Taylor Morrison Home 10Q 2021 Q1 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2021


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

For the transition period from to

Commission File Number: 001-35873

TAYLOR MORRISON HOME CORPORATION

(Exact name of registrant as specified in its Charter)


Delaware						83-2026677
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


4900 N. Scottsdale Road, Suite 2000		85251
Scottsdale,	Arizona
(Address of principal executive offices)		(Zip Code)

(480) 840-8100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 par value

TMHC

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding as of April 29, 2021
Common stock, $0.00001 par value						128,956,458

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TAYLOR MORRISON HOME CORPORATION

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			Page
PART I. FINANCIAL INFORMATION

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

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020			2

Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2021 and 2020			3

Condensed Consolidated Statements of Comprehensive Income/(l oss) for the three month periods ended March 31, 2021 and 2020			4

Condensed Consolidated Statement of Stockholders’ Equity for the three month periods ended March 31, 2021 and 2020			5

Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2021 and 2020			6

Notes to the Unaudited Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24

Item 3. Quantitative and Qualitative Disclosures About Market Risk			39

Item 4. Controls and Procedures			40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			41

Item 1A. Risk Factors			41

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

Item 3. Defaults Upon Senior Securities			41

Item 4. Mine Safety Disclosures			41

Item 5. Other Information			41

Item 6. Exhibits			42

SIGNATURES			43

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	March 31, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	392,500	$	532,843
Restricted cash	976		1,266
Total cash, cash equivalents, and restricted cash	393,476		534,109

Owned inventory	5,567,328		5,209,653
Consolidated real estate not owned	57,857		122,773
Total real estate inventory	5,625,185		5,332,426
Land deposits	124,469		125,625
Mortgage loans held for sale	243,250		201,177
Derivative assets	7,894		5,294
Lease right of use assets	69,435		73,222
Prepaid expenses and other assets, net	243,363		242,744
Other receivables, net	105,915		96,241
Investments in unconsolidated entities	136,105		127,955
Deferred tax assets, net	238,078		238,078
Property and equipment, net	125,118		97,927

Goodwill	663,197		663,197

Total assets	$	7,975,485	$	7,737,995
Liabilities
Accounts payable	$	258,349	$	215,047
Accrued expenses and other liabilities	390,301		430,067
Lease liabilities	79,572		83,240
Income taxes payable	46,184		12,841
Customer deposits	421,838		311,257
Estimated development liability	40,233		40,625
Senior notes, net	2,452,354		2,452,365
Loans payable and other borrowings	392,400		348,741
Revolving credit facility borrowings	0		0
Mortgage warehouse borrowings	180,833		127,289
Liabilities attributable to consolidated real estate not owned	57,857		122,773

Total liabilities	$4,319,921		$4,144,245
COMMITMENTS AND CONTINGENCIES (Note 15)	0		0
Stockholders’ Equity










Total stockholders’ equity	3,655,564		3,593,750
Total liabilities and stockholders’ equity	$	7,975,485	$	7,737,995

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	Three Months Ended March 31,
	2021		2020
Home closings revenue, net	$	1,363,429	$	1,264,640
Land closings revenue	4,889		22,939
Financial services revenue	44,065		28,039
Amenity and other revenue	5,429		30,081
Total revenue	1,417,812		1,345,699
Cost of home closings	1,110,242		1,070,503
Cost of land closings	4,027		27,132
Financial services expenses	23,999		20,647
Amenity and other expenses	5,103		29,661
Total cost of revenue	1,143,371		1,147,943
Gross margin	274,441		197,756
Sales, commissions and other marketing costs	85,952		86,327
General and administrative expenses	61,553		50,526
Equity in income of unconsolidated entities	(5,661)		(2,426)
Interest income, net	(119)		(560)
Other expense, net	975		6,290
Transaction expenses	0		86,374


Income/(loss) before income taxes	131,741		(28,775)
Income tax provision	29,298		781







Net income/(loss) before allocation to non-controlling interests	102,443		(29,556)
Net income attributable to non-controlling interests — joint ventures	(4,422)		(1,875)


Net income/(loss) available to Taylor Morrison Home Corporation	$	98,021	$	(31,431)
Earnings/(loss) per common share
Basic	$	0.76	$	(0.26)
Diluted	$	0.75	$	(0.26)
Weighted average number of shares of common stock:
Basic	128,883		121,908
Diluted	131,246		121,908

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)


	Three Months Ended March 31,
	2021		2020
Income/(loss) before non-controlling interests, net of tax	$	102,443	$	(29,556)


Post-retirement benefits adjustments, net of tax	0		(13)
Comprehensive income/(loss)	102,443		(29,569)
Comprehensive income attributable to non-controlling interests — joint ventures	(4,422)		(1,875)

Comprehensive income/(loss) available to Taylor Morrison Home Corporation	$	98,021	$	(31,444)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)


For the three months ended March 31, 2021

	Common Stock			Additional Paid-in Capital	Treasury Stock			Stockholders' Equity
	Shares	Amount			Amount		Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interest - Joint Venture		Total Stockholders’ Equity
Balance – December 31, 2020	129,476,914	$	1		$	2,926,773	25,884,756	$	(446,856)	$	1,025,789	$	(1,166)	$	89,209	$	3,593,750
Net income	—	—			—		—	—		98,021		—		4,422		102,443

Exercise of stock options	349,675	—			6,320		—	—		—		—		—		6,320
Issuance of restricted stock units, net of shares withheld for tax(1)	357,213	—			(4,664)		—	—		—		—		—		(4,664)

Repurchase of common stock	(1,447,309)	—			—		1,447,309	(38,418)		—		—		—		(38,418)
Stock compensation expense	—	—			5,682		—	—		—		—		—		5,682


Distributions to non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(7,961)		(7,961)
Changes in non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		(1,588)		(1,588)
Balance – March 31, 2021	128,736,493	$	1		$	2,934,111	27,332,065	$	(485,274)	$	1,123,810	$	(1,166)	$	84,082	$	3,655,564

(1) Dollar amount represents the value of shares withheld for taxes.


For the three months ended March 31, 2020


	Common Stock			Additional Paid-in Capital	Treasury Stock			Stockholders' Equity
	Shares	Amount			Amount		Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Income		Non-controlling Interest - Joint Venture		Total Stockholders’ Equity
Balance – December 31, 2019	105,851,285	$	1		$	2,097,995	19,943,432	$	(343,524)	$	782,350	$	884	$	8,006	$	2,545,712
Net (loss)/ income	—	—			—		—	—		(31,431)		—		1,875		(29,556)
Other comprehensive loss	—				—					—		(13)		—		(13)
Exercise of stock options	250,149	—			4,548		—	—		—		—		—		4,548
Issuance of restricted stock units, net of shares withheld for tax(1)	602,418	—			(7,075)		—	—		—		—		—		(7,075)
Issuance of equity in connection with business combinations	28,327,290	—			849,920		—	—		—		—		—		849,920
Repurchase of common stock	(5,436,479)	—			—		5,436,479	(90,163)		—		—		—		(90,163)
Stock compensation expense	—	—			11,896		—	—		—		—		—		11,896
Stock compensation expense related to WLH acquisition	—	—			5,107		—	—		—		—		—		5,107
WLH equity award accelerations due to change in control	—	—			8,421		—	—		—		—		—		8,421
Distributions to non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		6,735		6,735
Changes in non-controlling interests of consolidated joint ventures	—	—			—		—	—		—		—		117,509		117,509
Balance – March 31, 2020	129,594,663	$	1		$	2,970,812	25,379,911	$	(433,687)	$	750,919	$	871	$	134,125	$	3,423,041

(1) Dollar amount represents the value of shares withheld for taxes.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



	Three Months Ended March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) before allocation to non-controlling interests	$	102,443	$	(29,556)
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Equity in income of unconsolidated entities	(5,661)		(2,426)
Stock compensation expense	5,682		17,002

Distributions of earnings from unconsolidated entities	3,162		1,489
Depreciation and amortization	9,636		8,601
Operating lease expense	3,969		3,752
Debt issuance costs/(premium) amortization	118		(406)

Land held for sale write-downs	0		4,347


Changes in operating assets and liabilities:
Real estate inventory and land deposits	(356,519)		73,261
Mortgages held for sale, prepaid expenses and other assets	(85,270)		1,535
Customer deposits	110,581		32,516
Accounts payable, accrued expenses and other liabilities	34,208		(37,422)
Income taxes payable	33,343		(592)
Net cash (used in)/provided by operating activities	(144,308)		72,101
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(7,824)		(6,031)
Payments for business acquisitions, net of cash acquired	0		(209,446)
Distributions of capital from unconsolidated entities	7,451		6,713
Investments of capital into unconsolidated entities	(13,102)		(3,042)
Net cash used in investing activities	(13,475)		(211,806)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans payable and other borrowings	36,868		18,205
Repayments of loans payable and other borrowings	(27,580)		(32,726)
Borrowings on revolving credit facility	0		695,000
Repayments on revolving credit facility	0		(210,000)
Borrowings on mortgage warehouse	697,398		432,488
Repayments on mortgage warehouse	(643,854)		(446,555)

Repayments on senior notes	0		(50,000)
Payment of deferred financing costs	0		(3)

Proceeds from stock option exercises	6,320		4,548



Payment of principle portion of finance lease	(1,325)		(1,325)
Repurchase of common stock, net	(38,418)		(90,163)
Payment of taxes related to net share settlement of equity awards	(5,288)		(7,075)
Changes and (distributions to)/contributions to non-controlling interests of consolidated joint ventures, net	(6,971)		10,171
Net cash provided by financing activities	17,150		322,565
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	$	(140,633)	$	182,860
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period	534,109		328,572
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period	$	393,476	$	511,432
SUPPLEMENTAL CASH FLOW INFORMATION:
Income tax refund, net	$	4,592	$	325
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in loans payable issued to sellers in connection with land purchase contracts	$	82,378	$	20,189
Change in inventory not owned	$	(64,916)	$	(22,281)


Issuance of common stock in connection with business acquisition	$	0	$	867,284
Net non-cash (distributions)/contributions from non-controlling interests	$	(990)	$	6,697
Non-cash portion of loss on debt extinguishment	$	0	$	1,723

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Description of the Business — Taylor Morrison Home Corporation “TMHC” through its subsidiaries (together with TMHC referred to herein as “we,” “our,” “the Company” and “us”), owns and operates a residential homebuilding business and is a developer of lifestyle communities. We operate in the states of Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury, and active adult. Our homebuilding segments operate under our Taylor Morrison, Darling Homes, and William Lyon Signature brand names. Our business is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as 4 reportable segments: East, Central, West, and Financial Services. The communities in our homebuilding segments generally offer single and multi-family attached and detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and land development. We have an exclusive partnership with Christopher Todd Communities, a growing Phoenix-based developer of innovative, luxury rental communities to operate a “Build-to-Rent” homebuilding business. We serve as a land acquirer, developer, and homebuilder while Christopher Todd Communities provides community design and property management consultation. We also operate Urban Form Development, LLC (“Urban Form”), which primarily develops and constructs multi-use properties consisting of commercial space, retail, and multi-family units. Our Financial Services segment provides financial services to customers through our wholly owned mortgage subsidiary, operating as Taylor Morrison Home Funding, LLC (“TMHF”), title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”), and homeowner’s insurance policies through our insurance agency, Taylor Morrison Insurance Services, LLC (“TMIS”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”). In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.

