Investments in and Advances to Unconsolidated Entities

The Company has investments in and advances to various unconsolidated entities. The Company’s investments in these entities are accounted for using the equity method of accounting. These entities include development joint ventures, home building joint ventures, rental joint ventures, the Trust, Trust II and a structured asset joint venture. At October 31, 2013, the Company had investments in and advances to these unconsolidated entities of $403.1 million and was committed to invest or advance up to an additional $92.1 million to these entities if they require additional funding. At October 31, 2013, the Company has guaranteed approximately $25.2 million of loans, $9.6 million of ground lease payments and $2.0 million of insurance policy deductibles.

In fiscal 2013 and 2012, the Company recognized income from the unconsolidated entities in which it had an investment of $14.4 million and $23.6 million, respectively. In fiscal 2011, the Company recognized a loss from the unconsolidated entities in which it had an investment of $1.2 million including $40.9 million of impairment losses related to the settlement of a lawsuit by one of its development joint ventures and an impairment of one of its home building joint ventures. The Company did not recognize any impairment charges in connection with its joint ventures in fiscal 2013 or 2012. In fiscal 2012, the Company recovered $2.3 million of costs it previously incurred.

In fiscal 2011, the Company recognized impairment charges in connection with the settlement of a lawsuit by one of its development joint ventures as noted above. As a result of the settlement, the Company recorded a charge of $25.7 million above amounts previously provided. This fiscal 2011 impairment and recovery in fiscal 2012 was attributable to the Company’s investment in South Edge LLC, and its successor entity, Inspirada Builders, LLC (collectively, "Inspirada"). Inspirada settled litigation regarding a loan made by a syndicate of lenders to it having a principal balance of $327.9 million, for which the Company had executed certain completion guarantees and conditional repayment guarantees. The Company paid $57.6 million in November 2011 to settle this matter. The disposition of the above matter did not have a material adverse effect on the Company’s results of operations and liquidity or on its financial condition.

In addition, in fiscal 2011, due to the deterioration of the market in which one of its home building joint ventures operates, the Company determined that there was an other than temporary impairment of its investment in this joint venture. Based on this determination, the Company recognized $15.2 million of impairment charges against the carrying value of the Company's investment in this joint venture.

More specific information regarding its investments in, advances to and future commitments to these entities is provided below.

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. At October 31, 2013, the Company had approximately $142.4 million invested in or advanced to its Development Joint Ventures. In addition, the Company has a funding commitment of $26.0 million to three Development Joint Ventures should an additional investment in these ventures be required.

In the fourth quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Maryland. The property consists of 945 acres which the joint venture expects to develop into approximately 1,300 home sites. The Company has a 50% interest in this joint venture. The current plan is to develop the property and sell approximately 50% of the home sites to each of the members of the joint venture. The Company contributed $11.8 million of cash to the joint venture.

In the second quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Texas as a master planned community consisting of approximately 2,900 home sites. 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 home sites to the members of the joint venture and to other 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, which can be expanded up to $40.0 million under certain conditions. At October 31, 2013, the joint venture had $22.9 million of borrowings under this line of credit. At October 31, 2013, the Company had an investment of $20.1 million in this joint venture and was committed to make additional contributions to this joint venture of up to $12.5 million.

In the third quarter of fiscal 2012, the Company acquired for approximately $110.0 million, a 50% interest in a joint venture with an unrelated party that owns and is developing over 2,000 home sites in Orange County, California. 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 in future phases from the joint venture. At October 31, 2013, the Company had an investment of $105.2 million in this joint venture and was committed to make additional contributions of up to $10.0 million 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 October 31, 2013, the venture had borrowed $42.8 million under the facility.

Home Building Joint Ventures

At October 31, 2013, the Company had an aggregate of $166.3 million of investments in and advances to various joint ventures with unrelated parties to develop luxury for-sale homes. At October 31, 2013, the Company had $38.2 million of funding commitments to three of these joint ventures. One of the joint ventures expects to finance future construction with external financing.

