# LENNAR CORP /NEW/ (LEN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from LENNAR CORP /NEW/'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/920760/000162828025002404/len-20241130.htm
Accession: 0001628280-25-002404
Filing date: 2025-01-23
Report date: 2024-11-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LEN/
All MD&A years: /company/LEN/mda/
Previous year: /company/LEN/mda/fy2023/ (FY 2023)
Next year: /company/LEN/mda/fy2025/ (FY 2025)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and accompanying notes included elsewhere in this Report. It also should be read in conjunction with the disclosure under “Special Note Regarding Forward-Looking Statements” in Part I of this Form 10-K.

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Outlook

As the fourth quarter of fiscal 2024 began, we expected affordability to ease with the reduction in interest rates by the Fed, and we priced accordingly, however, mortgage rates climbed approximately 100 basis points instead of falling. We saw sales stall at then-existing price and incentive levels, which required us to increase incentives, provide interest rate buy-downs and adjust prices to stimulate sales and avoid inventory build-up. As a result, we have moderated our expectations for margins and sales in the first quarter of fiscal 2025, as the market adjusts and stabilizes.

A combination of wavering consumer confidence and elevated acquisition costs dampened customers’ desire and ability to transact. In addition, inflation and interest rates have hindered the ability of the average family to accumulate a down payment or qualify for a mortgage. Higher interest rates have curtailed the normal move up homebuyer as families expand and need more space. However, strong employment often goes hand-in-hand with a strong housing market, and we expect broad-based demand to resume as rates stabilize or even moderate, releasing pent-up demand against short supply.

Tariffs and immigration have recently been added to the list of concerns confronting the homebuilding industry. Our early evaluation suggests that steps we took in the past several years to move supply into the United States will reduce our exposure to the effect of increased tariffs. The likely effects of reduced immigration and possible widespread deportations are more difficult to predict. We feel confident that similar to the supply chain disruptions during the pandemic, we will be able to work with our local trades and national manufacturers to find the most effective solutions due to our Builder of Choice position with consistent high volume and a focus on production efficiencies.

We continue to believe in the two core parts of our operating strategy:

The first is our focus on matching production with sales pace. Even though our execution in the fourth quarter was challenged by the unexpected change in the direction of interest rates, we were able to adjust incentives and pricing sufficiently to prevent our inventory of finished homes from significantly spiking. We are currently focused on accelerating sales volume in order to correct the sales miss that we had in the fourth quarter. Of course, the catch-up in sales pace comes at a cost, and that cost is impacting our results of operations and placing additional pressure on margin in the first quarter of 2025. We have been able to solve the community count shortfalls of the past and ended the year with 1,447 communities, which was 15% higher than the prior year. Our community count positions us to drive the volume we expect at lower absorption rates as we enter 2025. We expect lower absorption rates to put less stress on our margin over time.

The other core part of our operating strategy is our migration from a company with a large inventory of undeveloped and partially developed land to a land-light model where we purchase land on a just-in-time basis. In the fourth quarter of 2024, we had land purchases of $2.1 billion, but 80% of these were finished homesites on which vertical construction can soon begin. This lowers our asset base and our risk profile and will continue to be an intense focus for us.

The last major step to complete our land-light strategy will be the spin-off of Millrose Properties, Inc., to which we expect to transfer approximately $5 billion to $6 billion of undeveloped and partially developed land, subject to option agreements to repurchase the land as it is developed into finished homesites, and approximately $1 billion in cash. Because Millrose, unlike investor-financed land banking funds, is designed to be able to reinvest proceeds of homesite purchases in new land acquisition and development arrangements, we expect it to be a long-term, reliable source of land acquisition and development financing for Lennar and other homebuilders. As previously disclosed in Millrose’s registration statement on Form S-11, in connection with the Millrose Spin-Off, we are coordinating a post-spin off transaction with Millrose, which has already been approved by the current Millrose Board of Directors and which we expect will be ratified by the independent Millrose Board of Directors that will be appointed immediately prior to the distribution, in connection with our pending acquisition of Rausch Coleman Homes, a residential homebuilder based in Fayetteville, Arkansas (“Rausch Coleman”). The acquisition of Rausch Coleman will result in our expanding into new and desirable markets in Arkansas, Kansas, and Missouri, while growing our existing operations in Texas, Alabama, Oklahoma, and Florida. In this pending acquisition, Lennar will acquire the work-in-process inventory and the operations of Rausch Coleman. We intend to assign the purchase of most of Rausch Coleman’s land assets (the “Rausch Land Assets”) to Millrose. Similar to the other land assets Lennar expects to contribute to Millrose in connection with the Millrose Spin-Off, Lennar expects to enter into options to purchase the developed Rausch Land Assets homesites in accordance with pre-set takedown schedules. We are expecting the acquisition to be completed shortly following the distribution date of the Millrose Spin-Off. We believe that the ongoing relationship with Millrose can facilitate other transactions in an asset-light manner as well.

Looking ahead, we will continue to drive production to meet the housing shortage we know persists across our markets. We believe volume will continue to help reduce cost pressure and as interest rates normalize, pent-up demand will be released, and margins will recover. We are well prepared with a strong and growing national footprint, an increasing community count and higher volume. Our strong balance sheet and even stronger land banking relationships afford us flexibility and opportunity to execute thoughtful growth for our future. We will focus on our manufacturing model and use our strategic land relationships to achieve higher returns on capital and equity.

We will continue to pursue our pure-play business model and reduce exposure to non-core assets. We will be laser focused on our just-in-time homesite deliveries and the resulting asset-light balance sheet. As we complete our asset light

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transformation, we expect to continue to generate strong cash flow and to return capital to our stockholders through dividends and stock buybacks.

Against the backdrop, we anticipate 17,000 to 17,500 closings in the first quarter of fiscal 2025, with gross margins of 19% to 19.25%, and we expect to deliver between 86,000 and 88,000 homes in 2025, including the impact of the Rausch Coleman acquisition.

Results of Operations

Overview

Our net earnings attributable to Lennar were $3.9 billion, or $14.31 per diluted and basic share in 2024 and $3.9 billion, or $13.73 per diluted and basic share in 2023. Excluding mark-to-market gains of $25.2 million on technology investments, one-time items of $90.0 million in our Multifamily segment and a $46.5 million one-time gain on the sale of a technology investment, net earnings attributable to Lennar in 2024 were $3.8 billion, or $13.86 per diluted share. Excluding mark-to-market losses of $50.2 million on technology investments, a $65.0 million write-off of one of our non-public technology investments and other one-time items, net earnings attributable to Lennar in 2023 were $4.1 billion or $14.25 per diluted share.

Financial information relating to our operations was as follows:

[[GREPCENT_TABLE]]
[["","Year ended November 30, 2024"],["(In thousands)","Homebuilding","","Financial Services","","Multifamily","","Lennar Other","","Corporate","","Total"],["Revenues:"],["Sales of homes","$","33,778,149","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","33,778,149"],["Sales of land","93,384","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","93,384"],["Other revenues","34,893","","","1,109,263","","","411,537","","","14,226","","","\u2014","","","1,569,919"],["Total revenues","33,906,426","","","1,109,263","","","411,537","","","14,226","","","\u2014","","","35,441,452"],["Costs and expenses:"],["Costs of homes sold","26,255,353","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","26,255,353"],["Costs of land sold","73,802","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","73,802"],["Selling, general and administrative","2,480,309","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,480,309"],["Other costs and expenses","\u2014","","","532,079","","","521,455","","","79,495","","","\u2014","","","1,133,029"],["Total costs and expenses","28,809,464","","","532,079","","","521,455","","","79,495","","","\u2014","","","29,942,493"],["Equity in earnings (losses) from unconsolidated entities","66,448","","","\u2014","","","150,753","","","(53,102)","","","\u2014","","","164,099"],["Other income, net and other gains","178,842","","","\u2014","","","1,800","","","45,224","","","\u2014","","","225,866"],["Lennar Other unrealized gains from technology investments","\u2014","","","\u2014","","","\u2014","","","25,180","","","\u2014","","","25,180"],["Operating earnings (loss)","5,342,252","","","577,184","","","42,635","","","(47,967)","","","\u2014","","","5,914,104"],["Corporate general and administrative expenses","\u2014","","","\u2014","","","\u2014","","","\u2014","","","648,986","","","648,986"],["Charitable foundation contribution","\u2014","","","\u2014","","","\u2014","","","\u2014","","","80,210","","","80,210"],["Earnings (loss) before income taxes","$","5,342,252","","","577,184","","","42,635","","","(47,967)","","","(729,196)","","","5,184,908"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Year ended November 30, 2023"],["(In thousands)","Homebuilding","","Financial Services","","Multifamily","","Lennar Other","","Corporate","","Total"],["Revenues:"],["Sales of homes","$","32,459,129","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","32,459,129"],["Sales of land","109,963","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","109,963"],["Other revenues","91,895","","","976,859","","","573,485","","","22,035","","","\u2014","","","1,664,274"],["Total revenues","32,660,987","","","976,859","","","573,485","","","22,035","","","\u2014","","","34,233,366"],["Costs and expenses:"],["Costs of homes sold","24,900,470","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","24,900,470"],["Costs of land sold","92,142","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","92,142"],["Selling, general and administrative","2,231,033","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,231,033"],["Other costs and expenses","\u2014","","","467,398","","","573,658","","","27,681","","","\u2014","","","1,068,737"],["Total costs and expenses","27,223,645","","","467,398","","","573,658","","","27,681","","","\u2014","","","28,292,382"],["Equity in losses from unconsolidated entities","(3,886)","","","\u2014","","","(52,073)","","","(88,651)","","","\u2014","","","(144,610)"],["Other income (expense), net and other gains (losses)","94,251","","","\u2014","","","1,595","","","(65,329)","","","\u2014","","","30,517"],["Lennar Other unrealized losses from technology investments","\u2014","","","\u2014","","","\u2014","","","(50,162)","","","\u2014","","","(50,162)"],["Operating earnings (loss)","5,527,707","","","509,461","","","(50,651)","","","(209,788)","","","\u2014","","","5,776,729"],["Corporate general and administrative expenses","\u2014","","","\u2014","","","\u2014","","","\u2014","","","501,338","","","501,338"],["Charitable foundation contribution","\u2014","","","\u2014","","","\u2014","","","\u2014","","","73,087","","","73,087"],["Earnings (loss) before income taxes","$","5,527,707","","","509,461","","","(50,651)","","","(209,788)","","","(574,425)","","","5,202,304"]]
[[/GREPCENT_TABLE]]

