Item 1. Financial Statements
Item 1. Financial Statements
Lennar Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
May 31, November 30,
2021 (1) 2020 (1)
ASSETS
Homebuilding:
Cash and cash equivalents $ 2,581,583 2,703,986
Restricted cash 35,637 15,211
Receivables, net 353,910 298,671
Inventories:
Finished homes and construction in progress 10,418,116 8,593,399
Land and land under development 7,090,880 7,495,262
Consolidated inventory not owned 910,003 836,567
Total inventories 18,418,999 16,925,228
Investments in unconsolidated entities 1,010,256 953,177
Goodwill 3,442,359 3,442,359
Other assets 1,030,681 1,190,793
26,873,425 25,529,425
Financial Services 2,066,674 2,708,118
Multifamily 1,209,270 1,175,908
Lennar Other 1,073,858 521,726
Total assets $ 31,223,227 29,935,177
(1) Under certain provisions of Accounting Standards Codification ("ASC") Topic 810, Consolidations ("ASC 810"), the Company is required to separately disclose on its condensed consolidated balance sheets the assets owned by consolidated variable interest entities ("VIEs") and liabilities of consolidated VIEs as to which neither Lennar Corporation, nor any of its subsidiaries, has any obligations.
As of May 31, 2021, total assets include $ 940.6 million related to consolidated VIEs of which $ 39.0 million is included in Homebuilding cash and cash equivalents, $ 15.3 million in Homebuilding restricted cash, $ 14.3 million in Homebuilding finished homes and construction in progress, $ 564.7 million in Homebuilding land and land under development, $ 260.6 million in Homebuilding consolidated inventory not owned, $ 1.3 million in Homebuilding investments in unconsolidated entities, $ 27.2 million in Homebuilding other assets and $ 17.8 million in Multifamily assets.
As of November 30, 2020, total assets include $ 1.1 billion related to consolidated VIEs of which $ 32.1 million is included in Homebuilding cash and cash equivalents, $ 0.1 million in Homebuilding receivables, net, $ 14.2 million in Homebuilding finished homes and construction in progress, $ 486.8 million in Homebuilding land and land under development, $ 426.3 million in Homebuilding consolidated inventory not owned, $ 1.6 million in Homebuilding investments in unconsolidated entities, $ 120.6 million in Homebuilding other assets and $ 39.9 million in Multifamily assets.
See accompanying notes to condensed consolidated financial statements.
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Lennar Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(In thousands, except share amounts)
(unaudited)
May 31, November 30,
2021 (2) 2020 (2)
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable $ 1,171,358 1,037,338
Liabilities related to consolidated inventory not owned 769,225 706,691
Senior notes and other debts payable, net 5,894,342 5,955,758
Other liabilities 2,281,508 2,225,864
10,116,433 9,925,651
Financial Services 1,084,838 1,644,248
Multifamily 255,327 252,911
Lennar Other 64,531 12,966
Total liabilities 11,521,129 11,835,776
Stockholders’ equity:
Preferred stock — —
Class A common stock of $ 0.10 par value; Authorized: May 31, 2021 and November 30, 2020 - 400,000,000 shares; Issued: May 31, 2021 - 300,486,193 shares and November 30, 2020 - 298,942,836 shares
30,049 29,894
Class B common stock of $ 0.10 par value; Authorized: May 31, 2021 and November 30, 2020 - 90,000,000 shares; Issued: May 31, 2021 - 39,443,168 shares and November 30, 2020 - 39,443,168 shares
3,944 3,944
Additional paid-in capital 8,755,020 8,676,056
Retained earnings 12,241,400 10,564,994
Treasury stock, at cost; May 31, 2021 - 25,791,364 shares of Class A common stock and 1,822,016 shares of Class B common stock; November 30, 2020 - 23,864,589 shares of Class A common stock and 1,822,016 shares of Class B common stock
( 1,452,874 ) ( 1,279,227 )
Accumulated other comprehensive loss ( 1,431 ) ( 805 )
Total stockholders’ equity 19,576,108 17,994,856
Noncontrolling interests 125,990 104,545
Total equity 19,702,098 18,099,401
Total liabilities and equity $ 31,223,227 29,935,177
(2) Under certain provisions of ASC 810, the Company is required to separately disclose on its condensed consolidated balance sheets the assets owned by consolidated VIEs and liabilities of consolidated VIEs as to which neither Lennar Corporation, nor any of its subsidiaries, has any obligations.
As of May 31, 2021, total liabilities include $ 340.1 million related to consolidated VIEs as to which there was no recourse against the Company, of which $ 24.4 million is included in Homebuilding accounts payable, $ 218.9 million in Homebuilding liabilities related to consolidated inventory not owned, $ 85.7 million in Homebuilding senior notes and other debts payable and $ 11.1 million in Homebuilding other liabilities.
As of November 30, 2020, total liabilities include $ 528.5 million related to consolidated VIEs as to which there was no recourse against the Company, of which $ 28.4 million is included in Homebuilding accounts payable, $ 351.4 million in Homebuilding liabilities related to consolidated inventory not owned, $ 129.1 million in Homebuilding senior notes and other debt payable, $ 9.9 million in Homebuilding other liabilities and $ 9.8 million in Multifamily liabilities.
See accompanying notes to condensed consolidated financial statements.
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Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
May 31, May 31,
2021 2020 2021 2020
Revenues:
Homebuilding $ 6,028,041 4,949,484 10,971,097 9,121,600
Financial Services 218,747 196,263 462,816 394,924
Multifamily 177,473 123,117 308,916 255,734
Lennar Other 5,984 18,509 12,884 20,452
Total revenues 6,430,245 5,287,373 11,755,713 9,792,710
Costs and expenses:
Homebuilding 4,909,516 4,313,331 9,027,802 8,011,137
Financial Services 97,427 110,355 195,289 261,699
Multifamily 168,930 123,473 299,979 260,821
Lennar Other 5,732 ( 1,072 ) 9,984 1,502
Corporate general and administrative 90,717 78,183 201,248 160,817
Charitable foundation contribution 14,493 5,268 26,807 9,481
Total costs and expenses 5,286,815 4,629,538 9,761,109 8,705,457
Homebuilding equity in loss from unconsolidated entities ( 1,688 ) ( 9,100 ) ( 6,253 ) ( 13,646 )
Homebuilding other income (expense), net ( 4,362 ) 4,308 8,613 ( 5,058 )
Financial Services gain on deconsolidation — 61,418 — 61,418
Multifamily equity in earnings (loss) from unconsolidated entities and other gain 13,854 ( 282 ) 12,586 6,234
Lennar Other realized and unrealized gain (loss) ( 117,570 ) — 352,175 —
Lennar Other equity in earnings (loss) from unconsolidated entities and other income (expense), net 63,221 ( 37,602 ) 62,174 ( 36,072 )
Earnings before income taxes 1,096,885 676,577 2,423,899 1,100,129
Provision for income taxes ( 260,113 ) ( 160,479 ) ( 570,218 ) ( 192,808 )
Net earnings (including net earnings (loss) attributable to noncontrolling interests) 836,772 516,098 1,853,681 907,321
Less: Net earnings (loss) attributable to noncontrolling interests 5,409 ( 1,308 ) 20,949 ( 8,537 )
Net earnings attributable to Lennar $ 831,363 517,406 1,832,732 915,858
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on securities available-for-sale $ 316 ( 338 ) ( 626 ) ( 384 )
Reclassification adjustments for loss included in earnings, net of tax — ( 452 ) — ( 452 )
Total other comprehensive income (loss), net of tax $ 316 ( 790 ) ( 626 ) ( 836 )
Total comprehensive income attributable to Lennar $ 831,679 516,616 1,832,106 915,022
Total comprehensive income (loss) attributable to noncontrolling interests $ 5,409 ( 1,308 ) 20,949 ( 8,537 )
Basic earnings per share $ 2.66 1.66 5.86 2.92
Diluted earnings per share $ 2.65 1.65 5.85 2.91
See accompanying notes to condensed consolidated financial statements.
