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TRI Pointe Homes, Inc. Reports 2014 Fourth Quarter and Full Year Results

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TRI Pointe Homes, Inc. (NYSE:TPH) today announced results for the fourth quarter and full year ended December 31, 2014.

On July 7, 2014, TRI Pointe consummated the previously announced merger with Weyerhaeuser Real Estate Company (“WRECO”). Before the merger, WRECO was an indirect wholly-owned subsidiary of Weyerhaeuser Company engaged in homebuilding and related activities through five operating subsidiaries. The merger was accounted for as a “reverse acquisition” of TRI Pointe by WRECO. As a result, legacy TRI Pointe’s financial results are only included in the combined company’s financial statements from the closing date forward and are not reflected in the combined company’s historical financial statements, except for legacy TRI Pointe’s common stock. Accordingly, legacy TRI Pointe’s financial results are not included in the Generally Accepted Accounting Principles (“GAAP”) results for any periods prior to the closing.

The Company has appended Supplemental Combined Company Information to this press release to provide supplemental financial and operational information of the combined company that is “Adjusted” to include legacy TRI Pointe’s standalone operations for the relevant periods prior to the merger.

GAAP Results and Operational Data for Fourth Quarter 2014 and Comparisons to Fourth Quarter 2013

  • Income from continuing operations was $41.4 million, or $0.26 per diluted share compared to a loss from continuing operations of $(179.6) million, or $(1.38) per diluted share
  • New home orders increased to 714 compared to 521, an increase of 37%
  • Active selling communities averaged 105.6 compared to 90.1
    • New home orders per average selling community were 6.8 orders (2.25 monthly) compared to 5.8 orders (1.93 monthly)
    • Cancellation rate decreased to 17% compared to 21%
  • Backlog units of 1,032 homes with a dollar value increase of 29% to $653.1 million
    • Average sales price in backlog increased 12% to $633,000
  • Home sales revenue of $623.0 million, an increase of 31%
    • New home deliveries of 1,122, up 5%
    • Average sales price of homes delivered grew 26% to $555,000
  • Homebuilding gross margin percentage of 19.9%
    • Excluding noncash purchase accounting adjustments and interest, our adjusted homebuilding gross margin percentage was 22.7%*
  • SG&A expense as a percentage of homes sales revenue improved to 8.9% compared to 9.8%
  • Ratio of net debt to capital of 40.6% at December 31, 2014 improved from 51.0% at December 31, 2013*
  • Cash of $170.6 million and availability under unsecured revolving credit facility of $153 million

GAAP Results and Operational Data for Full Year 2014 and Comparisons to Full Year 2013

  • Income from continuing operations was $84.2 million, or $0.58 per diluted share compared to a loss from continuing operations of $(151.3) million, or $(1.17) per diluted share
  • New home orders decreased to 2,947 compared to 3,055
  • Home sales revenue of $1.6 billion, an increase of 35%
    • New home deliveries of 3,100, up 5%
    • Average sales price of homes delivered grew 28% to $531,000
  • Homebuilding gross margin percentage of 19.9%
    • Excluding noncash purchase accounting adjustments and interest, our adjusted homebuilding gross margin percentage was 22.8%*
  • SG&A expense as a percentage of homes sales revenue improved to 11.3% compared to 13.9%

* See “Reconciliation of Non-GAAP Financial Measures”

“We are pleased with the progress we made in the fourth quarter and full year 2014,” commented Douglas F. Bauer, TRI Pointe’s Chief Executive Officer. “Over the last year, TRI Pointe has transformed itself from a regional builder with limited size and scope to a more diversified company with a portfolio of six homebuilding brands building in ten of the best markets in the country. The integration of the WRECO homebuilders is complete, and now we are extremely excited about building a market leading culture that will be recognized for market share and for being a top performer. With our Company’s collective goals now in alignment, we can focus our attention on the spring selling season and work towards unlocking the full potential of our combined company. Those efforts are off to a good start so far this year, as net orders for January and February were up 59% compared to the combined orders of legacy TRI Pointe and the WRECO homebuilders for the same two months last year.”

