David Collins - Controller Stuart Miller - CEO Bruce Gross – VP and CFO Diane Bessette - VP and Treasurer Rick Beckwitt - President Jon Jaffe - VP and COO Jeff Krasnoff - CEO, Rialto Capital Management

Stephen Kim - Barclays Stephen East - ISI Bob Wetenhall - RBC Capital Markets Michael Rehaut - JP Morgan Alan Ratner - Zelman & Associates Jade Rahmani - KBW Buck Horne - Raymond James Susan Maklari - UBS

Welcome to Lennar's Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to David Collins for the reading of the forward-looking statements.

Thank you and good morning, everyone. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in this morning's press release and our SEC filings, including those under the caption Risk Factors contained in Lennar's Annual Report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.

Now I would like to introduce your host, Mr. Stuart Miller, CEO. Sir, you may begin.

Great. Thank you and good morning everyone. Thank you, David, and thank you all for joining us for our second quarter conference call. This morning, we are in New York City at our Rialto Capital office for our Board meeting yesterday and for today’s conference call. I'm joined by Bruce Gross, our Chief Financial Officer; David Collins, who you just heard from; and Diane Bessette, our Vice President and Treasurer. Rick Beckwitt and Jon Jaffe are here along with Jeff Krasnoff and other members of our management team as well. Some will join in for our Q&A period. This morning, I'm going to be very brief in my opening remarks, as I feel that our views about the market have been consistently expressed on prior calls. Bruce is going to jump in and breakdown our financial detail and then, as always, we'll open up for Q&A. And as always we'd like to request that during Q&A, each person please limit yourself to one question and one follow-up. So, let me go ahead and begin and begin by saying that we're very pleased to report our second quarter results, as we continue to perform consistently across our platform. Our performance reflects our excellent management teams, some of whom are here with us this morning, executing their well-crafted operating strategy in a solid macro environment. As we’ve grown our business in the wake of the economic downturn. Lennar has become not only the most profitable homebuilder in the business, but we continue to grow and mature our additional business segments that represent significant opportunity for the future. Simply put, Lennar has become much more than just a homebuilder. With that said, it’s still the home building macro environment that defines our core operating strategy across our company. As we noted in many of our prior conference calls, and some of our other public statements, we continue to believe that we are still in the early stages of a multi-year, slow but steady housing recovery. This year’s spring selling season confirms that the market is continuing to improve at a very consistent pace. Over the past couple of years in our conference calls and public statements, we’ve noted a number of themes that define the uniqueness of this recovery, and they’ve informed our operating strategies. Let me briefly review some of those themes: First, the production deficit of both rental and for sale homes relative to the need for housing in the United States continues to create pent-up demand against a very limited supply. Without a dramatic increase in the number of homes built in this country, we will continue to be short dwelling units per growing population, supply is limited and demand is building. Next, the regulatory environments for mortgages remains challenging and limits the number of entrants for the for sale market. QM and QRM rules together with ATR, the ability to repay rules, continue to restrict qualified purchasers from accessing the mortgage market. While these rules have been evolving and easing at the margin, they have exacerbated and already impaired consumer psychology to create a perception that home ownership just might not be desirable. Demand is slowly coming back to the market. Third, the millennial generation is changing a lot of thinking. Their attitudes are proving to be different and the doubling up of the millennials during the downturn will ultimately unwind and give way to household formation. We’ve already seen evidence that this is beginning to happen and household formation is beginning to grow. While new households might not be able to or desire to purchase a home, they will need a place to live and rental might be their only option. Fourth, first time purchasers have begun coming back to the housing market more slowly than expected and more slowly than they have historically. They’ve had the most difficult accessing the mortgage market, credit limitations have been most constraining to the first time buyers, and although that is beginning to open up as many have reported, they are not yet jumping in to the market place and they are also the most susceptible to price and interest rate increases. Finally, a slow steady recovery with limited land supply and limited access to capital, constrains the number of smaller, less capitalized home builders that can compete for the smaller demand. This has enabled the larger better capitalized builders to pick up a larger portion of the smaller pie. Overall, this is a very favorable environment to be a well-capitalized national home builder. We have believed and continue to believe that the down side in the housing market is very limited and the up side is very significant. We believe that the market is downside supported by the production deficit that has yielded a limited supply of both rental and for sale housing in the country. Any pullback in the housing market will be short lived as there is a need for shelter across the country and there’s very little inventory and almost no likelihood of mortgage foreclosures given the stringent underwriting standards of the pas years. And while demand has remained constrained, buyers have continued a steady return to household formation and home ownership as the market opens up, driven by consistently low interest rate and now higher wages and lower unemployment. These are the themes that have continued to define our operating strategies across the company. In home building, we have continued to focus our attention primarily on the higher end first time buyer and the move-up market, as our average sales prices reached an historical record high of $348,000 this quarter. While approximately 25% of our home building business continues to be geared to first time home purchasers, our broader new household strategy has been aimed at the rental market. Our $6 billion apartment strategy is proving to be very well timed, as rental rates are soaring and vacancies are at historical lows, driven by supply-demand imbalance. Our financial services group has continued to expand alongside our primary housing business, while we’ve expanded our retail platform to become the 5th largest retail, non-bank lender in the nation, and we are able to capture an expanded share of the refi business as it exists. With that large scale infill community strategy in five points, we’ve positioned ourselves to benefit from some of the best located land in California, as that market continues to improve. And finally, our Rialto Capital Asset Management platform enables us to invest across real estate and financial product types, as an opportunistic play on this long duration recovery. In conclusion, we are very pleased to present our second quarter results this morning, and we are confident that we have the right people, the right programs, and the right timing to continue to perform this year and in to the future. Let me turn it over to Bruce.

