Operating and Reporting Segments

3 Months Ended

Feb. 29, 2020

The Company's homebuilding operations construct and sell homes primarily for first-time, move-up and active adult homebuyers primarily under the Lennar brand name. In addition, the Company's homebuilding operations purchase, develop and sell land to third parties. The Company's chief operating decision makers manage and assess the Company’s performance at a regional level. Therefore, the Company performed an assessment of its operating segments in accordance with ASC 280, Segment Reporting, and determined that the following are its operating and reportable segments:

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding Texas

(4) Homebuilding West

(5) Financial Services

(6) Multifamily

(7) Lennar Other

The assets and liabilities related to the Company’s segments were as follows:



(In thousands)	February 29, 2020
Assets:	Homebuilding		Financial Services	Multifamily	Lennar Other	Total
Cash and cash equivalents	$	784,950	246,712	15,790	5,030	1,052,482
Restricted cash	8,666		13,894	—	—	22,560
Receivables, net (1)	311,817		281,941	80,319	—	674,077
Inventories	18,643,480		—	357,051	—	19,000,531
Loans held-for-sale (2)	—		1,170,696	—	—	1,170,696
Loans held-for-investment, net	—		70,763	—	—	70,763
Investments held-to-maturity	—		183,945	—	—	183,945
Investments available-for-sale (3)	—		7,922	—	53,402	61,324
Investments in unconsolidated entities	946,716		—	589,646	406,179	1,942,541
Goodwill	3,442,359		215,516	—	—	3,657,875
Other assets (4)	1,061,852		184,175	71,097	19,781	1,336,905
	$	25,199,840	2,375,564	1,113,903	484,392	29,173,699
Liabilities:
Notes and other debts payable, net	$	8,115,498	990,152	—	15,178	9,120,828
Other liabilities (5)	3,279,597		368,571	201,992	9,334	3,859,494
	$	11,395,095	1,358,723	201,992	24,512	12,980,322



(In thousands)	November 30, 2019
Assets:	Homebuilding		Financial Services	Multifamily	Lennar Other	Total
Cash and cash equivalents	$	1,200,832	234,113	8,711	2,340	1,445,996
Restricted cash	9,698		12,022	—	975	22,695
Receivables, net (1)	329,124		500,847	76,906	—	906,877
Inventories	17,776,507		—	315,107	—	18,091,614
Loans held-for-sale (2)	—		1,644,939	—	—	1,644,939
Loans held-for-investment, net	—		73,867	—	—	73,867
Investments held-to-maturity	—		190,289	—	54,117	244,406
Investments available-for-sale (3)	—		3,732	48,206	—	51,938
Investments in unconsolidated entities	1,009,035		—	561,190	403,688	1,973,913
Goodwill	3,442,359		215,516	—	—	3,657,875
Other assets (4)	1,021,684		130,699	58,711	34,297	1,245,391
	$	24,789,239	3,006,024	1,068,831	495,417	29,359,511
Liabilities:
Notes and other debts payable, net	$	7,776,638	1,745,755	36,125	15,178	9,573,696
Other liabilities (5)	3,230,400		310,695	196,030	14,860	3,751,985
	$	11,007,038	2,056,450	232,155	30,038	13,325,681


(1)	Receivables, net for Financial Services primarily related to loans sold to investors for which the Company had not yet been paid as of February 29, 2020 and November 30, 2019, respectively.


(2)	Loans held-for-sale related to unsold residential and commercial loans carried at fair value.


(3)	Investments available-for-sale are carried at fair value with changes in fair value recorded as a component of accumulated other comprehensive income (loss) on the condensed consolidated balance sheet.


(4)	As of February 29, 2020 and November 30, 2019, Financial Services other assets included mortgage loan commitments carried at fair value of $31.2 million and $16.3 million, respectively, and mortgage servicing rights carried at fair value of $12.6 million and $24.7 million, respectively.

(5)

As of February 29, 2020 and November 30, 2019, Financial Services other liabilities included $62.0 million and $60.7 million, respectively, of certain of the Company’s self-insurance reserves related to construction defects, general liability and workers’ compensation. In addition, as of February 29, 2020 and November 30, 2019, Financial Services other liabilities also included forward contracts carried at fair value of $13.2 million and $3.9 million, respectively.