Mr. Bauer continued, “To better reflect the new size and scope of our organization, we are pleased to announce the rebranding of the Company to TRI Pointe Group. The rebrand to TRI Pointe Group not only signifies a new name, but also a new national company comprised of 6 premium regional homebuilders. We plan to reorganize our corporate structure with a new holding company parent to be named TRI Pointe Group. We expect to complete the reorganization in the second quarter of 2015. The TRI Pointe Group stock ticker will remain ‘TPH.’ The TRI Pointe Homes brand will continue its homebuilding operations in California and Colorado as a wholly owned subsidiary of the TRI Pointe Group.”

GAAP Fourth quarter 2014 operating results

Income from continuing operations was $41.4 million, or $0.26 per diluted share in the fourth quarter of 2014, compared to a loss from continuing operations of $(179.6) million, or $(1.38) per diluted share for the fourth quarter of 2013. Results for the fourth quarter in 2013 include a $343.3 million impairment and lot abandonment charge for Coyote Springs, a large master planned community north of Las Vegas, Nevada. Under the terms of the WRECO transaction, certain assets and liabilities of WRECO and its subsidiaries were excluded from the transaction and retained by Weyerhaeuser, including assets and liabilities relating to Coyote Springs. Income from continuing operations for the fourth quarter of 2014 was impacted by $6.3 million of expenses related to noncash purchase accounting adjustments, restructuring charges and other expenses related to the merger. Excluding these items, net of tax, income from continuing operations would have been $45.2 million*, or $0.28* per diluted share.

Home sales revenue increased $149.1 million to $623.0 million for the fourth quarter of 2014, as compared to $473.8 million for the same period in 2013. The increase was attributable to the addition of legacy TRI Pointe’s operations at the closing date of the merger and a 26% increase in the Company’s average sales price of homes delivered to $555,000. The increase in the average sales price was primarily attributable to the addition of legacy TRI Pointe which had an average sales price of homes delivered of $816,000 for the quarter ended December 31, 2014, with no comparable amounts in the prior year period, as well as increases in most of our other reporting segments due to a shift in mix as well as price appreciation in certain markets.

New home orders increased to 714 homes for the fourth quarter of 2014, as compared to 521 homes for the same period in 2013. In addition, average active selling communities increased to 105.6 as compared to 90.1 for the same period in the prior year, mainly due to the addition of legacy TRI Pointe. The Company’s overall absorption rate per average selling community for the three months ended December 31, 2014 was 6.8 orders (2.25 monthly) compared to 5.8 orders (1.93 monthly) during the same period in 2013.

The Company ended the year with 1,032 homes in backlog, representing approximately $653.1 million in future home sales revenue. The average sales price of homes in backlog as of December 31, 2014 increased $68,000, or 12%, to $633,000 compared to $565,000 at December 31, 2013. The increase in average sales price of homes in backlog was primarily attributable to the addition of legacy TRI Pointe which had an average sales price of homes in backlog of $793,000 as of December 31, 2014, as well as increases in all of our other reporting segments.

Homebuilding gross margin percentage for the fourth quarter of 2014 decreased to 19.9% compared to 23.0% for the same period in 2013, but is up sequentially from 18.3% in the prior quarter. This decrease was partially due to a $4.3 million or a 70 basis point noncash purchase accounting adjustment as result of the merger. Excluding interest in cost of home sales and the noncash purchase accounting adjustments, adjusted homebuilding gross margin percentage was 22.7%* for the fourth quarter of 2014 versus 25.0%* for the same period in 2013.

Selling, general and administrative expense for the fourth quarter of 2014 improved to 8.9% of home sales revenue as compared to 9.8% for the same period in 2013. The decrease in the selling, general and administrative expense ratio was primarily attributable to higher leverage from increased home sales revenue due to the addition of legacy TRI Pointe and the increase in average sales price of homes delivered from all but one of our reporting segments, along with cost savings achieved by the reduction of duplicate corporate and divisional overhead costs and expenses.

Thomas J. Mitchell, President and Chief Operating Officer, said, “After another quarter of successful integration and transition, we now have a dynamic platform to grow our business and capitalize on our unique land position and improving market conditions. While each of our homebuilding brands will continue to maintain their own unique identities, they now operate under a shared operating strategy that will maximize the returns of our stockholders. We believe that the combination of this operating strategy and our strong local management teams will yield significant benefits that go beyond the operational leverage we’ve already realized.”

