Brad Cohen – IR Doug Bauer – CEO Mike Grubbs – CFO Tom Mitchell – President and COO

Will Randall – Citigroup Nishu Sood – Deutsche Bank Steve Stelmach – FBR Capital Markets Joel Locker – FBN Securities Alex Barron – Housing Research Center

Thank you, operator. Good afternoon and welcome to TRI Pointe Homes earnings call.

Earlier this afternoon, the company released its financial results for the quarter and year ended December 31, 2012. These documents are available in the Investor Relations section of the company's website at www.tripointehomes.com.

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

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

Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through the company's filings with the Securities and Exchange Commission at www.sec.gov. Hosting the call today are Doug Bauer, TRI Pointe Homes' Chief Executive Officer; Mike Grubbs, the company's Chief Financial Officer; and Tom Mitchell, the company's Chief Operating Officer and President.

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

Thank you, Brad, and welcome to our first earnings conference call as a public company. Today I will provide a brief summary of our recent results, as well as some insight into the company and our strategy.

Mike will follow up with some additional detail on 2012 and provide some perspective on early trends in 2013. We will then be joined by Tom Mitchell to take some questions.

As the first homebuilder to go public since 2004, we are very proud of our recent results. 2012 was a highly productive year for TRI Pointe Homes, culminating in a strong fourth quarter operating results due to improving housing conditions and solid execution, as well as our strategy of focusing in on the core California markets that are closely linked to the employment centers.

Our well-located communities in Northern and Southern California are performing as we anticipated as we leverage our 25 years of experience in these markets. Based on our communities' performance in California in 2012, we generated significant year-over-year growth in all of our key metrics, most importantly, producing $6.4 million in net income in the fourth quarter 2012 and $2.5 million in net income for the full year 2012.

We are proud of the entire organization for its dedication and execution against the business plan we put in place only a few short years ago. We are excited about the prospects in front of us as we believe our fourth quarter results demonstrate some of the benefits we expect to harvest as we move forward and further execute our strategy in 2013.

As we discussed in January at the time of our successful IPO, we think of TRI Pointe as the next-generation homebuilder. We are unburdened by legacy issues.

Our team has been able to leverage our experience of selectively acquiring land that takes advantage of our extensive relationships coupled with our understanding and local market knowledge. All of this positions our company to capture growing sustainable earnings in the coming years.

As a result, in addition to our fourth quarter lot acquisition activity, which Mike will address in a minute, so far in 2013 we were able to purchase 301 lots valued at $38.4 million and control an additional 410 lots. [inaudible] portion of the capital we raised from the IPO which will be directly accretive to the value of the company.

Due to our reputation and relationships, we now own or control over 2,100 lots as compared to 1,550 lots at the yearend 2012, a 35% increase. What we've learned over the past 25 years in this business is to stay local, know our markets better than the competition, and maintain a disciplined and focused land strategy to manage through a two to three-year supply of lots to support our growth plan.

We also realized we're in a very competitive marketplace. But we are confident about our abilities to deliver on our plan as we continue to focus on our markets in California and Colorado, while selectively looking at opportunities in the Southwestern region.

Based on our fourth quarter and full-year 2012 results, we are on the way to building value for our shareholders. Our ability to provide exceptional and timely execution, on delivering a diverse selection of new home products, to a wide array of home buyers in the high-growth markets allowed us to realize the most successful year since the inception of the company.

More importantly, we continue to grow our backlog in early 2013 as higher quality traffic has resulted in higher sales absorption rates, while at the same time we have increased pricing and reduced incentives, position us for a solid year in 2013. Going forward, our strategies remain unchanged.

We remain committed to producing quality product and creating value from a high-quality pipeline and growing backlog. We will continue to be deliberate, patient and highly selective in our approach to building TRI Pointe Homes in our efforts to create value for both our shareholders and customers in the coming years.

With those comments, I will pass the call to Mike to provide some additional detail on 2012 and our start in 2013. Mike?

Thanks, Doug. Good afternoon.

I would also like to welcome everyone to TRI Pointe Homes' first earnings conference call as a new public company. Today I will be highlighting key metrics from our fourth quarter and annual results for 2012, and then provide some perspective on early trends in 2013.

It is important to remember that TRI Pointe Homes was not a public company for 2012. As Doug mentioned, we successfully completed our IPO on January 31, 2013 when we sold 10 million shares at $17 per share and raised net proceeds of approximately $155.6 million.

