Good morning and welcome to the Toll Brothers Incorporated Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Douglas Yearley, CEO. Please go ahead.

Thank you, Gary. Welcome and thank you for joining us. I'm Doug Yearley, CEO. With me today are Bob Toll, Executive Chairman; Rick Hartman, President and COO; Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance and Investor Relations; Joe Sicree, Chief Accounting Officer; Kira Sterling, Chief Marketing Officer; Mike Snyder, Chief Planning Officer; Don Salmon, President of TBI Mortgage Company; and Gregg Ziegler, Senior VP and Treasurer. 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 forward-looking statements based on assumptions about the economy, world events, housing and financial markets, and many other factors beyond our control that could significantly affect future results. Those listening on the web can email questions to rtoll@tollbrothersinc.com. We completed fiscal year 2016 third quarter on July 31st. Third quarter net income was $105.5 million or $0.61 per share diluted, up 58% from fiscal year 2015 third quarter net income. Fiscal year 2016 third quarter pre-tax income was $163.7 million, up 52% from fiscal year 2015 third quarter. Revenues of $1.27 billion and homebuilding deliveries of 1,507 units rose 24% in dollars and 6% in units compared to fiscal year 2015 third quarter total. The average price of homes delivered was $843,000 compared to $724,000 in 2015 third quarter. We now project full fiscal year 2016 revenues of between $4.96 billion and $5.27 billion which would be up 19% to 26% over fiscal year 2015. We are particularly pleased with this quarter's 18% growth in contracts in both dollars and units and the 23% increase in non-binding reservation deposits for the first three weeks of August, the start of our fourth quarter compared to one year ago. The average price of…

Thanks, Doug. Before I begin my remarks I wanted to note that a reconciliation of the non-GAAP measures referenced during today’s discussion to their most directly comparable GAAP measures can be found in today’s press release. We are pleased with our income statement results this quarter. Virtually every income statement metric improved compared to a year ago. Third quarter homebuilding adjusted gross margin which is before interest and write-downs improved 10 basis points to 25.3% of revenues compared to 25.2% in 2015 third quarter. Third quarter interest expense included in cost of sales was 3.1% of revenues compared to 3.6% from 2015 third quarter. We recorded $3.7 million in impairments, $2.5 million of which was associated with future communities. A year ago, impairments were $18 million. Thus our true GAAP gross margin improved to 21.9% compared to 19.8% a year ago. Third quarter SG&A was approximately $135 million compared to $116.2 million in the third quarter of 2015 due primarily to our growth in revenue, contracts, community account, and backlog. Positively SG&A dropped to 10.6% of revenues from 11.3% a year ago. We continue to execute our strategy to generate meaningful recurring income outside of our core homebuilding operations. Our Q3 joint venture income was $5 million and our Q3 other income was $15.1 million. This combined $20.1 million compares to $20 million from our third quarter a year ago and $23.8 million from our second quarter. Our effective tax rate this quarter was 35.5%, but we still estimate our full year tax rate at around 37.5%. During the third quarter we expanded our 20 bank revolving credit facility to $1.295 billion and extended its maturity to May 2021. We also extended our $500 million bank term loan to August 2021. Combined this gives us approximately $1.8 billion in capacity…

Thank you, Marty. While there has been a lot of discussion about weakness in the luxury new home market, we just aren't seeing it based on this quarters contract growth across all of our regions and our strong deposit start in fiscal year 2016 fourth quarter. Our contract growth this quarter was among the best in the industry. It appears that buyers in the luxury market continue to be drawn to our great brand name and nationwide reputation. This February we were number 6, among global brands in the quality of our products, services offered according to Fortune Magazine's survey of the World's Most Admired Company. The only companies in the world that ranked above us were Apple, Walt Disney, Amazon, Alphabet, and Nordstrom. We have not seen a change in the appetite of foreign buyers. This has remained about the same at about 3% to 4% of our total contracts nationwide with the greatest concentration being about 15% to 20% in California, 10% to 15% in New York City, and 5% to 10% in Seattle. These percentages have not changed materially over the past few years. Contracts in our New York City Living Division driven by Hoboken and Northern New Jersey were up 40% in dollars. We had an especially strong quarter at 1400 Hudson Street and Hoboken where we have pricing power. In New York City specifically Brooklyn and Manhattan, the market has been relatively flat. Given all the gloomy sentiment this was acceptable. The delivery is slated to begin in a couple of weeks at both Pierhouse in Brooklyn Bridge and The Sutton in Manhattan which we are building in joint ventures. We will see City Living contribute significantly to JV income in the fourth quarter and in fiscal year 2017. While much attention has been directed…

