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Credit Suisse2006 Homebuilding
Symposium
Balance Sheet First
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Disclaimer Statement
This presentation includes "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include information and estimates for our 2006 fiscal year, representing our expectations regarding our business, operations and goals as of the date of our second quarter 2006 earnings release and conference call. We are not updating any forward-looking information or estimates at this time. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption "Risk Factors” in our Annual Report on Form 10-K for our most recently completed fiscal year and in our other filings with the Securities and Exchange Commission. We do not undertake any obligation or duty to update forward-looking statements and we will update estimates and other forward-looking information only by means of widely disseminated public disclosure.
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62%
63%
64%
65%
66%
67%
68%
69%
70%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Decade Of Banner Growth…What’s Next?Decade Of Banner Growth…What’s Next?Industry Fundamentals Have Set Record Industry Fundamentals Have Set Record LevelsLevels
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
New Home SalesHomeownership Rates
Source: US Census Bureau Source: US Census Bureau
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245
255
265
275
285
295
305
315
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
(in millions)
Source: US Census Bureau
Population is projected to grow steadily for the next 10 years
Projected
Decade Of Banner Growth…What’s Next? Decade Of Banner Growth…What’s Next? Population Growth is Expected to Continue to Fuel Population Growth is Expected to Continue to Fuel DemandDemand
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Decade Of Banner Growth…What’s Next?Decade Of Banner Growth…What’s Next? Current Market Conditions Have SoftenedCurrent Market Conditions Have Softened
Rising rates
Affordability down
Margins compressed
Speculators are exiting the market
NAHB Housing Market Index
Source: National Association of Home Builders – seasonally adjusted
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4
5
6
7
8
9
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Months’ supply of new homes
15
25
35
45
55
65
75
85
Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06
Source: National Association of Home Builders
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Decade Of Banner Growth…What’s Next? Decade Of Banner Growth…What’s Next? Long-Term Homebuilding Fundamentals Remain Long-Term Homebuilding Fundamentals Remain StrongStrong
Immigration projected at 1.2 million annually
Percentage of minority households is increasing
Growing household wealth leads to greater entry and step-up homeownership
Aging of the population creates more demand for second homes
Land supply is constrainedSource: Joint Center for Housing Studies of Harvard University 2006
Household Growth in the Next Decade Should Be Even Greater
Than in the Past
Projected
(millions)
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Operating Process Realignment Positions Us For Success
Nevada
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Operating Process Operating Process Foundation For SuccessFoundation For Success
A disciplined planning process promotes execution and future planning.
Operating process realignment better connects Corporate, Management Teams and Front Line.
A controlled production environment, process improvement and consistent execution promote consistency and accountability.
Size, scale and geographic diversity provide purchasing leverage opportunities.
Our goal is to maintain positive cash flow by separately focusing on the Homebuilding and Land processes.
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Operating Process - Land & HomebuildingOperating Process - Land & Homebuilding
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Operating Process -Operating Process -Homebuilding Research and Development Homebuilding Research and Development
Divisions focused on specializing (price range and product) versus offering everything to everyone
Identifying best sellers with the highest margins - and reducing overall product lines and plans
Researching the market and offering the most compelling value proposition
Everything’s Included - simplicity
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Operating Process –Operating Process –Sales And Construction Timeline AlignmentSales And Construction Timeline Alignment
Inventory Neutral
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A Company focused on bottom line growth - not top line growth - recognizing that a 1% increase in efficiency translates to a $150 million increase to the bottom line.
Even Flow Production
Cycle Time Improvement
Purchasing Leverage Opportunities
SG&A Reduction
Warranty Costs Reduction
Asset Management
Operating Process –Operating Process –The Company We Are CreatingThe Company We Are Creating
Strong Cash Flow Generation and Eliminate Volatility of Cash Flow
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What Is Lennar’s Roadmap For Success? - Take It Up A Notch
Texas
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Take It Up A Notch –Take It Up A Notch –4 Step Strategy To Respond To Current Market 4 Step Strategy To Respond To Current Market ConditionsConditions
Recognizing that the markets are slowing, we are staying on course with our strategy and focus on 4 key areas to off-set diminishing margins
1. Salesmanship
2. Building Partner Cost Reduction
3. Overhead Cost Reduction
4. Asset Management
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Take It Up A Notch – Take It Up A Notch – We Are Focused On A 4 Step StrategyWe Are Focused On A 4 Step Strategy
Step 1: Salesmanship
Liberate the Director of Sales
Meet with each NHC each week and educate them on 10-5-2-1
Train and coach NHCs in the field and at the Phone Bank on how to achieve each element of 10-5-2-1
Hold NHCs accountable by honestly ranking them each
week on 10-5-2-1, sharing their ranking with them and providing candid feedback
