UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________ 
FORM 10-Q
_____________________________________________________________________________________________ 
(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended June 30, 2020
or
						
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from              to             
Commission File Number 1-35796
_____________________________________________________________________________________________ 

TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 _____________________________________________________________________________________________ 

Delaware	 	61-1763235	
(State or other Jurisdiction of
Incorporation or Organization)	 	(I.R.S. Employer
Identification No.)	
_____________________________________________________________________________________________ 
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 438-1400
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________________________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered	
Common Stock, par value $0.01 per share		TPH		New York Stock Exchange	
        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	
Non-accelerated filer	☐	Smaller reporting company	☐	
		Emerging growth company	☐	
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
130,325,865 shares of the registrant's common stock were issued and outstanding as of July 10, 2020.

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

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

									
		Page
Number	
PART I.  FINANCIAL INFORMATION	
			
Item 1.	Financial Statements	3	
			
	Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019	3	
			
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)	4	
			
	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)	5	
			
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)	6	
			
	Notes to Consolidated Financial Statements (unaudited)	7	
			
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34	
			
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59	
			
Item 4.	Controls and Procedures	59	
	
Part II.  OTHER INFORMATION	
			
Item 1.	Legal Proceedings	60	
			
Item 1A.	Risk Factors	60	
			
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61	
			
Item 6.	Exhibits	62	
			
SIGNATURES	63	

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

												
	June 30, 2020		December 31, 2019	
	(unaudited)			
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)				
				
Equity				
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	— 	 		— 	 	
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 	 	
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)

																								
	Three Months Ended June 30,		Six Months Ended June 30,	
	2020		2019		2020		2019	
Homebuilding:								
Home sales revenue	$	766,942 	 		$	692,138 	 		$	1,361,780 	 		$	1,184,841 	 	
Land and lot sales revenue	220 	 		5,183 	 		220 	 		6,212 	 	
Other operations revenue	648 	 		637 	 		1,266 	 		1,235 	 	
Total revenues	767,810 	 		697,958 	 		1,363,266 	 		1,192,288 	 	
Cost of home sales	601,434 	 		574,684 	 		1,074,316 	 		996,220 	 	
Cost of land and lot sales	374 	 		5,562 	 		576 	 		7,057 	 	
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 	 		— 	 		5,549 	 		— 	 	
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 	 	
Financial Services:								
Revenues	2,296 	 		756 	 		3,890 	 		1,058 	 	
Expenses	1,285 	 		627 	 		2,364 	 		948 	 	
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	$	0.43 	 		$	0.18 	 		$	0.67 	 		$	0.19 	 	
Diluted	$	0.43 	 		$	0.18 	 		$	0.67 	 		$	0.18 	 	
Weighted average shares outstanding								
Basic	130,292,563 	 		142,244,166 	 		132,326,856 	 		142,055,766 	 	
Diluted	130,506,567 	 		142,471,191 	 		132,763,775 	 		142,431,725 	 	
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)

																																										
	Number of
Shares of Common
Stock		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Total
Stockholders’
Equity		Noncontrolling
Interests		Total
Equity	
Balance at March 31, 2020	130,236,981 	 		$	1,302 	 		$	478,122 	 		$	1,635,857 	 		$	2,115,281 	 		$	12 	 		$	2,115,293 	 	
Net income	— 	 		— 	 		— 	 		56,528 	 		56,528 	 		— 	 		56,528 	 	
Shares issued under share-based awards	88,884 	 		1 	 		230 	 		— 	 		231 	 		— 	 		231 	 	
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	— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 	
	
Balance at June 30, 2020	130,325,865 	 		$	1,303 	 		$	482,111 	 		$	1,692,385 	 		$	2,175,799 	 		$	12 	 		$	2,175,811 	 	
														
	Number of
Shares of Common
Stock (Note 1)		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Total
Stockholders'
Equity		Noncontrolling
Interests		Total
Equity	
Balance at December 31, 2019	136,149,633 	 		$	1,361 	 		$	581,195 	 		$	1,603,974 	 		$	2,186,530 	 		$	12 	 		$	2,186,542 	 	
Net income	— 	 		— 	 		— 	 		88,411 	 		88,411 	 		— 	 		88,411 	 	
Shares issued under share-based awards	734,555 	 		8 	 		913 	 		— 	 		921 	 		— 	 		921 	 	
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	(6,558,323)	 		(66)	 		(101,935)	 		— 	 		(102,001)	 		— 	 		(102,001)	 	
	
Balance at June 30, 2020	130,325,865 	 		$	1,303 	 		$	482,111 	 		$	1,692,385 	 		$	2,175,799 	 		$	12 	 		$	2,175,811 	 	
														
	Number of
Shares of Common
Stock (Note 1)		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Total
Stockholders'
Equity		Noncontrolling
Interests		Total
Equity	
Balance at March 31, 2019	142,210,147 	 		$	1,422 	 		$	658,743 	 		$	1,396,858 	 		$	2,057,023 	 		$	13 	 		$	2,057,036 	 	
	
Net income	— 	 		— 	 		— 	 		26,262 	 		26,262 	 		— 	 		26,262 	 	
Shares issued under share-based awards	48,516 	 		1 	 		— 	 		— 	 		1 	 		— 	 		1 	 	
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 	 	

Balance at June 30, 2019	142,258,663 	 		$	1,423 	 		$	662,087 	 		$	1,423,120 	 		$	2,086,630 	 		$	13 	 		$	2,086,643 	 	
														
	Number of
Shares of Common
Stock (Note 1)		Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Total
Stockholders'
Equity		Noncontrolling
Interests		Total
Equity	
Balance at December 31, 2018	141,661,713 	 		$	1,417 	 		$	658,720 	 		$	1,396,787 	 		$	2,056,924 	 		$	13 	 		$	2,056,937 	 	
	
Net income	— 	 		— 	 		— 	 		26,333 	 		26,333 	 		— 	 		26,333 	 	
Shares issued under share-based awards	596,950 	 		6 	 		193 	 		— 	 		199 	 		— 	 		199 	 	
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 	 	

Balance at June 30, 2019	142,258,663 	 		$	1,423 	 		$	662,087 	 		$	1,423,120 	 		$	2,086,630 	 		$	13 	 		$	2,086,643 	 	

See accompanying condensed notes to the unaudited consolidated financial statements.

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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

												
 	Six Months Ended June 30,	
 	2020		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 	 		— 	 	
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)	 		— 	 	
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 	 	
 
See accompanying condensed notes to the unaudited consolidated financial statements.

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

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

Organization
TRI Pointe is engaged in the design, construction and sale of innovative single-family attached and detached homes through its portfolio of 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.
- 7 -

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.
- 8 -

Adoption of New Accounting Standards
In January 2017, the FASB issued ASU No. 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We 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 Instruments–Credit 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.

2. Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon 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.

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

	Three Months Ended June 30,		Six Months Ended June 30,	
	2020		2019		2020		2019	
Revenues					 		 	
Maracay	$	86,674 	 		$	55,653 	 		$	158,426 	 		$	95,214 	 	
Pardee Homes	242,282 	 		194,699 	 		420,684 	 		329,562 	 	
Quadrant Homes	37,298 	 		71,066 	 		81,372 	 		114,937 	 	
Trendmaker Homes	121,257 	 		121,963 	 		217,377 	 		192,784 	 	
TRI Pointe Homes	206,474 	 		192,752 	 		365,144 	 		364,543 	 	
Winchester Homes	73,825 	 		61,825 	 		120,263 	 		95,248 	 	
Total homebuilding revenues	767,810 	 		697,958 	 		1,363,266 	 		1,192,288 	 	
Financial services	2,296 	 		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 Homes	48,980 	 		14,735 	 		82,459 	 		13,944 	 	
Quadrant Homes	2,246 	 		5,193 	 		4,943 	 		2,554 	 	
Trendmaker Homes	10,512 	 		6,908 	 		15,309 	 		5,310 	 	
TRI Pointe Homes	15,741 	 		12,280 	 		20,101 	 		22,489 	 	
Winchester Homes	4,670 	 		2,555 	 		5,716 	 		1,789 	 	
Corporate	(19,463)	 		(11,364)	 		(30,771)	 		(17,630)	 	
Total homebuilding income before income taxes	70,728 	 		33,293 	 		110,361 	 		32,632 	 	
Financial services	3,943 	 		2,101 	 		6,014 	 		2,857 	 	
Total	$	74,671 	 		$	35,394 	 		$	116,375 	 		$	35,489 	 	
 
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Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):

	June 30, 2020		December 31, 2019	
Real estate inventories				
Maracay	$	352,316 	 		$	338,259 	 	
Pardee Homes	1,209,444 	 		1,218,384 	 	
Quadrant Homes	270,446 	 		264,437 	 	
Trendmaker Homes	240,467 	 		268,759 	 	
TRI Pointe Homes	699,708 	 		737,662 	 	
Winchester Homes	240,241 	 		237,935 	 	
Total	$	3,012,622 	 		$	3,065,436 	 	
				
Total assets				
Maracay	$	389,587 	 		$	382,262 	 	
Pardee Homes	1,306,846 	 		1,300,047 	 	
Quadrant Homes	320,792 	 		331,187 	 	
Trendmaker Homes	300,157 	 		353,610 	 	
TRI Pointe Homes	893,417 	 		930,348 	 	
Winchester Homes	304,466 	 		291,456 	 	
Corporate	429,512 	 		241,357 	 	
Total homebuilding assets	3,944,777 	 		3,830,267 	 	
Financial services	33,127 	 		28,423 	 	
Total	$	3,977,904 	 		$	3,858,690 	 	

3. Earnings Per Share
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):

 	Three Months Ended June 30,		Six Months Ended June 30,	
 	2020		2019		2020		2019	
Numerator:	 		 		 		 	
Net income	$	56,528 	 		$	26,262 	 		$	88,411 	 		$	26,333 	 	
Denominator:	 		 		 		 	
Basic weighted-average shares outstanding	130,292,563 	 		142,244,166 	 		132,326,856 	 		142,055,766 	 	
Effect of dilutive shares:	 				 		 	
Stock options and unvested restricted stock units	214,004 	 		227,025 	 		436,919 	 		375,959 	 	
Diluted weighted-average shares outstanding	130,506,567 	 		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 share	3,090,298 	 		2,920,708 	 		2,992,479 	 		3,144,445 	 	
  
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4. Receivables
Receivables consisted of the following (in thousands):

	June 30, 2020		December 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.

5. Real Estate Inventories
Real estate inventories consisted of the following (in thousands):

	June 30, 2020		December 31, 2019	
Real estate inventories owned:				
Homes completed or under construction	$	1,039,681 	 		$	951,974 	 	
Land under development	1,452,440 	 		1,641,354 	 	
Land held for future development	152,032 	 		122,847 	 	
Model homes	286,760 	 		275,204 	 	
Total real estate inventories owned	2,930,913 	 		2,991,379 	 	
Real estate inventories not owned:				
Land purchase and land option deposits	81,709 	 		74,057 	 	
	
Total real estate inventories not owned	81,709 	 		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,	
 	2020		2019		2020		2019	
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 inventory	21,828 	 		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 	 	
 
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Interest is capitalized to real estate inventory during development and other qualifying activities. During all periods presented, we capitalized all interest incurred to real estate inventory in accordance with ASC Topic 835, Interest, as our qualified assets exceeded our debt. Interest that is capitalized to real estate inventory is included in cost of home sales or cost of land and lot sales as related units or lots are delivered.  Interest that is expensed as incurred is included in other (expense) income, net.
Real Estate Inventory Impairments and Land Option Abandonments
Real estate inventory impairments and land and lot option abandonments and pre-acquisition charges consisted of the following (in thousands):

 	Three Months Ended June 30,		Six Months Ended June 30,	
 	2020		2019		2020		2019	
Real estate inventory impairments	$	— 	 		$	— 	 		$	— 	 		$	— 	 	
Land and lot option abandonments and pre-acquisition charges	1,380 	 		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.

6. 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.
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Assets and liabilities of unconsolidated entities (in thousands):

												
	June 30, 2020		December 31, 2019	
Assets				
Cash	$	12,005 	 		$	8,537 	 	
Receivables	2,498 	 		7,393 	 	
Real estate inventories	198,789 	 		116,760 	 	
Other assets	604 	 		703 	 	
Total assets	$	213,896 	 		$	133,393 	 	
Liabilities and equity				
Accounts payable and other liabilities	$	42,248 	 		$	11,009 	 	
Company’s equity	36,040 	 		11,745 	 	
Outside interests’ equity	135,608 	 		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,	
 	2020		2019		2020		2019	
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)	 		1 	 	
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 	 	

7. Variable Interest Entities
In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. These deposits are recorded as land purchase and land option deposits under real estate inventories not owned on the accompanying consolidated balance sheets.
We analyze each of our land and lot option agreements and other similar contracts under the provisions of ASC 810, Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is generally limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the landowner and budget shortfalls and savings will be borne by us. Additionally, we have entered into land banking arrangements which require us to complete development work even if we terminate the option to procure land or lots.
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The following provides a summary of our interests in land and lot option agreements (in thousands):

 	June 30, 2020		December 31, 2019	
	Deposits		Remaining
Purchase
Price		Consolidated
Inventory
Held by VIEs		Deposits		Remaining
Purchase
Price		Consolidated
Inventory
Held by VIEs	
Consolidated VIEs	$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 	
Unconsolidated VIEs	39,070 	 		441,528 	 		N/A		42,896 	 		440,974 	 		N/A	
Other land option agreements	42,639 	 		374,674 	 		N/A		31,161 	 		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.  

8. 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, 2020		December 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 names	27,979 	 		(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.
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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 	 	
2021	534 	 	
2022	534 	 	
2023	534 	 	
2024	534 	 	
Thereafter	619 	 	
Total	$	3,022 	 	

9. Other Assets
Other assets consisted of the following (in thousands):

	June 30, 2020		December 31, 2019	
Prepaid expenses	$	21,273 	 		$	24,070 	 	
Refundable fees and other deposits	29,785 	 		30,242 	 	
Development rights, held for future use or sale	2,063 	 		2,213 	 	
Deferred loan costs—loans payable	3,709 	 		4,345 	 	
Operating properties and equipment, net	58,155 	 		57,803 	 	
Lease right-of-use assets	49,506 	 		50,947 	 	
Other	3,256 	 		3,805 	 	
Total	$	167,747 	 		$	173,425 	 	

10. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):

	June 30, 2020		December 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 inventories	78,601 	 		90,899 	 	
Customer deposits	29,925 	 		20,390 	 	
Income tax liability to Weyerhaeuser	346 	 		346 	 	
Accrued income taxes payable	18,605 	 		1,530 	 	
Liability for uncertain tax positions (Note 15)	486 	 		486 	 	
Accrued interest	6,886 	 		11,952 	 	
	
Other tax liability	7,665 	 		8,448 	 	
Lease liabilities	54,395 	 		56,125 	 	
Other	13,704 	 		12,462 	 	
Total	$	314,818 	 		$	322,043 	 	

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11. 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, 2020		December 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, 2020		December 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
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$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.

12. Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
•Level 1—Quoted prices for identical instruments in active markets
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date
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•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, 2020		December 31, 2019	
	Hierarchy		Book Value		Fair Value		Book Value		Fair 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.

