Welcome to Lennar's fourth 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. [Operator Instructions]. 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 Mr. David Collins for the reading of the forward-looking statement.

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.

All right. Well, let me just jump in and begin then. This is Stuart Miller. Good morning, everyone. Thank you for joining us for our fourth quarter and year-end update. This morning, I am joined by Bruce Gross, our Chief Financial Officer and Dave Collins, who you just heard from, Diane Bessette, our Vice President and Treasurer. Rick Beckwitt, our President and Jon Jaffe, Chief Operating Officer, are here as well and Jeff Krasnoff, Chief Executive Officer of Rialto. They are all going to join in for question-and-answer. As is customary on our conference call, I am going to begin with some brief overview remarks on the housing market and our operations and then Bruce is going to jump in with greater detail. As always, we will open up to Q&A and we would like to request that during Q&A, each person limit themselves to one question and one follow-up. So let me go ahead and begin and let me begin by saying that we are very pleased to report another very solid quarter of performance for Lennar with each of our major segments performing better than expected. Our fourth quarter and year-end results demonstrate that our company is very well positioned to continue to perform extremely well in current market conditions and to continue to execute our carefully crafted and balanced operating strategy. Generally speaking, we continue to believe that we are still in the early stages of a protracted slow growth housing recovery. The recovery continues to be driven forward by increased pent-up demand derived from a now multiyear production deficit and the increasingly high monthly cost of rentals. At the same time, volume growth has been constrained by overly conservative lending standards, a regulatory environment that discourages mortgage lending by banks and a negative bias overhang against…

Thanks, Stuart and good morning. Our net earnings for the fourth quarter were $1.07 per diluted share versus $0.73 per share in the prior year. I will provide some additional color to the numbers starting with homebuilding. Our gross margin on home sales was 25.6% compared with 26.8% in the prior year, however, this exceeded our fourth quarter gross margin goal discussed on our last conference call. The gross margin improved sequentially by 40 basis points, however, declined 120 basis points year-over-year due to a moderation in pricing power as labor, material and land costs increased. Sales incentives increased by 30 basis points to prior year to 6.6% as a percentage of home sale revenue. The gross margin percentage for the quarter remained highest in the East, Southeast Florida and West regions. Additionally, we had a $5.8 million benefit to the gross margin during the quarter relating to Chinese drywall settlements. In addition to the 30 basis points improvement in our SG&A, we have also recognized operating leverage on our corporate G&A line which improved by 10 basis points to 2.2% as a percent of total revenues. The combined categories of land sale income, joint venture profit and other income, netted to $14.4 million of profit this year versus $22.1 million in the prior year. Other interest expense declined 75% year-over-year from $20.5 million in the prior year to $5.2 million in the current quarter, as we continued to open communities and increase the qualifying assets eligible for capitalization. As Stuart mentioned, we opened 75 new communities to end the year at 625 active communities. This is at the high end of the goal that we provided to 2014 and a 16% increase over 2013. We purchased 4,400 home sites during the quarter, totaling $254 million. Our total land acquisition…

[Operator Instructions]. Our first question comes from Stephen East with Evercore ISI. Your line is open.

Thank you. Good morning, guys. The question I have been getting from --

Viv, I think we lost him.

Yes. The line has disconnected. I apologize. Our next question comes from Stephen Kim with Barclays. Your line is open.

Good Morning. Thanks very much, guys. Yes, I guess, a lot of things to talk about but I did want to talk a little bit about the gross margin guidance for the year. You talked about the fact that there will be some improvements sequentially, which is pretty normal, but I am guessing probably also that the year-on-year comparison would probably, the decline would probably intensify in the back half of the year. I was wondering if you could confirm that that's probably the right way to looking at it. And also if you could talk about the -- you mentioned bringing back some mothballed communities. Can you just elaborate a little bit on that? Sort of where? Why now? And what kind of margin differential do these projects usually have? Thanks.

Hi, Steve, it's Rick. I will answer this. On the gross margin comparison year-over-year, we sort of hinted to about 4% decline year-over-year going from 25% to about 24%. Typical with the year, you will see some normal sequential improvements throughout the year, starting low, ending up higher. And probably the peak to trough won't be as dramatic. With regard to the mothballed communities, this has been something that we have been doing all, you know, over the last couple of years, evaluating when they are right to bring back on and this is just a continuation of our asset monetization program. They are really spread across the country. Not anything really dominated in one particular area. We would look at 2015 probably in an order of magnitude about 10% of our deliveries will come from things that were taken out of that mothballed bucket and the margin differential is 200 basis points, 300 basis points, plus or minus, between what the average margin is for the company and those communities.