The following Non-GAAP and adjusted operational information is “Adjusted” to include legacy TRI Pointe’s operations for all periods prior to the merger. No other adjustments have been made to this information, which is purely informational and does not purport to be indicative of what would have happened had the merger occurred as of the beginning of the period presented, nor is it indicative of results that may occur in the future, nor does it include any synergies of the combined company. Please refer to the Reconciliation of Non-GAAP Financial Measures and Supplemental Combined Company Information appended to this press release.

Non-GAAP and Adjusted Operational Information for Fourth Quarter 2014 and Comparisons to Fourth Quarter 2013

  • Non-GAAP diluted earnings per share was $0.28* for the fourth quarter excluding expenses related to noncash purchase accounting adjustments, restructuring expenses and transaction expenses related to the merger
  • New home orders increased to 714 compared to 609, an increase of 17%
  • Active selling communities averaged 105.6 compared to 98.4
    • New home orders per average selling community were 6.8 orders (2.25 monthly) compared to 6.2 orders (2.06 monthly)
    • Cancellation rate decreased to 17% compared to 20%
  • Backlog units of 1,032 homes with a dollar value of $653.1 million
    • Average sales price in backlog increased 7% to $633,000
  • Home sales revenue of $623.0 million, an increase of 5%
    • New home deliveries of 1,122, down 9%
    • Average sales price of homes delivered grew 16% to $555,000

Non-GAAP and Adjusted Operational Information for Full Year 2014 and Comparisons to Full Year 2013

  • Non-GAAP diluted earnings per share was $0.79* for the full year excluding expenses related to noncash purchase accounting adjustments, restructuring expenses and transaction expenses related to the merger
  • New home orders decreased to 3,283 compared to 3,532
  • Home sales revenue of $1.8 billion, an increase of 23%
    • New home deliveries of 3,297, down 1%
    • Average sales price of homes delivered grew 25% to $548,000

* See “Reconciliation of Non-GAAP Financial Measures”

Outlook

For the first quarter of 2015, the Company anticipates delivering approximately 55% to 60% of its 1,032 units in backlog as of December 31, 2014. In addition, the Company expects to open 15 new communities, and close out of six, resulting in 117 active selling communities as of March 31, 2015.

For the full year 2015, the Company expects to grow communities by 15-20% and increase new home deliveries by 25% over the 2014 combined deliveries of legacy TRI Pointe and the WRECO homebuilders. However, The Company began the year with lower margins in backlog than previously anticipated due to softer home sales in the fourth quarter. The lower margins, combined with a more conservative outlook regarding the timing of certain land sales and the uncertainty of the Houston market, has resulted in the Company adjusting its 2015 outlook for earnings per diluted share to a range of $1.15 to $1.30 from the previous range of $1.25 to $1.40.

Earnings Conference Call

The Company will host a conference call via live webcast for investors and other interested parties beginning at 10:00 a.m. Eastern Time on Tuesday, March 3, 2015. The call will be hosted by Doug Bauer, Chief Executive Officer, Tom Mitchell, Chief Operating Officer and Mike Grubbs, Chief Financial Officer.

Interested parties can listen to the call live on the internet through the Investor Relations section of the Company’s website at www.TRIPointeGroup.com. Listeners should go to the website at least 15 minutes prior to the call to download and install any necessary audio software. The call can also be accessed by dialing 1-877-407-3982 for domestic participants or 1-201-493-6780 for international participants. Participants should ask for the TRI Pointe Homes Fourth Quarter and Full Year 2014 Earnings Conference Call. Those dialing in should do so at least ten minutes prior to the start. The replay of the call will be available from approximately 1:00 p.m. Eastern Time on March 3, 2015 through 11:59 p.m. Eastern Time on November 17, 2015. To access the replay, the domestic dial-in number is 1-877-870-5176, the international dial-in number is 1-858-384-5517, and the pass code is 13600025. An archive of the webcast will be available on the Company’s website for a limited time.

