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What changed in Tri Pointe Homes, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Tri Pointe Homes, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+256 added−269 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-21)

Top changes in Tri Pointe Homes, Inc.'s 2023 10-K

256 paragraphs added · 269 removed · 203 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

25 edited+5 added−2 removed118 unchanged
Biggest changeBased upon these factors and in consideration of the geographical layout of our homebuilding markets, we have identified three homebuilding operating and reporting segments, and as a result of such change, beginning in the quarter ended March 31, 2021, our homebuilding segments are reported under the following hierarchy: West region: Arizona, California, Nevada and Washington Central region: Colorado and Texas East region: District of Columbia, Maryland, North Carolina, South Carolina and Virginia Our financial services operation (Tri Pointe Solutions) is a reportable segment and is comprised of our Tri Pointe Connect mortgage financing operations, Tri Pointe Assurance title and escrow services operations, and Tri Pointe Advantage property and casualty insurance agency operations.
Biggest changeBased upon these factors and in consideration of the geographical layout of our homebuilding markets, we have identified three homebuilding operating and reporting segments: West region: Arizona, California, Nevada and W ashington Central region: Colorado and Texas East region: District of Columbia, Maryland, North Carolina, South Carolina and Virginia In September 2023, we announced our expansion into the greater Salt Lake City region with the launch of a new division in Utah.
We believe that a diverse staff brings diverse ideas to the table, and promote diversity by seeking to foster an open and inclusive work environment. Our commitment to diversity does not constitute a representation that we have achieved, or will achieve, a workforce comprised of specific percentages of racial, ethnic, gender, sexual orientation or - 12 - other characteristics.
We believe that a diverse staff brings diverse ideas to the table, and promote diversity by seeking to foster an open and inclusive work environment. Our commitment to diversity does not constitute a representation that we - 12 - have achieved, or will achieve, a workforce comprised of specific percentages of racial, ethnic, gender, sexual orientation or other characteristics.
For purposes of this annual report on Form 10-K, the results of our homebuilding operations are organized into the three reportable segments of which our operations consisted during the year ended December 31, 2022: West Region: Arizona, California, Nevada and Washington Central Region: Colorado and Texas East R egion: District of Columbia, Maryland, North Carolina, South Carolina and Virginia Our growth strategy is to capitalize on high demand in selected “core” markets with favorable population and employment growth as a result of proximity to job centers or primary transportation corridors.
For purposes of this annual report on Form 10-K, the results of our homebuilding operations are organized into the three reportable segments of which our operations consisted during the year ended December 31, 2023: West Region: Arizona, California, Nevada and Washington Central Region: Colorado and Texas East R egion: District of Columbia, Maryland, North Carolina, South Carolina and Virginia Our growth strategy is to capitalize on high demand in selected “core” markets with favorable population and employment growth as a result of proximity to job centers or primary transportation corridors.
We expect all of our backlog at December 31, 2022 to be converted to deliveries and revenues during 2023, net of cancellations. For information concerning backlog units, the dollar value and average sales price by segment, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this annual report on Form 10-K.
We expect all of our backlog at December 31, 2023 to be converted to deliveries and revenues during 2024, net of cancellations. For information concerning backlog units, the dollar value and average sales price by segment, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this annual report on Form 10-K.
Our general contractor, real estate broker, mortgage financing joint venture, title agency, and insurance agency operations are subject to licensing and regulation in the jurisdictions in which they operate. Consequently, they are subject to net worth, bonding, disclosure, record-keeping and other requirements. Failure to comply with applicable requirements could result in loss of license, financial penalties, or other sanctions.
Our general contractor, real estate broker, mortgage financing operations, title agency, and insurance agency operations are subject to licensing and regulation in the jurisdictions in which they operate. Consequently, they are subject to net worth, bonding, disclosure, record-keeping and other requirements. Failure to comply with applicable requirements could result in loss of license, financial penalties, or other sanctions.
Homebuyer Financing, Title, Escrow and Homeowners Insurance Services We seek to assist our homebuyers in obtaining financing by arranging with mortgage lenders to offer qualified homebuyers a variety of financing options. Substantially all homebuyers utilize long-term mortgage financing to purchase a home and mortgage lenders will usually make loans only to qualified borrowers.
Homebuyer Financing, Title, Escrow and Homeowners Insurance Services We seek to assist our homebuyers in obtaining financing by arranging with mortgage lenders to offer qualified homebuyers a variety of financing options. Substantially all homebu yers utilize long-term mortgage financing to purchase a home and mortgage lenders will usually make loans only to qualified borrowers.
Although cancellations can delay the sale of our homes, they have historically not had a material - 8 - impact on our operating results. The cancellation rate of homebuyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 19% and 8% for the years ended December 31, 2022 and 2021, respectively.
Although cancellations can delay the sale of our homes, they have historically not had a material - 8 - impact on our operating results. The cancellation rate of homebuyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 10% and 19% for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2022, we had no outstanding debt related to our unsecured revolving credit facility (the “Revolving Facility”) and $250 million in outstanding debt related to a term loan facility (the “Term Facility” and together with the Revolving Facility, the “Credit Facility”).
As of December 31, 2023, we had no outstanding debt related to our unsecured revolving credit facility (the “Revolving Facility”) and $250 million in outstanding debt related to a term loan facility (the “Term Facility” and together with the Revolving Facility, the “Credit Facility”).
Homes in backlog are generally delivered within seven to ten months from the time the sales contract is entered into, although we may experience cancellations of sales contracts prior to delivery. The dollar value of backlog was approximately $1.2 billion and $2.2 billion as of December 31, 2022 and 2021, respectively.
Homes in backlog are generally delivered within seven to ten months from the time the sales contract is entered into, although we may experience cancellations of sales contracts prior to delivery. The dollar value of backlog was approximately $1.6 billion and $1.2 billion as of December 31, 2023 and 2022, respectively.
Further, due to shortages of components, such as electronic chips that are commonly used in appliances and other building materials, as well as lingering supply chain disruptions associated with the COVID-19 pandemic, we have experienced and may continue to experience delays in our supply chain.
Further, due to shortages of components, such as electronic chips that are commonly used in appliances and other building materials, as well as lingering supply chain disruptions associated with the COVID-19 pandemic, shipping delays, factory downtime, and other factors, we have experienced and may continue to experience delays in our supply chain.
The following table presents certain information with respect to our lots owned or controlled as of December 31, 2022.
The following table presents certain information with respect to our lots owned or controlled as of December 31, 2023.
As of December 31, 2022, we owned 407 model homes that were either completed or under construction, including seven homes in backlog. We frequently build model homes at our projects and have them professionally decorated to display design features.
As of December 31, 2023, we owned 502 model homes that were either completed or under construction, including seven homes in backlog. We frequently build model homes at our projects and have them professionally decorated to display design features.
Cancellation rates are subject to a variety of factors beyond our control, such as adverse economic conditions and increases in mortgage interest rates. Our inventory of completed and unsold production homes was 287 and 27 homes as of December 31, 2022 and 2021, respectively.
Cancellation rates are subject to a variety of factors beyond our control, such as adverse economic conditions and increases in mortgage interest rates. Our inventory of completed and unsold production homes was 263 and 287 homes as of December 31, 2023 and 2022, respectively.
While our homebuyers may obtain financing from any mortgage provider of their choice, Tri Pointe Connect can act as a preferred mortgage broker to our homebuyers in all of the markets in which we operate, providing mortgage financing options that help facilitate the sale and closing process as well as generate additional fee income for us.
While our homebuyers may obtain financing from any mortgage provider of their choice, Tri Pointe Connect has acted as a preferred mortgage broker to our homebuyers in all of the markets in which we operate, providing mortgage financing options that help facilitate the sale and closing process as well as generating additional fee income for us.
As a result, we build across a variety of base sales price points, ranging from approximately $290,000 to $3.1 million, and home sizes, ranging from approximately 1,190 to 5,380 square feet.
As a result, we build across a variety of base sales price points, ranging from approximately $213,000 to $3.3 million, and home sizes, ranging from approximately 1,190 to 5,220 square feet.
Further, we expect that as concerns about climate change and other environmental issues continue to grow, homebuilders will be required to comply with new and increasingly stringent laws and regulations, including any climate-related disclosure rules ultimately adopted by the Securities and Exchange Commission (“SEC”), which we anticipate will likewise result in additional compliance costs to us.
Further, we expect that as concerns about climate change and other environmental issues continue to grow, homebuilders will be required to comply with new and increasingly stringent laws and regulations, including the climate-related disclosure rules recently enacted by the State of California and any disclosure requirements ultimately adopted by the Securities and Exchange Commission (“SEC”) and/or other states, which we anticipate will likewise result in additional compliance costs to us.
To recognize and promote outstanding employees, we conduct a comprehensive talent and succession planning review process on an annual basis, focused on identifying top-performing, high-potential and diverse team members for advancement to key positions. This review process is overseen by the compensation committee of our board of directors.
To recognize and promote outstanding employees, we conduct a comprehensive talent and succession planning review process on an annual basis, focused on identifying and developing top-performing, high-potential and diverse team members for consideration to advance into key positions in the future. This review process is overseen by the compensation committee of our board of directors.
As of December 31, 2022, we had $691.1 million available under the Credit Facility after considering the borrowing base provisions and outstanding letters of credit, as well as $889.7 million in cash and cash equivalents. As of December 31, 2022, we had $1.1 billion of outstanding senior notes.
As of December 31, 2023, we had $697.7 million available under the Credit Facility after considering the borrowing base provisions and outstanding letters of credit, as well as $869.0 million in cash and cash equivalents. As of December 31, 2023, we had $1.1 billion of outstanding senior notes.
Notwithstanding our best efforts to protect against incidents, workplace accidents have occurred and may occur in the future. As of December 31, 2022, we had 1,470 employees, 528 of whom were executive, management and administrative personnel, 397 of whom were sales and marketing personnel and 545 of whom were involved in field construction.
Notwithstanding our best efforts to protect against incidents, workplace accidents have occurred and may occur in the future. As of December 31, 2023, we had 1,438 employees, 525 of whom were executive, management and administrative personnel, 406 of whom were sales and marketing personnel and 507 of whom were involved in field construction.
For the years ended December 31, 2022 and 2021, we delivered 6,063 and 6,188 homes, respectively, and the average sales price of our new homes delivered was approximately $708,000 and $639,000, respectively.
For the years ended December 31, 2023 and 2022, we delivered 5,274 and 6,063 homes, respectively, and the average sales price of our new homes delivered was approximately $693,000 and $708,000, respectively.
Lots Owned or Controlled As of December 31, 2022, we owned or controlled, pursuant to land option contracts or purchase contracts, an aggregate of 33,794 lots, comprised of 56% lots owned and 44% lots controlled. We refer to lots that are under land option contracts as “controlled.” See “Acquisition Process” below.
Lots Owned or Controlled As of December 31, 2023, we owned or controlled, pursuant to land option contracts or purchase contracts, an aggregate of 31,960 lots, comprised of 59% lots owned and 41% lots controlled. We refer to lots that are under land option contracts as “controlled.” See “Acquisition Process” below.
As of December 31, 2022, our operations consisted of 136 active selling communities and 33,794 lots owned or controlled. See “Lots Owned or Controlled” below.
As of December 31, 2023, our operations consisted of 155 active selling communities and 31,960 lots owned or controlled. See “Lots Owned or Controlled” below.
Our financial services operation (“Tri Pointe Solutions”) is comprised of mortgage financing operations (“Tri Pointe Connect”), formed as a joint venture with an established mortgage lender, our title and escrow services operations (“Tri Pointe Assurance”), and our property and casualty insurance agency operations (“Tri Pointe Advantage”).
Our financial services operation (“Tri Pointe Solutions”) is comprised of mortgage financing operations (“Tri Pointe Connect”), our title and escrow services operations (“Tri Pointe Assurance”), and our property and casualty insurance agency operations (“Tri Pointe Advantage”).
We are focused on the design, construction and sale of innovative single-family detached and attached homes in major metropolitan areas in Arizona, California, Colorado, the District of Columbia, Maryland, Nevada, North Carolina, South Carolina, Texas, Virginia and Washington. These markets are generally characterized by high job growth and increasing populations, which typically create strong demand for new housing.
We are focused on the design, construction and sale of innovative single-family detached and attached homes in major metropolitan areas in Arizona, California, Colorado, the District of Columbia, Maryland, Nevada, North Carolina, South Carolina, Texas, Virginia and Washington.
Lots Owned Lots Controlled (1) Lots Owned or Controlled West 12,444 4,317 16,761 Central 4,862 7,099 11,961 East 1,456 3,616 5,072 Total 18,762 15,032 33,794 ______________________________________________ (1) Lots controlled for Central and East include 3,325 and 141 lots, respectively, which represent our expected share of lots owned by our investments in unconsolidated land development joint ventures.
Lots Owned Lots Controlled (1) Lots Owned or Controlled West 11,172 3,867 15,039 Central 5,967 5,997 11,964 East 1,600 3,357 4,957 Total 18,739 13,221 31,960 ______________________________________________ (1) Lots controlled for Central and East include 3,561 and 71 lots, respectively, which represent our expected share of lots owned by our investments in unconsolidated land development joint ventures.
