Lennar Corporation (LEN) Co- Q4 2021 Results - Earnings Call
Lennar Corporation (NYSE:LEN) Q4 2021 Earnings Conference Call December 16, 2021 11:00 AM ET
Company Participants
Alex Lumpkin - Associate General Counsel
Stuart Miller - Executive Chairman
Rick Beckwitt - Co-CEO and Co-President
Jon Jaffe - Co-CEO and Co-President
Diane Bessette - VP, CFO & Treasurer
Conference Call Participants
Susan Maklari - Goldman Sachs
Truman Patterson - Wolfe Research
Mike Rehaut - JPMorgan
Stephen Kim - Evercore ISI
Alan Ratner - Zelman & Associates
Matthew Bouley - Barclays
Operator
Welcome to Lennar's Fourth 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 Alex Lumpkin for the reading of the forward-looking statement.
Alex Lumpkin
Thank you, and good morning. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, 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 yesterday's press 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.
Operator
I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.
Stuart Miller
Great, and good morning, everyone. Thank you for joining. This morning I’m here in Miami joined by Diane Bessette, our Chief Financial Officer; David Collins, our Controller and Vice President; Bruce Gross, CEO of Lennar Financial Services, and of course, Alex, who you just heard from. We also have joining us Rick Beckwitt, who is in Colorado, and Jon Jaffe, who is actually here in Miami but not in the office.
As usual, I'm going to give a macro and strategic Lennar overview. After my introductory remarks, Rick is going to talk about market strength around the country, land and community count as well. John will give an update on the supply chain, production and construction costs. And as usual, Diane will give detailed financial highlights and additional guidance, and then we'll answer as many questions as we can. And as usual, please limit to one question and one follow-up.
So, let me go ahead and begin and start by saying that our fourth quarter and full year 2021 reflect extraordinary focus and determination by Lennar's management and operating teams across the country. While the housing market remains very strong in all of our major markets, the ability to actually execute and deliver results has been challenged and tested by the supply chain that is all but broken, the workforce that is short in numbers while driven to produce more, and the never ending competition for scarce entitled land assets.
Lennar's managers and operators have been absolute warriors, recognizing that our customers need and want their homes and the burden of a strong but stressed market simply can't stand in the way. The proud associates of Lennar are pleased to report an excellent quarter and year of accomplishments, in spite of the elusive garage doors and short supply, the unimaginable scarcity of paint, the cabinet deliveries postponed by labor shortage, the electric meters, the windows and the countless other stumbling blocks and obstacles that have presented intermittently to ensure chaos in a production cycle that is difficult even when everything is going right.
The supply chain affects both land and construction, and that will continue into the first quarter of 2022 and beyond. But as we enter the second-half of the year, we expect that the supply chain disruption will be stabilized and mitigated by the greater number of starts that we have started, by the lessons learned and incorporated in our builder of choice relationships, and by the simplicity embedded in our everything's included offerings. And let me say that Kent Gillis and his extraordinary purchasing team have done an amazing job of navigating this difficult landscape.
I also want to warmly acknowledge John and Rick, our co-CEOs who have chosen not to sit on high perch in difficult times, but instead went to the problem and sought for themselves so they could be part of the solution. Together as partners, they visited each of our 38 divisions over a six week period, met with our production and purchasing teams in the field, got a tangible feel for the most significant issues, and translated their visits into solutions. Time, focus and attention, problems are being solved, and that is simply the Lennar way.
Even with the challenges in the market, in our fourth quarter, we delivered just under 18,000 homes, which is every single home that could be delivered as our customers expected and wanted their home for the holidays. We grew our deliveries 11% year-over-year, while our revenue from home sales grew 24% to almost $8.5 billion. And by remaining laser focused on orderly targeted growth, with our sales pace tightly matched with our pace of production, we drove a 300 basis point gross margin improvement to 28%.
Alongside gross margin, we recorded a significant improvement in operating efficiency as our SG&A decreased 150 basis points to 6%. We continue to limit our sales pace, especially as cycle times expand in favor of a significantly benefited bottom line.
Accordingly, our net new orders grew 2%, and they're expected to contract slightly in the first quarter. With our sales discipline, our net margin increased 460 basis points to accompany all-time high of over 22% in our fourth quarter. This drove a 50% after-tax and before mark-to-market items, bottom line improvement in net earnings to over $1.3 billion this year. So with our focus on bottom line over top-line improvement, 24% revenue growth drove 50% bottom line growth.
Additionally, our financial services group continued to perform exceptionally, adding $111 million of earnings while supporting the closing of every possible home and making the closing process as joyful as possible in the current environment. With the strong performance of our core operating divisions, our balance sheet and returns continue to improve as well.
Even after the repurchase of 10 million shares of stock and the reduction of $850 million of debt in the quarter, we reported a cash balance of over $2.7 billion and an 18.3% debt to total cap ratio, while a return on equity grew almost 800 basis points year-over-year to 22.6%. All in all, our core operating numbers are very strong in the fourth quarter, and we expect that strength to continue into 2022 and beyond.
From a macro perspective, the housing market remains strong across the country. Demand has been consistently strong while the supply of new and existing home remains limited. Since new home construction cannot rent quickly enough to fill the demand, short supply is likely to remain for some time to come. Even though home prices have moved much higher, overall affordability remained strong. Interest rates are still very attractive, and personal savings for deposits are strong. Wages for the average family seem to be rising faster than monthly payments, and those higher wages are starting to be reflected in government numbers, and unfortunately in inflation as well.
The upward spiral of housing purchases is accelerating. Millennials are forming families, apartment dwellers are purchasing first time homes, first time homes are selling at higher prices, and appreciated equity is enabling first time move ups. The move up home is selling its strong pricing with increased equity, enabling customers to purchase an even larger home, all this while supply is limited for everyone. And the eye buyer and single family for rent participants are providing additional liquidity to the marketplace.
Against this backdrop, and although there has been some turbulence through the year, 2021 has been an extraordinary strategic year for our company. We established a strategic plan that included cash flow generation and debt reduction in order to improve returns on capital and equity. We also articulated a drive and desire to have a strong focus on new technology-driven efficiencies in our core business, while we spin ancillary businesses and become a pure play homebuilding company.