About TRI Pointe Homes, Inc.

Headquartered in Irvine, California, TRI Pointe Homes, Inc. (NYSE:TPH) is one of the top ten largest public homebuilders by equity market capitalization in the United States. The company designs, constructs and sells premium single-family homes through its portfolio of six quality brands across eight states, including Maracay Homes in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado, and Winchester Homes in Maryland and Virginia. Additional information is available at www.tripointegroup.com.

Forward-Looking Statements

Various statements contained in this presentation, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects, our ability to achieve the anticipated benefits of the Weyerhaeuser Real Estate Company (WRECO) transaction and our future production, operational and financial results, financial condition, prospects, and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal,” “will,” or other words that convey future events or outcomes. The forward-looking statements in this presentation speak only as of the date of this presentation, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. These forward-looking statements are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. The following factors, among others, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements: the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar; market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions; levels of competition; the successful execution of our internal performance plans, including restructuring and cost reduction initiatives; global economic conditions; raw material prices; oil and other energy prices; the effect of weather; the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters; transportation costs; federal and state tax policies; the effect of land use, environment and other governmental regulations; legal proceedings; risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects; the risk that disruptions from the WRECO transaction will harm our business; our ability to achieve the benefits of the WRECO transaction in the estimated amount and the anticipated timeframe, if at all; our ability to integrate WRECO successfully and to achieve the anticipated synergies therefrom; changes in accounting principles; our relationship, and actual and potential conflicts of interest, with Starwood Capital Group or its affiliates; and additional factors discussed under the sections captioned “Risk Factors” included in our annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”). The foregoing list is not exhaustive. New risk factors may emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business.

KEY OPERATIONS AND FINANCIAL DATA

(dollars in thousands)

(unaudited)

Three Months Ended Year Ended
December 31, December 31,
2014 2013 Change 2014 2013 Change
Operating Data:
Home sales $ 622,962 $ 473,832 $ 149,130 $ 1,646,274 $ 1,218,430 $ 427,844
Homebuilding gross margin $ 123,722 $ 109,157 $ 14,565 $ 327,657 $ 268,150 $ 59,507
Homebuilding gross margin % 19.9 % 23.0 % (3.1 )% 19.9 % 22.0 %

(2.1 )%
Adjusted homebuilding gross margin %* 22.7 % 25.0 % (2.3 )% 22.8 % 24.2 % (1.4 )%
SG&A expense $ 55,737 $ 46,216 $ 9,521 $ 185,973 $ 168,765 $ 17,208
SG&A expense as a % of home sales 8.9 % 9.8 % (0.8 )% 11.3 % 13.9 % (2.6 )%
Net income $ 41,426 $ (178,166

)

$ 219,592 $ 84,197 $ (149,455 ) $ 233,652
Adjusted EBITDA* $ 92,294 $ 87,408 $ 4,886 $ 250,787 $ 179,525 $ 71,262
Interest incurred $ 15,988 $ 6,326 $ 9,662 $ 41,706 $ 22,674 $ 19,032
Interest expense, net of interest capitalized $ $ 1,387 $ (1,387

)

$ 2,731 $ 3,593 $ (862 )
Interest in cost of home sales $ 12,012 $ 8,529 $ 3,483 $ 28,354 $ 25,584 $ 2,770
Other Data:
Net new home orders 714 521 193 2,947 3,055 (108 )
New homes delivered 1,122 1,072 50 3,100 2,939 161
Average selling price of homes delivered $ 555 $ 442 113 $ 531 $ 415 116
Average selling communities (QTD) 105.6 90.1 15.5 N/A N/A N/A
Average selling communities (YTD) N/A N/A N/A 99.1 85.5 13.6
Selling communities at end of period 108 89 19 108 89 19
Cancellation rate 17 % 21 % (4 )% 16 % 15 % 1 %
Backlog (estimated dollar value) $ 653,096 $ 507,064 146,032
Backlog (homes) 1,032 897 135
Average selling price in backlog $ 633 $ 565 68
December 31, December 31,
2014 2013 Change
Balance Sheet Data:
Cash and cash equivalents $ 170,629 $ 4,510 $ 166,119
Real estate inventories $ 2,280,183 $ 1,465,526 $ 814,657
Lots owned and controlled 29,718 27,613 2,105

