Lennar Corp (LEN) 2005 Q1 法說會逐字稿

Welcome to Lennar Corporation's first quarter earnings release conference call.

At this time all the participant lines are in a listen-only mode.

However, there will be an opportunity for questions, and instructions will be given at that time.

If you need any assistance please press star, then zero.

And as a reminder today's call is being recorded.

Ladies and gentlemen, the information that Lennar Corporation is going to discuss will include forward-looking statements.

As is always the case with regard to forward-looking statements, Lennar's actual results may differ materially from those that are projected in the forward-looking statements.

There are discussions in Lennar's Annual Report on Form 10-K and the quarterly reports on Form 10-Q which have been filed with the Securities and Exchange Commission, of factors of that could cause actual results to differ materially from those projected in the forward-looking statements.

The Company urges you to look at them.

I would now like to introduce Mr. Stuart Miller, President and Chief Executive Officer of Lennar Corporation.

Please go ahead.

Thank you.

And good morning, everyone.

Just by way of information, today we're going to end our call promptly at 12:00, so that we can share your attention with our friends at KBH.

So we'd like to ask you to please limit your questions to one question and one follow-up only.

We'd like to welcome you to our first quarter conference call.

I'm joined here this morning by Bruce Gross, our Chief Financial Officer, who will discuss our financial results in more detail.

And I'm also joined this morning by John Jaffe, our Chief Operating Officer.

Since John's here I'm going to keep my introductory comments brief, and John is going to speak in more detail about our current operation and how we are proceeding across the country.

So to begin, let me say that we are very pleased to report a very strong and solid first quarter result for the Company.

As you can see in our Press Release revenues were up 29 percent generating an increase in earnings of some 39 percent.

Driving these results was a strong increase in our gross margin, which was up 210 basis points year-over-year.

While at the same time we ended our quarter with a very strong 32 percent increase in our backlog.

As we stand today with excellent visibility into the remainder of 2005 with a very strong homebuilding market in general, we are pleased to increase our 2005 guidance as we anticipate another record year for the Company with earnings guidance of $7.15, which represents a 25 percent year-over-year growth rate.

Now, our comfort for 2005 derives from a belief that homebuilding markets across the country remain very strong.

Demand is high and it's driven by historically-low interest rates, strong employment numbers, generally strong economic conditions, and an increasing appetite on the part of American families to own their own home as both the primary place to live and a wealth accumulation vehicle over the long-term.

Additionally, fueling our confidence in our future is our excellent land position, particularly in land constrained markets, and the increasing shortage of entitled home sites to satisfy the growing demands of the population, and then increasing propensity towards home ownership.

The outlook for housing for the next year, and for the next decade for that matter and well-beyond, continues to be very strong.

Even as questions are raised in the industry about a housing bubble, about credit quality, the increased use of variable rate mortgages for purchasing homes, some questions that have more recently been raised about speculative purchasing, commodity price increases and the fluctuations in interest rates, our industry overall has shown tremendous resilience as the drivers of stability and growth rest in growing population in the country that needs a place to live and the aging stock of existing dwellings to house that population.

The population is generally employed and that population is going to find a way to afford their home with a limited supply of land to satisfy that demand.

Now, Lennar in particular continues to be very well-positioned to benefit from the continued strength and the homebuilding market across the country and over the next decade.

The Lennar process, a focus on Management, growth, and returns drives our consistently strong results and will continue to be our primary driver for the future.

Lennar's simple and consistent approach to managing our primary homebuilding business continues to enable us to enhance bottom line profitability with consistent margin improvement.

While some of this improvement derives from pricing power and constrained markets, careful Management of sales prices, and limiting investor sales, and increasing portion of our margin improvement is generated from process improvements where simplification of our operations and volume are translating into cost reductions or commodity price increase offsets.

Our well-recognized franchise and land acquisition continues to provide excellent growth and land positions for the future growth of our Company, while simultaneously adding to our overall profitability as we sell excess land positions to others.

The Lennar Land Machine, as we call it, has positioned our Company with unique opportunities in some of the most constrained markets in the country, such as NewHall land in El Toro in California and Roseland in New Jersey.

These create excellent visibility into our future.

Strategic deal structures and unique alliances have enabled us to continue to capture profitability from these positions while limiting capital, and most importantly risk to Lennar.

Our backlog-driven visibility is excellent for 2005 as well.

Our community count is growing and will continue to grow throughout the year and into 2006 as many of our excellent land positions translate into active communities.

Additionally, our always-strong balance sheet and cash positions afford us the unfettered opportunity to continue to build on an already-strong market share position while we continue to look for opportunities to continue to consolidate the industry and grow into new markets.

All of these factors continue to drive strong and sound returns on capital and on equity that benefit the Company and our investors for the long-term.

In conclusion, we remain very optimistic about the future for the homebuilding industry in general, and for our Company in particular.

It's our sense that we will continue to see record results for the foreseeable future.