We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The income from the percentage of the joint venture not owned by us is presented as “Net income attributable to non-controlling interests - joint ventures” on the Condensed Consolidated Statements of Operations.

Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and these accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, valuation of development liabilities, valuation of equity awards, valuation allowance on deferred tax assets, and reserves for warranty and self-insured risks. Actual results could differ from those estimates.

Goodwill — The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC Topic 350, Intangibles — Goodwill and Other. ASC 350 requires that goodwill and intangible assets that do not have finite lives not be amortized, but rather assessed for impairment at least annually or more frequently if certain impairment indicators are present. We perform our annual impairment test during the fourth quarter or whenever impairment indicators are present. We did not perform an impairment test during the first quarter of 2021 as indicators of impairment were not present as of March 31, 2021.

Real Estate Inventory — Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, all of which are stated at cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home vertical construction costs are accumulated and charged to cost of sales at the time of home closing using the specific identification method. Land acquisition, development, interest, and real estate taxes are allocated to homes and units generally using the relative sales value method. Generally, all overhead costs relating to our materials procurement process, vertical construction of a home, and construction utilities are considered overhead costs and allocated on a per unit

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basis. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining lots on a prospective basis. For those communities that have been temporarily closed or development has been discontinued, we do not allocate interest or other costs to the community’s inventory until activity resumes. Such costs are expensed as incurred.

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

We assess the recoverability of our inventory in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment. We review our real estate inventory for indicators of impairment on a community-level basis during each reporting period. If indicators of impairment are present for a community, we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the expected undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, then the assets are deemed to be impaired and are recorded at fair value as of the assessment date. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the three months ended March 31, 2021 and 2020, no impairment charges were recorded.

In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. We refer to such communities as long-term strategic assets. The decision may be based on financial and/or operational metrics as determined by us. If we decide to cease development, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized. Our assessment of the carrying value of our long-term strategic assets typically includes subjective estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of March 31, 2021 and December 31, 2020, we had one inactive project in our East region with a carrying value of $13.5 million.

We have land purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources, we may transfer our right under certain specific performance agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions from their owners and/or incur debt to finance the acquisition and development of the land. The entities grant us an option to acquire lots in staged takedowns. In consideration for this option, we make a non-refundable deposit of 15% to 25% of the total purchase price. We are not legally obligated to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots were not purchased. We do not have an ownership interest in these entities or title to their assets and do not guarantee their liabilities. These land banking arrangements help us manage the financial and market risk associated with land holdings.

Investments in Consolidated and Unconsolidated Entities

Consolidated Entities — In the ordinary course of business, we enter into land purchase contracts, lot option contracts and land banking arrangements in order to procure land or lots for the construction of homes. Such contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. In accordance with ASC Topic 810, Consolidation, we have concluded that when we enter into these agreements to acquire land or lots and pay a non-refundable deposit, a Variable Interest Entity (“VIE”) may be created because we are deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. If we are the primary beneficiary of the VIE, we will consolidate the VIE in our Condensed Consolidated Financial Statements and reflect such assets and liabilities as Consolidated real estate not owned within our real estate inventory balance and Liabilities attributable to consolidated real estate not owned, respectively in the Consolidated Balance Sheets.

Unconsolidated Joint Ventures — We use the equity method of accounting for entities over which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that they have substantive participating rights that preclude the presumption of control. Our share of net earnings or losses is included in Equity in income of unconsolidated entities when earned and distributions are credited against our investment in the joint venture when received. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a third party. These joint ventures are recorded in Investments in unconsolidated entities on the Consolidated Balance Sheets.

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We evaluate our investments in unconsolidated entities for indicators of impairment at least semi-annually, or whenever indicators of impairment are present. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners. If we believe that the decline in the fair value of the investment is temporary, then no impairment is recorded. We did not record any impairment charges for the three months ended March 31, 2021 and 2020.

Prepaid Expenses and Other Assets, Net — Prepaid expenses consist of sales commissions, unamortized model home costs, such as design fees and furniture, and the unamortized issuance costs for the Revolving Credit Facility. Other assets consist of various operating and escrow deposits, pre-acquisition costs, and other deferred costs. Build-to-rent assets consist of land and development costs relating to our projects under construction. Urban Form assets consist primarily of land and development costs relating to projects under construction.

Revenue Recognition — We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.

Home and land closings revenue

Under Topic 606, the following steps are applied to determine the proper home closings revenue and land closings revenue recognition: (1) we identify the contract(s) with our customer; (2) we identify the performance obligations in the contract; (3) we determine the transaction price; (4) we allocate the transaction price to the performance obligations in the contract; and (5) we recognize revenue when (or as) we satisfy the performance obligation. For our home sales transactions, we have one contract, with one performance obligation, with each customer to build and deliver the home purchased (or develop and deliver land). Based on the application of the five steps, the following summarizes the timing and manner of home and land sales revenue:

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

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

Amenity and other revenue

We own and operate certain amenities such as golf courses, club houses, and fitness centers, which require us to provide club members with access to the facilities in exchange for the payment of club dues. We collect club dues and other fees from the club members, which are invoiced on a monthly basis. Revenue from our golf club operations is also included in amenity and other revenue. Amenity and other revenue also includes revenue from the sale of assets which include multi-use properties as part of our Urban Form operations.

Financial services revenue

Mortgage operations and hedging activity related to financial services are not within the scope of Topic 606. Loan origination fees (including title fees, points, and closing costs) are recognized at the time the related real estate transactions are completed, which is usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, on a non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, Sales of Financial Assets. TMHF does not have continuing involvement with the transferred assets; therefore, we derecognize the mortgage loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale. Also included in Financial services revenue/expenses are realized and unrealized gains and losses from hedging instruments.

Recently Issued Accounting Pronouncements — In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is

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intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted ASU 2019-12 as of January 1, 2021, but this pronouncement did not have a material impact on our consolidated financial statements and disclosures.

3. BUSINESS COMBINATIONS

In accordance with ASC Topic 805, Business Combinations, all assets acquired and liabilities assumed from our acquisition of William Lyon Homes (“WLH”) on February 6, 2020 were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid. Upon finalization, total purchase consideration of the WLH acquisition was $1.1 billion, consisting of multiple components: (i) cash of $157.8 million, (ii) the issuance of approximately 28.3 million shares of TMHC Common Stock with a value of $773.9 million, (iii) the repayment of $160.8 million of borrowings under WLH's Revolving Credit Facility, and (iv) the conversion of WLH issued equity instruments consisting of restricted stock units, restricted stock awards, options and warrants to TMHC awards and warrants with a value of $24.1 million.

We determined the estimated fair value of real estate inventory on a community-level basis, using a reasonable range of market comparable gross margins based on the inventory geography and product type. These estimates are significantly impacted by assumptions related to expected average home selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. Such estimates were made for each individual community and varied significantly between communities. We believe our estimates and assumptions are reasonable.

The following is a summary of the final fair value of assets acquired and liabilities assumed.


(Dollars in thousands)
Acquisition Date	February 6, 2020
Assets acquired
Real estate inventory	$	2,069,323

Prepaid expenses and other assets(1)	265,729
Deferred tax assets, net	148,193

Goodwill(2)	513,768
Total assets	$	2,997,013

Less liabilities assumed
Accrued expenses and other liabilities	$	457,365

Total debt	1,306,578
Non-controlling interest	116,157
Net assets acquired	$	1,116,913

(1) Includes cash acquired.

(2) Goodwill is not deductible for tax purposes. We allocated $465.6 million and $48.2 million of goodwill to the West and Central homebuilding segments, respectively.

Unaudited Pro Forma Results of Business Combinations

The following unaudited pro forma information for the period presented includes the results of operations of our acquisition of WLH as if it had been completed on January 1, 2019. The pro forma results are presented for informational purposes only and do not purport to be indicative of the results of operations or future results that would have been achieved if the acquisition had taken place one year prior to the acquisition year. The pro forma information combines the historical results of the Company with the historical results of WLH for the periods presented.

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

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	For the three months ended March 31,
(Dollars in thousands except per share data)	2020 (Pro forma)
Total revenue	$	1,432,797

Net income before allocation to non-controlling interests	$	9,027
Net income attributable to non-controlling interests — joint ventures	(988)
Net income available to TMHC	$	8,039

Weighted average shares - Basic	133,643
Weighted average shares - Diluted	134,935

Earnings per share - Basic	$	0.06
Earnings per share - Diluted	$	0.06

For the three months ended March 31, 2020, total revenue on the condensed consolidated statement of operations included $282.6 million of revenues and loss before income taxes included loss of $31.7 million from WLH since the date of acquisition.

4. EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income/(loss) available to TMHC by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all outstanding dilutive equity awards to issue shares of Common Stock were exercised or settled.

The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended March 31,
	2021		2020(1)
Numerator:
Net income/(loss) available to TMHC	$	98,021	$	(31,431)



Denominator:
Weighted average shares – basic	128,883		121,908

Restricted stock units	975		0
Stock Options	844		0
Warrants	544		0
Weighted average shares – diluted	131,246		121,908
Earnings/(loss) per common share – basic:
Net income/(loss) available to Taylor Morrison Home Corporation	$	0.76	$	(0.26)
Earnings/(loss) per common share – diluted:
Net income/(loss) available to Taylor Morrison Home Corporation	$	0.75	$	(0.26)

(1) Due to a loss for the three months ended March 31, 2020, no incremental shares associated with (1) restricted stock units, (2) stock options and (3) warrants were included because the effect would be antidilutive.

The above calculations of weighted average shares excludes 811,658 and 2,547,953 anti-dilutive stock options and unvested restricted stock units (“RSUs”) for the three months ended March 31, 2021 and 2020, respectively.

5. REAL ESTATE INVENTORY AND LAND DEPOSITS

Inventory consists of the following (in thousands):

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	As of
	March 31, 2021		December 31, 2020
Real estate developed and under development	$	4,036,364	$	3,862,785
Real estate held for development or held for sale (1)	129,384		110,954
Operating communities (2)	1,227,406		1,072,134
Capitalized interest	174,174		163,780
Total owned inventory	5,567,328		5,209,653
Real estate not owned	57,857		122,773
Total real estate inventory	$	5,625,185	$	5,332,426

(1) Real estate held for development or held for sale includes properties which are not in active production. This includes raw land recently purchased or awaiting entitlement, and, if applicable, long-term strategic assets.

