LENNAR CORP /NEW/ 10-Q

Item 1. Financial Statements Lennar Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Dollars in thousands) February 28, November 30, 2022 (1) 2021 (1) (Unaudited) ASSETS Homebuilding: Cash and cash equivalents $ 1,366,597 2,735,213 Restricted cash 27,025 21,927 Receivables, net 456,185 490,278 Inventories: Finished homes and construction in progress 11,587,394 10,446,139 Land and land under development 7,758,804 7,108,142 Consolidated inventory not owned 1,246,504 1,161,023 Total inventories 20,592,702 18,715,304 Investments in unconsolidated entities 1,066,256 972,084 Goodwill 3,442,359 3,442,359 Other assets 1,141,362 1,090,654 28,092,486 27,467,819 Financial Services 2,183,333 2,964,367 Multifamily 1,250,570 1,311,747 Lennar Other 1,108,863 1,463,845 Total assets $ 32,635,252 33,207,778 (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 February 28, 2022, total assets include $ 1.1 billion related to consolidated VIEs of which $ 66.9 million is included in Homebuilding cash and cash equivalents, $ 0.3 million in Homebuilding receivables, net, $ 703.4 million in Homebuilding land and land under development, $ 218.3 million in Homebuilding consolidated inventory not owned, $ 1.1 million in Homebuilding investments in unconsolidated entities, $ 22.1 million in Homebuilding other assets and $ 59.4 million in Multifamily assets. As of November 30, 2021, total assets include $ 1.1 billion related to consolidated VIEs of which $ 60.9 million is included in Homebuilding cash and cash equivalents, $ 4.4 million in Homebuilding receivables, net, $ 14.3 million in Homebuilding finished homes and construction in progress, $ 697.1 million in Homebuilding land and land under development, $ 239.2 million in Homebuilding consolidated inventory not owned, $ 1.1 million in Homebuilding investments in unconsolidated entities, $ 17.4 million in Homebuilding other assets and $ 80.6 million in Multifamily assets. See accompanying notes to condensed consolidated financial statements. 3 Lennar Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Continued) (In thousands, except share amounts) February 28, November 30, 2022 (2) 2021 (2) (Unaudited) LIABILITIES AND EQUITY Homebuilding: Accounts payable $ 1,321,148 1,321,247 Liabilities related to consolidated inventory not owned 1,038,561 976,602 Senior notes and other debts payable, net 4,639,222 4,652,338 Other liabilities 3,022,840 2,920,055 10,021,771 9,870,242 Financial Services 1,334,145 1,906,343 Multifamily 311,775 288,930 Lennar Other 120,129 145,981 Total liabilities 11,787,820 12,211,496 Stockholders’ equity: Preferred stock — — Class A common stock of $ 0.10 par value; Authorized: February 28, 2022 and November 30, 2021 - 400,000,000 shares; Issued: February 28, 2022 - 302,427,896 shares and November 30, 2021 - 300,500,075 shares 30,243 30,050 Class B common stock of $ 0.10 par value; Authorized: February 28, 2022 and November 30, 2021 - 90,000,000 shares; Issued: February 28, 2022 - 39,443,168 shares and November 30, 2021 - 39,443,168 shares 3,944 3,944 Additional paid-in capital 8,855,151 8,807,891 Retained earnings 15,078,788 14,685,329 Treasury stock, at cost; February 28, 2022 - 43,806,845 shares of Class A common stock and 2,574,016 shares of Class B common stock; November 30, 2021 - 38,586,961 shares of Class A common stock and 1,922,016 shares of Class B common stock ( 3,290,748 ) ( 2,709,448 ) Accumulated other comprehensive income (loss) 1,686 ( 1,341 ) Total stockholders’ equity 20,679,064 20,816,425 Noncontrolling interests 168,368 179,857 Total equity 20,847,432 20,996,282 Total liabilities and equity $ 32,635,252 33,207,778 (2) As of February 28, 2022, total liabilities include $ 236.4 million related to consolidated VIEs as to which there was no recourse against the Company, of which $ 23.8 million is included in Homebuilding accounts payable, $ 182.7 million in Homebuilding liabilities related to consolidated inventory not owned, $ 18.4 million in Homebuilding senior notes and other debts payable, $ 7.8 million in Homebuilding other liabilities and $ 3.8 million in Multifamily liabilities. As of November 30, 2021, total liabilities include $ 258.5 million related to consolidated VIEs as to which there was no recourse against the Company, of which $ 26.6 million is included in Homebuilding accounts payable, $ 196.6 million in Homebuilding liabilities related to consolidated inventory not owned, $ 20.1 million in Homebuilding senior notes and other debt payable, $ 12.3 million in Homebuilding other liabilities and $ 2.8 million in Multifamily liabilities. See accompanying notes to condensed consolidated financial statements. 