托爾兄弟 (TOL) 0 Q0 法說會逐字稿

Good afternoon.

My name is Amy, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Toll Brothers' third-quarter earnings conference call.

(Operator Instructions)

Mr. Doug Yearley, please go ahead, sir.

Thank you, Amy.

Welcome, and thank you for joining us.

I'm Doug Yearley, CEO.

With me today are Bob Toll, Executive Chairman; Rick Hartman, President and COO; Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance and Investor Relations; Joe Sicree, Chief Accounting Officer; Mike Schneider, Chief Planning Officer; Don Salmon, President of TBI Mortgage Company; and Greg Ziegler, Senior VP Treasurer.

Before I begin, I ask you to read the statement on forward-looking information in today's release and on our website.

I caution you that many statements on this call are forward-looking statements based on assumptions about the economy, world events, housing and financial markets, and many other factors beyond our control that could significantly affect future results.

Those listening on the web can e-mail questions to rtoll@tollbrothersinc.com.

We completed 2014's third quarter on July 31, 2014.

Third quarter net income rose 110% to $97.7 million, or $0.53 per share diluted, and pretax income rose 122% to $151.3 million compared to FY13's third quarter.

Revenues of $1.06 billion and homebuilding deliveries of 1,444 units rose 53% in dollars and 36% in units compared to FY13's third quarter totals.

The average price of homes delivered was $732,000 compared to $651,000 in 2013's third quarter.

Net signed contracts of $949.1 million and 1,324 units decreased 4% in dollars and 6% in units compared to FY13's third quarter.

The average price of net signed contracts was $717,000 compared to $707,000 in 2013's third quarter.

On a per-community basis, FY14's third quarter net signed contracts were 5.25 units compared to 6.24 units in 2013's third quarter.

Although this was a year-over-year decline, it was the second highest per-community third quarter total since 2006.

Backlog of $3.1 billion and 4,204 units rose 9% in dollars and 5% in units compared to FY13's third quarter end backlog.

At third quarter end, the average price of homes in backlog was $737,000 compared to $709,000 at 2013's third quarter end.

We ended the quarter with 256 selling communities compared to 225 one year ago.

Eight of these selling communities were acquired as part of our purchase of Shapell Homes in February 2014.

That number growing to 13 by fiscal year end, with another 29 openings in the future.

Our stockholders equity at FY14's third quarter end was $3.8 billion compared to $3.33 billion at fiscal year end of 2013.

Revenues and earnings this quarter were up significantly compared to one year ago, although net signed contracts were down in dollars by 4%, or $43.5 million, and in units by 6%, or 81 units, unconsolidated homebuilding joint ventures, of which we are 50% partners, signed 34 contracts totaling $75.5 million compared to 22 contracts totaling $17.7 million in FY3's third quarter.

We are encouraged by our traffic, which was up 13% on a per-community basis for the quarter compared to FY13.

This pattern has continued into August, with traffic up 19% per community versus last August.

Meanwhile, non-binding deposits were up 18% gross and 4% per community in August, while contracts were down 7% gross and 19% per community.

Generally, deposits take two to six weeks to convert to agreements.

We have not felt the need to increase incentives to spur home sales.

Because we generally do not build spec homes, we aren't under pressure to move standing inventory.

We are driven by bottom-line growth, and are pleased with our continued margin expansion through what we still believe is a recovering, albeit bumpy housing cycle.

We have been particularly pleased with our performance in a number of markets we have targeted for growth, especially coastal California, Texas, and the urban New York City area.

In the coming months we will be opening a number of new City Living condo communities for sale in Manhattan and in metro Washington DC.

These include 400 Park Avenue South on 28th and Park Avenue, The Sutton, a JV at 53rd Street and First Avenue, as well as Hampden Row in Bethesda, Maryland.

With pent-up demand still yet to be unleashed, we are growing community count in attractive locations.

Several recent studies, including one last month in Builder Magazine, have rated our land portfolio highest among the major builders in terms of quality of school districts in which they are located.

We believe this is a key factor for many of our buyers in selecting a home.

We remain committed to finding the best land in the best locations for the best communities for our clients.

We believe this leaves us well positioned as the market returns to more typical levels of demand and new home production.

Our apartment living division is ramping up.

In addition to two completed joint venture communities comprised of 1,450 units, we currently have five joint ventures with more than 1,900 units under construction plus another 2,550 units in the approval pipeline.

These communities are primarily in upscale urban and suburban markets where we also have a strong for-sale presence.

We are looking to expand our City Living brand, which we believe will broaden our reach in the luxury market, create value, and provide another source of cash flow.

Now let me turn it over to Marty.

Thanks, Doug.

Third quarter gross margins before interest and write-downs as a percentage of homebuilding revenues improved year over year by 160 basis points to 26.8%.

Price increases achieved over the last year in excess of cost increases drove the bulk of this improvement.

Gross margin improved 320 basis points over the previous quarter due to better mix, again pricing in excess of costs, and also approximately 50 basis points benefit from an accrual reversal in the third quarter.

We did recognize approximately $6 million of impairments in the quarter, with $1.2 million of that associated with land controlled for future opportunities, and the remainder associated with one operating community that has continued to perform below expectations.

Third Quarter SG&A improved to 10.4% of revenues compared to 11.5%, measured excluding the Shapell transaction costs in the second quarter, and 12.9% a year ago.

This reduction was primarily a result of higher revenues in the quarter compared to the previous quarter and the previous year.

On an absolute dollar basis, our SG&A has increased as expected with the continuing growth of the Company.

Our operating margin improved to 12.3%, or nearly $139 million -- I'm sorry, $129.6 million, compared to 8%, or $55.2 million a year ago.

Third quarter other income and income from joint ventures was $21.7 million and included gains on land sales of $9.9 million and Gibraltar income of $4.8 million (sic - see press release "$5.1 million").

We have now generated nearly $87 million in other and JV income year to date.

With an increase in homebuilding, land development, and apartment joint ventures this area of our financial results is expected to continue to be significant in the coming years.

In the third quarter we recognized a tax expense of $53.6 million and an effective rate of 35.4% of pretax income.

As noted in our release, in connection with our plan to reduce leverage and land concentration resulting from the Shapell acquisition, we have generated approximately $230 million in cash through land sales, financings, release of restricted cash, and other strategies.

We expect an additional $50 million to be generated in the next few weeks based on signed deals.

Our net debt-to-cap ratio has dropped to 43.3% from approximately 47% at the closing of Shapell.

The average number of shares used to calculate earnings per share was approximately 186.5 million.

