LENNAR CORP /NEW/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Item 1 of this Report and our audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K, for our fiscal year ended November 30, 2020. Some of the statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q, are "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “intend,” “objective,” “plan,” “predict,” “projection,” “seek,” “strategy,” “target,” “will” or other words of similar meaning. Forward-looking statements contained herein may include opinions or beliefs regarding market conditions and similar matters. In many instances, those opinions and beliefs are based upon general observations by members of our management, anecdotal evidence and our experience in the conduct of our businesses, without specific investigation or analyses. Therefore, while they reflect our view of the industries and markets in which we are involved, they should not be viewed as reflecting verifiable views or views that are necessarily shared by all who are involved in those industries or markets. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements. The most important factors that could cause actual results to differ materially from those anticipated by our forward-looking statements include, but are not limited to: the potential negative impact to our business of the ongoing coronavirus (“COVID-19”) pandemic, the duration, impact and severity of which is highly uncertain; increases in operating costs, including costs related to construction materials, labor, real estate taxes and insurance, and our inability to manage our cost structure, both in our Homebuilding and Multifamily businesses; an extended slowdown in the real estate markets across the nation, including a slowdown in the market for single family homes or the multifamily rental market; reduced availability of mortgage financing or increased interest rates; our inability to successfully execute our strategies, including our land lighter strategy and our strategy to monetize non-core assets; changes in general economic and financial conditions that reduce demand for our products and services, lower our profit margins or reduce our access to credit; our inability to acquire land at anticipated prices; the possibility that we will incur nonrecurring costs that affect earnings in one or more reporting periods; decreased demand for our homes or Multifamily rental properties; the possibility that the benefit from our increasing use of technology will not justify its cost; increased competition for home sales from other sellers of new and resale homes; our inability to pay down debt; whether government actions or other factors force us to terminate our program of repurchasing our stock; a decline in the value of our land inventories and resulting write-downs of the carrying value of our real estate assets; the failure of the participants in various joint ventures to honor their commitments; difficulty obtaining land-use entitlements or construction financing; natural disasters and other unforeseen events for which our insurance does not provide adequate coverage; new laws or regulatory changes that adversely affect the profitability of our businesses; our inability to refinance our debt on terms that are acceptable to us; and changes in accounting conventions that adversely affect our reported earnings. Please see our Form 10-K for the fiscal year ended November 30, 2020 and our other filings with the SEC for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation, other than those imposed by securities laws, to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events. Outlook The housing market remains strong. The underproduction of homes for the past 10 years has created a housing shortage that, combined with strong demand, has pushed home prices higher. Even though interest rates have slightly increased, they are still lower than they were a year ago, and affordability remains strong, with many American families having fortified savings as vacations and recreational activities have been canceled or postponed, and stimulus money from the government continues to fill the remaining gaps. The dream of homeownership is an essential aspiration of the American population, and the seemingly imminent resolution of the pandemic is not slowing the growing demand. Our measured growth strategy in the current market is to focus on selling homes when we begin construction, while being patient with longer-term sales. This enables price appreciation to offset future cost escalations to maximize margin. We believe the virtue of this strategy has been borne out by our 25.0% first quarter gross margin versus 20.5% last year. We are also focused on managing the supply chain and production. In the first quarter, lumber costs increased about $2,300 per home both year over year and sequentially. These cost increases were more than offset by other cost decreases year-over-year, but not sequentially, resulting in an overall year-over-year cost decline and sequential cost increase. We expect to see additional increases in the cost of lumber throughout the year. 24 While community count at the end of the first quarter was down from the prior year, we are still on track to increase our active communities by about 10% in fiscal 2021. We anticipate that we will replace our existing communities with larger, higher volume communities, which allows us to better leverage our overhead, improve our bottom line, and increase our returns and cash flow. We expect to deliver between 62,000 and 64,000 homes in 2021 and with gross margin guidance of about 25.0% for the year. We have remained focused on our optioned versus owned land strategy and believe we are in an excellent position to achieve our target of 50% owned land and 50% land controlled through options or similar agreements by the end of 2021. At the end of the first quarter, the portion of land we controlled through options or similar agreements was 45%, up from 39% at the start of the fiscal year. We ended the first quarter with a 3.4 years supply of land owned, compared to a 4.0 years supply of land owned at the same