PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding whether to invest in our Class A common stock. You should read this entire prospectus carefully, including the “Risk Factors” section and our consolidated financial statements and the notes to those statements included in this prospectus, before making an investment decision.

In this prospectus, unless otherwise indicated or the context otherwise requires, references to the “Company,” “we,” “us” and “our” refer (1) subsequent to the reorganization transactions described under “Organizational Structure” (referred to in this prospectus as the “Reorganization Transactions”), to TMHC and its consolidated subsidiaries, (2) prior to the consummation of this offering and the Reorganization Transactions and following the date of our acquisition by our principal equityholders (referred to in this prospectus as the “Acquisition”) in July 2011, to TMM Holdings Limited Partnership (“TMM” or the “Successor”) and its consolidated subsidiaries, and (3) prior to the Acquisition, to the North American business of Taylor Wimpey plc (the “Predecessor”). References to “Taylor Morrison Holdings” are to Taylor Morrison Holdings, Inc., the indirect parent company of our U.S. business. References to “Monarch Communities” are to Monarch Communities Inc., the indirect parent company of our Canadian business. See “—The Reorganization Transactions” and “Organizational Structure.” References to “TPG Global” are to TPG Global, LLC, and references to “TPG” are to TPG Global and its affiliates. References to “Oaktree” are to investment funds managed by Oaktree Capital Management, L.P. or their respective subsidiaries that are invested in TMM prior to this offering. References to “JH” are to investment funds managed by JH Investments Inc. or its subsidiary that are invested in TMM prior to this offering and will be directly invested in New TMM (as defined elsewhere in this “Prospectus Summary”) or indirectly invested in New TMM through the TPG and Oaktree holding vehicles (as described elsewhere in this “Prospectus Summary”).

Where we present information on a “pro forma” basis, such information gives pro forma effect to this offering, the Acquisition and Financing Transactions (as defined elsewhere in this “Prospectus Summary”) and the Reorganization Transactions in the manner described in this prospectus under “Unaudited Pro Forma Consolidated Financial Information.” References to the information or results of “unconsolidated joint ventures” refer to our proportionate share of unconsolidated homebuilding joint ventures in Canada. Unless otherwise indicated, when we refer to average sales price of our homes the amounts referred to do not include our sales from our unconsolidated joint ventures. Amounts expressed in “$” or “dollars” refer to U.S. dollars.

Our Company

Upon completion of this offering, we will be one of the largest public homebuilders in North America. Headquartered in Scottsdale, Arizona, we build single-family detached and attached homes and develop land, which includes lifestyle and master-planned communities. We are proud of our legacy of more than 75 years in the homebuilding industry, having originally commenced homebuilding operations in 1936. We operate under our Taylor Morrison and Darling Homes brands in the United States and under our Monarch brand in Canada.

Our business is organized into three geographic regions: East, West and Canada, which regions accounted for 46%, 37% and 17%, respectively, of our net sales orders (excluding unconsolidated joint ventures) for the year ended December 31, 2012. Our East region consists of our Houston, Dallas, Austin, North Florida and West Florida divisions. Our West region consists of our Phoenix, Northern California, Southern California and Denver divisions. Our Canada region consists of our operations within the province of Ontario, primarily in the Greater Toronto Area (“GTA”) and also in Ottawa and Kitchener-Waterloo, and offers both single-family and high-rise communities.

 

Throughout our markets, we build and sell a broad mix of homes across diverse price points ranging from $120,000 to more than $1,000,000. Our emphasis is on designing, building and selling homes to first- and second-time move-up buyers. We are well-positioned in our markets with a top-10 market share (based on 2012 home closings as reported by Hanley Wood and 2012 home sales as reported by Real Net Canada) in 15 of our 19 total markets.

As explained in greater detail in this prospectus summary, our management believes our business is distinguished by our:

 

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strong historical financial performance and industry-leading margins;

 

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solid balance sheet with sufficient liquidity with which to execute our growth plan;

 

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significant land inventory, representing approximately eleven years of land supply based on our trailing twelve-month closings, carried at a low cost basis;

 

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top-10 market share in historically high-growth homebuilding markets;

 

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profitable Canadian business;

 

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expertise in delivering “lifestyle” communities targeted at first- and second-time move-up buyers; and

 

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reputation for quality and customer service, based on customer surveys.