And now, let me turn it over to John Jaffe for a more specific review of our Company.

Thank you, Stuart.

Overall our markets are showing continued strength driven by demand and those areas which are land constrained demonstrate pricing power and resiliency.

I'll give you an update on how these markets are performing, and where appropriate, how we're addressing the issue of real estate speculation.

We continue to deliver about 60 percent of our homes in the 3 biggest markets in the country;

Florida, Texas, and California with good balance among those markets.

Starting with Florida, sales are very strong across the state in both our single-family and multi-family communities.

We continue to have very strong backlog in Florida and manage our current sales pace to stay on track with our production.

This pace produces a lower backlog conversion ratio as we work through the backlog and as Florida recovers from the hurricane, in terms of its construction pace.

In Central Florida we see continued good demand for single-family detached housing.

In South Florida, along both coasts, the demand is strong for both product types.

In our multi-family communities we have a large amount of investor buyers.

We direct this in 2 ways.

In many of these multi-family communities we have 3 investor buyer segments, pre-retirees, who have not yet relocated; second home purchasers; and those looking for rental income.

All 3 of these profiles are traditionally seen in this market and we approach this with a higher down-payment strategy for these buyers.

These down payments are in the 20 to 25 percent range.

We've also seen an increase in speculative buyers in those communities, and in those communities we've been implementing anti-speculation addendums that restrict the ability for those buyers to resell their property in the first 12 months.

In Texas we continue to have a high backlog conversion ratio as we manage sales to a very disciplined construction process.

We continue to use incentives, but have seen the use of them stabilize, particularly in Houston and Austin.

Central and Northern California are very solid with strong demand patterns from Bakersfield and Fresno to Sacramento and the Bay Area.

We have a diversified program of dual marketing communities serving first-time, move-up, and active-adult buyers.

Southern California, which had slowed down last year, has strengthened over the last quarter as resell inventory has dropped back to levels near 2004 -- January 2004 after peaking last summer.

As demand continues to outpace supply in its land constrained market it has allowed us to increase pricing in most of our communities.

Next to Nevada.

In Las Vegas, we have seen significant stabilization over the last quarter.

While new orders year-over-year are down from the frenzied pace at the beginning of 2004, we currently see good traffic levels resulting in normal market absorptions.

In many communities we are seeing renewed pricing power and are able to increase pricing moderately from phase-to-phase.

The majority of our communities are continuing to use anti-speculation agreements, while monitoring the down-payment amounts very carefully.

Reno continues to be a growing market for Lennar.

Their strong demand in Reno, which is also very land constrained.

There has been an increase in speculative purchasers in this market as well and, again, we are utilizing agreements that restrict buyers from renting or selling for 12 months.

In Arizona we have strengthened both Phoenix and Tucson.

These 2 markets have strong demand patterns that afford us pricing power in all of our communities.

These markets are driven by strong job growth and relative affordability as compared to the rest of the West, as well as continuing to be attractive to the active-adult market place.

We use the same process that I have discussed to manage speculative buyers in Arizona.

Colorado is still a soft market, but we have seen better trends in traffic and demand patterns, particularly as we have opened new communities in the Denver area and South to Colorado Springs.

This has not yet led to any pricing power, but the demand powers we are seeing today do lead us to be optimistic about the future.

In the Chicago and Minneapolis markets we have experienced new order demand as is very consistent with the last year's first quarter.

These markets continue to have good permanent activity as the Spring selling season approaches us.

In the mid-Atlantic states we have a balance program from the Carolinas through Virginia and Maryland and into New Jersey.

The Washington, D.C. job market continues to drive strong demand throughout Virginia and Maryland.

And as we mentioned last quarter we are opening active-adult communities in Delaware where we expect strong demand.

New Jersey continues to be a strong demand market as it is one of the most land constrained states in the country.

As a company we are well-positioned in our market to achieve our projected earnings growth as the total number of home sites owned and controlled is now at 283,000.

A 30 percent increase from 217,000 at our first quarter last year.

As Stuart mentioned we have executed on several strategic opportunities in very desirable and land constrained markets to position our Company for continued success.

At Newhall we continue to be on track to deliver our first home sites towards the end of this year which will produce a few hundred home closings in 2006 and approximately 1,000 home sites per year thereafter.

With our recent success in controlling El Toro Marine base in Orange County, California, in a partnership with several large real estate funds, we will control over 3,000 home sites.

Home sites should be delivered in late 2007 with home closings beginning in 2008.

And lastly, we are very excited about our transaction with Roseland Property Company.

This opportunity positions us in a very desirable location along the Hudson River across from Midtown Manhattan, and also in several desirable locations in the Downtown Boston market place.

This partnership with Roseland, who the industry respects as one of the premier urban developers, gives us access to several great communities with deliveries beginning in 2007 and the opportunity for future growth in these markets.

Now, I'd like to turn it over to Bruce Gross, our Chief Financial Officer.

Thank you, John.

And good morning.