4 Lennar Corporation and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share amounts) (Unaudited) Three Months Ended February 28, 2022 2021 Revenues: Homebuilding $ 5,752,205 4,943,056 Financial Services 176,701 244,069 Multifamily 267,359 131,443 Lennar Other 7,251 6,900 Total revenues 6,203,516 5,325,468 Costs and expenses: Homebuilding 4,641,898 4,118,286 Financial Services 85,910 97,862 Multifamily 263,737 131,049 Lennar Other 5,407 4,252 Corporate general and administrative 113,661 110,531 Charitable foundation contribution 12,538 12,314 Total costs and expenses 5,123,151 4,474,294 Homebuilding equity in loss from unconsolidated entities ( 286 ) ( 4,565 ) Homebuilding other income (expense), net ( 171 ) 12,975 Multifamily equity in earnings (loss) from unconsolidated entities and other gain 1,805 ( 1,268 ) Lennar Other unrealized gain (loss) from technology investments ( 395,170 ) 469,745 Lennar Other equity in loss from unconsolidated entities and other expense, net, and other gain ( 9,808 ) ( 1,047 ) Earnings before income taxes 676,735 1,327,014 Provision for income taxes ( 167,420 ) ( 310,105 ) Net earnings (including net earnings attributable to noncontrolling interests) 509,315 1,016,909 Less: Net earnings attributable to noncontrolling interests 5,734 15,540 Net earnings attributable to Lennar $ 503,581 1,001,369 Other comprehensive income (loss), net of tax: Net unrealized gain (loss) on securities available-for-sale $ 742 ( 942 ) Reclassification adjustments for gain included in earnings, net of tax 2,285 — Total other comprehensive income (loss), net of tax $ 3,027 ( 942 ) Total comprehensive income attributable to Lennar $ 506,608 1,000,427 Total comprehensive income attributable to noncontrolling interests $ 5,734 15,540 Basic earnings per share $ 1.70 3.20 Diluted earnings per share $ 1.69 3.20 See accompanying notes to condensed consolidated financial statements. 5 Lennar Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended February 28, 2022 2021 Cash flows from operating activities: Net earnings (including net earnings attributable to noncontrolling interests) $ 509,315 1,016,909 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation and amortization 20,089 22,325 Amortization of discount/premium on debt, net ( 490 ) ( 2,361 ) Equity in loss from unconsolidated entities 9,752 7,897 Distributions of earnings from unconsolidated entities 4,822 4,234 Share-based compensation expense 81,457 48,818 Deferred income tax (benefit) expense ( 54,032 ) 114,917 Loans held-for-sale unrealized loss 27,387 35,021 Lennar Other unrealized (gain) loss from technology investments 395,170 ( 469,745 ) Gain on sale of other assets and operating properties and equipment — ( 1,167 ) Gain on sale of interest in unconsolidated entity and other Multifamily gain — ( 19,184 ) Valuation adjustments and write-offs of option deposits and pre-acquisition costs 11,509 635 Changes in assets and liabilities: Decrease in receivables 380,502 45,649 Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs ( 1,913,634 ) ( 862,120 ) Increase in other assets ( 49,968 ) ( 100,486 ) Decrease in loans held-for-sale 409,435 360,582 Increase in accounts payable and other liabilities 96,455 183,584 Net cash (used in) provided by operating activities ( 72,231 ) 385,508 Cash flows from investing activities: Net additions of operating properties and equipment ( 5,780 ) ( 8,561 ) Proceeds from the sale of operating properties and equipment, other assets — 32,002 Investments in and contributions to unconsolidated entities ( 138,909 ) ( 224,112 ) Distributions of capital from unconsolidated entities 173,561 83,241 Proceeds from sale of commercial mortgage-backed securities bonds 9,191 11,307 Decrease in Financial Services loans held-for-investment, net 11,431 3,777 Purchases of investment securities ( 71,269 ) — Proceeds from maturities/sales of investment securities 1,783 8,994 Net cash used in investing activities $ ( 19,992 ) ( 93,352 ) See accompanying notes to condensed consolidated financial statements. 6 Lennar Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Continued) (In thousands) (Unaudited) Three Months Ended February 28, 2022 2021 Cash flows from financing activities: Net repayments under warehouse facilities $ ( 528,667 ) ( 500,849 ) Principal payments on notes payable and other borrowings ( 18,776 ) ( 55,350 ) Proceeds from other borrowings — 8,903 Proceeds from liabilities related to consolidated inventory not owned 199,483 67,432 Payments related to consolidated inventory not owned ( 166,100 ) — Receipts related to noncontrolling interests 6,984 8,896 Payments related to noncontrolling interests ( 59,388 ) ( 11,397 ) Common stock: Repurchases ( 581,300 ) ( 69,480 ) Dividends ( 110,122 ) ( 77,843 ) Net cash used in financing activities $ ( 1,257,886 ) ( 629,688 ) Net decrease in cash and cash equivalents and restricted cash ( 1,350,109 ) ( 337,532 ) Cash and cash equivalents and restricted cash at beginning of period 2,955,683 2,932,730 Cash and cash equivalents and restricted cash at end of period $ 1,605,574 2,595,198 Summary of cash and cash equivalents and restricted cash: Homebuilding $ 1,366,597 2,421,411 Financial Services 168,032 117,856 Multifamily 34,439 25,644 Lennar Other 2,757 3,888 Homebuilding restricted cash 27,025 17,878 Financial Services restricted cash 6,724 8,521 $ 1,605,574 2,595,198 Supplemental disclosures of non-cash investing and financing activities: Homebuilding and Multifamily: Purchases of inventories and other assets financed by sellers $ 6,150 68,978 Non-cash contributions to unconsolidated entities 124,864 — See accompanying notes to condensed consolidated financial statements. 