Investments in Unconsolidated Joint Ventures

12 Months Ended

Nov. 30, 2024

Equity Method Investments and Joint Ventures [Abstract]

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. Our partners in these

unconsolidated joint ventures are unrelated homebuilders, and/or land developers and other real estate entities, or commercial

enterprises. These investments are designed primarily to reduce market and development risks and to increase the number of

lots we own or control. In some instances, participating in unconsolidated joint ventures has enabled us to acquire and develop

land that we might not otherwise have had access to due to a project’s size, financing needs, duration of development or other

circumstances. While we consider our participation in unconsolidated joint ventures as potentially beneficial to our

homebuilding activities, we do not view such participation as essential.

For distributions we receive from these unconsolidated joint ventures, we have elected to use the cumulative earnings

approach for our consolidated statements of cash flows. Under the cumulative earnings approach, distributions up to the

amount of cumulative equity in earnings recognized are treated as returns on investment within operating cash flows and those

in excess of that amount are treated as returns of investment within investing cash flows.

We typically have obtained rights to acquire portions of the land held by the unconsolidated joint ventures in which we

currently participate. When an unconsolidated joint venture sells land to our homebuilding operations, we defer recognition of

our share of such unconsolidated joint venture’s earnings (losses) until we recognize revenues on the corresponding home sale,

which is generally when title to and possession of the home and the risks and rewards of ownership are transferred to the

homebuyer on the closing date. At that time, we account for the earnings (losses) as a reduction (increase) to the cost of

purchasing the land from the unconsolidated joint venture. We defer recognition of our share of such unconsolidated joint

venture losses only to the extent profits are to be generated from the sale of the home to a homebuyer.

We share in the earnings (losses) of these unconsolidated joint ventures generally in accordance with our respective equity

interests. In some instances, we recognize earnings (losses) related to our investment in an unconsolidated joint venture that

differ from our equity interest in the unconsolidated joint venture. This typically arises from our deferral of the unconsolidated

joint venture’s earnings (losses) from land sales to us, or other items.

We had investments in six unconsolidated joint ventures as of November 30, 2024, 2023 and 2022. The following table

presents combined condensed information from the statements of operations for our homebuilding unconsolidated joint

ventures (in thousands):


	Years Ended November 30,
	2024	2023	2022
Revenues	$65,866	$2,871	$5,251
Construction and land costs	(48,627)	(1,111)	(3,875)
Other expenses, net	(5,033)	(2,907)	(2,935)
Income (loss)	$12,206	$(1,147)	$(1,559)

The combined revenues and construction and land costs for 2024 primarily related to homes delivered by an

unconsolidated joint venture in California. In 2023 and 2022, our unconsolidated joint ventures did not deliver any homes. The

following table presents combined condensed balance sheet information for our homebuilding unconsolidated joint ventures (in

thousands):


	November 30,
	2024	2023
Assets
Cash	$18,869	$16,260
Receivables	2,918	3,437
Inventories	158,322	152,456
Other assets	1,052	679
Total assets	$181,161	$172,832

Liabilities and equity
Accounts payable and other liabilities	$8,091	$9,632
Notes payable (a)	47,300	53,386
Equity	125,770	109,814
Total liabilities and equity	$181,161	$172,832

(a)As of both November 30, 2024 and 2023, the unconsolidated joint venture in California that delivered homes in 2024 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. In April 2024, the revolving line of credit was amended,

increasing the aggregate commitment to $70.0 million from $62.0 million, with the amount of all advances through

October 2024 not to exceed $80.0 million. Principal repayments are made as homes are delivered, which began in May

2024. Pursuant to the amendment, the revolving line of credit converted to a term loan and the aggregate commitment was

reduced to $55.0 million effective October 31, 2024, and will be reduced to $25.0 million by April 30, 2025. Borrowings

under this term loan are secured by the underlying property and related project assets. This term loan 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 November 30, 2024 or 2023.

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, mostly comprised of KBHS’s activities (in thousands):


	Years Ended November 30,
	2024	2023	2022
Revenues	$129,516	$100,785	$115,173
Expenses	(75,165)	(69,390)	(73,573)
Income	$54,351	$31,395	$41,600

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):


	November 30,
	2024	2023
Assets
Cash and cash equivalents (a)	$31,702	$29,163
Mortgage loans held for sale	122,828	164,252
Other assets	22,815	18,380
Total assets	$177,345	$211,795

Liabilities and equity
Accounts payable and other liabilities	$15,398	$13,763
Funding facilities	117,953	159,324
Equity	43,994	38,708
Total liabilities and equity	$177,345	$211,795

(a)Cash and cash equivalents includes restricted cash of $1.3 million at November 30, 2024 and 2023.

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. 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

$16.0 million at November 30, 2024 and $13.9 million at November 30, 2023. The changes in the fair value of IRLCs, which

were reported in revenues for the applicable periods, were gains of $2.1 million for 2024 and $20.3 million for 2022 and a loss

of $16.0 million for 2023.

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 lines 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 November 30, 2024. In addition to its compliance with

these covenants, KBHS also depends on the ability and willingness of the applicable lenders and financial institutions,

including any substitute or additional 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 2025. The warehouse

lines of credit and master repurchase agreements are not guaranteed by us or any of our Guarantor Subsidiaries.