Removed
The increase in completed and unsold production homes is due to the increase in cancellation rate along with a reduction in demand for new housing, which resulted primarily from the higher mortgage interest rates that persisted throughout the second half of the year ended December 31, 2022.
Added
In September 2023, we announced our expansion into the greater Salt Lake City region with the launch of a new division in Utah. As of December 31, 2023, we had not yet commenced significant operations in this market.
Removed
Segments - 10 - The Company’s operations are organized in two principal businesses: homebuilding and financial services. Effective January 15, 2021, we consolidated our six regional homebuilding brands into one unified name, Tri Pointe Homes, under which we continue to acquire and develop land and construct and sell single-family detached and attached homes.
Added
Additionally, i n September 2023, we announced our expansion into the greater Salt Lake City region with the launch of a new division in Utah. These markets are generally characterized by high job growth and increasing populations, which typically create strong demand for new housing.
Added
While Tri Pointe Connect was formed as a joint venture with an established mortgage lender and operated as such during the year ended December 31, 2023, effective February 1, 2024, we acquired the minority interest in the joint venture, upon which Tri Pointe Connect became a wholly owned subsidiary of the Company.
Added
Segments - 10 - The Company’s operations are organized in two principal businesses: homebuilding and financial services.
Added
As of December 31, 2023, we had not yet commenced significant operations in this market. Our financial services operation (Tri Pointe Solutions) is a reportable segment and is comprised of our Tri Pointe Connect mortgage financing operations, Tri Pointe Assurance title and escrow services operations, and Tri Pointe Advantage property and casualty insurance agency operations.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

85 edited+20 added−15 removed235 unchanged
Biggest changeFurther extensions of prevailing wage requirements to private projects could materially and adversely affect our Financial Performance. - 19 - The supply of skilled labor may be adversely affected by changes in immigration laws and policies. The timing and quality of our construction activities depend upon the availability, cost and skill of contractors and subcontractors and their employees.
Biggest changeThe timing and quality of our construction activities depend upon the availability, cost and skill of contractors and subcontractors and their employees. The supply of labor in the markets in which we operate could be adversely affected by changes in immigration laws and policies as well as changes in immigration trends.
Our charter and/or bylaws contain anti-takeover provisions that: • authorize our board of directors, without further action by the stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series, and with respect to each series, to fix the number of shares constituting that series and establish the rights and other terms of that series; • require that actions to be taken by our stockholders may be taken only at an annual or special meeting of our stockholders and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairman of our board of directors or our chief executive officer (or if there is no chief executive officer, the president); • establish advance notice procedures for stockholders to submit nominations of candidates for election to our board of directors and other proposals to be brought before a stockholders meeting; • provide that our bylaws may be amended by our board of directors without stockholder approval; • allow our directors to establish the size of our board of directors by action of our board, subject to a minimum of three members; • provide that vacancies on our board of directors or newly created directorships resulting from an increase in the number of our directors may be filled only by a majority of directors then in office, even though less than a quorum; • do not give the holders of our common stock cumulative voting rights with respect to the election of directors; and • prohibit us from engaging in certain business combinations with any “interested stockholder” unless specified conditions are satisfied as described below.
Our charter and/or bylaws contain anti-takeover provisions that: • authorize our board of directors, without further action by the stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series, and with respect to each series, to fix the number of shares constituting that series and establish the rights and other terms of that series; - 30 - • require that actions to be taken by our stockholders may be taken only at an annual or special meeting of our stockholders and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, the chairman of our board of directors or our chief executive officer (or if there is no chief executive officer, the president); • establish advance notice procedures for stockholders to submit nominations of candidates for election to our board of directors and other proposals to be brought before a stockholders meeting; • provide that our bylaws may be amended by our board of directors without stockholder approval; • allow our directors to establish the size of our board of directors by action of our board, subject to a minimum of three members; • provide that vacancies on our board of directors or newly created directorships resulting from an increase in the number of our directors may be filled only by a majority of directors then in office, even though less than a quorum; • do not give the holders of our common stock cumulative voting rights with respect to the election of directors; and • prohibit us from engaging in certain business combinations with any “interested stockholder” unless specified conditions are satisfied as described below.
Our ability to conduct our business may be materially and adversely impaired if our or our service providers’ computer resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third-party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), loss of portable devices, or lost connectivity to our networked resources.
Our ability to conduct - 25 - our business may be materially and adversely impaired if our or our service providers’ computer resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third-party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), loss of portable devices, or lost connectivity to our networked resources.
Our current financing arrangements contain, and the financing arrangements we may enter into in the future will likely contain, covenants affecting our ability to, among other things: - 29 - • incur or guarantee additional indebtedness; • make certain investments; • reduce liquidity below certain levels; • pay dividends or make distributions on our capital stock; • sell assets, including capital stock of restricted subsidiaries; • agree to payment restrictions affecting our restricted subsidiaries; • consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; • enter into transactions with our affiliates; • incur liens; • engage in sale-leaseback transactions; and • designate any of our subsidiaries as unrestricted subsidiaries.
Our current financing arrangements contain, and the financing arrangements we may enter into in the future will likely contain, covenants affecting our ability to, among other things: • incur or guarantee additional indebtedness; • make certain investments; • reduce liquidity below certain levels; • pay dividends or make distributions on our capital stock; • sell assets, including capital stock of restricted subsidiaries; • agree to payment restrictions affecting our restricted subsidiaries; • consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; • enter into transactions with our affiliates; • incur liens; • engage in sale-leaseback transactions; and • designate any of our subsidiaries as unrestricted subsidiaries.
The residential homebuilding and land development industry is cyclical and is substantially affected by adverse changes in general economic or business conditions that are outside of our control, including changes in: • short- and long-term interest rates; - 14 - • the availability and cost of financing for real estate industry participants, including financing for acquisitions, construction and permanent mortgages; • unanticipated increases in expenses, including, without limitation, insurance costs, labor and materials costs, development costs, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies; • enforcement of laws, regulations and governmental policies, including, without limitation, health, safety, environmental, labor, employment, zoning, privacy and tax laws, governmental fiscal policies and the Americans with Disabilities Act of 1990; • consumer confidence generally and the confidence of potential homebuyers and others in the real estate industry in particular; • financial conditions of buyers and sellers of properties, particularly residential homes and land suitable for development of residential homes; • the ability of existing homeowners to sell their existing homes at prices that are acceptable to them; • the U.S. and global financial systems and credit markets, including stock market and credit market volatility; • private and federal mortgage financing programs and federal and state regulation of lending practices; • the availability and cost of construction, labor and materials; • federal and state income tax provisions, including provisions for the deduction of mortgage interest payments; the deduction of state and local tax, including real estate tax; and capital gain tax rates; • housing demand from population growth, household formation and demographic changes (including immigration levels and trends in urban and suburban migration); • the supply of available new or existing homes and other housing alternatives, such as condominiums, apartments and other residential rental property; • competition from other real estate investors with significant capital, including other real estate operating companies and developers and institutional investment funds; • employment levels and job and personal income growth and household debt-to-income levels; • the rate of inflation; • real estate taxes; and • the supply of, and demand for, developable land in our current and expected markets.
The residential homebuilding and land development industry is cyclical and is substantially affected by adverse changes in general economic or business conditions that are outside of our control, including changes in: - 14 - • short- and long-term interest rates; • the availability and cost of financing for real estate industry participants, including financing for acquisitions, construction and permanent mortgages; • unanticipated increases in expenses, including, without limitation, insurance costs, labor and materials costs, development costs, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies; • enforcement of laws, regulations and governmental policies, including, without limitation, health, safety, environmental, labor, employment, zoning, privacy, consumer protection, lender licensing, and tax laws; governmental fiscal policies; and the Americans with Disabilities Act of 1990; • consumer confidence generally and the confidence of potential homebuyers and others in the real estate industry in particular; • financial conditions of buyers and sellers of properties, particularly residential homes and land suitable for development of residential homes; • the ability of existing homeowners to sell their existing homes at prices that are acceptable to them; • the U.S. and global financial systems and credit markets, including stock market and credit market volatility; • private and federal mortgage financing programs and federal and state regulation of lending practices; • the availability and cost of construction, labor and materials; • federal and state income tax provisions, including provisions for the deduction of mortgage interest payments; the deduction of state and local tax, including real estate tax; and capital gain tax rates; • housing demand from population growth, household formation and demographic changes (including immigration levels and trends in urban and suburban migration); • the supply of available new or existing homes and other housing alternatives, such as condominiums, apartments and other residential rental property; • competition from other real estate investors with significant capital, including other real estate operating companies and developers and institutional investment funds; • employment levels and job and personal income growth and household debt-to-income levels; • the rate of inflation; • real estate taxes; and • the supply of, and demand for, developable land in our current and expected markets.
In addition, project opponents can delay or impede development activities by bringing challenges to the permits and other approvals required for projects and operations under environmental laws and regulations. As a result, we cannot assure that our costs, obligations and liabilities relating to environmental matters will not materially and adversely affect our Financial Performance.
In addition, project opponents can delay or impede development activities by bringing challenges to the permits and other approvals required for - 21 - projects and operations under environmental laws and regulations. As a result, we cannot assure that our costs, obligations and liabilities relating to environmental matters will not materially and adversely affect our Financial Performance.
In addition, we could be required to make significant expenditures related to the settlement of such issues or disputes or to modify our community development plans, which could materially and adversely affect our Financial Performance. The homebuilding industry is highly competitive, and if our competitors are more successful or offer better value to potential homebuyers, our business could decline.
In addition, we could be required to make significant expenditures related to the settlement of such issues or disputes or to modify our community development plans, which could materially and adversely affect our Financial Performance. - 22 - The homebuilding industry is highly competitive, and if our competitors are more successful or offer better value to potential homebuyers, our business could decline.
Cyber threats are ongoing, rapidly evolving and becoming increasingly sophisticated. As the breadth and complexity of the technologies we use continue to grow, the risk of security breaches and cyber attacks also increases. Criminals, nation state actors and activist hackers (collectively, “malicious persons”) may target our information technology and computer resources - 26 - and those of our service providers.
Cyber threats are ongoing, rapidly evolving and becoming increasingly sophisticated. As the breadth and complexity of the technologies we use continue to grow, the risk of security breaches and cyber attacks also increases. Criminals, nation state actors and activist hackers (collectively, “malicious persons”) may target our information technology and computer resources and those of our service providers.
In addition, increases in local real estate taxes could adversely affect the purchasing decisions of potential homebuyers, who may consider those costs in determining - 27 - whether to make a new home purchase and decide, as a result, not to purchase one of our homes, which could have a material adverse effect on our Financial Performance.
In addition, increases in local real estate taxes could adversely affect the purchasing decisions of potential homebuyers, who may consider those costs in determining whether to make a new home purchase and decide, as a result, not to purchase one of our homes, which could have a material adverse effect on our Financial Performance.
The current term of these agreements will expire on March 20, 2024 and automatically renews for - 30 - additional one-year periods unless either party gives written notice of non-renewal at least 60 days in advance. There is no assurance that these executives will remain employed with us.
The current term of these agreements will expire on March 20, 2024 and automatically renews for additional one-year periods unless either party gives written notice of non-renewal at least 60 days in advance. There is no assurance that these executives will remain employed with us.
This competitive advantage could materially and adversely reduce our market share and limit our ability to continue to expand our business as planned. - 23 - Increases in our cancellation rate could have a negative impact on our home sales revenue and homebuilding margins. Our backlog reflects homes that may close in future periods.
This competitive advantage could materially and adversely reduce our market share and limit our ability to continue to expand our business as planned. Increases in our cancellation rate could have a negative impact on our home sales revenue and homebuilding margins. Our backlog reflects homes that may close in future periods.
Non-U.S. holders may be subject to United States federal income tax on gain realized on the sale or disposition of shares of our common stock. - 33 - We believe that we are, and will remain, a “United States real property holding corporation” for United States federal income tax purposes.
Non-U.S. holders may be subject to United States federal income tax on gain realized on the sale or disposition of shares of our common stock. We believe that we are, and will remain, a “United States real property holding corporation” for United States federal income tax purposes.
Inflation may also raise our costs of capital and decrease our purchasing power, making it - 25 - more difficult to maintain sufficient funds to operate our business. Significant inflation, including as a result of efforts by the government to stimulate the economy, could materially and adversely impact our Financial Performance.
Inflation may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business. Significant inflation, including as a result of efforts by the government to stimulate the economy, could materially and adversely impact our Financial Performance.
As a result, demand for our homes may be reduced in these markets and our Financial Performance could be materially and adversely affected. - 20 - Government regulations and legal challenges may delay the start or completion of our communities, increase our expenses or limit our building or other activities.
As a result, demand for our homes may be reduced in these markets and our Financial Performance could be materially and adversely affected. Government regulations and legal challenges may delay the start or completion of our communities, increase our expenses or limit our building or other activities.