Subject to our normal caveats regarding the forward-looking statement in today's release and our SEC filings, we offer the following limited guidance.

We expect that deliveries in the fourth quarter will be between 1,710 and 1,910 homes, bringing total deliveries in 2014 to between 5,300 and 5,500 homes.

We estimate the average delivered price per home for the full year will be between $710,000 and $725,000.

We expect our gross margin for full FY14 to improve by 185 to 200 basis points over full FY13.

Those numbers are excluding impairments.

We will give guidance for 2015 at our fourth quarter call.

At this point, I'll turn it over to Bob.

Thanks, Marty.

The national housing data has been somewhat volatile in recent months.

Without real urgency pushing buyers to make a decision, general industry demand continues to be impacted by uncertainty about the economy and world events, improving but fragile consumer confidence, and reduced affordability due to rising prices and limited personal income growth.

One data point we do have confidence in is the low level of production compared to historic norms.

The population grew during the recession and has continued to increase since then.

Based on trends over more than 40 years, the industry should be building 50% more homes this year than its current pace to meet the increased population demographics.

At some point, this pent-up demand will be released, which will add momentum to the entire housing market.

With our large diversified land portfolio, our suburban offerings to the move-up empty nester and active adult markets, our established Toll Brothers City Living brand, and our expanding Toll Brothers apartment living offerings, we are well positioned as the market improves.

By casting a wide net, we remain committed to reach as many niches of the luxury housing market as possible.

Now let me turn it back to Doug.

Thank you, Bob.

Thank you, Marty.

Amy, we're ready for questions.

(Operator Instructions)

Your first question comes from the line of Ivy Zelman with Zelman & Associates.

Good afternoon, guys.

Thank you for taking my question.

We are just looking at the detail of your new orders, and appreciate, I think that the markets obviously have set by the results, yet your deposits for the future look very strong.

It looks as if it really declined substantially in the West.

And appreciating you're down almost 40% sequentially, maybe talk about what happened there.

And you've given in the past some guidance around Shapell, and were you holding back, or did you push it too far and consumers sort of pushed back?

Just some perspective, because it seems if that's where the downside surprise predominantly came from.

I could be wrong, but just to start there, please?

Sure, Ivy.

On the numbers, the West was up 33% for the third quarter year over year per unit.

So in terms of where we are now with Shapell, we're thrilled.

The integration is complete.

We are in the process on many Shapell communities of building new Toll models that are not completed yet.

When they are completed and when we open with the new Toll models and the Toll homes, we expect prices to go up because the houses are bigger, the houses are fancier, we will be customizing more.

We talked about this from before we closed on Shapell, but we thought there was embedded value in simply raising the bar, building bigger and prettier homes, and that is still in process.

So in some cases we are winding out of some of the lots that were associated with the old Shapell models in the same phase as where those models were located and moving into new phases where bigger, prettier Toll models will be opening.

So that is what is going on now.

I mentioned that by the end of the year, by the end of October, we will have 13 Shapell communities.

So we will be adding five in the next couple of months, and then many, many more of course to come.

But in terms of the numbers out West, they are actually leading the Company in terms of where our growth is.

I guess maybe just to frame it another way, with respect to year-over-year declines in orders, and appreciating that there are some timing issues, would you say on a continuum of, I guess, concern, you did have year over year in August when you reported the same quarter a year ago, you had flat August results in terms of net new contracts.

And so it looked as if it was an easy comparison.

So I think people had been expecting you to do better than a year ago.

Would you say that you feel better than you did this time a year about your prospects, or would you say that it's really lukewarm and you're more tepid or disappointed?

Because I think people are really reading a lot into the August results and the overall quarter order results.

How do you feel?

I feel better because I'm happier with our diversification.

I'm happier that we're bigger in Texas.

I'm happier that we're significantly bigger in California.

And I'm happy with the increase in traffic and the increase in deposits.

Remember deposits usually don't convert to agreement for two to six weeks.

So while I can't predict what's coming, we are hopeful and feel good about what's coming because of where the traffic and where the deposits are.

Obviously if you look at the agreements in August, which really come from June and July deposits, I can understand the market's disappointment, but forward-looking with traffic and deposits and the positioning of the Company, I feel better than a year ago.

We're also very excited about a couple of City Living openings that are imminent.

The biggest, of course, is 28th and Park Avenue South in Manhattan, which should be opening we hope within the next few weeks, as soon as we get full approval from the Attorney General's Office.

So overall, it feels like last year, but a little bit better for the reasons I just gave.

That's very helpful.

If I can sneak one more in, please.

With respect to the mortgage side of the equation, we've seen some green shoots, especially as it's the more affluent buyer today that's maybe seeing some mitigation of what I would call impediments to access mortgage availability.

And if you could give us any green shoots that you've seen, changes that have been pretty, if at all, helpful to your consumer, especially as you're dealing with maybe some of the more challenged borrowers that might be self-employed or that have significant down payments but for whatever reason lenders are reluctant.

If you have any perspective, I don't know if Don's on and can talk to it, but that would be very helpful, please?

And thank you, guys, appreciate it.

Thanks, Ivy.

Don Salmon is here, and I'll let him take that one.

Sure, Ivy.

We have seen green shoots and some good news on the self-employed front.

We're actually seeing people come out with products targeted to self-employed people and no-verification-of-income loans with 30% down and good credit scores, but what they -- instead of just not looking at the borrower at all, they are looking at cash flow.

So they will take 12 months worth of bank statements to ensure the person really has the cash flow, regardless of their tax return.

So I think that's really good news, and frankly I think it's prudent.

We're seeing more people get involved with foreign national lending, which is a plus.

Foreign national is a growing cohort, both here at Toll Brothers and some others, I think.

And we're also seeing increased interest in non-QM jumbo loans.

So that also I think is a good sign for us and others going forward.

Okay, thanks guys.

I'll get back in the queue.

Thanks Ivy.

Your next question comes from the line of Buck Horne with Raymond James.

Hey.

Good afternoon, guys.

Going back to the order growth, maybe can you compare this period historically?

Have you seen such a sharp divergence between traffic and order growth in the past, and ultimately what was the resolution that you saw in those previous periods, and did orders finally start to roll in or did you have to make a price adjustment to improve the conversion in the past?

Okay.

So what's happened is, if you look historically at the Company, from 1994 to 2004, about 1.8% of our visitors signed a binding contract.

And that rocketed last year in the third quarter to the highest ever of 3.5%, and that was because traffic was anemic, as we talked about, but those that came in were highly qualified, highly motivated, and buyers.

This past quarter, 2.7% of our traffic signed a binding contract.