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Take It Up A Notch –Take It Up A Notch –We Are Focused On A 4 Step StrategyWe Are Focused On A 4 Step Strategy
Step 2: Building Partner Cost Reduction
Building partners raised their prices along with us as the market strengthened
It is time for them to reduce prices as our markets weaken
Our consistent starts guarantee long-term uninterrupted work
The amount of reduction we are asking for is in line with incentives we are giving
A letter has been delivered to our Building Partners asking for significant price reductions on existing and future work
This reduction percentage will partially offset sales incentives
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Take It Up A Notch –Take It Up A Notch –We Are Focused On A 4 Step StrategyWe Are Focused On A 4 Step Strategy
Step 3: Overhead Cost Reduction
Our focus is not to reduce people - but to reduce inefficiencies
We have already identified Corporate Overhead Savings
We are focused on identifying savings in field related
expenses
Take it up a notch by eliminating noise and ensuring all associates are impact players
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Step 4: Asset Management
Asset management team headed by Emile Haddad – Chief Investment Officer
The team is responsible for:
Re-evaluating all previously approved, but not yet purchased land acquisitions
Renegotiating all land acquisitions to meet current market conditions, otherwise walk away
Paring down long-term land positions
Take It Up A Notch –Take It Up A Notch –We Are Focused On A 4 Step StrategyWe Are Focused On A 4 Step Strategy
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What Is Lennar’s Roadmap for Success? - Balance Sheet First
California
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Debt / Total Capital
Balance Sheet First –Balance Sheet First –We Continue To Improve Our Credit We Continue To Improve Our Credit MetricsMetrics
10%
20%
30%
40%
50%
60%
70%
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Q2
05
Q2
06*
*Spin-off of LNR
Goal 35% - 45%
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HB Debt / EBIT
Balance Sheet First –Balance Sheet First –We Continue To Improve Our Credit We Continue To Improve Our Credit MetricsMetrics
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
5.0x
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Q2
05
Q2
06
22
EBIT / Interest Incurred
Balance Sheet First –Balance Sheet First –We Continue To Improve Our Credit We Continue To Improve Our Credit MetricsMetrics
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Q2
05
Q2
06
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Balance Sheet First –Balance Sheet First –Diversified Debt StructureDiversified Debt Structure
$200
$300$250
$350
$250
$500
$250$185
$282
$300
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
($ in millions)
Issued $500 million of fixed rate notes
Redeemed the zero converts due 2021
Weighted average maturity of 4.3 years
Weighted average cash interest rate of 5.6%
As of May 31, 2006
RepaymentSchedule($ in millions)
6.50% Senior NotesL + 50
FRN
7.63 %Senior Notes
L + 75 FRN
5.95%Senior Notes
5.50%Senior Notes
5.60%Senior Notes
Revolver
5.13% Senior Notes
5.95% Senior Notes
Senior notes – fixed rate
Floating rate notes & Revolver
Other notes payable
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Growth Strategy: Will The Cycle Be Our Ally?Growth Strategy: Will The Cycle Be Our Ally? – – Strategic Use Of Joint VenturesStrategic Use Of Joint Ventures
Maintain Lennar’s conservative operating and financial policies
Strategically acquire land while mitigating land risks
Effectively match financing to asset life
Diversify investment opportunities
Access to JV partners with unique expertise
Governed as separate entities with clear exit mechanisms
Lennar shares upside potential in order to minimize downside risks
Over our 52- year history, Lennar has used JVs for beneficial business purposes
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Growth Strategy: Will The Cycle Be Our Ally? –Growth Strategy: Will The Cycle Be Our Ally? –Asset Management Through Strategic Joint Asset Management Through Strategic Joint VenturesVentures
Strategic partners with specific expertise JV with partner who brings specific expertise
(e.g. commercial or infill experience) Generally represents approximately 40% of JVs
JV with other builders Joint bid on land parcels is a smarter way to
purchase Homesites allocated to each homebuilder Generally represents approximately 20% of JVs
JV with financial partners Partner brings capital Lennar manages JV Generally represents approximately 20% of JVs
JV with land owner/developers Access to homesites owned or controlled by
partner Generally represents approximately 20% of JVs
Newhall(Los Angeles)
Roseland(New York– Boston)
Windemere (San Ramon)
El Toro(Irvine)
Natomas(Sacramento)
Examples
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Each growth opportunity has upside and downside
Lennar has a balanced and disciplined approach to growth
Strong balance sheet and flexibility allow Lennar to take advantage of the best growth opportunities
Growth in EPS
Acquire New Communities One
by One
Acquire New Communities via
Acquisition
Organic Growth
Increase Market Share in Existing
Markets
Growth Through Acquisitions
Enter New Markets
viaAcquisitions
Growth Strategy: Will The Cycle Be Our Ally? –Growth Strategy: Will The Cycle Be Our Ally? –With A Balance Sheet First Strategy, With A Balance Sheet First Strategy, We Have Multiple Ways To InvestWe Have Multiple Ways To Invest
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Growth Strategy: Will The Cycle Be Our Ally? – Growth Strategy: Will The Cycle Be Our Ally? – Organic Growth Augmented By Strategic Stepping Organic Growth Augmented By Strategic Stepping StonesStones
Net EarningsAnnual National Housing Starts
Each new strategic step leads to an improved growth platform
Starts(millions)
Acquired Private Builders
AcquiredCalifornia OperationsAcquired
AmerifirstPortfolio
Repurchased 9.8million shares:
AcquiredU.S. Home
AcquiredTexas
Operations
Acquired Newhall
Roseland Infill JVs
AcquiredGreystone;
Spun-Off LNR
Military Baseredevelopment
Net Earnings($ millions)
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
200
400
600
800
1,000
1,200
1,400