LEN Lennar Corp

MIAMI, Sept. 20, 2016 /PRNewswire/ --

• Net earnings of $235.8 million, or $1.01 per diluted share, compared to net earnings of $223.3 million, or $0.96 per diluted share
• Deliveries of 6,779 homes – up 7%
• New orders of 7,018 homes – up 8%; new orders dollar value of $2.6 billion – up 10%
• Backlog of 9,253 homes – up 12%; backlog dollar value of $3.4 billion – up 14%
• Revenues of $2.8 billion – up 14%
• Lennar Homebuilding operating earnings of $344.9 million, compared to $333.7 million – up 3%
• Gross margin on home sales of 22.6%, compared to 24.1%
• S,G&A expenses as a % of revenues from home sales improved to 9.3% from 9.9%
• Operating margin on home sales of 13.2%, compared to 14.1%
• Lennar Financial Services operating earnings of $53.2 million, compared to $39.4 million
• Rialto operating earnings (net of noncontrolling interests) of $5.9 million, compared to $9.0 million
• Lennar Multifamily operating earnings of $2.6 million, compared to an operating loss of $3.0 million
• Lennar Homebuilding cash and cash equivalents of $568 million
• $125 million outstanding under the credit facility and increased maximum borrowings to $1.8 billion
• Lennar Homebuilding debt to total capital, net of cash and cash equivalents, of 39.9%

Lennar Corporation (NYSE: LEN and LEN.B), one of the nation's largest homebuilders, today reported results for its third quarter ended August 31, 2016. Third quarter net earnings attributable to Lennar in 2016 were $235.8 million, or $1.01 per diluted share, compared to third quarter net earnings attributable to Lennar in 2015 of $223.3 million, or $0.96 per diluted share.

Stuart Miller, Chief Executive Officer of Lennar Corporation, said, "We are very pleased, once again to announce very solid quarterly results for our company, with third quarter earnings per share of $1.01. While the housing market's recovery has continued to progress on a slow, steady and sometimes, choppy path, we have continued to manage our sales and delivery targets in the 7% - 10% range, while focusing on bottom-line profitability and balance sheet strength.

"Our third quarter new orders and home deliveries increased 8% and 7% year-over-year, respectively, to 7,018 homes and 6,779 homes, respectively. Our core homebuilding business continued to produce solid operating results in the third quarter of 2016 as our operating margin was 13.2%, notwithstanding a lower gross margin in the quarter, as expected. We continue to see benefits stemming from our focus on S,G&A generally, and digital marketing in particular, which helped to reduce S,G&A as a percentage of home sales revenues to 9.3%.

"We have continued to focus our land spend on high quality, 'A' locations while also ramping up our first-time homebuyer land positions as that segment of the market continues to improve. Meanwhile, our balance sheet continues to strengthen, positioning us well to seize unique, strategic opportunities as they present themselves."

Mr. Miller continued, "Alongside our homebuilding business, our financial services operations reported strong earnings of $53.2 million in our third quarter, our highest earnings for this segment since the third quarter of 2006. The 35% increase in earnings, compared to the same period last year, was primarily due to an increase in refinance volume and higher profit per transaction in our mortgage and title operations."

Mr. Miller concluded, "Our homebuilding business and financial services operations continue to be the primary drivers of our quarterly results and earnings growth. Concurrently, our ancillary businesses of Rialto, Lennar Multifamily and FivePoint continue to mature and position our company for even stronger, long-term value creation."

RESULTS OF OPERATIONS

THREE MONTHS ENDED AUGUST 31, 2016 COMPARED TO
THREE MONTHS ENDED AUGUST 31, 2015

Lennar Homebuilding

Revenues from home sales increased 11% in the third quarter of 2016 to $2.4 billion from $2.2 billion in the third quarter of 2015. Revenues were higher primarily due to a 7% increase in the number of home deliveries, excluding unconsolidated entities, and a 3% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 6,758 homes in the third quarter of 2016 from 6,314 homes in the third quarter of 2015. There was an increase in home deliveries in all of the Company's Homebuilding segments and Homebuilding Other, except in Homebuilding Houston. The decrease in home deliveries in Houston was primarily due to less demand in the higher priced communities driven by volatility in the energy sector. The average sales price of homes delivered increased to $362,000 in the third quarter of 2016 from $350,000 in the third quarter of 2015. Sales incentives offered to homebuyers were $22,500 per home delivered in the third quarter of 2016, or 5.9% as a percentage of home sales revenue, compared to $20,700 per home delivered in the third quarter of 2015, or 5.6% as a percentage of home sales revenue, and $21,800 per home delivered in the second quarter of 2016, or 5.7% as a percentage of home sales revenue.

