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Toll Brothers Inc
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Good morning and welcome to the Toll Brothers' Third Quarter 2018 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 also note this event is being recorded.
I'd now like to turn the conference over to Douglas Yearley, CEO. Please go ahead.
Thank you, Anita. Welcome and thank you for joining us. I'm Doug Yearley, CEO. With me today are Rick Hartman, President and COO; Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance and Investor Relations; Kira Sterling, Chief Marketing Officer; Mike Snyder, Chief Planning Officer; Gregg Ziegler, Senior VP and Treasurer; and Don Salmon, President of TBI Mortgage. Bob Toll is not joining us on the call today, as he and 15 Toll family members, representing three generations of Tolls, are on an end of Summer trip to Alaska. We wish him great weather and great fun.
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 dyearley@tollbrothers.com.
We completed fiscal year 2018's third quarter on July 31st, with excellent results. Earnings per share rose 45% and net income rose 30%. Pre-tax income rose 24%, and income from operations, essentially our home building operation rose 33%. Revenues this quarter were $1.91 billion, which positions us for the highest full year revenues in our history.
We achieved 12% growth in the value of new contracts signed, which at $2.03 billion, was the highest for any third quarter in our history. Record third quarter contracts and a third quarter end backlog of 22% in dollars from one year ago indicate revenue and earnings growth for fiscal year 2019.
On a per community same-store basis, contracts per community of 8.l were the highest for a third quarter in over a decade and up 18% compared to fiscal year 2017. The value of our contracts in the West South and Mid-Atlantic regions, and in our City Living division, were all up at least double-digits, while the North was essentially flat. In California, our contracts were down 1% in dollars, and 4% in units, contracts per community in California declined from 11.3 in fiscal year 2017’s third quarter to 10.0 this quarter.
However, contracts per-community in California were still well ahead of the company-wide average of 8.1. While California is not as hot as it was a year ago, it is still one of our stronger markets. More broadly, while there has been talk about rising interest rates, the rate of a 30-year fixed rate mortgage is about 4.75% today versus 4.625% six months ago. In fact on this call three months ago, we cited a 4.875%. So it is down since then.
Our community count grew from 283 at second quarter end, to 301 at third quarter end, but still lags fiscal year 2017’s 312 at third quarter end. We expect to reach approximately 315 selling communities by fiscal year end 2018, which should give us a strong start to fiscal year 2019. And without giving specific guidance on community counts for 2019, we already own or control enough communities, we plan to open next fiscal year to project growth in community count by fiscal year end 2019, and that is before potential new land acquisitions in the pipeline.
Our double-digit growth in revenues, contracts and backlog and our strong earnings results, reflect the health of the new home industry in general and our unique position in the luxury market. Through our customization model, our buyers are adding on average $165,000 in lot premiums and structural and designer options to their homes. We are also benefitting from the quality of our brand, the diversity of our product lines, and our attractively located land pipeline across our approximately 50 markets.
Now let me turn it over to Marty.
Thanks, Doug. Before I address the specifics of this quarter, I do want to 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 release. We are very pleased with this third quarter's results as we exceeded our guidance for closings, average delivered price, adjusted gross margin, SG&A leverage, other income and income from unconsolidated entities and our effective tax rate.
Contracts per-community improved significantly over last year. Our quarter-end community count was above expectation and our third quarter backlog was the highest in a dozen years. With an average build time of over nine months, this backlog gives good revenue visibility into the first half of fiscal year 2019. We had land write-downs of $11 million primarily associated with the community in the Mid-Atlantic region. We also took a $4 million impairment of a homebuilding joint venture in the Mid-Atlantic region that lowered the income from unconsolidated entities.
Gross margin this quarter benefitted from approximately 60 basis points of litigation settlements, which we had expected for the fourth quarter. Last year's third quarter margin benefitted a similar amount from an accrual reversal and some brownfield cleanup reimbursements. Excluding this quarter's litigation settlements, our adjusted gross margin still exceeded our guidance by 30 basis points, which we attribute to cost coming in a bit lower than expected and a slightly positive product mix of deliveries.
