Note 6 - Investments in and Advances to Unconsolidated Joint Ventures

12 Months Ended

Dec. 31, 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 December 31, 2020 and 2019, the Company had ownership interests in nine and ten, respectively, unconsolidated joint ventures with ownership percentages that generally ranged from 10% to 35%. The condensed combined balance sheets for our unconsolidated joint ventures accounted for under the equity method were as follows:

	December 31,
	2020			2019
	(Dollars in thousands)
Cash and cash equivalents	$	16,709		$	31,484
Restricted cash		611			13,852
Real estate inventories		3,172			241,416
Other assets		1,834			3,843
Total assets	$	22,326		$	290,595
Accounts payable and accrued liabilities	$	13,487		$	16,778
Notes payable		—			28,665
Total liabilities		13,487			45,443
The New Home Company's equity (1)		2,107			27,722
Other partners' equity		6,732			217,430
Total equity		8,839			245,152
Total liabilities and equity	$	22,326		$	290,595
Debt-to-capitalization ratio		—	%		10.5	%
Debt-to-equity ratio		—	%		11.7	%

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(1) Balance represents the Company's interest, as reflected in the financial records of the respective joint ventures.  At December 31, 2019, 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,
	2020			2019			2018
	(Dollars in thousands)
Revenues	$	137,819		$	164,038		$	181,623
Cost of sales and expenses		161,772			230,953			209,527
Net loss of unconsolidated joint ventures	$	(23,953	)	$	(66,915	)	$	(27,904	)
Equity in net loss of unconsolidated joint ventures reflected in the accompanying consolidated statements of operations	$	(18,791	)	$	(3,503	)	$	(19,653	)

Included in cost of sales and expenses for our unconsolidated joint ventures for the years ended December 31, 2020, 2019 and 2018, was $0, $70.0 million and $28.8 million in real estate impairment charges, respectively. The Company's allocated share of these charges was $0, $3.5 million and $18.9 million for 2020, 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, 2020, 2019 and 2018.  

	Year Ended December 31,
	2020		2019		2018
	(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.  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 years ended December 31, 2020, 2019 and 2018, the Company recorded other-than-temporary, noncash impairment charges of $22.3 million, $0, and $1.1 million, respectively.  Joint venture impairment charges are included in equity in net loss of unconsolidated joint ventures in the accompanying consolidated statements of operations.   

During the 2020 second quarter, the Company made the determination 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 Coronavirus Relief and Economic Security Act ("CARES Act"). As a result, the Company determined that its investment in the joint venture was not recoverable and recorded a $20.0 million other-than-temporary impairment charge to write off its investment in Russell Ranch and record a liability for its estimated costs to complete the Phase 1 backbone infrastructure 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.  The joint venture completed a sale of substantially all of its underlying assets to a third-party during the 2020 fourth quarter that resulted in a the Company recording income of $4.5 million to equity in income (loss) of unconsolidated joint ventures, partially offsetting the other-than-temporary impairment recorded during the 2020 second quarter.  The remaining 2020 other-than-temporary impairment charge of $2.3 million occurred in the 2020 first quarter and related to our investment in the Arantine Hills Holdings LP ("Bedford") joint venture.  The Company agreed to sell its interest in this joint venture to our partner for less than our current carrying value. This transaction closed during the 2020 third quarter.  Pursuant to our agreement to sell our interest, the purchase price was $5.1 million for the sale of our partnership interest and we have an option to purchase at market up to 30% of the lots from the masterplan community.  The $1.1 million other-than-temporary charge recorded during 2018 related to the Company's investment Russell Ranch.  Joint venture impairment charges are included in equity in net 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 years ended December 31, 2020 and 2018, the loss allocation from one of the Company's unconsolidated joint ventures in Northern California accounted for under the equity method exceeded 20% of the Company's consolidated net loss. For the year ended  December 31, 2019, the loss allocation from one of the Company's unconsolidated joint ventures in Southern California 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, 2020, 2019 and 2018:  

	Year Ended December 31,
	2020			2019			2018
	(Dollars in thousands)
Revenues	$	55,517		$	33,144		$	38,789
Cost of sales:
Land sales		74,279			31,103			36,676
Inventory impairments		—			70,000			28,776
Gross margin		(18,762	)		(67,959	)		(26,663)
Expenses		(2,742	)		(2,879	)		(3,289	)
Net loss	$	(21,504	)	$	(70,838	)	$	(29,952	)
Equity in net loss of unconsolidated joint ventures reflected in the accompanying consolidated statements of operations (1)	$	(17,744	)	$	(3,656	)	$	(20,283	)

(1) Balance represents equity in net 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.

In the above table, the Company's equity in net losses from these two unconsolidated joint ventures for the years ended December 31, 2020, 2019 and 2018 include $22.3 million, $0, and $1.1 million, of other-than-temporary impairment charges, respectively. 

For the years ended December 31, 2020, 2019 and 2018, the Company earned $0.9 million, $1.9 million, and $3.4 million, respectively, in management fees from its unconsolidated joint ventures. For additional detail regarding management fees, please see Note 12.