Gross margins on home sales were $551.7 million, or 22.6%, in the third quarter of 2016, compared to $531.4 million, or 24.1%, in the third quarter of 2015. Gross margin percentage on home sales decreased compared to the third quarter of 2015 primarily due to an increase in land costs, partially offset by an increase in the average sales price of homes delivered.

Selling, general and administrative expenses were $228.1 million in the third quarter of 2016, compared to $219.0 million in the third quarter of 2015. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.3% in the third quarter of 2016, from 9.9% in the third quarter of 2015, due to improved operating leverage as a result of an increase in home deliveries and benefits from the Company's focus on digital marketing.

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($18.0) million in the third quarter of 2016, compared to $13.3 million in the third quarter of 2015. In the third quarter of 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of costs associated with the FivePoint combination and the Company's share of net operating losses associated with the new FivePoint unconsolidated entity. In the third quarter of 2015, Lennar Homebuilding equity in earnings from unconsolidated entities included $21.5 million of equity in earnings from one of the Company's unconsolidated entities primarily due to a gain on debt extinguishment and sales of homesites to third parties.

Lennar Homebuilding other income, net, was $30.9 million in the third quarter of 2016, compared to $4.2 million in the third quarter of 2015. Other income, net, in the third quarter of 2016 was primarily related to $17.4 million of management fee income related to one of Lennar Homebuilding's strategic joint ventures and a gain of $8.7 million on the sale of a clubhouse.

Lennar Homebuilding interest expense was $62.7 million in the third quarter of 2016 ($60.3 million was included in costs of homes sold, $1.4 million in costs of land sold and $1.0 million in other interest expense), compared to $58.9 million in the third quarter of 2015 ($55.5 million was included in costs of homes sold, $0.6 million in costs of land sold and $2.8 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment were $53.2 million in the third quarter of 2016, compared to $39.4 million in the third quarter of 2015. The increase in profitability was primarily due to an increase in refinance volume and higher profit per transaction in the segment's mortgage and title operations.

Rialto

Operating earnings for the Rialto segment was $5.9 million in the third quarter of 2016 (which included a $0.1 million operating loss and an add back of $6.0 million of net loss attributable to noncontrolling interests). Operating earnings for the third quarter of 2015 were $9.0 million (which included $7.0 million of operating earnings and an add back of $2.0 million of net loss attributable to noncontrolling interests).

Revenues in this segment were $63.9 million in the third quarter of 2016, compared to $51.6 million in the third quarter of 2015. Revenues increased primarily due to an increase in Rialto Mortgage Finance ("RMF") securitization revenues due to improved pricing. Expenses in this segment were $62.3 million in the third quarter of 2016, compared to $53.3 million in the third quarter of 2015. Expenses increased primarily due to an increase in general and administrative expenses and an increase in securitization expenses related to RMF.

Rialto equity in earnings from unconsolidated entities was $6.0 million and $7.6 million in the third quarter of 2016 and 2015, respectively, related to Rialto's share of earnings from its real estate funds (the "Funds").

Rialto other income (expense), net, was ($7.6) million in the third quarter of 2016, compared to $1.2 million in the third quarter of 2015. The decrease in other income (expense), net, was primarily attributable to an increase in real estate owned ("REO") impairments and a decrease in net realized gains on the sale of REO and in rental and other income.

Lennar Multifamily

Operating earnings for the Lennar Multifamily segment were $2.6 million in the third quarter of 2016, primarily due to the segment's $8.0 million share of a gain related to the sale of an operating property by one of Lennar Multifamily's unconsolidated entities and management fee income, partially offset by general and administrative expenses. In the third quarter of 2015, the Lennar Multifamily segment had an operating loss of $3.0 million primarily due to general and administrative expenses, partially offset by management fee income and by the segment's $5.7 million share of a gain related to the sale of an operating property by one of Lennar Multifamily's unconsolidated entities.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $61.2 million, or 2.2% as a percentage of total revenues, in the third quarter of 2016, compared to $56.5 million, or 2.3% as a percentage of total revenues, in the third quarter of 2015. 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 ($2.7) million and $1.7 million in the third quarter of 2016 and 2015, respectively. Net loss attributable to noncontrolling interests during the third quarter of 2016 was primarily attributable to a net loss related to the FDIC's interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC, partially offset by net earnings related to the Lennar Homebuilding consolidated joint ventures. Net earnings attributable to noncontrolling interests during the third quarter of 2015 were primarily attributable to earnings related to the Lennar Homebuilding consolidated joint ventures, partially offset by a net loss related to the FDIC's interest in the portfolio of real estate loans.

