Lennar Corporation (NYSE:LEN) Q4 2023 Earnings Call Transcript

Lennar Corporation (NYSE:LEN) Q4 2023 Earnings Call Transcript December 15, 2023

Operator: Welcome Lennar’s Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time. I will now turn the call over to David Collins for the reading of the forward-looking statements.

David Collins: Thank you and good morning, everyone. Today’s conference call may include forward-looking statements, including statements regarding Lennar’s business, financial condition, results of operations, cash flows, strategies, and prospects. Forward-looking statements represent only Lennar’s estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar’s actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.

These factors include those described in our earnings release and our SEC filings, including those under the caption Risk Factors contained in Lennar’s Annual Report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.

Operator: I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.

Stuart Miller: Very good. Good morning everybody and thank you for joining today. I am in Miami today together with Jon Jaffee our Co-CEO and President; Diane Bessette, our Chief Financial Officer; David Collins, who you just heard from, our Controller and Vice-President; Bruce Gross, our CEO of Lennar Financial Services, and a few others as well. As usual, I’m going to give a macro and strategic overview of the company. After my introductory remarks, Jon is going to give an operational overview updating construction costs, cycle time and some of our land strategy and position. As usual, Diane is going to give a detailed financial highlight, along with some limited guidance for the fourth quarter and full year of 2024. And then of course we’ll have our question-and-answer period.

As usual, I would like to ask that you please limit yourself to one question and one follow-up, so that we can accommodate as many as possible. So, let’s begin. We are very pleased to report another very strong quarter and year-end operating results for Lennar. We’ve executed our operating plan effectively over the past year and accordingly, have simply never been better-positioned from balance sheet to operating strategy to address market conditions in the New Year 2024. Throughout 2023, the dominant theme at the macro level has been the impact of higher interest rates on the homebuilding consumer as affordability has been tested, and demand has been constrained, but the ability to purchase i.e., affordability and the ability to qualify. Generally speaking, consumers are employed and are generally confident that they will remain employed and the compensation will generally rise.

Overall, consumer confidence has been reasonably strong, and buyers that can transact have transacted. Underlying this environment is a general chronic supply shortage of homes, especially affordable homes across the country as well as a growing pent-up demand for housing that has — that is and has been held back by materially higher interest rates. There has been a very short supply of affordable products and a very strong demand for affordable products. The new homebuilders have worked out a variety of tenant structures that range from interest rate buy-downs to closing cost pickups to price reductions to meet the buyer, the purchaser at the intersection of need and affordability. The existing home market has been quiet as existing homeowners have coveted their low-interest rate mortgages and remained on the sidelines.

Homebuilders have been uniquely able to activate demand by using incentives that unlock the affordability constraints and enable purchasers to transact. Over the past quarter, this narrative has been particularly difficult as interest rates spiked through the first two months of the quarter and then began to ease in November. As mortgage rates began to migrate from 7.5% towards 8%, the market began to feel like it was hitting a real inflection point and the overall market conditions softened materially. Most recently, of course, Chair Powell and the Fed has signaled that we might be closer to the end of the tightening cycle and we might see lower rates as we enter 2024, you get into the new year, we will see. Against this backdrop, Lennar’s consistent strategy throughout the past year has been to continue to drive volume, to find affordability, to meet demand by using our dynamic pricing model, and using appropriate incentives and provide supply to the market.

Over the past year, we have consistently detailed our operating strategy with the expectation that we would do as follows. Number one, reduce our land assets while growing our business. Number two, drive strong and consistent bottom-line earnings, while concurrently generating consistent net cash flow. Number three, reduce our construction cycle times, while increasing our inventory turn. And number four, ultimately enhance the quality of our returns on equity and return on assets by focusing on the allocation of liquid assets, i.e., cash. 2023 was a year of strategy and successful execution for Lennar and sets us up extremely well for another strong year of execution in 2024. We began the year with a strong statement of operating strategy in a higher interest-rate environment and we focus on execution throughout the year.