Hi, Steve, it's Jon. So just to clarify that the 10% out of mothballed communities is communities opened in 2014 and what will open in 2015. So that represent that whole universe. And relative to timing of the margin in your question, as you know, our first quarter is always our lightest quarter for deliveries. So we have field expense impacting the margins there. So it's really not back-end loaded in terms of decline. I think you will see pretty consistent throughout the year, the differential that Bruce spoke about.

Okay, that's great. That's very helpful. Thank you for that. I was wondering if you could talk a little bit about what you are seeing in terms of incentive behavior from your competitors in the marketplace and maybe I assume that that may vary from region-to-region? I know people are going to be particularly interested in what you are seeing in terms of posturing in Houston as well as in California. So maybe you could just talk generally about qualitatively what you are seeing in terms of incentive behavior in the field and also with a little bit a geographic flavor? Thanks.

Okay. So let me take that, Steve and just say that pretty much across the board, we are seeing intensified competition as builders do go out and chase volume. It's been somewhat of a complex market where a lot of factors are impacting sales across the board. You mentioned, of course, Houston, where there are more questions than answers right now from the field. Houston, of course, is at least in part, as an economy dependent on the oil complex and the oil complex is going through a reconciliation. We haven't seen a significant change in that market condition. We are seeing a little bit at the higher end of a pullback but we have anticipated in our internal projections that there will be further reconciliation in that marketplace. It's in part one of the reasons for some of the pullback in our anticipated margins. Houston is an important market to us. California, we have seen less impact so far. We continue to see pretty strong buying patterns in California. I know that there are questions about the currency changes and what that will mean for some of the foreign buyers there, but we haven't seen much of a pullback there. I know that there been other reports. So you know, across the landscape there a lot of factors that are moving markets and changing the landscape and it certainly has intensified the competitive landscape for all builders.

Thanks very much.

You bet.

We do have Mr. East back on the line. One moment. Stephen East, your line is open.

Thank you. And I don't know, I got cut off. So I just heard Steve's question. But if I could just follow-up a little bit, you know, the gross margins. If you could sort of rank order, going from 25% to 24% this year, as the things that you talked about, the mothball, the entry-level, et cetera. If you have already answer that, I apologize. And I was also wanting to understand how important is this mix shift become for you as you go through 2015 and then to 2016 as far as focusing on the entry level?

Hi, Steve, it's Rick. We have articulated for quite a while now that as that entry-level market comes back, we are going to be an increasing participant in that market and we plan accordingly. Most of that activity is really geared towards Texas and parts of Florida for the most part, although our other markets are participants in that activity. With regard to the margin on that, the margin for us on our entry level product is lower margin, but that doesn't mean that from a pretax and operating basis, that the margins are significantly different. It's just a different business model. With regard to the legacy assets, the mothballed assets, about 10% of our deliveries for 2015 will come from those communities. They carry lower margins, but on blend, we are pretty positive about our 24% margin for the year. It's a good, healthy margin and it could produce good bottomline profits for the company.

Okay, thanks and then just a follow-up question on the West. Big order gains. I guess could you give us some clarity on what was really driving that? And I heard some of the commentary about the Asian buyer, et cetera, but a significant difference in the West on your performance versus earlier and just maybe any color you can give and how you think about the sustainability of that?

Yes, Steve, it's Jon Jaffe. We saw a healthy sales pace in the fourth quarter, above the company average. Inland Empire, which you know, there are some questions about -- we saw a pace of about four sales per community per month. I think we have some very well located communities due to our land position that we acquired earlier. We have got some very strongly performing master-planned communities. In the Bay Area, we are very well-positioned. We saw good activity through the Central Valley. So we really didn't see much movement in incentives to drive that sales pace a little bit, but I think because of the product and the locations of our communities, performance is remaining strong.

Next question.

Our next question comes from Michael Rehaut with JPMorgan. Your line is open.

