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Executives

Robert Toll - Chairman & Chief Executive Officer

Joel Rassman - Chief Financial Officer

Doug Yearley - Executive Vice President

Marty Connor - Assistant Chief Financial Officer

Fred Cooper - Senior Vice President of Finance & Investor Relations

Joe Sicree - Chief Accounting Officer

Kira McCarron - Chief Marketing Officer

Mike Snyder - Chief Planning Officer

Don Salmon - President of TBI mortgage Co.

Greg Ziegler - Vice President of Finance

Analysts

Dan Oppenheim - Credit Suisse

Joshua Pollard - Goldman Sachs

David Goldberg - UBS

Michael Rehaut - JP Morgan

Kenneth Zener - Macquarie Capital

Stephen East - Pali Capital

Nishu Sood - Deutsche Bank

Megan McGrath - Barclays Capital

Carl Reichardt - Wells Fargo Securities

Josh Levin - Citi

Mike Widner - Stifel Nicolaus

Jay McCanless - FTN Equity

Joel Walker - FBN Securities

Timothy Jones - Wasserman & Associates

Jim Wilson - JMP Securities

Bose George - KBW

Michael Rehaut - JP Morgan

Toll Brothers Inc. (TOL) F4Q09 Outlook Call November 11, 2009 2:00 PM ET

Operator

Good afternoon. My name is Litangie and I will be your conference operator today. At this time, I would like to welcome everyone to the Toll Brothers fourth quarter outlook conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Mr. Robert Toll.

Robert Toll

Thank you, Litangie. Welcome and thank you for joining us everybody. With me today are Joel Rassman, Chief Financial Officer; Doug Yearley, our newly promoted Executive Vice President; Marty Connor, Assistant CFO; Fred Cooper, Senior Vice President of Finance and Investor Relations; Joe Sicree, Chief Accounting Officer; Kira McCarron, Chief Marketing Officer; Mike Snyder, Chief Planning Officer; Don Salmon, President of TBI mortgage Co; and Greg Ziegler, Vice President of Finance or the man with the answers.

Before I begin, I ask you to read the statement on forward-looking information in today’s release and on our website. I caution you that many statements on this call are based on assumptions about the economy, world events, housing and financial markets, many other factors beyond our control that could significantly affect future results. Those listening on the web can email questions to www.rtoll@tollbrothersinc.com.

This will be our final pre earnings conference call. Starting in fiscal year 2010, we will do just one call a quarter, which will be at our earnings announcement. We believe this is consistent with what other companies in our industry now do. We also believe the analysts only need to wakeup at oh-dark-hundred once a quarter instead of twice in order to publish reports on our results.

Yesterday we reported preliminary results for our fourth quarter ended October 31, 2009. We will announce final results when we report earnings on December 3. Since our detailed release has been out since yesterday evening and is posted on our website, I will just hit certain highlights. Our fiscal year ‘09 fourth quarter net signed contracts of approximately 765 units and $430.8 million rose 42% in units and 62% in dollars, compared to fiscal year ‘08 fourth quarter totals.

‘09 first fourth quarter totals also exceeded fiscal year ‘07s fourth quarter net signed contracts by 17% in units and 18% in dollars. These increases were achieved despite having fewer selling communities. During fiscal year ‘09s fourth quarter we averaged 215 selling communities, down 26% from 290 in fiscal year ‘08s fourth quarter and down 32% from 315 the fourth quarter peak in fiscal year ‘07.

Our contract cancellation rate, current quarter cancellations divided by current quarter signed contracts, was at 6.9% in Q4 of fiscal year ‘09, which was inline with our pre downturn historical averages. On a per community basis, fiscal year ‘09s fourth quarter net signed contracts of 3.56 per community exceeded fiscal year ‘08s fourth quarter of 1.86 units per community by 91% and exceeded fiscal year ‘07s fourth quarter of 2.08 units per community by 71%.

Our fiscal year ‘09s fourth quarter per community net signed contracts were 4% above fiscal year ‘06s fourth quarter of 3.42 units per community, but still well below our 20 year fourth quarter average of 6.16 units per community. Our fiscal year ‘09s fourth quarter home building deliveries and revenues declined 20% in units, 30% in dollars and our fourth quarter end backlog declined 25% in units and 34% in dollars, compared to fiscal year ‘08.

For the full fiscal year ‘09, net signed contracts declined 16% and 19% respectively, compared to fiscal year ‘08. Home building deliveries and revenues declined 37% in units and 44% in dollars compared to fiscal year ‘08. We have definitely progressed from one year ago. The shock to the financial system in mid-September 08 that shut down the capital markets appears to be mostly behind us.

The improvement in consumer confidence over the past year, the increasing stabilization of home prices, the decline in unsold home inventories and the reduction in buyer cancellation rates suggest that the new home market should be improving; we sense that it is, though slowly and through choppy waters. Home buyers began to emerge from their bunkers in late March 2009 and the market continued to gain momentum up to Labor Day.

Since then demand has been volatile: This maybe due in part to typical seasonality, but the more likely cause is concern about unemployment and the overall economy. We continue to focus on maintaining significant liquidity. We ended fiscal year ‘09 with $1.81 billion of cash and $101 million of marketable treasury securities, compared to $1.68 billion of cash at fiscal year ‘09s third quarter end and $1.63 billion at fiscal year end ‘08.

