Edgar Filing: Taylor Morrison Home Corp

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019



¨	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 Scottsdale, Arizona		85251
(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)

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 ý 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 ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	ý	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 ý

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 May 1, 2019
Class A common stock, $0.00001 par value		107,368,829

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TAYLOR MORRISON HOME CORPORATION

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements of Taylor Morrison Home Corporation (Unaudited)	2

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	2

Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2019 and 2018	3

Condensed Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2019 and 2018	4

Condensed Consolidated Statement of Stockholders’ Equity for the three month periods ended March 31, 2019 and 2018	5

Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2019 and 2018	7

Notes to the Unaudited Condensed Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3. Quantitative and Qualitative Disclosures About Market Risk	39

Item 4. Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	41

Item 1A. Risk Factors	41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3. Defaults Upon Senior Securities	41

Item 4. Mine Safety Disclosures	41

Item 5. Other Information	41

Item 6. Exhibits	42

SIGNATURES	44

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)



	March 31, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	171,982		$	329,645
Restricted cash	1,824			2,214
Total cash, cash equivalents, and restricted cash	173,806			331,859
Owned inventory	4,101,283			3,965,306
Real estate not owned	14,893			15,259
Total real estate inventory	4,116,176			3,980,565
Land deposits	55,063			57,929
Mortgage loans held for sale	103,705			181,897
Derivative assets	3,470			1,838
Operating lease right of use assets	29,378			—
Prepaid expenses and other assets, net	94,459			98,225
Other receivables, net	92,585			86,587
Investments in unconsolidated entities	138,334			140,541
Deferred tax assets, net	145,076			145,076
Property and equipment, net	85,275			86,736
Intangible assets, net	961			1,072
Goodwill	152,116			152,116
Total assets	$	5,190,404		$	5,264,441
Liabilities
Accounts payable	$	143,082		$	151,586
Accrued expenses and other liabilities	250,277			266,686
Operating lease liabilities	32,497			—
Customer deposits	176,902			165,432
Estimated development liability	37,104			37,147
Senior notes, net	1,653,459			1,653,746
Loans payable and other borrowings	192,764			225,497
Revolving credit facility borrowings	235,000			200,000
Mortgage warehouse borrowings	59,114			130,353
Liabilities attributable to real estate not owned	14,893			15,259
Total liabilities	2,795,092			2,845,706
COMMITMENTS AND CONTINGENCIES (Note 16)
Stockholders’ Equity
Class A common stock, $0.00001 par value, 400,000,000 shares authorized, 124,997,685 and 124,519,942 shares issued, 109,066,720 and 112,965,856 shares outstanding as of March 31, 2019 and December 31, 2018, respectively	1			1
Class B common stock, $0.00001 par value, 200,000,000 shares authorized. Zero shares issued and outstanding as of March 31, 2019 and December 31, 2018.	—			—
Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of March 31, 2019 and December 31, 2018	—			—
Additional paid-in capital	2,073,542			2,071,579
Treasury stock at cost, 15,930,963 and 11,554,084 shares as of March 31, 2019 and December 31, 2018, respectively	(263,926		)	(186,087		)
Retained earnings	578,829			527,698
Accumulated other comprehensive income	2,285			2,001
Total stockholders’ equity attributable to Taylor Morrison Home Corporation	2,390,731			2,415,192
Non-controlling interests – joint ventures	4,581			3,543
Total stockholders’ equity	2,395,312			2,418,735
Total liabilities and stockholders’ equity	$	5,190,404		$	5,264,441

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)



