The operator introduces the conference call for Lennar's third quarter earnings and reminds participants that the call is being recorded. David Collins then reads a forward-looking statement, cautioning that actual results may differ from estimates due to various factors. Stuart Miller, Lennar's Executive Chairman and Co-CEO, then begins the call and introduces other members of the company's leadership team.

The company will provide an overview of their operations, financial highlights, and limited guidance for the upcoming year. The economic environment for homebuilders remains positive, with strong demand and lower interest rates increasing affordability and access to homeownership. Inflation and interest rates have previously limited demand, but lower rates are likely to boost consumer confidence and drive demand for both new and existing homes.

The strong housing market is driven by consumers who are employed and confident in their future employment and compensation. Lower rates and controlled inflation will increase affordability and lead to a stronger demand for housing. However, the supply of homes remains constrained due to years of underproduction and restrictive land permitting and construction costs. Mayors and governors are becoming aware of the housing shortage and are taking action to address it.

The increase in supply and access to homeownership has a positive impact on upward mobility and generational wealth building. Immigration also plays a role in the housing landscape, as it both expands the labor pool and increases demand for housing. Despite potential challenges, the future looks positive for the homebuilding business. The company remains focused on volume and is nearing the completion of a five-year plan to migrate to a more efficient operating platform. This has been achieved while maintaining consistent growth and profitability.

The company's focus on delivering consistent volume and cash flow while transitioning to an asset-light model has been key to their business transformation. This has led to improved operating efficiencies, consistent cash flow and bottom-line results, and successful land banking partnerships. Since 2020, the company has reduced their land supply, increased their controlled homesites, and improved their inventory turn. Despite a 53% growth in deliveries, their total owned inventory has remained flat and their return on inventory has increased. They have also made significant progress in paying down debt, repurchasing shares, and distributing dividends.

Lennar has been able to significantly decrease its debt to total capital ratio and increase its cash reserves through consistent adherence to its growth strategy, attracting capital with its high volume, and strategically purchasing and developing land. The company's third quarter results were strong, with increased starts, new orders, and deliveries, but some communities sold out faster than expected and others faced delays, leading to a decrease in community count and a slight impact on margins.

In the third quarter, the company expects to deliver a 10% increase in home deliveries compared to 2023, and a 10% growth rate in 2025. Sales incentives rose to 10% due to high interest rates, but were offset by reduced construction costs and customer acquisition costs. Gross margin was lower than expected at 22.5%, but net margin was higher at 15.8% due to operating efficiencies. The company expects gross margin to remain flat in the fourth quarter and has used margin as a point of adjustment to maintain consistent production. They have also repurchased 3.4 million shares of stock and ended the quarter with $4 billion in cash and a 7.6% debt to total capital ratio.

The company has been successful in its operations and is well-positioned for the future. They have implemented a land acquisition strategy to purchase land as needed and have attracted capital to support this strategy. They have also reevaluated the concept of land risk and worked with private equity partners to create land assets with homogeneous risk profiles. This has allowed them to become more asset-light and profitable.

The assets of the company are managed through a platform called The Hopper, which acquires, holds, and develops land for homes to be built. This process has become efficient and effective for the company, and has also provided insights into the value of these structures. The use of term-based risk has attracted more capital and reduced the cost of capital. It also allows for easier M&A transactions and promotes growth strategies without tying up corporate capital. Additionally, it facilitates organic growth in existing and new markets without impacting the balance sheet.

The speaker discusses their relationship with TPG Angelo Gordon and Ryan Mollett and how it has helped them grow and learn. They also mention their asset-light land-light strategy and the upcoming spin-off of a new company, Millrose Properties Inc., which will function as a REIT and acquire and develop land for Lennar and other homebuilders. The details of the spin-off will be outlined in an upcoming SEC registration statement and Lennar will contribute their undeveloped and partially developed land to Millrose in exchange for stock. This stock will be distributed to Lennar shareholders as a dividend and reduce inventory on Lennar's books.

The paragraph discusses the details of the spin-off of Millrose from Lennar, including the use of capital within Millrose for future land options, Lennar's role as a contractor, and the potential for Millrose to enter into land transactions with other builders. It also mentions the expected value of land and cash to be contributed by Lennar and the independence of Millrose as a company with its own sources of financing.