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

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


	As of
	March 31, 2021			December 31, 2020
	Owned Lots	Book Value of Land and Development		Owned Lots	Book Value of Land and Development
Raw(1)	11,107	$	373,805	12,330	$	356,681
Partially developed	21,285	1,256,035		19,495	1,215,419
Finished	22,693	2,522,446		21,396	2,388,177
Long-term strategic assets	158	13,462		158	13,462
Total	55,243	$	4,165,748	53,379	$	3,973,739

(1) Commercial assets are included in number of owned lots and book value of land and development.

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

As of March 31, 2021 and December 31, 2020, we had the right to purchase 7,373 and 7,449 lots under land option purchase contracts, respectively, for an aggregate purchase price of $519.8 million and $485.4 million, respectively. We do not have title to the properties, and the creditors generally have no recourse against us. As of March 31, 2021 and December 31, 2020, our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of non-refundable deposits totaling $92.5 million and $65.3 million, respectively.

We also have various land banking arrangements. As of March 31, 2021 and December 31, 2020, we had the right to purchase 1,476 lots and 2,426 lots under such land agreements for an aggregate purchase price of $137.7 million and $275.0 million, respectively. We are not legally obligated to purchase the balance of the lots. As of March 31, 2021 and December 31, 2020, our exposure to loss related to deposits on land banking arrangements totaled $32.0 million and $60.3 million, respectively.

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


	Three Months Ended March 31,
	2021		2020
Interest capitalized - beginning of period	$	163,780	$	115,593
Interest incurred	37,719		37,575
Interest amortized to cost of home closings	(27,325)		(24,298)
Interest capitalized - end of period	$	174,174	$	128,870

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6. INVESTMENTS IN CONSOLIDATED AND UNCONSOLIDATED ENTITIES

Unconsolidated Entities

We have investments in a number of joint ventures with third parties, with ownership interests up to 50.0%. These entities are generally involved in real estate development, homebuilding and/or mortgage lending activities. Some of these joint ventures develop land for the sole use of the joint venture participants, including us, and others develop land for sale to both the joint venture participants and to unrelated builders. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.

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


	As of
	March 31, 2021		December 31, 2020
Assets:
Real estate inventory	$	332,427	$	342,451
Other assets	145,209		133,903
Total assets	$	477,636	$	476,354
Liabilities and owners’ equity:
Debt	$	178,483	$	183,911
Other liabilities	18,903		21,215
Total liabilities	197,386		205,126
Owners’ equity:
TMHC	136,105		127,955
Others	144,145		143,273
Total owners’ equity	280,250		271,228
Total liabilities and owners’ equity	$	477,636	$	476,354


	Three Months Ended March 31,
	2021		2020
Revenues	$	49,880	$	48,972
Costs and expenses	(34,157)		(41,494)
Income of unconsolidated entities	$	15,723	$	7,478
TMHC’s share in income of unconsolidated entities	$	5,661	$	2,426
Distributions to TMHC from unconsolidated entities	$	10,613	$	8,202

Consolidated Entities

We have a total of 25 joint ventures as of March 31, 2021 for the purpose of land development and homebuilding activities, which we have determined to be VIEs. As the managing member, we oversee the daily operations and have the power to direct the activities of the VIEs, or joint ventures. Based upon the allocation of income and loss per the applicable joint venture agreements and certain performance guarantees, we have potentially significant exposure to the risks and rewards of the joint ventures. Therefore, we are the primary beneficiary of these joint venture VIEs, and these entities were consolidated as of March 31, 2021.

As of March 31, 2021, the assets of the consolidated joint ventures totaled $378.0 million, of which $18.0 million was cash and cash equivalents and $292.5 million was owned inventory. The liabilities of the consolidated joint ventures totaled $221.3 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

7. ACCRUED EXPENSES AND OTHER LIABILITIES

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

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	As of March 31, 2021		As of December 31, 2020
Real estate development costs to complete	$	49,924	$	38,935
Compensation and employee benefits	79,427		113,896
Self-insurance and warranty reserves	116,406		118,116
Interest payable	35,237		45,917
Property and sales taxes payable	26,741		28,523
Other accruals	82,566		84,680
Total accrued expenses and other liabilities	$	390,301	$	430,067

Self-Insurance and Warranty Reserves – We accrue for the expected costs associated with our limited warranty, deductibles and self-insured amounts under our various insurance policies within Beneva Indemnity Company ("Beneva"), a wholly owned subsidiary. A summary of the changes in our reserves are as follows (in thousands):


	Three Months Ended March 31,
	2021		2020
Reserve - beginning of period	$	118,116	$	120,048


Net additions to reserves due to WLH acquisition	0		9,130
Other additions to reserves	12,391		9,738
Cost of claims incurred	(15,865)		(18,987)
Changes in estimates to pre-existing reserves	1,764		2,035

Reserve - end of period	$	116,406	$	121,964

8. ESTIMATED DEVELOPMENT LIABILITY

The estimated development liability consists primarily of estimated future utilities improvements in Poinciana, Florida and Rio Rico, Arizona for more than 8,000 home sites previously sold, in most cases prior to 1980. The estimated development liability is reduced by actual expenditures and is evaluated and adjusted, as appropriate, to reflect management’s estimate of potential completion costs or, if available, third-party engineer cost estimate reports which reflect the estimated completion costs. Future increases or decreases of costs for construction, material and labor, as well as other land development and utilities infrastructure costs, may have a significant effect on the estimated development liability.

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9. DEBT

Total debt consists of the following (in thousands):


	As of
	March 31, 2021						December 31, 2020
	Principal		Unamortized Debt Issuance (Costs)/Premium		Carrying Value		Principal		Unamortized Debt Issuance (Costs)/Premium		Carrying Value


5.875% Senior Notes due 2023	$	350,000	$	(1,158)	$	348,842	$	350,000	$	(1,300)	$	348,700

5.625% Senior Notes due 2024	350,000		(1,570)		348,430		350,000		(1,705)		348,295

5.875% Senior Notes due 2027	500,000		(4,830)		495,170		500,000		(5,026)		494,974
6.625% Senior Notes due 2027(1)	300,000		20,116		320,116		300,000		20,915		320,915
5.75% Senior Notes due 2028	450,000		(4,288)		445,712		450,000		(4,445)		445,555
5.125% Senior Notes due 2030	500,000		(5,916)		494,084		500,000		(6,074)		493,926
Senior Notes subtotal	$	2,450,000	$	2,354	$	2,452,354	$	2,450,000	$	2,365	$	2,452,365
Loans payable and other borrowings	392,400		0		392,400		348,741		0		348,741
Revolving Credit Facility	0		0		0		0		0		0
Mortgage warehouse borrowings	180,833		0		180,833		127,289		0		127,289
Total debt	$	3,023,233	$	2,354	$	3,025,587	$	2,926,030	$	2,365	$	2,928,395

(1) Consists of remaining 2027 6.625% WLH notes and 2027 6.625% TM Communities Notes issued by TM Communities in connection with the exchange offer as described below. Unamortized Debt Issuance (Cost)/Premium for such notes is reflective of fair value adjustments as a result of purchase accounting estimates.

Senior Notes

All of our senior notes (the “Senior Notes”) described below and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indentures governing our Senior Notes (except for the remaining 6.625% William Lyon Notes due 2027, as described below) contain covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions and contain customary events of default. None of the indentures for the Senior Notes have financial maintenance covenants. As of March 31, 2021, we were in compliance with all of the covenants under the Senior Notes.

5.875% Senior Notes due 2023

On April 16, 2015, Taylor Morrison Communities, Inc (“TM”) issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the “2023 5.875% Senior Notes”), which mature on April 15, 2023. The 2023 5.875% Senior Notes are guaranteed by Taylor Morrison Home III Corporation, Taylor Morrison Holdings, Inc. and their homebuilding subsidiaries (collectively, the “Guarantors”). We are required to offer to repurchase the 2023 5.875% Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events where there is a credit rating downgrade that occurs in connection with the change of control.

Prior to January 15, 2023, the 2023 5.875% Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 5.875% Senior Notes are redeemable at par (plus accrued and unpaid interest).

5.625% Senior Notes due 2024

On March 5, 2014, TM Communities issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”), which mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the Guarantors. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indentures governing our other Senior Notes.

Prior to December 1, 2023, the 2024 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through December 1, 2023 (plus accrued and unpaid interest). Beginning on December 1, 2023, the 2024 Senior Notes are redeemable at par (plus accrued and unpaid interest).

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5.875% Senior Notes due 2027

On June 5, 2019, TM Communities issued $500.0 million aggregate principal amount of 5.875% Senior Notes due 2027 (the “2027 5.875% Senior Notes”), which mature on June 15, 2027. The 2027 5.875% Senior Notes are guaranteed by the Guarantors. The change of control provisions in the indenture governing the 2027 5.875% Senior Notes are similar to those contained in the indentures governing our other Senior Notes.

Prior to March 15, 2027, the 2027 5.875% Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through March 15, 2027 (plus accrued and unpaid interest). Beginning on March 15, 2027, the 2027 5.875% Senior Notes are redeemable at par (plus accrued and unpaid interest).

6.625% Senior Notes due 2027

Following our exchange offer in the first quarter of 2020, whereby TM Communities offered to exchange any and all outstanding senior notes issued by WLH, we had $290.4 million aggregate principal amount of 6.625% Senior Notes due 2027 issued by TM Communities (the “2027 6.625% TM Communities Notes”) and $9.6 million aggregate principal amount of 6.625% Senior Notes due 2027 issued by WLH (the “2027 6.625% WLH Notes” and together with the 2027 6.625% TM Communities Notes, the “2027 6.625% Senior Notes”) (the “Exchange offer”). The 2027 6.625% TM Communities Notes are obligations of TM Communities and are guaranteed by the Guarantors. The change of control provisions in the indenture governing the 2027 6.625% TM Communities Notes are similar to those contained in the indentures governing our other Senior Notes. In connection with the consummation of the exchange offer, WLH entered into a supplemental indenture to eliminate substantially all of the covenants in the indenture governing the 2027 6.625% WLH Notes, including the requirements to offer to purchase such notes upon a change of control, and to eliminate certain other restrictive provisions and events that constitute an “Event of Default” in such indenture.