Financial information relating to the Company’s segments was as follows:



	Three Months Ended February 29, 2020
(In thousands)	Homebuilding		Financial Services	Multifamily	Lennar Other	Corporate and unallocated		Total
Revenues	$	4,172,116	198,661	132,617	1,943	—		4,505,337
Operating earnings	460,398		47,317	1,785	899	—		510,399
Corporate general and administrative expenses	—		—	—	—	86,847		86,847
Earnings before income taxes	460,398		47,317	1,785	899	(86,847	)	423,552

	Three Months Ended February 28, 2019
Revenues	$	3,623,721	143,311	97,394	3,656	—		3,868,082
Operating earnings	369,595		18,972	6,797	3,103	—		398,467
Corporate general and administrative expenses	—		—	—	—	79,343		79,343
Earnings before income taxes	369,595		18,972	6,797	3,103	(79,343	)	319,124

Homebuilding Segments

Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is grouped under "Homebuilding Other," which is not considered a reportable segment.

Evaluation of segment performance is based primarily on operating earnings (loss) before income taxes. Operations of the Company’s Homebuilding segments primarily include the construction and sale of single-family attached and detached homes as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated entities. Operating earnings (loss) for the Homebuilding segments consist of revenues generated from the sales of homes and land, other revenues from management fees and forfeited deposits, equity in earnings (loss) from unconsolidated entities and other income (expense), net, less the cost of homes sold and land sold, and selling, general and administrative expenses incurred by the segment.

The Company’s reportable Homebuilding segments and all other homebuilding operations not required to be reported separately have homebuilding divisions located in:

East: Florida, New Jersey, North Carolina, Pennsylvania and South Carolina

Central: Georgia, Illinois, Indiana, Maryland, Minnesota and Virginia

Texas: Texas

West: Arizona, California, Colorado, Nevada, Oregon, Utah and Washington

Other: Urban divisions and other homebuilding related investments primarily in California, including FivePoint Holdings, LLC ("FivePoint")

The assets related to the Company’s homebuilding segments were as follows:



(In thousands)
Assets:	East		Central	Texas	West	Other	Corporate and Unallocated	Total Homebuilding
Balance at February 29, 2020	$	6,867,299	2,779,966	2,388,579	11,083,548	1,141,924	938,524	25,199,840
Balance at November 30, 2019	$	6,708,586	2,732,872	2,246,893	10,663,666	1,173,163	1,264,059	24,789,239

Financial information relating to the Company’s homebuilding segments was as follows:



	Three Months Ended February 29, 2020
(In thousands)	East		Central	Texas	West	Other		Total Homebuilding
Revenues	$	1,406,866	534,976	473,228	1,748,769	8,277		4,172,116
Operating earnings (loss)	175,005		29,472	53,073	224,907	(22,059	)	460,398

	Three Months Ended February 28, 2019
Revenues	$	1,226,814	435,067	418,517	1,540,896	2,427		3,623,721
Operating earnings (loss)	135,383		30,926	32,278	190,661	(19,653	)	369,595

Financial Services

Operations of the Financial Services segment include primarily mortgage financing, title and closing services primarily for buyers of the Company’s homes. It also includes originating and selling into securitizations commercial mortgage loans through its LMF Commercial business, formerly Rialto Mortgage Finance ("RMF"). The Financial Services segment sells substantially all of the loans it originates within a short period of time in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title and closing services, and property and casualty insurance, less the cost of such services and certain selling, general and administrative expenses incurred by the segment. The Financial Services segment operates generally in the same states as the Company’s homebuilding operations.

At February 29, 2020, the Financial Services warehouse facilities were all 364-day repurchase facilities and used to fund residential mortgages or commercial mortgages for LMF Commercial as follows:



(In thousands)	Maximum Aggregate Commitment
Residential facilities maturing:
March 2020 (1)	$	100,000
May 2020	300,000
June 2020	300,000
October 2020	500,000
Total - Residential facilities	$	1,200,000
LMF Commercial facilities maturing
November 2020	$	200,000
December 2020	650,000
December 2020 (two - one year extensions) (2)	50,000
Total - LMF Commercial facilities	$	900,000
Total	$	2,100,000


(1)	Subsequent to February 2020, the maturity date was extended to March 2021.


(2)	LMF Commercial uses this warehouse repurchase facility to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans held-for-investment, net. There were borrowings under this facility of $11.4 million as of February 29, 2020.

