Tri Pointe Homes Inc (Delaware) (TPH) 2015 Q3 法說會逐字稿

Greetings, and welcome to the TRI Pointe Group third-quarter 2015 earnings conference call.

(Operator instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Martin, Investor Relations for TRI Pointe Group. Thank you. Mr Martin, you may begin.

Good morning. Welcome to TRI Pointe Group's third-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 website 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 Investor section of our website under the Presentations tab reflecting our results and the key financial metrics for the third quarter. Hosting today's call is Doug Bauer, the Company's Chief Executive Officer; Mike Grubbs, the Company's Chief Financial Officer; and Tom Mitchell, the Company's Chief Operating Officer and President.

With that, I will now turn the call over to Doug.

Thank you, Chris, and good morning, everyone.

TRI Pointe Group hosted excellent results in the third quarter as we delivered solid improvement in each of the relevant homebuilding metrics when compared to last year. Homebuilding revenues increased 36% on a year-over-year basis, thanks to a 35% increase in unit deliveries and a 1% increase in average selling prices. Both unit orders and backlog grew in excess of 20% when compared to the third quarter of 2014, driven by increase in absorption pace and community count. Gross margins expanded 270 basis points, and SG&A as a percent of home sales revenue declined 170 basis points, resulting in a 420 basis-point improvement in our homebuilding operating margin to 12.1%. These achievements are a result of the TRI Pointe Group's successful combination of the six homebuilding companies and the strength of our deep and experienced operating teams in each of their local markets.

Despite all the noise surrounding the availability of land, labor, and mortgage financing, I remain optimistic about the outlook for homebuilding and believe that these concerns will be mitigated by strong future demand drivers in the form of job growth and household formation. TRI Pointe is in a desirable position of having a large supply of lots in entitlement-constrained California. And we've been successful in identifying and securing land positions in all of our markets that meet or exceed our underwriting criteria. On the labor front, we believe that workers will continue to return to the trade base as permit activity increases in a given submarket. However, there will be a lag effect. Thanks to our relationships with our subcontractors, we have been successful in securing the trade labor necessary to complete our homes in backlog in a timely fashion.

With respect to mortgage availability, we have seen conditions improve on the margin. This facet of the business becoming more streamlined as a result of our mortgage subsidiary, TRI Pointe Connect, becoming fully operational across all of our markets. These dynamics, coupled with the current supply and demand conditions in place in most markets, make me excited about the future of homebuilding, and particularly about the future of the TRI Pointe group.

With that, I would like to provide some color on each of our markets. Our California operations were standout performers for our Company in the third quarter, once again delivering strong order growth and profitability. The absorption pace in both the coastal and inland markets in the state were above the Company average, as were the average homebuilding gross margins. Our well-located communities in the coastal areas benefited from a lack of existing supply and robust demand, while many of our inland projects that conform to the FHA loan limits sold more than four homes a month. We plan on capitalizing on these favorable stable dynamics by opening more new communities in time for the spring selling season, and furthering our development efforts in some of our longer-duration projects so that we can more quickly monetize these assets. Given our long land pipeline and low cost basis for many of our assets in the state, we are very excited about the future of our business in California.

Our operations in the other Western markets performed admirably during the quarter as well. In the Pacific Northwest, Quadrant Homes continues to benefit from the repositioning we started back in the fourth quarter of 2014. We generated 2.5 orders per community per month and increased our gross margins on homes delivered in the quarter by 270 basis points compared to the same period in the prior-year. We are optimistic that these trends will continue into the future as our focus for new community growth is in the core markets of King and Snohomish Counties over the next two years, which have some of the largest employers in the nation like Microsoft, Boeing, and Amazon, just to name a few.

In Arizona, Maracay Homes posted the best sales growth of any of our homebuilding companies, increasing orders by 71% on a year-over-year basis. Margins were flat as compared to last year, but higher when compared to the second quarter of 2015, an indication that the positive momentum we have seen in sales over the last few quarters has started to benefit pricing as well. We are optimistic about the continued strength of the Arizona market, as we plan on opening five new committees in Tucson and two more in Phoenix ahead of the spring selling season.