Thanks Doug. Our growth in contracts this quarter and the seller demand across most of our markets, we think reflects our brand recognition, our product quality, and our strong community locations many times in land constrained markets. Today the Census Bureau and the U.S. Department of Commerce announced the highest new home sales in almost nine years. The release points out that this is 12% ahead of June, last month but more importantly 31.3% ahead of July 2015 to this year. Even so this is easily adjusted annualized total of 654,000 homes remains well below the 900 to 1 million of the period from 2001 to 2003. If we are going to get anywhere near that level of demand this year just imagine what the housing market would look like for us if we began to approach those numbers again. Back to you Doug.

Thank you, Bob. Gary, lets open it up for questions.

[Operator Instructions] The first question comes from Megan McGrath with MKM Partners. Please go ahead.

Good morning, thanks. Wanted to follow through on your commentary on what's happening in New York with the gross margin guide and also the JV guide. It sounds like you’re seeing some kind of delays both in your wholly owned properties and in Brooklyn, is that a coincidence or is there something fundamental going on in the New York City market that’s pushing out deliveries?

Megan, that’s a coincidence. On the gross margin side we had projected two sales in Manhattan at our very high-end 1110 Park Avenue property. And while we’re working with some clients those sales are not finalized and we do not believe we’ll be closing this quarter although we do have nine weeks to go. On the other income side, that is related to Pierhouse where we will begin closing very shortly but we now believe we will have less of our backlog which is already purchased closing in the fourth quarter versus early in 2017.

Okay thanks, that’s helpful. And then a quick follow up, you commented on the new home sales data that just came out an hour or so ago which was very strong, did you see a similar sequential increase in demand in July or was your pace relatively even throughout the quarter?

We saw a sequential improvement in sales throughout the entire quarter. July was better than June and June was better than May.

Great, good to hear, thank you.

The next question comes from Ivy Zelman with Zelman & Associates. Please go ahead.

Hey, good afternoon guys, congratulations, great quarter. Doug, it's great to hear how you're bucking the trend with respect to your overall higher-end price point and really demonstrating not only the strength of your brand but everything that you guys bring to the table your platform. Maybe just talk a little bit about sort of looking at the resale market and maybe is it just that those products are on the market that are sitting there, especially on the higher end, that aren't moving, they're just tired and old and people just want new and does it at some point catch up with you, though, is the high end seeing more listings, which we certainly see in the data, at what point they can't sell their house? So I think people would love to understand it. But kudos to you guys because you're killing it.

Thanks Ivy. We appreciate that very much and we’re very happy with our business. Sorry I can't comment on what's going on in the high end of the resale market. What I can comment on is there has been great demand for our homes. There are many people out there that want only new. We’ve always known that. Our brand is clearly paying off our architecture, the way we go about it. In many of our markets we’re not seeing an overhang in the resale market particularly at our price point. Remember our average price is 8 to 9 and I am very happy with how we’re doing it and the great demand we have. And I really can't reconcile what you've discussed on the resale market.

Got it and if you had to point out, Doug -- and I appreciate that the best and sort of off the charts with respect to demand and where you wish you had more land and you don't have enough to where you'd say it's more challenging, if you just had to give us the book ends? Thank you and good luck with the rest of the year.