Even as the macroeconomic environment continued to shift and adjust to inflation with higher interest rates, we adhered to our strategy and we drove volume and production. We believe that demand was strong, though constrained by affordability, and supply was very limited. As others pull back, we leaned in and maintained pace. We defined our operating strategy as driving production and sales pace while using price, incentives, and margin reduction to enable affordability. Rather than further constraining supply, we drove production and used our formidable size and scale to enable cost and operating efficiencies to drive affordability. As you’ve seen in our press release, while driving higher volume, we also achieved strong operating results.

We delivered over 73,000 homes in 2023, which represents a 10% year-over-year volume increase over 2022, and we delivered a strong bottom-line of $3.9 billion or $4.82 a share. We also generated well in excess of the $3.5 billion of homebuilding cash flow that we generated, relative to what we generated in ’22 and we are well-positioned with land and community count to expect to deliver 80,000 homes in 2024. Again, another 10% increase year-over-year. Given the current interest-rate signal from the Fed, we would also expect that margins will be at least consistent with our 2023 levels. And although we have embedded lower margins that will flow through in the first quarter, those reduced margins will clear over the next quarter, and using our dynamic pricing tool, we will recover margin quickly and efficiently as lower interest rates enable us to reduce incentives.

The strategic benefits of driving volume came and will continue to come with advantages that are both immediately valuable as well as durable for the company’s future. I’d like to briefly detail some of those advantages. First, by driving volume, we gained market share in most of our core markets as we leaned in when some others pulled that back. Our trade partners saw a consistent and dependable partner that became worthy of the designation of builder of choice. We worked side-by-side with our traditional trade partners, and additionally, we found additional trade partner relationships with participants that found that they had dependable and consistent work with our strategy. Through market share growth in local markets, we enhanced the ability to better manage our costs, enhance our efficiency of operation, reduce cycle times with efficient production templates, and enhance our inventory turn.

Diane will discuss this in more detail shortly. Next and maybe most important, by driving volume, we are positioned with land and communities for strong volume in all of our operating markets. As we drove volume and delivered homes, we purchased new land in communities for the next year’s delivery. We are extremely well-positioned to continue to sell on pace as prices recover and as incentives subside alongside lower interest rates. We are positioned to drive even stronger bottom-line results and cash flow as market conditions normalize. Additionally, by driving volume, we gained market share in land acquisition. Simply put, we continue to sell land by selling homes and then purchase land to replace communities, especially when others walked away.

Market share advances have given us the critical position to be in even stronger land buyer of choice to the owners and developers of critical land assets. They saw a dependable market participant remain consistent as market conditions became more tenuous, and we found that we were able to experiment with innovative land structures that worked constructively as markets falter and then recover. Noteworthy in this regard is our variable land pricing tool that enables home site values to move up or down as a percentage of the sale price of the home as markets move up and down. Next, by driving consistent volume even at lower margin, we generated consistent cash flow through more challenging times and enhanced our balance sheet and our cash liquidity even after redeeming or repurchasing $1.1 billion of senior notes through the year and repurchasing 10 million shares of Lennar’s stock through the year.

Situated today with a 9.6% homebuilding debt-to-total cap ratio, with $6.3 billion of cash-on-hand and $0 drawn on our revolver and with an expected $3.5 billion plus or minus of net cash flow over the next year, we have the flexibility to invest capital strategically and grow while retiring debt as it matures and repurchasing shares of Lennar’s stock, which we expect to repurchase at least $2 billion of stock over the next year. Fourth, by driving volume we gained advantaged insights into and refined the workings of our strategic land banks. The flow of volume through the land banking relationships that define our current approach to land acquisition was invaluable. Questions have now been answered as to the durability of the capital partners that make up the counterparty relationship with the homebuilding machine.

Our consistent volume helped define both trust and dependability and making those — and taking those relationships to another level as neither party flinched as market conditions tested the boundaries of the relationship. While adjustments were made and lessons were learned, the structures and relationships became stronger and more durable. Fifth, by driving volume, especially in the more difficult interest-rate environment of the past year, we were able to develop, enhance, use, and improve the Lennar machine. Our sales, marketing, and dynamic pricing machine is quickly becoming an advanced digital engine that has materially benefited by aggressive focused use and engagement while the market was most difficult. We focused on what was required to drive volume, while market conditions challenged affordability.

