Good morning and welcome to the Toll Brothers Fourth Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Douglas Yearley, Chief Executive Officer. Please go ahead, sir.

Thank you, Chad. Welcome and thank you for joining us. I am 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; Gregg Ziegler, Senior VP and Treasurer; and Don Salmon, President of TBI Mortgage Company. 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 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 e-mail questions to rtoll@tollbrothers.com. We completed fiscal year 2017 on October 31 with both our highest annual revenues and contracts in over 10 years. In our fourth quarter, net income was $191.9 million, or $1.17 per share diluted compared to fiscal year 2016 fourth quarter net income of $114.4 million or $0.67 per share diluted. Fiscal year 2017 fourth quarter pre-tax income was $301.7 million compared to fiscal year 2016 fourth quarter of $168.2 million. Fiscal 2016 fourth quarter was negative impacted by $121.2 million warranty charge. Revenues of $2.03 billion and homebuilding deliveries of 2,424 units rose 9% in both, dollars and units compared to fiscal year 2016's fourth quarter totals. The average price of homes delivered was $836,600, basically flat to $834,300 in 2016's fourth quarter. Demand has remained strong across all of our demographic segments; fiscal year 2017 was our seventh consecutive year of contract growth. In the fourth quarter net signed contracts of $1.75 billion dollars and 1,979 units rose 20% in dollars…

Thanks, Doug. Before I address the specifics of this quarter, please note that a reconciliation of the non-GAAP measures referenced during today's discussion to their comparable GAAP measures can be found in the back of today's press release. Our growth in revenues, contracts, deliveries and earnings per share in fiscal year 2017 reflect the benefit of a strong market, our excellent landholdings, our diverse geographic and demographic product mix and our great brand. I would like to point out that heading into fiscal year 2017's fourth quarter, we had expected to close three high dollar condo units in New York City in projects on balance sheet that will instead deliver in Q1 of fiscal year 2018. These three units represent $43 million plus in revenues and their delay was the primary reason for Q4 fiscal year '17 average delivered price, revenues, SG&A leverage and operating income coming in slightly below our expectations. On their own, these three units represent approximately $0.03 of earnings per share. In addition, the I-joist [ph] issues in the north and the west resulted in 35 cancellations and 20 lot swaps, and remediation took a big longer than anticipated. As of this week, all homes have been remediated and most of the issue is behind us; we expect all units impacted to be delivered by the end of fiscal year 2018's third quarter. With our strong backlog, as well as significant projected contributions from our joint ventures and other income lines we expect continued growth in revenues as well as in our earnings per share in fiscal year 2018. We have pursued a number of initiatives to improve our return-on-equity including share repurchases, utilizing lower rate variable borrowings, forming capital and risk affection [ph] joint ventures, optioning more land and increasing absorption; we're up three homes…

Thanks, Marty. We are very pleased with the market as we begin fiscal 2018. There are a number of tailwinds in our favor, last Monday the Census Bureau reported the highest new home sales total in a decade. Recently released data from the National Association of Realtors indicates that with continuing solid demand, the small number of month's supply of new home and -- of new and existing homes on the market remains constrained at levels still well below historic norms. This shortage plays to our advantage given our multi-year supply of well-located geographically diverse and already entitled home sites. Meanwhile, our customers in the upscale market are benefiting from low unemployment income growth, a strong stock market, and attractive mortgage rates. As millennials become a bigger part of the rental market the rental apartment and new home markets as growing family seek out larger homes at better locations and as baby boomers buy second homes or move to active living communities, we believe we are well positioned for many years to come. This summer we celebrated the 50th Anniversary of the founding of Toll Brothers; from our start as a local builder in the suburbs of Philadelphia, we are now a Fortune 500 Company, and we have been named the world's most admired homebuilder for the past three years in a row by Fortune Magazine. Our accomplishments are directly attributable to the diligence and dedication of our Toll Brothers associates to whom we are very grateful. Thank you. Now, let me turn it back to Doug.

