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Investments in Unconsolidated Entities | 3 Months Ended
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Jan. 31, 2020
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, 2020, 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 | 8 |  | 4 |  | 21 |  | 7 |  | 40
Investment in unconsolidated entities | $ | 101,946 |  |  | $ | 48,860 |  |  | $ | 191,443 |  |  | $ | 22,103 |  |  | $ | 364,352 |
Number of unconsolidated entities with funding commitments by the Company | 2 |  | 1 |  | 1 |  | 1 |  |  | 5
Company’s remaining funding commitment to unconsolidated entities | $ | 28,108 |  |  | $ | 1,400 |  |  | $ | 224 |  |  | $ | 6,830 |  |  | $ | 36,562 |
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, 2020, 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 | 3 |  | 1 |  | 19 |  | 23
Aggregate loan commitments | $ | 100,842 |  |  | $ | 73,021 |  |  | $ | 1,441,784 |  |  | $ | 1,615,647 |
Amounts borrowed under loan commitments | $ | 86,092 |  |  | $ | 73,021 |  |  | $ | 1,009,618 |  |  | $ | 1,168,731 |
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, 2020, our Land Development Joint Ventures sold approximately 164 lots and recognized revenues of $24.7 million. We acquired 42 of these lots for $3.5 million. Our share of the joint venture income from the lots we acquired was insignificant. During the three months ended January 31, 2019, our Land Development Joint Ventures sold approximately 201 lots and recognized revenues of $89.8 million. We acquired 107 of these lots for $71.2 million. Our share of the joint venture income from the lots we acquired was insignificant. Home Building Joint Ventures Our Home Building Joint Ventures delivered homes in New York, New York, and Jupiter, Florida. During the three months ended January 31, 2020 and 2019, our Home Building Joint Ventures delivered 23 homes with a sales value of $67.1 million and 17 homes with a sales value of $27.3 million, respectively. In November 2019, one of our Home Building Joint Ventures refinanced its existing $236.5 million construction loan with a $76.6 million post-construction loan that extended the maturity date of the loan to November 2021 and revised certain guarantees provided for under the original construction loan. At January 31, 2020, this joint venture had $73.0 million of borrowings outstanding under the post-construction loan. Rental Property Joint Ventures As of January 31, 2020, our Rental Property Joint Ventures, including those that we consolidate, owned 26 for-rent apartment projects and a hotel, which are located in multiple metropolitan areas throughout the country. At January 31, 2020, these joint ventures had approximately 2,000 units that were occupied or ready for occupancy, 1,250 units in the lease-up stage, and 4,800 units in the design phase or under development. In addition, we either own, have under contract, or under a letter of intent approximately 13,400 units, including 200 units under active development; we intend to develop these units in joint ventures with unrelated parties in the future. In the first quarter of fiscal 2020, we sold all of our ownership interest in one of our Rental Property Joint Ventures to our partner for cash of $16.8 million, net of closing costs. The joint venture had owned, developed, and operated multifamily residential apartments in northern New Jersey. In connection with the sale, the joint venture’s existing $76.0 million loan was assumed by our partner. We recognized a gain of $10.7 million, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income. In the first quarter of fiscal 2020, we entered into two separate joint ventures with unrelated parties to develop (i) a luxury for-rent residential apartment project located in Dallas, Texas and (ii) a student housing community in State College, Pennsylvania. Prior to the formation of these joint ventures, we acquired the properties and incurred an aggregate of approximately $51.0 million of land and land development costs. Our partners acquired interests in these entities ranging from 50% to 70% for an aggregate amount of $26.2 million. At January 31, 2020, we had an aggregate investment of $25.0 million in these joint ventures. Concurrent with their formation, these joint ventures entered into construction loan agreements for an aggregate amount of $121.5 million to finance the development of these projects. At January 31, 2020, the joint ventures had no outstanding borrowings under these construction loan facilities. In the first quarter of fiscal 2019, we entered into two separate joint ventures with unrelated parties to develop luxury for-rent residential apartment projects located in Harrison, New York and Frisco, Texas. Prior to the formation of these joint ventures, we acquired the properties and incurred approximately $41.9 million of land and land development costs. Our partners each acquired a 75% interest in these entities for an aggregate amount of $39.8 million and we recognized a gain on land sale of $8.4 million in our first quarter of fiscal 2019. At January 31, 2020, we had an aggregate investment of $15.6 million in these joint ventures. Concurrent with their formation, these joint ventures entered into construction loan agreements for an aggregate amount of $134.4 million. At January 31, 2020, the joint ventures had $38.9 million outstanding borrowings under these construction loan facilities. In fiscals 2019 and 2018, we entered into five separate joint ventures with unrelated parties to develop luxury for-rent residential apartment projects and student housing communities located in Boston, Massachusetts, San Diego, California, Tempe, Arizona and Miami, Florida. We contributed an aggregate of $95.5 million for our initial ownership interests in these joint ventures, which ranged from 50% to 98%. Due to our controlling financial interest, our power to direct the activities that most significantly impact each joint venture’s performance, and/or our obligation to absorb expected losses or receive benefits from these joint ventures, we consolidated these joint ventures at January 31, 2020 and October 31, 2019. The carrying value of these joint ventures’ assets totaling $157.9 million and $145.8 million are reflected in “Receivables, prepaid expenses, and other assets” in our Condensed Consolidated Balance Sheet as of January 31, 2020 and October 31, 2019, respectively. Our partners’ interests aggregating $43.5 million and $41.0 million in the joint ventures are reflected as a component of “Noncontrolling interest” in our Condensed Consolidated Balance Sheet as of January 31, 2020 and October 31, 2019, respectively. These joint ventures intend to obtain additional equity investors and secure third-party financing at a later date. At such time, it is expected that these entities would no longer be consolidated. In fiscal 2019, we entered into a joint venture with unrelated parties to develop, build, and operate single-family rental communities. As of January 31, 2020, we have invested $1.1 million in this joint venture and have committed to invest up to $60.0 million. 