Thanks, Stuart, and good morning. Our net earnings for the second quarter were 183 million, which is a 33% increase over the prior year. Revenues from home sales increased 30% in the second quarter, driven by a 20% increase in wholly owned deliveries and an 8% year-over-year increase in average selling price to 348,000. Our gross margin on home sales in the second quarter was 23.8%, and we are still on track with our goal of 24% for the full year. The prior year’s gross margin percent of 25.5% included a $9.6 million benefit relating to insurance recoveries and other non-recurring items which benefited the gross margin percent by 60 basis points. Sales incentives declined sequentially from 6.3% in the first quarter to 5.8% in the second quarter, and from 5.9% in the prior year. The gross margin decline year-over-year was also due to increase land cost. Year-over-year labor and material costs are up approximately 7% to $52 per square foot. This is consistent with the year-over-year change that we noted in the first quarter. We have a continued focused effort on reducing cost due to commodity declines primarily in lumber, copper and steel. We are still seeing offsetting labor and manufacturing pressures across products and geographies. Our previously stated guidance was to achieve a 15 to 25 basis point improvement in the combined SG&A and corporate G&A lines for all of 2015. In this quarter, we exceeded that guidance as SG&A improved 80 basis points over the prior year. This was primarily driven by operating leverage resulting from this quarter’s organic growth, as our 30% increase in home sale revenue came out of our existing 31 home building divisions. Our corporate G&A lines was 2.1% as a percentage of total revenues. The operating leverage on this line was offset by increased investments in technology, as we are focused on improving productivity in all aspects of our business. Gross profit on land sales totaled 3.5 million versus 5.6 million in the prior year, and equity and earnings from unconsolidated subs was 6.5 million in the second quarter, which was primarily driven by the sale of commercial land at our El Toro joint venture to Broadcom. This was partially offset by operating expenses and other joint ventures. Other interest expense declined year-over-year from 10.3 million in the prior year to 3.8 million in the current quarter. This quarter we opened 96 new communities to end the quarter with 667 active communities. Our sales pace improved to 3.8 sales per community per month in the second quarter versus 3.7 in the prior year, and in the second quarter, we purchased approximately 6000 home sites totaling 445 million versus 379 million in the prior years’ quarter. We have been continuing to focus on targeting shorter duration land purchases as part of our soft pivot strategy, however this quarter it also included the strategic acquisition of a mixed used parcel totaling 151 million adjacent to the Tesla car plant in Fremont, California. Our home site count for owned and controlled now totals 168,000 home sites, of which 133,000 are owned and 35,000 are controlled. Our completed unsold inventory ended the quarter with approximately 1000 homes which in our normal range of one to two per community. Our financial services business segment had strong results with operating earnings increasing to 39.1 million from 18.3 million in the prior year. Mortgage pretax income increased to 33.5 million from 16.7 million in the prior year. The increased mortgage earnings were due to higher volume as mortgage originations increased 72% to 2.4 billion, from 1.4 billion in the prior year. The increased volume resulted from a strong refinanced market, as well as further expansion of our retail channel, more home closings by Lennar, and higher capture rate of Lennar home buyers. The capture rate of Lennar home buyers improved to 82% this quarter from 77% in the prior year. The expansion of our retail channel has positioned us to capitalize on the strong refinance market this quarter, refinance volume increased by over 300% versus the prior year to 450 million in originations. However approximately 80% of our total originations this quarter were related to purchase volume. With the recent increase in mortgage rates, we don’t expect the refinance activity to continue at the pace of the first half of this year; however we are still well positioned to capture additional purchase business as the housing recovery continues. Our title company’s profit increased to 5.1 million in the quarter from 2.2 million in the prior year, primarily due to higher volume and benefits from strategic initiatives including closing of less productive branches over the past year. Our title team continues to focus on maximizing the title opportunities within our ancillary businesses. Turning to Rialto, our Rialto business segment generated operating earnings totaling 7.6 million, compared to 13.4 million in the prior year. Both amounts are net of non-controlling interest. The investment