During the company’s fourth quarter earnings call, Lennar executive chairman Stuart Miller said the previously announced separation of Quarterra Multifamily as its own public company would not occur in 2022. Due to market uncertainties, Miller said there was no prospective future date for the spinoff of the multifamily division.
“We believe that we have a very high-end public company waiting and almost ready to enter the public arena,” Miller said on the earnings call. “While I remain confident and enthusiastic that Quarterra will be spun and Lennar will become a ‘pure play’ home builder as promised, it will not happen by year-end.”
In late July, LMC, a subsidiary of Lennar and a vertically integrated multifamily apartment builder, developer, and asset manager, rebranded to Quarterra Multifamily. At the time, it was announced Quarterra was to separate from the home builder and launch as an independent, NYSE-listed, alternative asset manager. Quarterra focuses on the development, ownership, and management of multifamily, single-family rental, and land development strategies on behalf of institutional partners. The multifamily division, launched in 2011, owns or manages 60 rental properties with more than 41,000 units. Operating earnings for the multifamily segment at Lennar increased to $14.8 million in the fourth quarter of 2022 from $9.3 million in the fourth quarter of 2021.
The spinoff of Quarterra was one of several Lennar “playbook” strategies Miller provided updates on during the quarterly earnings call. He said Lennar’s proprietary dynamic pricing model for volume-based pricing helped the builder respond to market conditions, such as interest rate changes, during fiscal year 2022.
“In the fourth quarter, we saw our margins adjust rather quickly, down some 270 basis points to 25.3% before impairments as we used price reductions plus incentives in the form of both closing cost payments and interest rate buydowns to offset volatile interest rate and market shifts,” Miller said.
Miller said the company’s cancellation rate of 26%, while higher on a year-over-year basis, has fallen from its peak of 28% in October. The pricing strategy implemented by Lennar helped the builder maintain volume.
“In the fourth quarter, we used our pricing strategy to, in orderly fashion, maintain our volume. While our sales were down 15% year over year, that result has compared favorably to reported market conditions and enabled us to start over 68,000 homes in 2022, which is only a 1% reduction year over year,” Miller said.
In regards to land and land acquisitions, Miller said Lennar has reconsidered every deal in its pipeline to help “stop the bleeding early.” After starting the quarter with $2.5 billion of expected land closings, he noted that the home builder ended the quarter with three-fourths of that expected spend, as it had either “walked from, renegotiated to produce a responsible margin, or pushed for reconsideration at a later time.”
“We have reconsidered land development dollars being spent. We have walked from deposits or renegotiated terms in price,” he said. “And we have been relentless in focusing on protecting cash and only purchasing the next strong margin at today’s pricing.”
The execution of the builder’s playbook strategies helped Lennar end the year with the highest revenues ($33.7 billion) and highest profit ($4.6 billion) in company history, according to Miller.
“If we continue to execute our playbook strategies, we will continue to drive strong cash flow; even though bottom-line profitability will be compressed year over year as prices and margins are impacted in the correcting market, our balance sheet and cash position will continue to improve,” Miller said. “This improvement enables the flexibility to be opportunistic as market conditions stabilize.”