At fiscal year end ‘09, we had $1.38 billion available under our $1.89 billion 30 bank credit facility, which matures in March 2011. We also continue to strengthen our balance sheet. In April of ‘09, we became the first public builder to tap the public debt markets in the aftermath of the September ‘08 financial crisis. Since then, we have issued $650 million face value of senior notes with a weighted average maturity of 9.1 years at the time of issuance.

Effective December 1, ‘09, we will have retired $543 million of public debt, which includes $48 million we recently called for redemption, with a weighted average maturity of 2.5 years at the same time of retirement; we also will have extended the average maturity of our public debt from 3.5 years to 6.1 years.

As of December 1, we will have no public debt maturing before fiscal year 2013. We’re please that the home buyer tax credit was extended and that eligibility for the credit was expanded beyond those buying their first home. We believe this will help bring some reticent home buyers into the market and will also put some people back to work.

Now let me open it up for questions. Litangie.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Dan Oppenheim - Credit Suisse

Dan Oppenheim - Credit Suisse

I was wondering if you can talk a little bit more in terms of the choppiness after Labor Day, was that something you’ve seen regionally. Is that something you’ve seen nationally little more color on that?

Robert Toll

We saw pretty much nationally. My view on where we are in the recovery is I’m no longer asked if we have turned the corner or found the bottom. Most people take that for granted. I think we could be in the same place as we were in May or June of 1991. We endured a tough recession from ‘87 to the last weekend in January of ‘91 which was three plus years.

When we observed smart bombs, going down chimneys in desert storm later we learned that smart bombs weren’t really that smart, but that’s another story. The stronger demand stopped however in April of 91 and we thought we were falling right back into where we came from. It turned out to be just inline with ordinary seasonality, which normally stalls from Easter Passover until July or August.

Then we began to recover again and then we ran out of gas, Halloween, Thanksgiving and Xmas, then we were up and down again for the next year until ‘93 when things really started to home. That lastly pretty much for 13 years all the way to Hurricane Katrina in Sep ‘05, then began to slide in the housing depression that we now believe ended approximately in March ‘09.

So, basically we think we’re working our way out of it. It will come in fits and starts. There will be months when we feel lousy. There will be months when we think we’re back on top. It feels to me, however, as though we’re going to work our way out of it and into times of success again. So that’s as much local color, I think, maybe more local color than you wanted on where I think we are.

Operator

Your next question comes from Joshua Pollard - Goldman Sachs.

Joshua Pollard - Goldman Sachs

Last quarter you told us that you were raising prices in about 60% of your communities. Can you give us an update and sort of what’s really driving the price improvement in your market?

Doug Yearley

The same thing that always drives it come to the office Monday morning after having observed the Sunday night sales report, looking at how you’ve done and you notice that you’ve taken two deposits this week, two last week, two the week before and you say to yourself, well we’ve got 20 in backlog, 24 was our target for the year. We’re going to exceed the 20 in backlog and let’s take a shot at raising our price by $5,000 or lowering the incentive more than likely by $5,000, and then we go to review the next community and so on and so forth.

Operator

Your next question comes from David Goldberg - UBS.

David Goldberg - UBS

The question I want to talk to you about is as you look forward and kind of look to the recovery, I guess going trying to idea what you guys are thinking about in terms of mortgage rates and really as I look at it, what’s going to happen if the Fed starts stepping out of the MBS market like it plans to in March of next year and what that could potentially mean for rates and the pace of potential recovery.

Doug Yearley

Don Salmon, head of our mortgage Co, why don’t you take a shot at that and follow up Joel or Marty or Greg, the answer man.

Don Salmon

I think it’s pretty clear that the Fed has had an effect on rates, but I don’t think it’s clear how much of an effect they’ve had on rates. So it’s hard for us to predict what’s going to happen to rates in the future. So I wish I had a better answer for what I think is going to happen. What I know will happen is that rates are going to be low enough that I think people will won’t be turned off by high rates. I don’t think we’re going to be in teens or anything like that. I think we’ll be in the mid single digits and I think we’ll still be able to sell houses.

Joel Rassman

The average rate over the last 40 years is something like 8.5 and depending upon where you approach that from, answer the question of what are rates going to do to your business. When we approached 8.5 from 16, well, of course we were just flat out steaming when we approach 8.5.

When we get to approach s 8.5 from 4 3/4 quarters, I would say obviously business is going to slow down, but I think it’s not going to be down for long before people recognize that this isn’t a bad rate and it is in keeping with historical norms. Do you have anything to add to any of this?

I think the most intelligent comment on rates was made by Mike Milken last week at a conference where Mike said, anybody that thinks they have the slightest idea of where rates is going is a mad man or something like that. I paraphrase. I thought it was pretty intelligent.

Operator

Your next question comes from Michael Rehaut - JP Morgan.

Michael Rehaut - JP Morgan

First question, and if I could get a follow-up in, I’d appreciate it, but first question just on community count. You had mentioned expecting year end 2010 fiscal 2010 to be around where you are now and it seemed like on your last call that you’re talking about speaking with your division Presidents about seeing how that number could actually be higher or start to get the community count going again.