Homes under construction(1)

1,887 1,300 587
Debt $ 1,162,179 $ 834,589 $ 327,590
Stockholder equity $ 1,452,075 $ 797,096 $ 654,979
Book capitalization $ 2,614,254 $ 1,631,685 $ 982,569
Ratio of debt-to-capital 44.5 % 51.1 % (6.7 )%
Ratio of net debt-to-capital* 40.6 % 51.0 % (10.4 )%
(1) Homes under construction includes completed homes
*

See “Reconciliation of Non-GAAP Financial Measures”

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

Year Ended December 31,
2014 2013
Assets
Cash and cash equivalents $ 170,629 $ 4,510
Receivables 20,118 60,397
Real estate inventories 2,280,183 1,465,526
Investments in unconsolidated entities 16,805 20,923
Goodwill and other intangible assets, net 160,784 6,494
Deferred tax assets 153,513 288,983
Other assets 104,198 63,631
Total Assets $ 2,906,230 $ 1,910,464
Liabilities
Accounts payable $ 68,860 $ 59,676
Accrued expenses and other liabilities 204,820 190,682
Notes payable and other borrowings 274,677
Senior notes 887,502
Debt payable to Weyerhaeuser 834,589
Total Liabilities 1,435,859 1,084,947
Equity
Stockholders’ Equity:

Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of December 31, 2014 and 2013, respectively

Common stock, $0.01 par value, 500,000,000 shares authorized; 161,355,490 and 129,700,000 shares issued and outstanding at December 31, 2014 and 2013, respectively

1,624 1,297
Additional paid-in capital 904,044 333,589
Retained earnings 546,407 462,210
Total Stockholders’ Equity 1,452,075 797,096
Noncontrolling interests 18,296 28,421
Total Equity 1,470,371 825,517
Total Liabilities and Equity $ 2,906,230 $ 1,910,464

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
Revenues:
Home sales $ 622,962 $ 473,832 $ 1,646,274 $ 1,218,430
Land and lot sales 11,211 12,768 47,660 52,261
Other operations 828 893 9,682 4,021
Total revenues 635,001 487,493 1,703,616 1,274,712
Expenses:
Cost of home sales 497,990 363,878 1,316,470 948,561
Cost of land and lot sales 7,525 7,219 37,560 38,052
Other operations 586 549 3,324 2,854
Impairments and lot option abandonments 1,391 344,203 2,515 345,448
Sales and marketing 30,504 29,085 103,600 94,521
General and administrative 25,233 17,131 82,373 74,244
Restructuring charges 1,341 7,487 10,543 10,938
Total expenses 564,570 769,552 1,556,385 1,514,618
Income (loss) from operations 70,431 (282,059 ) 147,231 (239,906 )
Equity in (loss) income of unconsolidated entities (69 ) (165 ) (288 ) 2
Transaction expenses (744 ) (17,960 )
Other income (expense), net (777 ) 711 (1,019 ) 2,450
Income (loss) from continuing operations before taxes 68,841 (281,513 ) 127,964 (237,454 )
(Provision) benefit for income taxes (27,415 ) 101,893 (43,767 ) 86,161
Income (loss) from continuing operations 41,426 (179,620 ) 84,197 (151,293 )
Discontinued operations, net of income taxes 1,454 1,838
Net income (loss) $ 41,426 $ (178,166 ) $ 84,197 $ (149,455 )
Earnings per share
Basic
Continuing operations $ 0.26 $ (1.38 ) $ 0.58 $ (1.17 )
Discontinued operations 0.01 0.02
Net earnings per share $ 0.26 $ (1.37 ) $ 0.58 $ (1.15 )
Diluted
Continuing operations $ 0.26 $ (1.38 ) $ 0.58 $ (1.17 )
Discontinued operations 0.01 0.02
Net earnings per share $ 0.26 $ (1.37 ) $ 0.58 $ (1.15 )
Weighted average shares outstanding
Basic 161,345,594 129,700,000 145,044,351 129,700,000
Diluted 162,208,756 129,700,000 145,531,289 129,700,000