time last year. Among other things, this has enabled us to reduce debt, such that our first quarter homebuilding debt-to-total capital ratio improved to 24.0%, down from 33.6% in the prior year. Consistent with our land-light strategy, and a focus on increased profitability and returns, we expanded our business through the creation of a single-family rental platform that will facilitate a better time delivery of our homes with reduced cycle times. Our Upward America Venture will make our homes available for rent, with a portion of the homes available with a rent to own option. The venture will permit families and individuals across the country to live in brand-new homes at an attainable price point without putting up a down payment. The venture will initially be capitalized with a total equity commitment of $1.25 billion, and will be positioned to acquire over $4.0 billion of new single family homes and townhomes. Our technology initiatives, which are focused on building solutions to important challenges that are adjacent to our core Homebuilding and Financial Services businesses, have contributed meaningfully to our readiness for current economic and structural shifts while helping to improve our core business and drive our SG&A to a historic first quarter low of 8.4%. Opendoor, one of our many technology investments, began trading as a public company in December 2020 and we recorded a $470 million unrealized gain as a result. While this gain is extraordinary relative to our operating platform, it is not a one-time event for the Company. We have invested in a number of high-quality technology businesses, including Doma, previously known as States Title, and Hippo Home Insurance, both of which have announced agreements to merge with publicly traded special purpose acquisition companies, and SunStreet solar power platform, which we have agreed to sell to Sunnova Energy International, Inc. in exchange for Sunnova stock. We are conservatively estimating an economic gain in excess of $1 billion from these three transactions. We have continued to drive and grow our ancillary business divisions, and they continue to mature, but we think being simpler would enable us better to focus on our core business units. We continue to work on strategies to better position our Multifamily platform, our new single-family home for rent platform, our land program, our commercial mortgage business and our growing technology investments platform. We believe the best way to enhance corporate value is to have Lennar standalone as a pure-play homebuilder and financial services company, and to enable these blue-chip businesses to thrive and excel independently. Therefore, we are working to construct a tax-free spin-off of all or parts of these businesses in a unified company. With a solid balance sheet, leading positions in almost all of our homebuilding markets and continued execution of our core operating strategies, we believe that we have never been better positioned financially, organizationally, culturally, and technologically, to thrive and grow in this evolving and exciting housing market. (1) Results of Operations Overview We historically have experienced, and expect to continue to experience, variability in quarterly results. Our results of operations for the three months ended February 28, 2021 are not necessarily indicative of the results to be expected for the full year. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second and third fiscal quarters and increased deliveries in the second half of our fiscal year. However, a variety of factors can alter seasonal patterns. Our net earnings attributable to Lennar were $1.0 billion, or $3.20 per diluted share ($3.20 per basic share), in the first quarter of 2021, compared to net earnings attributable to Lennar of $398.5 million, or $1.27 per diluted share ($1.27 per basic share), in the first quarter of 2020. 25 Financial information relating to our operations was as follows: Three Months Ended February 28, 2021 (In thousands) Homebuilding Financial Services Multifamily Lennar Other Corporate Total Revenues: Sales of homes $ 4,890,914 — — — — 4,890,914 Sales of land 47,643 — — — — 47,643 Other revenues 4,499 244,069 131,443 6,900 — 386,911 Total revenues 4,943,056 244,069 131,443 6,900 — 5,325,468 Costs and expenses: Costs of homes sold 3,666,862 — — — — 3,666,862 Costs of land sold 41,188 — — — — 41,188 Selling, general and administrative expenses 410,236 — — — — 410,236 Other costs and expenses — 97,862 131,049 4,252 — 233,163 Total costs and expenses 4,118,286 97,862 131,049 4,252 — 4,351,449 Equity in earnings (loss) from unconsolidated entities, Multifamily other gain and Lennar Other other income (expense), net (4,565) — (1,268) (1,047) — (6,880) Other income, net 12,975 — — — — 12,975 Lennar Other unrealized gain — — — 469,745 — 469,745 Operating earnings (loss) $ 833,180 146,207 (874) 471,346 — 1,449,859 Corporate general and administrative expenses — — — — 110,531 110,531 Charitable foundation contribution — — — — 12,314 12,314 Earnings (loss) before income taxes $ 833,180 146,207 (874) 471,346 (122,845) 1,327,014 Three Months Ended February 29, 2020 (In thousands) Homebuilding Financial Services Multifamily Lennar Other Corporate Total Revenues: Sales of homes $ 4,140,767 — — — — 4,140,767 Sales of land 26,867 — — — — 26,867 Other revenues 4,482 198,661 132,617 1,943 — 337,703 Total revenues 4,172,116 198,661 132,617 1,943 — 4,505,337 Costs and expenses: Costs of homes sold 3,291,779 — — — — 3,291,779 Costs of land sold 27,135 — — — — 27,135 Selling, general and administrative expenses 378,892 — — — — 378,892 Other costs and expenses — 151,344 137,348 2,574 — 291,266 Total costs and expenses 3,697,806 151,344 137,348 2,574 — 3,989,072 Equity in earnings (loss) from unconsolidated entities, Multifamily other gain and Lennar Other other income (expense), net (4,546) — 6,516 1,530 — 3,500 Other expense, net (9,366) — — — — (9,366) Operating earnings $ 460,398 47,317 1,785 899 — 510,399 Corporate general and administrative expenses — — — — 82,634 82,634 Charitable foundation contribution — — — — 4,213 4,213 