As you can see from the results for the first quarter, we are starting fiscal 2005 prepared for another record year.

And as we look at it our business model with Lennar process which balances earnings per share growth, return on net capital, and balance sheet strength is the scorecard for our Company.

And when we look at those 3 metrics, earnings per share increased 39 percent for the quarter, return on net capital trailing four quarters was 21.8 percent, and our balance sheet leverage remains strong as our debt-to-total capital was 32.5 percent with ample liquidity.

The strength in the quarter was driven by a 63 percent increase in operating earnings from the sale of homes which increased from 170 million in the first quarter of last year to 277 million in the current quarter.

The increase was a result of higher deliveries, higher average sales price, and higher gross margin.

Deliveries increased 17 percent year-over-year and that can exceeded our goal for the quarter by about 100 homes.

Our average sales price increased 14 percent year-over-year and the way that breaks down by region is as follows: The East region was up 12 percent from 242,000 to 271,000.

Our Central region was flat at about 193,000.

And our West region was up 18 percent from 320,000 to 376,000.

The result of an increased product mix from our West region where our gross margins are above the Company's average, as well as continued pricing power in many of our markets, helped drive a 210 basis point improvement in gross margin.

Additionally, our focus on process improvement is helping us to offset rising commodity prices that we've seen over the past year.

When we look at the regions, Florida, Minnesota, Nevada, and California represented the states with the highest gross margin percentages in the first quarter.

And our backlog gross margin remains strong, particularly in the states that are most supply constraint.

Our SG&A percent showed a 10 basis point improvement year-over-year from 12.2 percent last year in the first quarter to 12.1 percent in the current year first quarter.

The strength in operating earnings from home sales was partially offset by a 34 percent reduction year-over-year in land sales for the quarter.

We previously indicated that land sales would be more concentrated in the second half of the year.

Although, it's always possible that planned land sales could occur earlier than the second half of the year.

Joint-venture profits increased from 5.3 million in the prior year's first quarter to 6.1 million in the current quarter driven by homebuilding activity in the joint ventures this quarter.

Home deliveries and joint ventures increased from 159 last year in the first quarter to 232 in this year's first quarter.

However, the profit increased at a faster pace going from 2.3 million in last year's first quarter to 9.5 million in the first quarter this year driven by the home deliveries and joint ventures.

Management fee and Other declined from 18 million last year in the first quarter to 14 million this year.

And our average community count increased 8 percent year-over-year while our new orders increased 9 percent for the first quarter.

Turning to Financial Services, our Financial Services pretax, as expected, decreased year-over-year from 23 million to 17 million for the first quarter.

Our mortgage profit decreased from 21 million to 12 million, while our mortgage capture rate improved from 69 to 70 percent.

And as we've been saying for the last several quarters, there continues to be more competitive mortgage market with fewer refinances, higher percentage of variable product, and more broker competition.

The FICO scores for our homebuyers did not change significantly from the prior year, this year averaging just over 700.

The percentage of loans to our homebuying population that were fixed were 54 percent in the first quarter and 46 percent were variables.

However, that 46 percent has 86 percent of those variable loans as hybrid loans, which are fixed for between 3 to 10 years.

Our title pretax earnings increased from 700,000 to 5.9 million in the first quarter as we refocussed title from refinance activity back to primarily purchase business.

Turning to the balance sheet, as we grow earnings per share at a fast pace our balance sheet continues to get stronger.

This quarter Fitch Ratings upgraded our credit rating to BBB+, our debt-to-EBIT for the trailing four quarters was 1.0 times, and our interest coverage ratio for the trailing four quarters was 12.2 times.

The Company continues to focus on liquidity while maintaining a strong capital structure as our cash balance was over 0.5 billion and our bank line had no outstandings at the end of the first quarter, and that's on a $1.4 billion revolver.

In the second quarter we plan to call our 9.95 percent senior notes due in 2,010.

This will significantly reduce our borrowing cost as the notes were issued at a discount and accrued interest at 11.25 percent.

This quarter also we are pleased to report that during the quarter we completed our First Section, 404 Compliance testing and we're happy to say that we received a clean opinion from our auditors, Deloitte and Touche, and this opinion is a reflection of the strong controls in policies that exist throughout our Company.

Turning to our goals for 2005, in December we raised our 2005 goal from $6.60 to 6.90, and once again we have the confidence with our visibility to increase our 2005 earnings goal as we're pushing it up to $7.15.

Starting with deliveries, we are still on track to deliver between 42,000 and 42,500 homes as we communicated in December.

The quarterly breakout reflects a shift of approximately 400 deliveries from the second quarter to the second half of 2005 and that's a result of Western region weather delays as you have heard from some other homebuilders as well.

Our goal is now to have 8900 deliveries in the second quarter, 11,100 deliveries in the third quarter, and 14,500 deliveries in the fourth quarter.

We estimate that the average sales price for the year will be approximately 300,000.

In 2005, we've been more focused on matching our sales and construction pace to a tighter pace.