13. Commitments and Contingencies
Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements.  For matters as to which the Company believes a loss is probable and reasonably estimable, we had $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. 
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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,	
 	2020		2019		2020		2019	
Warranty reserves, beginning of period	$	76,487 	 		$	70,947 	 		$	76,607 	 		$	71,836 	 	
Warranty reserves accrued	6,988 	 		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
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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, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six 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, 2020		December 31, 2019	
Weighted-average discount rate:				
Operating leases	5.9 	%		5.9 	%	
Ground leases	10.2 	%		10.2 	%	
Weighted-average remaining lease term (in years):				
Operating leases	5.8		6.1	
Ground leases	47.5		48.1	
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 	 	
2021	7,855 	 		3,070 	 	
2022	5,610 	 		3,070 	 	
2023	4,503 	 		3,070 	 	
2024	2,779 	 		3,070 	 	
Thereafter	6,410 	 		83,515 	 	
Total lease payments	$	31,617 	 		$	97,330 	 	
Less: Interest	4,762 	 		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.
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14. Stock-Based Compensation
2013 Long-Term Incentive Plan
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by TRI Pointe in January 2013 and amended, with the approval of our stockholders, in 2014 and 2015. In addition, our board of directors amended the 2013 Incentive Plan in 2014 to prohibit repricing (other than in connection with any equity restructuring or any change in capitalization) of outstanding options or stock appreciation rights without stockholder approval. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, bonus stock, restricted stock, restricted stock units (“RSUs”) and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.
As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under the 2013 Incentive Plan. As of 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,	
 	2020		2019		2020		2019	
Total stock-based compensation	$	3,786 	 		$	3,351 	 		$	7,411 	 		$	6,786 	 	
 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of June 30, 2020, total unrecognized stock-based compensation related to all stock-based awards was $24.7 million and the weighted average term over which the expense was expected to be recognized was 2.1 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the six months ended June 30, 2020:

	Options		Weighted
Average
Exercise
Price
Per Share		Weighted
Average
Remaining
Contractual
Life		Aggregate
Intrinsic
Value
(in thousands)	
Options outstanding at December 31, 2019	891,343 	 		$	15.03 	 		3.4		$	994 	 	
Granted	— 	 		— 	 		— 	 		— 	 	
Exercised	(78,506)	 		$	11.94 	 		— 	 		— 	 	
Forfeited	(8,257)	 		$	14.37 	 		— 	 		— 	 	
Options outstanding at June 30, 2020	804,580 	 		$	15.34 	 		3		$	247 	 	
Options exercisable at June 30, 2020	804,580 	 		$	15.34 	 		3		$	247 	 	
 
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 six months ended June 30, 2020:
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	Restricted
Stock
Units		Weighted
Average
Grant Date
Fair Value
Per Share		Aggregate
Intrinsic
Value
(in thousands)	
Nonvested RSUs at December 31, 2019	3,384,351 	 		$	12.39 	 		$	52,694 	 	
Granted	1,458,633 	 		$	18.45 	 		— 	 	
Vested	(990,929)	 		$	13.36 	 		— 	 	
Forfeited	(744,904)	 		$	10.81 	 		— 	 	
Nonvested RSUs at June 30, 2020	3,107,151 	 		$	15.30 	 		$	43,997 	 	

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

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

15. Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered.  Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.
We had net deferred tax assets of $39.7 million and $49.9 million as of June 30, 2020 and December 31, 2019.  We had a valuation allowance related to those net deferred tax assets of $3.5 million as of June 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 June 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 six months ended June 30, 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 $18.1 million and $9.1 million for the three months ended June 30, 2020 and 2019, respectively and $28.0 million and $9.2 million for the six months ended June 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 June 30, 2020 and December 31, 2019.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years. 

16. Related Party Transactions
We had no related party transactions for the six months ended June 30, 2020 and 2019.

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17. Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):

	Six Months Ended June 30,	
	2020		2019	
Supplemental disclosure of cash flow information:				
Interest paid (capitalized), net	$	1,191 	 		$	(3,104)	 	
Income taxes paid (refunded), net	$	(12)	 		$	10,601 	 	
Supplemental disclosures of noncash activities:				
Amortization of senior note discount capitalized to real estate inventory	$	579 	 		$	981 	 	
Amortization of deferred loan costs capitalized to real estate inventory	$	1,844 	 		$	2,826 	 	

18. Supplemental Guarantor Information
2021 Notes, 2027 Notes and 2028 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes, on June 5, 2017, TRI Pointe Group issued the 2027 Notes and on June 10, 2020, TRI Pointe Group issued the 2028 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including TRI Pointe Homes, are party to supplemental indentures pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to these Notes. Each Guarantor of the 2021 Notes, the 2027 Notes and the 2028 Notes is 100% owned by TRI Pointe Group, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2021 Notes, the 2027 Notes and the 2028 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of TRI Pointe Group or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.
A Guarantor of the 2021 Notes, the 2027 Notes and the 2028 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe Group or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe Group or another Guarantor, with TRI Pointe Group or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe Group or any other Guarantor which gave rise to such Guarantor guaranteeing the 2021 Notes, the 2027 Notes or the 2028 Notes; (vi) TRI Pointe Group exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.
2024 Notes
TRI Pointe Group and TRI Pointe Homes are co-issuers of the 2024 Notes. All of the Guarantors (other than TRI Pointe Homes) have entered into supplemental indentures pursuant to which they jointly and severally guarantee the obligations of TRI Pointe Group and TRI Pointe Homes with respect to the 2024 Notes. Each Guarantor of the 2024 Notes is 100% owned by TRI Pointe Group and TRI Pointe Homes, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2024 Notes, as described below.
A Guarantor of the 2024 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe or another Guarantor, with TRI Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe or any other Guarantor which gave rise to such Guarantor guaranteeing the 2024 Notes; (vi) TRI Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.
Presented below are the condensed consolidating balance sheets at June 30, 2020 and December 31, 2019, condensed consolidating statements of operations for the three and six months ended June 30, 2020 and 2019 and condensed consolidating statement of cash flows for the six months ended June 30, 2020 and 2019.  Because TRI Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, the non-Guarantor subsidiaries’ information is not
- 25 -

separately presented in the tables below, but is included with the Guarantors. Additionally, because TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X, the condensed consolidated financial information of TRI Pointe Group and TRI Pointe Homes, the co-issuers of the 2024 Notes, is presented together in the column titled “Issuer”.
Condensed Consolidating Balance Sheet (in thousands):

																								
	June 30, 2020	
	Issuer		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Assets								
Cash and cash equivalents	$	393,481 	 		$	81,064 	 		$	— 	 		$	474,545 	 	
Receivables	27,555 	 		60,025 	 		— 	 		87,580 	 	
Intercompany receivables	421,075 	 		— 	 		(421,075)	 		— 	 	
Real estate inventories	699,708 	 		2,312,914 	 		— 	 		3,012,622 	 	
Investments in unconsolidated entities	— 	 		36,040 	 		— 	 		36,040 	 	
Goodwill and other intangible assets, net	156,604 	 		3,022 	 		— 	 		159,626 	 	
Investments in subsidiaries	1,968,697 	 		— 	 		(1,968,697)	 		— 	 	
Deferred tax assets, net	9,021 	 		30,723 	 		— 	 		39,744 	 	
Other assets	5,192 	 		162,555 	 		— 	 		167,747 	 	
Total assets	$	3,681,333 	 		$	2,686,343 	 		$	(2,389,772)	 		$	3,977,904 	 	
								
Liabilities								
Accounts payable	$	16,911 	 		$	54,175 	 		$	— 	 		$	71,086 	 	
Intercompany payables	— 	 		421,075 	 		(421,075)	 		— 	 	
Accrued expenses and other liabilities	72,434 	 		242,384 	 		— 	 		314,818 	 	
Loans payable	250,000 	 		— 	 		— 	 		250,000 	 	
Senior notes	1,166,189 	 		— 	 		— 	 		1,166,189 	 	
Total liabilities	1,505,534 	 		717,634 	 		(421,075)	 		1,802,093 	 	
								
Equity								
Total stockholders’ equity	2,175,799 	 		1,968,697 	 		(1,968,697)	 		2,175,799 	 	
Noncontrolling interests	— 	 		12 	 		— 	 		12 	 	
Total equity	2,175,799 	 		1,968,709 	 		(1,968,697)	 		2,175,811 	 	
Total liabilities and equity	$	3,681,333 	 		$	2,686,343 	 		$	(2,389,772)	 		$	3,977,904 	 	

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Condensed Consolidating Balance Sheet (in thousands):

																								
 	December 31, 2019	
	Issuer		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Assets	 		 		 		 	
Cash and cash equivalents	$	186,200 	 		$	142,811 	 		$	— 	 		$	329,011 	 	
Receivables	26,016 	 		43,260 	 		— 	 		69,276 	 	
Intercompany receivables	576,846 	 		— 	 		(576,846)	 		— 	 	
Real estate inventories	737,662 	 		2,327,774 	 		— 	 		3,065,436 	 	
Investments in unconsolidated entities	— 	 		11,745 	 		— 	 		11,745 	 	
Goodwill and other intangible assets, net	156,604 	 		3,289 	 		— 	 		159,893 	 	
Investments in subsidiaries	1,870,885 	 		— 	 		(1,870,885)	 		— 	 	
Deferred tax assets, net	9,020 	 		40,884 	 		— 	 		49,904 	 	
Other assets	14,676 	 		158,749 	 		— 	 		173,425 	 	
Total assets	$	3,577,909 	 		$	2,728,512 	 		$	(2,447,731)	 		$	3,858,690 	 	
								
Liabilities	 		 		 		 	
Accounts payable	$	14,915 	 		$	51,205 	 		$	— 	 		$	66,120 	 	
Intercompany payables	— 	 		576,846 	 		(576,846)	 		— 	 	
Accrued expenses and other liabilities	92,479 	 		229,564 	 		— 	 		322,043 	 	
Loans payable	250,000 	 		— 	 		— 	 		250,000 	 	
	
Senior notes	1,033,985 	 		— 	 		— 	 		1,033,985 	 	
Total liabilities	1,391,379 	 		857,615 	 		(576,846)	 		1,672,148 	 	
								
Equity	 		 		 		 	
Total stockholders’ equity	2,186,530 	 		1,870,885 	 		(1,870,885)	 		2,186,530 	 	
Noncontrolling interests	— 	 		12 	 		— 	 		12 	 	
Total equity	2,186,530 	 		1,870,897 	 		(1,870,885)	 		2,186,542 	 	
Total liabilities and equity	$	3,577,909 	 		$	2,728,512 	 		$	(2,447,731)	 		$	3,858,690 	 	

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Condensed Consolidating Statement of Operations (in thousands):

																								
 	Three Months Ended June 30, 2020	
	Issuer		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Homebuilding:	 		 		 		 	
Home sales revenue	$	206,473 	 		$	560,469 	 		$	— 	 		$	766,942 	 	
Land and lot sales revenue	— 	 		220 	 		— 	 		220 	 	
Other operations revenue	— 	 		648 	 		— 	 		648 	 	
Total revenues	206,473 	 		561,337 	 		— 	 		767,810 	 	
Cost of home sales	172,086 	 		429,348 	 		— 	 		601,434 	 	
Cost of land and lot sales	— 	 		374 	 		— 	 		374 	 	
Other operations expense	— 	 		624 	 		— 	 		624 	 	
Sales and marketing	10,667 	 		34,527 	 		— 	 		45,194 	 	
General and administrative	19,875 	 		17,679 	 		— 	 		37,554 	 	
Restructuring charges	1,111 	 		4,438 	 		— 	 		5,549 	 	
Homebuilding income from operations	2,734 	 		74,347 	 		— 	 		77,081 	 	
Equity in loss of unconsolidated entities	— 	 		(25)	 		— 	 		(25)	 	
Other loss, net	(6,320)	 		(8)	 		— 	 		(6,328)	 	
Homebuilding (loss) income before income taxes	(3,586)	 		74,314 	 		— 	 		70,728 	 	
Financial Services:	 		 		 		 	
Revenues	— 	 		2,296 	 		— 	 		2,296 	 	
Expenses	— 	 		1,285 	 		— 	 		1,285 	 	
Equity in income of unconsolidated entities	— 	 		2,932 	 		— 	 		2,932 	 	
Financial services income before income taxes	— 	 		3,943 	 		— 	 		3,943 	 	
(Loss) income before income taxes	(3,586)	 		78,257 	 		— 	 		74,671 	 	
Equity of net income of subsidiaries	60,114 	 		— 	 		(60,114)	 		— 	 	
Provision for income taxes	— 	 		(18,143)	 		— 	 		(18,143)	 	
Net income	$	56,528 	 		$	60,114 	 		$	(60,114)	 		$	56,528 	 	

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Condensed Consolidating Statement of Operations (in thousands):

																								
 	Three Months Ended June 30, 2019	
	Issuer		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Homebuilding:	 		 		 		 	
Home sales revenue	$	192,752 	 		$	499,386 	 		$	— 	 		$	692,138 	 	
Land and lot sales revenue	— 	 		5,183 	 		— 	 		5,183 	 	
Other operations revenue	— 	 		637 	 		— 	 		637 	 	
Total revenues	192,752 	 		505,206 	 		— 	 		697,958 	 	
Cost of home sales	163,356 	 		411,328 	 		— 	 		574,684 	 	
Cost of land and lot sales	— 	 		5,562 	 		— 	 		5,562 	 	
Other operations expense	— 	 		627 	 		— 	 		627 	 	
Sales and marketing	9,961 	 		37,104 	 		— 	 		47,065 	 	
General and administrative	18,391 	 		18,463 	 		— 	 		36,854 	 	
	
Homebuilding income from operations	1,044 	 		32,122 	 		— 	 		33,166 	 	
Equity in loss of unconsolidated entities	— 	 		(26)	 		— 	 		(26)	 	
Other income, net	8 	 		145 	 		— 	 		153 	 	
Homebuilding income before income taxes	1,052 	 		32,241 	 		— 	 		33,293 	 	
Financial Services:	 		 		 		 	
Revenues	— 	 		756 	 		— 	 		756 	 	
Expenses	— 	 		627 	 		— 	 		627 	 	
Equity in income of unconsolidated entities	— 	 		1,972 	 		— 	 		1,972 	 	
Financial services income before income taxes	— 	 		2,101 	 		— 	 		2,101 	 	
Income before income taxes	1,052 	 		34,342 	 		— 	 		35,394 	 	
Equity of net income of subsidiaries	25,215 	 		— 	 		(25,215)	 		— 	 	
Provision for income taxes	(5)	 		(9,127)	 		— 	 		(9,132)	 	
Net income	$	26,262 	 		$	25,215 	 		$	(25,215)	 		$	26,262 	 	

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Condensed Consolidating Statement of Operations (in thousands):

	Six Months Ended June 30, 2020	
	Issuer (1)		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Homebuilding:								
Home sales revenue	$	365,143 	 		$	996,637 	 		$	— 	 		$	1,361,780 	 	
Land and lot sales revenue	— 	 		220 	 		— 	 		220 	 	
Other operations revenue	— 	 		1,266 	 		— 	 		1,266 	 	
Total revenues	365,143 	 		998,123 	 		— 	 		1,363,266 	 	
Cost of home sales	307,986 	 		766,330 	 		— 	 		1,074,316 	 	
Cost of land and lot sales	— 	 		576 	 		— 	 		576 	 	
Other operations expense	— 	 		1,248 	 		— 	 		1,248 	 	
Sales and marketing	21,102 	 		66,729 	 		— 	 		87,831 	 	
General and administrative	39,218 	 		38,173 	 		— 	 		77,391 	 	
Restructuring charges	1,111 	 		4,438 	 		— 	 		5,549 	 	
Homebuilding (loss) income from operations	(4,274)	 		120,629 	 		— 	 		116,355 	 	
Equity in loss of unconsolidated entities	— 	 		(39)	 		— 	 		(39)	 	
Other (loss) income, net	(6,128)	 		173 	 		— 	 		(5,955)	 	
Homebuilding (loss) income before income taxes	(10,402)	 		120,763 	 		— 	 		110,361 	 	
Financial Services:								
Revenues	— 	 		3,890 	 		— 	 		3,890 	 	
Expenses	— 	 		2,364 	 		— 	 		2,364 	 	
Equity in income of unconsolidated entities	— 	 		4,488 	 		— 	 		4,488 	 	
Financial services income before income taxes	— 	 		6,014 	 		— 	 		6,014 	 	
(Loss) income before income taxes	(10,402)	 		126,777 	 		— 	 		116,375 	 	
Equity of net income of subsidiaries	98,813 	 		— 	 		(98,813)	 		— 	 	
Provision for income taxes	— 	 		(27,964)	 		— 	 		(27,964)	 	
Net income	$	88,411 	 		$	98,813 	 		$	(98,813)	 		$	88,411 	 	
- 30 -

Condensed Consolidating Statement of Operations (in thousands):

	Six Months Ended June 30, 2019	
	Issuer (1)		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Homebuilding:								
Home sales revenue	$	364,543 	 		$	820,298 	 		$	— 	 		$	1,184,841 	 	
Land and lot sales revenue	— 	 		6,212 	 		— 	 		6,212 	 	
Other operations revenue	— 	 		1,235 	 		— 	 		1,235 	 	
Total revenues	364,543 	 		827,745 	 		— 	 		1,192,288 	 	
Cost of home sales	308,431 	 		687,789 	 		— 	 		996,220 	 	
Cost of land and lot sales	— 	 		7,057 	 		— 	 		7,057 	 	
Other operations expense	— 	 		1,217 	 		— 	 		1,217 	 	
Sales and marketing	19,260 	 		66,794 	 		— 	 		86,054 	 	
General and administrative	37,870 	 		37,581 	 		— 	 		75,451 	 	
	
