Lennar Reports Third Quarter EPS of $0.78

MIAMI, Sept. 17, 2014 /PRNewswire/ --

• Net earnings of $177.8 million, or $0.78 per diluted share, compared to net earnings of $120.7 million, or $0.54 per diluted share
• Deliveries of 5,457 homes – up 9%
• New orders of 5,889 homes – up 23%; new orders dollar value of $1.9 billion – up 28%
• Backlog of 7,290 homes – up 22%; backlog dollar value of $2.5 billion – up 29%
• Revenues of $2.0 billion – up 26%
• Gross margin on home sales of 25.2% – improved 30 basis points
• S,G&A expenses as a % of revenues from home sales of 10.4% – up 20 basis points
• Operating margin on home sales of 14.8% – improved 10 basis points
• Lennar Homebuilding operating earnings of $261.9 million, compared to $208.4 million
• Lennar Financial Services operating earnings of $27.1 million, compared to $23.5 million
• Rialto Investments operating earnings of $12.4 million (after an add back of $4.5 million of net loss attributable to noncontrolling interests), compared to $1.5 million (after an add back of $0.8 million of net loss attributable to noncontrolling interests)
• Lennar Multifamily operating earnings of $8.5 million, compared to start-up operating loss of $5.6 million
• Lennar Homebuilding cash and cash equivalents of $542 million
• Lennar Homebuilding debt to total capital, net of cash and cash equivalents, of 47.5%

Lennar Corporation (NYSE: LEN and LEN.B), one of the nation's largest homebuilders, today reported results for its third quarter ended August 31, 2014. Third quarter 2014 net earnings attributable to Lennar were $177.8 million, or $0.78 per diluted share, compared to third quarter 2013 net earnings attributable to Lennar of $120.7 million, or $0.54 per diluted share.

Stuart Miller, Chief Executive Officer of Lennar Corporation, said, "We are extremely pleased with our third quarter results as we achieved solid profitability in each of our reporting segments. Our core homebuilding business continues to drive earnings, with strong sales, deliveries and margins. New orders in the quarter rose 23% over the prior year, with increases in each of our segments. Our gross and operating margins edged higher year over year to 25.2% and 14.8%, respectively. Our sales backlog increased 29% from last year to approximately $2.5 billion, providing an excellent foundation going forward.

The housing market in general has continued its slow and steady recovery. This recovery has been driven by years of production deficit that has limited supply while demand has come back to the market. Concurrently, the market has been constrained by reduced access to credit available to many potential purchasers. The recovery has traveled in a fairly narrow channel driven by a need for production and limited by credit availability. Within that channel the road has been somewhat volatile, atypical of previous recoveries, and often difficult for many to read. Our core homebuilding business is hitting on all cylinders as we have properly considered and understood the uniqueness of this recovery."

Mr. Miller continued, "Complementing our core homebuilding business, Lennar Multifamily recorded its first two sales of apartment properties in the third quarter. Both sales produced greater than our targeted 25% return on invested capital, and demonstrated that our multifamily segment is maturing and beginning to contribute to the bottom line. Our geographically diversified $5 billion pipeline of multifamily product will become a more predictable source of quarterly earnings starting in late 2015 and 2016.

Rialto has continued to develop and expand its strategic plan to become a best in class asset manager, as it is now returning cash to the company and producing consistent bottom line results. Rialto's fund investments are poised for strong long-term returns while the commercial mortgage origination business provides steady, current earnings."

Mr. Miller concluded, "While our homebuilding business continues to be the primary driver of our quarterly earnings, we are extremely well positioned across all of our platforms to continue to produce industry-leading results."

RESULTS OF OPERATIONS

THREE MONTHS ENDED AUGUST 31, 2014 COMPARED TO
THREE MONTHS ENDED AUGUST 31, 2013

Lennar Homebuilding

Revenues from home sales increased 25% in the third quarter of 2014 to $1.8 billion from $1.4 billion in the third quarter of 2013. Revenues were higher primarily due to a 10% increase in the number of home deliveries, excluding unconsolidated entities, and a 14% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 5,450 homes in the third quarter of 2014 from 4,972 homes in the third quarter of 2013. There was an increase in home deliveries in all of the Company's Homebuilding segments and Homebuilding Other. The average sales price of homes delivered increased to $332,000 in the third quarter of 2014 from $291,000 in the third quarter of 2013. Sales incentives offered to homebuyers were $20,400 per home delivered in the third quarter of 2014, or 5.8% as a percentage of home sales revenue, compared to $18,700 per home delivered in the third quarter of 2013, or 6.0% as a percentage of home sales revenue, and $20,300 per home delivered in the second quarter of 2014, or 5.9% as a percentage of home sales revenue.