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Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six Months Ended
May 31,
2021 2020
Cash flows from operating activities:
Net earnings (including net earnings (loss) attributable to noncontrolling interests) $ 1,853,681 907,321
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 44,743 44,464
Amortization of discount/premium and accretion on debt, net ( 4,718 ) ( 13,839 )
Equity in (earnings) loss from unconsolidated entities ( 67,618 ) 40,355
Distributions of earnings from unconsolidated entities 15,594 38,000
Share-based compensation expense 80,635 55,141
Deferred income tax expense 136,636 79,738
Loans held-for-sale unrealized loss 30,352 2,223
Lennar Other unrealized/realized gain ( 352,175 ) —
Gain on sale of other assets and operating properties and equipment ( 18,596 ) ( 13,126 )
Gain on deconsolidation of previously consolidated entity — ( 61,418 )
Gain on sale of interest in unconsolidated entity and other Multifamily gain ( 1,167 ) ( 4,661 )
Gain on sale of Financial Services' portfolio/businesses
( 2,528 ) ( 5,014 )
Valuation adjustments and write-offs of option deposits and pre-acquisition costs
13,576 65,098
Changes in assets and liabilities:
Decrease (increase) in receivables 117,910 ( 7,758 )
Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs ( 1,576,420 ) ( 159,138 )
Increase in other assets ( 180,914 ) ( 148,087 )
Decrease in loans held-for-sale 444,413 479,360
Increase in accounts payable and other liabilities 184,716 12,144
Net cash provided by operating activities 718,120 1,310,803
Cash flows from investing activities:
Net additions of operating properties and equipment ( 24,362 ) ( 25,731 )
Proceeds from the sale of operating properties and equipment, other assets 32,002 29,727
Investments in and contributions to unconsolidated entities ( 282,203 ) ( 302,784 )
Distributions of capital from unconsolidated entities 231,545 115,093
Proceeds from sale of investment in consolidated joint venture 15,950 —
Proceeds from sale of commercial mortgage-backed securities bonds 11,307 3,248
Proceeds from sale of Financial Services' portfolio/business 3,327 9,096
(Increase) decrease in Financial Services loans held-for-investment, net ( 3,864 ) 143
Purchases of investment securities ( 43,698 ) ( 29,642 )
Proceeds from maturities/sales of investment securities 9,916 25,138
Other receipts, net 8 1,670
Net cash used in investing activities $ ( 50,072 ) ( 174,042 )
See accompanying notes to condensed consolidated financial statements.
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Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(In thousands)
(unaudited)
Six Months Ended
May 31,
2021 2020
Cash flows from financing activities:
Net repayments under warehouse facilities $ ( 535,734 ) ( 310,216 )
Redemption of senior notes — ( 300,000 )
Principal payments on notes payable and other borrowings ( 114,964 ) ( 174,382 )
Proceeds from other borrowings 13,973 59,139
Proceeds from liabilities related to consolidated inventory not owned 301,869 —
Payments related to consolidated inventory not owned ( 149,686 ) —
Proceeds related to other liabilities, net — 3,567
Receipts related to noncontrolling interests 13,905 169,061
Payments related to noncontrolling interests ( 17,226 ) ( 21,501 )
Common stock:
Repurchases ( 173,644 ) ( 296,093 )
Dividends ( 156,326 ) ( 78,145 )
Net cash used in financing activities $ ( 817,833 ) ( 948,570 )
Net (decrease) increase in cash and cash equivalents and restricted cash ( 149,785 ) 188,191
Cash and cash equivalents and restricted cash at beginning of period 2,932,730 1,468,691
Cash and cash equivalents and restricted cash at end of period $ 2,782,945 1,656,882
Summary of cash and cash equivalents and restricted cash:
Homebuilding $ 2,581,583 1,398,682
Financial Services 130,528 224,229
Multifamily 22,395 13,061
Lennar Other 3,074 5,949
Homebuilding restricted cash 35,637 9,569
Financial Services restricted cash 9,728 5,392
$ 2,782,945 1,656,882
Supplemental disclosures of non-cash investing and financing activities:
Homebuilding and Multifamily:
Purchases of inventories and other assets financed by sellers $ 138,963 102,982
Non-cash contributions to unconsolidated entities 20,423 13,859
Lennar Other (non-cash impacts from sale of solar platform):
Non-cash increase in investment in equity securities $ 127,094 —
Non-cash increase in receivables 64,683 —
Non-cash increase in other liabilities ( 40,302 ) —
Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
Financial Services assets $ — 217,565
Financial Services liabilities — ( 115,175 )
Financial Services noncontrolling interests — ( 102,390 )
Inventories — ( 35,959 )
Operating properties and equipment and other assets — 6,375
Other liabilities — 182
Noncontrolling interests — 29,402
See accompanying notes to condensed consolidated financial statements.
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Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Basis of Presentation
Basis of Consolidation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended November 30, 2020. The basis of consolidation is unchanged from the disclosure in the Company's Notes to Consolidated Financial Statements section in its Form 10-K for the year ended November 30, 2020. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.
The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three and six months ended May 31, 2021 are not necessarily indicative of the results to be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Homebuilding cash and cash equivalents as of May 31, 2021 and November 30, 2020 included $ 678.8 million and $ 314.3 million , respectively, of cash held in escrow. On average for the three months ended May 31, 2021, cash was held in escrow for approximately four days .
Share-based Payments
During both the three months ended May 31, 2021 and 2020, the Company granted employees an immaterial number of nonvested shares. During the six months ended May 31, 2021 and 2020, the Company granted employees 1.4 million and 0.9 million nonvested shares, respectively.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 requires immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which generally results in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU 2016-13 was effective for the Company's fiscal year beginning December 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company's condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Accounting for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 was effective for the Company’s fiscal year beginning December 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company's condensed consolidated financial statements.
New Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 will be effective for the Company’s fiscal year beginning December 1, 2021. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on the Company's condensed consolidated financial statements.
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Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Reclassifications
Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform with the 2021 presentation. The Company reclassed the balance of its investment in Doma, formerly States Title, to which the Company sold the majority of the Financial Services segment's retail title agency business and title insurance underwriter in the first quarter of 2019, from the Financial Services segment to the Lennar Other segment in the Condensed Consolidated Balance Sheets for all periods presented. This was reclassed to be included in our strategic technology investments as the entity has announced that it will merge with a publicly traded special purpose acquisition company. In addition, the Company reflected its contributions to its charitable foundation in a new line on its Condensed Consolidated Statements of Operations for all periods presented. This was previously reflected in the Corporate general and administrative line. These reclassifications had no impact on the Company's total assets, total equity, revenues or net earnings in its condensed consolidated financial statements.
