Table of Contents
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 March 31, 2023
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: 001-35873
TAYLOR MORRISON HOME CORPORATION
(Exact name of registrant as specified in its Charter)
Delaware
83-2026677
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4900 N. Scottsdale Road, Suite 2000
85251
Scottsdale,
Arizona
(Address of principal executive offices)
(Zip Code)
(480) 840-8100
(Registrant’s telephone number, including area code)
N/A
(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, $0.00001 par value
TMHC
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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding as of April 26, 2023
Common stock, $0.00001 par value
109,112,512
TABLE OF CONTENTS
Part I
FINANCIAL INFORMATION
2
ITEM 1.
Financial Statements of Taylor Morrison Home Corporation (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022
3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022
4
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022
5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022
6
Notes to the Unaudited Condensed Consolidated Financial Statements
19
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
31
ITEM 4.
Controls and Procedures
Part II
OTHER INFORMATION
32
Legal Proceedings
ITEM 1A.
Risk Factors
33
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
ITEM 5.
Other Information
34
ITEM 6.
Exhibits
35
SIGNATURES
TAYLOR MORRISON HOME CORPORATION 10-Q
1
ITEM 1. FINANCIAL STATEMENTS
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
March 31,2023
December 31,2022
Assets
Cash and cash equivalents
$
877,717
724,488
Restricted cash
6,717
2,147
Total cash, cash equivalents, and restricted cash
884,434
726,635
Real estate inventory:
Owned inventory
5,330,548
5,346,905
Consolidated real estate not owned
2,295
23,971
Total real estate inventory
5,332,843
5,370,876
Land deposits
228,117
263,356
Mortgage loans held for sale
186,194
346,364
Lease right of use assets
84,052
90,446
Prepaid expenses and other assets, net
225,381
265,392
Other receivables, net
196,184
191,504
Investments in unconsolidated entities
294,755
282,900
Deferred tax assets, net
67,656
Property and equipment, net
213,374
202,398
Goodwill
663,197
Total assets
8,376,187
8,470,724
Liabilities
Accounts payable
247,887
269,761
Accrued expenses and other liabilities
424,619
490,253
Lease liabilities
92,895
100,174
Income taxes payable
2,977
—
Customer deposits
414,085
412,092
Estimated development liabilities
43,005
43,753
Senior notes, net
1,816,877
1,816,303
Loans payable and other borrowings
338,667
361,486
Mortgage warehouse borrowings
146,334
306,072
Liabilities attributable to consolidated real estate not owned
Total liabilities
3,529,641
3,823,865
COMMITMENTS AND CONTINGENCIES (Note 13)
Stockholders’ equity
Total stockholders’ equity
4,846,546
4,646,859
Total liabilities and stockholders’ equity
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
Three Months EndedMarch 31,
2023
2022
Home closings revenue, net
1,612,595
1,644,409
Land closings revenue
4,520
15,610
Financial services revenue
35,149
35,199
Amenity and other revenue
9,593
7,906
Total revenue
1,661,857
1,703,124
Cost of home closings
1,227,513
1,264,974
Cost of land closings
4,345
14,364
Financial services expenses
22,148
24,214
Amenity and other expenses
8,285
6,444
Total cost of revenue
1,262,291
1,309,996
Gross margin
399,566
393,128
Sales, commissions and other marketing costs
92,760
89,123
General and administrative expenses
66,261
68,142
Net income from unconsolidated entities
(1,929
)
(1,831
Interest (income)/expense, net
(1,111
4,252
Other (income)/expense, net
(4,834
542
Income before income taxes
248,419
232,900
Income tax provision
57,191
54,439
Net income before allocation to non-controlling interests
191,228
178,461
Net income attributable to non-controlling interests
(177
(1,758
Net income available to Taylor Morrison Home Corporation
191,051
176,703
Earnings per common share
Basic
1.76
1.46
Diluted
1.74
1.44
Weighted average number of shares of common stock:
108,429
121,186
110,053
122,657
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data, unaudited)
For the three months ended March 31, 2023
Common Stock
AdditionalPaid-inCapital
Treasury Stock
Stockholders' Equity
Shares
Amount
RetainedEarnings
Accumulated OtherComprehensiveIncome
Non-controllingInterest
TotalStockholders’Equity
Balance – December 31, 2022
107,995,262
3,025,489
51,396,923
(1,137,138
2,741,615
359
16,533
Net income
177
Exercise of stock options and issuance of restricted stock units, net(1)
1,148,175
4,493
Repurchase of common stock
(109,325
109,325
(3,568
Stock compensation expense
7,533
Changes in non-controlling interests of consolidated joint ventures
Balance – March 31, 2023
109,034,112
3,037,515
51,506,248
(1,140,706
2,932,666
16,711
For the three months ended March 31, 2022
Accumulated OtherComprehensiveLoss
Balance – December, 2021
121,833,649
2,997,211
36,828,559
(760,863
1,688,815
689
45,129
3,970,982
1,758
479,928
(1,265
(1,948,187
1,948,187
(58,029
6,863
Distributions to non-controlling interests of consolidated joint ventures
(1,752
(462
Balance – March 31, 2022
120,365,390
3,002,809
38,776,746
(818,892
1,865,518
44,673
4,094,798
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
Cash Flows from Operating Activities
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions of earnings from unconsolidated entities
847
2,058
Depreciation and amortization
7,087
8,841
Operating lease expense
7,144
6,913
Debt issuance costs amortization
868
191
Changes in operating assets and liabilities:
Real estate inventory and land deposits
51,596
(286,828
Mortgages held for sale, prepaid expenses and other assets
190,202
171,618
1,993
55,211
Accounts payable, accrued expenses and other liabilities
(112,097
(138,247
54,211
Net cash provided by operating activities
347,449
57,461
Cash Flows from Investing Activities:
Purchase of property and equipment
(13,807
(5,389
Distributions of capital from unconsolidated entities
350
Investments of capital into unconsolidated entities
(11,123
(2,052
Net cash used in investing activities
(24,580
(7,441
Cash Flows from Financing Activities
Increase in loans payable and other borrowings
2,425
18,287
Repayments on loans payable and other borrowings
(7,377
(26,688
Borrowings on revolving credit facilities
32,548
Repayments on revolving credit facilities
(64,077
Borrowings on mortgage warehouse facilities
634,404
562,024
Repayments on mortgage warehouse facilities
(794,142
(775,249
Proceeds from stock option exercises and issuance of restricted stock units, net
Payment of principal portion of finance lease
(1,305
(1,332
Repurchase of common stock, net
Cash and distributions to non-controlling interests of consolidated joint ventures, net
Net cash used in financing activities
(165,070
(315,533
Net Increase/Decrease in Cash and Cash Equivalents and Restricted Cash
157,799
(265,513
Cash, Cash Equivalents, and Restricted Cash — Beginning of period
836,340
Cash, Cash Equivalents, and Restricted Cash — End of period
570,827
Supplemental Cash Flow Information
Income tax refunds/(payments)
1,943
(228
Supplemental Non-Cash Investing and Financing Activities:
Change in loans payable issued to sellers in connection with land purchase contracts
39,865
59,830
Change in inventory not owned
(21,676
(11,896
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Description of the Business — Taylor Morrison Home Corporation (“TMHC”), through its subsidiaries (together with TMHC referred to herein as “we,” “our,” “the Company” and “us”), owns and operates a residential homebuilding business and is a land developer. We operate in the states of Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. We provide an assortment of homes across a wide range of price points to appeal to an array of consumer groups. We design, build and sell single and multi-family detached and attached homes in traditionally high growth markets for entry level, move-up, and 55-plus active lifestyle buyers. We are the general contractors for all real estate projects and retain subcontractors for home construction and land development. Our homebuilding segments operate under our Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade brand names. We also have a “Build-to-Rent” homebuilding business which operates under the Yardly brand name. In addition, we develop and construct multi-use properties consisting of commercial space, retail, and multi-family properties under the Urban Form brand. We also have operations which provide financial services to customers through our wholly owned mortgage subsidiary, Taylor Morrison Home Funding, INC (“TMHF”), title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”), and homeowner’s insurance policies through our wholly owned insurance agency, Taylor Morrison Insurance Services, LLC (“TMIS”). Our business is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West, and Financial Services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). Certain prior year amounts have been reclassified to conform to current year presentation. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.