During the year ended December 31, 2012, we closed 4,014 homes, consisting of 2,933 homes in the United States and 1,081 homes in Canada, including 232 homes in unconsolidated joint ventures, with an average sales price across North America of $364,000. During the same period, we generated $1.4 billion in revenues, $430.8 million in net income and $228.8 million in Adjusted EBITDA (for a discussion of how we calculate Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see footnote 6 under the caption “—Summary Historical and Pro Forma Consolidated Financial and Other Information”). In the United States, for the year ended December 31, 2012, our sales orders increased approximately 45.8% as compared to 2011, and we averaged 2.9 sales per active selling community per month compared to an average of 1.7 sales per active selling community per month in 2011. As of December 31, 2012, we offered homes in 128 active selling communities and had a backlog of 4,112 homes sold but not closed, including 909 homes in unconsolidated joint ventures, with an associated backlog sales value of approximately $1.4 billion.

Our Industry

United States

The residential housing industry has historically been a significant contributor to economic activity in the United States. From 1970 to 2007, the residential housing sector represented an average of approximately 4.5% of U.S. annual gross domestic product and then declined to an average of 2.5% of U.S. annual GDP from 2008 to 2012. Similarly, total new home starts averaged 1.55 million per year from 1960 to 2007 and then declined to an average of 687,000 per year from 2008 to 2012.

 

Total New Home Starts

(in thousands)

 

We believe that a U.S. housing recovery is underway on a national basis, driven by consumers who are increasingly optimistic about their economic prospects and supported by several recent positive economic and demographic factors observed by our management including:

 

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improving employment growth;

 

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increasing consumer confidence, bolstered by rising home values and improving household finances;

 

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improving sentiment towards residential real estate ownership;

 

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accelerating household formation;

 

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significant declines in new and existing for-sale home inventory; and

 

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record low interest rates supporting affordability and home ownership.

We believe that the improvement in the U.S. housing market is illustrated by a number of key benchmarks and statistics. According to the U.S. Census Bureau, building permits for privately owned homes in January 2013 were estimated at a seasonally adjusted annual rate of 925,000, representing an approximate 35% increase over the January 2012 estimate of 684,000. The increase in new building permits is consistent with an average of 37% and 58% year-over-year growth in new home orders and backlog, respectively, reported by the top 10 public homebuilders (ranking based on 2011 revenues reported by Hanley Wood), based on the most recently reported quarterly data as of the date of this prospectus. In addition, home prices in the United States are generally increasing, with the strongest price increases in the last seven years occurring in the fourth quarter of 2012. According to the National Association of Realtors, U.S. median home prices improved on a year-over-year basis in 133 out of 152 Metropolitan Statistical Areas (“MSA”) in the fourth quarter of 2012. Based on data from the U.S. Census Bureau, new home prices increased approximately 10% year-over-year in the fourth quarter of 2012.

Canada

The Canadian housing market has been more stable than the U.S. housing market over the last five years. The relative consistency of the Canadian housing market, particularly in Ontario where we operate, is principally a result of demand due to growth in employment and immigration. For instance, the Canadian housing market has exhibited stable housing starts, a balanced sales-to-listings ratio and steady long-term growth in housing prices. In addition, Canadian home buying practices reflect a number of stabilizing structural, mortgage lending, legal and general market characteristics that have allowed the Canadian housing market to grow at a sustainable pace and to experience significantly lower mortgage default rates over the past decade, as compared to the United States.

 

Ontario represents approximately one-third of the total Canadian new home market, as measured by total housing starts, and benefits from positive demographic and economic growth trends. For example, the population and GDP of Ontario between 2008 and 2011 increased by approximately 4.4% and 9.5%, respectively. Ontario housing starts increased from 68,123 in 2007 to an estimated level of 77,600 in 2012, representing a compound annual growth rate (“CAGR”) of approximately 2.6%. Similarly, average home prices in Ontario increased from CAD$299,610 in 2007 to an estimated average price of CAD$386,000 in 2012, representing a CAGR of approximately 5.2%. With slowing job growth relative to the recent past, ongoing global economic uncertainty and increasing units under construction, the Canada Mortgage and Housing Corporation (“CMHC”) projected in its First Quarter 2013 Housing Market Outlook for Ontario housing starts to moderate to approximately 60,800 in 2013 before modestly increasing to 62,900 in 2014 and for average home prices in Ontario to remain relatively flat at approximately CAD$382,200 in 2013 and CAD$390,000 in 2014.