Gross margins on home sales were $456.2 million, or 25.2%, in the third quarter of 2014, compared to $360.9 million, or 24.9%, in the third quarter of 2013. Gross margin percentage on home sales improved compared to the third quarter of 2013, primarily due to an increase in the average sales price of homes delivered and a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales, partially offset by an increase in materials, labor and land costs. Gross profits on land sales totaled $4.3 million in the third quarter of 2014, compared to $3.3 million in the third quarter of 2013.

Selling, general and administrative expenses were $188.0 million in the third quarter of 2014, compared to $148.3 million in the third quarter of 2013. As a percentage of revenues from home sales, selling, general and administrative expenses increased to 10.4% in the third quarter of 2014, from 10.2% in the third quarter of 2013 due to higher broker commissions as well as an increase in the number of communities.

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($2.1) million in the third quarter of 2014, compared to $10.5 million in the third quarter of 2013. In the third quarter of 2014, Lennar Homebuilding equity in loss from unconsolidated entities related to the Company's share of operating losses of Lennar Homebuilding unconsolidated entities. In the third quarter of 2013, Lennar Homebuilding equity in earnings from unconsolidated entities included the Company's share of operating earnings of $8.6 million primarily related to sales of approximately 200 homesites to third parties by one unconsolidated entity for approximately $78 million, resulting in a gross profit of approximately $32 million.

Lennar Homebuilding other income (expense), net, totaled ($0.1) million in the third quarter of 2014, compared to $4.1 million in the third quarter of 2013.

Lennar Homebuilding interest expense was $51.4 million in the third quarter of 2014 ($42.6 million was included in cost of homes sold, $0.4 million in cost of land sold and $8.4 million in other interest expense), compared to $54.3 million in the third quarter of 2013 ($31.6 million was included in cost of homes sold, $0.5 million in cost of land sold and $22.2 million in other interest expense). Interest expense decreased primarily due to an increase in qualifying assets eligible for interest capitalization, partially offset by an increase in the Company's outstanding debt and an increase in home deliveries.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment were $27.1 million in the third quarter of 2014, compared to $23.5 million in the third quarter of 2013. The increase in profitability was primarily due to higher origination volume in the segment's mortgage operations and higher profit per transaction in the segment's title operations.

Rialto Investments

Operating earnings for the Rialto Investments ("Rialto") segment were $12.4 million in the third quarter of 2014 (which included $7.8 million of operating earnings and an add back of $4.5 million of net loss attributable to noncontrolling interests), compared to operating earnings of $1.5 million (which included $0.7 million of operating earnings and an add back of $0.8 million of net loss attributable to noncontrolling interests) in the third quarter of 2013.

Revenues in this segment were $40.8 million in the third quarter of 2014, which consisted primarily of securitization revenue and interest income from Rialto Mortgage Finance ("RMF"), Rialto's new loan origination and securitization business, which primarily accounted for the increase in revenues in the third quarter of 2014, fees for managing and servicing assets and interest income associated with the Rialto segment's portfolio of real estate loans. This compared to revenues of $27.8 million in the third quarter of 2013, which consisted primarily of interest income associated with the segment's portfolio of real estate loans and fees for managing and servicing assets.

Expenses in this segment were $47.6 million in the third quarter of 2014, which consisted primarily of costs related to its portfolio operations, RMF securitization expenses, loan impairments of $4.2 million, primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests), interest expense and other general and administrative expenses. This compared to expenses of $34.2 million in the third quarter of 2013, which consisted primarily of costs related to its portfolio operations, loan impairments of $3.5 million primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests) and other general and administrative expenses. Expenses increased primarily due to increases in securitization expenses and general and administrative expenses related to RMF and interest expense related to Rialto's issuance of senior notes in the fourth quarter of 2013.

Rialto Investments equity in earnings from unconsolidated entities was $20.0 million and $5.2 million in the third quarter of 2014 and 2013, respectively, primarily related to the segment's share of earnings from the Rialto real estate funds. The higher equity in earnings was related to increases in fair value and recognition of gains related to certain assets in the Rialto real estate funds.