So while the comp the last year at 3.5%, the highest ever is difficult, we are still running significantly higher than what happened from 1994 to 2004.

A big part of that is the internet.

I don't think we ever fall back to 1.8% of our traffic buys a home.

I think it will stay higher because today's traffic is more qualified, more motivated, more educated, but it's really the comp of this quarter looking back to last year.

We're encouraged.

We like more traffic.

We don't mind tire-kickers.

They come in a few times, fall in love with the decorating.

Next thing you know they fall in love with the home and they fall in love with the community and the school district, and they become buyers, or they tell friends who are qualified.

So we're encouraged by traffic up, and we're not worried about the conversion ratio.

We think traffic should continue to climb, and we think the ratio, the conversion ratio, while not at 3.5% if it settles in at this 2.7% it is significantly higher than it used to be historically, and I think we will be in good shape.

So we're keeping a keen eye on traffic, and are certainly encouraged by what's happened over the last few months.

It's a little counterintuitive.

You would think with the heightened traffic that you automatically got heightened contracts, more contracts, but it's not necessarily so.

What happens is when you get the high traffic rates, it's an indication that the whole market is playing with housing again, not just the exclusive those who can afford it and are not trapped in the homes that they are in, or not worried about their jobs or not worried about where the pricing of the housing market is going.

So it's a little counterintuitive.

I'm very encouraged.

Thanks.

That's very helpful, guys.

I was wondering Marty, if we could maybe get a little bit more guidance on the expected delivery timing of some City Living units that you would expect to close in the fourth quarter.

What kind of ASPs we might expect from those?

And I guess lastly, do you have any indication when the Touraine Penthouse might be closing or signing a contract?

I'll start from the back, and Greg's going to research the details.

The Touraine is still actively being marketed for sale, and when we have a transaction to announce, we'll announce it.

With respect to the other City Living units, I think one of the things that we didn't mention earlier is that we are now open for sale at 1110 Park, and those units are $10 million to $15 million.

So one of those units is equivalent to a dozen suburban community units.

And we are near open for sale at 28th and Park and 400 Park Avenue South, and those units are in the $5 million range, and so they're worth eight suburban units.

So we need to be careful about focusing on the dollars instead of just the units when some of the units we're selling are worth a lot more than our traditional units.

Greg, do you have some details on fourth quarter expected deliveries out of New York?

Yes.

It should be very similar to this quarter in that the average price, probably that $800,000 to $900,000 if we have some Philadelphia stuff settling, which is a little bit lower price, and then Maxwell C in Hoboken, which is a little bit of a higher price, but somewhere in that type range that we're looking at for Q4.

You got a good guess at how many units?

It's 22nd Street in New York.

Oh, right, yes.

I don't have a guess in here.

Those are significantly higher in price.

Okay.

Well, you can get back to me if you got any additional detail on fourth quarter timing, that would be great.

Thanks guys.

Thank you.

Your next question comes from the line of Stephen East with ISI Group.

Yes, this is Paul Przybylski on for Stephen.

First question is, what level of order decline, I guess, do you think is acceptable before you maybe start to throw some incentives at buyers?

Well we don't look at it macro at order declines.

We study it community by community.

Right now sales is not telling us that buyers need more incentive to buy.

In many places our backlogs are still big and our build times are long, and so we're less inclined to incentivize when the next home sold may not deliver for 9, 10, 11, 12 months.

Part of that is our own backlog, part of that may be a local market still struggling with some labor issues.

So it's a very, very local question and we study it in great detail.

And right now we have not seen the need to throw more incentives at virtually all of our communities.

As backlogs come down, as either because we build through the backlog and haven't had sales lately or because there's more trades in a market that can build faster, we will evaluate, and we will make the right decision to keep the stores open and keep action and keep selling houses.

But right now we don't see the need.

Okay.

And then the second question, what is the historical ratio of non-binding agreements that actually convert to contracts?

And did the third quarter hold with the historical norms, and is there any reason to see why that might change, given the August numbers you put out?

It's in the 60% to 65% range.

Thanks, Mike, exactly.

So it really ranges from 60% to 65%.

In 2005 we got up as high as 70% of non-binding deposits became binding contracts.

Right now we're running, this quarter it was 63%.

A year ago it was 69%, which was on the high end.

So we're right in the range now.

And I think we're happy with that, and I think that we -- historically that's just been where the number's always been.

I'm looking at a chart back to 1994, and the low number on this chart is 59% and the high number, I mentioned was 2005, which was 74% for the third quarter.

Okay, great.

Thank you, I appreciate it.

You're welcome.

Your next question comes from the line of Megan McGrath with MKM Partners.

Good afternoon.

You gave some community count guidance in your release, and I'm wondering if in this environment you are purposely slowing down the opening of new communities as the absorption pace declines year over year?

And is there an argument that you should be doing that, given that if this flattish order growth continues you'll start to lose SG&A leverage at some point?

No, we're not strategically purposely slowing down openings.

On the contraire.

We are trying to open as quickly as we can.

We still have the age-old issues of gaining full entitlements from all the various agencies involved.

There are occasions where we have decided to open out of a completed model as opposed to opening out of a sales trailer, which could delay an opening four to six months while we build the model and decorate it.

That's a decision that is made locally based on whether they think they can gain sales out of a trailer or they think they need the pretty model to show off.

But we are pushing forward as quickly as we can to get openings, and I think that's the right strategy right now.

Okay.

And then I guess if you could look into your crystal ball, we all sort of know the pent-up demand argument and we've got mortgage rates now down versus where they were a year ago.

So could you talk about what you think it's going to take to get to kick-start housing back into growth mode again?

We're all looking at Bob now.

Let me talk about the present administration and our feelings about our ability to handle policy and foreign affairs.

We've got a locked-up Congress.

The election hasn't come to the front of the brain yet, but it's getting there.

And I wouldn't be surprised as we come closer to the election that we start to focus on a great number of things.

There will be a lot of promises made, for sure.

So I think that's the next step you can look for as to seeing a sea change in the market.

Otherwise, everything that we've experienced for the past year seems to indicate we're going to continue to experience the same elements, which are choppy seas and a sloppy boat ride, but we are not going backwards.

We are inching forwards, but the big game is out there and it will occur.

Okay, thanks.

You're welcome.

Your next question comes from the line of David Goldberg with UBS.

Thanks, good afternoon.

Hi.

My first question was on sales and sales training, and specifically given the choppiness of the market and the sense of lack of urgency among buyers, despite the fact that it feels like there's not a lot of supply and not a lot of competition maybe at your price point, are there things you can do from a sales perspective to help create some sense of urgency?

