TOL: Notes From the Road

Research evidence excerpt

TOL: Notes From the Road

ompetition creates leverage for TOL when negotiating terms with land sellers in the current choppy

demand environment as land sellers have a limited field of interested parties willing to take a deal if TOL walks. Given

the regional banking issues several years ago, our sense is the public versus private competitive advantage has

increased in recent years, with TOL’s cost of capital also being at least several hundred bps lower than private peers.

Bolt-Ons Remain the M&A Focus. M&A received outsized focus relative to past NDRs, with investor questions centering

around TOL’s recent acquisition of Buffington Homes in Arkansas and future M&A structure. Despite multiple large

deals in the space, TOL intends to stick with bolt-on acquisitions, likely adding a 100 or 200 unit bolt-on every

couple of years. Buffington likely adds ~200 units to 2027 Closings and TOL will look to follow a similar playbook to

the company’s 2019 Sharp Residential acquisition in Atlanta, in which the company has been able to scale Atlanta from

~150 units in 2019 to close to 700 units in 2026 as TOL’s capital infusion has driven growth. Buffington offers a unique

opportunity with minimal competition at the company’s price points. Minneapolis, Indianapolis, and Columbus remain

high on the pecking order for expansion.

We Believe TOL’s Margin Improvement is Sustainable. Operating Margin improvement isn’t driven exclusively by

consumer and geographic exposure and TOL deserves credit for tweaks to the business model, including a 60%

reduction in its design center menu, a movement away from the community project manager model, customized broker

commissions by community, and improved scale following geographic expansion. With incentives flat over the past four