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Lennar Share Price Down Despite Fourfold Surge in Profit

**Lennar Q4 Earnings Beat Analysts’ Estimates**

As announced by Bloomberg on 15 January 2013, Lennar Corp (NYSE:LEN), the largest US homebuilder by market value, has reported a sharp rise in fiscal fourth-quarter earnings in further evidence that America’s housing recovery is on track.
The Miami-based company said in a statement yesterday that in the final quarter of 2012, it saw its net income jump fourfold to $124.3 million (£77.4 million), or 56 cents a share, from $30.3 million (£18.8 million), or 16 cents a share, a year earlier.The results included a net tax benefit of $18.6 million (£11.5 million).As reported by the homebuilder, revenue also surged, gaining 42 per cent to $1.35 billion (£840.8 million). Lennar’s quarterly earnings results beatWall Street analysts’ estimates of net income of 44 cents a share on revenue of $1.26 billion (£784.8 million).This is the homebuilder’s seventh consecutive quarterly report to come in above expectations.

**Profit Jump Signals Housing Comeback**
US homebuilders have been struggling in the past few years with the residential real estate sector at the epicentre of the financial crisis, taking a particularly hard hit as the global economy contracted. Yet housing has turned a corner, and Lennar’s profit report is a further sign of this rebound.For the three months through to November 30, Lennar delivered 4,443 homes, up 32 percent, while the average selling price of the homes rose 7 percent to $261,000.Meanwhile, new orders rose 32 per cent to 3,983 homes.

Lennar’s chief executive Stuart Miller said on an earnings conference call yesterday: “Our fourth quarter reflects the recovery in housing with solid profitability in all of our business segments.” He added that the homebuilder was “extremely well positioned” to gain market share in 2013 and that the company expects to be strongly profitable. Yet Mr Miller stated that despite the recent improvements in the US housing market, he expects the recovery to be “moderated” by tightness in the mortgage market, which will continue to drive families into the rental market, rather than the home-buying market.

**Lennar to Enter New Apartment Rental Business**
In line with Mr Miller’s statement, Lennar’s president Rick Beckwitt told analysts on a post-earnings conference call that the homebuilder is entering into new rental business venture in the residential real estate sector. He said: “We believe that our core homebuilding business and our new rental segment are very complementary and that both should flourish in this recovering market.”

While US home sales have recently been edging upwards from historic lows, a tight credit market and high unemployment rates have encouraged consumers to rent rather than own homes. According to real estate research firm Reis (NASDAQ:REIS), rents have risen for 12 straight quarters and apartment vacancy rates are at their lowest levels since the third quarter of 2001.
Lennar began its apartment operations in early 2011 but the division focused on maximising the value of the company’s underperforming single-family land assets by converting them to rental developments. According to the statement of the Miami-based company’s president, this year Lennar plans to start construction of about 3,000 apartment units with total development costs of about $560 million (£349.8 million). The firm further announced that the businesswill start adding to profits in 2014 or 2015.
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If its plans succeed, Lennar would be the first of the major US homebuilders to focus on rental housing as a profit driver. Other large homebuilders, including Toll BrothersInc (NYSE:TOL) and Beazer Homes USA Inc (NYSE:BZH), have invested in rental housing, but to a much smaller extent as the construction of apartment buildings in the US is dominated by a mix of large real estate trusts and “mom-and-pop” landlords.
**Lennar Share Price Declines Despite Profit Boost**
Despite quadrupling fiscal fourth-quarter net earnings from the prior year, Lennar saw its shares declining yesterday with investors wary over future business. Shares of the company also fell on concerns that part of the gain in profit had come from a one-time reversal of a deferred tax valuation allowance.
The company’s stock, which doubled in 2012, lost more than two per cent during yesterday’s New York trading.
** As of 15 January 2013, 09:59 EST, the Lennar share price was $40.06.**

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Rachel McCormack
Rachel loves food, drinks, broadcasting and financial markets. She enjoys a fine wiskey and some stock market research.

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