Issuer Free Writing Prospectus, dated November 7, 2013
Filed pursuant to Rule 433 under the Securities Act of 1933
Supplementing the Preliminary Prospectus, dated November 7, 2013
Registration Statement No. 333-178130
At 8:30 a.m. Eastern time, on November 7, 2013, Toll Brothers, Inc. will use the following slides in a conference call and live webcast to review the announcement of the proposed acquisition of Shapell Industries, Inc. The presentation slides will be available to the public on the Investor Relations portion of the Toll Brothers website, www.tollbrothers.com.
Toll Brothers, Inc.
Announces the Acquisition of Shapell Industries, Inc.
NorCal
SoCal
Shapell Homes
Toll Brothers
Toll Brothers, Inc.
1
November 7, 2013
NYSE: TOL |
Toll Brothers,
Inc. 2
NYSE: TOL
Disclaimer
Statement of Forward-Looking Information Certain
information included in this presentation is forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including, but
not limited to, information related to: anticipated operating results; anticipated financial
performance, resources and condition; selling communities; home deliveries; average
home prices; consumer demand and confidence; contract pricing; business and investment opportunities; market and industry trends;
consummation of the proposed transaction with Shapell Industries, Inc., and the anticipated
benefits to be realized therefrom, as the transaction is subject to certain closing
conditions; consummation of financing transactions; and post-closing asset sales.
Such forward-looking information involves important risks and uncertainties that could
significantly affect actual results and cause them to differ materially from
expectations expressed herein and in other Company reports, SEC filings, statements and presentations. These risks and uncertainties include, among
others: local, regional, national and international economic conditions; fluctuating consumer
demand and confidence; interest and unemployment rates; changes in sales conditions,
including home prices, in the markets where we build homes; conditions in our newly entered markets and newly acquired
operations; the competitive environment in which we operate; the availability and cost of land
for future growth; conditions that could result in inventory write-downs or
write-downs associated with investments in unconsolidated entities; the ability to recover our deferred tax assets; the availability of capital;
uncertainties in the capital and securities markets; liquidity in the credit markets; changes
in tax laws and their interpretation; effects of governmental legislation and
regulation; the outcome of various legal proceedings; the availability of adequate insurance at reasonable cost; the impact of construction
defect, product liability and home warranty claims, including the adequacy of
self-insurance accruals, and the applicability and sufficiency of our insurance
coverage; the ability of customers to obtain financing for the purchase of homes; the ability
of home buyers to sell their existing homes; the ability of the participants in various
joint ventures to honor their commitments; the availability and cost of labor and building and construction materials; the cost of raw
materials; construction delays; domestic and international political events; weather
conditions; consummation of the proposed transaction with Shapell Industries, Inc., and
the anticipated benefits to be realized therefrom, as the transaction is subject to certain closing conditions; consummation of financing
transactions; and post-closing asset sales. For a more detailed discussion of these
factors, see the information under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our most recent annual report on Form 10-K and our subsequent
quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.
Any or all of the forward-looking statements included in this presentation are not
guarantees of future performance and may turn out to be inaccurate. Forward-looking
statements speak only as of the date they are made. The Company undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise. The results for the
three months and fiscal year ended October 31, 2013 included in this presentation are preliminary and represent the most current
information available to management. Our actual results may differ from these preliminary
results due to the completion of our financial closing procedures, final adjustments
and other developments that may arise between the date of this presentation and the time that financial results for the three months and
fiscal year ended October 31, 2013 are finalized. |
Toll Brothers,
Inc. 3
NYSE: TOL
Todays Agenda
I.
Toll Brothers
Recent Performance
II.
Shapell Overview
III.
Toll Brothers
California Operations
IV.
Transaction Overview and Rationale |
I. Toll
Brothers Recent Performance |
Toll Brothers,
Inc. 5
NYSE: TOL
Toll Brothers
Preliminary
Q4 and FY2013 Results
Note: Final results to be announced in December 2013.
3 Months Ended October 31,
Fiscal Year Ended October 31,
($ in millions), except Avg Prices
2013
2012
% Change
2013
2012
% Change
Contracts
Units
1,163
1,098
5.9%
5,294
4,159
27.3%
Total
$839
$684
22.6%
$3,634
$2,558
42.1%
Avg Price ($ in 000's)
$721
$623
15.8%
$686
$615
11.6%
Backlog
Units
3,679
2,569
43.2%
3,679
2,569
43.2%
Total
$2,630
$1,670
57.5%
$2,630
$1,670
57.5%
Avg Price ($ in 000's)
$715
$650
10.0%
$715
$650
10.0%
Deliveries
Units
1,485
1,088
36.5%
4,184
3,286
27.3%
Total
$1,045
$633
65.1%
$2,674
$1,883
42.0%
Avg Price ($ in 000's)
$703
$582
20.9%
$639
$573
11.6% |
II. Shapell
Overview |
Toll Brothers,
Inc. 7
NYSE: TOL
Shapell: 55+ Year History of Land
Development & Homebuilding
Nathan Shapell was born in Poland and during World War II was a prisoner of the infamous
Buchenwald and Auschwitz Concentration Camps where most of his family members,
including his mother, were executed. After the war he devoted himself to helping
thousands of Holocaust survivors by building housing complexes in Germany for war
survivors and representing them before American military panels responsible for ruling on
requests to immigrate to America. In
1952,
Nathan
Shapell
immigrated
to
the
United
States
with
his
wife
and
daughter.
