Tri Pointe Homes Inc (Delaware) (TPH) 2015 Q2 法說會逐字稿

Greetings and welcome to the TRI Pointe Group second-quarter 2015 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. I will now turn the conference over to Mr. Chris Martin, Investor Relations for TRI Pointe. Thank you, Mr. Martin. You may now begin.

Good morning. Welcome to TRI Pointe's second-quarter 2015 earnings conference call. Earlier today, the Company released its financial results for the quarter. Documents detailing these results are available on the Company's investor relations site at www.TRIPointeGroup.com.

Before the call begins I would like to remind everyone that certain statements made in the course of this call are not based on historical information and constitute forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in these forward-looking statements.

I refer you to the Company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statement made today. The Company undertakes no duty to update these forward-looking statements that are made during the course of this call.

Additionally, non-GAAP financial measures will be discussed on this conference call. The Company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through TRI Pointe's website and the filings with the SEC at www.SEC.gov.

Earlier today, we posted a slide deck in the investors section of our website under the presentations tab reflecting our results in key financial metrics for the second quarter.

Hosting the call today is Doug Bauer, Company's Chief Executive Officer; and Mike Grubbs, the Company's Chief Financial Officer. With that, I will now turn the call over to Doug.

Thank you, Chris, and good morning, everyone. The TRI Pointe Group turned it a strong performance with excellent results in the second quarter of 2015. We posted significant increases to our top and bottom line, thanks to great execution by our homebuilding teams at each one of our six brands and the closing of the Pacific Highlands Ranch commercial site, a valuable nonstrategic asset which we have referenced on previous calls.

We continue to sell homes that an excellent pace, averaging 3.5 orders per community per month for the quarter. The team also delivered on our previously stated guidance from homebuilding gross margins and backlog conversion and continue to grow from our mortgage finance subsidiary, TRI Pointe Connect, which is now operating in all of our markets except for California. These achievements are further evidence that the combination of legacy TRI Pointe homes and the WRECO homebuilding operations has resulted in a more complete and efficient Company that should grow shareholder value for years to come.

At the macro level the fundamental drivers of our business continue to trend in a positive direction. With steady employment gains, a limited supply of existing housing inventory, and improving consumer confidence provide a favorable backdrop for housing. While these factors have led to a rebound in single-family starts and permits, the current level of new home construction activity remains well below historical norms. As a result, I believe that we are still in the early innings of this housing recovery and that well-positioned, well-capitalized homebuilders such as the TRI Pointe Group will benefit from the continued increase in household formations and jobs leading to further increases in both top and bottom line growth.

Now, let me share some details about the performance of each of our brands during the quarter. The Pardee Homes brand continues to deliver excellent results with both sales pace and margins exceeding both our expectations and the Company average for the quarter. Demand for new homes in California remains very strong. We think Pardee is a great position to satisfy this demand by opening new communities in a number of Southern California markets. We now have four communities open in our Pacific Highlands Ranch master plan in San Diego County, an area that has consistently generated outsized margins for the Company.

We're also activating the development of a 498-unit project in Santa Clarita, which is in LA County. This project is expected to provide us with home sites to contribute home deliveries beginning in 2017 as well as land sale opportunities in 2016. Our communities in the Inland Empire are well positioned and experiencing similar strong demand and profitability trends. And we plan to capitalize on these trends for some time to come, thanks to our significant landholdings in this market.

Turning to Pardee Homes' operations in Las Vegas, which delivered strong results with orders up 25% and homebuilding gross margins higher on a year-over-year basis, we saw an improvement in the move-up segment of the market as the recent price appreciation has created more opportunities for current homeowners to sell their existing homes. In general, the market dynamics remain favorable with good economic growth, stable pricing and low inventory levels.

Our TRI Pointe Homes brand continues to execute at a high level, generating 92% year-over-year sales growth in the quarter. TRI Pointe Homes' California operations benefited from strong demand trends, which resulted in an absorption pace of five homes per community per month. In Northern California the strong job growth and lack of inventory in the Bay Area has kept upward pressure on prices and has stimulated demand for new homes in more inland locations such as Tracy, Vacaville and Brentwood. In Southern California, Orange County and the coastal markets continue to perform very well.

