Good morning and welcome to the Toll Brothers Fourth Quarter Earnings Conference Call. [Operator Instructions] Please also note this event is being recorded. I would now like to turn the conference over to Douglas Yearley, CEO. Please go ahead.

Thank you, Tom. Good morning. Welcome and thank you for joining us. With me today are Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance and Investor Relations; Wendy Marlett, Chief Marketing Officer; and Gregg Ziegler, Senior VP and Treasurer. Before I begin, I ask you to read the statement on forward-looking information in our earnings release of last night 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, interest rates, the impact of the pandemic, the availability of labor and materials, inflation, and many other factors beyond our control that could significantly affect future results. I am incredibly proud of our company’s performance this year as we executed on our strategic goals of driving growth, increasing profitability, and improving capital efficiency. In fiscal 2021, we delivered nearly 10,000 homes, the most in our history and we grew homebuilding revenue by 20% to a record $8.4 billion. We continued to expand our margins. Our full fiscal year 2021 adjusted gross margin was 25%, 150 basis point improvement over fiscal 2020 and we reduced our SG&A expense as a percentage of revenue by 160 basis points year-over-year to 10.9%. We nearly doubled our pre-tax income to $1.1 billion, achieved our highest net income ever of $833.6 million, and we grew earnings per share from $3.40 last year to $6.63 in fiscal 2021. And we delivered on our strategy of improving returns with an increase in return on beginning equity of 830 basis points to 17.1% for the full year. These results reflect the strength of the housing market, the benefits we are realizing from our strategic expansion into new product lines, price points and geographies, and our focus on driving operating…

Thanks, Doug. In fiscal year 2021’s fourth quarter, we delivered 3,341 homes and generated revenues of $2.95 billion, which were up 13.6% in homes and 18% in dollars from 1 year ago. The average price of homes delivered was $883,000, benefiting from more city living and Pacific deliveries than had been anticipated. Fourth quarter net income was $374.3 million or $3.02 per share diluted compared to $199.3 million and $1.55 per share diluted 1 year ago. Our fourth quarter adjusted gross margin was 25.9% compared to 24% in the fourth quarter of 2020. This 190 basis point increase in our adjusted gross margin was due primarily to our ability to raise prices as well as favorable mix coming a quarter earlier than expected from the Pacific region and City Living noted above. SG&A as a percentage of revenues was 8.8% in the quarter compared to 9.9% in the same quarter 1 year ago. This year-over-year reduction in SG&A is due to both the leverage from increased revenues and tighter cost controls on items such as headcount, advertising, model home expenses and broker commissions. Joint venture, land sales and other income was $63.5 million during the fourth quarter compared to $11.2 million in the fourth quarter of fiscal year 2020 and approximately $20 million better than projected. The outperformance was primarily due to an asset sale in our Apartment Living business that occurred sooner and at a better cap rate than expected as well as better-than-expected performance in our mortgage and title operations. Our Apartment Living business had an active and productive year in fiscal year 2021. In addition to starting about a dozen new projects across the country, we sold 5 projects during the year with a total of 1,420 units that generated cash to Toll Brothers of approximately $106…

Thank you, Marty. Before I open it up to questions, I’d like to thank Toll Brothers team for their determination, creativity, and commitment to make this a record year. These are very exciting times for Toll Brothers. Tom, let’s open it up.

Great. [Operator Instructions] And the first question comes from Deepa Raghavan with Wells Fargo. Please go ahead.

Hi, good morning everyone. Thanks for taking my question.

Good morning.

It’s a great quarter. It looks like Q1 is turning out pretty nice as well. But just looking at the guide for 2022 and looking at the gross margins, especially in the second half, you are talking about roughly 29%, 30% ex-cap gross margins exiting the year. Just curious, does it bake in the recent lift in lumber? Do you think that hits you by then? And I am curious how do we –how sustainable is that if, let’s just say, commodities don’t move from here. Is that what we should be expecting in 2023? I mean, it’s a hypothetical question, but is that what we should be expecting in 2023 if things were to stay here as these commodities don’t move from here?