Joint Ventures - We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The income from the percentage of the joint venture not owned by us is presented as “Net income attributable to non-controlling interests” on the unaudited Condensed Consolidated Statement of Operations. The equity from the percentage of the joint ventures not owned by us is presented as “Non-controlling interests” on the unaudited Condensed Consolidated Statement of Stockholders’ Equity. The balance of Non-Controlling interests will fluctuate from period to period as a result of activities within the respective joint ventures which may include the allocation of income or losses, distributions or contributions associated with the partners within the joint venture.
Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and these accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, valuation of development liabilities, valuation of equity awards, valuation allowance on deferred tax assets, and reserves for warranty and self-insured risks. Actual results could differ from those estimates.
Real Estate Inventory — Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, all of which are stated at cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home vertical construction costs are accumulated and charged to Cost of home closings at the time of home closing using the specific identification method. Land acquisition, development, interest, and real estate taxes are allocated to homes and units generally using the relative sales value method. Generally, all overhead costs relating to purchasing, vertical construction of a home, and construction utilities are considered overhead costs and allocated on a per unit basis. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining lots on a prospective basis.
The life cycle of a typical community generally ranges from two to five years, commencing with the acquisition of unentitled or entitled land, continuing through the land development phase and concluding with the sale, construction and delivery of homes. Actual
community duration will vary based on the size of the community, the sales absorption rate and whether we purchased the property as raw land or as finished lots.
We capitalize qualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to Cost of home closings when the related inventory is charged to Cost of home closings.
We assess the recoverability of our inventory in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment. We review our real estate inventory for indicators of impairment on a community-level basis during each reporting period. If indicators of impairment are present for a community, an undiscounted cash flow analysis is generally prepared in order to determine if the carrying value of the assets in that community exceeds the estimated undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, the assets are potentially impaired, requiring a fair value analysis. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. However, fair value can be determined through other methods, such as appraisals, contractual purchase offers, and other third party opinions of value. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the three months ended March 31, 2023 and 2022, no impairment charges were recorded.
In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. We refer to such communities as long-term strategic assets. The decision may be based on financial and/or operational metrics as determined by us. For those communities that have been temporarily closed or development has been discontinued, we do not allocate interest or other costs to the community's inventory until activity resumes. Such costs are expensed as incurred. In addition, if we decide to cease development, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized. Our assessment of the carrying value of our long-term strategic assets typically includes estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of March 31, 2023 and December 31, 2022, we had no inactive projects.
In the ordinary course of business, we enter into various option agreements to acquire lots in staged takedowns which may require a significant cash deposit. We are not legally obligated to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots are not purchased. Real estate not owned under these agreements is reflected in Consolidated real estate not owned with a corresponding liability in Liabilities attributable to consolidated real estate not owned in the unaudited Condensed Consolidated Balance Sheets.
Land held for sale — In some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. Land is considered held for sale once management intends to actively sell a parcel within the next 12 months or the parcel is under contract to sell. Land held for sale is recorded at the lower of cost or fair value less costs to sell. In determining the value of land held for sale, we consider recent offers received, prices for land in recent comparable sales transactions, and other factors. We record fair value adjustments for land held for sale within Cost of land closings on the unaudited Condensed Consolidated Statements of Operations.
Land banking arrangements — We have land purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources, we may transfer our right under certain specific performance agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions from their owners and/or incur debt to finance the acquisition and development of the land. The entities grant us an option to acquire lots in staged takedowns. In consideration for this option, we make a non-refundable deposit. We are not legally obligated to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots were not purchased. We do not have an ownership interest in these entities or title to their assets and do not guarantee their liabilities. These land banking arrangements help us manage the financial and market risk associated with land holdings which are not included in the unaudited Condensed Consolidated Balance Sheets.
Investments in Consolidated and Unconsolidated Entities
Consolidated Entities — In the ordinary course of business, we enter into land purchase contracts, lot option contracts and land banking arrangements in order to procure land or lots for the construction of homes. Such contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risk associated with land ownership and development. In accordance with ASC Topic 810, Consolidation, when we enter into agreements to acquire land or lots and pay a non-refundable deposit, we evaluate if a Variable Interest Entity (“VIE”) should be created if we are deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. If we are the primary beneficiary of the VIE, we
7
consolidate the VIE and reflect such assets and liabilities as Consolidated real estate not owned and Liabilities attributable to consolidated real estate not owned, respectively, in the unaudited Condensed Consolidated Balance Sheets.
Unconsolidated Joint Ventures — We use the equity method of accounting for entities which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that the partners have substantive participating rights that preclude the presumption of control. Our share of net earnings or losses is included in Net income/loss from unconsolidated entities on the unaudited Condensed Consolidated Statement of Operations when earned and distributions are credited against our Investments in unconsolidated entities on the unaudited Condensed Consolidated Balance Sheets when received.
We evaluate our investments in unconsolidated entities for indicators of impairment semi-annually. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized, if any, is the excess of the investment's carrying amount over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners. If we believe that the decline in the fair value of the investment is temporary, then no impairment is recorded. We recorded no material impairment charges related to the investments in unconsolidated entities for the three months ended March 31, 2023 and 2022.
Revenue Recognition — Revenue is recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.
Home and land closings revenue
Under Topic 606, the following steps are applied to determine home closings revenue and land closings revenue recognition: (1) identify the contract(s) with our customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the performance obligation(s) are satisfied. Our home sales transactions, have one contract, with one performance obligation, with each customer to build and deliver the home purchased (or develop and deliver land). Based on the application of the five steps, the following summarizes the timing and manner of the recognition of home and land sales revenue:
We own and operate certain amenities such as golf courses, club houses, and fitness centers, which require us to provide club members with access to the facilities in exchange for the payment of club dues. We collect club dues and other fees from club members, which are invoiced on a monthly basis. Revenue from our golf club operations is also included in amenity and other revenue. Amenity and other revenue also includes revenue from the sale of assets from our Urban Form operations and Build-to-Rent operations.