Because our operations currently are limited to these areas, a prolonged economic downturn in one or more of these areas could have a material adverse effect on our Financial Performance and could have a disproportionately greater impact on us than other homebuilders with more diversified operations.
Because our operations currently are limited to these areas, a prolonged economic downturn in one or more of these areas could have a material adverse effect on our Financial Performance and could have a disproportionately - 24 - greater impact on us than other homebuilders with more diversified operations.
The residential construction industry experiences serious shortages of skilled labor from time to time. When homebuilding activity declines, skilled tradesmen may choose to leave the real estate industry to take jobs in other industries, which would result in shortages in the event that homebuilding activity later increases.
The residential construction industry experiences serious shortages of skilled labor from time to time. When homebuilding activity declines, skilled tradesmen may choose to leave the real estate industry to take jobs in other industries, - 18 - which would result in shortages in the event that homebuilding activity later increases.
Further, in August 2021, the - 21 - California Energy Commission (“CEC”) adopted updates to California’s energy code that, among other things, establish electric-ready requirements for electric heating, cooking and vehicle charging effective January 1, 2023 for new permit applications.
Further, in August 2021, the California Energy Commission (“CEC”) adopted updates to California’s energy code that, among other things, establish electric-ready requirements for electric heating, cooking and vehicle charging effective January 1, 2023 for new permit applications.
For these and other reasons, we establish warranty, claim and litigation reserves that we believe are adequate based on historical experience in the markets in which we operate and judgment of the risks associated with the types of homes, lots and land we sell.
For these - 23 - and other reasons, we establish warranty, claim and litigation reserves that we believe are adequate based on historical experience in the markets in which we operate and judgment of the risks associated with the types of homes, lots and land we sell.
A decline in our ability to successfully develop and market our communities and to generate positive cash flow from - 22 - these operations in a timely manner could materially and adversely affect our Financial Performance and our ability to service our debt and to meet our working capital requirements.
A decline in our ability to successfully develop and market our communities and to generate positive cash flow from these operations in a timely manner could materially and adversely affect our Financial Performance and our ability to service our debt and to meet our working capital requirements.
We may also need to refinance all or a portion of our existing or future indebtedness on or before its maturity, and we cannot make any assurances that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
We may also need to refinance all or a portion of our existing or future indebtedness on or before its maturity, and we cannot make any assurances that we will be able to refinance - 27 - any of our indebtedness on commercially reasonable terms or at all.
Selected provisions of Delaware law. - 31 - We have opted out of Section 203 of the Delaware General Corporation Law, which regulates corporate takeovers. However, our charter contains provisions that are similar to Section 203.
Selected provisions of Delaware law. We have opted out of Section 203 of the Delaware General Corporation Law, which regulates corporate takeovers. However, our charter contains provisions that are similar to Section 203.
Acts of war, any outbreak or escalation of hostilities or geopolitical conflict (such as the ongoing war between Russia and Ukraine), acts of terrorism (including cyber-terrorism), civil unrest or public health emergencies, including outbreaks of contagious diseases, such as COVID-19 or other major epidemics or pandemics, have caused and may in the future cause disruption to the U.S. economy, or the local economies of the markets in which we operate, result in sanctions or export controls that could adversely impact our supply chain, cause shortages of building materials, disrupt utilities, increase costs associated with obtaining building materials, increase the price of gasoline and other fuels, result in building code changes that could increase costs of construction, affect job growth and consumer confidence, affect public health and public perception of health risk, or cause economic changes and/or social instability or distress that we cannot anticipate, all of which could reduce demand for our homes and materially and adversely impact our Financial Performance.
Acts of war, any outbreak or escalation of hostilities or geopolitical conflict (such as the ongoing wars between Russia and Ukraine and Israel and Hamas, respectively), acts of terrorism (including cyber-terrorism), civil unrest or public health emergencies, including outbreaks of contagious diseases, such as COVID-19 or other major epidemics or pandemics, have caused and may in the future cause disruption to the U.S. economy, or the local economies of the markets in which we operate, result in sanctions or export controls that could adversely impact our supply chain, cause shortages of building materials, disrupt utilities, increase costs associated with obtaining building materials, increase the price of gasoline and other fuels, result in building code changes that could increase costs of construction, affect job growth and consumer confidence, affect public health and public perception of health risk, or cause economic changes and/or social instability or distress that we cannot anticipate, all of which could reduce demand for our homes and materially and adversely impact our Financial Performance.
Further, due to rising inflation rates throughout 2022 and into 2023, we have experienced and may continue to experience increases in prevailing costs for skilled contractors and subcontractors.
Further, due to rising inflation rates throughout 2022 and 2023, we have experienced and may continue to experience increases in prevailing costs for skilled contractors and subcontractors.
Purchases of common stock pursuant to the 2023 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act.
Purchases of common stock pursuant to the 2024 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Exchange Act.
Furthermore, as we continue to grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure that our internal controls remain effective.
Furthermore, as we continue to grow our - 31 - business, our internal controls will become more complex, and we will require significantly more resources to ensure that our internal controls remain effective.
A substantial portion of our access to capital is through the issuance of senior notes, of which we have $1.1 billion outstanding, net of debt issuance costs, as of December 31, 2022. Among other things, we may rely on proceeds of debt issuances to pay the principal of existing senior notes when they mature.
A substantial portion of our access to capital is through the issuance of senior notes, of which we have $1.1 billion outstanding, net of debt issuance costs, as of December 31, 2023. Among other things, we may rely on proceeds of debt issuances to pay the principal of existing senior notes when they mature.
Inflation could materially and adversely affect us by increasing the costs of land, raw materials and labor, negatively impacting housing demand, raising our costs of capital, and decreasing our purchasing power. The inflation rate in the United States increased significantly in 2022. Inflation affects us directly by increasing costs of land, raw materials and labor.
Inflation could materially and adversely affect us by increasing the costs of land, raw materials and labor, negatively impacting housing demand, raising our costs of capital, and decreasing our purchasing power. The inflation rate in the United States increased significantly in both 2022 and 2023. Inflation affects us directly by increasing costs of land, raw materials and labor.
Additionally, some local jurisdictions and water suppliers are adopting increasingly strict water conservation measures, such as moratoria on new connections and building standards for water efficient fixtures and requirements for drought-tolerant landscaping and the use of recycled water.
Some local jurisdictions and water suppliers are also adopting increasingly strict water conservation measures, such as moratoria on new connections, building standards for water efficient fixtures, and requirements for drought-tolerant landscaping and the use of recycled water.
During the year ended December 31, 2022, we had active selling communities in the states of Arizona, California, Colorado, Maryland, Nevada, North Carolina, South Carolina, Texas, Virginia and Washington, as well as the District of Columbia.
During the year ended December 31, 2023, we had active selling communities in the states of Arizona, California, Colorado, Maryland, Nevada, North Carolina, South Carolina, Texas, Virginia and Washington, as well as the District of Columbia.
In the event that this or any similar proposal, in California or any other jurisdiction in which we operate, impacts the ability of our homeowners to bear the cost of solar panels, including pursuant to a lease agreement, or we are otherwise unable to pass along such costs to homebuyers, we may incur additional construction costs to comply with applicable law.
In the event that this change, or any similar change in any other jurisdiction in which we operate, impacts the ability of our homeowners to bear the cost of solar panels, including pursuant to a lease agreement, or we are otherwise unable to pass along such costs to homebuyers, we may incur additional construction costs to comply with applicable law.
For example, in November 2022, pursuant to the Global Warming Solutions Act of 2006 (AB32), the California Air Resources Board released a final scoping plan that, among other things, proposes to eliminate the installation of natural gas-powered appliances in favor of electric appliances in new residential construction effective in 2026.
For example, in November 2022, pursuant to the Global Warming Solutions Act of 2006 (AB 32), the California Air Resources Board released a final scoping plan that, among other things, proposes to eliminate the installation of natural gas-powered appliances in favor of electric appliances in new residential construction effective in 2026.
Repurchases pursuant to the 2023 Repurchase Program or any other stock repurchase program we adopt in the future could affect our stock price and increase its volatility and will reduce the market liquidity for our stock.
Repurchases pursuant to the 2024 Repurchase Program or any other stock repurchase program we adopt in the future could affect our stock price and increase its volatility and will reduce the market liquidity for our stock.
We are not obligated under the 2023 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2023 Repurchase Program at any time.
We are not obligated under the 2024 Repurchase Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2024 Repurchase Program at any time.
For example, due to shortages of components, such as electronic chips that are commonly used in appliances and other building materials, as well as lingering supply chain disruptions associated with the COVID-19 pandemic, we have experienced and may continue to experience delays in our supply chain, including the ability to timely obtain the raw materials that we require to build our homes, as well as certain other construction materials.
For example, due to shortages of components, such as electronic chips that are commonly used in appliances and other building materials, as well as lingering supply chain disruptions associated with the COVID-19 pandemic, shipping delays, factory downtime, and other factors, we have experienced and may continue to experience delays in our supply chain, including the ability to timely obtain the raw materials that we require to build our homes, as well as certain other construction materials.
Our business is cyclical and subject to risks associated with the real estate industry, and adverse changes in general economic or business conditions could reduce the demand for homes and materially and adversely affect us.
Our business is cyclical and subject to risks associated with the real estate industry, and adverse changes in general economic or business conditions could reduce the demand for homes and related financial services and materially and adversely affect us.
Negat ive changes in the ratings of our senior notes could make it difficult for us to sell senior notes in the future and could result in more stringent covenants and higher interest rates with regard to new senior notes we issue.
Negative changes in the ratings of our senior notes could make it difficult for us to sell senior notes in the future and could result in more stringent covenants and higher interest rates with regard to new senior notes we issue.
In addition, if such third-party lenders mishandle our homebuyers’ personal financial information, including due to a data security breach of their systems, the negative impacts on our homebuyers, or negative publicity arising from any such incidents, could create, among other things, associated exposure to us with respect to claims for damages, regulatory penalties or reputational harm, and such exposure could be material and adverse to our Financial Performance.
In addition, if a mortgage lender mishandles our homebuyers’ personal financial information, including due to a data security breach of their systems, the negative impacts on our homebuyers, or negative publicity arising from any such incidents, could create, among other things, associated exposure to us with respect to claims for damages, regulatory penalties or reputational harm, and such exposure could be material and adverse to our Financial Performance.
Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants relating to our operations.
Our current financing arrangements contain, and our future financing a rrangements likely will contain, restrictive covenants relating to our operations.
In these circumstances, homebuyers may terminate their existing purchase contracts in order to negotiate for a lower price or because they cannot, or will not, complete the purchase. Our cancellation rate was 19% and 8% for each of the years ended December 31, 2022 and 2021, respectively. Cancellation rates may rise significantly in the future.
In these circumstances, homebuyers may terminate their existing purchase contracts in order to negotiate for a lower price or because they cannot, or will not, complete the purchase. Our cancellation rate was 10% and 19% for the years ended December 31, 2023 and 2022, respectively. Cancellation rates may rise significantly in the future.
Because the availability of Fannie Mae, Freddie Mac, FHA- and VA-backed mortgage financing is an important factor in marketing and selling many of our homes, any limitations, restrictions or changes in the availability of such government-backed financing could reduce our home - 16 - sales, which could have a material adverse effect on our Financial Performance.
Because the availability of Fannie Mae, Freddie Mac, FHA- and VA-backed mortgage financing is an important factor in marketing and selling many of our homes, any limitations, restrictions or changes in the availability of such government-backed financing could reduce our home sales and sales of mortgage loans originated by Tri Pointe Connect, which could have a material adverse effect on our Financial Performance.
Further, there is a substantial possibility that substituting an alternate source of liquidity would increase mortgage interest rates, which would increase the buyers’ effective costs of the homes we sell, and therefore could reduce demand for our homes and have a material adverse effect on our Financial Performance.
Further, there is a substantial possibility that substituting an alternate source of liquidity would increase mortgage interest rates, which would increase the buyers’ effective costs of the homes we sell, and therefore could reduce demand for our homes and have a material adverse effect on our Financial Performance. - 16 - Raw material shortages and price fluctuations could cause delays and increase our costs.
There can be no assurance that any stock repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value. Although stock repurchase programs is intended to enhance long term stockholder value, short-term stock price fluctuations could reduce the effectiveness of these repurchases. Item 1B. Unresolved Staff Comments Not applicable.
There can be no assurance that any stock repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value. Although stock repurchase programs is intended to enhance long term stockholder value, short-term stock price fluctuations could reduce the effectiveness of these repurchases.
The Water Board also has restricted water diversions, and the state, - 18 - federal and local water projects that supply water to local water providers have significantly reduced their water supplies. In addition, development projects may face litigation challenges based on alleged failures to comply with water supply requirements.
In drier years, the Water Board has also restricted surface water diversions, and the state, federal and local water projects that supply water to local water providers have significantly reduced their water supplies. In addition, development projects may face litigation challenges based on alleged failures to comply with water supply requirements and associated environmental reviews.
On February 15, 2023, our board of directors approved a share repurchase program (the “2023 Repurchase Program”), authorizing the repurchase of shares of common stock with an aggregate value of up to $250 million through December 31, 2023.
