LGI Homes, Inc.

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization and Description of the Business

LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is headquartered in The Woodlands, Texas. The primary aspects of our business are the development of communities and the design, construction and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania, Maryland and Utah.

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.

The accompanying unaudited financial statements as of September 30, 2026, and for the three and nine months ended September 30, 2026 and 2025, include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.

Recently Issued Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the financial statements. The amendments in this update are to be applied on a prospective basis, with the option for retrospective application. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact that this standard will have on our disclosures.

In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements”, which lists the disclosures required under ASC 270 and establishes a disclosure principle. The disclosure principle requires entities issuing condensed statements to disclose events occurring since the end of the most recent fiscal year that have a material impact on the entity. The amendments in this update are to be applied on a prospective basis, with the option for retrospective application. The guidance is effective for annual reporting periods beginning after December 15, 2027. We are currently evaluating the impact that this standard will have on our disclosures.

2. REAL ESTATE INVENTORY

Our real estate inventory consists of the following (in thousands):

Our real estate not owned relates to land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources. As of June 30, 2026, we completed the repurchase of all lots via takedowns associated with these transactions.

We build and lease a number of single-family homes in select, existing communities. During the nine months ended September 30, 2026 and 2025, we transferred $113.8 million and $58.3 million, respectively, of home assets from real estate inventory to assets held for lease within property and equipment, net.

During the nine months ended September 30, 2026, we reclassified land held for sale of $35.0 million as of December 31, 2025, from other assets to real estate inventory on the condensed consolidated balance sheet and $29.2 million for the nine months ended September 30, 2025 from other assets to real estate inventory on the condensed consolidated statements of cash flow. We made this reclassification to align the presentation of these assets with the classification of the related sales, which are now recorded within revenue rather than other income (see Note 11). This reclassification had no impact on our previously reported total assets or total operating cash flows.

3. ACCRUED EXPENSES AND OTHER LIABILITIES

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

Land Banking Financing Arrangements

We had land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns. Principal payments on these financing arrangements will generally coincide with the repurchase of lot takedowns from the land banker. As of June 30, 2026, we completed the repurchase of all lots via takedowns associated with these transactions.

Inventory Related Obligations

We own lots in certain communities in Florida and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation for infrastructure development is attached to the land and is ultimately assumed by the homebuyer when home sales are closed. The obligations assumed by the homebuyer represent a non-cash cost of the lots.

Warranty Reserves

We generally provide homebuyers with aone-year warranty on the house and a limited warranty for major defects in structural elements, such as framing components and foundation systems, typically ranging fromsix toten years depending on the applicable state.

Changes to our warranty accrual are as follows (in thousands):

4. NOTES PAYABLE

Revolving Credit Agreement

We are a party to the Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (as amended, restated, supplemented or otherwise modified through August 1, 2025, the “2025 Credit Agreement”). The 2025 Credit Agreement provides for a $1.1825 billion revolving credit facility, which can be increased at the request of the Company by up to $95.0 million, subject to the terms and conditions of the 2025 Credit Agreement. The 2025 Credit Agreement matures on April 28, 2029 with respect to $972.5 million, or 82.2%, of the $1.1825 billion of commitments thereunder and on April 28, 2028 with respect to 17.8% of the commitments thereunder.

Before each anniversary of the 2025 Credit Agreement, we may request a one-year extension of its maturity date. The 2025 Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million, other than subsidiaries whose sole purpose is to own and operate single-family rental homes.

The borrowings and letters of credit outstanding under the 2025 Credit Agreement, together with the outstanding principal balance of our 8.750% Senior Notes due 2028 (the “2028 Senior Notes”), our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”) and our 7.000% Senior Notes due 2032 (the “2032 Senior Notes”), may not exceed the borrowing base under the 2025 Credit Agreement. The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the 2025 Credit Agreement. As of September 30, 2026, the borrowing base under the 2025 Credit Agreement was $1.9 billion, of which the maximum available to borrow was $1.9 billion. As of September 30, 2026, borrowings under the 2025 Credit Agreement and the outstanding principal amount of the 2028 Senior Notes, the 2029 Senior Notes and the 2032 Senior Notes totaled approximately $1.5 billion, $23.7 million of letters of credit were outstanding and $378.3 million was available to borrow under the 2025 Credit Agreement.

Borrowings under the 2025 Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) the Adjusted Term SOFR (defined as a term SOFR that is based on a fixed 1, 3 or 6 month interest period, as selected by the Company, plus a 10,15 or 25 basis point adjustment, respectively), which rate is subject to a 50 basis point floor, plus an applicable margin ranging from 145 basis points to 210 basis points (the “Applicable Margin”) based on the Company’s leverage ratio as determined in accordance with a pricing grid, or (2) the Base Rate (defined as a term SOFR that is based on a daily variable 1 month interest period plus a 10 basis point adjustment), subject to a 50 basis point floor, plus the Applicable Margin. At September 30, 2026, the Applicable Margin was 1.75% (1.85% including the 0.10% credit spread adjustment), and SOFR was 3.90%, subject to the 0.50% SOFR floor as included in the 2025 Credit Agreement.