Are there things that you change maybe in your sales technique and your sales delivery, especially since you aren't using incentives necessarily to create that sense of urgency?

How do you get your sales people to be better at closing?

Well, we're very proud of our sales teams.

We think we have the best in the business.

They're trained daily.

We have national training teams, regional training teams, local trainers.

We run contests for them regularly, send them on trips, give them extra money.

There's nothing more important to us than the sales teams.

They are out there on the weekends working hard, away from their families.

They're hugged all the time.

They're trained all the time.

We make changes where necessary.

It may be that a very good sales manager is just burnt out in a certain location, and we'll flip-flop salespeople, and it's amazing how the new sales person goes in the basement and gets the visitors cards out of the old shoe box and starts calling people that the prior sales manager was just tired of calling.

So little changes like that, we're regularly employing, but it's more of the same, David.

There's not a lot more we can do on the sales side except continue to motivate and make sure we have the best teams out there and give them the best product.

And the marketing department supports sales, and you know how proud we are of our models, our brochures, our website, our ads, everything we do.

Most of it's done in-house.

So when they need displays and they need notices sent, we can flip a four-color brochure out to the market in a day, and that impacts the market greatly.

Right.

Right.

But we're constantly looking for ways to create a sense of urgency.

With the Fed's bond-buying programs being announced to be cut back, we considered creating some urgency around rates rising, but the same day that they announced the cutback, it went down.

So it was tough to drive a sense of urgency.

And similarly, without as much pricing power as we had before, the consumer does not see the prices going up like they did 12 and 18 months ago.

Got it.

And then just switching tact a little bit, if we can talk about the land position and it feels like per the question Megan asked, it seems like maybe you are experiencing, and correct me if I'm wrong, a little bit more delay at the municipal front in terms of bringing land to the market entitlement process.

Would you characterize that as being accurate, that delays are extending a little bit?

And does that impact your appetite for land at this point in the cycle, given the stagnant demand, and again, maybe a little bit of delays in terms of bringing [some of] the communities online?

I don't think anything has changed on the land entitlement side.

We've always had this issue.

Occasionally we get lucky and we're ahead of schedule, but more likely right when we think we have every permit there's one more permit that pops up, or there's one more person in an agency that decides to review.

That's especially true when you build at the corner of Main and Main.

If you're out on Bumwad Boulevard, you can do a little more and you can get it done in a lot less time.

When you're at the corner of Main and Main, you're subject to a lot more inspection and introspection by the committees that rule your fate.

Right.

So we are not holding back on land buying because of entitlements.

We're being careful on land buying because we underwrite to, we think, a pretty high standard and the deals have to pencil.

We did spend $167 million in Q3 on new land acquisition.

So we're still in the business, but we're being careful about our growth, and the deals have to work and that's market driven, not as much entitlement driven.

Of course.

Thank you.

You're welcome.

Your next question comes from the line of Nishu Sood with Deutsche Bank.

Thanks.

Wanted to -- the August commentary, just revisit that for a second.

The deposits up strong 18% year over year, the contracts down 7%.

You mentioned the two to six-week lag between the two.

So should we read into that that the cadence of what you've seen through the summer is a weaker July and then somewhat of a rebound in August?

No.

I think the summer's been fairly steady.

I think recently with traffic creeping up and with deposits improving, we feel better about maybe call it September and October with no promises, but it just feels a little better.

But overall, I think the summer's been fairly steady.

Got it.

So the difference between those two numbers is probably just a combination of maybe fluctuations in conversion of deposits to contracts or comp issues?

I think so.

It's also we have openings, it feels like almost every week around here of new communities.

And so when you have an opening, you may have a burst in traffic for a week, you may take 10 deposits in a week.

So don't get too wed to these summer numbers.

They move week to week, and May, June, July, August are not the brightest months of our business.

So I wouldn't read all too much into it.

Got it, got it.

And then a broader question on your volume and pricing strategy.

You folks, as you have pointed out many times, have a much higher threshold for using incentives or pricing as a tool to goose volumes.

So in this environment where you mentioned and other builders have mentioned pricing flattening out a bit, and the order pace has obviously softened from last year, folks are looking at your order number coming in short of the broader builder group and against expectations.

Can we read that as a function of the differences in your pricing strategy, that you're going to be a little bit more reluctant to, versus your average builder, to use pricing to drive volumes?

I guess so.

We're not a spec builder, so we certainly don't have inventory hanging out there that we've incentivized to move.

Two of our sales, I don't want to comment, it's tough enough to run our business.

So I don't want to comment on what the other builders may do.

Right, but if you look at our margin and our margin expansion and our commentary about not adding incentives, not feeling the need to, I think from that you can draw your own conclusions as to what we're thinking and how we're running it.

Okay.

I think we also have the month of July in our numbers, and most of the other guys cut off at the end of June.

And so they have April, May, June.

We have May, June, July.

Got it.

Thanks, appreciate the color.

Your next question comes from the line of Stephen Kim with Barclays.

Hi, guys.

Thanks very much for taking the questions.

A couple of things.

I guess first, you made a comment about, I think $167 million on land spend.

I was wondering if you had the development amount in there?

And also if you had your construction-in-progress number?

Gregg?

Yes.

Hi Stephen, it's Gregg.

So land development spend for Q3 of 2014 was $152 million, and then construction-in-progress at Q3 2014 was $3.322 billion.

Great, all right.

And then you made some comment about accrual reversal, 50 basis points that benefited the quarter.

I was wondering if you could elaborate on that a little bit?

And then also was there any purchase accounting?

If you could quantify the amount of purchase accounting that hit the quarter, that would be great?

Sure.

So in certain communities if you build in excess of a certain number of units or square footage or whatever, the town says you need to widen the road or put a bridge in or something like that.

So in this particular quarter at a community, we came to the conclusion that we would not trip that threshold, even though we had been accruing as if we would.

So we reversed the component associated with that accrual.

Your second question on Shapell purchase accounting.

Again, that was a headwind for us in this quarter and probably cost us 150 basis points in margin, similar to the second quarter.

I think that's more than you were originally thinking, right?

Yes, it is.

Does that mean that there's going to be less in future periods?

Correct.

Okay.

Are we pretty much done, you think?

I don't think we're done quite yet, but it won't be nearly as meaningful as it was in the past two quarters.

Okay.

Well, that's good.

I guess my last question relates to your closing price relative to your backlog price.

You've given guidance for the aggregated amount combining City Living and traditional, but I was observing your traditional homebuilding backlog prices.

I think unless I have it incorrectly, Is $702,000 in your closing price this quarter was $724,000.

