Toll Bros.' $1.6B deal joins homebuilder land rush
- Article by: ALEX VEIGA
- Associated Press
- November 7, 2013 - 4:10 PM
LOS ANGELES — Encouraged by a housing rebound lapping its second year, many U.S. homebuilders are loading up on land and entering new markets as they gear up for next year's spring home-selling season and beyond.
The land-buying push comes after several years during which builders hoarded cash and held off from making large land purchases or preparing raw land for new construction as they rode out the housing downturn.
On Thursday, luxury homebuilder Toll Brothers Inc. said it agreed to buy the homebulding business of privately held Shapell Industries Inc. for about $1.6 billion. The deal will give Horsham, Pa.-based Toll a trove of land parcels in wealthy, high-growth markets in California such as metro Los Angeles, Orange County, Carlsbad and the San Francisco Bay area.
Earlier this week, builder Tri Pointe Homes Inc. said that it would combine with Weyerhaeuser Co.'s homebuilding business in a deal valued at about $2.7 billion.
In June, builder Ryland Group Inc. purchased the Dallas/Fort Worth operations of LionsGate Homes, expanding its presence in the region. And last month William Lyon Homes — which went public in May — said it was bolstering its Colorado presence, acquiring four new home communities there under the Village Homes brand.
"You didn't see this type of M&A activity during the downturn for a reason," said Williams Financial Group analyst David Williams. "A lot of it speaks really to the confidence of the homebuilders."
Rising home prices and a thin supply of previously occupied homes for sale in many markets have builders feeling more optimistic about their sales prospects.
Home construction and sales have rebounded from the housing bust and boosted economic growth for the past two years. Spending on home construction and renovations accounted for about one-seventh of the economy's 2.8 percent annual rate of growth in the July-September quarter, according to a government report Thursday.
Some analysts worry that housing's recovery could slow in the coming months because of rising home prices and higher mortgage rates.
Even so, most analysts expect that the housing market will keep improving next year, though at a more modest pace.
For builders like Toll Brothers, the outlook may be brighter.
The company caters to more affluent homebuyers who earn at least $100,000 a year and are more likely to have the means to cover a down payment and be more invested in the stock market, which has hit new highs this year.
California is a key growth market for luxury homebuyers.
Toll Brothers entered the California market in 1994. It has produced approximately $6.5 billion in revenue from more than 90 communities in the state.
The builder expects to acquire about 5,200 lots from Shapell, which would bring its total lots owned and controlled in California to about 9,200.
"Shapell's current portfolio dovetails perfectly with our own California footprint and luxury brand, and adds meaningfully to our presence in premier coastal locations in California," Toll Brothers CEO Douglas C. Yearley Jr. said in a statement.
Toll plans to sell about $500 million worth of land after the buyout closes.
The builder plans to finance part of the Shapell acquisition with net proceeds from a public stock offering of about 6.3 million shares of its common stock. The homebuilder is giving the underwriters a 30-day option to buy up to an additional 937,500 shares.
Toll Brothers could raise about $204.9 million from the offering based on its Wednesday closing price of $32.52.
The Shapell acquisition is targeted to close in the first quarter of 2014. It is expected to add to Toll Brothers' earnings in the first year, excluding transaction costs.
The Shapell family, which founded the builder in 1955, will remain owners of its retail, commercial and multi-family businesses.
Shares in Toll Brothers ended regular trading down 85 cents, or 2.3 percent, at $36.75. The stock is up about 1 percent this year.
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