The 2027 6.625% Senior Notes mature on July 15, 2027. Prior to July 15, 2022, the 2027 6.625% Senior Notes may be redeemed in whole or in part at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, and accrued and unpaid interest, if any, to, but not including, the redemption date. On or after July 15, 2022, the 2027 6.625% Senior Notes are redeemable at a price equal to 103.313% of principal (plus accrued and unpaid interest). On or after July 15, 2023, the 2027 6.625% Senior Notes are redeemable at a price equal to 102.208% of principal (plus accrued and unpaid interest). On or after July 31, 2024, the 2027 6.625% Senior Notes are redeemable at a price equal to a 101.104% of principal (plus accrued and unpaid interest). On or after July 15, 2025, the 2027 6.625% Senior Notes are redeemable at a price equal to 100% of principal (plus accrued and unpaid interest).

In addition, at any time prior to July 15, 2022, we may at the option on one or more occasions, redeem the 2027 6.625% Senior Notes (including any additional notes that may be issues in the future under the 2027 6.625% Senior Notes Indenture) in an aggregate principal amount not to exceed 40% of the aggregate principal amount of the 2027 6.625% Senior Notes at a redemption price (expressed as a percentage of principal amount) of 106.625%, plus accrued and unpaid interest, if any, to, but not including, the redemption date, with an amount equal to the net cash proceeds from one or more equity offerings.

5.75% Senior Notes due 2028

On August 1, 2019, TM Communities issued $450.0 million aggregate principal amount of 5.75% Senior Notes due 2028 (the “2028 Senior Notes”), which mature on January 15, 2028. The 2028 Senior Notes are guaranteed by the Guarantors. The change of control provisions in the indenture governing the 2028 Senior Notes are similar to those contained in the indentures governing our other Senior Notes.

Prior to October 15, 2027, the 2028 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through October 15, 2027 (plus accrued and unpaid interest). Beginning on October 15, 2027, the 2028 Senior Notes are redeemable at par (plus accrued and unpaid interest).

5.125% 2030 Senior Notes and Redemption of the 2023 6.00% Senior Notes and Redemption of the 2025 Senior Notes

In July, 2020, $266.9 million of our 6.00% Senior Notes due 2023 (the “2023 6.00% Senior Notes”) and $333.1 million of our 5.875% Senior Notes due 2025 (the “2025 Senior Notes”) were partially redeemed using the net proceeds from the issuance of $500.0 million aggregate principal amount of 5.125% Senior Notes due 2030 (the “2030 Senior Notes”). In September 2020, we redeemed the remaining $83.1 million and $103.8 million of 2023 6.00% Senior Notes and 2025 Senior Notes, respectively, using cash on hand. For the 2023 6.00% Senior Notes, the redemption price was equal to 100.0% of the principal amount, plus a make-whole premium of 0.11% plus 50 basis points, plus accrued and unpaid interest to but excluding the redemption date.

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For the 2025 Senior Notes, the redemption price was equal to 102.938% of the principal amount, plus accrued and unpaid interest to but excluding the redemption date. As a result of the early redemption of the 2023 and 2025 Senior Notes, we recorded a total net loss on extinguishment of debt of approximately $10.2 million in Loss on extinguishment of debt, net, in the Consolidated Statement of Operations for the year ended December 31, 2020.

The 2030 Senior Notes mature on August 1, 2030. The Senior Notes are guaranteed by the Guarantors. The change of control provisions in the indenture governing the 2030 Senior Notes are similar to those contained in the indentures governing our other Senior Notes.

Prior to February 1, 2030, the 2030 Senior Notes are redeemable at a price equal to 100.0% plus a “make-whole” premium for payments through February 1, 2030 (plus accrued and unpaid interest). Beginning on February 1, 2030, the 2030 Senior Notes are redeemable at par (plus accrued and unpaid interest).

Revolving Credit Facility

Our $800.0 million Revolving Credit Facility matures on February 6, 2024 and is guaranteed by the Guarantors.

The Revolving Credit Facility included $1.5 million and $1.6 million of unamortized debt issuance costs as of March 31, 2021 and December 31, 2020, respectively, which are included in Prepaid expenses and other assets, net, on the Condensed Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, we had $52.4 million and $64.3 million, respectively, of utilized letters of credit, resulting in $747.6 million and $735.7 million, respectively, of availability under the Revolving Credit Facility.

The Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $2.1 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of 4 consecutive fiscal quarters and up to 5 times overall.

The Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control.

As of March 31, 2021, we were in compliance with all of the covenants under the Revolving Credit Facility.

Mortgage Warehouse Borrowings

The following is a summary of our mortgage warehouse borrowings (in thousands):

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As of March 31, 2021

Facility

Amount Drawn

Facility Amount

Interest Rate(1)

Expiration Date

Collateral (2)

Warehouse A

7,114

10,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse B

46,218

50,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse C

71,799

75,000

LIBOR + 2.05%

On Demand

Mortgage Loans and Restricted Cash

Warehouse D

55,702

80,000

LIBOR + 1.65%

November 15, 2021

Mortgage Loans

Total

180,833

215,000

As of December 31, 2020

Facility

Amount Drawn

Facility Amount

Interest Rate

Expiration Date

Collateral (2)

Warehouse A

40,958

55,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse B

19,457

85,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse C

43,148

75,000

LIBOR + 2.05%

On Demand

Mortgage Loans and Restricted Cash

Warehouse D

23,726

80,000

LIBOR + 1.65%

November 15, 2021

Mortgage Loans

Total

127,289

295,000

(1) Subject to certain interest rate floors.

(2) The mortgage warehouse borrowings outstanding as of March 31, 2021 and December 31, 2020 were collateralized by $243.3 million and $201.2 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage receivables, and approximately $1.0 million and $1.3 million, respectively, of cash which is restricted cash on our balance sheet.

Loans Payable and Other Borrowings

Loans payable and other borrowings as of March 31, 2021 and December 31, 2020 consist of project-level debt due to various land sellers and seller financing notes from current and prior year acquisitions. The debt is obtained for specific communities that contains land banking, profit participation, and joint ventures. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at each of March 31, 2021 and December 31, 2020.

10. FAIR VALUE DISCLOSURES

We have adopted ASC Topic 820, Fair Value Measurements, for valuation of financial instruments. ASC Topic 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:

Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.

Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.

Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.

The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of derivative assets includes interest rate lock commitments (“IRLCs”) and mortgage backed securities (“MBS”). The fair value of IRLCs is based on the value of the underlying mortgage loan, quoted MBS prices and the probability that the mortgage loan will fund within the terms of the IRLCs. We estimate the fair value of the forward sales commitments based on quoted MBS prices. The fair value of our mortgage warehouse borrowings, loans payable and other borrowings, the borrowings under our Revolving Credit Facility approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. There were no changes to or transfers between the levels of the fair value hierarchy for any of our financial instruments as of March 31, 2021, when compared to December 31, 2020.

The carrying value and fair value of our financial instruments are as follows:

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		March 31, 2021				December 31, 2020
(Dollars in thousands)	Level in Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Description:
Mortgage loans held for sale	2	$	243,250	$	243,250	$	201,177	$	201,177
IRLCs	3	4,985		4,985		5,294		5,294
MBSs	2	2,909		2,909		(1,847)		(1,847)

Mortgage warehouse borrowings	2	180,833		180,833		127,289		127,289
Loans payable and other borrowings	2	392,400		392,400		348,741		348,741


5.875% Senior Notes due 2023 (1)	2	348,842		371,455		348,700		371,000

5.625% Senior Notes due 2024 (1)	2	348,430		375,375		348,295		375,830

5.875% Senior Notes due 2027 (1)	2	495,170		551,250		494,974		566,650
6.625% Senior Notes due 2027 (1)	2	320,116		322,890		320,915		324,240
5.75% Senior Notes due 2028(1)	2	445,712		495,720		445,555		509,625
5.125% Senior Notes due 2030(1)	2	494,084		531,250		493,926		560,000

(1) Carrying value for Senior Notes, as presented, includes unamortized debt issuance costs and premiums. Debt issuance costs are not factored into the fair value calculation for the Senior Notes.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value for our inventories measured at fair value on a nonrecurring basis:


(Dollars in thousands)		For the Year Ended December 31,
Description:	Level in Fair Value Hierarchy	2020
Inventories	3	$	22,556

As of March 31, 2021, the fair value for such inventories was not determined as there were no events and circumstances that indicated their carrying value was not recoverable.

11. INCOME TAXES

We recorded income tax expense of $29.3 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively. Our effective tax rate for the three months ended March 31, 2021 was 22.2%, compared to (2.7)% for the same period in 2020. The effective tax rate for the first quarter of 2020 was negative as the company incurred tax expense on a loss before income taxes due to costs related to the acquisition of WLH.

At both March 31, 2021 and December 31, 2020, cumulative gross unrecognized tax benefits were $5.8 million. If the unrecognized tax benefits as of March 31, 2021 were to be recognized, approximately $4.6 million would affect the effective tax rate. We had $0.6 million and $0.5 million of gross interest and penalties related to unrecognized tax positions accrued as of March 31, 2021 and December 31, 2020, respectively.

12. STOCKHOLDERS’ EQUITY

Capital Stock

The Company’s authorized capital stock consists of 400,000,000 shares of common stock, par value $0.00001 per share (the “Common Stock”), and 50,000,000 shares of preferred stock, par value $0.00001 per share.

Warrants

In connection with our acquisition of WLH, we issued 1,704,205 warrants to purchase shares of TMHC Common Stock at an exercise price of $19.12 per share. The expiration date of the warrants is February 24, 2022.

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Stock Repurchase Program

On December 8, 2020, we announced that our Board of Directors authorized a renewal of our stock repurchase program which permits the repurchase of up to $100.0 million of the Company's Common Stock until December 31, 2021. Repurchases of our Common Stock under the program occur from time to time through open market purchases, privately negotiated transactions or other transactions. The timing, manner, price and amount of any common stock repurchases will be determined by us in our discretion and will depend on a variety of factors, including prevailing market conditions, our liquidity, the terms of our debt instruments, legal requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. The program does not require us to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time.

The following table summarizes share repurchase activity for the periods presented:



	Three Months Ended March 31,
(Dollars in thousands)	2021		2020
Amount available for repurchase — beginning of period(1)	$	86,831	$	0

Additional amount authorized for repurchase	0		100,000
Amount repurchased at cost, 1,447,309 and 5,436,479 shares during the three months ended March 31, 2021 and 2020, respectively.	(38,418)		(90,163)
Amount available for repurchase — end of period	$	48,413	9,837

(1) Represents the amount available for repurchase as of January 1 for the years provided, adjusted for previously expired share repurchase authorizations.

13. STOCK BASED COMPENSATION

Equity-Based Compensation

In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the "Plan"). The Plan was most recently amended and restated in May 2017. The Plan provides for the grant of RSU's, stock options, and other equity-based awards deliverable in shares of our Common Stock. As of March 31, 2021, we had an aggregate of 5,291,902 shares of Common Stock available for future grants under the Plan.