Our full year adjusted gross margin guidance is now set at 24%, consistent with the midpoint of our previous range. We will give detailed margin guidance for fiscal year 2019 at our fiscal year-end 2018 earnings call. We have narrowed our guidance for full year deliveries, while slightly increasing our average delivered price expectations. We have also updated our guidance today to reflect improved SG&A leverage 20 basis points and a full point reduction from the midpoint of our expected tax rate range. Also interest and cost of sales is now projected to be 2.7% for full year 2018 compared to 3% in fiscal year 2017.
Our Apartment Living platform is performing well and should continue to show significant growth with the total of 9 projects built totaling 4,000 units, some of which we have sold and a pipeline of over 12,000 units in construction or in planning we are building a national business. As we have previously mentioned, we will strategically monetize certain Apartment Living assets through regular sales or recapitalizations. Such gains will exceed $60 million in total in fiscal year 2018.
During the quarter, this third quarter, we closed on the sale of Parc Westborough, a 249 unit garden-style community, owned in a joint venture located in Westborough, Massachusetts. This resulted in a gain to Toll Brothers of $9 million. We also had a gain of approximately $30 million in our first quarter from the sale of our Terrapin Row Student Living Joint Venture at the University of Maryland.
In our fourth quarter, we project another gain on sale of an apartment project located in Suburban, Washington DC. This gain will be in excess of $20 million. All of our rental projects are developed in joint ventures where we own 50% or less. We earned performance bonuses and management fees, as well as income from the properties we own long-term. This is a high return on equity business and we are excited about its progress.
We remain focused on returning value to shareholders and improving our return on equity, as indicated by the year-over-year reduction in our lots owned as compared to total lots controlled, our recently increased dividend and our continued stock buybacks. Owned lots as a percentage of total were 63%, down from 68% at fiscal year 2017’s third quarter end. And we have repurchased another $147 million of our stock since the end of the second quarter of fiscal year 2018, bringing our fiscal year 2018 total to $438 million and 10.2 million shares to-date.
Return on beginning equity for fiscal year 2018 is now forecast to be approximately 16%. While affordability has been a concern in the media, our mortgage company TBI Mortgage is seeing behavior that seems to run counter to those headlines. Our cash buyers have jumped to roughly 24% this year compared to our more typical level of 20%. We have not seen an uptick in leverage rates. And in fact, our buyers’ loan to value ratio in Q3 dropped to 67% from a more typical level of 70%.
Turning back to guidance for the fourth quarter and fiscal year-end and subject to our normal forward-looking statement caveats, we offer the following guidance. We project full fiscal year 2018 deliveries of between 8,100 and 8,400 unites, with an average price between $835,000 and $860,000. This would result in revenues of between $6.76 billion and $7.22 billion, which would be the highest annual revenues in the history of the company. Fourth quarter deliveries are expected to be between 2,550 and 2,850 units with an average price of between $840,000 and $870,000.
For the full fiscal year 2018, we are projecting an adjusted gross margin of approximately 24% of revenues, which is consistent with the midpoint of our previous guidance and adjusted gross margin of 24.8% for the fourth quarter. We expect interest in cost of sales to be 2.7% of revenues for the full year and 2.65% for the fourth quarter. We expect full year SG&A as a percentage of revenues to be 9.8%, which is a 20 basis point improvement from our previous expectations.
Fourth quarter SG&A is expected to be 8.1%. Fiscal year 2018 joint venture and other income guidance is approximately $145 million with approximately $55 million expected in the fourth quarter. We are also revising lower our full year effective tax rate from a midpoint of 24% to approximately 23%. Our fourth quarter effective tax rate guidance is approximately 28.5%. We reaffirm our guidance for fiscal year end 2018 community count of 315 compared to 305 at fiscal year-end 2017.
Lastly, we expect our weighted average diluted share counts to be approximately 151.5 million shares in Q4 and 155 million shares for the full fiscal year. The full year share count is down 8.5% from last year's fiscal year end share count. These share count figures, do not assume any additional share repurchases in the fourth quarter.