Given that your absorption has improved now for at least a couple quarters year-over-year and starting to move in the right direction. I was wondering if you could talk about your thoughts with regarding either de- mothballing certain communities or if there are perhaps a lack of deal flow or potential deals out there that you’re not seeing that would allow you to get that community count higher.

Robert Toll

The deal flow has definitely picked up. Thank goodness, we’re away from the quandary of six months ago, which was how can everything be so lousy, and we’ll not be seeing any distressed deals. We no longer have that question. We’ve definitely got some stuff coming in. With respect to the community count, which is wrapped up in the question of are you going to de-mothball some communities, Joel or Mike; Mike Snyder also known here at Dr. Doom.

Mike Snyder

We actually have shut down communities, mothballed as we speak we have 39 in our pocket to look at and an additional 56 deals we own, which we never opened all together. That’s 95 communities in our pocket to look at.

Michael Rehaut - JP Morgan

The question is, we intimated, if not implied at the last conference call, that we were going to dip into those perhaps and bring some of them back into production or in production.

Mike Snyder

Right now, we continue to be very conservative in what we think we’re going to open with the selling season starting in January. We’re going to take a much closer look at it, but right now the flat 200 over the year is relatively conservative, staying where we are.

Michael Rehaut - JP Morgan

How many communities are going to close?

Mike Snyder

Right now, we’re projecting closing out 32 throughout the year and opening 32 that’s how we stay flat.

Robert Toll

I wanted to make sure the question was answered with regard to how many we really are going to be opening. 32 through natural events, we hope and, therefore, we’ll be opening 30 some odd in order to stay in balance.

Michael Rehaut - JP Morgan

Bob, I mean, as you guys look at it and obviously, the straightforward question is or response would be if things get better you’d reconsider or you get more aggressive potentially, but in order to maybe get a little more granular there, let’s say you get one more sale per quarter or two more. I mean is there sort of a number that you’re looking for to pull the trigger on some of these mothballed or 56 that haven’t opened?

Robert Toll

There is, but unfortunately the business is really a community by community business. It’s not even a region by region business and you take a look at the community and you say you know what, I own these lots for next to nothing and they’re pretty good lots. We like the neighborhood we’re in. The market’s come back 10%, but I’m going to sit on these until the market comes back more or I’ve got these things in here, not next to nothing.

I bought these lots at maybe a little more than I could buy replacement lots for now, but I can get out of these things if I put up a model home and go to work right now, maybe we want to work this thing off and those are the decisions that are going to be made as the information comes in.

As a matter of fact, just yesterday, we did a review of North and South California and we had a couple of pieces come into us from Florida and we decided some we would open, some we would progress with the ordinary work that it takes to open a community, but we weren’t willing to pull the trigger.

We were going to comeback and evaluate it in the second and third week in January, before we pulled the trigger, because that’s when the market seasonally comes back and if it comes back with any strengthen we’ll pull the trigger. If not, we’ll lay low for another couple of quarters to wait and watch and see. It’s the best answer, I can give you.

Operator

Your next question comes from Kenneth Zener - Macquarie Capital.

Kenneth Zener - Macquarie Capital

I’m wondering if you could talk about two things. One with 68% of your backlog in the Mid-Atlantic and north, can you talk about the relative order strength you guys for absorption strength you saw within the different regions, because it seems like you’re more geared toward those two regions now versus the past?

Robert Toll

What were those two regions?

Kenneth Zener - Macquarie Capital

The north…?

Joel Rassman

Mid-Atlantic and the north, that’s basically North Carolina write-offs.

Robert Toll

That’s where we’re doing better than anywhere else in the country. Was there more to the question than that? Go ahead Joel.

Joel Rassman

I think he was asking for a little bit more color. Obviously, the Washington, DC market has been stronger in general than other areas. As has New York and those are two and Connecticut and those are markets that Bob has talked about over the last few conference calls as being better markets for us and therefore we have more orders.

Robert Toll

I asked Mike Snyder to rate our markets, which I’m not going to go into because I still fearful of getting back or getting into the F report, but I asked Mike to tell me over the last quarter what actually it wasn’t the last quarter?

Mike Snyder

It was the current four weeks.

Robert Toll

Over the last four weeks what are our top 10 markets and he gave me Massachusetts and the New York, exurb, suburbs, Connecticut, New York City living and New Jersey City living. The New Jersey City living is practically the six borough of New York, Philadelphia suburbs, Virginia and Central Florida crept in there and Northern California, Dallas and that was about it.

So that gives you pretty much an understanding of where the strength is. Oddly enough, this is pretty close to the order of things that occurred as we came out of the recession of ‘87 to ‘91. We came out first strongly from Boston down through Washington, DC and it wasn’t for another year or two until California and Phoenix markets came back. So we seem to be following the same pattern, but no promises are made.

Operator

Your next question comes from Stephen East - Pali Capital.

Stephen East - Pali Capital

If I could talk about, in your press release you talked about quick delivery homes and could you just give us a sense of what percentage of sales that really was this quarter? Have you pretty much wrapped up that process or do you still have a lot of excess inventory that you would like to clear out?