TRI Pointe Homes' operations in Colorado are also experiencing rapid growth and favorable market conditions. We now have six active communities and are on pace to deliver more than three times the number of homes in 2015 that we did in 2014, despite adverse weather conditions in the second quarter. Additionally, we continue to see attractive land opportunities that will allow us to continue to grow our presence in this market.

Our Maracay Homes Randy in Arizona grew orders by 53% year-over-year, thanks to a considerable improvement in the absorption pace, averaging 3.4 orders per community per month as compared to 2.4 in 2014. After a 2014 that was marked by discounting and excess supply, the Phoenix market is returning to equilibrium and is experiencing good sales activity and gradual price appreciation in select submarkets. This sales momentum has carried into the third quarter as we have continued to experience strong sales in the month of July. We remain bullish on the short and long-term outlook for Phoenix, and we are excited about our new communities coming to market in Tucson in early 2016.

Our Quadrant Homes brand continues to benefit from the repositioning we initiated a few quarters ago. Our new products and communities have been well received with net new home orders up 9% year-over-year. We expect this positive trend will continue into 2016 and that we will experience an increase in gross margin as our operating strategy is fully implemented.

Our Trendmaker Homes brand in Houston continues to contribute strong profitability to the bottom line, but the sales environment remains soft. While we remain cautious about the short-term outlook for Houston, due to the ongoing uncertainty regarding the price of oil and slowing job growth, we like our community positions within the market with diversified and attractive lot options in place in many of the best master-planned communities around the city.

As an aside, we secured our first land deal in Austin during the quarter at Bella Terra, a master-planned community located in the west side of town, and look forward to growing our presence in that market in the coming years.

Finally, our Winchester brand in the mid-Atlantic grew sales by 8%, thanks to an improvement in the sales base to 2.2 homes per community, per month per community, versus 1.3 in the prior year. Margins improved slightly on a sequential basis but remained well below our Company average due to the sustained softness in this market. We are focused on making Winchester an efficient operation while improving both our top- and bottom-line results despite these difficult market conditions.

Now we will turn it over to Mike for more detail on the numbers.

Thanks, Doug. Good morning. I would also like to welcome everybody to today's call. I'm going to highlight some of our results and key financial metrics for the second quarter and then finish my remarks with an update on our expectations and outlook for both the third quarter and full-year 2015. Once again, as a reminder, our merger with WRECO was accounted for as a reverse acquisition with WRECO as the accounting acquirer and legacy TRI Pointe as the accounting acquiree. As a result, the consolidated financial statements for all periods prior to the closing of the merger will only reflect the historical financial statements of WRECO and will not include legacy TRI Pointe operations.

Accordingly, legacy TRI Pointe results for the three months and six months ended June 30, 2014, are not included in the GAAP results.

As part of our press release and in the slide deck that Chris mentioned on our website, we have included supplemental selected financial data of the combined Company adjusted to add-back legacy TRI Pointe operations. This should be the last time I will discuss the reverse acquisition accounting because moving forward into the third quarter everything will be comparative with the exception of the seven days of activity for legacy TRI Pointe for the period July 1 through the closing date of July 7, 2014.

Our second-quarter included strong top-line growth highlighted by a 38% increase in our home sales revenue over the previous year as a result of a 27% increase in home deliveries and a 9% increase in our average selling price. Our homebuilding gross margin came in consistent with our guidance at 20%. During the quarter we also recorded land and lot sales revenue of $67.5 million, highlighted by the closing of Pacific Highlands Ranch commercial side for $53 million, which represented $49.6 million in land and lot sales gross margin or a 94% gross margin percentage.