Mortgage operations and hedging activity related to financial services are not within the scope of Topic 606. Loan origination fees (including title fees, points, and closing costs) are recognized at the time the related real estate transactions are completed, which is usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, on a non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, Sales of Financial Assets. TMHF does not have continuing involvement with the transferred assets; therefore, we derecognize the mortgage
8
loans at time of sale, and based on the difference between the selling price and carrying value of the related loans upon sale, record a gain/loss on sale in the period of sale. Also included in Financial services revenue/expenses are realized and unrealized gains and losses from hedging instruments. ASC Topic 815-25, Derivatives and Hedging, requires that all hedging instruments be recognized as assets or liabilities on the balance sheet at their fair value. We do not meet the criteria for hedge accounting; therefore, we account for these instruments as free-standing derivatives, with changes in fair value recognized in Financial services revenue/expenses on the statement of operations in the period in which they occur.
3. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all outstanding dilutive equity awards to issue shares of Common Stock were exercised or settled.
The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):
Numerator:
Net income available to TMHC
Denominator:
Weighted average shares – basic
Restricted stock units
913
801
Stock Options
711
670
Weighted average shares – diluted
Earnings per common share – basic:
Earnings per common share – diluted:
The above calculations of weighted average shares exclude 664,145 and 1,045,290 of anti-dilutive stock options and unvested restricted stock units (“RSUs”) for the three months ended March 31, 2023 and 2022, respectively.
4. REAL ESTATE INVENTORY AND LAND DEPOSITS
Inventory consists of the following (in thousands):
As of
Real estate developed and under development
3,618,428
3,607,227
Real estate held for development or held for sale (1)
48,881
43,314
Total owned lots
3,667,309
3,650,541
Operating communities (2)
1,466,632
1,506,241
Capitalized interest
196,607
190,123
Total owned inventory
9
The development status of our land inventory is as follows (dollars in thousands):
March 31, 2023
December 31, 2022
Owned Lots
Book Valueof Land andDevelopment
Homebuilding owned lots
Undeveloped
14,248
465,215
14,985
522,594
Under development
10,694
1,175,219
10,716
1,106,751
Finished
17,783
2,024,986
18,366
2,018,062
Total homebuilding owned lots
42,725
3,665,420
44,067
3,647,407
Other assets(1)
1,889
3,134
Undeveloped lots are those where no phase specific development work has commenced. Under development lots include land where phase specific development has commenced. Finished lots are fully developed. This classification allows for multi-phase or master planned communities to be presented in more than one lot status based on their development.
We have land option purchase contracts, land banking arrangements and other controlled lot agreements. We do not have title to the properties, and the property owner and its creditors generally only have recourse against us in the form of retaining any non-refundable deposits. We are also not legally obligated to purchase the balance of the lots. Deposits related to these lots are capitalized when paid and classified as Land deposits until the associated property is purchased. The table below presents a summary of our controlled lots for the following periods (dollars in thousands):
Controlled Lots
Purchase Price
Land Deposits (1)
Homebuilding controlled lots
Land option purchase contracts
7,169
484,988
40,346
6,582
428,612
47,678
Land banking arrangements
7,073
1,020,063
147,584
7,369
1,057,065
156,653
Other controlled lots
16,415
1,018,841
34,235
16,891
956,712
50,218
Total controlled lots
30,657
2,523,892
222,165
30,842
2,442,389
254,549
Capitalized Interest — Interest capitalized, incurred and amortized is as follows (in thousands):
Interest capitalized - beginning of period
168,670
Interest incurred and capitalized(1)
34,133
39,729
Interest amortized to cost of home closings
(27,649
(30,430
Interest capitalized - end of period
177,969
5. INVESTMENTS IN CONSOLIDATED AND UNCONSOLIDATED ENTITIES
Unconsolidated Entities
We have investments in a number of joint ventures with third parties. These entities are generally involved in real estate development, homebuilding, Build-to-Rent, and/or mortgage lending activities. The primary activity of the real estate development joint ventures is development and sale of lots to joint venture partners and/or unrelated builders. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.
10
Summarized, unaudited condensed combined financial information of unconsolidated entities that are accounted for by the equity method are as follows (in thousands):
Assets:
Real estate inventory
786,053
749,942
Other assets
177,855
146,770
963,908
896,712
Liabilities and owners’ equity:
Debt
275,878
238,263
Other liabilities
35,168
31,824
311,046
270,087
Owners’ equity:
Others
358,107
343,725
Total owners’ equity
652,862
626,625
Total liabilities and owners’ equity
Revenues
19,536
30,401
Costs and expenses
(14,699
(25,694
4,837
4,707
TMHC’s share in net income of unconsolidated entities
1,929
1,831
Distributions to TMHC from unconsolidated entities
1,197
Consolidated Entities
We have several joint ventures for the purpose of real estate development and homebuilding activities, which we have determined to be VIEs. As the managing member, we oversee the daily operations and have the power to direct the activities of the VIEs, or joint ventures. For this specific subset of joint ventures, based upon the allocation of income and loss per the applicable joint venture agreements and certain performance guarantees, we have potentially significant exposure to the risks and rewards of the joint ventures. Therefore, we are the primary beneficiary of these joint venture VIEs, and the entities are consolidated.
As of March 31, 2023, the assets of the consolidated joint ventures totaled $277.2 million, of which $31.3 million was cash and cash equivalents, $72.4 million was owned inventory and $123.3 million was fixed assets (primarily related to Urban Form). The majority of the fixed asset balance is held for sale as of March 31, 2023. As of December 31, 2022, the assets of the consolidated joint ventures totaled $277.6 million, of which $38.9 million was cash and cash equivalents, $72.0 million was owned inventory and $123.2 million was fixed assets. The liabilities of the consolidated joint ventures totaled $154.1 million and $155.5 million as of March 31, 2023 and December 31, 2022, respectively, and were primarily comprised of notes payable, accounts payable and accrued liabilities.
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in thousands):
As ofMarch 31, 2023
As ofDecember 31, 2022
Real estate development costs to complete
52,589
53,155
Compensation and employee benefits
68,029
112,294
Self-insurance and warranty reserves
158,222
161,675
Interest payable
26,558
37,434
Property and sales taxes payable
24,069
30,046
Other accruals
95,152
95,649
Total accrued expenses and other liabilities
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Self-Insurance and Warranty Reserves – We accrue for the expected costs associated with our limited warranty, deductibles and self-insured exposure under our various insurance policies within Beneva Indemnity Company (“Beneva”), a wholly owned subsidiary. A summary of the changes in reserves are as follows (in thousands):
Reserve - beginning of period
141,839
Additions to reserves
14,447
8,884
Cost of claims incurred
(20,508
(12,473
Changes in estimates to pre-existing reserves
2,608
2,720
Reserve - end of period
140,970
7. DEBT
Total debt consists of the following (in thousands):
Principal
UnamortizedDebt Issuance (Costs)/Premium
CarryingValue
5.625% Senior Notes due 2024
350,000
(494
349,506
(628
349,372
5.875% Senior Notes due 2027
500,000
(3,264
496,736
(3,459
496,541
6.625% Senior Notes due 2027(1)
27,070
1,238
28,308
1,310
28,380
5.75% Senior Notes due 2028
450,000
(3,025
446,975
(3,183
446,817
5.125% Senior Notes due 2030
(4,648
495,352
(4,807
495,193
Senior Notes subtotal
1,827,070
(10,193
(10,767
$1 Billion Revolving Credit Facility(2)(3)
$100 Million Revolving Credit Facility(2)(3)
Total debt
2,312,071
2,301,878
2,494,628
2,483,861
Debt Instruments
Excluding the debt instruments discussed below, the terms governing all other debt instruments listed in the table above have not substantially changed from the year ended December 31, 2022. For information regarding such instruments, refer to Note 8 to the Consolidated Financial Statements in our Annual Report. As of March 31, 2023, we were in compliance with all of the covenants in the debt instruments listed in the table above.