7 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 and pursuant to the rules and regulations of the Securities and Exchange Commission. 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, 2021. 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, 2021. 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 months ended February 28, 2022 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 February 28, 2022 and November 30, 2021 included $ 894.6 million and $ 940.4 million, respectively, of cash held in escrow. On average for the three months ended February 28, 2022, cash was held in escrow for approximately two days . Homebuilding Revenue Recognition Homebuilding revenues and related profits from sales of homes are recognized at the time of the closing of a sale, when title to and possession of the property are transferred to the homebuyer. In order to promote sales of the homes, the Company may offer sales incentives to homebuyers. The types of incentives vary on a community-by-community basis and home-by-home basis. They include primarily price discounts on individual homes and financing incentives, all of which are reflected as a reduction of home sales revenues. For the three months ended February 28, 2022 and 2021, sales incentives offered to homebuyers averaged $ 8,600 per home, or 1.9 % as a percentage of home sales revenues, and $ 12,300 per home, or 3.0 % as a percentage of home sales revenues, respectively. Share-based Payments During both the three months ended February 28, 2022 and 2021, the Company granted employees 1.4 million nonvested shares. Recently Adopted 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 was effective for the Company’s fiscal year beginning December 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements. 8 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (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) February 28, 2022 Assets: Homebuilding Financial Services Multifamily Lennar Other Total Cash and cash equivalents $ 1,366,597 168,032 34,439 2,757 1,571,825 Restricted cash 27,025 6,724 — — 33,749 Receivables, net (1) 456,185 358,866 101,334 — 916,385 Inventories 20,592,702 — 395,507 — 20,988,209 Loans held-for-sale (2) — 1,199,603 — — 1,199,603 Investments in equity securities (3) — — — 670,980 670,980 Investments available-for-sale (4) — — — 34,760 34,760 Loans held-for-investment, net — 33,168 — — 33,168 Investments held-to-maturity — 156,587 — — 156,587 Investments in unconsolidated entities 1,066,256 — 661,252 333,755 2,061,263 Goodwill 3,442,359 189,699 — — 3,632,058 Other assets 1,141,362 70,654 58,038 66,611 1,336,665 $ 28,092,486 2,183,333 1,250,570 1,108,863 32,635,252 Liabilities: Notes and other debts payable, net $ 4,639,222 1,197,360 16,930 — 5,853,512 Accounts payable and other liabilities 5,382,549 136,785 294,845 120,129 5,934,308 $ 10,021,771 1,334,145 311,775 120,129 11,787,820 9 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (In thousands) November 30, 2021 Assets: Homebuilding Financial Services Multifamily Lennar Other Total Cash and cash equivalents $ 2,735,213 167,021 16,850 2,660 2,921,744 Restricted cash 21,927 12,012 — — 33,939 Receivables, net (1) 490,278 708,165 98,405 — 1,296,848 Inventories 18,715,304 — 454,093 — 19,169,397 Loans held-for-sale (2) — 1,636,351 — — 1,636,351 Investments in equity securities (3) — — — 1,006,599 1,006,599 Investments available-for-sale (4) — — — 41,654 41,654 Loans held-for-investment, net — 44,582 — — 44,582 Investments held-to-maturity — 157,808 — — 157,808 Investments in unconsolidated entities 972,084 — 654,029 346,270 1,972,383 Goodwill 3,442,359 189,699 — — 3,632,058 Other assets 1,090,654 48,729 88,370 66,662 1,294,415 $ 27,467,819 2,964,367 1,311,747 1,463,845 33,207,778 Liabilities: Notes and other debts payable, net $ 4,652,338 1,726,026 — — 6,378,364 Accounts payable and other liabilities 5,217,904 180,317 288,930 145,981 5,833,132 $ 9,870,242 1,906,343 288,930 145,981 12,211,496 (1) Receivables, net for Financial Services primarily related to loans sold to investors for which the Company had not yet been paid as of February 28, 2022 and November 30, 2021, respectively. (2) Loans held-for-sale related to unsold residential and commercial loans carried at fair value. (3) Investments in equity securities include investments of $ 168.2 million and $ 100.1 million without readily available fair values as of February 28, 2022 and November 30, 2021, 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 February 28, 2022 (In thousands) Homebuilding Financial Services Multifamily Lennar Other Corporate and unallocated Total Revenues (1) $ 5,752,205 176,701 267,359 7,251 — 6,203,516 Operating earnings (loss) 1,109,850 90,791 5,427 ( 403,134 ) — 802,934 Corporate general and administrative expenses — — — — 113,661 113,661 Charitable foundation contribution — — — — 12,538 12,538 Earnings (loss) before income taxes 1,109,850 90,791 5,427 ( 403,134 ) ( 126,199 ) 676,735 Three Months Ended February 28, 2021 Revenues $ 4,943,056 244,069 131,443 6,900 — 5,325,468 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 (1) Revenues for Multifamily for the three months ended February 28, 2022 includes $ 131.6 million of land sales to unconsolidated entities 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. 