Investments in and Advances to Unconsolidated Entities

The Company has investments in and advances to various unconsolidated entities.

Development Joint Ventures

The Company has investments in and advances to a number of joint ventures with unrelated parties to develop land (“Development Joint Ventures”). Some of these Development Joint Ventures develop land for the sole use of the venture participants, including the Company, and others develop land for sale to the joint venture participants and to unrelated builders. The Company recognizes its share of earnings from the sale of home sites by the Development Joint Ventures to other builders. With regard to home sites the Company purchases from the Development Joint Ventures, the Company reduces its cost basis in those home sites by its share of the earnings on the home sites it purchases. At July 31, 2012, the Company had approximately $117.3 million, net of impairment charges, invested in or advanced to the Development Joint Ventures. In addition, the Company has a funding commitment of $3.5 million to one Development Joint Venture should an additional investment in that venture be required.

Some of the impairments related to Development Joint Ventures since 2008 were attributable to the Company’s investment in South Edge LLC, and its successor entity, Inspirada Builders, LLC (collectively, "Inspirada"). The Company believes it has made adequate provision at July 31, 2012 for any remaining liabilities with respect to Inspirada. The Company’s investment in Inspirada is carried at a nominal value.

The Company did not recognize any impairment charges in connection with the Development Joint Ventures in the nine-month and three-month periods ended July 31, 2012. In the nine-month period ended July 31, 2012, the Company recovered $1.6 million of costs it previously accrued.

In the third quarter of fiscal 2012, the Company acquired a 50% interest in an existing joint venture for approximately $110.0 million. The joint venture intends to develop over 2,000 home sites in Orange County, California on land that it owns. The joint venture expects to borrow additional funds to complete the development of this project. The Company intends to acquire a substantial number of lots from the joint venture. The Company does not have any additional commitment to fund this joint venture.

Planned Community Joint Venture

The Company entered into a joint venture in October 2008 for the development and sale of homes in a master planned community. At July 31, 2012, the Company had an investment of $31.0 million, net of $15.2 million of impairments previously recognized, in this joint venture. At July 31, 2012, the participants agreed to contribute additional funds of up to $8.3 million each, if required. If a participant fails to make a required capital contribution, the other participant may make the additional contribution and diminish the non-contributing participant’s ownership interest.

Other Joint Ventures

At July 31, 2012, the Company had an aggregate of $124.3 million of investments in and advances, net of $63.9 million of impairment charges previously recognized, to various joint ventures with unrelated parties to develop luxury for-sale and rental residential units, commercial space and a hotel.

In December 2011, the Company entered into a joint venture to develop a high-rise luxury for-sale/rental project in the metro-New York market. The Company has invested $84.0 million and is committed to make additional investments of $37.5 million. Under the terms of the agreement, upon completion of the construction of the building, the Company will acquire ownership of the top eighteen floors of the building to sell, for its own account, luxury condominium units and its partner will receive ownership of the lower floors containing residential rental units and retail space.

In addition, in the third quarter of fiscal 2012, the Company invested $3.9 million in a joint venture in which it has a 50% interest that will develop a high-rise luxury for-sale condominium/hotel project in the metro-New York market. The Company expects to make additional investments of approximately $49.2 million for the development of this property. The joint venture expects to borrow additional funds to complete the construction of this project. The Company has also guaranteed approximately $9.8 million of payments related to the ground lease on this project.

The Company did not recognize any impairment charges in connection with these joint ventures in the nine-month and three-month periods ended July 31, 2012 and 2011.

Toll Brothers Realty Trust and Trust II

In fiscal 2005, the Company, together with the Pennsylvania State Employees Retirement System (“PASERS”), formed Toll Brothers Realty Trust II (“Trust II”) to be in a position to invest in commercial real estate opportunities. Trust II is owned 50% by the Company and 50% by an affiliate of PASERS. At July 31, 2012, the Company had an investment of $3.0 million in Trust II. Prior to the formation of Trust II, the Company formed Toll Brothers Realty Trust (“Trust”) in 1998 to invest in commercial real estate opportunities. The Trust is effectively owned one-third by the Company; one-third by Robert I. Toll, Bruce E. Toll (and members of his family), Douglas C. Yearley, Jr. and former members of the Company’s senior management; and one-third by an affiliate of PASERS (collectively, the “Shareholders”). As of July 31, 2012, the Company had a net investment in the Trust of $0.3 million. The Company provides development, finance and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $1.7 million and $1.6 million in the nine-month periods ended July 31, 2012 and 2011, respectively and $0.6 million and $0.5 million in the three-month periods ended July 31, 2012 and 2011, respectively. The Company believes that the transactions between itself and the Trust were on terms no less favorable than it would have agreed to with unrelated parties.

