LENNAR CORPORATION 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 Report and our audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K, for our fiscal year endedNovember 30, 2021 . Some of the statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q, are "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements typically include the words "anticipate," "believe," "consider," "estimate," "expect," "forecast," "intend," "objective," "plan," "predict," "projection," "seek," "strategy," "target," "will" or other words of similar meaning. Forward-looking statements contained herein may include opinions or beliefs regarding market conditions and similar matters. In many instances, those opinions and beliefs are based upon general observations by members of our management, anecdotal evidence and our experience in the conduct of our businesses, without specific investigation or analyses. Therefore, while they reflect our view of the industries and markets in which we are involved, they should not be viewed as reflecting verifiable views or views that are necessarily shared by all who are involved in those industries or markets. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements. The most important factors that could cause actual results to differ materially from those anticipated by our forward-looking statements include, but are not limited to: the potential negative impact to our business of the ongoing coronavirus ("COVID-19") pandemic, the duration, impact and severity of which is highly uncertain; continuation of supply shortages and increased costs related to construction materials and labor; cost increases related to real estate taxes and insurance; reduced availability or increased cost of mortgage financing for homebuyers; increased interest rates or increased competition in the mortgage industry; reductions in the market value of our investments in public companies; an extended slowdown in the real estate markets across the nation, including a slowdown in either the market for single family homes or the multifamily rental market; our inability to successfully execute our strategies, including our land lighter strategy and our strategy to monetize non-core assets; changes in general economic and financial conditions that reduce demand for our products and services, lower our profit margins or reduce our access to credit; our inability to acquire land at anticipated prices; the possibility that we will incur nonrecurring costs that affect earnings in one or more reporting periods; decreased demand for our homes or Multifamily rental properties; increased competition for home sales from other sellers of new and resale homes; our inability to pay down debt; government actions or other factors that might force us to terminate our program of repurchasing our stock; a decline in the value of our land inventories and resulting write-downs of the carrying value of our real estate assets; the failure of the participants in various joint ventures to honor their commitments; difficulty obtaining land-use entitlements or construction financing; natural disasters and other unforeseen events for which our insurance does not provide adequate coverage; new laws or regulatory changes that adversely affect the profitability of our businesses; our inability to refinance our debt on terms that are as favorable as our current arrangements; and changes in accounting conventions that adversely affect our reported earnings. Please see our Form 10-K for the fiscal year endedNovember 30, 2021 and our other filings with theSEC for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation, other than those imposed by securities laws, to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events. 24 --------------------------------------------------------------------------------
Outlook
The housing market remains strong in all of our major markets despite the geopolitical environment, rising interest rates and inflationary pressures. Buyers are seeking shelter and protection against escalating housing costs as rents increase. Owning a home with a fixed rate mortgage provides this protection. Additionally, the home is increasingly the control center or hub of our homebuyers' lives. While demand is strong, the supply of new and existing homes continues to be constrained. Our ability to deliver homes has been tested by supply chain challenges for both land and construction related to materials and labor. The time it takes us to build a home has increased by about eight weeks over the past year. Also, the cost of building homes has been increasing. To maintain our margins, we are not selling homes until we are ready to build them, so we can factor cost increases into the sale prices. Although