As we have previously discussed, Pacific Highlands Ranch is a highly desirable asset located in San Diego County which Pardee has owned since 1981 and has carried at a very low book basis. The Company still owns over 1,300 residential lots in Pacific Highlands Ranch. While we continue to believe there is significant unlocked value in the assets we acquired from the WRECO merger, we do not expect this gross margin percentage to be indicative of the embedded value of future land sales outside of Pacific Highlands Ranch.

We were also successful in recognizing additional operating leverage improvements during the quarter, as reflected in our selling, general and administrative ratio, which improved to 12.6% as a percentage of home sales revenue compared to 13.6% in the same period a year ago. This resulted in that income for the quarter of $54.9 million or $0.34 per diluted share compared to $24.2 million or $0.19 per diluted share a year ago.

We averaged 119.5 active selling communities during the quarter, up 23% from the same period a year ago, which helped fuel the significant increase in our net new home orders. During the quarter we opened 17 new communities, of which six were in California, three in Nevada, three in Washington, two in Maryland, two in Texas, and one in Arizona. In addition, we closed out of 12 communities during the quarter, ending with 122 active selling communities, which was to communities lower than we guided to on our last call, due to the fact that we closed out of more communities than expected as result of our strong absorption pace.

For the third quarter of 2015 we anticipate opening an additional eight new selling communities, of which four are in California, two in Texas, one in Washington, and one in Nevada. Due to the success of our absorption pace for the first half of 2015, we anticipate closing 14 communities during the quarter, resulting in 116 active selling communities at the end of September.

During the quarter our net new home orders increased 62% from the same period last year on a GAAP basis with 1,238, an increase of 30% when including legacy TRI Pointe in the same period last year. Our investment in product strategies are working as we continue to deliver one of the highest absorption rates per average selling community as a publicly traded homebuilders while continuing to raise our average net sales prices. Our absorption rate of 3.5 orders per community per month for the quarter was an increase of 33% from 2.6 orders per community per month for the second quarter of 2014.

The significant increases in our net new home orders along with absorption rates across all of our brands except for Trendmaker in Houston. Included in the slide deck on our website are charts reflecting orders, deliveries, and absorption rates by brand for both the second quarter and six months ended June 30, 2015, compared to the same periods in 2014. In addition, for both TRI Pointe Homes and Pardee Homes, we broke at California, Nevada, and Colorado separately.

The strength of our new home order activity resulted in quarter-ending backlog of 1,998 homes, up 68% compared to last year's second-quarter with an average sales price in backlog of $601,000, up 7% as compared to 2014. Meanwhile, our dollar value of backlog increased 79% year-over-year to $1.2 billion. The increase in our average sales price of homes in backlog is primarily attributable to the inclusion of legacy TRI Pointe homes, which had an average sales price in backlog of $712,000.

During the quarter we converted 51% of our first-quarter 2015 backlog by delivering 798 homes. Our average sales price per homes delivered increased to $535,000, a 9% increase from $493,000 for the comparable period a year ago. Again, the increase in the average sales price was primarily attributable to the addition of legacy TRI Pointe, which had an average sales price of homes delivered of $750,000.

During the third quarter we anticipate converting approximately 50% of our 1,998 homes in backlog as of June 30, 2015. As expected, our homebuilding gross margin was 20% for the quarter, which was down 160 basis points year over year but a slight increase sequentially from 19.9% from the previous quarter. Excluding interest, impairments and lot option abandonments in cost of home sales, our adjusted homebuilding gross margin was 22% compared to 23.3% for the second quarter of 2014.

As I mentioned on our last call, we expect our homebuilding gross margins to be approximately 21% for the full year 2015. We expect to see gross margins increase slightly on a sequential basis in the third quarter of 2015. Our gross margin improvement is impacted substantially by the percentage of deliveries coming out of California, where we achieved our highest gross margins.

For selling, general and administrative expenses, we continue to make progress in our operating leverage during the second quarter. Our SG&A expenses as a percentage of home sales revenue was 12.6% as a result of our focus on operational efficiencies along with higher home sales revenue. This represented a 100-basis point improvement compared to 13.6% in the same period in the previous year. The favorable leverage impact of higher revenues in the quarter more than offset increased expenses that we incurred primarily to support community count growth, higher second-quarter deliveries, and our anticipated increase in deliveries in the second half of the year. We expect to see sequential improvement in our SG&A expense ratio for the remainder of this year, particularly in the fourth quarter.

