545 $ 329,011
Receivables 87,580 69,276
Real estate inventories 3,012,622 3,065,436
Investments in unconsolidated entities 36,040 11,745
Goodwill and other intangible assets, net 159,626 159,893
Deferred tax assets, net 39,744 49,904
Other assets 167,747 173,425
Total assets 3,977,904 3,858,690
Liabilities    
Accounts payable 71,086 66,120
Accrued expenses and other liabilities 314,818 322,043
Loans payable 250,000 250,000
Senior notes, net 1,166,189 1,033,985
Total liabilities 1,802,093 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 June 30, 2020 and December 31, 2019, respectively 0 0
Common stock, $0.01 par value, 500,000,000 shares authorized;    130,325,865 and 136,149,633 shares issued and outstanding at    June 30, 2020 and December 31, 2019, respectively 1,303 1,361
Additional paid-in capital 482,111 581,195
Retained earnings 1,692,385 1,603,974
Total stockholders’ equity 2,175,799 2,186,530
Noncontrolling interests 12 12
Total equity 2,175,811 2,186,542
Total liabilities and equity $ 3,977,904 $ 3,858,690
v3.20.2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 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) 130,325,865 136,149,633
Common stock, shares outstanding (shares) 130,325,865 136,149,633
v3.20.2
Consolidated Statements of Operations (unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Other operations revenue $ 648 $ 637 $ 1,266 $ 1,235
Total revenues 770,106 698,714 1,367,156 1,193,346
Other operations expense 624 627 1,248 1,217
Sales and marketing 45,194 47,065 87,831 86,054
General and administrative 37,554 36,854 77,391 75,451
Restructuring charges 5,549 0 5,549 0
Homebuilding income from operations 77,081 33,166 116,355 26,289
Equity in loss of unconsolidated entities (25) (26) (39) (51)
Other (expense) income, net (6,328) 153 (5,955) 6,394
Homebuilding income before income taxes 70,728 33,293 110,361 32,632
Equity in income of unconsolidated entities 2,932 1,972 4,488 2,747
Financial services income before income taxes 3,943 2,101 6,014 2,857
Income before income taxes 74,671 35,394 116,375 35,489
Provision for income taxes (18,143) (9,132) (27,964) (9,156)
Net income $ 56,528 $ 26,262 $ 88,411 $ 26,333
Earnings per share        
Basic (in dollars per share) $ 0.43 $ 0.18 $ 0.67 $ 0.19
Diluted (in dollars per share) $ 0.43 $ 0.18 $ 0.67 $ 0.18
Weighted average shares outstanding        
Basic (shares) 130,292,563 142,244,166 132,326,856 142,055,766
Diluted (shares) 130,506,567 142,471,191 132,763,775 142,431,725
Homebuilding        
Total revenues $ 767,810 $ 697,958 $ 1,363,266 $ 1,192,288
Home sales        
Home sales and Land and lot sales revenue 766,942 692,138 1,361,780 1,184,841
Cost of sales and expenses 601,434 574,684 1,074,316 996,220
Land and lots        
Home sales and Land and lot sales revenue 220 5,183 220 6,212
Cost of sales and expenses 374 5,562 576 7,057
Financial Services        
Home sales and Land and lot sales revenue 2,296 756 3,890 1,058
Total revenues 2,296 756 3,890 1,058
Cost of sales and expenses $ 1,285 $ 627 $ 2,364 $ 948
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 26,333     26,333 26,333  
Shares issued under share-based awards 199 $ 6 193   199  
Shares issued under share-based awards (shares)   596,950        
Minimum tax withholding paid on behalf of employees for restricted stock units (3,612)   (3,612)   (3,612)  
Stock-based compensation expense 6,786   6,786   6,786  
Ending Balance at Jun. 30, 2019 2,086,643 $ 1,423 662,087 1,423,120 2,086,630 13
Ending Balance (shares) at Jun. 30, 2019   142,258,663        
Beginning Balance at Mar. 31, 2019 2,057,036 $ 1,422 658,743 1,396,858 2,057,023 13
Beginning Balance (shares) at Mar. 31, 2019   142,210,147        
Increase (Decrease) in Stockholders' Equity            
Net income 26,262     26,262 26,262  
Shares issued under share-based awards 1 $ 1 0   1  
Shares issued under share-based awards (shares)   48,516        