Earnings (loss) before income taxes $ 460,398 47,317 1,785 899 (86,847) 423,552 Three Months Ended February 28, 2021 versus Three Months Ended February 29, 2020 Revenues from home sales increased 18% in the first quarter of 2021 to $4.9 billion from $4.1 billion in the first quarter of 2020. Revenues were higher primarily due to a 19% increase in the number of home deliveries, excluding unconsolidated entities. New home deliveries, excluding unconsolidated entities, increased to 12,302 homes in the first quarter of 2021 from 10,313 homes in the first quarter of 2020. The average sales price of homes delivered was $398,000 in the first quarter of 2021, compared to $402,000 in the first quarter of 2020. Gross margin on home sales were $1.2 billion, or 25.0%, in the first quarter of 2021, compared to $849.0 million, or 20.5%, in the first quarter of 2020. The gross margin percentage on home sales increased primarily driven by pricing power as we have been able to increase revenue per square foot, as well as lower interest expense per home delivered as result of 26 paydowns of senior notes in the past two years and lower field expense as a percentage of home sales revenue due to increased volume. Selling, general and administrative expenses were $410.2 million in the first quarter of 2021, compared to $378.9 million in the first quarter of 2020. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.4% in the first quarter of 2021, from 9.2% in the first quarter of 2020. This was the lowest percentage for a first quarter in our history primarily due to our focus on improving our operating leverage combined with the benefits of our technology efforts. Operating earnings for our Financial Services segment were $146.2 million in the first quarter of 2021, compared to $58.2 million in the first quarter of 2020 (which included $47.3 million of operating earnings and an add back of $10.9 million of net loss attributable to noncontrolling interests). Operating earnings increased primarily due to the improvement in our mortgage business as a result of an increase in volume and margin and improvement in our title business as a result of an increase in volume. Operating loss for our Multifamily segment was $0.9 million in the first quarter of 2021, compared to operating earnings of $1.8 million in the first quarter of 2020. Operating earnings for our Lennar Other segment were $471.3 million in the first quarter of 2021, compared to $0.9 million in the first quarter of 2020. In the first quarter of 2021, we recognized a gain of $469.7 million related to a strategic investment in Opendoor, which began trading on the Nasdaq stock market in December 2020. The gain relates to the mark to market of our share holdings in the public entity. Two other technology driven companies in which we have investments have announced agreements to merge with publicly traded special purpose acquisition companies. Homebuilding Segments At February 28, 2021, our reportable Homebuilding segments and Homebuilding Other are outlined in Note 2 of the Notes to Condensed Consolidated Financial Statements. The following tables set forth selected financial and operational information related to our homebuilding operations for the periods indicated: Selected Financial and Operational Data Three Months Ended February 28, 2021 Gross Margins Operating Earnings (Loss) ($ in thousands) Sales of Homes Revenue Costs of Sales of Homes Gross Margin % Net Margins on Sales of Homes (1) Gross Margins (Loss) on Sales of Land Other Revenue Equity in Earnings (Loss) from Unconsolidated Entities Other Income (Expense), net Operating Earnings (Loss) East $ 1,347,610 988,862 26.6 % 241,534 5,076 1,418 (492) 14,547 262,083 Central 926,438 713,546 23.0 % 132,099 (23) 405 98 (556) 132,023 Texas 636,411 451,198 29.1 % 129,161 1,034 258 154 (964) 129,643 West 1,976,808 1,507,727 23.7 % 317,990 368 1,050 962 1,336 321,706 Other (2) 3,647 5,529 (51.6) % (6,968) — 1,368 (5,287) (1,388) (12,275) Totals $ 4,890,914 3,666,862 25.0 % $ 813,816 6,455 4,499 (4,565) 12,975 833,180 Three Months Ended February 29, 2020 Gross Margins Operating Earnings (Loss) ($ in thousands) Sales of Homes Revenue Costs of Sales of Homes Gross Margin % Net Margins on Sales of Homes (1) Gross Margins (Loss) on Sales of Land Other Revenue Equity in Earnings (Loss) from Unconsolidated Entities Other Income (Expense), net Operating Earnings (Loss) East $ 1,150,720 881,217 23.4 % $ 154,825 (451) 1,462 359 (7,441) 148,754 Central 786,698 657,283 16.5 % 54,404 (927) 451 553 1,242 55,723 Texas 463,796 360,273 22.3 % 53,127 1,673 517 203 (2,447) 53,073 West 1,731,514 1,379,291 20.3 % 218,507 (563) 1,814 3,940 1,209 224,907 Other (2) 8,039 13,715 (70.6) % (10,767) — 238 (9,601) (1,929) (22,059) Totals $ 4,140,767 3,291,779 20.5 % $ 470,096 (268) 4,482 (4,546) (9,366) 460,398 (1) Net margins on sales of homes include selling, general and administrative expenses. (2) Negative gross and net margins were due to period costs in Urban divisions that impact costs of homes sold without sufficient sales of homes revenue to offset those costs. 27 Summary of Homebuilding Data Deliveries: Three Months Ended Homes Dollar Value (In thousands) Average Sales Price February 28, February 29, February 28, February 29, February 28, February 29, 2021 2020 2021 2020 2021 2020 East 3,920 3,388 $ 1,351,301 1,153,715 $ 345,000 341,000 Central 2,419 2,043 926,438 786,698 383,000 385,000 Texas 2,349 1,577 636,411 463,796 271,000 294,000 West 3,622 3,304 1,976,808 1,731,514 546,000 524,000 Other 4 9 3,647 8,039 912,000 893,000 Total 12,314 10,321 $ 4,894,605 4,143,762 $ 397,000 401,000 Of the total homes delivered listed above, 12 homes with a dollar value of $3.7 million and an average sales price of $308,000 represent home deliveries from unconsolidated entities for the three months ended February 28, 2021, compared to eight home deliveries with a dollar value of $3.0 million and an average sales price of $374,000 for the three months ended February 29, 2020. New Orders (1): Three Months Ended Active Communities Homes Dollar Value (In thousands) Average Sales Price February 28, February 