And for those of you that don't remember, in the second quarter of 2004 our sales pace was a little ahead of our construction pace, particularly in the second quarter last year.

So, therefore, although our new orders in the second quarter of 2005 are expected to be on track to achieve our delivery goals for this year, we are expecting a flattish year-over-year comparison in the second quarter of 2005.

The largest year-over-year new order comparisons will be in the third and fourth quarter this year and that will position us for a nice entry into 2006.

And, again, this year's trend is in line with the activity necessary to achieve the 2005 deliveries that we've laid out.

With respect to operating margins, we are on track to achieve at least a 50 basis point improvement in operating margins in 2005 and that's being driven by gross margin improvement.

The range of our gross margins we'll have less variability than we saw between the quarters in 2004.

We are expecting a year-over-year gross margin improvement in our second quarter of 2005 to just over 24 percent margins, and then increasing through the remainder of the year to reach at least a 25 percent gross margin by the fourth quarter.

We expect our SG&A percentage and corporate G&A percentage as a percentage of revenue to be consistent with the prior year.

Our joint-venture activities we expect will remain at the previous goal of 100 to 110 million, but, again, all of this year's upside is coming from home sale profitability in the joint ventures.

Management fee and Other we believe will be about 25 million this year and our land profits we believe will be approximately 160 to 170 million.

Lennar Financial Services we believe will be 120 to 125 million.

And one thing to point out, for the first time we are including in these numbers of $7.15 the impact of expensing stock options which will begin in our fourth quarter this year and the impact is approximately $0.02 for our fourth quarter.

We expect that weighted-average share count for 2005 to be approximately 167.5 million shares and our goal does not project any additional share repurchases in 2005.

However, we still have over 15 million shares remaining on our 20 million share buyback authority.

We did buyback 1.9 million shares in the first quarter at an average price in the $54 range.

Our earnings per share goals by quarter, as a result of those details would be as follows: The second quarter would be $1.25, the third quarter would be $1.76, and the fourth quarter would be $2.96.

These earnings per share goals are before the impact of calling our 9.95 percent notes which will result in an estimated $0.13 earnings per share charge in the second quarter.

Our community count remains in good shape to achieve our delivery goals for 2005.

And in summary, we are proud to report these strong first quarter results again, and we're increasing our goals for the year.

We are well-positioned with our associates executing our Lennar process and our well-positioned communities and home sites to continue to grow a stronger company for the future.

And with that we would like to open it up for questions that you might have.

[OPERATOR INSTRUCTIONS].

And first we will go to the line of Ivy Zelman with Credit Suisse First Boston.

Please go ahead.

Good morning, gentlemen.

It's actually Carlos Ribeiro on behalf of Ivy.

First, did you experience any delivery delays in this quarter, particularly out West?

In this quarter, there were certainly some severe weather out West and we exceeded what was projected by 100 deliveries.

If we did not have any weather out there this quarter we would have had additional closings in the quarter.

But we haven't given an exact amount of how many that would be.

Can you talk about why then your backlog conversion ratio out West was actually materially higher this year versus last year?

I think you closed about 58 percent of your prior backlog versus 46 percent last year.

Was there a shift in product?

One of the things, Carlos, is that if you remember the fourth quarter of last year we did indicate that there were some delivery delays and some of those included deliveries from Las Vegas and Southern California.

So we did see some of those come into the first quarter this year.

Great.

And just 2 quick follow-ups, can you give us a rough estimate of what your inventory levels were at quarter-end and if you can breakdown your lot inventory between option and owned?

In terms of the home sites inventory between owned and controlled, we had a total of 283,000 home sites owned and controlled, and 33 percent were owned, 67 percent controled.

And our inventory balance we haven't given that number out yet.

That will be on our 10-Q as it's filed, Carlos.

Can you give us a rough estimate or --?

Sure.

Rough estimate would be approximately 5.8 billion.

Thanks, guys.

I'll let someone else ask questions.

Next we'll go to the line of Lorraine Maikis with Merrill Lynch.

Please go ahead.

Good morning.

It's Robin [Balance] on Lorraine's behalf.

Previously you mentioned changing the product mix to target a more profitable product profile.

Can you comment on where you plan to take your 15 to 20 percent attached products over the next couple of years and how this could impact your pricing mix or margin?

This is John.

In some of our more mature markets, more urban markets, such as exists on the West Coast and East Coast, we do see an increase in that attached product profile and we do see opportunity for increased margin in those market places.

There isn't a specific percentage that we are targeting.

As we become more experienced in that business and grow it, and as I mentioned through strategic alliances with groups like Roseland, we do think we'll have the opportunity to position ourselves more better growth in those markets.

But I don't think that overall we've indicated a strategy change in terms of our product mix.

I think we still project the same kind of balance between the various product types and maintain a balanced approach to all of our markets.

Some of the in-fill opportunities are enhancements to programs that already exist.

Thank you very much.