In the third quarter of 2014, Rialto Investments other expense, net, was $5.3 million, which consisted primarily of $7.0 million of impairments on real estate owned ("REO") and expenses related to owning and maintaining REO, partially offset by net realized gains on the sale of REO of $4.1 million and rental and other income. In the third quarter of 2013, Rialto Investments other income, net, was $1.8 million, which consisted primarily of net realized gains on the sale of REO of $9.7 million and rental income, partially offset by $5.3 million of impairments on REO and expenses related to owning and maintaining REO.

Lennar Multifamily

Operating earnings (loss) for the Lennar Multifamily segment were $8.5 million in the third quarter of 2014, compared to ($5.6) million in the third quarter of 2013. In the third quarter of 2014, operating earnings primarily related to the segment's share of gains totaling $14.7 million as a result of the sale of two operating properties by Lennar Multifamily unconsolidated entities and management fee income, partially offset by general and administrative expenses. In the third quarter of 2013, operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by management fee income.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $43.1 million, or 2.1% as a percentage of total revenues, in the third quarter of 2014, compared to $37.6 million, or 2.3% as a percentage of total revenues, in the third quarter of 2013. As a percentage of total revenues, corporate general and administrative expenses improved due to increased operating leverage.

Noncontrolling Interests

Net earnings (loss) attributable to noncontrolling interests were ($4.3) million and $1.5 million in the third quarter of 2014 and 2013, respectively. Net loss attributable to noncontrolling interests during the third quarter of 2014 was primarily related to the FDIC's interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC. Net earnings attributable to noncontrolling interests during the third quarter of 2013 were primarily related to the Company's homebuilding operations, partially offset by a net loss related to the FDIC's interest in the portfolio of real estate loans.

Credit Facility

In June 2014, the Company increased the aggregate principal amount of its unsecured revolving credit facility (the "Credit Facility") from $950 million to $1.5 billion, which includes a $263 million accordion feature, subject to additional commitments, and extended the Credit Facility's maturity to June 2018. The proceeds available under the Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes.

Debt Transactions

Subsequent to the third quarter of 2014, the Company retired its $250 million 5.50% senior notes due September 2014 for 100% of the outstanding principal amount, plus accrued and unpaid interest as of the maturity date.

NINE MONTHS ENDED AUGUST 31, 2014 COMPARED TO
NINE MONTHS ENDED AUGUST 31, 2013

Lennar Homebuilding

Revenues from home sales increased 28% in the nine months ended August 31, 2014 to $4.6 billion from $3.6 billion in the nine months ended August 31, 2013. Revenues were higher primarily due to an 11% increase in the number of home deliveries, excluding unconsolidated entities, and a 15% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 14,023 homes in the nine months ended August 31, 2014 from 12,595 homes in the nine months ended August 31, 2013. There was an increase in home deliveries in all of the Company's Homebuilding segments and Homebuilding Other. The average sales price of homes delivered increased to $325,000 in the nine months ended August 31, 2014 from $283,000 in the nine months ended August 31, 2013. Sales incentives offered to homebuyers were $20,600 per home delivered in the nine months ended August 31, 2014, or 6.0% as a percentage of home sales revenue, compared to $20,400 per home delivered in the nine months ended August 31, 2013, or 6.7% as a percentage of home sales revenue.

Gross margins on home sales were $1,151.8 million, or 25.3%, in the nine months ended August 31, 2014, compared to $853.2 million, or 24.0%, in the nine months ended August 31, 2013. Gross margin percentage on home sales improved compared to the nine months ended August 31, 2013, primarily due to an increase in the average sales price of homes delivered, a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales and $15.1 million of insurance recoveries and other nonrecurring items, partially offset by an increase in materials, labor and land costs. Gross profits on land sales totaled $26.1 million in the nine months ended August 31, 2014, compared to $9.0 million in the nine months ended August 31, 2013. Gross profits on land sales in the nine months ended August 31, 2014 included two land sale transactions related to land that was not under development at that time that generated $65.4 million of revenues and $8.0 million of gross profits.

Selling, general and administrative expenses were $496.3 million in the nine months ended August 31, 2014, compared to $387.1 million in the nine months ended August 31, 2013. As a percentage of revenues from home sales, selling, general and administrative expenses were 10.9% in both the nine months ended August 31, 2014 and 2013.