Now, I'll turn it back to Doug.
Thank you, Marty. Anita, we're all set for questions.
We will now begin the question and answer session. [Operator Instructions] First question today comes from John Lovallo of Bank of America Merrill Lynch. Please go ahead.
Hey, guys. Thank you for taking my call. First question is you mentioned California was strong but perhaps not quite as strong as it was last year. I, mean were there particular sub-markets or price points where this was most evident?
John, sure I'll be happy to talk about California a little bit. The comp to last year is unique and was frankly fairly extraordinary. In that last summer, we actually saw acceleration of sales over the spring, which is something that typically doesn’t occur and I think what’s happened this year is we’ve gone back to a normalized seasonality where the summer months are a little bit slower than the spring. It is still both in North and South in all sub-markets, one of our stronger markets. As I have mentioned, we are exceeding company averages in sales per-community, and so we’re very happy with the operations in California.
I will point out that when you look back to the third quarter of 2016, we were up 32% this year. So it’s really just when you focus on the summer of 2017, which was pretty unique, but overall there is no sub-markets I am worried about, and we like all of our operations, both North and South and really love our land positions and all is good.
Okay, that’s encouraging, thanks Doug. And then as a follow-up, your order growth in the South region was a lot stronger than we’d expected. Just curious, how the T Select brand is doing there, and how that may have contributed in the quarter.
When I look to the South, the one market that has the lower priced homes would be Jacksonville, which is a relatively small market for us and has -- but has performed well. So I would say that the -- our lower priced offerings that are more focused on the what I’ll call the leading edge affluent millennial have had a pretty small impact on the strong sales we saw in the South.
Great, thanks very much guys.
You’re welcome.
The next question comes from Stephen East with Wells Fargo. Please go ahead.
Thank you and good morning guys. Doug, maybe I’ll start with the capital allocation, like I usually do here. But, as you think about capital allocation, if you think the cycle has say two or three years left in it, versus five years left in it, how would you all think differently about how you allocate toward land, debt, share repurchase? And then also on the share repurchase now as you look at it, even though you’re not building any in, how are you all thinking about share repurchase currently?
Thanks, Stephen. Your two to three years versus five is strictly a hypothetical question, I think we feel much better about the market, and are not looking at it quite that way. But notwithstanding that, we have always as you know been very opportunistic on land buying, we are very conservative on land buying. We underwrite deals to today’s market without baking in inflation.
We are very focused on what markets are performing well, what markets are not performing as well, what markets have great land opportunities, what markets may not have as good a land opportunities, and that is a strategy that we employ from the day this company was born where we get in the weeds and we get very involved on a deal-by-deal basis. And we will continue to operate that way, and we will continue to buy land, we think it’s in best locations, in the best markets, for the best prices.
With respect to capital allocation, we have obviously exceeded through three quarters, the $400 million of guidance we gave, which was obviously very soft guidance as to how much stock we would buy back, and we will continue to be strategic in our buyback. So we have not exceeded some cap, and therefore on the sidelines, we will continue to examine stock price, land opportunities, M&A opportunities, and any other use of our capital, and share buyback will continue to be a growing part of our capital allocation as we move forward.
All right, great. That’s really helpful. And then switching to gross margin, you had a little bit of a beat you talked about some of the drivers. As you look at, I am not asking for 2019 forecast. I am more interested in are you -- we’ve seen lumber futures drop a lot, some of the metals have come down et cetera. What are you all seeing on the raw material front and then how long does that typically take to cycle through your business?
Of course, the best moves we have of late is that, lumber prices are coming down. That will not translate into lower cost for some time. Because of course, as you know our houses take nine months plus or minus to build and most of the lumber goes into the home and the frontend of construction, but over the next three, six, nine months, we are encouraged by the drop in lumber pricing since it's obviously major component on the material side of the home.
But remember, that has been offset with some continued cost creep on the labor side and some continued cost creep with some other materials, so we're not going to project out 2019 at this point, we'll do that on the next call. And I think I've summed it up fairly well with the pluses and minuses for both labor and material.