Thank you, Bob. Thank you, Marty. Before we take questions, let me very briefly comment on the pending tax reform. On the corporate side, we are encouraged by the potential reduction in the corporate tax rate as it will help our earnings and cash generation. On the personal side, while the potential reduction in the MID, real estate tax and self-deduction not being helpful to buyers, especially in our coastal regions, we believe they may be offset by a lower stated tax rate, the doubling of the standard deduction, the potentially removal of AMC, lower pass-through tax rates, and the elimination of the phase-out of itemized deductions. We have always believed that our buyers are generally not tax driven when it comes to buying our homes. The issue of tax reform has been looming for months and we haven't seen a change in our buyer's behavior; they continue to buy, sales continue to be strong. With the Senate Bill coming out last week, the headlines have only increased; yet this past week had the highest sales for our first week of December since 2005. So Chad, let's open it up to questions.

[Operator Instructions] The first question will come from Stephen East of Wells Fargo. Please go ahead.

Doug, first a quick follow-up on that tax reform. Do you think this would affect with salt disappearing; do you think this would affect pricing in those markets? And then switching gears to my other question; you all have done a tremendous amount on capital allocation this year, and Marty walked through all of it which quite frankly, was pretty impressive just in the fourth quarter alone. So, as you look into 2018 and beyond, can you repeat what you were doing there? Where did your focus go? What would you like to do? And maybe put some numbers around that, at least generally.

Sure Steven, I'll take the -- your tax issue and then turn it over to Marty on ROE. You know, it's just too early to tell what exactly will happen with tax reform as the Senate and House Bills are now reconciled. If salt passes where there is limited or no deductibility of state and local taxes, and obviously, California, New York, New Jersey are impacted with higher state tax rates. But I'll reiterate what I said before, we don't think our buyers at our price point are driven by the taxes they pay when it comes to purchasing our homes. We've also studied in some detail, a typical buyer in eastern states and also in California, and again without knowing exactly where the new bill comes out when you consider the things I mentioned which is potentially removal of AMT, lower pass-through tax rates, elimination of the phase-out of itemized deductions which is big because that's the current tax law and that's proposed not to be the future tax law; it comes across -- it appears as a wash or very close to a wash. But our activity in California continues to be strong, we are not hearing from sales managers that buyers are on the sidelines waiting to see exactly where tax reform plays out before they buy. Remember, California today is not a great state to live in when it comes to taxes but it's our hottest market because the sun shines, the lifestyle is great, and most importantly, there is tremendous job growth. And so I don't think any changes in this tax code as proposed by either the House or the Senate will have an impact on prices in California, supply houses are still very low, land is very hard to get entitled, and our buyers out there are very affluent, and our business has been very good over the past couple of months as there has been a lot of headlines about this tax reform.

And Steven, with respect to capital allocation as you put it, thank you very much for that commentary; I think that the entire management team is pretty proud of what we've accomplished this year. As we look to future years, I think we're going to continue down the various paths we've gone, we have significant financial flexibility to do a number of things but the first priority has always been to grow the company, and so we will continue to look at land opportunities and company opportunities and apartment opportunities, and we will complement that with opportunistic stock repurchases, and we are coming up on our one-year anniversary of our dividend as well, so we will be taking a look at that as another option. I hope that helps.

That does. And then Doug, last question. Going back to orders, you mentioned -- you know, California, you all have just had huge numbers there. The gross margin as you look into '18 is coming down a little bit; could you talk to some about the decision to run hotter, run 50%, 60% growth and versus the ability to price more? And then along those lines, I didn't catch on the cancellations; it's up about 300 basis points, it sounds like a fair amount of that was coming from the joist issue but if you could put some color around the cancellations moving up?