2024 versus 2023

Revenues from home sales increased 4% in the year ended November 30, 2024 to $33.8 billion from $32.5 billion in the year ended November 30, 2023. Revenues were higher primarily due to a 10% increase in the number of home deliveries, partially offset by a 5% decrease in the average sales price of homes delivered. New home deliveries increased to 80,210 homes in the year ended November 30, 2024 from 73,087 homes in the year ended November 30, 2023. The average sales price of homes delivered was $423,000 in the year ended November 30, 2024, compared to $446,000 in the year ended November 30, 2023. The decrease in average sales price of homes delivered in the year ended November 30, 2024 compared to the same period last year was primarily due to pricing to market through an increased use of incentives and product mix.

Gross margins on home sales were $7.5 billion, or 22.3%, in the year ended November 30, 2024, compared to $7.6 billion, or 23.3%, in the year ended November 30, 2023. During the year ended November 30, 2024, gross margins decreased primarily because revenue per square foot decreased while land costs increased year over year, which was partially offset by a decrease in costs per square foot due to lower costs of materials as we continued to focus on construction cost savings.

Selling, general and administrative expenses were $2.5 billion in the year ended November 30, 2024, compared to $2.2 billion in the year ended November 30, 2023. As a percentage of revenues from home sales, selling, general and administrative expenses increased to 7.3% in the year ended November 30, 2024, from 6.9% in the year ended November 30, 2023, primarily due to an increase in professional expenses, insurance costs and digital marketing and advertising costs to generate more direct sales.

During the years ended November 30, 2024 and 2023, our homebuilding operating earnings included $164.8 million and $141.2 million of interest income, respectively, due to an increase in cash balances and higher interest rates. During the year ended November 30, 2023, this was partially offset by an impairment of $36.8 million of an investment in a joint venture.

Operating earnings for our Financial Services segment were $574.2 million in the year ended November 30, 2024, compared to operating earnings of $507.1 million in the year ended November 30, 2023.The increase in operating earnings was primarily due to higher lock volume because of an increase in capture rate and deliveries. There was also an increase in profitability from our title business due to higher volume and productivity as a result of continued implementation of technology initiatives.

Operating earnings for the Multifamily segment were $43.0 million in the year ended November 30, 2024, compared to operating loss of $50.6 million in the year ended November 30, 2023. The increase in operating earnings was due to a $179.0 million one-time net gain from the sale of assets in our LMV Fund I, partially offset by a one-time $90.0 million write-down of

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noncore assets as we focus on monetizing these assets. Operating loss for the Lennar Other segment was $46.9 million in the year ended November 30, 2024, compared to an operating loss of $211.2 million in the year ended November 30, 2023. The Lennar Other operating loss for the year ended November 30, 2024 was primarily related to operating losses from certain strategic investments, which were partially offset by $25.2 million of mark-to-market gains on our publicly traded technology investments and a $46.5 million one-time gain on the sale of a technology investment. Lennar Other operating loss for the year ended November 30, 2023 was primarily due to negative mark-to-market adjustments of $50.2 million on our publicly traded technology investments and a $65.0 million write-off of one of our non-public technology investments.

For the years ended November 30, 2024 and 2023, we had a tax provision of $1.2 billion in each period, which resulted in an overall effective income tax rate of 23.6% and 24.0%, respectively. Our overall effective income tax rate was slightly lower than last year, primarily due to additional tax credits recognized during 2024.

Homebuilding Segments

At November 30, 2024, our Homebuilding operating segments and Homebuilding Other consisted of homebuilding divisions located in:

East: Alabama, Florida, New Jersey and Pennsylvania

Central: Georgia, Illinois, Indiana, Maryland, Minnesota, North Carolina, South Carolina, Tennessee and Virginia

Texas: Texas

West: Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah and Washington

Other: Urban divisions and other homebuilding related investments primarily in California, including FivePoint

The following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated:

Selected Financial and Operational Data

[[GREPCENT_TABLE]]
[["","Year Ended November 30, 2024"],["","Gross Margins","","Operating Earnings (Loss)"],["(Dollars in thousands)","Sales of Homes Revenues","","Costs of Sales of Homes","","Gross Margin %","","Net Margins (Loss) on Sales of Homes (1)","","Gross Margins (Loss) on Sales of Land (2)","","Other Revenues","","Equity in Earnings (Losses) from Unconsolidated Entities","","Other Income (Expense), net","","Operating Earnings"],["East","$","8,436,921","","","6,246,070","","","26.0","%","","$","1,475,676","","","10,987","","","11,415","","","31,039","","","69,907","","","1,599,024"],["Central","7,617,692","","","5,959,530","","","21.8","%","","1,044,730","","","2,849","","","3,485","","","1,727","","","30,943","","","1,083,734"],["Texas","4,763,692","","","3,661,661","","","23.1","%","","731,095","","","10,626","","","2,355","","","(17)","","","9,663","","","753,722"],["West","12,938,104","","","10,358,652","","","19.9","%","","1,817,049","","","(4,880)","","","5,958","","","5,362","","","34,381","","","1,857,870"],["Other (3)","21,740","","","29,440","","","(35.4)","%","","(26,063)","","","\u2014","","","11,680","","","28,337","","","33,948","","","47,902"],["Totals","$","33,778,149","","","26,255,353","","","22.3","%","","$","5,042,487","","","19,582","","","34,893","","","66,448","","","178,842","","","5,342,252"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended November 30, 2023"],["","Gross Margins","","Operating Earnings (Loss)"],["(Dollars in thousands)","Sales of Homes Revenues","","Costs of Sales of Homes","","Gross Margin %","","Net Margins (Loss) on Sales of Homes (1)","","Gross Margins (Loss) on Sales of Land (2)","","Other Revenues","","Equity in Earnings (Losses) from Unconsolidated Entities","","Other Income (Expense), net","","Operating Earnings (Loss)"],["East","$","8,649,328","","","6,089,864","","","29.6","%","","$","1,882,032","","","10,770","","","29,807","","","20,165","","","49,176","","","1,991,950"],["Central","7,041,528","","","5,457,510","","","22.5","%","","1,038,400","","","16,865","","","25,102","","","795","","","23,768","","","1,104,930"],["Texas","4,692,906","","","3,593,759","","","23.4","%","","770,817","","","474","","","6,823","","","(5)","","","10,518","","","788,627"],["West","12,052,131","","","9,722,912","","","19.3","%","","1,670,953","","","(10,288)","","","14,688","","","1,453","","","36,160","","","1,712,966"],["Other (3)","23,236","","","36,425","","","(56.8)","%","","(34,576)","","","\u2014","","","15,475","","","(26,294)","","","(25,371)","","","(70,766)"],["","$","32,459,129","","","24,900,470","","","23.3","%","","$","5,327,626","","","17,821","","","91,895","","","(3,886)","","","94,251","","","5,527,707"]]
[[/GREPCENT_TABLE]]

(1)Net margins (loss) on sales of homes include selling, general and administrative expenses.

(2)For the years ended November 30, 2024 and 2023, gross margins (loss) on sales of land included $5.1 million and $19.9 million of deposit write-offs as we walked away from 6,300 and 10,600 controlled homesites, respectively.

(3)Negative gross and net margins were due to period costs and/or impairments in Urban divisions that impact costs of homes sold without sufficient sales of homes revenue to offset those costs.