Our time-based and performance-based RSUs consist of awards that settle in shares of Common Stock and have been awarded to our employees. Time-based RSUs will vest ratably over a certain period of time and performance-based RSU's will vest in full, subject to certain performance criteria. Both time-based and performance-based RSU vesting is subject to continued employment with TMHC. In addition, we grant stock options to employees which vest and become exercisable ratably on the anniversary of the date of grant. Vesting of the options is also subject to continued employment with TMHC and options expire within ten years from the date of grant. From time to time, we may also grant time-based RSUs or stock options to members of our Board of Directors.

The following table provides the outstanding balance of time-based and performance based RSU's and stock options as of March 31, 2021:


	Restricted Stock Units (time and performance)			Stock Options
	Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Exercise Price Per Share




Balance at March 31, 2021	1,751,416	$	23.93	4,088,243	$	21.47

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The following table provides information regarding the amount and components of stock-based compensation expense, all of which is included in general and administrative expenses in the Condensed Consolidated Statements of Operations (in thousands):


	Three Months Ended March 31,
	2021		2020
Restricted stock units (1)	$	4,748	$	7,719
Stock options	934		4,177

Total stock compensation	$	5,682	$	11,896

(1) Includes compensation expense related to time-based RSUs and performance-based RSUs.

At March 31, 2021 and December 31, 2020, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $40.3 million and $23.8 million, respectively.

14. REPORTING SEGMENTS

We have multiple homebuilding operating components which are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer service. We aggregate our homebuilding operating components into 3 reporting segments, East, Central, and West, based on similar long-term economic characteristics. The activity from our Build-to-Rent and Urban Form operations are included in our Corporate segment. We also have a financial services reporting segment. We have no inter-segment sales as all sales are to external customers.

Our reporting segments are as follows:


East			Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa
Central			Austin, Dallas, Denver, and Houston
West			Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial Services			Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services

Segment information is as follows (in thousands):


	Three Months Ended March 31, 2021
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Total revenues	$	453,362	$	322,612	$	597,730	$	44,065	$	43	$	1,417,812

Gross margin	85,067		65,178		104,438		20,066		(308)		274,441
Selling, general and administrative expenses	(38,598)		(28,558)		(41,554)		0		(38,795)		(147,505)
Equity in (loss)/income of unconsolidated entities	0		(64)		1,992		3,743		(10)		5,661
Interest and other income/(expense), net	42		(373)		(108)		0		(417)		(856)

Income/(loss) before income taxes	$	46,511	$	36,183	$	64,768	$	23,809	$	(39,530)	$	131,741

(1) Includes the activity from our Build-To-Rent and Urban Form operations.

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	Three Months Ended March 31, 2020
	East		Central		West		Financial Services		Corporate and Unallocated (1)		Total
Total revenues	$	423,392	$	373,339	$	496,323	$	28,039	$	24,606	$	1,345,699

Gross margin	58,017		63,757		68,590		7,392		0		197,756
Selling, general and administrative expenses	(36,339)		(32,256)		(34,850)		0		(33,408)		(136,853)
Equity in (loss)/income of unconsolidated entities	0		(119)		334		2,230		(19)		2,426
Interest and other income/(expense), net (2)	15		(2,252)		(7,264)		(1,400)		(81,203)		(92,104)


Income/(loss) before income taxes	$	21,693	$	29,130	$	26,810	$	8,222	$	(114,630)	$	(28,775)

(1) Includes the activity from our Build-To-Rent and Urban Form operations.

(2) Interest and other income/(expense), net includes transaction related expenses and pre-acquisition write-offs of terminated projects.


	As of March 31, 2021
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Real estate inventory and land deposits	$	1,810,519	$	1,261,166	$	2,677,958	$	0	$	11	$	5,749,654
Investments in unconsolidated entities	0		65,229		65,190		5,686		0		136,105
Other assets	144,753		196,636		560,100		338,632		849,605		2,089,726
Total assets	$	1,955,272	$	1,523,031	$	3,303,248	$	344,318	$	849,616	$	7,975,485

(1) Includes the assets from our Build-To-Rent and Urban Form operations.


	As of December 31, 2020
	East		Central		West		Financial Services		Corporate and Unallocated (1)		Total
Real estate inventory and land deposits	$	1,712,852	$	1,176,604	$	2,568,595	$	0	$	0	$	5,458,051
Investments in unconsolidated entities	0		58,052		65,395		4,498		10		127,955
Other assets	170,382		192,981		578,231		284,265		926,130		2,151,989
Total assets	$	1,883,234	$	1,427,637	$	3,212,221	$	288,763	$	926,140	$	7,737,995

(1) Includes the assets from our Build-To-Rent and Urban Form operations.

15. COMMITMENTS AND CONTINGENCIES

Letters of Credit and Surety Bonds — We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $995.1 million and $981.8 million as of March 31, 2021 and December 31, 2020, respectively. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding bonds as of March 31, 2021 will be drawn upon.

Purchase Commitments —We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in the routine conduct of our business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors generally have no recourse. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. At March 31, 2021 and December 31, 2020, the aggregate purchase price of these contracts was $657.5 million and $760.4 million, respectively.

Legal Proceedings — We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending

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operations, employment safety practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. At March 31, 2021 and December 31, 2020, our legal accruals were $16.4 million and $23.5 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. Predicting the ultimate resolution of the pending matters, the related timing or the eventual loss associated with these matters is inherently difficult. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the recorded reserves relating to such matters. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.

Leases — Our leases primarily consist of office space, construction trailers, model home leasebacks, a ground lease, equipment, and storage units. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC 842, Leases. Lease obligations were $79.6 million and $83.2 million as of March 31, 2021 and December 31, 2020, respectively. We recorded lease expense of approximately $4.0 million for the three months ended March 31, 2021, and $3.8 million for the three months ended March 31, 2020, respectively, within General and administrative expenses on our Condensed Consolidated Statement of Operations.

16. MORTGAGE HEDGING ACTIVITIES

We enter into IRLCs to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between 30 and 60 days), with customers who have applied for a loan and meet certain credit and underwriting criteria. These IRLCs meet the definition of a derivative and are reflected on the balance sheet at fair value with changes in fair value recognized in Financial Services revenue/expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income. Unrealized gains and losses on the IRLCs, reflected as derivative assets or liabilities, are measured based on the fair value of the underlying mortgage loan, quoted Agency MBS prices, estimates of the fair value of the mortgage servicing rights (“MSRs”) and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The fair value of the forward loan sales commitment and mandatory delivery commitments being used to hedge the IRLCs and mortgage loans held for sale not committed to be purchased by investors are based on quoted Agency MBS prices.

The following summarizes derivative instrument assets (liabilities) as of the periods presented:


	As of
	March 31, 2021				December 31, 2020
(Dollars in thousands)	Fair Value		Notional Amount		Fair Value		Notional Amount
IRLCs	$	4,985	$	370,606	$	5,294	$	260,954
MBSs	2,909		405,000		(1,847)		376,000
Total	$	7,894			$	3,447

Total commitments to originate loans approximated $406.4 million and $290.3 million as of March 31, 2021 and December 31, 2020, respectively. This amount represents the commitments to originate loans that have been locked and approved by underwriting. The notional amounts in the table above includes mandatory and best effort loans, that have been locked and approved by underwriting.

We have exposure to credit loss in the event of contractual non-performance by our trading counterparties in derivative instruments that we use in our rate risk management activities. We manage this credit risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty, and by entering into netting agreements with counterparties, as appropriate. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For purposes of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “the Company,” “we,” “us,” or “our” refer to Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries. The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements included elsewhere in this quarterly report.

Forward-Looking Statements

This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or management’s intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business and operations strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “can,” “could,” “might,” “project” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in the Annual Report and in our subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”). Although we believe that these forward-looking statements are based upon reasonable assumptions and currently available information, you should be aware that many factors, including those described under the heading “Risk Factors” in the Annual Report and in our subsequent filings with the SEC, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law.

Business Overview

Our principal business is residential homebuilding and the development of lifestyle communities with operations geographically focused in Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. We serve a wide array of consumer groups from coast to coast, including entry-level, move-up, and active adult buyers, building single and multi-family attached and detached homes. Our homebuilding company operates under our Taylor Morrison, Darling Homes, and William Lyon Signature brand names. We have an exclusive partnership with Christopher Todd Communities, a growing Phoenix-based developer of innovative, luxury rental communities to operate a “Build-to-Rent” homebuilding business. We serve as a land acquirer, developer, and homebuilder while Christopher Todd Communities provides community design and property management consultation. We also operate Urban Form Development, LLC (“Urban Form”), which primarily develops and constructs multi-use properties consisting of commercial space, retail, and multi-family units. We have operations which provide financial services to customers through our wholly owned mortgage subsidiary, Taylor Morrison Home Funding, INC (“TMHF”), title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”), and homeowner’s insurance policies through our insurance agency, Taylor Morrison Insurance Services, LLC (“TMIS”). Our business as of March 31, 2021, is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West and Financial Services, as follows:


East						Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa
Central						Austin, Dallas, Denver, and Houston
West						Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial Services						Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services

Community development includes the acquisition and development of land, which may include obtaining significant planning and entitlement approvals and completing construction of off-site and on-site utilities and infrastructure. We generally operate

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as community developers, but in some communities we operate solely as merchant builders, in which case we acquire fully entitled and developed lots. We remain disciplined in our underwriting to acquire land where we see opportunities to drive profitable growth over the full cycle, with the land acquisitions we are approving today largely expected to impact deliveries in the next 24 to 48 months.

In our homebuilding operations, we either directly, or indirectly through our subcontractors, purchase our significant materials necessary to construct a home such as drywall, cement, steel, lumber, insulation and the other building materials. While these materials are generally widely available from a variety of sources, from time to time we experience material shortages on a localized basis which can substantially increase the price for such materials and our construction process can be slowed. We generally have multiple sources for the materials we purchase and have not experienced significant delays due to unavailability of necessary materials.

As of March 31, 2021, we employed approximately 2,800 full-time equivalent persons. Of these, approximately 2,400 were

engaged in corporate and homebuilding operations, and the remaining approximately 400 were engaged in financial

services.

Factors Affecting Comparability of Results

For the quarter ended March 31, 2020, we recognized various costs relating to the acquisition of William Lyon Homes, Inc. (“WLH”). Such costs include (1) $86.4 million of transaction expenses, which have been included in Transaction expenses on our Condensed Consolidated Statement of Operations, (2) $32.7 million of purchase accounting related adjustments which have been recognized in Cost of home closings and Amenity and other expenses on our Condensed Consolidated Statement of Operations, and (3) $3.7 million of operating losses relating to our Financial Services segment which is reflected in the Financial Services gross margin. We did not incur such costs for the three months ended March 31, 2021.

First Quarter 2021 Highlights (all comparisons are of the current quarter to the prior year quarter, unless otherwise indicated) :

•Net sales orders increased 30 percent to 4,492.