management business contributed 30.4 million of earnings which includes 7.3 million of equity and earnings from the real estate funds and 23.1 million of management fees and other which included 4.8 million of a carried interest distribution from Rialto Real Estate Funds to cover the income tax obligation resulting from the allocations of taxable income to Rialto. The carried interest for Rialto Real Estate Fund I under a hypothetical liquidation now stands at a 108 million. Rialto Mortgage Finance continues to generate consistent earnings. This quarter they contributed 721 million of commercial loans in to three securitizations, resulting in earnings of 29 million for the quarter before their G&A expenses. Our liquidating direct investments had a loss of 3.1 million, and Rialto, G&A and other expense were 41.9 million for the quarter and interest expense including warehouse lines was 7 million. Rialto ended the quarter with a strong liquidity position with over 176 million of cash. Our Multifamily operations continued to grow. We now have over 230 associates located in regional offices nationwide. We ended the quarter with two completed and operating communities, 24 communities under construction, six of which are in lease-up, totaling over 6600 apartments with a total development cost of approximately 1.6 billion. Including these communities, we have a diversified development pipeline that exceed 6 billion and over 20,000 apartments. As expected there were no sales in the second quarter, and we had an operating loss of approximately 8.7 million. Our tax rate for the fourth quarter was 34.2% and our balance sheet and liquidity remained strong, as our homebuilding and cash balance ended the quarter at 639 million and during the quarter we increased our credit facility to 1.6 billion which includes a 263 million accordion and also extended the term to 2019 and reduced the interest rate. There was 450 million outstanding under this facility at quarter end, and our leverage improved this quarter as well by 50 basis points year-over-year, as our homebuilding net debt-to-total cap was reduced to 47.5%. We grew stockholders equity of 17% year-over-year to 5.1 billion, and at quarter end our book value per share increased to $25.04 per share. During the quarter, we issued 500 million of 4.75% senior notes due in May of 2025. This issuance extended our debt maturity ladder, continued to reduce our borrowing rate and further strengthened the company’s financial condition. Finally I wanted to update our goals for 2015. Starting with deliveries; we are increasing our delivery expectations for 2015 to between 24,000 and 24,500 homes. With the recent rains in the central region, we experienced some minor construction delays at the front end of construction and therefore we are updating our backlog conversion ratio to approximately 75% for the third quarter and a range of 90%-95% for the fourth quarter. Second, we still expect our gross margin in 2015 to average 24% for the full year. Our third quarter gross margin is expected to be close to what we just saw in the second quarter, while the fourth quarter is expected to be a little bit higher. Third, we are increasing our expectations on corporate G&A and SG&A leverage, as we are now expecting potential improvement for these combined categories to 30-40 basis points at you look at the full 2015 fiscal year. Fourth, financial services, we are increasing our goal for financial services earnings, to earn 100 million to 110 million for the full year, included in this increase guidance is the expectation of some cooling in the strong refinance market in the second half of this year. The remaining quarterly amounts are expected to be spread similar to last year. Rialto is still expected to generate profits between 30 million and 40 million for the year and that’s weighted a little more heavily to the fourth quarter, and our Multifamily operations as we’ve seen strong rent growth in our lease-up communities, our partners have decided to maximize the sell price in two of our rental communities and therefore we are moving the sale of two communities in to early 2016. We are now expecting three communities to be sold in 2015, one in Q3 and two in Q4. We expect a small loss in Q3; however, Q4 should mark the start of consistent quarterly profitability for our Multifamily segment. Next our joint ventures in land sales we continue to expect closer to breakeven bottom line for our joint ventures in Q3 and Q4 and we are on track with approximately 25 million of wholly-owned land sale profit for the full 2015 with the bulk of the remainder forecasted for the fourth quarter. Our tax rate is still expected to be between 34% and 34.5%, and we are right on track to hit our goal of 675 net communities by the end of the year. With these goals in mind and backlog dollar value up 23%, we are well positioned to deliver strong topline and bottom line growth throughout the remainder of the year. Let me now turn it back to the operator for questions.