Homebuilding (loss) income from operations	(1,018)	 		27,307 	 		— 	 		26,289 	 	
Equity in loss of unconsolidated entities	— 	 		(51)	 		— 	 		(51)	 	
Other income, net	6,148 	 		246 	 		— 	 		6,394 	 	
Homebuilding income before taxes	5,130 	 		27,502 	 		— 	 		32,632 	 	
Financial Services:								
Revenues	— 	 		1,058 	 		— 	 		1,058 	 	
Expenses	— 	 		948 	 		— 	 		948 	 	
Equity in loss of unconsolidated entities	— 	 		2,747 	 		— 	 		2,747 	 	
Financial services income from operations before taxes	— 	 		2,857 	 		— 	 		2,857 	 	
Income before taxes	5,130 	 		30,359 	 		— 	 		35,489 	 	
Equity of net income of subsidiaries	21,208 	 		— 	 		(21,208)	 		— 	 	
Provision for income taxes	(5)	 		(9,151)	 		— 	 		(9,156)	 	
Net income	$	26,333 	 		$	21,208 	 		$	(21,208)	 		$	26,333 	 	

- 31 -

Condensed Consolidating Statement of Cash Flows (in thousands):

																								
 	Six Months Ended June 30, 2020	
	Issuer		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Cash flows from operating activities:	 		 		 		 	
Net cash provided by operating activities	$	36,321 	 		$	129,907 	 		$	— 	 		$	166,228 	 	
Cash flows from investing activities:	 		 		 		 	
Purchases of property and equipment	(4,162)	 		(7,840)	 		— 	 		(12,002)	 	
Proceeds from sale of property and equipment	— 	 		17 	 		— 	 		17 	 	
Investments in unconsolidated entities	— 	 		(25,715)	 		— 	 		(25,715)	 	
Intercompany	158,116 	 		— 	 		(158,116)	 		— 	 	
Net cash used in (provided by) investing activities	153,954 	 		(33,538)	 		(158,116)	 		(37,700)	 	
Cash flows from financing activities:	 		 		 		 	
Borrowings from debt	850,000 	 		— 	 		— 	 		850,000 	 	
Repayment of debt	(721,673)	 		— 	 		— 	 		(721,673)	 	
Debt issuance costs	(4,768)	 		— 	 		— 	 		(4,768)	 	
	
Proceeds from issuance of common stock under
   share-based awards	921 	 		— 	 		— 	 		921 	 	
Minimum tax withholding paid on behalf of employees for
   restricted stock units	(5,473)	 		— 	 		— 	 		(5,473)	 	
Share repurchases	(102,001)	 		— 	 		— 	 		(102,001)	 	
Intercompany	— 	 		(158,116)	 		158,116 	 		— 	 	
Net cash provided by (used in) financing activities	17,006 	 		(158,116)	 		158,116 	 		17,006 	 	
Net increase (decrease) in cash and cash equivalents	207,281 	 		(61,747)	 		— 	 		145,534 	 	
Cash and cash equivalents–beginning of period	186,200 	 		142,811 	 		— 	 		329,011 	 	
Cash and cash equivalents–end of period	$	393,481 	 		$	81,064 	 		$	— 	 		$	474,545 	 	

- 32 -

Condensed Consolidating Statement of Cash Flows (in thousands):

																								
 	Six Months Ended June 30, 2019	
	Issuer		Guarantor
Subsidiaries		Consolidating
Adjustments		Consolidated
TRI Pointe
Group, Inc.	
Cash flows from operating activities:	 		 		 		 	
Net cash provided by (used in) operating activities	$	32,114 	 		$	(136,053)	 		$	— 	 		$	(103,939)	 	
Cash flows from investing activities:	 		 		 			
Purchases of property and equipment	(4,532)	 		(8,610)	 		— 	 		(13,142)	 	
Proceeds from sale of property and equipment	— 	 		46 	 		— 	 		46 	 	
Investments in unconsolidated entities	— 	 		(712)	 		— 	 		(712)	 	
Intercompany	(133,658)	 		— 	 		133,658 	 		— 	 	
Net cash used in investing activities	(138,190)	 		(9,276)	 		133,658 	 		(13,808)	 	
Cash flows from financing activities:	 		 		 			
Borrowings from notes payable	400,000 	 		— 	 		— 	 		400,000 	 	
Repayment of notes payable	(381,895)	 		— 	 		— 	 		(381,895)	 	
Debt issuance costs	(3,125)	 		— 	 		— 	 		(3,125)	 	

	
Proceeds from issuance of common stock under
   share-based awards	199 	 		— 	 		— 	 		199 	 	
Minimum tax withholding paid on behalf of employees for restricted stock units	(3,612)	 		— 	 		— 	 		(3,612)	 	
	
Intercompany	— 	 		133,658 	 		(133,658)	 		— 	 	
Net cash provided by (used in) financing activities	11,567 	 		133,658 	 		(133,658)	 		11,567 	 	
Net decrease in cash and cash equivalents	(94,509)	 		(11,671)	 		— 	 		(106,180)	 	
Cash and cash equivalents–beginning of period	148,129 	 		129,567 	 		— 	 		277,696 	 	
Cash and cash equivalents–end of period	$	53,620 	 		$	117,896 	 		$	— 	 		$	171,516 	 	

- 33 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on our current intentions, beliefs, expectations and predictions for the future, and you should not place undue reliance on these statements. These statements use forward-looking terminology, are based on various assumptions made by us, and may not be accurate because of risks and uncertainties surrounding the assumptions that are made.
Factors listed in this section—as well as other factors not included—may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee what effect it will have on our operations, financial condition, or share price.
We undertake no, and hereby disclaim any, obligation to update or revise any forward-looking statements, unless required by law. However, we reserve the right to make such updates or revisions from time to time by press release, periodic report, or other method of public disclosure without the need for specific reference to this Quarterly Report on Form 10-Q. No such update or revision shall be deemed to indicate that other statements not addressed by such update or revision remain correct or create an obligation to provide any other updates or revisions.
Forward-Looking Statements
Forward-looking statements that are included in this Quarterly Report on Form 10-Q are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “goal,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements may include, but are not limited to, statements regarding our strategy, projections and estimates concerning the timing and success of specific projects and our future production, land and lot sales, the outcome of legal proceedings, the anticipated impact of natural disasters or contagious diseases on our operations, operational and financial results, including our estimates for growth, financial condition, sales prices, prospects and capital spending.
Risks, Uncertainties and Assumptions
The major risks and uncertainties—and assumptions that are made—that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
•the effects of the ongoing novel coronavirus (“COVID-19”) pandemic, which are highly uncertain and subject to rapid change, cannot be predicted and will depend upon future developments, including the severity and duration of the outbreak, the duration of existing and future social distancing and shelter-in-place orders, further mitigation strategies taken by applicable government authorities, the availability and efficacy of a vaccine, adequate testing and treatments and the prevalence of widespread immunity to COVID-19;
•the effects of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;
•market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;
•the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such parcels;
•access to adequate capital on acceptable terms;
•geographic concentration of our operations, particularly within California;
•levels of competition;
•the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;
•raw material and labor prices and availability;
•oil and other energy prices;
•the effects of U.S. trade policies, including the imposition of tariffs and duties on homebuilding products and retaliatory measures taken by other countries;
•the effects of weather, including the re-occurrence of drought conditions in California;  
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•the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters;
•the risk of loss from acts of war, terrorism, civil unrest or outbreaks of contagious diseases, such as COVID-19;
•transportation costs;
•federal and state tax policies;
•the effects of land use, environment and other governmental laws and regulations;
•legal proceedings or disputes and the adequacy of reserves;
•risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;
•changes in accounting principles;
•risks related to unauthorized access to our computer systems, theft of our homebuyers’ confidential information or other forms of cyber-attack; and
•other factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in other filings we make with the Securities and Exchange Commission (“SEC”).
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge investors to review and consider carefully the various disclosures made by us in this report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. Investors should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to invest in, or maintain an investment in, our common stock.
Overview
Our second quarter 2020 results reflect a sharp rebound from the COVID-19-related economic uncertainty and reduced demand environment we experienced towards the end of the first quarter and through the beginning of the second quarter. In May, as state and local governments began relaxing restrictions related to COVID-19 and economic conditions in our local markets regained strength, new home demand began to steadily improve. This demand continued to increase in June, which resulted in particularly strong new home orders for the month, which increased approximately 28% as compared to June 2019. We believe this demand environment was aided by favorable housing market fundamentals, including low interest rates and a relatively constrained supply of homes in many of our markets. Additionally, we believe our results for the most recent quarter reflect the effects of fiscal and monetary stimulus programs, a degree of pent-up demand among consumers, as well as evolving consumer preferences as it relates to new home characteristics in light of the COVID-19 pandemic and the degree to which many individuals are working from home. Notwithstanding our positive results during the second quarter 2020 and the strong demand we continue to experience in July, the COVID-19 pandemic has impacted, and we expect that it will continue to impact, our business and operations due to the high level of uncertainty that still exists as to future developments, including the duration of the outbreak. With several states (and local authorities within those states) re-imposing restrictions as a result of recent increases in new COVID-19 cases and an historically high unemployment rate, we remain cautious as we enter the back half of 2020.
Highlights of the quarter include an increase in homebuilding gross margin percentage to 21.6% and a reduction in selling, general and administrative expense as a percentage of home sales revenue to 10.8%. These improvements, along with a slight increase in average sales price of homes delivered to $624,000, helped us achieve net income of $56.5 million, representing a 115% increase compared to the prior-year period. Despite a substantially reduced sales pace in April due to COVID-19, we ended the quarter with a monthly absorption rate of 3.1, resulting in 1,332 net new home orders, down 11% from the prior-year period. As of the end of the quarter, we had 2,558 units in backlog, representing $1.7 billion in backlog dollar value, up 16% and 17% from the prior-year period, respectively. In addition, we ended the quarter with total liquidity of $1.0 billion, including cash and cash equivalents of $474.5 million and $559.4 million of availability under our Credit Facility.
Our results for the three months ended June 30, 2020 are not indicative of trends that we expect to persist as uncertainty caused by COVID-19 and government responses to the pandemic have impacted, and will continue to impact, our business and operations.

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Impact of COVID-19 and Business Outlook
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic, and on March 13, 2020, the United States issued a proclamation declaring a national emergency concerning COVID-19. As a result of the pandemic, a number of states and local governments issued shelter-in-place orders or guidance for individuals not engaged in essential activities to remain at home other than for essential needs. While our TRI Pointe Homes—Bay Area and Quadrant Homes divisions were prohibited from engaging in residential construction activities in the Bay Area in California and Seattle, Washington, respectively, for several weeks beginning in late March 2020, residential homebuilding operations are currently designated as an essential business activity and remain exempt from the application of “stay-at-home” orders in all of our markets. However, there can be no assurance that our homebuilding operations will continue to remain exempt in all of our markets.
In response to the COVID-19 pandemic and measures taken by applicable governmental authorities, in mid-March 2020, we implemented new operating measures relating to our sales, construction and other operations, including protocols relating to social distancing, enhanced sanitation, monitoring of symptoms related to COVID-19 and other processes. Under these measures, we encouraged employees at our corporate and division offices whose duties could be performed from home to work remotely; our new home galleries and design studios transitioned to virtual appointments or appointment-only with pre-screened individuals, as permitted by law; we instituted social distancing, hygiene and sanitation guidelines in accordance with recommended protocols throughout the organization (including in our new home sales galleries and design studios, and with respect to trade partners and their employees on our jobsites); and we postponed non-essential customer care service and warranty requests. As of the date of this report, as permitted by applicable government orders or guidelines, we have transitioned substantially all of our employees back to our corporate and division offices (in many cases, using staggered or flexible schedules to limit the number of individuals in our offices on a given day), have resumed non-essential customer care service and warranty requests in substantially all of our markets, and are no longer appointment-only in many of our new home galleries. Our field-based team members continue to report to their assigned communities in all jurisdictions where homebuilding has been deemed an essential activity or is otherwise permitted by applicable government authorities. We have also encouraged our employees to use our virtual working and communication platforms in lieu of holding in-person meetings whenever possible.
The COVID-19 outbreak and the measures taken by governmental authorities to delay and contain its spread have resulted in substantial adverse effects on the United States economy and could result in a severe and/or prolonged economic recession. The ongoing impact of COVID-19 on the United States economy and our business and operations is unknown, as the velocity of this economic slowdown and the subsequent job losses are unprecedented. While demand for new homes has rebounded substantially over the last couple months, given the dynamic nature of the situation, recent increases in new COVID-19 cases in many states and the re-imposition by local and state governments throughout the U.S. of restrictive measures, we cannot estimate the duration and severity of the impact of COVID-19 on the homebuilding industry or whether the current demand environment will persist. To the extent we experience further negative impacts, however, we anticipate that such impacts may include reduced consumer confidence, difficulties in obtaining financing for potential homebuyers, shortages of or increased costs associated with obtaining building materials, increased unemployment levels, declining wage growth and fluctuating interest rates. The uncertainty surrounding the containment of this virus, in the form of testing, vaccination and/or treatments, is a key unknown, and the ultimate strategy adopted to address the pandemic, if any, will substantially impact the form of any resulting economic recovery. Similarly, the extent of the impact of COVID-19 on our liquidity and operational and financial performance will depend on, among other things, existing and future federal, state and local restrictions regarding virus containment, as we believe these factors are highly correlated with consumer strength as it relates to employment and economic well-being.
As of the date of this report, we continue to build and sell homes in all of our markets, and net new orders and traffic in our sales offices have increased significantly as compared to the beginning of the second quarter. Notwithstanding, the new protocols we implemented in response to the COVID-19 outbreak and the measures taken by governmental authorities to contain its spread continue to affect our business and operations as of the date of this report, in many regards, including by requiring a substantial investment of time and resources by our management and organization and causing other material disruptions to our normal operations.
As noted above, as of June 30, 2020, we had total liquidity of $1.0 billion. We have implemented a strategy to maximize operating cash flows and maintain our existing liquidity by reducing or deferring cash expenditures as much as possible,
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including negotiating with land sellers and developers to extend the closing date of land acquisitions and lot take-downs, as well as postponing land development activities for certain communities.
Consolidated Financial Data (in thousands, except per share amounts):

																								
 	Three Months Ended June 30,		Six Months Ended June 30,	
 	2020		2019		2020		2019	
Homebuilding:	 		 					
Home sales revenue	$	766,942 	 		$	692,138 	 		$	1,361,780 	 		$	1,184,841 	 	
Land and lot sales revenue	220 	 		5,183 	 		220 	 		6,212 	 	
Other operations revenue	648 	 		637 	 		1,266 	 		1,235 	 	
Total revenues	767,810 	 		697,958 	 		1,363,266 	 		1,192,288 	 	
Cost of home sales	601,434 	 		574,684 	 		1,074,316 	 		996,220 	 	
Cost of land and lot sales	374 	 		5,562 	 		576 	 		7,057 	 	
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 	 		— 	 		5,549 	 		— 	 	
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 	 	
Financial Services:								
Revenues	2,296 	 		756 	 		3,890 	 		1,058 	 	
Expenses	1,285 	 		627 	 		2,364 	 		948 	 	
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	$	0.43 	 		$	0.18 	 		$	0.67 	 		$	0.19 	 	
Diluted	$	0.43 	 		$	0.18 	 		$	0.67 	 		$	0.18 	 	
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment

																																																						
 	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Percentage Change	
	Net New
Home
Orders		Average
Selling
Communities		Monthly
Absorption
Rates		Net New
Home
Orders		Average
Selling
Communities		Monthly
Absorption
Rates		Net New
Home
Orders		Average
Selling
Communities		Monthly
Absorption
Rates	
Maracay	162 	 		19.0 	 		2.8 	 		253 	 		15.0 	 		5.6 	 		(36)	%		27 	%		(49)	%	
Pardee Homes	423 	 		44.0 	 		3.2 	 		522 	 		44.5 	 		3.9 	 		(19)	%		(1)	%		(18)	%	
Quadrant Homes	105 	 		9.5 	 		3.7 	 		67 	 		6.5 	 		3.4 	 		57 	%		46 	%		7 	%	
Trendmaker Homes	205 	 		29.8 	 		2.3 	 		247 	 		37.5 	 		2.2 	 		(17)	%		(21)	%		4 	%	
TRI Pointe Homes	327 	 		30.3 	 		3.6 	 		294 	 		28.5 	 		3.4 	 		11 	%		6 	%		5 	%	
Winchester Homes	110 	 		11.7 	 		3.1 	 		108 	 		14.0 	 		2.6 	 		2 	%		(16)	%		22 	%	
Total	1,332 	 		144.3 	 		3.1 	 		1,491 	 		146.0 	 		3.4 	 		(11)	%		(1)	%		(10)	%	
 