Deepa. So yes, we have – we believe we have properly budgeted, and built in contingencies were not just relatively modest compared to a year ago, increase in lumber prices recently. We have increased our contingencies on our building costs that are within our budgets to cover lumber, to cover some labor pressure, to cover some of the supply chain issues we have talked about. So yes, we are comfortable. I think we made it clear in our prepared comments that we believe we are very comfortable and we are being prudent in our guidance to assume that this market, the labor and supply market does not improve. And in fact, we have proper contingencies in to protect ourselves should lumber continue to go up or should there be any other pressure. With respect to 2023, we are just not going to get out that far. All I will say is as I mentioned a moment ago we are continuing to raise prices. This is a very strong market nationwide. We had another price increase this week. And to-date, through this recent cycle, we have been able to more than offset price increases – cost increases with our home price increases.

Thanks. Sticking on that pricing for my second question, your order pricing is up 26%. Your backlog pricing is higher. It’s in the teens, but you are calling for a closing ASP of up 5%. It’s – what sort of conservatism is baked in that? Is it primarily some production issues? Is there some slippage? I mean, you just talked about deposits being almost non-refundable deposits. So just curious, how do I – and you had another price increase this week, you just pointed out. So just curious, how do I reconcile the strong pricing trends we are witnessing?

Sure. It’s a great question and it’s a pretty simple answer. Historically, we do not normally deliver the price per home in the backlog, because the more expensive houses take longer to build. So as you saw, the fourth quarter’s sales price break through $1 million, those more expensive homes are bigger. They are more complicated. They have more upgrades and options, and they just take a bit longer to build. So, there is a lag on the upper end of the sales price. And I think that is the answer. The faster turn comes from the affordable luxury and the less expensive homes. And so, while we are really proud of the price increases that are coming in the future revenue, that’s the reason why it doesn’t perfectly match what you see in our more recent sales and in our year end backlog.

Okay. Sorry, if I can just one more part on the stock pricing. Closing ASP is strong considering that you’re mixing more towards affordable luxury. So within that price performance, are you able to provide color on how much is price versus mix?

Well, we had a very strong quarter in our luxury segment this year and that has influenced the average price of sales in the fourth quarter. We expect moving forward more affordable luxury as a percentage of total, based on our community count and our land purchases.

Great. Thanks so much. I will pass it on. Great quarter.

Thank you very much.

The next question comes from Truman Patterson with Wolfe Research.

Hey, good morning everyone. Thanks for taking my questions. Hey, Marty, very strong ‘21 operating cash flow of $1.3 billion. I am hoping you can help us think through ‘22 operating cash flow. You should see a nice jump in net income. You are transitioning more towards optionally and improving multifamily capital efficiency, but you are likely going to continue to build backlog as well as the cash usage. So, I’m hoping you can help us think through ‘22 and then also a little bit of clarity on what you plan to do with the cash. I know Doug mentioned about $100 million in share repo per quarter, but any debt reduction, etcetera?

So, let me start with the second half of the question first, and then I’ll move back to cash flow from operations. We paid off $410 million of debt already in the first quarter back in mid-November. We have guided to $100 million of buybacks per quarter moving forward. We have a dividend commitment of the $60 million to $70 million range. So, that’s – let’s call that $850 million of cash usage. That’s approximately what we might generate this year, it all depends on the land spend, which is variable based on the deals we are going to put into land banking arrangements and the deals that we have in the pipeline that may or may not close. So, it will be another strong year of cash flow from operations. As we currently project, it may not be quite as strong as the previous year.

Okay. Okay. No, fair enough. And then, Doug, I am hoping on the material supply chain, it still remains tight. And you said your cycle times were up 2 weeks sequentially in fiscal 4Q. But post-quarter November, December, have you seen any improvement in the availability of any of key materials, categories, or as of now have you started to see construction cycle times stabilize?

Truman, the answer is no. We’re not seeing an improvement. It’s tough. Here is the story out of Boise for months, we couldn’t get trusses. We get them, they were delayed and it really hurt construction. We have recently solved the trust problem in Boise only to find out our HVAC contractor can’t give flexible duct to do the rocks on the houses. So you solve one problem and another one pops up. And every market has a different story. I have spoken with the CEOs of some of our largest partners, some companies bigger than Toll Brothers and they have been somewhat encouraged by what they believe is some hope for them on solving their problems and speeding up some deliveries and having more consistency in what can be delivered. But overall, the short answer is no, it is not improving. We don’t see cycle time growing. Dramatically, I talked about 6 to 8 weeks longer now than it was a year ago. But as we said, we think we’re being very prudent in not assuming that, that gets better for the full year. I’m hopeful, I think by the second half of the year, there is some reason to hope that we’re going to see some improvement, but we are not building it into how we’re running this company or how we’re guiding the Street.