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Summary of Homebuilding Data

Deliveries:

[[GREPCENT_TABLE]]
[["","For the Years Ended November 30,"],["","Homes","","Dollar Value (In thousands)","","Average Sales Price"],["","2024","","2023","","","","2024","","2023","","","","2024","","2023"],["East","21,325","","","20,266","","","","","$","8,623,347","","","8,805,485","","","","","$","404,000","","","434,000"],["Central","19,084","","","16,809","","","","","7,617,693","","","7,041,528","","","","","399,000","","","419,000"],["Texas","18,844","","","16,591","","","","","4,763,692","","","4,692,906","","","","","253,000","","","283,000"],["West","20,914","","","19,388","","","","","12,938,104","","","12,052,131","","","","","619,000","","","622,000"],["Other","43","","","33","","","","","21,739","","","23,236","","","","","506,000","","","704,000"],["Total","80,210","","","73,087","","","","","$","33,964,575","","","32,615,286","","","","","$","423,000","","","446,000"]]
[[/GREPCENT_TABLE]]

Of the total homes delivered listed above, 383 homes with a dollar value of $186.4 million and an average sales price of $487,000 represent home deliveries from unconsolidated entities for the year ended November 30, 2024, compared to 340 home deliveries with a dollar value of $156.2 million and an average sales price of $459,000 for the year ended November 30, 2023.

Sales Incentives (1):

[[GREPCENT_TABLE]]
[["","","","Average Sales Incentives Per Home Delivered","","Sales Incentives as a % of Revenues"],["","","","Years Ended November 30,"],["","","","","","2024","","2023","","2024","","2023"],["East","","","","","$","53,000","","","33,800","","","11.6","%","","7.2","%"],["Central","","","","","41,500","","","34,800","","","9.4","%","","7.7","%"],["Texas","","","","","52,900","","","56,000","","","17.3","%","","16.5","%"],["West","","","","","47,600","","","47,900","","","7.1","%","","7.2","%"],["Other","","","","","71,300","","","91,500","","","12.4","%","","11.5","%"],["Total","","","","","$","48,800","","","42,900","","","10.3","%","","8.8","%"]]
[[/GREPCENT_TABLE]]

(1) Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities.

New Orders (2):

[[GREPCENT_TABLE]]
[["","At November 30,","","For the Years Ended November 30,"],["","Active Communities","","Homes","","Dollar Value (In thousands)","","Average Sales Price"],["","2024","","2023","","2024","","2023","","","","2024","","2023","","","","2024","","2023"],["East","347","","","305","","","18,205","","","18,685","","","","","$","7,420,362","","","7,931,099","","","","","$","408,000","","","424,000"],["Central","404","","","323","","","19,018","","","15,403","","","","","7,558,829","","","6,324,097","","","","","397,000","","","411,000"],["Texas","285","","","246","","","19,019","","","15,789","","","","","4,804,674","","","4,331,763","","","","","253,000","","","274,000"],["West","409","","","384","","","20,668","","","19,199","","","","","12,874,054","","","11,897,996","","","","","623,000","","","620,000"],["Other","2","","","2","","","41","","","35","","","","","20,562","","","23,600","","","","","502,000","","","674,000"],["Total","1,447","","","1,260","","","76,951","","","69,111","","","","","$","32,678,481","","","30,508,555","","","","","$","425,000","","","441,000"]]
[[/GREPCENT_TABLE]]

Of the total new orders listed above, 315 homes with a dollar value of $175.7 million and an average sales price of $558,000 represent new orders from unconsolidated entities for the year ended November 30, 2024, compared to 321 new orders with a dollar value of $152.9 million and an average sales price of $476,000 for the year ended November 30, 2023.

(2)New orders represent the number of new sales contracts executed with homebuyers, net of cancellations, during the years ended November 30, 2024 and 2023.

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We experienced cancellation rates in our Homebuilding segments and Homebuilding other as follows:

[[GREPCENT_TABLE]]
[["","","","Years Ended November 30,"],["","","","","","2024","","2023"],["East","","","","","17","%","","17","%"],["Central","","","","","11","%","","15","%"],["Texas","","","","","17","%","","20","%"],["West","","","","","12","%","","13","%"],["Other","","","","","18","%","","8","%"],["Total","","","","","14","%","","16","%"]]
[[/GREPCENT_TABLE]]

Backlog:

[[GREPCENT_TABLE]]
[["","At November 30,"],["","Homes","","","","Dollar Value (In thousands)","","","","Average Sales Price"],["","2024","","2023","","","","2024","","2023","","","","2024","","2023"],["East","3,460","","","6,580","","","","","$","1,513,713","","","2,708,322","","","","","$","437,000","","","412,000"],["Central","3,097","","","3,163","","","","","1,316,754","","","1,375,617","","","","","425,000","","","435,000"],["Texas","2,070","","","1,895","","","","","525,299","","","475,941","","","","","254,000","","","251,000"],["West","3,005","","","3,251","","","","","2,016,669","","","2,072,342","","","","","671,000","","","637,000"],["Other","1","","","3","","","","","349","","","1,528","","","","","349,000","","","509,000"],["Total","11,633","","","14,892","","","","","$","5,372,784","","","6,633,750","","","","","$","462,000","","","445,000"]]
[[/GREPCENT_TABLE]]

Of the total homes in backlog listed above, 79 homes with a backlog dollar value of $63.8 million and an average sales price of $807,000 represent the backlog from unconsolidated entities at November 30, 2024, compared to 147 homes with a backlog dollar value of $74.5 million and an average sales price of $507,000 at November 30, 2023.

Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners.

Homebuilding East: Revenues from home sales decreased in 2024 compared to 2023, primarily due to a decrease in the average sales price of homes delivered in all the states in the segment except in New Jersey, which was partially offset by an increase in the number of home deliveries in all the states in the segment. The decrease in the average sales price of homes delivered in Alabama, Florida and Pennsylvania was primarily due to pricing to market and product mix. The increase in the average sales price of homes delivered in New Jersey was primarily due to product mix. The increase in the number of home deliveries in Alabama, Florida, New Jersey and Pennsylvania was primarily due to an increase in the number of active communities. For the year ended November 30, 2024, a decrease in revenues per square foot was partially offset by a decrease in costs per square foot. In addition, land costs increased year over year. Overall, this resulted in a decrease in gross margin percentage of home deliveries.

Homebuilding Central: Revenues from home sales increased in 2024 compared to 2023, primarily due to an increase in the number of home deliveries in all the states in the segment, which was partially offset by a decrease in the average sales price of homes delivered in all the states in the segment except in Illinois and Maryland. The increase in the number of home deliveries in Georgia, Illinois, Indiana, Maryland, Minnesota, North Carolina, South Carolina, Tennessee and Virginia was primarily due to an increase in the number of active communities. The decrease in the average sales price of homes delivered in Georgia, Indiana, Minnesota, North Carolina, South Carolina, Tennessee and Virginia was primarily due to pricing to market and product mix. The increase in the average sales price of homes delivered in Illinois and Maryland was primarily due to product mix. For the year ended November 30, 2024, a decrease in revenues per square foot was more than offset by a decrease in costs per square foot. In addition, land costs increased year over year. Overall, this resulted in a decrease in gross margin percentage of home deliveries.

Homebuilding Texas: Revenues from home sales increased in 2024 compared to 2023, primarily due to an increase in the number of home deliveries, which was partially offset by a decrease in the average sales price of homes delivered. The increase in the number of home deliveries was primarily due to an increase in the number of active communities. The decrease in the average sales price of homes delivered was primarily due to pricing to market. For the year ended November 30, 2024, a decrease in revenues per square foot was partially offset by a decrease in costs per square foot. In addition, land costs increased year over year. Overall, the gross margin percentage of home deliveries decreased year over year.

Homebuilding West: Revenues from home sales increased in 2024 compared to 2023, primarily due to an increase in the number of home deliveries in all the states in the segment except in Colorado, which was partially offset by a decrease in the average sales price of homes delivered in Arizona, Colorado and Washington. The increase in the number of home deliveries in Arizona, California, Idaho, Nevada, Oregon, Utah and Washington was primarily due to an increase in the number

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of active communities. The decrease in the number of home deliveries in Colorado was primarily due to a decrease in the number of active communities due to the timing of opening and closing of communities. The decrease in the average sales price of homes delivered in Arizona, Colorado and Washington was primarily due to pricing to market through an increased use of incentives and product mix. The increase in the average sales price of homes delivered in California, Idaho, Nevada, Oregon and Utah was primarily due to product mix. For the year ended November 30, 2024, an increase in revenues per square foot and a decrease in costs per square foot resulted in an increase in gross margin percentage of home deliveries. In addition, land costs increased year over year.

Financial Services Segment

Our Financial Services reportable segment primarily provides mortgage financing, title and closing services primarily for buyers of our homes, as well as property and casualty insurance. The segment also originates and sells into securitizations commercial mortgage loans through its LMF Commercial business. Our Financial Services segment sells substantially all of the residential loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing-released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements.

