Good morning and welcome to Taylor Morrison's Third Quarter 2019 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at time. As a reminder, this conference call is being recorded.I would now like to introduce Mr.

Jason Lenderman, Vice President, Investor Relations, and Treasury..

Thank you and welcome, everyone, to Taylor Morrison's third quarter 2019 earnings conference call. With me today are Sheryl Palmer, Chairman and Chief Executive Officer; and Dave Cone, Executive Vice President and Chief Financial Officer. Sheryl will begin the call with an overview of our business performance and our strategic priorities.

Dave will take you through a financial review of our results, along with our guidance. Then Sheryl will conclude with the outlook for the business.

After which, we'll be happy to take your questions.Before I turn the call over to Sheryl, let me remind you that today's call, including the question-and-answer session, includes forward-looking statements that are subject to the Safe Harbor statement for forward-looking information that you will find in today's news release.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to those factors identified in the release and in our filings with the Securities and Exchange Commission.

We do not undertake any obligation to update our forward-looking statements.Now let me turn the call over to Sheryl Palmer..

Thank you, Jason, and good morning, everyone. We appreciate you joining us today as we share our results for the third quarter of 2019.

It was another successful quarter for Taylor Morrison as we met or exceeded our guidance in each of our key metrics.We finished the quarter with 2,540 net orders, representing a substantial 39% increase compared to the same quarter last year.

In mid-September, we released our July and August sales sharing our year-to-year order growth of 30% for the first two months of the quarter, nicely illustrating the buildup of strength that we saw as the quarter progressed with September up more than 60% year-over-year.

This growth in sales was driven by strength across all regions as well as all price points. All three of our regions had sales orders up at least 20% led by the east, which was at nearly 64%.Average community count in the third quarter was 346, leading to a sales pace of 2.4 for the quarter.

This compares to sales pace of 2.2 in Q3 of 2018 and keeps us on track to achieve an annual sales pace in line or slightly better year-over-year. As we talked about last quarter our performance on sales this year has impacted our community count as we're selling out of communities faster than we anticipated.

And do expect that could continue into the fourth quarter.We delivered 2,296 closings, which is 9% higher than our results last year and in line with our guidance for the quarter. This growth was consistent across geographies with all three regions up year-over-year.

I believe this was a particularly good result despite being impacted by the Florida hurricane activity and the torrential rains in Houston, resulting in a loss at five or six business days, pushing approximately 50 to 75 closings into the fourth quarter.Our normal seven day quality inspection requirement and our protocol of not closing homes that aren't 100% complete and this whether activity occurring so close to the end of the quarter, we chose to push these closings to ensure positive customer experience.

Home closings gross margin inclusive of capitalized interest was a strong 18.5%. EBT margin was 8.2% for the quarter, even with the inclusion of 3.6 million in debt extinguishment charges.Dave will shortly provide additional detail in our Q3 financials.

But we are very pleased with the results that we've achieved during the quarter, just passing the one-year anniversary of the AV Homes acquisition, it's clear that the increased scale we gained through this deal is having a material impact on our results, sale paces are up, margins continue to outperform expectations, and we expect nice leverage on our overhead in the coming quarters as a result of the transaction.

All in all, we're delighted with the new AV team members, the assets acquired and the tremendous timing of the deal, positioning us to capitalize on a strong real estate market.As we discussed last quarter, our team has built a nice institutional muscle with all of our M&A activity ultimately integrating them in a way that maximizes value creation and efficiencies.

We've had a nice first three quarters of the year and we believe the market is set up for a strong Q4 and beyond. There's a lot of talk about the benefit of interest rates, which is definitely true. But there's also more to it than that.Outside of some geopolitical noise, consumers really have a lot to be confident about.

Incomes are rising, the stock market is performing well, unemployment is still near all-time lows, and equity owned homes continues to increase, resulting in improved traffic in our sales offices with willing and able new and return buyers.We've also continued to make progress on our build-to-rent implementation, which will modestly show up in our financials late this year as we progress with the previously mentioned initial acquisitions and development work.

