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Investments in Unconsolidated Joint Ventures | 6 Months Ended
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May 31, 2023
Equity Method Investments and Joint Ventures [Abstract] |
Investments in Unconsolidated Joint Ventures | Investments in Unconsolidated Joint Ventures Homebuilding. We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to our respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents. As of both May 31, 2023 and November 30, 2022, we had investments in six homebuilding unconsolidated joint ventures. The following table presents combined condensed information from the statements of operations for our homebuilding unconsolidated joint ventures (in thousands):
| Three Months Ended May 31, |  | Six Months Ended May 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues | $ | 1,171 |  |  | $ | 1,108 |  |  | $ | 1,171 |  |  | $ | 3,958 |
Construction and land costs | (683) |  |  | (772) |  |  | (686) |  |  | (3,071) |
Other expense, net | (960) |  |  | (918) |  |  | (2,410) |  |  | (1,348) |
Loss | $ | (472) |  |  | $ | (582) |  |  | $ | (1,925) |  |  | $ | (461) |
The following table presents combined condensed balance sheet information for our homebuilding unconsolidated joint ventures (in thousands):
| May 31, 2023 |  | November 30, 2022
Assets |  |  |
Cash | $ | 13,823 |  |  | $ | 14,066 |
Receivables | 2,886 |  |  | 3,394 |
Inventories | 138,290 |  |  | 114,465 |
Other assets | 554 |  |  | 633 |
Total assets | $ | 155,553 |  |  | $ | 132,558 |
Liabilities and equity |  |  |
Accounts payable and other liabilities | $ | 8,085 |  |  | $ | 8,369 |
Notes payable (a) | 47,457 |  |  | 34,396 |
Equity | 100,011 |  |  | 89,793 |
Total liabilities and equity | $ | 155,553 |  |  | $ | 132,558 |
(a) As of both May 31, 2023 and November 30, 2022, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit it entered into with a third-party lender in April 2022 to finance its land acquisition, development and construction activities. Borrowings under this line of credit, which has a maximum commitment of $62.0 million, are secured by the underlying property and related project assets. The line of credit is scheduled to mature on April 19, 2026, unless extended or terminated pursuant to its applicable terms. None of our other unconsolidated joint ventures had outstanding debt at May 31, 2023 or November 30, 2022. We provide certain guarantees and indemnities to the lender in connection with the above-described revolving line of credit, including a guaranty of interest and carry costs; a guaranty to complete the construction of phases of the improvements for the project as such phases are commenced; a guaranty against losses suffered due to certain bad acts or failures to act by the unconsolidated joint venture or its partners; and an indemnity from environmental issues. Except to the extent related to the foregoing guarantees and indemnities, we do not have a guaranty or any other obligation to repay borrowings under the line of credit or to support the value of the underlying collateral. However, various financial and non-financial covenants apply under the line of credit and with respect to the related guaranty and indemnity obligations, and a failure to comply with such covenants could result in a default and cause the lender to seek to enforce such guaranty and indemnity obligations. As of the date of this report, we were in compliance with the relevant covenants. We do not believe that our existing exposure under our guaranty and indemnity obligations related to outstanding borrowings under the line of credit is material to our consolidated financial statements. Financial Services. The following table presents combined condensed information from the statements of operations for our financial services unconsolidated joint ventures (in thousands):
| Three Months Ended May 31, |  | Six Months Ended May 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues | $ | 28,450 |  |  | $ | 50,224 |  |  | $ | 48,640 |  |  | $ | 80,200 |
Expenses | (17,599) |  |  | (20,607) |  |  | (34,624) |  |  | (40,287) |
Income | $ | 10,851 |  |  | $ | 29,617 |  |  | $ | 14,016 |  |  | $ | 39,913 |