Our Competitive Strengths

Our business is characterized by the following competitive strengths:

Strong historical financial performance with industry-leading margins

We have a profitable and scalable operating platform, which we believe positions us well to take advantage of the continued recovery we expect in the U.S. housing industry. We are among a select few of our public homebuilding peers to be profitable in each of 2010, 2011 and 2012. We generated net income of $90.6 million in 2010, $76.8 million in 2011 and $430.8 million in 2012. Our pre-tax income margin for the year ended December 31, 2012 was 11.9%, which was the highest among the top 10 largest publicly traded U.S. homebuilders for fiscal 2012, based on data from the public filings of those homebuilders.

We believe that our management approach, which balances a decentralized local market expertise with a centralized executive management focus on maximizing efficiencies, will support our strong margins and further grow our profitability. Our operating platform is scalable, which we believe allows us to increase volume while at the same time improving profitability and driving shareholder returns.

During the recent housing downturn, we improved our margins by aligning our headcount to reflect local and national industry conditions, standardizing systems and processes across business units and reducing construction and procurement costs through standardized national, regional and local contracts.

Solid balance sheet with sufficient liquidity for growth

We are well-positioned with a solid balance sheet and sufficient liquidity with which to service our debt obligations, support our ongoing operations and take advantage of growth opportunities as the expected recovery in the U.S. housing market continues. At December 31, 2012, on a pro forma basis, we would have had $845.0 million in outstanding indebtedness and a net debt-to-net book capitalization of 28.9% (or total debt-to-total book capitalization of 37.9%). Also at December 31, 2012, on a pro forma basis, we would have had $283.6 million of unrestricted cash and approximately $163.8 million of availability under our senior secured revolving credit facility (the “Revolving Credit Facility”). Less than 26% of our approximately $1.0 billion of currently outstanding debt matures before 2020.

The balance sheet carrying value of our entire inventory base was adjusted to fair market value as of the date of the Acquisition in July 2011. The purchase accounting adjustments resulted in a comprehensive revaluation of our entire land inventory near the bottom of the recent U.S. housing downturn. Giving effect to the Acquisition-related purchase accounting adjustments, the carrying value of our U.S. land inventory at the time of the Acquisition represented 52% of its original cost. We believe this reduced cost basis positions us to generate strong margins in the future.

 

Significant land inventory carried at a low cost basis

We continue to benefit from a sizeable and well-located existing land inventory. As of December 31, 2012, we owned or controlled 43,987 lots, including unconsolidated joint venture lots, which equated to approximately eleven years of land supply based on our trailing twelve-month closings of 4,014 homes. Our land inventory reflects our balanced approach to investments, yielding a distribution of finished lots available for near-term homebuilding operations and strategic land positions to support future growth. Our significant land inventory allows us to be selective in identifying new land acquisition opportunities and positions us against potential land shortages in markets that exhibit land supply constraints. In addition, some of our holdings represent multi-phase, master-planned communities, which provide us with the opportunity to utilize our development expertise to add value through re-entitlements, repositioning and/or opportunistic land sales to third parties.

Since January 1, 2009, we have spent approximately $1.0 billion on new land purchases, acquiring 25,532 lots, of which 21,334 currently remain in our lot supply. We believe a substantial portion of our current land holdings was purchased at attractive prices at or near the low point of the market. We believe our local, well-established relationships with land sellers, brokers and investors and our knowledge of the local markets position us to be quick to market both to identify land and to gain access to such sellers, brokers and investors. We also believe that our long-held reputation as a leading homebuilder and developer of land, combined with our balance sheet strength and our active opportunistic purchasing of land through the downturn, gives land brokers and sellers confidence that they can close transactions with us on a timely basis and with minimal execution risk.