In the first quarter of fiscal 2012, the Company entered into a joint venture in which it has a 50% interest to develop a high-rise luxury for-sale/rental project in the metro-New York market. At October 31, 2013, the Company had an investment of $119.5 million and was committed to make additional investments of $8.1 million in this joint venture. Under the terms of the agreement, upon completion of the construction of the building the Company will acquire ownership of the top 18 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 the third quarter of fiscal 2012, the Company invested in a joint venture in which it has a 50% interest that will develop a high-rise luxury condominium project in the metro-New York market. At October 31, 2013, the Company had invested $8.3 million in this joint venture. The Company expects to make additional investments of approximately $21.8 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 $7.4 million of payments related to the ground lease on this project.

Rental Joint Ventures

At October 31, 2013, the Company had an aggregate of $68.7 million of investments in and advances to several joint ventures with unrelated parties to develop luxury for-rent apartments, commercial space and a hotel. At October 31, 2013, the Company had funding commitments to these joint ventures of $27.9 million. At October 31, 2013, three of these joint ventures had aggregate loan commitments of $193.8 million and outstanding borrowings against these commitments of $14.4 million.

In the fourth quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a luxury, 287-unit apartment building in the Capitol Riverfront of Washington, D.C. on land that the Company owned and conveyed to the joint venture. 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 $27.1 million to the joint venture and subsequently received a cash distribution of $12.5 million to align the capital accounts of each of the members of the joint venture. The joint venture entered into a $54 million construction loan agreement with a bank to finance the development of this project. At October 31, 2013, the joint venture had no borrowings under the construction loan agreement. At October 31, 2013, the Company had an investment of $14.7 million in this joint venture.

In the second quarter of fiscal 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 and conveyed to the joint venture. 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 $27.6 million to the joint venture and subsequently received cash distributions of $10.6 million and a $1.2 million cash payment by the joint venture on the Company's behalf to align the capital accounts of each of the members of the joint venture. The joint venture entered into a $120 million construction loan agreement with a bank to finance the development of this project. At October 31, 2013, the joint venture had no borrowings under the construction loan agreement. At October 31, 2013, the Company had an investment of $22.5 million in this joint venture and was committed to make additional contributions to this joint venture of up to $8.0 million.

In the fourth quarter of fiscal 2012, the Company invested in a joint venture in which it has a 50% interest that will develop a multi-family residential apartment project containing approximately 398 units in suburban Philadelphia. At October 31, 2013, the Company had an investment of $15.6 million in this joint venture. The joint venture expects to borrow funds to complete the construction of this project. The Company does not have any additional commitment to fund this joint venture.

In the third quarter of fiscal 2012, the Company invested in a joint venture in which it has a 50% interest that will develop a luxury hotel in conjunction with a high-rise luxury condominium project in the metro-New York market. At October 31, 2013, the Company had invested $4.9 million in this joint venture. The Company expects to make additional investments of approximately $17.8 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 $2.1 million of payments related to the ground lease on this project.

Structured Asset Joint Venture

In July 2010, the Company, through Gibraltar Capital and Asset Management LLC (“Gibraltar”), invested 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 October 31, 2013, the Company had an investment of $25.7 million in this Structured Asset Joint Venture. At October 31, 2013, 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.

Toll Brothers Realty Trust and Toll Brothers Realty Trust II

In fiscal 2005, the Company, together with the Pennsylvania State Employees Retirement System (“PASERS”), formed 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 October 31, 2013, the Company had an investment of $2.2 million in Trust II. In December 2013, Trust II sold substantially all of its assets to an unrelated party. See Note 1 - "Significant Accounting Policies - Subsequent Events" for more information.