On December 19, 2023, our board of directors approved a share repurchase program (the “2024 Repurchase Program”), authorizing the repurchase of shares of common stock with an aggregate value of up to $250 million through December 31, 2024.
Raw material shortages and price fluctuations could cause delays and increase our costs. We require raw materials to build our homes. The residential construction industry experiences serious raw material shortages from time to time, including shortages in supplies of insulation, drywall, cement, steel, lumber and other building materials.
We require raw materials to build our homes. The residential construction industry experiences serious raw material shortages from time to time, including shortages in supplies of insulation, drywall, cement, steel, lumber and other building materials.
In addition, a California law makes direct contractors liable for wages, fringe or other benefit payments or contributions, and interest owed by a subcontractor that does not make these payments or contributions to its employees. This liability could also extend to penalties and liquidated damages owed by a subcontractor.
In addition, a California law makes direct contractors liable for wages, fringe or other benefit payments or contributions, and interest owed by a subcontractor that does not make these payments or contributions to its employees.
Additionally, unsecured debt agreements may contain specific cross-default provisions with respect to specified other indebtedness, giving the unsecured lenders the right to declare a default if we are in default under other loans in some circumstances.
Additionally, unsecured debt agreements may contain specific cross-default provisions with respect to specified other indebtedness, giving the unsecured lenders the right to declare a default if we are in default under other loans in some circumstances. Defaults under our debt agreements could materially and adversely affect our Financial Performance.
Furthermore, changes in accounting rules and interpretations or in our accounting assumptions and/or judgments, such as asset impairments, could significantly impact our financial statements. In some cases, we could be required to apply a - 32 - new or revised standard retroactively, resulting in restating prior period financial statements.
Furthermore, changes in accounting rules and interpretations or in our accounting assumptions and/or judgments, such as asset impairments, could significantly impact our financial statements. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Any of these circumstances could have a material adverse effect on our Financial Performance.
U.S. interest rates have increased during the last two years and are expected to increase in the current year. Higher interest rates could increase debt service requirements on our current floating rate debt and on any floating rate debt we may subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
U.S. interest rates have increased during the last several years and could increase in the future, particularly if inflation increases or remains high. Higher interest rates could increase debt service requirements on our current floating rate debt and on any floating rate debt we may subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
Drought conditions in California and other areas in which we operate may negatively impact the economy, increase the risk of wildfires, cause us to incur additional costs, and delay or prevent new home deliveries. Certain of the areas in which we operate, particularly in California, experience drought conditions from time to time.
The unavailability of water in California, Arizona, and other areas in which we operate, including due to drought conditions, may negatively impact the economy, increase the risk of wildfires, cause us to incur additional costs, and delay or prevent new home deliveries.
Any of these circumstances could have a material adverse effect on our Financial Performance. Our joint venture investments could be materially and adversely affected by lack of sole decision making authority, reliance on co-venturers’ financial condition and disputes between us and our co-venturers.
Our joint venture investments could be materially and adversely affected by lack of sole decision making authority, reliance on co-venturers’ financial condition and disputes between us and our co-venturers.
Future offerings of debt securities, which would rank senior to our common stock in the event of our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.
We cannot predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of our common stock. - 32 - Future offerings of debt securities, which would rank senior to our common stock in the event of our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.
In addition, the uncertainties in the mortgage markets and increased government regulation could adversely affect the ability of potential homebuyers to obtain financing for home purchases, thus preventing them from purchasing our homes.
Any of these factors could have a material adverse effect on our Financial Performance. In addition, the uncertainties in the mortgage markets and increased government regulation could adversely affect the ability of potential homebuyers to obtain financing for home purchases, thus preventing them from purchasing our homes.
We may obtain one or more forms of interest rate protection—in the form of swap agreements, interest rate cap contracts or similar agreements—to hedge against the possible negative effects of interest rate fluctuations.
Failure to hedge effectively against interest rate changes may materially and adversely affect our Financial Performance. - 29 - We may obtain one or more forms of interest rate protection—in the form of swap agreements, interest rate cap contracts or similar agreements—to hedge against the possible negative effects of interest rate fluctuations.
We could be responsible for employment-related liabilities with respect to our contractors’ employees. Several other homebuilders have received inquiries from regulatory agencies concerning whether homebuilders using contractors are deemed to be employers of the employees of such contractors under certain circumstances.
Several other homebuilders have received inquiries from regulatory agencies concerning whether homebuilders using contractors are deemed to be employers of the employees of such contractors under certain circumstances.
Any of these could result in substantial costs and we could incur judgments or enter into settlements of claims that could have a material adverse effect on our business. Any of these outcomes could materially and adversely affect our Financial Performance. We are subject to litigation and claims that could materially and adversely affect us.
Any of these could result in substantial costs and we could incur judgments or enter into settlements of claims that could have a material adverse effect on our business. Any of these outcomes could materially and adversely affect our Financial Performance. We may be unable to obtain suitable bonding for the development of our housing projects.
The prices that we pay for home construction materials and their availability are affected by changes in United States government trade policies and the responses of other countries to those changes.
Increases in tariffs and retaliatory responses may cause increases in the prices of some of the construction materials that we use and may negatively affect the national and local economies. - 26 - The prices that we pay for home construction materials and their availability are affected by changes in United States government trade policies and the responses of other countries to those changes.
Notwithstanding an expectation that the FOMC intends to continue to raise interest rates, we are unable to predict if, or when, the FOMC will announce changes to the target range or the impact of any such changes on home mortgage interest rates.
We are unable to predict if, or when, the FOMC will change the target range for federal funds or the impact of any such changes on home mortgage interest rates.
Rising interest rates, decreased availability of mortgage financing or of certain mortgage programs, higher down payment requirements or increased monthly mortgage costs have led, and may in the future lead, to reduced demand for our homes. Increased interest rates can also hinder our ability to realize our backlog because our home purchase contracts provide homebuyers with a financing contingency.
Rising interest rates, decreased availability of mortgage financing or of certain mortgage programs, higher down payment requirements or increased monthly mortgage costs have led, and may in the future lead, to reduced demand for our homes and financial services.
Some of our markets have been and in the future may be adversely affected by declining oil prices. Energy is an important employment sector in our Colorado and Houston markets.
Some of our markets have been and in the future may be adversely affected by declining oil prices. Energy is an important employment sector in our Colorado and Houston markets. A significant decline in oil prices, such as those that have previously occurred, could adversely affect economic conditions in these markets.
To a large extent, our cash flow generation ability is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
We may fail to generate sufficient cash flow from the sales of our homes and land to meet our cash requirements. To a large extent, our cash flow generation ability is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our corporate credit rating and rati ngs of our senior notes affect, among other things, our ability to access new capital, especially debt, and the costs of that new capital.
Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings. Our corporate credit rating and ratings of our senior notes affect, among other things, our ability to access new capital, especially debt, and the costs of that new capital.
The occurrence of either or both of these events could materially and adversely affect our Financial Performance. Failure to hedge effectively against interest rate changes may materially and adversely affect our Financial Performance.
The occurrence of either or both of these events could materially and adversely affect our Financial Performance.
Homebuyers’ ability to obtain financing largely depends on prevailing mortgage loan interest rates, the credit standards that mortgage lenders use and the availability of mortgage loan programs. In February 2023, the U.S.
Homebuyers’ ability to obtain financing largely depends on prevailing mortgage loan interest rates, the credit standards that mortgage lenders use and the availability of mortgage loan programs. In January 2024, the U.S. Federal Open Market Committee (“FOMC”) decided to maintain the current target range for federal funds.
In November 2022, however, the California Public Utilities Commission issued a proposal that would substantially reduce the compensation provided to homeowners for excess power their solar systems send back to the grid.
In December 2022, however, the California Public Utilities Commission adopted new rules reducing the compensation provided to homeowners for excess power their solar systems send back to the grid.
If we are unable to obtain required bonds in the future for our projects, or if we are required to provide credit enhancements with respect to our current or future bonds, our Financial Performance could be materially and adversely affected. We are subject to environmental laws and regulations that may impose significant costs, delays, restrictions or liabilities.
We are often required to provide bonds to governmental authorities and others to ensure the completion of our projects. If we are unable to obtain required bonds in the future for our projects, or if we are required to provide credit enhancements with respect to our current or future bonds, our Financial Performance could be materially and adversely affected.
In addition, the costs of maintaining adequate protection against such threats to our technology resources, depending on their evolution, pervasiveness and frequency and/or government-mandated standards or obligations regarding protective efforts, could be material to our Financial Performance. A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.
In addition, the costs of maintaining adequate protection against such threats to our technology resources, depending on their evolution, pervasiveness and frequency and/or government-mandated standards or obligations regarding protective efforts, could be material to our Financial Performance. Tri Pointe Connect depends materially on vendors that we do not control.
Financing contingencies allow homebuyers to cancel their home purchase contracts in the event that they cannot arrange for adequate financing. As a result, rising interest rates can decrease our home sales and mortgage originations. Any of these factors could have a material adverse effect on our Financial Performance.
Increased interest rates can also hinder our ability to realize our backlog because our home purchase contracts provide homebuyers with a financing contingency. Financing contingencies allow homebuyers to cancel their home purchase contracts in the event that they cannot arrange for adequate financing. As a result, rising interest rates can decrease our home sales and mortgage originations.
Such lenders’ inability or unwillingness may result in mortgage loan funding issues that delay deliveries of our homes or cause cancellations, which could in the aggregate have a material and adverse effect on our Financial Performance.
Mortgage lenders, including Tri Pointe Connect, may fail to complete, in a timely fashion or at all, the mortgage loan originations they start for our homebuyers. Such failures may result in mortgage loan funding issues that delay deliveries of our homes or cause cancellations, which could in the aggregate have a material and adverse effect on our Financial Performance.
Lawsuits, claims and proceedings have been, or in the future may be, instituted or asserted against us in the normal course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to defend ourselves vigorously.
Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to defend ourselves vigorously. However, litigation is inherently uncertain and we cannot be certain of the ultimate outcomes of any claims that may arise.
If housing demand decreases below what we anticipated when we acquired our inventory, our profitability may be materially and adversely affected and we may not be able to recover our costs when we build and sell houses, land and lots. - 17 - The U.S. housing markets experience dynamic demand and supply patterns from time to time due to volatile economic conditions, including increased amounts of home and land inventory that entered certain housing markets from foreclosure sales or short sale s.
The U.S. housing markets experience dynamic demand and supply patterns from time to time due to volatile economic conditions, including increased amounts of home and land inventory that entered certain housing markets from foreclosure sales or short sale s.
Furthermore, any product liability or warranty claims made against us, whether or not they are viable, may lead to negative publicity, which could impact our reputation and future home sales. - 24 - We also currently conduct a material portion of our business in California, one of the most highly regulated and litigious jurisdictions in the United States, which imposes a ten year, strict liability tail on many construction liability claims.
We also currently conduct a material portion of our business in California, one of the most highly regulated and litigious jurisdictions in the United States, which imposes a ten year, strict liability tail on many construction liability claims.
These reserves are established based on market practices, our historical experiences, and our judgment of the qualitative risks associated with the types of homes built.
We reserve a percentage of the sales price of each home that we sell to meet our warranty and other legal obligations to our homebuyers. These reserves are established based on market practices, our historical experiences, and our judgment of the qualitative risks associated with the types of homes built.
In addition, changes in federal and state immigration laws and policies, or in the enforcement of current laws and policies, as a result of the current presidential administration may have the effect of increasing our labor costs. The lack of adequate supply of skilled labor or a significant increase in labor costs could materially and adversely affect our Financial Performance.
Accordingly, it cannot be assured that a sufficient supply of skilled labor will be available to us in the future. In addition, changes in federal and state immigration laws and policies, or in the enforcement of current laws and policies, as a result of the current presidential administration may have the effect of increasing our labor costs.
Sales of substantial amounts of our common stock could cause the market price of our common stock to decrease significantly. We cannot predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of our common stock.
Sales of substantial amounts of our common stock could cause the market price of our common stock to decrease significantly.
Adverse weather and natural disasters may increase costs, cause project delays and reduce consumer demand for housing. As a homebuilder and land developer, we are subject to the risks associated with numerous weather-related events and natural disasters that are beyond our control, which we have experienced and may in the future experience.
As a homebuilder and land developer, we are subject to the risks associated with numerous weather-related events and natural disasters that are beyond our control, which we have experienced and may in the future experience. These weather-related events and natural disasters include, but are not limited to, droughts, floods, wildfires, landslides, soil subsidence, hurricanes, tornadoes and earthquakes.
These and other measures that are instituted to respond to drought conditions in California or other areas in which we operate could cause us to incur additional costs. In addition, new home deliveries in some areas may be delayed or prevented due to the unavailability of water, even when we have obtained water supply entitlements for those projects.
In addition, new home deliveries in some areas may be delayed or prevented due to the unavailability of water, even when we have obtained water supply entitlements for those projects. Drought conditions could also negatively impact the broader economy and environment as well as increase greatly the risk of wildfires.
We expect that the imposition of a prevailing wage requirement to additional types of projects would materially increase our costs of development and construction for that project.
