Berkshire Hathaway Inc. bought another 1.68 million shares of Lennar Corp. over three trading sessions last week, extending a buying run that has made Warren Buffett’s company one of the largest shareholders in one of the country’s biggest homebuilders.
A Form 4 filed with the Securities and Exchange Commission on Sept. 25 by Berkshire and Buffett, both now reporting as 10% owners of Lennar, discloses open-market purchases on Sept. 23, 24 and 25: 1,659,025 shares of Class A common stock at weighted-average prices between $80.58 and $81.65, and 20,675 Class B shares at weighted averages between $79.42 and $79.99. At those reported averages the week’s buying came to roughly $136 million.
Berkshire now reports 25,378,134 Class A shares and 548,892 Class B shares, or 25,927,026 in total.
Seven sessions, about $349 million
The purchases follow an earlier Form 4, filed Sept. 21, that reported 2,668,508 Class A shares and 75,021 Class B shares bought on Sept. 17, 18 and 21. Taken together, the two filings cover six trading sessions between Sept. 17 and Sept. 25 in which Berkshire acquired about 4.42 million Lennar shares for roughly $349 million at the weighted-average prices disclosed.
RealtyWire reported last week when Berkshire crossed the 10% ownership threshold and filed a Form 3 identifying itself as an insider. Passing 10% is what obliges a holder to report each subsequent trade within two business days, which is why a position that previously surfaced only in quarterly 13F filings is now visible almost in real time.
The scale of the increase is easier to see against Berkshire’s own earlier disclosure. In a Schedule 13G filed Aug. 14, Berkshire reported holding 13,111,741 Lennar shares, or 6.2%, as of June 30. The Class A position disclosed last week is roughly 93% larger than that.
The shares are spread across Berkshire’s insurance subsidiaries. The Sept. 25 filing lists National Indemnity Company with 12,366,349 Class A shares, Medical Protective Company with 3,875,785, BHG Life Insurance Company with 3,625,000, AZGUARD Insurance Company with 3,098,000, WestGUARD Insurance Company with 1,218,000 and NorGUARD Insurance Company with 1,195,000. Buffett disclaims beneficial ownership except to the extent of his pecuniary interest.
Buying into a weakening new-home market
Berkshire’s buying began on Sept. 17, the session after Lennar reported third-quarter results that the Miami-based builder itself described as below expectations.
For the quarter ended Aug. 31, Lennar posted net earnings of $284 million, or $1.19 per diluted share, down from $591 million and $2.29 a year earlier. New orders fell 9% to 20,879 homes and deliveries fell 3% to 20,840 on revenue of $8.0 billion. The gross margin on home sales was 15.8%, the average sales price was $372,000, and incentives ran at about 12.0%. Lennar cut its full-year delivery target to roughly 80,000 to 81,000 homes from the 82,000 to 83,000 it had guided to a quarter earlier.
“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,” Executive Chairman, Chief Executive Officer and President Stuart Miller said in the release. He noted that mortgage rates rose through the quarter, “with the 30-year rate at approximately 6.8% at quarter end and even higher since,” and said consumer confidence had declined as affordability worsened.
Miller also pointed to operating gains the company has made while holding volume steady: construction cost per square foot down 6% year over year, cycle time at a record low of 116 days, and completed unsold inventory reduced to 1.8 homes per community. Lennar repurchased 3 million of its own shares for $256 million during the quarter, so Berkshire has been buying alongside the issuer.
A widening housing bet
Lennar is not Berkshire’s only exposure to homebuilding. The conglomerate completed its $8.5 billion acquisition of Taylor Morrison Home Corporation on July 24, folding a public builder into its Clayton Properties Group, and has owned manufactured-housing builder Clayton Homes since 2003.
Berkshire has not published a rationale for the Lennar purchases, and Form 4 filings do not require one. What the filings establish is timing and price: the buying began after a disappointing quarter and continued as the price rose, from a weighted average of $76.39 on the largest Sept. 18 block to $81.65 on Sept. 23.
The backdrop is a new-home market under real strain. RealtyWire reported earlier this month that builder confidence fell to a one-year low in September, with roughly two-thirds of builders offering sales incentives. Freddie Mac’s Primary Mortgage Market Survey put the 30-year fixed-rate average at 7.03% on Sept. 24, up from 6.30% a year earlier.