Consistent with prior messaging, this will not exceed 25 million for 2019.

In 2020, we will begin vertical construction for the first two projects with heavy lease up through our licensed partner Christopher Todd communities as we head into 2021.Each project will run nearly parallel timelines and will include approximately 150 units within gated and monetized communities containing social programming and technology equipped single family rental homes with backyard is a key differentiator for our business.

We recently hired a President of our build-to-rent business who will oversee our rollout plan and execution as we further define our capital allocation strategy for our multi market expansion plan, consumer segmentation and asset divestiture strategy.We continue to be very excited about the potential for this business given that it's a wholly aligned with our core expertise of developing community and building confidence.

Yet it enables us to capture a completely differentiated mass population of renters, many of which are choosing to rent versus buying.

This excitement has been echoed since our announcement last quarter by many of our operators, trade partners, key investors, banking, relationships, and even other market participants that understand that this is a growing asset class that overtime will likely carry a growing share of the rental market.Now, I'll turn the call over to Dave for the Financial Review..

Thanks Sheryl and hello everyone. For the third quarter net income was 67 million, earnings per share was $0.63. Excluding the loss on extinguishment of debt EPS was $0.65 as adjusted. Total revenues were just over 1.1 billion for the quarter, including homebuilding revenues of just under 1.1 billion.

Total revenue was up about 7% from the same quarter last year.GAAP home closings gross margin inclusive of capitalized interest, the impact from purchase accounting and the mix impact from AV closings was 18.5%.

This rate exceeded our third quarter guidance as we benefited from the efficiencies of scale that Sheryl mentioned.Our margin rate also benefited from some true-ups that we took during the quarter related to vendor rebates and profit participation arrangements.

In total these two items positively impacted margin by just over $5 million.Moving to financial services, we generated approximately 23 million in revenue for the quarter and more than 10 million in gross profit.

Our mortgage capture rate for the quarter came in at 77% compared to 71% in the same quarter last year.We've been successful in getting the legacy AV operations up to speed on the financial services side, which not only benefits the company's financial performance but also provides greater visibility into our buyer pipeline.SG&A as the percentage of home closings revenue came in at 11.1%.

This rate was impacted by the de-leverage from the pushed closings due to weather and timing of certain items. We continue to maintain our annual SG&A guidance in the low 10% range of homebuilding revenue.We also had a $3.6 million charge for a loss on extinguishment of debt related to our refinancing transaction completed in July.

As Sheryl mentioned, our EBT margin for the quarter was 8.2% on a reported basis, but 8.5% excluding the debt extinguishment charge.Our effective tax rate for the quarter was 25.9%.

As a reminder, this rate is higher than the same quarter last year as Q3 2018 included several favorable strategic tax initiatives.For the quarter we spent about 350 million in land purchases and development. At the end of the quarter, we had approximately 54,000 lots owned and controlled.

The percentage of lots owned was about 80%, with remainder under control. On average, our land bank had approximately 5.4 years of supply at quarter end based on a trailing 12 months of closings including a full year impact of AV.From a land pipeline perspective, we are almost exclusively focused on securing land for 2021 and beyond.

At the end of the quarter we had 5,295 units are backlog with a sales value of approximately 2.5 billion. Compared to the same time last year, this represents an increase of 19% units and an increase of 8% in sales value.

We also had 2,049 total specs at quarter end, which included 385 finished specs or about 1.1 per community.You might recall that we had almost 1.7 finished specs per community at the end of 2018. So the teams have done a nice job selling and closing inventory units as this year has progressed.

We talked about how that benefited us in Q2, and that continued this quarter as well. We expect to build up our spec count again through the fourth quarter as we position ourselves for another successful spring selling season in 2020.From a liquidity perspective, we ended the quarter with approximately 740 million in total available liquidity.

222 million of that liquidity was cash on hand and the rest was from our $600 million corporate revolver, excluding normal course letters of credit that have been issued against it.At the end of the quarter, we had no drawn balance on the revolver and our net debt to capital ratio was 42.7%.