NINE MONTHS ENDED AUGUST 31, 2016 COMPARED TO
NINE MONTHS ENDED AUGUST 31, 2015

Lennar Homebuilding

Revenues from home sales increased 16% in the nine months ended August 31, 2016 to $6.6 billion from $5.7 billion in the nine months ended August 31, 2015. Revenues were higher primarily due to a 10% increase in the number of home deliveries, excluding unconsolidated entities, and a 6% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 18,275 homes in the nine months ended August 31, 2016 from 16,604 homes in the nine months ended August 31, 2015. There was an increase in home deliveries in all of the Company's Homebuilding segments and Homebuilding Other, except in Homebuilding Houston. The decrease in home deliveries in Houston was primarily due to less demand in the higher priced communities driven by volatility in the energy sector. The average sales price of homes delivered increased to $363,000 in the nine months ended August 31, 2016 from $343,000 in the nine months ended August 31, 2015. Sales incentives offered to homebuyers were $22,000 per home delivered in the nine months ended August 31, 2016, or 5.7% as a percentage of home sales revenue, compared to $21,300 per home delivered in the nine months ended August 31, 2015, or 5.8% as a percentage of home sales revenue.

Gross margins on home sales were $1.5 billion, or 22.8%, in the nine months ended August 31, 2016, compared to $1.4 billion, or 23.7%, in the nine months ended August 31, 2015. Gross margin percentage on home sales decreased compared to the nine months ended August 31, 2015 primarily due to an increase in land costs, partially offset by an increase in the average sales price of homes delivered.

Selling, general and administrative expenses were $642.8 million in the nine months ended August 31, 2016, compared to $588.4 million in the nine months ended August 31, 2015. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.7% in the nine months ended August 31, 2016, from 10.3% in the nine months ended August 31, 2015, due to improved operating leverage as a result of an increase in home deliveries and benefits from the Company's focus on digital marketing.

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($24.7) million in the nine months ended August 31, 2016, compared to $48.7 million in the nine months ended August 31, 2015. In the nine months ended August 31, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of costs associated with the FivePoint combination and the Company's share of net operating losses associated with the new FivePoint unconsolidated entity. This was partially offset by $12.7 million of equity in earnings from one of the Company's unconsolidated entities primarily due to sales of homesites to third parties. In the nine months ended August 31, 2015, Lennar Homebuilding equity in earnings from unconsolidated entities included $64.5 million of equity in earnings from one of the Company's unconsolidated entities primarily due to sales of homesites and a commercial property to third parties and a gain on debt extinguishment, partially offset by the Company's share of net operating losses from various Lennar Homebuilding unconsolidated entities.

Lennar Homebuilding other income, net, totaled $46.4 million in the nine months ended August 31, 2016, compared to $10.3 million in the nine months ended August 31, 2015. In the nine months ended August 31, 2016, other income, net, included management fee income and a profit participation related to Lennar Homebuilding's strategic joint ventures and a gain on the sale of a clubhouse. In the nine months ended August 31, 2015, other income, net, included a $6.5 million gain on the sale of an operating property.

Lennar Homebuilding interest expense was $171.8 million in the nine months ended August 31, 2016 ($165.8 million was included in costs of homes sold, $2.7 million in costs of land sold and $3.3 million in other interest expense), compared to $154.6 million in the nine months ended August 31, 2015 ($142.3 million was included in costs of homes sold, $1.7 million in costs of land sold and $10.7 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment were $112.3 million in the nine months ended August 31, 2016, compared to $94.0 million in the nine months ended August 31, 2015. The increase in profitability was primarily due to higher profit per transaction in the segment's mortgage and title operations.

Rialto

Operating loss for the Rialto segment was $5.9 million in the nine months ended August 31, 2016 (which included a $16.5 million operating loss and an add back of $10.6 million of net loss attributable to noncontrolling interests). Operating earnings in the nine months ended August 31, 2015 were $21.2 million (which included $16.7 million of operating earnings and an add back of $4.5 million of net loss attributable to noncontrolling interests).

Revenues in this segment were $152.4 million in the nine months ended August 31, 2016, compared to $160.7 million in the nine months ended August 31, 2015. Revenues decreased primarily due to a decrease in RMF securitization revenues due to lower securitization volume in early 2016. Expenses in this segment were $155.4 million in the nine months ended August 31, 2016, compared to $161.6 million in the nine months ended August 31, 2015. Expenses decreased primarily due to a decrease in general and administrative expenses.

Rialto equity in earnings from unconsolidated entities was $14.3 million and $17.6 million in the nine months ended August 31, 2016 and 2015, respectively, related to Rialto's share of earnings from the Funds.

Rialto other income (expense), net, was ($27.9) million in the nine months ended August 31, 2016, compared to $28 thousand in the nine months ended August 31, 2015. The decrease in other income (expense), net, was primarily attributable to a $16.0 million write-off of uncollectible receivables related to a hospital, which was acquired through the resolution of one of Rialto's loans from a 2010 portfolio, and an increase in REO impairments and other expenses. The hospital is managed by a third-party management company.

