17.	Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with

third

-party investors to develop land and construct homes that are sold directly to

third

-party home buyers. Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other

third

parties.

During the

first

quarter of fiscal

2018,

we acquired the remaining assets of

one

of our joint ventures, resulting in a

$13.0

million reduction in our investment in the joint venture and a corresponding increase to inventory.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

(Dollars in thousands)	April 30, 2019
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$92,351		$2,168		$94,519
Inventories	469,815		7,987		477,802
Other assets	26,799		-		26,799
Total assets	$588,965		$10,155		$599,120

Liabilities and equity:
Accounts payable and accrued liabilities	$69,621		$508		$70,129
Notes payable	240,571		-		240,571
Total liabilities	310,192		508		310,700
Equity of:
Hovnanian Enterprises, Inc.	124,344		4,608		128,952
Others	154,429		5,039		159,468
Total equity	278,773		9,647		288,420
Total liabilities and equity	$588,965		$10,155		$599,120
Debt to capitalization ratio	46	%	0	%	45	%

(Dollars in thousands)	October 31, 2018
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$50,010		$2,275		$52,285
Inventories	506,650		8,004		514,654
Other assets	35,105		-		35,105
Total assets	$591,765		$10,279		$602,044

Liabilities and equity:
Accounts payable and accrued liabilities	$79,108		$746		$79,854
Notes payable	236,665		-		236,665
Total liabilities	315,773		746		316,519
Equity of:
Hovnanian Enterprises, Inc.	114,950		4,369		119,319
Others	161,042		5,164		166,206
Total equity	275,992		9,533		285,525
Total liabilities and equity	$591,765		$10,279		$602,044
Debt to capitalization ratio	46	%	0	%	45	%

As of

April 30, 2019

and

October 31, 2018,

we had advances and a note receivable outstanding of

$6.0

million and

$4.6

million, respectively, to these unconsolidated joint ventures. These amounts were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Condensed Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to

$135.6

million and

$123.7

million at

April 30, 2019

and

October 31, 2018,

respectively. In some cases our net investment in these joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our joint venture investments and any impairments recorded in the applicable joint venture. Impairments of joint venture investments are recorded at fair value while impairments recorded in the joint venture are recorded when undiscounted cash flows trigger the impairment. During the

six

months ended

April 30, 2019

and

2018,

we did

not

write-down any of our joint venture investments; however, during the

six

months ended

April 30, 2018,

one

of our joint ventures in the Northeast recorded an asset impairment. We recorded our proportionate share of this impairment charge of

$0.7

million as part of our share of the net loss of the venture.

	For the Three Months Ended April 30, 2019
(In thousands)	Homebuilding		Land Development		Total

Revenues	$125,739		$2,591		$128,330
Cost of sales and expenses	(118,019	)	(2,146	)	(120,165	)
Joint venture net income	$7,720		$445		$8,165
Our share of net income	$7,083		$223		$7,306

	For the Three Months Ended April 30, 2018
(In thousands)	Homebuilding		Land Development		Total

Revenues	$96,931		$2,343		$99,274
Cost of sales and expenses	(102,230	)	(2,123	)	(104,353	)
Joint venture net (loss) income	$(5,299	)	$220		$(5,079	)
Our share of net (loss) income	$1,296		$109		$1,405

	For the Six Months Ended April 30, 2019
(In thousands)	Homebuilding		Land Development		Total

Revenues	$221,513		$3,596		$225,109
Cost of sales and expenses	(207,331	)	(3,117	)	(210,448	)
Joint venture net income	$14,182		$479		$14,661
Our share of net income	$16,624		$240		$16,864

	For the Six Months Ended April 30, 2018
(In thousands)	Homebuilding		Land Development		Total

Revenues	$155,496		$3,618		$159,114
Cost of sales and expenses	(174,366	)	(3,281	)	(177,647	)
Joint venture net (loss) income	$(18,870	)	$337		$(18,533	)
Our share of net (loss) income	$(3,903	)	$168		$(3,735	)

“Income (loss) from unconsolidated joint ventures” is reflected as a separate line in the accompanying Condensed Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Condensed Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures and the deferral of income for lots purchased by us from certain joint ventures. For the

six

months ended

April 30, 2019,

the difference can also be attributed to a return of capital from a joint venture in which we had previously written off our investment. To compensate us for the administrative services we provide as the manager of certain joint ventures, we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled

$5.1

million and

$2.9

million for the

three

months ended

April 30, 2019

and

2018,

respectively, and

$8.5

million and

$4.9

million for the

six

months ended

April 30, 2019

and

2018,

respectively, are recorded in “Homebuilding: Selling, general and administrative” on the Condensed Consolidated Statements of Operations.

In determining whether or

not

we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our joint ventures is currently

45%.

Any joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the joint venture entity is considered a VIE under ASC

810

“Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are

not

the primary beneficiary, and therefore we do

not

consolidate these entities.