Lennar's spin-off company, Millrose, will have option purchase arrangements to purchase back finished homesites on a just-in-time basis and receive option fees and return of invested capital. This will make Millrose a self-renewing permanent source of land acquisition and development capital for Lennar and other homebuilders. Lennar is limited in what they can say until their S-11 SEC registration statement is made public, but they are excited for the planned spin-off. Lennar is focused on driving consistent volume and growth, adjusting community count, and completing their financial and operational restructure. They are nearing the end of a five-year marathon to restructure their operating platform for long-term success and meet the housing shortage in the market.

The company is well-prepared for an increase in demand for affordable housing as interest rates decrease. They have a strong balance sheet and plan to focus on their manufacturing model and land partnerships for growth. They will also continue to prioritize just-in-time homesite delivery and an asset-light balance sheet. The company plans to return capital to shareholders through dividends and stock repurchases while pursuing strategic growth. They expect to see continued growth and strong performance in the years ahead and anticipate 22,500 to 23,000 closings next quarter and 80,500 to 81,000 homes delivered this year. They also plan to repurchase over $2 billion of stock this year.

The speaker, Jon Jaffe, discusses Lennar's third quarter performance and their focus on improving sales pace through targeted marketing and incentives. He also mentions the impact of higher interest rates and inflation on consumer confidence and how Lennar has adjusted their strategies to address these challenges. The company's sales pace of 5.5 homes per community per month matched their start pace of 5.4.

In the third quarter, the company achieved its desired sales pace, resulting in an average of just over 1 unsold completed home per community. This predictability allows for planning and a steady production pace, leading to improvements in construction costs and cycle time. The company's manufacturing approach and builder-of-choice strategy have resulted in a 6% decrease in construction costs and a 23% decrease in cycle time compared to the previous year. The company also continued to successfully execute its land-light strategy, with 82% of homesites acquired in the quarter being finished homesites purchased from strategic land developers and partners.

During the third quarter, the company acquired 15,000 homesites for $800 million in land acquisition and $650 million in land development. This focus on being asset-light resulted in a decrease in owned homesites and an increase in controlled homesite percentage. The company also saw improvements in inventory churn and execution of operating strategies. The use of new technology-driven tools and the commitment of associates were key factors in managing fluctuations in interest rates and inflation. The Financial Services segment had operating earnings of $144 million, which were consistent with the previous year.

The company had lower lock volume and net secondary margins in their mortgage business, but this was offset by higher delivery volume and lower costs in their title business. Their Multifamily segment had operating earnings of $79 million, mostly from the gain on sale of assets in their LMV Fund I. They expect to sell the remaining assets in the fourth quarter. The company also had a $90 million write-down of non-core assets in line with their asset-light strategy. They ended the quarter with $4 billion in cash and no borrowings, showing progress towards their goal of becoming land-light.

The company's years owned and homesites controlled have improved, with a strong portfolio of 456,000 homesites. They have a manufacturing model of buying land on a just-in-time basis, which is less capital intensive. The company's inventory turn and return on inventory have also increased. They started 20,200 homes and ended with 40,000 in inventory, including 1,750 completed unsold homes. The company's next debt maturity is not until May 2025.

In the fourth quarter, the company expects new orders to increase by 10% compared to the previous year, with a 10-12% increase in community count. Deliveries are projected to be between 22,500 to 23,000 homes with an average sales price of $425,000. Gross margins are expected to be flat and SG&A is estimated to be between 6.7% to 6.8%. The company also anticipates generating earnings of $25 million from homebuilding joint venture land sales and other categories. These estimates are subject to market conditions.

The speaker thanks the company for providing detailed information about their financial services and predicts that the company will have a breakeven in their Multifamily business and a loss in their Lennar Other division. They also mention their tax rate, share count, and EPS range. The speaker also mentions the company's plans for share repurchases and expresses confidence in their cash flow generation. They then ask a question about the company's structure and fees for their Millrose business.

Stuart Miller, the manufacturer and builder, is discussing the impact of the new land banking structure on their margins. He explains that the structure will be similar to their current ones, with the main difference being the use of permanent capital. He expects the impact on margins to be relatively small, as they have already absorbed option costs and benefited from efficiencies in managing land and their business overall. He cannot provide specific details on how the offsets will happen, but believes the impact will be minimal. Alan Ratner acknowledges this and looks forward to seeing how it unfolds.

The speaker addresses the issue of gross margins and explains that rates were high for most of the quarter, affecting affordability and consumer confidence. The company's reduced cycle times and slower community growth also contributed to the revised outlook for gross margins.