Our next question is from the line of Carl Reichardt with Wachovia Securities.

Please go ahead.

Good morning, guys.

How are you?

I was curious on the cost side we're not getting any SG&A or corporate leverage this year in the area of '05 despite what looks like some substantially higher volumes.

I'm curious as to what's causing that?

Why we wouldn't get at least a little bit of leverage there?

Are you just being conservative, Bruce, or there's some opportunities?

As you do look at SG&A or corporate G&A, Carl, as a percentage of revenues, one thing is our profits are rising at a faster pace than our revenue growth.

And for one thing we are achieving the highest level of any of the variable costs that would be associated with these line items, such as bonus accrual and anything that would be tied to bottom line profitability,y such as charitable contributions.

And additionally, I would say as we continue to position ourselves for future growth we continue to make sure that we have the overhead in place ahead of the volumes.

And if you go through some of the transactions that we've positioned ourselves for the future, it's important for us to make sure that we have the team in place so that we can manage it effectively.

So we've kept pace with hiring the staff so we could make sure we could achieve the volume that we're controlling today with home sites for the future.

Okay.

So just a variable aspect of the SG&A, that especially is not helping here, which is not unusual for relative to what we see in other builders.

So that makes sense.

Can you --?

The one other thing, and is this is consistent for many years, is particularly as we're growing so rapidly, is our conservative accounting policies on the SG&A side.

We do expense a lot of items that we see with our growth; community openings, architecture fees, all of our field expense.

So it's a very conservative approach.

So as we are growing, you're actually burdened the additional SG&A expense as we are remaining very conservative on our accounting.

Okay.

That's interesting.

And then if we go back to the gross margin side and you guys mentioned, Stuart, process improvements.

Can you give us some concrete examples of process changes you've made and what the improvement has been to gross margin from those changes?

It's a broad category that a lot of builders talk about, but I'm trying to get it more specifics here.

What can we expect to see from Lennar going forward in that regard too?

Well, I think in terms of absolute measurement, I think you're going to find across the board that it's very hard to pinpoint exactly what improvement you're seeing to the bottom line from specific changes.

And that's because in many instances that the improvements might be offsets to commodity price increases or labor price increases.

But I think that what we have done primarily to drive efficiencies on the production side is through our "Everything's Included" program, which we've had in place for many years, we continue to simplify that side of our business by reducing the number of plans that we have available within each market place, and that's a tough disciplined program, making our purchasing process simpler.

We have also over time -- over the past years now have been kind of exporting that to the Design Studio side of the equation as well controlling more carefully the options upgrades, changes, and particularly structural changes that are available in many of our markets.

The overall simplification process has enabled our purchasing department to begin acting more -- in a more united way across the country.

And while change is fairly slow, it is nonetheless beginning of course, with net plus program, which is the national purchasing program that we have in place that is pretty much implemented in every division and every market across the country.

But these changes or this simplification and workings of our purchasing departments are starting to have regional and local impacts as well in terms of dealing with fewer plans in each market, being able to more consistently kind of figure out what the component parts are within each home, and kind of disassemble labor and material purchasing wherever possible.

Okay.

Thanks a lot, Stuart.

Our next question is from the line of Dan Oppenheim with Banc of America Securities.

Please go ahead.

Wondering if you can give us an update on the community count that you talked about being at 823 at the end of 2004?

Wondering where we averaged the quarter and also ending the quarter?

The average for the quarter, Dan, was up 8 percent and the average community count went from 755 in the first quarter of last year to I believe it was about 816 was the average for the first quarter of this year.

And that's the more representative number than an ending account because they are opening and closing on a regular basis.

So that's a number I would look towards.

And that 8 percent increase is in line with what we need to be able to accomplish the deliveries that we laid out for this year, and the positioning and backlog that we would need as we would enter 2006.

Okay.

And then just a quick follow-up, wondering about after the venture with Roseland in the Northeast, can you talk about the goals for further expansion into the Northeast?

Any markets that you're targeting and how we should expect this to proceed?

I think you'll see us continue to target those same markets that Roseland is positioned in with their infrastructure which will primarily be the Northern New Jersey/Metro New York market, as well as the Boston market place.

And look to leverage their expertise and relationships with those market places.

Okay.

Thanks.

And last question, wondering if there are any markets to where you saw increased cancellations this quarter relative to the quarter a year ago?

The cancellation rate, Dan, has remained at very low levels.

It was below 20 percent again this quarter and we haven't seen anything significant in terms of spiking of cancellation rates that would stand out.

Great.

Thanks very much.

Our next question is from the line of Timothy Jones with Wasserman & Associates.

Please go ahead.

Good morning, guys.

Two things.

You implied that the margins in Florida in the first quarter, were they at or above California?

The margins in Florida, Tim, for the first quarter what we were seeing were above the Company's average, at or above the Company's average.

And California would have been higher.

For --?

What?

California would have been a little bit higher than Florida.

But the turnover in Florida is significantly better, correct?

