Note 6 - Investments in and Advances to Unconsolidated Joint Ventures

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

6.    Investments in and Advances to Unconsolidated Joint Ventures

As of December 31, 2019 and 2018, the Company had ownership interests in 10 unconsolidated joint ventures with ownership percentages that generally ranged from 5% to 35%. The condensed combined balance sheets for our unconsolidated joint ventures accounted for under the equity method were as follows:

	December 31,
	2019			2018
	(Dollars in thousands)
Cash and cash equivalents	$	31,484		$	45,945
Restricted cash		13,852			19,205
Real estate inventories		241,416			374,607
Other assets		3,843			4,231
Total assets	$	290,595		$	443,988
Accounts payable and accrued liabilities	$	16,778		$	43,158
Notes payable		28,665			71,299
Total liabilities		45,443			114,457
The New Home Company's equity(1)		27,722			33,617
Other partners' equity		217,430			295,914
Total equity		245,152			329,531
Total liabilities and equity	$	290,595		$	443,988
Debt-to-capitalization ratio		10.5	%		17.8	%
Debt-to-equity ratio		11.7	%		21.6	%

(1) Balance represents the Company's interest, as reflected in the financial records of the respective joint ventures.  This balance differs from the investment in and advances to unconsolidated joint ventures balance reflected in the Company's consolidated balance sheets by $2.5 million due to interest capitalized to the Company's investment in joint ventures and certain other differences in outside basis. 

The condensed combined statements of operations for our unconsolidated joint ventures accounted for under the equity method were as follows:

	Year Ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Revenues	$	164,038		$	181,623		$	147,447
Cost of sales and expenses		230,953			209,527			147,976
Net loss of unconsolidated joint ventures	$	(66,915	)	$	(27,904	)	$	(529	)
Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying consolidated statements of operations	$	(3,503	)	$	(19,653	)	$	866

Included in cost of sales and expenses for our unconsolidated joint ventures for the years ended December 31, 2019 and 2018, was $70.0 million and $28.8 million in real estate impairment charges, respectively. The Company's allocated share of these charges was $3.5 million and $18.9 million for 2019 and 2018, respectively.  The 2019 impairment related to the assets of a land development joint venture in Southern California while the 2018 impairment related to the assets of a land development joint venture in Northern California. Fair values for the land development projects impaired during 2019 and 2018 were calculated under discounted cash flow models. The table below summarizes inventory impairments recorded by our unconsolidated joint ventures during the years ended December 31, 2019, 2018 and 2017.

	Year Ended December 31,
	2019		2018		2017
	(Dollars in thousands)
Joint venture impairments related to:
Homebuilding joint ventures	$	—	$	—	$	—
Land development joint ventures		70,000		28,776		—
Total joint venture impairments	$	70,000	$	28,776	$	—
Number of projects impaired during the year		1		1		—
Total number of projects included in unconsolidated joint ventures and reviewed for impairment during the year		10		10		10

The Company reviews its investments in and advances to unconsolidated joint ventures for other-than-temporary declines in value in accordance with ASC 820. To the extent we deem any portion of our investment in and advances to unconsolidated joint ventures as not recoverable, we impair our investment accordingly. For the years ended December 31, 2019, 2018 and 2017, the Company recorded other-than-temporary, noncash impairment charges of $0, $1.1 million, and $0, respectively, related to our investment in and advances to unconsolidated joint ventures. The 2018 impairment related to our investment in a Northern California land development joint venture and was included in equity in net income (loss) of unconsolidated joint ventures in the accompanying consolidated statements of operations.

As a smaller reporting company, the Company is subject to the provisions of Rule 8-03(b)(3) of Regulation S-X which requires the disclosure of certain financial information for equity investees that constitute 20% or more of the Company's consolidated net income (loss). For the year ended December 31, 2019, the loss allocation from one of the Company's unconsolidated joint ventures accounted for under the equity method exceeded 20% of the Company's consolidated net loss. For the year ended December 31, 2018, the loss allocation from another one of the Company's unconsolidated joint ventures accounted for under the equity method exceeded 20% of the Company's consolidated net loss.  The table below presents select combined financial information for both of these unconsolidated joint ventures for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Revenues	$	33,144		$	38,789		$	—
Cost of sales:
Land sales		31,103			36,676			—
Inventory impairments		70,000			28,776			—
Gross Margin		(67,959	)		(26,663	)		—
Expenses		(2,879	)		(3,289	)		(2,680	)
Net loss	$	(70,838	)	$	(29,952	)	$	(2,680	)
Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying consolidated statements of operations (1)	$	(3,656	)	$	(20,283	)	$	(462	)

(1) Balance represents equity in net income (loss) of unconsolidated joint ventures included in the statements of operations related to the Company's investment in these two unconsolidated joint ventures. The balance may differ from the amount of profit or loss allocated to the Company as reflected in each joint venture's financial records primarily due to basis differences such as other-than-temporary impairment charges, interest capitalized to the Company's investment in joint ventures, and/or profit deferral from lot sales from the joint ventures to the Company.

For the years ended December 31, 2019, 2018 and 2017, the Company earned $1.9 million, $3.4 million, and $4.9 million, respectively, in management fees from its unconsolidated joint ventures. For additional detail regarding management fees, please see Note 12.

On October 23, 2017, the Company acquired the remaining outside equity interest of our TNHC Tidelands LLC (Tidelands) unconsolidated joint venture. TNHC Tidelands LLC was the owner of a project in Northern California (the "Tidelands Project"). The Company paid $13.6 million to our joint venture partner for its interest and paid off the $4.1 million remaining balance on the joint venture's construction loan. Following the purchase, the Company was required to consolidate this entity as it was now a wholly owned subsidiary of the Company, and the Tidelands Project became a wholly owned active selling community of the Company. The purchase consideration and the cost basis of our previous investment in unconsolidated joint ventures related to this joint venture were included in real estate inventories at the time of consolidation.

In August 2017, we acquired the remaining outside equity interest of our DMB/TNHC LLC (Sterling at Silverleaf) unconsolidated joint venture. The Company paid $2.6 million to our joint venture partner and upon the change of control was required to consolidate this venture as it is now a wholly owned subsidiary of the Company. The purchase consideration and the cost basis of our previous investment in unconsolidated joint ventures related to this joint venture are included in real estate inventories.

During the 2017 second quarter, our Larkspur Land 8 Investors LLC (Larkspur) unconsolidated joint venture allocated $0.1 million of income to the Company from a reduction in cost to complete reserves, which was included in equity in net income (loss) of unconsolidated joint ventures in the accompanying consolidated statements of operations, and our outside equity partner exited the joint venture. Upon the change in control, we were required to consolidate this venture as a wholly owned subsidiary and the Company assumed the cash, other assets, and accrued liabilities, including warranty and the remaining costs to complete reserves, of the joint venture. As part of this transaction, the Company also recognized a gain of $0.3 million, which was included in equity in net income (loss) of unconsolidated joint ventures in the accompanying consolidated statements of operations, due to the purchase of our JV partner's interest for less than its carrying value.