The company is already utilizing the proceeds from the acquisition of land, including the portion of the land acquisitions we have discussed today. It is important to note that the numbers presented in our earnings release and the Form 10-K were that of TRI Pointe Homes LLC.

In connection with the IPO in January, the company converted from a Delaware limited liability company to a Delaware corporation and was renamed TRI Pointe Homes, Inc. After the close of the IPO, the company had 31,597,907 shares outstanding.

Let me walk you through a few key metrics and provide some additional insight. Starting with communities, we opened seven new selling communities in 2012, five in Southern California and two in Northern California.

During the same period, we also took our final net new home orders at three communities and ended the year with seven active selling locations. We experienced very strong traffic and accelerated absorption rates from our Southern communities in the 2012 fourth quarter, which resulted in 75 new home owners or 3.6 owners per month per average selling community as compared to 1.1 order per month per average selling community in 2011 period.

Our strong order activity and backlog conversion resulted in a record 89 deliveries for the quarter, which resulted and generated $55.2 million in home sales revenue. The average sales price of homes delivered for the quarter was $620,000, primarily due to the first deliveries in our Northern California division which featured new products with large square-footage homes and, correspondingly, a higher average sales price.

Our average sales price of homes delivered is significantly different between our projects in Southern California and those in Northern California. In Southern California, our average sales price was approximately $400,000, and in Northern California, we averaged just over $1 million.

We ended the fourth quarter with a backlog of 68 homes sold but not closed valued at $33.3 million. Although our average sales price and backlog was up 16% to $490,000 from the prior-year period, it was down from our average sales price of homes delivered in the fourth quarter based on a heavier mix of homes in Southern California versus Northern California.

Throughout 2013, our average sales price will vary on a quarterly basis due to the mix of the units and the timing of our [inaudible]. We are also happy to report a significant increase quarter over quarter in our homebuilding gross margin percentage to 20.2% for the fourth quarter 2012 as compared to 13.6% for the same period in 2011 and 11.8% in 2012 third quarter.

For the full year, our homebuilding gross margin percentage increased to 17.8% as compared to 10.7% for the same period in 2011. Our homebuilding gross margin percentage increased primarily due to the unit mix and deliveries from our new communities, including the first deliveries in our Northern California projects which are generating higher homebuilding gross margins.

From the expense side, our SG&A expense increased as we ramped our community count and grew our new home deliveries in the fourth quarter. In addition, in anticipation of going public and supporting our future growth, we continued to invest in our infrastructure.

Our SG&A as a percentage of home sales revenue was 8.9% for the fourth quarter and 14.7% for the full year 2012. We anticipate improving operating leverage for the full year 2013 as we grow our deliveries.

Overall for the 2012 fourth quarter, we reported net income of $6.4 million compared to the net loss of $1.4 million for the 2011 fourth quarter, primarily driven by an increase of $10.6 million in homebuilding gross margin due to the increase in deliveries with a higher average sales price, generating higher sales revenue and higher homebuilding gross margin percentages. We were also very successful from the land acquisition perspective in the fourth quarter 2012 and has continued through the first quarter of 2013.

In the fourth quarter 2012, we acquired 312 lots for a total purchase price of $68.2 million, of which 196 of the lots were in Southern California, 59 in Northern California, and 57 in Colorado. In addition, we added another 180 lots to our controlled lots during the quarter and ended the year with 1,550 lots owned and controlled.

As Doug mentioned, so far in the fourth quarter, we've acquired 300 more lots and controlled an additional 410 lots, leaving us with lots owned and controlled of over 2,100. Now I'll provide a little color on our balance sheet activity.

After taking in consideration the land acquisition activity that Doug and I just discussed, we currently have approximately $130 million of cash, cash equivalents and marketable securities, around $250 million of real estate inventory, and over $300 million of stockholders' equity. From a debt perspective, we've added another $20 million in commitments during the quarter to increase our overall commitments to $145 million, with one potential additional loan to record before the end of the quarter.

Not including that loan, our current outstanding balance is approximately $62 million. A portion of our commitments also include a $30 million credit facility which has approximately $23 million of undrawn availability as of today.

Let me now provide some context on our first quarter. While we do not plan to provide formal guidance at this stage in our early lifecycle as a public company, given the unusual position of reporting only a few days left in the quarter of 2013, we felt it important to give some initial insight on the quarter.

As previously mentioned, we will open nine new selling communities in 2013, of which two opened in the first quarter. We have experienced very strong order activity, averaging over five orders per week per community, and expect to report over 100 new home orders for the first quarter.