Robert Toll

All inventory we would like to clear out. I guarantee you that. I don’t want to call it excess, but…

Joel Rassman

In total about 30% of our houses that we delivered in the quarter were houses that you would have classified as quick delivery homes, either they were single family homes that we had cancellations on or they were homes in high density communities where you build the whole building after you’ve had a certain amount of sales.

Stephen East - Pali Capital

Weren’t more of them coming out of the multifamily structures that you’re forced to build spec?

Joel Rassman

Yes, the biggest portion of that came out of multifamily structures. The biggest region that was benefited by that was Northern California.

Robert Toll

Right, because we had in Northern California more of our multi-family podium, three, four story structure than we had anywhere else. For CRI City living, everything that comes out comes out from spec, because you put up a building until your first delivery, you’re sitting there with everything having been built.

You agreements against it, but if we decide to pull a trigger and go in a building with 50% presale, the minute we get above the first floor, we’ve got 50% of that building in spec. On a single basis it seemed to me that we were still in very good shape with only one or two specs per community.

Stephen East - Pali Capital

I think we averaged about one and-a-half?

Joel Rassman

1.4.

Robert Toll

1.4 specs per community.

Stephen East - Pali Capital

For single family.

Robert Toll

For single family, which is where we want to be, we want to have something available for the person that shows up and says I need a home right away, but if three of them show up, I’m sorry, we’re not going to be able to handle it because, we don’t want to build specs.

I’ve got a question here from Ramsey Sue. “Great quarter, thank you; I have one question. I’m trying to figure out why Toll orders are so much better than the other builders. Could Toll be sitting in the suite spot, one of you guys writes this and sends it in?”

By that I mean, no REOs in your price points. So Toll does not have the same competition as the lower end builders. No, that’s definitely not true. There are REOs in our price points. We would love to get our hands on some good ones at a good discount.

Stephen East - Pali Capital

He means houses currently.

Robert Toll

I know what he means. Custom homes, be it owner, user of specs cannot get financing so buyers in this category may have to buy finished products, maybe I don’t think so. Existing homes in Toll’s price points, I’m willing to lower prices to what the market can bear now, eliminating for sale inventory. That’s probably true for those who are in their homes and can afford to stay in their homes. It’s certainly not true for the foreclosure business that racked against our price points as well as racking against the lower price points.

Do you think Toll can sit in the sweet spot indefinitely? Definitely would not call where we are the sweet spot after you take a look at the impairments that we’ve racked up over the past three years and indeed, when you take a look at the volume that we have today. Let me see, do you see pressure coming both in price and competing inventory?

Yes and no. It’s the same as it’s been. We definitely have less competitors in the private business and we do have a bigger share of the markets, but unfortunately the markets got smaller so on balance we didn’t get help.

Operator

Your next question comes from Nishu Sood - Deutsche Bank.

Nishu Sood - Deutsche Bank

The past couple of years, you provided a very helpful breakout of the pricing of your gross orders relative to your cancellations and you did that a couple years ago I think to give us a sense of why there might be a drag on your net orders. Now, this quarter for the first time the cancellation price fell below the gross order price.

As we were looking at that, we were thinking there, we were thinking about that what does that mean? It could be an indicator for example that your backlog has finally been kind of scrubbed, of the higher priced homes that aren’t going to follow through either because of mortgage conditions or because of housing deterioration. I just wanted to get your thoughts on that. What does that mean? Is that a correct interpretation? How do you look at that?

Robert Toll

I think you’ve got it, Joel.

Joel Rassman

In addition to being scrubbed the higher priced homes, we had a product mix that has been gradually taking place over three or four years where we’ve been introducing lower and lower priced product and so we had the large cancellations, those cancellations initially came from the more expensive homes that we sold three years ago and then two years ago and then a year ago.

Now, in the last year, if you look, or so if you look at the houses we have we have, you’ll find that they were at lower prices and therefore our backlog prices was lower. So you would expect our cancellations price to be lower. In fact, most of the cancellations for the first time this quarter did not come from very old houses. They came from normal sales. They were not from nine months or 12 months ago.

Robert Toll

It seemed to me that the rhetorical part of the question was indeed rhetorical and correct, in that we pretty much have worked our way through the very big and expensive homes that people all said “Oh, my goodness.” We have our equity completely wiped out and then some. We want to walk away from this and we were left with those homes that we’ve scrubbed out pretty much.

Joel Rassman

Some of the cancellations in the last year, for example associated with houses in city living, where we couldn’t make delivery times. So we had to cancel the agreements and give the majority. Those were million dollar houses.

Operator

Your next question comes from Megan McGrath - Barclays Capital.

Megan McGrath - Barclays Capital

I know we’re early days yet on some of the government extensions here, but curious if you’ve done any work, given the income limits and the expanded credit on what percentage of your buyers will potentially qualify for the new credit. In addition, can you benefit from the NOL extension into your next fiscal year?

Joel Rassman

On the buyer, we categorize income by $50,000 increments, so I don’t get $224,000 but cutting it off at $200,000 about 70% of our buyers report to us that they make $200,000 or less. You’ve got to be a little careful because they may not tell us all of their income, but that’s our current statistic, that 70% of our buyers in the last two quarters have reported that they make $200,000 or less with the average being $192,000.

Megan McGrath - Barclays Capital

The NOL?