Lennar is focused on maintaining high volume growth, even during times of high interest rates and low consumer confidence. This is part of their strategy to prepare for the future and their restructuring plans. While they are guiding for 10% volume growth next year, they are also considering the long-term growth rate for the company. They have noticed that others in the industry have moderated their long-term targets to a 5% to 10% range, but Lennar is still determining the proper long-term growth rate for their company. This may depend on factors such as national housing starts and mortgage rates.

Stuart Miller, CEO of Lennar Corporation, explains that the company is currently aiming for a 10% steady state growth rate, which is facilitated by their asset-light model and strategic new market growth. This aligns with the need for increased housing supply in the market, as interest rates decrease and demand for homes rises. In terms of operating margins, the company has made a trade-off between volume and margin, which may be of interest to some investors.

The speaker is discussing the company's operating margin and how it has been affected by their transition to an asset-light approach. They mention that their operating margin is expected to be around 13% this year, which is lower than some of their competitors. The speaker believes that their operating margin will improve as they continue to grow and become more efficient. A question is asked about the long-term outlook for their operating profitability, to which the speaker responds that they believe it will continue to grow. The next question is from a different person, who thanks the speakers and asks their own question.

Stuart Miller and Jon discussed the strategic shift and operational improvements that are expected to increase inventory turns and generate more cash flow for the company. Stuart mentioned that these improvements are being implemented in all 40 divisions, but it will take time to see significant results. Diane and Susan also mentioned that the goal is for cash flow generation to equal net earnings, and the company plans on using excess cash for debt reduction and shareholder returns. The company currently has $4 billion in cash and will consider the amount of cash needed for future operations and investments.

In response to investor and analyst questions about the amount of cash the company is holding, Stuart Miller explains that it is being held as "safety stock" while they work on finalizing the configuration of Millrose. He assures investors that the cash is not needed for operations, but is necessary for strategic considerations. In regards to the land spin, Miller remains limited in what he can disclose, but mentions a potential $6 billion to $8 billion of land and cash involved.

Stuart Miller, CEO of Lennar, clarifies that the cash component of the company's Millrose spin-off will not change and is still estimated to be between $6-8 billion. The exact numbers will depend on the constantly changing assets being contributed to Millrose. Miller also mentions a strategic component that cannot be discussed yet. There will be limited personnel movement and any impact on Lennar's SG&A will be due to efficiency, not personnel migration.

During a conference call, Michael Rehaut asks for clarification on the exchange of assets for Millrose stock in the upcoming deal. He also asks about the decrease in gross margin from last quarter to this quarter. Stuart Miller explains that the change in margin is due to interest rates staying high, consumer confidence decreasing, and changes in community count. He also mentions that the company is focusing on volume growth and using margin as a shock absorber.

The company's focus on efficiency and cost-cutting measures has resulted in strong control of SG&A expenses. They have implemented changes in their relationship with realtors in order to reduce unnecessary costs and make homes more affordable for customers. This aligns with their goal of creating a healthier housing market.

The speaker discusses how their company has been able to maintain production and offer lower-priced homes through a robust digital marketing program. They have also been working with realtors to create plans that work for their clients while also trying to bring down the cost of homes. The speaker also mentions that the downpayment is a hurdle for customers looking to buy a first home and that there are proposals for downpayment assistance, but there needs to be a balance between supply and demand.

Stuart Miller, CEO of a housing company, is invigorated by the fact that the national narrative is starting to reflect the discussions he has been having with mayors and governors about building a healthier housing market. While the nuanced programs are not yet perfected, the discussion is a positive step for the housing business. In response to a question about SG&A, Miller explains that they have not seen a reduction in traffic despite pulling back on brokers. They have been focusing on their digital marketing program and have seen a decrease in realtor costs.

The speaker discusses how the addition of a cost may not necessarily lead to an increase in pricing power and how they are trying to reduce costs in order to sell at a lower price while still maintaining a good margin. They also mention the challenges of balancing realtor engagement and cost reduction. The speaker also briefly touches on the pros and cons of a REIT structure for the spin and why private landbank companies may not use this structure.

The speaker states that they cannot provide information on a certain topic until the filing of the S-11. They compare the situation to a book with each chapter being worth the wait. They thank the questioner and end the call, promising to update on their progress at the end of the year.

This summary was generated with AI and may contain some inaccuracies.