For the full year 2015, we expect SG&A expense as a percentage of home sales revenue to improve to a range of 10.5% to 11% compared to the 11.3% we delivered in the full-year 2014.

During the second quarter we spent $177 million on land acquisition and development. We are still targeting land acquisition and development spend of approximately $900 million to $1 billion for the full year 2015. The focus of our land strategy is targeting land for communities which will deliver homes in late 2017 and beyond. We currently own or control substantially on all of the land needed to meet our planned deliveries in 2016 and 2017.

Now I would like to make a few comments related to our balance sheet. At quarter end we had approximately $2.5 billion of real estate inventory, representing 25,543 home lots with another 3,378 lots controlled. 64% of our lots owned and controlled are located in the entitlement constrained California market. A detailed breakdown of our lots owned or reflected are in our Form 10-Q, which will be filed later today. In addition, there's a summary of the lots owned and controlled states in this slide deck on our website.

As of June 30, 2015, we had total debt outstanding of $1.3 billion and our ratio of net debt to capital was 43.5%, an improvement of 310 basis points year over year. We ended the quarter with $122 million in cash on hand and additional liquidity of $141 million available under our $550 million unsecured revolving credit facility.

Before I turn the call back over to Doug for some closing remarks, I'd like to summarize our outlook for 2015. Our outlook for home deliveries remains unchanged for the full year 2015, where the Company expects to increase home deliveries by 25% over the 2014 combined deliveries of legacy TRI Pointe and WRECO homebuilders. During the third quarter we expect to deliver approximately 50% of our 1,998 homes in backlog at the end of the second quarter. As I discussed earlier, we expect to open eight new communities in the third quarter and close out of 14, resulting in 116 active selling communities at September 30, 2015.

For our year-ending community count it is difficult to provide certainty, given the number of communities that would be near close out at the end of the year based on our current absorption pace. Currently, our best estimate is that we will end the year with 118 active selling communities, which is fewer than we had previously anticipated due to the sales absorption rates running well ahead of our plan and, to a lesser extent, delayed new community openings caused by adverse weather conditions in Houston. Our community count should re-accelerate in the first quarter of 2016, where we are scheduled to open 25 new communities in the quarter.

We anticipate our homebuilding gross margin for the third quarter to increase slightly from the second quarter and our full-year homebuilding gross margin to be approximately 21%. And then, finally, we are reiterating our 2015 outlook for earnings per diluted share to a range of $1.15 to $1.30.

With that, I would like to turn the call back over to Doug for some closing remarks.

Thanks, Mike. In conclusion, I'm very pleased with our Company's performance this quarter and remain optimistic about the future for the TRI Pointe Group. Our monthly sales absorption rate of 3.5 homes per community ranked as one of the best sales paces among the publicly traded homebuilders this reporting season. Our quarter-end backlog at 1,998 homes positions us well to deliver strong results in the back half of the year. Finally, the closing of the Pacific Highlands Ranch commercial site highlights our focus to unlock the embedded value in our California landholdings.

I want to thank all of our employees for a job well done this quarter. Our goal is to be a best-in-class homebuilder in every facet of the business, and that starts with having the right people in place who are passionate about delivering a great customer experience and building quality homes. You are the foundation of this Company and I truly appreciate your efforts.

This concludes our prepared remarks and I now will open the call up for any questions.

(Operator Instructions) Alan Ratner, Zelman & Associates.

Good morning, guys. Nice quarter. Thanks for taking my question. Doug, I wanted to just pick your brain a little bit in California. We are seeing -- in the last month or two we have seen a slowdown in absorptions in some of the coastal markets, whereas the inland markets seem to be holding up pretty well, in fact accelerating a bit. And I know you guys are big in both coastal and inland. So I was curious the dynamics you are seeing there right now. Is the coastal buyer -- when you think about foreign nationals, have you seen any impact from the volatility going on in Asia on that buyer. And on the inland side, presumably there's more entry-level exposure there. I know you guys are not huge at entry-level, but just generally what type of trends you are seeing at entry-level within California and any improvement there? Thanks.

