UBS Building & Building Products 7 Annual CEO Conference November 2009 Exhibit 99.1 th |
1 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 can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption “Risk Factors” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements, except as required by federal securities laws. Disclaimer Statement |
2 Business Overview |
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 significantly improved as homebuyers have recognized that the residential housing market is stabilizing. The current administration recognizes the importance of stability in the housing market; the extension and expansion of the homebuyer tax credit will continue to support housing’s road to recovery. |
4 Business Overview Operating Focus Stabilize Balance Sheet Invest in New Strategic Opportunities Rebuild Profitability in Core Business Ample liquidity – cash balance of $1.3B at Q3 2009 (excludes NOL carryback refund of approximately $275M, . expected in Q1 2010) Extended debt maturities Joint venture reduction strategy near completion Gross margin improvements: Reduced sales incentives as a result of fewer completed unsold homes, lower cancellation rates and improved market conditions Reduced construction costs as a result of fewer floor plan offerings, value-focused product and centralized purchasing S,G&A reduction: Right-sized overhead levels allow for leveraging additional volume Adding new communities with high return expectations Investing in long-term strategic opportunities – Newhall Investing in Rialto to capitalize on distressed opportunities |
5 Stabilize Balance Sheet |
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 Stabilize Balance Sheet Strong Cash Flow Generation and Low Leverage HB Debt / Total Capital Goal 35% - 45% Operating Cash Flow (Dollars in Millions) YTD (1) Excludes impact of deferred tax asset reserve (1) (1) |
7 Stabilize Balance Sheet Senior Notes Maturities As of August 31, 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 (Dollars in Millions) Senior notes maturities extend over 8 years Weighted average interest rate of 6.9% $280 $245 $350 $250 $500 $250 $400 Oct-10 Oct-11 2012 Mar-13 Sep-14 May-15 Apr-16 Jun-17 |
8 Stabilize Balance Sheet Capital Market Transactions Issued $400 million of senior unsecured notes due in 2017. Repaid $373 million of senior notes and other debt (YTD Q3 2009). Raised $225 million of equity under the draw down program in Q2 & Q3 2009 to provide additional financial flexibility and capital for new opportunities. |
9 $3.2 $5.4 $2.1 $1.5 Stabilize Balance Sheet Aggressive Inventory Reduction (Dollars in Billions) $8.6* $3.6* Peak 2006 Q3 2009 *Excludes consolidated inventory not owned Inventory 58% Land, Land Under Development and Option Deposits Construction in Progress and Finished Homesites |
10 Homesites Owned and Controlled Stabilize Balance Sheet Aggressive Inventory Management 345,000 109,000 Peak 2006 Q3 2009 68% 109,000 20,000 11,000 78,000 Q3 2009 -68% 345,000 Total -81% 105,000 Controlled-JVs -92% 134,000 Optioned -26% 106,000 Owned Change Peak 2006 |
11 270 214 116 72 Peak 2006 Q4 2007 Q4 2008 Q3 2009 Number of Joint Ventures Joint Venture Detail JVs with recourse debt 29 JVs with non-recourse debt 19 JVs without debt 24 JV total 72 Stabilize Balance Sheet Significant Reduction in Joint Ventures 73% |
12 $1,764 $380 Peak 2006 Q3 2009 Stabilize Balance Sheet Significant Reduction in JV Recourse Debt Exposure Maximum JV Recourse Debt Exposure (Dollars in Millions) 78% JVs with Recourse Debt At 8/31/09 Assets $1.6B Equity $0.6B |
13 Stabilize Balance Sheet Joint Venture Reduction Strategy Near Completion Number of JVs Lennar’s Investment in JVs JV Debt Long-Term Strategic/ Performing JVs (no reason to dissolve) JVs Projected to be Dissolved (by 11/30/10) Q3 2009 JV Totals 72 $651 $380 50% 50% 77% 23% 61% 39% 100% 100% 100% 36 36 (Dollars in Millions) $501 $150 Recourse Non-recourse $1,849 65% 35% 100% $654 $1,195 $149 $231 * Net of partner reimbursement agreements, exposure = $259M * |
14 Rebuild Profitability in Core Business |