[Operator Instructions] Your first question is from Mr. Stephen Kim with Barclays. Sir your line is now open.

Thanks very much guys. Strong results, good to see. Thanks for all the details, well done on the guidance. A couple of questions, the first question I think that’s probably is on everybody’s mind is, with the strong order pace that you’ve seen, if you could provide a little bit of color around, particular market segments I would say, in particular the entry level, what are you seeing there in a way that you could possibly break out for us. And then also surrounding the order question, are you seeing an ability to sort of raise prices within your communities. If you could sort of comment about that because there obviously a lot of mix shift that kind of comes in to play.

Sure, Steve, it’s Rick. I would say that across the board in all product types we are getting pricing leverage. It varies by market and by community, but pretty much across the board we’ve seen pricing power. We don’t know how much longer we’ll be able nudge prices up, and consistently as we’ve done in the past balancing pace and price, but we are seeing pricing power. And some markets are much stronger, California and Northern California we are seeing great strength. We’ve seen good strength in the central part of the United States. Sales prices were actually up in Houston as well. So we are pretty confident that that’s going to continue.

Steve, this is Stuart, a lot of people are asking about the first time homebuyer, and as Rick noted it’s really across the board that we are seeing improvement across markets. That includes the first time homebuyer. We are starting to see the first time homebuyer come back to the market place, but from basically a very flat level of virtually non-existent first time homebuyer to some beginnings of improvement. It feels a lot better, it feels like the first time buyer is coming back but they are not jumping into the market, still constrained by the mortgage market. So we’ll have to kind of sit, watch and wait till the next quarters to see how that first time buyer market continues to evolve. As Rick Noted, you are seeing some pricing power and the first time buyer is probably the most sensitive group to price increases and interest rate fluctuation. So I think it’s going to be a push and pull program for some time to come, as pricing power continue to be pretty strong.

Yeah, absolutely, that makes a lot of sense. Thanks for that. The second question I had, I am going to jump over to the joint venture line. I think you’d mentioned last quarter you are going to have the sale to Broadcom and that building we actually saw that when we were out there. And you mentioned that that gain was offset by some, I think you said expenses in some of the other JVs. Can you just describe was there something that’s sort of temporary in some of those other JVs that were leading to a loss this quarter that offset the gain from Broadcom, am I understanding that properly? And then also was there anything new to talk about with respect to that [parcel] [ph] that you guys were I think one of two finalists for north of San Fran. I forgot the name of the town, but if you could sort of comment on what you are thinking about the prospects for that.

Steve, it’s Jon Jaffe. We are - that’s Concord Naval Station and we are still one of the two finalist; that decision won’t be made probably until September by the City Council.

And then going back to the other expenses on the Joint venture line Steve, we did have some start-up expenses with the shipyard community, as we are just at the very beginning of that, and that was the bulk of the offset and that’s something that you are just seeing at the beginning of that community as deliveries start to kick in later this year, we don’t expect that to continue.

Thank you. Your next question comes from Mr. Stephen East with ISI. Sir you line is now open.

If we looked at just sort of following on with your ancillary businesses, Stuart if you wouldn’t mind walking us through, you talked about the back half of this year, but as you look at ’16 with your businesses, what type of cadence do you get out of apartment sales, land sales coming from your JVs. And what do you still need to do to ultimately monetize Rialto. What type of work do you have left there to recognize some value out of it?

Steve, I highlighted at the beginning of this year, as we came in to this year that 2015 would be a significant statement year for the ancillary businesses, and in each one of them we are seeing significant moves towards maturity. I think at FivePoint, you are starting to see Hunters Point come online. I think Bruce highlighted we’ll see deliveries as we get through the back half of this year. We’ve seen a number of deals start to mature. As we’ve highlighted in prior quarters, and FivePoint is I think a group that most people have gone out and visited and been impressed with that progress. I think as it relates to our apartment communities, the fact that we are postponing two sales of apartments that we had expected to have this year is a distinct positive. We have partners that are seeing the improvement in rental rates beyond our underwritten expectations and they’d like to hold on just a little bit longer. So we are going to benefit from rental income but not from the sales of those as we had anticipated. But we are going to see a recurring program of showing apartment communities as we go into 2016, and to sustain profitability there. And then of course Rialto, I think the exciting part of Rialto is the successful investment of the first two funds along with the mezzanine fund at very attractive return levels that really marks a reputation in the asset management business that is going to lead right in to Fund III. We are not going to begin - we’ve begun our raise for Fund III, and we’ll start to see that to come to fruition in the back part of this year. Each of these programs is getting to a level of maturity, to a point where we can start to see not only monetization on the books of the company, but also strategic positioning for these companies for the future. I can’t speak specifically about that, but I think that as I said at the beginning of the year, you’ll start to see those plans mature towards the back half of this year and in to 2016.

And then if you look at your land strategy and your land spend, you’ve talked a lot over the last year and a half about soft pivot. Can you give us an idea of where you are in that process, how you are thinking about the market over the next few years and what that implies for your land spend not only this year but as you look in to the next couple of years.