We expect that the imposition of a prevailing wage requirement to additional types of projects would materially increase our costs of development and construction for that project. Further extensions of prevailing wage requirements to private projects could materially and adversely affect our Financial Performance. The supply of skilled labor may be adversely affected by changes in immigration laws and policies.
The expansion and development of our business may require significant additional capital, which we may be unable to obtain, to fund our operating expenses, including working capital needs. We may fail to generate sufficient cash flow from the sales of our homes and land to meet our cash requirements.
We may require significant additional capital in the future and may not be able to secure adequate funds on acceptable terms. The expansion and development of our business may require significant additional capital, which we may be unable to obtain, to fund our operating expenses, including working capital needs.
Laws and regulations governing the residential mortgage, title insurance, and property and casualty insurance industries could materially and adversely affect our Financial Performance. We have established a joint venture to provide mortgage related services to homebuyers, along with a wholly owned title agency and a wholly owned property and casualty insurance agency.
Laws and regulations governing the residential mortgage, title insurance, and property and casualty insurance industries could materially and adversely affect our Financial Performance. - 20 - We have established Tri Pointe Solutions, which provides mortgage loans to homebuyers through Tri Pointe Connect, title and escrow services through Tri Pointe Assurance, and property and casualty insurance through Tri Pointe Advantage.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are also subject to local, state and federal laws - 34 - and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
Biggest changeWe are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities On November 11, 2020, we announced the approval of a Repurchase Program (the “2020 Repurchase Program”) authorizing the repurchase of up to $250 million of common stock through December 31, 2021.
Biggest changeIssuer Purchases of Equity Securities On December 21, 2023, we announced the approval of the 2024 Repurchase Program, which replaced the stock repurchase program that the Board of Directors authorized in February 2023 (the “2023 Repurchase Program”). The 2024 Repurchase Program authorizes the repurchase of up to $250 million of common stock through December 31, 2024.
Purchases of common stock pursuant to the 2023 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
Purchases of common stock pursuant to the 2024 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
We are not obligated under the 2023 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.
We are not obligated under the 2024 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.
Home Construction Index. - 36 - The above graph is based upon common s tock and index prices calculated as of the dates indicated. The Company’s common stock closing price on December 30, 2022 ( the last trading day of 2022) was $18.59 per share.
Home Construction Index. - 36 - The above graph is based upon common s tock and index prices calculated as of the dates indicated. The Company’s common stock closing price on December 29, 2023 (the last trading day of 2023) was $35.40 per share.
The st ock price performance of the Company’s common st ock depicted in the graph above represents past performance only and is not necessarily indicative of future performance. As of February 8, 2023, we had 71 holders of record of our common stock.
The stock price performance of the Company’s common stock depicted in the graph above represents past performance only and is not necessarily indicative of future performance. As of February 6, 2024, we had 67 holders of record of our common stock.
During the three months ended December 31, 2022, we did not repurchase any shares under the 2020 Repurchase Program. For the year ended December 31, 2022, we repurchased 9,396,381 shares of common stock at an average price of $21.57 for an aggregate dollar amount of $202.6 million.
During the three months ended December 31, 2023, under the 2023 Repurchase Program, we repurchased 1,836,177 shares of common stock at an average price of $27.23 for an aggregate dollar amount of $50.0 million.
The approximate dollar value of shares that remained to be purchased under the 2020 Repurchase Program was $222.3 million as of December 31, 2022. The 2020 Repurchase Program expired on December 31, 2022.
All shares repurchased in 2023 were under the 2023 Repurchase Program, leaving $250 million of shares remaining to be purchased under the 2024 Repurchase Program as of December 31, 2023.
Removed
On July 21, 2021, our board of directors authorized the repurchase of up to an additional $250 million of common stock and extended the term of the 2020 Repurchase Program through December 31, 2022, increasing the aggregate value of shares of common stock authorized to be repurchased under the 2020 Repurchase Program from $250 million to $500 million.
Added
For the year ended December 31, 2023, under the 2023 Repurchase Program, we repurchased 6,301,275 shares of common stock at an average price of $27.68 for an aggregate dollar amount of $174.4 million.
Removed
On February 16, 2022, our board of directors authorized the repurchase of up to an additional $250 million of common stock pursuant to the 2020 Repurchase Program, increasing the aggregate value of shares of common stock authorized to be repurchased under the 2020 Repurchase Program from $500 million to $750 million.
Added
During the three months ended December 31, 2023, we repurchased the following shares pursuant to our 2023 Repurchase Program: Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Approximate dollar value of shares that may yet be purchased under the program (1) October 1, 2023 to October 31, 2023 574,817 $ 26.10 574,817 $ 207,291,224 November 1, 2023 to November 30, 2023 1,250,959 $ 27.74 1,250,959 $ 172,595,700 December 1, 2023 to December 31, 2023 10,401 $ 29.27 10,401 $ 250,000,000 Total 1,836,177 $ 27.23 1,836,177 (1) On December 21, 2023, we announced the completion of our 2023 Repurchase Program and approval of the 2024 Repurchase Program, pursuant to which are are authorized to repurchase shares of common stock with an aggregate value of up to $250 million through December 31, 2024.
Removed
On February 15, 2023, our board of directors approved the 2023 Repurchase Program, authorizing the repurchase of shares of common stock with an aggregate value of up to $250 million through December 31, 2023.
Removed
Through the date of the filing of this annual report on Form 10-K, no shares of common stock have been repurchased under the 2023 Repurchase Program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

81 edited+26 added−45 removed79 unchanged
Biggest changeWe believe our strong balance sheet provides us both flexibility and security as we navigate through an unpredictable market, despite ongoing uncertainty caused by inflation, Federal Reserve policy, and general economic challenges. - 39 - Consolidated Financial Data (in thousands, except share and per share amounts): Year Ended December 31, 2022 2021 2020 Homebuilding: Home sales revenue $ 4,291,563 $ 3,955,154 $ 3,232,836 Land and lot sales revenue 5,108 13,016 15,932 Other operations revenue 2,695 2,619 2,542 Total revenues 4,299,366 3,970,789 3,251,310 Cost of home sales 3,160,581 2,972,237 2,520,790 Cost of land and lot sales 2,075 11,585 6,443 Other operations expense 2,685 2,550 2,496 Sales and marketing 175,005 179,214 183,110 General and administrative 212,504 200,163 166,304 Restructuring charges — — 5,661 Homebuilding income from operations 746,516 605,040 366,506 Equity income (loss) of unconsolidated entities 312 (96) 162 Other income (expense), net 2,307 525 (8,978) Homebuilding income before income taxes 749,135 605,469 357,690 Financial Services: Revenues 49,167 11,446 9,137 Expenses 25,136 6,292 5,115 Equity in income of unconsolidated entities 46 15,039 11,665 Financial services income before income taxes 24,077 20,193 15,687 Income before income taxes 773,212 625,662 373,377 Provision for income taxes (190,803) (156,395) (91,170) Net income 582,409 469,267 282,207 Net income attributable to noncontrolling interests (6,349) — — Net income available to common stockholders $ 576,060 $ 469,267 $ 282,207 Earnings per share Basic $ 5.60 $ 4.16 $ 2.18 Diluted $ 5.54 $ 4.12 $ 2.17 Weighted average shares outstanding Basic 102,898,423 112,836,051 129,368,964 Diluted 104,003,652 113,809,292 129,951,161 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment Year Ended December 31, 2022 Year Ended December 31, 2021 Percentage Change Net New Home Orders Average Selling Communities Monthly Absorption Rates Net New Home Orders Average Selling Communities Monthly Absorption Rates Net New Home Orders Average Selling Communities Monthly Absorption Rates West 2,725 73.5 3.1 4,218 69.5 5.1 (35) % 6 % (39) % Central 960 32.2 2.5 1,508 28.5 4.4 (36) % 13 % (43) % East 692 19.0 3.0 656 13.8 4.0 5 % 38 % (25) % Total 4,377 124.7 2.9 6,382 111.8 4.8 (31) % 12 % (40) % - 40 - Net new home orders for the year ended December 31, 2022 decreased 31% to 4,377, compared to 6,382 for the prior year.
Biggest changeWe believe our strong balance sheet provides us both flexibility and security as we navigate our business going forward. - 39 - Consolidated Financial Data (in thousands, except share and per share amounts): Year Ended December 31, 2023 2022 2021 Homebuilding: Home sales revenue $ 3,654,035 $ 4,291,563 $ 3,955,154 Land and lot sales revenue 12,197 5,108 13,016 Other operations revenue 2,971 2,695 2,619 Total revenues 3,669,203 4,299,366 3,970,789 Cost of home sales 2,838,513 3,160,581 2,972,237 Cost of land and lot sales 12,083 2,075 11,585 Other operations expense 2,894 2,685 2,550 Sales and marketing 184,388 175,005 179,214 General and administrative 217,994 212,504 200,163 Homebuilding income from operations 413,331 746,516 605,040 Equity in (loss) income of unconsolidated entities (97) 312 (96) Other income, net 39,446 2,307 525 Homebuilding income before income taxes 452,680 749,135 605,469 Financial Services: Revenues 46,001 49,167 11,446 Expenses 31,322 25,136 6,292 Equity in income of unconsolidated entities — 46 15,039 Financial services income before income taxes 14,679 24,077 20,193 Income before income taxes 467,359 773,212 625,662 Provision for income taxes (118,164) (190,803) (156,395) Net income 349,195 582,409 469,267 Net income attributable to noncontrolling interests (5,493) (6,349) — Net income available to common stockholders $ 343,702 $ 576,060 $ 469,267 Earnings per share Basic $ 3.48 $ 5.60 $ 4.16 Diluted $ 3.45 $ 5.54 $ 4.12 Weighted average shares outstanding Basic 98,679,477 102,898,423 112,836,051 Diluted 99,695,662 104,003,652 113,809,292 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment Year Ended December 31, 2023 Year Ended December 31, 2022 Percentage Change Net New Home Orders Average Selling Communities Monthly Absorption Rates Net New Home Orders Average Selling Communities Monthly Absorption Rates Net New Home Orders Average Selling Communities Monthly Absorption Rates West 3,528 77.7 3.8 2,725 73.5 3.1 29 % 6 % 23 % Central 1,707 52.2 2.7 960 32.2 2.5 78 % 62 % 8 % East 887 17.6 4.2 692 19.0 3.0 28 % (7) % 40 % Total 6,122 147.5 3.5 4,377 124.7 2.9 40 % 18 % 21 % - 40 - Net new home orders for the year ended December 31, 2023 increased 40% to 6,122, compared to 4,377 for the prior year.
There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates and comparable self-insured retentions, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims, that claims will not exceed our insurance coverage limits, or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates and comparable self-insured retentions, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims, that claims will not - 52 - exceed our insurance coverage limits, or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
In addition, inflation has contributed to higher mortgage rates, which significantly affects the affordability of mortgage financing to homebuyers, while also raising the costs of financing new land acquisition, as well as existing land development and construction. Higher interest rates and materials/labor costs may lower gross margins, especially during a period of declining home prices.
In addition, inflation contributed to higher mortgage rates, which significantly affects the affordability of mortgage financing to homebuyers, while also raising the costs of financing new land acquisition, as well as existing land development and construction. Higher interest rates and materials/labor costs may lower gross margins, especially during a period of declining home prices.
The estimation and allocation of these costs require a substantial degree of judgment by management. - 51 - In determining the allocation of costs to a particular land parcel or individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred.
The estimation and allocation of these costs require a substantial degree of judgment by management. In determining the allocation of costs to a particular land parcel or individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred.
Purchases of common stock pursuant to the 2023 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
Purchases of common stock pursuant to the 2024 Repurchase Program may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
The Modification, among other things, (i) increased the maximum amount of the revolving credit facility (the “Revolving Facility”) under the Credit Agreement from $650.0 million to $750.0 million, (ii) increased the sublimit for issuance of letters of credit under the Revolving Facility from - 45 - $100 million to $150 million and (iii) extended the maturity date of both the Revolving Facility and term loan facility (the “Term Facility”) under the Credit Agreement to June 29, 2027.
The Third Modification, among other things, (i) increased the maximum amount of the revolving credit facility (the “Revolving Facility”) under the Credit Agreement from $650.0 million to $750.0 million, (ii) increased the sublimit for issuance of letters of credit under the Revolving Facility from $100 million to $150 million and (iii) extended the maturity date of both the Revolving Facility and term loan facility (the “Term Facility”) under the Credit Agreement to June 29, 2027.
The increase in interest incurred during 2022 was primarily due to the higher utilization of land banking arrangements as a method of acquiring land in staged takedowns. While land banking helps better manage financial and market risk, these arrangements typically involve higher financing interest rates. All interest incurred in both periods was capitalized.
The increase in interest incurred during 2023 was primarily due to the higher utilization of land banking arrangements as a method of acquiring land in staged takedowns. While land banking helps better manage financial and market risk, these arrangements typically involve higher financing interest rates. All interest incurred in both periods was capitalized.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Discussion and analysis of our 2021 fiscal year and the year-over-year comparison of our 2021 financial performance to our 2020 financial performance may be found in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 18, 2022, which is available in the “investors” portion of our internet website at www.tripointehomes.com and the SEC’s website at www.sec.gov .