In
1955
Shapell
Industries
was founded by
Mr. Shapell, his brother David and brother-in-law Max Webb as a home construction
company that built custom-quality single- family home communities in Southern
California. Since that time the Company has remained family-owned and has expanded
its expertise to include virtually every aspect of the real estate development process
from land acquisition to design, land development and construction.
To date, Shapell Homes has delivered over 70,000 homes, built over 7,000 apartments, and owns
and manages more than 2.7 million square feet of commercial space. Toll will
acquire the single-family residential real property development business of
Shapell. Toll will not acquire Shapells commercial and multi-family units, which
will be retained by the seller as a separate business.
Source: Shapell Industries, Inc..
1969 / 1971
Shapell listed on
the Pacific Stock
Exchange and
NYSE
1950
1960
1970
1980
1990
2000
2010
1955
Shapell
Founded
Late 1970s
Ground breaks on
Porter Ranch
master-planned
community
2008
Shapells Alamo Creek
wins MAMEs Master-
Planned Community of
the Year
Award
Over 5,200 lot / land
portfolio in desirable coastal
Northern and Southern
California locations
1984
Shapell returns to
privately-held
status |
Toll Brothers,
Inc. 8
NYSE: TOL
Shapell: Leading Coastal California
Homebuilder and Developer
Opportunity Overview
San Diego
Orinda
Alamo Creek
Gale Ranch
Evergreen
Gilroy
Plum Canyon
Porter Ranch
Thousand Oaks
Yorba Linda
Carlsbad
NorCal
SoCal
Laguna Niguel
One of the largest homebuilders in California
and the leading builder in several of the states
premier, high-growth markets
18 active selling communities and land holdings
with over 5,200 concentrated lots in 15 locations
Well-known luxury brand with a reputation for
delivering high-quality, sought-after home
product
Sizable amount of lots concentrated in a
manageable number of communities
Geographic Footprint
Highly Attractive and Proven Lot Locations in NorCal and SoCal |
Toll Brothers,
Inc. 9
NYSE: TOL
Shapell: Proven Historical
Operating Performance
Average Delivered Price
($ in 000)
Closings
(Units)
Homebuilding Revenues
($ in millions)
Source: Shapell Industries, Inc..
Shapell has consistently delivered high-
quality homes in the coastal California
markets where they build
Through the first 8 months of 2013
their home prices were up 13% and
revenues have already exceeded their
2012 levels
$354
$252
$272
$274
2010
2011
2012
8/31 YTD
525
357
389
347
2010
2011
2012
8/31 YTD
$675
$706
$699
$791
2010
2011
2012
8/31 YTD |
Toll Brothers,
Inc. 10
NYSE: TOL
Shapell: Overview of
Lots and Communities
Shapell is an active homebuilder in many of the same markets as Toll and would add
immediate scale to Tolls California Division
97.5% of Shapells lots have been entitled
Source: Shapell Industries, Inc..