In the quarter, we will deliver approximately 65% of our 68 homes in backlog as of December 31, 2012 and our quarter-ending backlog is expected to be in excess of 130 homes. While we are pleased with our growth in the first quarter, it's important to understand that due to the increase in our deliveries in the fourth quarter 2012 as well as the mix and the timing of bringing on our new communities and our rapid growth, there will be seasonality in our homebuilding gross margin percentages, starting with lower margins in the first quarter and building throughout the year.

Correspondingly, there will be variability in our profitability and earnings per share on a quarterly basis which will be biased towards the second half of 2013. Before we take any questions, let me clarify one balance sheet number that I believe I misspoke on just a minute ago.

The current real estate inventory balance is around $230 million instead of $250 million. That completes our prepared remarks, and with that, [Bob], we'd like to turn it over for some questions.

Good afternoon, and thanks for taking my question.

Thanks, Will.

Hi.

So, not sure if this is [inaudible] but, Doug, Tom and Mike, you're executing quite well with a nice quarter and, I have to say, net orders for the first quarter 2013 came in a lot better than we expected. I was hoping to understand how the early close-out on one community and strong net order growth in the first quarter may be reflected in margins as we look forward to 2013.

And can you provide any color, call it quantitatively or qualitatively, on margins for the backlog?

Yeah, well, as I mentioned earlier, Will, on our prepared remarks, you know, we're going to have seasonality with our homebuilding gross margin percentages. If you remember, in the fourth quarter we accelerated additional closings into 2012, and cleared out most of our Northern California units at that point in time which do have higher margins.

So the units that are delivering in the first quarter are really related to projects that are older in nature that have not seen a ramp-up in revenue. And so it's going to be challenged a little bit more on the margin in the first quarter, but we see that ramping throughout the year of 2013.

And I guess, Doug, I understand that you likely saw the Bloomberg article this morning talking about how you're shifting kind of call it more Class B, C markets, which I don’t think is the case, especially given the implied price point in your lot acquisitions really shows that you're probably shifting to even higher mix communities. And can you share some color on that?

Yes, Will, and just let me reiterate, obviously the Bloomberg article is I guess they had to come up with a catchy headline. But as we discussed during our road show and as we proceed going forward with the company's growth pattern, we view Southern and Northern California and Denver as very strong markets to grow organically.

And we tend to focus on markets that have -- feed into the major employment centers, the major transportation corridors, and we view those are primary. And if you specifically talk about Southern California, for many of the callers, you're talking about the Inland Empire, and we don't view the high desert to low desert as primary markets.

We view the 15-Corridor, we view Rancho Cucamonga, [Eastvale], San Bernardino counties as some of the core market areas. But I'll also let Tom say a few comments about that too as he was attending that Bloomberg conference.

Yeah, Will. I think it's important to understand the context of that dialogue.

Really what it was all about was as prices surged in the primary core coastal market, was there going to be opportunities in the more -- in the more inland oriented markets. We believe that there certainly is and that there certainly is, A, locations within inland markets and specific and related to Contra Costa County up in Northern California, and Sacramento in Northern California as well.

Doug just mentioned the point about the primary Inland Empire market that we'll be pursuing. So I think it was a little bit of a misnomer to say it was a shift in approach.

Appreciate the color, guys. Thanks again.

Great quarter out of the gate, now looking forward to seeing you guys on April 9.

Thanks, Will.

Thanks and congratulations, guys, on the first quarter out of the gate.

Thanks.

I wanted to ask about the land, the new stuff. So in the first quarter, the 186 lots in Southern California, the 401 in Northern California, I wanted to get a sense of the lots that you're buying.

This kind of follows up a little bit on Will's question a second ago. If you could talk about the location and, you know, product type of the new communities you've bought into, you know, kind of when these are penciled for delivery.

I imagine NoCal a little bit further out. You know, just some, price point wise, just some general comments about the new land.

Sure. Nishu, this is Doug, and good question.

First of all, as you look at our land inventory, our strategy is to maintain a two to three-year inventory, and currently we have the land in place for the 2013 and 2014 delivery. So as we focus on our acquisition efforts in 2013, we're really focusing in on 2015 and beyond.

In particular, as Tom mentioned earlier, as you see the coastal part of California continue to see, you know, very rapid price movements, having been in this business for 25 years, you see the consumer naturally gravitate out the major transportation corridors east, whether it's up in Northern California, whether it's up in -- down in Southern California. And those products tend to be somewhat entry level but they also become -- move up too, because the price of the coastal product pushes you out.

