Joe Raedle

Warren Buffett’s Berkshire Hathaway bought more shares in US homebuilder Lennar (NYSE: LEN and LEN.B) on each of the 10 trading days from September 17 to 30, spending about US$400 million in total. As of September 30, Berkshire held about 26.03 million Class A shares and 553,000 Class B shares, or roughly 26.59 million shares in all — almost double the approximately 13.4 million shares it held at the end of June. Based on a share price of about US$80, the stake was worth roughly US$2.1 billion (about HK$16.5 billion).

The purchases were disclosed in three batches. Berkshire bought about US$212 million worth of shares from September 17 to 21, followed by another US$136 million from September 23 to 25. It then bought about US$53.8 million worth from September 28 to 30, with most of that amount concentrated on September 30, when it purchased 639,000 Class A shares for about US$52.1 million.

The figures came from filings on Form 4 with the US Securities and Exchange Commission (SEC), rather than from a 13F filing. Berkshire’s stake rose above 10% after its first purchases, making it a “10% shareholder” in Lennar and requiring it to report transactions within several business days. That allowed the market to see each batch of purchases almost in real time. The 13F covering Berkshire’s holdings at the end of September will not be filed until mid-November. Its previous 13F, filed on August 14, covered holdings as of the end of June.

Lennar’s fundamentals were weak when Berkshire began buying. In the third quarter ended August 31, Lennar reported profit of US$284 million, down 52% year on year. Earnings per share fell to US$1.19, or US$1.23 excluding one-off items, from US$2.29 a year earlier. New orders fell 9% year on year to 20,879 homes, while deliveries dropped 3% to 20,840 homes. The gross margin on home sales declined from 17.5% to 15.8%. Lennar had a backlog of 16,857 homes worth about US$6.3 billion. Management expects fourth-quarter new orders of between 19,500 and 20,500 homes, with a gross margin of about 15.5% to 16%. It said 30-year mortgage rates were about 6.8% at the end of the quarter and had risen further afterwards. Lennar shares are down about 19% so far this year.

Form 4 did not explain why Berkshire bought the shares, and Berkshire has not publicly commented. The filing lists Berkshire and Buffett as the reporting persons, but Buffett stepped down as chairman on September 18 and was succeeded by his son Howard Buffett. Greg Abel is chief executive. CNBC said the purchases were more likely to have been made by investment manager Ted Weschler.

Housing is not a new area for Berkshire. The group already owns Clayton Properties Group, part of Clayton Homes, and completed its acquisition of Taylor Morrison on July 24 at an equity value of about US$6.8 billion. Berkshire’s 13F filing for the end of June showed that it already held a substantial position in Lennar Class A shares, in addition to 131,000 shares, and had increased the holding by about 30% in the second quarter.