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Net new home orders for the three months ended June 30, 2020 decreased by 159 orders, or 11%, to 1,332, compared to 1,491 during the prior-year period.  The decrease in net new home orders was due primarily to a 10% decrease in monthly absorption rates. New home order demand was severely impacted during the month of April, though began to slowly and steadily improve in May, followed by exceptionally strong demand in June. We believe this order demand volatility during the quarter can be attributed to the impacts of COVID-19 pandemic. As our results for the three months ended June 30, 2020 have been impacted by the COVID-19 pandemic, they may not be indicative of results going forward.
Maracay reported a 36% decrease in net new home orders driven by a 49% decrease in monthly absorption rate offset by a 27% increase in average selling communities. While the monthly absorption rate was 2.8 for the quarter, Maracay experienced extreme demand volatility during the quarter, with a substantially slow pace in April before increasing to a more robust pace in June, during which we achieved a monthly absorption rate of 4.7. Pardee Homes reported a 19% decrease in net new home orders driven by an 18% decrease in monthly absorption rates and a 1% decrease in average selling communities. The decrease in monthly absorption rate was due to the extreme market slowdown we experienced during April as a result of COVID-19. The absorption rates in the Inland Empire, Los Angeles, San Diego and Las Vegas all improved significantly during May and June as restrictions related to COVID-19 were reduced. Net new home orders increased 57% at Quadrant Homes due to a 46% increase in average selling communities and a 7% increase in monthly absorption rate as compared to the prior-year period. Despite experiencing slow demand in the month of April due to COVID-19, market conditions improved significantly during the second half of the current-year period, as evidenced by a monthly absorption rate of 3.7 for the quarter. In addition, two of our new community openings were particularly well-received by the market, which resulted in an increased sales pace. Trendmaker Homes’ net new home orders decreased 17% due to a 21% decrease in average selling communities offset by a 4% increase in monthly absorption rate. Despite being impacted by COVID-19 and the volatility in the oil market, our Houston division achieved a monthly absorption rate of 2.1 for the current quarter, which represents a decrease of 0.2 as compared to the prior-year period. Our sales pace in both our Austin and Dallas–Fort Worth markets improved on a year-over-year basis, despite noticeable slowdown in both markets during April resulting from COVID-19. TRI Pointe Homes’ net new home orders increased 11% due to a 6% increase in average selling communities and a 5% increase in the monthly absorption rate. The increase in TRI Pointe Homes’ monthly absorption rate was driven by stronger market conditions in both our Bay Area and Colorado markets compared to the prior-year period. Winchester Homes reported a 2% increase in net new home orders as a result of a 22% increase in monthly absorption rate offset by a 16% decrease in average selling communities. The increase in Winchester Homes’ monthly absorption rate was due to strong order demand and more favorable overall market conditions compared to the prior-year period.
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)

 	As of June 30, 2020		As of June 30, 2019		Percentage Change	
	Backlog
Units		Backlog
Dollar
Value		Average
Sales
Price		Backlog
Units		Backlog
Dollar
Value		Average
Sales
Price		Backlog
Units		Backlog
Dollar
Value		Average
Sales
Price	
Maracay	427 	 		$	255,916 	 		$	599 	 		385 	 		$	211,935 	 		$	550 	 		11 	%		21 	%		9 	%	
Pardee Homes	739 	 		494,785 	 		670 	 		790 	 		602,054 	 		762 	 		(6)	%		(18)	%		(12)	%	
Quadrant Homes	228 	 		213,093 	 		935 	 		77 	 		65,968 	 		857 	 		196 	%		223 	%		9 	%	
Trendmaker Homes	321 	 		146,650 	 		457 	 		399 	 		195,871 	 		491 	 		(20)	%		(25)	%		(7)	%	
TRI Pointe Homes	552 	 		383,826 	 		695 	 		384 	 		252,708 	 		658 	 		44 	%		52 	%		6 	%	
Winchester Homes	291 	 		184,798 	 		635 	 		173 	 		110,012 	 		636 	 		68 	%		68 	%		— 	%	
Total	2,558 	 		$	1,679,068 	 		$	656 	 		2,208 	 		$	1,438,548 	 		$	652 	 		16 	%		17 	%		1 	%	
 
Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of homebuyers who contracted to buy a home but cancelled prior to delivery of the home (as a percentage of overall orders) was 21% and 16% during the three-month periods ended June 30, 2020 and 2019, respectively. The dollar value of backlog was $1.7 billion as of June 30, 2020, an increase of $240.5 million, or 17%, compared to $1.4 billion as of June 30, 2019.  This increase was due to an increase in backlog units of 350, or 16%, to 2,558 as of June 30, 2020, compared to 2,208 as of June 30, 2019, and a 1% increase in the average sales price of homes in backlog to $656,000 as of June 30, 2020, compared to $652,000 as of June 30, 2019.
Maracay’s backlog dollar value increased 21% compared to the prior-year period due to an 11% increase in backlog units and a 9% increase in average sales price. The increase in backlog units is due to the strong market conditions in Arizona
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for most of the current-year period and the success of recently opened communities. In addition, we opened the current-year period with a higher number of backlog units, which resulted in higher carryforward of opening backlog units in the current-year period compared to the prior-year period, which had been impacted by the housing slowdown in late 2018. Pardee Homes’ backlog dollar value decreased 18% due to a decrease in backlog average sales price of 12% and a decrease in backlog units of 6%. The decrease in backlog units is largely due to the decrease in net new home orders we experienced during the quarter, particularly in the month of April due to uncertainty surrounding COVID-19. Quadrant Homes’ backlog dollar value increased 223% as a result of a 196% increase in backlog units and a 9% increase in average sales price. The increase in backlog units was a result of starting the current-year period with an increase in backlog units, which further increased due to the 57% increase in net new home orders during the period, as market conditions in Seattle remained strong for most of the quarter despite COVID-19. Trendmaker Homes’ backlog dollar value decreased 25% due primarily to a 20% decrease in backlog units. The decrease in backlog units resulted primarily from a 21% decrease in average selling communities for the quarter. TRI Pointe Homes’ backlog dollar value increased 52% mainly due to a 44% increase in backlog units. The increase in backlog units resulted primarily from a strong demand environment in both California and Colorado during the quarter. Winchester Homes’ backlog dollar value increased 68% due to a 68% increase in backlog units. The increase in backlog units is a result of a 27% increase in net new home orders for the six months ended June 30, 2020, in addition to a significantly higher unit backlog to start the current-year period compared to the prior-year period.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)

 	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Percentage Change	
	New
Homes
Delivered		Home
Sales
Revenue		Average
Sales
Price		New
Homes
Delivered		Home
Sales
Revenue		Average
Sales
Price		New
Homes
Delivered		Home
Sales
Revenue		Average
Sales
Price	
Maracay	165 	 		$	86,674 	 		$	525 	 		106 	 		$	55,653 	 		$	525 	 		56 	%		56 	%		— 	%	
Pardee Homes	362 	 		242,282 	 		669 	 		325 	 		194,700 	 		599 	 		11 	%		24 	%		12 	%	
Quadrant Homes	40 	 		36,649 	 		916 	 		67 	 		70,429 	 		1,051 	 		(40)	%		(48)	%		(13)	%	
Trendmaker Homes	254 	 		121,257 	 		477 	 		250 	 		117,010 	 		468 	 		2 	%		4 	%		2 	%	
TRI Pointe Homes	292 	 		206,474 	 		707 	 		281 	 		192,752 	 		686 	 		4 	%		7 	%		3 	%	
Winchester Homes	116 	 		73,606 	 		635 	 		96 	 		61,594 	 		642 	 		21 	%		20 	%		(1)	%	
Total	1,229 	 		$	766,942 	 		$	624 	 		1,125 	 		$	692,138 	 		$	615 	 		9 	%		11 	%		1 	%	
 
Home sales revenue increased $74.8 million, or 11%, to $766.9 million for the three months ended June 30, 2020. The increase was comprised of (i) $64.0 million related to an increase of 104 new homes delivered in the three months ended June 30, 2020 compared to the prior-year period, and (ii) $10.8 million related to an increase of $9,000 in average sales price of homes delivered in the three months ended June 30, 2020 compared to the prior-year period.
Maracay home sales revenue increased 56% due to a 56% increase in new homes delivered during the current-year period. The increase in new homes delivered is due to a 119% increase in backlog units to start the current-year period compared to the prior-year period. Pardee Homes’ home sales revenue increased 24% due to a 12% increase in average sales price and an 11% increase in new homes delivered. The increase in average sales price was due to a product mix shift that included a greater proportion of deliveries from our higher-priced California assets in the current-year period, particularly from our San Diego market. Quadrant Homes’ home sales revenue decreased 48% due to a 40% decrease in new homes delivered and a 13% decrease in average sales price. The decrease in new homes delivered was due to timing and the impact of COVID-19-related construction delays. Trendmaker Homes’ home sales revenue increased 4% due to a 2% increase in new homes delivered and a 2% increase in average sales price. TRI Pointe Homes’ home sales revenue increased 7% due primarily to a 4% increase in new homes delivered and a 3% increase in average sales price. The increase in new homes delivered was driven by the timing of deliveries. Home sales revenue increased at Winchester Homes by 20% due to a 21% increase in new homes delivered. The increase in new homes delivered was due to a higher number of backlog units at the start of the current-year period compared to the prior-year period.
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Homebuilding Gross Margins (dollars in thousands)

 	Three Months Ended June 30,	
 	2020		%		2019		%	
Home sales revenue	$	766,942 	 		100.0 	%		$	692,138 	 		100.0 	%	
Cost of home sales	601,434 	 		78.4 	%		574,684 	 		83.0 	%	
Homebuilding gross margin	165,508 	 		21.6 	%		117,454 	 		17.0 	%	
Add:  interest in cost of home sales	21,801 	 		2.8 	%		18,071 	 		2.6 	%	
Add:  impairments and lot option abandonments	1,380 	 		0.2 	%		288 	 		0.0 	%	
Adjusted homebuilding gross margin(1)	$	188,689 	 		24.6 	%		$	135,813 	 		19.6 	%	
Homebuilding gross margin percentage	21.6 	%		 		17.0 	%		 	
Adjusted homebuilding gross margin percentage(1)	24.6 	%		 		19.6 	%		 	
__________
(1)Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage increased to 21.6% for the three months ended June 30, 2020 as compared to 17.0% for the prior-year period.  The increase in gross margin percentage was due to a decrease in incentives as compared to the prior-year period, during which we experienced weaker pricing trends, in addition to higher current-year period revenue from some of our long-dated California assets, which produce gross margins above the Company average. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.6% for the three months ended June 30, 2020, compared to 19.6% for the prior-year period.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the most directly comparable GAAP measure.
Sales and Marketing, General and Administrative Expense (dollars in thousands)

	Three Months Ended June 30,		As a Percentage of
Home Sales Revenue	
 	2020		2019		2020		2019	
Sales and marketing	$	45,194 	 		$	47,065 	 		5.9 	%		6.8 	%	
General and administrative (G&A)	37,554 	 		36,854 	 		4.9 	%		5.3 	%	
Total sales and marketing and G&A	$	82,748 	 		$	83,919 	 		10.8 	%		12.1 	%	
 
Total sales and marketing and general and administrative (“SG&A”) as a percentage of home sales revenue decreased to 10.8% for the three months ended June 30, 2020, compared to 12.1% in the prior-year period. Total SG&A expense decreased $1.2 million to $82.7 million for the three months ended June 30, 2020 from $83.9 million in the prior-year period.  
Sales and marketing expense as a percentage of home sales revenue decreased to 5.9% for the three months ended June 30, 2020, compared to 6.8% for the prior-year period. The decrease was due primarily to lower advertising expense and higher leverage on the fixed components of sales and marketing expense as a result of the 11% increase in homebuilding revenue compared to the prior-year period. In addition, we realized some cost savings related to the workforce reduction plan implemented in May 2020. Sales and marketing expense decreased to $45.2 million for the three months ended June 30, 2020 compared to $47.1 million in the prior-year period due primarily to the decrease in advertising expense.
General and administrative (“G&A”) expense as a percentage of home sales revenue decreased to 4.9% of home sales revenue for the three months ended June 30, 2020 compared to 5.3% for the prior-year period largely due to higher leverage on our G&A expense as a result of the 11% increase in homebuilding revenue compared to the prior-year period. In addition, G&A expense was favorably impacted by the realization of cost savings related to our workforce reduction plan implemented in May
- 40 -

2020.  G&A expense increased to $37.6 million for the three months ended June 30, 2020 compared to $36.9 million for the prior-year period.
Restructuring Charges
In May 2020, due to the existing and anticipated future impact of the COVID-19 pandemic on our business, we implemented a workforce reduction plan. As a result of the workforce reduction plan, we 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. We believe that our restructuring activities are substantially complete as of June 30, 2020. However, until market conditions stabilize, we may incur additional restructuring charges. We expect that this workforce reduction will decrease our overhead expenses by approximately $33 million on an annualized basis.
Other Income (Expense), Net
Other income (expense), net for the three months ended June 30, 2020 included a $6.9 million loss in connection with the early extinguishment of a portion of our 4.875% Senior Notes due 2021 (the “2021 Notes”). In June 2020, we commenced and settled a cash tender offer for any and all of our then outstanding $300 million principal amount of 2021 Notes as part of a plan to refinance our long-term debt due in 2021 with longer maturity financing. Upon expiration of the tender offer in June 2020, $216.3 million, or 72% of the outstanding principal amount, of the 2021 Notes were validly tendered and accepted for purchase.
Interest
Interest, which we incurred principally to finance land acquisitions, land development and home construction, totaled $21.8 million and $22.0 million for the three months ended June 30, 2020 and 2019, respectively.  All interest incurred in both periods was capitalized.  
Income Tax
For the three months ended June 30, 2020, we recorded a tax provision of $18.1 million based on an effective tax rate of 24.3%.  For the three months ended June 30, 2019, we recorded a tax provision of $9.1 million based on an effective tax rate of 25.8%. The increase in provision for income taxes is due to a $39.3 million increase in income before income taxes to $74.7 million for the three months ended June 30, 2020, compared to $35.4 million for the prior-year period.
During the three months ended June 30, 2020, California enacted tax legislation that approved the suspension of California net operating loss deductions for tax years 2020, 2021 and 2022. The suspension of California net operating loss deductions did not have an impact on our tax provision for the three months ended June 30, 2020.
Financial Services Segment
Income before income taxes from our financial services operations increased to $3.9 million for the three months ended June 30, 2020 compared to $2.1 million for the prior-year period.  This increase is due to higher home sales volume in the three months ended June 30, 2020 compared to the prior-year period, resulting in a corresponding increase in financial services captured in the current year. We experienced higher financial services profit in all three areas of our financial services segment, represented by mortgage financing, title and escrow services, and property and casualty insurance operations.
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Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment

																																																						
 	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019		Percentage Change	
	Net New
Home
Orders		Average
Selling
Communities		Monthly
Absorption
Rates		Net New
Home
Orders		Average
Selling
Communities		Monthly
Absorption
Rates		Net New
Home
Orders		Average
Selling
Communities		Monthly
Absorption
Rates	
Maracay	402 	 		16.9 	 		4.0 	 		414 	 		13.4 	 		5.1 	 		(3)	%		26 	%		(22)	%	
Pardee Homes	898 	 		43.0 	 		3.5 	 		955 	 		44.4 	 		3.6 	 		(6)	%		(3)	%		(3)	%	
Quadrant Homes	231 	 		8.3 	 		4.6 	 		142 	 		6.9 	 		3.4 	 		63 	%		20 	%		35 	%	
Trendmaker Homes	439 	 		30.1 	 		2.4 	 		490 	 		38.6 	 		2.1 	 		(10)	%		(22)	%		14 	%	
TRI Pointe Homes	741 	 		31.4 	 		3.9 	 		589 	 		29.6 	 		3.3 	 		26 	%		6 	%		18 	%	
Winchester Homes	282 	 		12.7 	 		3.7 	 		222 	 		14.1 	 		2.6 	 		27 	%		(10)	%		42 	%	
Total	2,993 	 		142.4 	 		3.5 	 		2,812 	 		147.0 	 		3.2 	 		6 	%		(3)	%		9 	%	
 
