Lennar 10-Q 2024-08-31

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 August 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 August 31, 2024:

Class A 238,807,135

Class B 32,437,712

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 August 31, 2024, total assets include $3.3 billion related to consolidated VIEs of which $68.8 million is included in Homebuilding cash and cash equivalents, $7.0 million in Homebuilding receivables, net, $6.7 million in Homebuilding finished homes and construction in progress, $625.1 million in Homebuilding land and land under development, $2.5 billion in Homebuilding consolidated inventory not owned, $67.3 million in Homebuilding deposits and pre-acquisition costs on real estate, $0.3 million in Homebuilding investments in unconsolidated entities, $41.0 million in Homebuilding other assets and $34.0 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, $1.2 billion in Homebuilding consolidated inventory not owned, $55.0 million in Homebuilding deposits and pre-acquisition costs on real estate, $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 August 31, 2024, total liabilities include $2.4 billion related to consolidated VIEs as to which there was no recourse against the Company, of which $80.0 million is included in Homebuilding accounts payable, $2.3 billion in Homebuilding liabilities related to consolidated inventory not owned, $6.0 million in Homebuilding senior notes and other debt payable, $46.5 million in Homebuilding other liabilities, and $1.0 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

Overall, the economic environment remains very constructive for homebuilders. While affordability has been a limiting factor for demand and access to homeownership, and inflation and interest rates have hindered the ability of average families to accumulate a down payment to qualify for a mortgage, demand remains strong and the migration to lower interest rates may further activate that demand. Although there have been narratives around challenged consumer confidence, lower rates and controlled inflation should boost that confidence. Lower interest rates should enable many more households to access either first-time homeownership or a move-up purchase. Consumers are employed and are generally confident they will remain employed and believe their compensation will rise. This is most often the foundation of a strong housing market. With that said, as interest rates subside and normalize, and now that the Fed has begun to cut rates, we believe that pent-up demand will be activated, and we are well prepared with growing community count and growing volume.

While demand should remain strong, the supply of homes remains constrained. The housing shortage is a result of years of under-production, exacerbated by continuing shortfalls in production driven by restrictive land permitting and higher impact fees at local levels, and by higher construction costs. Awareness about the need for affordable housing, attainable housing and workforce housing in local markets has begun to generate the first signs of action. Also, the influx of immigrant population has expanded the labor pool, which offsets the pressure on construction costs, while increasing demand for more dwellings. The road ahead appears positive for our homebuilding business.

Against that backdrop, we are adhering to our operating strategy focused on maintaining volume while we are sprinting towards the completion of our five-year marathon of migrating our operating platform from an asset-heavy model to a land-light, asset-light just-in-time finished homesite delivery model. As we have driven production pace, in sync with sales pace, we have used our margin as a point of adjustment to enable consistent production as market conditions have continued to adjust. During the third quarter, we pushed volume by increasing absorption levels in existing communities, which negatively impacted our gross margin.

In the near future, we expect to spin off a company that we call Millrose Properties Inc. ("Millrose"). The goal of the spin-off is to generally complete our migration to an asset-light operating model by spinning off much of our land assets from our balance sheet. We expect Millrose to qualify as a real estate investment trust that will acquire and develop land, and will deliver fully developed homesites under a land option contract on a just in time basis for Lennar and potentially other homebuilders. Millrose is expected to be a self-renewing, permanent source of land acquisition and development capital. We are going to contribute to Millrose, in exchange for its stock, essentially all of our undeveloped, partially developed, and some of our fully developed, land, as well as cash with an expected book value between $6.0 billion and $8.0 billion. As a result of the spin-off, both our inventory and our equity will be reduced by the amount of assets contributed to Millrose. However, our balance sheet will remain very strong after the spin-off and we expect to have ample funds with which to pay down debt and repurchase stock.

As we look ahead to the fourth quarter, given seasonality and customers adjusting to a changing interest rate environment, we are guiding to 22,500 to 23,000 closings next quarter, with a margin that is flat with the third quarter as customers build confidence in the changing economic and interest rate landscape. However, we expect our community count to exceed 1,400 by year-end 2024. We expect to deliver approximately 80,500 to 81,000 homes for the full fiscal 2024, a more than 10% increase over 2023. We expect that 10% growth to continue into 2025.

Lennar will also continue to focus on being a pure play business model and reduce its exposure to non-core assets. It will continue to allocate capital to growth, debt retirement and stock repurchases as appropriate. We expect to repurchase in excess of $2 billion of stock for fiscal year 2024.

As we look ahead to completing a successful 2024, we're well positioned for, and expect to see, much more of the same in the years ahead. We are confident that by design we will continue to grow, perform, and drive Lennar to new levels of consistent and predictable performance.

(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 nine months ended August 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 $1.2 billion, or $4.26 per diluted share, in the third quarter of 2024, compared to net earnings attributable to Lennar of $1.1 billion, or $3.87 per diluted share, in the third quarter of 2023. Excluding mark-to-market gains of $39 million on technology investments and one-time items of $89 million in our Multifamily segment, third quarter net earnings attributable to Lennar in 2024 were $1.1 billion, or $3.90 per diluted share. Excluding mark-to-market losses of $16 million on technology investments, third quarter net earnings attributable to Lennar in 2023 were $1.1 billion or $3.91 per diluted share.

Financial information relating to our operations was as follows:

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

As of August 31, 2024, our borrowings under Financial Services' warehouse repurchase facilities totaled $1.3 billion under residential facilities and $83.9 million under LMF Commercial facilities.

Information Regarding Interest Rate Sensitivity

Principal (Notional) Amount by

Expected Maturity and Average Interest Rate

August 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 August 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 August 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 August 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.

• 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.