$1 Billion Revolving Credit Facility
Our $1 Billion Revolving Credit Facility has a maturity date of March 11, 2027. We had no outstanding borrowings under our $1 Billion Revolving Credit Facility as of March 31, 2023 and December 31, 2022.
As of March 31, 2023 and December 31, 2022, we had $3.6 million and $3.8 million, respectively, of unamortized debt issuance costs relating to our $1 Billion Revolving Credit Facility, which are included in Prepaid expenses and other assets, net, on the unaudited Condensed Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, we had $70.2 million and $69.2 million, respectively, of utilized letters of credit, resulting in $929.8 million and $930.8 million, respectively, of availability under the $1 Billion Revolving Credit Facility.
The $1 Billion Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level, currently of at least $3.0 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the $1 Billion Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal
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quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the $1 Billion Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the $1 Billion Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the $1 Billion Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.
The $1 Billion Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, the payment of dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The $1 Billion Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control.
As of March 31, 2023, we were in compliance with all of the covenants under the $1 Billion Revolving Credit Facility.
Mortgage Warehouse Borrowings
The following is a summary of our mortgage warehouse borrowings (in thousands):
As of March 31, 2023
Facility
AmountDrawn
FacilityAmount
InterestRate
ExpirationDate
Collateral (1)
Warehouse A
39,608
60,000
Daily SOFR + 1.70%
on Demand
Mortgage Loans
Warehouse B
27,747
75,000
BSBY 1M + 1.65%
Warehouse C
31,614
Term SOFR + 1.65%
Mortgage Loans & Pledged Cash
Warehouse D
17,077
70,000
Daily SOFR + 1.50%
September 6, 2023
Warehouse E
30,288
Term SOFR + 1.60%
Total
As of December 31, 2022
29,066
On Demand
94,258
150,000
53,607
Mortgage Loans & Restricted Cash
83,259
140,000
45,882
495,000
Loans Payable and Other Borrowings
Loans payable and other borrowings as of March 31, 2023 and December 31, 2022 consist of project-level debt due to various land sellers and financial institutions for specific projects. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot closings or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 9% and 0% to 8% at each of March 31, 2023 and December 31, 2022, respectively. We impute interest for loans with no stated interest rates.
8. FAIR VALUE DISCLOSURES
ASC Topic 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.
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Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.
Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.
The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of derivative assets and liabilities includes interest rate lock commitments (“IRLCs”) and mortgage backed securities (“MBS”). The fair value of IRLCs is based on the value of the underlying mortgage loans, quoted MBS prices and the probability that the mortgage loan will fund within the terms of the IRLCs. We estimate the fair value of the forward sales commitments based on quoted MBS prices. The fair value of our mortgage warehouse borrowings, loans payable and other borrowings, and the borrowings under our Revolving Credit Facilities approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. The fair value of our Equity Security Investment in a public company is based upon quoted prices for identical assets in an active market. There were no changes to or transfers between the levels of the fair value hierarchy for any of our financial instruments as of March 31, 2023, when compared to December 31, 2022.
The carrying value and fair value of our financial instruments are as follows:
(Dollars in thousands)
Level in FairValue Hierarchy
EstimatedFair Value
Description:
IRLCs
4,571
2,386
MBSs
(3,190
1,090
5.625% Senior Notes due 2024 (1)
347,519
347,375
5.875% Senior Notes due 2027 (1)
490,515
480,060
6.625% Senior Notes due 2027 (1)
25,920
26,123
5.75% Senior Notes due 2028 (1)
442,652
421,358
5.125% Senior Notes due 2030 (1)
461,540
434,330
Equity Security
460
Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value for our inventories measured at fair value on a nonrecurring basis:
Real estate inventories
48,360
As of March 31, 2023, the fair value for such inventories was not determined as there were no events and circumstances that indicated their carrying value was not recoverable.
9. INCOME TAXES
The effective tax rate for the three months ended March 31, 2023 was 23.0%, compared to 23.4% for the same period in 2022. For the three months ended March 31, 2023 and 2022 the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible executive compensation, and special deductions and credits relating to homebuilding activities.
At both March 31, 2023 and December 31, 2022, there were no unrecognized tax benefits.
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10. STOCKHOLDERS’ EQUITY
Capital Stock
The Company’s authorized capital stock consists of 400,000,000 shares of common stock, par value $0.00001 per share (the “Common Stock”), and 50,000,000 shares of preferred stock, par value $0.00001 per share.
Stock Repurchase Program
The following table summarizes share repurchase activity for the periods presented:
Amount available for repurchase — beginning of period
279,138
230,413
Amount repurchased
Amount available for repurchase — end of period
275,570
172,384
The Company repurchased 109,325 and 1,948,187 shares under the share repurchase program during the three months ended March 31, 2023 and 2022, respectively.
The Inflation Reduction Act was enacted on August 16, 2022 and includes an excise tax on the net repurchase of company stock. This act was effective as of January 1, 2023 and did not have a material impact on our financial statements for the quarter ended March 31, 2023. We will continue to assess the impact it may have on our financial results.
11. STOCK BASED COMPENSATION
Equity-Based Compensation
In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the “Plan”). The Plan was most recently amended and restated in May 2022. The Plan provides for the grant of stock options, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”), and other equity-based awards deliverable in shares of our Common Stock. As of March 31, 2023, we had an aggregate of 4,998,916 shares of Common Stock available for future grants under the Plan.
The following table provides the outstanding balance of time-based and performance based RSUs and stock options as of March 31, 2023:
Restricted Stock Units (time and performance)
Units
Weighted AverageGrant Date FairValue
WeightedAverage ExercisePrice Per Share
Balance at March 31, 2023
1,495,712
29.85
2,845,081
25.90
The following table provides information regarding the amount and components of stock-based compensation expense, all of which is included in General and administrative expenses in the unaudited Condensed Consolidated Statements of Operations (in thousands):
Restricted stock units (1)
6,675
5,780
Stock options
858
1,083
Total stock compensation
At March 31, 2023 and December 31, 2022, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $43.1 million and $27.1 million, respectively.
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12. REPORTING SEGMENTS
We have multiple homebuilding operating components which are engaged in the business of acquiring and developing land, constructing homes, marketing and selling homes, and providing warranty and customer service. We aggregate our homebuilding operating components into three reporting segments, East, Central, and West, based on similar long-term economic characteristics. The activity from our Build-to-Rent and Urban Form operations are included in our Corporate segment. We also have a Financial Services reporting segment. We have no inter-segment sales as all sales are to external customers.
