Value Questions Circle Lennar

Lennar's(LEN Quote - Cramer on LEN - Stock Picks) sale of a chunk of its land portfolio at a steep discount boosts liquidity for the homebuilder, but it also points to troubling signs about the stock's valuation.

The company sold its land to Morgan Stanley(MS Quote - Cramer on MS - Stock Picks) at a 60% discount to book value. That raises the question: What if all of Lennar's land is worth 60% less than what is stated in the company's financials?

If that's the case, Lennar's stock is wildly overpriced.

The Morgan Stanley deal highlights how much land values are plummeting across the country. The discount falls within the range at which builders are shopping deals to real estate vulture funds, sources say.

KB Home(KBH Quote - Cramer on KBH - Stock Picks) and D.R. Horton(DHI Quote - Cramer on DHI - Stock Picks) are also said to be searching for similar deals to the one Lennar has pulled off, one industry source says.

The agreement, announced late Friday, is structured as a joint venture in which Lennar will keep a 20% ownership stake. The two parties will jointly acquire, develop and sell the properties, which consist of 11,000 home sites in 32 communities in California, Colorado, Florida, Illinois, Maryland, Massachusetts, Nevada and New Jersey.

The properties, which include raw land and partially developed home sites, carried a book value of $1.3 billion and were sold for $525 million, Lennar said. Since the properties are being sold at a loss, the deal will likely create tax write-offs for the builder.

« Previous Page

1 2 3

Next Page »