(2) Operating and Reporting Segments
The Company's homebuilding operations construct and sell homes primarily for first-time, move-up and active adult homebuyers primarily under the Lennar brand name. In addition, the Company's homebuilding operations purchase, develop and sell land to third parties. The Company's chief operating decision makers manage and assess the Company’s performance at a regional level. Therefore, the Company performed an assessment of its operating segments in accordance with ASC 280, Segment Reporting , and determined that the following are its operating and reportable segments:
Homebuilding segments: (1) East (2) Central (3) Texas (4) West
(5) Financial Services
(6) Multifamily
(7) Lennar Other
The assets and liabilities related to the Company’s segments were as follows:
(In thousands) May 31, 2021
Assets: Homebuilding Financial
Services Multifamily Lennar
Other Total
Cash and cash equivalents $ 2,581,583 130,528 22,395 3,074 2,737,580
Restricted cash 35,637 9,728 — — 45,365
Receivables, net (1) 353,910 422,117 111,802 — 887,829
Inventories 18,418,999 — 316,760 — 18,735,759
Loans held-for-sale (2) — 1,015,438 — — 1,015,438
Investments in equity securities (3) — — — 544,993 544,993
Investments available-for-sale (4) — — — 41,563 41,563
Loans held-for-investment, net — 77,680 — — 77,680
Investments held-to-maturity — 162,919 — — 162,919
Investments in unconsolidated entities 1,010,256 — 691,330 379,236 2,080,822
Goodwill 3,442,359 189,699 — — 3,632,058
Other assets 1,030,681 58,565 66,983 104,992 1,261,221
$ 26,873,425 2,066,674 1,209,270 1,073,858 31,223,227
Liabilities:
Notes and other debts payable, net $ 5,894,342 928,185 — 1,906 6,824,433
Other liabilities 4,222,091 156,653 255,327 62,625 4,696,696
$ 10,116,433 1,084,838 255,327 64,531 11,521,129
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Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(In thousands) November 30, 2020
Assets: Homebuilding Financial
Services Multifamily Lennar
Other Total
Cash and cash equivalents $ 2,703,986 116,171 38,963 3,918 2,863,038
Restricted cash 15,211 54,481 — — 69,692
Receivables, net (1) 298,671 552,779 86,629 — 938,079
Inventories 16,925,228 — 249,920 — 17,175,148
Loans held-for-sale (2) — 1,490,105 — — 1,490,105
Investments in equity securities (3) — — — 68,771 68,771
Investments available-for-sale (4) — — — 53,497 53,497
Loans held-for-investment, net — 72,626 — — 72,626
Investments held-to-maturity — 164,230 — — 164,230
Investments in unconsolidated entities 953,177 — 724,647 387,097 2,064,921
Goodwill 3,442,359 189,699 — — 3,632,058
Other assets 1,190,793 68,027 75,749 8,443 1,343,012
$ 25,529,425 2,708,118 1,175,908 521,726 29,935,177
Liabilities:
Notes and other debts payable, net $ 5,955,758 1,463,919 — 1,906 7,421,583
Other liabilities 3,969,893 180,329 252,911 11,060 4,414,193
$ 9,925,651 1,644,248 252,911 12,966 11,835,776
(1) Receivables, net for Financial Services primarily related to loans sold to investors for which the Company had not yet been paid.
(2) Loans held-for-sale related to unsold residential and commercial loans carried at fair value.
(3) Investments in equity securities include investments of $ 83.8 million and $ 61.6 million without readily available fair values as of May 31, 2021 and November 30, 2020, respectively.
(4) Investments available-for-sale are carried at fair value with changes in fair value recorded as a component of accumulated other comprehensive income (loss) on the condensed consolidated balance sheet.
Financial information relating to the Company’s segments was as follows:
Three Months Ended May 31, 2021
(In thousands) Homebuilding Financial Services Multifamily Lennar Other Corporate and
unallocated Total
Revenues $ 6,028,041 218,747 177,473 5,984 — 6,430,245
Operating earnings (loss) 1,112,475 121,320 22,397 ( 54,097 ) — 1,202,095
Corporate general and administrative expenses — — — — 90,717 90,717
Charitable foundation contribution — — — — 14,493 14,493
Earnings (loss) before income taxes 1,112,475 121,320 22,397 ( 54,097 ) ( 105,210 ) 1,096,885
Three Months Ended May 31, 2020
Revenues $ 4,949,484 196,263 123,117 18,509 — 5,287,373
Operating earnings (loss) 631,361 147,326 ( 638 ) ( 18,021 ) — 760,028
Corporate general and administrative expenses — — — — 78,183 78,183
Charitable foundation contribution — — — — 5,268 5,268
Earnings (loss) before income taxes 631,361 147,326 ( 638 ) ( 18,021 ) ( 83,451 ) 676,577
10
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Six Months Ended May 31, 2021
(In thousands) Homebuilding Financial Services Multifamily Lennar Other Corporate and
unallocated Total
Revenues
$ 10,971,097 462,816 308,916 12,884 — 11,755,713
Operating earnings 1,945,655 267,527 21,523 417,249 — 2,651,954
Corporate general and administrative expenses
— — — — 201,248 201,248
Charitable foundation contribution — — — — 26,807 26,807
Earnings (loss) before income taxes 1,945,655 267,527 21,523 417,249 ( 228,055 ) 2,423,899
Six Months Ended May 31, 2020
Revenues
$ 9,121,600 394,924 255,734 20,452 — 9,792,710
Operating earnings (loss) 1,091,759 194,643 1,147 ( 17,122 ) — 1,270,427
Corporate general and administrative expenses
— — — — 160,817 160,817
Charitable foundation contribution — — — — 9,481 9,481
Earnings (loss) before income taxes 1,091,759 194,643 1,147 ( 17,122 ) ( 170,298 ) 1,100,129
Homebuilding Segments
Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is grouped under "Homebuilding Other," which is not considered a reportable segment.
Evaluation of segment performance is based primarily on operating earnings (loss) before income taxes. Operations of the Company’s Homebuilding segments primarily 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 the Company’s unconsolidated entities. Operating earnings (loss) for the Homebuilding segments consist of revenues generated from the sales of homes and land, other revenues from management fees and forfeited deposits, equity in earnings (loss) from unconsolidated entities and other income (expense), net, less the cost of homes sold and land sold, and selling, general and administrative expenses incurred by the segment.
The Company’s reportable Homebuilding segments and all other homebuilding operations not required to be reported separately have homebuilding divisions located in:
East: Florida, New Jersey, Pennsylvania and South Carolina
Central: Georgia, Illinois, Indiana, Maryland, Minnesota, North Carolina and Virginia
Texas: Texas
West: Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah and Washington
Other: Urban divisions and other homebuilding related investments primarily in California, including FivePoint Holdings, LLC ("FivePoint")
The assets related to the Company’s homebuilding segments were as follows:
(In thousands) East Central Texas West Other Corporate and Unallocated Total Homebuilding
May 31, 2021 $ 5,749,998 3,713,952 2,510,950 11,131,940 1,326,516 2,440,069 26,873,425
November 30, 2020 5,308,114 3,438,600 2,150,916 10,504,374 1,301,618 2,825,803 25,529,425
Financial information relating to the Company’s homebuilding segments was as follows:
Three Months Ended May 31, 2021
(In thousands) East Central Texas West Other Total Homebuilding
Revenues
$ 1,567,768 1,097,582 799,259 2,553,771 9,661 6,028,041
Operating earnings (loss)
309,827 159,048 176,057 492,811 ( 25,268 ) 1,112,475
Three Months Ended May 31, 2020
Revenues
$ 1,277,431 986,284 712,756 1,959,823 13,190 4,949,484
Operating earnings (loss)
192,887 103,904 99,887 280,094 ( 45,411 ) 631,361
11
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Six Months Ended May 31, 2021
(In thousands) East Central Texas West Other Total Homebuilding
Revenues
$ 2,923,710 2,026,024 1,443,337 4,563,350 14,676 10,971,097
Operating earnings (loss)
571,910 291,071 305,700 814,517 ( 37,543 ) 1,945,655
Six Months Ended May 31, 2020
Revenues $ 2,429,763 1,775,794 1,185,984 3,708,592 21,467 9,121,600
Operating earnings (loss) 341,641 159,627 152,960 505,001 ( 67,470 ) 1,091,759
Financial Services
Operations of the Financial Services segment include primarily mortgage financing, title and closing services primarily for buyers of the Company’s homes. It also includes originating and selling into securitizations commercial mortgage loans through its LMF Commercial business. Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title and closing services, and property and casualty insurance, less the cost of such services and certain selling, general and administrative expenses incurred by the segment. The Financial Services segment operates generally in the same states as the Company’s homebuilding operations.
