Morningstar | Lennar Remains on Track to Deliver Over 50,000 Homes in 2019
We believe favorable demographics and the realization of pent-up demand will drive a continued gradual housing recovery through the mid-2020s, with housing starts reaching over 1.4 million units. We expect first-time buyers will be a key driver of future housing demand, and Lennar is well positioned to capture these potential buyers. In addition, the company’s active-adult offering should benefit from the aging baby boomer population. Lennar controls an ample land supply, which affords the company the ability to meet future demand while focusing on improving cash flows and maintaining a strong balance sheet. Given its plentiful lot supply, the company has begun to shift to a more conservative land acquisition strategy, which seeks to reduce the amount of capital tied up in land. We think a lighter land strategy should help the company realize better returns on invested capital and cash flows over the business cycle. Lennar’s investment in ancillary businesses distinguishes the company from many other homebuilders. Lennar has had past success with such investments, and we think its current lineup of ancillary businesses--Rialto Mortgage Finance (which is now part of the financial services division) and Lennar Multifamily--diversifies the business and has the potential to create shareholder value down the road. In November 2018, Lennar sold its Rialto investment and asset management business for $340 million. The company began its multifamily strategy as a merchant builder that builds, stabilizes, and sells rental properties. Through the creation of the Lennar Multifamily Venture, the company will use internal and third-party capital to build and hold its income-producing rental assets. We think this strategy will reduce the company's cyclicality and strengthen cash flows as the business matures.In February 2018, Lennar completed its merger with CalAtlantic, the nation’s fourth-largest homebuilder. The deal was valued at $9.3 billion, and the combined entity surpassed D.R. Horton as the largest homebuilder (by revenue) in the United States. Based on our analysis, the Lennar-CalAtlantic has created shareholder value.Lennar is a homebuilder in the United States, an originator of residential and commercial mortgage loans, a provider of title insurance and closing services and a developer of multifamily rental properties. The company's homebuilding operations include the construction and sale of single-family attached and detached homes as well as the purchase, development and sale of residential land directly and through unconsolidated entities in which it has investments. The company operates under the Lennar brand name. The company creates and participates in joint ventures that acquire and develop land for its homebuilding operations, for sale to third parties or for use in the ventures' own homebuilding operations.
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