We pushed data and engagement through the component parts of this digital tool and stressed it often into its limits. We reviewed 40 points of feedback from our 40 operating divisions and made adjustments and refinements as we learn. Today, and the result is that Lennar’s machine is becoming an invaluable partner as we drive volume by finding market at affordable pricing and driving sales at the same pace as production. Overall, our strategic focus on driving volume in both production and sales has enabled us to become a stronger and better-positioned company that has become more durable through the ups and downs of housing cycles. Our balance sheet has never been stronger and our operating platform has never been better aligned. Our fourth quarter and year-end of 2023 has been another strategic and operational success for our company.

While market conditions have been challenging, we have consistently learned and found ways to address market needs. We know that demand is strong and there is a chronic housing supply shortage that needs to be filled. We will continue to drive production to meet the housing shortage that we know persists across our markets. With that said, as interest rates subside and normalize, and if the Fed is going to begin to actually cut rates, we believe the pent-up demand will be activated and we will be well prepared. To date, we’ve seen overall market conditions remain generally constructive for our industry as higher interest rates has subsided strong pent-up demand has found ways to access the housing market. Most recent movements in interest rates suggest a better road ahead.

Accordingly, we executed on our core strategy against the most difficult economic and industry backdrop. Given consistent execution, we are extremely well-positioned for even greater success as strong demand for affordable offerings continues to see short supply. We expect to start the new year with strong sales — strong starts, sales, and closings as we have guided to 16,500 to 17,000 deliveries in the first quarter and a 21% to 21.25% margin as lower-margin sales move through the first quarter. We engaged the changing tides of the past year with a consistent strategy that has enabled certainty of execution throughout our company. Our strategy is well known and understood throughout our division offices and we have a simple and consistent model of execution.

We focus on maintaining volume while we price our homes to drive match pace. We work with our trade base to manage costs and efficiencies and adjust product offering to meet the market. We manage both our land and our production inventories to drive efficiency, cash flow, and returns on our asset base. We focus on our land light model in order to drive balance sheet efficiency. Finally, we fortify our balance sheet to have the liquidity for strength and flexibility. Knowing what to do and executing per plan has driven this quarter’s and this year’s success and ensures consistent success for the foreseeable future. As we look ahead to a successful 2024, we are well positioned for and expect to see much more of the same. We are confident that by design, we will continue to grow, perform, and drive Lennar to new levels of performance.

With that, let me turn it over to Jon.

Jon Jaffee: Good morning. As Stuart discussed, our operational teams at Lennar continued focusing on executing our operating strategies in our fourth quarter. As our divisions continuously learned from their engagement with Lennar machine, they provide feedback for enhancements and improve the machine in our execution of our strategies. You can see the evolution of this improvement in our even flow operating strategy throughout the year as starts and sales for the second half of 2023 were evenly matched at 37,053 and 37,032 respectively. In the fourth quarter, our production pace as defined by an average of five starts per community per month and average sales pace of 4.7 sales per community per month. Importantly, this strategy is not just about the pace of sales but it’s importantly about selling the right homes at the right pace.

Our machine matches up unsold production as homes progressed towards completion with pricing information from our dynamic pricing model on a community-by-community and home-by-home basis. In the fourth quarter, as interest rates peaked, this process informed us as to how much we needed to buy-down interest rates and/or offer other incentives to maintain the desired pace. We maintain a consistent starts and sales pace generating increased market share in almost all of the markets we build in. This is seen in our overall growth of 10% from last year as our consistent starts have killed the board of other builders who will pull back. Some examples of markets where we have leading and increased market share in 2023 over 2022 are as follows. Here in South Florida, we are ranked as the number one builder with a market share of 74%, up from 63% a year ago in Dade County and 33% in Broward County, up from 28%, Across the state, in Southwest Florida, we have a 38% market share, double that of the number two builder.