Prior to the formation of Trust II, the Company formed the 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 October 31, 2013, the Company had a negative investment in the Trust of $0.9 million resulting from a loss recognized by the Trust in the fourth quarter of fiscal 2013 due to the expensing of financing costs incurred in the refinancing of its debt. The Company expects that the Trust will return to profitability in fiscal 2014. The Company provides development, finance and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $4.2 million, $2.7 million and $2.9 million in fiscal 2013, 2012 and 2011, respectively.

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 as to environmental matters affecting the unconsolidated entity 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 October 31, 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 to the venture. At October 31, 2013, the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $279.0 million and had borrowed an aggregate of $65.7 million. The term of these guarantees generally range from 30 months to 48 months. The Company estimates that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $279.0 million before any reimbursement from the Company's partners. Based on the amounts borrowed at October 31, 2013, the Company's maximum potential exposure under these guarantees is estimated to be approximately $65.7 million before any reimbursement from the Company's partners.

In addition, the Company has guaranteed approximately $11.6 million of ground lease payments and insurance deductibles for three joint ventures.

As of October 31, 2013, the estimated aggregate fair value of the guarantees was approximately $1.6 million. The Company has not made payments under any of the guarantees, nor has it been called upon to do so.

Variable Interest Entities

At October 31, 2013, the Company determined that three of its joint ventures were VIEs under the guidance within ASC 810. The Company has, however, 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.

The information presented below regarding the investments, commitments and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above. At October 31, 2013 and 2012, the Company's investments in its unconsolidated joint ventures deemed to be VIEs, which are included in investments in and advances to unconsolidated entities in the accompanying balance sheets, totaled $22.9 million and $26.5 million, respectively. At October 31, 2013, the maximum exposure of loss to the Company's investments in unconsolidated joint ventures that are VIEs is limited to its investment in the unconsolidated VIEs, except with regard to $41.7 million of additional commitments to the VIEs and a $9.6 million guaranty of ground lease payments. At October 31, 2012, the maximum exposure to loss of the Company's investments in unconsolidated joint ventures that are VIEs was limited to its investment in the unconsolidated VIEs, except with regard to a $47.7 million additional commitment to fund the joint ventures and a $9.8 million guaranty of ground lease payments.

Joint Venture Condensed Financial Information

The condensed balance sheets, as of the dates indicated, and the condensed 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 "Rental Property Joint Ventures" includes the Rental Joint Ventures, the Trust and Trust II described above.

Condensed Balance Sheets:



	October 31, 2013
	Develop- ment Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	30,826	$	31,164	$	35,014	$	40,097	$	137,101
Inventory	350,150		338,814		4,998				693,962
Non-performing loan portfolio							107,411		107,411
Rental properties					164,325				164,325
Rental properties under development					133,081				133,081
Real estate owned (“REO”)							202,259		202,259
Other assets (1)	12,700		70,180		18,526		155,921		257,327
Total assets	$	393,676	$	440,158	$	355,944	$	505,688	$	1,695,466
Debt (1)	135,200		11,977		235,226		155,900		538,303
Other liabilities	21,015		19,636		9,461		379		50,491
Members’ equity	237,461		408,545		111,257		139,764		897,027
Noncontrolling interest							209,645		209,645
Total liabilities and equity	$	393,676	$	440,158	$	355,944	$	505,688	$	1,695,466
Company’s net investment in unconsolidated entities (2)	$	142,448	$	166,271	$	68,711	$	25,703	$	403,133



	October 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	17,189	$	24,964	$	26,167	$	44,176	$	112,496
Inventory	255,561		251,030		5,643				512,234
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		72,289		9,193		237,476		331,385
Total assets	$	285,177	$	348,283	$	258,465	$	762,217	$	1,654,142
Debt (1)	$	96,362	$	11,755	$	213,725	$	311,801	$	633,643
Other liabilities	14,390		9,438		5,534		561		29,923
Members’ equity	174,425		327,090		39,206		179,942		720,663
Noncontrolling interest							269,913		269,913
Total liabilities and equity	$	285,177	$	348,283	$	258,465	$	762,217	$	1,654,142
Company’s net investment in unconsolidated entities (2)	$	116,452	$	135,688	$	41,134	$	37,343	$	330,617