29, February 28, February 29, February 28, February 29, February 28, February 29, 2021 2020 2021 2020 2021 2020 2021 2020 East 340 344 4,814 3,731 $ 1,700,112 1,274,353 $ 353,000 342,000 Central 274 323 3,326 2,667 1,333,626 1,018,443 401,000 382,000 Texas 218 236 2,775 1,999 812,169 573,079 293,000 287,000 West 327 352 4,652 3,965 2,692,395 2,125,632 579,000 536,000 Other 3 3 3 14 2,974 13,581 991,000 970,000 Total 1,162 1,258 15,570 12,376 $ 6,541,276 5,005,088 $ 420,000 404,000 Of the total new orders listed above, 35 homes with a dollar value of $11.6 million and an average sales price of $332,000 represent new orders in four active communities from unconsolidated entities for the three months ended February 28, 2021, compared to 26 new orders with a dollar value of $8.1 million and an average sales price of $310,000 in five active communities for the three months ended February 29, 2020. (1) New orders represent the number of new sales contracts executed with homebuyers, net of cancellations, during the three months ended February 28, 2021 and February 29, 2020. Backlog: At Homes Dollar Value (In thousands) Average Sales Price February 28, February 29, February 28, February 29, February 28, February 29, 2021 2020 2021 2020 2021 2020 East 6,907 6,033 $ 2,659,746 2,147,007 $ 385,000 356,000 Central 5,278 3,774 2,169,360 1,475,711 411,000 391,000 Texas 3,249 2,592 1,000,342 822,620 308,000 317,000 West 6,642 5,219 3,629,018 2,702,535 546,000 518,000 Other 1 14 1,175 13,995 1,175,000 1,000,000 Total 22,077 17,632 $ 9,459,641 7,161,868 $ 428,000 406,000 Of the total homes in backlog listed above, 61 homes with a backlog dollar value of $19.4 million and an average sales price of $318,000 represent the backlog from unconsolidated entities at February 28, 2021, compared to 49 homes with a backlog dollar value of $15.2 million and an average sales price of $311,000 at February 29, 2020. Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances. Various state and federal laws and regulations may sometimes give purchasers a right to cancel homes in backlog. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners. Three Months Ended February 28, 2021 versus Three Months Ended February 29, 2020 Homebuilding East: Revenues from home sales increased in the first quarter of 2021 compared to the first quarter of 2020, primarily due to an increase in the number of home deliveries in all the states of the segment except in Pennsylvania and 28 an increase in the average sales price of homes delivered in all the states of the segment except in Florida. The increase in the number of home deliveries was primarily due to higher demand as the number of deliveries per active community increased. The decrease in the number of home deliveries in Pennsylvania was primarily due to a decrease in the number of communities due to the timing of opening and closing of communities. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. The decrease in the average sales price of homes delivered in Florida was primarily driven by a change in product mix due to a higher percentage of deliveries in lower-priced communities. Gross margin percentage on home deliveries in the first quarter of 2021 increased compared to the same period last year primarily due to an increase in the revenue per square foot of homes delivered. Homebuilding Central: Revenues from home sales increased in the first quarter of 2021 compared to the first quarter of 2020, primarily due to an increase in the number of home deliveries in all the states in the segment except in Maryland and Virginia, partially offset by a decrease in the average sales price of homes delivered in all the states of the segment except in Georgia, Illinois, Maryland and Minnesota. The increase in the number of home deliveries was primarily due to higher demand as the number of deliveries per active community increased. The decrease in the number of home deliveries in Maryland and Virginia was primarily due to a decrease in the number of communities due to the timing of opening and closing of communities. The decrease in the average sales price of homes delivered was primarily driven by a change in product mix due to a higher percentage of deliveries in lower-priced communities. The increase in the average sales price of homes delivered in Georgia, Illinois, Maryland and Minnesota was primarily due to favorable market conditions. Gross margin percentage on home deliveries in the first quarter of 2021 increased compared to the same period last year primarily due to an increase in revenue per square foot of homes delivered as well as reducing interest and field expenses per home. Homebuilding Texas: Revenues from home sales increased in the first quarter of 2021 compared to the first quarter of 2020, primarily due to an increase in the number of home deliveries, partially offset by a decrease in the average sales price of homes delivered. The increase in the number of deliveries was primarily due to higher demand as the number of deliveries per active community increased. The decrease in average sales price of homes delivered was primarily due to closing out higher priced communities and shifting into lower priced communities. Gross margin percentage on home deliveries in the first quarter of 2021 increased compared to the same period last year primarily due to an increase in revenue per square foot of homes delivered as well as reducing our interest and field expenses per home. Homebuilding West: Revenues from home sales increased in the first quarter of 2021 compared to the first quarter of 2020, primarily due to an increase in the number of home deliveries in all states of the segment except in Nevada and an increase in the average sales price of homes delivered in all the states of the segment. The increase in the number of home deliveries in all states of the segment except in Nevada was primarily due to higher demand as the number of deliveries per active community increased during the quarter. The decrease in the number of home deliveries in Nevada was primarily due to a decrease in the number of deliveries per active community due to the timing of opening and closing of communities. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. Gross margin percentage on home deliveries in the first quarter of 2021 increased compared to the same period last year primarily due to an increase in revenue per square foot of homes delivered. Financial Services Segment Our Financial Services reportable segment provides mortgage financing, title and closing services primarily for buyers of our homes. The segment also originates and sells into securitizations commercial mortgage loans through its LMF Commercial business. Our Financial Services segment sells substantially all of the residential loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements. The following table sets forth selected financial and operational information related to the residential mortgage and title activities of our Financial Services segment: Three Months Ended (Dollars in thousands) February 28, 2021 February 29, 2020 Dollar value of mortgages originated $ 2,761,000 2,221,000 Number of mortgages originated 8,400 6,900 Mortgage capture rate of Lennar homebuyers 76 % 77 % Number of title and closing service transactions 15,000 11,200 At February 28, 2021 and November 30, 2020, the carrying value of Financial Services' commercial mortgage-backed securities ("CMBS") was $163.3 million and $164.2 million, respectively. Details of these securities and related debt are within Note 2 of the Notes to Condensed Consolidated Financial Statements. 29 Multifamily Segment We have been actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. Our Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. Originally, our Multifamily segment focused on building multifamily properties and selling them shortly after they were completed. However, more recently we have focused on creating and participating in ventures that build multifamily properties with the intention of retaining them after they are completed. The following tables provide information related to our investment in the Multifamily segment: Balance Sheets (Dollars in thousands) February 28, 2021 November 30, 2020 Multifamily investments in unconsolidated entities $ 704,964 724,647 Lennar's net investment in Multifamily 931,226 906,632 Lennar Other Segment At February 28, 2021 and November 30, 2020, we had $1.0 billion and $521.7 million, respectively, of assets in our Lennar Other segment, which included investments in unconsolidated entities of $315.6 million and $387.1 million, respectively. The increase in assets during the quarter was due to an increase in the value of our strategic technology investments, primarily managed by our LEN X subsidiary. This increase was largely related to our strategic investment in Opendoor, which began trading on the Nasdaq stock market in December 2020. During the three months ended February 28, 2021, our Lennar Other segment recognized a gain of $469.7 million related to the mark to market of our share holdings in Opendoor. In addition to Opendoor, two other of our strategic technology investments have announced agreements to merge with publicly traded special purpose acquisition companies. (2) Financial Condition and Capital Resources At February 28, 2021, we had cash and cash equivalents and restricted cash related to our homebuilding, financial services, multifamily and other operations of $2.6 billion, compared to $2.9 billion at November 30, 2020 and $1.1 billion at February 29, 2020. We finance all of our activities, including homebuilding, financial services, multifamily, other and general operating needs, primarily with cash generated from our operations, debt issuances and cash borrowed under our warehouse lines of credit and our unsecured revolving credit facility (the "Credit Facility"). Operating Cash Flow Activities During the three months ended February 28, 2021 and February 29, 2020, cash provided by operating activities totaled $385.5 million and $383.0 million, respectively. During the three months ended February 28, 2021, cash provided by operating activities was impacted primarily by our net earnings net of the unrealized gain of $469.7 million related to our Opendoor strategic investment, a decrease in loans held-for-sale of $360.6 million primarily related to the sale of loans originated by our Financial Services segment, partially offset by an increase in inventories due to strategic land purchases, and land development and construction costs of $862.1 million. During the three months ended February 29, 2020, cash provided by operating activities was impacted primarily by our net earnings, a decrease in receivables of $245.7 million and a decrease in loans held-for-sale of $466.8 million primarily related to the sale of loans originated by our Financial Services segment, partially offset by an increase in inventories due to strategic land purchases, land development and construction costs of $777.0 million and increase in other assets of $121.5 million. Investing Cash Flow Activities During the three months ended February 28, 2021 and February 29, 2020, cash (used in) provided by investing activities totaled ($93.4) million and $13.2 million, respectively. During the three months ended February 28, 2021, our cash used in investing activities was primarily due to cash contributions of $224.1 million to unconsolidated entities, which included (1) $148.4 million to Homebuilding unconsolidated entities, (2) $37.5 million to Multifamily unconsolidated entities, and (3) $38.2 million to the strategic technology investments included in the Lennar Other segment. This was partially offset by distributions of capital from unconsolidated entities of $83.2 million, which primarily included (1) $52.8 million from Multifamily unconsolidated entities, (2) $19.9 million from Homebuilding unconsolidated entities; and (3) $10.6 million from the unconsolidated Rialto real estate funds included in our Lennar Other segment. During the three months ended February 29, 2020, our cash provided by investing activities was primarily due to distributions of capital from unconsolidated entities of $86.3 million, which primarily included (1) $17.1 