All right, thank you.
You're welcome.
The next question comes from Jack Micenko with FIG. please go ahead.
Hey, good morning. Just curious a lot of mixed messages through the quarter from other builders. Curious how pace kind of migrated over your three-month quarter.
One second, I'll get that for you. So May over May and June over June we're slightly down and July was up.
Okay. And then Doug, the 165 I guess the option and premium percentage. How does that look historically? I know the toll buyers obviously -- that number has always been a larger percentage of your ASP. But in the quarter, I know you touched on the mortgage side, so I'll just dump all those questions in. Less options we’re seeing that or are we seeing any arm loans smaller square footage any of those tell pales, despite the fact that as you said rates were actually down sequentially on a quarter-to-quarter basis?
Right so on the option side, we continue to run about 20% of the delivered price of the home. As options -- now within options is lot premiums in many locations those are small, but in some very special locations they can be quite large. I heard about lot premium I think in Southern Cal that exceeded $1 million for the lot premium. I think Catalina Island might have been in view on a clear day. But generally we were on 20% and that number really hasn't changed.
Our design studio presentation and process now is something I'm very proud of and is much more sophisticated and allegiant than it's ever been before, where we have 25-27 design studios nationwide where we send our clients to a beautiful regional center where they can pick all finishes. And it's performing very, very well. Marty, why don't you address the mortgage side in this…
Sure, as I said in the prepared remarks, we've actually seen a tick down in our loan to value down to 67% from a pretty long run-rate of 70%. We also saw adjustable rates be only 19% of total compared to the 22% it was a year ago, which was not an abnormal number. So it's interesting that we don't see some of the telltale signs that you mentioned regarding affordability.
Great, that's all very helpful. Thank you.
You're welcome.
The next question comes from Ken Zener with KeyBanc. Please go ahead. Mr. Zener, your line is open.
Good morning. Sorry about that. Gentlemen, I wonder if you could just make on the broad side, obviously rates ticked down sequentially your LTVs are very good. We've noticed increases in inventory, existing inventory specifically in California. Given that you have very high absorption rates there. Could you, Doug, give us your broad view how new sales demand for your product and the existing inventory might interact? Thank you.
We're seeing more than ever in my 28 years a slide to new, the lifestyle of today's buyer the architecture that we're offering with the indoor, outdoor living. The ability to customize as we’ve talked about through our processes with not only structural changes, but the design studio experience that truly create a one of a kind custom home has -- we're seeing a premium for new, that is larger than I again have seen in my experience, and it's for all those reasons that I have given.
We have buyers that will only shop new. Some buyers will shop used and new but there are more and more buyers that want it new, they don't want anyone else to have lived in the home, and they want to design it their way. And with the new architecture and the new features and this indoor outdoor living and the ability to customize, I think we are positioned really well and have a huge advantage over the used market.
Thank you very much.
You're welcome.
The next question comes from Michael Rehaut with JP Morgan. Please go ahead.
Hi, thanks. Good morning everyone and congrats on the results. I just wanted to circle back to comments before, I believe you said during the quarter -- and correct me if I'm wrong, that I misheard it that May and June we're down slightly year-over-year in terms of orders, but July was up. And that would seem to indicate that you had a pretty strong July, I presume to result in a 7% growth for the full quarter overall. So if I heard that right, just trying to get a sense of perhaps, what drove that if there was a certain region that kind of turned around, if there was a great degree of timing from community count openings or a little color behind that trend?
Sure, Mike. There is no region or division I will point to that drove it. My best guess is my comment about interest rates. They're down, they stabilize, with the fear of rising and in fact, came down an eighth of a point over the last three months.
And, I mean, it's surprising that such a small movement would create such a big change in order trends. Obviously, an eighth of a point, historical you don't think about that as moving the needle too much, but -- which is kind of the basis for my question. I guess secondarily, you highlighted California and I appreciate that obviously a lot of focus there. Kind of moving towards other parts of the country, any incremental color around perhaps what you're seeing in the South where you did see pretty strong order growth for the quarter?