Minimum tax withholding paid on behalf of employees for restricted stock units (7)   (7)   (7)  
Stock-based compensation expense 3,351   3,351   3,351  
Ending Balance at Jun. 30, 2019 2,086,643 $ 1,423 662,087 1,423,120 2,086,630 13
Ending Balance (shares) at Jun. 30, 2019   142,258,663        
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 $ 88,411     88,411 88,411  
Shares issued under share-based awards 921 $ 8 913   921  
Shares issued under share-based awards (shares)   734,555        
Minimum tax withholding paid on behalf of employees for restricted stock units (5,473)   (5,473)   (5,473)  
Stock-based compensation expense 7,411   7,411   7,411  
Share repurchases (102,001) $ (66) (101,935)   (102,001)  
Share repurchases (Shares)   (6,558,323)        
Ending Balance at Jun. 30, 2020 $ 2,175,811 $ 1,303 482,111 1,692,385 2,175,799 12
Ending Balance (shares) at Jun. 30, 2020 130,325,865 130,325,865        
Beginning Balance at Mar. 31, 2020 $ 2,115,293 $ 1,302 478,122 1,635,857 2,115,281 12
Beginning Balance (shares) at Mar. 31, 2020   130,236,981        
Increase (Decrease) in Stockholders' Equity            
Net income 56,528     56,528 56,528  
Shares issued under share-based awards 231 $ 1 230   231  
Shares issued under share-based awards (shares)   88,884        
Minimum tax withholding paid on behalf of employees for restricted stock units (27)   (27)   (27)  
Stock-based compensation expense 3,786   3,786   3,786  
Share repurchases 0 $ 0 0   0  
Share repurchases (Shares)   0        
Ending Balance at Jun. 30, 2020 $ 2,175,811 $ 1,303 $ 482,111 $ 1,692,385 $ 2,175,799 $ 12
Ending Balance (shares) at Jun. 30, 2020 130,325,865 130,325,865        
v3.20.2
Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net income $ 88,411 $ 26,333
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Depreciation and amortization 12,176 11,561
Equity in income of unconsolidated entities, net (4,449) (2,696)
Deferred income taxes, net 10,160 3,097
Amortization of stock-based compensation 7,411 6,786
Charges for impairments and lot option abandonments 1,729 5,490
Changes in assets and liabilities:    
Real estate inventories 53,902 (50,700)
Receivables (18,304) (6,778)
Other assets 3,677 (1,774)
Accounts payable 4,966 (18,221)
Accrued expenses and other liabilities (5,784) (80,964)
Returns on investments in unconsolidated entities, net 5,475 3,927
Loss on extinguishment of debt 6,858 0
Net cash provided by (used in) operating activities 166,228 (103,939)
Cash flows from investing activities:    
Purchases of property and equipment (12,002) (13,142)
Proceeds from sale of property and equipment 17 46
Investments in unconsolidated entities (25,715) (712)
Net cash used in investing activities (37,700) (13,808)
Cash flows from financing activities:    
Borrowings from debt 850,000 400,000
Repayment of debt (721,673) (381,895)
Debt issuance costs (4,768) (3,125)
Proceeds from issuance of common stock under share-based awards 921 199
Minimum tax withholding paid on behalf of employees for share-based awards (5,473) (3,612)
Share repurchases (102,001) 0
Net cash provided by financing activities 17,006 11,567
Net increase (decrease) in cash and cash equivalents 145,534 (106,180)
Cash and cash equivalents–beginning of period 329,011 277,696
Cash and cash equivalents–end of period $ 474,545 $ 171,516
v3.20.2
Organization, Basis of Presentation and Summary of Significant Accounting Policies
6 Months Ended
Jun. 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 six months ended June 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 influence 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 June 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 $5.5 million of pre-tax restructuring charges consisting of severance and related costs, substantially all of which had been paid as of June 30, 2020.