There has been some discussion about the Chinese VAR. But frankly, we're not seeing any material change in the international buyer along coastal California. Frankly, these areas continue to be one of the strongest absorbing communities that we have in the Company. So it's just -- right now it's not translating to any issues in coastal California.

As I look at the Inland Empire, I break it into two sections. The I-15 freeway from Vegas down to San Diego kind of separates the Inland Empire. West of the 15 you see generally a higher price point that caters to Orange County, and that market is definitely very competitive. In the east of the 15, where we are selling in Beaumont, Banning and Lake Elsinore, frankly Pardee is really controlling that market, seeing very strong market conditions, very strong absorption levels and a reemergence of the entry-level buyer, which is primarily our focus out there east of the 15.

As I think I mentioned in the last call, the reduction in the FHA insurance premium and the reemergence of the boomerang buyer, all of which has contributed to seeing even some of the millennials come back into the new home market. So we're definitely seeing that buyer come back in the Inland Empire.

That's good to hear. Thanks. And on the land spend budget, the $900 million to $1 billion, has there been any shift in how you are thinking about the allocation of that between price points? Companywide, obviously your price point continues to move higher. But is there any more thought to increasing your exposure to entry-level as you look at into 2017 and beyond?

We remain very opportunistic in our land spend and we remain disciplined in how we look at land acquisition. Obviously, our ASP keeps us in more of the premium markets. But we will continue to look at all price points. Our teams have those abilities from entry-level all the way to move up. And we tend to focus on a three- to five-year inventory as we look forward into our business plan. So again, it's very opportunistic -- focus on location, close to employment corridors, close to good schools, and maintain our underwriting criteria and discipline throughout the process.

Great, thanks a lot. Good luck.

Nishu Sood, Deutsche Bank.

First question I wanted to ask was about the gross margin. Mike, so the slight increase in the third quarter and 21% for the year implies quite a significant uptick, then, for the fourth quarter, which I imagine is a lot of the newer California closings coming on. So is that, then, a seasonal pattern as well? Or if we end the year at a much higher gross margin, should we then be expecting a drop as we head into 2016? I'm not looking for exact guidance, just a sense of do we had a higher level and stay there? Or is there some sort of seasonal pattern that is going to be a part of the new combined entity?

Yes, sure. Again, we are guiding to the 21% year over year and we should see some increase to that on a year-over-year basis. But our margin is pretty heavily impacted based on the California mix. And this year, for instance, our California mix is more heavily weighted to the back half of the year. I think we closed 36% of our deliveries in California and the second quarter. That starts edging up to 40% to roughly 44% in the third and fourth quarter. So it's just heavily dependent on our California deliveries.

Got it. But we are getting to a higher level of California closings mix. And we should --

That's correct.

-- Stay at that higher level going forward. Right? Like there's no reason it should suddenly drop off again?

No, but there may be quarter over quarter for you have fewer California deliveries in one quarter. That could bring the margin down slightly and that it would be higher the next quarter because there's more California deliveries.

Got it, got it. Great. And in terms of absorptions and orders, Doug, your commentary sounds like demand is coming in strong. The fact that you are shying away a bit from guiding to communities because you are closing out faster than expected -- it sounds like orders and absorptions, and I think you have directly said this, have been coming in as you expect or even a little bit better.

But when we look at it from the outside, investors, we are taking the huge surge in orders you had in the first quarter and we are looking at it and seeing the drop from one 1Q to 2Q. So how do you reconcile those two? Was it the case that, as you adjusted to -- as you integrated the operations there was some pull-forward or there was some concentration of sales in the first quarter? Because it really was a huge jump and it doesn't look like that's sustainable going forward. So how do we reconcile those two perspectives?