Our Pardee Homes operations in Las Vegas delivered 6% year-over-year order growth in the quarter and healthy margins, but sales conditions remain choppy depending on the location and price point. With that said, we believe that the Las Vegas economy continues to improve and local household formations will increase and should result in improved market conditions for 2016.

TRI Pointe homes continues to grow its presence and market share in Colorado, as we increased the number of closings in the quarter by more than 200%. We currently have six active communities open in the market and plan to add to that total in 2016 as housing fundamentals continue to look favorable in nearly all market segments.

Turning now to our operations in Houston. Trendmaker Homes delivered another strong quarter of profitability, contributing $7.5 million in pretax income. Market conditions have fared about as we had envisioned when we first expressed caution about the market at the beginning of the year. Year to date, orders are down 13%, and margins are off 190 basis points due to decreasing job growth around the oil and gas industries and inclement weather conditions during the year. Despite these declines, our operations in Houston continue to be profitable. In addition, our business model is based on acquiring lots through option agreements, which means, we have excellent flexibility going forward. While our exposure may seem somewhat high on a community count basis, our $59.9 million of owned land and land development dollars in the Houston market represents approximately 2% of our total owned real estate inventory at $2.5 billion. Our team in Houston has navigated through several difficult cycles over the past 20 years and has shown the ability to stay profitable in spite of these conditions. With their experience, the team has positioned themselves to continue to be successful in this cycle as well.

Finally, Winchester Homes in the mid-Atlantic grew orders by 21% in the quarter on a year-over-year basis. However, the market continues to be characterized by incentive activity to stimulate orders in the suburban markets. We have made adjustments to our operations to be more reflective of current market conditions, and as a result, absorption pace increased to 3.8 orders per month per community, and new home orders increased 55% year over year in the month of October. Additionally, we have refocused our acquisition strategies on land opportunities in the core markets in main employment centers.

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

Thanks, Doug. Good morning. I would also like to welcome everyone to today's call.

This morning I will be highlighting some of our results and key financial metrics for the third quarter, and then finish my remarks with an update on our expectations and outlook for the balance of the year. As Chris mentioned earlier, I would also like to refer you to the slide deck on our website, which includes charts detailing orders, deliveries, and absorption rates by homebuilding companies for both the third quarter and nine months ended September 30, 2015. You may have also noticed, we provided some key operating metrics by state in today's press release announcing our earnings for the quarter.

Our third quarter included strong top-line growth, highlighted by the 36% increase in our home sales revenue over the same period in the previous year largely as a result of a 35% increase in home deliveries. Our home billing gross margin came in ahead of our guidance at 21%. We were also successful in recognizing additional operating leverage improvements during the quarter, as reflected in our selling, general, and administrative expense ratio, which improved to 8.8% as a percentage of home sales revenue compared to 10.5% in the same period a year ago. This resulted in net income for the quarter of $50.2 million or $0.31 per diluted share, compared to $11 million or $0.07 per diluted share a year ago.

We averaged 121 active selling communities during the quarter up 13% from the same period a year ago, which helped fuel the significant increase in our net new home orders. During the quarter we opened seven new communities, of which four were in California, two in Texas, and one in Washington. In addition, we closed out of 11 communities during the quarter, ending with 118 active selling communities, which is two communities higher than we previously guided to on our last call. For the year our community count -- it is still difficult to provide certainty, given the number of communities that are near closeout at the end of the year based on our current absorption pace. For the fourth quarter we anticipate opening an additional five new communities and closing 15, which will be leave us with 108 active communities at the end of the year. Our community count, though, should reaccelerate in the first quarter of 2016, where we expect to open 25 to 30 new communities.

During the third quarter, our net new home orders increased 24% from the same period last year to 996 homes. Our absorption rate of 2.7 orders per community per month for the quarter, was an increase of 10% from 2.5 orders per community per month for the third quarter of 2014. The strength of our new home order activity resulted in ending backlog of 1,856 homes, up 29% compared to last year's third quarter with an average sales price of $598,000. Our dollar value of backlog increased 28% year over year to $1.1 billion. During the quarter, we converted 57% of our second-quarter ending backlog, delivering 1,138 homes. Our average sales price for homes delivered was $564,000, a slight increase from $560,000 for the comparable period a year ago.