And therefore the return on assets in Florida should be better than California?

Is that correct to assume?

I wouldn't necessarily assume that, Tim.

And I think as you're looking at returns on capital, we use the same kind of underwriting for both markets.

Florida is becoming more and more constrained and I think the return on capital is good in both of those markets and it really depends from division-to-division whether one is going to be higher than another.

Okay.

Your lower sales orders in the Southeast were basically to get the backlogs in line because they were out of line a year ago, correct?

Exactly.

We are catching up and we're matching our sales pace and construction pace a lot tighter than we did last year as you remember.

Thank you, Brucey?

Our next question is from the line of Margaret Whelan with UBS.

Please go ahead.

Good morning, everyone.

And I have a question, it's similar to Carl's question really.

A lot of your peers are doing a much better job of quantifying and the opportunity to benefits of unbundling the labor versus the procurement.

And then we're seeing the results of that in their conversion ratios, which are significantly higher than your own.

You talk about the Lennar machine, we're just not seeing it in your results.

I'm wondering if maybe not on this call but eventually you can start giving us more of a detail on what you're doing specifically, so that you can keep the growth rate high and improve the conversion ratio, especially since commodity costs are going up so much?

One thing I'd say, Margaret, as far as conversion ratio goes, our conversion ratio for the first quarter, our backlog conversion ratio is higher than it was in the first quarter of last year.

Yes.

But it's lower than most of your peers.

Right.

It would have been higher except we were dragged down still from being the largest builder in Florida.

We are still dragged down a little bit from some of the slowdown post-hurricanes in Florida.

Could you quantify that?

I heard 100 on the West Coast but I didn't hear anything about Florida.

I'm sorry, the 100 that you're referring to is what?

I think you said you missed 100 deliveries on the West Coast?

Did you quantify Florida?

No, actually what we were saying is that we exceeded our delivery projection in the first quarter by 100.

But if you look at our backlog conversion ratio in Florida for this quarter it was only 32 percent.

And that's what dragged down the overall conversion ratio which was still higher as a company over last year's first quarter, as well as the first quarter in 2003.

So the conversion ratio is improving and once Florida comes back into equilibrium I think you'll see more of an improvement there.

Can you give us a sense for when that might happen and also how many deliveries you missed?

I wouldn't say that we missed any deliveries in Florida this quarter.

But as far as that conversion ratio, what we're doing is we're trying to match our sales pace and our construction pace tighter.

So we are not opening up for sales at a community unless we are ready to have starts in the ground at the same time in the Florida market.

If it is, then your orders would be higher and your conversion ratio would be even lower.

So I don't get it.

Our backlog in Florida is very high.

We are trying to deliver those homes which we'll be doing over the next couple quarters and you'll see a conversion ratio that starts to come back as you get to the second half of this year in Florida.

Okay, what's the target?

The target for Florida is by the second half of the year, and it's more the fourth quarter, we should have a conversion ratio which is back in the 40, 50 percent range for Florida.

Okay, thanks.

The second question I had is just on the communities coming on from Newhall on the West Coast.

Are we going to see any of that in the back half of fiscal '05 or in '06?

'06.

'06.

Okay.

Thank you.

Our next question is from Jim Wilson with JMP Securities.

Please go ahead.

Thanks.

I guess wondering first on sort of pricing, Bruce.

Our your ASP and orders in the first quarter was 337.

Obviously, you're giving guidance of closings for the whole year of 300.

Obviously, I understand the difference.

But is the trend and the average price of backlog would you expect it to be moving higher and higher than certainly that $300,000 closing averages you worked through towards the end of the year?

Or is there something about Q1 that's more of an anomaly and prices won't be quite -- ASPs won't be quite as high going forward?

What we're expecting is about 300,000 average sales price for the year.

And one of the reasons that the backlog average sales price is so much higher is one that the larger homes in backlog tend to remain in backlog a little bit longer.

And in Texas where our backlog turnover ratio is the fastest, that's where our home prices are the lowest.

So that will tend to bring that down a little bit.

But as we look at the quarters, we are seeing a much more even product mix throughout the year and that is where we're expecting that the 290 will be, it will probably be 290 the first half of the year and the second half of the year will be more 300 to 310.

Got it.

And then just one other question, you said Florida continued to be very strong for orders which makes sense, but your East region was down 9 percent in orders?

Is there other areas in particular that were therefore weaker or was there parts of Florida you just didn't have enough inventory to sell?

Really what we did in Florida again, Jim, is to try to match our sales pace with our construction pace.

So as we said the latter part of last year and post-hurricanes is we only want to open up for sales when we are ready to start construction of the homes.

And that's what you're seeing in Florida.

But Florida is a strong market and if we were to open up for sales in our communities in Florida I think you would see very good sales activity.

Our markets --.

I'm sorry?

I'm sorry, I was going to say was there maybe then even comparable community counts that you could give us of how many are currently open in Florida compared to a year ago?

