Lennar to enter apartment rental business

Tue Jan 15, 2013 2:53pm EST

(Reuters) - Lennar Corp (LEN.N), the No. 3 U.S. homebuilder, plans to venture into the apartment rental market to take advantage of a supply crunch, even as rising sales of its single-family homes underlined a strong housing recovery.

While U.S. home sales have been increasing from historic lows, a tight credit market and high unemployment rates have encouraged consumers to rent rather than own homes.

Rents have risen for 12 straight quarters and apartment vacancy rates are the lowest since the third quarter of 2001, according to real estate research firm Reis.

"We believe that our core homebuilding business and our new rental segment are very complementary and that both should flourish in this recovering market," Lennar's president Rick Beckwitt told analysts on a post-earnings conference call.

Lennar began its apartment operations in early 2011 but the division focused on maximizing the value of the company's underperforming single-family land assets by converting them to rental developments.

Lennar plans to start construction on about 3,000 apartment units in 2013 with total development costs of about $560 million, Beckwitt said.

The new business, which will compete with well-established players such as Equity Residential (EQR.N) and Avalon Bay (AVB.N), will start adding to profits in 2014 or 2015, Lennar said.

Earlier in the day, Miami-based Lennar reported a sharp rise in quarterly profit and a seventh straight jump in new home orders.

Shares of the company, however, fell 2 percent on concerns that growth in orders was slowing and that part of the gain in profit had come from a one-time reversal of a deferred tax valuation allowance.

ORDER GROWTH

The U.S. housing market, which fell into a deep rut six years ago, has been recovering as low interest rates prompt consumers to buy homes.

Home sales and prices are rising, encouraging builders to undertake new construction projects.

Lennar delivered 4,443 homes, up 32 percent, in the fourth quarter, while the average selling price of the homes delivered rose 7 percent to $261,000.

CEO Stuart Miller said Lennar was "extremely well positioned" to gain market share in 2013 and that the company expects to be strongly profitable.

Orders rose 32 percent to 3,983 homes, while its backlog at the end of the quarter was worth $1.2 billion.

However, order growth fell short of the third quarter when they grew 44 percent from low 2011 levels, spooking investors who had sent the stock up sharply in anticipation of strong results.

Lennar's stock, which doubled in value in 2012, was trading at $40.19 on Tuesday on the New York Stock Exchange.

(Reporting by A. Ananthalakshmi in Bangalore; Editing by Supriya Kurane and Roshni Menon)