	Three Months Ended March 31,
	2019			2018
Home closings revenue, net	$	899,881		$	732,959
Land closings revenue	4,113			5,168
Financial services revenue	16,044			14,206
Amenity and other revenue	5,054			—
Total revenue	925,092			752,333
Cost of home closings	735,797			594,906
Cost of land closings	2,692			4,281
Financial services expenses	10,721			10,044
Amenity and other expenses	3,842			—
Total cost of revenue	753,052			609,231
Gross margin	172,040			143,102
Sales, commissions and other marketing costs	67,429			53,698
General and administrative expenses	36,454			33,318
Equity in income of unconsolidated entities	(2,319		)	(3,246		)
Interest income, net	(333		)	(343		)
Other (income)/expense, net	(1,392		)	437
Transaction expenses	4,129			—
Income before income taxes	68,072			59,238
Income tax provision	16,791			11,706
Net income before allocation to non-controlling interests	51,281			47,532
Net income attributable to non-controlling interests — joint ventures	(150		)	(129		)
Net income before non-controlling interests	51,131			47,403
Net income attributable to non-controlling interests	—			(2,470		)
Net income available to Taylor Morrison Home Corporation	$	51,131		$	44,933
Earnings per common share
Basic	$	0.46		$	0.42
Diluted	$	0.46		$	0.41
Weighted average number of shares of common stock:
Basic	110,512			107,195
Diluted	111,668			114,767

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)



	Three Months Ended March 31,
	2019			2018
Income before non-controlling interests, net of tax	$	51,281		$	47,532
Post-retirement benefits adjustments, net of tax	(284		)	—
Comprehensive income	50,997			47,532
Comprehensive income attributable to non-controlling interests — joint ventures	(150		)	(129		)
Comprehensive income attributable to non-controlling interests	—			(2,470		)
Comprehensive income available to Taylor Morrison Home Corporation	$	50,847		$	44,933

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)



	Common Stock
	Class A				Class B			Additional Paid-in Capital			Treasury Stock				Stockholders' Equity
	Shares		Amount		Shares	Amount		Amount			Shares	Amount			Retained Earnings		Accumulated Other Comprehensive Income		Non-controlling Interest - Joint Venture			Total Stockholders’ Equity
Balance – December 31, 2018	112,965,856		$	1	—	$	—	$	2,071,579		11,554,084	$	(186,087	)	$	527,698	$	2,001	$	3,543		$	2,418,735
Net income	—		—		—	—		—			—	—			51,131		—		150			51,281
Other comprehensive income	—		—		—	—		—			—	—			—		284		—			284
Exercise of stock options	3,176		—		—	—		39			—	—			—		—		—			39
Issuance of restricted stock units, net of shares withheld for tax	474,567		—		—	—		(1,493		)	—	—			—		—		—			(1,493		)
Repurchase of Class A common stock	(4,376,879	)	—		—	—		—			4,376,879	(77,839		)	—		—		—			(77,839		)
Stock Compensation Expense	—		—		—	—		3,417			—	—			—		—		—			3,417
Distributions to non-controlling interests of consolidated joint ventures	—		—		—	—		—			—	—			—		—		(17		)	(17		)
Changes in non-controlling interests of consolidated joint ventures	—		—		—	—		—			—	—			—		—		905			905
Balance – March 31, 2019	109,066,720		$	1	—	$	—	$	2,073,542		15,930,963	$	(263,926	)	$	578,829	$	2,285	$	4,581		$	2,395,312

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)



	Common Stock
	Class A			Class B				Additional Paid-in Capital			Treasury Stock				Stockholders' Equity
	Shares	Amount		Shares		Amount		Amount			Shares	Amount			Retained Earnings		Accumulated Other Comprehensive Loss			Non-controlling Interest - Joint Venture			Non-controlling Interests			Total Stockholders’ Equity
Balance – December 31, 2017	82,399,996	$	1	37,179,616		$	—	$	1,341,873		3,049,257	$	(47,622	)	$	319,833	$	(17,968	)	$	1,663		$	748,765		$	2,346,545
Cumulative-effect adjustment to Retained Earnings, net of tax related to adoption of ASU No. 2014-09 (see Note 2)	—	—		—		—		—			—	—			1,983		—			—			—			1,983
Net income	—	—		—		—		—			—	—			44,933		—			129			2,470			47,532
Exchange of New TMM Units and corresponding number of Class B Common Stock	15,000	—		(15,000	)	—		1,265			—	—			—		—			—			(1,265		)	—
TMHC repurchase and cancellation of New TMM Units from Former Principal Equityholders	—	—		(7,588,771	)	—		(201,775		)	—	—			—		—			—			—			(201,775		)
Exercise of stock options	37,060	—		—		—		580			—	—			—		—			—			—			580
Issuance of restricted stock units	149,217	—		—		—		(1,482		)	—	—			—		—			—			—			(1,482		)
Exchange of B shares from public offerings	28,706,924	—		—		—		730,112			—	—			—		—			—			—			730,112
Repurchase of New TMM Units from Former Principal Equityholders	—	—		(28,706,924	)	—		—			—	—			—		—			—			(730,963		)	(730,963		)
Share based compensation	—	—		—		—		3,359			—	—			—		—			—			184			3,543
Changes in non-controlling interests of consolidated joint ventures	—	—		—		—		—			—	—			—		—			(445		)	—			(445		)
Balance – March 31, 2018	111,308,197	$	1	868,921		$	—	$	1,873,932		3,049,257	$	(47,622	)	$	366,749	$	(17,968	)	$	1,347		$	19,191		$	2,195,630