08/31/13
Lot Breakdown By Status (08/31/13)
($ in 000s)
City
Metro Area
Backlog
Raw
Graded
Finished
WIP
Models
Total Lots Remaining
Northern California
Gale Ranch
San Ramon
San Francisco
55
--
1,217
202
100
19
1,538
Alamo Creek
Danville
San Francisco
40
--
159
138
46
10
353
Gilroy
Gilroy
San Fran - Santa Clara
--
--
--
59
--
1
60
Evergreen
San Jose
San Fran - Santa Clara
13
--
--
--
24
--
24
Orinda
Orinda
San Francisco
--
--
--
22
3
--
25
Northern California Subtotal
108
--
1,376
421
173
30
2,000
Southern California
Porter Ranch
Porter Ranch
Los Angeles
41
904
746
74
47
15
1,786
Plum Canyon
Santa Clarita
Los Angeles
34
--
503
100
45
8
656
Yorba Linda
Yorba Linda
Orange County
22
288
--
63
31
15
397
Carlsbad
Carlsbad
San Diego - Carlsbad
--
305
--
--
--
--
305
Laguna Niguel
Laguna Niguel
Orange County
14
--
--
31
16
4
51
Thousand Oaks
Thousand Oaks
Los Angeles
--
--
--
24
--
--
24
Southern California Subtotal
111
1,497
1,249
292
139
42
3,219
Total
219
1,497
2,625
713
312
72
5,219 |
III. Toll
Brothers California Performance |
Toll Brothers,
Inc. 12
NYSE: TOL
Tolls Operating Performance in
California
Toll Brothers has been successfully operating in California since 1994
In two
decades,
Toll
has
delivered
7,750
homes
generating
approximately
$6.5
billion
in
revenue
Historically, California represents ~9% of consolidated annual closings
Additional investment in California is justified based on Tolls proven success in the
region and market trends Average Delivered Price
(Deliveries: $ in 000)
Lots Owned and Controlled
2,208
1,802
1,236
1,299
1,286
1,000
1,616
1,398
90
90
229
97
174
2,445
2007
2008
2009
2010
2011
2012
2013E
Owned
Controlled |
Toll Brothers,
Inc. 13
NYSE: TOL
Case Study: Investment in
Shapell Lots
Amalfi Hills
In 2012, Toll acquired two Shapell
communities (Sorrento & Positano) that
consisted of 113 Lots in Yorba Lindas
Amalfi Hills (Orange County) for $47mm
Yorba Linda is a highly desirable housing
market with median household income of
$115k and restricted supply
Toll Brothers was able to drive pricing
from $1.3 mm to approximately $1.6 mm
in Sorrento and from $1.5 mm to
approximately $2.3 mm at Positano since
the acquisition
Tolls pace is almost 3x as fast as originally
underwritten 18 months ago
The vast improvement in pace and price
should result in meaningful gross margin
expansion at these two communities
Toll Brothers at Amalfi Hills, Yorba Linda, CA |
IV. Transaction
Overview and Rationale |
Toll Brothers,
Inc. 15
NYSE: TOL
Overview of Transaction Financing
Total purchase price of ~$1.60 billion,
all cash, for 5,200 lots plus Shapells
homebuilding operations
The purchase will be financed using a
combination of equity and debt:
Equity
will
represent
10
15%
of
the purchase price
Debt will represent the remaining
85
90%
and
will
be
comprised
of
draws on our existing senior
unsecured credit facility and other
senior unsecured debt
We believe that closing will occur by the
end of the first calendar quarter of 2014 |
Toll Brothers,
Inc. 16
NYSE: TOL
Key Acquisition Considerations
We
believe
+/-
$100
million
of
cash
will
be
on
their
balance sheet at closing which we will retain plus
another $150 million will be returned in the first 6
months from WIP
We believe we will return cash of approximately $500
million from land sales within the first 18 months
Strong pro forma free cash flow will quickly reduce
incremental leverage
We underwrote the transaction based on the
underlying value of the land
We did not assume any inflation in our underwriting
We anticipate very limited goodwill and intangibles as
a result of the transaction
After the transaction is completed, we still anticipate
having more than $1 billion of available liquidity
Note: Cash flow and asset sale estimates are management projections that are subject to
material revision. We believe it will be
accretive to earnings in
the first year, excluding
transaction costs
We believe we will
receive a significant
return of our investment
in the first 18 months
Premier coastal
California land with a
complementary luxury
brand
Very limited goodwill
and other intangibles |
Toll Brothers,
Inc. 17
NYSE: TOL
Competitive Advantages From
Shapell Acquisition
Bolster footprint in key proven coastal California locations that fit extremely well
within Tolls current divisional operations
Toll will own or control approximately 9,200 lots in what we believe are the best
locations
in
California
at
the
corner
of
Main
St.
and
Main
St.