In addition, we have repaid our 200 million, 364 day revolver subsequent to quarter end, which was in line with our 2019 financing plan.I'll wrap up by sharing our guidance for the full year.

Based on the success that we've seen in the first three quarters of the year, we're excited to refine and favorably adjust some of our estimates.We are tightening the range in bringing up the midpoint of our closings and now anticipate closings to be between 9,800 and 10,000.Our average community account would be about 345.

Our 2019 absorption pace is now expected to be between 2.3 to 2.4 compared to 2.3 last year. We are increasing our GAAP home closings gross margin estimate inclusive of capitalized interest and purchase accounting to the low 18% range. As I mentioned, SG&A as the percentage of homebuilding revenue is expected to be in the low 10% range.

JV income is expected to be about 9 million.We anticipate an effective tax rate of about 25%. Land and development spend is expected to be approximately 1.2 billion for the year, which includes 25 million for build-to-rent development activity related to the initial projects that we're working on during Q4.

Diluted share count for the year is expected to be around 108 million.I'll now turn the call back over to Sheryl.

Thank you, Dave. Before we move to Q&A, I'd like to take a moment to share a couple of market highlights, some recent consumer segment findings and an update on our new website and brand messaging. Almost all markets have felt good Phoenix continues to lead the pack in a meaningful way.

Their consistent performance and growth has been a key part of our success. In Q3 closings were up in the market more than 30% for the fourth consecutive quarter and sales were up more than 20% for the fifth consecutive quarter.

The market actually led the company in a number of categories for the quarter, including sales pace, closings and margin rate.Sales pace for the entire company was at more than 9% in the quarter and there were a number of markets that contributed to that.

Austin, Sacramento, Orlando, Southwest Florida and Atlanta all had year-over-year sales pace increases in the double digits. Over the last few quarters we have discussed the moderation and pricing challenges we've seen in Dallas. The team here has done a nice job in repositioning some of the legacy AV products that needed to be addressed.

And generally, the market feels like it's slowly getting better. As we've seen over the years, markets throughout the country will naturally go through some ebbs and flows and Dallas certainly would have fallen into that category.Markets like Phoenix, Houston and Austin have also seen that over recent years, with each of them recovering nicely.

If I were to pick a market that appears to be feeling a bit of pressure at the moment, it would be the Bay. As everyone is aware the market there has experienced an extremely strong run over the last few years, and we've started to see a bit of softness over the last few months.

Underlying fundamentals do remain strong in the market though, so similar to other markets mentioned, we anticipate the Bay to regain strength in due time.We've talked a lot in the past about the market research we do and how that informs our understanding of key demographics and our various buyer groups.

Millennials are key a buyer group that we spent a lot of time on recently and I believe there continues to be some confusion in the media about the important role they play in the marketplace. Five years ago, they represented roughly 20% of our buyers and today, almost one out of every three buyers is a millennial.

This demographic is really bad understood by dividing them into two groups, rather than over simplifying where they might be from a life events perspective.We approach millennials over 30 years as one group and those younger than 30 as another. Today, the average age of a millennial looking to buy is 32 or 33 years old.

And that buying decision is usually triggered by a key life event such as marriage or children, which is trending later in life for this generation than those before I'm often surprised by the notion out in the marketplace that millennials aren't buying, as we're just not seeing that, in fact, 75% of our older millennials are actually buying their second home.

And even for those millennials that we see under the age of 30, 45% of them are buying their second house.We believe that most millennials will ultimately want to own a home and have a lifestyle similar to what they grew up in. And we're well positioned to take advantage of that.

We continue to believe that our barbell approach with the baby boomers and our 55 plus lifestyle communities representing one end and the millennials on the other are key consumer groups that will continue to drive the growth for Taylor Morrison and the industry.Lastly, I'm excited to share that earlier this month.

