Fitch: Lennar Earnings Underscore Improving U.S. Housing Sector

  Fitch: Lennar Earnings Underscore Improving U.S. Housing Sector

Business Wire

NEW YORK & CHICAGO -- January 15, 2013

Lennar Corporation (NYSE: LEN) Tuesday reported better than expected
fourth-quarter earnings, reflecting the company's strong liquidity position
and continuing growth prospects for the U.S. housing sector, according to
Fitch Ratings. The company is the third largest homebuilder in the U.S. and
has an issuer default rating (IDR) of 'BB+'. Rating Outlooks for both Lennar
and the U.S. housing and homebuilding sectors are Stable.

Lennar's fourth-quarter revenue jumped 42% to $1.35 billion and gross margins
expanded to 23.5% from 19.4%. The company's CEO noted that low mortgage rates,
affordable home prices, reduced foreclosures, and an extremely favorable "rent
versus own" comparison continued to drive the U.S. housing recovery, as
reflected in Lennar's earnings. Fitch sees attractive home prices,
persistently low mortgage rates, and a rise in nominal incomes resulting in
superior affordability and valuations. Mortgage rates remain near their
all-time recorded lows, and housing appears more undervalued versus incomes
than at any time in the past 35 years. Rising home prices and the potential
for interest rates to increase could create a sense of urgency and encourage
fence-sitters to pull the trigger and purchase a home.

Lennar maintains solid liquidity, with unrestricted homebuilding cash of $1.15
billion as of Nov. 30, 2012. The company also has an unsecured revolving
credit facility of $500 million that expires in May 2015. Its debt maturities
are well-laddered, with roughly 20% of its total homebuilding debt maturing
through 2015.

We raised our housing forecast for 2012 a number of times during the course of
the year. Nevertheless, the current forecast still reflects a below-trend line
cyclical rise off a very low bottom. In a slowly growing economy with somewhat
diminished distressed home sales competition, less competitive rental cost
alternatives, and new home inventories at historically low levels, 2013
single-family housing starts should improve about 18%, while new home sales
increase approximately 22% and existing home sales grow 7%. However, as we
have noted in the past, recovery will likely occur in fits and starts.

We also adjusted expectations for home prices due to overt price increases and
mix issues. Average single-family new home prices (as measured by the Census
Bureau) improved an estimated 3.5% in 2012 and should rise about 3.8% in 2013.

Although home prices have stabilized and started to improve, we believe that
home price appreciation will tend to be relatively narrowly focused and very
sensitive to local economic, employment, and supply issues. Demand will likely
continue to be affected by widespread negative equity, challenging mortgage
qualification standards, and excess supply due to foreclosures. Foreclosure
activity could also accelerate somewhat this year as a result of agreements
between banks and the federal government.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

2013 Outlook: U.S. Housing and Homebuilders

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696947

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Contact:

Fitch Ratings
Robert Rulla, +1 312-606-2311
Director
Corporates, Homebuilding
70 West Madison Street
Chicago, IL
or
Robert P. Curran, +1 212-908-1515
Managing Director
Corporates, Homebuilding
33 Whitehall Street
New York, NY
or
Fitch Wire
Kellie Geressy-Nilsen, +1 212-908-9123
Senior Director
One State Street Plaza
New York, NY
or
Media Relations
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com