Our 2021 performance reflects focus on these strategies, and 2022 will be an extension of the same focus. In 2021, we generated almost $3 billion of homebuilding cash flow to enable a reduction of debt by $1.3 billion, and a purchase of 14 million shares of stock for a 4.5% reduction in share count. Accordingly, our debt to total cap is below 20% and we have $2.7 billion of cash on hand. Our total debt is $4.7 billion, and will continue to be reduced.
We also reduced our land holdings to three years as promised, and increased our land controlled versus own to 59%, exceeding our goal at the beginning of the year. We have almost certainly established Lennar as a technology-enabled and engaged company.
We invested in numerous new technologies, while eight prior investments were either sold or went public, which resulted in significant extraordinary profits for the company this year. Perhaps more importantly, we have invested in companies that have enabled improvement in our core business, while we have benefited both through the investments and through incorporation in our core.
But this is just the beginning. We are working with numerous additional technology companies that are working to solve some of the most difficult problems facing our industry. As a case in point, we're working to solve the issues in supply chain, labor shortages and production using innovative technology in innovative ways.
Many of you have read and commented on our investment in ICON, the 3D printing building company in Austin, Texas. We expect to start our first 3D printed community in Austin sometime in 2022, and hope to reduce labor, material and time as we help refine this structural production process.
Alongside ICON, we have invested in two additional innovative production companies called Veev and Cover [ph], and they're engaged in innovative, factory-based manufactured solutions to production. Both Veev and Cover are focused on a more comprehensive solution beyond just the structural components, and encompass mechanical, electrical, and plumbing solutions in the factory as well. These companies are working on each of the major components of the home, and building better and more precise delivering systems that will reduce the need for labor and enhance precision and cycle time.
All of these companies are focused on the most frictional and problematic elements of the production process, and driving towards solutions for the industry. Given today's supply chain and workforce constraints, we should all be interested, if not laser focus on the success of these critical solutions, Lennar most certainly is.
And finally, 2021 has in fact been a year of focus on the strategy of becoming a pure play homebuilding company. We have been hard at work refining our SpinCo that I've described in the past. As you can see from our balance sheet and cash flow, the case for SpinCo has become more compelling with each quarter’s successes. We have excess capacity and balance sheet to spin our well-established ancillary businesses, and we expect to complete a tax free spin by the second or third quarter of 2022.
To that end, in November, we took our first significant in-depth to complete the spin by formally filing a request for a private letter ruling from the IRS. We are getting very close to being prepared with defined business lines, a refined business plan and a balance sheet. We expect to file our at first confidential Form-10 by the end of January or beginning of February, at which time we expect to have a name other than SpinCo and a management team in place.
Some have asked about the time we've taken to disclose greater detail. The fact is, we're building a durable and sustainable public company that has to hit the ground running on day one. To that end, Matt Zames, as Senior Advisor to the company, has been focusing on the configuration and execution of our SpinCo strategy. In addition to and supporting Matt, Jeff McCall, and a sequestered team of senior internal leaders have modeled various configurations with different asset composition that has focused on getting both the program and the story right for the public markets.
We have concluded that the spin company will be an asset light asset management business that will have a limited balance sheet. Many of the assets that we targeted for spin originally will be either part of the limited balance sheet of SpinCo, or will be monetized in the form of assets under management housed within the private equity verticals of SpinCo or have been or will be resolved or monetized in other ways. The monetization has been and will be completed over the next year or so, and the cash proceeds will be deployed in Lennar to fortify our balance sheet, or to continue to buy back stock on an opportunistic basis. And when our stock is on sale, like today, we'll be purchasing.
Three core verticals have been identified, and business plans for the spin and they are multifamily, single family for rent, and land strategies. Each of these verticals already have raised third-party capital and are active asset managers. LMC, our multifamily platform has approximately $9 billion of gross capital under management, and is raising its third fund. LSFR, our growing single family for rent platform currently manages approximately $1.5 billion of equity already raised. And our land strategies platform is still being refined for SpinCo and we will provide more detail in the near future.
The remaining Lennar Corporation will drive higher returns on our assets and equity base, and the spin will not result in the material reduction of either our bottom line or our earnings per share as we project them. Bottom line, this was a year of hard work at Lennar in the face of many issues, and there were no feet up on the desk during the year.
So let me wrap up and conclude by saying that we have simply never been better positioned financially, organizationally and technologically to thrive and grow in this evolving housing market. The market in general remained strong. While difficulties in the supply chain present challenges for Lennar and the industry, the housing market remains strong and supply of new and existing homes is very limited.
We remain focused on an orderly targeted growth strategy with our sales pace tightly matched with our pace of production. We focus on gross margin by selling in step with production, while controlling costs and reducing our SG&A, and therefore driving on net margin.
As we look to 2022, we see continued strength in the market and double digit growth for Lennar. As we noted in our press release, we're projecting 12,500 deliveries at a 26.75% margin in the first quarter, and 67,000 deliveries at a 27% to 27.5% margin for the year. At this pace, we will have a strong bottom line with a projected spin off in the second or third quarter. 2022 will be another record year for Lennar.
And with that, let me turn over to Rick.
Rick Beckwitt
Thanks. Stuart. As you can tell from Stuart's opening comments, the housing market is very strong, our team is extremely well coordinated, and our financial results continue to benefit from a solid execution of our core operating strategies. Key to that has been running a fine tuned homebuilding machine, where we carefully match homebuilding production with sales on a community by community basis. We have continued to strategically sell our homes later in the construction cycle to maximize sales prices and to offset potential cost increase. To that end, we have slowed sales to generate higher profits.
Our fourth quarter results prove out the success of this strategy, as we achieved gross margin increases of 300 basis points year-over-year, and 70 basis points sequentially. During the fourth quarter, we started 4.5 homes per community, sold 4.3 homes per community, and we ended the quarter with less than 160 completed unsold homes across our entire footprint. This production, margin-driven and sales focus program will continue to improve margin and lead to increase deliveries and profits in fiscal 2022.
In the fourth quarter, new orders, deliveries, gross margins were solid in each of our operating regions. We continue to achieve price increases and saw strength in all product cost categories, from entry level to move up and in our active adult communities. Here is some color on some of the stronger markets across the country.