Thanks. Good morning, everyone. The first question I just had, if possible, I think there was a reference to some of the expected cadence of the gross margin throughout 2015, maybe starting a little bit lower and then increasing throughout the year as typically occurs but maybe not to a wide variance of range. Coming off of the 4Q results, I was just wondering if it is possible to give a little bit better granularity in terms of, you know you are coming off of a 25.6% and I guess, excluding the gain from Chinese drywall it's closer to 25.3%, would you be looking at something around the 24% range that you are looking for the full year? Or would it be, I guess, a little bit below that? And then I just have a follow-up.

For the guidance, Mike, this is Bruce, was around 24% as the average for the whole year. The first quarter tends to be lower because we have less volume and we have more field costs, which runs through gross margins. So that brings the number down. So it affects the first quarter to be below the 24% average for the year and then for the rest of the year the number should be closer to the average and maybe a little bit higher at the end of the year.

Okay and I guess just the second question. You had mentioned that you had incorporated some caution or change in the Houston market into your full-year guidance. I was wondering if you could be a little more granular there as well? Do you expect some -- maybe how much of margin contraction do you expect in Houston? And maybe you can give us a sense of Houston in terms of the revenue impact and if it's operating right now at above or below average corporate margins?

Mike, I think it's always been our objective to call them like we see them, to be straight and to give the best estimate of what we are seeing out ahead of ourselves. And so as it relates to Houston, it's not an exact science. The market has not yet quite revealed itself. But there are other crosscurrents that are defining lot of questions that exists in the marketplace. And of course, we have injected appropriate conservatism in our thinking. So to get down and to get too granular, I think that we are making educated guesses in each of our markets about where the market is potentially trending. We can think across a broad landscape. We think about the California markets and some of the foreign purchasing that has come in those markets as potentially something that has to be considered and factored into our equation. Likewise in South Florida, we have a pretty robust foreign investment group and those markets all have more questions than answers right now and the estimates are somewhat imperfect. What we have done with each of our divisions as we have gone through and had done at a very local level, think about the impacts of not just the day-to-day traffic coming in, but the potential impacts of macroeconomic factors that, as I noted in my opening, are choppy and sometimes confusing in evaluating the market. So I am not sure that we can get particularly granular. It really is a market-by-market and community-by-community assessment that is kind of rolled up. But what we have tried to do is inject appropriate conservatism in thinking about 2015 and the competitive pressures that exists in the marketplace as we put together our planning for the year ahead.

And just, if I could squeeze in one last one on the incentives and then I will get back in queue. It seems like it is broad-based. I just was curious in terms of the increase in incentives. If that was broad-based or more concentrated in certain markets and maybe how much of the monthly 100 bips of margin decline, gross margin declined for the company is incentives, being a cause of that 100 bips?

Incentives is always an interesting question. It really is just a part of purchase price. And as we have noted, it's part of a community-by-community evaluation, very micro level. Incentives in some markets are running a lot higher. In other markets, they are very low. Even within markets, there are some communities that have much higher incentives associated with them or purchase price alterations associated with them. We are very focused on looking at a community level, figuring out where the sales pace has slowed to a point where we are no longer properly leveraging overheads, think about where we add incentives to bring that sales pace up so that we maximize profitability out of the community. So is it concentrated in an area? No. It's a broad-based assessment that you really can't put your finger on and delineate for the market. But it rolls up to what you are seeing here.

Great. Thank you.

You bet.

Our next question comes from Eli Hackel with Goldman Sachs. Your line is open.

Thanks. Good morning. Stuart, you seem excited or at least positively inclined about some of the mortgage market changes that have been announced. I was just wondering your level of confidence that these changes will actually impact the market. Some of the previously announced changes really don't seem to have done much. So just curios to hear your thoughts around that.

Well, some of them have been articulated and not quite implemented. I wouldn't overemphasize my enthusiasm for the specific changes. I think it's the beginning of a process. And I think that the fact that we are hearing this articulation at this point is suggestive of the fact that people are starting to understand that perhaps we have overcorrected and perhaps it's detrimental to the overall economy and to the landscape of the population and that we have got to start getting and reverting to normal. I think the reversion to normal will unlock a lot of pent-up demand. It's going to take some time and it's why I say on the horizon, I see the best times for the homebuilding operation. But do I see a correction that takes place that alters the landscape in the next quarter, I think no. It's more part of the process. But I am fairly optimistic that politically, as a country, we are going to get to understand that capital is going to define or access to capital is going to define what builds the middle class and some of that revolves around housing and I think that people are going to be recommitted to building a for-sale housing market. That's going to work very well for us and other builders.

