Toll Brothers-JD Capital USA JV to Develop Rental Community

Toll Brothers, Inc. TOL and JD Capital USA form a joint venture (JV) to develop a 262-unit apartment community in the City of Orange, CA. Through its Toll Brothers Apartment Living rental subsidiary, this luxury homebuilder will manage the project’s development, marketing and leasing.

The JV has obtained a $74-million construction loan facility to open its first California community in Orange County. The City of Orange is one of the most desirable places of Orange County, owing to its proximity to schools and major employment centers. The project is expected to be one of the few luxury rental communities to be opened in 2020 in the City of Orange.

Toll Brothers’ Expansion Strategy Bodes Well

The company has been using its strong liquidity position to secure the most sought-after urban locations in the country like New York City Market, Northern New Jersey, Washington DC and Philadelphia.

This year, it entered into Atlanta, Salt Lake City and Portland, Oregon markets. Toll Brothers is expanding northward in Florida's west coast into Tampa. Meanwhile, the company has been serving urban and suburban renters.

Through Toll Brothers Apartment Living, it has a pipeline of 19,000 units in various stages of approval and development across the country. With improving demographics, low interest rates, record low unemployment, continued wage growth, and limited new and resale inventory in many markets, the company remains optimistic about the opportunities that lie ahead.

Coming to price performance, shares of Toll Brothers have underperformed its industry year to date. Nonetheless, Toll Brothers’ solid land position places it well to meet the growing demand in these regions, thereby giving it a competitive edge over its peers that are presently facing land availability constraints.

Although declining orders, and rising building material and labor costs are pressing concerns for the company, a solid job market, falling unemployment rate, increasing wages, and a limited home supply are expected to drive its performance going forward.

Zacks Rank & Key Picks

Toll Brothers currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Building Products - Home Builders industry include PulteGroup, Inc. PHM, Meritage Homes Corporation MTH and KB Home KBH, each sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

PulteGroup surpassed estimates in all the trailing four quarters, with the average being 10.5%.

Meritage Homes’ 2020 earnings are expected to grow 20.6%.

KB Home’s earnings for the current year are expected to rise 67.3%.

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