Net new home orders for the six months ended June 30, 2020 increased by 181 orders, or 6%, to 2,993, compared to 2,812 during the prior-year period.  The increase in net new home orders was due to a 9% increase in monthly absorption rates, offset by a 3% decrease in average selling communities. New home order demand was exceptionally strong through January and February of 2020, followed by a significant decline in March and April, a slow and steady improvement in May and exceptionally strong demand in June. This unusual volatility was due to the COVID-19 pandemic and the measures taken to contain its spread, as well as the impacts on consumers and the overall economy. As our results for the six months ended June 30, 2020 have been impacted by the COVID-19 pandemic, they may not be indicative of results going forward.
Maracay reported a 3% decrease in net new home orders driven by a 22% decrease in monthly absorption rates, offset by a 26% increase in average selling communities. The decrease in Maracay’s monthly absorption rate to 4.0 for the six months ended June 30, 2020 was due to the impact of COVID-19 and the slower market conditions experienced through March and April. Despite this impact, our monthly absorption rate of 4.0 for the current year demonstrates strong demand for Maracay’s new community openings during the current-year period as well as strong market fundamentals in Arizona throughout most of the quarter. Pardee Homes reported a 6% decrease in net new home orders driven by a 3% decrease in monthly absorption rates and a 3% decrease in average selling communities. The decrease in monthly absorption rate was due to the impact of COVID-19, as net new home order activity slowed considerably during parts of March, April and May. Net new home orders increased 63% at Quadrant Homes due to a 35% increase in monthly absorption rate and a 20% increase in average selling communities during the current-year period as compared to the prior-year period. The increase in monthly absorption rate to 4.6 was due to an exceptionally strong demand environment in January and February of the current-year period, as well as a significant improvement in market conditions during the latter half of May and into June, notwithstanding reduced demand in the month of April due to COVID-19. In addition, two of our new community openings were particularly well-received by the market, which resulted in an increased sales pace. Trendmaker Homes’ net new home orders decreased 10% due to a 22% decrease in average selling communities offset by a 14% increase in monthly absorption rate. Though we experienced stronger monthly absorption rates at each of our Houston, Austin and Dallas–Fort Worth markets in the current-year period, COVID-19 and the volatility in the oil market negatively impacted our sales pace in the current-year period, particularly in March and April. TRI Pointe Homes’ net new home orders increased 26% due to an 18% increase in the monthly absorption rate and a 6% increase in average selling communities. The increase in TRI Pointe Homes’ monthly absorption rate was driven by stronger market conditions in both our Bay Area and Colorado markets compared to the prior-year period. Winchester Homes reported a 27% increase in net new home orders as a result of a 42% increase in monthly absorption rate offset by a 10% decrease in average selling communities. The increase in Winchester Homes’ monthly absorption rate was due to strong order demand and more favorable overall market conditions compared to the prior-year period.
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New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)

 	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019		Percentage Change	
	New
Homes
Delivered		Home
Sales
Revenue		Average
Sales
Price		New
Homes
Delivered		Home
Sales
Revenue		Average
Sales
Price		New
Homes
Delivered		Home
Sales
Revenue		Average
Sales
Price	
Maracay	305 	 		$	158,426 	 		$	519 	 		180 	 		$	95,214 	 		$	529 	 		69 	%		66 	%		(2)	%	
Pardee Homes	619 	 		420,684 	 		680 	 		567 	 		329,562 	 		581 	 		9 	%		28 	%		17 	%	
Quadrant Homes	92 	 		80,106 	 		871 	 		111 	 		113,702 	 		1,024 	 		(17)	%		(30)	%		(15)	%	
Trendmaker Homes	463 	 		217,377 	 		469 	 		404 	 		187,130 	 		463 	 		15 	%		16 	%		1 	%	
TRI Pointe Homes	518 	 		365,143 	 		705 	 		523 	 		364,543 	 		697 	 		(1)	%		— 	%		1 	%	
Winchester Homes	190 	 		120,044 	 		632 	 		154 	 		94,690 	 		615 	 		23 	%		27 	%		3 	%	
Total	2,187 	 		$	1,361,780 	 		$	623 	 		1,939 	 		$	1,184,841 	 		$	611 	 		13 	%		15 	%		2 	%	
 
Home sales revenue increased $176.9 million, or 15%, to $1.4 billion for the six months ended June 30, 2020. The increase was comprised of (i) $151.5 million related to an increase of 248 new homes delivered in the six months ended June 30, 2020 compared to the prior-year period, and (ii) $25.4 million related to an increase of $12,000 in average sales price of homes delivered in the six months ended June 30, 2020 compared to the prior-year period.
Maracay home sales revenue increased 66% due to an 69% increase in new homes delivered during the current-year period. The increase in new homes delivered is due to a 119% increase in backlog units to start the current-year period compared to the prior-year period. Pardee Homes’ home sales revenue increased 28% due to a 17% increase in average sales price and a 9% increase in new homes delivered. The increase in average sales price was due to a product mix shift that included a greater proportion of deliveries from our higher-priced California assets in the current-year period, particularly from our San Diego market. Quadrant Homes’ home sales revenue decreased 30% due to a 17% decrease in new homes delivered and a 15% decrease in average sales price. The decrease in new homes delivered was due to timing and the impact of COVID-19-related construction delays. Trendmaker Homes’ home sales revenue increased 16% due to a 15% increase in new homes delivered. The increase in new homes delivered was due to the timing of deliveries. TRI Pointe Homes’ home sales revenue was flat, as we achieved consistent new homes delivered and average sales price. Home sales revenue increased at Winchester Homes by 27% due to a 23% increase in new homes delivered and a 3% increase in average sales price. The increase in new homes delivered was due to a higher number of backlog units at the start of the current-year period compared to the prior-year period.
Homebuilding Gross Margins (dollars in thousands)

 	Six Months Ended June 30,	
 	2020		%		2019		%	
Home sales revenue	$	1,361,780 	 		100.0 	%		$	1,184,841 	 		100.0 	%	
Cost of home sales	1,074,316 	 		78.9 	%		996,220 	 		84.1 	%	
Homebuilding gross margin	287,464 	 		21.1 	%		188,621 	 		15.9 	%	
Add:  interest in cost of home sales	38,623 	 		2.8 	%		32,262 	 		2.7 	%	
Add:  impairments and lot option abandonments	1,729 	 		0.1 	%		5,490 	 		0.5 	%	
Adjusted homebuilding gross margin(1)	$	327,816 	 		24.1 	%		$	226,373 	 		19.1 	%	
Homebuilding gross margin percentage	21.1 	%				15.9 	%			
Adjusted homebuilding gross margin percentage(1)	24.1 	%				19.1 	%			
__________
(1)Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage increased to 21.1% for the six months ended June 30, 2020 as compared to 15.9% for the prior-year period.  The increase in gross margin percentage was due to a decrease in incentives as compared to the prior-year period, during which we delivered homes impacted by the weaker pricing trends experienced in the second half of 2018. In addition, we benefited from the favorable impact of higher current-year period revenue from some of our long-dated California assets, which produce gross margins above the Company average. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.1% for the six months ended June 30, 2020, compared to 19.1% for the prior-year period.
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Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the most directly comparable GAAP measure.
Sales and Marketing, General and Administrative Expense (dollars in thousands)

	Six Months Ended June 30,		As a Percentage of
Home Sales Revenue	
 	2020		2019		2020		2019	
Sales and marketing	$	87,831 	 		$	86,054 	 		6.4 	%		7.3 	%	
General and administrative (G&A)	77,391 	 		75,451 	 		5.7 	%		6.4 	%	
Total sales and marketing and G&A	$	165,222 	 		$	161,505 	 		12.1 	%		13.6 	%	
 
Total SG&A as a percentage of home sales revenue decreased to 12.1% for the six months ended June 30, 2020, compared to 13.6% in the prior-year period. Total SG&A expense increased $3.7 million to $165.2 million for the six months ended June 30, 2020 from $161.5 million in the prior-year period.  
Sales and marketing expense as a percentage of home sales revenue decreased to 6.4% for the six months ended June 30, 2020, compared to 7.3% for the prior-year period. The decrease was due primarily to higher leverage on the fixed components of sales and marketing expense as a result of the 15% increase in homebuilding revenue compared to the prior-year period. In addition, we realized some cost savings related to the workforce reduction plan implemented in May 2020. Sales and marketing expense increased to $87.8 million for the six months ended June 30, 2020 compared to $86.1 million in the prior-year period due primarily to higher variable commission costs associated with higher home sales revenue.
G&A expense as a percentage of home sales revenue decreased to 5.7% of home sales revenue for the six months ended June 30, 2020 compared to 6.4% for the prior-year period largely due to higher leverage on our G&A expense as a result of the 15% increase in homebuilding revenue compared to the prior-year period.  In addition, G&A expense was favorably impacted by the realization of cost savings related to our workforce reduction plan implemented in May 2020. G&A expense increased to $77.4 million for the six months ended June 30, 2020 compared to $75.5 million for the prior-year period.
Interest
Interest, which we incurred principally to finance land acquisitions, land development and home construction, totaled $42.6 million and $45.3 million for the six months ended June 30, 2020 and 2019, respectively.  All interest incurred in both periods was capitalized.  
Income Tax
For the six months ended June 30, 2020, we recorded a tax provision of $28.0 million based on an effective tax rate of 24.0%.  For the six months ended June 30, 2019, we recorded a tax provision of $9.2 million based on an effective tax rate of 25.8%. The increase in provision for income taxes is due to a $80.9 million increase in income before income taxes to $116.4 million for the six months ended June 30, 2020, compared to $35.5 million for the prior-year period.
Financial Services Segment
Income before income taxes from our financial services operations increased to $6.0 million for the six months ended June 30, 2020 compared to $2.9 million for the prior-year period.  This increase is due to higher home sales volume in the six months ended June 30, 2020 compared to the prior-year period, resulting in a corresponding increase in financial services captured in the current year. We experienced higher financial services profit in all three areas of our financial services segment, represented by mortgage financing, title and escrow services, and property and casualty insurance operations.
- 44 -

Lots Owned or Controlled by Segment
Excluded from owned and controlled lots are those related to Note 6, Investments in Unconsolidated Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. The table below summarizes our lots owned or controlled by segment as of the dates presented:

 	June 30,		Increase
(Decrease)	
 	2020		2019		Amount		%	
Lots Owned	 		 		 		 	
Maracay	2,070 	 		2,234 	 		(164)	 		(7)	%	
Pardee Homes	12,622 	 		13,649 	 		(1,027)	 		(8)	%	
Quadrant Homes	1,010 	 		853 	 		157 	 		18 	%	
Trendmaker Homes	2,672 	 		1,924 	 		748 	 		39 	%	
TRI Pointe Homes	2,497 	 		2,759 	 		(262)	 		(9)	%	
Winchester Homes	878 	 		1,211 	 		(333)	 		(27)	%	
Total	21,749 	 		22,630 	 		(881)	 		(4)	%	
Lots Controlled(1)	 		 		 		 	
Maracay	1,420 	 		1,377 	 		43 	 		3 	%	
Pardee Homes	328 	 		755 	 		(427)	 		(57)	%	
Quadrant Homes	— 	 		589 	 		(589)	 		(100)	%	
Trendmaker Homes	1,541 	 		778 	 		763 	 		98 	%	
TRI Pointe Homes	3,872 	 		1,646 	 		2,226 	 		135 	%	
Winchester Homes	890 	 		342 	 		548 	 		160 	%	
Total	8,051 	 		5,487 	 		2,564 	 		47 	%	
Total Lots Owned or Controlled(1)	29,800 	 		28,117 	 		1,683 	 		6 	%	
__________
(1)As of June 30, 2020 and 2019, lots controlled represented lots that were under land or lot option contracts or purchase contracts.

Liquidity and Capital Resources
Overview
Our principal uses of capital for the six months ended June 30, 2020 were operating expenses, land purchases, land development and home construction. We used funds generated by our operations to meet our short-term working capital requirements. We monitor financing requirements to evaluate potential financing sources, including bank credit facilities and note offerings. In March 2020, we borrowed a total of $500 million under our revolving credit facility to, in part, safeguard our balance sheet as the credit and banking market showed signs of distress in the wake of the COVID-19 outbreak. In June 2020, we determined that any concerns regarding near term access to liquidity had sufficiently receded and, as a result, we repaid all outstanding amounts under our revolving credit facility. While the current economic environment resulting from the COVID-19 pandemic is unprecedented, and the ultimate effects of COVID-19 and the related restrictions imposed on businesses and individuals across the world remain unknown, we continue to monitor the credit markets as we remain focused on generating positive margins in our homebuilding operations. While acquiring desirable land positions is critical to our long-term growth initiatives, under the current conditions we are focused on maintaining a strong balance sheet while maximizing flexibility as to future land spend. As of June 30, 2020, we had total liquidity of $1.0 billion, including cash and cash equivalents of $474.5 million and $559.4 million of availability under our Credit Facility, as described below, after considering the borrowing base provisions and outstanding letters of credit.
Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the availability of particular assets, and our Company as a whole, to generate cash flow to cover the expected debt service.
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Senior Notes
In June 2020, TRI Pointe Group issued $350 million aggregate principal amount of 5.700% Senior Notes due 2028 (the “2028 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $345.2 million, after debt issuance costs and discounts. The 2028 Notes mature on June 15, 2028 and interest is paid semiannually in arrears on June 15 and December 15.
In June 2017, TRI Pointe Group issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1.
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 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.
Our outstanding senior notes (the “Senior Notes”) contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions. As of June 30, 2020, we were in compliance with the covenants required by our Senior Notes.
Loans Payable
On March 29, 2019, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated our Amended and Restated Credit Agreement, dated as of July 7, 2015. The Credit Facility (as defined below), which matures on March 29, 2023, consists of a $600 million revolving credit facility (the “Revolving Facility”) and a $250 million term loan facility (the “Term Facility” and together with the Revolving Facility, the “Credit Facility”). The Term Facility includes a 90-day delayed draw provision, which allowed us to draw the full $250 million from the Term Facility in June 2019 in connection with the maturity of the 4.375% Senior Notes that matured on June 15, 2019. We may increase the Credit Facility to not more than $1 billion in the aggregate, at our request, upon satisfaction of specified conditions. The Revolving Facility contains a sublimit of $75 million for letters of credit. We may borrow under the Revolving Facility in the ordinary course of business to repay senior notes and fund our operations, including our land acquisition, land development and homebuilding activities. Borrowings under the Revolving Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Revolving Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.25% to 2.00%, depending on our leverage ratio. Interest rates on borrowings under the Term Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio.
As of 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.
- 46 -

Under the Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands):

	Actual at
June 30,		Covenant
Requirement at
June 30,	
Financial Covenants	2020		2020	
Consolidated Tangible Net Worth	$	2,016,173 	 		$	1,497,799 	 	
(Not less than $1.35 billion plus 50% of net income and
   50% of the net proceeds from equity offerings after
   December 31, 2018)	 		 	
Leverage Test	32.4 	%		≤55%	
(Not to exceed 55%)	 		 	
Interest Coverage Test	6.0 	 		≥1.5	
(Not less than 1.5:1.0)	 		 	
 
In addition, the Credit Facility limits the aggregate number of single family dwellings (where construction has commenced) owned by the Company or any guarantor that are not presold or model units to no more than the greater of (i) 50% of the number of housing unit closings (as defined) during the preceding 12 months; or (ii) 100% of the number of housing unit closings during the preceding 6 months. However, a failure to comply with this “Spec Unit Inventory Test” will not be an event of default or default, but will be excluded from the borrowing base as of the last day of the quarter in which the non-compliance occurs. The Credit Facility further requires that at least 97.0% of consolidated tangible net worth must be attributable to the Company and its guarantor subsidiaries, subject to certain grace periods.
As of June 30, 2020, we were in compliance with all of these financial covenants.
Stock Repurchase Program
On February 13, 2020, our board of directors discontinued and cancelled our 2019 Repurchase Program and approved our 2020 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $200 million through March 31, 2021. Purchases of common stock pursuant to the 2020 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2020 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2020 Repurchase Program at any time. Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. During the three months ended June 30, 2020, we did not repurchase any shares under the 2020 Repurchase Program. For the six months ended June 30, 2020, we repurchased and retired an aggregate of 6,558,323 shares of our common stock at an average price of $15.55 under the 2019 Repurchase Program and 2020 Repurchase Program for a total of $102.0 million.
Leverage Ratios
We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-net capital are calculated as follows (dollars in thousands):  
- 47 -

												
	June 30, 2020		December 31, 2019	
Loans Payable	$	250,000 	 		$	250,000 	 	
Senior Notes	1,166,189 	 		1,033,985 	 	
Total debt	1,416,189 	 		1,283,985 	 	
Stockholders’ equity	2,175,799 	 		2,186,530 	 	
Total capital	$	3,591,988 	 		$	3,470,515 	 	
Ratio of debt-to-capital(1)	39.4 	%		37.0 	%	
				