Lennar Homebuilding equity in earnings from unconsolidated entities was $3.3 million in the nine months ended August 31, 2014, compared to $23.1 million in the nine months ended August 31, 2013. In the nine months ended August 31, 2014, Lennar Homebuilding equity in earnings from unconsolidated entities included the Company's share of operating earnings of $4.7 million primarily related to a third-party land sale, partially offset by losses related to the Company's share of operating losses of Lennar Homebuilding unconsolidated entities. In the nine months ended August 31, 2013, Lennar Homebuilding equity in earnings from unconsolidated entities included the Company's share of operating earnings of $21.6 million primarily related to sales of approximately 500 homesites to third parties by one unconsolidated entity for approximately $204 million, resulting in a gross profit of approximately $85 million.

Lennar Homebuilding other income, net, totaled $5.1 million in the nine months ended August 31, 2014, compared to $14.0 million in the nine months ended August 31, 2013.

Lennar Homebuilding interest expense was $141.6 million in the nine months ended August 31, 2014 ($107.6 million was included in cost of homes sold, $2.6 million in cost of land sold and $31.4 million in other interest expense), compared to $155.4 million in the nine months ended August 31, 2013 ($80.0 million was included in cost of homes sold, $2.1 million in cost of land sold and $73.4 million in other interest expense). Interest expense decreased primarily due to an increase in qualifying assets eligible for interest capitalization, partially offset by an increase in the Company's outstanding debt and an increase in home deliveries.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment were $49.9 million in the nine months ended August 31, 2014, compared to $68.8 million in the nine months ended August 31, 2013. The decrease in profitability was primarily due to a more competitive environment as a result of a significant decrease in refinance transactions, which led to a decrease in volume in the segment's title operations and lower profit per transaction in the segment's mortgage operations.

Rialto Investments

Operating earnings for the Rialto segment were $28.3 million in the nine months ended August 31, 2014 (which included $7.7 million of operating earnings and an add back of $20.7 million of net loss attributable to noncontrolling interests), compared to operating earnings of $6.0 million (which included $10.6 million of operating earnings, partially offset by $4.6 million of net earnings attributable to noncontrolling interests) in the nine months ended August 31, 2013.

Revenues in this segment were $142.2 million in the nine months ended August 31, 2014, which consisted primarily of securitization revenue and interest income from RMF, fees for managing and servicing assets and interest income associated with the segment's portfolio of real estate loans. This compared to revenues of $79.1 million in the nine months ended August 31, 2013, which consisted primarily of interest income associated with the segment's portfolio of real estate loans and fees for managing and servicing assets. Revenues increased primarily due to RMF and an increase in fees for managing and servicing assets.

Expenses in this segment were $174.8 million in the nine months ended August 31, 2014, which consisted primarily of loan impairments of $44.7 million, net of recoveries, primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests), costs related to its portfolio operations, RMF securitization expenses, interest expense and other general and administrative expenses. This compared to expenses of $94.2 million in the nine months ended August 31, 2013, which consisted primarily of costs related to its portfolio operations, loan impairments of $14.1 million primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests) and other general and administrative expenses. Expenses increased primarily due to an increase in loan impairments due to changes in the estimated cash flows expected to be collected on the segment's loan portfolios, increases in securitization expenses and general and administrative expenses related to RMF and interest expense related to Rialto's issuance of senior notes in the fourth quarter of 2013.

Rialto Investments equity in earnings from unconsolidated entities was $43.3 million and $15.9 million in the nine months ended August 31, 2014 and 2013, respectively, primarily related to the segment's share of earnings from the Rialto real estate funds. The higher equity in earnings was related to increases in fair value and recognition of gains related to certain assets in the Rialto real estate funds.

In the nine months ended August 31, 2014, Rialto Investments other expense, net, was $3.0 million, which consisted primarily of expenses related to owning and maintaining REO, $10.5 million of impairments on REO and other expenses, partially offset by net realized gains on the sale of REO of $27.8 million and rental and other income. In the nine months ended August 31, 2013, Rialto Investments other income, net, was $9.8 million, which consisted primarily of net realized gains on the sale of REO of $36.9 million and rental income, partially offset by expenses related to owning and maintaining REO and $9.9 million of impairments on REO.