Thanks and then I was just wondering, you talked a little bit about it, but maybe go into a little bit more detail about the ongoing cost of the soft pivot capital allocation. Do you expect to be cash flow positive this year? And if so, sort of what are you thinking about doing with that cash?

We have been talking about this for about the last year-and-a-half and it's been very much part of management's focus. We have been gently pivoting away from a land-heavy strategy towards a land-lighter strategy and it is with the focus of becoming cash flow positive. We do think as we get the end of this year, we do start to turn to cash flow positive with a healthier turn, even more in 2016. We are very focused on our return on invested capital. We think that the first move with our additional cash flow will be in the form of debt reduction and focusing on our balance sheet, but ultimately we will be considering where access cash flow comes from. Remember that it's not just the homebuilding business that should be cash flow generative, ultimately our ancillary businesses also start to contribute and we think we are going to have some important decisions to make as we get into future years.

Great. Thanks very much.

Our next question comes from Alan Ratner with Zelman. Your line is open.

Hi, good morning. First, just a housekeeping question. The Hunters Point delivery, is that going to flow through the JV or consolidated blend?

The Hunters Point deliveries will flow through the joint venture line.

Okay. So when you gave the guidance for breakeven, I think, in the back-half of the year, on JVs, I thought you mentioned, first of the deliveries coming through there. So that's kind of incorporated in that guidance?

It is and we are doing very well with sales at Hunters Point. But just remember, we had a lot of front-end development costs that are also running through that line in addition to the closings of the first deliveries at Hunters Point, so will see more contribution as we get into 2016.

Got it. Thanks and just on the slow pivot ROIC focus. How should we think about longer-term how Lennar looks under that type of model because investors clearly have gotten used to you guys certainly outperforming on the gross margin line and probably the volume growth line as well as you benefited from that long land pipeline you had? So should we ultimately expect margins to revert more to that lower 20% range, which I think is indicative of a asset light shorter land model or should we stop short of going all the way there because you are going to settle out somewhere in between? And I guess, just kind of the cadence to get there, are we talking about this multiyear process or is this something that by 2016, 2017, you are pretty much where you ultimately envision the company being?

Look, I think that we still have an advantage in land in that would have land positions that carry-forward. That's enabled us to kind of fish in a different pond and use our land expertise to continue to build price advantaged land positions that's held us in good stead. We think, as historically, we will continue to outperform relative to gross margin there. Gross margins were down to moderate at some point and it shouldn't catch anyone off-guard that they will and should be some moderation in gross margin as we become more of a retail purchaser of land. But I think a normalized operating program of buying land and becoming more of a manufacturing model as markets mature as there is less distressed opportunity out there is exactly what Lennar is focused on, making sure that we are carefully balancing buying good land positions in the right locations, operating an excellent manufacturing model on the homebuilding side and really focusing on our balance sheet in the generation of cash and return on invested capital.

I might add one thing on this. Part of the pivot is managing the length of the deal and how long we are in individual communities. And as we have bought various communities over the past, in the downturn some of these communities were very sizable that had multi-multi-year runs in order for us to build through them. So as we are managing the cycle and this pivot, it's a changing focus on the length of how long we want to be in some of these communities, given the fact that the market might change and we want to have a shorter-term of exposure.

Next question.

We have a question from Megan McGath with MKM Partners. Your line is open.

Good morning. Thanks. This is a little bit of a follow-up to that last question and the last commentary there, I think is partially an answer. But I guess looking at Texas now, but this could be really any market where you are starting to perhaps see signs of slowdown or you see some writing on the wall. Can you talk a little bit about levers at your disposal? And maybe lessons learned versus the last downturn? Are there things that you would likely do quicker? Let's say, you start to see things slowdown, perhaps try to pickup pace quicker? Or related to last comment, is your inventory different than it was, let's say, nine or ten years ago that would just perhaps limit the over building that we could potentially see in some of these markets as you see sort of a fast slowdown in employment?

Look, as I noted in my opening comments, I think that the downside, even in a market like Houston, the downside is kind of defined by a change in the employment structure of the market where you start to see the oil complex really shed some jobs and that affects confidence and home sales, but I think that there are some countercurrent kind of considerations. While the oil complex moves down, gas prices come down and Houston is a more diversified platform than it has been in prior oil downturns. So we are not looking, we are not expecting a very sizable downturn, but I think that the way that we have configured our company and we have focused on purchasing assets, the locations that we have focused on as we have gone through, even in a downturn scenario, are the locations that hold up the best, that continue to perform the best in the market and we think that any downturn ends up being fairly shallow and we move forward. So from a lessons learned perspective, we have clearly not gone out to the B-, C locations. We have not gotten out over our skis, We have already been tapering back on the land supply, the tail of land supply. And I think that we are really well-positioned to be able to just kind of, in an orderly fashion, work through inventories even in a fairly aggressive downturn scenario and be positioned with strong cash.