Sure, I'll answer that, that's the easier one, the quicker one. The increase in can-rate is almost all, it is all Weyerhaeuser. The Flak joist issue, we lost 35 agreements. You know, Weyerhaeuser will fully compensate us for the costs associated with that and having to resell those homes. But that is the reason it spiked a little bit in the fourth quarter. With respect to California, last year we delivered a whole bunch of homes at a hidden canyon which I know many on the call have seen in Orange County and that was 50% gross margin, plus or minus. I'm really proud of a 28.5% gross margin coming out of California and it's mix driven, but what we have right now selling is selling very well, we continue to raise price. Steven, we will continue to evaluate that trade-off between price and pace, it's of course driven by how long the backlogs get and how quickly we can build homes and deliver them and we evaluate that regularly, but we continue to be set up for great things in California and continue through this call to see terrific demand. I'm so proud of what we're doing out there, our homes are different, our communities are different; the buyers and the market recognize it. And I think our future is very bright out there and like I said, I'll take a 28.5% margin in the California market all-day long.

The next question will come from Alan Ratner of Zelman & Associates. Please go ahead.

So I appreciate all the detail on the margin guidance. One thing I thought was interesting I didn't hear from you Marty as far as the driver was the option land piece because you guys have done a great job driving that higher I think that there has been a lot of chatter in the industry about becoming more asset light and you guys getting 35% option is very impressive. I was curious if -- how should we think about the margin differential on your option land versus your self-developed portfolio and if it's not really impacting your '18 margins, at what point should we start to see that reflected? And then, just one follow-up to that is, how high can that number go? I think there is a lot of discussion about how difficult it is to option land in some of the coastal markets you guys operate in California, and in the northeast; so just curious if you can expand a little bit about what you're seen in the land market that's allowing you to drive that number higher? Thank you.

Sure. And I think before I address it Alan I think we're going to talk about structured options, as well as approval options. And structured options is where you find a buyer who is willing to take back some financing or sell it to you over time, and that generally is going to result in a higher cost to acquire the land. And we are seeing a bit more of those opportunities although it's always a selective trade-off by us as to whether we want to buy the whole thing ourselves and improve margins or maybe defer it over time and improve return-on-equity. And then you have the approval options where you identify a piece of ground and agree to buy it subject to you getting approvals; and I think the combination of those are going to work in opposite directions. If you find the land on a non-approved basis and create value through approvals, then that would be margin enhancing versus the converse of structured options; so we're looking at both of those types of alternatives, as well as a direct initial purchase.

And just in terms of I guess the composition than of the options for 35% today; can you get some split between those two and should we expect at some point kind of a cliff or a gradual impact from more option deals flowing through at lower margins?

I think we've given the margin guidance, we're going to give for 2018; and with both of these initiatives working in opposite directions, we're going to leave it at that.

Got it, okay. Second one if I could Marty, on the tax reform; if we do assume it gets passed and we take your current guidance, it probably frees up about $100 million, $100 plus million of additional cash to the Company. So I was just curious if there is any big picture views on what you would do with that incremental cash?

Right, I think I'm not sure we get quite as high as you do but call it $80 million to $100 million and it depends on whether that happens in '18 or '19 and there is a couple of different alternatives depending on which body of Congress you're looking at right now. I think we don't have any particular direction for that incremental cash other than to put it in the general coffers that I spoke about on the first question, and our priority will always be growth of the Company through land and company acquisitions; and then we will look at other alternatives as the opportunities present themselves.

The next question will be from Michael [ph] with JP Morgan Securities. Please go ahead.

Good morning, this is Nubas [ph] for Mike. I guess going back to the gross margin guidance and net of the big pieces you highlighted; I guess Congress margins are pretty much flat year-over-year but -- again, some of the pricing you're seeing, I want to see if any of the costs, like it kind of shifted over -- maybe labor or raw materials. So any color on that would be really helpful.

Sure. We continue to feel some pressure on the cost side driven by some material increases but more so labor, it's nothing out of the normal this past quarter, it's creeping slowly. In some markets we are offsetting or more than offsetting that cost increase with pricing power and in other markets, we have been unable to do that. The mix as Marty stated, when you take out the margin issue coming out of New York City and the very small margin issue coming out of California is that our gross margin is flat in our -- the rest of our business around the country which suggests that we have pricing power that pretty much equals the cost creep. I would highlight that we've had a little more cost increase in Houston because of the hurricane, we have not seen an impact on sales; on the sales side that market recovered very quickly but as trades are being pulled towards the repair of houses and infrastructure that was impacted directly by the hurricane, it has made it a bit more expensive and it's taken a bit longer to build some homes in Houston; it's a very small market for us, it's less than 3% of our business. And the west coast of Florida which is also very small, less than 1% of our business; we've had the same issue although not to the same extent.