I don't have that in front of me, Jim.

But the more important information would be communities that were ready to start construction and didn't have any delays as a result of the post-hurricanes.

And that's -- I don't have that information in front of me right now.

All right.

Thanks.

Next we'll go to the line of Michael Rehaut with JPMorgan.

Please go ahead.

Hi, this is Jennifer [Consoley] on behalf of Michael Rehaut.

You had mentioned the situation in California and I was wondering if you could provide a little bit more color about the future -- your future expectations for the different regions within California?

We're seeing within all 3 regions of California, Norther, Central, and Southern California, very strong market demand.

Both Northern and Central are extremely strong across the board and we expect to see that in the foreseeable future.

Southern California, as I mentioned, had a little bit of softness last year as resell inventory increased.

Demand has taken that back down to normal levels and we've seen that market strengthen with very good sales activity and pricing power.

So our expectations for Southern California looking forward are also very positive.

Okay.

Thank you.

And let's go to Rick Murray with Raymond James.

Please go ahead.

Hey, good morning, guys.

Just a couple of quick questions.

One, Bruce, can you give us an update on the number of specs you guys currently have.

And two, I was just curious, I just wanted to clarify last quarter you had commented about the type of order growth that you guys were anticipating and that you were baking into your goals in the 10 to 15 percent range, and I was just curious if that was in terms of total orders in terms of dollars or whether or not that was units?

And kind of how that reconciles with your expectations for kind of flattish order growth in the second quarter?

The number 10 to 15 percent was in terms of new orders of homes and that's for the overall year.

So with the new order growth you've seen in the first quarter and what we're expecting in the second quarter and beyond, we feel very comfortable with the deliveries that we've projected for this year.

With respect to spec inventory "completed/unsold" are still averaging just a little bit less than one per community.

So it's still very well in check and as we've been saying for many quarters there hasn't been any issue with "completed/unsold" homes.

Okay.

Thank you.

Our next question is from Myron Kaplan with Kaplan, Nathan & Company.

Please go ahead.

Hi, guys.

Congratulations.

Marvelous quarter.

Thank you, Myron.

Can you tell us -- can you give us a little bit more information about the condition of the Reno market, as well as an update on the fabled Las Vegas battleground?

Reno is a strong market that I would characterize as one that continues to strengthen.

It is --.

What are the price points, please?

On most of the houses that you're selling?

Most of them are probably in the 3 to $400,000 price point.

They attract buyers who are -- find the lifestyle of Reno very attractive.

It's a healthy job market.

There is buyers moving from California to Reno where you have attractiveness of the relative values of the homes and what you get for that dollar.

And so for a variety of reasons Reno is very strong -- and it's also a very land constrained market and we're well-positioned there, Myron, I think to take advantage of that strong market place.

Why is it constrained?

Since in Vegas builders are fairly able to expand large plots in the old-fashioned sprawl?

Reno is very different than Vegas.

And the constraints are different.

There are land use and water issues in Reno that make it a much tougher entitlement environment than in Las Vegas.

Even though they are both in Nevada.

And in Vegas --?

Vegas has definitely stabilized.

It was at a frenzied pace a year prior in terms of the absorption levels that the builders were achieving.

Today it is a normalized healthy pace.

As we open new communities we are seeing the ability to have pricing power.

And as I mentioned earlier, to have modest price increases from phase-to-phase.

Okay.

Thank you.

Next go to the line of Robin [Roundy] with Kramer [Rosenfeld.] Please go ahead.

Hey, guys, I just wanted some clarification on your lot supply.

Does that 283,000 include any Newhall lots or is that still excluding them?

That would include the Newhall home sites that we expect to build on, Robin, which is about 10,000.

Okay.

And so is that all of the land sites from Newhall that you ever expect to consolidate or just ones that you've consolidated thus far?

Those are the home sites that we intend to buy from the joint venture that we would actually build homes on and sell to third-parties.

In addition to that number there's 10,000 home sites that gives us a good pipeline of land sales to third-party builders and that would show up in joint-venture profits for us in the future.

But none of those are consolidated.

Newhall is a joint venture and it's an unconsolidated joint venture.

And we would not expect to consolidate those additional 10,000 at any point.

Okay.

Thank you.

And next we'll go to Joel [Lockert] with Carlin Financial.

Please go ahead.

Hi, guys.

Good quarter.

And just wanted to get a little color on the loan-to-value this quarter, first quarter compared to 2004's first quarter?

Loan-to-value.

Give us a second while we look that up.

There's not much of a change year-over-year, Joel.

And as far as last year goes we've been somewhere around 80 percent give or take a little bit and that's been pretty flattish each year.

And that would be for our homebuying customers.

And I would say just a follow-up question off the subject is, just share buybacks, I'm assuming that the 1.9 million shares was Class A shares?

That was Class A shares, that's correct.

Is there any covenants or any reason why you couldn't buyback the Class B shares?

