One on One with Robert Toll, CEO of Toll Brothers
Thursday, August 27, 2009
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SUSIE GHARIB: One of the nation's biggest homebuilders said today it's seeing signs of stabilization in the housing market. Toll Brothers is optimistic even though it reported a quarterly loss bigger than a year ago. Excluding charges, Toll lost $2.93 in its fiscal third quarter. The luxury home builder also said orders in the current quarter are up 26 percent from year ago levels. A short while ago I talked with CEO Robert Toll and asked him when he expects the company to return to profitability.
ROBERT TOLL, CHAIRMAN & CEO, TOLL BROTHERS: It could be in a couple of quarters or less or it could take longer depending upon the market demand. Right now demand has been increasing pretty strongly and that would indicate that we should be in pretty good shape in the not too distant future. But if I say more than that, my CFO and general counsel will kill me. So I'll have to let it go at that.
GHARIB: Mr. Toll, you said today that you're seeing signs that the housing market is stabilizing. Can you elaborate on the trends that you're seeing?
TOLL: About six months ago, we would see the average buyer about eight to 10 times and probably the only question that was being asked was can you give me a few more dollars in incentives? Can you knock $5,000 or $10,000 more off the price of this home? Otherwise, I don't think I'll be able to buy. Whereas now we see the client buying after five or six visits and being concerned after the first couple to establish the price with can I get the garden room? Can I get -- can I put an add-on for a music room? Can I have a mother-in-law suite developed in connection with the home? So we're now back to primary interest of the home itself as opposed to being concerned only with the price.
GHARIB: Now you also mentioned today that you're seeing people are realizing that this is a buyer's market. Is that translating into new orders and actual contracts? I mean what is, can you expect for Toll Brothers this fall?
TOLL: Where I see it in the fall is only to extrapolate as you would and say if things continue, then the demand will continue to increase. But it seems to me as though we're more likely to be going up in terms of demand and up in terms of price than we are to be going down. And I think the public is starting to sense that.
GHARIB: So are contract cancellations less of a problem now for Toll Brothers?
TOLL: Oh, very much so. Our cancellation rate now is down to about 8.5 percent. A normalized rate is about 7 percent. So we're almost back to the normalized rate that we've enjoyed since 1986 as opposed to the last four years when the cancellation rate went up as high as -- I'm not exactly certain, but it was something like 25 percent.
GHARIB: Now you mentioned on the analyst conference call today that you're seeing a pickup in demand for high-end luxury homes. What about prices on the high-end? Are they also holding up?
TOLL: We've increased prices, I believe on about 40 percent of our communities in the last month, month and a half. So they're not only holding up. They're going up which is a very welcome sign because that was a rarity over the past four years until about the last four or five months.
GHARIB: Now we've heard from some economists that there are chances for a double dip recession. How are you adjusting your business plans for that possibility?
TOLL: Well, we're not adjusting our business plans for that possibility. We're not adjusting our business plans for the V recovery or for the U recovery. We're anxious to buy land but we are anxious to buy it on a criteria, on a basis that uses the criteria of what exists today, not what will exist with inflation and home price and inflation and demand. So if we continue to use the threshold of our current experience, we feel comfortable in acquiring land, but we're not yet willing to make an assumption that things are going to get better when it comes to actually putting out the money for land acquisition.
GHARIB: All right. Well we'll check in with you again in the next couple of months. Thank you so much for coming on the program tonight.
TOLL: You're welcome. It's my pleasure. Thanks.
