Stuart Miller
Executive Chairman and Co-Chief Executive Officer at Lennar
Very good. Good morning, everybody. Thank you for joining us today. I'm in Miami today together with Jon Jaffe, our Co-CEO and President; Diane Bessette, our Chief Financial Officer; David Collins, who you just heard from, our Controller and Vice President; Bruce Gross, our CEO of Lennar Financial Services and a few others are here with us as well. As usual, I'm going to give a macro and strategic overview of the company. After my introductory remarks, Jon is going to give an operational overview updating construction costs, cycle time and some of our land strategy and position. As usual, Diane is going to give a detailed financial highlight along with some limited guidance for the second quarter and full year '24. And then, of course, we'll have our Q&A session. As usual, I'd like to ask that you please limit yourself to one question and one follow up so that we can accommodate as many as possible.
So let's go ahead and begin. We're very pleased to report another very solid and consistent quarter of operating results for Lennar. We've continued to execute our operating plan effectively into the first quarter driving excellent operating results and we have simply never been better positioned from balance sheet to execution to operating strategy to address market conditions as they unfold for the remainder of '24 and beyond.
In the first quarter, we started 18,338 homes. We sold 18,176 homes and we delivered 16,798 homes, while we expect deliveries for the year to be approximately 10% higher than last year at 80,000 homes. Next quarter, we expect to start approximately 21,000 homes, sell approximately 21,000 homes and deliver between 19,000 to 19,500 homes. Admittedly, we aren't quite there yet, but we are getting closer and closer to an even flow manufacturing model that we believe will continue to enhance our cash flow, our bottom line as well as our predictability.
Last year, we grew at a 10% pace in a very difficult year and we believe we'll grow at a 10% pace again this year in a complicated economic conditions and it is being done by a carefully designed program to maintain volume, maximize efficiencies and cost reductions around production, maintain even flow of production and sales, and rebuild our asset base and balance sheet in order to drive cash flow, effective capital allocation and higher returns, that is total shareholder returns, returns on assets and returns on equity.
I know I didn't mention margin yet. That's because as I've said before margin is the springing mechanism that enables all of this to happen. This quarter, our margin was 21.8%, somewhat higher than expected and next quarter, we expect our margin to be approximately 22.5% depending on market conditions and for the full year, we expect margin to be approximately the same as last year's full year margin of 23.3%. But that, of course will depend on market conditions as well. We will see. Additionally, we've continued to drive strong cash flow and allocate over $500 million to repurchase 3.4 million shares of stock and improve our balance sheet with a home building debt to total capital ratio of under 10%.
While we know we have accumulated a sizable $5 billion of cash on our book, we are crafting our strategy for appropriate capital allocation. Overall, the macroeconomic environment remains relatively strong for the new home builders. The general theme remains primarily focused around very strong demand for housing limited by the chronic housing shortage that is particularly problematic for working class families and their ability to find affordable or attainable supply. Demand for that product remains robust if it can be built at an attainable price point. The economic environment driving demand has been relatively favorable supported by low unemployment and fairly strong consumer confidence.
Generally speaking, consumers remain employed. They are confident that they will remain employed and they believe that their compensation is likely to rise. This is most often the foundation of a very strong housing market. Along with the supply shortage, the additional limiting factor continues to center around affordability driven by the impact of higher interest rates and stubborn inflation. With higher interest rates, affordability continues to be tested as higher monthly payments make qualifying for a loan increasingly difficult. At the same time, inflationary pressures have driven traditional cost of living expenses higher over the past two years, which has made saving for a down payment increasingly difficult.
Higher prices have also started to lead to increased personal and credit card debt as families stretch to pay their bills. We've started to see early evidence of debt delinquencies showing up and derailing some mortgage applications. While interest rates have continued to move higher and lower, as the Fed continues to seek economic data indicating that inflation has been controlled, the consumer has been navigating an affordability gauntlet. The new home builders have worked out a variety of incentive structures that range from interest rate buydowns to closing cost pickups to price reductions, all designed to meet the purchaser at the intersection of need and affordability.
Those incentives have increased and decreased as interest rates have moved up and down. Home builders have been uniquely able to capture demand by using these incentives to unlock the affordability constraint and enable purchasers to transact. Against this backdrop, in our first quarter, we've been focused on and consistent in executing our core operating new strategy. We've continued to migrate to a pure play manufacturing model across our homebuilding platform and each of our 40 homebuilding divisions in order to reduce production cost while we generate consistent cash flow.