As well as I guess kind of going back to California for a moment, the big debate there is affordability in particularly Southern Coastal California, would you say it's more of just being in the right neighborhood because there has been a little bit of consistent feedback throughout this past earning season around $1 million plus price points in Coastal Southern kind of having a little bit more of a challenge? So sorry for the long winded question, but basically any incremental color around the South and then California?
Sure, I'll start with the South, Charlotte, Raleigh, Dallas, Houston and Austin drove our positive results in the South. As we've continue to strategically diversify this company. I think this quarter is a good example of how that diversity has paid off. And I'm very pleased with not just the performance I mentioned in the South, but the performance we've been talking about in many markets nationwide.
When I look at our top 10 performing markets this quarter on sales per-community, more than half of those communities have come out of the North, the Mid-Atlantic, the South and not just the Western California, which have there also -- some of those are certainly also in that top 10, but I'm very pleased with sort of the distribution of strong action now nationwide.
With respect to California and affordability, as I said earlier, I'm very happy with the performance not just North and South, but also in our sub-markets, which of course in the North the East Bay and the South Bay of San Francisco and in the South is LA County and Orange County with a few communities that are in wind down stage in Northern San Diego County that performed well.
It is location Mike, and it's beyond location it’s quality and it’s presentation and its brand. And as I've said on many calls and as I tell all of our employees, get on a plan and go see it. Because it is unique and we continue to perform very well.
Great, thanks so much.
Thank you.
The next question comes from Nishu Sood with Deutsche Bank. Please go ahead.
Thank you. So the communities coming in a bit better than expected in the quarter, was that just a typical volatility around just a permitting or getting them open? Or is there something more encouraging there about the kind of general state of getting communities open?
There is nothing unique about it. Many of those opened very late.
Seven of them didn't contribute in the any agreements.
Right. So many opened very late in the quarter. So if they were scheduled for August and they were able to open the second week of July that helped the numbers, but the reality is as Marty said, they didn't contribute significantly to the sales. But it's a story we always tell that last permit that controls the opening date is somewhat unpredictable, notwithstanding our many years of experience. And so there is always a bit of estimating that goes into our community count and exactly when they open.
Got it, no that's very helpful. So then a number that didn't contribute to orders got it. Okay. So the second question, Marty you mentioned in the quarter gross margins were benefitted by cost coming in a bit lower than expected. Obviously this is against a backdrop of overall input cost increasing. What specifically were the cost that came in a bit lower than expected in 3Q? Are we seeing some moderating trends? Does that contribute to some moderating trend overall or was it just a 3Q event?
Well, I don't think we're seeing a moderating trend overall. I mentioned that it was a combination of both some cost coming in a bit less than we thought, as well as favorable product mix. So I think it's very tough Nishu to pinpoint a couple of cost or a couple of regions. It was just a bit of favorable quarter with respect to or estimated cost compared to actions.
Got it. So no particular observations about labor, materials or any categories; so just kind of overall on balance over the portfolio?
Correct. Nothing in particular to mention.
Okay, thank you.
Next question comes from Alan Ratner Zelman & Associates. Please go ahead.
Hey guys, nice quarter.
Thank you.
So on the order side, I know every July you guys host the sale event I know in the past you've kind of downplayed the impact to margin or anything like that. It sounds like those tend to be more things offered by your suppliers and what not. But just curious given the acceleration you guys saw in July. Was there anything different in this event this year in terms of what those incentives were as a percentage of base price or anything that could maybe partially explain that that bump you saw as well?
No, the events lined up at the same time as prior years. And there was no change.
Got it. Okay, thanks for that. And then second question on the absorption rate, so I guess if you annualize where you're running at this year, you’re going to right around 2.5 per month, per community and that's obviously up very nicely year-over-year.
When you think about these new communities that are coming online and kind of understanding there is big mix impact there from region to region and what not, where do you see that number normalizing out? In the prior cycle, you got as high as 3.5 a month obviously you probably don’t get back, but is 2.5 kind of a good run rate to think about or do you still think there is low hanging fruit there to drive that rate meaningfully higher?