The following table sets forth selected financial and operational information related to the residential mortgage and title activities of our Financial Services segment:

[[GREPCENT_TABLE]]
[["","Years Ended November 30,"],["(Dollars in thousands)","2024","","2023"],["Dollar value of mortgages originated","$","19,845,000","","","17,395,000"],["Number of mortgages originated","54,600","","","47,000"],["Mortgage capture rate of Lennar homebuyers","84%","","81%"],["Number of title and closing service transactions","82,400","","","74,900"]]
[[/GREPCENT_TABLE]]

At November 30, 2024 and 2023, the carrying value of Financial Services' commercial mortgage-backed securities ("CMBS") was $135.6 million and $140.7 million, respectively. Details of these securities and related debt are within Note 2 of the Notes to Consolidated Financial Statements.

LMF Commercial

LMF Commercial originates and sells into securitizations first mortgage loans, which are secured by income producing commercial properties. LMF Commercial originated commercial loans as follows:

[[GREPCENT_TABLE]]
[["","Years Ended November 30,"],["(Dollars in thousands)","2024","","2023"],["Originations","$","568,520","","","466,043"],["Sold","$","522,647","","","430,707"],["Securitizations","13","","","10"]]
[[/GREPCENT_TABLE]]

Multifamily Segment

We have been actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. Our Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets.

Originally, our Multifamily segment focused on building multifamily properties and selling them shortly after they were completed. However, more recently we have focused on creating and participating in funds that build multifamily properties with the intention of retaining them after they are completed.

The following table provides information related to our investment in the Multifamily segment:

[[GREPCENT_TABLE]]
[["","At November 30,"],["(Dollars in thousands)","2024","","2023"],["Multifamily investments in unconsolidated entities","$","503,303","","","599,852"],["Lennar's net investment in Multifamily","1,116,295","","","1,095,218"],["Number of operating properties/investments sold through joint ventures","34","","","\u2014"],["Lennar's share of gains on the sale of operating properties/investments","219,148","","","\u2014"]]
[[/GREPCENT_TABLE]]

The Multifamily segment manages and has investments in Multifamily Venture Fund I (the "LMV I") and Multifamily Venture Fund II LP (the "LMV II"), which are long-term multifamily development investment vehicles involved in the

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development, construction and ownership of class-A multifamily rental properties. Details of each as of and during the year ended November 30, 2024 are included below:

[[GREPCENT_TABLE]]
[["","November 30, 2024"],["(In thousands)","LMV I","","LMV II"],["Lennar's carrying value of investments","$","126,784","","","228,496"],["Equity commitments","2,204,016","","","1,257,700"],["Equity commitments called","2,154,328","","","1,218,619"],["Lennar's equity commitments","504,016","","","381,000"],["Lennar's equity commitments called","500,381","","","368,170"],["Lennar's remaining commitments (1)","3,635","","","12,830"],["Distributions to Lennar","199,519","","","12,820"]]
[[/GREPCENT_TABLE]]

(1)While there are remaining commitments with LMV I and LMV II, there are no plans for additional capital calls.

As of November 30, 2023, there were 38 rental operation projects in LMV I. During the second half of fiscal year 2024, the LMV I partners decided to liquidate and sell all of the individual rental operation projects of LMV I as the fund has come to the end of its contractual life. In the second half of 2024, 33 LMV I rental operation projects were sold to various third party buyers. We recognized a net gain of $211.5 million on the sale of these rental operation projects which was recorded as equity in earnings (losses) in the condensed consolidated statement of operations. As a result, we received net cash distributions of $199.5 million.

Our Multifamily segment had equity investments in unconsolidated entities. The breakout of the Multifamily segment's equity investments in unconsolidated entities and the development activities by stage were as follows:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","At November 30, 2024"],["Under construction/owned","8"],["Partially completed and leasing","11"],["Completed and operating","31"],["Total unconsolidated joint ventures","50"],["Total development costs","$","6,931,432"]]
[[/GREPCENT_TABLE]]

As of November 30, 2024, our Multifamily segment also had a pipeline of potential future projects, which were under contract or had letters of intent, totaling approximately $6.5 billion in anticipated development costs across a number of states that will be developed primarily by unconsolidated entities.

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Lennar Other Segment

Our Lennar Other segment includes fund investments we retained subsequent to our sale of the Rialto investment and asset management platform as well as strategic investments in technology companies that are looking to improve the homebuilding and financial services industries to better serve homebuyers and homeowners and increase efficiencies. As of November 30, 2024 and 2023, our balance sheet had $894.9 million and $657.9 million, respectively, of assets in the Lennar Other segment, which included investments in unconsolidated entities of $379.4 million and $276.2 million, respectively. We have investments in Blend Labs, Inc. ("Blend Labs"), Hippo Holdings, Inc. ("Hippo"), Opendoor Technologies, Inc. ("Opendoor"), SmartRent, Inc. ("SmartRent"), Sonder Holdings, Inc. ("Sonder") and Sunnova Energy International, Inc. ("Sunnova"), which are held at market and the carrying value of which will therefore change depending on the fair value of our shareholdings in those entities on the last day of each quarter. All the investments are accounted for as investments in equity securities which are held at fair value and the changes in fair values are recognized through earnings. The following is a detail of Lennar Other unrealized gains (losses) from mark-to-market adjustments on our technology investments:

[[GREPCENT_TABLE]]
[["","Years Ended November 30,"],["(In thousands)","2024","","2023"],["Blend Labs (BLND)","$","9,474","","","(130)"],["Hippo (HIPO)","73,243","","","(19,210)"],["Opendoor (OPEN)","(12,587)","","","21,762"],["SmartRent (SMRT)","(11,609)","","","5,914"],["Sonder (SOND)","15","","","(700)"],["Sunnova (NOVA)","(33,356)","","","(57,798)"],["Lennar Other unrealized gains (losses) from technology investments","$","25,180","","","(50,162)"]]
[[/GREPCENT_TABLE]]

At November 30, 2024 and 2023, Lennar Other owned CMBS with carrying values of $40.6 million and $38.0 million, respectively. These securities were purchased at discount rates ranging from 33% to 55% with coupon rates ranging from 3.0% to 3.4%, stated and assumed final distribution dates between September 2025 and March 2026, and stated maturity dates between September 2058 and March 2059. We review changes in estimated cash flows periodically to determine if an other-than-temporary impairment has occurred on our CMBS. Based on management’s assessment, no impairment charges were recorded during the years ended November 30, 2024 and 2023. We classify these securities as held-for-sale at November 30, 2024 and 2023.

Financial Condition and Capital Resources

At November 30, 2024, we had cash and cash equivalents and restricted cash related to our homebuilding, financial services, multifamily and other operations of $5.0 billion, compared to $6.6 billion at November 30, 2023.

We finance all of our activities including homebuilding, financial services, multifamily, other and general operating needs primarily with cash generated from our operations, debt issuances and investor funds as well as cash borrowed under our warehouse lines of credit and our unsecured revolving credit facility (the "Credit Facility"). At November 30, 2024, we had $4.7 billion of Homebuilding cash and cash equivalents and no outstanding borrowings under our $2.9 billion Credit Facility, thereby approximately $7.6 billion of available capacity.

Operating Cash Flow Activities

During 2024 and 2023, cash provided by operating activities totaled $2.4 billion and $5.2 billion, respectively. During 2024, cash provided by operating activities was positively impacted by our net earnings and an increase in accounts payable and other liabilities of $380 million. This was offset by an increase in inventories due to our growth strategy, strategic land purchases, land development and construction costs of $285 million, an increase in deposits and pre-acquisition costs on real estate of $1.6 billion as we increased the percentage of controlled homesites, and an increase in loans held-for-sale of $218 million primarily related to the sale of loans originated by our Financial Services segment.

During 2023, cash provided by operating activities was positively impacted by our net earnings and $2.3 billion decrease in inventories due to our strategy of controlling more homesites and acquiring finished homesites, thus reducing the amount of spend related to inventory. This was partially offset by a decrease in accounts payable and other liabilities $626 million, primarily due to the payment of income taxes, an increase in receivables of $329 million, an increase in deposits and preacquisition costs on real estate of $296 million as we increased the percentage of controlled homesites, and an increase in loan held-for-sale of $367 million primarily related to the sale of loans originated by our Financial Services segment.

Investing Cash Flow Activities

During 2024 and 2023, cash used in investing activities totaled $303 million and $177 million, respectively. During 2024, our cash used in investing activities was primarily due to cash contributions of $426 million to unconsolidated entities, which primarily included (1) $222 million to Homebuilding unconsolidated entities, (2) $182 million to Lennar Other

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unconsolidated entities, and (3) $21 million to Multifamily unconsolidated entities. This was partially offset by distributions of capital from unconsolidated entities of $231 million, which primarily included (1) $117 million from Multifamily unconsolidated entities, (2) $61 million from Homebuilding unconsolidated entities, and (3) $54 million from our Lennar Other unconsolidated entities.

During 2023, our cash used in investing activities was primarily due to cash contributions of $201 million to unconsolidated entities, which primarily included (1) $94 million to Homebuilding unconsolidated entities, (2) $81 million to Lennar Other unconsolidated entities, and (3) $27 million to Multifamily unconsolidated entities. This was partially offset by distributions of capital from unconsolidated entities of $100 million, which primarily included (1) $70 million from Homebuilding unconsolidated entities, and (2) $29 million from our Lennar Other unconsolidated entities.

