Lennar Corporation · NYSE:LEN
Lennar — Lennar Corp /New/ — Investor Presentation (February 2010)
44 slides from Lennar's investor presentation, Feb 11, 2010
Slide 1: Strategic Overview February 2010
Strategic Overview February 2010 Exhibit 99.1
Slide 2: Disclaimer Statement
This presentation includes "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. You
Slide 3: Business Overview
2 Business Overview
Slide 4: Housing Market Is Stabilizing
3 Business Overview Housing Market Is Stabilizing The housing market has continued its road back to recovery as more confident homebuyers have taken advantage of increased affordability. While high unemployment and foreclosures will continue to present challenges, consumer sentiment has significantl
Slide 5: Operating Focus
4 Business Overview Operating Focus Stabilize Balance Sheet Invest in New Strategic Opportunities Rebuild Profitability in Core Business . . “Moving from defense to offense” Investing through Rialto to capitalize on distressed opportunities Creating value through the cycle Reduced construction costs
Slide 6: Stabilize Balance Sheet
5 Stabilize Balance Sheet
Slide 7: Strong Cash Flow Generation and Low Leverage
Stabilize Balance Sheet Strong Cash Flow Generation and Low Leverage 6 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100 HB Debt / Total Capital Goal 35% - 45% Operating Cash Flow (Dol
Slide 8: Senior Notes Maturities
7 Stabilize Balance Sheet Senior Notes Maturities $250 $245 $350 $250 $500 $250 $400 Oct-10 Oct-11 2012 Mar-13 Sep-14 May-15 Apr-16 Jun-17 As of November 30, 2009 6.50% Senior Notes 5.95% Senior Notes 5.50% Senior Notes 5.60% Senior Notes 5.13% Senior Notes 5.95% Senior Notes 12.25% Senior Notes (Do
Slide 9: 2009 Capital Market Transactions
8 Stabilize Balance Sheet 2009 Capital Market Transactions Issued $400 million of senior unsecured notes due in 2017. Retired $448 million of senior notes and other debt. Raised $225 million of equity under the $275 million equity draw down program to provide additional financial flexibility and cap
Slide 10: Aggressive Inventory Reduction
9 Stabilize Balance Sheet Aggressive Inventory Reduction $3.2 $5.4 $2.0 $1.5 (Dollars in Billions) $8.6* $3.5* Peak 2006 Q4 2009 *Excludes consolidated inventory not owned Inventory 59% Land, Land Under Development and Option Deposits Construction in Progress and Finished Homesites
Slide 11: Aggressive Inventory Management
10 Stabilize Balance Sheet Aggressive Inventory Management Homesites Owned and Controlled 345,000 104,000 Peak 2006 Q4 2009 70% Peak 2006 Q4 2009 Change Owned 106,000 83,000 -22% Optioned 134,000 7,000 -95% Controlled-JVs 105,000 14,000 -87% Total 345,000 104,000 -70%
Slide 12: Joint Venture Reduction Strategy Near Completion
11 Stabilize Balance Sheet Joint Venture Reduction Strategy Near Completion Peak 2006 Q4 2007 Q4 2008 Q4 2009 Number of Joint Ventures Joint Venture Detail JVs with recourse debt JVs with non-recourse debt JVs without debt JV total 77% We project to dissolve approximately 20 additional JVs by the en
Slide 13: Significant Reduction in JV Recourse Debt Exposure
12 Stabilize Balance Sheet Significant Reduction in JV Recourse Debt Exposure $1,764 $288 Peak 2006 Q4 2009 Maximum JV Recourse Debt Exposure (Dollars in Millions) 84% JVs with Recourse Debt At 11/30/09 Assets $1.3B Equity $0.5B
Slide 14: Rebuild Profitability in Core Business
13 Rebuild Profitability in Core Business
Slide 15: Division Operating Focus
14 Rebuild Profitability in Core Business Division Operating Focus . . . . Operating strategy for each homebuilding division: Carefully manage asset base Reposition product to target first-time and value-focused homebuyers Reduce construction costs by re-bidding and re-tooling product Reduce S,G&A e
Slide 16: Focus on Increasing Operating Margins
Rebuild Profitability in Core Business Focus on Increasing Operating Margins 15 3% -5% 0% 0% 2% 13% 13% 15% 17% 12% 12% 9% 2% 2% -1% 0% -3% -1% 1% 2% -10% -5% 0% 5% 10% 15% 20% 25% 30% Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1
Slide 17: Focus on Rebuilding Gross Margins
Rebuild Profitability in Core Business Focus on Rebuilding Gross Margins 16 17% 14% 14% 16% 18% 25% 25% 26% 27% 25% 24% 20% 14% 16% 14% 14% 12% 17% 16% 18% 0% 5% 10% 15% 20% 25% 30% Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09
Slide 18: Focus on S,G&A Reduction
17 Rebuild Profitability in Core Business Focus on S,G&A Reduction S,G&A Expenses Associate Headcount $484 $135 Peak 2006 Q4 2009 3,873 14,045 Peak 2006 Q4 2009 (Dollars in Millions) 72% 72% Number of homebuilding divisions has been reduced from 124 to 26. Each division’s S,G&A has been right-sized
Slide 19: Invest in New Strategic Opportunities
18 Invest in New Strategic Opportunities
Slide 20: Moving from Defense to Offense: Finished Homesites
19 Invest in New Strategic Opportunities “Moving from Defense to Offense” Finished Homesites Examples of recent purchases of well-located homesites that are immediately ready for production, expected to generate significantly above average gross margins, with minimal incremental overhead: Baltimore,
Slide 21: Moving from Defense to Offense: Starwood Homesite Options
20 Invest in New Strategic Opportunities “Moving from Defense to Offense” . . . . . Lennar options homesites Starwood acquired in TOUSA auction Option to purchase 1,408 finished homesites in 38 communities located in Jacksonville, Tampa, Orlando, and SE Florida - over a 24 month period Right of firs
Slide 22: Newhall Land Development
21 Invest in New Strategic Opportunities “Moving from Defense to Offense” Newhall Land Development Re-emerged as a long-term strategic JV with Lennar as a 15% equity owner, in one of the nation’s most constrained, best positioned locations for homebuilding JV is structured for success: No bank debt
Slide 23: Rialto Capital Strategic Opportunity
22 Rialto Capital Strategic Opportunity
Slide 24: What Is Rialto?
