Lennar 10-Q 2024-02-29

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2024

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ To _______

Commission File Number: 1-11749

Lennar Corporation

(Exact name of registrant as specified in its charter)

5505 Waterford District Drive, Miami, Florida 33126

(Address of principal executive offices) (Zip Code)

(305) 559-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Common stock outstanding as of February 29, 2024:

Class A 245,036,430

Class B 33,307,143

Part I. Financial Information

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

(1)Under certain provisions of Accounting Standards Codification (“ASC”) Topic 810, Consolidations (“ASC 810”), the Company is required to separately disclose on its condensed consolidated balance sheets the assets owned by consolidated variable interest entities (“VIEs”) and liabilities of consolidated VIEs as to which neither Lennar Corporation, nor any of its subsidiaries, has any obligations.

As of February 29, 2024, total assets include $2.7 billion related to consolidated VIEs of which $40.8 million is included in Homebuilding cash and cash equivalents, $2.0 million in Homebuilding receivables, net, $9.8 million in Homebuilding finished homes and construction in progress, $633.4 million in Homebuilding land and land under development, $67.1 million in Homebuilding deposits and pre-acquisition costs on real estate, $1.9 billion in Homebuilding consolidated inventory not owned, $0.3 million in Homebuilding investments in unconsolidated entities, $26.7 million in Homebuilding other assets and $33.1 million in Multifamily assets.

As of November 30, 2023, total assets include $1.9 billion related to consolidated VIEs of which $22.8 million is included in Homebuilding cash and cash equivalents, $1.8 million in Homebuilding receivables, net, $18.3 million in Homebuilding finished homes and construction in progress, $628.0 million in Homebuilding land and land under development, $55.0 million in Homebuilding deposits and pre-acquisition costs on real estate, $1.2 billion in Homebuilding consolidated inventory not owned, $0.3 million in Homebuilding investments in unconsolidated entities, $23.0 million in Homebuilding other assets and $32.6 million in Multifamily assets.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(In thousands, except share amounts)

(Unaudited)

(2)As of February 29, 2024, total liabilities include $1.8 billion related to consolidated VIEs as to which there was no recourse against the Company, of which $17.7 million is included in Homebuilding accounts payable, $1.7 billion in Homebuilding liabilities related to consolidated inventory not owned, $6.0 million in Homebuilding senior notes and other debts payable, $88.5 million in Homebuilding other liabilities, and $0.9 million in Multifamily liabilities.

As of November 30, 2023, total liabilities include $1.2 billion related to consolidated VIEs as to which there was no recourse against the Company, of which $53.7 million is included in Homebuilding accounts payable, $1.1 billion in Homebuilding liabilities related to consolidated inventory not owned, $38.1 million in Homebuilding other liabilities, and $4.1 million in Multifamily liabilities.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2023.

Outlook

During the first quarter of fiscal 2024, we continued to execute our operating plan effectively, driving excellent operating results. We have never been better positioned, from balance sheet to execution to operating strategy, to address market conditions as they unfold for the remainder of 2024 and beyond.

Overall, the macroeconomic environment remains relatively strong for new homebuilders. There continues to be strong demand for housing, limited by the chronic housing shortage, which is particularly problematic for working-class families. Demand from that group remains robust if homes can be built at an attainable price point. Generally speaking, consumers are employed and are confident that they will remain employed and that their compensation is likely to rise. This is most often the foundation of a strong housing market.

Along with supply shortage, the additional limiting factor remains affordability. With higher interest rates and stubborn inflation, affordability continues to be tested as higher monthly payments make qualifying for a loan increasingly difficult. Inflation-driven higher cost-of-living expenses have made saving for a down payment increasingly difficult, and higher prices have begun to lead to increased personal and credit card debt. We have started to see early evidence of possible debt delinquency derailing some mortgage applications.

Homebuilders have been uniquely able to capture demand by using incentives, including interest rate buy-downs, closing cost pickups and price reductions, to unlock affordability restraints and enable purchasers to buy homes.

Against this backdrop, during our first quarter, we focused on, and were consistent in executing, our core operating strategy. We continued to migrate to a pure play manufacturing model across each of our 40 homebuilding divisions in order to reduce production costs while generating consistent cash flow. We are re-engineering our products for efficiency and volume in order to enhance our inventory turn and grow volume. We have also continued to migrate to a land light balance sheet in order to drive total shareholder return, return on inventory and return on equity.

