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Note 18 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures | 9 Months Ended
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Jul. 31, 2024
Investments in Unconsolidated Homebuilding and Land Development Joint Ventures |
Investments in Unconsolidated Homebuilding and Land Development Joint Ventures |
18. | 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. During the first quarter of fiscal 2023, we contributed four communities we owned, including one active selling community to a 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. 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" for the three and nine months ended July 31, 2023. 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" for the three and nine months ended July 31, 2024. 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.
|  | July 31, 2024 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 129,396 |  |  | $ | 331 |  |  | $ | 129,727 |
Inventories |  |  | 410,777 |  |  |  | - |  |  |  | 410,777 |
Other assets |  |  | 350,532 |  |  |  | - |  |  |  | 350,532 |
Total assets |  | $ | 890,705 |  |  | $ | 331 |  |  | $ | 891,036 |
Liabilities and equity: |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 514,266 |  |  | $ | 31 |  |  | $ | 514,297 |
Notes payable |  |  | 94,478 |  |  |  | - |  |  |  | 94,478 |
Total liabilities |  |  | 608,744 |  |  |  | 31 |  |  |  | 608,775 |
Equity of: |  |  |  |  |  |  |  |  |  |  |  |
Hovnanian Enterprises, Inc. |  |  | 124,213 |  |  |  | 1 |  |  |  | 124,214 |
Others |  |  | 157,748 |  |  |  | 299 |  |  |  | 158,047 |
Total equity |  |  | 281,961 |  |  |  | 300 |  |  |  | 282,261 |
Total liabilities and equity |  | $ | 890,705 |  |  | $ | 331 |  |  | $ | 891,036 |
Debt to capitalization ratio |  |  | 25 | % |  |  | 0 | % |  |  | 25 | %
|  | 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 July 31, 2024 and October 31, 2023, we had outstanding advances to unconsolidated joint ventures of $2.1 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 equity reflected in the tables above because of differences between asset impairments recorded against our unconsolidated joint venture investments and any impairments recorded in the applicable unconsolidated joint venture. During the nine months ended July 31, 2024 and 2023, we did not write-down any of our unconsolidated joint venture investments.
|  | Three Months Ended July 31, 2024 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Revenues |  | $ | 155,930 |  |  | $ | - |  |  | $ | 155,930 |
Cost of sales and expenses |  |  | (134,612 | ) |  |  | 414 |  |  |  | (134,198 | )
Joint venture net income |  | $ | 21,318 |  |  | $ | 414 |  |  | $ | 21,732 |
Our share of net income |  | $ | 10,698 |  |  | $ | - |  |  | $ | 10,698 |
|  | Three Months Ended July 31, 2023 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Revenues |  | $ | 122,579 |  |  | $ | - |  |  | $ | 122,579 |
Cost of sales and expenses |  |  | (106,873 | ) |  |  | (1 | ) |  |  | (106,874 | )
Joint venture net income (loss) |  | $ | 15,706 |  |  | $ | (1 | ) |  | $ | 15,705 |
Our share of net income (loss) |  | $ | 8,401 |  |  | $ | - |  |  | $ | 8,401 |
|  | Nine Months Ended July 31, 2024 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Revenues |  | $ | 406,399 |  |  | $ | - |  |  | $ | 406,399 |
Cost of sales and expenses |  |  | (354,388 | ) |  |  | 414 |  |  |  | (353,974 | )
Joint venture net income |  | $ | 52,011 |  |  | $ | 414 |  |  | $ | 52,425 |
Our share of net income |  | $ | 36,814 |  |  | $ | - |  |  | $ | 36,814 |
|  | Nine Months Ended July 31, 2023 |
|  |  |  |  |  | Land |  |  |  |  |
(In thousands) |  | Homebuilding |  |  | Development |  |  | Total |
Revenues |  | $ | 283,710 |  |  | $ | - |  |  | $ | 283,710 |
Cost of sales and expenses |  |  | (260,110 | ) |  |  | (4 | ) |  |  | (260,114 | )
Joint venture net income (loss) |  | $ | 23,600 |  |  | $ | (4 | ) |  | $ | 23,596 |
Our share of net income (loss) |  | $ | 20,969 |  |  | $ | - |  |  | $ | 20,969 |
The reason “Our share of net income” in homebuilding joint ventures 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 three and nine months ended July 31, 2024 and 2023, respectively, we had investments in seven 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 three and nine months ended July 31, 2024, "Our share of net income" was less 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 based on the joint venture agreements, partially offset by one unconsolidated joint venture with increased income during the period for which we currently recognize a higher profit-sharing percentage based on the joint venture agreements. In addition, "Joint venture net income" for the three and nine months ended July 31, 2024, was positively impacted by an unconsolidated joint venture that was generating income but such income did not impact "Our share of net income" because we had previously written off our investment in such joint venture. 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 ventures' revenues. These management fees, which totaled $5.5 million and $4.5 million for the three months ended July 31, 2024 and 2023, respectively, and $14.0 million and $11.2 million for the nine months ended July 31, 2024 and 2023, respectively, are recorded in “Selling, general and administrative” homebuilding expenses in the Condensed Consolidated Statements of Operations. Our unconsolidated joint ventures may obtain separate project specific mortgage financing. 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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