10 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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: Alabama, 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 February 28, 2022 $ 6,552,930 3,939,627 3,240,006 11,854,213 1,414,532 1,091,178 28,092,486 November 30, 2021 5,854,057 3,782,847 2,801,192 11,171,741 1,443,163 2,414,819 27,467,819 Financial information relating to the Company’s homebuilding segments was as follows: Three Months Ended February 28, 2022 (In thousands) East Central Texas West Other Total Homebuilding Revenues $ 1,670,186 1,109,272 812,619 2,150,798 9,330 5,752,205 Operating earnings (loss) 351,995 152,078 171,312 441,448 ( 6,983 ) 1,109,850 Three Months Ended February 28, 2021 Revenues $ 1,355,942 928,442 644,078 2,009,579 5,015 4,943,056 Operating earnings (loss) 262,083 132,023 129,643 321,706 ( 12,275 ) 833,180 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 February 28, 2022, 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: April 2022 $ 100,000 July 2022 400,000 October 2022 200,000 December 2022 500,000 Total - Residential facilities $ 1,200,000 LMF Commercial facilities maturing November 2022 $ 100,000 December 2022 400,000 July 2023 50,000 Total - LMF Commercial facilities $ 550,000 Total $ 1,750,000 11 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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) February 28, 2022 November 30, 2021 Borrowings under the residential facilities $ 1,021,791 1,482,258 Collateral under the residential facilities 1,059,876 1,539,641 Borrowings under the LMF Commercial facilities 29,247 96,294 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 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 February 28, (In thousands) 2022 2021 Loan origination liabilities, beginning of period $ 11,670 7,569 Provision for losses 966 966 Payments/settlements ( 165 ) ( 102 ) Loan origination liabilities, end of period $ 12,471 8,433 LMF Commercial - loans held-for-sale LMF Commercial originated commercial loans as follows: Three Months Ended February 28, (Dollars in thousands) 2022 2021 Originations (1) $ 264,845 219,500 Sold 178,082 282,965 Securitizations 1 2 (1) During both the three months ended February 28, 2022 and 2021 all the commercial loans originated were recorded as loans held-for-sale, which are held at fair value. Investments held-to-maturity At February 28, 2022 and November 30, 2021, 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 months ended February 28, 2022 or 2021. The Company has financing agreements to finance CMBS that have been purchased as investments by the Financial Services segment. 12 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) Details related to Financial Services' CMBS were as follows: (Dollars in thousands) February 28, 2022 November 30, 2021 Carrying value $ 156,587 157,808 Outstanding debt, net of debt issuance costs 146,322 147,474 Incurred interest rate 3.4 % 3.4 % February 28, 2022 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. 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 Capital Management ( "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, realized and unrealized gains (losses) from investments in equity securities and other income (expense), net from the remaining assets related to the Company's former Rialto segment. The Company has investments in Opendoor Technologies, Inc. ("Opendoor"), Hippo Holdings, Inc. ("Hippo"), Sunnova ("NOVA"), SmartRent, Inc. ("SmartRent"), Blend Labs, Inc. ("Blend") and Sonder ("SOND"), which are held at market and will therefore change depending on the value of the Company's share holdings in those entities on the last day of each quarter. The following is a detail of Lennar Other unrealized gain (loss): Three Months Ended February 28, 2022 2021 Opendoor (OPEN) mark to market $ ( 143,361 ) 469,745 Hippo (HIPO) mark to market ( 124,457 ) — Sunnova (NOVA) mark to market ( 75,041 ) — SmartRent (SMRT) mark to market ( 44,363 ) — Blend Labs (BLND) mark to market ( 7,442 ) — Sonder (SOND) mark to market ( 506 ) — $ ( 395,170 ) 469,745 During the year ended November 30, 2021, Opendoor, Hippo, Sunnova, SmartRent and Blend began trading in the public markets and the Company began to mark to market the Company's shares of share holdings in the public entities. During the three months ended February 28, 2022, shares of Sonder began trading in the public markets and the Company began to mark to market its share holding in the public entity. All the investments are accounted for as investments in equity securities which are held at fair value and the changes in fair values are recognized through earnings. In addition, Doma Holdings, Inc. ("Doma") went public during the year ended November 30, 2021. However, Doma is an investment that continues to be accounted for under the equity method due to the Company's significant ownership interest which allows the Company to exercise significant influence. As of February 28, 2022, the Company owns approximately 26 % of Doma and the carrying amount of the Company's investment is $ 43.9 million. 