Financing Cash Flow Activities

During 2024 and 2023, our cash used in financing activities totaled $3.7 billion and $3.2 billion, respectively. During 2024, our cash used in financing activities was primarily due to the (1) $2.3 billion of repurchases of our common stock, which included $2.2 billion of repurchases under our repurchase program and $87 million of repurchases related to our equity compensation plan; (2) $549 million of dividend payments; (3) $233 million of net repayments under our Financial Services' warehouse facilities; (4) redemption of $454 million aggregate principal amount of our 4.50% senior notes due April 2024; (5) $100 million of partial repurchase of our 4.75% senior notes due 2027; and (6) $14 million of net payments from liabilities related to consolidated inventory not owned due to activity with land banks.

During 2023, our cash used in financing activities was primarily due to the (1) redemption of $378 million aggregate principal amount of our 4.875% senior notes due December 2023, (2) redemption of $425 million aggregate principal amount of our 5.875% senior notes due November 2024, (3) $296 million combined of partial repurchase of our 4.500% senior notes due 2024 and 4.75% senior notes due 2027, (4) $105 million principal payment on notes payable and other borrowings, (5) repurchase of our common stock for $1.2 billion, which included $1.1 billion of repurchase of our stock under our repurchase program and $73 million of repurchases related to our equity compensation plan, (6) $431 million of dividend payments, and (7) $381 million of net payments from liabilities related to consolidated inventory not owned due to land sales to land banks. These were partially offset by (1) $29 million of net borrowings under our Financial Services warehouse facilities, and (2) receipts related to noncontrolling interest of $21 million.

Debt to total capital ratios are financial measures commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our Homebuilding operations. Homebuilding debt to total capital and net Homebuilding debt to total capital were calculated as follows:

[[GREPCENT_TABLE]]
[["","At November 30,"],["(Dollars in thousands)","2024","","2023"],["Homebuilding debt","$","2,258,283","","","2,816,482"],["Stockholders\u2019 equity","27,870,135","","","26,580,664"],["Total capital","$","30,128,418","","","29,397,146"],["Homebuilding debt to total capital","7.5%","","9.6%"],["Homebuilding debt","$","2,258,283","","","2,816,482"],["Less: Homebuilding cash and cash equivalents","4,662,643","","","6,273,724"],["Net Homebuilding debt","$","(2,404,360)","","","(3,457,242)"],["Net Homebuilding debt to total capital (1)","(9.4)%","","(15.0)%"]]
[[/GREPCENT_TABLE]]

(1)Net homebuilding debt to total capital is a non-GAAP financial measure defined as net homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net homebuilding debt plus stockholders' equity). Our management believes the ratio of net homebuilding debt to total capital is a relevant and a useful financial measure to investors in understanding the leverage employed in our homebuilding operations. However, because net homebuilding debt to total capital is not calculated in accordance with GAAP, this financial measure should not be considered in isolation or as an alternative to financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement our GAAP results.

At November 30, 2024, Homebuilding debt to total capital was lower compared to November 30, 2023, primarily as a result of an increase in stockholders' equity due to net earnings and a decrease in Homebuilding debt due to debt paydowns and debt repurchases, partially offset by share repurchases.

We are continually exploring various types of transactions to manage our leverage and liquidity positions, take advantage of market opportunities and increase our revenues and earnings. These transactions may include the issuance of additional indebtedness, the repurchase of our outstanding indebtedness, the repurchase of our common stock, the acquisition of homebuilders and other companies, the purchase or sale of assets or lines of business, the issuance of common stock or securities convertible into shares of common stock, and/or the pursuit of other financing alternatives. In connection with some

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of our non-homebuilding businesses, we are also considering other types of transactions such as sales, restructurings, joint ventures, spin-offs or initial public offerings as we continue to move back towards being a pure play homebuilding company. We have announced an intention to spin off, subject to market conditions, our multifamily and single-family rental asset management businesses and some of our investment assets.

We are currently preparing to spin off (the “Millrose Spin-Off”) a wholly owned subsidiary for Lennar, Millrose Properties Inc. (“Millrose”) into an independent, publicly traded company that will be listed on the New York Stock Exchange. In connection with the Millrose Spin-Off, we plan to contribute to Millrose, in exchange for all outstanding shares of its common stock, a significant portion of our undeveloped, partially developed, and some of our fully developed, land, with an expected total aggregate value between $5.0 billion and $6.0 billion, as well as approximately $1.0 billion of cash. To consummate the Millrose Spin-Off, our Board declared a stock dividend on January 10, 2025, pursuant to which we will distribute to Lennar’s stockholders of record as of January 21, 2025 approximately 80% of the total outstanding number of shares of Millrose common stock on February 7, 2025. The goal of the Millrose Spin-off is to generally complete our migration to an asset-light operating model by spinning off a significant portion of our land assets from our balance sheet. We expect Millrose to qualify as a real estate investment trust that will acquire and develop land and will deliver fully developed homesites under a land option contract on a just in time basis for Lennar and potentially other homebuilders. Millrose is expected to maintain a business model with a self-sustaining, recycling source of land acquisition and development capital. Millrose is expected to be responsible for paying to develop the undeveloped and partially developed land into homesites up to a certain pre-negotiated budget, with Lennar performing the actual construction work. Lennar will have options to purchase the homesites in accordance with pre-set takedown schedules when Lennar expects to be ready to build homes on them. Millrose is expected to use option exercise proceeds to purchase additional land designated by Lennar or other homebuilders in the future, usually giving Lennar or the other homebuilders options to purchase the land when it is developed.

During the fourth quarter of 2024, we entered into a definitive agreement to purchase Rausch Coleman Homes, a residential homebuilder based in Fayetteville, Arkansas. With this acquisition, we will expand our footprint into new markets in Arkansas, Oklahoma, Alabama, Kansas and Missouri while adding to our existing footprint in Texas, Oklahoma, Alabama and Florida. As previously disclosed in Millrose’s registration statement on Form S-11, in connection with furthering our land light strategy, we intend to assign the purchase of Rausch Coleman's land assets (the “Rausch Land Assets”) to Millrose. Similar to the other land assets, Lennar expects to contribute to Millrose in connection with the Millrose Spin-Off, Lennar expects to enter into options to purchase the developed Rausch Land Assets in accordance with pre-set takedown schedules. We are expecting the acquisition to be completed in the first quarter of 2025.

Our Homebuilding senior notes and other debts payable are summarized within Note 4 of the Notes to Consolidated Financial Statements.

In November 30, 2024, we amended and restated the credit agreement governing our Credit Facility. The maximum available borrowings on our Credit Facility were as follows:

[[GREPCENT_TABLE]]
[["(In thousands)","","At November 30, 2024"],["Commitments - maturing in May 2027","","$","225,000"],["Commitments - maturing in November 2029","","2,650,000"],["Total commitments","","$","2,875,000"],["Accordion feature","","625,000"],["Total maximum borrowings capacity","","$","3,500,000"]]
[[/GREPCENT_TABLE]]

The proceeds available under the Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes. The credit agreement also provides that up to $477.5 million in commitments may be used for letters of credit. As of both November 30, 2024 and 2023, we had no outstanding borrowings under the Credit Facility. In addition to the Credit Facility, we have other letter of credit facilities with different financial institutions.

We often post letters of credit instead of making cash deposits for option contracts and for similar purposes. We often are required to post surety bonds to guarantee completion of projects, particularly when municipal authorities are involved. Our outstanding letters of credit and surety bonds are described below:

[[GREPCENT_TABLE]]
[["","At November 30,"],["(In thousands)","2024","","2023"],["Performance letters of credit","$","1,668,061","","","1,404,541"],["Financial letters of credit","745,578","","","417,976"],["Surety bonds","5,140,432","","","4,508,428"],["Anticipated future costs primarily for site improvements related to performance surety bonds","2,766,088","","","2,499,680"]]
[[/GREPCENT_TABLE]]

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Our Homebuilding average debt outstanding and the average rates of interest were as follows:

[[GREPCENT_TABLE]]
[["","At November 30,"],["(Dollars in thousands)","2024","","2023"],["Homebuilding average debt outstanding","$","2,449,576","","","3,688,363"],["Average interest rate","4.8%","","4.9%"],["Interest incurred","$","129,310","","","187,640"]]
[[/GREPCENT_TABLE]]

Under the Credit Facility agreement (the "Credit Agreement"), we are required to maintain a minimum consolidated tangible net worth, a maximum leverage ratio and either a liquidity or an interest coverage ratio. These ratios are calculated per the Credit Facility agreement, which involves adjustments to GAAP financial measures. As of the end of each fiscal quarter, we are required to maintain minimum consolidated tangible net worth of $10.0 billion. As of the end of each fiscal quarter, we are required to maintain a maximum leverage ratio that shall not exceed 60%. As of the end of each fiscal quarter, we are also required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio equal to or greater than 1.50:1.00 for the last twelve months then ended. We believe that we were in compliance with our debt covenants at November 30, 2024.