Our reporting segments are as follows:
East
Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa
Central
Austin, Dallas, Denver, and Houston
West
Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial Services
Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services
Segment information is as follows (in thousands):
Three Months Ended March 31, 2023
FinancialServices
CorporateandUnallocated(1)
610,813
465,011
547,906
2,978
165,707
111,313
108,627
13,001
918
Selling, general and administrative expenses
(43,047
(36,956
(40,484
(38,534
(159,021
Net (loss)/income from unconsolidated entities
(82
(235
2,275
(29
Interest and other (expense)/income, net
(1,212
(1,341
3,779
4,719
5,945
Income/(loss) before income taxes
121,448
72,934
71,687
15,276
(32,926
Three Months Ended March 31, 2022
525,121
370,735
770,210
1,859
125,691
74,008
181,531
10,985
(40,326
(29,440
(43,519
(43,980
(157,265
85
(312
Interest and other income/(expense), net
(432
(1,860
(1,966
(536
(4,794
84,933
42,793
135,734
13,043
(43,603
1,837,715
1,292,465
2,430,780
5,560,960
49,359
108,706
80,958
6,711
49,021
158,939
255,225
589,270
271,726
1,245,312
2,520,472
2,046,013
1,656,396
3,101,008
278,437
1,294,333
1,820,765
1,359,805
2,453,662
5,634,232
46,629
104,070
80,310
5,283
46,608
216,816
251,727
613,029
431,535
1,040,485
2,553,592
2,084,210
1,715,602
3,147,001
436,818
1,087,093
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13. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Surety Bonds — We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $1.3 billion as of March 31, 2023 and $1.2 billion as of December 31, 2022. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding bonds as of March 31, 2023 will be drawn upon.
Purchase Commitments —We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in the routine conduct of our business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the property owner and its creditors generally have no recourse. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits. At both March 31, 2023 and December 31, 2022, the aggregate purchase price for these land option contracts and land banking arrangements was $1.5 billion.
Legal Proceedings — We are involved in various litigation and legal claims in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.
We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss can be reasonably estimated. At March 31, 2023 and December 31, 2022, our legal accruals were $17.5 million and $20.6 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. Predicting the ultimate resolution of the pending matters, the related timing, or the eventual loss associated with these matters is inherently difficult. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the recorded reserves relating to such matter. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.
On April 26, 2017, a class action complaint was filed in the Circuit Court of the Tenth Judicial Circuit in and for Polk County, Florida by Norman Gundel, William Mann, and Brenda Taylor against Avatar Properties, Inc. (an acquired AV Homes entity), generally alleging that our collection of club membership fees in connection with the use of one of our amenities in our East homebuilding segment violates various laws relating to homeowner associations and other Florida-specific laws. The class action complaint seeks an injunction to prohibit future collection of club membership fees. On November 2, 2021, the court determined that the club membership fees were improper and that plaintiffs were entitled to $35.0 million in fee reimbursements. We appealed the court’s ruling to the Second District Court of Appeal on November 29, 2021, and as of March 31, 2023, our appeal remained pending. Subsequent to March 31, 2023, oral arguments have been scheduled for May 2023.
Plaintiffs have agreed to continue to pay club membership fees pending the outcome of the appeal. We believe, based on our assessment and the opinion of external legal counsel, that the court’s legal interpretation constitutes legal error and the court incorrectly ruled on this matter. In accordance with ASC Topic 450, Contingencies, we evaluated the range of loss and the likelihood of each potential amount of loss within the range.
While the ultimate outcome and the costs associated with litigation are inherently uncertain and difficult to predict, in evaluating the potential outcomes, we believe the more likely outcome is that we win the appeal. This belief is based on our review of the legal merit of the judgement, as well as the opinion of external legal counsel. Accordingly, in assessing the range of possible loss, we believe the more likely outcome is that we win on appeal and will have zero liability.
Leases — Our leases primarily consist of office space, construction trailers, model home leasebacks, a ground lease, equipment, and storage units. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC 842, Leases. Lease obligations were $92.9 million and $100.2 million as of March 31, 2023 and December 31, 2022, respectively. We recorded lease expense of approximately $7.1 million and $6.9 million for the three months ended March 31, 2023, and 2022, within General and administrative expenses on our unaudited Condensed Consolidated Statement of Operations.
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14. MORTGAGE HEDGING ACTIVITIES
The following summarizes derivative instrument assets (liabilities) as of the periods presented:
Fair Value
Notional Amount (1)
445,752
375,030
502,000
504,000
1,381
3,476
Total commitments to originate loans approximated $496.5 million and $419.6 million as of March 31, 2023 and December 31, 2022, respectively. This amount represents the commitments to originate loans that have been locked and approved by underwriting. The notional amounts in the table above includes mandatory and best effort loans that have been locked and approved by underwriting.
We have exposure to credit loss in the event of contractual non-performance by our trading counterparties in derivative instruments that we use in our rate risk management activities. We manage this credit risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple counterparties, placing contractual limits on the amount of unsecured credit extended to any single counterparty, and entering into netting agreements with counterparties, as appropriate. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “the Company,” “we,” “us,” or “our” refer to Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries. The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements included elsewhere in this quarterly report.
Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business and operations strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “can,” “could,” “might,” “project” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (“Annual Report”) and in our subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”). Although we believe that these forward-looking statements are based upon reasonable assumptions and currently available information, you should be aware that many factors, including those described under the heading “Risk Factors” in the Annual Report and in our subsequent filings with the SEC, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.
Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law.
Business Overview
Our principal business is residential homebuilding and the development of lifestyle communities with operations across 11 states. We provide an assortment of homes across a wide range of price points to appeal to an array of consumer groups. We design, build and sell single and multi-family detached and attached homes in traditionally high growth markets for entry level, move-up, and 55-plus active lifestyle buyers. We operate under various brand names including Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade. We also have a “Build-to-Rent” homebuilding business which operates under the Yardly brand name. In addition, we develop and construct multi-use properties consisting of commercial space, retail, and multi-family properties under the Urban Form brand name. We also have operations which provide financial services to customers through our wholly owned mortgage subsidiary, TMHF, title services through our wholly owned title services subsidiary, Inspired Title, and homeowner’s insurance policies through our wholly owned insurance agency, TMIS. Our business as of March 31, 2023 is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West and Financial Services, as follows:
As of March 31, 2023, we employed approximately 2,700 full-time equivalent persons. Of these, approximately 2,300 were engaged in corporate and homebuilding operations, and the remaining approximately 400 were engaged in financial services.
First Quarter 2023 Highlights (all comparisons are of the current quarter to the prior year quarter, unless otherwise indicated):
Results of Operations
The following table sets forth our results of operations for the periods presented:
Statements of Operations Data:
Home closings gross margin
23.9
%
23.1
Sales, commissions and other marketing costs as a percentage of home closings revenue, net
5.8
5.4
General and administrative expenses as a percentage of home closings revenue, net
4.1
4.2
Non-GAAP Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we provide our investors with supplemental information relating to: (i) adjusted net income and adjusted earnings per common share, (ii) adjusted income before income taxes and related margin, (iii) adjusted home closings gross margin; (iv) EBITDA and adjusted EBITDA and (v) net homebuilding debt to capitalization ratio.