13 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (3) Investments in Unconsolidated Entities Homebuilding Unconsolidated Entities The investments in the Company's Homebuilding unconsolidated entities were as follows: (In thousands) February 28, 2022 November 30, 2021 Investments in unconsolidated entities (1) (2) $ 1,066,256 972,084 Underlying equity in unconsolidated entities' net assets (1) 1,405,719 1,301,719 (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 February 28, 2022 and November 30, 2021, the carrying amount of the Company's investment was $ 376.6 million and $ 381.6 million, respectively. As of February 28, 2022 and November 30, 2021, the Homebuilding segment's unconsolidated entities had non-recourse debt with completion guarantees of $ 205.0 million and $ 241.0 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. As of both February 28, 2022 and November 30, 2021, the fair values of the repayment guarantees, maintenance guarantees, and completion guarantees were not material. The Company believes that as of February 28, 2022, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Homebuilding unconsolidated entity due to a triggering event under a guarantee, the collateral would be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities with regard to obligations of its joint ventures (see Note 7 of the Notes to Condensed Consolidated Financial Statements). In the first quarter of 2021, the Company formed the Upward America Venture ("Upward America"), and is managing and participating in Upward America. Upward America is an investment fund that acquires new single-family homes in high growth markets across the United States and rents them to people who will live in them. Upward America has raised equity commitments totaling $ 1.6 billion, including $ 350 million of equity commitments raised during the quarter ended February 28, 2022. The commitments are primarily from institutional investors, including $ 125 million committed by Lennar. Including leverage, Upward America 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, 2021. As of both February 28, 2022 and November 30, 2021, the fair value of the completion guarantees was immaterial. As of February 28, 2022 and November 30, 2021, Multifamily segment's unconsolidated entities had non-recourse debt with completion guarantees of $ 985.1 million and $ 855.2 million, respectively. 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 February 28, (In thousands) 2022 2021 General contractor services, net of deferrals $ 117,263 115,399 General contractor costs 113,233 110,453 Management fee income 13,127 14,871 14 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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 three months ended February 28, 2022 are included below: February 28, 2022 (In thousands) LMV I LMV II Lennar's carrying value of investments $ 244,454 316,728 Equity commitments 2,204,016 1,257,700 Equity commitments called 2,150,135 1,204,235 Lennar's equity commitments 504,016 381,000 Lennar's equity commitments called 499,216 363,749 Lennar's remaining commitments 4,800 17,251 Distributions to Lennar during the three months ended February 28, 2022 8,732 3,735 During the first quarter of 2022, the Multifamily segment completed the initial closing of a new Lennar Multifamily Fund (the "Fund") for the development, construction and property management of Class A multifamily assets across high growth metropolitan areas in the United States. The Multifamily segment expects the Fund to have almost $ 1 billion in equity and Lennar's ownership percentage in the Fund is expected to be 4 %. The Company currently has a $ 10.3 million investment in the Fund. Additional dollars will be committed as opportunities are identified by the Fund. Other Unconsolidated Entities Lennar Other's unconsolidated entities includes fund investments the Company retained when it sold the Rialto assets and investment management platform in 2018, as well as strategic investments in technology companies, primarily managed by the Company's LEN X subsidiary. (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 months ended February 28, 2022 and 2021: Three Months Ended February 28, 2022 (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, 2021 $ 20,996,282 30,050 3,944 8,807,891 ( 2,709,448 ) ( 1,341 ) 14,685,329 179,857 Net earnings (including net earnings attributable to noncontrolling interests) 509,315 — — — — — 503,581 5,734 Employee stock and directors plans ( 54,886 ) 193 — ( 140 ) ( 54,939 ) — — — Purchases of treasury stock ( 526,361 ) — — — ( 526,361 ) — — — Amortization of restricted stock 81,457 — — 81,457 — — — — Cash dividends ( 110,122 ) — — — — — ( 110,122 ) — Receipts related to noncontrolling interests 