So you're sort of inverted there with a lower backlog price on average than your average closing price.

So should we be expecting your closing price to decelerate, or actually decline sequentially from that $724,000?

And was there anything about that $702,000 ending backlog price in traditional, which maybe is a little unusual, maybe you think it might resume an upward trajectory going forward?

Didn't we have $737,000 in backlog?

So he's asking about traditional homebuilding ex City Living.

Okay.

And so Stephen, the backlog is just that constant flow-through from prior period contracts, and then some of it starts to settle through.

So when you look back over the quarters prior to that you were writing contracts traditional homebuilding $720,000, $740,000.

And so that drove the settlement number up to $725,000 this quarter.

And then that just tends to wash with the current period contracts, which traditional homebuilding are $700,000 and you end up at $702,000 in backlog.

So I know I threw a ton of numbers at you, but that's the typical natural flow and the resulting backlogs.

Stephen, I think it's a bit of a trite phrase we use around here, but it has to do with mix.

We settled single-family homes in the upper 60%, and we sold single-family homes in the lower 60% of our total volume this quarter.

So the bigger houses generally sell for more.

And we had a little bit of a mix shift, and then that's independent of any geographic mix shift which can also impact things.

I totally follow everything you were saying.

I guess I was curious as to whether you see here any connection between some of the oddities you're seeing in terms of the traffic versus the contract, whether there's a certain kind of buyer who is sort of dragging his or her feet maybe at the higher end or anything like that?

I'm just grasping for some sort of rationalization here.

But I was curious, did this aberration in the price being somewhat inverted with your volume disparity between traffic and contract.

Do you see any connection there at all?

No.

Okay.

Thanks a lot guys.

Appreciate it.

You're welcome.

Your next question comes from the line of Eli Hackel with Goldman Sachs.

Thanks.

Good afternoon.

About you're diversified the Company a tremendous amount, are you happy broadly with your exposure, or as you look even a little bit further into future, would you have like to even further reduce your reliance on the I-95 corridor, perhaps get even -- I know you're expanding in Texas, but get bigger or in other -- maybe perhaps some other Southern states that you are not as big in right now?

We're very happy with it.

As I said, the move into Texas and California, and three years ago the move into Seattle were strategic, and we're thrilled to have more action out West.

I think naturally the 95 corridor as a percentage of our overall business decreases as it has been, because we will continue to buy ground in the other places I've mentioned and it's very, very difficult to find land and get it entitled in that corridor.

That is not a growth corridor.

There's not a lot of big tracts of land laying around that has not already been protected into open space.

And so there's many more opportunities in Denver, and Las Vegas is coming back, and California we're seeing some new opportunities, and Texas, lots and lots of opportunities.

So I think naturally you will see less and less out of the 95 corridor, which is good for the Company.

It will still be a major part of what we do.

I'm sure that entire corridor will be the largest area for us, but it will be decreasing.

Got it.

And then Marty, you guys have done a great job ramping up the other income equity line item.

I know you gave some numbers.

Is it possible just to repeat them?

And it's pretty lumpy.

I don't know if there's any way to help guide us, for us to help us understand what that line item could be, or some help on a go-forward basis, just it does move around, and you guys are selling some land, I know you announced a land sale on the call before.

The best I can do for you, Eli, is in our 10-Q, we have a footnote, I think it's number 13, that outlines our other income.

And if you look back at the past 8 Qs, you'll see the numbers in there that I would call more recurring, such as interest income or our security business or our retain deposits, et cetera.

So you have a baseline associated with that.

The other pieces of joint venture income are more unique and aren't as steady at this point.

When we get the apartment business up and running we may have a bit more steady cash flow and income to report to you, as well as a periodic gain on sale, but it is unfortunate that I can't give you more guidance than that.

We have given you some detail on the backlog in our joint ventures, our homebuilding joint ventures.

The vast majority of that is coming from Brooklyn Bridge Park, and I believe we have that as a FY16 delivery.

Got it.

All right.

Thank you very much.

You're welcome.

Your next question comes from the line of Jack Micenko with SIG.

Thanks for taking the questions.

It looks like on the order side, the soft spot this quarter was Mid-Atlantic.

And Doug, you were getting to this maybe in the last question, but is that more a function of the market demand or is that more of a function of your community count trends on a year-to-year basis?

Market.

Pennsylvania, Maryland, Northern Virginia, and North Carolina have been slow.

Maryland.

It was exceptionally slow.

A good guess, is if you take a look at the stats of percentage of GDP coming out of the private market and coming out of the government, private market has gone up and the government has gone down a substantial amount.

And when your government stops spending, all of the consultants and other sycophants that live off of my taxes and the United States government are not as anxious to buy a new home in the farm where the golden goose used to lay eggs every day.

So that might have quite a bit to do with it.

And I'm convinced that in the long run, you will see a more normal spending rate coming out of the government, as is always happened in good times and bad times generally, your government grows.

Okay.

This corner of Main and Main, with the price increases we've seen, how do you guys currently feel about supply of existing inventory in your markets?

I guess on hand it's good because it frees up and the trade-up buyer's now more active.

On the flip side, maybe it makes competing properties more of a consideration, or just availability as people maybe are feeling better about their equity?

Any thoughts on supply?

There's been a bright in the spot in the market in that supply's been fairly constrained so far.

At what point do we sort of bump up against -- see some supply hit the market, (inaudible) price increases that we've seen over the last year and a half or so?

What I've spoken to in the past has been the availability.

Census and Commerce put out these numbers every month, and they've been pretty consistent with the 6% supply number to the market.

And that number is 6% at the very low current pace of sales.

If you get a bump-up in the current pace of sales, then that 6% goes down to a 3% and can go to a nothing without a whole lot of gyrations in the market.

You can be just a little better than we are right now and find all of your inventory gone.

And when that happens, it's good times for us and bad times for buyers.

(Multiple speakers) I remember when we went from 15 months of supply down to 3 or 4 months, it felt like overnight market took off.

It can happen quickly when it does.

Right, right, definitely.

And then just real quick, you'd said $5 million per at 400 Park.

How many units are we talking there that go up for sale?

And then can you give us the same math on Bethesda, given it's wholly owned, average unit price and then the units there so we can get a dollar figure for where we start to see the orders coming in and going forward in the next quarter or two?

This is Rick Hartman.

In Bethesda there's 55 units.

Average delivered price there is about $1.3 million.

And we expect closings, I would suspect 1 of 2016.

At 400 Park Avenue South, it should open up in September this year.

We have 81 units.

The average delivered price there is slightly over $3 million, and we should have closings there 11 of 2015.