And those are the opportunities that we've seen in the first part of the year. But also we're seeing tremendous opportunities in the coastal part.

Some of the major land sellers have some excellent opportunities. And one of the, you know, distinct advantage that TRI Pointe has, as I mentioned, is we build product in both the entry level and the move up, and that affords us great opportunities not only as we go east but even as you pick in to Orange County.

As the price goes up, what happens though with the price point is it goes down where you build more attached programs. And because the company has the skill set to build single-family attached, detached, entry-level to move up, it really affords us that ability to continue to be active in the land business and the land pipeline, and hence, the reason our land -- lots owned and controlled now exceeds 2,100 lots, about a 35%.

It's really due to that ability to build in all product segments that we've been doing for 25 years.

Got it. Great.

So, how many communities do these 590 lots represent?

They represent five.

Five, got it. And so those would hit the books, as you're saying, kind of mid-'15 or so?

There may be one that may hit in late 2014 because of the finished nature of the lots, but then the rest will hit beyond that. That's our primary focus, Nishu, is really 2015 and beyond.

Got it.

Tom, do you want to add anything to that?

Yeah, Nishu, I'll add a little flavor to that. The 186 units in Southern California is two product types.

It's in a prime location off of the 15-Corridor. And it's primarily an entry-level project that's serving a San Diego-based [employer], and we're excited about it.

Our price points in low to mid $200,000 there. And so it's going to be one of the more affordable projects throughout Southern California.

Up in Northern California, an equally interesting dynamic, three products coming there that are really going to be a more affordable alternative to that East Bay employment base.

Got it. Great.

And the next thing I wanted to ask was, you know, obviously the demand and the strong pace of land spend in the first quarter. You went through some of the balance sheet steps.

How does this shift or, you know, if at all, you know, thinking about doing a debt deal at some stage later this year?

Mike, you want to take that?

Yeah. Nishu, as you know, we think we have more than enough sufficient equity in place by doing our IPO and near growth plans that we have in place.

But to enhance the return per shareholders and fund additional growth, we might be looking into the debt markets later in the year. We will be adding commitments with, you know, typical commercial banks throughout the year on the debt side, but we will be looking to the debt market towards the end of the year.

All right. Great, guys.

Congratulations again, and thanks.

Thanks.

Thank you.

Are you still there, [Bob]?

Good afternoon. Congrats, guys.

Thanks, Steve.

You guys gave sufficient color on sort of the California markets. In your prepared remarks you guys talked about other markets that look attractive.

How should we think about your appetite or willingness to sort of branch out beyond sort of the traditional three markets in Northern California, Southern California, Colorado? I mean you have a lot to chew on as it is, I mean, should we think that's a near-term sort of opportunity for you guys or a little bit longer term?

Yeah, Steve, that's a great question. And as we've talked before, we think California and Denver, as we are positioned currently, provides us some excellent growth opportunities, as highlighted by our lots owned and controlled and the growth in the first quarter.

And we're going to continue to be very disciplined and deliberate about our growth. I guess there's that old phrase "slow and steady wins the race."

As I kind of look forward into the future, you know, we're going to continue to focus on the Southwestern region. If we grow, it'll be very disciplined, it'll be very calculated.

And, you know, we're not going to grow for growth's sake. We think we have an excellent team here.

We've demonstrated the ability to ramp up the operation. And we think we have the ability to continue to ramp that up in California.

But as we look forward in the future, we'll continue to look at opportunities but be very selective, and again, primarily in the Southwestern region. There is no particular rush to do that, but obviously with the event of the IPO, it's obviously -- the phone keeps ringing.

So it's nice to have opportunities and we'll continue to look.

So, fair to characterize then as opportunities, just not an urgency.

Not in the near term.

Got it. And then on the three owners per month, 3.6, that seems actually a pretty good number, from what I always looking for.

How much more leverage you think you have in that? Can you give some color on sort of sales pace of your current communities and how you think things are trending?

Go ahead.

We're really -- I heard you say 3.6, is that --

That is the number I have. Did I get that one wrong?

Well, 3.6 is what we averaged in the fourth quarter. I think our color in the first quarter is we average about five sales per community per month, which will obviously slow because, you know, we want to achieve a higher revenue, but really not giving any guidance on the SG&A side from an operational lever standpoint.

But we ended 2012 with 14.7, and we think we're well on our way to improve that number in 2013.

Great. Great.

Congrats again, guys.

Thanks, Steve.