6,984 — — — — — — 6,984 Payments related to noncontrolling interests ( 59,388 ) — — — — — — ( 59,388 ) Non-cash purchase or activity of noncontrolling interests, net 1,124 — — ( 34,057 ) — — — 35,181 Total other comprehensive income, net of tax 3,027 — — — — 3,027 — — Balance at February 28, 2022 $ 20,847,432 30,243 3,944 8,855,151 ( 3,290,748 ) 1,686 15,078,788 168,368 15 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) Three Months Ended February 28, 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 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) 1,016,909 — — — — — 1,001,369 15,540 Employee stock and directors plans ( 26,279 ) 153 — ( 59 ) ( 26,373 ) — — — Purchases of treasury stock ( 43,110 ) — — — ( 43,110 ) — — — Amortization of restricted stock 48,818 — — 48,818 — — — — Cash dividends ( 77,843 ) — — — — — ( 77,843 ) — Receipts related to noncontrolling interests 8,896 — — — — — — 8,896 Payments related to noncontrolling interests ( 11,397 ) — — — — — — ( 11,397 ) Non-cash purchase or activity of noncontrolling interests, net 2,998 — — ( 623 ) — — — 3,621 Total other comprehensive loss, net of tax ( 942 ) — — — — ( 942 ) — — 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 On February 10, 2022, the Company paid cash dividends of $ 0.375 per share on both its Class A and Class B common stock to holders of record at the close of business on January 27, 2022, as declared by its Board of Directors on January 12, 2022. The Company approved and paid cash dividends of $ 0.250 per share for each of the four quarters of 2021 on both its Class A and Class B common stock. In October 2021, the Company's Board of Directors authorized an increase to the Company's stock repurchase program to enable the Company to repurchase up to the lesser of an additional $ 1 billion in value or 25 million in shares, of its outstanding Class A or Class B common stock. As a result of prior authorizations being almost exhausted, in March 2022, the Company's Board of Directors approved an additional authorization for the Company to repurchase up to the lesser of $ 2 billion in value, or 30 million in shares, of its outstanding Class A or Class B common stock. The repurchase authorization has no expiration date. The following table represents the repurchases of the Company's Class A and Class B common stocks under the authorized repurchase programs for the three months ended February 28, 2022 and 2021: Three Months Ended February 28, 2022 2021 (Dollars in thousands, except price per share) Class A Class B Class A Class B Shares repurchased 4,616,000 652,000 510,000 — Total purchase price $ 472,924 $ 53,331 $ 43,100 $ — Average price per share $ 102.45 $ 81.80 $ 84.51 $ — (5) Income Taxes The provision for income taxes and effective tax rate were as follows: Three Months Ended February 28, (Dollars in thousands) 2022 2021 Provision for income taxes $ 167,420 310,105 Effective tax rate (1) 25.0 % 23.6 % (1) For both the three months ended February 28, 2022 and 2021, the effective tax rate included state income tax expense and non-deductible executive compensation, partially offset by energy efficient home and solar tax credits. (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 16 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) participation rights in undistributed earnings. The Company’s restricted common stock ("nonvested shares") is considered participating securities. Basic and diluted earnings per share were calculated as follows: Three Months Ended February 28, (In thousands, except per share amounts) 2022 2021 Numerator: Net earnings attributable to Lennar $ 503,581 1,001,369 Less: distributed earnings allocated to nonvested shares 780 630 Less: undistributed earnings allocated to nonvested shares 4,548 11,624 Numerator for basic earnings per share 498,253 989,115 Less: net amount attributable to Rialto's Carried Interest Incentive Plan (1) 1,798 553 Numerator for diluted earnings per share $ 496,455 988,562 Denominator: Denominator for basic earnings per share - weighted average common shares outstanding 293,930 309,020 Denominator for diluted earnings per share - weighted average common shares outstanding 293,930 309,020 Basic earnings per share $ 1.70 3.20 Diluted earnings per share $ 1.69 3.20 (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 months ended February 28, 2022 and 2021, 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) February 28, 2022 November 30, 2021 4.750 % senior notes due 2022 $ 574,110 573,840 4.875 % senior notes due December 2023 398,544 398,345 4.500 % senior notes due 2024 648,434 648,253 5.875 % senior notes due 2024 437,641 438,810 4.750 % senior notes due 2025 498,557 498,446 5.25 % senior notes due 2026 405,194 405,497 5.00 % senior notes due 2027 352,028 352,124 4.75 % senior notes due 2027 895,697 895,510 Mortgage notes on land and other debt 429,017 441,513 $ 4,639,222 4,652,338 The carrying amounts of the senior notes in the table above are net of debt issuance costs of $ 10.1 million and $ 11.0 million as of February 28, 2022 and November 30, 2021, respectively. As of