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



	Three Months Ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before allocation to non-controlling interests	$	51,281		$	47,532
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Equity in income of unconsolidated entities	(2,319		)	(3,246		)
Stock compensation expense	3,417			3,543
Distributions of earnings from unconsolidated entities	2,435			541
Depreciation and amortization	7,765			5,015
Operating lease expense	2,065			—
Debt issuance costs/premium amortization	(71		)	878
Contingent consideration	—			146
Deferred income taxes	—			106
Changes in operating assets and liabilities:
Real estate inventory and land deposits	(133,111		)	(120,004		)
Mortgages held for sale, prepaid expenses and other assets	42,670			78,862
Customer deposits	11,470			37,294
Accounts payable, accrued expenses and other liabilities	(13,896		)	(59,494		)
Income taxes payable	—			9,532
Net cash (used in)/provided by operating activities	(28,294		)	705
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(6,194		)	(2,695		)
Distributions of capital from unconsolidated entities	3,180			492
Investments of capital into unconsolidated entities	(1,089		)	(2,118		)
Net cash used in investing activities	(4,103		)	(4,321		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans payable and other borrowings	2,066			1,823
Repayments of loans payable and other borrowings	(13,078		)	(2,884		)
Borrowings on revolving credit facility	35,000			—
Borrowings on mortgage warehouse	159,522			145,925
Repayment on mortgage warehouse	(230,761		)	(223,225		)
Payment of contingent consideration	—			(265		)
Proceeds from stock option exercises	39			580
Proceeds from issuance of shares from public offerings	—			767,116
TMHC repurchase and cancellation of New TMM Units from Former Principal Equityholders	—			(201,775		)
Repurchase of shares from Former Principal Equityholders	—			(767,967		)
Repurchase of common stock, net	(77,839		)	—
Payment of taxes related to net share settlement of equity awards	(1,493		)	(1,482		)
Changes to non-controlling interests of consolidated joint ventures, net	888			(445		)
Net cash used in financing activities	(125,656		)	(282,599		)
NET DECREASE IN CASH AND CASH EQUIVALENTS	$	(158,053	)	$	(286,215	)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period	331,859			575,503
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period	$	173,806		$	289,288
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net	$	(1	)	$	(2,069	)
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in loans payable issued to sellers in connection with land purchase contracts	$	11,120		$	7,829
Change in inventory not owned	$	(366	)	$	(517	)
Change in Prepaid expenses and other assets, net due to adoption of ASU 2014-09	$	—		$	(32,004	)
Change in Property and equipment, net due to adoption of ASU 2014-09	$	—		$	32,004
Beginning Operating lease right of use assets due to adoption of ASU 2016-02	$	27,384		$	—
Beginning Operating lease right of use liabilities due to adoption of ASU 2016-02	$	30,331		$	—

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Organization and 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 developer of lifestyle communities. As of March 31, 2019, we operated in the states of Arizona, California, Colorado, Florida, Georgia, Illinois, North and South Carolina, and Texas. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury, and active adult. Our homebuilding segments operate under our Taylor Morrison and Darling Homes brand names. 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. The communities in our homebuilding segments offer single and multi-family attached and detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and land development. Our Financial Services segment provides financial services to customers through our wholly owned mortgage subsidiary, operating as Taylor Morrison Home Funding, LLC (“TMHF”), and title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”).