•Monthly absorptions increased 42 percent to 4.3 net sales orders per community, a company record high.

•Home closings gross margin increased 320 basis points to 18.6 percent.

•Backlog increased 54 percent to 10,074 sold homes with a sales value of $5.3 billion, up 70 percent.

•Homebuilding lot supply increased four percent to approximately 73,000 total lots owned and controlled.

•Controlled lots as a percentage of total supply increased 400 basis points to 32 percent.

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Results of Operations

The following table sets forth our results of operations for the periods presented:


	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Statements of Operations Data:
Home closings revenue, net	$	1,363,429		$	1,264,640
Land closings revenue	4,889			22,939
Financial services revenue	44,065			28,039
Amenity and other revenue	5,429			30,081
Total revenue	1,417,812			1,345,699
Cost of home closings	1,110,242			1,070,503
Cost of land closings	4,027			27,132
Financial services expenses	23,999			20,647
Amenity and other expenses	5,103			29,661
Gross margin	274,441			197,756
Sales, commissions and other marketing costs	85,952			86,327
General and administrative expenses	61,553			50,526
Equity in income of unconsolidated entities	(5,661)			(2,426)
Interest income, net	(119)			(560)
Other expense, net	975			6,290
Transaction expenses	—			86,374


Income/(loss) before income taxes	131,741			(28,775)
Income tax provision	29,298			781







Net income/(loss) before allocation to non-controlling interests	102,443			(29,556)
Net income attributable to non-controlling interests — joint ventures	(4,422)			(1,875)



Net income/(loss) available to Taylor Morrison Home Corporation	$	98,021		$	(31,431)
Home closings gross margin	18.6		%	15.4		%

Sales, commissions and other marketing costs as a percentage of home closings revenue, net	6.3		%	6.8		%
General and administrative expenses as a percentage of home closings revenue, net	4.5		%	4.0		%

Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Quarterly Report relating to: (i) adjusted income before income taxes and related margin, (ii) EBITDA and adjusted EBITDA, (iii) adjusted net income and adjusted earnings per share, (iv) net homebuilding debt to capitalization ratio, (v) adjusted home closings gross margin and (vi) adjusted financial services gross margin.

Adjusted income before income taxes (and related margin) is a non-GAAP financial measure that reflects our income/(loss) before income taxes excluding the impact of purchase accounting adjustments and financial services operating loss related to the acquisition of William Lyon Homes (“WLH”) and transaction expenses. EBITDA and Adjusted EBITDA are non-GAAP financial measures that measure performance by adjusting net income/(loss) before allocation to non-controlling interests to exclude interest income/(expense), net, amortization of capitalized interest, income taxes, depreciation and amortization (EBITDA), non-cash compensation expense, if any, purchase accounting adjustments and financial services operating loss relating to the acquisition of WLH and transaction expenses. Adjusted net income and adjusted earnings per share are non-GAAP financial measures that reflect the net income/(loss) available to the Company excluding the impact of purchase accounting adjustments and financial services operating loss relating to the acquisition of WLH and, transaction expenses and the tax impact due to such items. Net homebuilding debt to capitalization ratio is a non-GAAP financial measure we calculate by dividing (i) total debt, less unamortized debt issuance costs/premiums and mortgage warehouse borrowings, net of unrestricted cash and cash equivalents, by (ii) total capitalization (the sum of net homebuilding debt and total stockholders’ equity). Adjusted home closings gross margin is a non-GAAP financial measure based on GAAP home closings gross margin (which is inclusive of capitalized interest), excluding purchase accounting adjustments relating to the acquisition of WLH.

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Adjusted financial services gross margin is a non-GAAP financial measure calculated based on GAAP financial services margin, excluding financial services operating loss related to the acquisition of WLH.

Management uses these non-GAAP financial measures to evaluate our performance on a consolidated basis, as well as the performance of our regions, and to set targets for performance-based compensation. We also use the ratio of net homebuilding debt to total capitalization as an indicator of overall leverage and to evaluate our performance against other companies in the homebuilding industry. A reconciliation of our forward-looking net homebuilding debt to capitalization ratio to the most directly comparable GAAP financial measure cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted. In the future, we may include additional adjustments in the above-described non-GAAP financial measures to the extent we deem them appropriate and useful to management and investors.

We believe that adjusted income before income taxes and related margin, adjusted net income and adjusted earnings per share, as well as EBITDA and adjusted EBITDA, are useful for investors in order to allow them to evaluate our operations without the effects of various items we do not believe are characteristic of our ongoing operations or performance and also because such metrics assist both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted EBITDA also provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, or unusual items. Because we use the ratio of net homebuilding debt to total capitalization to evaluate our performance against other companies in the homebuilding industry, we believe this measure is also relevant and useful to investors for that reason. We believe that adjusted home closings gross margin is useful to investors because it allows investors to evaluate the performance of our homebuilding operations without the varying effects of items or transactions we do not believe are characteristic of our ongoing operations or performance. Similarly, we believe that adjusted financial services gross margin is useful to investors because it allows investors to evaluate the performance of our financial services business without the varying effects of items or transactions we do not believe are characteristic of our ongoing operations or performance.

These non-GAAP financial measures should be considered in addition to, rather than as a substitute for, the comparable U.S. GAAP financial measures of our operating performance or liquidity. Although other companies in the homebuilding industry may report similar information, their definitions may differ. We urge investors to understand the methods used by other companies to calculate similarly-titled non-GAAP financial measures before comparing their measures to ours.


Adjusted Net Income and Adjusted Earnings Per Share
	Three Months Ended March 31,
($ in thousands, except per share data)	2021		2020








Net income/(loss) available to TMHC	$	98,021	$	(31,431)

William Lyon Homes related purchase accounting adjustments	—		32,717

William Lyon Homes financial services operating loss	—		3,666
Transaction expenses	—		86,374

Tax impact due to above non-GAAP reconciling items	—		(20,880)
Adjusted net income	$	98,021	$	70,446

Basic weighted average shares	128,883		121,908
Adjusted earnings per common share - Basic	$	0.76	$	0.58


Diluted weighted average shares	131,246		123,200
Adjusted earnings per common share - Diluted	$	0.75	$	0.57

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Adjusted Income Before Income Taxes and Related Margin
	Three Months Ended March 31,
($ in thousands)	2021			2020
Income/(loss) before income taxes	$	131,741		$	(28,775)
William Lyon Homes related purchase accounting adjustments	—			32,717
William Lyon Homes financial services operating loss				3,666
Transaction expenses	—			86,374

Adjusted income before income taxes	$	131,741		$	93,982

Total revenues	$	1,417,812		$	1,345,699

Income before income taxes margin	9.3		%	(2.1)		%
Adjusted income before income taxes margin	9.3		%	7.0		%



Adjusted Home Closings Gross Margin
	Three Months Ended March 31,
($ in thousands)	2021			2020
Home closings revenue	$	1,363,429		$	1,264,640
Cost of home closings	1,110,242			1,070,503
Home closings gross margin	$	253,187		$	194,137
William Lyon Homes homebuilding related purchase accounting adjustments	—			28,366
Adjusted home closings gross margin	$	253,187		$	222,503
Home closings gross margin as a percentage of home closings revenue	18.6		%	15.4		%
Adjusted home closings gross margin as a percentage of home closings revenue	18.6		%	17.6		%


Adjusted Financial Services Gross Margin
	Three Months Ended March 31,
(Dollars in thousands)	2021		2020
Financial services revenue	$	44,065	$	28,039
Financial services expenses	23,999		20,647
Financial services gross margin	$	20,066	$	7,392
William Lyon Homes financial services operating loss	—		3,666
Adjusted financial services gross margin	$	20,066	$	11,058

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EBITDA and Adjusted EBITDA Reconciliation
	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Net income/(loss) before allocation to non-controlling interests	$	102,443		$	(29,556)
Interest income, net	(119)			(560)
Amortization of capitalized interest	27,325			24,298
Income tax provision	29,298			781
Depreciation and amortization	1,910			1,929
EBITDA	$	160,857		$	(3,108)
Non-cash compensation expense	5,682			11,896
William Lyon Homes related purchase accounting adjustments	—			32,717
William Lyon Homes financial services operating loss	—			3,666
Transaction expenses	—			86,374

Adjusted EBITDA	$	166,539		$	131,545

Total revenues	$	1,417,812		$	1,345,699
EBITDA as a percentage of total revenues	11.3		%	(0.2)		%
Adjusted EBITDA as a percentage of total revenues	11.7		%	9.8		%



Net Homebuilding Debt to Capitalization Ratio Reconciliation
($ in thousands)	As of March 31, 2021			As of December 31, 2020
Total debt	$	3,025,587		$	2,928,395
Less unamortized debt issuance premiums, net	2,354			2,365
Less mortgage warehouse borrowings	180,833			127,289
Total homebuilding debt	$	2,842,400		$	2,798,741
Less cash and cash equivalents	392,500			532,843
Net homebuilding debt	$	2,449,900		$	2,265,898
Total equity	3,655,564			3,593,750
Total capitalization	$	6,105,464		$	5,859,648

Net homebuilding debt to capitalization ratio	40.1		%	38.7		%

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Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The results for the three months ended March 31, 2021 and 2020 were impacted by various macro economic conditions. The latter portion of the first quarter of the prior year was negatively impacted with the onset of COVID-19. For a limited period of time during 2020, we experienced an increase in our cancellation rate and a decrease in our net sales orders, among other changes. During the second half of 2020, demand for housing increased at a nationwide level. Interest rates declined, offering greater affordability and for various reasons, more affordable markets saw a significant increase in demand from out-of-state customers. As of March 31, 2021, interest rates continue to remain near their lowest levels in history and the demand for new housing remains high as re-sale inventory is low. As a result of such conditions, we experienced a record level net sales pace of 4.3 for the first quarter of 2021, a 42% increase from the same quarter in the prior year. Our total average active selling communities have decreased compared to the same period in the prior year as a result of such demand. The average sales price for net sales orders, backlog, and homes closed during the three months ended March 31, 2021 all increased compared to the three months ended March 31, 2020. Additional information for each metric is provided below.

Average Active Selling Communities


	Three Months Ended March 31,
	2021	2020	Change
East	129	144	(10.4)	%
Central	106	134	(20.9)
West	110	100	10.0
Total	345	378	(8.7)	%

Average active selling communities for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 decreased by 8.7%. The decrease is primarily attributable to early community close outs. The close outs were the result of our strong sales environment for the last twelve months causing active selling communities to sell out ahead of schedule.

