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Lennar (LEN 0.98%)
Q1 2024 Earnings Call
Mar 14, 2024, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to Lennar's first quarter earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's conference is being recorded.
If you have any objections, you may disconnect at this time. I will now turn the call over to David Collins for the reading of the forward-looking statement.
David Collins -- Corporate Controller
Thank you, and good morning, everyone. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flow strategies, and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.
Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in our earnings release and our SEC filings, including those under the caption risk factors contained in Lennar's annual report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.
Questions & Answers:
Operator
I would like to introduce your host, Mr. Stuart Miller, executive chairman and co-CEO. Sir, you may begin.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
Very good. Good morning, everybody, and 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 continue 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 and 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 -- in 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 continue 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 homebuilding 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 homebuilders. 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 stretched to pay their bills. We've started to see early evidence of debt delinquency 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 homebuilders 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. Homebuilders have been uniquely able to capture demand by using these incentives to unlock the affordability constraint and enable purchasers to transact.
Against this backdrop, our first quarter -- in our first quarter, we've been focused on and consistent in executing our core operating 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 costs 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 continue 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 products. 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 turn. 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 efficiency in the field is the Lennar machine.
The machine is a combined program of digital marketing, sales consultants 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 to 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 margins 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, to 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 homes 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 a 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 products 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 homesite with a permit, and those homesites need to be auctioned 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 accomplished this by both negotiating option deals with landowners and developers, and we also -- and also creating structured land bank strategies, often with private equity capital. By consistently focusing on our land-light strategy, we have 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% homebuilding 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 vote with permanent capital vehicle that can option developed homesites to Lennar and recycle capital into new homesites while distributing market-appropriate returns to shareholders. We have stood up a strong land vehicle that is under consideration, currently with about $4 billion of land. It could be more.
It 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 markets. 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 buybacks, 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 it over to Jon.
Jon Jaffe -- President and Co-Chief Executive Officer
Good morning. As you heard from Stuart, our operational teams at Lennar continued the execution of our core operating strategies in our first quarter. The focus starts with the Lennar marketing and sales machine. Every quarter, our divisions continuously learn from their engagement with the Lennar machine, gain knowledge on how to use this information for decision-making, provide feedback for enhancements, and improve the machine and execution of our strategies.
This continuous loop of learnings and improvements drives applied analytics, which enables us to improve our matching of sales to our production pace. You can see this evolution -- you can see the evolution of this improvement in our operating results as sales were evenly matched with starts in the first quarter and are projected to be evenly matched again in the second quarter. While there's more progress to be made, this matching of sales and production is leveling out our closings from quarter to quarter. The goal is even flow deliveries where by design starts gradually increase quarter over quarter to ultimately provide a consistent number of deliveries throughout the year.
This operating model produces the most significant of all the efficiencies that benefit our trade partners. To optimize the pricing of each home, this strategy is more than just about selling -- about the pace of sales, but about selling the right homes at the right price. In every division, Mondays are now referred to as Machine Mondays. Our operating teams gather to review dashboards, informing them with the prior week's results compared to the planned activity.
This analysis of the prior week's activity from digital marketing leads to sales pace and price of homes sold is evaluated to see if we sold the right homes, thus informing our decision-making and the plotted course of action for the current week. As the week unfolds, this is reevaluated to make adjustments. All of this analysis enables each division to make ongoing adjustments, matching sales to unsold production as homes progress toward completion. In our first quarter, as interest rates fluctuated, this process informed us as to where we have pricing power or where we need buydown of interest rates and/or other incentives to maintain the desired pace.
The confidence we have in this by-design sales strategy allows us to maintain consistent starts. These starts lead to increased market share. This has seen a growth of 28% in sales and 23% in deliveries year over year as our consistent starts have filled the void of other builders who pulled back. This consistency of starts and the related share gain have positioned Lennar with a No.
1 or 2 market share in 33 of our 40 operating divisions, with 23 of these 33 divisions having the No. 1 market share. Here are some examples of our markets where we have both the leading market share position and also have increased that share. In the Carolinas, market share in Raleigh improved to 20%, up from 16%; and Charleston at 24%, up from 22%.