The following summarizes our required debt covenants and our actual levels or ratios with respect to those covenants as calculated per the Credit Agreement as of November 30, 2024:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","Covenant Level","","Level Achieved as of November 30, 2024"],["Minimum net worth test","$","10,000,000","","","21,384,969"],["Maximum leverage ratio","60.0%","","(6.6)%"],["Liquidity test (1)","1.00","","","(139.00)"]]
[[/GREPCENT_TABLE]]

(1)We are only required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio of equal to or greater than 1.50:1.00 for the last twelve months then ended. Although we are in compliance with our debt covenants for both calculations, we have only disclosed our liquidity test.

At November 30, 2024, the Financial Services segment had warehouse facilities, all of which were 364-day repurchase facilities and were used to fund residential mortgages or commercial mortgages for LMF Commercial as follows:

[[GREPCENT_TABLE]]
[["","Maximum Aggregate Commitment"],["(In thousands)","Committed Amount","","Uncommitted Amount","","Total"],["Residential facilities maturing:"],["April 2025","$","250,000","","","250,000","","","500,000"],["June 2025","1,400,000","","","\u2014","","","1,400,000"],["August 2025","325,000","","","325,000","","","650,000"],["October 2025","100,000","","","100,000","","","200,000"],["December 2026","375,000","","","\u2014","","","375,000"],["Total residential facilities","$","2,450,000","","","675,000","","","3,125,000"],["LMF commercial facilities maturing:"],["December 2024 (1)","200,000","","","\u2014","","","200,000"],["January 2025","100,000","","","\u2014","","","100,000"],["Total LMF commercial facilities","$","300,000","","","\u2014","","","300,000"],["Total","","","","","$","3,425,000"]]
[[/GREPCENT_TABLE]]

(1)Subsequent to November 30, 2024, the maturity date was extended to December 2025.

The Financial Services segment uses residential mortgage loan warehouse facilities to finance its residential lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature. The LMF Commercial facilities finance LMF Commercial loan originations and securitization activities and were secured by up to 80% interests in the originated commercial loans financed.

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Borrowings and collateral under the facilities were as follows:

[[GREPCENT_TABLE]]
[["","At November 30,"],["(In thousands)","2024","","2023"],["Borrowings under the residential facilities","$","1,776,045","","","2,020,187"],["Collateral under the residential facilities","1,837,833","","","2,097,020"],["Borrowings under the LMF Commercial facilities","28,747","","","12,525"]]
[[/GREPCENT_TABLE]]

If the facilities are not renewed or replaced, the borrowings under the lines of credit will be repaid by selling the mortgage loans held-for-sale to investors and by collecting receivables on loans sold but not yet paid for. Without the facilities, the Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

Changes in Capital Structure

In January 2024, our Board authorized an increase to our stock repurchase program to enable us to repurchase up to an additional $5.0 billion in value of our outstanding Class A or Class B common stock. Repurchases are authorized to be made in open-market or private transactions. The repurchase authorization has no expiration date. This authorization was in addition to what was remaining of our March 2022 stock repurchase program. At November 30, 2024, we have a remaining authorization to repurchase $3.4 billion in value of our Class A or B common stock. Repurchases are authorized to be made in open-market or private transactions. The repurchase authorization has no expiration date.

The following table provides information about our repurchases of Class A and Class B common stock:

[[GREPCENT_TABLE]]
[["","Years Ended November 30,"],["","2024","","2023"],["(Dollars in thousands, except price per share)","Class A","","Class B","","Class A","","Class B"],["Shares repurchased","11,942,725","","","1,612,501","","","7,499,660","","","2,500,340"],["Total purchase price","$","1,906,049","","","$","243,860","","","$","851,502","","","$","248,835"],["Average price per share","$","159.60","","","$","151.23","","","$","113.54","","","$","99.52"]]
[[/GREPCENT_TABLE]]

During the year ended November 30, 2024, treasury stock increased by 14.2 million shares primarily due to our repurchase of 13.6 million shares of Class A and Class B common stock through our stock repurchase program. During the year ended November 30, 2023, treasury stock increased by 11.3 million shares primarily due to our repurchase of 10.0 million shares of Class A and Class B common stock through our stock repurchase program.

During the years ended November 30, 2024 and 2023, our Class A and Class B common stockholders received an aggregate per share annual dividend of $2.00 and $1.50, respectively. On January 14, 2025, our Board declared a quarterly cash dividend of $0.50 per share on both our Class A and Class B common stock, payable on February 12, 2025 to holders of record at the close of business on January 29, 2025.

Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity.

Supplemental Financial Information

Currently, certain of our 100% owned subsidiaries, which are primarily our homebuilding subsidiaries, are guaranteeing all our senior notes. The guarantees are full and unconditional.

The indentures governing our senior notes require that, if any of our 100% owned subsidiaries, other than our finance company subsidiaries and foreign subsidiaries, directly or indirectly guarantee at least $75 million principal amount of debt of Lennar Corporation (other than senior notes), those subsidiaries must also guarantee Lennar Corporation’s obligations with regard to its senior notes. Included in the following tables as part of “Obligors” together with Lennar Corporation are subsidiary entities that are not finance company subsidiaries or foreign subsidiaries and were guaranteeing the senior notes because at November 30, 2024 they were guaranteeing Lennar Corporation's letter of credit facilities and its Credit Facility, disclosed in Note 4 of the Notes to Consolidated Financial Statements. The guarantees are full, unconditional and joint and several and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. A subsidiary's guarantee of Lennar senior notes will be suspended at any time when it is not directly or indirectly guaranteeing at least $75 million principal amount of debt of Lennar Corporation (other than senior notes), and a subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed.

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Supplemental information for the Obligors, which excludes non-guarantor subsidiaries and intercompany transactions, at November 30, 2024 is included in the following tables. Intercompany balances and transactions within the Obligors have been eliminated and amounts attributable to the Obligor’s investment in consolidated subsidiaries that have not issued or guaranteed the senior notes have been excluded. Amounts due from and transactions with non-guarantor subsidiaries and related parties are separately disclosed:

[[GREPCENT_TABLE]]
[["","At November 30,"],["(In thousands)","2024","","2023"],["Due from non-guarantor subsidiaries","$","18,396,060","","","22,020,227"],["Equity method investments","1,078,635","","","986,508"],["Total assets","50,251,091","","","45,830,841"],["Total liabilities","10,067,424","","","9,181,456"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(In thousands)","Year Ended November 30, 2024"],["Total revenues","$","32,600,847"],["Operating earnings","5,025,356"],["Earnings before income taxes","4,312,161"],["Net earnings attributable to Lennar","3,294,043"]]
[[/GREPCENT_TABLE]]

Off-Balance Sheet Arrangements

Homebuilding - Investments in Unconsolidated Entities

We regularly monitor the results of our Homebuilding, Multifamily, and Lennar Other unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. We also monitor the performance of Homebuilding joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with their debt covenants, we evaluate and assess possible impairment of our investments. We believe that substantially all of the joint ventures were in compliance with their debt covenants at November 30, 2024, except for the other-than-temporary impairment which is included in Note 1 of the Notes to Consolidated Financial Statements.

At November 30, 2024, we had equity investments in 51 active Homebuilding and land unconsolidated entities (of which 5 had recourse debt, 14 had non-recourse debt and 32 had no debt), compared to 48 active Homebuilding and land unconsolidated entities at November 30, 2023. Historically, we have invested in unconsolidated entities that acquired and developed land (1) for our homebuilding operations or for sale to third parties or (2) for the construction of homes for sale to third-party homebuyers. Through these entities, we have primarily sought to reduce and share our risk by limiting the amount of our capital invested in land, while obtaining access to potential future homesites and allowing us to participate in strategic ventures. The use of these entities also, in some instances, has enabled us to acquire land to which we could not otherwise obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. Participants in these joint ventures have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to homesites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partner. Each joint venture is governed by an executive committee consisting of members from the partners. Details regarding these investments, balances and debt are included in Note 3 of the Notes to Consolidated Financial Statements.

The following table summarizes the principal maturities of our Homebuilding unconsolidated entities ("JVs") debt as per current debt arrangements as of November 30, 2024. It does not represent estimates of future cash payments that will be made to reduce debt balances. Many JV loans have extension options in the loan agreements that would allow the loans to be extended into future years.