million from Multifamily unconsolidated entities, (2) $27.8 million from the unconsolidated Rialto real estate funds included in our Lennar 30 Other segment and (3) $41.4 million from Homebuilding unconsolidated entities. This was partially offset by net additions to operating properties and equipment of $17.9 million and cash contributions of $78.6 million to unconsolidated entities, which included (1) $12.6 million to Homebuilding unconsolidated entities, (2) $35.8 million to Multifamily unconsolidated entities, and (3) $30.2 million to the strategic technology investments included in the Lennar Other segment. Financing Cash Flow Activities During the three months ended February 28, 2021 and February 29, 2020, cash used in financing activities totaled $629.7 million and $789.8 million, respectively. During the three months ended February 28, 2021, cash used in financing activities was primarily impacted by (1) $500.8 million of net repayments under our Financial Services' warehouse facilities, which included the LMF Commercial warehouse repurchase facilities; (2) $77.8 million of dividend payments; and (3) repurchases of our common stock for $69.5 million, which included $43.1 million of repurchases under our repurchase program and $26.4 million of repurchases related to our equity compensation plan. These were partially offset by $67.4 million of proceeds from liabilities related to consolidated inventory not owned due to land sales to a land bank. During the three months ended February 29, 2020, cash used in financing activities was primarily impacted by (1) $755.6 million of net repayments under our Financial Services' warehouse facilities, which included the LMF Commercial warehouse repurchase facilities; (2) repurchases of our common stock for $296.0 million, which included $288.5 million of repurchases under our repurchase program and $7.4 million of repurchases related to our equity compensation plan and (3) $93.3 million of principal payments on notes payable and other borrowings. These were partially offset by $300.0 million of net borrowings under our Credit Facility and $88.9 million of receipts related to noncontrolling interests. Debt to total capital ratios are financial measures commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our homebuilding operations. Homebuilding debt to total capital and net Homebuilding debt to total capital are calculated as follows: (Dollars in thousands) February 28, 2021 November 30, 2020 February 29, 2020 Homebuilding debt $ 5,976,168 5,955,758 8,115,498 Stockholders’ equity 18,896,246 17,994,856 16,044,599 Total capital $ 24,872,414 23,950,614 24,160,097 Homebuilding debt to total capital 24.0 % 24.9 % 33.6 % Homebuilding debt $ 5,976,168 5,955,758 8,115,498 Less: Homebuilding cash and cash equivalents 2,421,411 2,703,986 784,950 Net Homebuilding debt $ 3,554,757 3,251,772 7,330,548 Net Homebuilding debt to total capital (1) 15.8 % 15.3 % 31.4 % (1) Net homebuilding debt to total capital is a non-GAAP financial measure defined as net homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net homebuilding debt plus stockholders' equity). We believe the ratio of net homebuilding debt to total capital is a relevant and a useful financial measure to investors in understanding the leverage employed in homebuilding operations. However, because net homebuilding debt to total capital is not calculated in accordance with GAAP, this financial measure should not be considered in isolation or as an alternative to financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement our GAAP results. At February 28, 2021, Homebuilding debt to total capital was lower compared to February 29, 2020, primarily as a result of a decrease in Homebuilding debt and an increase in stockholders' equity due to net earnings. At February 28, 2021, Homebuilding debt to total capital was lower compared to November 30, 2020, primarily as a result of an increase in stockholders' equity due to net earnings. We are continually exploring various types of transactions to manage our leverage and liquidity positions, take advantage of market opportunities and increase our revenues and earnings. These transactions may include the issuance of additional indebtedness, the repurchase of our outstanding indebtedness, the repurchase of our common stock, the acquisition of homebuilders and other companies, the purchase or sale of assets or lines of business, the issuance of common stock or securities convertible into shares of common stock, and/or the pursuit of other financing alternatives. In connection with some of our non-homebuilding businesses, we are also considering other types of transactions such as sales, restructurings, joint ventures, spin-offs or initial public offerings as we continue to move back towards being a pure play homebuilding company. 31 Our Homebuilding senior notes and other debts payable as well as letters of credit and surety bonds are summarized within Note 7 of the Notes to Condensed Consolidated Financial Statements. Our Homebuilding average debt outstanding and the average rates of interest was as follows: Three Months Ended (Dollars in thousands) February 28, 2021 February 29, 2020 Homebuilding average debt outstanding $ 5,973,432 $ 8,016,263 Average interest rate 4.9 % 4.9 % Interest incurred $ 71,064 $ 93,291 During three months ended February 28, 2021, the maximum borrowings on our Credit Facility were increased by $100 million from $2.4 billion to $2.5 billion and included a $300 million accordion feature, subject to additional commitments, thus the maximum borrowings could be $2.8 billion maturing in 2024. The Credit Facility agreement (the "Credit Agreement") provides that up to $500 million in commitments may be used for letters of credit . Under the Credit Agreement, we are subject to debt covenants. The maturity, details and debt covenants of the Credit Facility are unchanged from the disclosure in the Financial Condition and Capital Resources section of our Form 10-K for the year ended November 30, 2020. The following summarizes our debt covenant requirements and our actual levels or ratios with respect to