Lennar Corporation — Q1 FY2021 Form 10-Q
Reporting period: Three months ended February 28, 2021; comparisons are with the three months ended February 29, 2020 unless noted. Lennar is a homebuilder with Financial Services, Multifamily and strategic investment businesses. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2021 | Prior year |
|---|---|---|
| Total revenue | $5.325 billion | $4.505 billion |
| Net earnings attributable to Lennar | $1.001 billion | $398.5 million |
| Diluted EPS | $3.20 | $1.27 |
| Cash provided by operating activities | $385.5 million | $383.0 million |
| Cash used in investing activities | $93.4 million | Cash provided: $13.2 million |
| Cash used in financing activities | $629.7 million | $789.8 million |
- Homebuilding revenue was $4.943 billion. Home deliveries rose 19% to 12,302, while average delivered home price declined to about $398,000 from $402,000.
- Home sales gross margin increased to 25.0% from 20.5%. Homebuilding selling, general and administrative expense was 8.4% of home-sales revenue, versus 9.2%.
- Financial Services operating earnings increased to $146.2 million from $47.3 million; Multifamily recorded an operating loss of $0.9 million versus earnings of $1.8 million.
- Net earnings included a $469.7 million unrealized, mark-to-market gain on the Opendoor investment. The gain was recorded in Lennar Other and materially contributed to the year-over-year earnings increase.
Balance sheet, debt and liquidity
- At February 28, 2021, cash and cash equivalents plus restricted cash totaled $2.595 billion, down from $2.933 billion at November 30, 2020. Homebuilding cash and cash equivalents were $2.421 billion.
- Homebuilding debt was $5.976 billion. Homebuilding debt to total capital was 24.0%, compared with 24.9% at November 30, 2020 and 33.6% a year earlier; net homebuilding debt to total capital was 15.8%.
- No borrowings were outstanding under the $2.5 billion unsecured revolving credit facility; the facility includes a $300 million accordion feature, subject to additional commitments. The company reported compliance with its stated credit covenants.
- Operating cash flow was broadly level year over year. Inventory investment of $862.1 million was a major operating cash use; cash flow also benefited from a $360.6 million decrease in loans held for sale.
Material changes and operating indicators
- Net new home orders increased to 15,570 from 12,376; the average order price rose to $420,000 from $404,000. Backlog grew to 22,077 homes, valued at $9.460 billion, from 17,632 homes and $7.162 billion.
- Active communities were 1,162 versus 1,258 a year earlier. Land controlled through options or similar agreements reached 45% of total homesites, up from 31% a year earlier; owned-land supply was 3.4 years versus 4.0 years.
- The company increased its revolving credit facility limit by $100 million during the quarter. A new stock repurchase authorization permits repurchases of up to the lesser of $1 billion or 25 million shares, with no expiration date.
Outlook, commentary and risks
- Management described housing demand and the market as strong, citing limited housing supply and continued affordability. It expects fiscal 2021 deliveries of 62,000–64,000 homes, approximately 25.0% gross margin for the year, and about 10% growth in active communities. These are forward-looking targets, not guarantees.
- Management said lumber costs rose about $2,300 per home both year over year and sequentially and expected further increases during the year. Other cost reductions more than offset the year-over-year increase, but not the sequential increase.
- Lennar formed the Upward America single-family rental venture. Subsequent to quarter-end, it raised total equity commitments to $1.25 billion and is positioned, including leverage, to acquire over $4.0 billion of homes.
- Lennar agreed to sell its SunStreet residential solar platform to Sunnova for up to 7.22 million Sunnova shares, including 3.33 million shares at closing and additional shares subject to earnouts. Closing was anticipated in Q2 FY2021; Lennar expected a significant gain. Management also discussed potential restructuring or tax-free spin-off transactions involving some ancillary businesses, without a stated completion commitment.
- Principal risks identified include COVID-19 uncertainty; rising construction, labor, insurance and land costs; weaker housing or rental demand; financing availability and interest rates; land acquisition and entitlement challenges; inventory valuation; joint-venture commitments; and refinancing or debt-repayment risks. The filing reported no material change to previously disclosed risk factors.
- The company reported ordinary-course legal claims and lawsuits and stated that their resolution was not expected to have a material adverse effect. It also disclosed potential mortgage-loan repurchase or indemnity claims tied to representations and warranties; actual losses exceeding estimates could require additional expense.
Most important facts for investors to verify
- How much reported earnings growth reflects core homebuilding and Financial Services performance versus the $469.7 million unrealized Opendoor gain, and how that investment is valued in future periods.
- Whether deliveries, orders and backlog convert to revenue and earnings as expected, including the risk of cancellations and changes in product mix.
- Progress against delivery, gross-margin, community-growth and land-option targets, particularly as lumber and other input costs evolve.
- Completion and proceeds of the SunStreet sale, earnout conditions, and the status and economics of proposed business separations or spin-offs.
- Liquidity and leverage, including debt maturities, warehouse-facility renewals, land and joint-venture commitments, and contingent exposures such as mortgage claims, warranty costs and guarantees.