In the Carolinas, we are the number one ranked builder in Charlotte, Raleigh, and Charleston with market shares of 10.5%, 16% and 22.5% respectively, representing an average increase in share of about 150 basis points. In the Midwest, we are number one in Indianapolis and Minnesota, with over 25% market share in each market, an increase of over 400 basis points in each. In Texas, we have increased market share in each of the markets there. In Austin and Dallas-Fort Worth by 200 basis points to 11.5% and 10% respectively. In Houston, by 300 basis points to 11.5%, and in San Antonio by 700 basis points to 22.5%. In Colorado, where we rank number one with almost 10% market share, which is double that of the number two builder who’s been the perennial market leader.

Moving out West in Phoenix and Las Vegas, we have the number one share with 12% and 18% respectively. In California, we’re the number-one builder in all of the markets there and have grown selected market share across the state from 25% in the Inland Empire and Central Valley to more than 35% in San Diego and Sacramento. And lastly in the Pacific Northwest, we are largest in Seattle and Portland with 14% and 17% share respectively, both an increase of about 250 basis points. The execution of our pricing strategy is based on the strength of each individual market matched against the level of production by community in that market. As Stuart noted, the market conditions in our fourth-quarter were defined by the chronic shortage of housing supply and more volatile interest-rate environment as compared to greater variations in market strength across our markets that we saw in prior quarters.

In the current margin environment, all markets are benefiting to similar degrees from greater demand and supply. Our sales pace of 4.7 homes per community in Q4 is up from the pace of 3.7 compared to Q4 2022, further demonstrating improvement in executing the strategy of pacing in Q4 is that it was the same as our overall pace for fiscal 2023. As interest rates rapidly moved higher during the quarter, our homebuilding teams worked in close coordination with Lennar Mortgage to find the right mortgage solution home buyer by home buyer. Focused execution of the process I just described, led to completing the quarter with less than one unsold inventory home per community. Our strategy of finding market-clearing pricing to match the pace of sales to homes under construction allows us to maintain both a high volume and a consistent volume of homes under construction, which is the foundation for our builder-of-choice program with our trade partners.

As we continuously improve the way we execute this game plan, we have deepened the partnerships with our trade base. Working together with our trade partners, we have consistently eliminated and/or prevented supply-chain constraints and reduced cycle times. These and other efficiencies that benefit our trade partners enable us to lower construction costs in a cooperative manner with our trades. By consistently starting homes, despite the changing interest-rate environment during the quarter, we increased our starts in the fourth quarter by 43% from the prior year and starts were flat sequentially from Q3. This increase in starts attracts a larger trade base to Lennar, and together with a normalized supply-chain environment led to another significant improvement in our cycle time.

For the fourth quarter, cycle time decreased by 22 days sequentially from Q3, down to 161 days on average for single-family homes. In most of our markets, this represents being at or close to pre-pandemic cycle times. Looking at the fourth quarter, as expected, our construction costs fell sequentially from Q3 by about 4%. In addition, our Q4 costs were down about 13% on a year-over-year basis. This is a direction of construction cost we expect in our guidance from last quarter. Moving forward, we expect cost to be consistent with where they are now over the next few quarters. In order to further improve our production efficiencies, we’re working side-by-side with our trade partners on value engineering, co-planned series, and production sequencing across markets to reduce the cost and time to build with a goal of delivering a greater value to the homebuying customer.

Next, I’ll discuss the execution of our land-light strategy. In the fourth quarter, we continued to effectively work with our strategic land and land-bank partners where they purchase land on our behalf and then deliver just-in-time finished homesites to our homebuilding machine as Stuart described. Consistent with the third quarter, about 84% of our $1.5 billion of land acquisition in the quarter was finished homesites purchased from our various land structures. We’ve made significant progress in the fourth quarter as our years’ supply of owned homesites improved to 1.4 years from 1.9 years, and our controlled homesite percentage increased to 76% from 69% year-over-year. The bottom-line is focusing on our operating strategies, which results in a reduction in cycle time, any reduction that own land has, as Stuart articulated, increased our cash flow as well as helped improve our inventory churn, which now stands at 1.5 versus 1.2 last year, a 25% increase.