Rialto Capital Strategic Opportunity “Moving from Defense to Offense” 23 What is Rialto? Management team led by Jeff Krasnoff (former CEO of LNR Property Corporation) with 30 years of “down-cycle skills” Started in late 2007 to help recreate some of what we accomplished together in the past • Create
Slide 25: Rialto and Lennar
Rialto Capital Strategic Opportunity Rialto and Lennar 24 Rialto and Lennar have a long history of identifying opportunities, particularly in troubled markets, and responding with innovative strategies that have yielded strong results Rialto Team and Lennar – Long History of Innovation and Strong Re
Slide 26: LNR Property Corporation
Rialto Capital Strategic Opportunity LNR Property Corporation 25 LNR Property Corporation – From Spin-off to Private Company Spin-off Date October 31, 1997 Partner(s) Public Shareholders Closing Date Feb 3, 2005 Investment (Net asset BV at spin-off) $549mm Realized Value (equity value) $2.2bn Pretax
Slide 27: The Rialto Team
Rialto Capital Strategic Opportunity The Rialto Team 26 Lennar Resources Outsourced Lennar Division Presidents and Field Associates Rialto’s dedicated management team is comprised of specialists in turnarounds, workouts, capital markets, land / homebuilding and commercial properties Thekla B. Salzma
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Slide 29: What Does It Mean for Lennar?
Rialto Capital Strategic Opportunity What Does It Mean for Lennar? 28 New investment and co-investment opportunities such as PPIP and distressed loan portfolios New fee streams and incentive/carried interest as part of Rialto managing investments for others Potential for strategic investments with c
Slide 30: The PPIP – Capital Structure
Rialto Capital Strategic Opportunity The PPIP – Capital Structure 29 Private Capital $1.1 Billion UST Capital $1.1 Billion Senior Treasury Loan $2.2 Billion Lennar has committed $75 million to this investment Legacy RMBS & CMBS securities rated AAA prior to 1/1/09 Senior Secured Debt from US Treasur
Slide 31: PPIP Investments in AAA Securities
Rialto Capital Strategic Opportunity PPIP Investments in AAA Securities 30 Investment Portfolio A Portfolio of Securities… …Backed by Collateral… …That Consists of Real Estate
Slide 32: PPIP - Focus on Top of the RMBS and CMBS Structure
Rialto Capital Strategic Opportunity PPIP - Focus on Top of the RMBS and CMBS Structure Super Senior Subordinated Junior Mezzanine Subordinated 31 Typical RMBS Capital Structure Typical CMBS Capital Structure 14.5% 7.3% 30.0% 20.0% 11.6% Losses Principal Repayments Losses Principal Repayments Super
Slide 33: Parallels to the Prior Cycle
Rialto Capital Strategic Opportunity Parallels to the Prior Cycle 32 Acquisition Dates 1991-1996 Partner(s) MSREF Lehman Disposition Dates Various Lennar Total Investment ownership 15-50% $165mm $684mm Realized Value $420mm $1.4bn Pretax “Profit” $255mm $716mm Gross Multiple 2.6x 2.1x IRR 62% NA Tra
Slide 34: 1990s vs. Current Cycle
1990s vs. Current Cycle
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Slide 39: FDIC Portfolio Ownership Structure
Rialto Capital Strategic Opportunity FDIC Portfolio Ownership Structure 34 FDIC Debt: $627M (2) FDIC Structure FDIC contributes loans into an LLC and sells a 40% equity interest in the assets FDIC provides 50% nonrecourse financing in the form of purchase money notes at 0% interest rate – all cash f
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Slide 42: FDIC Portfolios
Rialto Capital Strategic Opportunity FDIC Portfolios 35 FDIC Portfolios – Resi and Commercial AD&C* Unpaid Principal Balance: # of Loans: Average Balance: Geography: $3.05bn ¹ ~5,500 $555K GA – 33% NV – 19% AZ – 11% FL – 9% Non-Performing: Collateral: 90% Residential: Partially Dev. Land: 25% Dwelli
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Slide 44: Conclusion
37 Rialto Capital Strategic Opportunity Conclusion Right Team, Right Time, Right Opportunity Cycle-tested team with significant workout experience (e.g., condos in 1980s, RTC in the early 1990s, Japanese loan workouts in late 1990s, Europe in the early 2000s) Part of team selected by US Treasury as
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