Toll Bros., Radian make changes amid housing slowdown

Two Philadelphia-area companies have reacted to the slowing housing market with multimillion-dollar transactions that change their business profiles.
Toll Bros., the Fort Washington homebuilder that built or started 28,000 apartments alongside its higher-end single-family home enterprise over the past 10 years, is now getting out of the apartment business. After reporting generally slower-than-expected housing sales for this year, Toll is selling the unit, apartment buildings and development sites to real estate investment firm Kennedy Wilson for $347 million.
Radian, a home-mortgage insurer based in Wayne, says it has agreed to spend $1.7 billion diversifying its business into higher-growth insurance lines. Radian made what CEO Rick Thornberry called this “transformative” move at a time when the new and existing home purchases that fuel mortgage insurance have flattened.
Toll is selling Toll Brothers’ Apartment Living, its developer staff, its 18 apartment complexes and its 29 development sites to California-based Kennedy Wilson. The buyer also will take over management of 20 remaining Toll Bros. apartment and student-housing projects until Toll Bros. finds buyers for those.
Toll’s apartment business “was consistently profitable” but didn’t boost the company’s share price because investors had a tough time separating and analyzing its results as part of Toll’s larger operations, real estate stock analyst Buck Horne told clients of Raymond James & Associates in a report Thursday.
He applauded Toll’s decision to sell the business and raise capital, either for more homebuilding or to enrich investors directly by buying back shares.
Kennedy Wilson will pay $347 million in cash for the properties. Kennedy Wilson shares rose 4% in morning trading. Toll Bros. was flat.
Toll will now “focus on our core homebuilding business,” Toll chief executive Douglas C. Yearley said in a statement.
“The country is in true need of new, high-quality housing,” including rentals, William McMorrow, Kennedy Wilson’s chief executive, said in a statement. The company already owns or manages 80,000 apartments.
But Yearley has been telling investors Toll has seen less demand than expected this year for its units.
“Deliveries are down” in the “softer market,” Yearley told investors in the company’s quarterly conference call last month.
Lower demand for houses has driven down building costs, offsetting the effect of higher tariffs on imported materials. Earlier this year, the company raised cash by selling its share of other apartments it held in partnerships.
Company leaders also told investors that they had decided to sell fewer, higher-priced homes instead of cutting prices.
Radian said it would spend $1.7 billion to buy Inigo Ltd., a profitable insurer that is part of the Lloyd’s of London group of specialized insurance syndicates. The move will double the company’s sales and make Radian more profitable by moving beyond the slow-growing home-mortgage insurance business, at a time that the U.S. government is expected to cut back on subsidies for young homebuyers and other people of modest means. Radian shares rose 5% in morning trading.
The deal transforms Radian “from a leading U.S. mortgage insurer into a global, multiline specialty insurer,” Rick Thornberry, Radian’s CEO, said in a statement.
Thornberry said Radian could afford to fund the deal, which it hopes to close next year, “from our excess capital and loans.”
Radian also said it is planning to sell its mortgage-conduit, title, and real estate services units as part of the “strategic shift.”