Lennar Corporation Price & Performance (LEN)

Are you asking about the decision to build each home? Yes. Because what people think if you have a 10 let's call it a 10% EBIT margin. Right? People think that'd be a 10% cash flow. No, it's not because traditional model each unit you sell you need to go out and write acquire a raw lot that you need to develop where that's turned into a variable cost I e cash flow is your earnings. I think people are still kind of missing that because it seems to me that's how you're making your choice as opposed absent the need to buy land, outside the margin side is your cash flow drag historically.

Well, listen, I don't think it's quite that linear. The fact is that we're going out and we're looking for a piece of land. And And the reality is that land might have to be developed And and it might take a year, year and a half for the land to actually mature to a developed home site. And while it isn't situated on our books, we have we have been a participant in making the decision on that piece of land, which we basically assign an absorption rate to.

It might be three homes per month, four homes per month, but we are making that decision. The real benefit of where we are is that we're constantly refreshing We're keeping those land obligations much shorter And as they mature to develop homesites, we're taking them down.

We're committing to a an absorption rate and that commitment is limited in its scope or in its risk, by the amount of deposit and commitment that we have but we are looking at building a model that says, where we make a commitment to a takedown schedule we're gonna do our very best to execute on that in order to work through that land. And that's how the land bank becomes a lot more efficient. Over time. The dependability on that absorption rate will enable them to bring the cost of capital down and re rationalize the actual cost of our inputs relative to the home. So I wouldn't think of it as a home site by home site optionality. That just flows through. But on the other hand, you are running through [indiscernible] on a more cash flow basis and redeploying that cash. Into better land over a shorter period of time. I think very much to your point, Stuart.

Ken, is that as Stuart described, we're underwriting this land and determining absorption pace of say four a month we're at that time laying out a timeline for development get to that finished home site Stuart described. And then a timeline of start sequences at that four month that's gonna match. So it's really at the time of underwriting, we're almost making the decision of starting when we're gonna start homes and with the pace and sequence that we're going to stick to.

Right.

Very good. I guess my second question would simply be, if you guys quantify the spread between what you saw in backlog and what became intra quarter order closings in 1Q comment on the 2Q spread if it exists or not. And if you're share count guidance Diane for 2Q what that effect would be if your exchange was fully executed. Thank you very much.

Well, if I look at the second quarter, just from high level, what's in backlog and it's pretty close to that 18%, and what's we expect to sell and close is closer to that as well, or what we've experienced so far. So that's why as Stuart mentioned, the margin will really be dependent on that sell and close as we go [indiscernible] Don't have a lot of data behind us, right, since March 1, just a couple of weeks? To the extent that the increases or decreases, our margin will be impacted, because there is always lot sell and close in the same quarter. But right now, everything hovering around the margin guidance that we gave.

Excellent. Okay.

Thanks, Ken. And let's end it there. I want to thank everyone for joining us. These are tricky times as we look at the housing industry. You can always count on getting a straight shot from Lennar. We're going to tell you where the market is. And how we're addressing it. Look forward to keeping you updated as we go forward through 2025. Thank you, everyone.

That concludes Lennar's first quarter earnings conference call. Thank you all for participating. You may disconnect at this time and please enjoy the rest of your day.