Investments in and Advances to Unconsolidated Entities

The Company has investments in and advances to various unconsolidated entities. These entities include development joint ventures, a planned community joint venture, a structured asset joint venture, Toll Brothers Realty Trust and Trust II and other joint ventures. At April 30, 2013, the Company had investments in and advances to these unconsolidated entities of $357.5 million and was committed to invest or advance up to $126.8 million to these entities if they require additional funding. The Company’s investments in these entities are accounted for using the equity method of accounting. More specific information regarding its investments in, advances to and future commitments to these entities is provided below.

At April 30, 2013, the Company determined that two of its joint ventures were VIEs under the guidance within FASB Accounting Standards Codification ("ASC") 810, "Consolidation". However, the Company concluded that it was not the primary beneficiary of the VIEs because the power to direct the activities of these VIEs that most significantly impact their performance was shared by the Company and the VIEs' other members. Business plans, budgets and other major decisions are required to be unanimously approved by all members. Management and other fees earned by the Company are nominal and believed to be at market rates and there is no significant economic disproportionality between the Company and other members.

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 April 30, 2013, the Company had approximately $124.3 million invested in or advanced to the Development Joint Ventures and had a funding commitment of $30.3 million to three of the Development Joint Ventures which would be funded if additional investment in the ventures is required.

In March 2013, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Texas into a master planned community consisting of approximately 2,900 lots. The Company has a 50% interest in this joint venture. The current plan is to develop the property in multiple phases and sell groups of lots to the members of the joint venture and to other third party home builders. The Company contributed $15.5 million of cash to the joint venture. The joint venture entered into a $25.0 million line of credit with a bank, secured by a deed of trust on the property. The line of credit can be expanded up to $40.0 million under certain conditions. At April 30, 2013, the joint venture had $20.0 million of borrowings under its line of credit. At April 30, 2013, the Company had an investment of $15.8 million in this joint venture and was committed to make additional contributions to this joint venture of up to $16.8 million.

The Company has a 50% interest in a joint venture that is developing over 2,000 home sites in Orange County, California on land that it owns. Under the terms of the operating agreement, the Company will acquire 266 home sites in the first phase of the property from the joint venture. The Company intends to acquire approximately 545 additional home sites from the joint venture. The Company has a commitment to provide up to $10.0 million of additional funds to this joint venture, if needed. The joint venture has an $80.0 million credit facility from a bank to fund the development of the property. At April 30, 2013, the venture had $29.4 million borrowed under the facility.

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 April 30, 2013, the Company had an investment of $30.4 million in this joint venture. At April 30, 2013, the participants agreed to contribute additional funds of up to $8.3 million each, if required.

Other Joint Ventures

At April 30, 2013, the Company had an aggregate of $166.2 million of investments in and advances to various joint ventures with unrelated parties to develop luxury for-sale and rental residential units, commercial space and a hotel. At April 30, 2013, the Company had $88.2 million of funding commitments to five of these joint ventures. Several of the joint ventures expect to finance future construction with external financing.

In April 2013, the Company entered into a joint venture with an unrelated party to develop a luxury, 38-story apartment building and retail space in Jersey City, New Jersey on land that the Company owned. The Company has a 50% interest in this joint venture. As part of the Company's initial capital contribution, it contributed land and improvements with a fair value of $28.8 million to the joint venture and subsequently received distributions of $10.2 million and the joint venture making a $1.2 million payment on our behalf to align the capital accounts of each of the members of the joint venture. The joint venture entered into a $120.0 million construction loan agreement with a bank to finance the development of this project. At April 30, 2013, the joint venture had no borrowings under the construction loan agreement. At April 30, 2013, the Company had an investment of $17.7 million in this joint venture and was committed to make additional contributions to this joint venture of up to $16.7 million.

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 April 30, 2013, the Company had an investment of $3.3 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. As of April 30, 2013, the Company had a net investment in the Trust of $0.2 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 $1.1 million in each of the six-month periods ended April 30, 2013 and 2012, and $0.5 million and $0.6 million in the three-month periods ended April 30, 2013 and 2012, respectively.