And I guess, just one comment on the Texas market since it's been brought up a number of time. The overall economy in Texas is very strong. You know, if you look at as, just going back to Stuart's opening remarks, job growth across the state has been incredibly strong, inventories are in the neighborhood of maybe one to two months of finished home supply. On the new side, resale inventory is extremely well as well and you have just outside of Houston, just very strong economies, with excellent job growth. Houston, in particular, as Stuart said, we haven't really been too much of change in Houston yet. But we were smart enough to know that if oil prices continue to be depressed, that there will be some negative reaction in the market. It generally happens that it is price point focused and one of the things that we have been focused on is making sure that we are a participant in all of the price points in Houston market in order to insulate ourselves to as much as possible with the changes in the market demands. And we are well-positioned that we are smart enough to know that as oil moves down, there maybe some job loss, primarily more on higher end and it could impact pricing and that's why we have given guidance to a little bit lower margin in Houston.

Great. That's helpful. And then just to follow-up around the commentary on some of the government initiatives, clearly too early to have seen anything on the FHA but it's been a month or so since the announcements around the FHFA, 3% down mortgages and any kind of early indications that that's taking hold?

Not really. And I think that you have got to look at the landscape as relative to many of the articulations as multidimensional. One lever is probably not going to move the needle. I think that we have to properly regard the fact that the regulatory landscape has really discouraged mortgage lending. There is more than just underwriting criteria and downpayments at stake here. We have got to get people back in the game of making mortgages to people that really need the money as opposed to making mortgages to the people who are so far qualified that we never have to, but the only mortgage that we are to make is to Warren Buffett, we are certainly not going to have any defaults, but we are not going to make a lot of mortgages. We would better be able to bring the risk profile back to a normalized setting. And it is in large part, the regulatory environment that is defining some of that. I think that the discourse, the commentary that's been coming out of HUD and FHFA is positive and constructive. People recognizing that perhaps we have put too strong of a lid on this mortgage business and if you listen to the commentary coming out of the banks, there still isn't a lot of appetite for land. So we haven't seen a lot of movement yet in the fields from these articulation, but they are promising in terms of important people starting to understand how the landscape has to migrate in order to really bring the buyer back to the market.

Great. That's helpful. Thanks.

You bet.

Our next question comes from Michael Dahl with Credit Suisse. Your line is open.

Hi. Thanks for taking my question. So I guess the comments on and the discussion around ROIC, it sounds like the implication would be that land spend would be down again in 2015? And if that is the case, then community count growth probably moderates further in 2016. Is that a fair way to think about how you are viewing the landscape today?

Well, land spend will move around a little bit as we go through the next couple of years. It's a little bit hard to peg down. What I am articulating is a focus of the management team to shorten the tail on some of the lands that we are purchasing and really looking at the risk profile as we go forward. That doesn't necessarily need a curtailment of community count expansion. It might be a moderation of the rate of growth that you see in community count. I think we have articulated about an 8% growth year-over-year as we look ahead. But I think you kind of look at that kind of pace as we go forward as well. But it's more of the tail, the duration of land that we are purchasing rather than the number of communities. So we expect to continue to grow at a healthy pace as we go forward. And over time, where did I think of things for this management team is when we focus we succeed. The articulation internally for our group is , hey, let's bring the tail down, let's bring the risk profile down, let's continue to grow our business, but let's not get out over our skis as the market matures, as land pricing matures and let's continue to grow the business as the market permits.

Great and then as a follow-up, I guess you know, you have clearly articulated a number of different things happening across specific markets. As you think about those relative to your investments, where you looking to grow the most as you look out to the deals that you are instructing your field reps to go after this year?

