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Bloomberg is reporting Lennar
to Post Quarterly Loss After Land Writedowns.
Jan. 2 (Bloomberg) -- Lennar Corp., the fourth-largest U.S. homebuilder,
had its first quarterly loss in at least a decade after it wrote down property
investments and relinquished part of its stake in a company that controls
15,000 acres in southern California.
The loss in the fiscal fourth quarter was 88 cents to $1.28 a share after
a pretax charge of as much as $500 million, Miami-based Lennar said today
in a statement. Quarterly profit was $3.54 a share a year earlier.
"Market conditions continued to weaken during the fourth quarter and we
have not yet seen tangible evidence of a market recovery," Chief Executive
Officer Stuart Miller said in the statement.
Lennar said it's taking the charge to write down land it doesn't intend
to purchase. It's also writing off deposits and pre-acquisition costs for
land it has under option.
Lennar will report fourth-quarter earnings on Jan. 17. In preliminary results
released today, Lennar said new home orders slid 6 percent in the quarter
ended Nov. 30 to 9,606 and declined 3 percent to 42,212 for fiscal 2006.
The backlog of orders at Nov. 30 was valued at $4 billion, down from $6.9
billion a year earlier.
Fourth-quarter profit before the charges will be 70 cents to 75 cents a
share and gross margins on home sales will be "materially lower" for the
quarter and the fiscal year, Lennar said.
Lennar vs. Toll Brothers
Miller's statement "Market conditions continued to weaken during the fourth
quarter and we have not yet seen tangible evidence of a market recovery" sure
seems like a far cry from Robert
Toll's Proclamation that things are dancing above the bottom:
"We've got an indication and it seems as though we are no longer bouncing
along on the bottom as we had been in probably our most serious market, the
northern Virginia, Maryland, DC suburbs and that we appear to be dancing a
little bit above the bottom right now so who knows."
It will be interesting to see if Toll lays an egg in its next report as well.
In the meantime inquiring minds just might be wondering about the expression "To
Lay an Egg". Here goes:
History of Warnings at Lennar
CNNMoney is reporting Lennar
warns on earnings.
Home builder sees no sign of market recovery, cuts fourth quarter earnings
target again; write downs and asset revaluations will cause net loss.
The company says it now expects to earn between 70 to 75 cents a share in
the fiscal fourth quarter, completed Nov. 30, excluding valuation adjustments
and write-offs. Analysts surveyed by Briefing.com had forecast EPS of $1.07.
The company had already issued a warnings on the period in late September,
when it said it expected to earn $1.00 to $1.30, rather than the $1.60 a
share that was the forecast at that time.
Including those value adjustments and write-offs, Lennar said it will post
a net loss per share between 88 cents to $1.28, compared to the net income
of $3.54 a share a year earlier.
"While we are hopeful that low interest rates, strong employment and a healthy
economy will help stimulate a recovery in 2007, we have continued to focus
on strengthening our balance sheet by delivering our backlog, selling inventory
aggressively and renegotiating our land positions," said a statement from
CEO Stuart Miller.
Lennar could not even meet its previously lowered guidance of $1.00-$1.30.
Ignoring writeoffs, Lennar only expects to post .70-.75 for the quarter. There
is no realistic way to spin this as positive but that did not stop Lennar from
trying.
Strategic Partnership
Consider this press release issued today by Lennar: Lennar
and LNR Expand Their Strategic LandSource Partnership to Include MacFarlane
Partners' Venture and CalPERS.
MIAMI, Jan. 2 /PRNewswire-FirstCall/ -- Lennar Corporation (NYSE: LEN and
LEN.B), one of the nation's largest homebuilders, and LNR Property Corporation
("LNR"), one of the nation's leading real estate, finance, management and
development companies, announced today that they have reached an agreement
to admit a new partner into their existing strategic joint venture, LandSource
Communities Development LLC ("LandSource"). The new partner is MW Housing
Partners, which is co-managed by MacFarlane Partners and includes the California
Public Employees' Retirement System ("CalPERS").
As of July 1, 2006, LandSource had assets with a book value of approximately
$1.3 billion, with its primary investment being The Newhall Land and Farming
Company ("Newhall"), which owns 15,000 acres of land in the rapidly growing
Santa Clarita Valley, approximately 30 miles north of downtown Los Angeles.
