Stuart Miller
Executive Chairman and Co-Chief Executive Officer at Lennar
Very good. 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 you just heard from, our Controller and Vice President; Bruce Gross, our CEO of Lennar Financial Services; and 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 of our land strategy and position. As usual, Diane is going to give a detailed financial highlight along with some limited guidance for fourth quarter and full year of 2024. And then, of course, we'll have our question-and-answer period. As usual, I would like to ask that you please limit yourself to one question and one follow-up, so that we can accommodate as many as possible.
So let's begin. We are very pleased to report another very strong quarter and year end of operating results for Lennar. We've executed our operating plan effectively over the past year and, accordingly, have simply never been better positioned from balance sheet to operating strategy to address market conditions in the new year 2024. Throughout 2023, the dominant theme at the macro level has been the impact of higher interest rates on the homebuilding consumer, as affordability has been tested and demand has been constrained by the ability to purchase, i.e., affordability and the ability to qualify.
Generally speaking, consumers are employed and are generally confident that they will remain employed and that their compensation will generally rise. Overall, consumer confidence has been reasonably strong and buyers that can transact have transacted. Underlying this environment is a general chronic supply shortage of homes, especially affordable homes across the country, as well as a growing pent-up demand for housing that has -- that is and has been held back by materially higher interest rates. There has been a very short supply of affordable product and a very strong demand for that affordable product.
The new home builders have worked out a variety of incentive structures that range from interest rate buydowns to closing cost pickups to price reductions to meet the buyer, the purchaser at the intersection of need and affordability. The existing home market has been quiet as existing homeowners have coveted their low interest rate mortgages and remained on the sidelines. Homebuilders have been uniquely able to activate demand by using incentives that unlock the affordability constraint and enable purchasers to transact.
Over the past quarter, this narrative has been particularly difficult as interest rates spiked through the first two months of the quarter and then began to ease in November. As mortgage rates began to migrate from 7.5% towards 8%, the market began to feel like it was hitting a real inflection point and the overall market conditions softened materially.
Most recently, of course, Chair Powell and the Fed have signaled that we might be closer to the end of the tightening cycle and we might see lower rates as we enter 2024 and get into the new year. We will see. Against this backdrop, Lennar's consistent strategy throughout the past year has been to continue to drive volume to find affordability to meet demand by using our dynamic pricing model and using appropriate incentives and provide supply to the market.
Over the past year, we have consistently detailed our operating strategy with the expectation that we would do as follows: Number one, reduce our land assets while growing our business; Number two, drive strong and consistent bottom-line earnings while concurrently generating consistent net cash flow; Number three, reduce our construction cycle times while increasing our inventory turn; And number four, ultimately enhance the quality of our returns on equity and return on assets by focusing on the allocation of liquid assets i.e., cash.
2023 was a year of strategy and successful execution for Lennar and sets us up extremely well for another strong year of execution in 2024. We began the year with a strong statement of operating strategy in a higher interest rate environment, and we focused on execution throughout the year. Even as the macroeconomic environment continued to shift and adjust to inflation with higher interest rates, we adhered to our strategy and we drove volume and production.
We believed that demand was strong, though constrained by affordability, and supply was very limited. As others pulled back, we leaned in and maintained pace. We defined our operating strategy as driving production and sales pace while using price incentives and margin reduction to enable affordability. Rather than further constraining supply, we drove production and used our formidable size and scale to enable cost and operating efficiencies to drive affordability.
As you've seen in our press release, while driving higher volume, we also achieved strong operating results. We delivered over 73,000 homes in 2023, which represents a 10% year-over-year volume increase over 2022, and we delivered a strong bottom line of $3.9 billion or $4.82 a share. We also generated well in excess of the $3.5 billion of homebuilding cash flow that we generated relative to that -- what we generated in '22. And we are well positioned with land and community count to expect to deliver 80,000 homes in 2024, again another 10% increase year over year.
Given the current interest rate signal from the Fed, we would also expect that margins will be at least consistent with our 2023 levels. And although we have embedded lower margins that will flow through the first quarter, those reduced margins will clear over the next quarter. And using our dynamic pricing tool, we will recover margin quickly and efficiently as lower interest rates enable us to reduce incentives.
The strategic benefits of driving volume came and will continue to come with advantages that are both immediately valuable, as well as durable for the company's future. I'd like to briefly detail some of those advantages. First, by driving volume, we gained market share in most of our core markets as we leaned in when some others pulled that back. Our trade partners saw a consistent and dependable partner that became worthy of the designation, builder of choice.