Absolutely. Thanks, guys for taking my questions and good luck on the coming quarter.

Thanks, Truman.

Your next comes from Stephen Kim with Evercore ISI. Please go ahead.

Great. Thanks, guys. Great job, obviously, encouraging comments and particularly, I guess, Doug, you used the word contingencies that you’ve baked in. That sounds a lot to me like conservatism but we will take it. I think that’s really encouraging. My first question relates to the supply chain issues. In answer to Truman’s question, you said you’re not seeing them grow dramatically, but are you actually seeing them grow continuing from end of October. We’ve been hearing for instance, that subcontractors have been willing to sort of warehouse parts when they become available so that if in the future, they become unavailable – they are still able to service their largest customers such as you guys. So wondering if you’re seeing that kind of stuff and whether, in fact, cycle times are stabilizing and maybe that’s the way to think about what’s happening in 4Q – sorry, in – currently?

Cycle times were up 2 weeks, as I said, from the fourth quarter over third quarter. You are right. There is a lot of meetings going on and a lot of creative ways that builders and major contractors and suppliers are trying to figure this out. Stockpiling is one very good example. We’re getting tired of having to go to the Home Depot to try to find something that has to fill a gap for a week. And so everybody is on it. And I think I’m not going to go so far, Stephen, as to use the word stabilize but I also don’t believe we’re going to see a continued jump, as I mentioned, of another 2 weeks in Q1 versus Q4 of ‘21. I think by adding 2 months, 6 to 8 weeks to our delivery cycle in a year, obviously, that’s a lot. And it is the most acute and the most – the biggest issue that every builder is focusing on. So yes, I think we are all finding ways to try to – if not solve these problems, then I’ll use your words, stabilize them. So yes, I’m fairly confident that it’s not going to get significantly worse. But I am less encouraged that it’s going to get better for some time. Sorry for being vague, but that’s as straight as I can give you. This is a very fluid situation, and every market is different. There are certain markets where the teams aren’t as concerned in those other markets where it’s acute.

Yes. No, I appreciate it. I know it’s a crazy time out there. Was still related to supply chain and your reaction to it, I got a couple – a few questions kind of all-around that. I was curious if you could give us a sense for how many start homes you started in the quarter? And how that compares with what you expect to do in the first quarter and what you did maybe in the third quarter? Same thing with how many unsold units under construction do you have at year-end? And do you think that’s going to increase in 1Q ‘22? And then lastly, do you think your backlog can continue to rise from its current level over the next few quarters?

Sure. So about 12% of our homes are spec, which means they are starting without a buyer. That was higher. A few quarters ago, we talked about an approaching 20%. But we’ve sold through those specs. We have huge backlogs of homes that have been contracted with a buyer that obviously have to take some priority because we have a contract on that lot. But we are absolutely committed to increase our spec inventory to increase our starts of spec homes over the next couple of quarters. And as we begin to solve or at least stabilize, some of the backlog turns, some of the construction issues, you will see us increase the number of starts. And we will, in most cases, hold off on the sale of those spec starts until the houses are much further along and closer to completion. And so that is absolutely a strategy that is in place. And I am pushing to get that 12% spec number up closer to the 20% that we were at a few months ago. Stephen, sorry, did you have a second half of that or we...

The last one was just simply about your backlog. Your backlog is very high in many ways that, that thing...

Yes, yes, yes. So right now, we’re selling about a pace of 40 per community, and we’re building at about a pace of 36. Historically, we’ve been able to build higher than 36, approaching 40 with the supply and labor issues out there, that’s tougher right now. But are we able to grow backlog, yes. Absolutely. What does that do to cycle times and delivery dates that we quote? That’s dependent upon what’s going on in the field and how quickly we can get houses built. But we’re open for business. As I mentioned, 20% of our communities are on allocation, 80% are open, and we are seeing terrific, terrific demand and sales activity in all of our markets nationwide in all of our product segments, affordable luxury, luxury and active adult. And so we’re raising prices. We’re on allocation where we need to be because the quota delivery date has pushed out. But we sit today in a very strong housing market.

Good times. Thanks very much, guys.

Thank you, take care.

The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Good morning. Thanks, Doug, Marty for taking the questions. I wanted to follow-up on pricing. I think last call, you mentioned some of the normalization and how maybe the national increase had turned into as much a marketing tool as something to cover cost or expand margin. I’m wondering, as you’ve seen some stability or strength come back to the market, this fall, how would you characterize the price increase that you’re putting out there this week in terms of magnitude or signaling effect.