It's Mike, because I'm a little confused because you said a huge drop in absorption. So we are still absorbing 3.5 per community per month for both quarters. So what were you specifically referring to?

I'm sorry, I didn't mean to say a huge drop. I'm saying there was a drop in absorptions from 1Q to 2Q, whereas people looking at the seasonality will only expecting some increase from 1Q to 2Q.

Maybe you are misreading that. There's not a drop in absorptions. Absorption pace is pretty much dead on the same and we actually had more net orders in the second quarter than the first quarter. So I'm still kind of confused by the question.

Normally, there would be a more substantial increase from just based on the seasonality of WRECO and, I think, your own results as well from 1Q to 2Q. We can follow up later. That's fine.

Yes; I think having sales issue at 3.5 is very strong for both, obviously, first and second quarter. And we are maintaining that pace and obviously managed each project, each location based on price pacing, price point of product and so forth. So we feel very good about a 3.5 pace going through the second quarter.

Okay, thanks for the color.

Mike Weintraub, Buckingham Research.

A couple questions -- first, a quick follow on. On the land sales and particularly the commercial side, is that eligible for 1031 exchanges, or because it's a commercial site it really wouldn't be for you?

No, it's not.

Okay. And then second, kind of a bigger, broader question -- now that you have owned the WRECO assets for a full year, can you give updated thoughts on what your surprises to the upside might have been and are, and perhaps any challenges that exist to a greater extent that you might have first expected?

The surprises to the upside -- the Pardee operation, especially in the Inland Empire, and the reemergence of the entry-level buyer -- I don't know if it's surprising because we all expect the entry-level buyer to come back. But that's a nice pace, nice avenue for growth for the company. We've got a nice land position there that provides us a lot of optionality. The other nice surprise is activating this 490-unit project in Santa Clarita here coming into 2016 and 2017. We're very excited about that and it's a very constrained market up in that area. It's a very well-located project.

I think the biggest concern we have and I have is really adjusting and making do with the market conditions, continue to refine operational efficiencies in the mid-Atlantic and then continue to work through the Houston market. We really like our land positions in Houston, in some of the best master-planned communities. And it doesn't require a lot of capital. So, despite the negative headline noise in jobs and the oil prices, that team is very well run and contributes solidly to the bottom line.

In summary, all the parts are doing very well. Quadrant up in Seattle is really on par to really have a very strong 2016 and 2017 as we reposition the brand and also the product, which you will see more of which going into 2016 and 2017. But there's a lot of runway for us to work within these six brands, and I'm very excited. We are delivering as we have forecasted, and I'm very proud of the teams to move into that public operating arena and really hit it on all cylinders. So it's very exciting for us.

That's really helpful and leads into, actually, my last question, which would be you have noted that your sales have been ahead of plan, yet you are not changing delivery guidance. So is it fair to read that the setup for 2016 is looking better than you might have anticipated? You mentioned the Santa Clarita; are there any other places where the setup is looking stronger than you might have originally anticipated?

Well, we have had strong sales. But we've also had weaker sales in the mid-Atlantic and Houston compared to our own expectations internally. So those pluses and minuses somewhat offset themselves. The Santa Clarita opportunity doesn't deliver closings until 2017. We're not in a position to give guidance for 2016 yet, but we still believe we are in the early innings of this housing recovery, and with jobs and household formations continuing to increase think we are very well positioned to continue to see an increase in orders and deliveries in 2016 and 2017.

Great. Appreciate it.

Patrick Healy of FBR.

So first question -- just really wanted your thoughts on the M&A environment in the space. Now that you had some time to digest WRECO, how should we think about capital allocation for you guys between regular way, land purchases, and maybe potential acquisitions?

We've really been focused on operating the six homebuilding brands, although we do obviously get attention from the bankers in the space because of the WRECO acquisition. As I've stated earlier, we are organically growing in Austin and we will continue to look selectively at opportunities, as we look forward into the future. Most notably, we have operations on the East Coast and that could provide a runway for further opportunities in the future. But currently, we are really focused on delivering the results that we have in the second half of this year while still being opportunistic both on the landside and the M&A side if an opportunity should occur.