The 2025 Credit Agreement contains various financial covenants, including a minimum tangible net worth, a maximum leverage ratio, a minimum liquidity amount and a minimum EBITDA to interest expense ratio. The 2025 Credit Agreement contains various covenants that, among other restrictions, (i) limit the amount of our additional debt and our ability to make certain investments and (ii) restrict the repurchase of shares and payment of dividends through December 31, 2026. At September 30, 2026, we were in compliance with all of the covenants contained in the 2025 Credit Agreement.

On October 9, 2026, we entered into a Seventh Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions and Wells Fargo Bank, National Association, as administrative agent (the “Seventh Amendment”), which amended the 2025 Credit Agreement (as so amended by the Seventh Amendment, the “Credit Agreement”). The Seventh Amendment, among other things, (a) extended the maturity of the commitments of certain lenders under the Credit Agreement to October 9, 2030, (b) provided for aggregate revolving commitments in an amount of approximately $1.166 billion with a $175.0 million incremental facility, and (c) modified borrowing base values and certain financial and other covenants. The Credit Agreement matures on October 9, 2030 with respect to $855.0 million, or 73.3%, of the approximately $1.166 billion of commitments thereunder, on April 28, 2029 with respect to 18.4% of the commitments thereunder and on April 28, 2028 with respect to 8.3% of the commitments thereunder. The Credit Agreement otherwise has substantially similar terms and provisions to the 2025 Credit Agreement.

On July 23, 2025, the Company’s wholly owned special purpose subsidiary LGI Living - SFR 1, LLC (“LGI Living SFR”) entered into a Loan Agreement (the “LGI Living Loan Agreement”) with Evergreen Residential Capital, LLC, as lender. The LGI Living Loan Agreement provides for a secured non-recourse loan for up to $50.0 million, which can be increased at the request of LGI Living SFR by up to $75.0 million (for a total of $125.0 million), subject to the terms and conditions of the LGI Living Loan Agreement.

As of September 30, 2026, the total amount of borrowings outstanding under the LGI Living Loan Agreement was $50.0 million. The loan matures on July 8, 2030 and bears interest at a rate of 6.433% per annum, which may be adjusted in connection with an increase in the amount of the loan. The loan is unconditionally guaranteed as to payment and performance by the Company under a limited recourse guaranty with respect to (i) certain losses and liabilities to the extent such losses or liabilities are actually incurred by the lender and (ii) the entire amount of the loan upon the occurrence of certain events. The LGI Living Loan Agreement requires that the Company, as guarantor, maintain (i) liquidity of not less than 15% of the loan amount and (ii) net worth in excess of 50% of the loan amount.

The loan is unconditionally guaranteed as to payment and performance by LGI Living - ER FIN, LLC, as the direct owner of the equity interests in LGI Living SFR, but recourse under such guaranty is limited to LGI Living - ER FIN, LLC’s equity interests in LGI Living SFR, which are pledged as collateral for the loan. The loan is also secured by a security interest in all assets of LGI Living SFR, including a mortgage lien on certain of LGI Living SFR’s real property. The LGI Living Loan Agreement includes certain restrictive covenants that may limit LGI Living SFR’s ability to, among other things, incur additional indebtedness or make certain investments. The LGI Living Loan Agreement contains representations and warranties, affirmative covenants, and events of default, all of which the Company believes are customary for special purpose subsidiary real estate secured loan agreements. If an event of default exists under the LGI Living Loan Agreement, the lender will be able to accelerate the maturity of the loan and exercise other rights and remedies. At September 30, 2026, we were in compliance with all of the covenants contained in the LGI Living Loan Agreement.

Senior Notes Offering

On November 15, 2024, we issued $400.0 million aggregate principal amount of the 2032 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act. Interest on the 2032 Senior Notes accrues at a rate of 7.000% per annum, payable semi-annually in arrears on May 15 and November 15 of each year. The 2032 Senior Notes mature on November 15, 2032. The terms of the 2032 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Fifth Supplemental Indenture thereto, dated as of November 15, 2024, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Regions Bank, as trustee.

On November 21, 2023, we issued $400.0 million aggregate principal amount of the 2028 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S. Interest on the 2028 Senior Notes accrues at a rate of 8.750% per annum, payable semi-annually in arrears on June 15 and December 15 of each year. The 2028 Senior Notes mature on December 15, 2028. The terms of the 2028 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Fourth Supplemental Indenture thereto, dated as of November 21, 2023, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Regions Bank, as trustee.

