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Note 20 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures | 12 Months Ended
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Oct. 31, 2024
Investments in Unconsolidated Homebuilding and Land Development Joint Ventures |
Investments in Unconsolidated Homebuilding and Land Development Joint Ventures | 20. 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 investments in homebuilding and land development joint ventures consist of equity interests that, in total, provide us with partner investment returns and management fees. During the first quarter of fiscal 2023, we contributed four communities we owned, including one active selling community, to one new unconsolidated joint venture for $41.1 million of net cash. During the second quarter of fiscal 2023, one of the Company’s unconsolidated joint ventures was dissolved, and we assumed control of the remaining assets and liabilities. During the third quarter of fiscal 2023, we contributed 16 communities we owned, including eight active selling communities, to one new unconsolidated joint venture for $75.7 million of net cash. Also, during the third quarter of fiscal 2023, we assumed control of one of our unconsolidated joint ventures after the partner received their final cash distribution. We consolidated the remaining assets and liabilities that were in the unconsolidated joint venture at fair value on the date of distribution. Upon consolidation, we recorded a gain of $19.1 million in “Other (income) expense, net.” Subsequent to consolidation, we contributed the same three active selling communities to an unconsolidated joint venture for $48.0 million of net cash. During the second quarter of fiscal 2024, we contributed 11 communities we owned, including three active selling communities to a new unconsolidated joint venture for $53.8 million of net cash. During the third quarter of fiscal 2024, we assumed control of one of our unconsolidated joint ventures after the partner received their final cash distribution. We consolidated the remaining assets and liabilities that were in the unconsolidated joint venture at fair value on the date of distribution. Upon consolidation, we recorded a gain of $45.7 million in “Other (income) expense, net.” 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:
|  | October 31, 2024 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 130,532 |  |  | $ | - |  |  | $ | 130,532 |
Inventories |  |  | 402,628 |  |  |  | - |  |  |  | 402,628 |
Other assets |  |  | 311,955 |  |  |  | - |  |  |  | 311,955 |
Total assets |  | $ | 845,115 |  |  | $ | - |  |  | $ | 845,115 |
Liabilities and equity: |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 469,320 |  |  | $ | - |  |  | $ | 469,320 |
Notes payable |  |  | 88,653 |  |  |  | - |  |  |  | 88,653 |
Total liabilities |  |  | 557,973 |  |  |  | - |  |  |  | 557,973 |
Equity of: |  |  |  |  |  |  |  |  |  |  |  |
Hovnanian Enterprises, Inc. |  |  | 140,540 |  |  |  | - |  |  |  | 140,540 |
Others |  |  | 146,602 |  |  |  | - |  |  |  | 146,602 |
Total equity |  |  | 287,142 |  |  |  | - |  |  |  | 287,142 |
Total liabilities and equity |  | $ | 845,115 |  |  | $ | - |  |  | $ | 845,115 |
Debt to capitalization ratio |  |  | 24 | % |  |  | 0 | % |  |  | 24 | %
|  | October 31, 2023 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 127,547 |  |  | $ | 822 |  |  | $ | 128,369 |
Inventories |  |  | 375,022 |  |  |  | - |  |  |  | 375,022 |
Other assets |  |  | 380,989 |  |  |  | - |  |  |  | 380,989 |
Total assets |  | $ | 883,558 |  |  | $ | 822 |  |  | $ | 884,380 |
Liabilities and equity: |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 524,586 |  |  | $ | 605 |  |  | $ | 525,191 |
Notes payable |  |  | 101,126 |  |  |  | - |  |  |  | 101,126 |
Total liabilities |  |  | 625,712 |  |  |  | 605 |  |  |  | 626,317 |
Equity of: |  |  |  |  |  |  |  |  |  |  |  |
Hovnanian Enterprises, Inc. |  |  | 96,281 |  |  |  | 210 |  |  |  | 96,491 |
Others |  |  | 161,565 |  |  |  | 7 |  |  |  | 161,572 |
Total equity |  |  | 257,846 |  |  |  | 217 |  |  |  | 258,063 |
Total liabilities and equity |  | $ | 883,558 |  |  | $ | 822 |  |  | $ | 884,380 |
Debt to capitalization ratio |  |  | 28 | % |  |  | 0 | % |  |  | 28 | %
As of October 31, 2024 and 2023, we had outstanding advances to unconsolidated joint ventures of $2.4 million and $1.4 million, respectively. These amounts were included in “Accounts payable and accrued liabilities” in the tables above. In some cases, our net investment in unconsolidated 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 unconsolidated joint venture investments and any impairments recorded in the applicable unconsolidated joint venture. During the years ended October 31, 2024 and 2023, we did not write-down any of our unconsolidated joint venture investments.