Yeah, we’ve spent a lot of time Steve on this soft pivot. A lot of it derives from lessons learned through the last downturn. As the management team and the corporate office and all the way through to the field, we’ve been very focused on shortening what we call, snout and tail, the beginning and ending part of each property that we’re purchasing. And while we still see some tremendous opportunities to purchase strategic land parcels in the market, we were first to the market, we have a strategic advantage in that regard. The Fremont purchase that was highlighted by Bruce is a good example of that. We’ve been very focused on bringing down the duration of land that we are bringing on our books unless we find a really unique opportunity as with the Fremont property. As we go through ’15, we are continuing our soft pivot as we’ve defined it. We are continuing to agitate around that, and we feel that in our primary homebuilding business, as we go in to 2016, we fully expect to be cash flow positive even while we grow, and that is in large part derived from the soft pivot. We expect as we go forward, we are going to see a very strong program evolve, that is driven by shorter land positions and a strong drive to push efficiencies through the system.

If I could ask you just quickly on that duration question, if you look at what you are buying today versus say you rewind two years ago, what would be the duration difference between those?

Well you got to realize that we are looking at averages over a companywide foot print. So the Fremont is an example of a much longer duration property, but I think a very, very exciting purchase. And if you look across the platform our average duration of land is probably coming down by about a year, year and a half on the purchase side, as we sit right now today and as we look forward we think we will drive that duration down even further.

Steve some of the steps that we are doing is contractually. When we were buying at pennies on the dollar several years back, we were prepared to take on balance sheet and close because we got such significant discount to market. Today rather than closing, right now, we are contracting to close a couple of years down and moving the land through the process. So we are benefiting from wholesale pricing today, but don’t necessarily need to come out of pocket for cash until later.

Next question comes from Mr. Bob Wetenhall with RBC Capital Market. Sir your line is now open.

Congratulations on a really strong quarter. I wanted to ask about the conversion rate in 1Q in the last quarter that just passed. It came in higher than our expectations, and if Bruce may be you could touch on, you mentioned rain has been an issue in terms of stopping deliveries at the schedule. How should we think about pace as we move in to the back part of the year.

So Bob we’ve talked about in our central region that this is at the front-end of construction, there was water in parts of Texas and Colorado that delayed some of the start. So, we will catch up but initially we did lower the backlog conversion ration a little bit going in to Q3. But in total, if you look at deliveries for the year, we did increase them by 500 compared to the prior guidance.

Got it, that’s helpful. And I wanted to ask Stuart and Rick a question, which inning of the cycle do you think we are in? You’ve been referencing the soft pivot strategy, so I am just trying to access how far you are in to this cycle at this point in your estimate. And with that being said, it sounds like some very positive commentary around Multifamily business. What’s the outlook for that in terms of retaining it or possibly spitting it out, and what kind of structures are you thinking about? Thanks very much and good luck.

Good, let me take that first Bob and then Rick will follow-up. But I think we’ve said pretty consistently, we think we are in the early stages of this recovery. This has been a slow, steady recovery that’s been defined by pretty shallow levels of production. And those shallow levels of production are creating short supply for a growing demand and we think that as we look ahead, this recovery remains fairly shallow sloped, but consistent for a number of years to come. So we feel that we are still in the early innings of this recovery, and have been guiding our company and strategy accordingly.

Yeah I think that actually goes for the Multifamily segment as well. The demand for rental properties today is off the chart. So we are seeing rent growth and lease-ups much faster than what we’ve under written, which is one of the reasons I would differ to the sales for two of the properties in the next couple of quarters. As we look forward in to 2016 and beyond, we’ve got about 26 properties that have the ability to be sold and monetized during the next couple of years. That doesn’t even bring in to the question, the several billions dollars of pipeline that will be started over the next couple of years. We couldn’t be prouder of the team in what we’ve done there and we are going to have to really see what size that thing can get to and what the best options are for our shareholders.

At the end of the day just last comment on that. At the end of the day, as we’ve noted the first time home buyers just starting to come back in to the market place. They are going to start to come back and that’s going to have that upward ripple effect of affecting first time move-ups, second time move-up. It really has an upward cascade in the market place, as the first time home buyers starts to come back to the market. This is going to be a slow process because of the mortgage market. Again this market has got a lot of legs.

Next question comes from Mr. Michael Rehaut with JPMC. Sir your line is now open.

First question I had was just, may be if possible, a little more granularity on the Texas market. Aside from the floods you were able to put out similar results to last quarter, and just wanted to get a sense, just given that it still is a topic of interest among investors. If you could give us a feel for, last quarter Houston was down 7, this quarter down 9. So a similar rate, if that was driven more by community count or sales pace. And then across the price points or demographic segments, which areas or parts of the market are stronger or weaker.