We took our marketing initiative to new heights by unveiling our new Taylor Morrison website and a fresh approach to our brand messaging. Our hope with both is to generate even greater name recognition in our market and to create a seamless experience for our customers starting their new home search online.

We know that now more than ever before consumers are shopping online, homes included, and our new site was designed to make shopping for new home construction easier.In addition to its sleek and modern design, the new site includes forward thinking features like enhanced 3D floor plan tours, interactive community site maps showing real time lot availability, and floor plan optionality for each slot, allowing customers to do more research before visiting our communities.

The new Taylor Morrison website went live earlier this month and while it is still very early days, we're already seeing a significant increase in overall traffic and engagement.

Session times were up more than 25% month-over-month and we've seen a 33% increase in lead and call conversions across all divisions for users coming from third party advertising.We've also seen increased calls, information, request an appointment in most all of our markets.

Feedback from our early testing shows that consumers are enjoying the site as well. They can search for new homes with ease and have shared that the new design and aesthetics create a warm and welcoming environment. To further solidify Taylor Morrison in the digital age soon we'll be unveiling a new Amazon Alexa skill.

With a simple ask, Alexa can search for nearby Taylor Morrison communities and driving directions to personal mobile devices and scheduled community tours.Now let's just briefly turn to our new brand positioning, which I believe is just a fresh approach to our marketing communications.

Consumers realize the power of their dollar and want to invest it in brands that stand for something more than what they sell. Many believe a brand's purpose can be the single most compelling reason for people to buy into a brand, choosing it over its competition.

Taylor Morrison strategic brand purpose is all about showing our belief in the power of progression.We know people move to a new home and they're facing transition ahead, whether it's expanding households for marriage or a new baby, relocating for a job or looking ahead to retirement, these are all changes that signify a step forward.

And through our new brand positioning, we will show our belief in the power of progress and support our customers on their cusp of change. The launch of our new messaging is rooted in emotional storytelling through video and will allow customers to emotionally connect with Taylor Morrison.

With all of that said, I'd be remiss if I didn't invite you to watch our new brand film and experience the new Taylor Morrison website for yourself by visiting Taylor morrison.com.I'd like to end our call today like I always do by providing an enormous and heartfelt thank you to the entire Taylor Morrison team for their efforts day-in and day-out to deliver quality homes for our homeowners and help us achieve our strong performance.

I deeply believe our results are a testament to the passion and dedication of our team members across the country.With that I'd like to open the call to questions. Operator, please provide our participants with instructions..

[Operator Instructions] And our first question is from Alan Ratner from Zelman & Associates. Your line is now open..

Hey guys, good morning. Nice quarter..

Thank you, Alan..

Good morning.

So my first question, I was hoping you can maybe give us a little bit of a peek into the mindset of the consumer today and the buyer, obviously benefiting a ton from low rates this year, but I feel like there's still this kind of mindset or belief out there that it's still a little bit of a tenuous buyer today and that if rates were to start to creep higher, that you could see a pretty dramatic fall off in demand.

And obviously, that's tough to really forecast, but maybe you can kind of just tell us a little bit what you're seeing both from an affordability as well as a confidence standpoint.

Maybe in the markets where you're raising prices today, are you seeing any impact to demand? Are you seeing any pullback in order growth? Or do you feel like there's still room to run and that the consumer confidence has rebounded to a point that even if rates were to creep a bit higher that that the market could still remain on solid footing?.

Okay, you packed a lot in there, Alan, but let me give it my best shot. I would tell you that we are seeing general strength across our consumers all price points, and I think the consumer is feeling pretty good and like I said in my prepared remarks, I think they have a lot to feel good about.

So if I look at the normal indicators, and I look at our foot traffic coming in the doors were up year-over-year on a community basis. If I look at web traffic and engagement on the website, I would share the very same thing.

Now, some of that's going to be the rollout of our new website, as I talked about, but honestly that just happened in the last three weeks. So I've seen that pattern through the year. We've increased prices and about 40% of our communities this year albeit slightly more modest increases, but I think that's healthy.