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Discussion and analysis of our 2022 fiscal year and the year-over-year comparison of our 2022 financial performance to our 2021 financial performance may be found in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023, which is available in the “investors” portion of our internet website at www.tripointehomes.com and the SEC’s website at www.sec.gov .
This omitted information is not incorporated by reference and is not a part of this annual report on Form 10-K. Liquidity and Capital Resources Overview Our principal uses of capital for the year ended December 31, 2022 were operating expenses, share repurchases, land purchases, land development and home construction.
This omitted information is not incorporated by reference and is not a part of this annual report on Form 10-K. Liquidity and Capital Resources Overview - 44 - Our principal uses of capital for the year ended December 31, 2023 were operating expenses, share repurchases, land purchases, land development and home construction.
We are not obligated under the 2023 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.
We are not obligated under the 2024 Repurchase Program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.
Interest rates under the Term Facility will be based on SOFR, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio. We had no outstanding debt under the Revolving Facility as of December 31, 2022 and 2021.
Interest rates under the Term Facility will be based on SOFR, plus a spread ranging from 1.10% to 1.85%, depending on the Company’s leverage ratio. - 45 - We had no outstanding debt under the Revolving Facility as of December 31, 2023 and 2022.
Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions. As of December 31, 2022, we held equity investments in twelve active homebuilding partnerships or limited liability companies. Our participation in these entities may be as a developer, a builder, or an investment partner.
Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions. As of December 31, 2023, we held equity investments in thirteen active homebuilding partnerships or limited liability companies. Our participation in these entities may be as a developer, a builder, or an investment partner.
These factors are specifi c to each community and may vary among communities. It is reasonably possible that changes in market conditions could change management’s estimates of future cash inflows and outflows, leading to future impairment charges.
These factors are specific to each community and may vary among communities. It is reasonably possible that changes in market conditions could change management’s estimates of future cash inflows and outflows, leading to future impairment charges.
For the years ended December 31, 2022, 2021 and 2020, we recorded real estate inventory impairment charges of zero, $19.6 million and $1.5 million, respectively. Warranty Reserves In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to homebuyers.
For the years ended December 31, 2023, 2022 and 2021, we recorded real estate inventory impairment charges of $11.5 million, zero and $19.6 million, respectively. Warranty Reserves In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to homebuyers.
Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 29.0% for the year ended December 31, 2022 compared to 27.9% for the prior year. Adjusted homebuilding gross margin is a non-GAAP financial measure.
Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 25.9% for the year ended December 31, 2023 compared to 29.0% for the prior year. Adjusted homebuilding gross margin is a non-GAAP financial measure.
These costs related to the Credit Facility will amortize over the remaining term of the Credit Facility and are included in other assets on our consolidated balance sheets. Accrued interest, including loan commitment fees, related to the Credit Facility was $1.5 million and $570,000 as of December 31, 2022 and December 31, 2021, respectively.
These costs related to the Credit Facility will amortize over the remaining term of the Credit Facility and are included in other assets on our consolidated balance sheets. Accrued interest, including loan commitment fees, related to the Credit Facility was $1.6 million and $1.5 million as of December 31, 2023 and 2022, respectively.
Our cancellation rate of homebuyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 19% and 8% for the years ended December 31, 2022 and 2021, respectively.
Our cancellation rate of homebuyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 10% and 19% for the years ended December 31, 2023 and 2022, respectively.
We used funds generated by our operations to meet our short-term working capital requirements. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth. As of December 31, 2022, we had $889.7 million of cash and cash equivalents.
We used funds generated by our operations to meet our short-term working capital requirements. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth. As of December 31, 2023, we had $869.0 million of cash and cash equivalents.
At December 31, 2022 and 2021, we had outstanding letters of credit of $58.9 million and $48.9 million, respectively. These letters of credit were issued to secure various financial obligations. We believe it is not probable that any outstanding letters of credit will be drawn upon.
At December 31, 2023 and 2022, we had outstanding letters of credit of $52.3 million and $58.9 million, respectively. These letters of credit were issued to secure various financial obligations. We believe it is not probable that any outstanding letters of credit will be drawn upon.
Covenant Compliance Under the Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands): Actual at December 31, Covenant Requirement at December 31, Financial Covenants 2022 2022 Consolidated Tangible Net Worth, as defined $ 2,665,716 $ 1,824,291 (Not less than $1.58 billion plus 50% of net income and 50% of the net proceeds from equity offerings after March 31, 2022) Leverage Test 15.8 % ≤60% (Not to exceed 60%) Interest Coverage Test 7.5 ≥1.5 (Not less than 1.5:1.0) In addition, the Credit Facility limits the aggregate number of single-family dwellings (where construction has commenced) that may be owned by the Company or any guarantor that are not presold or model units to no more than the greater of (i) 50% of the number of housing unit closings (as defined) during the preceding 12 months; or (ii) 100% of the number of housing unit closings during the preceding 6 months.
Covenant Compliance Under the Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands): Actual at December 31, Covenant Requirement at December 31, Financial Covenants 2023 2023 Consolidated Tangible Net Worth, as defined $ 2,851,601 $ 1,996,143 (Not less than $1.58 billion plus 50% of net income and 50% of the net proceeds from equity offerings after March 31, 2022) Leverage Test 16.5 % ≤60% (Not to exceed 60%) Interest Coverage Test 4.3 ≥1.5 (Not less than 1.5:1.0) In addition, the Credit Facility limits the aggregate number of single-family dwellings (where construction has commenced) that may be owned by the Company or any guarantor that are not presold or model units to no more than the greater of (i) 50% of the number of housing unit closings (as defined) during the preceding 12 months; or (ii) 100% of the number of housing unit closings during the preceding 6 months.
The joint venture acts as a preferred mortgage loan broker to our homebuyers in all of the markets in which we operate, generating income from fees paid by third party lenders for the successful funding and closing of loans for homebuyers that originate through Tri Pointe Connect.
For the year ended December 31, 2023, the joint venture acted as a preferred mortgage loan broker to our homebuyers in all of the markets in which we operate, generating income from fees paid by third party lenders for the successful funding and closing of loans for homebuyers that originate through Tri Pointe Connect.
Other Income, Net Other income, net for the years ended December 31, 2022 and 2021 was income of $2.3 million and $525,000, respectively. The current year increase was primarily due to higher interest income stemming from the higher interest rates realized on our existing cash balances.
Other Income, Net Other income, net for the years ended December 31, 2023 and 2022 was income of $39.4 million and $2.3 million, respectively. The current year increase was primarily due to higher interest income stemming from the higher interest rates realized on our existing cash balances.
As of December 31, 2022, our cash and cash equivalents balance was $889.7 million. Off-Balance Sheet Arrangements and Contractual Obligations In the ordinary course of business, we enter into land option contracts in order to procure lots for the construction of our homes.
As of December 31, 2023, our cash and cash equivalents balance was $869.0 million. Off-Balance Sheet Arrangements and Contractual Obligations In the ordinary course of business, we enter into land option contracts in order to procure lots for the construction of our homes.
As of December 31, 2022, we had $250 million outstanding debt under the Term Facility with a variable interest rate of 5.50%. As of December 31, 2022 and 2021, there was $6.5 million and $5.4 million, of capitalized debt financing costs.
As of December 31, 2023, we had $250 million of outstanding debt under the Term Facility with a variable interest rate of 6.5%. As of December 31, 2023 and 2022, there was $5.1 million and $6.5 million, of capitalized debt financing costs.
Income Tax For the year ended December 31, 2022, we have recorded a tax provision of $190.8 million based on an effective tax rate of 24.7%.
Income Tax For the year ended December 31, 2023, we have recorded a tax provision of $118.2 million based on an effective tax rate of 25.3%. For the year ended December 31, 2022, we recorded a tax provision of $190.8 million based on an effective tax rate of 24.7%.
However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value.
If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value.
As of December 31, 2022, we were in compliance with the covenants required by our Senior Notes. Loans Payable On June 29, 2022, we entered into a Third Modification Agreement (the “Modification”) to our Second Amended and Restated Credit Agreement dated as of March 29, 2019 (the “Credit Agreement”).
As of December 31, 2023, we were in compliance with the covenants required by our Senior Notes. Loans Payable On December 15, 2023, we entered into a Fourth Modification Agreement (the “Fourth Modification”) to our Second Amended and Restated Credit Agreement dated as of March 29, 2019 (the “Credit Agreement”).
We believe the ratio of net debt-to-net cap ital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing.
We believe the ratio of net debt-to-net cap ital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.
SG&A decreased to 9.0% of home sales revenue for the year ended December 31, 2022 from 9.6% for the year ended December 31, 2021. Interest Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $124.5 million and $92.8 million for the years ended December 31, 2022 and 2021, respectively.
SG&A increased to 11.0% of home sales revenue for the year ended December 31, 2023 from 9.0% for the year ended December 31, 2022. Interest Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $147.2 million and $124.5 million for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2022, we had $228.9 million of non-refundable cash deposits pertaining to land option contracts and purchase contracts with an aggregate remaining purchase price of approximately $1.3 billion (net of deposits).
As of December 31, 2023, we had $175.5 million of non-refundable cash deposits pertaining to land option contracts and purchase contracts with an aggregate remaining purchase price of approximately $1.2 billion (net of deposits).
Tri Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, therefore the consolidated financial statements represent the full issuer and guarantor subsidiary results. - 49 - Inflation The U.S. economy's rising inflation in 2022 has negatively impacted the homebuilding industry, causing increased costs in land, building materials, construction services, warranty repairs, and employee compensation and benefits, and is expected to continue in 2023.
Tri Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, therefore the consolidated financial statements represent the full issuer and guarantor subsidiary results. - 49 - Inflation The escalating inflation in the U.S. economy that gained traction in 2022 adversely impacted the homebuilding industry, causing increased costs in land, building materials, construction services, warranty repairs, and employee compensation and benefits.
This decrease was primarily driven by the 9% increase in home sales revenue resulting in better utilization of leverage on the fixed components of our sales and marketing costs. Sales and marketing expense decreased to $175.0 million for the year ended December 31, 2022 compared to $179.2 million in the prior year.
This increase was primarily driven by the 15% decrease in home sales revenue resulting in diminished utilization of leverage on the fixed components of our sales and marketing costs. Sales and marketing expense increased to $184.4 million for the year ended December 31, 2023 compared to $175.0 million in the prior year.
We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.
Seasonality Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.
Lots Owned or Controlled by Segment Lots owned or controlled include our share of lots controlled from our unconsolidated land development joint ventures. Investments in joint ventures are described in Note 6, Investments in Unconsolidated Entities , of the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K.
Investments in joint ventures are described in Note 6, Investments in Unconsolidated Entities , of the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K.
This decrease was the result of better utilization of leverage on the fixed components of our general and administrative costs as we increased revenue by 9% during the current year. General and administrative expense increased by $12.3 million to $212.5 million for the year ended December 31, 2022 from $200.2 million for the year ended December 31, 2021.
This decrease was the result of lower utilization of leverage on the fixed components of our general and administrative costs as revenue decreased by 15% during the current year. General and administrative expense increased by $5.5 million to $218.0 million for the year ended December 31, 2023 from $212.5 million for the year ended December 31, 2022.
Sales and Marketing, General and Administrative Expense (dollars in thousands) Year Ended December 31, As a Percentage of Home Sales Revenue 2022 2021 2022 2021 Sales and marketing $ 175,005 $ 179,214 4.1 % 4.5 % General and administrative (G&A) 212,504 200,163 5.0 % 5.1 % Total sales and marketing and G&A $ 387,509 $ 379,377 9.0 % 9.6 % Sales and marketing expense as a percentage of home sales revenue decreased to 4.1% for the year ended December 31, 2022 from 4.5% for the year ended December 31, 2021.
Sales and Marketing, General and Administrative Expense (dollars in thousands) Year Ended December 31, As a Percentage of Home Sales Revenue 2023 2022 2023 2022 Sales and marketing $ 184,388 $ 175,005 5.0 % 4.1 % General and administrative (G&A) 217,994 212,504 6.0 % 5.0 % Total sales and marketing and G&A $ 402,382 $ 387,509 11.0 % 9.0 % Sales and marketing expense as a percentage of home sales revenue increased to 5.0% for the year ended December 31, 2023 from 4.1% for the year ended December 31, 2022.
As of December 31, 2022, we had $691.1 million of availability under the Credit Facility after considering the borrowing base provisions and outstanding letters of credit. As of December 31, 2022, the Company had $37.4 million outstanding related to one seller-financed loan to acquire lots for the construction of homes.
As of December 31, 2023, we had $697.7 million of availability under the Credit Facility after considering the borrowing base provisions and outstanding letters of credit. As of December 31, 2023, the Company had $38.3 million outstanding related to two seller-financed loans. As of December 31, 2022 we had $37.4 million outstanding related to one seller-financed loan.
Our homebuilding gross margin percentage increased to 26.4% for the year ended December 31, 2022, as compared to 24.9% for the year ended December 31, 2021.