Florida continues to benefit from core local demand, as well as in migration from the North East, the Midwest, and the West Coast, which is driving both sales pace and price. Inventory is extremely limited. The hottest markets in Florida continue to be Naples and Sarasota in the Southwest, Miami and Dade and Broward in the Southeast and Tampa. Orlando has also been sustaining a strong recovery with a significant rebound in tourism. These are all markets where we are the leading builder with the best land position.
In the Carolinas, Raleigh, Charlotte and Charleston are extremely strong markets. Inventory is very limited and the combination of core local demand and in migration continues to push both sales pace and price. We are also the top builder in each of these markets. Indianapolis continues to see strong and steady growth. The combination of in migration from the Northern markets in the West Coast, as well as affordable housing and quality of living is driving sales pace and pricing were the largest builder in this market.
Texas continues to be the strongest state in the country, with in migration from East and West. The state's pro-business, employer friendly economy is driving corporate relocations and tremendous job growth, especially in the technology sector. The state is also benefiting from a recovery in the oil and gas sector. The strongest market in the country continues to be Austin, with recent announcement by Samsung Electronics to invest $17 billion in a new chip manufacturing plant, and Tesla's announcement to relocate their corporate headquarters to Austin, in addition to finishing construction this month on a 1.1 billion giga factory. These two companies alone will create thousands of new jobs in Austin.
The Colorado market picked up momentum in the fourth quarter, and we saw strength in both sales pace and price with over one sell per community matching our startup space. Phoenix and Las Vegas continue to be strong markets, both benefiting from business friendly environments, real job growth and in migration from California. The casinos in Vegas are full and the city is benefiting from increased tourism. Phoenix is thriving because it's incredibly affordable.
We entered the Boise market with two communities during the quarter, and anticipate having eight active communities by the end of 2022. This market continues to have strength driven by tremendous population growth. And we're excited about our land position and our Lennar Boise team.
The Pacific Northwest continues to be a strong market as natural supply constraints and constraints by urban growth boundaries limit production. In spite of being land constrained, we are seeing solid year-over-year growth in these markets as we expand our geographic footprint. The California markets remain strong driven by the state's severe housing shortage, there is more demand than supply.
As reported last quarter, the Inland Empire, Sacramento and East Bay Area have remained as some of the strongest markets with homebuyers looking for square footage and affordability. During the quarter we saw a resurgence in the core markets of the Bay Area, as more employees are returning to their offices, or anticipate returning in the near future. As such, both core and inland markets are firing on all cylinders.
As I said, these are some of the strongest markets, but there is strength and depth of market across the country. Now, I'd like to spend a few minutes talking about growth and community count. During the fourth quarter, our community count increased 7% year-over-year and 6% sequentially, as we continue to focus on growth in our existing and new markets.
We expect our Q1 community count to be about 5% lower than year-end 2021. However, our community account will start to increase in the second quarter, and we should end 2022 with a low double digit increase in community count year-over-year. While supply chain issues and inspection delays are impacting the timing of some community openings, we are in an excellent position for strong growth in 2022.
Our land pipeline remains robust, with plenty of land in the queue to meet our goals over the next several years. We continue to see good buying opportunities in all of our markets, and are confident this pipeline will produce strong community count growth for the next several years, as we pursue deals to backfill beyond the near-term deals that are already owned and controlled.
We are also pleased with the excellent progress we made on our land light strategy as evidenced by our years own supply of home sites improving to our previously stated goal of three years at the end of the fourth quarter from 3.5 years last year, and our controlled home site percentage increasing the 59% from 39% for the same period. Equally important, these improvements were achieved while growing our overall owned and controlled land position by 44% year-over-year, with all of that increase in controlled home sites.
Given the progress we've made, our new goal for 2022 is to end the year with 2.75 years of own home sites, and with a 65% control position. Our extreme focus on the land lighter model generated significant cash flow during the quarter. We ended the quarter as Stuart said, with $2.7 billion of cash, no borrowings on our $2.5 billion revolver. And this was after repurchasing just under $1 billion of our common stock, and paying off $850 million in debt.
I'd like to thank our team of great associates across the country, for their focus and solid execution to make all this happen. Now I'd like to turn it over to John.
Jon Jaffe
Thanks, Rick. I’ll now give an update on how we managed through the impact of supply chain disruptions in the fourth quarter, and how we’ve planned for managing through them in 2022. As Stuart noted, we've had to deal with our fair share of disruptions. Similar to the third quarter, these disruptions are affecting different trades at different times and in different geographies. They're intermittent, and they continue. It continues to be a game of whack a mole that creates stress and uncertainty in already strained labor base as materials often do not show up when expected.
In the fourth quarter, the supply categories that were most impacted on a national basis were garage doors, windows, paint, HVAC condensers, and flex dock and cabinets. Regionally, there were a variety of disruptions in the delivery of materials and/or the availability of labor. On average, this increased our fourth quarter cycle time by an additional two weeks from the third quarter, bringing the year-over-year increase to a range of four to six weeks.
Despite these disruptions and the associated increase in cycle time, the team at Lennar still managed to deliver approximately 18,000 homes in the quarter as expected. This was in large part due to a record number of starts in our second quarter of 19,500 homes to ensure we had enough inventory to meet our delivery goals.
Additionally, the extraordinary supply chain, purchasing and construction teams at Lennar have never been better coordinated, and are managing our scheduling on a day by day basis, in partnership with each of our trade partners. We continue to work with our partners to solve issues in real time, as well as planning ahead for our future demand needs. Examples of the strength of our strategic trade partnerships is when we had to take business away from our primary garage door manufacturer. They constructively work with us to move the business over to another vendor.
When our major cabinet manufacturer fell behind due to labor and material shortages, they opened their factory for us on a weekend to manufacture 350 homes worth of cabinets in order to catch up. These are just two out of many examples where we and our value trade partners found solutions to the challenges of the current environment. Our decade long platform of Everything's Included, continues to be a strategic advantage and lessening the impact of the supply chain shortages. It's a simple program with fewer skews to manage, allowing us to plan ahead and order our material needs far in advance.