Adjusted net income, adjusted earnings per common share and adjusted income before income taxes and related margin are non-GAAP financial measures that reflect the net income/(loss) available to the Company excluding, to the extent applicable in a given period, the impact of inventory impairment charges, impairment of investment in unconsolidated entities, pre-acquisition abandonment charges, gains on land transfers and extinguishment of debt, net, and in the case of adjusted net income and adjusted earnings per common share, the tax impact due to such items. EBITDA and Adjusted EBITDA are non-GAAP financial measures that measure performance by adjusting net income before allocation to non-controlling interests to exclude, as applicable, interest expense/(income), net, amortization of capitalized interest, income taxes, depreciation and amortization (EBITDA), non-cash compensation expense, if any, inventory impairment charges, impairment of investment in unconsolidated entities, pre-acquisition abandonment charges, gains
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on land transfers and extinguishment of debt, net. Net homebuilding debt to capitalization ratio is a non-GAAP financial measure we calculate by dividing (i) total debt, plus unamortized debt issuance cost/(premium), net, and less mortgage warehouse borrowings, net of unrestricted cash and cash equivalents, by (ii) total capitalization (the sum of net homebuilding debt and total stockholders’ equity). Adjusted home closings gross margin is a non-GAAP financial measure based on GAAP home closings gross margin (which is inclusive of capitalized interest), excluding inventory impairment charges.
Management uses these non-GAAP financial measures to evaluate our performance on a consolidated basis, as well as the performance of our regions, and to set targets for performance-based compensation. We also use the ratio of net homebuilding debt to total capitalization as an indicator of overall leverage and to evaluate our performance against other companies in the homebuilding industry. In the future, we may include additional adjustments in the above-described non-GAAP financial measures to the extent we deem them appropriate and useful to management and investors.
We believe that adjusted net income, adjusted earnings per common share, adjusted income before income taxes and related margin, as well as EBITDA and adjusted EBITDA, are useful for investors in order to allow them to evaluate our operations without the effects of various items we do not believe are characteristic of our ongoing operations or performance and also because such metrics assist both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted EBITDA also provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, or unusual items. Because we use the ratio of net homebuilding debt to total capitalization to evaluate our performance against other companies in the homebuilding industry, we believe this measure is also relevant and useful to investors for that reason. We believe that adjusted home closings gross margin is useful to investors because it allows investors to
evaluate the performance of our homebuilding operations without the varying effects of items or transactions we do not believe are
characteristic of our ongoing operations or performance.
These non-GAAP financial measures should be considered in addition to, rather than as a substitute for, the comparable U.S. GAAP financial measures of our operating performance or liquidity. Although other companies in the homebuilding industry may report similar information, their definitions may differ. We urge investors to understand the methods used by other companies to calculate similarly-titled non-GAAP financial measures before comparing their measures to ours.
A reconciliation of (i) EBITDA and adjusted EBITDA and (ii) net homebuilding debt to capitalization ratio to the comparable GAAP measures is presented below. Because the company did not experience any material adjustments applicable to (i) adjusted net income and adjusted earnings per common share; (ii) adjusted income before income taxes and related margin; or (iii) adjusted home closings gross margin during the periods presented that would cause such measures to differ from the comparable GAAP measures, such measures have not been separately presented herein.
EBITDA and Adjusted EBITDA Reconciliation
Amortization of capitalized interest
27,649
30,430
1,790
1,930
EBITDA
276,747
269,512
Non-cash compensation expense
Adjusted EBITDA
284,280
276,375
Net income before allocation to non-controlling interests as a percentage of total revenue
11.5
10.5
EBITDA as a percentage of total revenue
16.7
15.8
Adjusted EBITDA as a percentage of total revenue
17.1
16.2
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Net Homebuilding Debt to Capitalization Ratio Reconciliation
($ in thousands)
As ofMarch 31, 2022
3,048,373
Plus: unamortized debt issuance cost/(premium), net
10,193
10,767
(2,311
Less: mortgage warehouse borrowings
(146,334
(306,072
(200,662
Total homebuilding debt
2,165,737
2,188,556
2,845,400
Total equity
Total capitalization
7,012,283
6,835,415
6,940,198
Total homebuilding debt to capitalization ratio
30.9
32.0
41.0
Less: cash and cash equivalents
(877,717
(724,488
(569,249
Net homebuilding debt
1,288,020
1,464,068
2,276,151
6,134,566
6,110,927
6,370,949
Net homebuilding debt to capitalization ratio
21.0
24.0
35.7
Three months ended March 31, 2023 compared to three months ended March 31, 2022
The results for the three months ended March 31, 2023 and 2022 were impacted by various macro economic conditions. The results for the three months ended March 31, 2022 were benefited from the increased housing demand and significant price appreciation which began in the second half of 2020, whereas the results for the three months ended March 31, 2023 were negatively impacted by reduced demand for housing. We believe the shift in housing demand has been driven by a rapid increase in mortgage interest rates, which followed significant home inflation in 2020 and 2021. Higher housing costs, as well as the speed of change in mortgage interest rates caused by the Federal Reserve’s actions to slow inflation, created affordability constraints for some consumers and reduced overall consumer confidence. This resulted in a reduction in net sales orders, as well as an increase in cancellations. In response, we began to adjust pricing, primarily by offering finance incentives, as well as discounts and other net pricing reductions. These pricing adjustments helped to drive an increase in gross sales orders and a gradual normalization in cancellations beginning in the quarter ended March 31, 2023. Because of enhanced operational efficiencies and the balanced mix of our sales between to-be-built and spec home sales, we have maintained a strong home closings gross margin even after reducing net pricing.Operational information related to each period is presented below:
Ending Active Selling Communities
As of March 31,
Change
106
121
(12.4
)%
98
(7.5
120
97
23.7
324
The total ending active selling communities remained flat at March 31, 2023 compared to March 31, 2022. The increase in the West is due to several master planned community openings. The East and Central regions experienced community close outs which were not more than offset by new community openings.
Net Sales Orders
Net Sales Orders (1)
Sales Value (1)
Average Selling Price
1,079
1,027
5.1
644,519
606,210
6.3
597
590
1.2
674
887
(24.0
384,830
583,279
(34.0
571
658
(13.2
1,101
1,140
(3.4
756,344
895,730
(15.6
687
786
(12.6
2,854
3,054
(6.5
1,785,693
2,085,219
(14.4
626
683
(8.3
22
Net sales orders and sales value decreased by 6.5% and 14.4%, for the three months ended March 31, 2023 compared to the same period in the prior year, respectively. We believe the decreases were primarily the result of the change in economic conditions and home buyer apprehensions due to rising mortgage interest rates over the past year. In addition, the decrease in average selling price is a result of an increase in our pricing incentives and/or discounts in certain markets which caused the overall average selling price to decrease for the three months ended March 31, 2023 compared to the same period in the prior year.
Sales Order Cancellations
Cancellation Rate(1)
9.3
4.8
18.0
6.6
7.5
Total Company
14.0
6.4
The total company cancellation rate increased for the three months ended March 31, 2023 compared to the same period in the prior year. The increase in cancellations is due primarily to increases in mortgage interest rates and buyer apprehensions given elevated macroeconomic uncertainty and affordability constraints for some consumers.
Sales Order Backlog
Sold Homes in Backlog (1)
Sales Value
2,658
3,309
(19.7
1,775,970
2,002,530
(11.3
668
605
10.4
1,660
3,010
(44.9
1,132,928
1,962,538
(42.3
682
652
4.6
1,949
3,081
(36.7
1,328,187
2,232,878
(40.5
681
725
(6.1
6,267
9,400
(33.3
4,237,085
6,197,946
(31.6
676
659
2.6
Total sold homes in backlog and total sales value decreased by 33.3% and 31.6% at March 31, 2023 compared to March 31, 2022, respectively. The decrease in sold homes in backlog is primarily the result of a decrease in net sales as well as an increase in cancellations. The average selling price of homes in backlog increased by 2.6% as a result of sales price appreciation over the past year, but is partially offset by the pricing incentives and/or discounts we began offering in the latter half of 2022.