Total debt	$	1,416,189 	 		$	1,283,985 	 	
Less: Cash and cash equivalents	(474,545)	 		(329,011)	 	
Net debt	941,644 	 		954,974 	 	
Stockholders’ equity	2,175,799 	 		2,186,530 	 	
Net capital	$	3,117,443 	 		$	3,141,504 	 	
Ratio of net debt-to-net capital(2)	30.2 	%		30.4 	%	
__________
(1)The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.
(2)The ratio of net debt-to-net capital is a non-GAAP financial measure and is computed as the quotient obtained by dividing net debt (which is total debt less cash and cash equivalents) by the sum of net debt plus stockholders’ equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-net capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.  Because the ratio of net debt-to-net capital is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.
Cash Flows—Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
For the six months ended June 30, 2020 as compared to the six months ended June 30, 2019:
•Net cash provided by operating activities increased by $270.2 million to $166.2 million for the six months ended June 30, 2020, from net cash used of $103.9 million for the six months ended June 30, 2019. The change was comprised of offsetting activity, including (i) a decrease in cash used for real estate inventory purchases of $104.6 million, (ii) an increase in net income to $88.4 million for the six months ended June 30, 2020 compared to $26.3 million in the prior-year period, (iii) a decrease in cash used for accrued expenses and other liabilities of $75.2 million to $5.8 million in the six months ended June 30, 2020 compared to $81.0 million in the prior-year period, (iv) offset by changes in other assets, receivables, accounts payable, deferred income taxes and returns on investments in unconsolidated entities. 
•Net cash used in investing activities was $37.7 million for the six months ended June 30, 2020, compared to $13.8 million for the prior-year period.  The increase in cash used in investing activities was due mainly to an increase in investments in unconsolidated entities.
•Net cash provided by financing activities was $17.0 million for the six months ended June 30, 2020, compared to net cash provided by financing activities of $11.6 million for the prior-year period. Net cash provided by financing activities in the current-year period was comprised of the issuance of $350 million principal amount of 2028 Notes, of which we used approximately $216 million to purchase a portion of our 2021 Notes pursuant to a tender offer, resulting in a net borrowing of approximately $134 million. This activity was offset by $102.0 million of cash used for share repurchases for the current-year period, compared to no similar cash transactions for the prior-year period.
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we enter into purchase contracts in order to procure lots for the construction of our homes.  We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots.  These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers and land banking arrangements as a method of acquiring land in
- 48 -

staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.  These option contracts and land banking arrangements generally require a non-refundable deposit for the right to acquire land and lots over a specified period of time at pre-determined prices.  We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller.  In some cases, however, we may be contractually obligated to complete development work even if we terminate the option to procure land or lots. As of June 30, 2020, we had $81.7 million of cash deposits, the majority of which are non-refundable, pertaining to land and lot option contracts and purchase contracts with an aggregate remaining purchase price of $816.2 million (net of deposits). See Note 7, Variable Interest Entities, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
Our utilization of land and lot option contracts and land banking arrangements is dependent on, among other things, the availability of land sellers or land banking firms willing to enter into such arrangements, the availability of capital to finance the development of optioned land and lots, general housing market conditions, and local market dynamics.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
Inflation
Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.  In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.  While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices. 
Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.  We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.  Since it typically takes three to nine months to construct a new home, the number of homes delivered and associated home sales revenue typically increases in the third and fourth quarters of our fiscal year as new home orders sold earlier in the year convert to home deliveries.  Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters of our fiscal year, and the majority of cash receipts from home deliveries occur during the second half of the year.  We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry and the impacts of the COVID-19 pandemic.

Description of Projects and Communities Under Development
The following table presents project information relating to each of our markets as of June 30, 2020 and includes information on current projects under development where we are building and selling homes.
- 49 -

Maracay

County, Project, City	Year of
First
Delivery(1)		Total
Number of
Lots(2)		Cumulative
Homes
Delivered
as of
June 30, 2020		Lots
Owned as of
June 30, 2020(3)		Backlog as of June 30, 2020(4)(5)		Homes
Delivered
for the Six
Months Ended
June 30, 2020		Sales Price
Range
(in thousands)(6)	
Phoenix, Arizona														
City of Buckeye:														
Arroyo Seco	2020		44 	 		— 	 		44 	 		20 	 		— 	 		 $414 - $478	
City of Chandler:														
Mission Estates	2019		26 	 		21 	 		5 	 		5 	 		9 	 		 $537 - $598	
Windermere Ranch	2019		91 	 		39 	 		52 	 		34 	 		19 	 		 $532 - $572	
Canopy North	2020		129 	 		— 	 		12 	 		— 	 		— 	 		 $471 - $540	
Canopy South	2020		112 	 		— 	 		11 	 		— 	 		— 	 		 $556 - $578	
City of Gilbert:														
Lakes At Annecy	2019		216 	 		66 	 		150 	 		47 	 		30 	 		$289 - $363	
Annecy P3	2021		251 	 		— 	 		251 	 		— 	 		— 	 		$259 - $331	
Lakeview Trails	2019		92 	 		64 	 		28 	 		20 	 		23 	 		$570 - $655	
Lakeview Trails II	2021		68 	 		— 	 		68 	 		6 	 		— 	 		$570 - $655	
Copper Bend	2020		38 	 		9 	 		29 	 		21 	 		9 	 		$492 - $511	
Avocet at Waterston	2020		115 	 		— 	 		115 	 		24 	 		— 	 		$526 - $611	
Brighton at Waterston	2020		88 	 		— 	 		88 	 		24 	 		— 	 		$632 - $676	
Domaine at Waterston	2020		128 	 		— 	 		128 	 		18 	 		— 	 		$774 - $819	
City of Goodyear:														
Villages at Rio Paseo	2018		117 	 		101 	 		16 	 		7 	 		40 	 		 $204 - $234	
Cottages at Rio Paseo	2018		93 	 		84 	 		9 	 		4 	 		3 	 		 $243 - $264	
Sedella	2021		75 	 		— 	 		75 	 		— 	 		— 	 		 $441 - $521	
City of Mesa:														
Cadence	2021		127 	 		— 	 		127 	 		— 	 		— 	 		 $312 - $345	
City of Peoria:														
Legacy at The Meadows	2017		74 	 		68 	 		6 	 		— 	 		— 	 		 $425 - $451	
Estates at The Meadows	2017		272 	 		191 	 		81 	 		22 	 		29 	 		 $530 - $616	
Enclave at The Meadows	2018		126 	 		98 	 		28 	 		21 	 		28 	 		 $417 - $512	
Deseo	2019		94 	 		23 	 		71 	 		34 	 		17 	 		 $528 - $622	
City of Phoenix:														
Loma @ Avance	2019		124 	 		47 	 		77 	 		17 	 		25 	 		 $400 - $459	
Ranger @ Avance	2019		145 	 		28 	 		117 	 		33 	 		26 	 		 $439 - $511	
Piedmont @ Avance	2019		99 	 		21 	 		78 	 		16 	 		19 	 		 $515 - $530	
Alta @ Avance	2020		26 	 		5 	 		21 	 		9 	 		5 	 		 $630 - $659	
Town of Queen Creek														
Madera 50's	2022		105 	 		— 	 		105 	 		— 	 		— 	 		 $330 - $410	
Madera 60's	2022		70 	 		— 	 		70 	 		— 	 		— 	 		 $391 - $453	
Madera 75's	2022		91 	 		— 	 		91 	 		— 	 		— 	 		 $463 - $510	
Pathfinder South At Spur Cross	2020		53 	 		— 	 		53 	 		29 	 		— 	 		 $494 - $514	
Pathfinder North At Spur Cross	2020		65 	 		1 	 		64 	 		16 	 		1 	 		 $575 - $589	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		20 	 			
Phoenix, Arizona Total			3,154 	 		866 	 		2,070 	 		427 	 		303 	 			
Tucson, Arizona														
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		2 	 			
Tucson, Arizona Total			— 	 		— 	 		— 	 		— 	 		2 	 			
Maracay Total			3,154 	 		866 	 		2,070 	 		427 	 		305 	 			

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Pardee Homes

County, Project, City	Year of
First
Delivery(1)		Total
Number of
Lots(2)		Cumulative
Homes
Delivered
as of
June 30, 2020		Lots
Owned as of
June 30, 2020(3)		Backlog as of June 30, 2020(4)(5)		Homes
Delivered
for the Six
Months Ended
June 30, 2020		Sales Price
Range
(in thousands)(6)	
California														
San Diego County:														
Sendero	2019		112 	 		80 	 		32 	 		20 	 		19 	 		$1,470 - $1,600	
Vista Santa Fe	2019		44 	 		30 	 		14 	 		13 	 		12 	 		$1,910 - $2,010	
Terraza	2019		81 	 		70 	 		11 	 		11 	 		24 	 		$1,360 - $1,430	
Carmel	2019		105 	 		62 	 		43 	 		12 	 		15 	 		$1,530 - $1,640	
Vista Del Mar	2019		79 	 		46 	 		33 	 		12 	 		13 	 		$1,670 - $1,800	
Highlands	2021		52 	 		— 	 		52 	 		— 	 		— 	 		$1,640 - $1,930	
Sendero Collection	2021		76 	 		— 	 		76 	 		— 	 		— 	 		$1,350 - $1,400	
Pacific Highlands Ranch Future	2021		42 	 		— 	 		42 	 		— 	 		— 	 		TBD	
Lake Ridge	2018		129 	 		95 	 		34 	 		12 	 		18 	 		$790 - $865	
Veraz	2018		111 	 		74 	 		37 	 		13 	 		28 	 		$425 - $500	
Solmar	2019		74 	 		37 	 		37 	 		9 	 		28 	 		$390 - $485	
Solmar Sur	2021		108 	 		— 	 		108 	 		— 	 		— 	 		$390 - $485	
Marea	2020		143 	 		— 	 		143 	 		— 	 		— 	 		$365 - $435	
PA61 Townhomes	2021		170 	 		— 	 		170 	 		— 	 		— 	 		TBD	
Meadowood	TBD		844 	 		— 	 		844 	 		— 	 		— 	 		$390 - $630	
South Otay Mesa	TBD		893 	 		— 	 		893 	 		— 	 		— 	 		TBD	
Los Angeles County:														
Cresta	2018		67 	 		42 	 		25 	 		11 	 		8 	 		$830 - $890	
Verano	2017		95 	 		65 	 		30 	 		10 	 		10 	 		$550 - $650	
Arista	2017		143 	 		101 	 		42 	 		10 	 		10 	 		$740 - $800	
Lyra	2019		141 	 		53 	 		88 	 		27 	 		20 	 		 $650 - $720	
Sola	2019		189 	 		79 	 		110 	 		39 	 		18 	 		 $560 - $610	
Luna	2020		114 	 		— 	 		114 	 		19 	 		— 	 		 $615 - $660	
Strata	2021		292 	 		— 	 		292 	 		— 	 		— 	 		 $550 - $670	
Skyline Ranch Future	TBD		334 	 		— 	 		334 	 		— 	 		— 	 		 TBD	
Riverside County:														
Canyon Hills Future 70 x 115	TBD		125 	 		— 	 		125 	 		— 	 		— 	 		TBD	
Westlake	2020		163 	 		— 	 		163 	 		26 	 		— 	 		$310 - $325	
Daybreak	2017		159 	 		140 	 		19 	 		16 	 		17 	 		$360 - $385	
Abrio	2018		113 	 		89 	 		24 	 		16 	 		19 	 		$415 - $450	
Cascade	2017		194 	 		169 	 		25 	 		21 	 		11 	 		$335 - $360	
Beacon	2018		106 	 		83 	 		23 	 		17 	 		12 	 		$510 - $560	
Alisio	2019		84 	 		69 	 		15 	 		14 	 		18 	 		$300 - $335	
Elan	2019		96 	 		18 	 		78 	 		17 	 		6 	 		$390 - $425	
Mira	2019		95 	 		13 	 		82 	 		9 	 		3 	 		$365 - $395	
Avid	2019		68 	 		21 	 		47 	 		4 	 		4 	 		$340 - $365	
Vita	2019		115 	 		32 	 		83 	 		11 	 		4 	 		$315 - $340	
Sundance Future Active Adult	TBD		330 	 		— 	 		330 	 		— 	 		— 	 		TBD	
Avena	2018		84 	 		66 	 		18 	 		10 	 		14 	 		$455 - $485	
Braeburn	2018		82 	 		65 	 		17 	 		13 	 		20 	 		$415 - $450	
Overland at Spencer's Crossing	2021		85 	 		— 	 		85 	 		— 	 		— 	 		$485 - $515	
Canvas	2018		89 	 		85 	 		4 	 		4 	 		27 	 		$405 - $430	
Kadence	2018		85 	 		64 	 		21 	 		15 	 		15 	 		$420 - $435	
Newpark	2018		93 	 		56 	 		37 	 		17 	 		14 	 		$445 - $490	
Easton	2018		92 	 		46 	 		46 	 		16 	 		12 	 		$480 - $530	
Compass at Audie Murphy Ranch	2021		52 	 		— 	 		52 	 		— 	 		— 	 		$450 - $510	
Tournament Hills Future	TBD		268 	 		— 	 		268 	 		— 	 		— 	 		TBD	
Terramor	2022		75 	 		— 	 		75 	 		— 	 		— 	 		TBD	
Arroyo	2020		110 	 		— 	 		110 	 		38 	 		— 	 		$305 - $350	
Cienega	2020		106 	 		— 	 		106 	 		41 	 		— 	 		$310 - $345	
- 51 -

																																										
Centerstone	2021		120 	 		— 	 		120 	 		— 	 		— 	 		$320 - $335	
Landmark	2021		130 	 		— 	 		130 	 		— 	 		— 	 		$340 - $365	
Horizon	2021		130 	 		— 	 		130 	 		— 	 		— 	 		$395 - $420	
Atwell Future	TBD		3,742 	 		— 	 		3,742 	 		— 	 		— 	 		TBD	
San Joaquin County:														
Bear Creek	TBD		1,252 	 		— 	 		1,252 	 		— 	 		— 	 		TBD	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		11 	 			
California Total			12,681 	 		1,850 	 		10,831 	 		523 	 		430 	 			
Nevada														
Clark County:														
Tera Luna	2018		116 	 		39 	 		77 	 		7 	 		10 	 		 $560 - $670	
Linea	2018		123 	 		121 	 		2 	 		2 	 		13 	 		 $370 - $410	
Strada 2.0	2019		62 	 		17 	 		45 	 		29 	 		12 	 		 $460 - $550	
Strada III	2021		30 	 		— 	 		30 	 		— 	 		— 	 			
Arden	2020		79 	 		— 	 		79 	 		7 	 		— 	 		$390 - $430	
Capri	2020		114 	 		— 	 		114 	 		13 	 		— 	 		 $302 - $328	
Arden 2.0	2022		154 	 		— 	 		154 	 		— 	 		— 	 		 $370 - $400	
Capri 2.0	2022		214 	 		— 	 		214 	 		— 	 		— 	 		 $300 - $325	
Pebble Estate Future	TBD		8 	 		— 	 		8 	 		— 	 		— 	 		TBD	
Evolve	2019		74 	 		48 	 		26 	 		12 	 		23 	 		 $305 - $335	
Midnight Ridge	2020		104 	 		9 	 		95 	 		26 	 		9 	 		$525 - $645	
Axis	2017		52 	 		53 	 		— 	 		— 	 		3 	 		 $860 - $1,125	
Axis at the Canyons	2019		26 	 		15 	 		10 	 		4 	 		3 	 		 $800 - $920	
Cobalt	2017		107 	 		86 	 		21 	 		4 	 		12 	 		 $380 - $460	
Onyx	2018		88 	 		65 	 		23 	 		19 	 		13 	 		 $470 - $510	
Pivot	2017		88 	 		87 	 		1 	 		— 	 		1 	 		 $405 - $470	
Nova Ridge	2017		78 	 		74 	 		4 	 		— 	 		5 	 		 $670 - $850	
Nova Ridge at the Cliffs	2019		30 	 		7 	 		23 	 		6 	 		4 	 		 $670 - $850	
Corterra	2018		53 	 		44 	 		9 	 		3 	 		10 	 		 $455 - $545	
Highline	2020		59 	 		1 	 		58 	 		8 	 		1 	 		 $470 - $570	
Indogo	2018		202 	 		101 	 		101 	 		15 	 		24 	 		 $300 - $370	
Larimar	2018		106 	 		49 	 		57 	 		8 	 		18 	 		$355 - $420	
Blackstone	2018		105 	 		60 	 		45 	 		10 	 		11 	 		$410 - $510	
35 x 90 Product	TBD		140 	 		— 	 		140 	 		— 	 		— 	 		TBD	
Cirrus	2019		54 	 		20 	 		34 	 		15 	 		13 	 		$370 - $410	
Sandalwood	2020		116 	 		— 	 		116 	 		28 	 		— 	 		$740 - $910	
Silverado Entry-Level	2021		96 	 		— 	 		96 	 		— 	 		— 	 		$400 - $450	
Silverado Move-Up	2021		93 	 		— 	 		93 	 		— 	 		— 	 		$440 - $485	
Silverado Courtyard Townhome	2021		116 	 		— 	 		116 	 		— 	 		— 	 		$300 - $320	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		4 	 			
Nevada Total			2,687 	 		896 	 		1,791 	 		216 	 		189 	 			
Pardee Total			15,368 	 		2,746 	 		12,622 	 		739 	 		619 	 			

