Stuart Miller
Executive Chairman and Co-Chief Executive Officer at Lennar
Thank you, and good morning, everybody, and thank you for joining today.
I'm in Miami today together with Jon Jaffe, our Co-CEO and President; Diane Bessette, our Chief Financial Officer; David Collins, who we just heard from our Controller and Vice President; Bruce Gross is here, our CEO of Lennar Financial Services and we have a few others as well. As usual, I'm going to give a macro and strategic overview of the company after my introductory remarks, Jon is going to give an operational overview updating construction costs, cycle time, and some other operating overviews. As usual, Diane is going to give a detailed financial highlight, along with some limited guidance for our third quarter and full year 2024. And then, of course, we'll have our question-and-answer period. And as usual, I'd like to ask that you please limit yourself to one question and one follow-up, so that we can accommodate as many as possible.
But before I begin, however, I would like to express on behalf of all of the associates of Lennar, the sadness we all feel for the recent loss of another pioneer of our industry, Don Horton. While we homebuilders compete sometimes aggressively in the field and across geographies, it is always with humble admiration and respect for our competitors. We learn from each other. We have references for all of their accomplishments. We learn from their successes and sometimes their failures and we are pushed to be our very best by their comparative accomplishments. This business is not easy and those who succeed over years are to be admired. Don was a tremendous success among homebuilders and his success spanned decades. He climbed from humble beginnings to the greatest heights within our industry. To the associates of D.R. Horton as well as to Don Horton's family, we express our most sincere condolences and we look forward to continuing to live, to learn, to admire, and yes, to compete with the D.R. Horton name as you carry on Don's tremendous legacy.
With that said, let me begin my remarks today. We're very pleased to report another consistent and solid quarter of operating results for Lennar. We have continued to execute our operating plan effectively throughout the first half of 2024, as we have driven production pace and sales pace in sync, while we have used our margin as a point of adjustment to enable consistent production, even as market conditions have changed. This program has driven excellent operating results to date and we have simply never been better-positioned as a company from balance sheet to operating strategy to execution to be able to adjust to a changing market as it unfolds for the remainder of 2024 and beyond. In the second quarter, we started approximately 21,400 homes, we sold approximately 21,300 homes and we delivered approximately 19,700 homes, keeping us on target to deliver approximately 80,000 homes for the year.
Next quarter, we expect to start, sell, and deliver similar consistency as we continue to drive a continuously improving even flow manufacturing model that we believe will continue to enhance our cash flow, our bottom line as well as our predictability. We've continued to target a consistent production and growth rate in order to maintain volume, minimize production costs, maintain even flow production and sales, all in order to drive cash flow, effective capital allocation, and higher returns. Our primary goal is to migrate to a pure-play, asset-light manufacturing model that will be supported by a durable, just-in-time homesite delivery program that will enable simultaneous growth and cash flow. We believe that a cash flow-enabled capital allocation strategy will drive higher shareholder returns, higher returns on assets, and ultimately higher returns on equity. As we migrate to our desired end-state, margin is the springing mechanism that enables this all to happen. This quarter, our margin was somewhat higher than expected at 22.6%, up from 21.8% last quarter.
Next quarter, we expect our margin to be approximately 23% depending on market conditions. And for the full year, we remain focused on driving margin to be approximately the same as last year's full year margin of 23.3%. While we understand that will require a substantially higher fourth quarter margin, that accomplishment is partially embedded in our backlog, while as I have said before, the rest of that story will depend on market conditions, interest rates, and consumer confidence as we go through the remainder of the year. We will see. While we have been refining our operating platform, we've continued to drive strong cash flow and have allocated over $600 million to repurchase approximately 3.8 million shares of stock and additionally, to repay over $550 million of senior debt as we continue to improve our balance sheet with a homebuilding debt-to-total capital ratio of just 7.7%.
While we continue to hold a sizable $3.6 billion of cash on our book, we are crafting our strategy for strategic capital allocation in pursuit of our structural objectives, which I will discuss further in just a few minutes. But let me briefly address the economic environment. Overall, the macroeconomic environment remains relatively constructive for homebuilders. There are challenges and there are opportunities. The demand for housing remain strong, limited by affordability, interest rates and sometimes wavering consumer confidence. Additionally, the chronic housing shortage driven by over a decade of underproduction of housing stock is additionally problematic for families seeking affordable, or attainable supply. Demand remains robust if it can be supplied at an attainable price point with interest-rate support that enables the consumer to transact.