Robert Toll

There was two parts to the question. “Thank you, Kira. How much will the NOL extension benefit us?”

Joel Rassman

We are different in terms that we have not booked, already booked losses for tax purposes that we cannot get back. So we can’t estimate that. It will depend on how much taxable losses may get triggered in 2010 and since we have no projections going out yet for 2010. We are not giving that information out.

Operator

Your next question comes from Carl Reichardt - Wells Fargo Securities.

Carl Reichardt - Wells Fargo Securities

Just a cleanup question to start, can you give me the owned option split of the 31,900 lots, Joel.

Joel Rassman

I don’t have it in front of me. We’ll get it.

Marty Connor

It was 84% owned; 16% optioned.

Carl Reichardt - Wells Fargo Securities

Then just a follow-up on Megan’s question, to ask it a little bit different way. Were the sales you made this quarter of non-strategic assets, can you quantify those? Were they mostly tax loss driven and could we potentially conclude, Joel, that given you are different in how you utilize the NOL that because you could use 2010 this may change your outlook on potential asset sales in 2010? Might we see them increase?

Joel Rassman

One of the benefits we got from getting rid of strategic land was the ability to generate losses that we could carry back. Obviously, that’s not the only reason you do it. There may have been some land that had too much land in a market that’s slow in current conditions.

We have not yet come to a conclusion whether or not for purposes of taxes we would do something, but more likely we would make an economic decision in 2010 to determine whether or not it makes sense for us to look at other things that where we have losses that could be generated, but it would probably be more economic than it would tax driven.

Getting back to the question about the impact of the tax credit for homes purchased, obviously on a mathematical basis for a firm selling homes at an average price of $600,000 approximately, getting a $6500 tax credit if you’re not a first time home buyer, getting $8,000 if you’re a first time home buyer, can’t be determinative of whether the sale is to be made, but what it does do is give us a great opportunity to have another reason to call a client that we’ve seen once, twice, or five times, and we have noticed over the past year that our clients want to be called.

They want the excuse. They want the reason to come out and buy the home. I think the overwhelming benefit of the tax credit, as it has been passed for us, is to give us our salespeople that excuse to once again making contact for the future with potential clients to try and drive them off the fence and into our home buying fold.

I have a question from John and Sue. “Okay. As an investor, I have listened to your informative conference calls, thank you very much?” For several years, I’ve observed that Toll has significantly reduced the number of selling communities and reduced its lot count, which has served the company well in the downturn.

No comment on that. However, now that the markets appear to have stabilized, I turn my attention to Toll’s prospects as a growth company. Do you believe the company presently has a sufficient lot count to prosper from a normalization of the housing market over the next year or two? Well, I hope so. We have 30 some odd thousand.

Mike Snyder

31,000.

Joel Rassman

31,000 lots, if we were to do double the number that we did this year, we would need 5,500, 6,000, so I think we’re in good shape on a normalization basis. John and Sue go on to say the company’s debt-to-equity ratio is at a low point and that the company has a large cash position and credit lines. Presumably, it appears this positions Toll well to acquire lots. Yes

.

However, now that the banks have also stabilized, it appears less likely that Toll will be able to acquire lots at the type of bargains that existing in the RTC days. You are right, John and Sue. If this is accurate, I’ve said it is in my opinion, what are your thoughts for restocking land lots for future long term growth? We’ve got to do it, but we’ve got the make sure that we don’t get caught up in a bidding war as there is less product coming than there was in the RTC days.

In fact, there was a bid situation in California last week or the week before and we ran eighth in a closed bid situation. Now, we may not be the swiftest or the brightest but after 40 some on years in the business, I would have hoped that we would have come closer than eighth and we think what happened was that you’re getting not only home builders bidding, but you’re getting land funds bidding that may get lucky and be right.

That you’re going to see a rapid appreciation, but on the basis of the current markets, even with a little inflation thrown in, we couldn’t see to get ourselves any closer than eighth to the winning lines, thanks very much says John and Sue. Sorry to hear that we will only have you and your great team present once a quarter. Well, thank you very much for the kind words. The feeling is not mutual.

Operator

Your next question comes from Josh Levin - Citi.

Josh Levin - Citi

I wanted to follow-up on the question about pricing power. Now, last quarter you said, you had raised prices in 40% of your communities. Are you still seeing pricing how power and how has your pricing power changed of late?

Robert Toll

In line with what I said earlier, our pricing power was pretty much as I had outlined, not through, but up to the Labor Day weekend up to the present we need not think we have as much pricing powers. As we had and have not raised prices as much as we had, because the market has been more volatile and getting back to the accurate depiction that I gave of the way we go about it, you sit there Monday morning with the guys from the communities and look at happy acres and instead of seeing 2222, for the last four weeks, you seeing 2010. You don’t feel as though you have the power to raise the price. So there you have that color.

Operator

Your next question comes from Mike Widner - Stifel Nicolaus.

Mike Widner - Stifel Nicolaus

Just two quick follow-ups, if I could, because most of the questions have been asked. Just a quick clarity on the $150 million tax rebate that you mentioned, you had shown on your prior quarter balance sheet both $61 million, $62 million that you were expecting to get back this year and then $151 million that you hadn’t impaired. Is that the same $150 million you’re talking about or are you talking about an incremental $150 million on top of that?