- 52 -

Quadrant Homes 

County, Project, City	Year of
First
Delivery(1)		Total
Number of
Lots(2)		Cumulative
Homes
Delivered
as of
June 30, 2020		Lots
Owned as of
June 30, 2020(3)		Backlog as of June 30, 2020(4)(5)		Homes
Delivered
for the Six
Months Ended
June 30, 2020		Sales Price
Range
(in thousands)(6)	
Washington														
Snohomish County:														
Grove North, Bothell	2019		43 	 		21 	 		22 	 		22 	 		10 	 		$780 - $910	
Trailside at Meadowdale Beach, Edmonds	2021		38 	 		— 	 		38 	 		— 	 		— 	 		$735 - $785	
Cypress, Lynnwood	2021		42 	 		— 	 		42 	 		— 	 		— 	 		$535 - $655	
King County:														
Vareze, Kirkland	2020		82 	 		14 	 		68 	 		28 	 		14 	 		$720 - $895	
Cedar Landing, North Bend	2019		138 	 		35 	 		103 	 		47 	 		11 	 		$780 - $920	
Monarch Ridge, Sammamish	2019		59 	 		20 	 		39 	 		34 	 		7 	 		$1,000 - $1,285	
Overlook at Summit Park, Maple Valley	2019		126 	 		43 	 		83 	 		30 	 		14 	 		$595 - $765	
Aurea, Sammamish	2019		41 	 		21 	 		20 	 		15 	 		12 	 		$675 - $821	
Aldea, Newcastle	2019		129 	 		52 	 		77 	 		18 	 		14 	 		$685 - $838	
Lario, Bellevue	2020		46 	 		7 	 		39 	 		25 	 		7 	 		$905 - $1,197	
Lakeview Crest, Renton	2020		17 	 		— 	 		17 	 		1 	 		— 	 		 $1,400 - $1,875	
Eagles Glen, Sammamish	2020		10 	 		— 	 		10 	 		5 	 		— 	 		 $1,150 - $1,525	
Willows 124, Redmond	2023		173 	 		— 	 		173 	 		— 	 		— 	 		$745 - $930	
Finn Meadows, Kirkland	2020		10 	 		2 	 		8 	 		3 	 		2 	 		$1,050 - $1,245	
Woodlands Reserve, Kirkland	2022		37 	 		— 	 		37 	 		— 	 		— 	 		$945 - $1,350	
Hazelwood Gardens, Newcastle	2021		15 	 		— 	 		15 	 		— 	 		— 	 		$1,180 - $1,340	
Kitsap County:														
Blue Heron, Poulsbo	2022		85 	 		— 	 		85 	 		— 	 		— 	 		$536 - $706	
McCormick Villages, Port Orchard	2021		88 	 		— 	 		88 	 		— 	 		— 	 		$470 - $525	
Poulsbo Meadows, Poulsbo	2021		46 	 		— 	 		46 	 		— 	 		— 	 		$515 - $551	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		1 	 		N/A	
Washington Total			1,225 	 		215 	 		1,010 	 		228 	 		92 	 			
Quadrant Total			1,225 	 		215 	 		1,010 	 		228 	 		92 	 			

- 53 -

Trendmaker Homes

County, Project, City	Year of
First
Delivery(1)		Total
Number of
Lots(2)		Cumulative
Homes
Delivered
as of
June 30, 2020		Lots
Owned as of
June 30, 2020(3)		Backlog as of June 30, 2020(4)(5)		Homes
Delivered
for the Six
Months Ended
June 30, 2020		Sales Price
Range
(in thousands)(6)	
Texas														
Brazoria County:														
Rise Meridiana	2016		47 	 		46 	 		1 	 		— 	 		3 	 		$348 - $369	
Fort Bend County:														
Cross Creek Ranch 60', Fulshear	2013		48 	 		26 	 		22 	 		3 	 		14 	 		$431 - $567	
Cross Creek Ranch 65', Fulshear	2013		89 	 		66 	 		23 	 		4 	 		7 	 		$463 - $677	
Cross Creek Ranch 70', Fulshear	2013		107 	 		87 	 		20 	 		9 	 		16 	 		$525 - $663	
Cross Creek Ranch 80', Fulshear	2013		71 	 		67 	 		4 	 		3 	 		18 	 		$664 - $785	
Cross Creek Ranch 90', Fulshear	2013		49 	 		36 	 		13 	 		8 	 		2 	 		$700 - $816	
Fulshear Run 1/2 Acre, Richmond	2016		145 	 		54 	 		91 	 		— 	 		4 	 		$646	
Harvest Green 75', Richmond	2015		63 	 		52 	 		11 	 		6 	 		9 	 		$454 - $581	
Sienna Plantation 80', Missouri City	TBD		25 	 		— 	 		25 	 		1 	 		— 	 		$573 - $640	
Sienna Plantation 85', Missouri City	2015		54 	 		45 	 		9 	 		2 	 		9 	 		$589 - $636	
Grayson Woods 60'	2019		37 	 		8 	 		29 	 		10 	 		7 	 		$434 - $438	
Grayson Woods 70'	2019		26 	 		10 	 		16 	 		10 	 		8 	 		$502 - $577	
Katy Gaston	TBD		129 	 		— 	 		129 	 		— 	 		— 	 		TBD	
Harris County:														
The Groves, Humble	2015		117 	 		99 	 		18 	 		5 	 		10 	 		$315 - $371	
Lakes of Creekside 80'	2016		17 	 		15 	 		2 	 		— 	 		6 	 		$475 - $611	
Lakes of Creekside 65'	TBD		18 	 		— 	 		18 	 		— 	 		— 	 		$400 - $450	
Balmoral 50'	2019		46 	 		11 	 		35 	 		3 	 		4 	 		$255 - $337	
Bridgeland '80, Cypress	2015		141 	 		120 	 		21 	 		8 	 		12 	 		$621 - $705	
Bridgeland 70'	2018		41 	 		32 	 		9 	 		3 	 		15 	 		$498 - $583	
Villas at Bridgeland 50'	2018		48 	 		20 	 		28 	 		2 	 		4 	 		$350 - $405	
Falls at Dry Creek	2019		20 	 		9 	 		11 	 		4 	 		6 	 		$530 - $685	
Grant-Cyp-Rosehill	TBD		428 	 		— 	 		428 	 		— 	 		— 	 		TBD	
Hidden Arbor, Cypress (Land)	TBD		156 	 		129 	 		27 	 		2 	 		— 	 		$365 - $465	
Clear Lake, Houston (Land)	2015		772 	 		661 	 		111 	 		28 	 		65 	 		$439 - $707	
Northgrove, Tomball	TBD		25 	 		7 	 		18 	 		— 	 		— 	 		TBD	
The Woodlands, Creekside Park	2015		131 	 		128 	 		3 	 		1 	 		11 	 		$450 - $459	
Montgomery County:														
Grand Central Park	TBD		17 	 		— 	 		17 	 		— 	 		— 	 		$299 - $340	
Rodriguez	TBD		342 	 		— 	 		342 	 		— 	 		— 	 		TBD	
Royal Brook, Porter	2019		26 	 		7 	 		19 	 		4 	 		4 	 		$349 - $450	
Waller County:														
LakeHouse	2019		351 	 		68 	 		283 	 		27 	 		37 	 		$269 - $619	
Williamson County:														
Crystal Falls - Lots for Sale	2016		29 	 		25 	 		4 	 		— 	 		— 	 		TBD	
Rancho Sienna 60'	2016		51 	 		41 	 		10 	 		3 	 		8 	 		$380 - $500	
Highlands at Mayfield Ranch 50'	2019		63 	 		42 	 		21 	 		23 	 		12 	 		$303 - $420	
Highlands at Mayfield Ranch 60'	2019		46 	 		24 	 		22 	 		18 	 		10 	 		$351 - $485	
Meyer Ranch	TBD		10 	 		— 	 		10 	 		3 	 		— 	 		$300 - $485	
Rancho Sienna 50'	2019		54 	 		15 	 		39 	 		9 	 		7 	 		$300 - $439	
Palmera Ridge	2019		49 	 		30 	 		19 	 		15 	 		14 	 		$291 - $360	
Hays County:														
6 Creeks 50' Section 1 & 2	2020		35 	 		12 	 		23 	 		10 	 		12 	 		$269 - $352	
6 Creeks 60' Section 1 & 2	2020		15 	 		4 	 		11 	 		5 	 		4 	 		$309 - $375	
Travis County:														
Lakes Edge 80'	2018		14 	 		13 	 		1 	 		1 	 		3 	 		$797	
Turner's Crossing (Land)	TBD		324 	 		— 	 		324 	 		— 	 		— 	 		TBD	
Williamson County:														
Cressman Tract (Land)	TBD		85 	 		— 	 		85 	 		— 	 		— 	 		TBD	
- 54 -

																																										
Collin County:														
Creeks of Legacy, Celina	2020		24 	 		— 	 		24 	 		— 	 		— 	 		$349 - $379	
Miramonte, Frisco	2016		62 	 		60 	 		2 	 		2 	 		8 	 		$475 - $560	
Retreat at Craig Ranch, McKinney	2012		165 	 		159 	 		6 	 		1 	 		5 	 		$375 - $415	
Dallas County:														
Vineyards, Rowlett	2017		40 	 		36 	 		4 	 		3 	 		8 	 		$368 - $480	
Denton County:														
Glenview, Frisco	2017		50 	 		42 	 		8 	 		5 	 		10 	 		$345 - $485	
Paloma Creek, Little Elm	2015		267 	 		187 	 		80 	 		19 	 		10 	 		$275 - $390	
Parks at Legacy, Prosper	2017		55 	 		39 	 		16 	 		8 	 		7 	 		$384 - $495	
Valencia, Little Elm	2016		82 	 		63 	 		19 	 		4 	 		6 	 		$350 - $444	
Villages of Carmel, Denton	2017		96 	 		92 	 		4 	 		2 	 		12 	 		$290 - $360	
Kaufman County:														
Gateway Parks, Forney	2020		12 	 		— 	 		12 	 		— 	 		— 	 		$270 - $355	
Rockwall County:														
Heath Golf and Yacht, Heath	2016		112 	 		88 	 		24 	 		7 	 		14 	 		$294 - $490	
Woodcreek, Fate	2017		153 	 		102 	 		51 	 		13 	 		14 	 		$267 - $330	
Tarrant County:														
Chisholm Trail Ranch, Fort Worth	2017		104 	 		75 	 		29 	 		9 	 		11 	 		$270 - $375	
Lakes of River Trails, Fort Worth	2011		172 	 		158 	 		14 	 		10 	 		4 	 		$317 - $416	
Ventana, Benbrook	2017		94 	 		67 	 		27 	 		8 	 		12 	 		$318 - $430	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		1 	 			
Texas Total			5,849 	 		3,177 	 		2,672 	 		321 	 		463 	 			
Trendmaker Homes Total			5,849 	 		3,177 	 		2,672 	 		321 	 		463 	 			

- 55 -

TRI Pointe Homes

																																										
County, Project, City	Year of
First
Delivery(1)		Total
Number of
Lots(2)		Cumulative
Homes
Delivered
as of
June 30, 2020		Lots
Owned as of
June 30, 2020(3)		Backlog as of June 30, 2020(4)(5)		Homes
Delivered
for the Six
Months Ended
June 30, 2020		Sales Price
Range
(in thousands)(6)	
Southern California														
Orange County:														
Varenna at Orchard Hills, Irvine	2016		135 	 		112 	 		23 	 		6 	 		11 	 		 $1,223 - $1,306	
Lyric	2019		70 	 		62 	 		8 	 		5 	 		21 	 		 $779 - $946	
Windbourne	2019		46 	 		20 	 		26 	 		24 	 		14 	 		 $1,164 - $1,276	
Cerise at Canvas	2020		40 	 		2 	 		38 	 		5 	 		2 	 		 $795 - $823	
Violet at Canvas	2020		48 	 		7 	 		41 	 		12 	 		7 	 		 $545 - $735	
Claret at Canvas	2020		48 	 		5 	 		43 	 		16 	 		5 	 		 $560 - $671	
San Diego County:														
Prism at Weston	2018		142 	 		106 	 		36 	 		32 	 		15 	 		 $574 - $644	
Riverside County:														
Citron at Bedford	2019		101 	 		70 	 		31 	 		14 	 		24 	 		 $387 - $398	
Cassis at Rancho Soleo	2020		79 	 		— 	 		79 	 		17 	 		— 	 		 $492 - $507	
Cava at Rancho Soleo	2020		63 	 		— 	 		63 	 		13 	 		— 	 		 $386 - $417	
Cerro at Rancho Soleo	2020		103 	 		— 	 		103 	 		14 	 		— 	 		 $375 - $430	
Los Angeles County:														
Tierno at Aliento	2017		63 	 		49 	 		14 	 		3 	 		— 	 		 $667 - $710	
Tierno II at Aliento	2018		63 	 		47 	 		16 	 		13 	 		16 	 		 $667 - $701	
Paloma at West Creek	2018		155 	 		151 	 		4 	 		4 	 		19 	 		 $475 - $550	
Mystral	2019		78 	 		53 	 		25 	 		25 	 		5 	 		 $629 - $685	
Celestia	2019		72 	 		67 	 		5 	 		5 	 		17 	 		 $597 - $633	
San Bernardino County:														
Ivy at The Preserve	2019		113 	 		19 	 		94 	 		21 	 		14 	 		 $355 - $427	
Hazel at The Preserve	2020		133 	 		24 	 		109 	 		35 	 		24 	 		 $360 - $426	
Tempo at The Resort	2020		80 	 		— 	 		80 	 		16 	 		— 	 		 $504 - $565	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		27 	 			
Southern California Total			1,632 	 		794 	 		838 	 		280 	 		221 	 			
Northern California														
Contra Costa County:														
Greyson Place	2019		44 	 		28 	 		16 	 		12 	 		12 	 		 $835 - $960	
Santa Clara County:														
Madison Gate	2018		65 	 		60 	 		5 	 		5 	 		13 	 		 $729 - $1,134	
Blanc at Glen Loma	2019		49 	 		15 	 		34 	 		28 	 		10 	 		 $735 - $785	
Noir at Glen Loma	2019		64 	 		15 	 		49 	 		14 	 		6 	 		 $815 - $865	
Lotus at Urban Oak	2023		65 	 		— 	 		65 	 		— 	 		— 	 		 $940 - $1,064	
Solano County:														
Bloom at Green Valley, Fairfield	2018		91 	 		87 	 		4 	 		4 	 		12 	 		 $557 - $597	
Lantana, Fairfield	2019		133 	 		75 	 		58 	 		13 	 		20 	 		 $483 - $528	
One Lake	2021		45 	 		— 	 		45 	 		— 	 		— 	 			
San Joaquin County:														
Sundance, Mountain House	2015		113 	 		108 	 		5 	 		5 	 		— 	 		 $668 - $760	
Sundance II, Mountain House	2017		138 	 		113 	 		25 	 		25 	 		14 	 		 $653 - $731	
River Islands	2021		24 	 		— 	 		24 	 		7 	 		— 	 		 $467 - $519	
Alameda County:														
Onyx at Jordan Ranch, Dublin	2017		105 	 		93 	 		12 	 		6 	 		13 	 		$914 - $966	
Apex, Fremont	2018		77 	 		76 	 		1 	 		1 	 		19 	 		$734 - $996	
Palm, Fremont	2019		31 	 		15 	 		16 	 		8 	 		7 	 		$2,250 - $2,392	
Ellis at Central Station, Oakland	2020		128 	 		— 	 		128 	 		5 	 		— 	 		$740 - $815	
Sonoma County:														
Riverfront Petaluma	2021		5 	 		— 	 		5 	 		— 	 		— 	 		$740 - $901	
Sacramento County:														
- 56 -