The narrative on the sales floor with our sales associates is actually very strong. Some markets you're going to see that manifesting itself through offers. But most it's just engagement and how quick can I find my lot and when are you going to release the new phase of lots.

So I don't think the buyer is in a very tenuous state.Now, having said all of that, I would share two things.

One is, if we continue to look and test our backlog, we are seeing the same condition that I had spoke about for at least eight to 10 quarters and that our buyers can afford somewhere between 300 and 600 basis points of higher interest rate or a larger house. Having said that, I think we learned a lot in the fourth quarter.

And even though our buyers could still afford 300 or 400, 500 basis points, they were paralyzed. There was an emotional reaction, but I don't think it was a 100% the interest rate, I think it was the speed in which that interest rate moved in the prior three months.

And along with that and all the other noise that was happening from a macro standpoint that had an impact. As I look forward, I mean, we'll see what the Fed does today. But if the economists are accurate, we're expecting likely another increase today.

And probably some posture – I'm seeing a decrease today, thank you, Dave – another decrease today and probably some posturing to let's wait and see, and probably just kind of holding stead between now and the election. And I think you're going to have rates float somewhere in the high threes to the low fours for the foreseeable future.

So I think that all bodes well..

I really appreciate that very comprehensive answer. So thank you, Sheryl. Second question, I guess just in this is maybe just a little bit more confirming some of the guidance, but also just get your thoughts on the community count in general.

So Dave, I think for to get to the full year 345 average, I mean, you're running close to 360 through the first three quarters, it would seem to imply fourth quarter drops off quite meaningfully maybe down to the 300 switch. I guess I'm curious, how much of that is timing.

I mean, how quickly do you think that that can rebound back to the levels you were at when you first closed the AV deal? And I guess more broadly, I mean, how important is community count for you guys to post growth? I mean, when you look at your portfolio today, even if community cap doesn't rebound back to those levels, are you still confident that you can at least kind of maintain market level growth next year?.

Yeah, Alan, I'll start maybe with the mechanics of it. For the fourth quarter, our community accounts probably going to be in the low 330s and that'll get us to our annual guidance. And it really is – it's about timing of – when communities are rolling off and coming on in a given quarter, and obviously, the strength of our order success.

And maybe just a little bit into next year, I think what you're going to see is a slow ramp in the first half of 2020 and then that ramp will accelerate back towards the second half of the year. But your question's a good one around the importance of community count. I mean, for us, it's going to be both.

Obviously, we want to drive community count growth. As you can see in over the last several years, we're very focused on that level of growth, but it's also the efficiency in each one of our communities. So driving the absorption is up.

For us I think that some of the great strength in what we're going to drive the leverage that we want in the business as well..

Got it and very helpful, Dave. Yeah, I was a little confused on the community count because I'm just – by plugging into 330 in the fourth quarter, I get closer to 350 for the full year, but maybe I'm looking at it a bit differently than you guys are. But in any case, good luck and thanks for answering my questions..

Thanks, Alan. Have a good one..

Thank you. Our next question is from Jack Micenko from SIG. Your line is now open..

Hey good morning guys. This is actually Sam [ph] on for Jack this morning. So Sheryl, good morning. So Sheryl, you talked a little bit the scale benefits that you guys are realizing today.

Could you maybe just spend some time just talking through some of the specifics? Is that more on the labor front? Is that materials? Are you getting better land terms now that you just bigger? And then what could that mean sort of for gross margins going forward?.

Yeah, all of the above are very good question. But you see it certainly from the external standpoint of what it does to the land market. I think where we've excelled in the past is we've always felt like we've – through good and bad times, we've retained our relationships in land markets.

And so getting that first look and quality of selection is significant. This certainly helps. When you look at the production side, I think we're seeing it there in so many places. We're seeing it in our local purchasing power. We're seeing it in our ability to partner with our trade and give them visibility of the schedules for months to come.

It allows them to bring the crews on site and keep them there. When I look at the regional and national purchasing power, the teams have done a tremendous job, which is why we're able to take up some of our synergies in the last quarter call.