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, with early adoption permitted, and applied prospectively. 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, with early adoption permitted. 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
6 Months Ended
Jun. 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 June 30,Six Months Ended June 30,
2020201920202019
Revenues  
Maracay $86,674  $55,653  $158,426  $95,214  
Pardee Homes242,282  194,699  420,684  329,562  
Quadrant Homes37,298  71,066  81,372  114,937  
Trendmaker Homes121,257  121,963  217,377  192,784  
TRI Pointe Homes206,474  192,752  365,144  364,543  
Winchester Homes73,825  61,825  120,263  95,248  
Total homebuilding revenues767,810  697,958  1,363,266  1,192,288  
Financial services2,296  756  3,890  1,058  
Total$770,106  $698,714  $1,367,156  $1,193,346  
Income (loss) before income taxes
Maracay $8,042  $2,986  $12,604  $4,176  
Pardee Homes48,980  14,735  82,459  13,944  
Quadrant Homes2,246  5,193  4,943  2,554  
Trendmaker Homes10,512  6,908  15,309  5,310  
TRI Pointe Homes15,741  12,280  20,101  22,489  
Winchester Homes4,670  2,555  5,716  1,789  
Corporate(19,463) (11,364) (30,771) (17,630) 
Total homebuilding income before income taxes70,728  33,293  110,361  32,632  
Financial services3,943  2,101  6,014  2,857  
Total$74,671  $35,394  $116,375  $35,489  
 
Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
June 30, 2020December 31, 2019
Real estate inventories
Maracay$352,316  $338,259  
Pardee Homes1,209,444  1,218,384  
Quadrant Homes270,446  264,437  
Trendmaker Homes240,467  268,759  
TRI Pointe Homes699,708  737,662  
Winchester Homes240,241  237,935  
Total$3,012,622  $3,065,436  
Total assets
Maracay$389,587  $382,262  
Pardee Homes1,306,846  1,300,047  
Quadrant Homes320,792  331,187  
Trendmaker Homes300,157  353,610  
TRI Pointe Homes893,417  930,348  
Winchester Homes304,466  291,456  
Corporate429,512  241,357  
Total homebuilding assets3,944,777  3,830,267  
Financial services33,127  28,423  
Total$3,977,904  $3,858,690  
v3.20.2
Earnings Per Share
6 Months Ended
Jun. 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 June 30,Six Months Ended June 30,
 2020201920202019
Numerator:    
Net income$56,528  $26,262  $88,411  $26,333  
Denominator:    
Basic weighted-average shares outstanding130,292,563  142,244,166  132,326,856  142,055,766  
Effect of dilutive shares:   
Stock options and unvested restricted stock units214,004  227,025  436,919  375,959  
Diluted weighted-average shares outstanding130,506,567  142,471,191  132,763,775  142,431,725  
Earnings per share    
Basic$0.43  $0.18  $0.67  $0.19  
Diluted$0.43  $0.18  $0.67  $0.18  
Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share3,090,298  2,920,708  2,992,479  3,144,445  
v3.20.2
Receivables
6 Months Ended
Jun. 30, 2020
Receivables [Abstract]  
Receivables Receivables
Receivables consisted of the following (in thousands):
June 30, 2020December 31, 2019
Escrow proceeds and other accounts receivable, net$47,836  $29,282  
Warranty insurance receivable (Note 13)39,744  39,994  
Total receivables$87,580  $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 $419,000 and $426,000 as of June 30, 2020 and December 31, 2019, respectively.
v3.20.2
Real Estate Inventories
6 Months Ended
Jun. 30, 2020
Inventory Disclosure [Abstract]  
Real Estate Inventories Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
June 30, 2020December 31, 2019
Real estate inventories owned:
Homes completed or under construction$1,039,681  $951,974  
Land under development1,452,440  1,641,354  
Land held for future development152,032  122,847  
Model homes286,760  275,204  
Total real estate inventories owned2,930,913  2,991,379  
Real estate inventories not owned:
Land purchase and land option deposits81,709  74,057  
Total real estate inventories not owned81,709  74,057  
Total real estate inventories$3,012,622  $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 June 30,Six Months Ended June 30,
 2020201920202019
Interest incurred$21,828  $21,962  $42,607  $45,335  
Interest capitalized(21,828) (21,962) (42,607) (45,335) 
Interest expensed$—  $—  $—  $—  
Capitalized interest in beginning inventory$196,313  $193,440  $192,356  $184,400  
Interest capitalized as a cost of inventory21,828  21,962  42,607  45,335  
Interest previously capitalized as a cost of
inventory, included in cost of sales
(21,806) (18,107) (38,628) (32,440) 
Capitalized interest in ending inventory$196,335  $197,295  $196,335  $197,295  
 
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 June 30,Six Months Ended June 30,
 2020201920202019
Real estate inventory impairments$—  $—  $—  $—  
Land and lot option abandonments and pre-acquisition charges1,380  288  1,729  5,490  
Total$1,380  $288  $1,729  $5,490  
 
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 or six-month periods ended June 30, 2020 or 2019.