On June 28, 2021, we issued $300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S. Interest on the 2029 Senior Notes accrues at a rate of

4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each year. The 2029 Senior Notes mature on July 15, 2029. The terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

Notes payable consist of the following (in thousands):

Interest Incurred

Interest activity, including other financing costs, for notes payable and financing arrangements for the periods presented is as follows (in thousands):

Included in interest incurred was amortization of deferred financing costs and applicable discounts for notes payable and financing arrangements of $1.4 million and $2.4 million for the three months ended September 30, 2026 and 2025, respectively, and $5.6 million and $7.8 million for the nine months ended September 30, 2026 and 2025, respectively.

5. INCOME TAXES

We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction. In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes. We do not expect the outcome of any audit to have a material effect on our condensed consolidated financial statements; however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.

For the three months ended September 30, 2026, our effective tax rate of 26.3% is higher than the Federal statutory rate primarily as a result of state income taxes, net of the federal benefit, the compensation cost in excess of deductions for share-based payments, the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and other nondeductible expenses.

For the nine months ended September 30, 2026, our effective tax rate of 27.6% is higher than the Federal statutory rate primarily as a result of state income taxes, net of the federal benefit, the compensation cost in excess of deductions for share-based payments, the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and other nondeductible expenses.

Income taxes paid were $7.2 million and $2.4 million for the three months ended September 30, 2026 and 2025, respectively. Income taxes paid were $23.2 million and $62.3 million for the nine months ended September 30, 2026 and 2025, respectively.

6. EQUITY

Stock Repurchase Program

In February 2022, our Board of Directors (the “Board”) approved a $200.0 million increase to our previously authorized stock repurchase program, pursuant to which we may purchase up to $550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. During the three and nine months ended September 30, 2026, we didnot repurchase any shares of our common stock. During the three months ended September 30, 2025, we did not repurchase any shares of our common stock. During the nine months ended September 30, 2025, we repurchased 409,253 shares of our common stock at a total cost, including commissions and excise taxes, of $23.6 million, to be held as treasury stock. A total of 3,656,592 shares of our common stock has been repurchased since our stock repurchase program commenced in 2018. As of September 30, 2026, we may purchase up to $157.3 million of shares of our common stock under our stock repurchase program.

7. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2026 and 2025:

8. STOCK-BASED COMPENSATION

Non-Performance-Based Restricted Stock Units

The following table summarizes the activity of our time-vested restricted stock units (“RSUs”) for the nine months ended September 30, 2026:

We recognized $1.5 million and $1.8 million of stock-based compensation expense related to outstanding RSUs for the three months ended September 30, 2026 and 2025, respectively. We recognized $4.6 million and $5.3 million of stock-based compensation expense related to outstanding RSUs for the nine months ended September 30, 2026 and 2025, respectively.

Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At September 30, 2026, we had unrecognized compensation cost of $8.5 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.8 years.

Performance-Based Restricted Stock Units

The Compensation Committee of the Board has granted awards of performance-based RSUs (“PSUs”) under the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan to certain members of senior management based onthree-year performance cycles. The PSUs provide for shares of our common stock to be issued based on the attainment of certain performance metrics over the applicable three-year periods. The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metrics. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance; this market condition applies for amounts recorded above target. The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of thethree-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.

The following table summarizes the activity of our PSUs for the nine months ended September 30, 2026:

At September 30, 2026, management estimates that the recipients will receive approximately 51.6% of the weighted average target number of PSUs outstanding at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics. We recognized $0.7 million and $(0.4) million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2026 and 2025, respectively. We recognized $1.9 million and $1.2 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 30, 2026 and 2025, respectively. At September 30, 2026, we had unrecognized compensation cost of $6.9 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.5 years. PSUs granted in 2025 and 2026 are excluded from the calculation of diluted EPS as they are subject to unsatisfied performance conditions.

9. FAIR VALUE DISCLOSURES

Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements”, defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Fair value is determined based on the principal market for the asset or liability, or, in the absence of a principal market, the most advantageous market. The principal market is the market with the greatest volume and level of activity for the assets or liability, regardless of whether the Company ultimately transacts in that market. As a result, a fair value determined under this exit price concept may differ from the transaction price or quoted market price for the asset or liability.

ASC 820 establishes a framework for measuring fair value under GAAP, expands disclosure requirements for fair value measurements, and establishes a three-level fair value hierarchy that prioritizes the inputs used in valuation techniques. The hierarchy requires the use of observable inputs when available and the minimization of unobservable inputs. The three levels of the fair value hierarchy are as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 - Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

Fair value measurements on a non-recurring basis occur when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, including impairment of long-lived assets and inventory. These non-recurring fair value measurements are generally classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs.