those covenants as calculated per the Credit Agreement as of February 28, 2021: (Dollars in thousands) Covenant Level Level Achieved as of February 28, 2021 Minimum net worth test $ 8,892,740 12,368,689 Maximum leverage ratio 65.0 % 20.2 % Liquidity test 1.00 8.04 Financial Services Warehouse Facilities Our Financial Services segment uses the residential facilities to finance its residential lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature. The LMF Commercial facilities finance LMF Commercial loan origination and securitization activities and were secured by up to an 80% interest in the originated commercial loans financed. These facilities and the related borrowings and collateral are detailed in Note 2 of the Notes to Condensed Consolidated Financial Statements. Changes in Capital Structure In January 2021, our Board of Directors authorized the repurchase of up to the lesser of $1.0 billion in value, or 25 million in shares, of our outstanding Class A and Class B common stock. The repurchase authorization replaced a January 2019 authorization and has no expiration date. The details of our Class A and Class B common stock under this program for the three months ended February 28, 2021 and February 29, 2020 are included in Note 4 of the Notes to Condensed Consolidated Financial Statements. During the three months ended February 28, 2021, treasury stock increased due to our repurchase of 0.8 million shares of Class A and Class B common stock due primarily to our repurchase of 0.5 million shares of Class A and Class B common stock through our stock repurchase program. During the three months ended February 29, 2020, treasury stock increased due to our repurchase of 4.4 million shares of Class A and Class B common stock through our stock repurchase program. On February 12, 2021, we paid cash dividends of $0.25 per share on both our Class A and Class B common stock to holders of record at the close of business on January 29, 2021, as declared by our Board of Directors on January 14, 2021. We approved and paid cash dividends of $0.125 per share for each of the first three quarters of 2020 and $0.25 per share in fourth quarter of 2020 on both our Class A and Class B common stock. Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity. Supplemental Financial Information Currently, substantially all of our 100% owned homebuilding subsidiaries are guaranteeing all our senior notes. The guarantees are full and unconditional. The indentures governing our senior notes require that, if any of our 100% owned subsidiaries, other than our finance company subsidiaries and foreign subsidiaries, directly or indirectly guarantee at least $75 million principal amount of debt of Lennar Corporation (other than senior notes), those subsidiaries must also guarantee Lennar Corporation’s obligations with regard to its senior notes. Included in the following tables as part of “Obligors” together with Lennar Corporation are subsidiary entities that are not finance company subsidiaries or foreign subsidiaries and were guaranteeing the senior notes because at February 28, 2021 they were guaranteeing Lennar Corporation's letter of credit facilities and its Credit Facility, disclosed in 32 Note 7 of the Notes to Condensed Consolidated Financial Statements. The guarantees are full, unconditional and joint and several and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. A subsidiary's guarantee of Lennar senior notes will be suspended at any time when it is not directly or indirectly guaranteeing at least $75 million principal amount of debt of Lennar Corporation (other than senior notes), and a subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed. Supplemental information for the Obligors, which excludes non-guarantor subsidiaries and intercompany transactions, at February 28, 2021 is included in the following tables. Intercompany balances and transactions within the Obligors have been eliminated and amounts attributable to the Obligor’s investment in consolidated subsidiaries that have not issued or guaranteed the senior notes have been excluded. Amounts due from and transactions with nonobligor subsidiaries and related parties are separately disclosed: (In thousands) February 28, 2021 November 30, 2020 Due from non-guarantor subsidiaries $ 3,531,120 2,655,503 Equity method investments 1,075,663 951,579 Total assets 28,845,995 27,695,067 Total liabilities 9,787,091 9,599,718 Three Months Ended (In thousands) February 28, 2021 Total revenues $ 4,997,097 Operating earnings 869,317 Earnings before income taxes 747,737 Net earnings attributable to Lennar 572,585 Off-Balance Sheet Arrangements Homebuilding: Investments in Unconsolidated Entities As of February 28, 2021, we had equity investments in 40 active homebuilding and land unconsolidated entities (of which three had recourse debt, 10 had non-recourse debt and 27 had no debt) compared to 38 active homebuilding and land unconsolidated entities at November 30, 2020. Historically, we have invested in unconsolidated entities that acquired and developed land (1) for our homebuilding operations or for sale to third parties or (2) for the construction of homes for sale to third-party homebuyers. Through these entities, we have primarily sought to reduce and share our risk by limiting the amount of our capital invested in land, while obtaining access to potential future homesites and allowing us to participate in strategic ventures. The use of these entities also, in some instances, has enabled us to acquire land to which we could not otherwise obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. Participants in these joint ventures have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to homesites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partners. Each joint venture is governed by an executive committee consisting of members from the partners. Details regarding these investments, balances and debt are included in Note 3 of the Notes to Condensed Consolidated Financial Statements. The following table summarizes the principal maturities of our Homebuilding unconsolidated entities ("JVs") debt as per