Lennar Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended November 30, 2021; comparisons are primarily with FY2020. Lennar is a U.S. homebuilder with mortgage, title, multifamily, rental-housing and investment operations. Homebuilding generated about 94% of consolidated revenue.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $27.13 billion | $22.49 billion |
| Earnings before income taxes | $5.82 billion | $3.12 billion |
| Net earnings attributable to Lennar | $4.43 billion | $2.47 billion |
| Diluted EPS | $14.27 | $7.85 |
| Operating cash flow | $2.53 billion | $4.19 billion |
| Cash, cash equivalents and restricted cash | $2.96 billion | $2.93 billion |
| Homebuilding debt | $4.65 billion | $5.96 billion |
Home sales revenue rose 22% to $25.35 billion. Deliveries increased 13% to 59,825 homes, and average selling price increased 8% to $424,000. Home-sales gross margin improved to 26.8% from 22.8%; SG&A was 7.1% of home-sales revenue versus 8.1%.
Homebuilding debt-to-total-capital declined to 18.3% from 24.9%; net homebuilding debt-to-total-capital fell to 8.4% from 15.3%. Lennar had $2.74 billion of Homebuilding cash and no borrowings on its $2.5 billion revolving credit facility, providing $5.2 billion of stated available capacity. Consolidated liabilities were $12.21 billion and equity was $21.00 billion at year-end.
Homebuilding backlog rose to 23,771 homes worth $11.36 billion from 18,821 homes worth $7.81 billion. Net new orders were 64,543 homes, compared with 56,169. The reported cancellation rate declined to 10% from 15%.
Material changes and unusual items
- Net earnings increased substantially, supported by higher deliveries, selling prices and home-sales margins.
- Lennar Other reported $680.6 million of realized and unrealized gains, including mark-to-market gains on public technology investments and a gain related to the sale of its solar business to Sunnova. These gains materially contributed to earnings and are market-sensitive.
- Operating cash flow decreased despite higher earnings, reflecting a $2.0 billion increase in inventories, among other working-capital movements. Financing cash use included $1.16 billion of senior-note retirements, $1.43 billion of share repurchases and $310 million of dividends.
- Homesites controlled through options and joint ventures rose to 59% from 39%; owned-land supply declined to 3.0 years from 3.5 years.
Outlook, management commentary and risks
Management described housing demand as strong and supply as constrained, while noting that material and labor shortages limited construction and delayed deliveries. It expected supply-chain challenges to continue into the first quarter of FY2022 and beyond, with improvement anticipated in the second half. Management’s FY2022 first-quarter outlook was approximately 12,500 deliveries and a 26.75% gross margin. It expected community count to be about 5% below year-end levels in Q1, then to increase and finish FY2022 up by a low double-digit percentage year over year. Management characterized its FY2022 outlook as continued market strength and double-digit growth; these are forward-looking expectations, not guarantees.
Lennar expected to complete a tax-free spin-off of multifamily, single-family rental and land-related asset-management businesses and certain investments in the second or third quarter of 2022, subject to execution and tax considerations. It had requested an IRS private letter ruling.
Key risks include construction-cost inflation and continued labor or materials shortages, higher mortgage rates and reduced affordability, land availability and entitlement delays, home-price declines and inventory impairments, and the ability to renew or replace Financial Services warehouse facilities. The filing also highlights investment-value volatility, option-deposit exposure, joint-venture obligations, warranty and construction-defect claims, and potential liabilities on mortgage-loan representations and warranties. At year-end, outstanding letters of credit were about $1.4 billion and surety bonds about $3.6 billion; anticipated future costs associated with bonded site improvements were about $1.7 billion. Management did not expect these arrangements or ordinary-course litigation to have a material adverse effect.
Most important facts for investors to verify
- Whether backlog converts to deliveries as expected, and whether pricing and gross margins withstand construction-cost inflation and any easing in demand.
- How much FY2021 earnings depended on investment mark-to-market gains and the solar-business sale, and how those investments perform subsequently.
- Whether the proposed spin-off receives the anticipated tax treatment, closes on schedule, and changes Lennar’s earnings, capital needs or operating profile as intended.
- Debt repayment and refinancing needs, including near-term maturities and renewal or replacement of warehouse facilities; verify that covenant compliance and liquidity remain adequate.
- Potential exposure from land options and deposits, joint-venture guarantees, warranty claims, and mortgage repurchase or indemnity claims.