We continue to be opportunistic with land buys. We’re looking all over the country. This past quarter much of the land we bought, most of the land we bought was in California where we had some very good opportunities to buy at various price points and in various locations. So we continue to be very bullish about the West. We have talked about Vegas, and Reno, and Seattle and all of California. Dallas is performing very well and we are looking for new opportunities there. Denver is performing extremely well and we have some great land deal flow there. And then back East we have talked about the strength now of New Jersey, Pennsylvania, Northern Virginia, and we are actively focused there. And then Florida, Orlando and Jacksonville are now our two strongest markets in Florida. There is more land available in those markets. But that doesn’t mean we are not looking hard in both Gulf Coast because that land is harder to find but we are hoping to grow. So, the long answer is we are opportunistic and we are really looking everywhere but most of it I would say is Gulf Coast.

I apologize, I love the answer, because it is helpful but I was actually talking about demand, where do you see the strongest demand right now on our book ends and relative to the more challenging areas and if you are incentivizing just kind of give us the book ends and demand but that is also a good answer, thank you for that.

I thought you said land when you said demand. I am sorry. The most demand -- our top markets that we talked about are Southern California, Northern California, Las Vegas, Northern Virginia, Denver, New Jersey, Pennsylvania our home turf has had a great quarter; Seattle, we have less inventory at the moment with more coming. That has had a terrific demand. Dallas, we had a great quarter in Dallas, we see a lot of demand there, and Raleigh picked up significantly this quarter. So, as we have talked about every segment for us was up this quarter nationwide and we didn’t have some up and some down, we had every single one up and so we are feeling very good about the national demand.

Well, good luck guys, thank you.

Thank you.

The next question comes from Susan Maklari with UBS. Please go ahead.

Good morning.

Good morning Susan.

Can you kind of talk a little bit about, I know you noted some of the trends that you're seeing in California but can you give us some sense of the pricing out there and especially maybe how it breaks down between the Northern and Southern parts of the State?

It's very high in both Southern Cal and Northern Cal. We do have variety but as you know there's a bit of -- there is a higher price point out there so in Southern California Baker Ranch which we just opened Phase II and we've had terrific demand, we have had price increases of up to $100,000. I would say that would lead what's going on in Southern California. Northern California as we have talked about we've had a little bit less inventory but there's more coming in 2017. The demand there is very strong. The average price in Southern California is about just shy of $1.5 million and the average price in Northern California is about $1.55 million. So they're within $50,000 of each other and right around that $1.5 million average price.

Okay, and then certainly as we think a little further out and the potential for [Technical Difficulty] 2017, can you talk about perhaps how you are thinking, how the mortgage markets are working, and maybe how that potentially impacts the market overall?

Happy to, Don Salmon who runs our mortgage company is with us, so Don why don’t you answer this one.

In terms of rates going up it is not something we can control. What we do offer is a year rate lock on jumbo loans so people want to walk into very close to today's rate they can do that with a market rate float down. If rates go up we will deal with it. I don’t see any terrific increase in rates coming but right now I would say the market is strong. We are seeing demand from banks. We are not seeing an active secondary market for jumbo and most of the product is flowing into the major banks.

Okay, thank you.

You are welcome.

The next question comes from Mike Dahl with Credit Suisse. Please go ahead.

Hi, thanks for taking my questions. Doug appreciate that August isn't always fair weather month to benchmark sales to but since you provided the non-binding deposits you often provide orders for the first few weeks, could you give a sense of contract activity for the first few weeks of August please?

We really think that deposits is the most relevant information about current activity. Since August 1 those are the new potential buyers who have walked in the door and decided to give us a deposit, reserve a lot, and so we’re comfortable and we think it’s most relevant and appropriate to just give the deposit information.

Okay, I think the second question and maybe this is for Marty but just a little clarification on the mix and the impacts to the gross margin. So I just want to be clear about this one so the -- you mentioned some of the other puts and takes, are there any other meaningful kind of puts and takes outside of those couple of City Living deliveries that were pushed out that you can identify?

Mike there is nothing to really call out but as you look through the portfolio, California did a little better than we thought. The Mid Atlantic margins were a little less than we thought but nothing appreciable. So that's why we are looking through everything. We boiled it down to these few units in New York City that we had projected to sell and close in the fourth quarter and now no longer expect that to occur.

And just to be clear on those couple of units and so these are units that you mentioned you are in discussions with some customers but you expect it to both sell and close so this is not current backlog that is just working through some for its final design, okay?

