Lennar Taking Steps to Counter Adverse Housing Effects

The housing market, with its sensitivity to changing business cycles, is a functional indicator of overall economic conditions at times when housing is particularly important to the economy. According to the National Association of Realtors, existing home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise. However, projection is that new home sales recovery may not occur before 2009.

Gaining positive momentum from the recent Federal Reserve's rate cut of 75 basis points, the housing stocks surged last week even with the negative housing market data last month. According to a study by the National Association of Realtors, existing-home sales are likely to rise to 5.70 million in 2008, while existing-home prices will rise 0.3 percent to $218,300 in 2008 from a forecast of $217,600 for all of 2007.

However, the Realtors group recently reported existing-home sales fell 2.2 percent in December, and lost 13 percent for the year. The median home sale price posted its first annual decline since the trade group began keeping records in 1968. But, according to Eric Marshall, director of research at Hodges Capital Management, the key is that the rate of decline is starting to slow.

He said, "People are starting to get their arms around how bad this will ultimately be. These stocks are trading below book value, and that is usually a time to buy."

Lennar Corp. (LEN), one of the nation's largest builders, reported a fourth-quarter loss of $1.25 billion on 49 percent lower revenue, as demand for its homes faded, even at sharply lowered prices (see conference call transcript). However, the Company has devised stabilizing schemes to counter adverse market effects.

Stuart Miller, President and Chief Executive Officer of Lennar Corporation, stated:

While we are hopeful that recent interest rate moves by the Federal Reserve and recent plans proffered by the Federal government will have a stabilizing impact on the housing market, market conditions remained depressed and, in fact, continued a downward slide through the end of our fourth quarter.

Accordingly, our strategy has been to aggressively reconcile our asset valuations to the reality of existing market conditions and to remain primarily focused on cash generation by aggressively converting inventory into cash. As is reflected in our year-end numbers, we have taken meaningful steps along these lines.

Mr. Miller added:

To that end, we have continued to price homes to current market conditions, build-out our inventory, deliver our backlog and maintain low inventory levels. We have significantly reduced our operations in each market to reflect the sales pace of the market.

Additionally, we have finalized a number of strategic land and joint venture transactions and walked away from option deposits in order to generate or protect cash to fortify our balance sheet. As a result, our land inventory and homes under construction have declined throughout the second half of 2007.

As a by-product of our strategic fourth quarter moves, we have generated losses that have resulted in the receipt of a cash tax refund of $852 million subsequent to the close of the quarter.

Mr. Miller concluded:

As we look ahead to 2008, we are not expecting market conditions to improve, and perhaps might continue to decline in the near term. Nevertheless, the strength of our balance sheet, bolstered by the cash generated through our fourth quarter strategic moves, will keep us well positioned to weather these turbulent times. Additionally, our management focus on right-sizing our business, revising our product offering and reducing construction costs, together with our restated land positions that reflect current market conditions, will provide the springboard from which we will rebuild margins once the market does stabilize.

Share prices rose 4.75% to close at 16.98 last Friday, 25^th of January.