MARKET DATA

(dollars in thousands)

(unaudited)

Three Months Ended December 31, Year Ended December 31,
2014 2013 2014 2013
Homes Avg. Selling Homes Avg. Selling Homes Avg. Selling Homes Avg. Selling
Delivered Price Delivered Price Delivered Price Delivered Price
New Homes Delivered:
Maracay 110 $ 392 191 $ 338 396 $ 381 463 $ 315
Pardee 374 455 450 426 1,032 471 1,183 404
Quadrant 101 452 107 354 320 420 363 320
Trendmaker 157 504 146 461 561 496 585 445
TRI Pointe 246 816

404 803
Winchester 134 627 178 631 387 705 345 631
Total 1,122 $ 555 1,072 $ 442 3,100 $ 531 2,939 $ 415
Three Months Ended December 31, Year Ended December 31,
2014 2013 2014 2013
New Average New Average New Average New Average
Home Selling Home Selling Home Selling Home Selling
Orders Communities Orders Communities Orders Communities Orders Communities
Net New Home Orders:
Maracay 72 16.5 69 14.3 385 16.4 488 12.8
Pardee 177 20.5 189 19.0 970 20.2 1,152 17.9
Quadrant 51 10.3 62 13.0 337 12.2 354 12.2
Trendmaker 121 25.5 123 21.5 557 24.0 649 22.0
TRI Pointe 207 21.8 359 9.2
Winchester 86 11.0 78 22.3 339 17.1 412 20.6
Total 714 105.6 521 90.1 2,947 99.1 3,055 85.5

MARKET DATA Continued

(dollars in thousands)

(unaudited)

December 31, 2014 December 31, 2013
Backlog Average Backlog Average
Backlog Dollar Selling Backlog Dollar Selling
Units Value Price Units Value Price
Backlog:

Maracay 105 $ 40,801 $ 389 116 $ 42,068 $ 363
Pardee 218 147,044 675 280 171,077 611
Quadrant 113 51,568 456 96 44,262 461
Trendmaker 218 114,948 527 222 108,491 489
TRI Pointe 243 192,802 793
Winchester 135 105,933 785 183 141,166 771
Total 1,032 $ 653,096 $ 633 897 $ 507,064 $ 565
December 31, December 31,
Lots Owned and Controlled: 2014 2013
Maracay 1,985 2,307

Pardee(2)

17,639 18,976
Quadrant 1,544 1,384
Trendmaker 2,073 1,753
TRI Pointe 3,726
Winchester 2,751 3,193
Total 29,718 27,613
Lots by Ownership Type:
Lots owned 25,535 22,716

Lots controlled(1)

4,183 4,897
Total 29,718 27,613
(1) As of December 31, 2014 and 2013, lots controlled included lots that were under land option contracts or purchase contracts.
(2) As of December 31, 2013, excludes 10,686 lots owned and 56,413 lots controlled relating to Coyote Springs, which were excluded assets per the transaction agreement governing the WRECO merger.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited)

In this earnings release, we utilize certain financial measures that are non-GAAP financial measures as defined by the Securities and Exchange Commission. We present these measures because we believe they and similar measures are useful to management and investors in evaluating the company’s operating performance and financing structure. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with Generally Accepted Accounting Principles (“GAAP”), they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The following table reconciles homebuilding gross margin percentage, as reported and prepared in accordance with GAAP, to the non-GAAP measure adjusted homebuilding gross margin percentage. We believe this information is meaningful as it isolates the impact that leverage has on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion.