Okay, great.

Okay.

Thanks for taking the questions.

You're welcome.

Your next question comes from the line of Adam Rudiger with Wells Fargo Securities.

You talked a little bit about, in your prepared remarks, about price versus cost.

So I was wondering if you could update us on what happened this quarter, and maybe any thoughts on next year if the pricing power you talked about stays where it is and costs increase, what kind of impact on gross margins that could have?

Sure.

So we had price increases, sales price increases, for the quarter that averaged $6,600.

We had incentives that have stayed right at $20,000, this is all averages.

And that's pretty much been the same for the last 18 months.

And costs in the third quarter increased by $2,800 on average, half was labor and the other half was concrete.

And Florida and Texas are experiencing the most pricing pressure on the cost side.

As it relates to margins for next year, Adam, we're going to defer that until the fourth quarter but I think you are talking about two headwinds there.

One being less pricing power, the second being more cost pressure, but we have the tailwind of less Shapell purchase accounting.

So more to come on that, but we've got pluses and minuses.

Okay.

Rest of my questions have been answered.

Thanks.

And we have some big City Living openings and we have some new Toll models at Shapell land that should also be tailwinds.

They should help us, the new Toll openings.

You've got five at Shapell this year in 2014, you've got 29 in Shapell beyond that.

So we have the question, which is why we're deferring for three months, as to whether those new openings are going to deliver in October of 2015, November of 2016.

Bob and I are focused on orders and you're focused on deliveries, understood.

So your sense then, could be that given the Shapell, given the City Living, some of the other initiatives, let's say the overall market and all your competitors are more static in terms of pricing power, do you think you can -- those two things will give you an opportunity to perhaps deliver some better results?

Well, we're pretty pleased with the results we delivered here.

And as I said before, we're going to talk about our expectations for margins in 2015 in our fourth quarter.

Okay, thank you.

You're welcome.

Your next question comes from the line of Michael Rehaut with JP Morgan.

Hi, good afternoon.

Thanks for taking my question.

First, I just wanted to focus on gross margins for a moment.

You had broken out, Marty, the impact of the purchase accounting and discussed the accrual reversal, and you also talked about the fact that, I guess, maybe despite orders coming in a little light of investor expectations that you're comfortable with pricing and incentives.

We're looking at 400 or 500 bip or greater gross margin expansion over the last 18 months or so, and particularly given that the purchase accounting really is suppressed, even net of the reversal, could have been even higher this quarter.

Just trying to think in terms of 2015, I'm not necessarily asking for guidance here, but is there any reason to think that gross margins could slip from the second half of 2014, particularly again given the suppression to a degree of the margins this year by the Shapell accounting?

Well it sounds like you're looking for margin guidance for next year.

I'm not asking for guidance.

Instead we're going to address that in the next quarter.

I'll just reiterate we do have some headwinds, right?

Pricing power isn't where we want it to be and cost pressures are real, and as you've mentioned, Shapell lack of purchase accounting should help us, and we're going to leave it at that.

Okay, fair enough.

I guess just also on community count growth, it's also kind of a 2015 forward-looking type question, but just directionally, there's any type of thoughts you could give us?

You look at where you were in 2013, and your community count was pretty stable throughout the year, maybe just picking up in the fourth quarter.

Even ex-Shapell, you had a nice acceleration in community count in 2014.

You had maybe a bit of delays in terms of relative to your expectations for how to finish off the year.

Directionally should we expect community count to continue to grow in 2015?

Yes.

A lot of money and a lot of overhead.

And then just lastly, guys, the tax rate, how should we think about the full year for this year and also in 2015?

Well, I think for the full year, this quarter is not too far off from what we would expect for the full year.

We're benefiting a little bit from some Section 199 deductions, which is the manufacturing deduction, and we've also, let's say, eroded a little bit of some state tax valuation reserves, and next year we'll give you next quarter.

So basically the full year this year is equal to the third quarter, it would be 4Q would be a bit higher, a few hundred, 200, 300 bips higher than 3Q, is that fair?

As we sit here today.

Okay.

All right.

Appreciate it, guys.

Your next question comes from the line of Mike Dahl with Credit Suisse.

Hi, thanks.

I wanted to revisit the question of traffic versus non-binding versus orders for a second, and maybe ask from a different perspective.

If you look at traffic being up in the third quarter, orders down traffic up in August, orders down, understanding there's a lag there, but have you looked at it more granularly whether there's a change in the business mix either geographically with Shapell coming on or City Living, product-wise, where structurally, at least in the near term you'd expect that difference in traffic per community versus orders to persist?

We have looked at it that way, and part of the increase in traffic is attributed to California.

We're bigger in California and California communities have always had more visitors than other parts of the country, particularly the East.

But with that said, particularly in August traffic is up everywhere.

So it's not just because of California, but again that is a portion of the explanation.

And beyond that, I mentioned before that when a community opens, the first few weeks in many cases there's pent-up demand and we will have some huge traffic numbers before it settles back into a normal number, and so some of that goes on.

But beyond that there's really nothing else to draw from it.

We're happy that traffic is pretty much up across the country, even taking the California growth out.

Okay, that's helpful.

My second question, Doug, I think you mentioned in the opening remarks that the Sutton is now scheduled as a JV.

If I recall correctly, that was assigned as a wholly owned community prior.

So just curious what was the decision process behind JV'ing that, and is that what was responsible for the gain on land sale in the third quarter?

No, that has been agreed to but hasn't closed.

As we evaluated that particular deal, in conjunction with all of our holdings in New York, we believed there was land depreciation that we could capture by selling a piece of it and that we could still retain some upside by continuing to be a partner in it.

So we will be a roughly a quarter of that deal moving forward once it's finally executed, and it was really a function of capturing some land sale gain now, although now would be the fourth quarter or fourth quarter depending on when this closes, and having some money to spend in another pocket in New York as a result of that.

So it is part of the $50 million, then, that you expect to come in that you commented about?

That is not part of that $50 million.

Okay, got it.

Great, thank you.

Welcome.

Your next question comes from the line of Mike Roxland with Bank of America Merrill Lynch.

Thanks for taking my questions.

A couple of quarters ago you mentioned that you repositioned yourself in Vegas and Reno at lower price points.

How is that lower price point product doing, and having seen progress with that strategy, are there any other markets where you've lowered price point to drive maybe better orders?

It's worked really well in both Vegas and Reno.

Scanning our Vegas offerings we range from the mid-$200s to the high $600s in terms of delivered price.

And in Reno we range from the low $300s up to one community that's actually at $900,000, but most of Reno is in the mid-$300s to the mid-$500s.