The Financial Services segment uses the residential facilities to finance its residential lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to the Company and are expected to be renewed or replaced with other facilities when they mature. The LMF Commercial facilities finance LMF Commercial loan originations and securitization activities and were secured by a 75% interest in the originated commercial loans financed.

Borrowings and collateral under the facilities and their prior year predecessors were as follows:



(In thousands)	February 29, 2020		November 30, 2019
Borrowings under the residential facilities	$	674,848	$	1,374,063
Collateral under the residential facilities	698,369		1,423,650
Borrowings under the LMF Commercial facilities	161,546		216,870

If the facilities are not renewed or replaced, the borrowings under the lines of credit will be repaid by selling the mortgage loans held-for-sale to investors and by collecting receivables on loans sold but not yet paid for. Without the facilities, the Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

Substantially all of the residential loans the Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Purchasers sometimes try to defray losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. Mortgage investors could seek to have the Company buy back mortgage loans or compensate them for losses incurred on mortgage loans that the Company has sold based on claims that the Company breached its limited representations or warranties. The Company’s mortgage operations have established accruals for possible losses associated with mortgage loans previously originated and sold to investors. The Company establishes accruals for such possible losses based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans as well as previous settlements. While the Company believes that it has adequately reserved for known losses and projected repurchase requests, given the volatility in the residential mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed the Company’s expectations, additional recourse expense may be incurred. Loan origination liabilities are included in Financial Services’ liabilities in the Company's condensed consolidated balance sheets.

The activity in the Company’s loan origination liabilities was as follows:



	Three Months Ended
	February 29,			February 28,
(In thousands)	2020			2019
Loan origination liabilities, beginning of period	$	9,364		48,584
Provision for losses	776			673
Payments/settlements	(144		)	(42,560	)
Loan origination liabilities, end of period	$	9,996		6,697

LMF Commercial - loans held-for-sale

During the three months ended February 29, 2020, LMF Commercial originated commercial loans with a total principal balance of $412.3 million, all of which were recorded as loans held-for-sale and sold $314.4 million of commercial loans into two separate securitizations. As of February 29, 2020 there were no unsettled transactions.

During the three months ended February 28, 2019, LMF Commercial originated commercial loans with a total principal balance of $270.1 million, all of which were recorded as loans held-for-sale, and sold $200.5 million of commercial loans into two separate securitizations.

Investments held-to-maturity

At February 29, 2020 and November 30, 2019, the carrying value of Financial Services' commercial mortgage-backed securities ("CMBS") was $165.3 million and $166.0 million, respectively. These securities were purchased at discounts ranging from 6% to 84% with coupon rates ranging from 2.0% to 5.3%, stated and assumed final distribution dates between October 2027 and December 2028, and stated maturity dates between October 2050 and December 2051. The Financial Services segment reviews changes in estimated cash flows periodically to determine if an other-than-temporary impairment has occurred on its CMBS. Based on the segment’s assessment, no impairment charges were recorded during either the three months ended February 29, 2020 or February 28, 2019. The Financial Services segment classifies these securities as held-to-maturity based on its intent and ability to hold the securities until maturity. The Company has financing agreements to finance CMBS that have been purchased as investments by the Financial Services segment. At February 29, 2020 and November 30, 2019, the carrying amount, net of debt issuance costs, of outstanding debt in these agreements was $153.8 million and $154.7 million, respectively and interest is incurred at a rate of 3.4%.

Multifamily

The Company is actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. The Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets.

Operations of the Multifamily segment include revenues generated from the sales of land, revenue from construction activities, and management and promote fees generated from joint ventures and equity in earnings (loss) from unconsolidated entities and other gains (which includes sales of buildings), less the cost of sales of land sold, expenses related to construction activities and general and administrative expenses.

Lennar Other

Lennar Other primarily includes fund interests the Company retained when it sold the Rialto asset and investment management platform, as well as strategic investments in technology companies. Operations of the Lennar Other segment include operating earnings (loss) consisting of revenues generated primarily from the Company's share of carried interests in the Rialto fund investments retained after the sale of Rialto's asset and investment management platform, along with equity in earnings (loss) from the Rialto fund investments and strategic technology investments, and other income (expense), net from the remaining assets related to the Company's former Rialto segment.