We worked side by side with our traditional trade partners. And additionally, we found additional trade partner relationships with participants that found that they had dependable and consistent work with our strategy. Through market share growth in local markets, we enhanced the ability to better manage our costs, enhance our efficiency of operation, reduce cycle times with efficient production templates and enhance our inventory churn. Jon will discuss this in more detail shortly.
Next, and maybe most important, by driving volume, we are positioned with land and communities for strong volume in all of our operating markets. As we drove volume and delivered homes, we purchased new land and communities for the next year's deliveries. We are extremely well positioned to continue to sell on pace as prices recover and as incentives subside alongside lower interest rates. We are positioned to drive even stronger bottom-line results and cash flow as market conditions normalize.
Additionally, by driving volume, we gained market share and land acquisition. Simply put, we continued to sell land by selling homes and then purchase land to replace communities, especially when others walked away. Market share advances have given us the critical position to be an even stronger land buyer of choice to the owners and developers of critical land assets. They saw a dependable market participant remained consistent as market conditions became more tenuous and we found that we were able to experiment with innovative land structures that work constructively as markets falter and then recover. Noteworthy in this regard is our variable land pricing tool that enables home site values to move up or down as a percentage of the sale price of the home as markets move up and down.
Next, by driving consistent volume even at lower margin, we generated consistent cash flow through more challenging times and enhanced our balance sheet and our cash liquidity even after redeeming or repurchasing $1.1 billion of senior notes through the year and repurchasing $10 million shares of Lennar stock through the year.
Situated today with a 9.6% homebuilding debt to total cap ratio, with $6.3 billion of cash on hand and $0 drawn on our revolver and with an expected $3.5, plus or minus, billion of net cash flow over the next year, we have the flexibility to invest capital strategically in growth while retiring debt as it matures and repurchasing shares of Lennar stock, which we expect to repurchase at least $2 billion of stock over the next year.
Fourth, by driving volume, we gained advantaged insights into and refined the workings of our strategic land banks. The flow of volume through the land banking relationships that define our current approach to land acquisition was invaluable. Questions have now been answered as to the durability of the capital partners that make up the counterparty relationship with the homebuilding machine. Our consistent volume helped define both trust and dependability in making those -- in taking those relationships to another level as neither party flinched as market conditions tested the boundaries of relationship. While adjustments were made and lessons were learned, the structures and relationships became stronger and more durable.
Fifth, by driving volume, especially in the more difficult interest rate environments of the past year, we were able to develop, enhance, use and improve the Lennar Machine. Our sales, marketing and dynamic pricing machine is quickly becoming an advanced digital engine that has materially benefited by aggressive, focused use and engagement while the market was most difficult.
We focused on what was required to drive volume while market conditions challenged affordability. We pushed data and engagement through the component parts of this digital tool and stressed it often and to its limits. We reviewed 40 points of feedback from our 40 operating divisions and made adjustments and refinements as we learned. Today, in the result is that Lennar's machine is becoming an invaluable partner as we drive volume by finding market at affordable pricing and driving sales at the same pace as production.
Overall, our strategic focus on driving volume in both production and sales has enabled us to become a stronger and better positioned company that has become more durable through the ups and downs of housing cycles. Our balance sheet has never been stronger and our operation -- our operating platform has never been better aligned.
Our fourth quarter and year end of 2023 has been another strategic and operational success for our company. While market conditions have been challenging, we have consistently learned and found ways to address market need. 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 going to begin to actually cut rates, we believe that pent-up demand will be activated and we will be well prepared. To date, we have seen overall market conditions remain generally constructive for our industry. As higher interest rates have subsided, strong pent-up demand has found ways to access the housing market. Most recent movements in interest rates suggest a better road ahead.
Accordingly, we executed on our core strategy against the most difficult economic and industry backdrop. Given consistent execution, we are extremely well positioned for even greater success as strong demand for affordable offerings continues to seek short supply. We expect to start the new year with strong sales -- strong starts, sales and closings as we have guided to 16,500 to 17,000 deliveries in the first quarter and 21% to 21.25% margin as lower margin sales move through the first quarter.
We engaged the changing tides of the past year with a consistent strategy that has enabled certainty of execution throughout our company. Our strategy is well known and understood throughout our division offices and we have a simple and consistent model of execution. We focus on maintaining volume while we price our homes to drive matched pace. We work with our trade base to manage costs and efficiencies and adjust product offering to meet the market. We manage both our land and our production inventories to drive efficiency, cash flow and returns on our asset base. We focus on our land-light model in order to drive balance sheet efficiency. Finally, we fortify our balance sheet to have the liquidity for strength and flexibility.
Knowing what to do and executing for plan has driven this quarter's and this year's success and ensures consistent success for the foreseeable future. As we look ahead to a successful 2024, we are well positioned for 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 performance.
With that, let me turn over to Jon.