As we previously mentioned, our home building gross margin was 21% for the quarter, which was up 270 basis points year over year from 18.3% and up 100 basis points sequentially from 20% in the second quarter of 2015. Excluding interest, impairments, and lot option abandonment, our adjusted home building gross margin was 23.1% compared to 20% for the third quarter of 2014.

We continued to make progress in our SG&A leverage during the third quarter. SG&A expense as a percentage of home sales revenue was 8.8% as a result of our focus on operational efficiencies, along with higher home sales revenues. This represented a 170 basis-point improvement compared to the 10.5% in the same period in the previous year. The favorable leverage impact of our higher revenues in the quarter more than offset increased expenses that we incurred primarily to support our community count growth, higher third-quarter deliveries, and our anticipated increase in our deliveries in the fourth quarter.

During the third quarter we spent $200 million on land acquisition and land development, raising our total spend to approximately $560 million year to date. We had previously guided to a land acquisition and development spend of approximately $900 million to $1 billion for the full year 2015. And it looks like we will coming on the lower end of that range for the year. The focus on our land strategy is targeting land for communities which will deliver homes in 2018 and beyond, as we currently own or control substantially all of the land needed to meet our deliveries for 2016 and 2017.

Now I would like to make a few comments on the balance sheet. At quarter end we had approximately $2.6 billion of real estate inventory representing 25,484 owned lots with another 2,756 lots controlled. 64% of our lots owned or controlled are located in the entitlement-constrained market of California. A detailed breakdown of our lots owned are reflected in our form 10-Q, which will be filed later today. And in addition, there's a summary of lots owned or controlled by state in the slide deck on our website.

At the end of the quarter, we made a $50 million paydown on our unsecured revolving facility, and as of September 30, 2015, we had total outstanding debt of $1.2 billion, resulting in a ratio of net debt to capital of 42.2%. We ended the quarter with $97 million of cash on hand and additional liquidity of $192 million available under our $550 million unsecured revolving credit facility.

Before I turn the call back over to Doug for some closing remarks, I would like to summarize our outlook for the fourth quarter. During the fourth quarter we expect to deliver approximately 75% to 80% of our homes in backlog at the end of the third quarter. We anticipate our homebuilding gross margin for the fourth quarter to increase sequentially from the third quarter, and our full year homebuilding gross margin to be approximately 21%. We expect to see further sequential improvement in our SG&A expense ratio in the fourth quarter, resulting in a full SG&A expense ratio of between 10.5% and 11%. 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, now 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 results this quarter. Based on our performance this year, our desirable lot position in California, and the strong leadership and talent that we have in each one of our homebuilding companies, I'm confident about the future of the TRI Pointe Group. I personally want to thank all of our teams for an excellent job during this last quarter. We look forward to seeing those of you that are planning to attend our Investor Day in San Diego on Monday evening and Tuesday of next week. For those of you not attending, a slide deck and link to the webcast of the presentation will be posted on our website.

With that, that concludes our prepared remarks, and now I will open the call up for any questions. Thank you.

(Operator Instructions)

Nishu Sood, Deutsche Bank.

Thank you, and congratulations on the terrific execution this quarter.

Thanks.

First question I wanted to ask was about the gross margin guidance. So, things are coming in as expected. So, to get to your numbers for the year, Mike, it implies another substantial step up in gross margins into the fourth quarter.

I just wanted to review the components of that. Capitalized interest is a little higher. I wanted to get some sense of where that might be. With the mix shift I imagine that's still the main driver in the California closings influencing the gross margins in the fourth quarter.

Would we expect to also see a potential step up in the ASP as well? So just generally, what are your thoughts on the moving parts there, and what's driving that?

Yes, it's Mike. You hit on all of the components that make that up. We do see our ASP growing slightly in the fourth quarter primarily because of our percentage of our deliveries that we are delivering in the fourth quarter. We had a fairly significant increase in our deliveries in California in third quarter as we had mentioned before. So we do see some sequential improvement in our gross margin, and that number's probably north of 22% to get the overall year to around 21% as we are guiding to.

Got it.

And you had mentioned cap interest. It runs a couple of percent.

Got it. Yes, it went up to 2.1% I think, in the quarter, so something similar or some leverage in the fourth quarter should be expected.

