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TRI Pointe Group, Inc. (TPH)

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TRI Pointe Group, Inc. (TPH)

Q4 2016 Earnings Conference Call

February 22, 2017 10:00 AM ET

Executives

Chris Martin - IR

Doug Bauer - CEO

Mike Grubbs - CFO

Tom Mitchell - COO

Analysts

Alan Ratner - Zelman & Associates

Paul Lejuez - Wells Fargo

Stephen Kim - Evercore

Jay McCanless - Wedbush

Anthony Trainor - Barclays

Mark Weintraub - Buckingham Research Group

Jack Micenko - SIG

Nishu Sood - Deutsche Bank

Carl Reichardt - BTIG

Alex Rygiel - FBR

Will Randow - Citigroup

Alex Barron - Housing Research Center

Presentation

Operator

Greetings and welcome to TRI Pointe Group's Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Chris Martin, Investor Relations for TRI Pointe Group. Thank you Mr. Martin, you may begin.

Chris Martin

Good morning, and welcome to TRI Pointe Group’s earnings conference call. Earlier today, the Company released its financial results for the fourth quarter and full year ending December 31, 2016. Documents detailing these results including a slide deck under the presentations tab are available on the Company’s Investor Relations website at www.tripointegroup.com.

Before the call begins, I would like to remind everyone that certain statements made in the course of this call which are not historical facts are forward-looking statements that involve risk and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual operating results to differ materially from those in the forward-looking statements are detailed in the Company’s filings made with the SEC, including in its most recent annual report on Form 10-K and its quarterly reports on Form 10-Q.

The Company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliations of those non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through the TRI Pointe's Web site and in its filings with the SEC.

Hosting the call today is Doug Bauer, the company’s Chief Executive Officer; Mike Grubbs, the company’s Chief Financial Officer; and Tom Mitchell, the company’s Chief Operating Officer and President.

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

Doug Bauer

Thank you, Chris, and good morning everyone. Thanks for joining us as we review our results for the fourth quarter and full year 2016.

Last November, we hosted an Investor Day where we laid out the strategic vision for TRI Pointe Group, by highlighting three key things for our Company. Those three things are number one, combine the asset turning mindset of a production homebuilder with the design innovation and operational leadership of a high-end builder. Number two, balance strategic growth imitative with a return on capital focus. And number three, unlock the value of our longer dated asset in California.

I'm happy to report in 2016 we executed on these initiatives, which resulted in another strong year of profitability for the company and a great foundation for growth in 2017 and beyond. We average a healthy sales base of 3.0 home sales per community per month for the year. While boasting an average selling price of $553,000; the second highest average selling price in our peer group. We also generated home building gross margins of 21.2% for the year which was above our peer group average and converted 68% of our quarterly backlog on average for the year.

These achievements are a direct results of TRI Pointe Group's dual focus on be a high absorbing production builder and a leader in design innovation and operational excellence. 2016 was also a year in which we maintained our balance between investment for the future and generating a healthy return on our capital. We closed out 43 communities and open 63, which provides us with a 19% increase in active selling communities to start 2017, as compared to 2016. We also increased our year-end inventory balance by 16% over the prior year, setting the table for additional delivery growth in the future. These investments combined with our strategic decision to generate more of our profit going forward from homebuilding activities rather than land sales diminish our returns in the near-term, however we expect these decisions will result in better and more consistent returns in the future.

In 2016, TRI Pointe Group also made further strides towards bringing our longer dated California assets to the market. At our Investor Day, we highlighted examples of how we reduce the time and development cost of bringing several of our projects to market, through innovative community design and thoughtful planning. We have made progress on the planning and development of our longer dated assets since that time, as evidenced by the recent entitlement approvals for our planned 1,200 units Sky Land ranch project in Santa Clarita, California, and our planned 4,300 unit project in Banning, California. We continue to believe that much of our longer dated land portfolio is undervalued relative to its book value and remain confidence this will become evident in our results as we bring these assets to market.

As planned, we had a fantastic grand opening in our Aliento community in Santa Clarita, California this month. The opening showcased, three of the five planned product heights and the five star recreation center. This community has been well received by the market with an interest rate of over 2,500 people and over 3,000 people attending our grand opening weekend. We are optimistic about the future performance of this community and it appropriately represents our future offerings.

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