In the Midwest, our market share in Indianapolis was up 7% to 34%, Minnesota was up 4% to 29%, and Chicago was up 5% to 24%. Our market share in San Antonio grew by 6% to almost 24%. In San Diego, we grew from 35% to 40%; in Central Valley, from 31% to 38%; and in Tucson, from 14% to 18%. In Florida, our market share increased in Tampa from 15% to 21%; and in Jacksonville, from 17% to 24%.
Here in Miami, while we did not grow our industry-leading market share, we did maintain a very healthy 75% share. Our sales pace of 4.9 homes per community in Q1 is up from the pace of 3.9 in Q1 of last year. This increase was by design to match the starts pace of 4.9 from the fourth quarter of 2023. In our first quarter, the 30-year fixed rate was 7.37% at the start of the quarter, then down to 6.75% in the middle of January, and back up above 7% in the middle of February.
Using insights from dynamic pricing, our homebuilding teams work closely with our Lennar mortgage teams to find the right mortgage solutions homebuyer by homebuyer. On the cycle time and construction cost, as we continuously improve the way we execute this game plan, we are also continuously working to deepen the partnerships with our trade partners. We focus on maintaining both a high volume and a consistent volume of homes under construction. These and the other efficiencies discussed benefit our trade partners, enabling us to lower construction costs in a cooperative manner with our trades.
By consistently starting homes, even as interest rates rose above 7% during the quarter, we increased our starts by 38% from the prior year, and they were flat sequentially from Q4. This consistent and increased level of starts attracts a larger trade base to Lennar and, together with a normalized supply chain, led to another meaningful improvement in our cycle time. For the first quarter, cycle time decreased by seven days sequentially from Q4, down to 154 days, on average, for single-family homes, a 30% decrease year over year. The cycle time stabilizing, combined with our ongoing efficiency gains, we are now designing build templates that will further reduce cycle time on future starts.
We focus on the building blocks of volume, consistency, predictability, cycle time, and even flow to achieve production efficiencies, enabling our trade partners to lower their supply chain and labor costs. Looking at the first quarter, as expected, our construction costs fell sequentially from Q4 by about 2% and, on a year-over-year basis, by about 11%. Moving forward, to drive further efficiencies and cost reductions, we are laser-focused on the consistent use of highly value-engineered home plans, which, as Stuart mentioned, we call our core product strategy. This strategy has recently begun implementation in Texas and is scheduled to be rolled out in Florida this year and will follow, thereafter, in the rest of our markets.
These engineered efficiencies, together with significantly higher use frequency of these core plans, will further cement our position as the builder of choice for our trade partners. The reduced cost and time to build these core plans will help us achieve the goal of delivering attainable housing to meet the needs of the homebuying consumer. Next, I'll discuss our land-light strategy. In the first quarter, we continue to effectively work with our strategic land and land bank partners where they purchase land on our behalf and then deliver just-in-time homesites to our homebuilding machine, as Stuart described.
In the first quarter, about 80% of our $1.6 billion of land acquisitions in the quarter were finished homesites purchased from these various land structures. This 80% reflects a prior -- reflects a view of prior land purchased into these structures that is now being delivered to us for home starts. In the first quarter, about 90% of our new land acquisitions were acquired into our off-balance sheet land structures. We continue to make significant progress in the first quarter as our years of supply owned -- year supply of owned homesites improved to 1.3 years, down from 1.9 years, and our controlled homesite percentage increased to 77% from 68% year over year.
The bottom line is focusing on our operating strategies, which result in a reduced cycle time, and the reduction in land owned has increased our cash flow, as well as improved our inventory turn, which now stands at 1.5 versus 1.3 last year, a 15% increase. In the first quarter, we continued to refine the execution of the strategies Stuart and I have reviewed with you. From the Lennar marketing and sales machine to our production processes and land strategies, our focus is consistent, improvements are continuous, and change is ever-present. Stuart said it sounds simple, but it isn't.
It's a lot of hard work, a lot of trial and error, and it takes a lot of grit. Fortunately, we have a great team of associates who have leaned into each of these strategies and are executing at the highest levels. I want to add my appreciation for their hard work and dedication. Now, I'd like to turn it over to Diane.
Diane Bessette -- Chief Financial Officer
Thank you, Jon. Good morning, everyone. Since Stuart and Jon have provided a great deal of color regarding our homebuilding performance, so, therefore, I'm going to spend a few minutes on the results of our financial services operations, summarize again our balance sheet highlights, and then provide high-level estimates for Q2 2024. So, starting with financial services.