deliveries have been constrained by the supply chain disruption, efficiency in our operations continues to drive strong bottom-line improvement and increased returns. The lengthening of time it takes us to build homes requires that we have more of our cash invested in construction in process. We continue to strategically acquire land while increasing the homes we control through options. We continue to make progress with our land-light strategy as our percentage of homesites controlled increased to 58% from 45% in the prior year, while our years' supply of land owned stayed flat from the prior year at 3.4 years. We are also continuing to pay down debt as it comes due with the next tranche maturing inNovember 2022 . We have also continued to repurchase our stock. Our Board recently approved a$2 billion increase in our repurchase authorization. In addition, we have made significant strategic investments through our LENX platform in new technology companies that are working on innovations that will reshape the way our company and our industry operates. They have led to changes in our core business that have reduced our SG&A expenses. These investments are also the tip of the spear in implementing our industry leading sustainability initiatives from solar on the rooftop to microgrid technology across communities, and from water conservation to sustainable cement. Our LENX strategy is setting the course for Lennar's sustainable future. Our income statement is impacted by unrealized mark-to-market gains and losses from LENX investments in companies that have gone public, but these are non-monetary, unrealized gains and losses, and they do not reflect the state of the housing market or our operating performance. We have also continued to work on the structural components and organization of our proposed spin-off company as we focus on our strategy of becoming a pure-play homebuilding company. ThisSpinCo will be an asset light, asset management business that will have a limited balance sheet. Many of the assets targeted forSpinCo will be acquired by investor funds it manages and will be monetized in the form of assets under management. The three core verticals ofSpinCo will be Multifamily, single family for rent and land strategies. Each of these verticals already have raised third-party capital and have active asset managers. The spin-off will enable us to generate higher returns on our assets and equity base. We are extremely well-positioned financially, organizationally, and technologically to thrive and grow in this evolving housing market. We expect our deliveries for the second quarter of 2022 will be in the range of 16,000 to 16,300 homes. We expect to continue to produce strong gross margins for the second quarter of 2022 in the range of 28.0% to 28.25% and we expect our SG&A to be between 6.8% and 7.0% as we continue to focus on simplification, efficiencies and leveraging our overhead. We expect our community count to build throughout the year and are projecting to end 2022 with a low double-digit increase in community count year-over-year. We continue to see great land acquisition opportunities in our markets and are confident this pipeline will produce strong community count growth for the next several years. As we look to the remainder of 2022, we expect our results to continue to strengthen throughout the year as our recently increased start pace results in more deliveries and as we use our size and scale and our builder of choice relationships to help us navigate some of the supply chain challenges.
(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 months endedFebruary 28, 2022 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$503.6 million , or$1.69 per diluted share ($1.70 per basic share), in the first quarter of 2022, compared to net earnings attributable to Lennar of$1.0 billion , or$3.20 per diluted share ($3.20 per basic share), in the first quarter of 2021. Results included unrealized mark-to-market losses of$395.2 million in the first quarter of 2022 and unrealized mark-to-market gains of$469.7 million in the first quarter of 2021 on our publicly traded technology investments. Excluding unrealized mark-to-market gains and losses in both years, net earnings attributable to Lennar were$800.2 million or$2.70 per diluted share in the first quarter of 2022, compared to net earnings of$642.7 million , or$2.04 per diluted share, in the first quarter of 2021. 25 --------------------------------------------------------------------------------
Financial information relating to our operations was as follows:
Three Months Ended February 28, 2022
(In thousands) Homebuilding Financial Services Multifamily Lennar Other Corporate Total
Revenues:
Sales of homes $ 5,721,757 - - - - 5,721,757