And then you see it on the internal SG&A, it just gives you greater efficiency because so much of that fixed cost benefits from those added unit in every community. So we will continue to focus on scale in every market, certainly the AV transaction made a huge mark on the organization..

Great and then Dave just on gross margin, the true up this quarter looks like it's about 40 basis points on the margin.

Do you think you guys are through that now with the negotiations or is there more to be had there?.

No, we're through it. I think x that – the 40 basis points, that's kind of where we've been running from a margin perspective for most of the year. And we're taken that into consideration and will be somewhere similar in Q4..

Got it, thank you..

Thank you. Our next question is from Michael Rehaut from JP Morgan. Your line is now open..

Thanks, good morning everyone. So I just wanted to circle back on an earlier question around the community count and I appreciate, Dave, the thoughts around 4Q that was helpful.

But as – if I heard you alright as well, you're talking about growing from that low 30 space a little bit in the first half of the year and then maybe a little bit more of a pickup in the second half. And so in that type of backdrop, should we – how should we be thinking about overall growth for the year.

I mean, obviously, it's a little premature for 2020 guidance, but just directionally would be helpful. It would seem like barring any major shifts in sales pace, your order growth might be down double digits in the first half of the year. And then depending on community count in the back half the second half might be a different story.

That was the right way to think about it just from a modeling perspective..

Yeah, I mean, some of this Michael's going to be obviously timing of when they come on, but I would expect overall for our growth to be probably aligned with industry expectations, which are probably kind of mid-single digits.

From an order growth perspective I think we have to look at the compare in the first quarter of what will be 2020 over the 2019. As you remember, we got off to a slower start; the industry did in the first quarter, spring selling season started a little bit later, so I think we'll need to take that into consideration.

But all that said, and we're focused on growing orders, year-over-year into 2020. It is a little early for us to give guidance. We're in that process right now. But we'll come out with more details on that in the fourth quarter call..

And I agree with what you said, Dave. It's going to really be a strong combination of community camp growth and pace improvement as we've seen all the way through this year.

I think what gives us a lot of excitement is when we look at some of the communities that are under development today and what we expect to – how we expect them to perform early in the year when they open and I think it gives us great confidence on our paces looking forward.

A lot of them are going to be both in that entry first time buyer segment as well as the 55 plus buyers so it's right in our sweet spot..

Okay, I appreciate that. I guess also, I was hoping to delve in a little bit to the very strong September that you had. Obviously, builders stopped reporting monthly orders long time ago for a good reason.

But at the same point, I was curious if there were any specific drivers, perhaps from a community count opening perspective or certain markets that really pushed that September to be so strong relative to the first two months of the year.

And if you're thinking about – if you're seeing that type of stronger sales pace continues into the fourth quarter..

Yeah, Michael, we're quite excited about the consistent sales pace that we saw July through September. I mean, the orders were pretty consistent as we made it through the quarter, which normally you begin to see them drop off and even more excited and what we're seeing in the first 20 – what's today is that 30 or the first 29 days of October.

We're right on track with where we were in September, somewhere around that two, four pace, which is about 50% higher than our pace for the whole fourth quarter last year. I don't think it’s one thing. I think it's the quality of the communities. I think it's the marketing message, new energy around our website.

I think the sales teams are doing a really nice job. We have good inventory on the ground, as Dave talked about in his prepared remarks and the consumer's feeling good. So I don't think it's just one silver bullet..

And I had one more thing, just the integration of the legacy AV communities, those are all fully integrated up and running and we're maximizing those as well..

That's great. And one last one if I could sneak in, Dave, did I here you right that you're expecting a gross margin, x the true up benefit in the fourth quarter similar the third quarter, in other words, like a low 18%, 18, one-ish, something like that..

That's right, yeah, low 18..

Okay, perfect. Thank you..

Thank you. Our next question is from Carl Reichardt from BTIG. Your line is now open..

Good morning everyone.