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
6 Months Ended
Jun. 30, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Entities Investments in Unconsolidated Entities
As of June 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):
 
June 30, 2020December 31, 2019
Assets
Cash$12,005  $8,537  
Receivables2,498  7,393  
Real estate inventories198,789  116,760  
Other assets604  703  
Total assets$213,896  $133,393  
Liabilities and equity
Accounts payable and other liabilities$42,248  $11,009  
Company’s equity36,040  11,745  
Outside interests’ equity135,608  110,639  
Total liabilities and equity$213,896  $133,393  
 
Results of operations from unconsolidated entities (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net sales$8,726  $6,353  $14,696  $10,464  
Other operating expense(4,400) (3,528) (8,156) (6,280) 
Other income, net(1) (7) (4)  
Net income $4,325  $2,818  $6,536  $4,185  
Company’s equity in income of unconsolidated entities$2,907  $1,946  $4,449  $2,696  
v3.20.2
Variable Interest Entities
6 Months Ended
Jun. 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):
 June 30, 2020December 31, 2019
DepositsRemaining
Purchase
Price
Consolidated
Inventory
Held by VIEs
DepositsRemaining
Purchase
Price
Consolidated
Inventory
Held by VIEs
Consolidated VIEs$—  $—  $—  $—  $—  $—  
Unconsolidated VIEs39,070  441,528  N/A42,896  440,974  N/A
Other land option agreements42,639  374,674  N/A31,161  358,345  N/A
Total$81,709  $816,202  $—  $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 $7.9 million and $6.0 million as of June 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
6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets
As of June 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 June 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):
June 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  (7,657) 20,322  27,979  (7,390) 20,589  
Total$167,283  $(7,657) $159,626  $167,283  $(7,390) $159,893  
 
The remaining useful life of our amortizing intangible asset related to the Maracay trade name was 5.7 and 6.2 years as of June 30, 2020 and December 31, 2019, respectively. The net carrying amount related to this intangible asset was $3.0 million and $3.3 million as of June 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 June 30, 2020 and 2019, respectively, and $267,000 for each of the six-month periods ended June 30, 2020 and December 31, 2019, 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 and goodwill 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 2020, the next four years and thereafter is (in thousands):
Remainder of 2020$267  
2021534  
2022534  
2023534  
2024534  
Thereafter619  
Total$3,022  
v3.20.2
Other Assets
6 Months Ended
Jun. 30, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Other Assets Other Assets
Other assets consisted of the following (in thousands):
June 30, 2020December 31, 2019
Prepaid expenses$21,273  $24,070  
Refundable fees and other deposits29,785  30,242  
Development rights, held for future use or sale2,063  2,213  
Deferred loan costs—loans payable3,709  4,345  
Operating properties and equipment, net58,155  57,803  
Lease right-of-use assets49,506  50,947  
Other3,256  3,805  
Total$167,747  $173,425  
v3.20.2
Accrued Expenses and Other Liabilities
6 Months Ended
Jun. 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):
June 30, 2020December 31, 2019
Accrued payroll and related costs$25,015  $42,798  
Warranty reserves (Note 13)
79,190  76,607  
Estimated cost for completion of real estate inventories78,601  90,899  
Customer deposits29,925  20,390  
Income tax liability to Weyerhaeuser346  346  
Accrued income taxes payable18,605  1,530  
Liability for uncertain tax positions (Note 15)486  486  
Accrued interest6,886  11,952  
Other tax liability7,665  8,448  
Lease liabilities54,395  56,125  
Other13,704  12,462  
Total$314,818  $322,043  
v3.20.2
Senior Notes and Loans Payable
6 Months Ended
Jun. 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):
June 30, 2020December 31, 2019
4.875% Senior Notes due July 1, 2021
$83,734  $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(17,545) (16,015) 
Total$1,166,189  $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 mature on July 1, 2021 and interest is 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 June 30, 2020, there were $13.6 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 $5.6 million and $9.8 million as of June 30, 2020 and December 31, 2019, respectively.