Through our second quarter, interest rates started lower and felt constructive at approximately 6.75% as the market was adjusting to a new normal. Then through the quarter, rates began a gradual climb to 7.3% before dropping again as the quarter ended. Concurrently, consumers remained employed. They are confident that they will remain employed and they believe that their compensation will rise as well. This is most often the foundation of a very strong housing market. But the chronic supply shortage, the impact of interest rates on affordability as well as persistent and stubborn inflation have moderated housing market strength. In response, new homebuilders have worked out incentive structures that range from interest-rate buy-downs to closing cost pickups to price reductions designed to meet the purchaser at their intersection of need and affordability. Those incentives have increased and decreased as interest rates have moved up and down. Homebuilders, particularly those with strong balance sheets and ready access to capital, have been able to adjust, capture demand, and drive efficiencies by using incentives to reduce the affordability constraints and enable purchasers to transact. However, against this backdrop, in our second quarter, we have continued to execute our core operating strategy. That strategy has been to refine a manufacturing production model that is pure-play homebuilding and land-light, asset-light, and simply put, that is what we are refining.
As I noted last quarter, we have been refining our manufacturing model. We have also been actively migrating to a pure-play and land-light operating structure across our homebuilding platform and each of our 40 homebuilding divisions. We'll start with manufacturing. We've continued to refine our manufacturing platform that is maintained production and sales pace, while we continue to engineer our homes for efficiency and volume. Driving volume enables us to offer more attainable products. We add needed supply to the market. We meet the needs of the consumer and we contribute to building a balanced and therefore healthier housing market. In doing so, we have enhanced our inventory turn and grown volume as we generate substantial cash flow. The consistency of our production and sales program across our platform together with constructive capital allocation, enable us to simultaneously enhance shareholder returns, returns on inventory and ultimately return on equity.
Let me turn to pure play. We are a homebuilder that builds affordable housing in strategic markets that fill the chronic supply shortage. We will continue to reduce exposure to all non-core assets. We are intensifying our focus on producing affordable and attainable product across our platform. Land is more expensive, impact fees are getting more expensive and labor and material costs have been rising as well. We can only reduce the cost of housing by increasing productivity through efficiencies of our operation. Our focus has been on doing just that. We are building more consistent products that we call our core products that are carefully value-engineered and we are using our start pace to refine an engineered production cycle, enabling us to reduce cycle time and to work with our trade partners to build efficiencies in logistics and the way that we run our community production.
We are building attainable homes for primary purchasers who can afford a down payment and qualify for a mortgage. And as market conditions dictate, we have and will use incentives to enable primary purchasers to purchase and achieve home ownership. We have also continued working on additional product approaches to help build a more healthy housing market. We have intensified our focus on build-to-rent, community-scale, and single-family-for-rent, scattered homes across markets. We believe that we can and need to build additional production for professionally owned housing that can fill an important additional need. Those professional purchasers need cost efficiencies in today's interest rate environment in order to make their rents attainable and we can provide that. There are many families who are building their future and aspire to single-family lifestyle with backyards, schools, and parks, but who can't yet afford a down payment, or don't have the credit characteristics to qualify for the mortgage that they need.
Institutional buyers fill that void for those families. Many have criticized the professionally owned market and the investor class that competes with primary homeowners to purchase product for rentals. This is flawed thinking. We are also engaged in repurposing our blue-chip multifamily platform to build attainable rental products in an off-balance sheet configuration. We will build a singular product, another core product called our Emblem series. It will be built by our homebuilding division but will be built with private equity capital. We have a strong history of successfully building multifamily products across the country. We have been building those products in an off-balance sheet configuration and we expect to continue to build this vital, attainable product without encumbering our balance sheet.
Concurrently, we are repatriating capital that has been deployed in prior multifamily engagements. We are under contract to sell the assets of LMV 1 Fund 1 of LMV Fund 1. There are multiple buyers and we are working through the closing process of each asset with those buyers. We expect the assets will close throughout the second half of 2024. Also, as we continue to stay laser-focused on our pure-play and asset-light strategy of generating cash and increasing returns, we are regularly reviewing the best strategy for other multifamily assets that are on book and we may decide to monetize additional assets also in the second half of 2024. On a combined basis, these transactions could result in cash proceeds of approximately $250 million in the second half of the year.
So let me turn to just-in-time. We have been complementing our manufacturing model with a durable, just-in-time finished homesite delivery system. Every home that is going to be built needs a homesite with a permit and those homesites need to be option and off-balance sheet until we are ready to build. We continue to focus on a just-in-time delivery program for land, just like we have for lumber and appliances and we continue to make excellent progress in this regard. While we have always executed option land deals with third-party developers, those deals are not always available and there are no developers in many of our markets. We only become structurally and durably land-light and asset-light by both negotiating option deals with landowners and developers and also creating structured land strategies with private equity capital or permanent capital.
Accordingly, we have worked with a series of private equity partners to create a homesite purchase platform, where land is held and developed and ultimately delivered on a rolling option basis to the manufacturer as homes are ready to be started. This platform is a backstop for purchased land to be developed and delivered just in time to the manufacturer without land risk to that manufacturer. By consistently focusing on our land-light strategy, we have materially enhanced and generated consistent cash flow through the ups and downs of interest-rate changes and we have enhanced our balance sheet and our liquidity. Our balance sheet, as I noted earlier, is situated with a 7.7% debt-to-capital ratio, homebuilding debt-to-capital ratio with $3.6 billion of cash-on-hand and zero dollars drawn on our revolver.