I think, our long-term average for absorptions per community is somewhere in the 27 to 28 range, when you look at kind of normalized year, we don’t look at 2005 and 2006 as normalized years. With our mix shift to more active living and some additional lower price point, product as well as some of the condominium products in New York, we would think that to get to 30, 32. So we’re close to that right now.
Right, okay, got it. So pretty close to where you are at. And then if I could sneak in one more, just on the margin, I know you are not given 2019 guidance, but I think a lot of people are going to look at the deceleration in California and just be a little bit concerned about the go forward view, given the significant differences in margins across your various regions, California has been a big driver obviously over the last year, year and a half there.
So is there anything you can give us just about your backlog that would give us a little bit of indication that this drop-off or deceleration in California is maybe offset by other regions or anything to suggest where directionally margins might go?
Well, we’re not going to get into much specifics there. We’ll wait till next quarter. California, as a percentage of total deliveries for 2019, because it’s such a big piece of this year’s backlog right now, is actually expected to be up a bit, compared to this year. So that should be a tailwind to margins. And as we have mentioned the City Living efforts this year have been to push through inventory and hopefully we put most of that behind us by the time we get to the end of this year, and we have some building delivering next year that could be also a tailwind.
Got it. But the mix spread between regions are still pretty similar to where you have been running at, I guess, is what I am trying to get at.
Yes.
Okay, got it. Thanks, Marty.
The next question comes from Stephen Kim with Evercore ISI. Please go ahead.
Thanks very much guys, congratulations on strong results. My first question relates to the land, can you give us the development spend in the quarter and then also just remind us again what the acquisitions so we have the total and the breakdown. And then also are you seeing any opportunity with land prices maybe being able to get some better deals or something in light of the fact that while your results are doing -- are performing extremely well, maybe some of your competitors are experiencing some little more difficulty. Was curious, if you are just seeing that manifesting and the ability to get some better deals on land?
Sure, Stephen on the land spend for the quarter, it was approximately $195 million for improvements in stocks [ph] and around $306 million for land spend itself.
And on the…
Inclusive of the $195 million, or is that in addition to the $195 million.
It’s in addition to the $195 million. So the total is $501 million.
Got it.
And Stephen on the state of the land market, it’s still very competitive. We have not seen any changes of significance in the markets pretty much nationwide. There, the same players with deep pockets, with big appetites are chasing deals. We do continue to have the advantage that much of the land we look at is in locations and at price points that are not of interest to the larger better capitalized builders. And so we tend to be competing against smaller regional and local builders who have a difficult time financing the transaction and we can come in with our balance sheet and our ability to write a check faster or more predictably.
And also have the experience on the land approval, land entitlement side and are generally well liked by towns, because they like our pretty homes. And so that advantage which has been a historic advantage continues to play out for us.
Sure, great. Yes, I had a -- my next question relates to the Asian barge, we’ve heard in particular in Manhattan for example, that there has been an uptick in activity at the high end of the market perhaps with some Chinese buyers, perhaps maybe it’s the currency or maybe something else, but I was curious as to whether or not you’re seeing that across any parts of your business I am thinking particularly California for instance or City Living Manhattan, whether you're seeing any indication of an increased interest there?
And then just a housekeeping item, Marty, you mentioned community count next year was likely to be up by the end of I think you said 2019. Wanting to make sure that we understood, is it going to be -- is community count going to be up throughout 2019 on a year-over-year basis?
So with respect to the community count, we're going to start the year up and we're going to end the year up, and we have not refined things in the middle yet. So we were just careful on the language we chose.
And Steven, with respect to the foreign and specifically Chinese buyer, we have seen no change in buying behavior over the last three, six, nine months.
Okay, great. Thanks very much guys.
Thank you. You're very welcome.
The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.
Hi, thanks for taking my questions and congrats on the results.
Thanks, Mike.