February 28, 2022 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, 2021. In addition to the Credit Facility, the Company has other letter of credit facilities with different financial institutions. The Company's processes for posting performance and 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, 2021. The Company's outstanding performance letters of credit and surety bonds are described below: 17 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) (In thousands) February 28, 2022 November 30, 2021 Performance letters of credit $ 1,007,295 924,584 Financial letters of credit 542,072 425,843 Surety bonds 3,660,958 3,553,047 Anticipated future costs primarily for site improvements related to performance surety bonds 1,739,779 1,690,861 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, 2021. (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 is included in Homebuilding other liabilities, was as follows: Three Months Ended February 28, (In thousands) 2022 2021 Warranty reserve, beginning of the period $ 377,021 341,765 Warranties issued 49,192 42,928 Adjustments to pre-existing warranties from changes in estimates (1) 4,724 5,641 Payments ( 56,791 ) ( 42,234 ) Warranty reserve, end of period $ 374,146 348,100 (1) The adjustments to pre-existing warranties from changes in estimates during the three months ended February 28, 2022 and 2021 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 February 28, 2022 and November 30, 2021, 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. February 28, 2022 November 30, 2021 (In thousands) Fair Value Hierarchy Carrying Amount Fair Value Carrying Amount Fair Value ASSETS Financial Services: Loans held-for-investment, net Level 3 $ 33,168 33,179 44,582 44,594 Investments held-to-maturity Level 3 156,587 175,538 157,808 184,495 LIABILITIES Homebuilding senior notes and other debts payable, net Level 2 $ 4,639,222 4,889,702 4,652,338 5,046,721 Financial Services notes and other debts payable, net Level 2 1,197,360 1,198,107 1,726,026 1,726,860 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. 18 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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) February 28, 2022 November 30, 2021 Financial Services Assets: Residential loans held-for-sale Level 2 $ 1,113,808 1,636,283 LMF Commercial loans held-for-sale Level 3 85,795 68 Mortgage servicing rights Level 3 2,793 2,492 Lennar Other: Investments in equity securities Level 1 $ 502,755 906,539 Investments available-for-sale Level 3 34,760 41,654 Residential and LMF Commercial loans held-for-sale in the table above include: February 28, 2022 November 30, 2021 (In thousands) Aggregate Principal Balance Change in Fair Value Aggregate Principal Balance Change in Fair Value Residential loans held-for-sale $ 1,091,676 22,132 1,586,764 49,519 LMF Commercial loans held-for-sale 86,385 ( 590 ) — 68 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 February 28, 2022 and November 30, 2021. 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, 2021. 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 February 28, 2022 As of November 30, 2021 Mortgage prepayment rate 11 % 13 % Discount rate 13 % 13 % Delinquency rate 5 % 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 (loss) from technology investments on the Company’s condensed consolidated statements of operations and comprehensive income. 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 19 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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 February 28, (In thousands) 2022 2021 Changes in fair value included in Financial Services revenues: Loans held-for-sale $ ( 27,387 ) ( 35,021 ) Mortgage loan commitments 13,797 ( 4,915 ) Forward contracts 9,990 34,238 Changes in fair value included in Lennar Other unrealized gain (loss) from technology investments: Investments in equity securities $ ( 395,170 ) 469,745 Changes in fair value included in other comprehensive gain (loss), net of tax: Lennar Other investments available-for-sale $ 742 ( 942 ) 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 February 28, 2022 2021 (In thousands) Mortgage servicing rights LMF Commercial loans held-for-sale Mortgage servicing rights LMF Commercial loans held-for-sale Beginning balance $ 2,492 68 2,113 193,588 Purchases/loan originations 82 264,845 424 219,500 Sales/loan originations sold, including those not settled — ( 178,082 ) — ( 282,965 ) Disposals/settlements ( 159 ) — ( 1,038 ) — Changes in fair value (1) 378 ( 590 ) — ( 6,767 ) Interest and principal paydowns — ( 446 ) — ( 208 ) Ending balance $ 2,793 85,795 1,499 123,148 (1) 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: Three Months Ended February 28, 2022 2021 (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 Level 3 $ 15,358 13,841 ( 1,517 ) 442 — ( 442 ) Land and land under development Level 3 20,752 10,760 ( 9,992 ) 2,543 2,350 ( 193 ) (1) Valuation adjustments were included in Homebuilding costs and expenses in the Company's condensed consolidated statements of operations and comprehensive income. 