A couple of little ones just – one, can you Dave talk just about what the certain items were in the SG&A? And then can you also just chat a little bit about California and the power outages? And obviously, you've got a lot in San Jose, which wasn't really impacted, but some others, just what can we expect in terms of delays in pedal stone installations or sales traffic, just curious about that living through it myself?.

Sure, yes. I'll start with the SG&A Carl. So on one side of it is timing related to the closing. As you recall, we kind of pulled some closings forward in Q2, just with a strong spec sale environment and we did shift some out from Q3 to Q4 just some of the weather that Sheryl mentioned.

And then from more the expense standpoint, there's a couple of things in there. Probably the biggest ones were the accelerated model amortization. And that is tied directly to our order strength, so we're selling through the communities faster, which is increasing the amortization because we're closing out the communities.

So instead of taking one quarter for the amortization, we could be taking two to three quarters worth as we're selling it out faster than we anticipated. And then there's just some other general timing things. Some of it was also for us some of the website work that we did, so some of that gets capitalized, but some of that gets expensive as well.

But we do feel like it is timing. That's why we're holding our annual guidance to the low 10%. We're still seeing for the year that increased scale from AV that's going to help us drive the leverage. And ultimately, the strength of deliveries for the fourth quarter will drive the amount of leverage that we see..

On the California fires, I don't think we know yet to be completely honest. I mean my first concern is our team members and that they're all safe. And we have a great kind of crisis management to keep in touch with everyone.

So once we understand how long these are with us, I think we can assume it's going to impact if this is like any of the others we've seen in the past. We can assume it's going to have some impact on the trade. It's going to definitely have the greatest impact on the utility companies. But I can't articulate that yet.

We have to get to the other side of it. Very similar to what we saw. Not very similar, a little different than what we saw in Texas this year where we lost about five days. Thank goodness the storm never really materialized the way we had thought, not in Texas really more in this range really more in Florida.

But you still have to go through all the emotions. And those emotions cost us a few days. I'm hoping we don't have any sites in danger, so I don't see any massive changes. So if we have any impacts it will be timing, but it's just a little too early to know..

Alright, thanks..

I hope everything's okay with your property Carl and family?.

We're fine property wise just the powers, power has been an issue for a lot of folks out here..

I know that we have a lot of team members that have already been displaced and have no power and some that have actually been evacuated. But I don't know how long it goes on yet..

Fair enough. Thank you and then just one big picture question for you Sheryl. So as you look at let's call it your pre-tax margin or your EBITDA margin and where you'd like it to go long-term as you think about balancing price and pace. Really strong paces, margins are not quite where some in the rest of the industry are.

So what is the sort of the long-term strategy let's say to get your pre-tax up to say maybe a double digit? Is that something that's sort of in your sights? And how will you get there if it is?.

Of course it is. So our expectation is if you kind of look at this business over time, Carl, you know quite well that we should expect to see something in well over 10%. And so all the steps that we've been taking for the last few years in growing the business, these are a long-term strategy to put the business in the right place.

So it's not one specific strategy. It really is directed through the scale across the entire business and in each of our markets to gain the efficiencies that I can talk. There's going to be a lot of tactics that we'll deploy to get there and that's everything from the way we buy our land to our pricing strategy to really kind of pivoting toward pace.

Certainly the innovation and the way we're looking at building sciences and some of the long-term opportunities there. We're already starting to see tremendous innovation on the mortgage side. Each of these is going to have a role to driving our pre-tax to that 10 plus percent rate..

Thanks, Sheryl. Thanks, David..

Thank you..

Thank you. Our next question is from Paul Przybylski from Wells Fargo. Your line is now open..

Thank you. Good quarter. First off, I was wondering if you could give us some color on active adult demand and how you see that consumer shaping up with their upcoming selling season given the economic and political backdrop..

Yeah, I would tell you that the kind of shoulder season that we're just stepping into gives me confidence when I look at Florida, which where we really say that the largest piece of our active adult business today, they're doing well.