Robert Toll

It’s the same $150 million that we had already assumed we would get. It was not affected by the passage of the tax law.

Mike Widner - Stifel Nicolaus

So the tax laws, it’s a ‘10 event, if it’s going to help you guys, then?

Robert Toll

That is correct.

Mike Widner - Stifel Nicolaus

Then second one, just to follow-up on both the community count that you’ve talked about and then sort of historical you’ve talked about comparisons to…?

Marty Connor

It’s an ‘10 event for us, but I want to make sure that we don’t leave a false impression.

Joel Rassman

It’s for years starting or ending in either 2008 or 2009, since we have an October 31, year end, our 2010 year starts in calendar 2009. So for us, we get the ability to look at ‘10 for companies that are December 31 year ends, they do not have that choice.

Mike Widner - Stifel Nicolaus

The other question that I had, you talked a little about how things feel now compared to coming out of the last cycle around 1990. You talked a little about sales per community. Just wondering if you could talk about your expectations a little bit and I guess the way I look at it is over the past six months, two quarters, the annualized rate has been about 15 net new sales orders per community.

If you go back to the ‘90s you spent pretty much ‘91 through ‘95 kind of right around 20 annually per community. In the housing bubble you kind of got to double that level. How does it feel? Should we look for a run rate in the 15 range? In the 20 range or do you think we’re in for growth well above that?

Joel Rassman

I don’t see growth well above that.

Robert Toll

I think you’ve got it pretty well bracketed.

Joel Rassman

Some of those statistics are very much colored by the product mix. So there are certain periods of time in which we have many more multi-family communities. They deliver much higher volumes per community. So right now, same with age restricted communities. So right now our mix is higher in multifamily communities and age restricted communities than it was most of the ‘90s.

Marty Connor

Yes, when we were in more single-family.

Robert Toll

What’s important in this area is to remember that as I said earlier, we’ve got some high rise in Manhattan, in Jersey City, in Hoboken and in Brooklyn that if we get a return to a hotter market can throw off pretty significant volume real quickly, because the buildings are up and they’re closed in and we’re finishing them off. So it could get lucky, but then again, these are choppy waters. It’s very volatile and until I see the whites of their eyes, I think caution is the watchword of the day.

Joel Rassman

We have averaged, I would guess someplace between 24 and 30 homes per community over the last 20 plus years, depending on product mix.

Robert Toll

Litangie, I have a question from Rick Murray. “Good afternoon, Bob. I was wondering if you would provide color on traffic and sales activity subsequent to the end of the quarter. Traffic has been low this quarter, last quarter and for many quarters preceding, shockingly low. It may be due to the internet that people don’t cruise the communities any longer as they used to, as they whittle down their choices to one, or two, or four communities to finally shop or it maybe due to the severity of the housing depression that we seem to have just gone through?”

During ‘89, ‘90, ‘91, which were terrible years, we still had 20 to 30 maybe 20 to 25 on average come to the community, what was the cheapest form of entertainment. Instead of going to a movie, you could cruise the jobs, look at all the options, look at the roofing, the siding, the various models have a mind game experience where you select, I would buy the Andover instead of the Bentley and we don’t see that in this limited recovery that we’ve been in since March. We still see traffic on average at pretty low levels. Question on sales activity, I think we’ve addressed.

Joel Rassman

Those that do visit seem a lot more interested.

Robert Toll

Yes. That’s true.

Joel Rassman

The conversion ratio…

Robert Toll

Is way up.

Joel Rassman

Is way up, when you look at traffic to deposit and deposit to agreement, so when they come out, they’re coming out to buy a home. They’re not coming out to find a rest room or ask who the decorator was.

Mike Widner - Stifel Nicolaus

That dovetails with the Internet’s interaction with traffic, because if you’re interested in just browsing and looking, aside from architectural digest or other magazines, you get Toll Brothers website and you cannot only browse and choose, you can build your own home on the website?

This maybe the reason why our traffic is so low compared to what it was at the end of the ‘80s and the beginning of the ‘90s. Rick Murray also asks, “I was also wondering if you could share how many of your buyers utilize a first time home buyer tax credit during the quarter?”

Robert Toll

Anybody have that stat?

Joel Rassman

We don’t know, but we know that, certain geographic regions and certain products, for example, we have some low end product in Virginia and Maryland and some low end product in California, Northern California, that a significant portion of those buyers are utilizing the credit. So maybe in the last quarter we had 50 or 40, maybe more.

Robert Toll

Said he had 25%. That’s he had some more family jobs.

Kira McCarron

It isn’t only that, though.

Joel Rassman

Yes.

Kira McCarron

There is also some single family first time buyer action at price ranges that are 6 to 6.50.

Joel Rassman

They don’t tell us always.

Kira McCarron

Those are first time home buyers.

Marty Connor

They just don’t tell us.

Mike Snyder

I remember that. During the good times we had that as well. I don’t think it’s a tax credit that drives that. I think it’s just the ordinary market.

Operator

Your next question comes from Timothy Jones - Wasserman & Associates.

Timothy Jones - Wasserman & Associates

You had 1.4 specs per community. Can you give me what portion is finished and what is under construction, maybe last quarter and last year?

