TOL
#Yes, as <UNK> just said the answer is both.
We have traditionally used M&A to enter a new market.
That occurred in seven of the eight builder acquisitions.
The only one that was not that case was Chapelle, which was ---+ we were already in California, that was effectively a very large land deal.
There are several markets we are looking at that for that would be new to <UNK> and as part of that investigation we not only look at land opportunities, we look at local builders.
And that will continue, but there's also opportunity within existing markets to take advantage of a great deal.
Remember the most value of the builder is its land, so we always have to weigh do we want to buy a builder that has some really good land, some above-average land and then maybe some average or below-average land and blend of that together in a market we are already in where we don't need the brand and the relationship with contractors and somebody to explain the architecture to us and how to buy land, etc.
We have to then weigh whether it's worth it to buy a portfolio that is a blend of different quality land with just chasing the best land deal in the market.
So we are in action.
There are quite a few small and medium-sized builders that are being marketed now.
We have a team that focuses on M&A exclusively, but nothing to report and I don't think it will be any different from what you've seen out of us which is eight acquisitions over 21 years.
We are very selective.
Sure.
So Porter Ranch was part of the Chapelle acquisition.
It's a town in LA County.
It's 20,000 residents, it's been around for 30 years.
We've mentioned before it's where ET was filmed when the kids were riding through the neighborhood.
So that helps date it.
Very successful community, and we were rolling until October of 2015 when the gas leaked occurred several miles away.
That gas leak took a month to fix.
The schools were closed.
Of course, people have to move out.
Right now we are on pace of the recovery.
We knew it would take some time.
We are selling at about two-thirds the pace that we were achieving before the leak, and that is up significantly since the month after the leak.
The good news is there's been no change in pricing.
We haven't had to come in with smaller product or at different prices or bigger incentives.
It's a great community with schools and office and retail and many happy residents.
And it's just taking some time to fully recover as we expected it would.
So I'm happy with where it now stands, but we fully recognize that we are not back all the way to where we know it will be.
Well, I think we are doing, I will say, as we anticipated.
But we are seeing an extended construction cycle, but not any greater than we had anticipated and not any, I will say, worse than we had seen last year.
It may be taking us two to three weeks longer to build a house than in a normalized labor market.
But we've expected that and we've been able to hold to that.
And so when we see sales pick up like they have and we don't see incremental delays beyond what we expected it leads us to increase the delivery guidance.
The concentration is as Doug outlined ---+ since we used that piece of paper we can't find it now.
It has significant openings planned for Northern and Southern California, Pennsylvania and certainly Boise from a year-over-year perspective but those have already happened.
What else do you have.
On the cadence it is pretty consistent over the four quarters of the year.
What I was just shown had 30 openings in Q1, 18 Q2, 16 Q3 and then 25 in Q4.
So we roll them out when the roads go in and either the sales trailer or the model opens and the landscaping can hit and it's already to go.
And it's, again, is just the timing of when all of that can occur when we get permits and when we can move forward.
And I'm happy with this cadence.
Texas, Pennsylvania, Florida are the first locations for T select.
Yes, on track.
Absolutely.
When Chapelle arrived, probably the greatest deal this Company has ever done, that was 5,000 lots that we had to buy and that's the way the deal was.
So we were we will be opportunistic.
We certainly want more option lots.
We are very focused on ROE.
We understand.
Pre-downturn we were 50/50 or better of optioned versus owned.
And as the market collapsed on the industry in 2006, 2007 it is pretty tough to shed owned lots, so you can shed option lots.
And that skewed our ratio the other way and we are moving them back.
We are not going to get to 50/50.
There aren't those opportunities out there unless we were to do very expensive land banking that we're not going to do.
So you will see it move as our teams are more focused on optioning versus owning.
We also have some opportunities to put larger assets into joint venture and keep them off our books.
We don't have a goal we are shooting to because we don't know the nature of the next opportunity and whether that seller will demand all-cash or we can work out a terms of deal.
But it is something we are very sensitive to, and you will see us continue to work hard to improve ROE and option more land.
You are speaking backlog conversion rate.
And we don't see any reason why it wouldn't.
And I think our increased delivery guidance is reflective of that.
I can't update you on what we think price increases will be during the course of the year because that is completely market-driven.
I can tell you today we are experiencing pricing power primarily out West in the markets we've been talking about.
Our incentives have remained flat companywide and our cost creep has been modestly below our price increases.
You talk about tri-state and then you talk about City Living, so I will take them separately.
Tri-state, Connecticut has been slow.
We are small in Connecticut and we are being very cautious.
Westchester County, New York has been strong and New Jersey has been hot.
A lot of that has to do with availability and where our land is located.