Three Months Ended
December 31,
2014 % 2013 %
(dollars in thousands)
Home sales $ 622,962 100.0 % $ 473,832 100.0 %
Cost of home sales 497,990 79.9 % 363,878 76.8 %
Homebuilding impairments and lot option abandonments 1,250 0.2 % 797 0.2 %
Homebuilding gross margin 123,722 19.9 % 109,157 23.0 %
Add: interest in cost of home sales 12,012 1.9 % 8,529 1.8 %
Add: impairments and lot option abandonments 1,250 0.2 % 797 0.2 %
Add: purchase accounting adjustments 4,264 0.7 % 0.0 %
Adjusted homebuilding gross margin $ 141,248 22.7 % $ 118,483 25.0 %
Homebuilding gross margin percentage 19.9 % 23.0 %
Adjusted homebuilding gross margin percentage 22.7 % 25.0 %
Year Ended
December 31,
2014 % 2013 %
(dollars in thousands)
Home sales $ 1,646,274 100.0 % $ 1,218,430 100.0 %
Cost of home sales 1,316,470 80.0 % 948,561 77.9 %
Homebuilding impairments and lot option abandonments 2,147 0.1 % 1,719 0.1 %
Homebuilding gross margin 327,657 19.9 % 268,150 22.0 %
Add: interest in cost of home sales 28,354 1.7 % 25,584 2.1 %
Add: impairments and lot option abandonments 2,147 0.1 % 1,719 0.1 %
Add: purchase accounting adjustments 17,225 1.1 % 0.0 %
Adjusted homebuilding gross margin $ 375,383 22.8 % $ 295,453 24.2 %
Homebuilding gross margin percentage 19.9 % 22.0 %
Adjusted homebuilding gross margin percentage 22.8 % 24.2 %

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(unaudited)

The following table reconciles the Company’s ratio of debt-to-capital to the ratio of net debt-to-capital. We believe that the ratio of net debt-to-capital is a relevant financial measure for management and investors to understand the leverage employed in our operations and as an indicator of the Company’s ability to obtain financing.

December 31,
2014 2013
(dollars in thousands)
Notes payable and other borrowings $ 274,677 $
Senior Notes 887,502
Debt payable to Weyerhaeuser 834,589
Total debt 1,162,179 834,589
Stockholders’ equity 1,452,075 797,096
Total capital $ 2,614,254 $ 1,631,685
Ratio of debt-to-capital(1) 44.5 % 51.1 %
Total debt $ 1,162,179 $ 834,589
Less: cash (170,629 ) (4,510 )
Net debt 991,550 830,079
Stockholders’ equity 1,452,075 797,096
Total capital $ 2,443,625 $ 1,627,175
Ratio of net debt-to-capital(2) 40.6 % 51.0 %
(1) The ratio of debt-to-capital is computed as the quotient obtained by dividing debt by the sum of debt plus equity.
(2) The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is debt less cash and cash equivalents) by the sum of net debt plus equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(unaudited)

The following table calculates the non-GAAP measures of EBITDA and Adjusted EBITDA and reconciles those amounts to net income (loss), as reported and prepared in accordance with GAAP. EBITDA means net income (loss) before (a) interest expense, (b) income taxes, (c) depreciation and amortization, (d) expensing of previously capitalized interest included in costs of home sales and (e) amortization of stock-based compensation. Adjusted EBITDA means EBITDA before (f) noncash purchase accounting adjustments, (g) restructuring expenses, (h) transaction related expenses and (i) impairment and lot option abandonments. Other companies may calculate EBITDA and Adjusted EBITDA (or similarly titled measures) differently. We believe EBITDA and Adjusted EBITDA is useful as measures of the Company’s ability to service debt and obtain financing.

Three Months Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
(in thousands)
Net income (loss) $ 41,426 $ (178,166 ) $ 84,197 $ (149,455 )
Interest expense:
Interest incurred 15,988 6,326 41,706 22,674
Interest capitalized (15,988 ) (4,939 ) (38,975 ) (19,081 )
Amortization of interest in cost of sales 12,296 8,822 52,747 36,671
Provision (benefit) for income taxes 27,415 (101,893 ) 43,767 (86,161 )
Depreciation and amortization 1,987 4,270 11,423 13,489
Amortization of stock-based compensation 1,430 1,298 7,679 5,002
EBITDA 84,554 (264,282 ) 202,544 (176,861 )
Noncash purchase accounting adjustments 4,264 17,225
Restructuring charges 1,341 7,487 10,543 10,938
Transaction expenses 744 17,960
Impairments and lot option abandonments 1,391 344,203 2,515 345,448
Adjusted EBITDA $ 92,294 $ 87,408 $ 250,787 $ 179,525

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(unaudited)

The following table reconciles net income and diluted earnings per share, as reported and prepared in accordance with GAAP, to the non-GAAP measure of net income and diluted earnings per share excluding noncash purchase accounting adjustments, restructuring charges and transaction expenses associated with the merger. We believe that this non-GAAP measure provides useful information to investors regarding our performance due to the fact that it excludes expenses that do not relate to our core operations.