Strong market position and local presence in high-growth homebuilding markets

Our focused geographic footprint positions us to participate in the expected recovery in the U.S. housing market. The U.S. housing market experienced a significant downturn from 2006 to 2011 but has recently shown signs of recovery. We currently operate exclusively in states benefiting from positive momentum in housing demand drivers, including nationally leading population and employment growth trends, migration patterns, housing affordability and desirable lifestyle and weather characteristics. The five states in which we operate accounted for 30% of the total 2010 U.S. population of 309 million and 35% of the 514,200 building permits issued for privately owned homes in 2012.

 

Our land inventory is concentrated in markets that have experienced significant improvement in home prices. We believe that our geographic footprint enables us to capture the benefits of expected increasing home volumes and home prices as the U.S. housing recovery continues and demand for new homes increases. The following table sets forth, for each of our U.S. markets, information relating to growth in median existing home price, projected growth in employment, projected growth in single-family permits, home affordability and our market ranking.

 

U.S. Market		Median existing home price 1-yr growth rate as of  Dec. 31, 2012				Employment growth 2012-2014 estimated CAGR				Single-Family permit growth 2012-2014 estimated CAGR				Affordability ratio (1) as of Dec. 31, 2012				2012 Taylor Morrison market share ranking (2)
Austin			5.3	%			3.8	%			30.1	%			70.2	%			6
Dallas (3)			6.2				3.0				40.3				79.6				16
Denver			6.2				2.4				57.5				66.4				9
Fort Myers (4)			15.7				3.2				70.0				83.2				10
Houston (3)			4.7				2.9				20.3				75.7				7
Jacksonville			0.3				1.9				46.9				84.0				8
Naples (5)			1.6				3.2				59.5				53.3				7
Orange County			2.3				2.1				55.5				47.3				4
Orlando			3.8				2.6				56.9				81.7				8
Phoenix			18.6				2.5				95.3				79.8				4
Sacramento			2.6				2.2				83.5				73.1				4
San Diego			0.9				2.2				70.7				49.0				14
San Francisco			4.8				2.2				54.1				33.6				11
San Jose			8.7				2.1				43.6				38.8				6
Sarasota (5)			9.7				2.5				55.8				73.6				6
Tampa			4.9				1.9				51.3				77.0				4
TM markets average			6.0	%			2.5	%			55.7	%			66.6	%			8
US average			3.1				2.0				52.9				68.8				N/A

 

Source: Hanley Wood.

(1)

The affordability ratio is the percentage of households that can afford the median-priced existing home. The calculation assumes a 20% down payment and a 30-year fixed rate mortgage at the Freddie Mac mortgage rate published just prior to period end and assumes that total monthly payments (including mortgage, property taxes and insurance) cannot exceed 30% of gross household income.

(2)	Market rankings based on number of home closings between January 1, 2012 and December 31, 2012.

(3)	Includes the historical business of Darling Homes for periods prior to its acquisition by us on December 31, 2012. See “—Recent Developments.”

(4)	Based on Hanley Wood data as of November 30, 2012 (most recent publication for this market).

(5)	Based on Hanley Wood data as of October 31, 2012 (most recent publication for this market).

We are well-positioned within our markets. As set forth in the table above, we have a top-ten market share in 13 of our 16 U.S. markets. We believe that maintaining significant market share within our markets enables us to achieve economies of scale, differentiates us from most of our competitors and increases our access to land acquisition opportunities.

Profitable Monarch business in Ontario

We benefit from increased diversification through our presence in the Canadian housing market because of our Monarch business in Ontario. Monarch Corporation delivered its first home in 1936 and since that time has become a recognized brand in Canada. Monarch Corporation has generated stable income and cash flow and has been profitable every year since 1941. Since 2008, the first full year after our U.S. and Canadian operations were combined, our Canada region has generated between 27% and 46% of our annual revenues and has played an

 

important role in delivering growth, profitability and cash flow, which helped us withstand the recent downturn in the U.S. housing industry. As of December 31, 2012, Monarch Corporation had $732.9 million in backlog of homes sold and to be delivered in 2013 through 2016, including $313.3 million of unconsolidated joint venture backlog.