Okay, great. And actually sticking with the East Coast, you talked about the market backdrop there with Winchester. But you guys did see a nice jump in absorption. So maybe talk about what you guys did this quarter to drive that and maybe your expectations for that market over the next 12 to 24 months?

I think when you look at the absorptions and again when you see it on the slide deck, people question us because we talk about or are concerned about the East Coast. And then you look at the increase in the overall order pace. That's really because of the comps, that it was so low in the previous year, if you remember what was happening in D.C. in the first and second quarter of 2015. We would like to see absorption increase over that 2.5 pace.

Great, thank you.

Jay McCanless, Sterne, Agee.

First question I had -- in terms of land sales, could you give us any color on how much more, on a dollar basis, you guys expect to sell for the rest of this year? I think you said that with this activation in Santa Clarita there might be some opportunity for land sales. Could you give us some numbers around that as well?

Yes. For the balance of this year we have said all along that our number this year would be roughly around $100 million. So I think you'll see most of that, the balance of that happen in the fourth quarter. And then the opportunity to have land sales -- we're looking at roughly 5 different products types on the site in Santa Clarita, and we're looking to potentially sell a couple of those to other builders and build a couple of those parcels. So those opportunities would be in 2016. We're not really giving an overall guidance number on land sales yet for 2016 until we get a little bit closer.

And then the second question I had, with the volatility in your average closing price between the first quarter and the second quarter, what should we expect going into 3Q and 4Q? Is there going to be basically -- it sounds -- from what you guys are saying it sounds like you're going to be flat in 3Q with a nice pop higher in 4Q. Is that how we should model it?

Well, no. As we've said from the beginning of the year, we think our full-year average sales price was roughly around $550,000. We had told people that, peak to trough, there shouldn't be too many radical adjustments in our ASP. I think we delivered $560,000 in the first quarter and it drops down to $535,000 this quarter. Again, next quarter you should see probably a little bit above the $550,000 and maybe slightly higher than that in the fourth quarter -- all being driven by, again, the California mix of product.

And then the last question I had -- I think you guys talked about Maracay's July results. But could you talk about July results across the Company, and also have you been able to start getting some of the neighborhoods open? Is it drying out in Colorado and Texas to the point where you can start growing the neighborhood count again?

Overall, in July we build in seasonality and we expect a little bit of softening in August. As I mentioned, July was a strong month for Maracay. It was also a good month really across the board. Trendmaker in Houston continues to be the soft spot through July. But the rest of the operations continue to sell well. We had 355 orders.

That was a 39% increase year over year from July of the previous year. Again, Maracay was up 121%. They had a very good, strong July. We don't see that in Arizona in July. TRI Pointe California was very strong as well, north of 100% increase year-over-year. Really, the outlier is used in, as our expectations would be. We are down 15% in Houston for the month, which is pretty consistent with where our run rate is right now annually for Trendmaker.

We also had a good month in July in the mid-Atlantic, started to see an increase in traffic and order activity, about 35% year over year. So that was encouraging to see in the month of July. And hopefully, with the back-to-school activity happening in the latter part of August, typically September and October end up being pretty good months also.

And then just on the weather, are you guys through most of the weather issues now? Are you finally able to start getting lots developed and get the community count growth back on track?

Yes, we are. But in Houston we had several of our model openings get pushed into the first quarter; I think it was about four of them, Mike, if I remember off the top of my head. We also had expectations of some higher deliveries in Colorado, even though we are increasing our deliveries 3X. That's a very good market but it was a very wet May, right, in the prime building season. So it affected our plan internally but it's still going to turn into a very, very strong year for our team in Colorado. So I think the weather is behind us. Now we are bracing for El Nino here in California in the winter.

Understood. Thanks, guys.

Alex Barron of Housing Research Center.

