Lennar Corporation (LEN) recently announced the appointment of Jay Mantz as the President of its wholly-owned subsidiary, Rialto Capital Management, LLC. Alongside, Lennar also appointed Bill Landis as the Chief Operating Officer at Rialto, who will be responsible for managing its Asset Management business. Both the new appointees will report to Rialto's Chief Executive Officer, Jeff Krasnoff.
Rialto Investments, Lennar’s most recent venture, provides advisory services, due-diligence, workout strategies, ongoing asset management services, and acquires as well as monetizes distressed loans and security portfolios.
Lennar’s increased focus on Rialto Investments to offset its weak business results from the Homebuilding and the Financial Services segments have been successful. In the first nine months of fiscal 2011, revenues from the Rialto segment increased 62% year over year while operating income rose 78%, reflecting its high rate of expansion.
Results were driven by an alliance with the Federal Deposit Insurance Corporation (FDIC) and global investment firm Alliance Bernstein. The segment is in a Public-Private Investment Program (PPIP) with Alliance Bernstein and FDIC. Lennar believes that Rialto has further upside potential with a number of opportunities from FDIC, banks and others.
Lennar released its 2011 third quarter results on September 19, 2011. Net earnings were $20.7 million or 11 cents per share in the quarter compared with $30.0 million or 16 cents per share in the year-ago quarter. Total revenue plummeted 1% year over year to $820.2 million, due to poor performance across all the company’s reporting segments, except Rialto Investments.
Lennar’s continued focus on land purchases and opening of new communities amidst the prevailing weakness in the domestic market is noteworthy. During the last quarter, the company purchased approximately 3,200 well-located home sites valued at approximately $182 million and inaugurated 29 new communities.
The selection of ideal home sites, opening of new communities in higher demand regions, introduction of energy efficient homes coupled with the attractive incentive programs for its customers eventually led to an 11% increase in new orders and a 3% rise in average selling prices for Lennar homes during the recently concluded quarter.
However, a depressed housing industry is the biggest concern for any homebuilder including Lennar. Prices of houses fell continuously, driven by an excess supply of homes in the face of depressed demand and tough competition from the pre-owned homes.
Thus, we are maintaining our Neutral recommendation on Lennar.
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