Sales of land 23,967 - - - - 23,967
Other revenues (1) 6,481 176,701 267,359 7,251 - 457,792
Total revenues 5,752,205 176,701 267,359 7,251 - 6,203,516
Costs and expenses:
Costs of homes sold 4,184,864 - - - - 4,184,864
Costs of land sold 28,556 - - - - 28,556
Selling, general and administrative
expenses 428,478 - - - - 428,478
Other costs and expenses - 85,910 263,737 5,407 - 355,054
Total costs and expenses 4,641,898 85,910 263,737 5,407 - 4,996,952
Equity in earnings (loss) from
unconsolidated entities, Multifamily
other gain and Lennar Other other income
(expense), net, and other gain (286) - 1,805 (9,808) - (8,289)
Other expense, net (171) - - - - (171)
Lennar Other unrealized loss from
technology investments - - - (395,170) - (395,170)
Operating earnings (loss)$ 1,109,850 90,791 5,427 (403,134) - 802,934 Corporate general and administrative expenses - - - - 113,661 113,661 Charitable foundation contribution - - - - 12,538 12,538 Earnings (loss) before income taxes$ 1,109,850 90,791 5,427 (403,134) (126,199) 676,735
(1)Other revenues in our Multifamily segment include land sales to
unconsolidated entities of
Three Months Ended February 28, 2021
(In thousands) Homebuilding Financial Services Multifamily Lennar Other Corporate Total
Revenues:
Sales of homes $ 4,890,914 - - - - 4,890,914
Sales of land 47,643 - - - - 47,643
Other revenues 4,499 244,069 131,443 6,900 - 386,911
Total revenues 4,943,056 244,069 131,443 6,900 - 5,325,468
Costs and expenses:
Costs of homes sold 3,666,862 - - - - 3,666,862
Costs of land sold 41,188 - - - - 41,188
Selling, general and administrative
expenses 410,236 - - - - 410,236
Other costs and expenses - 97,862 131,049 4,252 - 233,163 Total costs and expenses 4,118,286 97,862 131,049 4,252 - 4,351,449 Equity in loss from unconsolidated entities, Multifamily other gain and Lennar Other other expense, net (4,565) - (1,268) (1,047) - (6,880) Other income, net 12,975 - - - - 12,975 Lennar Other unrealized gain from technology investments - - - 469,745 -
469,745
Operating earnings (loss)$ 833,180 146,207 (874) 471,346 - 1,449,859 Corporate general and administrative expenses - - - - 110,531
110,531
Charitable foundation contribution - - - - 12,314
12,314
Earnings (loss) before income taxes$ 833,180 146,207 (874) 471,346 (122,845) 1,327,014
Three Months Ended
Revenues from home sales increased 17% in the first quarter of 2022 to$5.7 billion from$4.9 billion in the first quarter of 2021. Revenues were higher primarily due to a 2% increase in the number of home deliveries to 12,538 homes from 12,314 homes and a 15% increase in the average sales price to$457,000 from$398,000 . Gross margin on home sales were$1.5 billion , or 26.9%, in the first quarter of 2022, compared to$1.2 billion , or 25.0%, in the first quarter of 2021. During the first quarter of 2022, an increase in revenues per square foot was offset by an increase in 26 --------------------------------------------------------------------------------
costs per square foot primarily due to higher lumber costs. Overall, gross margins improved year over year as land costs remained relatively flat while interest expense decreased as a result of our focus on reducing debt.
Selling, general and administrative expenses were$428.5 million in the first quarter of 2022, compared to$410.2 million in the first quarter of 2021. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 7.5% in the first quarter of 2022, from 8.4% in the first quarter of 2021. This improvement was primarily due to a decrease in broker commissions and benefits of our technology efforts. Operating earnings for our Financial Services segment were$90.8 million in the first quarter of 2022, compared to$146.2 million in the first quarter of 2021. The decrease in operating earnings was primarily due to lower mortgage net margins driven by a more competitive mortgage market.
Operating earnings for our Multifamily segment were
Operating loss for our Lennar Other segment was$403.1 million in the first quarter of 2022, compared to operating earnings of$471.3 million in the first quarter of 2021. Lennar Other operating loss in the first quarter of 2022 and Lennar Other operating earnings in the first quarter of 2021 was due to unrealized mark-to-market losses and gains, respectively, on our publicly traded technology investments. Homebuilding Segments AtFebruary 28, 2022 , our reportable Homebuilding segments and Homebuilding Other are outlined in Note 2 of the Notes to Condensed Consolidated Financial Statements. The following tables set forth selected financial and operational information related to our homebuilding operations for the periods indicated:
Selected Financial and Operational Data
Three Months Ended February 28, 2022
