Note 18 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

3 Months Ended

Jan. 31, 2025

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 2025, we contributed four active selling communities we owned to one new unconsolidated joint venture for $20.8 million of net cash and a $50.0 million note receivable, resulting in a gain of $22.7 million, which was recorded 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.

	January 31, 2025
				Land
(In thousands)	Homebuilding			Development			Total
Assets:
Cash and cash equivalents	$	125,534		$	-		$	125,534
Inventories		514,781			-			514,781
Other assets		255,556			-			255,556
Total assets	$	895,871		$	-		$	895,871

Liabilities and equity:
Accounts payable and accrued liabilities	$	443,890		$	-		$	443,890
Notes payable		125,883			-			125,883
Total liabilities		569,773			-			569,773
Equity of:
Hovnanian Enterprises, Inc.		171,867			-			171,867
Others		154,231			-			154,231
Total equity		326,098			-			326,098
Total liabilities and equity	$	895,871		$	-		$	895,871
Debt to capitalization ratio		28	%		0	%		28	%

	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	%

As of January 31, 2025 and October 31, 2024, we had outstanding advances to unconsolidated joint ventures of $0.8 million and $2.4 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 three months ended January 31, 2025 and 2024, we did not write-down any of our unconsolidated joint venture investments.

	Three Months Ended January 31, 2025
				Land
(In thousands)	Homebuilding			Development		Total

Revenues	$	133,913		$	-	$	133,913
Cost of sales and expenses		(120,258	)		-		(120,258	)
Joint venture net income	$	13,655		$	-	$	13,655
Our share of net income	$	9,205		$	-	$	9,205

	Three Months Ended January 31, 2024
				Land
(In thousands)	Homebuilding			Development		Total

Revenues	$	126,425		$	-	$	126,425
Cost of sales and expenses		(108,659	)		-		(108,659	)
Joint venture net income	$	17,766		$	-	$	17,766
Our share of net income	$	14,952		$	-	$	14,952

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 months ended January 31, 2025 and 2024, respectively, we had investments in seven unconsolidated joint ventures for both periods, 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 months ended January 31, 2025, “Our share of net income” was less than the "Joint venture net income" due to two 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 losses during the period for which we currently recognize a lower profit-sharing percentage based on the joint venture agreements.

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 $5.3 million and $4.3 million for the three months ended January 31, 2025 and 2024, 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.