Monarch Corporation has six wholly owned and joint venture high-rise developments in the GTA which are expected to close and recognize revenue in 2013 and 2014 and which have sold in excess of 95% of the aggregate number of the homes offered in those developments. These high-rise developments are expected to recognize in excess of $350 million in total revenues, a portion of which we will recognize as joint venture income on an equity method basis.

Expertise in delivering lifestyle communities targeted at first- and second-time move-up buyers

We focus on developing lifestyle communities, which have many distinguishing attributes, including proximity to job centers, strong school systems and a variety of amenities. Within our communities, we offer award-winning home designs through our single-family detached, single-family attached and high-rise condominium products. During the economic downturn, we maintained our core business strategy of focusing on first- and second-time move-up buyers, whereas we observed many homebuilders refocus their businesses on lower-priced homes. We believe our experience in the move-up market allows us to significantly expand our new home offerings at higher price points. We believe homebuyers at these higher price points are more likely to value and pay for the quality of lifestyle, construction and amenities for which we are known. While we primarily target move-up buyers, our portfolio also includes homes for entry-level, luxury and active adult buyers (55 years of age and over). We have the expertise and track record in designing and delivering lifestyle products and amenities that we believe appeal to active adult buyers.

 

Our captive mortgage company allows us to offer financing to our homebuyers and to more effectively convert backlog into closings

We directly originate, underwrite and fund mortgages for our homebuyers through our wholly owned mortgage lending company, Taylor Morrison Home Funding, LLC (“TMHF”). TMHF maintains relationships with several correspondent lenders through which it utilizes its Principal Authorized Agent designation to mitigate the underwriting risk associated with its funding of mortgage loans. We believe TMHF provides a distinct competitive advantage relative to homebuilders without captive mortgage units, since many of our buyers seek an integrated home buying experience. While we believe many other homebuilders with a captive mortgage company use a single lender, our multi-lender platform provides us with the ability to leverage a broad range of

 

products and underwriting and pricing options for the benefit of our home buyers. Therefore, TMHF allows us to use mortgage finance as an additional sales tool, helps ensure and enhance the customer experience, prequalifies buyers earlier in the home buying process, provides us better visibility in converting our sales order backlog into closings and is a source of incremental revenues and profitability. TMHF outperforms a number of builder-affiliated mortgage companies, as evidenced by our industry-leading capture rate of 84% in 2012 (compared to an average of 73% among the top 13 public U.S. homebuilders, based on the most recent fiscal year data). TMHF also had one of the lowest sales cancellation rates among our publicly traded peers with mortgage units, which was 15% in 2012, compared to an average of 19% among the top 13 public U.S. homebuilders, based on the most recent fiscal year data.

Highly experienced management team

We benefit from an experienced management team that has demonstrated the ability to generate positive financial results and adapt to constantly changing market conditions. In addition to our corporate management team, our division presidents bring substantial industry knowledge and local market expertise, with an average of approximately 18 years of experience in the homebuilding industry. Our success in land acquisition and development is due in large part to the caliber of our local management teams, which are responsible for the planning, design, entitlements and eventual execution of the entire community. Unlike some of our homebuilding peers, our management team chose to retain a core competency in land acquisition and development during the recent downturn, which positions us to more effectively identify and capitalize on land opportunities in the current market.

Our Growth Strategy

We have performed well through the unprecedented challenges of the recent economic downturn. We believe we are well-positioned for growth and increased profitability in an improving housing market through disciplined execution of the following elements of our growth strategy:

Drive revenue by opening new communities from existing land supply

Over the last few years we have strategically invested in new land in our core markets. Our land supply provides us with the opportunity to increase our community count on a net basis by approximately 50% in 2013 and approximately 30% in 2014. We also currently own or have an option to purchase over 95% of the land on which we expect to close homes during 2013 and 2014. A significant portion of our land supply was purchased at low price points during the recent downturn in the housing cycle. Although future downturns may occur, these land purchases, coupled with the adjustment of our land cost basis to fair market value at the time of our Acquisition, are expected to result in continued revenue growth and strong gross margin performance from our U.S. communities.

