Toll Brothers Inc said it will buy the home building business of privately owned Shapell Industries Inc for about $1.60 billion in cash, in a deal that will give the largest U.S. luxury homebuilder more access to affluent real estate markets in California.
M&A activity picked up in 2013 among U.S. homebuilders, which have been struggling to meet burgeoning demand for new homes due to a shortage of land that is ready to build on.
Earlier this week, Tri Pointe Homes Inc said it would buy Weyerhaeuser Co's homebuilding division in a $2.7 billion deal that will give it access to developed land in key markets such as California and Texas.
Toll Brothers will acquire Shapell's land portfolio, which consists of about 5,200 home sites, most of which are entitled, the company said in a statement late on Wednesday.
The land portfolio was assembled in many of California's most affluent and high-growth markets such as the San Francisco Bay area, metro Los Angeles, Orange County and the Carlsbad market, Toll Brothers said.
"This acquisition will provide significant growth over the coming years and, we believe, will be accretive to earnings in the first year, excluding transaction costs," Douglas Yearley, Toll Brothers chief executive, said in a statement.
Toll Brothers entered the California market in 1994, and has since delivered over 7,700 homes, generating revenue of about $6.5 billion from more than 90 communities in the state.
The homebuilder said it intends to tap its existing $1.04 billion credit facility, as well as debt and equity financing, to finance the deal. It expects new equity financing to represent 10 percent to 15 percent of the purchase price.
Toll intends to selectively sell land of about $500 million after closing the deal by the first calendar quarter of FY 2014.
"As a result of these lot sales and delivery of existing backlog, the company believes it will receive a significant return of its investment within eighteen months of closing the transaction," the company said.
The Shapell family will retain ownership of its retail, commercial and multi-family businesses through other entities.
SEES HIGHER FOURTH-QUARTER REVENUE
Toll Brothers estimated a 65 percent increase in its fourth-quarter revenue to about $1.04 billion.
Analysts were expecting fourth-quarter revenue of $921.03 million, according to Thomson Reuters I/B/E/S.
"The price increases we have been instituting in many communities over the past year, combined with the acceleration in sales paces per community, are driving our revenue growth," Yearley said.
The company said that the average price of homes delivered in the quarter ended October 31 rose to about $703,000 from $582,000 a year earlier.
Toll also said that 2013 backlog rose to 3,679 units and about $2.63 billion.
Shares of Toll Brothers closed at $32.52 on the New York Stock Exchange on Wednesday.
(Reporting by Sakthi Prasad in Bangalore; Editing by Supriya Kurane)