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, 2020, 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 $0.3 million in each of the three-month periods ended January 31, 2020 and 2019. Gibraltar Joint Ventures We, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), have entered into six ventures with an institutional investor to provide builders and developers with land banking and venture capital. These ventures will 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%. We may invest up to $100.0 million in these ventures. As of January 31, 2020, we had an aggregate investment of $21.4 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, 2020, 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, 2020, certain unconsolidated entities have loan commitments aggregating $1.27 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $183.1 million to be our maximum exposure related to repayment and carry cost guarantees. At January 31, 2020, the unconsolidated entities had borrowed an aggregate of $825.3 million, of which we estimate $114.1 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 7 months to 3.9 years. 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, 2020, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $5.5 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, 2020 and October 31, 2019, we determined that 16 and 18 of our joint ventures, respectively, were VIEs under the guidance of ASC 810, “Consolidation.” For 11 and 13 of these VIEs as of January 31, 2020 and October 31, 2019, respectively, we 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. As of January 31, 2020, we have consolidated five Rental Property Joint Ventures. The carrying value of these joint ventures’ assets totaling $157.9 million is reflected in “Receivables, prepaid expenses, and other assets” in our Condensed Consolidated Balance Sheet as of January 31, 2020. Our partners’ interests aggregating $43.5 million in the joint ventures are reflected as a component of “Noncontrolling interest” in our Condensed Consolidated Balance Sheet as of January 31, 2020. These joint ventures were determined to be VIEs due to their current inability to finance their activities without additional subordinated financial support as well as our partners’ inability to participate in the significant decisions of the joint venture and their lack of substantive kick-out rights. We further concluded that we are the primary beneficiary of these VIEs due to our controlling financial interest in such ventures as we have the power to direct the activities that most significantly impact the joint ventures’ performance and the obligation to absorb expected losses or receive benefits from the joint ventures. The assets of these VIEs can only be used to settle the obligations of the VIEs. In addition, in certain of the joint ventures, in the event additional contributions are required to be funded to the joint ventures prior to the admission of any additional investor at a future date, we will fund 100% of such contributions, including our partner’s pro rata share, which we expect would be funded through an interest-bearing loan. At January 31, 2020 and October 31, 2019, our investments in the unconsolidated entities deemed to be VIEs totaled $43.7 million and $37.0 million, respectively. At January 31, 2020 and October 31, 2019, the maximum exposure of loss to our investments in these entities was limited to our investments in the unconsolidated VIEs, except with regard to $42.0 million and $76.0 million, respectively, of loan guarantees and $6.8 million and $8.3 million, respectively, of additional commitments to the VIEs. Of our potential exposure for these loan guarantees at January 31, 2020 and October 31, 2019, $11.1 million and $76.0 million, respectively, is related to loan repayment and carry cost guarantees, of which $76.0 million was borrowed at October 31, 2019. There were no borrowings under these loan repayment and carry cost guarantees at January 31, 2020. 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, 2020 |  | October 31, 2019
Cash and cash equivalents | $ | 68,237 |  |  | $ | 85,819 |
Inventory | 516,740 |  |  | 579,226 |
Loans receivable, net | 65,375 |  |  | 56,545 |
Rental properties | 923,356 |  |  | 1,021,848 |
Rental properties under development | 675,921 |  |  | 535,197 |
Real estate owned | 12,274 |  |  | 12,267 |
Other assets | 160,840 |  |  | 212,761 |
Total assets | $ | 2,422,743 |  |  | $ | 2,503,663 |
Debt, net of deferred financing costs | $ | 1,166,882 |  |  | $ | 1,226,857 |
Other liabilities | 177,092 |  |  | 175,827 |
Members’ equity | 1,078,769 |  |  | 1,100,563 |
Noncontrolling interest | — |  |  | 416 |
Total liabilities and equity | $ | 2,422,743 |  |  | $ | 2,503,663 |
Company’s net investment in unconsolidated entities (1) | $ | 364,352 |  |  | $ | 366,252 |
(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 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; unrealized gains on our retained joint venture interests; 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,
| 2020 |  | 2019
Revenues | $ | 133,170 |  |  | $ | 153,230 |
Cost of revenues | 95,308 |  |  | 131,755 |
Other expenses | 41,183 |  |  | 18,475 |
Total expenses | 136,491 |  |  | 150,230 |
Gain on disposition of loans and real estate owned | — |  |  | 3,694 |
(Loss) income from operations | (3,321 | ) |  | 6,694 |
Other income | 612 |  |  | 647 |
(Loss) income before income taxes | (2,709 | ) |  | 7,341 |
Income tax provision | 140 |  |  | 265 |
Net (loss) income including earnings from noncontrolling interests | (2,849 | ) |  | 7,076 |
Less: income attributable to noncontrolling interest | — |  |  | (2,109 | )
Net (loss) income attributable to controlling interest | $ | (2,849 | ) |  | $ | 4,967 |
Company’s equity in earnings of unconsolidated entities (1) | $ | 12,141 |  |  | $ | 6,140 |
(1) Differences between our equity in earnings of unconsolidated entities and the underlying net income of the entities are primarily a result of 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; gains recognized from the sale of our investment to our joint venture partner; 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 + Details
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