For the first quarter, our financial services team had operating earnings of 131 million. Mortgage operating earnings were 100 million, compared to 59 million in the prior year. The increase in earnings was driven by an increase in lock volume, which was the result of higher homebuilding volume and a higher capture rate, as well as higher profit per locked loan, which resulted from higher secondary margins and lower cost per loan as the team continues to focus on efficiencies. Title operating earnings were 33 million, compared to 23 million in the prior year.
Title earnings increased primarily as a result of higher volume and greater productivity as the team continues to embrace technology to run a more efficient business. These solid results were accomplished as a result of great synergies between our homebuilding and financial services teams. They truly represent the spirit of one Lennar. So, now, turning to our balance sheet.
This quarter, once again, we were steadfast in our determination to turn our inventory and generate cash by maintaining production and pricing homes to market, with the goal of delivering as many homes as possible to meet housing demand. The results of these actions was that we ended the quarter with $5 billion of cash and no borrowings on our $2.6 billion revolving credit facility. This provided a total liquidity of 7.6 billion. As a result of our continued focus on balance sheet efficiency and reducing our capital investments, we once again made significant progress on our goal of becoming asset-light.
As Jon mentioned, at quarter-end, our years owned improved to 1.3 years from 1.9 years in the prior year and our homesites controlled increased to 77% from 68% in the prior year, our lowest years owned and highest controlled percent in our history. At quarter-end, we owned just under 97,000 homesites and controlled 323,000 homesites for a total of 420,000 homesites. We believe this portfolio provides us with a strong competitive position to continue to grow market share in a capital-efficient way. As Jon mentioned, we spent 1.6 billion on land purchases this quarter.
However, 80% were finished homesites where vertical construction will soon begin. This is consistent with our manufacturing model of buying land on a just-in-time basis, which is less capital-intensive. Our goal is that, over time, we will continue to reduce our ownership of land and purchase homesites on a just-in-time basis, and our earnings should more consistently approximate cash flow as the need to invest -- reinvest it back in the business is lessened. And finally, looking at returns, our inventory turn was 1.5 times and our return on inventory was 30.5%.
During the quarter and consistent with our production focus, we started about 18,300 homes and ended the quarter with just under 40,000 total homes in inventory. This inventory number includes about 2,200 models and also includes about 1,000 homes that were completed unsold, which is less than one home per community as we successfully manage our finished inventory levels. Consistent with our commitment to strategic capital allocation, we repurchased 3.4 million of our outstanding shares for a total of 506 million. Additionally, during the quarter, as Stuart mentioned, we increased our annual dividend to $2 per share from $1.50 per share.
So, we paid total dividends this quarter of 139 million. And looking at our debt maturity profile, our next senior note maturity is 454 million, which is due in April 2024. So, next month. Then, there are no maturities until May of 2025.
We continue to benefit from our previous paydown of senior notes and strong earnings generation, which brought our homebuilding debt to total capital down to 9.6 at quarter-end, an improvement from 14.2 in the prior year. We remain committed to increasing shareholder returns. Our stockholders equity increased to almost 27 billion, and our book value per share increased to 95.74, and our return on equity was 15.8%. In summary, the strength of our balance sheet, strong liquidity, and low leverage provides us with significant confidence and financial flexibility as we move through 2024.
With that brief overview, I'd like to turn to Q2 and provide some high-level guidance. Starting with new orders. We expect Q2 new orders to be in the range of 20,900 to 21,300 homes as we keep our production pace and sales pace closely aligned. We anticipate Q2 deliveries to be in the range of 19,000 to 19,500 homes, with a continued focus of efficiently turning inventory into cash.
Our Q2 average sales price should be in the range of 420,000 to 425,000. We expect gross margins to be about 22.5% and our SG&A about 7.2%, with both estimates having some plus or minus, depending on market conditions. For the combined homebuilding joint venture, land sales, and other categories, we expect to have earnings of about 25 million. We anticipate our financial services earnings for Q2 to be in the range of 110 million to 115 million based on expected product mix in our mortgage operations.