Combine land acquisition and development expertise with homebuilding operations to maximize profitability

Our ability to identify, acquire and develop land in desirable locations and on favorable terms is critical to our success. We evaluate land opportunities based on how we expect they will contribute to overall corporate profitability and returns, rather than how they might drive volume on a regional or submarket basis. We continue to use our local relationships with land sellers, brokers and investors to seek to obtain the “first look” at quality land opportunities. We expect to continue to allocate capital to pursue creative deal structures and other opportunities with the goal of achieving superior returns by utilizing our development expertise, efficiency and opportunistic mindset.

We continue to combine our land development expertise with our homebuilding operations to increase the flexibility of our business, to enhance our margin performance and to control the timing of delivery of lots. Unlike many of our competitors, we believe we are able to increase the value of our land portfolio through the

 

zoning and engineering process by creating attractive land use plans and optimizing our use of land, which ultimately translates into greater opportunities to generate profits.

Focus our offerings on targeted customer groups

Our goal is to identify the preferences of our target customer and demographic groups and offer them innovative, high-quality homes that are efficient and profitable to build. To achieve this goal, we conduct extensive market research to determine preferences of our customer groups. We have identified seven consumer groups by focusing on particular lifestyle preferences, tastes and other attributes of our customer base. Our group classification includes four categories of couples or singles, such as our “Fancy Nesters” customers, and three categories of families, such as our “Parks and Prestige” customers.

Our approach to consumer group segmentation guides all of our operations from our initial land acquisition through our design, building, marketing and delivery of homes and our ongoing after-sales customer service. Among our peers, we believe we are at the forefront of directed-marketing strategies, as evidenced by our highly-trafficked website which provides innovative tools that are designed to enhance our customers’ home buying experience.

Build aspirational homes for our customers and deliver superior customer service

We develop communities and build homes in which our target customers aspire to live. In order to deliver aspirational homes, we purchase well-located land and focus on developing attractive neighborhoods and communities with desirable lifestyle amenities. Our efforts culminate in the design and construction of thoughtfully detailed finished homes utilizing the highest construction standards.

We are committed to after-sales service that we believe can improve our brand recognition and encourage our customers to make referrals resulting in lower customer acquisition costs and increased home sales rates. Both the Taylor Morrison and Monarch brands have received numerous accolades and awards for quality, service and design by homebuilding industry trade groups and publications, such as the 2009 award for “Best Customer Experience” by a large homebuilder in the United States by AVID Awards and Builder magazine’s “Builder’s Choice” Hall of Fame award in 2009.

Selectively pursue acquisitions

Our company was formed through the combination of Taylor Woodrow and Morrison Homes in the United States, forming Taylor Morrison, and Monarch Corporation in Canada. We have successfully acquired and integrated homebuilding businesses in the past and intend to utilize our experience in integrating businesses as opportunities for acquisitions arise.

We selectively evaluate expansion opportunities in our existing markets as well as in new markets that exhibit positive long-term fundamentals. For instance, in December 2012 we acquired the assets of Darling Interests, Inc., a Texas-based home builder. Darling builds homes under the Darling Homes brand for move-up buyers in approximately 24 communities in the Dallas-Fort Worth Metroplex and 20 communities in the Greater Houston Area markets. We believe that our success in integrating operations across both a wide range of geographic markets and product types demonstrates the scalable nature of our business model and provides us with the structure to support disciplined growth in existing and new markets.

Adhere to our core operating principles to drive consistent long-term performance

We recognize that the housing market is cyclical and home price movement between the peak and trough of cycles can be significant. We seek to maximize shareholder value over the long-term and therefore operate our business to mitigate risks from downturns in the market and to position ourselves to capitalize on upturns in the

 

market: we seek to control costs, maintain a solid balance sheet and ensure an overall strategic focus that is informed by national, regional and local market trends. This management approach also includes the following elements:

 

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attracting and retaining top talent through a culture in which team members are encouraged to contribute to our success and are given the opportunity to recognize their full potential;

 

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balancing decentralized local day-to-day decision-making responsibility with centralized corporate oversight;

 

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ensuring all team members understand the organization’s strategy and the goals of the business and have the tools to contribute to our success;

 

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centralizing management approval of all land acquisitions and dispositions under stringent underwriting requirements; and

 

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maintaining a performance-based corporate culture committed to the highest standards of integrity, ethics and professionalism.