																																										
Natomas	TBD		94 	 		— 	 		94 	 		— 	 		— 	 		$360 - $412	
Mangini - Brookstone	2020		47 	 		15 	 		32 	 		19 	 		15 	 		$576 - $655	
Mangini - Waterstone	2020		40 	 		12 	 		28 	 		18 	 		12 	 		$630 - $733	
Placer County:														
La Madera	2019		102 	 		33 	 		69 	 		12 	 		23 	 		$461 - $546	
San Francisco County:														
Cambridge Street (SFA)	2020		54 	 		— 	 		54 	 		— 	 		— 	 		$1,145 - $1,388	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		2 	 			
Northern California Total			1,514 	 		745 	 		769 	 		182 	 		178 	 			
California Total			3,146 	 		1,539 	 		1,607 	 		462 	 		399 	 			
Colorado														
Douglas County:														
Terrain Ravenwood Village (3500)	2018		157 	 		110 	 		47 	 		21 	 		22 	 		 $390 - $429	
Terrain Ravenwood Village (4000)	2018		100 	 		92 	 		8 	 		8 	 		22 	 		 $415 - $481	
Trails at Crowfoot	2021		100 	 		— 	 		100 	 		— 	 		— 	 		 TBD	
Sterling Ranch Alley	2020		80 	 		— 	 		80 	 		1 	 		— 	 		 TBD	
Sterling Ranch TH	2021		46 	 		— 	 		46 	 		— 	 		— 	 		 TBD	
Canyons 4500	2020		89 	 		1 	 		88 	 		12 	 		1 	 		 $774 - $974	
Terrain Sunstone	2021		74 	 		— 	 		74 	 		— 	 		— 	 		 TBD	
Jefferson County:														
Candelas 4020 Series, Arvada	2019		98 	 		72 	 		26 	 		23 	 		26 	 		 $471 - $531	
Crown Point, Westminster	2019		64 	 		57 	 		7 	 		6 	 		26 	 		 $449 - $491	
Candelas TH, Arvada	2022		92 	 		— 	 		92 	 		— 	 		— 	 		 TBD	
Arapahoe County:														
Whispering Pines, Aurora	2016		115 	 		108 	 		7 	 		7 	 		13 	 		 $611 - $681	
Adonea 3500, Aurora	2020		71 	 		— 	 		71 	 		12 	 		— 	 		 $393 - $435	
Adams County:														
Reunion Alley, Commerce City	2021		50 	 		— 	 		50 	 		— 	 		— 	 		 TBD	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		9 	 			
Colorado Total			1,136 	 		440 	 		696 	 		90 	 		119 	 			
North Carolina														
Wake County:														
Lakeview Townhomes, Raleigh, NC	2020		23 	 		— 	 		23 	 		— 	 		— 	 		 $335 - $351	
Townes at North Salem St., Apex, NC	2021		55 	 		— 	 		55 	 		— 	 		— 	 		 $312 - $339	
Mecklenburg County:														
Mayes Hall, Davidson, NC	2021		50 	 		— 	 		50 	 		— 	 		— 	 		 $335 - $406	
North Carolina Total			128 	 		— 	 		128 	 		— 	 		— 	 			
South Carolina														
York County:														
Balsam, Rock Hill, SC	2021		53 	 		— 	 		53 	 		— 	 		— 	 		 $279 - $304	
Ashburn, York County, SC	2020		13 	 		— 	 		13 	 		— 	 		— 	 		 $258 - $294	
South Carolina Total			66 	 		— 	 		66 	 		— 	 		— 	 			
TRI Pointe Total			4,476 	 		1,979 	 		2,497 	 		552 	 		518 	 			

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Winchester Homes

County, Project, City	Year of
First
Delivery(1)		Total
Number of
Lots(2)		Cumulative
Homes
Delivered
as of
June 30, 2020		Lots
Owned as of
June 30, 2020(3)		Backlog as of June 30, 2020(4)(5)		Homes
Delivered
for the Six
Months Ended
June 30, 2020		Sales Price
Range
(in thousands)(6)	
Maryland														
Anne Arundel County:														
Two Rivers Townhomes, Crofton	2017		152 	 		79 	 		73 	 		9 	 		14 	 		$454 - $535	
Two Rivers Cascades SFD, Crofton	2018		43 	 		35 	 		8 	 		8 	 		10 	 		$520 - $590	
Watson's Glen, Millersville	2015		103 	 		9 	 		94 	 		20 	 		5 	 		$368 - $381	
Frederick County:														
Landsdale, Monrovia														
Landsdale SFD	2015		222 	 		180 	 		42 	 		20 	 		20 	 		$515 - $607	
Landsdale Townhomes	2015		100 	 		100 	 		— 	 		— 	 		3 	 		Closed Out	
Landsdale TND Neo SFD	2015		77 	 		66 	 		11 	 		11 	 		7 	 		$450 - $483	
Montgomery County:														
Cabin Branch, Clarksburg														
Cabin Branch SFD	2014		359 	 		252 	 		107 	 		21 	 		15 	 		 $560 - $775	
Cabin Branch Avenue Townhomes	2017		86 	 		86 	 		— 	 		— 	 		4 	 		Closed Out	
Cabin Branch Crossings Townhomes	2019		114 	 		7 	 		107 	 		29 	 		6 	 		 $422 - $493	
Cabin Branch Manor Townhomes	2014		428 	 		367 	 		61 	 		13 	 		16 	 		 $393 - $464	
Preserve at Stoney Spring - Lots for Sale	TBD		2 	 		— 	 		2 	 		— 	 		— 	 			
Glenmont MetroCenter, Silver Spring	2016		171 	 		146 	 		25 	 		25 	 		15 	 		 $460 - $518	
Chapman Row, Rockville	2019		61 	 		16 	 		45 	 		22 	 		6 	 		 $700 - $750	
North Quarter, North Bethesda	2020		104 	 		9 	 		95 	 		12 	 		9 	 		 $620 - $670	
Maryland Total			2,022 	 		1,352 	 		670 	 		190 	 		130 	 			
Virginia														
Fairfax County:														
Stuart Mill, Oakton - Lots for Sale	TBD		5 	 		— 	 		5 	 		— 	 		— 	 		TBD	
Westgrove, Fairfax	2018		24 	 		22 	 		2 	 		2 	 		3 	 		$1,001 - $1,107	
West Oaks Corner, Fairfax	2019		188 	 		41 	 		147 	 		53 	 		15 	 		$705 - $830	
Bren Pointe SFA, Fairfax	2020		13 	 		— 	 		13 	 		— 	 		— 	 		TBD	
Loudoun County:														
Brambleton, Ashburn														
Birchwood Bungalows AA	2018		55 	 		43 	 		8 	 		12 	 		10 	 		$582 - $639	
Birchwood Carriages AA	2019		45 	 		20 	 		25 	 		26 	 		19 	 		$537 - $570	
Willowsford Grant II, Aldie	2017		55 	 		47 	 		8 	 		8 	 		9 	 		$1,000 - $1,255	
Closed Communities	N/A		— 	 		— 	 		— 	 		— 	 		4 	 			
Virginia Total			385 	 		173 	 		208 	 		101 	 		60 	 			
Winchester Total			2,407 	 		1,525 	 		878 	 		291 	 		190 	 			
														
Combined Company Total			32,479 	 		10,508 	 		21,749 	 		2,558 	 		2,187 	 			
__________
(1)Year of first delivery for future periods is based upon management’s estimates and is subject to change.
(2)The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.
(3)Owned lots as of June 30, 2020 include owned lots in backlog as of June 30, 2020.
(4)Backlog consists of homes under sales contracts that have not yet been delivered, and there can be no assurance that delivery of sold homes will occur.
(5)Of the total homes subject to pending sales contracts that have not been delivered as of June 30, 2020, 1,679 homes are under construction, 345 homes have completed construction, and 534 homes have not started construction.
(6)Sales price range reflects base price only and excludes any lot premium, buyer incentives and buyer-selected options, which may vary from project to project. Sales prices for homes required to be sold pursuant to affordable housing requirements are excluded from sales price range. Sales prices reflect current pricing and might not be indicative of past or future pricing.
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Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. Our condensed notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. The preparation of our financial statements requires our management to make estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there is a material difference between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the condensed notes to the unaudited consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Recently Issued Accounting Standards
See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, to the accompanying condensed notes to unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

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

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

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

Item 1A. Risk Factors
        The following supplements and updates the risk factors in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as revised or supplemented by any Quarterly Reports on Form 10-Q filed with the SEC since the filing of our Annual Report on Form 10-K for the year ended December 31, 2019. If any of the risks discussed below or in our Annual Report on Form 10-K (as revised or supplemented by any Quarterly Reports on Form 10-Q) occur, our business, prospects, liquidity, financial condition and results of operations (individually and collectively referred to in the following risk factor as “Financial Performance”) could be materially and adversely affected, in which case the trading price of our common stock could decline significantly and you could lose all or a part of your investment. Some statements in this Quarterly Report on Form 10-Q, including statements in the following risk factor, constitute forward-looking statements. Please refer to Part I, Item 2 of this Quarterly Report on Form 10-Q entitled “Cautionary Note Concerning Forward-Looking Statements.”

Risks Related to Our Business

        Our Financial Performance has been and may continue to be materially and adversely affected by the ongoing COVID-19 pandemic.

        In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of coronavirus first identified in Wuhan, China in December 2019, a pandemic. This outbreak, which has spread widely throughout the United States and nearly all other regions of the world, has prompted federal, state and local governmental authorities in the United States to declare states of emergency and institute preventative measures to contain and/or mitigate the public health effects. These preventative measures, which include quarantines, shelter-in-place orders and similar mandates that substantially restrict daily activities for many individuals, as well as orders requiring the closure and/or curtailment of operations for many businesses, have caused and continue to cause significant disruption to businesses in affected areas, as well as the financial markets both globally and in the United States, more broadly.

        In response to the COVID-19 pandemic and measures taken by applicable governmental authorities, in mid-March 2020, we began encouraging all employees at our corporate and division offices whose duties could be performed from home to work remotely until further notice, transitioned all of our new home galleries and design studios to appointment-only with pre-screened individuals or virtual appointments, instituted mandatory social distancing and hygiene/sanitation guidelines in accordance with recommended protocols throughout the organization (including in our new home galleries and design studios, and with respect to trade partners and their employees on our jobsites) and postponed non-essential customer care service and warranty requests. While we believe these measures were advisable and in the best interests of our employees, trade partners, customers and communities, such measures, in combination with other factors, reduced traffic in our new home galleries and design studios, slowed the pace of our home sales, delayed home deliveries and caused other material disruptions to our normal operations, including a substantial investment of time and resources by our management and organization, and may continue to do so during the pendency of such measures. We have transitioned substantially all of our employees back to our corporate and division offices, have resumed non-essential customer care service and warranty requests in substantially all of our markets, and, to the extent permitted by applicable law, are no longer appointment-only in many of our new home galleries. However, in the event that we are required or believe it is advisable to re-implement these or other measures in all or some of our markets in response to a resurgence of COVID-19 or orders by applicable governmental authorities, our Financial Performance could be materially and adversely affected. Additionally, certain of our service providers and trade partners have instituted or may institute similar preventative measures, which could result in reductions in the availability, capacity and/or efficiency of the services upon which we depend for our operations, which could materially and adversely affect our Financial Performance. Further, in the event any of our employees, and/or employees of our service providers or trade partners, contract COVID-19 or are otherwise compelled to self-quarantine, we may experience shortages in labor and services that we require for our operations. Our increased use of remote work environments and virtual platforms in response to the COVID-19 pandemic may also increase our risk of cyber-attack or data security breaches.

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While residential homebuilding operations are currently exempt from the application of “stay-at-home” orders in all of our markets, existing and future orders by governmental authorities in any of our markets may require us to cease our homebuilding operations for an uncertain or indefinite period of time, which could significantly affect new home orders and deliveries and negatively impact our home sales revenue in such markets. For example, in late March 2020, authorities in Seattle, Washington and the Bay Area in California revised then-existing restrictions against non-essential business activities to extend to most residential construction activities. As a result, our TRI Pointe Homes—Bay Area and Quadrant Homes divisions were prohibited for several weeks from engaging in residential construction activities. We anticipate that any further such orders will have a material and adverse impact on our ability to meet applicable development and construction timelines, as well as sales activity, in applicable markets in the event such prohibitions remain in effect for a significant duration.

        We may also be materially and adversely affected by the disruptions to U.S. and local economies that result from the COVID-19 pandemic, including reduced consumer confidence, availability of financing for potential homebuyers, shortages of or increased costs associated with obtaining building materials, unemployment levels, wage growth and fluctuating interest rates. The COVID-19 pandemic has also resulted in substantial volatility in U.S. and international debt and equity markets and has caused significant fluctuations in the market prices of equity securities, including our common stock. The possibility of a prolonged recession or economic downturn could result in, among other things, a decrease in demand and prices for our homes; an increase in selling incentives required to sell homes; an oversupply of new and existing homes available for sale; increased home order cancellation rates; diminished value of our real estate investments, including potential impairments, write downs or dispositions of real estate assets, or lot option abandonments; and an inability to access our Credit Facility, service or refinance our existing indebtedness or access the debt and equity capital markets on commercially reasonable terms or at all.

        Ultimately, the effects of the COVID-19 pandemic on our business and Financial Performance, which are highly uncertain and cannot be predicted, will depend upon future developments, including the severity of COVID-19 and the duration of the outbreak; the duration of existing and future social distancing and shelter-in-place orders; further mitigation strategies taken by applicable government authorities; the availability of a vaccine, adequate testing and treatments and the prevalence of widespread immunity to COVID-19; the impacts on our supply chain; the health of our employees, service providers and trade partners; and the reactions of U.S. and global markets and their effects on consumer confidence and spending. Such adverse effects, however, may include decreases in home sales revenue, new home deliveries, average sales prices of homes, homebuilding gross margin percentages, active selling communities and backlog units, and increases in cancellation rates of home sales contracts, which may materially impact our Financial Performance during the third quarter of 2020 and beyond, as well as our ability to satisfy the covenants in our existing and any future debt agreements, including our Credit Facility, and service our outstanding indebtedness. The impact of COVID-19 may also exacerbate other risks discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K, as revised or supplemented by our Quarterly Reports on Form 10-Q filed with the SEC since the filing of our most recent Annual Report on Form 10-K, any of which could have a material effect on us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 21, 2019, our board of directors approved our 2019 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $100 million through March 31, 2020. On December 16, 2019, we announced that our board of directors had authorized the repurchase of up to an additional $50 million through March 31, 2020, increasing the aggregate value of shares of common stock authorized to be repurchased under the 2019 Repurchase Program to $150 million from $100 million.
On February 13, 2020, our board of directors discontinued and cancelled the 2019 Repurchase Program and approved our 2020 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $200 million through March 31, 2021. Purchases of common stock pursuant to the 2020 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act. We are not obligated under the 2020 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2020 Repurchase Program at any time. Our management will determine the timing and amount of repurchases in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. During the three months ended June 30, 2020, we did not repurchase any shares under the 2020 Repurchase Program. For the six months ended June 30, 2020, we repurchased and retired an aggregate of 6,558,323 shares of common stock at an average price of $15.55 under the 2019 Repurchase Program and 2020 Repurchase Program for a total of $102.0 million.

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Item 6. Exhibits 

Exhibit
Number		Exhibit Description	
			
3.1		Amended and Restated Certificate of Incorporation of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed July 7, 2015))	
			
3.2		Amended and Restated Bylaws of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed October 27, 2016))	
			
4.1		Fifth Supplemental Indenture, dated as of June 10, 2020, among TRI Pointe Group, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed June 10, 2020))	
			
4.2		Form of 5.700% Senior Note due 2028 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed June 10, 2020))	
			
31.1		Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002	
			
31.2		Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002	
			
32.1		Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002	
			
32.2		Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002	
			
101		The following materials from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the three months ended June 30, 2020, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Condensed Notes to Consolidated Financial Statement.	
			
104		Cover page from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL (and contained in Exhibit 101).	

- 62 -

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

									
	TRI Pointe Group, Inc.	
			
Date: July 24, 2020	By:	/s/ Douglas F. Bauer	
		Douglas F. Bauer	
		Chief Executive Officer	
		(Principal Executive Officer)	
Date: July 24, 2020	By:	/s/ Glenn J. Keeler	
		Glenn J. Keeler	
		Chief Financial Officer	
		(Principal Financial Officer)	
- 63 -

Exhibit 31.1
SECTION 302 CERTIFICATION
I, Douglas F. Bauer, certify that:
1.I have reviewed this report on Form 10-Q of TRI Pointe Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 24, 2020	/s/ Douglas F. Bauer	
 	Douglas F. Bauer	
 	Chief Executive Officer (Principal Executive Officer)	

Exhibit 31.2
SECTION 302 CERTIFICATION
I, Glenn J. Keeler, certify that:

1.I have reviewed this report on Form 10-Q of TRI Pointe Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 24, 2020	/s/ Glenn J. Keeler	
 	Glenn J. Keeler	
 	Chief Financial Officer (Principal Financial Officer)	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TRI Pointe Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas F. Bauer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 24, 2020	/s/ Douglas F. Bauer	
 	Douglas F. Bauer	
 	Chief Executive Officer (Principal Executive Officer)	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TRI Pointe Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenn J. Keeler, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 24, 2020	/s/ Glenn J. Keeler	
 	Glenn J. Keeler	
 	Chief Financial Officer (Principal Financial Officer)