So please understand that communities are free to raise prices whenever they want, subject to – I usually put my eyes on it. But we don’t wait for what I described this week. And there are many communities that are regularly raising prices. However, 2, 3, 4x a year, we do have a national price increase, which helps with sales, right? You sell into it. We also 3x a year have a national sales event, which is a couple of weeklong sales event and we can also sell into that. This week, prices went up between 1% and 5% in our communities in all of our markets nationwide.

Okay. Great. Understood. Thanks for that. My second question, just on the cadence of margins, I mean it makes sense given the moving pieces. Just in terms of what that implies for the second half, I think it’s – I guess it depends on your definition of modest and significant when you’re talking 2Q versus 3Q, 4Q, but maybe something in the neighborhood of 29% in the second half of the year? I guess, Marty, any further color on how should we be thinking about kind of the exit rate for gross margin in your guidance for ‘22?

Yes. I think directionally, you’re on track there, Mike. I think 25.5% for the first quarter, a modest increase for the second quarter, and then we get up into those 20 – upper 20s for the last two quarters, more so in the fourth quarter.

And would you say that your fourth quarter guidance, I guess, given the deliveries or the constraints that you’ve outlined? Would you say – I know you don’t want to get into ‘23, but the pricing that you’ve already put into effect that’s in your backlog that is not yet fully coming through by the end of by the end of ‘22. Is that fair?

That is fair.

That’s fair to say, yes.

There is certainly some homes we’re selling today that will not be delivering until 2023.

And some homes in the year-end backlog.

That’s right.

Okay. Great, thank you.

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

Hey, guys. Good morning. Nice result, congrats.

Good morning.

First question on the lot count and land acquisition environment, I know this is not necessarily representative of what you’re seeing or doing today. But the sequential increase in your lot count was a lot more modest than we’ve seen in the last several quarters. And I’m just curious if you could kind of talk about what your appetite is for land right now, what the environment looks like in terms of price appreciation on the lot side? Obviously, you guys are – you have a lot of land, which is a great position to be in, in this market. So are you may be starting to pull back a little bit on the gas pedal? Or is this – should I not read into that as much?

Yes. I wouldn’t read into it. We’re very opportunistic. As I think everyone now understands, we’re obsessively focused on how we’re buying the land and driving our return on investment, return on to equity. And I’m very proud that we’re now at 55% option. We would set a goal of 45% option. We blew through that. We set a goal of 50% option, we blew through that. We’re going to set a goal of 60% option; I suspect will blow through that. And so it’s – Q4 was one of the biggest land spends that we had in some time, and that was just sort of coincidental with when certain land that we tied up in prior times, closed and would required a check. So I wouldn’t read much into what you’re seeing there. We’re going to continue to be opportunistic. Our footprint is bigger. We’re not – we were in 50 markets. We’re now in 60 markets in the way we have expanded and some of these smaller bolt-on builder acquisitions we’ve done of late. And so there is more opportunity. And as we expand affordable luxury, there is more opportunity. We mentioned that almost half of our land buys in the last couple of years. go to the affordable luxury segment. So we’re not shutting it down. We’re not changing the underwriting. It’s still very disciplined. And so I wouldn’t read much into that one quarter. I think you’re going to see us continue to increase the option land, drive the higher return on equity but grow.

And I want to take this opportunity to kind of point out that of our 36,000 or so owned lots, 10,000 of them are sold and are in backlog. So compared to kind of other builders with the size of our backlog, our years of land supply needs to be evaluated with that sort of mentality.

Right, because we’re not a spec builder.

Right. Appreciate that, guys. Thank you. Second question might be a two-part here. But first one, just thinking about Boise, as an example, you guys obviously were very early to take advantage of the strength of that market. And it seems like in the last 6 or so months, a number of other publics have entered that market. And in general, it kind of feels like builders are back in expansion mode. They hadn’t necessarily been entering new markets as much as they have been over the last 6 or 9 months. So just thinking about your observations in the market like Boise, for example, does that create any type of competitiveness or incentives or any change in market dynamics when you have a number of builders entering what seems like a fairly hot market over a short period of time.