We expect a loss of about 20 million for our multifamily business and also a loss of about 20 million for our Lennar other categories. The Lennar other estimate does not include any potential mark-to-market adjustments to our public technology investments since that adjustment will be determined by their stock prices at the end of the quarter. Our Q2 corporate G&A should be about 1.8% of total revenues, and our charitable contribution will be based on $1,000 per home delivered. We expect our tax rate to be about 24.5%, and the weighted average share count should be approximately 274 million shares.
And so, on a combined basis, these estimates should produce an EPS range of approximately $3.15 to $3.25 per share for the second quarter. For the full year, we remain committed to delivering 80,000 homes, which is about a 10% growth year over year, with a gross margin that is consistent with last year's gross margin. We also remain confident with our cash flow generation, as we indicated. As such, we are still targeting a capital allocation of at least 2.5 billion, 454 million of which will be allocated to the April debt maturity that I mentioned and the balance to share repurchases.
And with that, let me turn it over to the operator.
Operator
Thank you. At this time, we'll -- we will begin the question-and-answer session. [Operator instructions] And that comes from Alan Ratner with Zelman and Associates. Your line is open.
Alan Ratner -- Zelman and Associates -- Analyst
Hey, guys. Good morning. Nice quarter and thanks for all the great commentary so far. Very helpful.
Appreciate it. Stuart, you know, first one, I wanted to ask you, it sounds like you -- and maybe I'm reading too much into this, but it sounds like you were kind of touching on kind of mortgage qualification issues a little bit more than you have in recent quarters, and I'm curious if you've seen something specifically in the near term that is kind of leading you to highlight that, or if you're just kind of commenting more broadly on the fact that affordability is stretched, which I don't think is much of a surprise to anybody at this point.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
So, I think it starts with the fact that affordability is stretched, but we are definitely seeing a little bit more credit card debt and personal debt from the customer showing up in their applications. We have seen some delinquencies in some of that debt. Bruce, maybe you'd like to comment a little on that.
Bruce Gross -- Chief Executive Office, Lennar Financial Services
Sure. And I think what we're seeing is when you look at denials, in particular, more denials are having a higher percentage relating to debt to total income. So, there's more debt to pay off, and that's something new that we noticed this quarter. You know, we often work with the buyers, and we're able to work through a lot of the conditions, but that one point is something that we've seen differently this last quarter.
Alan Ratner -- Zelman and Associates -- Analyst
Gotcha. Bruce, great to hear your voice, and thank you for that info. And then second question, you know, it seems like the market is generally tracking in line with what you expected three months ago, and I think the guidance reflects that. You know, Stuart, I think three months ago, probably the -- really, the main difference is I think we and you and probably everybody, you know, were probably expecting rates to be lower by now, and some of the inflation metrics might be a little bit stickier than people were hoping for.
So, when you think about the margin guide for the back half of the year, you know, it does imply a pretty healthy ramp, and I think your comments last quarter suggested an expectation that as rates move down, you would be able to pull back a little bit on incentives and discounts. I'm just curious if that, you know, thought process has changed at all, or if you're seeing enough on the demand side today that, you know, you've either already done the heavy lifting on pulling back on incentives or you're confident that that's going to transpire over the next few months.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
So, really interesting question, Alan, and let's start with the fact that demand is strong. And I can't emphasize that enough, that demand is strong. Now, with that said, there's limited supply and there's also affordability factors that are playing into this. And yes, there was a bit of enthusiasm in the market that interest rates were going to be moving down.
A number of times, as we went through 2024, some of that enthusiasm has subsided. What I love about our program is that our program cuts through the middle. What I don't see is another ramp-up in interest rates, but, you know, anything can happen. But inflation hasn't yet revealed itself as fully under control.
And I don't feel like the Fed has built up that confidence yet that says we're ready to start moving interest rates. And our program enables us to succeed quite well if interest rates move down. In fact, we're really levered to the fact that if interest rates move down, our margins should do quite well. But to the extent that interest rates basically stay the same or migrate upward a little bit, we're still pushing volume, pushing focus on rationalizing expenses or the cost of building homes, together with maximizing price and minimizing incentives that actually have to be used in order to generate strong margins.
So, our view today stands exactly as it was three months ago, even though there was more enthusiasm at that time for rates going down. We feel pretty strongly that we're going to be able to accomplish the margin levels that we've talked about in the environment, regardless of how it moves forward. We have a lot of levers to pull, and I think that we're really connected to the market, and we're very focused on production. And I think that production means leverage of costs, whether it's SG&A or cost of production.