Structured Asset Joint Venture

The Company, through Gibraltar Capital and Asset Management LLC (“Gibraltar”), is a 20% participant with two unrelated parties that purchased a 40% interest in an entity that owns and controls a portfolio of loans and real estate (“Structured Asset Joint Venture”). At April 30, 2013, the Company had an investment of $33.2 million in this Structured Asset Joint Venture. At April 30, 2013, the Company did not have any commitments to make additional contributions to this Structured Asset Joint Venture and has not guaranteed any of the joint venture’s liabilities.

Guarantees

The unconsolidated entities in which the Company has investments generally finance their activities with a combination of partner equity and debt financing. In some instances, the Company and its partners have guaranteed debt of certain unconsolidated entities which may include any, or all of the following: (i) project completion including any cost overruns, in whole or in part, (ii) repayment guarantees, generally covering a percentage of the outstanding loan, (iii) indemnification of the lender from environmental matters and (iv) indemnification of the lender from “bad boy acts” of the unconsolidated entity.

In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, the Company generally has a reimbursement agreement with its partner that provides that neither party is responsible for more than its proportionate share of the guarantee. However, if the joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share.

The Company believes that as of April 30, 2013, in the event it becomes legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay a significant portion of the obligation. If it is not, the Company and its partners would need to contribute additional capital into the venture. At April 30, 2013, the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $225.0 million and had borrowed an aggregate of $49.4 million. The Company estimates that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $225.0 million before any reimbursement from the Company's partners. Based on the amounts borrowed at April 30, 2013, the Company's maximum potential exposure under these guarantees is estimated to be $49.4 million before any reimbursement from the Company's partners.

In addition, the Company has guaranteed approximately $11.9 million of ground lease payments and insurance deductibles for two joint ventures.

As of April 30, 2013, the estimated aggregate fair value of the guarantees was approximately $1.3 million. The Company has not made payments under any of the guarantees.

The condensed balance sheets, as of the dates indicated, and the condensed statements of operations and comprehensive income (loss), 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:



	April 30, 2013
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture		Total
Cash and cash equivalents	$	19,963	$	38,771	$	12,681		$	33,717	$	105,132
Inventory	308,294		272,326		5,685					586,305
Non-performing loan portfolio								159,925		159,925
Rental properties					168,340					168,340
Rental properties under development			78,799							78,799
Real estate owned (“REO”)					557			243,245		243,802
Other assets (1)	12,539		69,535		9,239			311,806		403,119
Total assets	$	340,796	$	459,431	$	196,502		$	748,693	$	1,745,422
Debt (1)	$	119,601	$	29,532	$	193,483		$	311,801	$	654,417
Other liabilities	22,046		14,320		5,059			1,179		42,604
Members’ equity (deficit)	199,149		415,579		(2,040		)	174,285		786,973
Noncontrolling interest								261,428		261,428
Total liabilities and equity	$	340,796	$	459,431	$	196,502		$	748,693	$	1,745,422
Company’s net investment in unconsolidated entities (2)	$	124,317	$	196,584	$	3,480		$	33,151	$	357,532



	October 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture		Total
Cash and cash equivalents	$	17,189	$	40,126	$	11,005		$	44,176	$	112,496
Inventory	255,561		251,029		5,643					512,233
Non-performing loan portfolio								226,315		226,315
Rental properties					173,767					173,767
Rental properties under development			43,695							43,695
Real estate owned (“REO”)								254,250		254,250
Other assets (1)	12,427		72,301		9,182			237,476		331,386
Total assets	$	285,177	$	407,151	$	199,597		$	762,217	$	1,654,142
Debt (1)	$	96,362	$	30,121	$	195,359		$	311,801	$	633,643
Other liabilities	14,390		9,770		5,202			561		29,923
Members’ equity (deficit)	174,425		367,260		(964		)	179,942		720,663
Noncontrolling interest								269,913		269,913
Total liabilities and equity	$	285,177	$	407,151	$	199,597		$	762,217	$	1,654,142
Company’s net investment in unconsolidated entities (2)	$	116,452	$	173,465	$	3,357		$	37,343	$	330,617


(1)	Included in other assets of the Structured Asset Joint Venture at April 30, 2013 and October 31, 2012 is $311.8 million and $237.5 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 pro-rata 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 and Comprehensive Income (Loss):