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, 2018 (the “Annual Report”). 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.

Non-controlling interests – Represents the amount of income attributable to our former principal equityholders for the quarter ended March 31, 2018 on the Condensed Consolidated Statement of Operations. As of March 31, 2018, the former principal equityholders no longer held any ownership interest in the Company.

Non-controlling interests - 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 - joint ventures” on the Condensed Consolidated Statements of Operations.

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 Condensed Consolidated Financial Statements and accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, 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 sales at the time of home closing using the specific identification method. Land acquisition, development, interest, real estate taxes and overhead are allocated to homes and units using the relative sales value method. 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. 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.

We capitalize qualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to cost of sales when the related inventory is charged to cost of sales.

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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 by community during each reporting period. If indicators of impairment are present for a community, we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the expected undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, then the assets are deemed to be impaired and are recorded at fair value as of the assessment date. 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. 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, 2019 and 2018, 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. 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 subjective 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, 2019 and December 31, 2018 we had no inactive projects.

In the ordinary course of business, we enter into various specific performance agreements to acquire lots. Real estate not owned under these agreements is reflected in Real estate not owned with a corresponding liability in Liabilities attributable to real estate not owned in the Condensed Consolidated Balance Sheets.

Investments in Unconsolidated Entities — We evaluate our investments in unconsolidated entities for indicators of impairment. 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 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, our intent and ability to recover our investment in the unconsolidated entity, financial condition and long-term prospects of the unconsolidated 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 the Company believes that the decline in the fair value of the investment is temporary, then no impairment is recorded. We did not record any impairment charges for the three months ended March 31, 2019 or 2018.

Leases — We adopted Accounting Standards Update (“ASU”) No. 2016-02—Leases (Topic 842), as amended, on January 1, 2019, using the modified retrospective approach. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the hindsight practical expedient to determine the lease term for existing leases.

Our leases primarily consist of office space, construction trailers, model leasebacks, and equipment or storage units. Certain of our leases offer the option to renew or to increase rental square footage. The execution of such options are at our discretion and may result in a lease modification.

Adoption of the new standard resulted in the recording of an opening balance of Operating lease right of use assets and Operating lease liabilities of approximately $27.4 million and $30.3 million, respectively. The weighted average discount rate used in determining our operating lease liabilities is 5.795%. Payments on the lease liabilities for the three months ended March 31, 2019 were approximately $2.0 million. For the three months ended March 31, 2019, we recorded lease expense of approximately $2.1 million within General and administrative expenses on our condensed consolidated statement of operations.

The future minimum lease payments required under our leases as of March 31, 2019 are as follows (dollars in thousands):

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Years Ending December 31,	Lease Payments⁽¹⁾
2019⁽¹⁾	$	7,314
2020	7,906
2021	7,050
2022	5,728
2023	4,701
Thereafter	9,069
Total lease payments	$	41,768
Less: Interest	$	9,271
Present value of lease liabilities.	$	32,497

⁽¹⁾Lease payments for the period beginning April 1, 2019 through December 31, 2019.

Revenue Recognition

Topic 606

We recognize revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or “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 the proper home closings revenue and land closings revenue recognition: (1) we identify the contract(s) with our customer; (2) we identify the performance obligations in the contract; (3) we determine the transaction price; (4) we allocate the transaction price to the performance obligations in the contract; and (5) we recognize revenue when (or as) we satisfy the performance obligation. For our home sales transactions, we 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 home and land sales revenue:


•	Revenue from closings of residential real estate is recognized when closings have occurred, the buyer has made the required minimum down payment, obtained necessary financing, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow. Revenue is reported net of any discounts and incentives.


•	Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

Amenity and other revenue

We own and operate certain amenities pursuant to recorded mandatory club plans, which require us to provide club members with access to amenity facilities in exchange for the payment of club dues. We collect club dues and other fees from the club members, which are billed on a monthly basis. Revenue from our golf club operations is also included in amenity revenue.

