Lennar Corp. on Monday restated its first quarter earnings to account for a possible $140 million hit related to litigation.
The Miami-based homebuilder said that rather than the $130.8 million, or 56 cents per share first quarter earnings it previously reported, it is now reporting $38.1 million or 16 cents per share.
Lennar said that since it released earnings on March 21, the United States Court of Appeals for the Fourth Circuit held oral argument in an appeal in connection with the litigation. Based on the hearing, the company said its assessment of the probable outcome of the litigation has changed, and it now believes it is appropriate to record a one-time charge of $140 million.
Lennar said the accrual represents the high end of the range of its expected liability, and it is required to record the litigation accrual as a charge against pre-tax earnings in its first quarter. In addition to the accrual, the company would purchase the property that is the subject of the litigation for $114 million, it said in a release.
Lennar CEO Stuart Miller said in a statement that as the company has previously disclosed, it has been entangled in litigation since 2008 regarding whether it is required to purchase a property in Maryland. The property was put under contract in 2005 for $200 million. But after signing the contract, the company later renegotiated the purchase price during the downturn to $134 million, $20 million of which had been paid and subsequently written-off. That left a purchase price balance of $114 million.
In January 2015, a Federal District Court issued a decision, ordering Lennar to purchase the property for $114 million and to pay interest at 12 percent per year from May 27, 2008, or $13.7 million per year. It also ordered the company to reimburse the seller for real estate taxes and attorneys’ fees.
Miller said the company had appealed the decision and had not recorded a liability. “Based on our assessment of the March 23, 2017 oral argument referenced above, we now believe that the company should record an accrual for this litigation,” he said in the statement. The appellate courts final decision is still pending and could result in a lower amount than the company’s accrual, he added.
In January, Fitch Ratings assigned a ‘BB+/RR4’ rating to Lennar’s proposed offering of $350 million in senior unsecured notes, which the company expected to use to help fund its acquisition of WCI Communities, which it completed in February, and to possibly repay debt. The notes, due 2022, were given a rating outlook of “positive.” The ratings are in line with Lennar‘s existing debt.
Lennar has been actively buying land in Miami-Dade County. In December, a Lennar affiliatepaid $51 million for more than 100 acres near the site of the planned American Dream Miami mega-mall. The same affiliate paid $41 million in January 2016 for 130 acres immediately south of that site, as well as a 143-acre site in Miami Lakes. — Ina Cordle