It will be very similar to that.

Okay. Got it. On the, Doug, you mentioned, the labor concerns obviously, you are at 75% to 80% backlog turnover ratio. I think you hit about 57. It's almost identical to the numbers that you had in the second half of 2014.

I do not think that there will be too many builders that end up with that situation. You are, it sounds like from your comments you are experiencing the same challenges that other builders are. What are the main factors that have enabled you to keep your conversion ratio level on a year-over-year basis?

And how should we expect that to play out next year? Are you going to see some lingering effects in the first half of next year, or do you think that you can continue this level of same execution?

Yes, that's a good question, Nishu. We felt the labor crunch and, it's not -- this is not a national phenomenon. It's kind of submarket specific. And frankly we felt it late spring early summer.

And we made thee necessary adjustments in are planning and our operations to reflect that. But really, the success that anybody, and the success that our company has in securing labor really start to the relationships that our teams have formed.

You've got to remember that in this business is a very local business, and our teams average close to 20 years of experience in each one of their markets and had long-standing relationships with the trades, and when things get tough, and they are tough, they can call on those relationships. We also pay on time, We also keep our jobs scheduled and are ready for the trades to come on and get to the work and keep moving through.

Labor is a lagging effect. I know it's the headline noise right now. It is going to be a lagging effect. I think it will continue into 2016 to some effect.

Everybody should adjust and plan accordingly. But it's not the end-all for homebuilding. I mean, labor will slowly pick up as building permits continue to increase. Frankly, I don't mean to get on a pulpit here, but the labor is not the issue. Education is the issue.

We need to see our policy makers, and businesses, and educators work on an education system to provide more jobs. We had a great jobs number today that was reported. And that's the key driver for housing, that's the key driver for labor. I believe labor will continue to increase as we see continued permit activity.

Giving away free education at community colleges is not the answer. What we need to do as businesses, and as policymakers and as educators is devise programs that are met and address the need that we have in this country for labor, and if we do that everything will work out. It will take some time, but it will work out.

Got it. I appreciate the thoughts. And one more for could, community count with it being pushed from Q4 to Q1, 25 new communities being opened in Q1, where are those just a state-by-state?

Nishu, it's Mike, as I mentioned it is about 25 to 30 communities. About 10 of those are in California. The balance in the mix, bear with me a second. Probably about 20% of those will be in Maracay in Arizona, about 20% in Texas. There's no new communities opening in the mid-Atlantic in the first quarter, and there's three in the Washington and Quadrant.

Got it. Thanks.

Alan Ratner, Zelman & Associates.

Hello. Good morning. Nice quarter. Doug, you mentioned the repositioning that you put in place in Winchester. It looks like it certainly benefited this quarter's order results. Was curious if there was any other -- I think you had previously done Quadrant as well. Was curious as you look at your portfolio if there's any other areas where you're looking to reposition the portfolio either to different price points, maybe changing around the incentives or different floor plans.

Tying that into Houston a little bit, nice to see the absorption pace stabilizing there. I know several other builders have highlighted incremental slowing during the quarter. It doesn't look like you guys experienced that based on your numbers. With your price point at $500,000 there, that seems to be the sweet spot of the market that's getting hit the hardest. Was curious if that's an area where you're thinking about repositioning as well. I know there's a lot in there, but hopefully you can take that one by one.

Let's see if I can start at the beginning. On the mid-Atlantic, the market had been pretty choppy for the last couple years. We really readjust the organization to be a little bit more streamlined, and we believe that that refocusing of the efforts there, has helped energize the team. But, we've also got a very experienced team there and a good brand. And it still is an incentive laden market to stimulate sales.

But we are very optimistic, particularly our Cabin Branch project up the 270 corridor over the next several years. We've got a lot of lots there with NBR, and I think it's going to be a great project to fill in the gap that Clarksburg on the east side will pick up. I mean the other thing, is orders in the month of October were excellent. The team really executed on all fronts.

Throughout the Company, and we did this a little bit in Quadrant, but we will continue to do this in all the brands, is continue to focus on products, and merchandising. I mean, we're not done there in any of the companies, and frankly we think, we have a lot of improvement. Those benefits from repositioning product, and merchandising, and addressing the consumer needs will happen over the next 12 to 24 months.