At May 31, 2021, the Financial Services warehouse facilities were all 364 -day repurchase facilities and were used to fund residential mortgages or commercial mortgages for LMF Commercial as follows:
(In thousands) Maximum Aggregate Commitment
Residential facilities maturing:
June 2021 (1) $ 600,000
July 2021 200,000
December 2021 500,000
April 2022 100,000
Total - Residential facilities
$ 1,400,000
LMF Commercial facilities maturing
November 2021 $ 100,000
December 2021 (2) 611,438
Total - LMF Commercial facilities
$ 711,438
Total
$ 2,111,438
(1) Subsequent to May 31, 2021, the maturity due date was extended to July 2021.
(2) Includes $ 11.4 million warehouse repurchase facility used by LMF Commercial to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans held-for-investment, net.
The 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 the Company and are expected to be renewed or replaced with other facilities when they mature. The LMF Commercial facilities finance LMF Commercial loan originations and securitization activities and were secured by up to an 80 % interest in the originated commercial loans financed.
Borrowings and collateral under the facilities and their prior year predecessors were as follows:
(In thousands) May 31, 2021 November 30, 2020
Borrowings under the residential facilities $ 671,541 1,185,797
Collateral under the residential facilities
695,275 1,231,619
Borrowings under the LMF Commercial facilities
104,247 124,617
If the facilities are not renewed or replaced, the borrowings under the lines of credit will be repaid by selling the mortgage loans held-for-sale to investors and by collecting receivables on loans sold but not yet paid for. Without the facilities, the Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.
Substantially all of the residential loans the Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Purchasers sometimes try to defray losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. Mortgage investors could seek to have the Company buy back mortgage loans or compensate them for losses incurred on mortgage loans that the Company has sold based on claims that the Company breached its limited representations or warranties. The Company’s mortgage operations have established accruals for
12
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
possible losses associated with mortgage loans previously originated and sold to investors. The Company establishes accruals for such possible losses based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans as well as previous settlements. While the Company believes that it has adequately reserved for known losses and projected repurchase requests, given the volatility in the residential mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed the Company’s expectations, additional recourse expense may be incurred. Loan origination liabilities are included in Financial Services’ liabilities in the Company's condensed consolidated balance sheets. The activity in the Company’s loan origination liabilities was as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(In thousands) 2021 2020 2021 2020
Loan origination liabilities, beginning of period $ 8,433 9,996 7,569 9,364
Provision for losses 1,114 1,139 2,080 1,915
Payments/settlements ( 93 ) ( 255 ) ( 195 ) ( 399 )
Loan origination liabilities, end of period $ 9,454 10,880 9,454 10,880
LMF Commercial - loans held-for-sale
LMF Commercial originated commercial loans as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(Dollars in thousands) 2021 2020 2021 2020
Originations (1) $ 196,498 5,400 415,998 417,650
Sold 155,740 142,938 438,705 457,377
Securitizations 1 1 3 3
(1) During both the three and six months ended May 31, 2021 and 2020 all the commercial loans originated were recorded as loans held-for-sale, which are held at fair value.
Investments held-to-maturity
At May 31, 2021 and November 30, 2020, the Financial Services segment held commercial mortgage-backed securities ("CMBS"). These securities are classified as held-to-maturity based on its intent and ability to hold the securities until maturity and changes in estimated cash flows are reviewed periodically to determine if an other-than-temporary impairment has occurred. Based on the segment’s assessment, no impairment charges were recorded during either the three or six months ended May 31, 2021 or 2020. The Company has financing agreements to finance CMBS that have been purchased as investments by the Financial Services segment.
Details related to Financial Services' CMBS were as follows:
(Dollars in thousands) May 31, 2021 November 30, 2020
Carrying value $ 162,919 164,230
Outstanding debt, net of debt issuance costs 152,396 153,505
Incurred interest rate 3.4 % 3.4 %
May 31, 2021
Discount rates at purchase 6 % — 84 %
Coupon rates 2.0 % — 5.3 %
Distribution dates October 2027 — December 2028
Stated maturity dates October 2050 — December 2051
Multifamily
The Company is actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. The Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets.
Operations of the Multifamily segment include revenues generated from the sales of land, revenue from construction activities, and management and promote fees generated from joint ventures and equity in earnings (loss) from unconsolidated entities and other gains (which includes sales of buildings), less the cost of sales of land sold, expenses related to construction activities and general and administrative expenses.
13
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Lennar Other
Lennar Other primarily includes strategic investments in technology companies, primarily managed by the Company's LEN X subsidiary, and fund interests the Company retained when it sold the Rialto asset and investment management platform. Operations of the Lennar Other segment include operating earnings (loss) consisting of revenues generated primarily from the Company's share of carried interests in the Rialto fund investments retained after the sale of Rialto's asset and investment management platform, along with equity in earnings (loss) from the Rialto fund investments and strategic technology investments, gains (losses) from investments in equity securities and other income (expense), net from the remaining assets related to the Company's former Rialto segment.
During the three months ended May 31, 2021, the Company completed the sale of the Company's residential solar business to Sunnova Energy International Inc. ("Sunnova") for shares in Sunnova. The Company recorded a gain of $ 151.5 million upon the closing of the sale. The calculation of the gain included the fair value of the 3.1 million shares in initial consideration received at closing and the fair value of potential shares to be received upon achievement of earnouts. The significant unobservable fair value assumptions used in the calculation were a terminal value multiple of 3 and a 15 % discount rate. The fair value of the earnouts was also based on the probability of achieving full or partial earnouts.
The investments in Opendoor Technologies, Inc ("Opendoor") and Sunnova are held at market and will therefore change depending on the value of the Company's share holdings on the last day of each quarter. During the three months ended May 31, 2021, the Company's Lennar Other segment recorded a loss of $ 234.3 million and $ 38.3 million related to the mark to market of the Company's share holdings in Opendoor and Sunnova, respectively. During the six months ended May 31, 2021 , Opendoor began trading on the Nasdaq stock market and the Company began to mark to market the Company's share holdings in the public entity. The mark to market recognition was due to the investment now being accounted for as an investment in equity securities which is held at fair value and the change in fair value is recognized through earnings. As of November 30, 2020, the investment in Opendoor was included in the Company's investments in unconsolidated entities and was accounted for using the equity method. In addition, as previously noted, several of the Company's other strategic technology investments have announced plans to go public either through an initial public offering or by merging with a publicly traded special purpose acquisition company.
(3) Investments in Unconsolidated Entities
Homebuilding Unconsolidated Entities
The investments in the Company's Homebuilding unconsolidated entities were as follows:
(In thousands) May 31, 2021 November 30, 2020
Investments in unconsolidated entities (1) (2) $ 1,010,256 953,177
Underlying equity in unconsolidated entities' net assets (1) 1,320,015 1,269,701
(1) The basis difference was primarily as a result of the Company contributing its investment in three strategic joint ventures with a higher fair value than book value for an investment in the FivePoint entity and deferring equity in earnings on land sales to the Company.
(2) Included in the Company's recorded investments in Homebuilding unconsolidated entities is the Company's 40 % ownership of FivePoint. As of May 31, 2021 and November 30, 2020, the carrying amount of the Company's investment was $ 387.0 million and $ 392.1 million, respectively.
The Company has an immaterial amount of recourse exposure to debt of the Homebuilding unconsolidated entities in which it has investments. While the Company sometimes guarantees debt of unconsolidated entities, in most instances the Company’s partners have also guaranteed that debt and are required to contribute their shares of any payments. In most instances the amount of guaranteed debt of an unconsolidated entity is less than the value of the collateral securing it.
In the first quarter of 2021, the Company formed the Upward America Venture ("the Venture"). The Venture will acquire single family homes for rent in high growth markets across the United States. The Venture raised equity to get to a total commitment of $ 1.25 billion led by institutional investors. Including leverage, the Venture will be positioned to acquire over $ 4.0 billion of new single family homes and townhomes from Lennar and potentially other homebuilders.