[[GREPCENT_TABLE]]
[["","","","Principal Maturities of Homebuilding Unconsolidated JVs Debt by Period"],["(In thousands)","","","Total JV Debt","","2025","","2026","","2027","","Thereafter","","Other"],["Debt without recourse to Lennar","","","$","1,276,663","","","231,103","","","163,471","","","326,685","","","555,404","","","\u2014"],["Land seller and other debt without recourse to Lennar","","","1,081","","","\u2014","","","\u2014","","","\u2014","","","1,081","","","\u2014"],["Maximum recourse debt exposure to Lennar","","","44,171","","","\u2014","","","12,261","","","\u2014","","","31,910","","","\u2014"],["Debt issuance costs","","","(3,156)","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(3,156)"],["Total","","","$","1,318,759","","","231,103","","","175,732","","","326,685","","","588,395","","","(3,156)"]]
[[/GREPCENT_TABLE]]

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Multifamily - Investments in Unconsolidated Entities

At November 30, 2024, Multifamily had equity investments in 23 active unconsolidated entities that are engaged in multifamily residential developments (of which 18 had non-recourse debt and 5 had no debt), and 22 active unconsolidated entities at November 30, 2023. We invest in unconsolidated entities that acquire and develop land to construct multifamily rental properties. Through these entities, we are focusing on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. Participants in these joint ventures have been financial partners. Joint ventures with financial partners have allowed us to combine our development and construction expertise with access to our partners’ capital. Each joint venture is governed by an operating agreement that provides significant substantive participating voting rights on major decisions to our partners.

The Multifamily segment manages and has investments in LMV I, LMV II and Canada Pension Plan Investments Fund, which are long-term multifamily development investment vehicles involved in the development, construction and ownership of class-A multifamily assets. During the year ended November 30, 2024, the LMV I fund sold some of its individual rental operation projects which resulted in a net gain of $211.5 million and received net cash distributions of $199.5 million. The remaining LMV I rental operation projects are expected to be monetized in the near term. Details of each as of and during the year ended November 30, 2024 are included in Note 3 of the Notes to Consolidated Financial Statements.

We regularly monitor the results of our Multifamily unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. We also monitor the performance of Multifamily joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment. We believe all of the joint ventures were in compliance with their debt covenants at November 30, 2024.

The following table summarizes the principal maturities of our Multifamily unconsolidated entities debt as per current debt arrangements as of November 30, 2024. It does not represent estimates of future cash payments that will be made to reduce debt balances.

[[GREPCENT_TABLE]]
[["","","Principal Maturities of Multifamily Unconsolidated JVs Debt by Period"],["(In thousands)","","Total JV Debt","","2025","","2026","","2027","","Thereafter","","Other"],["Debt without recourse to Lennar","","$","2,922,010","","","1,120,389","","","841,057","","","777,565","","","182,999","","","\u2014"],["Debt issuance costs","","(16,097)","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(16,097)"],["Total","","$","2,905,913","","","1,120,389","","","841,057","","","777,565","","","182,999","","","(16,097)"]]
[[/GREPCENT_TABLE]]

Lennar Other - Investments in Unconsolidated Entities

As part of the sale of the Rialto investment and asset management platform, we retained the right to receive a portion of payments with regard to carried interests if certain funds meet specified performance thresholds. We periodically receive advance distributions related to the carried interests in order to cover income tax obligations resulting from allocations of taxable income to the carried interests. These distributions are not subject to clawbacks but reduce future carried interest payments to which we become entitled from the applicable funds and were recorded as equity in earnings (losses) in the consolidated statement of operations. Our investment in the Rialto funds totaled $140.1 million and $148.7 million as of November 30, 2024 and 2023, respectively.

As of November 30, 2024 and 2023, we had strategic technology investments in unconsolidated entities of $239.3 million and $127.5 million respectively, accounted for under the equity method of accounting. Our strategic technology investments through our LENX business help to enhance the homebuying and home ownership experience, and help us stay at the forefront of homebuilding innovation.

Option Contracts

We often obtain access to land through option contracts, which generally enable us to control portions of properties owned by third parties (including land banks) and unconsolidated entities until we have determined whether to exercise the options. Since fiscal year 2020, we have been increasing the percentage of our total homesites that we control through options rather than own.

As part of our focus on strategic relationships to further enhance our land lighter strategy, at the end of fiscal year 2020 we entered into an arrangement with various land bank investor groups. Under the arrangement, in most instances when we want to acquire a property for use in our for-sale single-family home business, we will offer the investor group the opportunity to acquire the property and give us an option to purchase all or a portion of it back in the future, if it is mutually beneficial to both parties. To the extent the investor group does not elect to purchase properties we identify, we can utilize our other investor relationships to have other investor groups purchase the land or we can purchase it directly. The arrangement with the investor group, together with existing and other strategic partnerships we are discussing, are significant steps in our strategy to migrate

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to a higher percentage of our homesites which we control but do not own, which we expect will result in greater cash flow and higher returns on assets and equity.

The table below indicates the number of homesites to which we had access through option contracts with third parties or unconsolidated JVs (i.e., controlled homesites) and homesites owned at November 30, 2024 and 2023:

[[GREPCENT_TABLE]]
[["November 30, 2024","","","","","Controlled Homesites","","Owned Homesites","","Total Homesites","","Years of Supply Owned (1)"],["East","","","","","95,725","","","18,437","","","114,162"],["Central","","","","","92,469","","","28,489","","","120,958"],["Texas","","","","","117,749","","","15,357","","","133,106"],["West","","","","","82,878","","","21,254","","","104,132"],["Other","","","","","4,828","","","1,891","","","6,719"],["Total homesites","","","","","393,649","","","85,428","","","479,077","","","1.1"],["% of total homesites","","","","","82","%","","18","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["November 30, 2023","Controlled Homesites","","Owned Homesites","","Total Homesites","","Years of Supply Owned (1)"],["East","85,601","","","20,441","","","106,042"],["Central","65,053","","","32,264","","","97,317"],["Texas","90,961","","","21,790","","","112,751"],["West","62,674","","","23,429","","","86,103"],["Other","5,411","","","1,891","","","7,302"],["Total homesites","309,700","","","99,815","","","409,515","","","1.4"],["% of total homesites","76","%","","24","%"]]
[[/GREPCENT_TABLE]]

(1)Based on trailing twelve months of home deliveries.

Details on option contracts and related consolidated inventory not owned and exposure are included in Note 1 and Note 8 of the Notes to Consolidated Financial Statements.

Contractual Obligations and Commercial Commitments

The following table summarizes certain of our contractual obligations at November 30, 2024:

[[GREPCENT_TABLE]]
[["","","","Payments Due by Period"],["(In thousands)","Total","","Less than 1 year","","1 to 3 years","","3 to 5 years","","More than 5 years"],["Homebuilding - senior notes and other debts payable (1)","$","2,257,440","","","532,097","","","1,683,134","","","25,562","","","16,647"],["Land purchase contract obligations (2)","1,507,964","","","582,683","","","830,565","","","94,716","","","\u2014"],["Financial Services - notes and other debts payable","1,930,956","","","1,800,944","","","3,848","","","\u2014","","","126,164"],["Interest commitments under interest bearing debt (3)","230,794","","","109,869","","","116,132","","","3,737","","","1,056"],["Operating lease obligations","293,806","","","98,143","","","100,150","","","50,273","","","45,240"],["Other contractual obligations (4)","20,374","","","20,374","","","\u2014","","","\u2014","","","\u2014"],["Total contractual obligations","$","6,241,334","","","3,144,110","","","2,733,829","","","174,288","","","189,107"]]
[[/GREPCENT_TABLE]]

(1)The amounts presented in the table above exclude debt issuance costs and any discounts/premiums and purchase accounting adjustments.

(2)Amount includes purchase commitments due to land banks upon maturity of the contracts. Our intention is to have a land bank close on the land purchase commitments and we will option land from the land bank.

(3)Interest commitments on variable interest-bearing debt are determined based on the interest rate as of November 30, 2024.

(4)Amounts include $20.4 million of remaining equity investment commitment to Upward America.

We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land generally reduce our financial risk and costs of capital associated with land holdings. At November 30, 2024, we had access to 393,649 homesites through option contracts with third parties and unconsolidated entities in which we have investments. At November 30, 2024, we had $3.5 billion of non-refundable option deposits and pre-acquisition costs related to certain of these homesites and had posted $341.8 million of letters of credit in lieu of cash deposits under certain land and option contracts.

At November 30, 2024, we had letters of credit outstanding in the amount of $2.4 billion (which included the $341.8 million of letters of credit discussed above). Details on our letters of credit outstanding and outstanding surety bonds are included in Note 4 of the Notes to Consolidated Financial Statements.

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Our Financial Services segment had a pipeline of loan applications in process of $2.8 billion at November 30, 2024. Loans in process for which interest rates were committed to the borrowers totaled approximately $1.8 billion as of November 30, 2024. A significant portion of these commitments had a remaining period of 60 days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers or borrowers may not meet certain criteria at the time of closing, the total commitments do not necessarily represent future cash requirements.

Our Financial Services segment uses mandatory mortgage-backed securities ("MBS") forward commitments, option contracts, futures contracts and investor commitments to hedge our mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments, option contracts, futures contracts and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and the option contracts. At November 30, 2024, we had open commitments amounting to $3.8 billion to sell forward contracts, which include MBS and interest rate swaps, with varying settlement dates through February 2025 and open future contracts in the amount of $2.3 million with the varying settlement dates through March 2025.