Gross Margins Operating Earnings (Loss)
Gross Margins Equity in Earnings
Sales of Homes Costs of Sales of Net Margins on (Loss) on (Loss) from Other Income Operating Earnings
($ in thousands) Revenue Homes Gross Margin % Sales of Homes (1) Sales of Land Other Revenue Unconsolidated Entities (Expense), net
(Loss)
East $ 1,662,991 1,176,553 29.3 % 351,554 (5,674) 797 (1,358) 6,676 351,995
Central 1,105,929 870,611 21.3 % 150,375 1,619 234 129 (279) 152,078
Texas 805,630 573,842 28.8 % 169,941 2,398 242 - (1,269) 171,312
West 2,142,204 1,557,737 27.3 % 444,524 (839) 881 136 (3,254) 441,448
Other (2) 5,003 6,121 (22.3) % (7,979) (2,093) 4,327 807 (2,045) (6,983)
Totals $ 5,721,757 4,184,864 26.9 % 1,108,415 (4,589) 6,481 (286) (171) 1,109,850
Three Months Ended February 28, 2021
Gross Margins Operating Earnings (Loss)
Gross Margins Equity in Earnings
Sales of Homes Costs of Sales of Net Margins on (Loss) on (Loss) from Other Income Operating Earnings
($ in thousands) Revenue Homes Gross Margin % Sales of Homes (1) Sales of Land Other Revenue Unconsolidated Entities (Expense), net
(Loss) East$ 1,347,610 988,862 26.6 % 241,534 5,076 1,418 (492) 14,547 262,083 Central 926,438 713,546 23.0 % 132,099 (23) 405 98 (556) 132,023Texas 636,411 451,198 29.1 % 129,161 1,034 258 154 (964) 129,643 West 1,976,808 1,507,727 23.7 % 317,990 368 1,050 962 1,336 321,706 Other (2) 3,647 5,529 (51.6) % (6,968) - 1,368 (5,287) (1,388) (12,275) Totals$ 4,890,914 3,666,862 25.0 % 813,816 6,455 4,499 (4,565) 12,975 833,180 (1)Net margins on sales of homes include selling, general and administrative expenses. (2)Negative gross and net margins were due to period costs and impairments in Urban divisions that impact costs of homes sold without sufficient sales of homes revenue to offset those costs. 27 -------------------------------------------------------------------------------- Summary of Homebuilding Data Deliveries: Three Months Ended Homes Dollar Value (In thousands) Average Sales Price February 28, February 28, February 28, 2022 2021 2022 2021 2022 2021 East 4,082 3,920$ 1,672,372 1,351,301$ 410,000 345,000 Central 2,521 2,419 1,105,929 926,438 439,000 383,000 Texas 2,537 2,349 805,630 636,411 318,000 271,000 West 3,392 3,622 2,142,204 1,976,808 632,000 546,000 Other 6 4 5,003 3,647 834,000 912,000 Total 12,538 12,314$ 5,731,138 4,894,605$ 457,000 398,000 Of the total homes delivered listed above, 25 homes with a dollar value of$9.4 million and an average sales price of$375,000 represent home deliveries from unconsolidated entities for the three months endedFebruary 28, 2022 , compared to 12 home deliveries with a dollar value of$3.7 million and an average sales price of$308,000 for the three months endedFebruary 28, 2021 .
New Orders (1):
Three Months Ended
Active Communities Homes Dollar Value (In thousands) Average Sales Price
February 28, February 28, February 28, February 28,
2022 2021 2022 2021 2022 2021 2022 2021
East 347 340 4,910 4,814 $ 2,133,056 1,700,112 $ 434,000 353,000
Central 298 274 3,112 3,326 1,402,138 1,333,626 451,000 401,000
Texas 216 218 2,766 2,775 921,785 812,169 333,000 293,000
West 340 327 4,954 4,652 3,335,932 2,692,395 673,000 579,000
Other 3 3 5 3 4,628 2,974 926,000 991,000
Total 1,204 1,162 15,747 15,570 $ 7,797,539 6,541,276 $ 495,000 420,000
Of the total homes listed above, 44 homes with a dollar value of $17.3 million
and an average sales price of $393,000 represent homes in five active
communities from unconsolidated entities for the three months ended February 28,
2022 , compared to 35 homes with a dollar value of $11.6 million and an average
sales price of $332,000 in four active communities for the three months ended
February 28, 2021 .
(1)Homes represent the number of new sales contracts executed with homebuyers,
net of cancellations, during the three months ended February 28, 2022 and 2021.
Backlog:
At
Homes Dollar Value (In thousands) Average Sales Price
February 28, February 28, February 28,
2022 2021 2022 2021 2022 2021
East 9,115 6,907 $ 4,041,347 2,659,746 $ 443,000 385,000
Central 5,695 5,278 2,617,383 2,169,360 460,000 411,000
Texas 4,495 3,249 1,569,424 1,000,342 349,000 308,000
West 8,027 6,642 5,328,890 3,629,018 664,000 546,000
Other 3 1 3,567 1,175 1,189,000 1,175,000
Total 27,335 22,077 $ 13,560,611 9,459,641 $ 496,000 428,000
Of the total homes in backlog listed above, 98 homes with a backlog dollar value
of $36.6 million and an average sales price of $373,000 represent the backlog
from unconsolidated entities at February 28, 2022 , compared to 61 homes with a
backlog dollar value of $19.4 million and an average sales price of $318,000 at
February 28, 2021 . During the three months ended February 28, 2022 , we acquired
355 homes in backlog in the East Homebuilding segment.