Okay, that's helpful. I guess on the SG&A side too; given the really solid improvement you're expecting next year -- I guess, one of the really big opportunities we've identifying, we talked about some investments in the past, do you think those will kind of increase the longer term trajectory of SG&A?

So I think you're referring to our technological investments upgrading our general leisure package or our customer relationship management package; those are still ongoing and the benefits of those will be beyond the 2019 year, most likely. So we're still in a build and spend mode, not at reap the rewards mode quite yet.

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

Thank you for taking my questions. The first one is on the community count growth expectation of 5% to 10% which is definitely better than what we were expecting. Are there particularly regions or even community types that are driving this?

Sure. The community openings for '18 -- there we project to have 17 new communities opening in Pennsylvania, 11 in Reno, 8 in Seattle, 8 in Northern Cal, and 6 in Southern Cal; so those five markets lead the list.

Okay, that's helpful. And then two of your competitors have recently executed, what could be potentially transformative transactions; it was a land developer acquisition and the acquisition of a major competitor. I mean did either of these transactions kind of think -- change the way you guys are thinking about the business or even your strategy going forward?

Well, we've always been opportunistic on builder acquisitions although in the past they've always been in the smaller acquisitions to enter a new market. We continue to be focused on those opportunities as we evaluate a couple of new markets that we're interested in. With respect to the LAN side of the business, we already have our Gibraltar joint venture with PIMCO which is a $400 million land fund that provides land banking services to many builders, and we just closed our first deal with that PIMCO fund with -- on some Toll land. But we are also evaluating the opportunity to create or acquire an off balance sheet land fund or land company that could give us the vehicle to efficiently with a great ROE, feed land back into Toll Brothers, and those discussions will continue.

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

Good morning and congrats on a very successful year, Doug; it's nice to see you guys diversifying geographically, diversifying product and reaching your targets. On the heels of a big victory, you guys were talking about ROE coming in ahead of your expectations, you know, you were at 12%, then 12.5%, then 12.7%. Maybe it's for Marty, what kind of headroom do you have to drive ROE higher if you're thinking about 2019 or 2020, what are the primary leverage you're going to be pulling? Where do you think that number can go?

Bob, thanks for your commentary, we appreciate it. As we look at ROE, we're really focused on what can we do and kind of commit to internally here over the next 12 months with an eye towards continued improvement. If we recall, a year ago when we set the 12% target, we had hinted to 50 to 100 basis points beyond that in subsequent years; well, we chewed into a lot of that subsequent year of goal already, you know, it makes it harder to set the goal equally as high going forward. So I think we're looking at somewhere in the neighborhood of 25 to 50 points, absent tax reform or significant joint venture formation here in this year. Beyond that, we'll continue to structure the balance sheet and the Company so that we can focus on improving ROE while balancing gross margin.

And what's going to be the big laver [ph] for you; is it going to be buybacks or where do you see -- what's going to be the laver [ph] that gets you up there or is it just a combination of multiple things?

I think it could be buybacks, it could be joint ventures, it could be improved income, it could be reduced taxes; there is a whole series of events that we could look at over the course of the next 12 months. And beyond that, it's just a continuation of all the initiatives we opened the call with.

I wanted to ask you if you could frame up the quarter for me; it seems like some big dollar, higher margin projects are getting shifted out of 4Q into 1Q. It seems like you're still extracting great margins out of California. How do we think about California and West Coast margins on a longer term basis; like 28.4% is pretty awesome, where does that go in the next two to three years and how should we think about that piece of the business in terms of profitability?

Bob, I think we're pleased to give you a margin guidance for the next year. And we're going to limit it to that. Thanks.

Good, no problem guys. Congratulations, good luck next year.

And the next question will be from Susan McClary with Credit Suisse.