As compared to our joint venture guidance where it is current backlog that is slipping into the first quarter.

Right, okay, thank you.

The next question comes from Michael Rehaut with JP Morgan please go ahead.

Thanks, good morning and again congrats on the results, kind of remind us of Mark Twain with reports of your death being over exaggerated. My first question I think given the surprise on the orders and again I believe that was in contrast to some of the broader concerns out there. What I wanted to focus on was pricing and incentive trends because that would be the first kind of counter concern is did anything change in those metrics to perhaps get a little bit better result on the order trends and obviously you've talked a lot about holding price and the stronger positions that you have been able to acquire in different parts of your markets. So, I was hoping by market perhaps or at least by some of your more larger markets to give a sense of how pricing and incentives have trended and if that had any impact on the results?

That’s a great question Mike. We are sticking with our business model which is to drive price, drive margin. This 18% order growth and 23% growth in deposits for the last three weeks is in no way the result of a strategy where we’re increasing incentives and focus on top line. In fact are incentives are still consistent at $20,000 per house companywide and that has been the same number to the last three and three quarter of years. It is about 2.5% of our sales price. Pricing power, its market by market, its community by community. I talked about an example in Southern California where we open Phase 2 of Baker Ranch and drove the price $100,000. We’ve another community Hidden Canyon. I know many people have visited in Irvine Ranch where we continue to drive price significantly every month when we open our new allotment. We’ve had pricing power in Denver, we have had pricing power in Las Vegas, back East in Northern Virginia, in New Jersey. Again it is market by market but our strategy of Reno, thanks Bob, Seattle, our strategy of driving price particularly when backlogs get along because of prior sales remains intact and is what occurred in the third quarter with our 18% order growth.

That is great. Great to hear, thanks Doug. And I guess secondly it was helpful to breakout Marty the gross margin in City Living, obviously only 4% but still it can have that impact and had that impact obviously under revision to the full year gross margin guidance this year. So, just trying to get a sense on that line, no good deed goes unpunished. If we get a little more sense on the trend of that, in other words where that number is today in the 39% or near 40% type range, how is that over the last couple of quarters and versus last year and would you expect at this point as your comments I think Doug around the New York City, Brooklyn markets being flattish would that trend further downwards in 2017 or any thoughts around that?

So, Mike I think the margin out of City Living in 2015 was around 43%. For this year it will be a little bit north of 40%. And kind of looking forward it is something that we will do when we give guidance in the fourth quarter for 2017.

And I appreciate that, I guess maybe just within this year has it been more stable at 40% or has it been coming down throughout the year?

It bounces around a little bit based on the timing of deliveries from various buildings.

Right. Alright, great, well thanks again, appreciate it.

Your next question comes from Jade Rahmani with KBW. Please go ahead.

Good morning, this is actually Ryan Tomasello for Jade, thanks for taking my question. Can you talk about target leverage, I mean leverage long-term but still how you think about balancing the risks of increasing leverage as we inevitably move into later stages of the cycle?

Sure, so as you saw we took some balance sheet initiatives this quarter in terms of extending the capacity of borrowings we have from banks. And we also spent a considerable sum on land and on buying back stocks so while leverage has picked up to around 48% on a gross basis, 45% on a net basis. I think as we see this influx of 2,000 plus deliveries in our fourth quarter, the cash generation will allow us to pay down similar line, not all of the line but we will be back down in the low 40s% on a net basis. Looking forward we are very comfortable in the mid 40s to upper 40s leverage ratio. We find it to be a much more particularly in these interest rate environments, capital efficient way to operate.

And then regarding City Living, do you see any additional opportunities to JV out any additional interest in some of your projects which could potentially generate capital to reduce --?

Yes, we have a couple of projects on our corporate profile where you will see we are intending to go to joint venture. We are very close to a joint venture part in one, we are in the beginning stages in another. We evaluate those projects just based on their size and the allowance of risk we want to assume as to whether we want to bring in a joint venture partner or not. We find that going to joint venture partner certainly most partners expect a piece of the profits unfortunately so reduces the profitability a bit. But it does improve your return on equity.

Okay, thanks for taking my questions.