As discussed in prior quarters, we are in our sixth year of focusing on being the builder of choice for our trade partners. This program has successfully created close-knit relationships with our strategic building partners, allowing both parties to be nimble and adjusting to these disruptions. We believe our strategic relationships have allowed us together with our partners to learn lessons from 2021 so we can be better prepared for 2022. We've been meeting with our key partners, along with additional new partners to allocate projected 2022 volume, as opposed to just prioritizing available volume. This way, we identify potential gaps and availability upfront, allowing for proactive versus reactive solutions.
We have completed about half the categories, and will complete the remaining ones in the next few weeks. We've added manufacturing and trade partners and key categories to ensure availability, along with a continuous process of simplification through ongoing skew reductions. Lastly, we have secured alternative distribution solutions to provide safety stock at certain commodities and short supply materials. We believe the combination of all these efforts will allow for the stabilization of the supply chain for Lennar in the back-half of this year.
Turning to the construction cost impacts on our fourth quarter closings were primarily from the lumber increases taken earlier in the year, that are now impacting cost as homes close. In the fourth quarter costs were up $6.78 per square foot over the third quarter, and lumber accounted for $4.18 of that increase. We will still see increased costs from lumber in our first quarter deliveries. But starting in Q2 and through Q3, we will benefit from lumber cost reductions. We experienced cost pressures in Q4 in other material categories and on labor that will start to flow through closings in the second-half of 2022.
On a final note, as Stuart mentioned, Rick and I recently spent six weeks on the road, visiting communities and construction sites in each and every one of our markets. While we knew what to expect in terms of the supply disruptions and labor shortages that we would see, it was important for us to experience this firsthand so we can most effectively manage to this environment.
Importantly, this gave us the opportunity to meet with our teams and trade partners in the field, listen to their ideas, and shake their hands to thank them for their incredible dedication and effort they give in delivering quality homes to our customers. We can assure you that when our culture is alive and well and as strong as ever, we'd like to take this opportunity to again, thank all of our Lennar associates and trade partners for the incredible quarter that they delivered.
Thank you, and I'll now turn it over to Diane.
Diane Bessette
Thank you, Jon, and good morning, everyone. Stuart, Rick 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 other business segments and our balance sheet, and then provide detailed guidance for Q1 2022 and high level guidance for fiscal year 2022.
So starting with financial services, in the fourth quarter, our financial services team produced $111 million of operating earnings. Mortgage operating earnings decreased to $77 million, compared to $125 million in the prior year. As we've indicated for several quarters, the mortgage market has become more competitive with purchase business as refinance volumes have declined. As a result, secondary margins have been decreasing. This was the primary driver for our fourth quarter lower secondary margins as compared to the prior year.
Title operating earnings was $30 million compared to $28 million in the prior year. Title earnings increased due to growth in profit per transaction, partially offset by a decrease in volume driven by a reduction in refinance orders. Quarter after quarter title team has been focused on automation and efficiencies with a goal of driving higher productivity.
And then turning to Lennar Other, for the fourth quarter, our Lennar other segments had an operating loss of $176 million. This loss was primarily the result of non-cash mark to market losses on our strategic technology investments, which totals $180 million. As we've mentioned before, we are required to mark to market many of our technology investments that are publicly traded, and that valuation will fluctuate from quarter to quarter.
While the technology investment had downside with losses for this quarter, overall for the fiscal year, our investments provided approximately $500 million of unrealized gains. In addition, and most important, our investments continue to add value to our core homebuilding operations.
And then turning to our balance sheet, for the quarter and the year, we focused on becoming land lighter. As a result at quarter-end, we owned 182,000 home sites, and controlled 257,000 home sites for a total of 439,000 home sites. Our year supply owned decreased to three years from 3.5 years in the prior year, and our home sites control increased to 59% from 39% in the prior year.
We were also laser focused on generating cash flow, reducing debt and increasing returns as you’ve heard. Therefore, we ended the quarter with $2.7 billion of cash and no borrowings on our $2.5 billion revolving credit facility. We also retired 815 million of senior notes that were due in 2022 together with 300 million of senior notes paid in the third quarter, we retired a total of 1.15 billion of senior notes in 2021. Our next senior note maturity is 575 million, which is due in November 2022. And we have no maturity due in fiscal ‘23.
Also, during the quarter we repurchased 10 million shares totaling 977 million, bringing the total repurchase for the full year to 14 million shares, totaling almost $1.4 billion or 4.5% of our outstanding shares at the beginning of the year. Additionally, we paid dividends totaling $76 million, which brings total cash returned to shareholders through dividends for the year to $310 million. The result of all these transactions was a homebuilding debt to total capital of 18.3%, which was down from 24.9% in the prior year.
As you can see, our primary focus was cash generation and capital allocation during 2021, but it's the continuation of a multi-year strategy. During fiscal 2021, we generated almost $3 billion of homebuilding cash flow. However, over the past three years, 2019 through 2021, we generated about $8 billion of homebuilding cash flow, and allocated approximately $5 billion to debt reduction as our first priority, approximately $2 billion to share buybacks, and approximately $600 million was returned to shareholders through dividend payments. And this focus will of course, continue in 2022.
And just a final few points on our balance sheet, our stockholders equity increased to approximately $21 billion, our book value per share increased to $69.52. Our return on inventory was 27%, excluding consolidated inventory not own, and our return on equity was 22.6%.
So with that brief overview, I'd like to provide some detailed guidance for the first quarter, and then high level guidance for fiscal 2022. Starting with the first quarter, we expect our Q1 new orders to be in the range of 14,800 to 15,100 homes, as you heard us say as we continue to moderate sales pace to match production cycle changes. This is consistent with the approach we have taken for quite a while. We expect our Q1 ending community count to be about 5% lower than the end of the year 2021.
However, community count will then increase in the second quarter, and we should end 2022 with low double digit year-over-year growth. We believe our Q1 deliveries will be around 12,500, but similar to last quarter, the assessment has some plus or minus to it because the supply chain challenges continue to bring a great deal of uncertainty. So the final number of homes delivered will be dependent on outcomes to the supply chain challenges, which of course we are navigating each and every day.
Our Q1 average sales price should be about $460,000. And we expect our gross margin to be around 26.75%, which reflects the impact of peaked lumber prices from last year and less field expense leverage. We expect our SG&A to be between 7.8% and 7.9% as we continue to focus on simplification and efficiencies.