Risks Associated with our Business and Growth Strategy

While we have set forth our competitive strengths and our strategy above, the homebuilding industry is a competitive industry, and we face certain challenges. The homebuilding industry has historically been subject to significant volatility. We may be at a competitive disadvantage with regard to certain of our national competitors whose operations are more geographically diversified than ours, as these competitors may be better able to withstand any future regional downturn in the housing market. In addition, a number of our national competitors are larger than we are and may have greater financial and operational resources than we do. These factors may give our competitors an advantage in marketing their products, securing materials and labor at lower prices and allowing their homes to be delivered to customers more quickly and at more favorable prices. This competition could reduce our market share and limit our ability to expand our business as we have planned.

Below is a summary of certain key risk factors and a description of certain challenges we face in our business that you should consider in evaluating an investment in shares of our Class A common stock:

 

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the U.S. housing market may not recover to the extent or on the timetable we expect;

 

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downturns or cyclical economic conditions affecting the housing industry in the particular geographic markets in which we operate;

 

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competition in our industry, which is significant;

 

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failure to manage land acquisition strategies;

 

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access to, and the cost of, qualified labor and raw materials may be affected by factors beyond our control;

 

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our inability to continue to source land at attractive prices;

 

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increases in homebuyers’ financing costs;

 

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increases in the cancellation rates of existing agreements of sale with our homebuyers;

 

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increases in home warranty and construction defect claims made in the ordinary course of our business;

 

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cost overruns in the land acquisition, development and construction processes;

 

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increases in government regulation, impact fees and development charges; and

 

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our ability to continue to comply with the covenants in our debt agreements and service our indebtedness.

The above list is not exhaustive, and the additional risks and challenges we face are described under the caption “Risk Factors” beginning on page 25 of this prospectus. These risks and challenges or other unforeseen events could impair our ability to operate our business or inhibit our strategic plans.

 

The Reorganization Transactions

Prior to this offering and the Reorganization Transactions, our business and operations were conducted by subsidiaries of TMM. In the Reorganization Transactions, the existing holders of limited partnership interests in TMM, including the Principal Equityholders (as described below) and certain members of our management and our board, will, through a series of transactions, contribute their limited partnership interests in TMM to a new limited partnership, TMM Holdings II Limited Partnership, formed under the laws of the Cayman Islands (“New TMM”), such that TMM and the general partner of TMM will become wholly-owned subsidiaries of New TMM. TMHC will, through a series of transactions, become the sole owner of the general partner of New TMM, and TMHC will use the net cash proceeds received in this offering to purchase common partnership units in New TMM (“New TMM Units”).

Immediately prior to the Reorganization Transactions, partnership interests in TMM were divided into three categories of units: Class A Units, Class J Units and Class M Units. The Principal Equityholders and certain members of our management and our board held all of the Class A Units. JH, one of the Principal Equityholders, held all of the Class J Units. Certain members of our management and our board held all of the Class M Units. Holders of the Class J Units and Class M Units were not entitled to receive distributions unless specified return thresholds were met and all capital contributed to TMM by holders of Class A Units has been returned. Class M Units were issued as long-term incentive compensation for members of our management and our board and were subject to time-vesting or performance-vesting.

In the Reorganization Transactions:

 

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TPG and Oaktree will each form a holding vehicle;

 

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Our Principal Equityholders and members of our management and our board will directly or indirectly exchange all of their respective Class A Units, Class J Units and performance-vesting Class M Units in TMM on a one-for-one basis for new equity interests of the TPG and Oaktree holding vehicles with terms that are substantially the same as the Class A Units (other than certain Class A Units exchanged by JH as described below), Class J Units (other than with respect to certain vesting conditions) and performance-vesting Class M Units in TMM surrendered for exchange;

 

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JH will exchange a portion of its Class A Units in TMM for New TMM Units to be held by JH;

 

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Members of our management and our board will exchange all of their time-vesting Class M Units in TMM for New TMM Units with vesting terms that are substantially the same as those of the Class M Units surrendered for exchange;

 

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The vesting terms of the equity interests in the TPG and Oaktree holding vehicles and New TMM Units received by members of our management and our board will be identical to the current vesting terms of the Class M Units of TMM prior to their exchange. No equity interests in the TPG and Oaktree holding vehicles or New TMM Units held by members of our management and our board will vest as a result of the completion of this offering;

 

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New TMM will directly or indirectly acquire all of the Class A Units, Class J Units and Class M Units outstanding prior to the Reorganization Transactions; and

 

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The TPG and Oaktree holding vehicles will directly or indirectly acquire New TMM Units.

