Toll Brothers Expects Some Relief
From Bush Mortgage Plan

Toll Brothers Inc., which yesterday reported that it suffered its first quarterly loss in its two decades as a public company, expects a small amount of relief from the Bush administration's housing rescue plan.

The Horsham, Pa.-based builder issued a gloomy forecast for 2008, making it clear that it doesn't expect a major improvement soon. Chief Financial Officer Joel Rassman said the company expects revenue to fall in 2008. The company declined to offer a profit forecast citing "numerous uncertainties related to sales paces, sales prices, mortgage markets, cancellations, market direction" and other factors.

Toll, which focuses on luxury houses and condos, is the latest home builder to post a quarterly loss as home sales have all but frozen in some communities and prices are plunging. The Dow Jones Wilshire U.S. Home Construction index, which includes Toll and the other large builders, is down 53% since Jan. 1, although the index rose 3.3% yesterday, after President Bush announced his plan to freeze interest rates on certain mortgages. Toll's shares were up $2.70, or 13%, to $23.42 in 4 p.m. composite trading on the New York Stock Exchange yesterday, also boosted by the bailout plan.

Chief Executive Robert Toll said the plan would likely help the builders by stemming the flood of foreclosures that threatens to add inventory to an already saturated market. "Every foreclosure that is prevented is one less home that goes on market and that's good" for home builders, Mr. Toll said in an interview.

The chief executive criticized the plan for singling out subprime borrowers, while potentially overlooking prime borrowers -- or borrowers with good credit -- with resetting rates. Mr. Toll told investors during a conference call that it didn't seem fair that "your next-door neighbor with a teaser rate is stuck because he had prime rating."

Toll, which traditionally has been one of the most profitable home builders in the industry, reported a fiscal fourth-quarter loss of $81.8 million, or 52 cents a share, driven by $314.9 million of pretax inventory impairments and related write-downs.

"By many measures fiscal 2007 was the most challenging of the forty years that Toll Brothers has been in business," Mr. Toll said in a written statement.

The company expects to deliver between 3,900 and 5,100 homes next year, with the average price ranging from $630,000 to $650,000. Mr. Rassman said he expects the average price to fall over the year. Toll delivered 7,023 homes in its fiscal year ending Oct. 31, with an average selling price of about $697,500.

Unlike most builders, Toll has held its prices, even at the risk of a slower sales pace. Part of Toll's strategy is to hold on to valuable land instead of building less profitable homes on it. The company is helped by a sizable cushion of free cash and low debt, while other builders face liquidity issues.

Toll said it ended the fourth quarter with $900 million in cash and more than $1.2 billion under its bank credit facility maturing in 2011.

Analysts question how long Toll can hold out on this strategy as the market deteriorates. Mr. Toll answered yesterday: "We are not at a point where we are ready to discount what we consider prime ground," he said. "I can't say how long it will be."

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