Now, I will note again, that gross margin and the SG&A estimates will move up or down a bit, depending on the number of homes delivered. And so the combined category of homebuilding joint ventures, land sales and other categories expect a loss of approximately $5 million.
Looking at our other business segments and other additional items, we believe our financial services earnings for Q1 will be in the range of $85 million to $90 million as market competition for purchase business continues. We expect a loss of about $10 million for our multifamily business. And for the Lennar other category, we expect to be about breakeven. But remember, this guidance does not include any potential mark to market adjustments to our technology investments. This will be determined by their stock prices at the end of our quarter.
We expect our Q1 corporate G&A to be about 2% of total revenue. Our charitable foundation will be based on $1,000 per home, and we expect our tax rate to be approximately 25%. And the weighted average share count for the quarter should be approximately 297 million shares. And so when you pull all this together, this guidance should produce an EPS range of $2.54 to $2.57 per share for the first quarter.
And then turning to the full year 2022, we expect to deliver approximately 67,000 homes with an average sales price of about $460,000. This would result in about $31 billion of homebuilding revenue, which should be an increase of approximately 20% from fiscal 2021. We expect our full year gross margin to be in the range of 27% to 27.5%. And with our continued focus on technology and efficiencies, we expect our fiscal year SG&A to decrease to the range of 6.8% to 6.9%.
We believe our financial services earnings will be in the range of $440 million to $450 million as market competition continues. And finally, our tax rate should be approximately 25%. And so as we continue to execute on our core operating strategies, maintain strong balance sheet and remain focused on cash flow generation and return, we are well-positioned to have a strong fiscal year 2022.
Before I turn it over to the operator, let me take a moment to thank our finance teams, accounting, planning and all others involved. Our earnings release went out yesterday, 15 days after yea-end, and we are hosting our earnings call today 16 days after year-end. We've been holding our quarterly calls within this general timeframe for over a year. Although the timeframes have been consistent, make no mistake, the work has continued.
Our goal is to not be satisfied with what has been accomplished, but rather to make incremental progress through automation and efficiencies each and every quarter, while we compile and report our actual or forecasted results. The incremental progress is the result of a lot of hard work. So congratulations team, and a sincere thank you for what you've accomplished this year.
And with that, let me turn it over to the operator.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session of today's conference call. [Operator Instructions] Our first question comes from Susan Maklari from Goldman Sachs. Please go ahead.
Susan Maklari
Thank you. Good morning, everyone. And congrats on a great quarter. My first question is really, thinking about the positive setup that you described, Stuart against supply relative to demand, and that against the guide that you've given us for 2022. Can you kind of walk us through a bit and maybe talk through where you see the potential for upside and downside within that, and especially maybe as we think about the upcoming selling season and how you're thinking about some of those pieces coming together?
Stuart Miller
Sure. Let me -- before answering the question, I just want a second, Diane’s congratulations to the finance team with David Collins for the year. A lot of hard work goes into getting the year and quarter close. They're doing great job.
But let me answer that Susan, the reality that we're seeing in the field as we have come to our year-end, and even as we go into December is the market remains strong. Traditional seasonality is coming back. But still relative to that seasonality, we're seeing basic strength in the marketplace. The constraining factor right now is the production cycle. And we have been decidedly focused on matching our sales pace with that production cycle, recognizing that we're going to maximize execution and bottom line by keeping those two pieces in parity.
So, as we think about the upcoming selling season, it is feeling to us as we look at the market, as we look at week by week sales, traffic, demand, it is feeling to us that this is going to be a very, very strong selling season. It is going to be more of a traditional selling season, traditional selling season in that as we get to the end of February, March, we expect to see even more of a pickup. But make no mistake, it's strong out there right now.
With that said, the production cycle, as I've noted, the cycle times have been extending through the quarters, we're cognizant of that. We recognize that it's a bit of as Jon said, whack a mole out there. One day, it's garage doors, another day, it's windows or paint. And that kind of configuration is at least in our world, starting to feel like we're stabilizing it. I noted our purchasing team and the work that they have done around our builder of choice programs, where Everything's Included programs, working to really stabilize that purchasing side and logistics side of our business.
And as we go forward, I think you're going to see that parity that pairing of production cycles stabilizing and high demand in the marketplace, start to move things towards what I think is going to be more of an upside in 2022. And we'll just have to wait and see if it plays out that way. We've clearly conservatized some of our numbers to recognize the landscape that exists today. And we'll see how the market plays out as we go forward.
Susan Maklari
Okay. That's very helpful color. Thank you. And my follow-up is, shifting to capital allocation, appreciating all the detail that Diane gave in her commentary around that. As we sort of look out and we think about, the community count growth and obviously the overall growth that you're sort of building and ramping the business too. Can you talk about how you think about also balancing that with the shareholder returns and improving the overall return profile of the business, even as you kind of aim for a faster growth pace?
Stuart Miller
What is it that you want me to compare to? I missed that part, the first part.
Susan Maklari
Well, just sort of thinking about as you are obviously investing for growth going forward, right, but at the same time, it seems like you're a lot more focused on shareholder returns as well. And thinking about the considerable buyback you did this quarter, how should we think about that going forward and your continued diligence and dedication to the shareholder return piece?
Stuart Miller
Okay. So look, I think, we've made it clear in the past, and I think our fourth quarter performance relative to share buyback made it even more clear. We're in a cash generation mode. We are clearly generating a lot of excess cash. And we're not shy about opportunistically jumping into the market and making strategic purchases, I think that you can expect that to continue as we go forward. We're laser focused on returns.
We're very focused on bringing our asset base down, as we amp up our bottom line returns. And I think that you've heard that as a strategic message, you're going to see it over and over again in execution. And I think that there's a balance, we're going to pay down debt, we're going to limber up the balance sheet. You can expect that we're going to pay down the debt that's coming due over the summer, what is it $575 million. We're going to pay that out of cash flow, but we're going to continue a stock buyback program as we focus on those bottom line returns.
Susan Maklari
Got it. Okay, thank you. That's very helpful. And good luck.
Stuart Miller
Okay. Thank you.