The only thing that we have to manage is at a certain point we issued the B shares so that we can maintain the structure that exists with the voting rights for the 2 shares.

We're not looking to shrink it to a point where we would jeopardize the voting -- super voting rights of the B shares.

Other than --.

Have you guys bought back B in the past ever or --?

We have not bought back B shares in the past.

But there are no restrictions.

There's no restrictions.

So just based on a trade [indiscernible] $4.5 cheaper, I was just wondering just a better ROE in general if it doesn't change the capital that much or if you're just kind of nibbling with a couple million shares here and there?

I was just wondering why there was any reason why you guys purchased A instead of a B?

I think your question is an excellent question and we went through the thinking as well.

I think that as long as there's reason for the structure to exist we want to make sure that we don't get close to doing anything that would hurt the structure.

We're also cognizant of the more limited float relative to the B shares and anything that would restrict that float we think would be negative to the health of the B shares.

So we have chosen to date, so this might not be what we do in the future, but to date we have chosen to buy back A.

All right.

Thanks a lot.

Our next question is from the line of [Jahanara Lesar] with Citigroup Smith Barney.

Please go ahead.

Hi, this is Jahanara for Stephen Kim from Citigroup Smith Barney.

My question is about the Roseland acquisition.

The revenues and earnings that are generated, are they shared with Roseland or does it accrue with Lennar.

It is a combination of that.

The majority of the properties earn a partnership between Lennar and Roseland and so they will accrue to the benefit of both of the parties and the partnership.

Some of the properties were purchased direct and therefore, they will accrue to the benefit of Lennar primarily.

And there were 2800 sites that accrued through this acquisition.

What is the run rate to go through these?

It starts off a little slow because most of these are large and multi-family-type of buildings so their construction cycle will take them into '07.

Primarily they're running from '07 to about 2010, 2011.

Okay.

Great.

Thank you.

We do have a follow-up from Carl Reichardt with Wachovia.

Please go ahead.

Yes, sorry Bruce.

Did you give your JV income guidance for 2005?

I missed it if you did.

I'm sorry.

Yes, we said that it's 100 to 110 million pretax and all of the upside over the last year is from homebuilding activity within the joint ventures.

Great.

Thanks, Bruce.

You're welcome.

Your next question is from Dana Richardson with Argus Research.

Please go ahead.

Good morning.

I was wondering it seems that especially starting in 2006 the joint ventures will be contributing greater and greater share of the profits of Lennar.

Whether or not you're considering increasing the disclosure on those joint ventures or consolidating them proportionately, something of that sort?

Dan, this is Bruce.

We did increase disclosure in our 10-K footnote with respect to the investment in joint ventures this year.

So in there you can see relevant information with respect to the capital structure and the likes of the joint ventures.

And with respect to the joint ventures, approximately half of the debt is nonrecourse and of the remaining half only about half of that would be our several portion if you're looking at it from a debt perspective.

And I'm happy to answer any specific questions you might want to have if you call me after the call with respect to the joint ventures, but we have been trying to increase and we did this year the transparency with respect to the JVs.

Okay.

Thank you.

You're welcome.

Our next question is from Fred Taylor with Lord Abbott.

Please go ahead.

Yes, I think at this point most of my questions were answered.

Just a, maybe a macro industry one with you guys and some other large people at KB growing in the 20, 25, even high 20 percent range in the flat to down market.

Is this a year or next year where the smaller builders capitulate and you see more M&A activity with them selling out?

I think you've seen a pretty consistent stream of M&A activity.

Maybe its been a little bit less last year.

But there's probably a little bit increased activity.

There's no question if you do the math and you take the Top 10 builders and you annualize the growth rate at 20, 25 percent, something's got to start being consolidated.

That's right.

Being bought or just losing ground.

It certainly seems like there's a lot of interest on behalf of the smaller builders to sell.

But I think you'll see consistently over time that the big builders will continue to generate the earnings flow that they're talking about.

Okay.

And the Roseland acquisition, did that include Lighthouse Landing?

No, it did not.

Okay.

Thank you.

I think this will be the last question.

And that will be from Gabriel Kim, Basswood Partners.

Please go ahead.

Hi, thanks.

I just had a question about your a normalized inventory turnover ratio.

So if we "X" out the 1300 or so JV units and just focus on the stuff that's on your balance sheet.

If Texas comes back, what sort of a normalized inventory turn there?

Currently, we've been running about 1.6 to 1.7 times inventory turnover.

And I guess you can model depending what your macro view is and what might change, what you want to add to that.

Certainly if Texas comes back stronger, there will be a little bit of a higher turnover.

But that's something you will have to model all your specific variables.

Okay.

But so Texas is sort of what percentage of the total Central deliveries?

Well, Texas is about 20 percent of the Company's overall deliveries.

Okay.

Great.

Thank you.

With that we'll say thank you very much for your attention relative to our first quarter.

And we look forward to continuing to provide you updates with our progress as we move through the year.

Thank you.

Ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation and you may now disconnect.