Net Sales Orders


	Three Months Ended March 31,
	Net Sales Orders (1)				Sales Value (1)						Average Selling Price
(Dollars in thousands)	2021	2020	Change		2021		2020		Change		2021		2020		Change
East	1,777	1,361	30.6	%	$	878,584	$	561,544	56.5	%	$	494	$	413	19.6	%
Central	1,072	906	18.3		583,482		424,063		37.6		544		468		16.2
West	1,643	1,199	37.0		1,010,767		632,243		59.9		615		527		16.7
Total	4,492	3,466	29.6	%	$	2,472,833	$	1,617,850	52.8	%	$	550	$	467	17.8	%

(1) Net sales orders and sales value represent the number and dollar value, respectively, of new sales contracts executed with customers, net of cancellations.

East:

The number of net sales orders and sales values increased by 30.6% and 56.5%, respectively, for the three months ended March 31, 2021 compared to the same period in the prior year, while the average selling price increased by 19.6% for the three months ended March 31, 2021 compared to the same period in the prior year. The increase in net sales orders was primarily due to increased demand compared to the prior year period. Our Florida markets, including the active adult market, remained strong during the three months ended March 31, 2021, as buyers regained confidence in the latter part of 2020, despite the continuing impacts of COVID-19. In addition, sales order pace increased 43.8% for the three months ended March 31, 2021 compared to the same period in the prior year, which further contributed to the increase in net sales orders. Market appreciation as well as product and geographical mix contributed to the change in average selling price for the comparative period.

Central:

The number of net sales orders and sales values increased by 18.3% and 37.6%, respectively, for the three months ended March 31, 2021 compared to the same period in the prior year, while the average selling price increased by 16.2% for three months

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ended March 31, 2021 compared to the same period in the prior year. The increase in net sales orders stemmed primarily from strong demand in certain markets in Texas along with our Denver market. Our Denver market also had an increase in average active selling communities which further contributed to the increase in net sales orders for the current year compared to the same period in the prior year. In addition, sales order pace increased 47.8% for the three months ended March 31, 2021 compared to the same period in the prior year. Market appreciation as well as product and geographical mix contributed to the change in average selling price for the comparative period.

West:

The number of net sales orders and sales values increased by 37.0% and 59.9%, respectively, for the three months ended March 31, 2021 compared to the same period in the prior year, while the average selling price increased by 16.7% for the three months ended March 31, 2021 compared to the same period in the prior year. The increase is primarily due to a strong sales environment in addition to an increase in active selling communities in this region. Sales order pace increased 24.5% for the three months ended March 31, 2021 compared to the same period in the prior year. Market appreciation as well as product and geographical mix contributed to the change in average selling price for the comparative period.

Sales Order Cancellations


	Cancellation Rate(1)
	Three Months Ended March 31,

	2021		2020
East	5.9	%	12.1	%
Central	6.1	%	16.0	%
West	6.2	%	13.9	%
Total Company	6.0	%	13.8	%

(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.

The total company cancellation rate decreased to 6.0% from 13.8% for the three months ended March 31, 2021 compared to the same period in the prior year. We believe the decrease in cancellations for the three months ended March 31, 2021, compared to the prior year period, was a result of the high demand and customers wanting to secure housing as a result of low inventory levels, low interest rates, and price appreciation. In addition, we believe increased consumer confidence relative to the prior year period contributed to the lower cancellation rate.

Sales Order Backlog


	As of March 31,
	Sold Homes in Backlog (1)				Sales Value						Average Selling Price
(Dollars in thousands)	2021	2020	Change		2021		2020		Change		2021		2020		Change
East	3,560	2,193	62.3	%	$	1,753,135	$	957,313	83.1	%	$	492	$	437	12.6	%
Central	2,779	2,167	28.2		1,463,453		1,041,983		40.4		527		481		9.6
West	3,735	2,205	69.4		2,120,260		1,132,436		87.2		568		514		10.5
Total	10,074	6,565	53.5	%	$	5,336,848	$	3,131,732	70.4	%	$	530	$	477	11.1	%

(1) Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in cancellations.

Total backlog units and total sales value increased by 53.5% and 70.4% at March 31, 2021, respectively, compared to March 31, 2020. The increase in backlog units and sales value was primarily due to a strong sales environment as a result of demand for housing and low interest rates.

Home Closings Revenue

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	Three Months Ended March 31,
	Homes Closed				Home Closings Revenue, Net						Average Selling Price
(Dollars in thousands)	2021	2020	Change		2021		2020		Change		2021		2020		Change
East	1,052	985	6.8	%	$	445,885	$	395,716	12.7	%	$	424	$	402	5.5	%
Central	691	819	(15.6)		320,177		373,024		(14.2)		463		455		1.8
West	1,078	957	12.6		597,367		495,900		20.5		554		518		6.9
Total	2,821	2,761	2.2	%	$	1,363,429	$	1,264,640	7.8	%	$	483	$	458	5.5	%

East:

The number of homes closed and home closings revenue, net, increased by 6.8% and 12.7%, respectively, for the three months ended March 31, 2021 compared to the same period in the prior year primarily due to increases in active selling communities in certain Florida markets. Geographical and product mix along with market price appreciation contributed to the increase in average selling price of homes closed for the three months ended March 31, 2021 compared to the same period in the prior year.

Central:

The number of homes closed and home closings revenue, net, decreased by 15.6% and 14.2%, respectively, for the three months ended March 31, 2021 compared to the same period in the prior year. These decreases in both units and dollars were primarily due to extreme cold weather in our Texas markets during the current year period which delayed closings.

West:

The number of homes closed and home closings revenue, net, increased by 12.6% and 20.5%, respectively, for the three months ended March 31, 2021 compared to the same period in the prior year. The increase in both units and dollars was primarily due to the increase in active selling communities as well as product and geographical mix.

Land Closings Revenue


	Three Months Ended March 31,
(Dollars in thousands)	2021		2020		Change
East	$	2,454	$	22,624	$	(20,170)
Central	2,435		315		2,120
West	—		—		—
Total	$	4,889	$	22,939	$	(18,050)

We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a

developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or

government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots

or land parcels to manage our land and lot supply on larger tracts of land. Land and lot sales occur at various intervals and varying degrees of profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending upon market opportunities. The land closings revenue for the three months ended March 31, 2020 in the East region is due to the sale of certain commercial assets.

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Amenity and Other Revenue


	Three Months Ended March 31,
(Dollars in thousands)	2021		2020		Change
East	5,023		5,052		$	(29)
Central	—		—		—
West	363		423		(60)
Corporate	43		24,606		(24,563)
Total	$	5,429	$	30,081	$	(24,652)

Several of our communities operate amenities such as golf courses, club houses, and fitness centers. We provide club members access to the amenity facilities and other services in exchange for club dues and fees. Our Corporate region also includes the activity relating to our Urban Form operations which primarily develops and constructs multi-use properties consisting of commercial space, retail, and multi-family units. Urban Form sold an asset in the quarter ended March 31, 2020, generating $24.6 million in revenue.

Home Closings Gross Margin and Adjusted Home Closings Gross Margin


	Three Months Ended March 31,
	East						Central						West						Consolidated
(Dollars in thousands)	2021			2020			2021			2020			2021			2020			2021			2020
Home closings revenue, net	$	445,885		$	395,716		$	320,177		$	373,024		$	597,367		$	495,900		$	1,363,429		$	1,264,640
Cost of home closings	361,977			334,024			255,399			309,300			492,866			427,179			1,110,242			1,070,503
Home closings gross margin	83,908			61,692			64,778			63,724			104,501			68,721			253,187			194,137
Purchase accounting adjustment	—			—			—			7,037			—			21,329			—			28,366

Adjusted home closings gross margin	$	83,908		$	61,692		$	64,778		$	70,761		$	104,501		$	90,050		$	253,187		$	222,503
Home closings gross margin %	18.8		%	15.6		%	20.2		%	17.1		%	17.5		%	13.9		%	18.6		%	15.4		%
Adjusted home closings gross margin %	18.8		%	15.6		%	20.2		%	19.0		%	17.5		%	18.2		%	18.6		%	17.6		%

East:

Home closings gross margin and adjusted home closings gross margin percentages both increased to 18.8% from 15.6% for the three months ended March 31, 2021 compared to the same period in the prior year. The primary drivers for the increases were product mix, geographic mix and market appreciation compared to the same period in the prior year. The east region was not impacted by our WLH acquisition and therefore did not have any purchase accounting adjustments for the three months ended March 31, 2020.

Central:

Home closings gross margin and adjusted home closings gross margin percentages increased to 20.2% from 17.1% and to 20.2% from 19.0%, respectively, for the three months ended March 31, 2021, compared to the same period in the prior year. Home closings gross margin was negatively impacted for the three months ended March 31, 2020 as a result of purchase accounting adjustments from the WLH acquisition. The increase in adjusted home closings gross margin was driven by product and geographic mix in the three months ended March 31, 2021 compared to the same period in the prior year.

West:

Home closings gross margin percentage increased to 17.5% from 13.9% for the three months ended March 31, 2021 compared to the same period in the prior year. Adjusted home closings gross margin decreased to 17.5% from 18.2% for the three months ended March 31, 2021 compared to the same period in the prior year, primarily due to geographic and product mix. Home

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closings gross margin was negatively impacted for the three months ended March 31, 2020 as a result of purchase accounting adjustments from the WLH acquisition.

Financial Services

Our Financial Services segment provides mortgage lending through our subsidiary, TMHF, title services through our subsidiary, Inspired Title, and homeowner's insurance policies through our insurance agency, TMIS. The following is a summary for the periods presented of financial services income before income taxes as well as supplemental data:



	Three Months Ended March 31,
(In thousands, except for the number of loan originations)		2021		2020		Change
Financial services revenue		$	37,514	$	22,888	63.9	%
Title services revenue		1,497		1,082		38.4
Financial services revenue - other		5,054		4,069		24.2
Total financial services revenue		44,065		28,039		57.2	%
Financial services equity in income of unconsolidated entities		3,669		2,230		64.5
Total revenue		47,734		30,269		57.7
Financial services expenses		23,999		20,647		16.2
Financial services transaction expenses		—		1,400		(100.0)
Financial services income before income taxes		$	23,735	$	8,222	188.7	%
Total originations:
Number of Loans		2,128		1,699		25.3	%
Principal		$	809,746	$	516,530	56.8	%


	Three Months Ended March 31,
	2021		2020
Supplemental data:
Average FICO score	750		750
Funded origination breakdown:
Government (FHA,VA,USDA)	19.5	%	15.3	%
Other agency	77.7	%	78.0	%
Total agency	97.2	%	93.3	%
Non-agency	2.8	%	6.7	%
Total funded originations	100.0	%	100.0	%

Financial services revenue increased by 57.2% for the three months ended March 31, 2021 compared to the same period in the prior year. The increase in financial services revenue was due to increased mortgage closings, reflecting the increase in the number of homes closed.