Our homebuilding gross margin percentage decreased to 22.3% for the year ended December 31, 2023, as compared to 26.4% for the year ended December 31, 2022.
Backlog dollar value in our Central segment decreased 52% compared to the prior year due to the combination of a 60% decrease in backlog units, offset by a 18% increase in average sales price. The decrease in backlog units was due primarily to the decrease in new order activity experienced during 2022, primarily during the second half of the year.
Backlog dollar value in our Central segment increased 96% compared to the prior year due to a 127% increase in backlog units, offset by a 14% decrease in average sales price. The increase in backlog units was due primarily to the increase in new order activity experienced during 2023.
Homebuilding Gross Margins (dollars in thousands) Year Ended December 31, 2022 % 2021 % Home sales revenue $ 4,291,563 100.0 % $ 3,955,154 100.0 % Cost of home sales 3,160,581 73.6 % 2,972,237 75.1 % Homebuilding gross margin 1,130,982 26.4 % 982,917 24.9 % Add: interest in cost of home sales 106,595 2.5 % 101,176 2.6 % Add: impairments and lot option abandonments 8,747 0.2 % 20,838 0.5 % Adjusted homebuilding gross margin (1) $ 1,246,324 29.0 % $ 1,104,931 27.9 % Homebuilding gross margin percentage 26.4 % 24.9 % Adjusted homebuilding gross margin percentage (1) 29.0 % 27.9 % ______________________________________ (1) Non-GAAP financial measure (as discussed below).
Homebuilding Gross Margins (dollars in thousands) Year Ended December 31, 2023 % 2022 % Home sales revenue $ 3,654,035 100.0 % $ 4,291,563 100.0 % Cost of home sales 2,838,513 77.7 % 3,160,581 73.6 % Homebuilding gross margin 815,522 22.3 % 1,130,982 26.4 % Add: interest in cost of home sales 116,143 3.2 % 106,595 2.5 % Add: impairments and lot option abandonments 14,157 0.4 % 8,747 0.2 % Adjusted homebuilding gross margin (1) $ 945,822 25.9 % $ 1,246,324 29.0 % Homebuilding gross margin percentage 22.3 % 26.4 % Adjusted homebuilding gross margin percentage (1) 25.9 % 29.0 % ______________________________________ (1) Non-GAAP financial measure (as discussed below).
The increase in general and administrative expenses is primarily related to higher employee costs and increased travel, as the impact of COVID-19 on travel diminished during the current year. Total sales and marketing and G&A (“SG&A”) expense increased $8.1 million, or 2.1%, to $387.5 million for the year ended December 31, 2022 from $379.4 million in the prior year.
The increase in general and administrative expenses is primarily related to higher employee costs. Total sales and marketing and G&A (“SG&A”) expense increased $14.9 million, or 3.8%, to $402.4 million for the year ended December 31, 2023 from $387.5 million in the prior year.
Recently Issued Accounting Standards See Note 1, Organization and Summary of Significant Accounting Policies, of the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K. - 54 -
Related Party Transactions We had no related party transactions for the years ended December 31, 2023 and 2022, res pectively. Recently Issued Accounting Standards See Note 1, Organization and Summary of Significant Accounting Policies, of the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K. - 53 -
Deliveries from these markets increased 288% to 194 for the year ended December 31, 2022 compared to 50 for the year ended December 31, 2021.
Deliveries from these markets increased 78% to 616 for the year ended December 31, 2023 compared to 346 for the year ended December 31, 2022.
Our Central segment opened 17 communities and closed out of 8 communities, leading to an increase of 9 active selling communities as of December 31, 2022 compared to the prior-year period, which partially offset the decrease in monthly absorption rates.
Our Central segment opened 34 communities and closed out of 9 communities, leading to an increase of 25 active selling communities as of December 31, 2023 compared to the prior-year period.
As of December 31, 2022, we were in compliance with all of the above financial covenants. - 46 - Stock Repurchase Program On November 11, 2020, we announced the approval of a Repurchase Program (the “2020 Repurchase Program”) authorizing the repurchase of up to $250 million of common stock through December 31, 2021.
As of December 31, 2023, we were in compliance with all of the above financial covenants. - 46 - Stock Repurchase Program On December 21, 2023, we announced the approval of the 2024 Repurchase Program, which replaced our 2023 Repurchase Program. The 2024 Repurchase Program authorizes the repurchase of up to $250 million of common stock through December 31, 2024.
The ratio of debt-to-capital and the ratio of net debt-to-net capital are calculated as follows (dollars in thousands): December 31, 2022 December 31, 2021 Loans payable $ 287,427 $ 250,504 Senior notes 1,090,624 1,087,219 Total debt 1,378,051 1,337,723 Stockholders’ equity 2,832,389 2,447,621 Total capital $ 4,210,440 $ 3,785,344 Ratio of debt-to-capital (1) 32.7 % 35.3 % Total debt $ 1,378,051 $ 1,337,723 Less: Cash and cash equivalents (889,664) (681,528) Net debt 488,387 656,195 Stockholders’ equity 2,832,389 2,447,621 Net capital $ 3,320,776 $ 3,103,816 Ratio of net debt-to-net capital (2) 14.7 % 21.1 % ______________________________________________ (1) The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.
The ratio of debt-to-capital and the ratio of net debt-to-net capital are calculated as follows (dollars in thousands): December 31, 2023 December 31, 2022 Loans payable $ 288,337 $ 287,427 Senior notes 1,094,249 1,090,624 Total debt 1,382,586 1,378,051 Stockholders’ equity 3,010,958 2,832,389 Total capital $ 4,393,544 $ 4,210,440 Ratio of debt-to-capital (1) 31.5 % 32.7 % Total debt $ 1,382,586 $ 1,378,051 Less: Cash and cash equivalents (868,953) (889,664) Net debt 513,633 488,387 Stockholders’ equity 3,010,958 2,832,389 Net capital $ 3,524,591 $ 3,320,776 Ratio of net debt-to-net capital (2) 14.6 % 14.7 % ______________________________________________ (1) The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.
This decrease was due to a decrease in backlog units of 1,686, or 53%, to 1,472 as of December 31, 2022, compared to 3,158 as of December 31, 2021, offset some by the 11% increase in average sales price in backlog to $791,000.
This increase was due to an increase in backlog units of 848, or 58%, to 2,320 as of December 31, 2023, compared to 1,472 as of December 31, 2022, offset some by the 12% decrease in average sales price in backlog to $695,000.
Home sales revenue in our East segment increased by 18% due to a 9% increase in new homes delivered, along with an 8% increase in average sales price. The increase in new homes delivered was due primarily to higher activity in our Charlotte and Raleigh markets, where our first community opened in 2020.
Home sales revenue in our East segment increased by 9% due to a 12% increase in new homes delivered, offset by a 3% decrease in average sales price. The increase in new homes delivered was due to increased activity in our Charlotte and Raleigh markets.
The change was primarily composed of (i) an increase in net income to $582.4 million in 2022 compared to $469.3 million in 2021, and (ii) a decrease in cash outflow related to real estate inventories of $37.9 million in 2022 as we exercised greater caution as mortgage interest rates increased and housing demand weakened, offset by (iii) other normal fluctuations, including changes in other assets, accrued expenses and other liabilities and deferred income taxes. • Net cash used in investing activities was $58.1 million in 2022 compared to $72.1 million in 2021.
The change was primarily comprised of (i) a decrease in net income to $349.2 million in 2023 compared to $582.4 million in 2022, and (ii) an increase in cash outflow related to real estate inventories of - 47 - $49.6 million in 2023, offset by (iii) other normal fluctuations, including changes in other assets, accounts payable, accrued expenses and other liabilities and deferred income taxes. • Net cash used in investing activities was $26.4 million in 2023 compared to $58.1 million in 2022.
The decrease was due largely to a decrease in broker commissions, with this savings partially offset by an increase to advertising expenses as a result of the changing market dynamics. General and administrative expense as a percentage of home sales revenue decreased to 5.0% for the year ended December 31, 2022 from 5.1% for the year ended December 31, 2021.
The increase was due largely to an increase in broker commissions. General and administrative expense as a percentage of home sales revenue increased to 6.0% for the year ended December 31, 2023 from 5.0% for the year ended December 31, 2022.
Beginning in the fiscal year ended December 31, 2022, Tri Pointe Connect is fully consolidated under the Financial Services section of our consolidated statements of operations, with the noncontrolling interest recorded on the consolidated statements of operations as net income attributable to noncontrolling interests.
Tri Pointe Connect, which comprises a substantial component of our financial services operations and operated as a joint venture with an established mortgage lender during the year ended December 31, 2023, is fully consolidated under the Financial Services section of our consolidated statements of operations, with the noncontrolling interest recorded on the consolidated statements of operations as net income attributable to noncontrolling interests.
Key assumptions used in developing these estimates include weighting of industry data claim frequencies, severities and resolution patterns, which can occur over an extended period of time. Our warranty reserve may also include an estimate of future fit and finish warranty claims to the extent not contemplated in the actuarial analysis.
Our warranty reserve is based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs. Key assumptions used in developing these estimates include weighting of industry data claim frequencies, severities and resolution patterns, which can occur over an extended period of time.
As of December 31, 2022 and 2021, lots controlled for Central include 3,325 and 2,950 lots, respectively, and lots controlled for East include 141 and 179 lots, respectively, which represent our expected share of lots owned by our investments in unconsolidated land development joint ventures. - 44 - Total lots owned or controlled as of December 31, 2022 decreased 19% from the prior year, driven by a 23% decrease in lots controlled and a 15% decrease in lots owned.
As of December 31, 2023 and 2022, lots controlled for Central include 3,561 and 3,325 lots, respectively, and lots controlled for East include 71 and 141 lots, respectively, which represent our expected share of lots owned by our investments in unconsolidated land development joint ventures.
The decrease in net cash used in investing activities of $14.0 million was due to a $28.1 million decrease in investments in unconsolidated entities, offset by a $14.1 million increase in cash used to purchase property and equipment. • Net cash used in financing activities decreased to $178.0 million in 2022 from $287.2 million in 2021.
The decrease in net cash used in investing activities of $31.7 million was due to an $18.2 million decrease in cash used to purchase property and equipment and a $13.5 million decrease in investments in unconsolidated entities. • Net cash used in financing activities increased to $189.6 million in 2023 from $178.0 million in 2022.
The dollar value of backlog was approximately $1.2 billion as of December 31, 2022, a decrease of $1.1 billion, or 48%, compared to $2.2 billion as of December 31, 2021.
The dollar value of backlog was approximately $1.6 billion as of December 31, 2023, an increase of $447.4 million, or 38%, compared to $1.2 billion as of December 31, 2022.
Backlog Units, Backlog Dollar Value and Average Sales Price by Segment (dollars in thousands) As of December 31, 2022 As of December 31, 2021 Percentage Change Backlog Units Backlog Dollar Value Average Sales Price Backlog Units Backlog Dollar Value Average Sales Price Backlog Units Backlog Dollar Value Average Sales Price West 836 $ 735,952 $ 880 2,011 $ 1,547,186 $ 769 (58) % (52) % 14 % Central 332 225,989 681 820 472,063 576 (60) % (52) % 18 % East 304 202,737 667 327 222,910 682 (7) % (9) % (2) % Total 1,472 $ 1,164,678 $ 791 3,158 $ 2,242,159 $ 710 (53) % (48) % 11 % Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a homebuyer but for which we have not yet delivered the home.
Backlog Units, Backlog Dollar Value and Average Sales Price by Segment (dollars in thousands) As of December 31, 2023 As of December 31, 2022 Percentage Change Backlog Units Backlog Dollar Value Average Sales Price Backlog Units Backlog Dollar Value Average Sales Price Backlog Units Backlog Dollar Value Average Sales Price West 1,178 $ 921,211 $ 782 836 $ 735,952 $ 880 41 % 25 % (11) % Central 754 442,732 587 332 225,989 681 127 % 96 % (14) % East 388 248,171 640 304 202,737 667 28 % 22 % (4) % Total 2,320 $ 1,612,114 $ 695 1,472 $ 1,164,678 $ 791 58 % 38 % (12) % Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a homebuyer but for which we have not yet delivered the home.
Backlog dollar value in our West segment decreased 52% compared to the prior year as a result of a 58% decrease in backlog units, offset by a 14% increase in average sales price.
Backlog dollar value in our West segment increased 25% compared to the prior year as a result of a 41% increase in backlog units, offset by an 11% decrease in average sales price. The increase in backlog units was due primarily to the increase in new order activity experienced during 2023.
Backlog dollar value in our East segment decreased by 9% due to a 7% decrease in backlog units and a - 41 - 2% decrease in average sales price.
Backlog dollar value in our East segment increased by 22% due to a 28% increase in backlog units, offset by a 4% decrease in average sales price.
Home sales revenue in our Central segment increased 27% due to a 10% increase in new homes delivered and a 15% increase in average sales price. The increase in new homes delivered was due to higher backlog units to start the current year compared to the prior year.