We have the flexibility to allocate capital strategically, first, of course, to growth, while also retiring debt, paying appropriate dividends, and repurchasing shares of Lennar stock. We are aware that many have suggested that we have accumulated too much cash on our balance sheet and our leverage is very limited, which limits the ability of our returns to move higher. While we have understood the concern, we have remained patient as we have evolved not just the migration to land-light configurations, but also have remained focused on the long-term durability of the structures involved. Private equity capital can be tickled by driving volume through these programs, we have gained advantaged insights into the refined workings of our strategic land programs. Although we have a number of constructive partners in this regard, I would like to especially thank Ryan Mollett and Angelo Gordon for being an incredible and selfless partner in helping to evolve these programs over the past years. He has been truly invaluable in execution and evolution and of course, never a mercenary in any engagement.
With Ryan's help, the underlying plumbing system for the land strategies have been refined and questions have been answered as to the durability of the relationships that make up the counterparty relationship with the homebuilding partner. Building on our experience, on our last earnings call, we announced that we were rekindling our focus on a strategic spin-off of most of our remaining land in order to create a permanent capital vehicle that can option developed homesites to Lennar, recycle capital into new homesites and distribute market appropriate returns to shareholders.
I am pleased to inform you, that we have made substantial progress over the last 90 days and we confidentially submitted a draft registration statement to the SEC a few weeks ago. We are currently looking at approximately $6 billion to $8 billion of land that we expect to spin-off into a new public company with no associated debt. The goal of the spin-off is to accelerate our land-light strategy, which would allow for off-balance sheet treatment of the land assets. We are excited about the opportunities that we believe this spin-off will bring us to the innovations that we have developed for the operation of the spin-off entity.
Following the spin-off, the new public company will be completely independent from Lennar. Lennar will have option purchase agreements to purchase back finished homesites on a just-in-time basis. Our team, led by Fred Rothman has been fully dedicated to bringing this project to life as soon as we can, but we are still early in the process and there is no specific timeline to completion or guarantee that the transaction will be completed. Because of the ongoing review by the SEC, we cannot comment further on the spin-off, but we look forward to providing you with an update on progress and timing in the future. After this spin-off, the new company would be another bucket of capital, in other words, additive, consistent, and compatible with other relationships that have existed and will continue to thrive alongside Lennar. Such a transaction would distribute capital to shareholders, it would reduce inventory on Lennar's books and it would provide permanent dependable capital for future land options. Our balance sheet will remain very strong with consistent earnings and cash flow to continue to pay down debt and to repurchase stock.
So let me conclude and say, at Lennar, we are continuing to modernize and upgrade the Lennar operating platform as we drive consistent production and sales. It has been a busy and productive quarter and we have continued to execute in the short-term while we build our platform for continued and future success. Our second quarter of 2024, has been another strategic and operational success for our company. While market conditions have remained challenging, we have consistently learned and found ways to address market needs. We know that demand is strong and there is a chronic housing supply shortage that needs to be filled. We will continue to drive production to meet the housing shortage that we know persists across our markets.
With that said, as interest rates subside and normalize and if the Fed is actually going to begin to cut rates, we believe a pent-up demand will be activated and we will be well-prepared. If not, we will continue to produce volume and add to market supply, for that, we are well-prepared. Even though higher rates have remained sticky, strong pent-up demand has found ways to access the housing market. Given consistent execution, we are extremely well-positioned for even greater success as strong demand for affordable offerings continues to seek short supply. Perhaps most importantly, our extraordinarily strong balance sheet affords us flexibility and opportunity to consider and execute upon thoughtful innovation for our future.
We will focus on our manufacturing model and continue to execute. We will focus on our pure-play business model and reduce exposure to non-core assets. We will continue to drive to just-in-time homesite delivery and an asset-light balance sheet and we will continue to allocate capital to growth, debt retirement, and stock repurchases as appropriate. We have the luxury to execute flawlessly in the short-term while we continue to return capital to our shareholders through dividend and stock buyback, while we also and I emphasize, also pursue strategic distribution to shareholders that fortifies our future. We have clearly, clearly earned an enviable position.
As I look forward to a successful 2024, we are well-positioned and expect to see much more of the same. We are confident that by design, we will continue to grow, perform, and drive Lennar to new levels of consistent and predictable performance. We are guiding to 20,500 to 21,000 closings next quarter, with approximately a 23% margin, and we do expect to deliver approximately 80,000 homes this year with a little over a 23% margin. We also expect to repurchase in excess of $2 billion of stock in 2024, as we continue to drive very strong cash flow. We look forward to a very strong year and for that, I want to thank the extraordinary associates of Lennar for their tremendous focus, effort, and talent.
And with that, let me turn over to Jon.