Operator
Thank you. Our next question comes from Truman Patterson from Wolfe Research. Please go ahead.
Stuart Miller
Good morning.
Truman Patterson
Good morning, everyone. And thanks for taking my questions. I appreciate it. Stuart, in your prepared remarks, I believe you were talking about the SpinCo being somewhat asset light, and I think you even mentioned potentially liquidating a portion of it. Is the asset spin still going to be about $5 billion to $6 billion? And then, in tandem with you are targeting 65% option land by the end of this year. Where do you think this could go after the Spin 80% plus? And with that I'm kind of thinking just longer-term, over the next two, three years, I mean, is there any possibility, maybe you getting 80%, 90% option land?
Stuart Miller
So, we're going to take that in stride and let's play that out over time. I don't want to get out over my skis. Your first question relative to the SpinCo, we have been -- you have to -- as we've configured SpinCo, we've gone back and forth on an asset heavier asset, lighter approach. We think that in terms of defining the company going forward a best program going forward as an asset light approach to SpinCo. That means that many of the assets that we targeted at the outset, will end up either in AUM or we will liquidate an orderly course on Lennar books.
It's still the same basic configuration of asset base. We've just been -- it's all been about turning assets into cash, and deploying the cash or deploying the assets, so that we lighten up our inventory and we end up with a spun ancillary business program that enables our pure play focus on homebuilding and financial services.
So it's kind of a zero sum game. The asset base is still the same, it's just where the asset is going to fall, is going to fall balance sheet, AUM or liquidation, and all of its going to basically solve through the same equation.
Truman Patterson
Okay. And, for my follow-up question, you all I believe are guiding the low double digit community count growth in ‘22. Over the past four quarters, you've been starting about 4.5 to five homes per community per month. Are you pretty comfortable with this range going forward as you open more communities, just given all the constraints in the market? And, hypothetical internally, do you have the act of land and labor available to possibly move above that range if the material supply chain begins improving throughout 2022?
Stuart Miller
Let me invite Rick and then Jon to weigh in on this.
Rick Beckwitt
Yeah. So on the community count, I think, as I said in my remarks, we're really well-positioned right now. Why we'll dip a little bit in Q1, it's really just a timing issue. It's tough to map some of these things out over a 12 or 24-month timeframe. But we will see solid growth in the back-half of this year starting in Q2.
And based on our land pipeline, we're pretty comfortable that we'll see continued growth in ‘23. As I said, we increased our overall owned and controlled pipeline land position by 44%, year-over-year. That's a lot of work from our teams. And all of that really increase came from option contracts. So it's remarkable repositioning and change in direction of the ship, all during a time period where we're really driving growth.
I'll let Jon talk about start pace, because I think we're pretty comfortable.
Jon Jaffe
Yeah, we're very comfortable that we'll be able to look at ‘22 as an increase since starts over ‘21. So that some of that typical seasonality with Q2 being our strongest start quarter. But I think as we look across our platform, we are well-positioned with our relationship with our trade partners to be able to manage a very healthy start pace, and to the extent that we do see more stabilization relative to the supply chain.
I think what you'll see is a tightening of the cycle time more than the increasing start pace. And we're already planning on maintain a very disciplined approach to our start pace. What we'll pull in is the cycle time from the extended periods that we're seeing now.
Truman Patterson
Okay. Thanks for that. And good luck on the upcoming year.
Stuart Miller
Thanks.
Operator
Thank you. Our next question comes from Mike Rehaut from JP Morgan. Please go ahead.
Mike Rehaut
Thanks. Good morning, everyone. And thanks for taking my question or questions. First, just on the gross margins, I think the guidance initially last night, maybe earlier this morning caught a some people off guard. With the first quarter down sequentially, certainly is it consistent though with your before ‘21, you had a consistent sequential decline.
I was hoping to delve into number one, if you could kind of break out perhaps what was the incremental negative headwind, in terms of lumber? I believe you mentioned that, you expect peak lumber costs in the first quarter versus just the reduced overhead leverage.
And as you think about the full year guidance, I think, more importantly even what are some of the drivers there in terms of upside or downside. And the lumber costs assumption for the back half of the year.
Stuart Miller
So let me start by saying that our margins are very strong. When you look at the first quarter, you're basically looking at peak lumber, and you're getting to the edge of peak lumber, as we fall into the second quarter, where it really starts to moderate. And number two, you're really looking at leverage relative to field expenses. So, you see a little bit of a minor down in the first quarter, but our margins are still coming in at a very strong level. And you see that in our look forward to 2022.
And, I’d just say that, like relative to looking ahead, it's always difficult to look at numerous quarters particularly in the market, where labor and materials and logistics are moving around. I think that we feel pretty optimistic about our margins as we go forward. And I think you see the beginnings of that reflected in our year-end or our total year 2022 projections, or forecast.
Jon, you want to weigh in?
Jon Jaffe
I think you pretty much covered it. The peak pricing of lumber will hit us in Q1, and then we'll start benefiting from significantly lower prices. And, if you follow what's happening in lumber now, we'll probably see some uptick as we look at lumber purchases in the first, second, second quarters that will impact some the back-half of the year, but likely offset by what we spoke about in terms of very strong spring selling season, which should increase our ASP to offset that.
Mike Rehaut
Right. Okay. No, that's helpful. Thank you for that. Secondly, if I could just a couple of clarifications on earlier questions. Number one around the share repurchase, it seems like you have a lot less wood to chop in terms of debt pay down this upcoming year, at the same time, presumably, you'd have a higher amount, equal to higher amount of cash flow. Everything else equal that that would point to potentially a greater amount of share repurchase in ‘22. I just want to make sure I'm thinking about that right.
And just lastly, on the Spin that it did sound like in an answer to Truman's question, you're kind of still expecting to offload about $5 billion to $6 billion of assets one way or another, if I heard you right?
Stuart Miller
Okay. So the answer to question one is, as I noted, we will continue to buy back stock on an opportunistic basis. I don't think there's any flaw in your thinking as to order of magnitude of cash flow, and how we're situated to be able to do that. I don't want to speak specifically about stock buybacks, I don't want to kind of lay out a roadmap, but we're going to do that opportunistically and we have significant cash flow as we look forward.