Multifamily Unconsolidated Entities
The unconsolidated entities in which the Multifamily segment has investments usually finance their activities with a combination of partner equity and debt financing. In connection with many of the bank loans to Multifamily unconsolidated entities, the Company (or entities related to them) has been required to give guarantees of completion and cost over-runs to the lenders and partners. The details related to these are unchanged from the disclosure in the Company's Notes to the Financial Statements section in its Form 10-K for the year ended November 30, 2020. As of both May 31, 2021 and November 30, 2020, the fair value of the completion guarantees was immaterial. As of May 31, 2021 and November 30, 2020, Multifamily segment's unconsolidated entities had non-recourse debt with completion guarantees of $ 748.4 million and $ 722.9 million, respectively.
14
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
In many instances, the Multifamily segment is appointed as the construction, development and property manager for its Multifamily unconsolidated entities and receives fees for performing this function. The Multifamily segment also provides general contractor services for construction of some of the rental properties owned by unconsolidated entities in which the Company has investments. The details of the activity was as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(In thousands) 2021 2020 2021 2020
General contractor services, net of deferrals $ 148,891 104,471 264,290 198,365
General contractor costs 142,783 100,284 253,236 190,465
Management fee income 14,188 14,574 29,059 28,397
The Multifamily segment includes Multifamily Venture Fund I ("LMV I") and Multifamily Venture Fund II LP ("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 six months ended May 31, 2021 are included below:
May 31, 2021
(In thousands) LMV I LMV II
Lennar's carrying value of investments $ 291,018 330,037
Equity commitments 2,204,016 1,257,700
Equity commitments called 2,142,446 1,168,546
Lennar's equity commitments 504,016 381,000
Lennar's equity commitments called 497,413 352,934
Lennar's remaining commitments 6,603 28,066
Distributions to Lennar during the six months ended May 31, 2021 40,581 1,165
Lennar Other Unconsolidated Entities
Lennar Other's unconsolidated entities includes fund investments the Company retained when it sold the Rialto assets and investment management platform, as well as strategic investments in technology companies, primarily managed by the Company's LEN X subsidiary. These strategic investments include the Company's investment in Doma, formerly known as States Title, which was reclassified from the Financial Services segment.
(4) Stockholders' Equity
The following tables reflect the changes in equity attributable to both Lennar Corporation and the noncontrolling interests of its consolidated subsidiaries in which it has less than a 100% ownership interest for the three and six months ended May 31, 2021 and 2020:
Three Months Ended May 31, 2021
(In thousands) Total
Equity Class A
Common Stock Class B
Common Stock Additional
Paid - in Capital Treasury
Stock Accumulated Other Comprehensive Income (loss) Retained
Earnings Noncontrolling
Interests
Balance at February 28, 2021 $ 19,017,451 30,047 3,944 8,724,192 ( 1,348,710 ) ( 1,747 ) 11,488,520 121,205
Net earnings (including net earnings attributable to noncontrolling interests) 836,772 — — — — — 831,363 5,409
Employee stock and directors plans
( 4,537 ) 2 — 1,165 ( 5,704 ) — — —
Purchases of treasury stock ( 98,460 ) — — — ( 98,460 ) — — —
Amortization of restricted stock
32,276 — — 32,276 — — — —
Cash dividends ( 78,483 ) — — — — — — ( 78,483 ) —
Receipts related to noncontrolling interests
5,009 — — — — — — 5,009
Payments related to noncontrolling interests
( 5,829 ) — — — — — — ( 5,829 )
Non-cash purchase or activity of noncontrolling interests, net ( 2,417 ) — — ( 2,613 ) — — — 196
Total other comprehensive income, net of tax 316 — — — — 316 — —
Balance at May 31, 2021 $ 19,702,098 30,049 3,944 8,755,020 ( 1,452,874 ) ( 1,431 ) 12,241,400 125,990
15
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Three Months Ended May 31, 2020
(In thousands) Total
Equity Class A
Common Stock Class B
Common Stock Additional
Paid - in Capital Treasury
Stock Accumulated Other Comprehensive Income (loss) Retained
Earnings Noncontrolling
Interests
Balance at February 29, 2020 $ 16,193,377 29,802 3,944 8,609,944 ( 1,253,756 ) 452 8,654,213 148,778
Net earnings (including net loss attributable to noncontrolling interests)
516,098 — — — — — 517,406 ( 1,308 )
Employee stock and directors plans
651 2 — 756 ( 107 ) — — —
Amortization of restricted stock
23,286 — — 23,286 — — — —
Cash dividends ( 38,905 ) — — — — — — ( 38,905 ) —
Receipts related to noncontrolling interests
80,148 — — — — — — 80,148
Payments related to noncontrolling interests
( 4,767 ) — — — — — — ( 4,767 )
Non-cash consolidations/deconsolidations, net ( 131,306 ) — — — — — — ( 131,306 )
Non-cash purchase or activity of noncontrolling interests, net ( 5,168 ) — — ( 3,544 ) — — — ( 1,624 )
Total other comprehensive loss, net of tax ( 790 ) — — — — ( 790 ) — —
Balance at May 31, 2020 $ 16,632,624 29,804 3,944 8,630,442 ( 1,253,863 ) ( 338 ) 9,132,714 89,921
Six Months Ended May 31, 2021
(In thousands) Total
Equity Class A
Common Stock Class B
Common Stock Additional
Paid - in Capital Treasury
Stock Accumulated Other Comprehensive Loss Retained
Earnings Noncontrolling
Interests
Balance at November 30, 2020 $ 18,099,401 29,894 3,944 8,676,056 ( 1,279,227 ) ( 805 ) 10,564,994 104,545
Net earnings (including net earnings attributable to noncontrolling interests)
1,853,681 — — — — — 1,832,732 20,949
Employee stock and directors plans
( 30,816 ) 155 — 1,106 ( 32,077 ) — — —
Purchases of treasury stock
( 141,570 ) — — — ( 141,570 ) — — —
Amortization of restricted stock
81,094 — — 81,094 — — — —
Cash dividends ( 156,326 ) — — — — — ( 156,326 ) —
Receipts related to noncontrolling interests
13,905 — — — — — — 13,905
Payments related to noncontrolling interests
( 17,226 ) — — — — — — ( 17,226 )
Non-cash purchase or activity of noncontrolling interests, net 581 — — ( 3,236 ) — — — 3,817
Total other comprehensive loss, net of tax ( 626 ) — — — — ( 626 ) — —
Balance at May 31, 2021 $ 19,702,098 30,049 3,944 8,755,020 ( 1,452,874 ) ( 1,431 ) 12,241,400 125,990
Six Months Ended May 31, 2020
(In thousands) Total
Equity Class A
Common Stock Class B
Common Stock Additional
Paid - in Capital Treasury
Stock Accumulated Other Comprehensive Income (loss) Retained
Earnings Noncontrolling
Interests
Balance at November 30, 2019 $ 16,033,830 29,712 3,944 8,578,219 ( 957,857 ) 498 8,295,001 84,313
Net earnings (including net loss attributable to noncontrolling interests)
907,321 — — — — — 915,858 ( 8,537 )
Employee stock and directors plans
( 6,773 ) 92 — 626 ( 7,491 ) — — —
Purchases of treasury stock ( 288,515 ) — — — ( 288,515 ) — — —
Amortization of restricted stock
55,141 — — 55,141 — — — —
Cash dividends ( 78,145 ) — — — — — — ( 78,145 ) —
Receipts related to noncontrolling interests
169,061 — — — — — — 169,061
Payments related to noncontrolling interests
( 21,501 ) — — — — — — ( 21,501 )
Non-cash consolidations/deconsolidations, net ( 131,791 ) — — — — — — ( 131,791 )
Non-cash purchase or activity of noncontrolling interests, net ( 5,168 ) — — ( 3,544 ) — — — ( 1,624 )
Total other comprehensive loss, net of tax ( 836 ) — — — — ( 836 ) — —
Balance at May 31, 2020 $ 16,632,624 29,804 3,944 8,630,442 ( 1,253,863 ) ( 338 ) 9,132,714 89,921
16
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
On June 18, 2021, the Company's Board of Directors declared a quarterly cash dividend of $ 0.25 per share on both its Class A and Class B common stock, payable on July 19, 2021 to holders of record at the close of business on July 2, 2021. On May 5, 2021, the Company paid cash dividends of $ 0.25 per share on both its Class A and Class B common stock to holders of record at the close of business on April 21, 2021, as declared by its Board of Directors on April 7, 2021. The Company 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 the fourth quarter of 2020 and first two quarter of 2021 on both its Class A and Class B common stock.