The next question comes from John Lovallo with Bank of America Merrill Lynch. Please go ahead.

[Technical Difficulty]

John we’re having trouble hearing you?

Hey guys, can you hear me.

Yes.

Hey it is Peter Galbo for John. How are you? Doug you mentioned in your commentary a lot of the local market color but kind of the two greatest increases in your orders year-over-year were in kind of the Northeast and the South which have been somewhat of lagers over the past couple of quarters, can you just talk about what was different in those markets this past quarter that drove such a strong increase, was it just lapping kind of ease your comps or was there anything material that kind of changed?

The North was driven by New Jersey which had a terrific quarter. Michigan had a terrific quarter and then the New York xsurbs [ph] but in terms of units and revenue it was primarily New Jersey. And then in the South that was driven by Raleigh, Jacksonville, Orlando, and Dallas.

Got it, appreciate that. And then Marty, maybe just one for you. You mentioned the margins on City Living versus the traditional homebuilding business, is it fair to assume that the gross margins for the two JV projects would be similar to kind of what the numbers you laid out for the wholly owned City Living projects?

I think it’s tough to draw a direct correlation but I think one project maybe in excess and one maybe slightly below the City Living margin we reported for the year.

Got it, thanks very much guys.

The next question comes from Stephen East with Wells Fargo. Please go ahead.

Thank you, congratulation guys.

Thank you.

Doug, couple of things; one, you were more aggressive on land than what we were expecting and two, you talked about active adult commentary, and then three, wanting to expand that more three it looks like you are getting more aggressive with your apartment. So, can you talk a little bit about first of all whether this is a conscious effort on land or you are just being opportunistic here? And two the active adult, what are you seeing out there and where do you think that goes and then how important is the apartment complex as you move forward over the next two or three years?

Sure on land no, we are not more aggressive. We are opportunistic and remember Stephen, the land that closed this quarter was not contracted for this quarter. It of course takes time to gain entitlements and we generally don’t close until we have those entitlements. So our land spend is not the new deals put under contract but the closing. But we have good deal flow and we’re in the market and we’re excited by opportunities we see. Certain markets obviously we target more aggressively than others based on the underlying economic condition of the markets and our positioning, etc. But we are very active in the land market but nothing has changed in our philosophy. Active adult we built a great brand in the Mid Atlantic Northeast. We knew we would take that brand West and now we’re taking it West in a big way. We have two locations, major master plan in Denver. We have opened in one location in Reno with a second to come in a year or so. And we have a new opening in Las Vegas that are all performing extraordinarily well. Pricing power, spectacular amenities, this is luxury active adult. It is something very different than the market is used to seeing. We are looking to expand active adult into Seattle, into California. We have land contracted for in Phoenix. We are looking in Dallas and you will continue to see more and more of a national footprint of our active adult business as we expand the brand out West. Phoenix is several thousand units, we haven't finalized the site plan but it’s a very large deal, we’re very excited about it. We think about 2000 units that will be coming in Phoenix. Marty, why don’t you hit the apartments.

Sure, on the apartment Stephen, right now we have approximately $150 million invested in the 8,100 apartments that are in either operations, construction, lease up, or development. We are trying to take that business nationally and as we mentioned we have some opportunities in Northern California, Atlanta, and Dallas right now. As we look forward in that business, we are very comfortable, kind of doubling that kind of capital investment. But like to remind folks that as we refinance these buildings we get a significant piece of our original equity back through a permanent loan. Looking out to 2020 we project that our unrealized gains on the building we have in our portfolio would be in excess of $200 million, that would be our piece. Assuming everything goes according to plan.

Okay, thanks. And Doug, on the huge kind of your active adult product, where do you think if you look at given what you just walked through, if you look at it couple of years what do you think is a reasonable expectation as a percent of your business? And then the last question I have is in the South you are seeing your price has gone down, I assume that is mix and it also went down in the Mid Atlantic and I assume that is mix also, are you just seeing better demand at lower price points even within the luxury category or what do you think is going on there?