And I think that we're going to be able to produce our margin. Jon, anything?
Jon Jaffe -- President and Co-Chief Executive Officer
I think you covered it. As we said, we continue to refine our ability to focus on the right price per home, which we feel confident will allow us to become even better at those communities and markets where we can pull back on incentives even more. And we'll continue to refine that, and I think that informs our confidence in what we see for the rest of the year.
Alan Ratner -- Zelman and Associates -- Analyst
Great. Thanks a lot, guys. Appreciate it.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
You bet.
Operator
The next question comes from Stephen Kim with Evercore. Your line is open.
Stephen Kim -- Evercore ISI -- Analyst
Yeah. Thanks very much, guys. Appreciate all the color. I had a little bit of difficulty catching all your comments, so apologies if I'm repeating anything here.
But I believe, Stuart, you were discussing maybe a new iteration of Quarterra, maybe. I don't know if you're still calling it that. But this time, you talked about $4 billion worth of land, I think, being included in this entity. I just wanted to get some more color around that.
So, is it -- is that about a half years worth of land? How is that 4 billion different from what was initially conceived? I think you initially talked about 4 billion, but I believe most of those have now already been put into fund structures. So, you know, how -- what is this 4 billion in land and how is it different? And then is it including other maybe what not we might consider noncore assets as well? If you can just give us some more color on this new Quarterra?
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
OK. So, first of all, I have PTSD going backwards and talking about the prior spin. So, I'm not going to use the Quarterra name right now. Is that OK with you, Steve?
Stephen Kim -- Evercore ISI -- Analyst
Totally fine.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
OK. Good. So, I'm not going to talk about this as a reincarnation of Quarterra because it isn't. With the prior spin, we were focused, number one, on a tax-free spin.
And number two, it was basically a multifamily, single-family for-rent assets that we were spinning into a different kind of operation. This is specifically taxable spin, straight down the fairway, land that is basically under production that is, you know, regular operating land. It is not, you know, excess or ancillary property or anything like that. It should be cash-flowing immediately.
And it is just a straightforward spin of a land program that dovetails extremely well with what we already have in place. Relative to other land banking programs, this enables us to build yet another vertical that will be complementary to the others that we have, but it gives us a broader range of feeders that enable us to fortify the durability of our land-light strategy. And that's been our focus, is how do we make sure and ensure that the market conditions we have today are market conditions that we can depend on in the future. Yes, we have land developers.
Yes, we have land sellers that we auction land from. But we also have the added benefit of land banking structures, and we're creating another and unique land banking structure with a permanent capital vehicle attribute that enables us to create that durability, that confidence that as we go forward, just like with lumber, just like with appliances, land becomes more of a commodity that we take down just in time.
Stephen Kim -- Evercore ISI -- Analyst
That's really helpful. I appreciate the distinction there. How about these other assets which were initially conceived to be in this -- the entity previously been called Quarterra, are there any plans for that?
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
Well, I think it's widely known that relative to our first fund of multifamily, where we do have some investment, that is currently under discussion as to how it will -- it has come to the end of its fund life and we're considering either a sale or some kind of extension program or something. Those assets will, over time, burn off. The new focus on multifamily is to be building in a more distinctly private equity-based program where we become much more of a production engine for more affordable product. The products that we were building historically kind of fallen out of favor given interest rate changes.
And yet, affordable rental product is very desirable and something that we can produce much more comfortably within the Lennar homebuilding division. And so, it will be much more of a production merchant build kind of program, spinning regularly, just like the rest of our product.
Stephen Kim -- Evercore ISI -- Analyst
OK. Gotcha. That's helpful. Thanks very much for that.
The second question I had is, I think, earlier, you were discussing in your prepared remarks the cash that you have on your balance sheet, you know, 5 billion, and I think you acknowledged that there was some interest in seeing how you were going to deploy that. And I believe you talked about that -- your response to that was that talked about a strengthening of your relationship with your land partners, how that evolved, how would it have been tested, you know, over the last year and a half. And you have come through that now to a -- you know, at a place where you have now a more -- much more robust relationship battle-tested with your partners. And so, it seemed to me that you were suggesting that the excess cash that you are holding maybe no longer serve the purpose that it once did.