15 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 . Eliminate S,G&A expenses by restructuring operations and consolidating divisions Each homebuilding division is focused on generating positive cash flow and operating at profitable levels |
16 3% -5% 0% 0% 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 '09 Q2 '09 Q3 '09 (Pre-impairment OM%) Rebuild Profitability in Core Business Focus on Increasing Operating Margins |
17 17% 14% 14% 16% 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 Q2 '09 Q3 '09 (Pre-impairment GM%) Rebuild Profitability in Core Business Focus on Rebuilding Gross Margins |
18 Recovering housing market coupled with normalized lower level of completed unsold inventory and lower cancellation rates provide more stable pricing environment. Q3 2009 sales incentives are at the lowest level since Q3 2006. Reworked product to appeal to today’s value-oriented, first-time and move-up purchaser: reduced floor plan average square footage by approximately 300 square feet. . Reduced number of floor plan offerings and value-engineered those plans to create maximum efficiency and reduce construction costs: reduced number of floor plans by 63%; construction costs per square foot have decreased in excess of 25%. Rebuild Profitability in Core Business Focus on Rebuilding Gross Margins |
19 S,G&A Expenses Associate Headcount Rebuild Profitability in Core Business Focus on S,G&A Reduction $484 $101 Peak 2006 Q3 2009 3,917 14,045 Peak 2006 Q3 2009 (Dollars in Millions) 79% 72% Number of homebuilding divisions has been reduced from 124 to 29. Each division’s S,G&A has been right-sized to today’s production levels and each division can handle additional volume with little additional overhead. |
20 Invest in New Strategic Opportunities |
21 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, MD 39 homesites @ $60K Raleigh, NC 31 homesites @ $35K Charlotte, NC 32 homesites @ $30K Goose Creek, SC 48 homesites @ $16K Charleston, SC 48 homesites @ $18K Homestead, FL 107 homesites @ $3K San Antonio, TX 59 homesites @ $13K San Francisco, CA 33 homesites @ $139K San Bernardino, CA 38 homesites @ $28K Corona, CA 80 homesites @ $89K |
22 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 Over $100M of cash No Lennar guarantees Investment is low risk with very high return potential |
23 Invest in New Strategic Opportunities “Moving from Defense to Offense” Rialto Capital Management Distressed Investment Opportunities Management team led by Jeff Krasnoff (former CEO of LNR Property Corporation) with 30 years of “down-cycle” skills. Part of the team selected by US Treasury as one of nine PPIP managers to focus on investments in CMBS and RMBS; the first closing of PPIP fund in October 2009 raised in excess of $0.5 billion of private equity. When fully raised, capital structure is expected to be $1.1 billion of private equity, $1.1 billion of government equity and $2.2 billion of matching 10 yr financing at Libor + 100bps. With the rising rate of bank failures in 2009, another immediate opportunity for Rialto is evaluating FDIC portfolio sales; the FDIC is marketing a number of portfolios covering a range of commercial and residential assets. Rialto is carefully underwriting the assets in these portfolios. Lennar can co-invest in Rialto’s opportunities as well as share in Rialto’s fees and profits. |
24 Conclusion |
25 Conclusion Lennar’s Strategy Through the Downturn Stabilize Balance Sheet Invest in New Strategic Opportunities Rebuild Profitability in Core Business Reduced construction costs per square foot from peak by over 25% Reduced number of floor plans from peak by 63% Reduced avg. floor plan size from peak by 300 sq. ft. Q3 2009 sales incentives are at the lowest level since . Q3 2006 Adding new communities with above average forecasted . GM% Investing in long term strategic opportunities – 15% . equity owner in Newhall Land Development Investing in distressed opportunities – Rialto Capital . Management Ample liquidity – cash balance of $1.3B at Q3 2009 . (excludes NOL carryback refund of approximately $275M, expected in Q1 2010) Extended debt maturities with senior notes issued in April ’09 Reduced maximum JV recourse debt exposure by 78% since . peak |