Today Stephen our active adult is about 12% of our revenue and with the land we control that will ramp up a couple of points over the next few years. But the real story is we are actively looking for new opportunities and so, could it go from 12% to 20%, absolutely. The boomers are at a magic age of moving down, chasing the sun, and we are really excited about the continued growth of that business. So, it will grow, it is very hard to predict because we don’t have the land fully controlled. But as the example I gave, we have 2000 lots we tied up in Phoenix and aggressively looking for more opportunities. So, that 12% or 13%, I think it can get to 20%.

The price changes in the South, there is a slight tick down there. I think it would best be described as the impact of Raleigh and Jacksonville being a bigger piece of the total of the South than they had been. And while our price points there are luxury for those markets, they are not as high as they might be in other markets.

We have done very well in Orlando and Jacksonville of selling to primary homeowners who live and work in those markets and in $400,000 to $700,000 price range. And we are excited to grow that business in those markets because of what right now is terrific demand.

Alright, great quarter again and thanks a lot.

Thanks Stephen.

The next question comes from Jack Micenko with SIG. Please go ahead.

Hey, good morning. Wondering if you can touch on the pricing labor trade off, sounds like you are getting some good pricing power, your backlog is build up nicely, are you still able to offset sort of broadly house cost, construction cost with the pricing you are seeing and how does that look going into 2017 with the backlog where you are at?

Cost increased $2,600 per home on average in the third quarter. That was about 50% labor and 50% material. So the cost creek has been managed and has certainly come down. And we have more than offset that cost increase with price increases.

Yes, but very minor also improvement cost increases and land input cost increases.

Right, and part of that is the California and land numbers being higher this quarter sounds like. And Doug I guess another question asked a different way, the conversion rate on the non-binding deposits to I guess binding in orders, is that should we say -- I guess what you’re saying is we should think of that close to 101?

Historically it has run 65% of deposits convert to a binding agreement.

Alright, that’s perfect, thank you.

You’re welcome.

The next question comes from Ken Zener with KeyBanc. Please go ahead.

Good morning gentlemen.

Good morning Ken.

Very constructive comments on demand, it seems to pick up supply issues California, Dallas. The prior quarter seem to have been directionally result, related to West, California being a big piece of that it was 20% EBIT in FY 2015. I think in the first half -- we obviously need your Q to get this -- the nine months but its risen to 40% of the EBIT as we kind of track your measurement, is that a big mix shift between FY 2015 and FY 2016 the first half, should we think about that kind of your perspective mix given all these new communities that you've talked about obviously Chapelle assets as well as the higher profitability of that region going forward into 2017?

I am not sure I followed the entirety of your question Ken, you want to rephrase it.

Yes, 40% of your EBIT is coming from the West in the first half of 2016 versus 20% in FY 2015. I mean should we think about that being a regional EBIT mix perspectively given the new land openings?

Yes, I think it is going to be pretty consistent with that number for the future, this year’s number for the future.

And obviously you do not comment FY 2017 but that would seem to imply that you’d have a larger mix and with newer communities perhaps a margin mix that could be upward?

I think you have made a logical step there but you’re getting ahead of where we want to go.

Understood, thank you.

The next question comes from Will Rando with Citi. Please go ahead.

Hi guys and congrats on the buyback and extending the revolver. Just had a follow up to couple of the prior questions on the high end. I mean it sounds like there is elements of the jumbo tightening a bit. You guys have talked in the past about maybe some softness there as well as used external brokers for example one of your properties in Brooklyn. Is your commentary today should we walk away thinking the high end is improving kind of sequentially and then stabilized since the recent stock market volatility starting in the fourth quarter last year or you are just managing through it better?

Your first part of that which was jumbo we’re not seeing a softening or weakening in jumbo availability at all. I think there is plenty availability. In fact jumbo rates and conforming rates are basically the same today.

3.5% on a 30 year fix, zero points for 60 days out, there is plenty of liquidity in the bank. As said earlier there is not a lot of liquidity in the secondary market but that will develop if and when rates ever go up. I think you’ll see demand there. We have good, you know, Doug says deal flow on the land side we have good deal flow in the mortgage side we talk before all the time. We’ll have demand for our product. I don’t see any weakness frankly. Documentation is still a problem but people can document the loan or get a mortgage.