Well, Boise is a good example. I mean we couldn’t keep it a secret any longer. In fact, I didn’t do a good job of ever keeping it a secret because we were doing so well and so proud of it. But there is no question. You prefer when the other big publics aren’t in the market and you have a dominant position. We have a huge head start there, and we have many thousands of high-quality inexpensive lots. So there, Alan, is an example where we can be a bit more conservative in our land buying because of the land position we have built. But yes, as some of these markets become a bit more competitive with larger players in the market, you have to find your niche. And I think we’re really good at that. We’re going to come in at a little bit higher price. Even our affordable luxury is a little bit higher price. We’re not going to be all spec. We’re going to offer people choice, people today even at a lower price, they want some level of choice. The home is so important that they want some opportunity to design it to their lifestyle. And so we work hard even in really competitive markets of finding that niche and I think that’s distinct to Toll Brothers, and we’re going to continue to take advantage of it. But you’re right. As markets get loaded up with bigger builders, they come more – they become more competitive, and you have to be more careful and you have to find the right opportunities that fit your business plan.

Makes sense, Doug. And your response to that kind of segues into that third question I wanted to ask was just that with the cycle times becoming so elongated for you guys and the fact that even though you’re trying to put a few more specs on the ground, you’re never going to be as spec-focused as a number of other builders. Have you seen any sign of consumer pushback in the sense that especially at that affordable luxury price point where maybe you’re getting more renters coming to those homes that need to move fairly quickly that, that extended cycle times now will turn off to them, and they are not willing to move forward and they are looking for something that they can be in a little bit quicker? Or is it not at that pain point yet?

Well, rents are up dramatically. Interest rates are still very low. So we’re not – I’m not hearing that people come in and say, "Boy, I’m really disappointed. It’s not 12 months to get that house that last year, I could have gotten from you at 9.5%, and I’m going to go rent maybe they’ll rent while they wait for the 12 months. They go to a 12-month lease. They will wait until our house is completed. But – So I don’t think we’re feeling it particularly at our price point, even in affordable luxury of the rent decision versus the own. But there is a – I think it’s a small part of the market that as delivery dates get pushed out, that they become a bit concerned as to whether they want to wait that long and they may go look for other opportunities. Now the resale market is so incredibly tight that I’m not sure they are going to find it there. And all the other builders in the market are pretty busy. So I’m not sure you’re going to find it there. Could there be some spec inventory, new home spec inventory? Possibly. But again, the question is, do I want to spec that is not exactly what I want, but I want to wait a bit and get exactly what I want because I can modify it a bit with Toll. So there is some modest pressure, but we’re not feeling it to any extent that’s affecting demand or affecting pricing power or affecting our sales pace.

Got it. Okay, great. Thanks a lot. I appreciate the responses.

You are very well. Take care.

The next question comes from Michael Rehaut with JPMorgan Securities. Please go ahead.

Hi, thanks very much for taking my questions. Good morning and congrats on all the progress and the great results.

Thanks, Mike.

First question, I just wanted to circle back, and I don’t want to beat a dead horse and it’s not easy to talk about 2023, ‘24. But you’ve had a couple of questions about the exit rate on the gross margins. And I think one of the big concerns for the sector overall, not just toll is the sustainability of those margins as they are approaching prior peaks. And what potential trajectory you might see in the out years, in the next couple of years, given the still very strong pricing power that you have in the market, that’s continued as you’ve noted. How are you thinking about the potential tailwinds and headwinds as you think about 2023, ‘24 and relative to the sustainability of that exit rate that you’re looking at in ‘22?

Michael, I can say that because we’re not going to get out that far is that all of our geographies and all of our different product segments are seeing gross margin expansion today. And that is with contingencies we put in place to cover a certain level of cost increases or uncertainties that are out in the market. I’m not going to predict. As far as you talked about how that gross margin compares to industry historic highs, I can’t even predict how it compares to today, except what I just said, all geographies, all product types are seeing gross margin expansion on the next home sold at this moment in time.

Okay. I appreciate that. I guess, secondly, you mentioned your – I believe it was nonbinding deposits for the first 5 weeks kind of continuing the pace over the last few months and similar to what you saw last year, your absorption rate on average for fiscal ‘21 was in the low 3s per month, 3.2%, 3.3%. Is that a good way to think about the business during the upcoming year, assuming current demand trends persist? And would you expect to see within the year, the higher rate did almost 4% per month in the second quarter. Obviously, that’s the strong seasonal quarter. But given the fact that now only 20% of your communities are on allocation, which means that you’re kind of selling at a perhaps closer to market, let’s say, I would think. Is that type of a sales pace kind of how we should think about the business over the next 12 months?