In January 2021, the Company's Board of Directors authorized the repurchase of up to the lesser of $ 1 billion in value, excluding commissions, or 25 million in shares, of the Company's outstanding Class A and Class B common stock. The repurchase has no expiration date. The following table represents the repurchase of the Company's Class A and Class B common stocks under this program and its predecessor for the three and six months ended May 31, 2021 and 2020:
Three Months Ended Six Months Ended
May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020
(Dollars in thousands, except price per share) Class A Class B Class A Class B Class A Class B Class A Class B
Shares repurchased 1,000,000 — — — 1,510,000 — 4,250,000 115,000
Principal $ 98,440 $ — $ — $ — $ 141,540 $ — $ 282,274 $ 6,155
Average price per share $ 98.44 $ — $ — $ — $ 93.73 $ — $ 66.42 $ 53.52
(5) Income Taxes
The provision for income taxes and effective tax rate were as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(Dollars in thousands) 2021 2020 2021 2020
Provision for income taxes $ 260,113 160,479 570,218 192,808
Effective tax rate (1) 23.8 % 23.7 % 23.7 % 17.4 %
(1) For the three and six months ended May 31, 2021 and 2020, the effective tax rate included state income tax expense and non-deductible executive compensation, partially offset by new energy efficient home and solar tax credits. The six months ended May 31, 2020 also included benefits related to the years ended November 30, 2018 and 2019, due to Congress retroactively extending the new energy efficient home tax credit in December 2019.
(6) Earnings Per Share
Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.
All outstanding nonvested shares that contain non-forfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings. The Company’s restricted common stock ("nonvested shares") is considered participating securities.
17
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(In thousands, except per share amounts) 2021 2020 2021 2020
Numerator:
Net earnings attributable to Lennar $ 831,363 517,406 1,832,732 915,858
Less: distributed earnings allocated to nonvested shares 776 357 1,406 690
Less: undistributed earnings allocated to nonvested shares 10,308 5,931 22,026 9,962
Numerator for basic earnings per share 820,279 511,118 1,809,300 905,206
Less: net amount attributable to Rialto's Carried Interest Incentive Plan (1) 1,569 3,322 2,122 3,322
Numerator for diluted earnings per share $ 818,710 507,796 1,807,178 901,884
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding 308,893 308,373 308,957 309,793
Effect of dilutive securities:
Shared based payments — — — 1
Denominator for diluted earnings per share - weighted average common shares outstanding 308,893 308,373 308,957 309,794
Basic earnings per share $ 2.66 1.66 5.86 2.92
Diluted earnings per share $ 2.65 1.65 5.85 2.91
(1) The amounts presented relate to Rialto's Carried Interest Incentive Plan and represent the difference between the advanced tax distributions received from the Rialto funds included in the Lennar Other segment and the amount Lennar is assumed to own.
For both the three and six months ended May 31, 2021 and May 31, 2020, there were no options to purchase shares of common stock that were outstanding and anti-dilutive.
(7) Homebuilding Senior Notes and Other Debts Payable
(Dollars in thousands) May 31, 2021 November 30, 2020
6.25 % senior notes due December 2021 (1)
$ 302,705 305,221
4.125 % senior notes due 2022
599,371 598,876
5.375 % senior notes due 2022
253,914 255,342
4.750 % senior notes due 2022
573,300 572,724
4.875 % senior notes due December 2023
397,948 397,347
4.500 % senior notes due 2024
647,890 647,528
5.875 % senior notes due 2024
441,147 443,484
4.750 % senior notes due 2025
498,224 498,002
5.25 % senior notes due 2026
406,103 406,709
5.00 % senior notes due 2027
352,316 352,508
4.75 % senior notes due 2027
895,135 894,760
Mortgage notes on land and other debt 526,289 583,257
$ 5,894,342 5,955,758
(1) Subsequent to May 31, 2021, the Company retired these notes. The redemption price, which was paid in cash, was par plus accrued but unpaid interest.
The carrying amounts of the senior notes in the table above are net of debt issuance costs of $ 13.6 million and $ 15.9 million as of May 31, 2021 and November 30, 2020, respectively.
As of May 31, 2021 the maximum available borrowings on the Company's unsecured revolving credit facility (the "Credit Facility") were $ 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 . The maturity, debt covenants and details of the Credit Facility are unchanged from the disclosure in the Company's Financial Condition and Capital Resources section in its Form 10-K for the year ended November 30, 2020. In addition to the Credit Facility, the Company has other letter of credit facilities with different financial institutions.
18
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Procedures related to performance letters of credit, financial letters of credit and surety bonds are unchanged from the disclosure in the Company's Financial Condition and Capital Resources section in its Form 10-K for the year ended November 30, 2020. The Company's outstanding performance letters of credit and surety bonds are described below:
(In thousands) May 31, 2021 November 30, 2020
Performance letters of credit $ 817,831 752,096
Surety bonds 3,306,473 3,087,711
Anticipated future costs primarily for site improvements related to performance surety bonds 1,743,993 1,584,642
The Company's senior notes are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries and some of the Company's other subsidiaries. These guarantees are unchanged from the disclosure in the Company's Financial Condition and Capital Resources section in its Form 10-K for the year ended November 30, 2020.
(8) Product Warranty
Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The activity in the Company’s warranty reserve, which are included in Homebuilding other liabilities, was as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(In thousands) 2021 2020 2021 2020
Warranty reserve, beginning of the period $ 348,100 287,413 341,765 294,138
Warranties issued 51,690 46,272 94,618 84,543
Adjustments to pre-existing warranties from changes in estimates (1) 13,119 7,707 18,760 13,611
Payments ( 51,168 ) ( 39,930 ) ( 93,402 ) ( 90,830 )
Warranty reserve, end of period $ 361,741 301,462 361,741 301,462
(1) The adjustments to pre-existing warranties from changes in estimates during the three and six months ended May 31, 2021 and May 31, 2020 primarily related to specific claims in certain of the Company's homebuilding communities and other adjustments.
(9) Financial Instruments and Fair Value Disclosures
The following table presents the carrying amounts and estimated fair values of financial instruments held or issued by the Company at May 31, 2021 and November 30, 2020, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, receivables, net and accounts payable, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.
May 31, 2021 November 30, 2020
(In thousands) Fair Value Hierarchy Carrying Amount Fair Value Carrying Amount Fair Value
ASSETS
Financial Services:
Loans held-for-investment, net Level 3 $ 77,680 77,780 72,626 70,808
Investments held-to-maturity Level 3 162,919 193,781 164,230 196,047
LIABILITIES
Homebuilding senior notes and other debts payable, net Level 2 $ 5,894,342 6,414,267 5,955,758 6,581,798
Financial Services notes and other debts payable, net Level 2 928,185 929,051 1,463,919 1,464,850
Lennar Other notes and other debts payable, net Level 2 1,906 1,906 1,906 1,906
The following methods and assumptions are used by the Company in estimating fair values:
Financial Services —The fair values above are based on quoted market prices, if available. The fair values for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information. For notes and other debts payable, the fair values approximate their carrying value due to variable interest pricing terms and the short-term nature of the majority of the borrowings.
Homebuilding —For senior notes and other debts payable, the fair value of fixed-rate borrowings is primarily based on quoted market prices and the fair value of variable-rate borrowings is based on expected future cash flows calculated using current market forward rates.