I wanted to go back to a follow-up on the question that Alan asked about just regional margin trends and just given some of the strength that you've seen in -- obviously a lot of focus on California here, but outside of California on the demand side. I know you've mentioned, there is still a gap in terms of the margin profiles, but directionally are you seeing opportunities to improve margins in some of your other regions like the North, the West, the South?
Sure. So if you recall, three months ago I mentioned that we had expected margin improvement in all regions for the third quarter and the fourth quarter. And we did deliver on that in the third quarter. And in the fourth quarter we expect margin improvement from the third quarter in 4 of the 6 regions.
Got it, okay. That's helpful. And then on the comments around what you're seeing in TBI, interesting on the LTVs, and I'm curious if there is anything anecdotally that you've heard from your -- from the field in terms of reason for that? And specifically how much if any has been driven by buyers trying to put more down to avoid the new limits no interest deductibility?
So Don Salmon is with us. He runs TBI mortgage. I will make one comment leading into Don that we have not seen any impact from SALT in those high taxed states. Don, go ahead and answer the question on…
Yes, that's exactly what I was going to say and answer the question. I haven't heard of any changing behavior as a result of SALT. And just to put a little color on it, if you look at LTVs on the conforming the average LTV is 60%, which is a little more than 50% of Toll's business. So there are people putting more money down in the conforming. Historically that's about in line with where it was actually in the second quarter last year -- this year it was 52%. And jumbo is a little bit higher at 70% a little bit North of 70%.
So -- and government which is only 5% of the business is a little over 80%. So even our government buyers who can get 100% financing on a VA or 3% down on the conventional are putting significant down payment down to be at 82% average LTV on a [indiscernible] loan.
And the mortgage interest deduction now at $750,000 cap. We only have 18% of our mortgages in excess of that $750,000.
Yes, it's just not been a factor for us.
Right, okay. Thanks for the color.
You're welcome.
The next question comes from Jade Rahmani with KBW. Please go ahead.
Thank you very much. Inclusive of joint ventures, can you tell us what City Living did year-over-year in terms of order growth? And can you just an overall comment on the New York City condo markets, state of it we've seen some market level reports of declines spreading beyond just the ultra-luxury segment.
Yes, as the guys are looking up to specific numbers I'll give the commentary. There has really been no change in the City Living business since the update we gave on the last call. We continue to perform very well beyond expectations in New Jersey, which for us is one major new building in Hoboken and another building in Jersey City. That market is now about $1,000 per square foot off the water and as high as $1,200 or $1,400 even a square foot on the water. In Jersey City at 10 Provost, we've had 164 contracts since July of 2017, so call that 13 months.
We opened a new building in Hoboken, 1425 Hudson Street and have taken 18 contracts since June in just three months. And so that market is very strong. On the Manhattan side, it's the same story we've given before, at $2,000 a foot which is where our new buildings are generally being marketed the market is good. 91 Leonard, which is down in Tribeca, we have 67 contracts since November of 2017. So call that eight or nine months.
And the inventory we have in our older buildings that are built and occupied where in limited cases, our pricing gets higher that's been slower. And we've certainly recognized that and as Marty said, we're working through that inventory. We have a business plan to get through it by the end of this year or very early into 2019. And even with all that commentary, our gross margin coming out of New York City Living still exceeds the company average.
So I'm happy with our basis in our existing deals. And I'm happy with, as I said the business in our new buildings in Jersey and in Manhattan. And so now is a question about JVs.
So it's really hard to give comparisons of this year versus last year in the New York City Living projects because of how limited the inventory is. But a year ago, we sold 45 units on balance sheet. This year we sold 44, in the third quarter. And a year ago we sold 23 in JV, this year we sold 15. But I wouldn't read anything trending into that in all buildings. In our existing buildings for example, we entered the year with 65 units in open, ready to occupy existing buildings and we're down to 28. And so as you get down to the last few it's hard to be comparative.
Question-and-answer session has concluded. Thank you for attending. 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 very much, Anita. Thank you everybody for your support and interest have a fantastic end of the summer and Labor Day holiday.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.