Robert Toll

I don’t have it. Do you guys have it?

Mike Snyder

We don’t have it. We call it spec on a single family house until the lumber is dropped.

Robert Toll

I can hypothesize on that and I bet I’m accurate within 10%, Tim. That the houses are half completed, because when we drop lumber as Joel just said, that’s a spec for us, the minute lumber hits the ground, let alone hits the place, becomes a joist. So, using that stat, it’s got to be that we’re halfway through the specs on average.

Mike Snyder

So it’s nothing like 50% or 40% being completed, it’s sort of a bell-shaped curve.

Timothy Jones - Wasserman & Associates

You’re over my head. I have to rest upon what I said, which is it’s probably 50% and it’s probably pro rata the way through, that you’ve got a third up the drywall, a third that are dry walled, and up to trim and a third that are working their way from trim, finished fixtures and cabinets, finished floor, to janitorialized.

Operator

Your next question comes from Jay McCanless - FTN Equity.

Jay McCanless - FTN Equity

I wanted to ask what the average incentives per closing were this quarter and how that compares to last year and then also if you’ve had to set those up as you move into the first quarter of ‘10.

Joel Rassman

We do not give out that statistic. We don’t give out that statistic. We indicated in the last quarter, as we raised prices or lowered incentives that seem to have been carrying through in terms of orders.

Doug Yearley

Obviously the opposite is true, that if you don’t feel pricing power and if you’re not raising prices as much as you were, then incentives have probably gone the other way.

Joel Rassman

So we have given everyone in the past when they asked, if we looked that over the next 12 months, where do we think incentives would be year-over-year in the same period of time and that’s gone down about $8,000.

Jay McCanless - FTN Equity

It’s gone down?

Joel Rassman

Yes. So we did have information.

Jay McCanless - FTN Equity

Only on future sales, Bob.

Robert Toll

Only on future sales.

Jay McCanless - FTN Equity

That’s includes the mix of specs versus…?

Robert Toll

You have information on the future?

Jay McCanless - FTN Equity

Yes.

Operator

Your next question comes from Joel Walker - FBN Securities.

Joel Walker - FBN Securities

I want to ask you quickly on the cancellation rate being lower than usual, if that was just could quantify that, since you’re well above industry average on the percentage of purchase price being roughly 10%, if the degree of decline has finally come in to where they sign the contract or single digits were now economically if they did back out they would be actually losing money. Do you thing it’s more of an effect with that than other, say, market conditions versus the other builders up still experience higher cancellation rates?

Robert Toll

They’re always going to lose money when they back out with us, unless they’ve got a terrific excuse.

Joel Rassman

I think the answer is yes, because the prices have come down substantially and people who bought houses a year earlier and waited here for delivery probably, so a price decline were fairly put up 7% or 8% in cash maybe the house had gone down 10% then they would have been better off walking away than closing on the deal. So I think your answer is yes. I think in current periods of time there’s less price decline and therefore their deposit…

Robert Toll

That goes to the monologue. When I say people no longer asked me, are we at the bottom or have we turned the corner, it’s pretty much assumed that we have. In the monologue, I said that since March of ‘09 prices have pretty much stabilized. Once you have a stabilized price, if you’ve got a 10% deposit or a stabilized price up, then when it comes time to go into yay or nay.

If you’re going to go nay, you’re foregoing the opportunity of at the very least taking your home and selling it to somebody else for what you paid for it and thereby not forfeiting your deposit. So I would think that’s probably one of the main reasons that you don’t have the cancellations that you had before. The market is stabilized.

Operator

Your next question comes from Joshua Pollard - Goldman Sachs.

Joshua Pollard - Goldman Sachs

My quick question is around the jumbo market. Generally every quarter you do give an update on what you’re seeing there and last quarter you talked about a couple of banks looking to reenter the jumbo market. Can you talk about whether you expect more and also give us an update on what rate Toll Brothers is able to offer?

Robert Toll

Go right ahead, Don Salmon.

Don Salmon

Regarding the jumbo market, there’s absolutely no question that there’s more activity today than there has been in any time in the last two years or so. We’re having conversations with several banks that we hope to comeback in the market shortly, but these are serious conversations, not just hellos like we had in the past, so that’s really good news for us.

Joshua Pollard - Goldman Sachs

What’s the agency jumbo rate right now versus a conforming?

Don Salmon

There’s about an eighth of a point difference are conforming today on average is 4 3/4 with zero points, agency jumbos about 4,7 and 8 and in many markets agency jumbos up to just about $730,000.

Joshua Pollard - Goldman Sachs

That’s amazing that you can go borrow 730 at 4, 7and 8. In U.S. Government in two years will be paying 25% more than that I speculate.

Joel Rassman

92% of our contracts would require government agency or conforming levels so, only 8% of our contracts.

Robert Toll

Actually, Joel, I mean not but for the quarter it was 9%, year-to-date was 11.

Joshua Pollard - Goldman Sachs

Do you want to comment on our LTVs while you’re at it?

Don Salmon

The average LTV on a conforming loan this year and for the quarter was 65% and on a jumbo loan was 76%. So people are borrowing a little bit more on the jumbo side, but the LTVs, our buyers are still putting a lot of money down. The average LTV on a government is about what you would expect a government to be. FHA only requires 3.5% down and our average LTV is 97% on the government, but government’s year-to-date only 8% of our business.