19
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Lennar Other —The fair value for notes payable approximate their carrying value due to variable interest pricing terms and the short-term nature of the borrowings.
Fair Value Measurements:
GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:
Level 1: Fair value determined based on quoted prices in active markets for identical assets.
Level 2: Fair value determined using significant other observable inputs.
Level 3: Fair value determined using significant unobservable inputs.
The Company’s financial instruments measured at fair value on a recurring basis are summarized below:
Fair Value Hierarchy Fair Value at
(In thousands) May 31, 2021 November 30, 2020
Financial Services Assets:
Residential loans held-for-sale Level 2 $ 851,518 1,296,517
LMF Commercial loans held-for-sale Level 3 163,920 193,588
Mortgage servicing rights Level 3 2,602 2,113
Lennar Other:
Investments in equity securities Level 1 $ 461,238 —
Investments available-for-sale Level 3 41,563 53,497
Residential and LMF Commercial loans held-for-sale in the table above include:
May 31, 2021 November 30, 2020
(In thousands) Aggregate Principal Balance Change in Fair Value Aggregate Principal Balance Change in Fair Value
Residential loans held-for-sale $ 817,901 33,617 1,232,548 63,969
LMF Commercial loans held-for-sale
167,948 ( 4,028 ) 194,362 ( 774 )
Financial Services residential loans held-for-sale - Fair value is based on independent quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. The Company recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these are included in Financial Services’ loans held-for-sale as of May 31, 2021 and November 30, 2020. Fair value of servicing rights is determined based on actual sales of servicing rights on loans with similar characteristics.
LMF Commercial loans held-for-sale - The fair value of loans held-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. The details and methods of the calculation are unchanged from the fair value disclosure in the Company's Notes to the Financial Statements section in its Form 10-K for the year ended November 30, 2020. These methods use unobservable inputs in estimating a discount rate that is used to assign a value to each loan. While the cash payments on the loans are contractual, the discount rate used and assumptions regarding the relative size of each class in the CMBS capital structure can significantly impact the valuation. Therefore, the estimates used could differ materially from the fair value determined when the loans are sold to a securitization trust.
Mortgage servicing rights - Financial Services records mortgage servicing rights when it sells loans on a servicing-retained basis or through the acquisition or assumption of the right to service a financial asset. The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and delinquency rates and are noted below:
Unobservable inputs As of May 31, 2021 As of November 30, 2020
Mortgage prepayment rate 13 % 18 %
Discount rate 14 % 12 %
Delinquency rate 3 % 4 %
Lennar Other investments in equity securities - The fair value of investments in equity securities was calculated based on independent quoted market prices. The Company’s investments in equity securities were recorded at fair value with all changes in fair value recorded to Lennar Other unrealized gain of the Company’s condensed consolidated statements of operations and comprehensive income (loss).
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Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Lennar Other investments available-for-sale - The fair value of investments available-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. Loan values are calculated by allocating the change in value of an assumed CMBS capital structure to each loan. The value of an assumed CMBS capital structure is calculated, generally, by discounting the cash flows associated with each CMBS class at market interest rates and at the Company’s own estimate of CMBS spreads.
The changes in fair values for Level 1 and Level 2 financial instruments measured on a recurring basis are shown below by financial instrument and financial statement line item:
Three Months Ended Six Months Ended
May 31, May 31,
(In thousands) 2021 2020 2021 2020
Changes in fair value included in Financial Services revenues:
Loans held-for-sale $ 4,669 5,270 ( 30,352 ) ( 2,223 )
Mortgage loan commitments 5,057 13,816 142 28,711
Forward contracts ( 23,953 ) 8,478 10,285 ( 883 )
Changes in fair value included in Lennar Other realized and unrealized gain (loss):
Investments in equity securities $ ( 272,625 ) — 197,120 —
Changes in fair value included in other comprehensive loss, net of tax:
Lennar Other investments available-for-sale $ 316 ( 338 ) ( 626 ) ( 384 )
Interest on Financial Services loans held-for-sale and LMF Commercial loans held-for-sale measured at fair value is calculated based on the interest rate of the loans and recorded as revenues in the Financial Services’ statement of operations.
The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements in the Company's Financial Services segment:
Three Months Ended
May 31, 2021 May 31, 2020
(In thousands) Mortgage servicing rights LMF Commercial loans held-for-sale Mortgage servicing rights LMF Commercial loans held-for-sale
Beginning balance $ 1,499 123,148 12,576 300,402
Purchases/loan originations 20 201,296 607 5,400
Sales/loan originations sold, including those not settled — ( 155,740 ) — ( 143,285 )
Disposals/settlements (1) ( 58 ) ( 7,300 ) ( 8,908 ) —
Changes in fair value (2) 1,141 2,825 ( 3,037 ) ( 2,334 )
Interest and principal paydowns — ( 309 ) — ( 298 )
Ending balance $ 2,602 163,920 1,238 159,885
Six Months Ended
May 31, 2021 May 31, 2020
(In thousands) Mortgage servicing rights LMF Commercial loans held-for-sale Mortgage servicing rights LMF Commercial loans held-for-sale
Beginning balance $ 2,113 193,588 24,679 197,224
Purchases/loan originations 443 420,796 1,354 417,650
Sales/loan originations sold, including those not settled
— ( 438,705 ) — ( 457,724 )
Disposals/settlements (1) ( 1,095 ) ( 7,300 ) ( 10,197 ) —
Changes in fair value (2) 1,141 ( 3,942 ) ( 14,598 ) 3,267
Interest and principal paydowns — ( 517 ) — ( 532 )
Ending balance $ 2,602 163,920 1,238 159,885
(1) The three and six months ended May 31, 2020 include $ 7.5 million related to the sale of a servicing portfolio.
(2) Changes in fair value for LMF Commercial loans held-for-sale and Financial Services mortgage servicing rights are included in Financial Services' revenues.
The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs. The fair values included in the table below represent only those assets whose carrying values were adjusted to fair value during the respective periods disclosed. The assets measured at fair value on a nonrecurring basis are summarized below:
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Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
Three Months Ended
May 31, 2021 May 31, 2020
(In thousands) Fair Value
Hierarchy Carrying Value Fair Value Total Losses, Net (1) Carrying Value Fair Value Total Losses, Net (1)
Non-financial assets - Homebuilding:
Finished homes and construction in progress (1) Level 3 $ 19,240 6,378 ( 12,862 ) 68,802 61,119 ( 7,683 )
Land and land under development (1) Level 3 78 — ( 78 ) 42,609 9,709 ( 32,900 )
Six Months Ended
May 31, 2021 May 31, 2020
(In thousands) Fair Value
Hierarchy Carrying Value Fair Value Total Losses, Net (1) Carrying Value Fair Value Total Losses, Net (1)
Non-financial assets - Homebuilding:
Finished homes and construction in progress (1) Level 3 $ 21,784 8,728 ( 13,056 ) 141,809 120,404 ( 21,405 )
Land and land under development (1) Level 3 520 — ( 520 ) 65,062 21,369 ( 43,693 )
(1) Valuation adjustments were included in Homebuilding costs and expenses in the Company's condensed consolidated statements of operations and comprehensive income (loss).
Finished homes and construction in progress are included within inventories. Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. The Company disclosed its accounting policy related to inventories and its review for indicators of impairment in the Summary of Significant Accounting Policies in its Form 10-K for the year ended November 30, 2020.
The Company estimates the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or assumptions change. For example, changes in market conditions and other specific developments or changes in assumptions may cause the Company to re-evaluate its strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.