Revenues are primarily generated from fees earned on mortgage loan originations, interest earned for the period loans are held by KBHS, and gains on the sales of mortgage loans held for sale. Gains on the sales of mortgage loans held for sale include the realized and unrealized gains and losses associated with changes in the fair value of such loans and any related derivative financial instruments. The following table presents combined condensed balance sheet information for our financial services unconsolidated joint venture (in thousands):
| May 31, 2023 |  | November 30, 2022
Assets |  |  |
Cash and cash equivalents | $ | 21,818 |  |  | $ | 28,120 |
Mortgage loans held for sale | 186,573 |  |  | 250,572 |
Other assets | 28,173 |  |  | 33,176 |
Total assets | $ | 236,564 |  |  | $ | 311,868 |
Liabilities and equity |  |  |
Accounts payable and other liabilities | $ | 13,255 |  |  | $ | 15,590 |
Funding facilities | 179,981 |  |  | 242,944 |
Equity | 43,328 |  |  | 53,334 |
Total liabilities and equity | $ | 236,564 |  |  | $ | 311,868 |
Mortgage loans held for sale. Originated mortgage loans expected to be sold into the secondary market in the foreseeable future are reported as mortgage loans held for sale and carried in KBHS’ balance sheets at fair value, with changes in fair value recognized within revenues in KBHS’ statements of operations. Interest Rate Lock Commitments (“IRLCs”). KBHS enters into IRLCs in connection with originating certain mortgage loans held for sale, at specified interest rates and within a specified period of time, with customers who have applied for a mortgage loan and meet certain credit and underwriting criteria. KBHS accounts for IRLCs as free-standing derivatives and does not designate any for hedge accounting. As a result, IRLCs are recognized in KBHS’ balance sheets at fair value, and gains or losses resulting from changes in fair value are recognized within revenues in KBHS’ statements of operations. The fair value of IRLCs is based on market prices, which includes an estimate of the fair value of the associated mortgage servicing rights, adjusted for estimated costs to originate the underlying mortgage loans as well as the probability that the mortgage loans will fund within the terms of the IRLCs. The fair value of IRLCs included in other assets in KBHS’ balance sheets was $25.6 million at May 31, 2023 and $29.8 million at November 30, 2022. The changes in the fair value of IRLCs, which were reported in revenues for the applicable periods, were losses of $2.7 million and $4.2 million for the three-month and six-month periods ended May 31, 2023, respectively, and gains of $25.8 million and $33.4 million for the three-month and six-month periods ended May 31, 2022, respectively. KBHS manages the interest rate and price risk associated with its outstanding IRLCs by entering into best efforts forward sale commitments under which mortgage loans locked with a borrower are simultaneously committed to a secondary market investor at a fixed price, subject to the underlying mortgage loans being funded. These best efforts forward sale commitments do not meet the definition of derivative financial instruments and are therefore not recorded in KBHS’ balance sheets. If the mortgage loans underlying the IRLCs do not fund, KBHS has no obligation to fulfill the secondary market investor commitments. Funding facilities. KBHS maintains warehouse line of credit and master repurchase agreements with various financial institutions to fund its originated mortgage loans, with its mortgage loans held for sale pledged as collateral under these agreements. The agreements contain covenants which include certain financial requirements, including maintenance of minimum tangible net worth, minimum liquid assets, maximum debt to net worth ratio and positive net income, as defined in the agreements. KBHS was in compliance with these covenants as of May 31, 2023. In addition to its compliance with these covenants, KBHS also depends on the ability and willingness of the applicable lenders and financial institutions to extend such credit facilities to KBHS to fund its originated mortgage loans. KBHS intends to renew these facilities when they expire at various dates in 2023. The warehouse line of credit and master repurchase agreements are not guaranteed by us or any of the subsidiaries that guarantee our senior notes, unsecured revolving credit facility with various banks (“Credit Facility”) and senior unsecured term loan agreement (“Term Loan”), (collectively, “Guarantor Subsidiaries”).

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI https://asc.fasb.org/topic&trid=2196965 + Details
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