In Quadrant and specifically though, we did focus our land efforts in King and Snohomish counties and really focus in on a premium product instead of dealing in some of the what I would call B locations that frankly we still are selling out this year, and, so we as indicated, have increased our margins and should continue to do so. It's a very strong market.

As far as Houston, Houston as we indicated at the beginning of the year, the worst thing you can do, I've been doing this for 28 years, is to completely do knee-jerk reactions to market conditions. We have an excellent team in Houston. Will Holder and his team have been through this for 20 years.

They have been a premium brand, and we will continue to be a premium brand. Will we build homes in a lot sizes that are 50 and 60 foot wide versus 80 foot, yes. And will that take us down in price point? Yes. Because of the lot size. But we are still going to be a premium builder with a strong reputation.

The key to success for us in Houston, is the risk-adjusted returns are much greater, and have always been profitable during these cycles with Will, because we option our land. As I mentioned, we only own nearly $60 million or $59.9 million of land. That's about 2% of our total real estate.

That's not the issue. What I'm actually positioning Houston for, is really 2017, 2018, and beyond. We want to continue to be in the best master-planned communities as we look forward to the future. The beauty of the option program, is we can continue to finish sections and go back to the land sellers and reposition our price in terms and conditions. That's what he's been doing for 20 years.

We're not sitting there like some of our competitors with thousands and thousands of lots that we own on balance sheet. Now you're kind of stuck. That's been a proven model that we're not going to change. It's very successful, they continue to generate profit, and we continue to believe that they will in the future.

Sorry, go ahead.

Alan, this is Tom. Just one additional thing as you are looking towards new opportunities going forward with product and design and marketing and merchandising, Doug mentioned we're stressing all of that.

But we see an opportunity in the active adult and age-qualified sector as well. We are currently exploring that. We do have some offerings out there. But, look to see that increase as we move forward in the future.

I really appreciate that. And Doug, just one follow-up on the strategy in Houston. You mentioned the ability to go back to land sellers and renegotiate. Has that been ongoing there? And what type of success have you had? I would imagine it's still a pretty tight land market in spite of the softness we've seen recently.

Yes, the market in Houston was great until the end of 2014, and then it turned on a dime in the beginning of 2015, as you know. So, we're still in the early innings, and we have had some success, and land sellers are slowly starting to realize, that they have to report to somebody, and they need to sell their lots and they want to have the Trendmaker brand in the community, and we will continue to work together with our land sellers.

They are important to us, and we are important to them. It's a collaborative event, and it will continue. And that's the beauty of our model. It will continue to be reset so to speak, over the next several, 12, 24 months.

Because I'm not sitting there with 5000 lots at a fixed basis. That's not my issue. My issue is to continue to design and build and market homes and adjust their price points to meet the market demand.

Great. Thanks, and good luck.

Thanks, Alan.

Thank you. Mike Weintraub Buckingham Research Group.

Thank you. Congratulations on the good quarter. A question I had was where are all these new communities coming on, obviously a lot of communities coming off, you've touched on it a little bit, but, what is the mix shift? Is it going to be -- I apologize if you already gave some color on it, but where are the communities. I think you mentioned there's a lot in California, maybe a little bit more granularity on that. And are they at higher price points? And also presumably the types of communities that tend to carry higher gross margins? Any color you could give on that would be helpful.

Hey, Mark, this is Tom. Yes, we have the mix in new communities that Mike identified, roughly 10 in California, 20%, 7 I think in our Arizona communities, and then 20% in Texas, as well. I wouldn't expect the mix shift to be anything different than what you are currently seeing, especially as it relates to our California projects opening up. So those should be very similar going forward.

Okay. And then, maybe just as a quick follow on. With the labor constraints, which you are handling well, and also presumably with the cost of land having gone up in the last couple of years. There is some upside pressure on the cost side. What's your sense right now in your various locations, the ability for the markets to handle some continued push on price to maintain that the types of margins we have been seeing?

Well, I think -- this is Doug, Mark. We've continued to see some price elasticity in markets like Seattle, California, modest, but a little tightening of incentives in Phoenix. But some modest price improvement. And frankly in Phoenix if you can get 2% to 3% price improvement a year, that's kind of a perfect recipe for continued success. Houston is obviously is a more incentive laden market right now, and as I mentioned, so is the mid-Atlantic.

