Note 6 - Investments in and Advances to Unconsolidated Joint Ventures

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

6. Investments in and Advances to Unconsolidated Joint Ventures

As of  June 30, 2020 and December 31, 2019, 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:

	June 30,			December 31,
	2020			2019
	(Dollars in thousands)
Cash and cash equivalents	$	28,375		$	31,484
Restricted cash		13,250			13,852
Real estate inventories		221,972			241,416
Other assets		3,778			3,843
Total assets	$	267,375		$	290,595
Accounts payable and accrued liabilities	$	11,100		$	16,778
Notes payable		11,633			28,665
Total liabilities		22,733			45,443
The New Home Company's equity(1)		28,465			27,722
Other partners' equity		216,177			217,430
Total equity		244,642			245,152
Total liabilities and equity	$	267,375		$	290,595
Debt-to-capitalization ratio		4.5	%		10.5	%
Debt-to-equity ratio		4.8	%		11.7	%

(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 $15.5 million due to other-than-temporary impairment charges to the Company's investment, 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:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
	(Dollars in thousands)
Revenues	$	30,290		$	59,078	$	61,937		$	101,365
Cost of sales and expenses		28,672			57,288		58,957			99,062
Net income of unconsolidated joint ventures	$	1,618		$	1,790	$	2,980		$	2,303
Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations	$	(19,962	)	$	185	$	(21,899	)	$	369

The Company reviews its investments in and advances to unconsolidated joint ventures for other-than-temporary declines in value. To the extent we deem any declines in value of our investment in and advances to unconsolidated joint ventures to be other-than-temporary, we impair our investment accordingly. For the three and six months ended June 30, 2020 and 2019, the Company recorded other-than-temporary, noncash impairment charges of $20.0 million, $22.3 million, $0 and $0, respectively.  The Company plans to exit from its TNHC Russell Ranch LLC ("Russell Ranch") venture due to low expected financial returns relative to the required future capital contributions and related risks, including the potential impact of COVID-19 on the economy, as well as the Company's opportunity to pursue federal tax loss carryback refund opportunities from the passage of the CARES Act. As a result, the Company determined that its investment in the joint venture was not recoverable.  The Company recorded a $20.0 million other-than-temporary impairment charge during the 2020 second quarter to write off its investment in Russell Ranch and to record a liability for its estimated costs to complete the Phase 1 backbone infrastucture costs.  The Company believes that exiting the venture preserves capital, reduces its investment concentration within one geographical location, and allows it to pursue federal tax loss carryback refunds.  This impairment charge reflects the Company's current estimates but actual losses associated with exiting the joint venture could differ materially based on the ultimate sales price of the underlying asset. The 2020 first quarter impairment charge of $2.3 million related to our investment in the Arantine Hills Holdings LP ("Bedford") joint venture.  The Company has agreed to sell its interest in this joint venture to our partner for less than our current carrying value. This transaction is expected to close during the 2020 third quarter.  Pursuant to our agreement to sell our interest, the purchase price is approximately $5.1 million for the sale of our partnership interest and we will have an option to purchase at market up to 30% of the lots from the masterplan community.  Joint venture impairment charges are included in equity in net income (loss) of unconsolidated joint ventures in the accompanying condensed 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 three and six months ended June 30, 2020, 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 six months ended June 30, 2019, income allocations from two of the Company's unconsolidated joint ventures accounted for under the equity method each exceeded 20% of the Company's consolidated net loss. The table below presents select combined financial information for these three joint ventures for the three and six months ended June 30, 2020 and 2019: 

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
	(Dollars in thousands)
Revenues	$	26,198		$	45,167	$	45,746		$	77,463
Cost of home and land sales		24,012			41,352		41,314			70,686
Gross margin	$	2,186		$	3,815	$	4,432		$	6,777
Expenses		1,243			1,990		2,590			3,852
Net income	$	943		$	1,825	$	1,842		$	2,925
Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying consolidated statements of operations	$	(19,926	)	$	247	$	(19,718	)	$	486

In the above table, the Company's net losses for the three and six months ended June 30, 2020 include a $20.0 million other-than-temporary impairment charge related to its interest in one land development joint venture.

For the three and six months ended June 30, 2020 and 2019, the Company earned $0.2 million, $0.6 million, $0.6 million and $1.2 million respectively, in management fees from its unconsolidated joint ventures. For additional detail regarding management fees, please see Note 12.