	For the six months ended April 30, 2013
	Develop- ment Joint Ventures		Home Building Joint Ventures			Trust and Trust II		Structured Asset Joint Venture			Total
Revenues	$	35,022	$	22,757		$	20,303	$	21,714		$	99,796
Cost of revenues	17,805		19,973			9,010		19,493			66,281
Other expenses	758		1,292			10,427		2,316			14,793
Total expenses—net	18,563		21,265			19,437		21,809			81,074
Gain on disposition of loans and REO								39,704			39,704
Income from operations	16,459		1,492			866		39,609			58,426
Other income	5		444					154			603
Net income before noncontrolling interest	16,464		1,936			866		39,763			59,029
Less: Net income attributable to noncontrolling interest								(23,858		)	(23,858		)
Net income	16,464		1,936			866		15,905			35,171
Other comprehensive income (loss)			(195		)	477					282
Total comprehensive income	$	16,464	$	1,741		$	1,343	$	15,905		$	35,453
Company’s equity in earnings of unconsolidated entities (3)	$	2,796	$	1,199		$	1,010	$	3,071		$	8,076



	For the three months ended April 30, 2013
	Develop- ment Joint Ventures		Home Building Joint Ventures			Trust and Trust II		Structured Asset Joint Venture			Total
Revenues	$	33,395	$	13,787		$	10,621	$	12,009		$	69,812
Cost of revenues	16,587		12,868			4,717		9,155			43,327
Other expenses	567		1,098			4,661		1,259			7,585
Total expenses—net	17,154		13,966			9,378		10,414			50,912
Gain on disposition of loans and REO								12,812			12,812
Income (loss) from operations	16,241		(179		)	1,243		14,407			31,712
Other income	2		424					75			501
Net income before noncontrolling interest	16,243		245			1,243		14,482			32,213
Less: Net income attributable to noncontrolling interest								(8,689		)	(8,689		)
Net income	16,243		245			1,243		5,793			23,524
Other comprehensive income (loss)			(195		)	175					(20		)
Total comprehensive income	$	16,243	$	50		$	1,418	5,793			$	23,504
Company’s equity in earnings of unconsolidated entities (3)	$	2,894	$	356		$	585	$	1,158		$	4,993



	For the six months ended April 30, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture			Total
Revenues	$	33,584	$	47,466	$	18,698		$	12,362		$	112,110
Cost of revenues	31,771		34,754		6,736			17,227			90,488
Other expenses	430		2,110		11,427			4,898			18,865
Total expenses—net	32,201		36,864		18,163			22,125			109,353
Gain on disposition of loans and REO								22,826			22,826
Income from operations	1,383		10,602		535			13,063			25,583
Other income	2,653		79					275			3,007
Net income before noncontrolling interest	4,036		10,681		535			13,338			28,590
Less: Net income attributable to noncontrolling interest								(8,004		)	(8,004		)
Net income	4,036		10,681		535			5,334			20,586
Other comprehensive loss					(50		)				(50		)
Total comprehensive income	$	4,036	$	10,681	$	485		$	5,334		$	20,536
Company’s equity in earnings of unconsolidated entities (3)	$	3,532	$	8,010	$	1,081		$	1,053		$	13,676



	For the three months ended April 30, 2012
	Develop- ment Joint Ventures			Home Building Joint Ventures		Trust and Trust II		Structured Asset Joint Venture			Total
Revenues	$	—		$	24,036	$	9,222	$	7,654		$	40,912
Cost of revenues	—			16,961		3,393		5,701			26,055
Other expenses	205			1,165		4,642		2,013			8,025
Total expenses—net	205			18,126		8,035		7,714			34,080
Gain on disposition of loans and REO								7,517			7,517
Income (loss) from operations	(205		)	5,910		1,187		7,457			14,349
Other income	1			74				138			213
Net income (loss) before noncontrolling interest	(204		)	5,984		1,187		7,595			14,562
Less: Net income attributable to noncontrolling interest								(4,557		)	(4,557		)
Net income (loss)	(204		)	5,984		1,187		3,038			10,005
Other comprehensive income						239					239
Comprehensive income (loss)	$	(204	)	$	5,984	$	1,426	$	3,038		$	10,244
Company’s equity in earnings of unconsolidated entities (3)	$	1,536		$	3,490	$	458	$	1,505		$	6,989

(3)

Differences between the Company’s equity in earnings of unconsolidated entities and the Company's percentage interest in 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.