Hi, guys. Just was curious about what land price has done in the last three months or so, so from the end of the fourth quarter to the end of the first quarter, as a percentage increase in your California markets or Colorado for that matter.

You know, Joel, it's really a function of the land residual calculation and the pricing of product. As far as land prices, we underwrite our land acquisition efforts at an 18% to 22% gross margin effort and we price to where we're going to enter the market and as a function of that type of underwriting to get to the land residual.

So it really varies all over the map and there's really no particular statistic I can tell you it's gone up, you know, x what.

I guess --

-- calculation.

Right. I guess an easier way to ask it is, on your ongoing communities, how much are prices different on same plan basis?

On your orders you're taking, say, this week versus the orders you took, you know, last week of December?

Yeah, I mean we've seen pricing power in all our projects and it varies by each sub-market that you're in. But it varies from roughly 2% to 12% over a six to 12-month period depending on, you know, when exactly that community opened.

But there is pricing power in our core markets.

Have you seen any kind of ramp, like 10% in the last three months or, you know, to call it something like that or is it more like 3% or 4%, 5% from the end of the fourth quarter?

No. I mean we continue to price to meet our absorption requirements and our plan.

And, you know, I haven't seen that type of ramp appreciation. But I think for the year, for 2013, if you take a look at the overall marketplace in the coastal markets of Northern and Southern California and if you read [Burns] and all the other market pundits, I think you're going to see some pretty rapid appreciation on a year-over-year basis probably in the realm of 10% or so.

Tom, you want to add any color to that?

No, I think the key component to what we're seeing out there is really a strong demand from the buyers. Consumer confidence is up.

And we're doing a good job managing our revenue and making sure we've got appropriate sales base to meet our underwriting requirements. So it all feels good out there right now and we don't want to get too crazy relative to our pricing strategies.

But you're not gaining anything like where you consider chalky where, you know, prices are going up 2% every two weeks or anything like that?

No. We're certainly managing our phased releases and we are getting consistent revenue increases.

But again I think that's just fueling more confidence in the consumer that they're making a good buying decision.

Right. All right, thanks a lot, guys.

Thanks, Joel.

Congratulations on going public. Tom, I had a question with regards to the SG&A, Mike, I guess not so much a sales question but a corporate overhead question.

Right.

You guys are sort of at a run rate over the previous -- or the first nine months, I was thinking roughly $1.5 million or so. And then it went to $2.6 million.

Is that more a function of like incentive compensation or is that like a new run rate?

There was some incentive compensation in that, a little bit of bonuses. But that's more of a typical run rate going forward, Alex.

If you look at the fourth quarter, it was roughly about $2.6 million. You know, we weren't public at the time, so it did not include the cost of being public, and it does not include some of the stock-based compensation which we think is roughly around $2 million this year.

And obviously we're still a small company and we're growing at a pretty rapid pace, so we'll be hiring some additional folks, you know, throughout the year.

Okay. And so that would be a starting run rate, I guess?

Yeah.

Okay. Cool.

And then I was wondering if you guys could provide like a breakdown by region of your lots owned and controlled.

It's in the, Alex, it's in the 10-K. Let me --

Okay. If it's in there, don't worry about it.

Yeah, it's in there. I'm not sure what page it is, but we've got it broken out.

Yes. I can just give it to you, Alex.

At the end of the year, 1,550 lots, and I think it was in our prepared remarks too. Southern California it's 775 -- 777 lots, 520 lots in Northern California, and then 253 lots in Colorado.

Okay.

And that's the owned and controlled.

Okay. And the other question I had was with regards to the -- with regards to the gross margins, obviously it seems like there was a pretty significant difference between Northern California and Southern, but I was just trying to, I guess, figure out what the run rate was on each one.

I don’t know if there is such a thing as a run rate.

Yeah. I'm not sure we want to guide you that number.

A couple of things, when you look at the S-1, the margins in the first nine months of the year, there was some purchase accounting adjustments that were done related to our contribution of our assets to start with that kind of ran through the basis of the property. So that's why the margins were very low in the first nine months of the year.

Okay.

And then a 20.2% for the quarter. But again that included some Northern California projects in there that have somewhat higher margin than 20%.

Got it. And if I could ask one more, on the 19, as you said, you're planning to open this year, how does that break up by region?

Yeah. It's six in Southern California, two in Northern California and one in Colorado.

Okay. All right, I'll jump back in the queue.

Thanks.

Thanks, [Bob]. And I want to thank everybody for joining us on our first earnings call as a public company, and we look forward to speaking with you at our next quarterly call.

And have a great holiday. Thank you.