Backlog represents the number of homes under sales contracts. Homes are sold
using sales contracts, which are generally accompanied by sales deposits. In
some instances, purchasers are permitted to cancel sales if they fail to qualify
for financing or under certain other circumstances. Various state and federal
laws and regulations may sometimes give purchasers a right to cancel homes in
backlog. We do not recognize revenue on homes under sales contracts until the
sales are closed and title passes to the new homeowners.
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Three Months Ended
Homebuilding East: Revenues from home sales increased in the first quarter of 2022 compared to the first quarter of 2021, primarily due to an increase in the number of home deliveries in all the states in the segment except inFlorida and an increase in the average sales price of homes delivered in all the states of the segment. The increase in the number of home deliveries was primarily driven by an increase in the number of active communities. The decrease in the number of home deliveries inFlorida was primarily due to a decrease in the number of active communities due to the timing of opening and closing of communities as a result of supply chain disruptions. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. Gross margin percentage on home deliveries in the first quarter of 2022 increased compared to the same period last year primarily due to price appreciation as the increase in revenues per square foot of homes delivered outpaced the increase in costs per square foot. Homebuilding Central: Revenues from home sales increased in the first quarter of 2022 compared to the first quarter of 2021, primarily due to an increase in the number of home deliveries in all the states in the segment except inNorth Carolina , and an increase in the average sales price of homes delivered in all the states of the segment. The increase in the number of home deliveries was primarily driven by an increase in active communities. The decrease in the number of home deliveries inNorth Carolina was primarily due to a decrease in the number of deliveries per active community due to the timing of opening and closing of communities as a result of supply chain disruptions. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. Gross margin percentage on home deliveries in the first quarter of 2022 decreased compared to the same period last year primarily due to the increase in costs per square foot of homes delivered outpacing the increase in revenues per square foot driven by higher lumber costs. Homebuilding Texas: Revenues from home sales increased in the first quarter of 2022 compared to the first quarter of 2021, primarily due to an increase in the number of home deliveries and an increase in the average sales price of homes delivered. The increase in the number of home deliveries was primarily driven by an increase in deliveries per active community over the same period last year. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. Gross margin percentage on home deliveries in the first quarter of 2022 decreased compared to the same period last year primarily due to the increase in costs per square foot in homes delivered outpacing the increase in revenues per square foot driven by higher lumber costs and a change in product mix. Homebuilding West: Revenues from home sales increased in the first quarter of 2022 compared to the first quarter of 2021, primarily due to an increase in the average sales price of homes delivered in all the states of the segment, partially offset by a decrease in the number of home deliveries in the segment, primarily inArizona ,Colorado andNevada . The increase in the average sales price of homes delivered was primarily due to favorable market conditions. The decrease in the number of home deliveries inArizona ,Colorado , andNevada was primarily due to a decrease in the number of deliveries per active community due to the timing of opening and closing of communities as a result of supply chain disruptions. Gross margin percentage on home deliveries in the first quarter of 2022 increased compared to the same period last year primarily due to price appreciation as the increase in revenues per square foot of homes delivered outpaced the increase in costs per square foot.
Financial Services Segment
Our Financial Services reportable segment provides mortgage financing, title and closing services primarily for buyers of our homes. The segment also originates and sells into securitizations commercial mortgage loans through itsLMF Commercial business. Our Financial Services segment sells substantially all of the residential loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements. The following table sets forth selected financial and operational information related to the residential mortgage and title activities of our Financial Services segment: Three Months Ended February 28, (Dollars in thousands) 2022 2021 Dollar value of mortgages originated$ 2,760,000
2,761,000
Number of mortgages originated 7,400
8,400
Mortgage capture rate of Lennar homebuyers 74 % 76 % Number of title and closing service transactions 13,700
15,000
AtFebruary 28, 2022 andNovember 30, 2021 , the carrying value of Financial Services' commercial mortgage-backed securities ("CMBS") was$156.6 million and$157.8 million , respectively. Details of these securities and related debt are within Note 2 of the Notes to Condensed Consolidated Financial Statements. 29
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