And both markets are hot.

We are well positioned and looking to grow.

We have 800, plus or minus, lots at Inspirada that were basically written off through the downturn, and we are in great position there as Inspirada has been repositioned and is taking off again.

Are we doing this anywhere else?

Not nearly as much as Vegas and Reno.

There are some isolated cases where we're bringing in some smaller homes.

[Sarwick].

Orlando.

Orlando is an example.

Thank you.

Right.

We were building $1 million-plus homes in the Windermere area, and while we do that we have taken advantage of some opportunities in other parts of Orlando where the homes will be in the $400s.

Houston and Sienna, while we're certainly selling land to other builders that are for lower-priced homes, and some of what we are doing in Sienna, which is a large master plan south of Houston is at a lower price point.

So it's isolated, it's occurring but it's isolated and it's certainly not part of a longer-term strategy for us.

But is it something that you could capitalize upon in the near term?

So could we expect to see maybe a little bit more of this, particularly if sales stagnate for the next couple quarters?

I don't think so.

I think it was more what was going on from 2008 to 2010, where the land was being repositioned.

Right now we're still confident that we're -- that homebuilding is recovering, that while there have been some bumps, we are still heading up, and we are positioning ourselves to take advantage of that.

So it could happen, but it would be sort of a one-off type of thing.

I don't think you'll see more than that.

Got you.

Thanks, Doug.

And then just a more theoretical question.

As you look back on how this year has progressed thus far, what would you do differently going into the year, if anything?

What would we do differently going into the year?

You mightn't have raised prices in the first quarter.

Might have taken more production.

Right, right.

Typically we'll sit there on a Monday reviewing the action for the past week and say, all right, two more and up 1%.

Knowing what we now know about the market for the last year, perhaps we should have said take four and then go up 1%.

That might have encouraged more production, which would have made everybody happier.

But that's not a major thing.

If the market stagnates, as was just said, we're more than likely to go along with the stagnation, just keep our boots and stay where we are in terms of offering because our ground is so valuable.

It's not a fungible kind of thing.

We definitely don't want to burn it off and sell it, we don't want to create pace just to create pace, and give away the potential profits from well positioned land.

Got you.

Thanks for all of the color, and good luck finishing the year.

Thank you.

Thanks, Mike.

Your next question comes from the line of Kenneth Zener with KeyBanc.

Hi, Ken.

Gentlemen.

How are you?

I'm doing okay.

I'll give you guys a fielder's choice here between 2015 margins or talking about orders.

(Laughter) I assume you're going to go with orders.

So we think your orders are largely following normal seasonal trends, which can be measured sequentially through time.

In contrast, (inaudible) expecting accelerating order pace outside of seasonal patterns.

So my question is, are you comfortable operationally, or does it matter with the order pace being where it's at operationally, if your SG&A is already in a fairly good zone where you were 2001 to 2004, gross margins are good.

It's harder to open up community.

So it sounds like from your tone you guys were actually okay with orders, because they followed seasonal trends as opposed to something else?

Or do you need to get your pace up, which helps with cost obviously?

What we do again on the Monday meetings is take a look at our backlog and analyze internally what pace we need before we have to fire off some overhead.

And we're far from that now, thank goodness.

So we're pretty much guided by, on the bottom side, by the overhead required to keep the job moving at a reasonable pace.

And you're not in any need to juice that because your costs are good.

So the seasonality, I mean, your absorptions, you guys look at it community by community, but there's other ways to look at it, i.e., just collectively as a Company, and it does follow seasonal trends.

And it seems like the expectations that you had were more or less in line with what you guys had expected, correct, for the third quarter, not the August?

I hate to toss away a giveaway, but we thought that we'd probably be faster that it was.

Looking back at the last year and thinking about the growth that we saw in 2013 and how deep and dark and long this last housing depression was, we thought the pent-up demand would continue to build and 2014 would be a significantly better year than 2013.

And I think if you asked any CEO of any of the big publics, they would tell you the same thing.

So are we disappointed in flat or slightly negative order growth?

The honest answer is yes, but are we happy with the way we've generated strong margins off of our business?

That answer is yes.

So if things continued as they are, right now we would not have to downsize the Company.

Our backlogs are long, and we're very happy with the positioning of our land, very happy with the brand and what we've done to manage and enhance that brand.

So would we take today's market?

We can live with it.

We would like it to be better, but it's okay.

Our backlog is up compared to last year, and our prospects are good based on what we know we're opening in New York and other places, and our land holdings are good.

So while the year, and in particular the quarter from an orders perspective have not met our expectations, we still remain positive on a longer term.

Thank you.

You're welcome.

Your next question comes from the line of Robert Wetenhall with RBC Capital Markets.

Thanks.

This is actually Desi filling in for Bob.

In the past you guys had mentioned that you're targeting a longer-term gross margin in the mid-30% range for the high-rise buildings and mid-20% range for the traditional single-family homes.

So first, are those targets still correct over the long term?

And then what portion of your total business do you think the high-rise buildings can eventually represent?

Yes, that margin guidance is correct.

And we've always said that 15% was a nice number for City Living.

We saw the Company growing at City Living was growing, so we didn't see that number getting out of line.

Right now, Gregg, we're significantly below that.

That's right.

But as you know, the business is lumpy.

Buildings sell and then two years later they deliver.

So it's pretty hard to track that, and that number can bounce between 5% and 15%, as it really has for the last 10 years since we started City Living.

But that -- I think 15% is a number we're very conformable with.

Got it.

Thank you.

Your next question comes from the line of Joel Locker with FBN Securities.

Thanks, Just on your backlog conversion, your West was at 42% versus 29% a year ago, which increased the overall average, or year over year you did better than you did a year ago.

And I imagine that's a lot to do with the current Shapell, but as you phase more into the Toll products in the Shapell land, do you expect the conversion rate to be elevated in the third quarter of this year?

Well I think you almost answered your own question, except I would say the conversion rate this quarter was elevated compared to what we would expect it to be going forward.

Right, got you.

Because Shapell was more of a spec builder and had more standing inventory that we have for the most part worked through right now.

Understand.

And on the, I guess how many communities were open in the West, the overall region, at the end of the third quarter, if you have that number?

Communities in the West at the end of the third quarter was 72 out of 256.

72 out of 256.

And just one last one.

On the Shapell communities, the 29 that are supposed to open after the fourth quarter, how many of those do you think will open in 2015, and then how many in 2016 and beyond?

There's a good question.

It would just -- I mean it would be a guess.

It's a guess.

Real guidance for 2015 doesn't come out until next quarter, but give him a guess.

