Wednesday, February 6, 2008

Lennar's $800 million tax refund!

In today's WSJ Heard on the Street column they had some good things to say about Lennar's land deal with Morgan Stanley:

"Lennar Corp. has found a way to salvage something from the huge losses it incurred by overpaying for land during the housing boom.

Late last year, the Miami-based home builder sold a big swath of land -- about 11,000 home sites -- for $525 million to a partnership that it formed with Morgan Stanley. At first glance, the deal seemed terrible for Lennar which had the land valued on its books at about $1.3 billion.

But the deal's structure allowed Lennar to recognize a big loss that it applied against taxes paid the previous two years. The result: Lennar is expecting a tax refund of more than $800 million, according to the company's annual results filed in late January.

As an added bonus, because of the way Lennar and Morgan Stanley structured their partnership, Lennar still effectively owns 20% of the land, according to the company. It also has a 50% voting interest in the partnership, meaning it will have a say in how the land is developed."

Remember when this land was originally sold? The street was saying Lennar was selling it for just .40 cents on the dollar. I begged to differ.

Looks like the deal is even better than that! With the stimulus plan being voted on in the Senate, losses could be applied against taxes paid for the past five years, so look for more deals on the home builders.

DH Horton (DHI 15.45) which reports earnings tomorrow, could be a huge beneficiary; and with Toll Brothers reporting bleak earnings and outlook, and trading higher, it means you have to take DHI today.


Anonymous said...

Ah! I'm so glad this was poste| There have been tons of different
information blogged about, this dispells, puts to rest
a lot of what I've seen.

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