Structured Asset Joint Venture

In July 2010, the Company, through Gibraltar Capital and Asset Management LLC (“Gibraltar”), invested $29.1 million in a joint venture in which it is a 20% participant with two unrelated parties to purchase a 40% interest in an entity that owns and controls a portfolio of loans and real estate (“Structured Asset Joint Venture”). At July 31, 2012, the Company had an investment of $35.7 million in this Structured Asset Joint Venture. At July 31, 2012, the Company did not have any commitments to make additional contributions to the joint venture and has not guaranteed any of the joint venture’s liabilities. If the joint venture needs additional capital and a participant fails to make a requested capital contribution, the other participants may make a contribution in consideration for a preferred return or may make the additional capital contribution and diminish the non-contributing participant’s ownership interest.

General

At July 31, 2012, the Company had accrued $2.1 million of aggregate exposure with respect to its estimated obligations to unconsolidated entities in which it has an investment. The Company’s investments in these entities are accounted for using the equity method. The Company recognized $39.6 million of impairment charges related to its investments in and advances to unconsolidated entities in the nine-months ended July 31, 2011. The Company recorded a $1.6 million recovery of previous impairment charges in the second quarter of fiscal 2012. The fiscal 2012 recovery and fiscal 2011 impairment charge recognized are included in “Income (loss) from unconsolidated entities” in the Company’s condensed consolidated statements of operations for the nine-month and three-month periods ended July 31, 2012 and 2011.

The condensed consolidated balance sheets, as of the dates indicated, and the condensed consolidated statements of operations, for the periods indicated, for the Company’s unconsolidated entities in which it has an investment, aggregated by type of business, are included below (in thousands). The column titled "Home Building Joint Ventures" includes the Planned Community and Other Joint Ventures described above.

Condensed Balance Sheets:



	July 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture		Total
Cash and cash equivalents	$	17,618	$	23,018	$	9,995		$	40,832	$	91,463
Inventory	253,984		274,175		5,621					533,780
Non-performing loan portfolio								240,723		240,723
Rental properties					174,982					174,982
Real estate owned (“REO”)								270,215		270,215
Other assets (1)	16,697		70,789		9,625			189,785		286,896
Total assets	$	288,299	$	367,982	$	200,223		$	741,555	$	1,598,059
Debt (1)	$	96,862	$	33,658	$	196,266		$	311,571	$	638,357
Other liabilities	16,873		4,582		5,690			304		27,449
Members’ equity (deficit)	174,564		329,742		(1,733		)	171,872		674,445
Noncontrolling interest								257,808		257,808
Total liabilities and equity	$	288,299	$	367,982	$	200,223		$	741,555	$	1,598,059
Company’s net investment in unconsolidated entities (2)	$	117,305	$	155,272	$	3,230		$	35,674	$	311,481



	October 31, 2011
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	14,190	$	10,663	$	11,726	$	48,780	$	85,359
Inventory	218,339		170,239		5,501				394,079
Non-performing loan portfolio							295,044		295,044
Rental properties					178,339				178,339
Real estate owned (“REO”)					1,087		230,872		231,959
Other assets (1)	150,316		20,080		9,675		159,143		339,214
Total assets	$	382,845	$	200,982	$	206,328	$	733,839	$	1,523,994
Debt (1)	$	327,856	$	50,515	$	198,927	$	310,847	$	888,145
Other liabilities	5,352		9,745		3,427		382		18,906
Members’ equity	49,637		140,722		3,974		172,944		367,277
Noncontrolling interest							249,666		249,666
Total liabilities and equity	$	382,845	$	200,982	$	206,328	$	733,839	$	1,523,994
Company’s net investment in unconsolidated entities (2)	$	17,098	$	72,734	$	1,872	$	34,651	$	126,355


(1)	Included in other assets at July 31, 2012 and October 31, 2011 of the Structured Asset Joint Venture is $189.3 million and $152.6 million, respectively, of restricted cash held in a defeasance account which will be used to repay debt of the Structured Asset Joint Venture.

(2)

Differences between the Company’s net investment in unconsolidated entities and its underlying equity in the net assets of the entities is primarily a result of the acquisition price of an investment in an entity in fiscal 2012 which was in excess of the Company's prorata share of the underlying equity, impairments related to the Company’s investments in unconsolidated entities, a loan made to one of the entities by the Company, and distributions from entities in excess of the carrying amount of the Company’s net investment.

