Luxury home builder Toll Brothers reports third quarter loss

Toll Brothers, one of the US’s largest builder of luxury homes reported a net loss of $472.3 million, a substantial increase compared to Q3 2008, where the company lost $29.3 million. This brings the total losses for 2009 so far to $644.4 million, bringing their net debt-to-capital ratio down to 14.5% from 18% at the same point in time last year. The company claims to hold $1.66 billion in cash reserves, and $1.35 billion available under a credit facility offered by a consortium of 30 banks.

Chairman and CEO, Robert Toll remained cautiously optimistic, citing a fall in the percentage of cancellations and a small increase in average home prices as his reasoning,

While our FY 2009 third-quarter results reflect continuing challenging housing market conditions, we do see signs for optimism. As recently reported, for the first time since our FY 2005 fourth quarter, our third quarter total net signed contracts were ahead in units compared to one year ago: With 22% fewer selling communities during the quarter, that translated to a 32% improvement in per-community (”same-store”) net signed contracts in FY 2009’s third quarter versus FY 2008’s third quarter.

For the first time in three years, the number of homes in our backlog grew compared to the prior quarter, reversing a twelve-quarter trend. And, four weeks into our fourth quarter, our per-community deposits, the non-binding precursor to signed contracts, are running 26% ahead of last year’s comparable period.

FY 2009 third-quarter cancellations totaled 78, compared to 161 in FY 2009’s second quarter and 195 in FY 2008’s third quarter. Our FY 2009 third-quarter cancellation rate (current-quarter cancellations divided by current-quarter signed contracts) of 8.5% was the lowest since FY 2006’s second quarter. This compared to a rate of 21.7% in FY 2009’s second quarter, and 19.4% in FY 2008’s third quarter. As a percentage of beginning-quarter backlog, FY 2009’s third-quarter cancellation rate was 4.9%, the lowest in three years. This compared to 9.8% in FY 2009’s second quarter and 6.4% in FY 2008’s third quarter.

We believe declining cancellations and more solid demand indicate that the housing market is stabilizing. We are reducing incentives and raising prices in selected communities. We believe that customers are recognizing that now is the time to get into the market to take advantage of near-record affordability and what is still, for now, a buyer’s market.

Our cautious optimism is reflected in encouraging data released this week from several sources related to housing and consumer confidence. On Tuesday, The S&P/Case-Shiller Index (www2.standardandpoors.com) reported that “home prices are on an upswing”: The index rose 1.4 percent in June from the previous month, which was the second consecutive month-over-month gain and the largest gain since June 2005. Home prices rose in 18 of 20 metropolitan areas.

Clearly, the luxury homes market is under as much pressure as the rest of the market currently, with credit still remaining tight, and buyers either lowering their price point or waiting for a bargain. Most investors seem to be sitting on the sidelines, or picking up large blocs of property at substantial discounts. Sales of investment properties in Singapore did pick up slightly last quarter according to CB Ricard Ellis in Singapore, but the same story is playing out in most countries.

The Toll Brothers full press release with detail is here.