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. Our homebuilding joint ventures are generally entered into with

third

-party investors to develop land and construct homes that are sold directly to

third

-party home buyers. Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other

third

parties.

During the

first

quarter of fiscal

2020,

we contributed

eight

communities we owned, including

four

active communities, to a new joint venture for

$29.8

million of cash after our investment in the unconsolidated joint venture.

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.

(Dollars in thousands)	January 31, 2020
			Land
	Homebuilding		Development		Total
Assets:
Cash and cash equivalents	$71,647		$1,758		$73,405
Inventories	450,493		3,266		453,759
Other assets	25,079		459		25,538
Total assets	$547,219		$5,483		$552,702

Liabilities and equity:
Accounts payable and accrued liabilities	$91,851		$447		$92,298
Notes payable	145,764		-		145,764
Total liabilities	237,615		447		238,062
Equity of:
Hovnanian Enterprises, Inc.	131,017		4,141		135,158
Others	178,587		895		179,482
Total equity	309,604		5,036		314,640
Total liabilities and equity	$547,219		$5,483		$552,702
Debt to capitalization ratio	32	%	0	%	32	%

(Dollars in thousands)	October 31, 2019
			Land
	Homebuilding		Development		Total
Assets:
Cash and cash equivalents	$108,520		$2,203		$110,723
Inventories	397,804		6,038		403,842
Other assets	24,896		233		25,129
Total assets	$531,220		$8,474		$539,694

Liabilities and equity:
Accounts payable and accrued liabilities	$71,297		$592		$71,889
Notes payable	186,882		-		186,882
Total liabilities	258,179		592		258,771
Equity of:
Hovnanian Enterprises, Inc.	120,891		4,747		125,638
Others	152,150		3,135		155,285
Total equity	273,041		7,882		280,923
Total liabilities and equity	$531,220		$8,474		$539,694
Debt to capitalization ratio	41	%	0	%	40	%

As of

January 31, 2020

and

October 31, 2019,

we had advances outstanding of

$0.2

million and

$1.4

million, respectively, to these unconsolidated joint ventures. These amounts were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Condensed Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to

$135.3

million and

$127.0

million at

January 31, 2020

and

October 31, 2019,

respectively. In some cases, our net investment in these unconsolidated joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our unconsolidated joint venture investments and any impairments recorded in the applicable unconsolidated joint venture. Impairments of unconsolidated joint venture investments are recorded at fair value while impairments recorded in the unconsolidated joint venture are recorded when undiscounted cash flows trigger the impairment. During the

three

months ended

January 31, 2020

and

2019,

we did

not

write-down any of our unconsolidated joint venture investments.

	For the Three Months Ended January 31, 2020
(In thousands)			Land
	Homebuilding		Development		Total

Revenues	$86,964		$3,740		$90,704
Cost of sales and expenses	(88,551	)	(4,953	)	(93,504	)
Joint venture net loss	$(1,587	)	$(1,213	)	$(2,800	)
Our share of net income (loss)	$1,470		$(606	)	$864

	For the Three Months Ended January 31, 2019
(In thousands)			Land
	Homebuilding		Development		Total

Revenues	$95,774		$1,005		$96,779
Cost of sales and expenses	(89,312	)	(971	)	(90,283	)
Joint venture net income	$6,462		$34		$6,496
Our share of net income	$9,541		$17		$9,558

“Income (loss) from unconsolidated joint ventures” is reflected as a separate line in the accompanying Condensed Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Condensed Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain unconsolidated joint ventures and the deferral of income for lots purchased by us from unconsolidated certain joint ventures. For the

first

quarter of fiscal

2020,

the difference can also be attributed to

two

unconsolidated joint ventures which we had previously written off our investment in that are still active and are operating at a loss. For the

first

quarter of fiscal

2019,

the difference can also be attributed to a return of capital from an unconsolidated joint venture in which we had previously written off our investment. 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 venture’s revenues. These management fees, which totaled

$3.7

million and

$3.4

million for the

three

months ended

January 31, 2020

and

2019,

respectively, are recorded in “Homebuilding: Selling, general and administrative” on the Condensed Consolidated Statements of Operations.

In determining whether or

not

we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our unconsolidated joint ventures, obtaining financing was challenging, therefore, some of our unconsolidated joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our unconsolidated joint ventures is currently

32%.

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 under ASC

810

“Consolidation – Overall” 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.