Las Vegas, is depending on the price point, we've had some elasticity, but a little bit flat. So, we've been able to combat some of the labor cost increases. Generally speaking though, just as a company, I would tell you, that direct cost, not labor, but direct cost, all of our building costs inclusive of labor this year are generally going up 2% to 5%, Tom?

And we been able to mitigate most of that with, as we've demonstrated, our margin improvement. So in most of our locations.

Great. That's very helpful thank you.

Yes.

(Operator Instructions)

Will Randow Citigroup

Good morning. Congratulations on the progress.

Thank you, Will.

Thanks Will.

In terms of integration, given that you have a year under your belt or so, can you talk about, number one, your appetite for potential further M&A, and two, some of the challenges and opportunities you're still facing? Particularly you mentioned you're not adding communities in Winchester -- right at Winchester in the near term. If I heard that correctly. And then, I'm assuming there is a margin pressure there in Houston, but I'd love to get some color.

Yes, I'll take the M&A question. We continue to see that as -- I guess we see two growth prongs. Well, number one is we've got the six homebuilding brands that we see continued growth over the next three to five years as we continue to expand their operations in a smart way.

The other thing that we will continue to look at is geographic expansion opportunities. We've mentioned Austin. And frankly Austin and San Antonio together, but we've already planted a couple of seeds in Austin. It is an organic method, so it takes a while to really feel the bottom line effect. But that's part of our program.

And then, we will continue to explore regional, bolt on type of acquisitions. The market right now, is obviously a little sticky. And we will continue to be very smart about our growth. We're focused primarily on looking at opportunities in Texas to bolster what we are doing there outside of Houston, and or the Southeast. Tom, do you want to take some off Will's other questions?

Yes, Will, relevant to margin pressure in Houston there is no surprise there. We certainly have had challenging market conditions. Our team has performed admirably. They have been through it before. They know how to operate in these market conditions.

And, we are confident they are going to be successful. The one thing I would add is we're just moving down to what has been more historically normalized margins. And, that's right where we're at, and that's where we anticipate it to continue. I think the upside margins that we've seen over the last few years, were obviously because of positive margin conditions, but we anticipate being able to operate in the normalized market conditions.

And then, just on Winchester growth aspirations there, and as you look into 2016 how are you thinking about the balance sheet in terms of being cash flow neutral or in growth mode?

Well as far as Winchester, we've got the land to serve our business plans needs for 2016 and 2017. And we've indicated that for the Company. We have focused on land acquisition efforts. We recently secured an opportunity in Fairfax County very close to the Tyson's Corner area for those listening.

So, that is an example of what we're going to focus in on, closer into the main employment and transportation corridors. Those properties and deals typically take 18 to 24 months to bring to the market. So we're frankly focused on land acquisition in Winchester for 2018. And frankly, as I think Tom or Mike and mentioned earlier, that's true for the entire Company. If you ask me, what am I thinking about right now, it's really 2018 on the land side.

Okay, great. Thanks again and good luck on the next quarter.

And Will, drop me an email about that meeting in December as a footnote.

Okay. Great.

Thanks.

Jay McCanless, Sterne Agee.

Good morning. Mike, the first question for you the community push you are talking about in Q1 2016, how should we think about our SG&A modeling for that? I would assume is going to probably add a little bit of outsized expense versus what you would normally expect, correct?

Yes, well, our SG&A for the full-year should be pretty comfortable within the same range that we are seeing in 2015 for next year. It's just going to be spiky amongst the quarters because the amount of deliveries will change.

Okay. And then, I wanted to ask Doug, could you repeat what you said about the mid-Atlantic in terms of order growth in October? I missed that comment.

Yes, Jay, October was a great month. And actually, if you look at the trend, off the top of my head Tom, and Mike, July, August were very good in the mid-Atlantic. They fell a little bit off in September, and then they spiked again in October.

So you know, we had some seasonal trends, people going back to school in September, and all of a sudden again it pops up in October. I think it was a 55% increase year-over-year. So, the team is well-positioned.