(1)	Included in other assets at October 31, 2013 and 2012 of the Structured Asset Joint Venture is $155.9 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 are primarily a result of the difference in the purchase price of a joint venture interest and its underlying equity, impairments related to the Company’s investments in unconsolidated entities, a loan made to one of the entities by the Company, interest capitalized on the Company's investment and distributions from entities in excess of the carrying amount of the Company’s net investment.

Condensed Statements of Operations:



	For the year ended October 31, 2013
	Develop- ment Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture			Total
Revenues	$	43,937	$	40,386	$	38,727	$	37,492		$	160,542
Cost of revenues	20,142		36,208		16,704		30,496			103,550
Other expenses	1,146		2,554		20,875		3,399			27,974
Total expenses	21,288		38,762		37,579		33,895			131,524
Gain on disposition of loans and REO							68,323			68,323
Income from operations	22,649		1,624		1,148		71,920			97,341
Other income	11		571		86		329			997
Net income	22,660		2,195		1,234		72,249			98,338
Less: income attributable to noncontrolling interest							(43,349		)	(43,349		)
Net income attributable to controlling interest	22,660		2,195		1,234		28,900			54,989
Other comprehensive income					922					922
Total comprehensive income	$	22,660	$	2,195	$	2,156	$	28,900		$	55,911
Company’s equity in earnings of unconsolidated entities (3)	$	3,288	$	1,471	$	3,965	$	5,668		$	14,392



	For the year ended October 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture			Total
Revenues	$	39,278	$	89,947	$	37,035	$	31,686		$	197,946
Cost of revenues	36,315		65,068		13,985		32,828			148,196
Other expenses	1,414		3,477		21,226		8,646			34,763
Total expenses	37,729		68,545		35,211		41,474			182,959
Gain on disposition of loans and REO							42,244			42,244
Income from operations	1,549		21,402		1,824		32,456			57,231
Other income	2,658		153		4		691			3,506
Net income	4,207		21,555		1,828		33,147			60,737
Less: income attributable to noncontrolling interest							(19,888		)	(19,888		)
Net income attributable to controlling interest	4,207		21,555		1,828		13,259			40,849
Other comprehensive income										—
Total comprehensive income	$	4,207	$	21,555	$	1,828	$	13,259		$	40,849
Company’s equity in earnings of unconsolidated entities (3)	$	3,995	$	15,303	$	1,602	$	2,692		$	23,592



	For the year ended October 31, 2011
	Develop- ment Joint Ventures			Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture			Total
Revenues	$	4,624		$	242,326	$	37,728	$	46,187		$	330,865
Cost of revenues	3,996			191,922		15,365		30,477			241,760
Other expenses	1,527			6,988		20,774		10,624			39,913
Total expenses	5,523			198,910		36,139		41,101			281,673
Gain on disposition of loans and REO								61,406			61,406
Income from operations	(899		)	43,416		1,589		66,492			110,598
Other income	9,498			68		1,537		252			11,355
Net income	8,599			43,484		3,126		66,744			121,953
Less: income attributable to noncontrolling interest								(40,048		)	(40,048		)
Net income attributable to controlling interest	8,599			43,484		3,126		26,696			81,905
Other comprehensive income											—
Total comprehensive income	$	8,599		$	43,484	$	3,126	$	26,696		$	81,905
Company’s equity in earnings of unconsolidated entities (3)	$	(25,272	)	$	14,895	$	3,844	$	5,339		$	(1,194	)

(3)

Differences between the Company’s equity in earnings (losses) of unconsolidated entities and the underlying net income of the entities are primarily a result of impairments related to the Company’s investments 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 that reduces the Company’s cost basis of the home sites.