I want to make sure that I am paraphrasing what you were -- was saying correctly. And then -- and if so, it sort of still leaves open the question of is there anything else that you might be waiting for -- you know, that you want to be patient about to see before maybe deploying that cash?
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
You know, look, we've been unapologetic about being patient. As we've migrated to a land-light strategy, we've wanted to be patient about recognizing that we are developing new sources of land relationships. We want to make sure that as the market ebbs and flows, that what became -- what we depended on didn't evaporate, and then all of a sudden, we needed to have capital to be able to grow, to be able to produce. I think we've gained a tremendous amount of confidence in the structures that we've built.
We're continuing to gain that confidence. We're looking to build more of those structures in order to have that durability baked in. So, that we -- you know, we're much -- we're very comfortable holding a stronger balance sheet to just make sure that as we go forward, we continue to grow forward and have the capacity to do that. I think, as we've gained confidence, the need for holding that cash becomes less and less important.
I think that our $5 billion share repurchase authorization is an indicator that we're leaning more into returning capital to shareholders, along with our dividend. And it's all in stepping stones. We're not afraid to go slower rather than to go fast. But the fact of the matter is we don't have something else out there that we're looking at that we're anticipating using cash for.
It is simply safety stock, so to speak, to make sure that the plumbing system we put in place is durable for the future, and we'll continue to make sure that we're positioned for the future. And as we get that confidence, you can expect that we'll be buying back more stock, and that's where the allocation of capital is going to go. It's not going to go to something else that's unanticipated right now.
Stephen Kim -- Evercore ISI -- Analyst
Great. Thanks so much, guys.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
OK. Thank you.
Operator
The next question comes from Mike Rehaut with J.P. Morgan. Your line is now open.
Mike Rehaut -- JPMorgan Chase and Company -- Analyst
Thanks. Good morning, everyone, or just about this afternoon. I appreciate all the detail and colors, as always. Two questions.
First, a little bit more, obviously, on the -- on this proposed land spin. I just want to make sure I'm thinking about it correctly because initially, I think to Steve's prior question, you know, it kind of hit on different areas of your current land program or, you know, prior iterations of how you're thinking about, you know, moving different assets on or off the balance sheet. So, it kind of sounds like this might be more of a -- when you talk about a spin and a new or separate vehicle, my mind is kind of moving a little bit toward the Forestar type of relationship of -- that they have with D.R. Horton and the fact that, you know, there's a lot of land that is on the Forestar, you know, entity that is -- you know, has a lot of rights of first refusal, etc.
to Horton, as opposed to, you know, something that I thought was more the direction when you started talking about this, which was kind of more moving land toward your existing land banking or land bankers relationships, you know, primarily, you know, thinking about the large facility that you have with Angelo Gordon. So, I just want to make sure that I'm thinking about it correctly in terms of it being more the former than the latter. And, you know, in thinking about that 4 billion number, I mean, right now, you know, in your press release, you have about 4.5 billion of -- or 4.7 billion of land and land under development. You know, so 4 billion would be a huge number, a huge percentage of that amount.
Just want to make sure that I'm understanding that that 4 billion is coming out of that bucket and that would, in effect, represent, you know, over 80% of your, you know, lots owned that are on your balance sheet today.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
So, Mike, I recognize your thirst for more detail, and we'll give you more detail as we refine our programs. And I wouldn't be thinking about it through the lens of Forestar. We're probably not going to go in that direction. But we recognize that you would like to know more, and we'll give you greater detail as we refine the program.
Diane Bessette -- Chief Financial Officer
Mike, the only thing I would add, because that you might have been alluding to it, is that, you know, this will be structured so there won't be any consolidation on our balance sheet. It would be true -- a true spin of land that's in a separate entity, so we wouldn't have any of those complexities of consolidation.
Mike Rehaut -- JPMorgan Chase and Company -- Analyst
OK. So -- but just on that point, you know, if you're talking about a 4 billion type of number, it would appear that that represents the -- you know, again over 80% of the land and land under development. So, we're talking about, in effect, the majority of your land holdings. Is that the right way to think about it?
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
We have been moving to a land-light strategy. That would be correct.