Home sales revenue in our West segment decreased 19% due to an 18% decrease in new homes delivered and a 1% decrease in average sales price. The decrease in deliveries was due primarily to a 58% decrease in backlog units to start the current year compared to the prior-year period.
We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations.
We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to subcontractors that are added to our commercial general liability insurance policy.
To reduce the potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred and utilizing the most recent information available to estimate costs.
To reduce the potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred and utilizing the most recent information available to estimate costs. - 51 - If there are indications of impairment, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the community are more or less than the asset’s carrying value.
The table below summarizes our lots owned or controlled by segment as of the dates presented: Increase December 31, (Decrease) 2022 2021 Amount % Lots Owned West 12,444 15,238 (2,794) (18) % Central 4,862 5,452 (590) (11) % East 1,456 1,446 10 1 % Total 18,762 22,136 (3,374) (15) % Lots Controlled (1) West 4,317 7,631 (3,314) (43) % Central 7,099 8,528 (1,429) (17) % East 3,616 3,380 236 7 % Total 15,032 19,539 (4,507) (23) % Total Lots Owned or Controlled (1) 33,794 41,675 (7,881) (19) % ______________________________________________ (1) As of December 31, 2022 and 2021, lots controlled included lots that were under land option contracts or purchase contracts.
The table below summarizes our lots owned or controlled by segment as of the dates presented: Increase December 31, (Decrease) 2023 2022 Amount % Lots Owned West 11,172 12,444 (1,272) (10) % Central 5,967 4,862 1,105 23 % East 1,600 1,456 144 10 % Total 18,739 18,762 (23) — % Lots Controlled (1) West 3,867 4,317 (450) (10) % Central 5,997 7,099 (1,102) (16) % East 3,357 3,616 (259) (7) % Total 13,221 15,032 (1,811) (12) % Total Lots Owned or Controlled (1) 31,960 33,794 (1,834) (5) % ______________________________________________ (1) As of December 31, 2023 and 2022, lots controlled included lots that were under land option contracts or purchase contracts.
Our East segment reported a 5% increase in net new home orders due to a 38% increase in average selling communities, offset by a 25% decrease in monthly absorption rates.
Our East segment reported a 28% increase in net new home orders due to a 40% increase in monthly absorption rates, offset by a 7% decrease in average selling communities. Each of our East markets recorded robust increases in monthly absorption rates in 2023, as demand in the East remains strong.
During the three months ended December 31, 2022, we did not repurchase any shares under the 2020 Repurchase Program. For the year ended December 31, 2022, we repurchased 9,396,381 shares of common stock at an average price of $21.57 for an aggregate dollar amount of $202.6 million.
During the three months ended December 31, 2023, under the 2023 Repurchase Program, we repurchased 1,836,177 shares of common stock at an average price of $27.23 for an aggregate dollar amount of $50.0 million.
See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital. - 47 - Cash Flows—Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The comparison of cash flows for the years ended December 31, 2022 and 2021 is as follows: • Net cash provided by operating activities increased by $24.7 million to $444.3 million in 2022 from cash provided of $419.5 million in 2021.
Cash Flows—Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The comparison of cash flows for the years ended December 31, 2023 and 2022 is as follows: • Net cash provided by operating activities decreased by $249.0 million to $195.3 million in 2023 from cash provided of $444.3 million in 2022.
The change was primarily the result of a decrease in share repurchases of $73.4 million to $202.6 million in 2022 compared to $276.0 million in 2021, in addition to an increase in net debt borrowing of $45.4 million in 2022 compared to 2021, due primarily to new borrowings of $37.4 million related to a seller-financed note that is expected to be repaid in 2023.
The change was primarily the result of a decrease in net debt borrowing of $36.0 million in 2023 compared to 2022, due to new borrowings related to a seller-financed note in the prior-year period. This was partially offset by a decrease in share repurchases of $28.1 million to $174.6 million in 2023 compared to $202.6 million in 2022.
The increase was comprised of $416.3 million due to an 11% increase in the average sales price of homes delivered to $708,000 for the year ended December 31, 2022 from $639,000 in the prior year, offset by a $79.9 million decrease due to a 2% decrease in new homes delivered to 6,063 for the year ended December 31, 2022 from 6,188 in the prior year.
The decrease was comprised of $558.6 million due to a 13% decrease in new homes delivered to 5,274 and $79.1 million due to a 2% decrease in the average sales price of homes delivered to $693,000 for the year ended December 31, 2023.
Through the date of the filing of this annual report on Form 10-K, no shares of common stock have been repurchased under the 2023 Repurchase Program. Leverage Ratios We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management.
Leverage Ratios We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management.
Both revenue from forfeited deposits and deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers are immaterial.
Both revenue from forfeited deposits and deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers are immaterial. - 50 - Financial services revenues Tri Pointe Solutions is a reportable segment and is comprised of our Tri Pointe Connect mortgage financing operations, Tri Pointe Assurance title and escrow services operations, and Tri Pointe Advantage property and casualty insurance agency operations.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Percentage Change New Homes Delivered Home Sales Revenue Average Sales Price New Homes Delivered Home Sales Revenue Average Sales Price New Homes Delivered Home Sales Revenue Average Sales Price West 3,900 $ 2,978,432 $ 764 4,219 $ 2,893,828 $ 686 (8) % 3 % 11 % Central 1,448 853,799 590 1,312 671,199 512 10 % 27 % 15 % East 715 459,332 642 657 390,127 594 9 % 18 % 8 % Total 6,063 $ 4,291,563 $ 708 6,188 $ 3,955,154 $ 639 (2) % 9 % 11 % Home sales revenue increased $336.4 million, or 9%, to $4.3 billion for the year ended December 31, 2022.
The increase in backlog units was largely due to the 28% increase in net new home orders due to the improved market conditions in the current-year period. - 41 - New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 Percentage Change New Homes Delivered Home Sales Revenue Average Sales Price New Homes Delivered Home Sales Revenue Average Sales Price New Homes Delivered Home Sales Revenue Average Sales Price West 3,186 $ 2,408,704 $ 756 3,900 $ 2,978,432 $ 764 (18) % (19) % (1) % Central 1,285 746,752 581 1,448 853,799 590 (11) % (13) % (2) % East 803 498,579 621 715 459,332 642 12 % 9 % (3) % Total 5,274 $ 3,654,035 $ 693 6,063 $ 4,291,563 $ 708 (13) % (15) % (2) % Home sales revenue decreased $637.5 million, or 15%, to $3.7 billion for the year ended December 31, 2023.
In addition, we ended 2022 with total liquidity of $1.6 billion, including cash and cash equivalents of $889.7 million and $691.1 million of availability under our Credit Facility.
We achieved a homebuilding gross margin percentage of 22.3%, and a selling, general and administrative expense as a percentage of home sales revenue of 11.0%. In addition, we ended 2023 with total liquidity of $1.6 billion, including cash and cash equivalents of $869.0 million and $697.7 million of availability under our Credit Facility.
These interest rate dynamics adversely impacted both monthly absorption rates and net new home orders in each of our homebuilding segments. Our West segment reported a 35% decrease in net new home orders due to a 39% decrease in monthly absorption rates offset by a 6% increase in average selling communities.
Our West segment reported a 29% increase in net new home orders due to a 23% increase in monthly absorption rates and a 6% increase in average selling communities. Each of our West markets experienced an improved monthly absorption rate in 2023, with each market performing well for the year.
Our income from financial services for the year ended December 31, 2022, net of income attributable to noncontrolling interests, was $17.7 million compared to income of $20.2 million for the year ended December 31, 2021. This decrease is due to the tightening of credit conditions in the current year, which contributed to a lower capture rate.
Effective January 1, 2024, we acquired the minority interest in this joint venture. Our income from financial services for the years ended December 31, 2023 and 2022, respectively, net of income attributable to noncontrolling interests, was $9.2 million compared to income of $17.7 million for the year ended December 31, 2022.
Financial services revenues Tri Pointe Solutions is a reportable segment and is comprised of our Tri Pointe Connect mortgage financing operations, Tri Pointe Assurance title and escrow services operations, and Tri Pointe Advantage property and casualty insurance agency operations. Mortgage financing operations Tri Pointe Connect was formed as a joint venture with an established mortgage lender.
Mortgage financing operations Tri Pointe Connect was formed as a joint venture with an established mortgage lender.
Principal on this loan is expected to mature in 2023, provided certain achievements are met. The seller-financed loan accrues interest at an imputed interest rate of 4.50% per annum.
All seller-financed loans are to acquire lots for the construction of homes. Principal on these loans are expected to be fully paid by the end of fiscal year 2024, provided certain achievements are met. One of the seller-financed loans, representing $37.4 million of the total balance, accrues interest at an imputed interest rate of rate of 4.50% per annum.
Our Central segment reported a 36% decrease in net new home orders due to a 43% decrease in monthly absorption rates, offset by an 13% increase in average selling communities.
Further, we opened 27 communities in our West segment during 2023, which increased our average selling communities and allowed us to generate higher net new home order volume. Our Central segment reported a 78% increase in net new home orders due to a 62% increase in average selling communities and an 8% increase in monthly absorption rates.
While we attempt to pass on cost increases to homebuyers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices. Seasonality Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.
While above-trend inflation persisted through 2023, it is noteworthy that inflation has exhibited a sustained period of easing, which has provided a degree of relief. While we attempt to pass on cost increases to homebuyers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.
Despite facing labor and supply chain difficulties, we delivered 6,063 new homes and generated $4.3 billion in home sales revenue, which resulted in net income available to common stockholders of $576.1 million, or $5.54 per diluted share. We opened 70 communities in 2022, which contributed to a 21% increase in our active selling communities as of December 31, 2022.
We believe this increase in community count will help us achieve our growth initiatives as the new housing market continues to exhibit favorable fundamentals. During 2023, we delivered 5,274 new homes and generated $3.7 billion in home sales revenue, which resulted in net income available to common stockholders of $343.7 million, or $3.45 per diluted share.
The approximate dollar value of shares that remained to be purchased under the 2020 Repurchase Program was $222.3 million as of December 31, 2022. The 2020 Repurchase Program expired on December 31, 2022.
All shares repurchased in 2023 were under the 2023 Repurchase Program, leaving $250 million of shares remaining to be purchased under the 2024 Repurchase Program as of December 31, 2023.
The decrease in net new home orders was due primarily to a 40% decrease in monthly absorption rate offset by a 12% increase in average selling communities.
The increase in net new home orders was due to a 21% increase in monthly absorption rate and an 18% increase in average selling communities. Contrasting with the greater volatility of 2022, which initially exhibited strength before significantly decelerating due to the rapid increase in mortgage rates, 2023 exhibited less volatility.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeExpected Maturity Date Estimated December 31, 2023 2024 2025 2026 2027 Thereafter Total Fair Value (dollars in thousands) Liabilities : Variable rate debt $ 37,427 $ — $ — $ — $ 250,000 $ — $ 287,427 $ 287,427 Weighted average interest rate 4.5 % — % — % — % 5.5 % — % 5.4 % Fixed rate debt $ — $ 450,000 $ — $ — $ 300,000 $ 350,000 $ 1,100,000 $ 1,040,750 Weighted average interest rate — % 5.9 % — % — % 5.3 % 5.7 % 5.6 % Based on the current interest rate management policies we have in place with respect to our outstanding debt, we do not believe that the future market rate risks related to the above securities will have a material adverse impact on our financial position, results of operations or liquidity.
Biggest changeExpected Maturity Date Estimated December 31, 2024 2025 2026 2027 2028 Thereafter Total Fair Value (dollars in thousands) Liabilities : Variable rate debt $ — $ — $ — $ 250,000 $ — $ — $ 250,000 $ 250,000 Weighted average interest rate — % — % — % 6.5 % — % — % 6.5 % Fixed rate debt $ 488,337 $ — $ — $ 300,000 $ 350,000 $ — $ 1,138,337 $ 1,066,835 Weighted average interest rate 5.9 % — % — % 5.3 % 5.7 % — % 5.6 % Based on the current interest rate management policies we have in place with respect to our outstanding debt, we do not believe that the future market rate risks related to the above securities will have a material adverse impact on our financial position, results of operations or liquidity.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks related to fluctuations in interest rates on our outstanding debt. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the year ended December 31, 2022.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks related to fluctuations in interest rates on our outstanding debt. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the year ended December 31, 2023.
Many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading “Cautionary Note Concerning Forward-Looking Statements.” The table below details the principal amount and the average interest rates for the outstanding debt for each category based upon the expected maturity or disposition dates.
Many of the statements contained in this section are forward looking and should be read in conjunction with our disclosure s under the heading “Cautionary Note Concerning Forward-Looking Statements.” The table below details the principal amount and the average interest rates for the outstanding debt for each category based upon the expected maturity or disposition dates.
The fair value of our debt, which consists of the Credit Facility, one seller-financed loan and Senior Notes, is based on quoted market prices for the same or similar instruments as of December 31, 2022.
The fair value of our debt, which consists of the Credit Facility, two seller-financed loans and Senior Notes, is based on quoted market prices for the same or similar instruments as of December 31, 2023.

Other TPH 10-K year-over-year comparisons