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Investments in Unconsolidated Entities | 3 Months Ended
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Jan. 31, 2018
Investments in and Advances to Affiliates, Schedule of Investments [Abstract] |
Investments in Unconsolidated Entities | Investments in Unconsolidated Entities We have investments in various unconsolidated entities. These entities, which are structured as joint ventures (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investment in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in distressed loans and real estate and provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”). The table below provides information as of January 31, 2018, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):
| Land Development Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Gibraltar Joint Ventures |  | Total
Number of unconsolidated entities | 7 |  | 4 |  | 13 |  | 5 |  | 29
Investment in unconsolidated entities | $ | 225,283 |  |  | $ | 93,185 |  |  | $ | 116,682 |  |  | $ | 14,598 |  |  | $ | 449,748 |
Number of unconsolidated entities with funding commitments by the Company | 5 |  | 1 |  | 1 |  | 1 |  |  | 8
Company’s remaining funding commitment to unconsolidated entities | $ | 23,689 |  |  | $ | 8,300 |  |  | $ | 609 |  |  | $ | 9,621 |  |  | $ | 42,219 |
Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at January 31, 2018, regarding the debt financing obtained by category ($ amounts in thousands):
| Land Development Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Total
Number of joint ventures with debt financing | 4 |  | 3 |  | 11 |  | 18
Aggregate loan commitments | $ | 200,988 |  |  | $ | 382,031 |  |  | $ | 948,335 |  |  | $ | 1,531,354 |
Amounts borrowed under loan commitments | $ | 184,944 |  |  | $ | 196,536 |  |  | $ | 733,876 |  |  | $ | 1,115,356 |
More specific and/or recent information regarding our investments in, advances to, and future commitments to these entities is provided below. Land Development Joint Ventures During the three months ended January 31, 2018, our Land Development Joint Ventures sold 249 lots and recognized revenues of $40.2 million. We acquired 30 of these lots for $3.2 million. Our share of the joint venture income from the lots we acquired of $0.5 million was deferred by reducing our basis in those lots acquired. During the three months ended January 31, 2017, our Land Development Joint Ventures sold approximately 303 lots and recognized revenues of $56.3 million. We acquired 102 of these lots for $25.0 million. Our share of the income from the lots we acquired of $3.7 million was deferred by reducing our basis in those lots acquired. Home Building Joint Ventures Our Home Building Joint Ventures are delivering homes in New York City and Jupiter, Florida. During the three months ended January 31, 2018 and 2017, our Home Building Joint Ventures delivered 28 homes with a sales value of $32.6 million, and 87 homes with a sales value of $217.4 million, respectively. Rental Property Joint Ventures As of January 31, 2018, our Rental Property Joint Ventures owned 12 for-rent apartment projects and a hotel, which are located in the metro Boston to metro Washington, D.C. corridor. At January 31, 2018, our joint ventures had approximately 2,800 units that were occupied or ready for occupancy, 750 units in the lease-up stage, and 1,250 units under active development. In addition, we either own, have under contract, or under a letter of intent approximately 9,350 units, of which 1,050 units are under active development. We intend to develop these units in joint ventures with unrelated parties in the future. In the first quarter of fiscal 2018, we, and our partner, sold the assets in one of our Rental Property Joint Ventures to an unrelated party for $219.0 million. The joint venture had owned, developed, and operated a student housing community in College Park, Maryland. In connection with the sale, the joint venture’s existing $110.0 million loan was repaid. We received cash of $39.3 million and recognized a gain of $30.8 million in the three months ended January 31, 2018, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income. In the first quarter of fiscal 2018, we entered into a joint venture with an unrelated party to develop a 112-unit luxury for-rent residential apartment project in Belmont, Massachusetts. Prior to the formation of this joint venture, we acquired the property and incurred approximately $22.1 million of land and land development costs. Our partner acquired a 50% interest in this entity for $11.0 million and we subsequently received cash of $10.8 million from our partner. At January 31, 2018, our partner had the right, if certain events not occur, to exit the venture and require us to repurchase their interest. Given this contingency, as of January 31, 2018, our investment, net of our partner’s contribution, was recorded in “Receivables, prepaid expenses, and other assets” on our Condensed Consolidated Balance Sheet. We expect this contingency to be satisfied in our second quarter of fiscal 2018. At January 31, 2018, our net investment in this property was $11.3 million. The joint venture expects to enter into a construction loan agreement in the second quarter of fiscal 2018 to provide up to $42.4 million of financing for the development of this property. In the first quarter of fiscal 2017, we sold 50% of our interest in a Rental Property Joint Ventures to an unrelated party. In connection with the sale, we, along with our partner, recapitalized the joint venture and refinanced the existing $54.1 million construction loan with a $56.0 million, 10-year fixed rate loan. As a result of these transactions, we received cash of $12.0 million and recognized a gain of $6.2 million in the three months ended January 31, 2017, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income. At January 31, 2018, we had a 25% interest and a $2.8 million investment in this joint venture. In 1998, we formed the Trust to invest in commercial real estate opportunities. The Trust is effectively owned one-third by us; one-third by current and former members of our senior management; and one-third by an unrelated party. As of January 31, 2018, our investment in the Trust was zero as cumulative distributions received from the Trust have been in excess of the carrying amount of our net investment. We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amount