Financial services revenue

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, 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 loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale. Also included in financial services revenue/expenses are realized and unrealized gain and losses from hedging instruments.

3. BUSINESS COMBINATIONS

In accordance with ASC Topic 805, Business Combinations, all material assets acquired and liabilities assumed from our acquisition of AV homes on October 2, 2018, were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid.

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We determined the estimated fair value of real estate inventory primarily using the sales comparison and income approaches. To a certain extent, certain inventory was valued using third party appraisals and/or market comparisons. The sales comparison approach was used for all inventory in process. The income approach derives a value using a discounted cash flow for income-producing real property. This approach was used exclusively for finished lots. These estimated cash flows and ultimate valuation are significantly affected by the discount rate, estimates related to expected average selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, overhead costs and may vary significantly between communities.

We performed a preliminary allocation of purchase price as of the acquisition date. The following is a summary of the fair value of assets acquired and liabilities assumed.



(Dollars in thousands)	AV Homes
Acquisition Date	October 2, 2018
Assets acquired
Real estate inventory	$	778,174
Prepaid expenses and other assets⁽¹⁾	106,612
Deferred tax assets, net	71,411
Property and equipment	50,996
Goodwill⁽²⁾	85,918
Total assets	$	1,093,111

Less liabilities assumed
Accrued expenses and other liabilities	$	94,308
Customer deposits	14,130
Estimated development liability	37,230
Senior notes, net	412,520
Net assets acquired	$	534,923

⁽¹⁾ Includes cash acquired.

⁽²⁾Goodwill is not deductible for tax purposes. We allocated $45.1 million of goodwill to the East homebuilding segment, $30.3 million to the Central homebuilding segment, and $10.5 million to the West homebuilding segment.

Unaudited Pro Forma Results of Business Combinations

The following unaudited pro forma information for the periods presented include the results of operations of our acquisition of AV Homes as if it had been completed on January 1, in the year prior to our acquisition year. The pro forma results are presented for informational purposes only and do not purport to be indicative of the results of operations or future results that would have been achieved if the acquisition had taken place one year prior to the acquisition year. The pro forma information combines the historical results of the Company with the historical results of AV Homes for the periods presented.

The unaudited pro forma results do not give effect to any synergies, operating efficiencies, other costs savings that may result from the acquisitions, or other significant non-reoccurring expenses or transactions that do not have a continuing impact. Earnings per share utilizes net income and total weighted average shares of common stock. The pro forma amounts are based on available information and certain assumptions that we believe are reasonable.

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	As Adjusted for the three months ended March 31,
(Dollars in thousands except per share data)	2019 (As reported)			2018 (Pro forma)
Total revenues	$	925,092		$	904,341

Net income	$	51,281		$	45,189
Net income attributable to non-controlling interests — joint ventures	(150		)	(129		)
Net income attributable to non-controlling interest - Former Principal Equityholders	—			(2,470		)
Net income available to TMHC - Basic	$	51,131		$	42,590
Net income attributable to non-controlling interest - Former Principal Equityholders	—			2,470
Loss fully attributable to public holding company	—			165
Net income - Diluted	$	51,131		$	45,225

Weighted average shares - Basic	110,512			116,319
Weighted average shares - Diluted	111,668			123,890

Earnings per share - Basic	$	0.46		$	0.37
Earnings per share - Diluted	$	0.46		$	0.37

4. 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 Class A 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 Class A 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):



	Three months ended March 31,
	2019		2018
Numerator:
Net income available to TMHC – basic	$	51,131	$	44,933
Net income attributable to non-controlling interest	—		2,470
Loss fully attributable to public holding company	—		165
Net income – diluted	$	51,131	$	47,568
Denominator:
Weighted average shares – basic	110,512		107,195
Weighted average shares – non-controlling interest	—		5,849
Restricted stock units	922		1,126
Stock Options	234		597
Weighted average shares – diluted	111,668		114,767
Earnings per common share – basic:
Net income available to Taylor Morrison Home Corporation	$	0.46	$	0.42
Earnings per common share – diluted:
Net income available to Taylor Morrison Home Corporation	$	0.46	$	0.41

We excluded a total weighted average of 3,060,096 and 481,705 outstanding anti-dilutive stock options and unvested restricted stock units (“RSUs”) from the calculation of earnings per share for the three months ended March 31, 2019 and 2018, respectively.