Yeah, it’s Rick. I will tell you generally Texas is a strong market. Starting in Dallas the markets on fire, we’ve got excellent positions throughout the market and we are benefiting from the strong economy that’s in Dallas, and that’s really at our price point. We have a big entry level position there and we are benefiting from that. We’ve got move-up product and we are all over the price points. Austin and San Antonio are good solid markets, and we are well positioned there. Houston which is in everyone’s focus, its’ about the same market as it was last quarter. If you look at our gross margins, our gross margins actually increased sequentially quarter-to-quarter. Sales were off about 9% this quarter, but we couldn’t sold more homes. We decided to focus on price as oppose to pace and we are going to continue to do that as the market evolves. The entry level market in Houston is strong and getting stronger. When you get to the higher price points in Houston it gets a little bit softer, but that’s not all of the Houston market, it depends where you are. Closer to the oil corridor it’s a little softer. We are seeing huge traffic in the market at those price points. The people are cautious because they don’t know whether they will be laid off or not.

But with all that said, the weather in Houston was interesting this quarter. It was a little rainy, some people heard on the news, and the rains absolutely shut down the market for a number of days during the quarter. There were days where our offices were actually shut down because there was not electricity and the floods were significant. That impacted as Bruce highlighted some of our early stage construction, later construction of course was dried in and we were able to complete those homes. So as we look ahead and as Bruce highlighted, that will affect some of our conversion ratio in the next couple of quarters. But really pretty marginal impact in a fairly strong market.

Appreciate that, and obviously your other regions are doing pretty strong right across the board. So the diversity certainly kicks in as well. Second question, Bruce you had mentioned some of the different line items of guidance and I believer Multifamily you described the strategic position for hold-on. I might have missed it but, could you update what the outlook now is for the Multifamily earnings for the full year, if you could just share that.

For the full year, Mike I didn’t put a number out for the full year, but we’ll be close to breakeven possibly a slight of loss now that we’ve shifted two communities in to early 2016. But I think the key thing is that starting in Q4, we will now have a consistent program with this segment that will generate consistent profitability each quarter going forward.

I appreciate that and of course understand the strategy there. But with that last statement though, there’s been talk around whether you would hold on to these apartments and more, just trying work up a lease-up and cash flow type of dynamic or continue to sell them out. You just mentioned that with Q4 with the sale of two building in Q4 now expected that would be the start of a more consistent cash flow generator. So is there any shift there because I think over the last quarter or two, I think some of us have been hearing the possibility of maybe not selling as much as you were to expect or had initially expected in terms of actually selling the buildings but more holding on from a cash flow standpoint. Just want to know if there’s any, how you guys are thinking about that today.

We highlighted early on with our apartment program that our initial phase would be to define the business through a merchant build type program and that’s what you are seeing us move through right now is a focused merchant build program to establish a platform, to define it in the mind of investor, for people to understand what we were doing and how effective we can be. We are still going through that initial phase right now, but we’ve highlighted that there would be an evolution of this business as we go forward and as have achieved maturity. You are really asking the question that, how will this business mature as a business, what will its prospects be, how will we define a build and hold strategy. And that’s really a question to be answered over the next quarters. I think that we are continuing to identify that merchant build program, but we’ve highlighted that through the course of this year. As this business achieves maturity, we think we’ll be able to bring clarity to how the future will be evolve for the business for this platform. And you can expect that over the next quarters, we will be able to bring that definition to you. As it stands right now, I think that we are starting to identify some elements of certainty as to profitability in the early stage, and over the next quarters we’ll give better definition. With all of that said, I think that what you are seeing is a very credible program, in a well-timed addressing of the market condition as they exist, and we are extremely well positioned to bring that definition to this platform. So you will see that over the next couple of quarters.

Next question comes from Mr. Ivy Zelman with Zelman & Associates. Your line is now open.

Hey guys it’s actually Allen on for Ivy, so I guess this sure does apply here. Congratulations on the great quarter. Stuart you obviously spent a lot of time detailing the ancillary businesses and we hear the excitement there. If we look at the earnings today, I think 80%-80% plus of you earnings still comes from core homebuilding and in towns like here, you are still very bullish and optimistic about the outlook there. So as we look forward two or three years, should we think about that share of earnings between homebuilding and ancillary should that look materially different or are you just kind of expecting these Multifamily Rialto to grow in line with homebuilding and the split between earnings still look pretty similar as we look at a couple of years.