Immediately following the consummation of the Reorganization Transactions, the limited partners of New TMM will consist of TMHC, the TPG and Oaktree holding vehicles, JH and certain members of our management and our board. The number of New TMM Units issued to each of the TPG and Oaktree holding

 

vehicles, JH and members of our management and our board as described above will be determined using the same methodology and based on a hypothetical cash distribution by TMM of our pre-IPO value to the holders of Class A Units, Class J Units and Class M Units of TMM and the price per share paid by the underwriters for shares of our Class A common stock in this offering.

For example, based on an assumed public offering price of $21.00 per share (the midpoint of the estimated price range set forth in the cover page of this prospectus), our pre-IPO valuation would be $2,226.4 million (calculated using an assumed price paid per share by the underwriters in this offering of $19.74). Based on these facts, a member of management who would be entitled to receive $200,000 in respect of such manager’s time-vesting Class M Units in a hypothetical distribution of the assumed pre-IPO value of TMM would receive 10,132 New TMM Units in the Reorganization Transactions (determined by dividing $200,000 by the assumed price paid per share by the underwriters in this offering).

The TPG and Oaktree holding vehicles, JH and members of our management and our board will also be issued a number of shares of TMHC’s Class B common stock equal to the number of New TMM Units that each will receive.

Following the Reorganization Transactions, this offering and the application of the net proceeds therefrom, TMHC will hold 19.5% of the New TMM Units, the TPG and Oaktree holding vehicles will each hold an aggregate of 39.3% of the New TMM Units, JH will hold 0.5% of the New TMM Units and members of our management and our board will directly hold an aggregate of 1.4% of the New TMM Units (in each case based on the midpoint of the estimated public offering price range set forth on the cover page of this prospectus).

TMHC will control the sole general partner of New TMM, which will control TMM. TMHC will directly or indirectly control the business and affairs of New TMM, TMM and its subsidiaries. TMHC will consolidate the financial results of New TMM, TMM and its subsidiaries, and TMHC’s net income (loss) will be reduced by a noncontrolling interest expense to reflect the entitlement of the holders of New TMM Units (other than TMHC) to a portion of New TMM’s net income (loss). See “Organizational Structure” for further details.

In connection with the Reorganization Transactions, TMHC will amend and restate its certificate of incorporation to authorize the issuance of two classes of common stock, Class A common stock and Class B common stock. Shares of Class A common stock and Class B common stock, which we collectively refer to as “common stock,” will generally vote together as a single class on all matters submitted to stockholders. The Class B common stock will not entitle its holders to any of the economic rights (including rights to dividends and distributions upon liquidation) that will be provided to holders of Class A common stock. The total voting power of the outstanding Class A common stock will be proportional to the percentage of New TMM Units held by TMHC, and the total voting power of the outstanding Class B common stock will be equal to the remaining percentage of New TMM Units not held by TMHC. New TMM Units held by the TPG and Oaktree holding vehicles, JH and certain members of our management and our board described above together with a corresponding number of Class B shares of common stock of TMHC may be exchanged for shares of Class A common stock of TMHC on a one-for-one basis, subject to certain adjustments and according to the terms of the Exchange Agreement to which TMHC, New TMM, the TPG and Oaktree holding vehicles, JH and certain members of our management and our board will be a party upon completion of this offering.

 

Post-Reorganization Structure

The following chart summarizes our legal entity structure following the Reorganization Transactions, this offering and the application of the net proceeds from this offering (assuming an initial public offering price of $21.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). This chart is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us:

See “Organizational Structure,” “Certain Relationships and Related Party Transactions” and “Description of Capital Stock” for more information on the Exchange Agreement and the rights associated with our common stock and the New TMM Units.