During the nine months ended September 30, 2026, the Company recognized $4.7 million of impairment charges related to inventory, which were recorded in inventory on the condensed consolidated balance sheets and cost of sales in the condensed consolidated statement of operations. Of the total impairment charge, $2.4 million was related to our Florida reportable segment and $2.3 million was related to our Central reportable segment. The impairment charges were measured at fair value and classified within Level 3 of the fair value hierarchy.

The fair value of the impaired assets was determined using valuation techniques that included discounted cash flow models and other market-based approaches. Significant unobservable inputs used in these valuations included estimated future selling prices, projected costs, absorption rates, expected holding periods and discount rates reflecting market participant assumptions. Changes in these assumptions could have a material impact on the estimated fair value and the amount of impairment recognized.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and certain accrued liabilities, approximate fair value due to the short-term nature of these instruments.

As of September 30, 2026, the carrying value of amounts outstanding under the 2025 Credit Agreement approximated fair value due to the variable interest rate, which adjusts based on market interest rates and the Company’s leverage ratio.

The fair value of the 2028 Senior Notes, the 2029 Senior Notes, the 2032 Senior Notes and the LGI Living Loan Agreement was estimated by discounting future contractual cash flows using market rates for similar instruments within the homebuilding industry. The fair value measurements are classified as Level 2 within the fair value hierarchy.

The table below presents the Company’s debt measured at fair value by level within the fair value hierarchy as of September 30, 2026 and December 31, 2025 (in thousands):

(1)See Note 4 for more details regarding the offerings of the 2028 Senior Notes, the 2029 Senior Notes, and the 2032 Senior Notes and the LGI Living Loan Agreement.

10. COMMITMENTS AND CONTINGENCIES

Contingencies

In the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development and sale of real estate and homes and other aspects of our homebuilding operations. Management believes that these claims include usual obligations incurred by real estate developers and residential homebuilders in the normal course of business. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, we may have recourse against other previous owners. In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

On July 23, 2025, the Company’s wholly owned special purpose subsidiary LGI Living SFR entered into the LGI Living Loan Agreement with Evergreen Residential Capital, LLC, as lender. The Company has provided a limited recourse guaranty of the loan, subject to specified conditions, and is required to maintain certain minimum liquidity and net worth levels. See Note 4 for additional information regarding the LGI Living Loan Agreement.

Land Deposits

We have land purchase contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property, and obligations with respect to the land purchase contracts are generally limited to the forfeiture of the related nonrefundable cash deposits. The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):

(1)Includes land banking financing arrangements that are now concluded. See Note 2 and Note 3 for more details regarding real estate not owned.

As of September 30, 2026 and December 31, 2025, approximately $11.0 million and $8.2 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

Lease Obligations

We recognize lease obligations and associated right-of-use (“ROU”) assets for our existing non-cancelable leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have non-cancelable operating leases primarily associated with our corporate and regional office facilities. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets, as included in other assets on the condensed consolidated balance sheets, were $4.1 million and $4.7 million as of September 30, 2026 and December 31, 2025, respectively. Lease obligations, as included in accrued expenses and other liabilities on the condensed consolidated balance sheets, were $4.5 million and $5.1 million as of September 30, 2026 and December 31, 2025, respectively.

Operating lease cost, as included in general and administrative expense in our condensed consolidated statements of operations, was $0.5 million and $0.5 million for the three months ended September 30, 2026 and 2025, respectively. Operating lease cost, as included in general and administrative expense in our condensed consolidated statements of operations, was $1.5 million and $1.5 million for the nine months ended September 30, 2026 and 2025, respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases was $2.0 million and $0.7 million for the nine months ended September 30, 2026 and 2025, respectively. As of September 30, 2026, the weighted-average discount rate was 6.0% and our weighted-average remaining life was 3.0 years. We do not have any significant lease contracts that have not yet commenced at September 30, 2026.

The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2026 (in thousands):

Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling $416.8 million (including $23.7 million of letters of credit issued under the 2025 Credit Agreement) and $392.2 million (including $19.5 million of letters of credit issued under the 2025 Credit Agreement) at September 30, 2026 and December 31, 2025, respectively, related to our obligations for site improvements at various projects. Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.

Investment in Unconsolidated Entities

As of September 30, 2026, we havetwo equity-method real estate joint ventures andfive equity-method joint ventures engaged primarily to provide services, such as mortgage and insurance, to our homebuyers. As of September 30, 2026 and December 31, 2025, we have a total of $25.4 million and $21.2 million, respectively, within other assets on the balance sheet relating to our investment in joint ventures associated with our operations. Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage services, respectively. Income associated with our investment in unconsolidated entities during the three months ended September 30, 2026 and 2025 was $3.6 million and $(0.03) million, respectively. Income associated with our investment in unconsolidated entities during the nine months ended September 30, 2026 and 2025 was $6.4 million and $1.9 million, respectively.