Well, as I said, we were delighted that our 5 weeks of deposits equaled the same 5 weeks at the end of calendar 2020, first month of Q1 fiscal 2021. Remember, Q1 of 2021, sales were up 59% over Q1 ‘19. We were hot – sorry, my apologies ‘20. So for us to achieve – it’s only 5 weeks, but for us to achieve deposits that match a year ago when that quarter a year ago was up 59% over the prior year, we’re very encouraged. The cadence for the year, as you described, you know our cadence, Generally, December and January are not the strongest months for sales. And then February, the spring season kicks in and then off we go in a spring selling season. I’ve mentioned that there is some signs of seasonality in some of our markets and many other markets, there aren’t signs of seasonality. Last year, there was no seasonality, didn’t matter what week of the year as well as we just kept selling. So all I can say to that, Mike, is because we’re not going to predict our sales going forward. We have the land. We have community count growth coming. We have an incredibly wide now with geographies and price point and we’ve had a terrific start to Q1.

Great, thanks so much. Good luck.

Thank you, Mike. Take care.

And our last question comes from Rafe Jadrosich with Bank of America. Please go ahead.

Hi, good morning. It’s Rafe. Thanks for taking my question. First, you mentioned lifestyle changes and migration shifts in your prepared remarks. I just wanted to ask what kind of – what do you see that gives you confidence that this is a sustainable trend, and it’s not just temporary. And then within that, can you just talk about the demand you’re seeing for second homes?

Yes. I’m sorry, I misunderstood the first half.

Consistency of migration patterns that we are seeing, why is it long-term?

Thank you. Sure. So we look at the U-Haul pricing charts they obviously have surge pricing. If you want to move loads from New York City to Palm Beach, you’re going to pay $4,000. You want to get that U-Haul back to New York for another load, they may pay you to drive it north. And those trends exist from California to Austin and California, Arena in Vegas and Phoenix and the North Charleston and Florida. And I think those trends are real. I mean, before COVID, people were leaving the northeast, chasing the sunshine, chasing the jobs, chasing the lifestyle, chasing affordability and the same thing from the West, the expensive state of California. We’re doing really well in California. There is 40 million people. And if a 0.5 million decided to leave, we still got ourselves, 39.5 million that want to stay there and pay the price to enjoy that Pacific Ocean. But those migration trends existed before COVID, and they have accelerated and I think are firmed up longer term because when COVID is long gone, the mentality of people to live where they want to live to take a job that allows them to have flexibility in where they can work at least part of the time to design the home to their lifestyles. Now early on, we were marketing. My home is the most important thing in the world. My home is my sanctuary. This is real. People care more about their home. They are spending more time there and they are concentrating on how they can design it, and they are moving to where they are allowed to move to enjoy their life versus where the job had tethered them. And so I feel strongly these migration patterns, Sunbelt, Mountain States existed before COVID and will long outlive this moment that we are in. I just look at – we have states like Idaho, Florida, Texas, North Carolina, Nevada, Arizona, Colorado 40%, in some cases, of our buyers coming in are coming from a different state. And that’s going to continue.

Thank you. And then just to follow-up on this. You spoke a little bit about how your affluent customer less concerned about affordability. I know mortgage rates have stayed stable and low, but if they do move up, how do you think about the willingness of your kind of core affluent buyer to trade up?

Yes, it’s a great question. We ran the math, if rates go up by 150 basis points, call it 3.75% to 4.75%, 5% of our backlog would have to figure out either mortgage less or go to an adjustable product, only 5%. And that’s because 20% are all cash. And those are going to mortgage have an average LTV of 69%. They have a lot of equity coming out of their existing home. They have done well in the stock market. So that’s the backlog. Your bigger question about how would the buyers react to it? I’m not going to – I can’t sit here and tell you that Toll Brothers is immune to affordability and immune to higher interest rates, but we are in a much better position because of the nature of our buyer for all the reasons that we have given. The other thing as we have – as the loan limits have gone up on conforming loans, they have gone up by $100,000 – And that’s moved about 6% of our backlog from a jumbo down into a conforming. And that’s also very encouraging, $100,000 average move and the loan limit of conforming. And so that – I think that’s a nice tailwind for our business.

Great. Thanks for all the color.

You are welcome.

This concludes our question-and-answer session. I’ll turn the conference back over to management for any closing remarks.

Thank you, Tom, and thanks, everyone, for your continued interest and support. We wish everybody a wonderful holiday season and a healthy and happy 2022. Thanks.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.