As it relates to number two, the answer is yes, that's the answer that we gave. But basically laid out three buckets, it's either going to be balance sheet for SpinCo, AUM within SpinCo, or liquidation with cash flow enabling greater stock buyback, and that’s how we're focusing on it.
Mike Rehaut
Great. Thanks so much.
Stuart Miller
Okay, Mike.
Operator
Thank you. Our next question comes from Stephen Kim from Evercore ISI. Please go ahead.
Stephen Kim
Yeah, thanks a lot, guys, lots of good info here. I wanted to start by talking about the supply chain and your cycle times. So if we just did this ratio, we compared your fiscal ‘22 closings guide full year closings guide to what you actually did in this past fourth quarter. And we looked at that through time. And what we see is that your guide is assuming a ratio or a multiple of 4Q ‘21 closings, that's pretty consistent with previous years.
But given how unusual and crazy the supply chain was in 4Q, and your earlier comments that you think that it's going to start to get better. I'm kind of curious why you're not expecting that you could close more homes, relative to what you just did in the 4Q than in prior years?
And then at a higher level, once your cycle times do stabilize or even contract, I'm curious how you're going to bounce orders relative to your production? Like, should we expect to see order growth reaccelerate, while your backlog turnover stays kind of low? Or, should we expect to see your turnover rates increase and your order growth continue to remain constrained for a while?
Stuart Miller
Jon, Rick.
Jon Jaffe
So, I think Steve, we've just taken a straight shot look at what we know today about our cycle times and projected production. As I said in my response to the prior question, if we do see the stabilization, I think what you'll see is a reduction in our cycle time versus our material pickup in our start pace. And if that does happen, we should lead to a pickup in closings.
Relative to sale, this sort of comment, as Rick commented, we see a very strong sales environment. So to the extent that we change our start pace, not a closing pace, but our start pace, we would adjust our sales pace to match that. But as I said, I don't see a lot of upside in terms of increasing start pace. So I would think our sales would remain pretty consistent with the way that we planned them.
Stephen Kim
And then price will just be the thing that sort of equalizes that?
Jon Jaffe
Right. I just don't see any reason to sell ahead of how we're starting homes.
Stuart Miller
Rick.
Rick Beckwitt
Yeah, we could sell another 1,000 homes in the quarter if we wanted to without too much effort, it just doesn't make sense to do that. Jon and Stuart are exactly right. Does it make sense to get over skis, but we're good skiers, the market starts to improve a little bit. And the supply chain normalizes itself out, we'll close more homes. It's just the reality of the situation.
Stuart Miller
So Steve, let me just add to this and say, at the end of the day, the math would indicate just simple math would indicate that you're right. We've pushed some closings from 2021 into ‘22. We've increased starts through the year. And there should be higher closings and opportunities to sell kind of as we go forward. The choppiness of the supply chain really tells us to stay on the conservative side, until we see what the market actually does, and how things actually play out.
So if you just sit down and look at the math, I understand your question, it's an excellent question. But if you look at the way the market is playing out, and how cycle times are moving, and the whack a mole kind of environment that we're in, we're just going to let it play out not get over our skis, as Rick says.
Stephen Kim
Yeah, makes perfect sense. And I believe you actually used a derivative of conservatism in your opening remarks. I think you said you conservatized some assumptions in your guidance. And so I wanted to pull on that thread a little bit that conservatism thread. Last year, your gross margin ultimately exceeded your initial guide by about 300 basis points. And despite the fact that there was this massive, unforeseen spike in lumber costs and scrambling costs from the supply chain and all that. And so, you've addressed the lumber a little bit in the fact that the first quarter is going to have a little bit of a headwind. I assume you meant by that, that the $4.18 increase is going to be bigger in the first quarter. I just want to confirm that maybe Diane, you can confirm that.
But then the other big part of it is home price, right. So nationally, home prices look like they're still rising at about 1% a month, you just mentioned that you think a strong selling season is going to drive your ASP higher. But your ASP guide for the full year 2022 is actually below the order price that you booked this quarter. And I'm wondering if there's anything specific that is driving that or again, if it's just conservatism incorporated in your outlook?
Stuart Miller
Let me just say and I'm sorry, Rick, for stepping on you. But let me just say that we are a little bit shy about projecting too much ASP growth. And I think that, it's going to be interesting also to see what happens with interest rates, which I don't know how to factor in either right now. I kind of like, what we're looking at and what we're projecting, I feel pretty good about our ability to accomplish and maybe exceed some of those metrics.
Rick, I stepped on you, I apologize.
Rick Beckwitt
Yeah. And I agree with exactly what Stuart said that there's a good feel in the market. As I walk through the markets, there's market strength in all product categories. We're seeing strength, it's all about getting the homes built, and reducing that cycle time. Sales price, we have good room in sales prices. Some of the ASP is a higher percentage of deliveries in the Texas markets, which are a little bit lower price markets. But we'll see how the year progresses.
Jon Jaffe
And Steve, answer to the first part of your question is yes, Q1 should be the peak lumber prices. And by the end of the quarter, we'll start to see them fall. But overall for the quarter, it'll be up from the fourth quarter.
Stephen Kim
Okay. Thank you very much, guys. Appreciate it.
Stuart Miller
Thank you, Steve.
Operator
Thank you. Our next question comes from Alan Ratner from Zelman & Associates. Please go ahead.
Alan Ratner
Hey, guys, good afternoon now. And thank you for taking the questions. First, I'd love to expand a little bit on that pricing conversation you just had with Steve. I totally understand the conservatism there not wanting to get too bullish, especially with the uncertainty on the rate environment. But, if I look at your ‘21 pricing a while you guys obviously grew prices at a very nice rate. And certainly, based on your margin, it looks like you took advantage of the strong pricing environment.
The growth was a little bit less than some of the other builders. And I'm curious if there's any -- when you look at your business on the pricing side, are there any actions you guys are taking, recognizing affordability constraints where you're trying to offset maybe apples-to-apples price gains with either building smaller square footage product, maybe moving out into some more affordable sub-markets as a way to keep your product more affordable? Or, am I reading too much into that and you'll tell me, no, it's just a mix of deliveries from quarter to quarter?
Stuart Miller
Rick?