Sales, Commissions and Other Marketing Costs

Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, decreased to 6.3% from 6.8% for the three months ended March 31, 2021 compared to the same period in 2020. The decrease was primarily driven by leverage from an increase in home closings revenue, net, as well as our initiatives to reduce all non-essential expenses as a result of COVID-19.

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General and Administrative Expenses

General and administrative expenses as a percentage of home closings revenue, net, increased to 4.5% from 4.0% for the three months ended March 31, 2021 compared to the same period in 2020. The increase was primarily driven by a spike in new home sales that superseded certain home closing and construction delays such as Covid and weather. In addition, we prepared for our increased homebuilding and corporate presence across all markets subsequent to the WLH acquisition.

Equity in Income of Unconsolidated Entities

Equity in income of unconsolidated entities was $5.7 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively. Our joint ventures relating to our financial services segment experienced an increase in income for the three months ended March 31, 2021. In addition, a joint venture related to home building began closing units during the three months ended March 31, 2021.

Interest Income, Net

Interest income, net, was $0.1 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively. Interest income, net includes interest earned on cash balances offset by interest incurred but not capitalized on our long-term debt and other borrowings.

Other Expense, Net

Other expense, net, was $1.0 million and $6.3 million for the three months ended March 31, 2021 and 2020, respectively. The decrease in other expense for the three months ended March 31, 2021 was primarily a result of higher acquisition-related costs on projects we are no longer pursuing for the three months ended March 31, 2020.

Transaction Expenses

We had no transaction expenses for the three months ended March 31, 2021, compared with the $86.4 million of expenses for the prior year period. Transaction expenses for the three months ended March 31, 2020 consisted of acquisition related costs from the acquisition of WLH, which include investment banking fees, severance, compensation, legal fees, expenses relating to credit facility paydowns and terminations, and other various integration costs.

Income Tax Provision

The effective tax rate for the three months ended March 31, 2021 was based on the U.S. federal statutory income tax rate and was affected primarily by state income taxes, non-deductible executive compensation, excess tax benefits related to stock based compensation and certain deductions and credits relating to homebuilding activities.

Net Income/(Loss)

Net income and diluted earnings per share for the three months ended March 31, 2021 was $98.0 million and $0.75, respectively. Net loss and diluted loss per share for the three months ended March 31, 2020 was $31.4 million and $0.26, respectively. The increases in net income and earnings per share from the prior year were primarily attributable to higher homebuilding revenues, net, and higher gross margin dollars. In addition, the three months ended March 31, 2020 included transaction expenses and other compensation expenses as a result of the WLH acquisition.

Liquidity and Capital Resources

Liquidity

We finance our operations through the following:

•Cash generated from operations;

•Borrowings under our Revolving Credit Facility;

•Our various series of Senior Notes;

•Mortgage warehouse facilities;

•Project-level real estate financing (including non-recourse loans, land banking, and joint ventures); and

•Performance, payment and completion surety bonds, and letters of credit.

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We believe we have adequate capital resources from cash generated from operations and sufficient access to external financing sources from borrowings under our Revolving Credit Facility to conduct our operations for the next twelve months.

We may also access the capital markets to obtain additional liquidity through debt and equity offerings on an opportunistic basis. Generally, our principal uses of capital relate to land purchases, lot development, home construction, operating expenses, payment of debt service, income taxes, investments in joint ventures, stock repurchases, and the payment of various liabilities.

Cash flows for each of our communities depend on the status of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash expenditures for land acquisitions, on and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.

Our wholly-owned mortgage subsidiary, TMHF, retains MSRs on certain of the loans it originates. Servicing advances TMHF makes may be subject to delays in recovery to the extent the loans we service go into forbearance or delinquency. We do not currently expect our MSR portfolio to become a significant part of TMHF’s business, though a substantial increase in the volume of loans that we service coupled with a significant increase in the number of such loans which become delinquent or subject to forbearance, could affect TMHF’s short-term liquidity and revenue from operations.

The table below summarizes our total cash and liquidity as of the dates indicated (in thousands):


	As of
(Dollars in thousands)	March 31, 2021		December 31, 2020
Total cash, excluding restricted cash	$	392,500	$	532,843
Total revolving credit facility	800,000		800,000
Letters of credit outstanding	(52,356)		(64,274)

Revolving credit facility availability	747,644		735,726
Total liquidity	$	1,140,144	$	1,268,569

Cash Flow Activities

Operating Cash Flow Activities

Our net cash used in operating activities was $144.3 million for the three months ended March 31, 2021 compared to $72.1 million of cash provided by operating activities for the three months ended March 31, 2020. The increase in cash used in operating activities during three months ended March 31, 2021 was due to greater spend on real estate inventory and land deposits and increased outlays for mortgages held for sale.

Investing Cash Flow Activities

Net cash used in investing activities was $13.5 million for the three months ended March 31, 2021, as compared to $211.8 million for the three months ended March 31, 2020. The decrease in cash used in investing activities was primarily due to the use of cash in the WLH acquisition in the prior year period. This was partially offset by an increase in cash used in the current year for investments in unconsolidated entities.

Financing Cash Flow Activities

Net cash provided by financing activities was $17.2 million for the three months ended March 31, 2021 compared to $322.6 million for the three months ended March 31, 2020. During the three months ended March 31, 2020, we borrowed $485.0 million on our Revolving Credit Facility as a precautionary measure as a result of COVID-19. During the three months ended March 31, 2021, we did not borrow on our Revolving Credit Facility.

Debt Instruments

For information regarding our debt instruments, including the terms governing our Senior Notes and our Revolving Credit Facility, see Note 9 - Debt to the Unaudited Condensed Consolidated Financial Statements included in this quarterly report.

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Off-Balance Sheet Arrangements as of March 31, 2021

Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities

We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. The use of these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital.

In certain of our unconsolidated joint ventures, we enter into loan agreements, whereby we or one of our subsidiaries will provide the lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.

For the quarter ended, March 31, 2021, total cash invested in unconsolidated joint ventures was $13.1 million.

Land Option Contracts and Land Banking Agreements

We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in the routine conduct of our business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors generally have no recourse. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. At March 31, 2021 and December 31, 2020, the aggregate purchase price of these contracts was $657.5 million and $760.4 million, respectively.

Seasonality

Our business is seasonal. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a higher portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:

•the timing of the introduction and start of construction of new projects;

•the timing of project sales;

•the timing of closings of homes, lots and parcels;

•the timing of receipt of regulatory approvals for development and construction;

•the condition of the real estate market and general economic conditions in the areas in which we operate,

•mix of homes closed;

•construction timetables;

•the cost and availability of materials and labor; and

•weather conditions in the markets in which we build.

As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect for the full year.

Inflation

We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of mortgage financing to prospective homebuyers. We attempt to pass through to our customers increases in

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our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies during the three months ended March 31, 2021 compared to those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At March 31, 2021, approximately 94% of our debt was fixed rate and 6% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Revolving Credit Facility and borrowings by TMHF under its various warehouse facilities. As of March 31, 2021, we had no outstanding borrowings under our Revolving Credit Facility. We had $747.6 million of additional availability for borrowings including $147.6 million of additional availability for letters of credit under our Revolving Credit Facility as of March 31, 2021 (giving effect to $52.4 million of letters of credit outstanding as of such date). We are required to offer to purchase all of our outstanding senior unsecured notes, as described in Note 9, Debt to the Condensed Consolidated Financial Statements included in this quarterly report, at 101% of their aggregate principal amount upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, we would not expect interest rate risk and changes in fair value to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.

The following table sets forth principal payments by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of March 31, 2021. The interest rate for our variable rate debt represents the interest rate on our mortgage warehouse facilities. Because the mortgage warehouse facilities are secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.


	Expected Maturity Date																					Fair Value
(In millions, except percentage data)	2021			2022			2023			2024			2025			Thereafter			Total
Fixed Rate Debt	$	148.4		$	93.7		$	442.5		$	367.5		$	9.7		$	1,780.6		$	2,842.4		$	3,040.3
Weighted average interest rate(1)	3.1		%	3.1		%	5.2		%	5.6		%	3.1		%	5.7		%	5.4		%
Variable Rate Debt(2)	$	180.8		$	—		$	—		$	—		$	—		$	—		$	180.8		$	180.8
Weighted average interest rate	2.0		%	—			—			—			—			—			2.0		%

(1) Represents the coupon rate of interest on the full principal amount of the debt.

(2) Based upon the amount of variable rate debt outstanding at March 31, 2021, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $1.8 million per year.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2021. Based on this evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that, as of March 31, 2021, the Company's disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required with respect to this item can be found in Note 15 - Commitments and Contingencies under “Legal Proceedings” in the Notes to the Consolidated Financial statements included in this annual report.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report. These risk factors may materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report and the other information set forth elsewhere in this quarterly report. You should be aware that these risk factors and other information may not describe every risk facing our Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information regarding repurchases by the Company of its Common Stock during the three months ended March 31, 2021.




Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
January 1 to January 31, 2021	721,893	$	25.04	721,893	$	78,594
February 1 to February 28, 2021	173,877	$	26.43	173,877	$	73,998
March 1 to March 31, 2021	551,539	$	28.55	551,539	$	58,250
Total	1,447,309			1,447,309

On December 8, 2020, we announced that our Board of Directors had authorized a renewal of the Company's stock repurchase program. The stock repurchase program approved by the Board of Directors permits the repurchase of up to $100 million of the Company's Common Stock until December 31, 2021. Repurchases of the Company's Common Stock under the program will occur from time to time, if at all, in open market purchases, privately negotiated transactions or other transactions until December 31, 2021.

Any stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, legal requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. The program does not require us to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit No.						Description

2.1						Agreement and Plan of Merger, dated November 5, 2019, by and among Taylor Morrison Home Corporation, Tower Merger Sub, Inc. and William Lyon Homes (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-4 (File No. 333-235410)).

3.1						Amended and Restated Certificate of Incorporation. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 30, 2019).

3.2						Amended and Restated By-laws. (incorporated herein by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on October 26, 2018).

3.3						Amendment to the Amended and Restated By-laws. (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on October 26, 2018).


31.1*						Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

31.2*						Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

32.1**						Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

32.2**						Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*						Inline XBRL Taxonomy Extension Schema Document.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104.1*						Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in inline XBRL (and contained in Exhibit 101).

* Filed herewith

** Furnished herewith

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TAYLOR MORRISON HOME CORPORATION
		Registrant
DATE:	April 29, 2021
		/s/ Sheryl D. Palmer
		Sheryl D. Palmer
		Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)

		/s/ C. David Cone
		C. David Cone
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

		/s/ Joseph Terracciano
		Joseph Terracciano
		Chief Accounting Officer (Principal Accounting Officer)

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Taylor Morrison Home (TMHC) 10-Q2021 Q1 Quarterly report

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