Lennar 10-Q 2024-05-31

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 May 31, 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 May 31, 2024:

Class A 241,703,433

Class B 32,900,618

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 May 31, 2024, total assets include $3.0 billion related to consolidated VIEs of which $73.0 million is included in Homebuilding cash and cash equivalents, $5.9 million in Homebuilding receivables, net, $6.2 million in Homebuilding finished homes and construction in progress, $601.1 million in Homebuilding land and land under development, $75.5 million in Homebuilding deposits and pre-acquisition costs on real estate, $2.2 billion in Homebuilding consolidated inventory not owned, $0.3 million in Homebuilding investments in unconsolidated entities, $22.5 million in Homebuilding other assets and $33.6 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 May 31, 2024, total liabilities include $2.1 billion related to consolidated VIEs as to which there was no recourse against the Company, of which $56.1 million is included in Homebuilding accounts payable, $2.0 billion in Homebuilding liabilities related to consolidated inventory not owned, $6.0 million in Homebuilding senior notes and other debt payable, $46.7 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 half of fiscal 2024, we continued to execute our operating plan effectively, driving our production pace and sales pace in a synchronized manner, while using our gross margin as a point of adjustment to enable consistent production, even as market conditions evolved. This program has driven excellent operating results to date, and we are in an excellent position, from balance sheet to operating strategy to execution, to be able to adjust to the changing market as it unfolds for the remainder of 2024 and beyond.

In the third quarter, we expect to start, sell and deliver homes with a similar consistency, as we continue to drive for an even-flow manufacturing model that we believe will enhance our cash flow and our bottom line. We have continued to target a consistent production and growth rate in order to maintain volume, minimize production costs, and maintain an even flow of production and sales, all in order to drive cash flow, effective capital allocation and higher returns.

Our primary goal is to migrate to a pure-play, asset-light manufacturing model that will be supported by a durable, just-in-time, homesite delivery program that will enable growth, shareholder returns, higher returns on assets and, ultimately, higher returns on equity. Margin is the flexible mechanism that we expect will enable this to happen. We expect margin in our third quarter to be higher than in the second quarter, and we remain focused on driving margin for this year to be approximately the same as the 23.3% in fiscal 2023. Part of the anticipated increase in margin is embedded in our backlog, but achieving it will also depend on market conditions, interest rates and consumer confidence through the remainder of the year.

The macroeconomic environment remains relatively constructive for homebuilders. The demand for housing remains strong, but is limited by affordability, interest rates and, sometimes, wavering consumer confidence. The chronic housing shortage driven by over a decade of underproduction of housing stock is particularly problematic for families seeking affordable or attainable supply. At this time, consumers are generally 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, but the chronic supply shortage, the impact of interest rates on affordability and persistent and stubborn inflation have moderated housing market strength. In response, we and other homebuilders have worked out sales incentives to meet the purchasers at the intersection of need and affordability to enable purchasers to buy homes. With our ready access to capital, we have been able to adjust and capture demand by using incentives to reduce the affordability constraint.

With regard to manufacturing, we have continued to refine our manufacturing platform to maintain production and sales pace while continuing to engineer our homes for increased production efficiency and volume. Driving volume enables us to offer more attainable products. In doing so, we have enhanced our inventory turn and grown volume as we generate substantial cash flow.

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. These transactions are a key part of our land-light strategy, which has enhanced our ability to generate consistent cash flow through the ups and downs of interest rate changes.

While our land-light strategy has benefited 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. Therefore, we are proposing to contribute $6 to $8 billion of land to a new entity, which we will spin-off to our stockholders and which will be a permanent source of land acquisition and development capital for us and other homebuilders. Such a spin-off would distribute capital to our stockholders, reduce the inventory on our books, and provide permanent dependable capital for future land acquisitions. We are still early in the process and there is no specific timeline to completion or guarantee that the transaction will be completed.

Also, with regard to pure play, we will continue to reduce exposure to non-core assets and to intensify our focus on producing affordable and attainable products across our platform. Concurrently, we are repatriating capital that has been deployed in prior multifamily investments. Additionally, our LMV I fund sold some of its assets in June 2024, and we may decide to monetize additional assets in the second half of 2024. Combined, these transactions could result in cash proceeds of approximately $250 million in the second half of fiscal 2024.

We also expect to continue our investments in companies that are developing technologies that we can use in our homebuilding operations. Technology is an important component of our homebuilding business. Every element of our business is being modified, re-engineered and rethought around technology. Technology, imagination and innovation keeps us modern and relevant.

Perhaps most importantly, our very strong balance sheet affords us the ability to consider and execute upon thoughtful innovation for the future. We currently have a 7.7% debt-to-capital ratio, with $3.6 billion of cash on hand and no borrowings under our $2.2 billion revolving credit arrangement. This gives us the flexibility to allocate capital strategically: first, to growth, but also toward retiring debt, paying dividends and repurchasing shares of our stock.

We expect to have between 20,500 and 21,000 home sales during our third quarter with an approximately 23% gross margin. We expect to deliver approximately 80,000 homes this year, with a little over 23% gross margin. We also expect to repurchase in excess of $2 billion of our stock for the full year 2024.

(1) Results of Operations

Overview

We historically have experienced, and expect to continue to experience, variability in quarterly results. Our results of operations for the three and six months ended May 31, 2024 are not necessarily indicative of the results to be expected for the full year. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second and third fiscal quarters and increased deliveries in the second half of our fiscal year. However, a variety of factors can alter seasonal patterns.

Our net earnings attributable to Lennar were $954.3 million, or $3.45 per diluted share, in the second quarter of 2024, compared to net earnings attributable to Lennar of $871.7 million, or $3.01 per diluted share, in the second quarter of 2023. Excluding $21.5 million of mark-to-market losses on technology investments and a $46.5 million one-time gain on the sale of a technology investment, second quarter net earnings attributable to Lennar in 2024 were $935.3 million, or $3.38 per diluted share. Excluding $25.5 million of mark-to-market gains on technology investments, second quarter net earnings attributable to Lennar in 2023 were $852.4 million or $2.94 per diluted share.

Financial information relating to our operations was as fol

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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 May 31, 2024, we had no outstanding borrowings under our Credit Facility.

As of May 31, 2024, our borrowings under Financial Services' warehouse repurchase facilities totaled $1.2 billion under residential facilities and $48.1 million under LMF Commercial facilities.

Information Regarding Interest Rate Sensitivity

Principal (Notional) Amount by

Expected Maturity and Average Interest Rate

May 31, 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 May 31, 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 May 31, 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 May 31, 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 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

During the period covered by this Quarterly Report on Form 10-Q, no director or executive officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

• 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.