Condensed Statements of Operations:



	For the nine months ended July 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II		Structured Asset Joint Venture			Total
Revenues	$	37,109	$	76,325	$	27,827	$	20,858		$	162,119
Cost of revenues	34,696		55,028		10,186		26,048			125,958
Other expenses	1,060		3,166		16,027		6,958			27,211
Gain on disposition of loans and REO							(24,691		)	(24,691		)
Total expenses—net	35,756		58,194		26,213		8,315			128,478
Income from operations	1,353		18,131		1,614		12,543			33,641
Other income	2,663		118				428			3,209
Net income before noncontrolling interest	4,016		18,249		1,614		12,971			36,850
Less: Net income attributable to noncontrolling interest							(7,784		)	(7,784		)
Net income	$	4,016	$	18,249	$	1,614	$	5,187		$	29,066
Company’s equity in earnings of unconsolidated entities (3)	$	3,451	$	13,318	$	1,556	$	1,023		$	19,348



	For the three months ended July 31, 2012
	Develop- ment Joint Ventures			Home Building Joint Ventures		Trust and Trust II		Structured Asset Joint Venture			Total
Revenues	$	3,525		$	28,859	$	9,129	$	8,496		$	50,009
Cost of revenues	2,925			20,274		3,450		8,821			35,470
Other expenses	630			1,056		4,600		2,060			8,346
Gain on disposition of loans and REO								(1,865		)	(1,865		)
Total expenses—net	3,555			21,330		8,050		9,016			41,951
Income (loss) from operations	(30		)	7,529		1,079		(520		)	8,058
Other income	10			39		—		153			202
Net income (loss) before noncontrolling interest	(20		)	7,568		1,079		(367		)	8,260
Less: Net loss attributable to noncontrolling interest								220			220
Net income (loss)	$	(20	)	$	7,568	$	1,079	(147		)	$	8,480
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	(81	)	$	5,308	$	475	$	(30	)	$	5,672



	For the nine months ended July 31, 2011
	Develop- ment Joint Ventures			Home Building Joint Ventures			Trust and Trust II		Structured Asset Joint Venture			Total
Revenues	$	4,643		$	207,645		$	28,863	$	37,624		$	278,775
Cost of revenues	3,987			165,456			11,382		26,371			207,196
Other expenses	839			7,605			14,955		8,780			32,179
Gain on disposition of loans and REO									(55,727		)	(55,727		)
Total expenses—net	4,826			173,061			26,337		(20,576		)	183,648
Income (loss) from operations	(183		)	34,584			2,526		58,200			95,127
Other income (loss)	7,479			(1		)			228			7,706
Net income before noncontrolling interest	7,296			34,583			2,526		58,428			102,833
Less: Net income attributable to noncontrolling interest									(35,059		)	(35,059		)
Net income	$	7,296		$	34,583		$	2,526	23,369			$	67,774
Company’s equity in (losses) earnings of unconsolidated entities (3)	$	(29,695	)	$	10,839		$	3,167	$	4,684		$	(11,005	)



	For the three months ended July 31, 2011
	Develop- ment Joint Ventures			Home Building Joint Ventures			Trust and Trust II		Structured Asset Joint Venture			Total
Revenues	$	3,524		$	67,299		$	8,997	$	12,471		$	92,291
Cost of revenues	2,829			53,964			3,399		9,714			69,906
Other expenses	283			2,164			4,404		2,529			9,380
Gain on disposition of loans and REO									(44,841		)	(44,841		)
Total expenses—net	3,112			56,128			7,803		(32,598		)	34,445
Income from operations	412			11,171			1,194		45,069			57,846
Other income (loss)	1,689			(155		)			71			1,605
Net income before noncontrolling interest	2,101			11,016			1,194		45,140			59,451
Less: Net income attributable to noncontrolling interest									(27,084		)	(27,084		)
Net income	$	2,101		$	11,016		$	1,194	18,056			$	32,367
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	(46	)	$	7,407		$	500	$	3,479		$	11,340

(3)

Differences between the Company’s equity in earnings (losses) of unconsolidated entities and the underlying net income (loss) of the entities is primarily a result of impairments related to the Company’s investment in unconsolidated entities, distributions from entities in excess of the carrying amount of the Company’s net investment, and the Company’s share of the entities’ profits related to home sites purchased by the Company which reduces the Company’s cost basis of the home sites.