You guys have seen a nice improvement in your absorption pace there even with the community count being relatively flat. As we think about that growth in communities coming through next year, can you talk about how we should think about the absorptions moving with that?

So, we're pretty happy with the three unit increase we had this year, that's more than 10%. I don't think we'll see something quite that sizeable next year, the market will dictate but we hope it goes up modestly.

Okay. And then, as we think about you almost coming up to the anniversary of launching the T Select product; can you talk to maybe some of the things you've learned with that or is there anything that's been different than what you had expected and can you perhaps leverage some of that into some other markets or other product areas that you have out there that you weren't maybe initially thinking about?

Sure. T Select exist as a brand in Houston and Philadelphia. It is a millennial focused product line, as I've mentioned on this call, it's our three series Toll Brothers home; so it is still luxury albeit smaller and more affordable to attract the leading edge of the millennials who are buying homes later and therefore wealthier. But for the moment let's forget the T Select name and just think about that buyer; we are selling homes to that buyer in many markets around the country, the Boise [ph] market as an example is very much driven by an affluent millennial. Jacksonville, Florida is driven by an affluent millennial to some extent, we have town homes that are doing extremely well in Ann Arbor, Michigan which is that buyer demographic etcetera. So whether it is branded T Select or whether it is Toll Brothers branded communities that are just designed for the leading edge of that, that demographic you will see more and more of it coming out of us. I think the one thing we've learned with new product is that we need to have models opened and decorated before we open the community because the buyer wants to see it and walk it before they buy. And so it's harder out of a sales trailer to pre-sell and so to strategically -- we will be opening those communities from decorated models. Going forward, that I think is probably the number one thing we've learned.

I think one of the other things is that as much as we somewhat direct this to the younger buyer, we are seeing more than we expected from the move down slightly older buyer.

The next question will come from Megan [ph] with MKM Partners.

I just wanted to follow-up a little bit on your city living comments. As you mentioned, you have been talking about some of the sort of weaker conditions in a very high end; but just wanted to follow-up on that a little bit versus what maybe you were seeing in the market at the beginning of the year or six months ago. Has it shifted at all? Has it deteriorated? Are we sort of steady at versus what you're seeing a few months ago?

It's steady and we're pleased with our -- as I mentioned, our continued sales over in Jersey City. And we're very pleased with the new opening we had last month, actually the end of October now at Leonard Street down in Tribeca. And that -- what we've learned is in New York City if you're at $2,000 a foot in a good location, you're going to do pretty darn well, and we are. And if you're at $800 to $1,000 a foot in Hoboken and Jersey City, you're going to crush it which we have over the last year in both locations. So I think we're positioned really well and I'm feeling good right now about the market based on those buildings that I just mentioned to you.

Great, thank you. And then, just a quick follow-up. I know you talked about the I-joist [ph] issue in the cancellations and just wanted to make sure obviously you saw a decent decline year-over-year in closings in the north; was that also due to the I-joist issue or was that sort of a community count decline thing as well?

Yes, it was both, the I-joist and a declining community count coming out of the North.

The next question will be from Nishu Sood with Deutsche Bank. Please go ahead.

Thank you. I just wanted to ask a little bit -- dig into the math on the gross margin decline for '18. Of the 80 basis points, I think you've broke out the 50 basis points, so it's going to come from city living. The remainder that is going to be driven by the California erosion; I just wanted to understand that a little bit better. Your sales pace in California is at about 2X pace the rest of the company; so I would have thought even with some erosion of California gross margins there might have still even been a positive effect. It seems to imply that the closing pace in California is not going to be as high as that kind of 2X order pace; so if you could help me reconcile that please.

I think you've done a bit more precise math then we've chosen to get into and trying to categorize a couple different reasons. So, I guess I would say don't doubt your math.

Okay, all right. And second, I just wanted to ask on an active adult; you've been talking about that as a growth priority. Obviously, there has been tremendous -- great growth in that upto I think 19% last year of closing. What did you come in at this year and since you're still talking about the growth ability of that division, where could that go in the coming years?