It's also it's interesting when you kind of dissect the numbers, Florida is a place where I would say the larger builders look for the greatest volume.

And so we tend to see in the early fall going into the kind of year and closing depending what your year end is, we tend to see the most aggressive incentives in Florida than I really do anywhere else. But it's a place where we really do drive volume.

And so far, the consumers like I said feel pretty good across all segments, including active adult.As far as the political backdrop, I think back to the last campaign year and I can't imagine this one plays out any differently as far as just the media noise. I think at some level it becomes a white noise for the consumer.

I don't know that it can get any – could be much worse than it was for three years ago. So I think as long as the consumer is feeling good about their own personal situation, their ability to sell their house, I expect to have a nice shoulder and certainly leading into a strong spring selling.

Specifically to the company, we have some important new openings early next year in Southwest Florida that I think are going to own a deal for overall impact to the spring selling..

Okay.

And I was recently in Orlando and it seemed to me like some of your AV communities were making a concerted effort to introduce some new products and drive down the selling price and move to a package type design program, is that going to be a nationwide strategy? And what impact do you expect that to have on maybe some volumes in the near margin as you move forward with that?.

Yeah, I think you have to – we look at this consumer segment by consumer, so we absolutely have a national kind of approach to it, but it's not universal it's not one size fits all. So at the more affordable segment, we absolutely are looking at more packages.

When I look at what's happened in Orlando, between the AV, the repositioning of the product, the simplification, our paces are up well over 50% there. And so I think it really played into it.

We're quite delighted with where that Orlando business is going and it's a really nice combination of the entry level primarily the AV business, the active adult entry level complemented with kind of that more traditional active adult. So it's a little bit of everything.

Like I said, probably a third of that business, I really think they're trying to simplify. But we're also seeing those efforts across the business. But I think it's really important that we understand the consumer in each sub market and not go with a one size fits all. I think that's what folks get in trouble..

Okay, appreciate it. Thank you very much..

Thank you..

Thank you. Our next question is from Jay McCanless from Wedbush. Your line is now open..

Hey, good morning and I want to thank for taking my questions.

The first one Sheryl on the 40% communities where you're raising prices, how does that split out between legacy Taylor Morrison versus the communities you acquired?.

Jay, we don't look at it that way because they're all Taylor Morrison communities today. What we do look at is kind of new opening communities, closed out communities to see where we're seeing quarter-over-quarter, year-over-year, like house by house price increases. And I would tell you, it's across the board.

We're seeing it in all consumer sets, which would imply that a good percentage of the AV communities would also see in some of those increases. And I think as I might have already said earlier. If I didn’t, I apologize. The increases are a little bit more modest. But I think that's actually pretty healthy.

But if I look down literally every product, every home in our portfolio year-over-year, it's really across the board. I'm seeing it in first time communities, first time buyer communities, I'm seeing and in 50 plus, I'm actually seeing it in some of our luxury communities as well.

If there's a place I'm probably not seeing pricing power, it's in the close outs. We'd be trying to move through those and we're definitely seeing in new communities where we have a very strategic kind of ramp up of pricing. So to me, that's good news. It's not – we're not seeing strength in one consumer group, but really across the portfolio..

Thank you. My second question, in the prepared comments on the build-to-rent business, you talked about $25 million, I believe similar to the fourth quarter.

Is that just some expense we should build in for the rollout of that project?.

That's part of our L&D spend, Jay, so of the 1.2 billion that we forecasted, we're just letting you know that 25 million of that is being directed to build-to-rent. So it would just be land and development spend likelihood in any other community..

And won't be till sometime second quarter, let's call it next year that you'll begin to see some of the vertical construction. So like Dave said, it's really L&D and then you'll start to see us go vertical next year and then be introducing new market as well next year..

Okay, that sounds great, thanks for taking my question..

Thank you..

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Sheryl for closing remarks..

Thank you all for joining us today to share our Q3 results. I appreciate everyone's time and look forward to speaking to you next quarter..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..