Lennar Multifamily

Operating earnings for the Lennar Multifamily segment were $29.8 million in the nine months ended August 31, 2016, primarily due to the segment's $43.8 million share of gains related to the sales of three operating properties by Lennar Multifamily's unconsolidated entities, a gross profit of $5.2 million on a third-party land sale and management fee income, partially offset by general and administrative expenses. In the nine months ended August 31, 2015, the Lennar Multifamily segment had an operating loss of $17.4 million primarily due to general and administrative expenses, partially offset by management fee income, general contractor income, net, and by the segment's $5.7 million share of a gain related to the sale of an operating property by one of Lennar Multifamily's unconsolidated entities.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $164.6 million, or 2.2% as a percentage of total revenues, in the nine months ended August 31, 2016, compared to $150.4 million, or 2.3% as a percentage of total revenues, in the nine months ended August 31, 2015. As a percentage of total revenues, corporate general and administrative expenses improved due to increased operating leverage.

Noncontrolling Interests

Net earnings attributable to noncontrolling interests were $4.2 million and $5.2 million in the nine months ended August 31, 2016 and 2015, respectively, which were both primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures, partially offset by a net loss, related to the FDIC's interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC.

OTHER TRANSACTIONS

Debt Transactions

During the three and nine months ended August 31, 2016, holders converted approximately $175 million and $243 million aggregate principal amount, respectively, of the Company's 3.25% convertible senior notes due 2021 for approximately 7.5 million shares and 10.3 million shares, respectively, of Class A common stock.

In June 2016, the Company amended the credit agreement governing its unsecured revolving credit facility (the "Credit Facility") to increase the maximum borrowings from $1.6 billion to $1.8 billion, including a $318 million accordion feature, subject to additional commitments, with certain financial institutions. The maturity for $1.3 billion of the Credit Facility was extended from June 2019 to June 2020, with the remaining $160 million maturing in June 2018.

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 segment is a vertically integrated asset management platform focused on investing throughout the commercial real estate capital structure. Lennar's Multifamily segment is a nationwide 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 our belief regarding the homebuilding market and other markets in which we participate, and our belief regarding how we are positioned to take advantage of opportunities, or to avoid problems, in those markets and to advance the future growth of our businesses. 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 anticipated by the forward-looking statements. Important factors that could cause such differences include 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 Lennar Homebuilding and Lennar Multifamily businesses; a slowdown in the real estate markets across the nation, including a slowdown in the market for single family homes or the multifamily rental market; unfavorable losses in legal proceedings; decreased demand for our homes or Lennar Multifamily rental properties, and our inability to successfully sell our apartments; natural disasters or catastrophic events for which our insurance may not provide adequate coverage; our ability to successfully execute our strategies; a decline in the value of the land and home inventories we maintain or possible future write-downs of the carrying value of our real estate assets; the inability of the Rialto segment to profit from the investments it makes; the inability of Rialto to sell mortgages it originates into securitizations on favorable terms; reduced availability of mortgage financing or increased interest rates; conditions in the capital, credit and financial markets; 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, 2015. 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 Tuesday, September 20, 2016. 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 203-369-3299 and entering 5723593 as the confirmation number.

Of the total homes delivered listed above, 21 homes with a dollar value of $16.0 million and an average sales price of $762,000 represent home deliveries from unconsolidated entities for the three months ended August 31, 2016, compared to 4 home deliveries with a dollar value of $1.4 million and an average sales price of $354,000 for the three months ended August 31, 2015.

Of the total new orders listed above, 4 homes with a dollar value of $1.6 million and an average sales price of $396,000 represent new orders from unconsolidated entities for the three months ended August 31, 2016, compared to 29 new orders with a dollar value of $18.0 million and an average sales price of $621,000 for the three months ended August 31, 2015.

Of the total homes delivered listed above, 60 homes with a dollar value of $39.7 million and an average sales price of $662,000 represent home deliveries from unconsolidated entities for the nine months ended August 31, 2016, compared to 31 home deliveries with a dollar value of $19.1 million and an average sales price of $617,000 for the nine months ended August 31, 2015.

Of the total new orders listed above, 28 homes with a dollar value of $15.7 million and an average sales price of $561,000 represent new orders from unconsolidated entities for the nine months ended August 31, 2016, compared to 79 new orders with a dollar value of $48.0 million and an average sales price of $608,000 for the nine months ended August 31, 2015.

Of the total homes in backlog listed above, 57 homes with a backlog dollar value of $38.3 million and an average sales price of $673,000 represent the backlog from unconsolidated entities at August 31, 2016, compared to 115 homes with a backlog dollar value of $68.7 million and an average sales price of $598,000 at August 31, 2015.

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

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

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SOURCE Lennar Corporation