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Toll Brothers' Rental Unit, JD Capital Unite to Develop Motto

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Toll Brothers, Inc.’s (TOL - Free Report) rental unit, Toll Brothers Apartment Living has formed a new joint venture with JD Capital USA to develop Motto, a luxury apartment community in Decatur.

Motto is a 290-unit luxury community in the suburb of Atlanta with a five- and six-story building. Toll Brothers Apartment Living will be responsible for the development, management, and marketing of Motto. The joint venture has secured a construction loan worth $45.7 million from Santander Bank, N.A. The debt and equity financing were arranged by its in-house Finance Department. The apartment complex is part of a larger mixed-use site that will be anchored by a Publix grocery store and additional service-oriented businesses.

Charles Elliott, president of Toll Brothers Apartment Living, said, “We’re excited to grow in this market as we see a significant amount of employer and population growth. Our community will be a great addition to the Decatur neighborhood, offering an elevated suburban living experience with the conveniences of urban living.”

Notably, this new Motto project is the third community that Toll Brothers Apartment Living has started in the Atlanta market. The company has a pipeline of communities around Atlanta, which it claims to be an attractive market with respect to renters, home buyers and investment due to its quality of life and dynamic economy.

Toll Brothers mostly offers luxury homes and its communities are located in prosperous suburban areas with easy access to major cities. Luxury homes generally face limited competition. The company mostly caters to luxury move-up buyers who already possess a residence, and are looking for a shift to larger as well as better homes.

It continues to look for opportunities to expand its luxury brand to new product lines and price points, in a bid to maintain leadership in the luxury segment. At the same time, the company has been strategically adding more affordable luxury communities in view of the current demographic trends, and expanding footprint as well as the customer base. These communities are expected to be more capital efficient, going forward.

Shares of Toll Brothers have gained 21.7% over the past three months, outperforming the industry’s 18.6% rally. The trend is expected to continue in the near term as well, given the rebounding housing market fundamentals. Notably, the company’s fiscal third-quarter net signed contracts of 2,833 homes and $2.2 billion, in unit and dollar basis, were up 26% and 18%, respectively, from a year ago. This marked the highest third quarter ever in both units and dollars. Its contracts per community were at 8.5, which marked the highest third-quarter level in 15 years. This provides the company with more visibility for strong top-line growth going forward. Importantly, management noted that strong demand persisted in August, which signals that the resurgence in demand is more than just pent-up demand.

Zacks Rank & Other Key Picks

Toll Brothers currently carries a Zacks Rank #2 (Buy). Other top ranked stocks in the same space include D.R. Horton Inc. (DHI - Free Report) , Meritage Homes Corporation (MTH - Free Report) and M/I Homes, Inc. (MHO - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

D.R. Horton, Meritage Homes and M/I Homes’ earnings for the current year are expected to grow 37.5%, 42.8% and 36.7%, respectively.

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