The following sections discuss market and financing risk, seasonality and interest rates and changing prices that may have an impact on our business:

Market and Financing Risk

We finance our contributions to JVs, land acquisition and development activities, construction activities, financial services activities, Multifamily activities and general operating needs primarily with cash generated from operations and debt, as well as borrowings under our Credit Facility and warehouse repurchase facilities. We also purchase land under option agreements, which enables us to control homesites until we have determined whether to exercise the options. We try to manage the financial risks of adverse market conditions associated with land holdings by what we believe to be prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process and limitation of risks by using partners to share the costs of purchasing and developing land as well as obtaining access to land through option contracts. Although we believe our land underwriting standards are conservative, we do not anticipate a severe decline in land values and the sharply reduced demand for new homes in the near future.

Seasonality

We historically have experienced, and expect to continue to experience, variability in quarterly results. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second and third fiscal quarters and increased deliveries in the second half of our fiscal year. However, a variety of factors can alter seasonal patterns.

Interest Rates and Changing Prices

Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and increase the costs of financing land development activities and housing construction. Rising interest rates as well as increased material and labor costs, may reduce gross margins. An increase in materials and labor costs would be particularly a problem during a period of declining home prices. Conversely, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.

New Accounting Pronouncements

See Note 1 of the notes to our consolidated financial statements for a comprehensive list of new accounting pronouncements.

Critical Accounting Policies and Estimates

Our accounting policies are more fully described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this document. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to our

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consolidated financial statements. Listed below are those policies and estimates that we believe are critical and require the use of significant judgment in their application.

Goodwill

We recorded a significant amount of goodwill in connection with the 2018 acquisition of CalAtlantic. We record goodwill associated with acquisitions of businesses when the purchase price of the business exceeds the fair value of the net tangible and identifiable assets acquired. In accordance with ASC Topic 350, Intangibles-Goodwill and Other, we evaluate goodwill for potential impairment on at least an annual basis. We have the option to perform a qualitative or quantitative assessment to determine whether the fair value of a reporting unit exceeds its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting units and other entity and reporting unit specific events. We believe that the accounting estimate for goodwill is a critical accounting estimate because of the judgment required in assessing the fair value of each of our reporting units. We estimate fair value through various valuation methods, including the use of discounted expected future cash flows of each reporting unit. The expected future cash flows for each segment are significantly impacted by current market conditions. If these market conditions and resulting expected future cash flows for each reporting unit decline significantly, the actual results for each segment could differ from our estimate, which would cause goodwill to be impaired. Our accounting for goodwill represents our best estimate of future events.

Homebuilding Revenue Recognition

Homebuilding revenues and related profits from sales of homes are recognized at the time of the closing of a sale, when title to and possession of the property are transferred to the homebuyer. In order to promote sales of the homes, we may offer sales incentives to homebuyers. The types of incentives vary on a community-by-community basis and home-by-home basis. They include primarily price discounts on individual homes and financing incentives, all of which are reflected as a reduction of home sales revenues. Our performance obligation, to deliver the agreed-upon home, is generally satisfied in less than one year from the original contract date. Cash proceeds from home closings held in escrow for our benefit, typically for approximately three days, are included in Homebuilding cash and cash equivalents in the Consolidated Balance Sheets and disclosed in the notes to consolidated balance sheets. Contract liabilities include customer deposit liabilities related to sold but undelivered homes that are included in other liabilities in the Consolidated Balance Sheets. We periodically elect to sell parcels of land to third parties. Cash consideration from land sales is typically due on the closing date, which is generally when performance obligations are satisfied, and revenue is recognized as title to and possession of the property are transferred to the buyer.

Multifamily Revenue Recognition

Our Multifamily segment provides management services with respect to the development, construction and property management of rental projects in joint ventures in which we have investments. As a result, our Multifamily segment earns and receives fees, which are generally based upon a stated percentage of development and construction costs and a percentage of gross rental collections. These fees are recorded over the period in which the services are performed using an input method, which properly depicts the level of effort required to complete the management services. In addition, our Multifamily segment provides general contractor services for the construction of some of its rental projects and recognizes the revenue over the period in which the services are performed using an input method, which properly depicts the level of effort required to complete the construction services. These customer contracts require us to provide management and general contractor services which represents a performance obligation that we satisfy over time. Management fees and general contractor services in the Multifamily segment are included in Multifamily revenue. When the Multifamily segment acts as general contractor, it treats the entire construction cost as revenue and treats payments to subcontractors as expenses.

Inventories

Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. We review our inventory for indicators of impairment by evaluating each community during each reporting period. If the undiscounted cash flows expected to be generated by a community are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such community to its estimated fair value.

In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales, and the estimated fair value of the land itself.

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We estimate the fair value of our communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. We evaluate the historical performance of each of our communities as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above.

Since the estimates and assumptions included in our cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions or strategies that may lead to us incurring additional impairment charges in the future.

Using all the available information, we calculate our best estimate of projected cash flows for each community. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change from market to market and community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate we believe a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage.

We estimate the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or our assumptions change.

We believe that the accounting related to inventory valuation and impairment is a critical accounting policy because: (1) assumptions inherent in the valuation of our inventory are highly subjective and susceptible to change and (2) the impact of recognizing impairments on our inventory could be material to our consolidated financial statements.

Product Warranty

Although we subcontract virtually all aspects of construction to others and our contracts call for the subcontractors to repair or replace any deficient items related to their trades, we are primarily responsible to homebuyers to correct any deficiencies. Additionally, in some instances, we may be held responsible for the actions of or losses incurred by subcontractors. Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based upon historical data and trends with respect to similar product types and geographical areas. We believe the accounting estimate related to the reserve for warranty costs is a critical accounting estimate because the estimate requires a large degree of judgment. While we believe that the reserve for warranty costs is adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Additionally, there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve.

Investments in Unconsolidated Entities

We strategically invest in unconsolidated entities that acquire and develop land (1) for our homebuilding operations or for sale to third parties, (2) for construction of homes for sale to third-party homebuyers or (3) for the construction and sale of multifamily rental properties. Our Homebuilding partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners. Additionally, in recent years, we have invested in technology companies that are looking to improve the homebuilding and financial services industry in order to better serve homebuyers and homeowners and increase efficiencies. Our Multifamily partners are all financial partners.

Most of the unconsolidated entities through which we acquire and develop land are accounted for by the equity method of accounting because we are not the primary beneficiary or a de-facto agent, and we have a significant, but less than controlling, interest in the entities. We record our investments in these entities in our consolidated balance sheets as Investments in Unconsolidated Entities and our pro-rata share of the entities’ earnings or losses in our consolidated statements of operations as equity in earnings (losses) from unconsolidated entities within each of the respective segments. For most unconsolidated entities, we generally have the right to share in earnings and distributions on a pro-rata basis based upon ownership percentages. However, certain Homebuilding unconsolidated entities and all of our Multifamily unconsolidated entities provide for a different allocation of profit and cash distributions if and when cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return). Advances to these entities are included in the investment balance.

Management looks at specific criteria and uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence, or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a critical accounting policy due to the judgment required in determining whether the entity is a variable interest entity ("VIE") or a voting interest entity and then whether we are the primary beneficiary or have

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control or significant influence. We believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling interest, but rather share control with our partners.

We evaluate the long-lived assets in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the fair value of our investment in the unconsolidated entity below its carrying amount has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.

The evaluation of our investment in unconsolidated entities for other-than-temporary impairment includes certain critical assumptions: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions, (3) the length of the time and the extent to which the market value has been less than cost, and (4) various other factors. Our assumptions on the projected future distributions from unconsolidated entities are dependent on market conditions.

We believe our assumptions on discount rates are critical accounting policies because the selection of the discount rates affects the estimated fair value of our investments in unconsolidated entities. A higher discount rate reduces the estimated fair value of our investments in unconsolidated entities, while a lower discount rate increases the estimated fair value of our investments in unconsolidated entities. Because of changes in economic conditions, actual results could differ materially from management’s assumptions and may require material valuation adjustments to our investments in unconsolidated entities to be recorded in the future.

Consolidation of Variable Interest Entities

GAAP requires the assessment of whether an entity is a VIE and, if so, if we are the primary beneficiary at the inception of the entity or at a reconsideration event. Additionally, GAAP requires the consolidation of VIEs in which we have a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Our variable interest in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets, (3) management services and development agreements between us and a VIE, (4) loans provided by us to a VIE or other partner and/or (5) guarantees provided by members to banks and other third parties. We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs.

Generally, all major decision making in our joint ventures is shared among all partners. In particular, business plans and budgets are generally required to be unanimously approved by all partners. Usually, management and other fees earned by us are nominal and believed to be at market and there is no significant economic disproportionality between us and other partners. Generally, we purchase less than a majority of the JV’s assets and the purchase prices under our option contracts are believed to be at market.

Generally, our unconsolidated entities become VIEs and consolidate if the other partner(s) lack the intent and financial wherewithal to remain in the entity. As a result, we continue to fund operations and debt paydowns through partner loans or substituted capital contributions. The accounting policy relating to variable interest entities is a critical accounting policy because the determination of whether an entity is a VIE and, if so, whether we are primary beneficiary may require us to exercise significant judgment.