And then just if I could follow up on from a whole high end perspective million dollar plus price point, it sounds like you guys are seeing sequential improvement, is that what we should walk away with from kind of this call from or are you just managing through the process better in terms of specifically selling/buying process?

The reference to million dollar plus was our conversation about New York City which of course is a million dollars plus and California where the average price of North and South was right around 1.5. In terms of what that means our orders are up 18%, our deposits are up 23%. We love our business. It is clearly a gravitation to our locations and our brand and we’ll keep doing what we’re doing.

Got it and then just one follow up on land basis, when you kind of looking over the next year I know you guys don’t want to provide guidance but have you seen a land sellers expectations diminish at all over the past 12 months and does that help kind of land that currently sits in your balance sheet and thanks again?

Every market is different. In some markets land is going up and in some markets land prices are coming down and so the answer to that question is it just depends on where we’re located. We are very careful on our land buying. We are very conservative and we’ll continue to be careful and conservative. With that said we are seeing good deal flow.

Got it, thanks guys. Congrats.

Thank you, you’re welcome.

The next question comes from Mark Weintraub with Buckingham Research. Please go ahead.

Thank you, two quick follow ups. First just on the JV income should we think of this as compressing the earnings more into 2017 or is it more it just gets staggered so it is just pushed back a little bit?

I think it will stagger later into the first half of fiscal year 2017 than we had previously thought. There is only so many move ins you can do in so many days.

Okay and then on the orders obviously 18% terrific and you have been growing prior to last quarter 10% to 18% of this four quarters prior. Would you say that this quarter the 18% benefited a little bit from fall over from last quarter and maybe that’s a bit of a stronger number than would be the underlying direction of where the land position is but obviously would seem to suggest that what we saw last quarter was a blip and this would confirm that, is that a fair way to read it?

No, as I said July was better than June and June was better than May, and we’re up 23% in deposits in August so that would be a negative.

Okay, so that’s good to hear, thank you.

The next question comes from Susan Berliner with JP Morgan. Please go ahead.

Hi, most of my questions were answered but Marty I just wanted to I guess get a kind of long term target for you guys for leverage and also discuss your desire for an IG rating down the line from S&P Moody's since you already have it from Fitch?

Well I think as I mentioned we’re very comfortable in the mid to upper 40s from a leverage perspective. It all depends on the environment we’re operating in. If the world is getting a little scarier we’ll lower that if it is getting a little brighter we might increase it. In terms of investment grade I think we’re encouraged to see the -- down in Texas get elevated to investment grade and we’re going to pay pretty close attention to that as we evaluate our next meeting with the rating agencies.

Okay, great. Thank you.

The next question comes from Robert Wetenhall with RBC Capital Markets. Please go ahead.

Hi, this is actually Michael Eisen for Rob this morning. Just a quick question on community account, you guys were set open in a number of communities in the fourth quarter are those communities have only waited to any one particular region other than the other or they kind of evenly split? And then thinking into next year should we expect to see this community count continue to grow at the mid single digit, the high single digit pace as it had this year? Thanks and good luck.

We’ll give guidance on 2017 community account growth on our next call. With respect to fourth quarter openings while they will occur in many markets the most will come out of California, Pennsylvania, Arizona, and Michigan.

Gary are anyone else in the queue?

The final question comes from Buck Horne with Raymond James and Associates. Please go ahead.

Hey, thanks guys, most of my questions are answered. Just to be clear on JV and other income though, the reduction in the fiscal 2015 guidance, should we think of that as a dollar per dollar shift in some part of fiscal 2017 or is there a natural loss of expected profitability in those reductions?

No, this is a dollar for dollar shift. All these units are in backlog.

Okay, great. And have you seen any changes in cancellation rates either overall or in particular in the City Living division?

We have not. Our cancellation rate continues to run at about 4% which obviously is very low for the industry. And there is nothing different market-by-market or product segment by product segment.

Perfect, thank you guys, congratulations.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Douglas Yearley for any closing remarks.

Thanks Gary, thanks everyone for joining us today. Enjoy the last few weeks of summer and we look forward to seeing you next quarter.