Hold on one second as Greg pulls the numbers together. So 2017 active living, which is our 55 and over business with 19% of units and for '18 it's projected to be about 20%.

But there are a number of markets where we don't have that product offered and we are looking to find land for that product. And we have a number of locations where the land is controlled in significant and significant communities that will come through in '19. So this is a growth business based on the land that we control and some of the deals that we're playing with, and the appetite.

The next question will be from Steven Kim with Evercore ISI.

It's actually Trey on for Steve. With respect to land, what was the total dollar spent in the quarter for acquisition development? And how are you guys thinking about in land going into 2018? Do you think about -- your linesman [ph] is going to keep up with the revenue growth that you're expecting or do you think you can grow it little bit faster, little bit slower given how you're looking to continue to shift to more options?

Yes, Q4 '17 land spend was $192 million and then an improvement cost of another $163 million and some soft cost gets you into approximately $380 million for the quarter.

And with respect to '18 land spend, we're opportunistic. We will spend as much as we need on the good deals that are presented to us but I would say with the company growing and with our appetite, I am hopeful that the land spend will increase in '18.

And then, turning to city living for a bit; I know you guys have been quite successful here in the Greater Manhattan area and then down Maryland, but how has the continued prospecting out for newbuildings to new types of development in other cities gone over the past 3-6 months?

So we have two properties in Greater L.A. that we control and are excited to launch city living in the L.A. market. We're continuing to look in San Francisco, Seattle, Miami, Washington D.C., Boston, Philadelphia; we have a pretty cool opportunity in Philadelphia that we're negotiating on right now plus the second property we control that we're going through the entitlements on. So I continue to be hopeful that the city living brand will be bigger and be more geographically spread.

So just to follow on that term control; control often means we still have diligence poised to get through or approvals to get through. So just because we control it doesn't necessarily mean we're going to execute on it.

Our next question will be from Mike [ph] with Barclays. Please go ahead.

I had a question just for surround tax reform and more philosophically, if you think about the corporate rate potentially going permanently lower; how do you think that affects land purchasing decisions? Do you really think that builders will fundamentally harvest more cash and returns out of the existing business or do you think especially in more land constrained markets, you effectively have some working that into higher land prices?

Mike, we'll have to see how it plays out, we're certainly not approaching tax reform as an opportunity to pay more for land or reduce margins. It's a competitive market, buying land, we are -- sometimes we get lucky and we're the only ones talking to a seller but in most cases, sophisticated sellers are running a process or talking to a number of different buyers and that competitive environment dictates how we do subject of course to making sure we're not diluting margins.

I think the tax theory is that reducing the rates will lead to more growth, more jobs and improved economy; whenever those factors come together, the housing prices seem to go up and -- plus builders are in a better position.

Secondly, just a -- I know this is a relatively small but the decision to on balance sheet the rest of the site and can you talk about just what was driving that decision to finish out the project yourselves?

I think some of the reasons we looked at a joint venture are because there is construction risk, there is developing risk, there is marketing risk, there is execution risk; we took most of those risks off the table as the building got built and three quarters sold and delivered, and we just said it's strategically important for the partner to get cashed out and improve their return on equity and their IRR and it's pretty good for us because we got a good gross margin and we put it on balance sheets. So it was a win-win as we looked at it in a different timeframe or a piece of the development cycle then at the outset.

Okay, got it. And if I could sneak one quick one, and Marty you mentioned the three units that were expected to close in 4Q, I think all of those are concentrated at one project. My understanding was there is potentially two of those three haven't been actually sold yet; could you just give us an update on those units, have they been sold are they are in backlog or how should we think about timing there?

It's two different projects and all three units have been sold. And all three are expected to settle in the first quarter. And too many end of this week since we're looking at requirement here to see our Company isn't that and he's not who said up and down.

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

Just a couple of follow-ups. One was, would it also get a breakdown of your deliveries for fiscal '17, how much came from optioned versus owned lots?

Well, by the time we begin construction on the lot we own it. So at some point everything's an option lot because we have it in diligence, and we haven't closed on it; so we control it once we put it under contract, even if the diligence period hasn't expired, so that's a really challenging question for us to answer in the manner you want us to.