There's a good bet -- a good better happening in 2015, and next quarter when we give you our best guess that community counts for the full year, we can get a little bit more specific if you like.

Right,.

All right, thanks a lot.

But it's not our intention to sell all of Shapell homes next year.

Right, got you.

All right.

Thanks a lot, guys.

You're welcome.

May go back to one-in-one.

Your next question comes from the line of James Krapfel with Morningstar.

Hi, good afternoon.

Thanks for taking my question.

So with the US census data this year we've seen a continuation of multi-family becoming greater mix of total starts.

And I'm wondering if you think that will continue?

And just broadly speaking, your overall strategy with City Living and apartments, and as you kind of see those businesses as a hedge against maybe multi-family being a bigger portion of the overall mix going forward?

Well we don't look at City Living that way because our City Living is for sale and very expensive.

The apartment business we got into for two reasons.

One is the hedge.

We all wished we had a big apartment portfolio through this downturn.

And the other was to leverage all the synergies and operations of Toll Brothers, because we have land people in these markets and we know how to get entitlements and build, and we have a great brand, we know how to market.

So we got into it for both of those reasons.

We're thrilled with it.

And as we said several times today, we look to grow it.

Do I think the census data will continue to show that multi-family will grow?

I think what's going on right now is kids are getting out of college and they're getting jobs, but not the jobs they thought they would get.

They are sleeping on mom and dad's couch longer than they ever thought.

They're getting married later, they're having kids later.

So they are renting longer than prior generations.

And that is causing more multi-family and less home ownership.

That will change as the economy improves and the kids get better jobs and get out on their own.

And also as these echo boomers do get older, as they are into their 30s and get married and have kids, they are going to be buying houses.

So long term, no I don't think that's the right answer, but short term I think census has it.

Okay.

Then where do you see your apartment business long term in terms of maybe your joint venture income as a percent of pretax income?

Just a ballpark range of where you see it long term?

Well, I think because from a GAAP perspective apartments depreciate, the income recognized on a run rate basis is going to be nominal until we sell a building, in which case we'll have a sizeable gain on sale.

And I'm a bad seller.

Pardon me?

And I'm a --

And Bob is a bad seller.

That's right.

So we don't want to project any of those gains until we get his arms effectively twisted behind his back.

All right.

Thanks, guys.

Your next question comes from the line of Jade Rahmani with KBW.

Thanks very much.

On City Living can you give a sense of the pipeline of future investment and competitiveness on new deals?

On new deals?

Right now the deal flow is excellent coming out of New York.

It is difficult coming out of DC.

Wait.

Have we got the pipeline info?

We have 700 units in various stages of development, from in the ground to in play throughout -- that would be New York City (multiple speakers).

None of those include speculative things that we're thinking about?

No, that's all controlled.

And then you add to that what we have up in Hoboken, there's another 450 units that we own up in Hoboken in planning or development.

Right, and then we have Jersey City.

Jersey City, Provost is 950, of which we have 435 in the ground.

That's apartments and the balance is undecided.

Right.

I'll exclude them.

And then Bethesda, right now we just have one.

We've been snooping around San Francisco, nothing yet.

And we have a Philadelphia operation right now that is primarily all stick built.

It's all low-rise.

In terms of deal flow, and I wasn't sure where your question was headed, right now we're seeing excellent deal flow out of New York City.

Can you give a sense of the competitiveness on new deals, and also how you're sourcing these deals?

If they are auctions or brokered transactions, any of it proprietary sourced or off market?

There's off market in New York, that is tough.

Most of it is broker controlled in New York.

The DC stuff, that is probably sourced by our land guys going directly to the owners.

They see a vacant parking lot or a building that they feel is being under-used, that's how we're at least generating leads in the DC market.

We're having -- we're not doing too well in the acquisition side there.

Okay.

And then just given the nature of New York City, have you considered expanding the business profile to include condo conversions or anything beyond just ground-up development?

We did one in Hoboken that was very successful.

That wasn't really --you're talking about (multiple speakers), right.

That was successful.

We have not yet found anything on the New York side.

We're not opposed to it, but we go in eyes wide open because it's usually more expensive to convert than it is to build new.

So we're very careful.

One of the problems is a lot of those old buildings may have eight-foot ceiling heights, which is tough to drive price in New York when everything else is 9 and 10.

So it's difficult.

It's not a big part of our business.

We rarely see conversion deals.

We don't.

And a lot of times it makes the value in the buildings of the air rights.

So now you've got -- you're going to take a low-rise building, convert it.

Then you're got to build on top of it.

The engineering involved is substantial.

And we looked at one building that we were going to do a conversion on, and it just made sense to tear it down and start over.

Okay.

And then just lastly, does anything going on in the lending markets with the increased liquidity available for commercial real estate lending, both on the development side and transitional lending, change how you're approaching the business?

For example, do you expect to use JVs increasingly going forward, anything on that?

For our apartment business we will continue to use JVs, and our structure will probably be Toll in at one-quarter of less of the equity and outside equity source for three-quarters or more of the equity, that equity being maybe one-third of the total cost of the building.

And then we would take advantage of what we believe are pretty attractive financing markets right now to borrow the other two-thirds of the cost at rates right now that range from LIBOR plus 175 to LIBOR plus 225, pretty attractive, because LIBOR is next to nothing.

On the condo front, as we mentioned earlier, we are moving into a JV with our Sutton project.

We may look at another project or two to be a JV for some of the same reasons.

We can capture some of the land depreciation as gain for Toll and the financing costs are very attractive.

Also the fees that you make for managing the operation, you get all of them.

So if you do 25%, you get four times the fees in effect, if you've spread it out.

Construction management, development fees, absolutely.

I can think of a few more.

Marketing, finance.

We haven't always been able to negotiate all those.

One other one, if I may.

On Gibraltar, can you saying what the remaining duration of the asset base is, and if you've given any thought to potentially monetizing or securitizing those assets, given investor demands in the sub-performing space?

Sure.

I think when we look at the existing portfolio of Gibraltar Assets, we would expect the majority of the cash flows from those to come back in the next 36 to 42 months, but certainly some assets to drag on longer than that.

And like all of our business, we're always looking at different alternatives, including monetization.

Great.

Thank you very much.

You're welcome.

Your final question comes from the line of Buck Horne with Raymond James.

Thanks, guys.

The call has gone on long enough.

I will follow up with you guys later.

Thank you very much.

Have a good afternoon, everybody.

Thank you, Amy.

Is that it, Amy?

Yes, sir.

Thank you.

This concludes today's conference call.

You may now disconnect.

Thank you.

Thanks, everyone.