As I mentioned, to Will earlier, we have got the land necessary to meet our goals for 2016 and 2017. And it's really positioning the Company for 2018. Closer in, as I mentioned the previous caller the Fairfax opportunity. We are very excited about our team in Winchester and their ability to grow closer in to the employment corridors is going to be a great opportunity.

We have a land team and leadership team that has been there for nearly 20 years. They are very well respected and can continue to source opportunities closer in.

Okay, thank you.

And just the last question, haven't heard much this time around about first time buyers. What percentage of your closings do you think were first-time buyers, and are you getting any better insight into that customer now that you have your own captive mortgage company?

Yes, Jay, this is Tom. I would say we're running pretty typically right now, about 35% of our deliveries in the new home, entry-level buyer position, about 45% in move up and 20% in the luxury market. We are certainly getting some insight. TRI Pointe Connect, our new mortgage operation, is up and running and fully operational in all of our markets. And, we continue to evolve and get more information. And, I think we've got a very positive outlook on the entry-level buyer reemerging.

You've actually got Jay, just to give you some mortgage stats for the September 30 ending at the year-to-date. We had average FICO scores, and this does not include TRI Pointe in California, because we had not been licensed as of September. I think we got licensed in the middle of the month if I recall, so really didn't have bearing on it.

But just to give you some feel our average FICO score was 735. Our product mix was 61% govies -- conventional and about 40% govies. It's kind of that mix as Tom said, 30% 35% entry-level. Now entry level is defined differently in price points in each submarket, too. We can be building an entry-level townhome in Orange County for $650,000 that $700,000 of that will fly off the handle.

Okay, great. Thank you. I appreciate the color.

Alex Barron Housing Research Center.

Good morning and great job. I wanted to start with land. This year, hoping we can get an update on any -- if there's going to be any large land sales in the fourth quarter. And then looking into next year on the same topic, would we just expect more of a smaller contribution to profits coming from land?

Hi, it's Mike.

For the balance of this year, obviously we're still guiding to roughly our $100 million of land sales so that would mean that we would have land sales in the fourth quarter. We haven't given specific guidance as to 2016, but as we have historically said, the RICO companies prior to this acquisition and then, this last year have historically done about $100 million average of land sales over the last five, six years, and we see that trend continuing into 2016. I do not think it is going to be similar on the margin side, because some of -- the PHR site that we had was a pretty significant sales. It was a $53 million sale at a 94% gross margin. We don't see that replicating itself every year.

But, we do see pretty good margins in our land sales moving forward.

Okay. And then, the other question I just wanted to clarify your commentary on the October orders with [Vegif] or Winchester, was that across the Company, month-to-month?

It's Mike again, you will see it in our slide deck, as well, I think we had 318 orders for the month of October, which was up pretty significantly from September, and it's running about 28% year-over-year ahead from a total (technical difficulty) --.

If I could ask a more general one on your spec strategy, does that tend more towards -- are you more of a spec builder at this point, or half-and-half build to order, or does it vary a lot by brand?

It is pretty different by brand. You have to bear in mind that since we are -- a significant of our business is in California, technically the way it works in California you build in phases. So we're usually starting construction prior -- even potentially prior to sale.

So could look at those as though they are all spec, but by the time that we finish those phases they are all sold out. Houston is a heavy spec market for us. We do see more specs at Maracay in Arizona. I think at the end of the quarter we were at 220 spec units completed that'd be available to close.

For the entire company.

For the whole Company, which is averaged about two per sales community.

What about the DC market and Washington State?

Yes, Alex this is Doug, you have a portion of your sales split between some specs, and dirt starts, and generally all of the markets, a little heavier as Mike indicated in Houston with our Trendmaker brand. But the rest of the country is a combination of dirt starts and spec building and, we probably keep it around 1.75 to 2.0 per community per month mean overall, as a ratio. But, it's not -- we're not a heavy spec builder in markets outside of California.

Okay, thanks a lot.

Thanks.

There are no further questions at this time. I would like to turn the floor back over to Mr. Bauer for closing comments.

I want to thank everyone for attending our third-quarter call. We look forward to talking to many of you, hopefully, next Monday evening and Tuesday And if not, as I mentioned earlier, our investor day information and slide deck and link will be on our website for your use. And if we don't talk to you, have a great holiday season. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.