Three Months Ended Year Ended
December 31, 2014 December 31, 2014
Net Income Diluted EPS Net Income Diluted EPS
(in thousands, except per share amounts)
GAAP measure $ 41,426 $ 0.26 $ 84,197 $ 0.58
Noncash purchase accounting adjustments 4,264 0.03 17,225 0.12
Restructuring charges 1,341 0.01 10,543 0.07
Transaction expenses 744 0.00 17,960 0.13
Tax impact (2,528 ) (0.02 ) (15,640 ) (0.11 )
Non-GAAP measure $ 45,247 $ 0.28 $ 114,285 $ 0.79

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)

SUPPLEMENTAL COMBINED COMPANY INFORMATION
(unaudited)

The merger with Weyerhaeuser Real Estate Company (“WRECO”) was accounted for as a “reverse acquisition” of TRI Pointe by WRECO in accordance with ASC Topic 805, “Business Combinations.” As a result, legacy TRI Pointe’s financial results are not included in the combined company’s GAAP results for any period prior to July 7, 2014, the closing date of the merger. This schedule provides certain supplemental financial and operations information of the combined company that is “Adjusted” to include legacy TRI Pointe stand-alone operations. No other adjustments have been made to the supplemental combined company information provided and this information is summary only and may not necessarily be indicative of the results had the merger occurred at the beginning of the periods presented or the financial condition to be expected for the remainder of the year or any future date or period.

The following schedule provides certain supplemental financial and operations information of the combined company that is “Adjusted” to include legacy TRI Pointe stand-alone operations for the three month period ending December 31, 2013 as though the WRECO merger was completed on January 1, 2013.

Three Months Ended
December 31, 2014 December 31, 2013
Combined Legacy Combined Combined Legacy Combined
Reported Adjustments Adjusted Reported Adjustments Adjusted
Supplemental Operating Data: (dollars in thousands)
Home sales revenue $ 622,962 NA $ 622,962 $ 473,832 $ 118,976 $ 592,808
Net new home orders 714 NA 714 521 88 609
New homes delivered 1,122 NA 1,122 1,072 166 1,238
Average selling price of homes delivered $ 555 NA $ 555 $ 442 $ 717 $ 479
Average selling communities 105.6 NA 105.6 90.1 8.3 98.4
Selling communities at end of period 108 NA 108 89 10 99
Cancellation rate 17 % NA 17 % 21 % 16 % 20 %
Backlog (estimated dollar value) $ 653,096 NA $ 653,096 $ 507,064 $ 111,566 $ 618,630
Backlog (homes) 1,032 NA 1,032 897 149 1,046
Average selling price in backlog 633 NA 633 565 749 591

SUPPLEMENTAL COMBINED COMPANY INFORMATION (continued)
(unaudited)

The following schedule provides supplemental unaudited financial information of the combined company that is “Adjusted” to include legacy TRI Pointe stand-alone financial results for (i) the period from January 1, 2014 through July 7, 2014 and (ii) the twelve months ended December 31, 2013.

Year Ended
December 31, 2014 December 31, 2013
Combined Legacy Combined Combined Legacy Combined
Reported Adjustments Adjusted Reported Adjustments Adjusted
Supplemental Operating Data: (dollars in thousands)
Home sales revenue $ 1,646,274 $ 162,107 $ 1,808,381 $ 1,218,430 $ 247,091 1,465,521
Net new home orders 2,947 336 3,283 3,055 477 3,532
New homes delivered 3,100 197 3,297 2,939 396 3,335
Average selling price of homes delivered $ 531 $ 823 $ 548 $ 415 $ 624 $ 439
Average selling communities 99.1 NA 99.1 85.5 7.4 92.9
Selling communities at end of period 108 NA 108 89 10 99
Cancellation rate 16 % NA 16 % 15 % 10 % 14 %

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