Lennar Multifamily

Operating loss for the Lennar Multifamily segment was $4.9 million in the nine months ended August 31, 2014, compared to $10.4 million in the nine months ended August 31, 2013. For the nine months ended August 31, 2014, the operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by the segment's share of gains totaling $14.7 million as a result of the sale of two operating properties by Lennar Multifamily unconsolidated entities and management fee income. For the nine months ended August 31, 2013, the operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by management fee income.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $119.5 million, or 2.3% as a percentage of total revenues, in the nine months ended August 31, 2014, compared to $102.7 million, or 2.6% as a percentage of total revenues, in the nine months ended August 31, 2013. As a percentage of total revenues, corporate general and administrative expenses improved due to increased operating leverage.

Noncontrolling Interests

Net earnings (loss) attributable to noncontrolling interests were ($17.6) million and $6.3 million in the nine months ended August 31, 2014 and 2013, respectively. Net loss attributable to noncontrolling interests in the nine months ended August 31, 2014 was primarily related to the FDIC's interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC. Net earnings attributable to noncontrolling interests during the nine months ended August 31, 2013 were primarily related to the Company's homebuilding operations and the FDIC's interest in the portfolio of real estate loans.

Income Taxes

During the nine months ended August 31, 2014, the Company had a $215.8 million provision for income taxes related to pre-tax earnings of the period, compared to an $83.1 million net tax provision in the nine months ended August 31, 2013, which included a $150.2 million tax provision primarily related to pre-tax earnings of the period, partially offset by the reversal of $67.1 million of the Company's valuation allowance.

About Lennar

Lennar Corporation, founded in 1954, is one of the nation's largest builders of quality homes for all generations. The Company builds affordable, move-up and retirement homes primarily under the Lennar brand name. Lennar's Financial Services segment provides mortgage financing, title insurance and closing services for both buyers of the Company's homes and others. Lennar's Rialto Investments segment is a vertically integrated asset management platform focused on investing throughout the commercial real estate capital structure. Lennar's Multifamily segment is a national developer of high-quality multifamily rental properties. Previous press releases and further information about the Company may be obtained at the "Investor Relations" section of the Company's website, www.lennar.com.

Note Regarding Forward-Looking Statements: Some of the statements in this press release are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995, including statements regarding the Company's belief regarding its pipeline in the Multifamily segment and the ability of that segment to become a more predictable source of quarterly earnings starting in late 2015 and 2016, the Rialto fund investments ability to provide strong long term returns, and the Company's ability to continue to produce industry-leading results. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Accordingly, these forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include a slowdown in the recovery of real estate markets across the nation, or any downturn in such markets, including a slowdown or downturn in the multifamily rental market; the inability of the Rialto segment to profit from the investments it makes; increases in operating costs, including costs related to real estate taxes, construction materials, labor and insurance, and our ability to manage our cost structure, both in our Homebuilding and Multifamily businesses; decreased demand for our Multifamily rental properties; natural disasters or catastrophic events for which our insurance may not provide adequate coverage; a decline in the value of the land and home inventories we maintain or possible future write-downs of the book value of our real estate assets; reduced availability of mortgage financing and increased interest rates; changes in laws, regulations or the regulatory environment affecting our business, and the risks described in our filings with the Securities and Exchange Commission, including our Form 10-K, for the fiscal year ended November 30, 2013. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

A conference call to discuss the Company's third quarter earnings will be held at 11:00 a.m. Eastern Time on Wednesday, September 17, 2014. The call will be broadcast live on the Internet and can be accessed through the Company's website at www.lennar.com.  If you are unable to participate in the conference call, the call will be archived at www.lennar.com for 90 days. A replay of the conference call will also be available later that day by calling 203-369-3813 and entering 5723593 as the confirmation number.

Lennar's reportable homebuilding segments and all other homebuilding operations not required to be reported separately, have operations located in:

East: Florida⁽¹⁾, Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia
Central: Arizona, Colorado and Texas⁽²⁾
West: California and Nevada
Southeast Florida: Southeast Florida
Houston: Houston, Texas
Other: Illinois, Minnesota, Oregon, Tennessee and Washington

(1)  Florida in the East reportable segment excludes Southeast Florida, which is its own reportable segment.
(2)  Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.

SOURCE Lennar Corporation