Complementary luxury brand with a reputation for delivery of high-quality,
sought- after home product and communities
Build upon recent success of Toll Amalfi Hills land purchase from Shapell
California housing market dynamics support incremental investment with many of
Shapells markets experiencing double digit price appreciation
Shapells seasoned management team will add capacity to Tolls already proven local
homebuilding and land development expertise
Strategic
Rationale
Financial
Rationale
We
believe
the
transaction
will
be
accretive
to
EPS
in
the
first
year
of
the
transaction,
excluding transaction costs
Toll intends to selectively sell off $500 million of land to de-lever the balance sheet,
and reduce California concentration
We believe the transaction will return significant cash within 18 months of purchase
|
Toll Brothers,
Inc. 18
NYSE: TOL
Augments Tolls Footprint in Premier
Coastal California Locations
Property
City
1
Orinda
Orinda, CA
2
Alamo Creek
Danville, CA
3
Gale Ranch
San Ramon, CA
4
Evergreen
San Jose, CA
5
Almaden Valley
San Jose, CA
6
Gilroy
Gilroy, CA
7
Moorpark / Chevron
Moorpark, CA
8
Thousand Oaks
Thousand, Oaks, CA
9
Porter Ranch
Porter Ranch, CA
10
Plum Canyon
Santa Clarita, CA
11
Yorba Linda
Yorba Linda, CA
Placentia, CA
12
Laguna Niquel, CA
Laguna Niquel, CA
13
Carlsbad
Carlsbad, CA
Property
City
1
Schaefer Ranch
Dublin, CA
2
The Reserve at Pleasanton
Pleasanton, CA
3
Norris Canyon Estates
San Ramon, CA
4
Toll Brothers at Amalfi Hills
-
Positano Collection
Yorba Linda, CA
5
Toll Brothers at Baker Ranch
Lake Forest, CA
6
Estilo at Rancho Mirage
Rancho Mirage, CA
Toll Brothers at Alta
Palm Springs, CA
8
Toll Brothers at Escala
Rancho Mirage, CA
9
Toll
Brothers
at
Arrowood
Greens
Oceanside, CA
10
Toll Brothers at StoneBridge
San Diego, CA
11
Toll Brothers at The Ridge
Brisbane, CA
12
The Estates at Sunnyvale
Sunnyvale, CA
13
The Pinnacle at Moorpark Highlands
Moorpark, CA
NorCal
SoCal
Toll will own or control
approximately
in
premier coastal California
locations
Shapell communities are well
located in the same coastal
Northern and Southern
California markets in which
Toll operates today
Alamo Creek and Gale Ranch
are the two main Shapell
properties in Northern
California and represent
approximately 95% of the
acquired lots in that region
Plum Canyon and Porter
Ranch are the two main
Shapell properties in Southern
California and represent
approximately 75% of the
acquired lots in that region
7 |
Toll Brothers,
Inc. 19
NYSE: TOL
Complementary Luxury Brand
Source:
Company filings, TOL management and Shapell Homes Offering Memorandum.
(1)
Pro Forma ADP calculated based on 4Q 2013 Toll closings and 3 mos. ended 8/31/13 Shapell
closings. (2)
Pro Forma home closings by delivered price based on FY ended 10/31/13 for Toll and the 10
months ended 8/31/2013 for Shapell. Home Closings
(2)
PF Consolidated Toll
and Shapell
Total Closings: 4,184
Total Closings: 461
Total PF Closings: 4,645
(1)
Pro Forma ADP vs. Peers
Most Recent Quarter; Home Deliveries
Toll Standalone
Shapell Standalone
$1,162
$853
$716
$703
$420
$366
$349
$345
$341
$310
$299
$298
$291
$252
TOL CA
Shapell
PF TOL
TOL
SPF
TMHC
NVR
MDC
MTH
PHM
KBH
RYL
LEN
DHI |
Toll Brothers,
Inc. 20
NYSE: TOL
Demographics Support Incremental
Investment in California
Source: California Building Industry Association, U.S. Census Bureau.
From 1970 to 2006, California averaged over 177,000
annual housing starts per year
During the downturn from 2007 to 2012, starts
plummeted 66% to under 61,000 starts per year
California needs to build an additional ~700,000 units,
or 4-years worth of supply, just to catch up from the
downturn and return to its 35+ year average of annual
housing starts
Annual
California
Housing
Starts
from
1970
2012
Distribution of Household Income
Based on households with greater than $100,000 in income
In 2012, California had 3.45 million households
with incomes greater than $100,000, nearly a
third of all households
13.2% or 1.65 million California households earn
more than $150,000, versus 9.5% of households
nationwide
$100,000 -
$124,999, 32%
$125,000 -
$149,999, 20%
$150,000 -
$199,999, 23%
$200,000 +, 25%
177,765/yr.
60,990/yr.
700,650
1970-2006
2007-2012
6 Year Shortfall
2007-2012 |
Toll Brothers,
Inc. 21
NYSE: TOL
Tolls Conservative Long Term
Leverage Strategy Remains in Place
Tolls conservative long term
leverage strategy will remain in
place after this transaction
We believe our liquidity and
balance sheet were helpful in
winning this bid
While our leverage ratios will
rise at closing, we believe the
return of cash from Shapells
operations and from our land
sales will help our leverage
return to historical levels quickly |
Toll Brothers,
Inc. 22
NYSE: TOL
We are very excited, and honored that the
Shapell family has chosen Toll Brothers to
continue on with their legacy
This is a one-of-a-kind coastal California
land portfolio that dovetails perfectly with
our own footprint
We have proven historical success in
California markets
We believe the transaction will be
accretive to income and operating
margins, excluding transaction costs, and
we assumed no inflation in our
underwriting
This is the right acquisition at the right
time in the right location for Toll Brothers
Conclusion |
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