Loans Payable
The Company’s outstanding loans payable consisted of the following (in thousands):
June 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 June 30, 2020, we had no outstanding debt under the Revolving Facility and there was $559.4 million of availability after considering the borrowing base provisions and outstanding letters of credit. As of June 30, 2020, we had $250 million outstanding debt under the Term Facility with an interest rate of 1.52%. As of June 30, 2020, there were $3.7 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 $488,000 and $1.2 million as of June 30, 2020 and December 31, 2019, respectively.
At June 30, 2020 and December 31, 2019, we had outstanding letters of credit of $40.6 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 June 30, 2020 and 2019, the Company incurred interest of $21.8 million and $22.0 million, respectively, related to all debt during the period.  Included in interest incurred are amortization of deferred financing and Senior Note discount costs of $1.2 million and $1.9 million for the three months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020 and 2019, the Company incurred interest of $42.6 million and $45.3 million, respectively, related to all debt during the period.  Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $2.4 million and $3.8 million for the six months ended June 30, 2020 and 2019, respectively. Accrued interest related to all outstanding debt at June 30, 2020 and December 31, 2019 was $6.9 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 June 30, 2020 and December 31, 2019.
v3.20.2
Fair Value Disclosures
6 Months Ended
Jun. 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 June 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):
June 30, 2020December 31, 2019
HierarchyBook ValueFair ValueBook ValueFair Value
Senior Notes (1)
Level 2$1,179,783  $1,195,826  $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 $13.6 million and $11.1 million as of June 30, 2020 and December 31, 2019, respectively. The estimated fair value of the Senior Notes at June 30, 2020 and December 31, 2019 is based on quoted market prices.
(2)The estimated fair value of the Term Loan Facility as of June 30, 2020 approximated book value due to the variable interest rate terms of this loan.

At June 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. No carrying values were adjusted to fair value for the six months ended June 30, 2020 or the year ended December 31, 2019.
v3.20.2
Commitments and Contingencies
6 Months Ended
Jun. 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 $319,000 and $419,000 of legal reserves as of June 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 $39.7 million and $40.0 million as of June 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 June 30,Six Months Ended June 30,
 2020201920202019
Warranty reserves, beginning of period$76,487  $70,947  $76,607  $71,836  
Warranty reserves accrued6,988  6,385  12,144  10,655  
Warranty expenditures(4,285) (5,861) (9,561) (11,020) 
Warranty reserves, end of period$79,190  $71,471  $79,190  $71,471  
 
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 June 30, 2020 and December 31, 2019, the Company had outstanding surety bonds totaling $614.2 million and $611.6 million, respectively. As of June 30, 2020 and December 31, 2019, our estimated cost to complete obligations related to these surety bonds was $390.8 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 June 30, 2020Three Months Ended June 30, 2019Six Months Ended June 30, 2020Six Months Ended June 30, 2019
Lease Cost
Operating lease cost (included in SG&A expense)$2,456  $2,166  $4,794  $4,210  
Ground lease cost (included in other operations expense)624  627  1,248  1,217  
Sublease income, operating leases—  —  —  —  
Sublease income, ground leases (included in other operations revenue)(648) (637) (1,266) (1,235) 
Net lease cost$2,432  $2,156  $4,776  $4,192  
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash flows (included in operating cash flows)$2,220  $1,641  $4,234  $3,250  
Ground lease cash flows (included in operating cash flows)$624  $609  $1,248  $1,217  
Right-of-use assets obtained in exchange for new operating lease liabilities$1,135  $346  $1,155  $2,053  
June 30, 2020December 31, 2019
Weighted-average discount rate:
Operating leases5.9 %5.9 %
Ground leases10.2 %10.2 %
Weighted-average remaining lease term (in years):
Operating leases5.86.1
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$4,460  $1,535  
20217,855  3,070  
20225,610  3,070  
20234,503  3,070  
20242,779  3,070  
Thereafter6,410  83,515  
Total lease payments$31,617  $97,330  
Less: Interest4,762  69,790  
Present value of operating lease liabilities$26,855  $27,540  
 __________
(1)  Ground leases are fully subleased through 2041, representing $65.5 million of the $97.3 million future ground lease obligations.
v3.20.2
Stock-Based Compensation
6 Months Ended
Jun. 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 June 30, 2020, there were 5,468,092 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 June 30,Six Months Ended June 30,