Yeah, so we’ve been very clear that our core business remains our homebuilding and financial services associated businesses. And those will continue to be at the core, the ancillary are opportunities for the future. I think that as we think about our business, our homebuilding business is strong, it has been strong, it’s assumed a leadership position in the homebuilding world, and I think that Jon and Rick has done an incredible job of building a platform that’s continuing to grow and to become more efficient as we go forward. I think that the relationship in earnings, as we look ahead, I don’t know that I can identify exactly what the proportions will be. I think that one of the concerns about the ancillary businesses is that they can tend to be somewhat lumpy in the way that their earnings are presented, and they are not easily modeled. And because of that I am not easily able to model what the relationship in earnings will be as we go forward. But as homebuilding continues to grow, we think that the ancillaries are going to grow also, and we can’t really lay out exactly what those proportions will be.

Got it. I appreciate that. And a follow-up to your comments on the cash flow and in times like, I don’t know, I think ’16 was the year where you expect homebuilding cash flow to start inflecting positively and for the company to be a consistent generator of cash for the next several years. So as you think about the opportunities with that cash, how would you rank where that cash might go between deleveraging M&A, share buybacks, any other potential usage of that cash.

Well, we’ve talked about this in prior calls, so we do expect to be cash generator as we mature the business and those numbers should get bigger over time. We think that the opportunity to deleverage, to return cash to shareholders and to invest further in the platform that we’ve been growing are all equal consideration, and I think we’ll leave those considerations open for when the time comes. But I think that you can expect that we have a balanced mindset and thinking about each of those opportunities and that’s how we’ll run the business.

Next question comes from Mr. Jade Rahmani with KBW. Sir your line is now open.

Wanted to ask about your views on consolidation in both the homebuilding sector as well as in Rialto business lines?

So on the homebuilding side; we did see the Ryland and Stan-Pac combination. Think positively at that. With regard to though and our views on consolidation, acquisition, it’s a tough go for us, because we are I think probably the best land acquisition machine out there. And when you are buying companies today, you are buying land assets, and we had found that we are able to buy those assets through negotiations with sellers at a cheaper price than acquiring the company and paying the goodwill associated with the company. We have continued to look at smaller acquisitions and you can and we’ll continue to do so. But with regards to the larger public companies don’t seem to pencil out for us today.

This is Jon. I would just add that as you look at our geographic landscape, we are well positioned to markets that we want to be in. So we don’t have the need to make an acquisitions to enter new markets or for immediately relative to deliveries. So we are very particular about looking at these opportunities and as Rick said really don’t find that they price very well.

But listen at the same time, there’s an attraction to being part of a larger homebuilder, some of the smaller homebuilders might find that access to capital or [forging] these opportunities, I think that we are going to continue to see consolidation in the industry. There are likely to be larger scale combinations and may be some smaller ones. I think that positions us particularly well. If you ask traditionally about Rialto, I think that one of the most exciting parts of Rialto is that it has become a formidable force in asset management in deploying capital. And the management team infrastructures that Rialto has created is not immediately apparent, but it presents itself as a very attractive combination, M&A kind of platform for a lot of opportunities out there, and we continue to hold Rialto up as an opportunity that can be defined in a lot of ways, not the least of which is through M&A.

Last quarter I think you noted a single family rental community that you would open, I was wondering if you could give an update on that, and if you are seeing any indications positively or negatively towards that sector.

Listen I think that it’s one of the more interesting programs that we have inside the company and in fact this past quarter Jon, Rick and myself jointly went out to review the progress on that community. It’s an unusual engagement. You would think that it’s kind of easy and normal to just build a rental single family community. It’s actually a different and unique animal. So we are going through some evaluation of how it’s working out. The immediate review that we’ve seen out there is that it’s pretty exciting opportunity for our company. It requires some additional thoughts, some messaging of the floor plans, the management program. But in a world where single family rental is becoming a more dominant theme and the scattered single family acquirers have shown some metrics that are interesting but nonetheless, the management component is complicated. This single family rental community is really very exciting to us. We continue to look at it, continue to experiment with it, and we are probably going to launch another one or two as part of our valuation as we go forward.

And your next question comes from Mr. Buck Horne with Raymond James. Sir your line is now open.

Can you give us a little bit of a color on the monthly progression of the order trend, just as we move through the quarter any comments also you might be able to willing to share on June so far. I guess I am just wondering if we saw any impacts from higher rates caught through the month of May, any signs that higher may uphold some fin feathers in to the market just to get the front of the rate move.

Hi, this is Jon. We saw a pretty steady activity at our communities throughout the progression of the quarter. Month-over-month they were relatively balanced, so we didn’t see any big swing as commented earlier, just a very healthy spring selling season with strong activity in Florida, California and the part of Pacific Northwest and then very good activity in the rest of our states. Didn’t really see any impact from the mortgage adjustment in rates as we went through the month of May, and it’s typical we don’t comment on the current quarter activity.