Our community count at the end of the fourth quarter was 1,260, which is up 4% from the year-ago period and we expect to increase our community count in the mid to high single-digits by the end of fiscal 2024. I want to recognize and thank all of our associates for their hard work and dedication in focusing on the execution of our strategies and also importantly for accomplishing the change management needed for the required process changes and implementing these strategies of our machine, while at the same time delivering a very strong fourth quarter and fiscal 2023. I’d now like to turn it over to Diane.

Diane Bessette: Thank you, Jon, and good morning everyone. So, Stuart and Jon have provided a great deal of color regarding our homebuilding performance. So therefore I’m going spend a few minutes on the results of our Financial Services operations in our balance sheet and then provide some comments on the first quarter. So, looking at Financial Services, for the fourth quarter, the Financial Services team had operating earnings of $168 million. Mortgage operating earnings were $119 million compared to $80 million in the prior year. The increase in earnings was driven by higher locked volume as a result of higher orders and capture rate and higher profit per locked loan as a result of higher secondary margins and lower cost per loan, as the team continues to focus on efficiencies.

Title operating earnings were $50 million compared to $44 million in the prior year. Title earnings increased primarily as a result of higher volume and greater productivity, as the team continues to embrace technology to run a more efficient business. These solid results were accomplished as a result of great synergies between our Homebuilding and Financial Services team. They truly operate under the banner of One Lennar. Now turning to our balance sheet, this quarter, once again, we were steadfast in our determination to turn our inventory and generate cash on maintaining production and pricing homes to market with a goal of delivering as many homes as possible to meet housing demand. The results of these actions was that we ended the quarter with $6.3 billion of cash and no borrowings on our $2.6 billion revolving credit facility.

This provided a total of $8.9 billion of homebuilding liquidity. As a result of these — of our continued focus on balance sheet efficiency, we once again, as Jon mentioned, made significant progress on our goal of becoming asset-light. At quarter-end, our years owned increased to 1.4 years from 1.9 years in the prior year and our homesites controlled increased to 76% from 69% in the prior year; our lowest years owned and highest control percent in our history. At quarter-end, we owned just under 100,000 homesites and controlled 310,000 homesites for a total of 410,000 homesites. We believe this portfolio provides us with a strong competitive position to continue to grow market share in a capital-efficient way. We spent $1.5 billion on land purchases this quarter, with 84% in finished homesites where vertical construction will soon begin.

This is consistent with our manufacturing model of buying land on an adjustment basis, which is less capital-intensive. And finally, looking at returns, our inventory turn was 1.5 times and our return on inventory was 29%. I will make one comment about our inventory balance. This quarter we re-classed deposits on future land purchases and inventory into a separate line on our balance sheet. This re-class, which was about $2 billion at year-end was made to better align ourselves with most participants in our industry and thus brings greater comparability and less confusion to the investor and analyst communities. During the quarter and consistent with our production focus, we started about 18,400 homes and ended the quarter with approximately 38,200 total homes in inventory.

This inventory number includes about 2,200 models and also includes about 1,200 homes that were completed and sold, which is slightly less than one home per community as we successfully managed our finished inventory levels. In our continued effort to further strengthen and de-risk our balance sheet by reducing our debt balances, as we’ve mentioned in the fourth quarter, we redeemed the remaining balance, $378 million of our 4.875% senior notes during December 2023 and repurchased 110 million of senior notes due in fiscal 2024 and 2027 all at/or below par for a quarterly total of $488 million. For the full year, we repaid or redeemed $1.1 billion of senior notes. As a result of these debt reduction initiatives, we ended the quarter with a total senior note balance of about $2.5 billion.

There is only one note due in 2024, which is $454 million due in April. Combined with strong earnings, our Homebuilding debt-to-total capital was 9.6% at quarter-end, our lowest ever, which is an improvement from 14.4% in the prior year. Consistent with our commitment to strategic capital allocation, we repurchased $3 million of our outstanding shares for $337 million in the fourth quarter and for the year, we repurchased 10 million shares totaling $1.1 billion. Additionally, we paid dividends of $105 million during the quarter and $431 million for the year. So, in total, we returned almost $1 billion to our equity and debt holders in the fourth quarter and about $2.7 billion for the full fiscal year. And then few final points regarding our balance sheet, our stockholders’ equity increased to almost $27 billion and our book value per share increased to $94.61.