current debt arrangements as of February 28, 2021 and it does not represent estimates of future cash payments that will be made to reduce debt balances. Many JV loans have extension options in the loan agreements that would allow the loans to be extended into future years. Principal Maturities of Unconsolidated JVs by Period (In thousands) Total JV Debt 2021 2022 2023 Thereafter Other Debt without recourse to Lennar $ 1,127,280 101,437 329,418 17,639 678,786 — Land seller and CDD debt 7,147 — — — — 7,147 Maximum recourse debt exposure to Lennar 3,599 — 3,599 — — — Debt issuance costs (12,503) — — — — (12,503) Total $ 1,125,523 101,437 333,017 17,639 678,786 (5,356) 33 Multifamily: Investments in Unconsolidated Entities At February 28, 2021, Multifamily had equity investments in 17 unconsolidated entities that are engaged in multifamily residential developments (of which seven had non-recourse debt and 10 had no debt), compared to 22 unconsolidated entities at November 30, 2020. We invest in unconsolidated entities that acquire and develop land to construct multifamily rental properties. Through these entities, we are focusing on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. Initially, we participated in building multifamily developments and selling them soon after they were completed. Recently, however, we have been focused on developing properties with the intention of retaining them. Participants in these joint ventures have been financial partners. Joint ventures with financial partners have allowed us to combine our development and construction expertise with access to our partners’ capital. Each joint venture is governed by an operating agreement that provides significant substantive participating voting rights on major decisions to our partners. The Multifamily segment includes LMV I and LMV II, which are long-term multifamily development investment vehicles involved in the development, construction and property management of class-A multifamily assets. Details of each as of and during the three months ended February 28, 2021 are included in Note 3 of the Notes to Condensed Consolidated Financial Statements. We regularly monitor the results of both our Homebuilding and Multifamily unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. We also monitor the performance of joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment. We believe all of the joint ventures were in compliance with applicable debt covenants at February 28, 2021. The following table summarizes the principal maturities of our Multifamily unconsolidated entities debt as per current debt arrangements as of February 28, 2021 and it does not represent estimates of future cash payments that will be made to reduce debt balances. Principal Maturities of Unconsolidated JVs by Period (In thousands) Total JV Debt 2021 2022 2023 Thereafter Other Debt without recourse to Lennar $ 2,674,276 336,695 578,461 631,407 1,127,713 — Debt issuance costs (29,530) — — — — (29,530) Total $ 2,644,746 336,695 578,461 631,407 1,127,713 (29,530) Lennar Other: Investments in Unconsolidated Entities As part of the sale of the Rialto investment and asset management platform, we retained our ability to receive a portion of payments with regard to carried interests if funds meet specified performance thresholds. We periodically receive advance distributions related to the carried interests in order to cover income tax obligations resulting from allocations of taxable income to the carried interests. These distributions are not subject to clawbacks but will reduce future carried interest payments to which we become entitled from the applicable funds and have been recorded as revenues. As of February 28, 2021 and November 30, 2020, we had strategic technology investments in unconsolidated entities of $131.9 million and $196.7 million, respectively. Option Contracts We often obtain access to land through option contracts, which generally enable us to control portions of properties owned by third parties (including land funds) and unconsolidated entities until we have determined whether to exercise the options. The table below indicates the number of homesites owned and homesites to which we had access through option contracts with third parties ("optioned") or unconsolidated JVs (i.e., controlled homesites) at February 28, 2021 and February 29, 2020: Controlled Homesites Years of February 28, 2021 Optioned JVs Total Owned Homesites Total Homesites Supply Owned (1) East 42,722 3,931 46,653 57,526 104,179 Central 19,932 100 20,032 41,886 61,918 Texas 31,525 — 31,525 37,034 68,559 West 45,352 3,444 48,796 49,996 98,792 Other 41 7,318 7,359 2,238 9,597 Total homesites 139,572 14,793 154,365 188,680 343,045 3.4 % of total homesites 45 % 55 % Controlled Homesites Years of February 29, 2020 Optioned JVs Total Owned Homesites Total Homesites Supply Owned (1) East 23,989 15,420 39,409 66,684 106,093 Central 11,356 122 11,478 45,095 56,573 Texas 19,914 — 19,914 38,365 58,279 West 12,275 2,940 15,215 62,048 77,263 Other — 8,514 8,514 2,084 10,598 Total homesites 67,534 26,996 94,530 214,276 308,806 4.0 % of total homesites 31 % 69 % (1) Based on trailing twelve months of home deliveries. Details on option contracts and related consolidated inventory not owned and exposure are included in Note 10 of the Notes to Condensed Consolidated Financial Statements. Contractual Obligations and Commercial Commitments Our contractual obligations and commercial commitments have not changed materially from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 30, 2020. There were no outstanding borrowings under our Credit Facility as of February 28, 2021. (3) New Accounting Pronouncements See Note 1 of the Notes to Condensed Consolidated Financial Statements included under Item 1 of this Report for a discussion of new accounting pronouncements applicable to our company. (4) Critical Accounting Policies We believe that there have been no significant changes to our critical accounting policies during the three months ended February 28, 2021 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, for the year ended November 30, 2020.