Large land assets help Lennar ride housing recovery wave

Tue Jun 25, 2013 5:50pm BST

A Lennar model home is open for customers in a new neighborhood in the Denver suburb of Thornton, Colorado March 29, 2011. REUTERS/Rick Wilking

A Lennar model home is open for customers in a new neighborhood in the Denver suburb of Thornton, Colorado March 29, 2011.

Credit: Reuters/Rick Wilking

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(Reuters) - Lennar Corp (LEN.N) reported a 27 percent rise in orders in the critical spring selling season as its large land bank helped it take advantage of a recovering U.S. housing market.

The No. 3 U.S. homebuilder's better-than-expected second-quarter results also allayed investor fears that rising mortgage rates would dampen housing demand.

"... The housing recovery is still very much intact and the fundamentals of that recovery remain solid," Chief Executive Stuart Miller said on a post-earnings conference call.

Lennar's results come on the back of strong May data, pointing to a solid housing market recovery.

The company's orders jumped to 5,705 homes in the spring selling season, which is to homebuilders what the Christmas shopping season is to retailers. Lennar booked orders for 4,481 homes in the year-ago spring quarter.

Supply of new single-family homes has been constrained as many builders cut back on buying land through the economic downturn. Builders have also complained of labor shortage, which has further slowed construction.

Lennar is better positioned than many of its peers to continue building houses as it got back into the game early and actively bought land over the past several years.

Goldman Sachs wrote in an industry note on Monday that it expects Lennar to grow faster than the national average given the company's solid land investments.

The builder, which sells homes ranging from urban infill communities to golf course communities, said on Tuesday that it had enough land to meet sales through 2014. It expects to spend about $2 billion per year on new land acquisitions from 2015.

"(Lennar's) land bank is quality land, it is adequate to meet the demand that's out there," Williams Financial Group analyst David Williams said.

U.S. homebuilder sentiment turned positive in June for the first time since the start of the housing crisis, data from the National Association of Home Builders showed.

Lennar's shares have gained almost 170 percent since the housing market started recovering in October 2011 and have outperformed the Dow Jones Home Construction Index .DJUSHB.

The stock trades at about 17 times its forward 12-month earnings SmartEstimate, according to Thomson Reuters StarMine data. Smaller peer KB Home's (KBH.N) shares trade at nearly 24 times.

Lennar shares were up 1 percent at $35.34 on Tuesday afternoon on the New York Stock Exchange.

(For a graphic on the U.S. housing market, click r.reuters.com/pum86s)

STRONG SPRING

Lennar said its average selling price rose 13 percent to $283,000 for the three months ended May.

"Affordability remains high, and despite recent interest rate increases, we have seen very little impact on sales or pricing," Miller said.

However, Williams Financial Group's David Williams said it was too early to estimate the impact of mortgage rate increases.

Interest rates started rising towards the end of May after being held at record lows by the U.S. Federal Reserve.

Lennar's backlog - houses ordered but not yet finished - rose 55 percent to 6,163 in units and 76 percent to $1.9 billion in value.

The company earned 61 cents per share on revenue of $1.43 billion for the second quarter. Analysts on average had expected earnings of 33 cents per share on revenue of $1.33 billion, according to Thomson Reuters I/B/E/S.

Lennar, the first of the top 5 U.S. homebuilders to report quarterly results, said in January it would enter the apartment rental business to take advantage of rising rents.

CEO Miller said on Tuesday that construction had begun on five apartment communities, totaling about 1,500 apartments.

(Editing by Don Sebastian and Roshni Menon)

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