Additionally, we are reengineering our products for efficiency and volume in order to enhance our inventory turn and grow volume to contribute to build a balanced and therefore healthier overall housing market. We have also continued to migrate to a land light balance sheet while we grow our business and expand market share in order to drive total shareholder returns, return on inventory and return on equity. We are so to speak continuing to modernize and upgrade the Lennar airplane while we are flying the plane and putting execution and safety first as we fly. It has been a busy and productive quarter for Lennar and we've continued to execute in the short-term while we continue to build our platform for continued and future success.
So let me break some of this down. On the operational side, we are running under a by design operational model where we are starting homes at a pace designed to increase market share while we maximize logistics and efficiencies in order to benefit from reduced construction costs. Our trade partners are given visibility on starts and timing expectations so that they can be more efficient and help pass efficiency savings onto our customers through more affordable product. By driving volume, we gain market share in most of our core markets as we lean in when others pull back.
Our trade partners see a consistent and dependable partner that is worthy of the designation of builder of choice. We work side by side with our trade partners while we attract additional trade partner relationships. Participants find that they have dependable and consistent work with our production strategy, which leads to higher productivity and therefore cost savings. Through market share growth in local markets, we enhance the ability to better manage our costs, enhance our efficiency of operation, reduce cycle times with efficient production templates and enhance our inventory churn. Jon will discuss this in more detail in just a few minutes.
Driving our confidence to start homes at pace in order to achieve maximum efficient in the field is the Lennar machine. The machine is a combined program of digital marketing, sales consultant engagement and dynamic pricing. We've described the machine in prior calls and many of you have now come to our office to see it in action. The machine has completely changed the manner in which we sell homes and enables us to drive maximum efficient production. If we build a home, we sell that home. We sell by digitally acquiring leads through our digital marketing program, then we filter those leads so the best leads go directly to our sales professionals. They nurture those best leads or customers while our dynamic pricing model assists in dynamically tailoring pricing in real time to meet the market given consumer desires, market conditions and competitive factors.
The dynamically adjusted pricing using incentives or price alterations automatically adjusts our margin up or down while we maintain production and sales pace. We set the production to efficiency, we match sales pace to production and we deliver the homes we build while we carefully maintain controlled inventory levels, all while reducing production costs and driving consistent cash flow. I know it all sounds easy, but it's not, but this has been a core pillar of the programming that we've been reworking over the past years and it's really starting to kick in and work quite well.
Next, through our laser focus on volume with production and sales being in even better alignment, we are intensifying our focus on producing affordable and attainable product across our platform. We've recognized that the chronic housing shortage is a critical issue and it's more than just a great talking point. The reality is that our industry needs to find solutions to building a healthier housing market that is attainable to participants across the economic landscape. Working class housing is essential to the effective working of our cities across the country and we hear that from mayors and governors everywhere.
So we've been working on using our strategies for production and cost efficiencies to help build a healthier housing market that is accessible to everyone. Of course, it all starts with lower production costs across our platform. Land we know is getting more expensive. Impact fees also are getting more expensive and labor costs have been rising as well. We can only reduce our input costs by increasing productivity to efficiencies of our operation. Our focus has been on doing just that. We're building more consistent products that we call our core products that are carefully value engineered and we are using our start pace to enable an engineered production cycle as well enabling us to reduce cycle time and to work with our trade partners to build efficiencies in logistics and the way that we run our community production.
We've also continued working on additional product approaches to help build a healthier housing market. We've intensified our focus on build to rent that is community scale and single family for rent scattered home sale markets. We believe that we can and need to build additional production for professionally owned housing that can fill an important need, but those professional purchasers need cost efficiencies in today's interest rate environment in order to make their rents attainable and we can provide that. There are families who are building their future and aspire to single family lifestyle with backyards and schools and parks, but who can't yet afford a down payment or don't have the credit characteristics to qualify the mortgage that they need.
Institutional buyers are filling that void for those families. Many across the industry have criticized the professionally owned market and the investor class that competes with primary homeowners to purchase product for rentals. This is flawed thinking. Those investors are actually filling a critical need for the underserved families who seek to bridge the lifestyle for their family while they build the down payment and credit score to ultimately achieve homeownership. This is the critical equitable side of home production and the institutional buyers are not competitors to the primary buyers. They are additive to the valuable housing stock enabling those who don't have family that can help them achieve the lifestyle they want while they build their capital capacity.
We are working across our platform with our institutional partners to produce more structured programs to provide more housing for those who need professional ownership as a stepping stone for the ultimate home of their own. We are also engaging our blue chip multifamily platform to build attainable rental product in an off balance sheet configuration. We have a strong history of successfully building multifamily product across the country. We have been building those products in an off balance sheet configuration and we expect to continue to build this vital attainable product without encumbering our balance sheet.