So we are in no way giving up on the tri-state.
If you have land in the right location we think you can do very well as we have.
With New York I highlighted a couple of buildings in my prepared remarks that are doing well.
The Hoboken building continues to perform very well and we had a new opening as I mentioned on 22nd Street where we are very happy to have 10 contracts in the first three months of opening.
We have in certain locations as we've talked about had increased incentives to sell, but even with those increases in incentives our gross margins have far exceeded the Company averages and we are very comfortable with the location of our properties in New York.
We are being cautious.
We haven't bought land in New York City in a couple of years now.
We are looking.
There are some deals that are coming back around at different pricing that may become interesting.
But I think we are well-positioned to absorb what has been going on in New York City.
As we've talked about we've also moved some properties into joint ventures.
<UNK> gave the example of a $350 million equity requirement is now $30 million.
And so I think we are being cautious and smart but also ready opportunistically to jump on some opportunities that could come along.
We have not.
We still have 20% all-cash buyers.
A lot of those come out of the Active Adult category and those that get a mortgage are still on average putting 30% down and only mortgaging 70%.
We do rates today, the jumbo is about a quarter point below a conforming Fannie Freddie loan, so about a 4 1/8 loan and a conforming is about 4 3/8 and as you know we have more jumbo buyers than the other builders.
So the mortgage side of our business is good and the buyers are really doing nothing different than they had in the past.
<UNK> <UNK> is here running TBI Mortgage Company.
<UNK>, anything else to add.
No, I think you hit it on the head.
The spreads are good.
The 7/1 ARM is 3.5% on a jumbo today.
So I don't think it's an impediment to buying.
There's lots of liquidity out there.
We are seeing people offerings every day almost with different stuff.
So I don't think mortgage is an impediment right now.
We achieved some of that ramp-up already in this quarter so we will have less of it for the rest of the year.
We have now delivered first quarter, we have given you guidance for second quarter and we have told you what the full year is going to be.
We are going to leave it at that.
Sure.
So the transaction we just announced closed at a 5 cap rate which was consistent with where we had underwritten it.
I think we continue to see investors have an appetite for the product.
But their willingness to lever has been curtailed a bit.
Instead of seeing 70% leverage we're seeing 55% to 60% leverage be acceptable to the investors.
And shockingly the banks aren't upset about that either.
I think in this particular case we really like the asset.
We like the return on our residual basis in it.
This is the Park at Plymouth project, and we get fees as well as getting regular return on investment and we have a $7.5 million gain to tap into at some point in the future if we want to.
We haven't changed our underwriting but we are being conservative.
We always underwrite to today's markets, so as <UNK> mentioned if we can't lever to 70% then we have to lever to 60%.
We build that into the underwriting.
If today's cap rate is 5.25% instead of 5% we build that into the underwriting.
The one thing I will comment on that you hit on the little bit, <UNK>, is location.
The Main and Main strategy of <UNK> for sale applies to <UNK> rental.
The quality, it is all condo quality and that so far is paying huge dividends.
There is a dramatic difference between a 15-year-old apartment community in the Philadelphia suburbs and what we have been talking about that we just sold down our interest in which is new and fresh and of condo quality not just in terms of the units but in terms of the amenities: the residence club, the dog spa, the pools, the gym.
And so we are going to continue with the <UNK> brand of luxury in the apartments, be obsessed with location and the quality of what we build but we are also going to be very aware of where the markets are moving and underwrite appropriately.
I think it's also helpful to note that our financial strength and our capital commitment to these projects is much greater than, I will say, historical apartment developers who put 5% to 10% of the money in, they get a pension fund to join them and a bank to finance them.
We are putting 25% in and as the banks and those pension funds get a little bit more selective on who they choose to partner up with we look better and better.
Sure.
Active adult is a growing part of our business.
As we talked about over the past year we have now successfully moved it west of the Mississippi, and it is today about 14% of our revenue, projected revenue for 2017 compared to about 11% in 2016.
So you can see the growth there.
And it we are continuing to look for new opportunities.
We've got Active Adult, obviously, all over the <UNK> and Midwest and now we have it in Denver and we are looking at opportunities in Phoenix, we are looking at opportunities throughout the West Coast.
We are even looking in Texas.
And with the boomers aging and hitting that move down point of their life we want to make sure we have plenty of Active Adult communities for them nationwide.
So it will continue to grow over the coming years.
The tax rate guidance we gave for the full year is 36.2% and we are sticking to that.
So we were a little bit below that in the first quarter.
We expect be a little bit above that in the second quarter and average out at 36.2% or so for the year.
Andrew, thanks very much.
Thanks everyone for joining in today and we will see all of you soon.
Take care.