Home Closings Revenue
Homes Closed
Home Closings Revenue, Net
1,004
937
7.2
601,611
505,998
18.9
599
540
10.9
731
664
10.1
463,394
368,575
25.7
634
555
14.2
806
1,167
(30.9
547,590
769,836
(28.9
679
660
2.9
2,541
2,768
(8.2
(1.9
635
594
6.9
The number of homes closed and homes closing revenue, net decreased by 8.2% and 1.9% for the three months ended March 31, 2023, compared to the same period in the prior year, respectively. The decrease in the number of homes closed is primarily due to less sales order backlog and an increase in cancellations in the current year period compared to the prior year period. Average selling price increased by 6.9% as a result of sales price appreciation which partially offset the impact of the decrease of home closings revenue, net, for the three months ended March 31, 2023, compared to the same period in the prior year.
23
Land Closings Revenue
2,903
13,440
(10,537
1,617
2,160
(543
(10
(11,090
We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. Land and lot sales occur at various intervals and varying degrees of profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending upon market opportunities and our land management strategy. The land closings revenue in the East for the three months ended March 31, 2022 was due to the sale of certain commercial assets as well as the sale of residential lots in our Florida market.
Amenity and Other Revenue
6,299
5,683
616
316
364
(48
Corporate
1,119
1,687
Several of our communities operate amenities such as golf courses, club houses, and fitness centers. We provide club members access to the amenity facilities and other services in exchange for club dues and fees. Our Corporate region also includes the activity relating to our Build-To-Rent and Urban Form operations.
Home Closings Gross Margin
Consolidated
436,446
381,946
352,229
295,057
438,838
587,971
165,165
124,052
111,165
73,518
108,752
181,865
385,082
379,435
Home closings gross margin %
27.5
24.5
19.9
23.6
Home closings gross margin increased 80 basis points to 23.9% for the three months ended March 31, 2023, compared to 23.1% in the comparable prior year period. We maintained an overall strong margin as a result of our mix of between to-be-built and spec home closings. The East and Central regions experienced price appreciation over the past several quarters which resulted in an increase in home closings gross margin which was partially offset by an increase in pricing incentives and/or discounts. The West region experienced a decrease in home closings gross margin as a result of pricing incentives or discounts above the company average. These pricing incentives or discounts were partially offset by limited price appreciation across several divisions in the region.
24
The following is a summary for the periods presented of our financial services income before income taxes as well as supplemental data:
Mortgage services revenue
25,603
27,715
(7.6
Title services and other revenues
9,546
7,484
27.6
Total financial services revenue
(0.1
Financial services net income from unconsolidated entities
37,424
37,257
0.4
(8.5
Financial services income before income taxes
Total originations:
Number of Loans
1,531
1,582
(3.2
718,279
688,665
4.3
Supplemental data:
Average FICO score
756
753
Funded origination breakdown:
Government (FHA,VA,USDA)
15.5
16.6
Other agency
79.8
80.0
Total agency
95.3
96.6
Non-agency
4.7
3.4
Total funded originations
100.0
Total financial services revenue was approximately $35 million for both the three months ended March 31, 2023 and 2022. Mortgage services revenue decreased for the three months ended March 31, 2023 compared to the same period in the prior year, which was nearly fully offset by an increase in title services and other revenues. The decrease in mortgage services revenue was due to fewer home mortgage originations, while an increase in the average selling price of homes closed increased title services revenue as title revenue is based on the home's sales price.
Sales, Commissions and Other Marketing Costs
Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, increased to 5.8% from 5.4% for the three months ended March 31, 2023 compared to the same period in the prior year. The increase was primarily due to the decrease in home closings revenue, net, and an increase in external commissions costs.
General and Administrative Expenses
General and administrative expenses as a percentage of home closings revenue, net, remained relatively flat for the three months ended March 31, 2023 compared to the same period in the prior year as a result of our continuous efforts to maintain stable operating costs.
Net Income from Unconsolidated Entities
Net income from unconsolidated entities was $1.9 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively. Our joint ventures relating to our financial services segment experienced an increase in income for the three months ended March 31, 2023 compared to the same period in the prior year.
25
Interest (Income)/Expense, Net
Interest income, net was $1.1 million for the three months ended March 31, 2023 and interest expense, net was $4.3 million for the three months ended March 31, 2022 . The net interest income for the three months ended March 31, 2023 was primarily due to an increase in interest income as a result of higher cash balances and an increase in the interest rates earned on such balances.
Other (Income)/Expense, Net
Other income, net was $4.8 million for the three months ended March 31, 2023 and other expense, net was $0.5 million for the three months ended March 31, 2022. The net other income in the current period was primarily related to a recovery on a previously written-off deposit as well as other income earned from non-core operations.
Income Tax Provision
Net Income
Net income and diluted earnings per share for the three months ended March 31, 2023 was $191.1 million and $1.74, respectively. Net income and diluted earnings per share for the three months ended March 31, 2022 was $176.7 million and $1.44, respectively. The increases in net income and diluted earnings per share from the prior year were primarily attributable to higher gross margin, higher interest and other income, and lower general and administrative expenses.
Liquidity and Capital Resources
Liquidity
We finance our operations through the following:
Cash flows for each of our communities depend on the status of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash expenditures for land acquisitions, on and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.
The three month period ended March 31, 2023 witnessed significant disruptions to the banking system and financial market volatility resulting from certain bank failures. While we maintained no accounts at any failed banks, substantially all of our cash currently on deposit with other major financial institutions exceeds insured limits. We limit exposure relating to our short-term financial instruments by diversifying these financial instruments among various counterparties, which consist of major financial institutions. Generally, deposits may be redeemed on demand and are maintained with financial institutions with reputable credit.
26
The table below summarizes our total cash and liquidity as of the dates indicated (in thousands):
Total cash, excluding restricted cash
$1 Billion Revolving Credit Facility availability
1,000,000
$100 Million Revolving Credit Facility availability
100,000
Letters of credit outstanding
(70,154
(69,249
Revolving Credit Facilities availability
1,029,846
1,030,751
Total liquidity
1,907,563
1,755,239
We believe we have adequate capital resources from cash generated from operations and sufficient access to external financing sources from borrowings under our Revolving Credit Facilities to conduct our operations for the next twelve months. Beyond the next twelve months, our primary demand for funds will be for payments of our long-term debt as it becomes due, land purchases, lot development, home and amenity construction, long-term capital investments, investments in our joint ventures, and repurchases of common stock. We believe we will generate sufficient cash from our operations to meet the demands for such payments, however we may also access the capital markets to obtain additional liquidity through debt and equity offerings or refinance debt to secure capital for such long-term demands. As part of our operations, we may also from time to time purchase our outstanding debt or equity through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt and/or purchases or equity, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Cash Flow Activities
Operating Cash Flow Activities
Our net cash provided by operating activities was $347.4 million for the three months ended March 31, 2023, compared to $57.5 million for the three months ended March 31, 2022. The increase in cash provided by operating activities is primarily driven by an increase in net income and a decrease in spend on real estate inventory and land deposits.