Mike Rehaut -- JPMorgan Chase and Company -- Analyst
OK. Secondly, on the gross margin front, you know, it was asked earlier about, you know, back half of the year, and it seems like to get to the guidance of roughly, you know, flat year over year for the full year, you're looking at, you know, back half gross margins of roughly 24% on average. You know, we talked about, you know, maybe the mortgage market being, you know, perhaps less potentially of a downward slope throughout the year than was initially anticipated. What is necessary to hit that 24% in the back half? Is it, you know, kind of already, I would assume, on the books from a land cost basis, construction cost basis, or are there -- do you need to have, you know, less costly incentives or better pricing because, you know, at this point, to the extent that that doesn't come through, it seemed like, you know, the only way to hit that 24%, if it was much more of just a mix and what's coming through the pipe, so to speak?
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
So, as we detailed, our focus and programming has been really carefully crafted by design to focus on using our production programs to bring down costs and to use our machine to focus on right pricing, whether it's price increases as the market gives them or whether it's the very carefully crafted use of incentives. So, the first thing is cost reconciliation, together with, you know, proper pricing. We feel comfortable that we're going to be able to migrate in that direction. The second part of it is leverage.
As we go through the year, we're generally producing and delivering more homes. So, there's some embedded leverage in that. And so, there are a lot of moving parts that make up our view of where our margin is likely to go. Of course, market conditions can change.
They can change to the positive and to the negative. And we've been very clear that margin is somewhat of a springboard for maintaining the volume that we expected to maintain. So, there will be elements of the economic environment that factor into it as well. Can I detail specifically what the relationships are in those numbers? I don't think so right now.
But it's a combination of all of those pieces that will drive our margins to where we expect them to be for the year. We do have some visibility in some of the sales that have come through, and we continue to have confidence that we're going to be able to get to that number -- to those numbers by the end of the year.
Jon Jaffe -- President and Co-Chief Executive Officer
And I think, as we said earlier, assuming interest rates stay relatively flat with where they are, we think we can continue to improve our operational view of how to increase margins in that same interest rate environment.
Mike Rehaut -- JPMorgan Chase and Company -- Analyst
Great. Thanks so much.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
OK. You bet.
Operator
Thank you. The next question comes from Kenneth Zener with Seaport Research Partners. Your line is open.
Ken Zener -- Seaport Research Partners -- Analyst
Good morning, everybody, or afternoon now. Want to start kind of high level here to understand or for you to clarify, perhaps, even flow where starts lead orders, which is less cyclical. So, first high-level question is what is your start capacity based on kind of your land partners, right? There are some type of guardrails we have there, and one of the big focuses of the industry is, are you going to grow or return, in general? And on the land spin, why are you guys choosing to introduce this vehicle versus building out the homes or see knowing it as you have been doing back already I guess?
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
Yeah. So, first question first. Production is clearly derived from how many homesites we have available. I think that we have mapped out what we think the production can be given the homesites that we have coming through the system.
And we would expect that what you are seeing as a production schedule is very well baked into both the land availability and its cycle of becoming developed homesites. So, you know, think about the way that you're seeing production put in place to get to that, let's call it, 80,000 delivery number, plus some, you know, overage for what falls into the next year, that that's already baked into what the starts pace will be, as I highlighted, with about 21,000 starts this quarter. We have, of course, excellent visibility as to the homesites that are coming through the system for that and likewise into the next quarters as well. Jon, did you want to add something to that?
Jon Jaffe -- President and Co-Chief Executive Officer
Relative to this first question, the -- as land goes into our land banking relationships, it goes into it with a takedown schedule that matches what Stuart just described. So, there are no guardrails that limit our ability to execute on the planned volume.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
So then, as it relates to your second question, we've been very focused on building, you know, multiple sources of capital for our optioning and land banking programs. Actually, building a permanent capital vehicle rather than being completely reliant on private equity capital constantly coming into a program, we thought, was a greater good and a big benefit. So, when you ask the question, why go in a different direction when some of the tried and true directions so far are viable as well? They are viable, and we continue to lean into those programs. This is an and rather than an or.
This, to us, is building that durability, that confidence that the capital will be there even as the market ebbs and flows going forward. And so, that's why we're choosing to build this way rather than just drive, as we have, by putting -- you know, taking land from balance sheet, building, see knowing, all of that. This is a cleaner way to build a permanent capital vehicle that's durable for the future.