The Company disclosed its accounting policy related to inventories and its review for indicators of impairment in the Summary of Significant Accounting Policies in its Form 10-K for the year ended November 30, 2020. On a quarterly basis, the Company reviews its active communities for indicators of potential impairments. The table below summarizes communities reviewed for indicators of impairment and communities with valuation adjustments recorded:
Communities with valuation adjustments
# of active communities # of communities with potential indicator of impairment # of communities Fair Value
(in thousands)
Valuation Adjustments
(in thousands)
At or for the Six Months Ended
May 31, 2021 1,221 10 1 $ 17,117 $ 11,849
May 31, 2020 1,241 41 9 69,137 32,072
The table below summarizes the most significant unobservable inputs used in the Company's discounted cash flow model to determine the fair value of its communities for which the Company recorded valuation adjustments:
Six Months Ended
May 31,
2021 2020
Unobservable inputs Range
Average selling price $ 635,000 201,000 - 970,000
Absorption rate per quarter (homes) 11 3 - 15
Discount rate 20 % 20 %
(10) Variable Interest Entities
The Company evaluated the joint venture ("JV") agreements of its JV's that were formed or that had reconsideration events, such as changes in the governing documents or to debt arrangements during the six months ended May 31, 2021 and based on the Company's evaluation, there were no VIEs that were consolidated or deconsolidated.
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Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
The carrying amount of the Company's consolidated VIE's assets and non-recourse liabilities are disclosed in the footnote to the condensed consolidated balance sheets.
A VIE’s assets can only be used to settle obligations of that VIE. The VIEs are not guarantors of the Company’s senior notes or other debts payable. The assets held by a VIE usually are collateral for that VIE’s debt. The Company and other partners do not generally have an obligation to make capital contributions to a VIE unless the Company and/or the other partner(s) have entered into debt guarantees with a VIE’s lenders. Other than debt guarantee agreements with a VIE’s lenders, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to a VIE. While the Company has option contracts to purchase land from certain of its VIEs, the Company is not required to purchase the assets and could walk away from the contracts.
Unconsolidated VIEs
The Company’s recorded investments in VIEs that are unconsolidated and its estimated maximum exposure to loss were as follows:
May 31, 2021 November 30, 2020
(In thousands) Investments in
Unconsolidated VIEs Lennar’s Maximum
Exposure to Loss Investments in
Unconsolidated VIEs Lennar’s Maximum
Exposure to Loss
Homebuilding (1) $ 94,264 214,014 89,654 89,828
Multifamily (2) 624,440 681,992 619,540 717,271
Financial Services 162,919 162,919 164,230 164,230
Lennar Other (3) 46,223 46,223 76,023 130,177
$ 927,846 1,105,148 949,447 1,101,506
(1) As of May 31, 2021 and November 30, 2020, the maximum exposure to loss of Homebuilding's investments in unconsolidated VIEs was limited to its investments in unconsolidated VIEs, except as of May 31, 2021, with regard to the Company's remaining commitment to fund capital in the Upward America Venture, a single family for rent platform.
(2) As of May 31, 2021 and November 30, 2020, the maximum exposure to loss of Multifamily's investments in unconsolidated VIEs was primarily limited to its investments in the unconsolidated VIEs, except with regard to the remaining equity commitment of $ 34.7 million and $ 88.1 million, respectively, to fund LMV I and LMV II for future expenditures related to the construction and development of its projects.
(3) As of May 31, 2021, the decrease in investments in unconsolidated VIEs and maximum exposure to loss was related to an entity which had a reconsideration event due to the payoff of a note receivable which caused the entity to no longer be considered a VIE.
While these entities are VIEs, the Company has determined that the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance is generally shared and the Company and its partners are not de-facto agents. While the Company generally manages the day-to-day operations of the VIEs, each of these VIEs has an executive committee made up of representatives from each partner. The members of the executive committee have equal votes and major decisions require unanimous consent and approval from all members. The Company does not have the unilateral ability to exercise participating voting rights without partner consent.
There are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to the VIEs. Except for the unconsolidated VIEs discussed above, the Company and the other partners did not guarantee any debt of the other unconsolidated VIEs. While the Company has option contracts to purchase land from certain of its unconsolidated VIEs, the Company is not required to purchase the assets and could walk away from the contracts.
Option Contracts
The Company has access to land through option contracts, which generally enable it to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company has determined whether to exercise the options.
The Company evaluates all option contracts for land to determine whether they are VIEs and, if so, whether the Company is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, if the Company is deemed to be the primary beneficiary or makes a significant deposit for optioned land, it may need to consolidate the land under option at the purchase price of the optioned land.
During the six months ended May 31, 2021, consolidated inventory not owned increased by $ 73.4 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of May 31, 2021. The increase was primarily due to additions in the six months ended May 31, 2021 as the Company focused on increasing its controlled homesites. To reflect the purchase price of the homesite takedowns, the Company had a net reclass related to option deposits from consolidated inventory not owned to land under development in the accompanying condensed consolidated balance sheet as of May 31, 2021. The liabilities related to consolidated inventory not
23
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
owned primarily represent the difference between the option exercise prices for the optioned land and the Company’s cash deposits.
The Company's exposure to losses on its option contracts with third parties and unconsolidated entities were as follows:
(Dollars in thousands) May 31, 2021 November 30, 2020
Non-refundable option deposits and pre-acquisition costs $ 891,910 414,154
Letters of credit in lieu of cash deposits under certain land and option contracts 138,244 87,537
(11) Commitments and Contingent Liabilities
The Company is party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the Company’s consolidated financial statements. From time to time, the Company is also a party to various lawsuits involving purchases and sales of real property. These lawsuits include claims regarding representations and warranties made in connection with the transfer of properties and disputes regarding the obligation to purchase or sell properties.
The Company does not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on its business or financial position. However, the financial effect of litigation concerning purchases and sales of property may depend upon the value of the subject property, which may have changed from the time the agreement for purchase or sale was entered into.
Leases
The Company has entered into agreements to lease certain office facilities and equipment under operating leases. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets and right-of-use lease liabilities are recorded on the balance sheet for all leases, except leases with an initial term of 12 months or less. Many of the Company's leases include options to renew. The exercise of lease renewal options is at the Company's option and therefore renewal option payments have not been included in the ROU assets or lease liabilities. The following table includes additional information about the Company's leases:
(Dollars in thousands) May 31, 2021 November 30, 2020
Right-of-use assets $ 157,444 113,390
Lease liabilities 165,761 122,836
Weighted-average remaining lease term (in years) 8.4 2.9
Weighted-average discount rate 3.0 % 3.1 %
Future minimum payments under the noncancellable leases in effect at May 31, 2021 were as follows:
(In thousands) Lease Payments
2021 $ 17,932
2022 32,834
2023 26,699
2024 21,552
2025 17,530
2026 and thereafter 71,177
Total future minimum lease payments (1) $ 187,724
Less: Interest (2) 21,963
Present value of lease liabilities (2) $ 165,761
(1) Total future minimum lease payments exclude variable lease costs of $ 12.9 million and short-term lease costs of $ 1.7 million. This also does not include minimum lease payments for executed and legally enforceable leases that have not yet commenced. As of May 31, 2021, the minimum lease payments for these leases that have not yet commenced were immaterial.
(2) The Company's leases do not include a readily determinable implicit rate. As such, the Company has estimated the discount rate for these leases to determine the present value of lease payments at the lease commencement date or as of December 1, 2019, which was the effective date of ASU 2016-02. As of May 31, 2021, the weighted average remaining lease term and weighted average discount rate used in calculating the lease liabilities were 8.4 years and 3.0 %, respectively. The Company recognized the lease liabilities on its condensed consolidated balance sheets within accounts payable or other liabilities of the respective segments.
The Company's rental expense and payments on lease liabilities were as follows:
Six months ended
(In thousands) May 31, 2021 May 31, 2020
Rental expense $ 41,662 41,131
Payment on lease liabilities 18,122 28,958
24
Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
On occasion, the Company may sublease rented space which is no longer used for the Company's operations. For both the six months ended May 31, 2021 and 2020, the Company had an immaterial amount of sublease income.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.