Finally, we have built and continue to refine our land strategy by design as well in order to dovetail with our production orientation. Every home that is going to be built needs a home site with a permit and those home sites need to be optioned and off balance sheet until we're ready to build. We continue to focus on a just in time delivery program for land just like we have for lumber and appliances and other products and we continue to make excellent progress in this regard. We accomplish this by both negotiating option deals with landowners and developers and also creating structured land bank strategies often with private equity capital.
By consistently focusing on our land light strategy, we've materially enhanced and generated consistent cash flow through the ups and downs of interest rate changes and we've enhanced our balance sheet and our liquidity even after redeeming debt and purchasing stock over the past years along with purchasing $500 million of shares of stock through this quarter. Our balance sheet is situated today with a 9.6% home building debt to total cap ratio with $5 billion of cash on hand and $0 drawn on our revolver and with an expected $3.5 billion plus or minus of net cash flow over this next year. Accordingly, we have the flexibility to allocate capital strategically, first, of course, to grow while also retiring debt, paying appropriate dividends and repurchasing shares of Lennar stock.
Accordingly, this quarter, we raised our dividend to $2 per share and authorized an additional $5 billion of stock repurchases as we continue to drive total shareholder returns. Even with these capital allocations, many have suggested that given the tremendous success of our migration to our land light program, we have accumulated too much cash on our balance sheet, which limits the ability of our returns to move higher. While we have understood the concern, we have remained patient as we have evolved not just the migration to the land light configuration, but also have remained focused on the long-term durability of the land bank structures involved. Private equity capital can be fickle.
By driving volume through these programs, we have gained advantaged insights into and refined the workings of our strategic land banks. The underlying plumbing systems for the land banks has been refined and questions have now been answered as to the durability of the capital partners that make up the counterparty relationships with their homebuilding partner, namely us. Our consistent volume helped define both trust and dependability and has taken those relationships to another level as neither party flinched as market conditions tested the boundaries of relationships.
While adjustments were made and lessons were learned, the structures and relationships became stronger and more durable. Accordingly, we have now rekindled our focus on a strategic spinoff that can be cleanly focused on fortifying durable land strategy. By spinning our own land, excess land in a taxable spin, we believe that we can create an additional though with permanent capital vehicle that can option developed home sites to Lennar and recycle capital into new home site while distributing market appropriate returns to shareholders. We have stood up a straw man vehicle that is under consideration currently with about $4 billion of land. It could be more, could be less and it is under development and consideration right now.
Such a transaction would distribute capital to shareholders, it would reduce inventory on Lennar's books, and it would provide permanent dependable capital for future land options. Our balance sheet would remain very strong with consistent earnings and cash flow to contribute to pay down debt and continue to repurchase stock. We know we've had a false start on a prior spin concept and there's no promise of certainty or completion on this program, but on the positive side, our Chief Operating Officer, Fred Rothman, is singularly focused on this initiative and Fred likes to get things done. We'll keep you apprised of progress, but progress should happen relatively quickly as this transaction is far simpler in structure.
With that said, let me conclude by saying that our first quarter of 2024 has been another strategic and operational success for our company. While market conditions have remained challenging, we have consistently learned and found ways to address market needs. We know that demand is strong and there is a chronic housing supply shortage that needs to be filled. We will continue to drive production to meet the housing shortage that we know persists across market. With that said, as interest rates subside and normalize and if the Fed is going to begin to actually cut rates, we believe that pent up demand will be activated and we will be well positioned and well prepared. If not, we will continue to produce volume and increase market share.
To date, we have seen overall market conditions remain generally constructive for the industry. Even though higher interest rates have remained sticky, strong pent-up demand has found ways to access the housing market. Given consistent execution, we are extremely well positioned for even greater successes as strong demand for affordable offering continues to seek short supply. Perhaps most importantly, our extraordinarily strong balance sheet affords us flexibility and opportunity to consider and execute upon thoughtful innovation for our future. We have the luxury to continue to execute flawlessly in the short-term while we continue to return capital to our shareholders through dividend and stock buyback while we also and I emphasize the word also pursue strategic distribution to shareholders that fortifies our future as well. We have clearly earned an enviable position.
As we look ahead to a successful 2024, we are well positioned for and expect to see much more of the same. We are confident that by design, we will continue to grow to perform and to drive Lennar to new levels of consistent and predictable performance. We are guiding to 19,000 to 19,500 closings next quarter with approximately a 22.5% margin and we expect to deliver approximately 80,000 homes this year with a little over a 23% margin. We also expect to repurchase in excess of $2 billion of stock as we continue to drive very strong cash flow. We look forward to a very strong year and for that I want to thank the extraordinary associates of Lennar for their tremendous focus, effort and talent.
And with that, let me turn over to Jon.