of $0.6 million and $0.4 million in the three-month periods ended January 31, 2018 and 2017, respectively. Gibraltar Joint Ventures We, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), are a member in several ventures with an institutional investor to provide builders and developers with land banking and venture capital. These ventures finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies. We also are a member in a separate venture with the same institutional investor, which purchased, from Gibraltar, certain foreclosed real estate owned and distressed loans in fiscal 2016. Our ownership interest in these ventures is approximately 25%. As of January 31, 2018, we had an investment of $14.6 million in these ventures. Guarantees The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity. In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share. We believe that, as of January 31, 2018, in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At January 31, 2018, certain unconsolidated entities have loan commitments aggregating $1.08 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $269.6 million to be our maximum exposure related to repayment and carry cost guarantees. At January 31, 2018, the unconsolidated entities had borrowed an aggregate of $664.9 million, of which we estimate $217.7 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 7 months to 37 months. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners. As of January 31, 2018, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $4.8 million. We have not made payments under any of the guarantees, nor have we been called upon to do so. Variable Interest Entities At January 31, 2018 and October 31, 2017, we determined that eight of our joint ventures were VIEs under the guidance of ASC 810, “Consolidation.” However, we have concluded that we were not the primary beneficiary of these VIEs because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and the other members. The information presented below regarding the investments, commitments, and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above. At January 31, 2018 and October 31, 2017, our investments in the unconsolidated entities deemed to be VIEs, which are included in “Investments in unconsolidated entities” in the accompanying Condensed Consolidated Balance Sheets, totaled $34.8 million and $35.9 million, respectively. At January 31, 2018, the maximum exposure of loss to our investments in these entities was limited to our investments in the unconsolidated VIEs, except with regard to $70.0 million of loan guarantees and $10.2 million of additional commitments to the VIEs. Of our potential exposure for these loan guarantees, $70.0 million is related to repayment and carry cost guarantees, of which $64.5 million was borrowed at January 31, 2018. At October 31, 2017, the maximum exposure of loss to our investments in these entities was limited to our investments in the unconsolidated VIEs, except with regard to $70.0 million of loan guarantees and $10.5 million of additional commitments to the VIEs. At October 31, 2017, $70.0 million of our potential exposure for these loan guarantees was related to repayment and carry cost guarantees, of which $61.3 million was borrowed at October 31, 2017. Joint Venture Condensed Financial Information The Condensed Balance Sheets, as of the dates indicated, and the Condensed Statements of Operations, for the periods indicated, for the unconsolidated entities in which we have an investment are included below (in thousands): Condensed Balance Sheets:
| January 31, 2018 |  | October 31, 2017
Cash and cash equivalents | $ | 104,880 |  |  | $ | 153,828 |
Inventory | 1,067,806 |  |  | 1,148,209 |
Loans receivable, net | 19,532 |  |  | 22,495 |
Rental properties | 831,672 |  |  | 970,497 |
Rental properties under development | 223,904 |  |  | 190,541 |
Real estate owned | 54,621 |  |  | 53,902 |
Other assets | 159,816 |  |  | 156,618 |
Total assets | $ | 2,462,231 |  |  | $ | 2,696,090 |
Debt | $ | 1,115,356 |  |  | $ | 1,199,583 |
Other liabilities | 137,188 |  |  | 135,292 |
Members’ equity | 1,183,605 |  |  | 1,332,285 |
Noncontrolling interest | 26,082 |  |  | 28,930 |
Total liabilities and equity | $ | 2,462,231 |  |  | $ | 2,696,090 |
Company’s net investment in unconsolidated entities (1) | $ | 449,748 |  |  | $ | 481,758 |
(1) | Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities are primarily a result of the acquisition price of an investment in a Land Development Joint Venture in fiscal 2012 that was in excess of our pro rata share of the underlying equity; impairments related to our investments in unconsolidated entities; interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment.
Condensed Statements of Operations:
| Three months ended January 31,
| 2018 |  | 2017
Revenues | $ | 193,620 |  |  | $ | 295,702 |
Cost of revenues | 148,750 |  |  | 165,706 |
Other expenses | 24,286 |  |  | 21,134 |
Total expenses | 173,036 |  |  | 186,840 |
Gain on disposition of loans and real estate owned | 14,671 |  |  | 8,886 |
Income from operations | 35,255 |  |  | 117,748 |
Other income | 79,363 |  |  | 2,586 |
Income before income taxes | 114,618 |  |  | 120,334 |
Income tax provision | 198 |  |  | 3,827 |
Net income including earnings from noncontrolling interests | 114,420 |  |  | 116,507 |
Less: income attributable to noncontrolling interest | (6,082 | ) |  | (2,080 | )
Net income attributable to controlling interest | $ | 108,338 |  |  | $ | 114,427 |
Company’s equity in earnings of unconsolidated entities (2) | $ | 38,880 |  |  | $ | 46,445 |
(2) | Differences between our equity in earnings of unconsolidated entities and the underlying net income of the entities are primarily a result of a basis difference of an acquired joint venture interest; distributions from entities in excess of the carrying amount of our net investment; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.

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- Definition The entire disclosure for the information summarizing investments in and advances to majority-owned subsidiaries, other controlled companies, and other affiliates. It reflects specified information about ownership, financial results from, and financial position in such entities. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 + Details
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