Ken Zener -- Seaport Research Partners -- Analyst
OK. Appreciate that because I -- that's good. My second question is about margin communication, which is one of the factors affecting, you know, investors today. So, margins and your forecast for second half, nobody knows the future, right, and you're trying to help us.
But I think everything you've been talking about even flow is much more important to your capital allocation and the true returns of your company as you go asset-light. So, do you see -- and I think we all can model what that free cash flow will be within a range. Do you see -- when you get to that comfort level where, you know, land is neutralized, therefore net income equals cash flow, do you guys see yourself systematically buying back stock in line with net income, or do you -- you know, when we get to that point, or are you guys going to try to time it? Obviously, with NVR, we see that they've run up a lot of cash. So, do you guys -- are you hoping to have essentially buybacks match net income systemically when you're there, or is there something else we should know about your thinking when that time arrives? Thank you.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
No, I think that, generally speaking, I think we're migrating to a more orderly buyback program. We've been conservative in our buyback program, as I've noted, to make sure that the systems that we put in place are durable for our future. So, that conservatism shouldn't confuse. You know, as we look ahead, we don't have a thought process around a different use of cash.
In fact, we're growing into the cash flow model that we've created. And as we find that it is more durable and sustainable and we test kind of the edges, you can kind of expect that the cash flow generating is basically going to go right back into stock buyback.
Diane Bessette -- Chief Financial Officer
Yeah. Ken, I think what I would add is, as you know, previously, we prioritized debt repayment over that. But after we make this April payment, we'll only have $2 billion of notes outstanding, and it's, you know, one in '25, one in '26. And I think the other is in '27.
So, you know, we don't have that priority to focus on anymore. So, you know, I think Stuart's point is an important one that stock buyback really does become the priority because I think we've done a nice job of deleveraging the balance sheet from a debt standpoint.
Ken Zener -- Seaport Research Partners -- Analyst
Agree and thank you very much.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
Very good. And why don't we go to our last question now?
Operator
Thank you. That last question is from John Lovallo with UBS. Your line is open.
John Lovallo -- UBS -- Analyst
Hi, guys. Thank you for taking my questions as well. I mean, I guess, the first one, just going back to the spin for a moment. I mean, if the purpose here is to sort of guarantee capital for Lennar to grow and sort of guarantee land banking, even if private equity pulls back, I mean, it would seem that the spin would need to be very well financed, strong balance sheet.
How much cash do you envision the spin needing?
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
Probably not very much. I think that the assets, as they're configured or as we're thinking about it, should be cash-flowing pretty readily. And therefore, the spin will actually spend cash and, you know, bring in the cash and redeploy and should work well on its own.
John Lovallo -- UBS -- Analyst
OK. Understood. And then maybe just zeroing in on the second quarter gross margin outlook, which is up about 70 basis points sequentially at the midpoint, can you just walk us through some of the moving pieces there in terms of fixed cost leverage, net price, cost -- incremental cost inflation, and things of that nature?
Diane Bessette -- Chief Financial Officer
Yeah. So, I think that -- I'm going to walk through it more in detail, but I think that, you know, if you look at the second quarter of last year, it's very comparable. So, you can see the leverage pickup, particularly in field expenses. You know, just in order of magnitude, you know, you kind of get a lot of pickup just from that perspective.
So, that's certainly helpful. And, you know, I don't know that there's anything more to say on that. I think we've talked about controlling incentives, selling the right homes. But part of the credibility should be just the operating leverage that we're going to get, in addition to the other things that we spoke about.
John Lovallo -- UBS -- Analyst
OK. Thank you.
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
OK. Well, that wraps it up for this quarter. I thank everybody for joining us. Proud of the quarter that we put forth.
We look forward to reporting more progress as we go forward. Thanks for your time, and we'll get to you next quarter.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
David Collins -- Corporate Controller
Stuart Miller -- Executive Chairman and Co-Chief Executive Officer
Jon Jaffe -- President and Co-Chief Executive Officer
Diane Bessette -- Chief Financial Officer
Alan Ratner -- Zelman and Associates -- Analyst
Bruce Gross -- Chief Executive Office, Lennar Financial Services
Stephen Kim -- Evercore ISI -- Analyst
Mike Rehaut -- JPMorgan Chase and Company -- Analyst
Ken Zener -- Seaport Research Partners -- Analyst
John Lovallo -- UBS -- Analyst
