Berkshire Hathaway has become a 10 percent owner of Lennar Corp., buying 2.7 million more shares of the homebuilder over three trading days that began the morning after Lennar reported a 52 percent drop in quarterly profit.
The disclosure came in two filings submitted to the Securities and Exchange Commission on Sept. 21. In a Form 3 initial statement of beneficial ownership, Berkshire Hathaway Inc. and Warren E. Buffett each identified themselves as a 10 percent owner of Lennar as of Sept. 17, reporting 21,050,601 shares of Lennar Class A common stock and 453,196 shares of Class B.
Crossing that threshold is what triggers the filing. An investor holding more than 10 percent of a registered class of stock becomes an insider for reporting purposes and must disclose each subsequent trade within two business days, rather than waiting for a quarterly portfolio report.
Three days of buying, at prices in the high $70s
The accompanying Form 4 shows what Berkshire did next. On Sept. 17, Sept. 18 and Sept. 21 it bought 2,668,508 additional Class A shares and 75,021 Class B shares, all coded as open-market purchases.
The Class A purchases were reported at weighted-average prices ranging from $76.39 to $79.41 a share, with the individual trades behind them spanning $75.72 to $79.79. The largest single block, 1,218,429 shares, was bought on Sept. 18 at a weighted average of $76.39. Priced at the weighted averages in the filing, the three days of buying came to roughly $212 million.
That left Berkshire holding 23,719,109 Class A shares and 528,217 Class B shares as of the last reported trade. Lennar’s most recent quarterly report listed 210,506,003 Class A shares outstanding as of May 31, which would put the Class A position at about 11 percent of the class. Lennar has repurchased stock since that date, so the current share count is lower.
The stock sits in six Berkshire insurance subsidiaries. National Indemnity Company holds the largest Class A block, 12,366,349 shares, followed by BHG Life Insurance Company with 3,625,000, AZGUARD Insurance Company with 3,098,000, Medical Protective Company with 2,216,760, WestGUARD Insurance Company with 1,218,000 and NorGUARD Insurance Company with 1,195,000. Buffett, as Berkshire’s controlling stockholder, disclaims beneficial ownership of the shares except to the extent of his pecuniary interest in them, the filings say.
The position has grown by about 81% since June
Berkshire has been accumulating the stock for more than a year. A Schedule 13G filed Aug. 14 reported 13,111,741 Lennar common shares as of June 30, or 6.2 percent of the class. RealtyWire reported in August that the same quarter’s portfolio disclosure showed Berkshire had lifted its Lennar position about 30 percent and opened a small stake in D.R. Horton. The Class A holding is now about 81 percent above that June 30 figure.
Berkshire is not a bystander in homebuilding. It has owned Clayton Homes since 2003, and in July it closed an $8.5 billion acquisition of Taylor Morrison, folding a publicly traded builder into its Clayton Properties Group.
The buying began the day after a weak quarter
The first reported purchase date, Sept. 17, was the day after Lennar released results for its fiscal third quarter, which ended Aug. 31. Net earnings fell to $284 million, or $1.19 a diluted share, from $591 million, or $2.29 a share, a year earlier. New orders dropped 9 percent to 20,879 homes and deliveries slipped 3 percent to 20,840, on revenue of $8.0 billion. Gross margin on home sales was 15.8 percent and the average sales price was $372,000, after incentives the company put at about 12.0 percent. Lennar trimmed its full-year delivery target to 80,000 to 81,000 homes from 82,000 to 83,000.
“While our earnings of $1.19 per share were below expectations, they reflect the nature of the environment in which we are operating, which has deteriorated since our last earnings call,” Stuart Miller, Lennar’s executive chairman, chief executive and president, said in the release. He pointed to a 30-year mortgage rate of approximately 6.8 percent at quarter end “and even higher since,” and to consumers slowing their purchase decisions as affordability tightened.
Neither filing states a reason for the purchases. What the documents establish is the sequence: a disappointing quarter disclosed Sept. 16, open-market buying on the next three sessions, and a reporting threshold crossed in the middle of it.
The backdrop is a builder market under visible strain. Builder confidence fell to a one-year low this month, with two-thirds of builders reporting that they are offering incentives. Lennar’s stated approach, as Miller described it in the September release, is to hold production volume steady and take the margin damage rather than slow down and wait for rates to fall. On our reading, that trade-off β steady deliveries, thinner margins, a lower share price β describes the kind of situation Berkshire has bought into before, though the filings themselves say nothing about motive.
One practical consequence of crossing 10 percent: Berkshire must now report any further Lennar trades within two business days, so the next move will be visible almost as it happens rather than months later in a quarterly disclosure. More coverage of builders and buying conditions is collected on RealtyWire’s Housing Market page.