With 23,000 residential homesites, Newhall owns some of the last remaining
large, undeveloped, but entitled, land in the greater Los Angeles area. It
also owns 700 acres of commercial land and other property in the Santa Clarita
Valley. Under the terms of the agreement, the LandSource assets are valued
at approximately $2.6 billion, with a potential increase adjustment to that
value of over $600 million.
The agreement also provides for a new non-recourse debt facility. In exchange
for a 62% interest in LandSource, the MW Housing venture will contribute
cash and property with a combined value of approximately $900 million. The
property, which is part of an existing land bank relationship between MW
Housing Partners and Lennar, is being contributed based on today's fair market
value. Lennar will continue to have options to purchase those homesites at
the market price at the time of the exercise.
Commenting on the transaction, Stuart Miller, President and CEO of Lennar,
and Jeffrey Krasnoff, President and CEO of LNR, issued a joint statement, "We
are very pleased to expand our partnership to include MacFarlane Partners
and CalPERS, which will add their strong financial resources and expertise
in creating one of the nation's premier land companies. LandSource has created
value through the continued development of Newhall and growing its land portfolio
in targeted high growth markets. Today's announcement is a validation of
this value creation, as we combine our respective residential and commercial
expertise with the collective expertise and capital resources of our new
partner. LandSource, building on the unique talent of our Newhall team in
mixed use development, will become a new strategic platform for opportunistic
land acquisition and value creation."
"We are excited to be investing in such prime property in Los Angeles, a
market that we have favored for its long-term growth prospects," said Victor
B. MacFarlane, founder and managing principal of MacFarlane Partners. "This
is a once-in-a-lifetime opportunity that few pension managers and investors
have the resources and the capabilities to participate in thanks in large
part to the flexibility and vision of our long time partner, CalPERS."
Once in a lifetime opportunity?
If this really is a "once in a lifetime opportunity" for CalPERS then why
is Lennar dumping it? Ramsey Su on Silicon investor had these comments:
Nov 05 qtr, LEN earnings - 3.54
Nov 06 qtr, LEN earnings guidance - .70 to .75
Nov 05 qtr deliveries 14,403
Nov 06 qtr deliveries 14,006
It is quite obvious what happened to the margins of LEN just to keep that
level of deliveries.
Land in Southern Calif, close to the major cities, is indeed in short supply.
If you look at the homebuilders' profit margins during the last couple of
boom years, California had always been a big, if not the biggest, contributor.
One may argue that LEN needed the cash so badly that they have to give up
on a prized possession? I bet you LEN can't give away a similar parcel in
Texas or South Florida right now.
Of course, the attention tomorrow would be focused on this "fantastic" land
deal and not the warning.
If Lennar entered this deal because they had to (they needed the cash) not
because they wanted to, just what does that say about their strategic planning?
Heck, what do these repeated warning for the same quarter suggest? Even if
Lennar felt they had to unload the land, that does not necessarily mean that
CalPERS got a good deal. It all depends on what happens to land prices headed
forward. Land prices fell 18 straight years in Japan but no one seems to think
they can fall even as much as 6 straight years here.
Defective Homes
Mike Morgan at Morgan Florida sent
me an update last week about defective homes and it fits in nicely today.
I've received a few questions about our website www.Lennar-Homes.info,
and why investors will be interested in the issues surrounding Defective
Homes. The answer is quite simple, in that one of the negative residuals
to the housing boom is Defective Homes and the cost to the builders. We have
only concentrated on Lennar to date, but that will be expanded in Q1 to include
two other public builders, and by the end of the year we anticipate a group
of comprehensive websites covering all public builders.
This headache is only just starting for the builders. Take one look at what
is going on in Florida, New Jersey, and North Carolina, and you will see
that Housing Lemon Laws are just around the corner. The following cases are
all currently active.
The Ryland case will be interesting, and devastating to the industry if
they lose. In a report commissioned by State Farm Insurance, it appears the
insurance industry is already making subrogation claims against Ryland, win
or lose in the class action. These claims average about $20,000 each. If
the entire 6,000 homes falls into this group, we're talking about $120M.
Even if Ryland wins the class action, how do they explain away the problems
they face with the insurance industry, when it is clear the insurance companies
have already made up their minds that they are not going to foot the bill?
In regard to our Lennar website. It is only in the initial stages, and we
will be expanding as soon as our non-profit status is finalized.
Mike has informed me that the legal paperwork regarding non-profit status
has been sent in and that he hopes to be ready to rock and roll with more "Defective
Home" ideas soon, regardless of builder. If you are personally involved in
a dispute or major problem with a home builder please Email
Mike Morgan at Morgan Florida.
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