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5. REAL ESTATE INVENTORY AND LAND DEPOSITS

Inventory consists of the following (in thousands):



	As of
	March 31, 2019		December 31, 2018
Real estate developed and under development	$	2,857,408	$	2,833,875
Real estate held for development or held for sale⁽¹⁾	72,118		61,415
Operating communities ⁽²⁾	1,064,839		973,985
Capitalized interest	106,918		96,031
Total owned inventory	4,101,283		3,965,306
Real estate not owned	14,893		15,259
Total real estate inventory	$	4,116,176	$	3,980,565

⁽¹⁾ Real estate held for development or held for sale includes properties which are not in active production. This includes raw land recently purchased or awaiting entitlement and properties where we have ceased development and/or marketing.

⁽²⁾ Operating communities consist of all vertical construction costs relating to homes in progress and completed homes for all active production of inventory.

The development status of our land inventory is as follows (dollars in thousands):



	As of
	March 31, 2019			December 31, 2018
	Owned Lots	Book Value of Land and Development		Owned Lots	Book Value of Land and Development
Raw	8,524	$	367,988	9,653	$	461,387
Partially developed	13,492	867,855		12,036	756,376
Finished	21,621	1,693,683		21,975	1,677,527
Total	43,637	$	2,929,526	43,664	$	2,895,290

Land Deposits — We provide deposits related to land options and land purchase contracts, which are capitalized when paid and classified as land deposits until the associated property is purchased.

As of March 31, 2019 and December 31, 2018, we had the right to purchase 4,136 and 4,781 lots under land option purchase contracts, respectively, for an aggregate purchase price of $310.9 million and $393.8 million, respectively. We do not have title to the properties, and the creditors generally have no recourse against the Company. As of March 31, 2019 and December 31, 2018, our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of non-refundable deposits totaling $55.1 million and $57.9 million, respectively.

Capitalized Interest — Interest capitalized, incurred and amortized is as follows (in thousands):



	Three Months Ended March 31,
	2019			2018
Interest capitalized - beginning of period	$	96,031		$	90,496
Interest incurred	27,792			19,686
Interest amortized to cost of home closings	(16,905		)	(14,848		)
Interest capitalized - end of period	$	106,918		$	95,334

6. INVESTMENTS IN UNCONSOLIDATED ENTITIES

We have investments in a number of joint ventures with related and unrelated third parties, with ownership interests up to 50.0%. These entities are generally involved in real estate development, homebuilding and/or mortgage lending activities.

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Some of these joint ventures develop land for the sole use of the joint venture participants, including us, and others develop land for sale to both the joint venture participants and to 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.

Summarized, unaudited combined financial information of unconsolidated entities that are accounted for by the equity method is as follows (in thousands):



	As of
	March 31, 2019		December 31, 2018
Assets:
Real estate inventory	$	452,964	$	508,795
Other assets	138,806		125,436
Total assets	$	591,770	$	634,231
Liabilities and owners’ equity:
Debt	$	193,901	$	176,564
Other liabilities	16,178		16,061
Total liabilities	210,079		192,625
Owners’ equity:
TMHC	138,334		140,541
Others	243,357		301,075
Total owners’ equity	381,691		441,616
Total liabilities and owners’ equity	$	591,770	$	634,241



	Three Months Ended March 31,
	2019			2018
Revenues	$	61,016		$	59,074
Costs and expenses	(52,820		)	(47,332		)
Income of unconsolidated entities	$	8,196		$	11,742
TMHC’s share in income of unconsolidated entities	$	2,319		$	3,246
Distributions to TMHC from unconsolidated entities	$	5,615		$	1,033

7. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):



	As of March 31, 2019		As of December 31, 2018
Real estate development costs to complete	$	15,044	$	16,591
Compensation and employee benefits	38,663		73,955
Self-insurance and warranty reserves	87,887