Joshua Pollard - Goldman Sachs

Our credit scores, Don?

Don Salmon

Credit scores for the quarter all in were 757 year-to-date 756. Little bit higher on the conforming on the jumbo, little bit lower on the government, but on the government we still probably have some of the highest credit scores in the industry it over 724 on the government credit scores which is very, very strong.

Joshua Pollard - Goldman Sachs

Joshua question was how large is the jumbo activity. Is it getting bigger and the answer is it is getting bigger.

Don Salmon

There’s a lot more activity. We just got a call from a mortgage insurance company yesterday as a matter of fact that said there’s a Wall Street House that wants to talk about taking jumbos and trying to do a jumbo security. They wouldn’t tell us who the house is.

Joshua Pollard - Goldman Sachs

We’re back.

Don Salmon

It’s the first conversation like that we’ve had in a long time. I don’t know if it’s going to come to...

Operator

Your next question comes from Jim Wilson - JMP Securities.

Jim Wilson - JMP Securities

Actually, I was going to ask the same questions on the jumbo loan market, but I was wondering maybe just to add, are there geography an issue at all as to where jumbo financing is more or less readily available at this point?

Don Salmon

It’s interesting, the short answer is yes, it is and in some of the more troubled space they’re more conservative, but I was just about to say some of the really good news is a couple of the mortgage insurance companies have eased up significantly on their troubled market geographies so we’re able to do higher LTVs in jumbos that we were before in many of the markets and that’s not just one company that’s done it. It’s a few that have evaluation their guidelines. So, again, that to us, that’s indicative of really good news.

Robert Toll

We had a significant problem with the appraisals in the Western states, not in the Eastern, not in the Northern, not in mid-Atlantic, but in the Western states we have a significant problem with appraisals. There was one I looked at today where the appraisal came in $450,000 less than the sale price of the home and our buyer didn’t walk, but dropped the mortgage.

Then we helped out we gave some money, but very little relative to size. I think it was about a million two. We chipped in a little because we wanted to settle this thing as opposed to taking back a million plus home. So the appraisals still offer us a significant challenge out west.

Don Salmon

That’s mostly an effect I think of the HVCC, the home valuation code of conduct that commenced some time ago and that’s generally happening with the bigger banks who are hiring appraisal management firms that will send somebody into a market that either a doesn’t understand that market or doesn’t understand the Toll Brothers product.

So that’s a challenge that we have. I think with a lot of the outside lenders and with some of the banks that we might refer business to internally. So that HVC is an issue. That’s under review, by the way, but that is an issue for some markets.

Operator

Your next question comes from Bose George - KBW.

Bose George - KBW

Did you talk a little about your gross margins and the potential impact on your gross margins from the shift in your average price point over the last few years?

Joel Rassman

When we underwrite a deal in good times as you underwrite it, the margins are roughly the same on less expensive housing as they are on more expensive housing. What happens in good times is you get the ability to move the prices up more in a more expensive house as proportion to the sales price than you do in a less expensive which is income restricted. So in good times that shift hurts you. In bad times, it may not hurt you because we’ve been hit in terms of margins.

Robert Toll

I think you went the opposite yes, Joel.

Joel Rassman

In good times you’re getting more appreciation on single family homes. Therefore, if I was shifting away from single family homes to multifamily homes I would expect margin compression. In bad times where we’ve already where everything is falling down and to some degree, some of the markets with very expensive single family homes as gone down more than maybe the affordability product has as a proportion, that goes the other way, but I can’t answer it as to today if I what the mix would be if I was selling homes differently. I don’t think it has an effect today.

Bose George - KBW

If prices remain fairly stable it probably doesn’t have an effect whether it’s a high price home or low price home; is that fair?

Joel Rassman

If they stay stable at today prices, it probably does.

Robert Toll

Sure, if you’re stable margins doing increase, if prices go up, we get an opportunity to expand our margins quicker than the average home builder and vice versa.

Operator

Your final question comes from Michael Rehaut - JP Morgan

Michael Rehaut - JP Morgan

Just to go back to pricing for a second, saying that since Labor Day you really haven’t achieved the same rate or prices in general have been more stable. On the other hand, have you dropped prices in any communities or increased incentives with the more recent volatility?

Doug Yearley

I would say we have to have done that but it’s very few communities. I’m trying to remember this past Monday. I think like one or two communities this past Monday and previous Monday I can’t remember. It’s not that many, but there definitely have been, Rick Hartman, we reduced some out in Vegas.

Michael Rehaut - JP Morgan

That sounds relatively negligible. The other question, just it looking at the different regions, I was wondering if you could single out any metro markets that are doing better than others and/or worse than others.

Joel Rassman

Well, you missed that part of the call I guess where we went through that, basically, you’re Northern and Mid-Atlantic States are doing better than the rest of the country, but Dallas is also doing pretty good and Northern California was doing better also. Thank you.

Robert Toll

Thank you, everybody for attending our call and we’ll see you all in December.

Operator

Thank you. This concludes today’s Toll Brothers fourth quarter outlook conference call. You may now disconnect.

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