We are operating under a model where we are starting homes at a pace designed to generate growth while we maximize logistics and efficiencies in order to benefit from reduced construction costs. Our trade partners are given visibility on our timing so they can be more efficient, and we pass their efficiencies on to our customers through more affordable products. Our trade partners find that they have consistent work with our production strategy, which leads to higher productivity and, therefore, to cost savings. We gain by driving volume when others pull back.

Our goal is even flow deliveries whereby starts continue to increase gradually quarter over quarter until we ultimately provide a consistent rate of deliveries throughout the year. A consistent level of starts maximizes the efficiencies for our trade partners. That in turn attracts a larger trade base and, together with a normalized supply chain, has reduced the cycle time for us to build a home. Our average cycle time decreased in the first quarter by seven days from the fourth quarter of fiscal 2023 and was down 30% from the first quarter of fiscal 2023.

Driving our confidence to start homes at a pace that achieves maximum efficiency in the field is the Lennar machine. This is a combined program of digital marketing, sales consultant engagement and dynamic pricing. If we build a home, we sell that home. We sell by digitally acquiring leads and referring the best of the leads to our sales professionals. They nurture those leads while our dynamic pricing model helps tailor pricing in real time to meet the market in response to consumer desires, and market and competitive conditions. The dynamically adjusted pricing, using incentives or price alterations, automatically adjusts our margins up or down while we maintain production and sales pace.

We recognize that the chronic housing shortage is a critical issue. Working-class housing is essential to the effective working of our cities across the country. We are working on using our strategies for production and cost efficiencies to build housing that is accessible to everyone. Land and impact fees are getting more expensive and labor costs have been rising. We can only reduce our costs by increasing productivity due to the efficiencies of our operations. We are building more consistent core products that are carefully value-engineered, and we are using our start pace to engineer our production cycle, which enables us to reduce our cycle time and, working with our trade partners, to build efficiencies in logistics and in the way we run our community production.

We have intensified our focus on build-to-rent, both at community scale and in single-family-for-rent scattered home sale markets. We believe we can, and should, build additional production for professionally owned housing, but professional owners need cost efficiencies in today’s interest rate environment to make their rents attainable for families who aspire to a single-family lifestyle, but can’t yet afford a down payment or qualify for a mortgage. We don’t believe that professional investors compete with primary homeowners when they purchase homes for rental. Rather, we think those investors are filling a critical need for underserved families who seek to bridge their lifestyle while they build a down payment and credit score to ultimately achieve home ownership. We are also building our multifamily product through off-balance sheet entities.

We are refining our land strategy to dovetail with our production orientation. We are focusing on a just-in-time delivery program for land, just as we do for lumber, appliances and other products that are part of a home. We accomplish this both by negotiating option deals with landowners and developers and by using structured land bank strategies, often with entities that deploy private equity capital. Our land light strategy has generated consistent cash flow through the ups and downs of interest rate changes and has enhanced our balance sheet and our liquidity, even after we redeemed several billion dollars of debt, and repurchased a substantial amount of our stock, over the past years. In the first quarter of fiscal 2024, we increased our dividend to $2.00 per share per year and our Board authorized an increase to our stock repurchase program to enable us to repurchase up to an additional $5 billion in value of our outstanding Class A or Class B common stock.

Our land light strategy has benefitted strongly from land banking arrangements. We have concerns about the durability of these arrangements. Availability of private equity participation in our land banking arrangements depends upon market conditions and can change significantly and quickly. Accordingly, we are considering a strategic spinoff that would provide a durable land strategy. By spinning off our own excess land in a taxable spinoff, we can create a permanent capital vehicle that will develop homesites and give us options to acquire them. Such a spinoff would distribute capital to our stockholders, reduce the inventory on our books, and provide permanent dependable capital for future land acquisitions.

We view the first quarter of fiscal 2024 as a strategic and operational success for our company. While market conditions remain challenging, demand is strong and there is a chronic housing supply short

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We are exposed to market risks related to fluctuations in interest rates on our investments, debt obligations, loans held-for-sale and loans held-for-investment. We utilize forward commitments and option contracts to mitigate the risks associated with our mortgage loan portfolio. Since November 30, 2023, there have been no material changes in market risk exposures associated with interest rate risk.