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, 2021. 20 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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, 2021. 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 At or for the Three Months Ended # of active communities # of communities with potential indicator of impairment # of communities Fair Value (in thousands) Valuation Adjustments (in thousands) February 28, 2022 1,199 5 — $ — $ — February 28, 2021 1,158 10 — — — (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 three months ended February 28, 2022 and based on the Company's evaluation, there were two entities that consolidated with total combined assets of $ 6.1 million and no outstanding liabilities. During the three months ended February 28, 2022, there were no VIEs that were deconsolidated. 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: February 28, 2022 November 30, 2021 (In thousands) Investments in Unconsolidated VIEs Lennar’s Maximum Exposure to Loss Investments in Unconsolidated VIEs Lennar’s Maximum Exposure to Loss Homebuilding (1) $ 195,232 327,897 107,323 301,619 Multifamily (2) 575,668 604,861 579,388 611,937 Financial Services (3) 156,587 156,587 157,808 157,808 Lennar Other (4) 13,077 13,077 12,680 12,680 $ 940,564 1,102,422 857,199 1,084,044 (1) As of February 28, 2022 and November 30, 2021, the maximum exposure to loss of Homebuilding's investments in unconsolidated VIEs was limited to its investments in unconsolidated VIEs, except with regard to the Company's remaining $ 102.7 million commitment to fund capital in Upward America, and a $ 26.8 million short-term loan provided by the Company to Upward America. (2) As of February 28, 2022 and November 30, 2021, 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 $ 22.1 million and $ 23.1 million, respectively, to fund LMV I and LMV II for future expenditures related to the construction and development of its projects. The decrease was due to the funding of capital for LMV I and LMV II. (3) As of February 28, 2022 and November 30, 2021, the maximum exposure to loss of the Financial Services segment was limited to its investment in the unconsolidated entities VIEs and related to the Financial Services' CMBS investments held-to-maturity. (4) As of February 28, 2022, the maximum recourse exposure to loss of the Lennar Other segment was limited to its investments in the unconsolidated VIEs. 21 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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 three months ended February 28, 2022, consolidated inventory not owned increased by $ 85.5 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of February 28, 2022. The increase was primarily due to additions in the three months ended February 28, 2022 as the Company focused on increasing its controlled homesites, partially offset by takedowns. 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 consolidated balance sheet as of February 28, 2022. The liabilities related to consolidated inventory not 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) February 28, 2022 November 30, 2021 Non-refundable option deposits and pre-acquisition costs $ 1,435,142 1,228,057 Letters of credit in lieu of cash deposits under certain land and option contracts 169,746 175,937 (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 often 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. 22 Lennar Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) 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. Right-of-use ("ROU") assets and 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) February 28, 2022 November 30, 2021 Right-of-use assets $ 152,066 155,616 Lease liabilities 161,208 163,513 Weighted-average remaining lease term (in years) 8.1 8.2 Weighted-average discount rate 2.9 % 2.8 % Future minimum payments under the noncancellable leases in effect at February 28, 2022 were as follows: (In thousands) Lease Payments 2022 $ 26,898 2023 30,481 2024 24,833 2025 20,269 2026 15,423 2027 and thereafter 63,257 Total future minimum lease payments (1) $ 181,161 Less: Interest (2) 19,953 Present value of lease liabilities (2) $ 161,208 (1) Total future minimum lease payments exclude variable lease costs of $ 19.3 million and short-term lease costs of $ 2.4 million. This also does not include minimum lease payments for executed and legally enforceable leases that have not yet commenced. As of February 28, 2022, 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 February 28, 2022, the weighted average remaining lease term and weighted average discount rate used in calculating the lease liabilities were 8.1 years and 2.9 %, 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: Three months ended (In thousands) February 28, 2022 February 28, 2021 Rental expense $ 25,641 20,707 Payment on lease liabilities 6,557 9,906 On occasion, the Company may sublease rented space which is no longer used for the Company's operations. For both the three months ended February 28, 2022 and 2021, the Company had an immaterial amount of sublease income. 23