Okay. So, a piece of your question cut out on us, but I think your question is where are we looking to grow the most? And the answer to that question is, almost a quarter-by-quarter evaluation on a market-by-market basis. And it's what we probably do the best. It's all about allocating capital to where that capital is performing the best, based on the reading that we are getting from the field from the traffic that's coming in. The market that is healing and that is moving forward well is going to get more capital allocated to it. The market where we see patterns of pullbacks, patterns of change in the markets in the negative, we are going to be investing less capital. So right now we are kind of, if you think about the things that we have already talked about, we are kind of in a wait-and-see mode relative to Houston. We want to see a little bit more evidence of well, how the market is going to present itself and so we are probably investing less capital there. We have excellent positioned to build on in the meantime. There are other markets like the Bay Area that we continue to have a strong view about and we are probably investing more capital there. But it is a regular assessment that we put in place through our top management team communicating with the divisions based on the patterns that we are seeing in the field.

Okay. Thank you.

We have a question from Michael Roxland with Merrill Lynch. Your line is open.

Hi, guys. It's actually Peter Gallo on for Mike. Good morning or afternoon at this point. Just a couple of housekeeping questions for Rialto on the advance accrued interest. Is that a one time thing for this quarter? Or is that something we should think about as a recurring cash flow going forward? What's the best way to look at that?

So, for this quarter, it represented the last two-and-a-half years worth of taxable income calculation. So it will be recurring but at a significantly lower amount as you look at next year. It's going to continue through next year as well.

Okay and then just second, I know in your comments, Stuart, I think you called out some statistics on Next Gen in terms of order growth. Do you have anything similar, any sort of commentary around your Everything's Included?

Everything's Included has continued to be a Lennar marketing avenue that is a differentiator. Well, we haven't gotten an Everything's Included question in a long time. But we still think that sets us apart from the market in a positive and constructive way. I always think that plagiarism is the best form of flattery and when we see other builders jumping on that kind of program, which is what we have started to see. We know that it's something that attracts a lot of attention and sets us apart in a very positive way. Our Everything's Included program is something that we focus on a lot. We think that we can be a lot more efficient and effective in harvesting cost reductions as we deliver greater quality and a broader product offering. There certainly is segment of the market that wants to customize. We are not the builder for that segment of the market, but we do offer an extraordinary value with our Everything's Included program and that value is what has driven our sales as well it has. Even with that said, our Everything's Included program as we have grown it over time, does enable some personalization, so we broaden our offering to a solid range of the market and certainly enables us to capture more than our share of the business.

Great. Thanks.

Okay and let's make the next the last question.

Our final question comes from Jade Rahmani with KBW. Your line is open.

Hi. Thanks for taking the question.

Sure.

Just wanted to ask on Rialto. If you could comment on your view of the risk retention rules and whether you see this is a benefit to Rialto, given the five-year holding period and the 5% risk retention requirement?

So happy that we have on there. Jeff can really chime in. Go ahead, Jeff.

Yes. Actually, from our perspective, we look at it as a big positive. In terms of the competitive setup there, it's going to be difficult for a lot of folks to do that, given some of the hedge funds that have come in, because of the five-year retention. So we think that that's, number one, is very good. And then number two is the 5% rule. We have a multi-disciplinary sort of fund raising capability with our investors that look for returns that go form one end of the spectrum to the other. So I think that we are going to see pretty uniquely qualified to be a buyer there. And we also expect that before the rules go into effect, which is now a little bit less than two years that there will be a rush to securitize that we think we can increase supply. So I think we are, as far as all three of those points, we are well-positioned for it. I think that the risk retention rules really speak directly to our core competencies. It kind of ushers things directly into the arena that we have historically operated and operated best. So the answer is yes, we think that it's a best for Rialto.

Thanks and then just secondly regarding the cash flow that you expect to get back from Rialto? How do you see redeploying that capital? Would it be redeployed into Rialto? Or into Lennar's other businesses?

Look, Rialto has really taken on a mature positioned within the company. Rialto is the ultimate asset light model today. We have not been investing primary capital in deals in any significant way through Rialto. We have invested and will continue to invest in the funds that we create and participate as a limited partner in those fund even as we act as the general partner as well. But those private capital funds are the primary source of investment for Rialto and really mark the future for the company. So the Rialto strategy has more in the direction that we wanted it to over the past years and Rialto is positioned to carry forward with very limited need for capital. So we expect that that capital will be returned to the parent company and will be part of the cash flow that we have talked about earlier.

Thanks for taking the questions.

You bet. So thank you everyone for joining us. We look forward to moving forward and reporting on our progress through 2015. Thank you.

That does conclude today's conference. Thank you for participating. You may disconnect at this time.