I was hoping you could comment on your land sales for the remainder of the year. What should we expect there? Obviously, this quarter was pretty high, but just in terms of revenues or profits what should we look for, for the balance of the year?

Again, as I said previously, we had guided to roughly around $100 million of the land sales for the year. I think that's still what our guidance is. We certainly don't want you to extrapolate the kind of margin that you've seen of a run rates so far through the first part of the year. And most of the balance of those land sales are happening in the fourth quarter. There's not much activity in the third quarter at all.

Okay, great. And then as far as the backlog conversion, it's been around 50% this quarter and you are guiding to about the same next quarter, which would imply a big jump in the fourth quarter. But as I look at last year, it looks like it was more in the 16%-plus range. So what accounts for the lower range this quarter and next quarter? Is it a change in your spec and build-to-order mix or is it delays? Or what's the main factor there?

Well, some of it is weather delays. And we are building lesson spec units then we had previously and then I think we are -- as California becomes a bigger part of our delivery mix, those houses typically are at higher priced once and take a little bit longer to build.

Got it. Okay, thanks, guys.

(Operator Instructions) Susan Berliner of JPMorgan.

I just wanted to start with Trendmaker. I was wondering if you could provide a little more details with regard to what's going on in Houston. A lot of your competitors have been talking about that $350,000 price point being the softness. If you can talk about your portfolio, and is that accurate? And also, have you seen any cancellations due to job losses in that market?

The short answer to both is we build our ASP says roughly a little under $500,000 in Houston. So we are in that premium price point. It contributes a significant amount of profitability, but pace and activity has definitely softened year over year. And as far as cancellations, we have seen an increase in cancellation rate. And it is due to job concerns, in some cases. It hasn't been necessarily due to the weather. We did have a tough season there. But true on both accounts. The upper end of the market is very competitive, a little softer. And cancellation rates have increased due to job uncertainty.

Great. And Mike, just one question for you -- I think last quarter you talked about not looking to refinance your revolver. I think you're still expecting to pay a lot of that down for fourth quarter. Is that still correct?

Well, we have a lot of land and land development activity in the balance of the year. We guided to the $900 million to $1 billion activity. There's significant amount of land acquisitions that occur in the third and fourth quarter, but we still think we will be paying down a nominal amount of the debt at year end.

Okay. So you are still going to just run with outstanding on your revolver?

Correct.

Okay, thank you very much.

Will Randow, Citigroup.

Congrats on the progress. Just had to follow-ups from prior questions, and I apologize if I missed something; I jumped on the call over to late. But in the Houston market, the contraction you are seeing -- are you seeing any decline in, I'll call it, closing price relative to list price? And any other signs that you'll see incremental slowing, or you do you think this is the run rate today?

I think, if I understood your question, incentives have continued to be strong in that marketplace. So they run roughly 9% to 10% of sales price. I think the year ago they were probably in the 7% range. I have some data on that, but I'll look it up real quick. It continues to be very competitive in that marketplace. As I mentioned earlier, the fourth quarter -- from the fourth quarter of 2015 incentives as a percentage of revenues increased from 8% to 9.6%

Thanks for that. And then just to follow up on the last set of questions, in terms of your revolver, are you looking at any way to opportunistically term that into notes? Or are we thinking about shrinking the balance sheet, I think, as you indicated?

You know us pretty well. We're always opportunistic when we are looking at potentially placing debt. But right now our current expectations are to run with our revolver for the balance of the year. Again, we do have some additional land sales, some land sales going into 2016, which do generate cash flow. And we are closing a lot of units in the back half of the year. We closed roughly 1,450 units so far. We're going to close another roughly 2,650 units. That generates a lot of cash flow in the back half of the year. So right now our expectation is to just hang on with our revolver.

Thank you, guys, and congrats again.

At this time I would like to turn the conference back over to Mr. Bauer for closing comments.

Well, thanks, everyone, for attending today's call. We are very pleased with our results in the second quarter and look forward to continued delivering very strong third and fourth quarter housing deliveries. So I appreciate everybody attending today's call and we will talk to you next quarter. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.