Okay, fair enough. And relating to the mortgage market, we had a recent announcement from the CFPB that they were going to postpone changes on or implementation of the [TRS] move until early October. But that’s still on the horizon. How do you guys gauge the potential for any market disruption related to those changes on documentation and closing procedures. How well do you guys think buyers are prepared for that and what impact do you think might happen as a result of those changes?

Well as you Buck, we are capturing 82% right now of our home buying customers within our mortgage company. So as you look at that population we feel very comfortable that our team is going to be putting through the change, testing it, be ready and we are very comfortable that we’ll be in good shape. The question is for the remaining percentage whether a smaller mortgage companies or others that have to sell a home, that’s just a question that we’ll have to wait and see if there is any impact there. Internally of course we are focused on making sure that we are not as backend loaded in the last few days of a quarter or a month, and trying to be proactive to accelerate that so there is minimal disruption even if some of the other mortgage companies have some issues.

Let me add to that and say that you might or might not know or the investor world might or might not know that Bruce has directly - has been kind of running the dual position of being Chief Financial Officer and running our Financial Services Group. We’ve always had our Financial Services Group run up through our Chief Financial Officer. But it’s more significant today because this is a rough and tumble mortgage market that is defined by a regulatory environment that has a lot of laws of unintended consequences coming through. And the new legislation, the new regulations that will come in to affect in October will have some ripple effect. We are all over this and Bruce has been heavily focused on thinking through the nuance changes that will come in to the market in anticipation of some minor disruptions. We’ve been fortifying our mortgage company; I think you have seen it in the results from the numbers. But behind the scenes in the operations of our mortgage business, we recognize that there is potential for disruption and we are trying to stay ahead of the curve. So we are going to have to wait and see exactly how the implementation comes forward, but we think that we are doing a lot of anticipatory work to really mute any negative impact that can come through in the back half of the year.

Thank you. Very helpful guys. Congratulations.

Last question.

Our last question comes from Ms. Susan Maklari with UBS. Ma’am you may proceed.

Just building on the last [specific][ph] point, do you think longer term this could sort of change the overall competitive landscape, and perhaps do that such that it favors the larger builders just given your resources and abilities to help buyers with the complexity.

As I noted, there are a lot of unintended consequences embedded in some of this legislation or regulation I should say. I think in many of the instances the consequences are that larger players are benefitted and the larger player’s ability to adjust, to adapt and to spend the dollars to be ahead of some of the regulatory changes works to the benefit. We certainly think. And given the amount of focus that Bruce has put on our Financial Services Group, and preparation for the regulatory changes, I think it does advantage us and thus flat the playing field. I think the smaller homebuilders have had difficulty getting up running and engaged in a capital constrained market that has favored larger builders. They’ve had more difficulty accessing land. I think given the fact that we have a large mortgage subsidiary that’s able to do a large portion of our business versus a smaller builder that might have to depend on outside lenders. I think it does additionally slant the table in the larger builders favor.

Susan this is Jon, I will just add to Stuart’s comment that the mortgage process today is very invasive, very frustrating for the homebuyer, and the close working relationship that you are hearing and Stuart and Bruce described between homebuilding operations and mortgage company ready to sell takes a much better customer experience. We track this and we see this in our surveys of our customers, and I think it will result in better referral rates for us and achieving a higher level of capture of more markets as compared to our smaller competitors.

Okay. Great, that’s very helpful. And then in terms of the labor or material side of things, you noted it was up about 7% kind of in line with what you saw in the first quarter. As we look at the back half of the year. I know you’ve been doing [stunts] on some worth to try in. Get some benefits coming through, given the commodity (inaudible)? How should we think about that relative to some of the offset that you’ve been seeing?

This is Jon. There’s continued pressure, we see it more on the labor side, perhaps than the material side in today’s world especially as start between single family and Multifamily pickup. And so some areas from framing and drywall, masonry, you see pressure there. So I think we will continue as an industry to seek pressure on that. So you will see some level price increase as we move forward, and we do love to take advantage of every opportunity whether it’s in lumber, we borrow different material to find moments and time to lock in some pricing to offset that. So I think we’ll see that percentage increase sort of slowly moderate down, but I think you should expect to see some continued pressure as we move forward.

Alright, let’s call it there, and look I hope that you are hearing our answers and our tone. We are enthusiastic about our business. Our core homebuilding business and Financial Services Group are well positioned to continue to post strong results as we go forward. We are enthusiastic about positioning the maturity of our ancillary businesses and look forward to continuing to update you on future quarters as to our progress and to our strategy going forward. Thank you for joining.

Thank you Sir. And that concludes today’s conference. Thank you all for joining. You may now disconnect.