Kind of direction; I'm just trying to get a sense of -- is that 80:20 where you went from to the 65:35, is that sort of maybe with the 80:20 have been more indicative of that type of underlying ownership of the lots at the relevant times?

I'm going to say we just don't know. So I don't want to hazard an estimate over a guess.

Sure. And then second just on the JV and other income; I know you've still got that interest in the Hotel in Brooklyn Bridge Park, is that included in the guidance for '18 or is that something that could provide upside if that were to come to pass?

There is a moderate level of operating income but not a transaction gain.

Okay, great. And then lastly, you've mentioned that you're beginning to -- you're evaluating now opportunities to create an off-balance sheet land development investments. How recent is that that you've started to kind of look at that possibility is that something you've been doing for a while or is just more with what's been going on, you've focused on it more.

I think we've always had it as something we've considered but I think -- and the industry has looked at that type of structure for decades but a couple of the recent transactions as mentioned earlier have our fight interest rates our interest in it and given us -- I'll say more optimism that we may be able to get something done.

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

I'm curious what percentage of communities in the quarter you were able to push price on? And then, if you maybe frame out maybe some regional relative leaders and laggards on the pricing side?

While Greg is getting the specifics; the leaders are out west. We've had the most pricing power in Southern California, Seattle, Northern Cal, Reno, Michigan, believe it or not Boise has had nice pricing power, and smaller markets for us, Orlando would round out that list of the most pricing power.

And then while he is looking, I'll get another follow-up. I know tariff in row -- and it's not a big business for you guys overall; but I want to understand that more -- was that more of a financial decision or was that more strategic? How do we think about the student housing prospects in light of that sale?

Our partner in that property who had 75% of the equity was inclined to sell after full stabilization. We got the highest price I believe ever for a student housing property. We ran a process and sort of had a number in mind that if we hit it, we go and we beat it. So it was a great return and very good income to Toll and a very happy partner. And as we've said all along, some of the apartments whether they be student housing or market will be held long-term and some will be sold at stabilization. And that was one that was performing very well, was 99.9% occupied which I think one -- that means one bad out of 1,492 -- 1,493 was not taken. And that's the story behind that one.

So our business mentality -- strategy for the apartment business remains the same. If we've built three, we'll probably sell one and sometimes that sell is a portion of our interest and sometimes it's on a percent of our interest, so that will be a 2018 first quarter gain that we've projected in the $40 million guidance we've given you for the first quarter JV and other.

The next question comes from Jade Ramani [ph] with KBW.

In terms of construction efficiency, I was wondering is there an opportunity to further increase the amount of offsite integrated work you guys already did?

So we have four panel entrust plants that serve the Mid-Atlantic, the northeast, and the Midwest. We are certainly -- as all the other builders are, evaluating some of the new start-up companies that are talking of robotics and much more of the home produced offsite. We've met with a few of those providers and it may come to the industry overtime, we don't see anything today that's a game changer; frankly, we haven't seen much yet that is all that better or more sophisticated than the four plants that we've had for a long time. Transportation in our industry is a big deal because you're not moving computers or refrigerators on a truck, you're moving parts of houses on local roads and highways. And for the moment, very little has changed and I think it's going to take some time but it's certainly an interesting time in our industry because there appear to be more and more tech companies that are experimenting and trying to figure out how to make it work; so we'll be on top of it and one day but not today.

In terms of the amount of JV income, could you quantify what proportion comes from city living and what the other -- whether it be land joint ventures of Gibraltar or what the other contributions are?