In summary, the strength of our balance sheet and strong liquidity position provides us with significant confidence and financial flexibility as we enter 2024. So with that brief overview, I’d like to turn to Q1. Given the evolving interest-rate environment, we’d like to once again provide some guidelines for Q1 to assist with your modeling, starting with new orders. We expect Q1 new orders to be in the range of 17,500 to 18,000 homes as we keep production pace and sales pace closely aligned. We anticipate our Q1 deliveries to be in the range of 16,500 to 17,000 homes with a continued focus on efficiently turning inventory into cash. Our Q1 average sales price should be about $420,000 and we expect gross margins to be in the range of 21% to 21.25%, indicating some impact from higher interest rates in Q4.

Additionally, also remember that our Q1 margins are always negatively impacted by the current-period expensing of fuel costs. While we are working towards an even flow process of starting and constructing homes on a fairly consistent quarterly basis, revenues in Q1 are the lowest of the year because of seasonality. So for this Q1, the current period expensing will have a negative gross margin impact of approximately 150 basis points when you look sequentially from Q4. Also note, consistent with last year, the first-quarter will be a low-point of margin during 2024. Turning to SG&A, we expect to be in the range of 8% to 8.2% for Q1. For the combined Homebuilding joint-venture land sales and other categories, we expect to have earnings of about $20 million.

We anticipate our Financial Services earnings for Q1 to be in the range of $85 million to $90 million, and we expect a loss of about $25 million for our Multifamily business and a loss of about $15 million for the Lennar Other category. The Lennar Other estimate does not include any potential mark-to-market adjustments to our public technology investments since that adjustment will be determined by their stock prices at the end-of-the quarter. We expect our Q1 corporate G&A to be about 2.2% of total revenues. These expenses are likely to trend up a bit as we continue to invest in cyber security and technology development that is robust and durable to support our future growth. And our charitable foundation contribution will be based on $1,000 per home delivered.

We expect our tax-rate to be about 24.5% and the weighted-average share count should be approximately 279 million shares. And so on combined basis, these estimates should produce an EPS range of approximately $2.15 to $2.20 per share for the first quarter. And then finally, just to reiterate a few notes on fiscal 2024. As we indicated, we affirm our target of 10% to literally growth in 2024, which would result in approximately 80,000 deliveries for the year. And for gross margin, as Stuart mentioned, we expect to maintain the levels produced in 2023. Whilst we also remain confident in our cash flow generation, as such, we continue to be committed to allocating capital to our stakeholders. We’re targeting a total capital allocation of at least $2.5 billion for 2024 remembering that $454 million will be allotted to our April 2024 debt maturity and the balance of roughly $2 billion to share repurchases.

I’d like to end by sincerely thanking the Lennar financial team’s accounting, planning and IR for their combined great efforts that allow us to host our year-end earnings call two weeks after year-end. You guys are amazing. And with that, let me turn it over to the operator.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session of today’s conference. [Operator Instructions] Our first question will come from the line of Stephen Kim from Evercore ISI. Please go ahead.

Stephen Kim: Great. Thanks very much, guys. Yeah, so much great information you provided. So thanks a lot. I imagine folks will be asking you about a little bit more detail on the gross margin. So what I actually wanted to focus on was your balance sheet. And in particular, you ended the year with very heavy level of cash, over $6 billion, I think, on the homebuilding cash. And I was curious what you feel sort of a normal level once all the dust settles and you get to a level of cash where you feel sort of sustainable and appropriate to sustain over the long term. What that level roughly would be, how we should think about that? And related to that, given that I assume $6 billion is probably more than that number, I’m guessing by maybe a couple of billion or something like that, your $2 billion in share repurchases that you sort of set as the baseline level seems frankly a little low, given that we’re expecting you guys to generate cash flow and so forth this year.

So I was wondering if you could help us understand how we should be thinking about your cash balance going forward? And what it would take for you to apply more of that to repurchases and I guess I should have specified that, I’m curious if you could articulate why you’re willing to hold more cash than you need at this time?