|  | For The Year Ended October 31, 2024 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Revenues |  | $ | 552,727 |  |  | $ | - |  |  | $ | 552,727 |
Cost of sales and expenses |  |  | (484,967 | ) |  |  | 445 |  |  |  | (484,522 | )
Joint venture net income |  | $ | 67,760 |  |  | $ | 445 |  |  | $ | 68,205 |
Our share of net income |  | $ | 52,142 |  |  | $ | 121 |  |  | $ | 52,263 |
|  | For The Year Ended October 31, 2023 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Revenues |  | $ | 783,298 |  |  | $ | - |  |  | $ | 783,298 |
Cost of sales and expenses |  |  | (654,217 | ) |  |  | - |  |  |  | (654,217 | )
Joint venture net income |  | $ | 129,081 |  |  | $ | - |  |  | $ | 129,081 |
Our share of net income |  | $ | 43,160 |  |  | $ | - |  |  | $ | 43,160 |
|  | For The Year Ended October 31, 2022 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Revenues |  | $ | 351,767 |  |  | $ | 113 |  |  | $ | 351,880 |
Cost of sales and expenses |  |  | (318,788 | ) |  |  | (37 | ) |  |  | (318,825 | )
Joint venture net income |  | $ | 32,979 |  |  | $ | 76 |  |  | $ | 33,055 |
Our share of net income |  | $ | 29,002 |  |  | $ | 31 |  |  | $ | 29,033 |
The reason “Our share of net income” is higher or lower than the “Joint venture net income” in the tables above is a result of our varying ownership percentages in each investment. For the years ended October 31, 2024 and 2023, we had investments in six and eight unconsolidated joint ventures, respectively, and our ownership in these joint ventures ranged from 20% to over 50% for both periods. Therefore, depending on mix, if the unconsolidated joint ventures in which we have higher sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a higher overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage; conversely, if the unconsolidated joint ventures in which we have lower sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a lower overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage. For the year ended October 31, 2024, “Our share of net income” was less than the “Joint venture net income” due to five unconsolidated joint ventures with increased income during the period for which we currently recognize a lower profit-sharing percentage based on the joint venture agreements, partially offset by one unconsolidated joint venture with increased income during the period for which we recognized a higher profit-sharing percentage based on the joint venture agreements. For the year ended October 31, 2023, “Our share of net income” was lower than the “Joint venture net income” due to four unconsolidated joint ventures with increased income during the period for which we currently recognize a lower profit-sharing percentage as well as a fifth unconsolidated joint venture for which we were recognizing all of the net loss. To compensate us for the administrative services we provide as the manager of certain unconsolidated joint ventures, we receive a management fee based on a percentage of the applicable unconsolidated joint venture’s revenue. These management fees, which totaled $19.5 million, $16.3 million and $12.5 million for the years ended October 31, 2024, 2023 and 2022, are recorded in “Selling, general and administrative” homebuilding expenses in the Consolidated Statements of Operations. Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our unconsolidated joint ventures, obtaining financing was challenging, therefore, some of our unconsolidated joint ventures are capitalized only with equity. Any unconsolidated 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 unconsolidated joint venture entity is considered a VIE 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.

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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/recommendedDisclosureRef -Topic 740 -SubTopic 323 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478156/740-323-50-2 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 323 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (a)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481687/323-10-50-3 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 323 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481687/323-10-50-3 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Topic 323 -Publisher FASB -URI https://asc.fasb.org/323/tableOfContent + Details
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