For 2017, do you have that Greg, I don't have it off the top of my head. I know $22 million is the apartment business consisting of roughly $27 million of gains on transactions and $4 million or $5 million of overhead as we build out the rest of the business. We have -- how much was the other income which is just kind of routine -- $53 million was just for title insurance and internal subsidiaries. But Davy [ph] and other, the vast majority last year was associated with our peer house project, that was nearly $63.5 million, we made $8 million and the sudden $8.5 million at the sudden before we put it on balance sheet; and those are the biggest components of the other -- of the JV. And the other, our title insurance business which is a pretty good run rate business, you can kind of count on this, and should grow as we grow was around $13 million of income. And then, management fees for some of the joint ventures was close to another $10 million, actually $13 million. And then $5 million of retained customer deposits on cancellations; so a pretty healthy year and we're well on our way to replacing that sizable set of income from the Jupiter -- I'm sorry, the Pure House Project, and a lot of that will come from the apartment business that I said is going to double next year.

And in terms of supply dynamics, when do you anticipate peak deliveries for the market in New York City into 2018 to peak or 2019 du think?

Well, I think that all depends on whether we find new projects and we do have a couple that we have under control right now.

The next question will be from Ken Zener of Key Banc. Please go ahead.

So your question I have is on SG&A 10% with your [indiscernible], guidance where it is. Can you talk to your variable cost if that's staying the same because if it is, it seems like your fixed cost in communities is going up quite a bit and can you expand on that? Thank you.

I think we continue to see our investment in our sales team and in our model homes pay dividends in terms of our top line growth. And we mentioned earlier that we continue to make investments in the G&A line for our technology initiatives. But I think overall G&A as a percentage of revenue is going to be a bit flat whereas the sales component is going to go a bit up in terms of -- I'm sorry, what are you saying there, Gregg? Fine, fine, in absolute this is going to go up, right.

The next question will be from Will Randow with Citi. Please go ahead.

So I was hoping a bit bridge a gap between two or three different data points, specifically first demand [ph] was nearly as strong as 2005. And I'd love to hear your feel about absorptions that were surprised today. Conversely on secondly, last time you saw this kind of bump up in cancellation rate was the first fiscal quarter of 2006; and obviously your margin expectations are bit lower for next year on the pretax basis. So I guess can you help me bridge the gap between those three data points, as well as give out letter grade for each of your markets as Bob used to do?

I think the cancellation rate we mentioned earlier is entirely attributable to the I-joist issue where of the 350 impacted homes we had cancellations on roughly 10% of them, that all happened in the fourth fiscal quarter. In addition to that, we had 20 buyers swap lots, we didn't count those as cancellations and we didn't count those as new sales. I think we've gotten away from the letter grades, and we'll stay away from the letter grades but maybe Doug wants to make some comments on some of the healthier markets.

Sure. Without letter grades, I can give you the As. There is no snow right now in Colorado. Southern Cal, I mentioned is very hot; Northern Cal, very hot; Seattle, we're actually putting houses on the market in Seattle with a recommended bid price and letting the buyers submit a sealed bid, take it higher than our price sheet. Las Vegas, very strong; Reno, very strong; Northern Virginia, come back -- it was slow to recover and now it's clicking one of our hotter markets; New Jersey has broken into the Top Five. And New York City living, on absorptions, actually leads the Company because of some of excess we've mentioned on this call at our new openings and over in Jersey City. So I could add a few more; Pennsylvania has done very well, Colorado has done very well, Michigan has done very well. So there is a nice handful or more, some highlighted markets that are doing A-level work.

And lastly, do you have a plan to reduce the amount of debt outstanding in the next couple years or are you okay with the current notional outstanding of little over $3 billion? And I guess, also can you skin over tax reform carve outs for real estate?

So I don't think we have any particular plans with respect to debt, we'll evaluate where rates are when debt matures. Right now we enjoy 35% or so, 34.5% net debt to cap ratio and our mix of long-term and variable debt that gives us lots of room in our weighted average maturity and our weighted average interest rate, we're pretty happy with those things right now. What was the last question, Will?

In terms of carve outs for real estate in regards to your tax reform.

So as we look at our interest as a percentage of pretax income; we have quite a bit of room to go before we bump up against the carve out of 30% of -- interest can only be deducted of the 30% of your pretax income. So we're comfortable with that.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Doug Yearley for any closing remarks.

Thank you, Chad. Thanks everyone for listening in and for your support. Have a wonderful holiday season, and we'll see you in the New Year.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.