Stuart Miller: Well, Steve, let me start by saying you know the old adage, rich or poor, it’s good to have cash, right? So just starting there, I would say that we’re really rolling into the new us and developing a by-design approach to the way that we operate our business. And as is the case with evolution in general, you kind of grow into with some stops and starts, the new version of how you kind of look at the way you’ve configured. So I would say this. We’re starting to look at our cash flow numbers, cash flow generation. We’re starting to see kind of a consistency year-over-year in the kind of a baseline in the $3 billion, $3.5 billion range. You’ll probably see in our Q that or in our K that, that number will be higher for 2023, but the amount of consistent annual cash flow is something that we’re watching develop over time.

And so when you ask your question that fits into the context of how do we think about the certainties of the programming that we have in place. As I noted in my comments, one of the interesting things of this past year was looking at the durability of our land banking relationships, the capital providers and the execution in and around land bank as markets become stressed. There’s been a tremendous amount of learning around that and evolution. So the answer to the question is we kind of see our steady state cash flow is developing around $3.5 billion a year. How much cash we feel comfortable holding is something that we’re — we recognize that maybe $6 billion or $5 billion or $7 billion. Some might say that, that’s too much. As we gain confidence as we start looking at the buy design approaches to the component parts of what’s developing into Lennar machine, we’re going to be increasing the amount that we return to shareholders through stock buybacks and other mechanisms.

And so we might be a bit behind the curve that people perceive. Right now, we’re going slower rather than faster as we develop new core components to our strategy that are becoming etched in stone and where we’re developing confidence. So again, it might be a little slower than some might think it should be, but we are hitting stride with our comfort zone in buying back stock and thinking about the deployment of liquid assets.

Stephen Kim: Really helpful because, obviously, you’re undergoing a very significant transformation, and I think I’m hearing a lot of steady state. I’m hearing a lot of predictability in what you’re laying out. And obviously, that’s something that we think is critically important to an eventual revaluation. It just seems like when you had initially — when you started off your comments, you said it’s good to have cash, but I think when you’re arguing for a revaluation, some of the investors that we speak with would argue that holding too much cash actually is a hindrance to a revaluation because it effectively seems like the company may be holding on to cash with the hope that they could deploy it in some sort of traditional way, i.e., land or something like that, which maybe isn’t in line with what a lot of the rhetoric around being asset-light is.

So your commentary about this is a period of time where you were sort of gradually developing the systems to the point where you have that predictability, I guess it’s helpful. So if I’m interpreting your comments right, we should basically expect the level of cash to come down to maybe a lower level, once you have established those systems to your satisfaction, but you’re not there yet. Is that a proper way of paraphrasing what you’re saying?

Stuart Miller: Thank you for the commentary. I think that helps me answer a little bit better. And let me say that we are decidedly not holding on to cash to execute the next large-scale M&A program or some out-of-the-box growth program. So, I wanted to spell that thought process. It simply is — and this past year has been an incredible year for our company in terms of developing the confidence around durable systems that are actually working very well. It’s been a proving ground. And so I would say, don’t read too much into the holding of cash. It simply is the development of confidence and stride in terms of the way that we deploy liquid assets.

Stephen Kim: Okay. That’s helpful. Really appreciate it. There was some news very recently regarding the marketing of your rental portfolio. I was wondering if you could put some context around that for us because we got a lot of questions from folks around whether this is something that we should be expecting to provide a cash infusion even above and beyond the normal operations would generate.

Stuart Miller: So look, I think that the base answer to that question is, we’ll see. The determination to market portfolio was driven by limited partners. And the timing is one where it’s kind of a suboptimal time to be thinking about a sale, although who knows where interest rates go, that could change quickly. So we’ll see what happens. There might or might not be. This is an episodic kind of program where it will happen or it won’t, but it won’t be material to the either the balance sheet or the income statement company. I’m sure if there’s any profit would be discounted. And in terms of the cash infusion, it would simply be additive to our cash position and maybe can inspire us to do more stock buyback. So we’ll just have to wait and see on that. I don’t think there’s any additional guidance that could be given at this point.