Rick Beckwitt
Well, it's a combination of all those things. As we move out to some other markets that are a little bit further out those are generally the lower priced compared to sort of the more infill style. We are adjusting and building a smaller footprint in many of our markets. And, Jon and I constantly balance with the team pace and price. And you'll continue to see good ASP growth.
Jon Jaffe
I think, also, as Rick mentioned earlier, I don't think it's a quarter-to-quarter mix as much as Rick and I and the divisions have been very focused on driving down the price curve as we deal with affordability. So we're consciously trying to produce product that is a smaller, more affordable, as well as a significant focus on picking up our market share in Texas, which does drive better ASP.
Alan Ratner
Perfect. Thanks for the color there, guys. Second question on the land strategy, the lot count. You guys highlighted the 40% plus growth in total lots controlled, and you're not necessarily unique in that standpoint. I think the public builders as a group are probably up 30%, 40% year-over-year, so clearly there's a huge push for tying up more land. And, on one hand, it's all tied up through option contracts, which is great, because it's obviously capital efficient.
But on the other hand, it doesn't seem like the markets going to be capable of delivering that type of growth anytime soon. So effectively, the way I look at the tail of your land supply is effectively continuing to grow, unless we could just see these huge bottlenecks resolved here over the next year or two. And, while it's off balance sheet, you still do have a billion dollars more of capital tied up in option deposits today than you had five or six quarters ago. So it's not completely asset free or capital free.
So I'm just curious, should we expect that growth to maybe start slowing here? Or, are you comfortable effectively growing that tail, because you want to have your kind of arms around all corners of the market for when the market does resolve itself from these constraints?
Stuart Miller
Look, I would say, Alan that on an overall for all homebuilders basis, the math and your questions probably hold water. And the positive side of that is, this market is not going to enable there to be a sizeable overbuilding, which has been an overhang in past cycles. On the other side, I think that if you look at our land strategy and programming, I think that the land market is definitely constrained. But I think that given our position in our strategic markets, we're just going to be able to outperform, and I think that we're really positioned to be able to do that.
Rick, you want to weigh in on that?
Rick Beckwitt
We feel very comfortable with what we've done, feeling incredibly comfortable and pleased with the relationships that we've established across the U.S. with just some incredible land folks, regional developers. And that's what's really propelling this, it's given us an opportunity to get involved with some larger communities that are battleship communities that will have multiple price points and products going at various points in time, that have the ability to feed on themselves. I just really couldn't be more pleased with where we are right now.
Alan Ratner
All right. Thanks a lot, guys. I appreciate it.
Stuart Miller
Thank you. And let's make the next one the last question, please.
Operator
Absolutely. Our last question comes from Matthew Bouley from Barclays.
Matthew Bouley
They totally didn't answer that. Hey, sorry, that wasn't me. Thanks for squeezing me in here, and congrats on the quarter. So just a clarification around what's assumed in the guide related to supply chain. So you mentioned in the Q&A that you're embedding conservatism in the guide. But I think at the top, Stuart, you mentioned in the second-half that you do expect some I think you said mitigation in the supply chain disruptions.
Just curious, as we think about closings and community guide, kind of what degree of contingency is built into that guide? Or, is there an assumption within the guide that that supply chain does get better somewhat? Thank you.
Stuart Miller
So you're right. I did daylight that the second-half of the year, we expect to see some stabilization in the supply chain. And what we basically daylighted is that it's self-imposed stabilization, meaning we've increased the number of starts in order to be able to accommodate the fact that the cycle time has expanded, deliveries are somewhat impaired. I think the supply chain disruptions, I can't predict what's going to actually happen in the field.
But what we've done is we've put buffers out there in increased starts, our builder of choice program working with our subcontractor base or our building partner base, to activate kind of safeguards and programming to enable a better delivery system and logistics system. And additionally, our Everything's Included program, really reducing the number of skews in our product offering is working to our benefit and helps with our builder of choice program to really create embedded buffers that I think are going to really position us well in the second-half of the year.
So, your question is what kind of conservatism have we injected. I think that we're kind of expecting more of a steady state program through the year. We're certainly not getting over our skis and expecting that everything will stabilize, and rise to the level of perfection as we get to the second-half. I can't give you a number in that regard. But conceptually, we've taken a conservative approach to looking to the remainder of the year. But we think that the market is going to stabilize that at least on the supply chain side.
Matthew Bouley
That's great color. Thank you for that, Stuart. And then last one on the gross margin guide, just to clarify the cadence here. Assuming, obviously the normal step down in Q1 with fixed field expenses. And simply looking at the math for getting to the full year guide, it's almost like assuming a normal levering of your fixed expenses as you go through the year without really much else that different is simply doing the math. So I'm just curious between you mentioned clearly lumber tailwinds emerging as you get to Q2, I'm wondering if there's any other pressures to the gross margin that we should be aware of.
Rick, you just mentioned more mix to Texas, lower priced homes, for example, or perhaps the mix of delivering option lots. Just what other headwinds might be part of that gross margin guide? Thank you.
Stuart Miller
Well, look, I think that you have a number of crosscurrents in just the cost side of the equation. Yes, lumber is moderating and we're going to bypass the first quarter’s peak. But at the same time, you have pressures from labor and materials in other areas that are clearly offsets to the benefit that we'll get from the lumber reduction. So, the cost side of the equation is moving around. We'll still have to see where ASP goes. And you're correct, that when you start to normalize our field expense and lumber starts coming down, there's somewhat of a gap in some of our numbers. But we're going to have to see how that gaps filled by the other traditional areas where costs are going up.
Don't underestimate what's happening in labor. In a constrained labor market, you got to pay more. And sometimes to get things done, you got to pay a lot more. Same thing on logistics. So that's what's happening in the field right now. You can't predict it. All we can do is lay out our expectations. And that's what we've done.
Matthew Bouley
Great. Well, thanks. Good luck and happy holidays.
Stuart Miller
Okay. Thank you. Thank you very much. So let's leave it there. Thank you, everyone for joining us. We look forward to reporting 2022 quarter by quarter. And we expect a very positive record breaking year from 2022. Thank you.
Operator
Thank you, all for participating in today's conference. You may disconnect your lines and enjoy the rest of your day.