As of February 29, 2024, we had no outstanding borrowings under our Credit Facility.

As of February 29, 2024, our borrowings under Financial Services' warehouse repurchase facilities totaled $1.3 billion under residential facilities and $89.6 million under LMF Commercial facilities.

Information Regarding Interest Rate Sensitivity

Principal (Notional) Amount by

Expected Maturity and Average Interest Rate

February 29, 2024

For additional information regarding our market risk refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the fiscal year ended November 30, 2023.

Our Executive Chairman and Co-Chief Executive Officer, our Co-Chief Executive Officer and President (together, “Co-CEOs”) and our Chief Financial Officer (“CFO”) participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their participation in that evaluation, our Co-CEOs and CFO concluded that our disclosure controls and procedures were effective as of February 29, 2024 to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed in our reports filed or furnished under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including both of our Co-CEOs and our CFO, as appropriate, to allow timely decisions regarding required disclosures.

Both of our Co-CEOs and our CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended February 29, 2024. That evaluation did not identify any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

We are party to various claims and lawsuits relating to homes we sold which arise in the ordinary course of business, but we do not consider the volume of our claims and lawsuits unusual given the number of homes we deliver and the fact that the lawsuits often relate to homes delivered several years before the lawsuits are commenced. Although the specific allegations in the lawsuits differ, they most commonly involve claims that we failed to construct homes in particular communities in accordance with plans and specifications or applicable construction codes and seek reimbursement for sums allegedly needed to remedy the alleged deficiencies, assert contract issues or relate to personal injuries. Lawsuits of these types are common within the homebuilding industry. We are a plaintiff in a number of cases in which we seek contribution from our subcontractors for home repair costs. The costs incurred by us in construction defect lawsuits may be offset by warranty reserves, our third-party insurers, subcontractor insurers or indemnity contributions from subcontractors. From time to time, we are also a party to lawsuits involving purchases and sales of real property. These lawsuits often include claims regarding representations and warranties made in connection with the transfer of the property and disputes regarding the obligation to purchase or sell the property. From time-to-time, we also receive notices from environmental agencies or other regulators regarding alleged violations of environmental or other laws. We typically settle all of the foregoing matters before they reach litigation for amounts that are not material to us.

We do not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on our business or financial position. However, the financial effect of litigation concerning purchases and sales of property may depend upon the value of the subject property, which may have changed from the time the agreement for purchase or sale was entered into.

Our business is subject to a variety of risks and uncertainties. These risks are described elsewhere in this Quarterly Report on Form 10-Q, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations above, or in our other filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended November 30, 2023. There have been no material changes in our risk factors from those disclosed in those reports, other than the impact of inflation and increased interest rates, which are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations above.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about our repurchases of common stock during the three months ended February 29, 2024:

(1)Includes shares of Class A common stock withheld by us to cover withholding taxes due, at the election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due.

(2)In March 2022, our Board of Directors approved an authorization for us to repurchase up to the lesser of $2 billion in value, or 30 million in shares, of our outstanding Class A or Class B common stock. The repurchase authorization has no expiration date. This authorization was in addition to what was remaining of our October 2021 stock repurchase program. In January 2024, our Board of Directors authorized an increase to our stock repurchase program to enable us to repurchase up to an additional $5 billion in value of our outstanding Class A or Class B common stock. Repurchases are authorized to be made in open-market or private transactions. The repurchase authorization has no expiration date.

Items 3 - 4. Not Applicable

On February 9, 2024, Jeff J. McCall, Executive Vice President, entered into a trading plan designed to satisfy the affirmative defense of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Plan”). The Plan provided for sales of up to 30,000 shares of our common stock beginning on May 10, 2024 until December 10, 2024 or once all of the shares have been sold. The trading plan was adopted in accordance with our insider trading policy. Actual sale transactions will be disclosed publicly in filings with the SEC in accordance with applicable securities laws, rules and regulations.

• Management contract or compensatory plan or arrangement.

** Filed herewith.

*** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.