Investing Cash Flow Activities
Net cash used in investing activities was $24.6 million for the three months ended March 31, 2023, compared to $7.4 million for the three months ended March 31, 2022. The increase in cash used in investing activities was primarily due to an increase in capital investments into unconsolidated entities and an increase in the purchase of property and equipment.
Financing Cash Flow Activities
Net cash used in financing activities was $165.1 million for the three months ended March 31, 2023, compared to $315.5 million for the three months ended March 31, 2022. The decrease in cash used in financing activities was primarily due to lower net repayments on our Revolving Credit Facilities and mortgage warehouse facilities during the three months ended March 31, 2023 compared to the same period in the prior year as well as lower repurchases of common stock during the three months ended March 31, 2023 compared to the same period in the prior year.
For information regarding our debt instruments, including the terms governing our Senior Notes and our Credit Facilities, see Note 7 - Debt to the Unaudited Condensed Consolidated Financial Statements included in this quarterly report.
27
Off-Balance Sheet Arrangements as of March 31, 2023
Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities
We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. Our participation with these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital.
In certain of our unconsolidated joint ventures, the joint ventures enter into loan agreements, whereby we or one of our subsidiaries will provide the joint venture lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.
For the three months ended March 31, 2023 and 2022, total cash contributions to unconsolidated joint ventures were $11.1 million and $2.1 million, respectively.
Land Option Contracts and Land Banking Agreements
We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in our routine business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors of the property owner generally have no recourse to the Company. Our exposure with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. At both March 31, 2023 and December 31, 2022, the aggregate purchase price for land under these contracts was $1.5 billion.
Seasonality
Our business is seasonal. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a higher portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:
28
As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect for the full year.
Inflation
We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of mortgage financing to prospective homebuyers. We attempt to pass through to our customers increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2023 compared to those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.
29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At March 31, 2023, approximately 94% of our debt was fixed rate and 6% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Revolving Credit Facilities and to borrowings by TMHF under its various mortgage warehouse facilities. As of March 31, 2023, we had no outstanding borrowings under our Revolving Credit Facilities. We had approximately $1.0 billion of additional availability for borrowings under the Credit Facilities including $129.8 million of additional availability for letters of credit under our $1 Billion Revolving Credit Facility as of March 31, 2023 (giving effect to $70.2 million of letters of credit outstanding as of such date).
The London Interbank Offered Rate (“LIBOR”) was the primary basis for determining interest payments on borrowings under each of our mortgage warehouse facilities and our Revolving Credit Facilities. On March 5, 2021, ICE Benchmark Administration (“IBA”) confirmed it would cease publication of Overnight, 1, 3, 6 and 12 month US Dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023. The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the New York Federal Reserve, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended risk-free alternative rate for US Dollar LIBOR. In response to the planned discontinuation of LIBOR, our warehouse facilities agreements for facilities A, C, D, and E as well as our Revolving Credit Facilities have been restructured to begin using SOFR as the basis for determining interest rates. The agreement for warehouse facility B was also restructured to use the Bloomberg Short-Term Bank Yield Index (“BSBY”) as the primary basis for determining interest payments. The BSBY index is a proprietary index calculated daily as a credit sensitive supplement to manage the spread between funding costs and earned interest on loans. At this time, it is not possible to predict the full effect that the anticipated discontinuance of LIBOR, or the establishment of alternative reference rates such as SOFR and BSBY, will have on us or our borrowing costs. SOFR and BSBY are relatively new reference rates and their composition and characteristics are not the same as LIBOR. Given the limited history of these rates and potential volatility as compared to other benchmark or market rates, the future performance of these rates cannot be predicted based on historical performance. The consequences of using SOFR and BSBY could include an increase in the cost of our variable rate indebtedness.
We are required to offer to purchase all of our outstanding senior unsecured notes, as described in Note 7, Debt to the unaudited Condensed Consolidated Financial Statements included in this quarterly report, at 101% of their aggregate principal amount plus accrued and unpaid interest upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, we would not expect interest rate risk and changes in fair value to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.
The following table sets forth principal payments by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of March 31, 2023. The interest rate for our variable rate debt represents the interest rate on our mortgage warehouse facilities. Because the mortgage warehouse facilities are secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.
Expected Maturity Date
(In millions, except percentage data)
2024
2025
2026
2027
Thereafter
FairValue
Fixed Rate Debt
152.5
422.8
60.2
33.2
538.9
958.1
2,165.7
2,106.8
Weighted average interest rate(1)
5.5
5.6
5.2
Variable Rate Debt(2)
146.3
Weighted average interest rate
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, as of March 31, 2023 our principal executive officer, principal financial officer and principal accounting officer concluded that our disclosure controls and procedures were effective in alerting them in a timely manner to material information required to be disclosed in our periodic and other reports filed with the SEC.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required with respect to this item can be found in Note 13 - Commitments and Contingencies under “Legal Proceedings” in the Notes to the unaudited Condensed Consolidated Financial Statements included in this quarterly report.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report. These risk factors may materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report and the other information set forth elsewhere in this quarterly report. You should be aware that these risk factors and other information may not describe every risk facing our Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth information regarding repurchases by the Company of its Common Stock during the three months ended March 31, 2023.
Period
Totalnumber ofsharespurchased
Average price paidper share
Total number of sharespurchased as part ofpublicly announced plans or programs
Approximate dollarvalue of shares that mayyet be purchased underthe plans or programs(in thousands)
January 1 to January 31, 2023
102,725
32.58
275,791
February 1 to February 28, 2023
6,600
33.56
March 1 to March 31, 2023
On May 31, 2022, we announced that our Board of Directors had authorized the repurchase of up to $500.0 million of the Company's Common Stock through December 31, 2023. Repurchases of the Company's Common Stock under the program will occur from time to time, if at all, in open market purchases, privately negotiated transactions or other transactions.
Any stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, statutory requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. The program does not require us to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
On March 1, 2023, our board of directors approved an amendment and restatement of our By-laws. Among other things, the amendments update certain provisions of Article 3, Sections 3.3 and 3.4 regarding the procedure and disclosure required in connection with stockholder director nominations, including to address newly adopted Rule 14a-19 of the Exchange Act, as amended. Such updates include, without limitation, requiring a nominating stockholder to represent whether it intends to solicit proxies in accordance with Rule 14a-19 and to provide reasonable evidence that it has satisfied Rule 14a-19, along with background information and disclosures regarding, among other things, nominating stockholders, proposed director candidates, and other persons related to a stockholder’s solicitation of proxies.
ITEM 6. EXHIBITS
Exhibit
No.
Description
3.1
Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 30, 2019).
3.2
Amended and Restated By-laws (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 7, 2023).
31.1*
Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
31.2*
Certification of Louis Steffens, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
32.1**
Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
32.2**
Certification of Louis Steffens, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
101.INS*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in inline XBRL (and contained in Exhibit 101).
* Filed herewith
** Furnished herewith
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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.
Registrant
DATE:
April 26, 2023
/s/ Sheryl D. Palmer
Sheryl D. Palmer
Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)
/s/ Louis Steffens
Louis Steffens
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Joseph Terracciano
Joseph Terracciano
Chief Accounting Officer
(Principal Accounting Officer)