UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 30, 2022

or

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission file number 001-09186

Toll Brothers, Inc.

(Exact name of registrant as specified in its charter)

Delaware			23-2416878
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
1140 Virginia Drive	Fort Washington	Pennsylvania	19034
(Address of principal executive offices)			(Zip Code)

(215) 938-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	TOL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At May 31, 2022, there were approximately 114,977,000 shares of Common Stock, par value $0.01 per share, outstanding.

TOLL BROTHERS, INC.

TABLE OF CONTENTS

	Page No.
Statement on Forward-Looking Information	1
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	2
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	3
Condensed Consolidated Statements of Changes in Equity (Unaudited)	4
Condensed Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	43
Item 4. Controls and Procedures	44
PART II. Other Information
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6. Exhibits	46
SIGNATURES	47

STATEMENT ON FORWARD-LOOKING INFORMATION

Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). One can identify these statements by the fact that they do not relate to matters of a strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” “likely”, “will” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information and statements regarding: the impact of the COVID-19 pandemic on the U.S. economy and on our business; expectations regarding interest rates and inflation; the markets in which we operate or may operate; our strategic objectives and priorities; our land acquisition, land development and capital allocation plans and priorities; housing market conditions; demand for our homes; anticipated operating results and guidance; home deliveries; financial resources and condition; changes in revenues, in profitability and in margins; changes in accounting treatment; cost of revenues, including expected labor and material costs; selling, general, and administrative expenses; interest expense; inventory write-downs; home warranty and construction defect claims; unrecognized tax benefits; anticipated tax refunds; sales paces and prices; effects of home buyer cancellations; growth and expansion; joint ventures in which we are involved; anticipated results from our investments in unconsolidated entities; our ability to acquire or dispose of land and pursue real estate opportunities; our ability to gain approvals and open new communities; our ability to market, construct and sell homes and properties; the rate at which we deliver homes from backlog; our ability to secure materials and subcontractors; our ability to produce the liquidity and capital necessary to conduct normal business operations or to expand and take advantage of opportunities; and the outcome of legal proceedings, investigations, and claims.

From time to time, forward-looking statements also are included in other reports on Forms 10-K, 10-Q, and 8-K; in press releases; in presentations; on our website; and in other materials released to the public. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. Therefore, we caution you not to place undue reliance on our forward-looking statements. The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:

•the ongoing effects of the COVID-19 pandemic, which remain highly uncertain, cannot be predicted and will depend upon future developments, including the duration of the pandemic, the impact of mitigation strategies taken by applicable government authorities, the continued availability and effectiveness of vaccines, adequate testing and therapeutic treatments and the prevalence of widespread immunity to COVID-19;

•the effect of general economic conditions, including employment rates, housing starts, interest rate levels, inflation, consumer sentiment, availability of financing for home mortgages and strength of the U.S. dollar;

•market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;

•the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such land;

•access to adequate capital on acceptable terms;

•geographic concentration of our operations;

•levels of competition;

•the price and availability of lumber, other raw materials, home components and labor;

•the effect of U.S. trade policies, including the imposition of tariffs and duties on home building products and retaliatory measures taken by other countries;

•the effects of weather and the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters;

•risks arising from acts of war, terrorism or outbreaks of contagious diseases, such as COVID-19;

•federal and state tax policies;

•transportation costs;

•the effect of land use, environmental and other governmental laws and regulations;

•legal proceedings or disputes and the adequacy of reserves;

•risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, indebtedness, financial condition, losses and future prospects;

•the effect of potential loss of key management personnel;

•changes in accounting principles; and

•risks related to unauthorized access to our computer systems, theft of our and our homebuyers’ confidential information or other forms of cyber-attack.

Many of the factors mentioned above, elsewhere in this report or in other reports or public statements made by us will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

For a further discussion of factors that we believe could cause our actual results to differ materially from expected and historical results, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in this report.

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31.

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	April 30, 2022		October 31, 2021
	(unaudited)
ASSETS
Cash and cash equivalents	$	535,038	$	1,638,494
Inventory	8,978,816		7,915,884
Property, construction, and office equipment – net	310,422		310,455
Receivables, prepaid expenses, and other assets (1)	722,702		738,078
Mortgage loans held for sale – at fair value	146,865		247,211
Customer deposits held in escrow	154,171		88,627
Investments in unconsolidated entities	684,385		599,101
Income taxes receivable	12,212		—
	$	11,544,611	$	11,537,850
LIABILITIES AND EQUITY
Liabilities
Loans payable	$	1,196,415	$	1,011,534
Senior notes	1,994,786		2,403,989
Mortgage company loan facility	113,688		147,512
Customer deposits	812,383		636,379
Accounts payable	588,742		562,466
Accrued expenses	1,232,825		1,220,235
Income taxes payable	226,106		215,280
Total liabilities	6,164,945		6,197,395
Equity
Stockholders’ equity
Preferred stock, none issued	—		—
Common stock, 127,937 shares issued at April 30, 2022 and October 31, 2021	1,279		1,279
Additional paid-in capital	714,651		714,453
Retained earnings	5,297,939		4,969,839
Treasury stock, at cost — 12,614 and 7,820 shares at April 30, 2022 and October 31, 2021, respectively	(669,396)		(391,656)
Accumulated other comprehensive income ("AOCI")	19,419		1,109
Total stockholders’ equity	5,363,892		5,295,024
Noncontrolling interest	15,774		45,431
Total equity	5,379,666		5,340,455
	$	11,544,611	$	11,537,850

(1)    As of April 30, 2022 and October 31, 2021, receivables, prepaid expenses, and other assets include $36.0 million and $90.8 million, respectively, of assets related to consolidated variable interest entities (“VIEs”). See Note 3, “Investments in Unconsolidated Entities” for additional information regarding VIEs.

See accompanying notes.

2

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

(Unaudited)

	Three months ended April 30,				Six months ended April 30,
	2022		2021		2022		2021
Revenues:
Home sales	$	2,186,529	$	1,836,260	$	3,873,881	$	3,246,964
Land sales and other	91,012		93,864		194,741		246,536
	2,277,541		1,930,124		4,068,622		3,493,500
Cost of revenues:
Home sales	1,659,265		1,434,493		2,948,792		2,556,286
Land sales and other	92,981		92,091		192,598		203,825
	1,752,246		1,526,584		3,141,390		2,760,111
Selling, general and administrative	243,637		219,170		470,507		429,909
Income from operations	281,658		184,370		456,725		303,480
Other:
Income from unconsolidated entities	2,933		10,483		24,970		11,677
Other income – net	11,224		9,213		14,936		17,285
Expenses related to early retirement of debt	—		(34,240)		—		(35,211)
Income before income taxes	295,815		169,826		496,631		297,231
Income tax provision	75,222		41,960		124,134		72,866
Net income	$	220,593	$	127,866	$	372,497	$	224,365
Other comprehensive income – net of tax	13,608		4,438		18,310		5,150
Total comprehensive income	$	234,201	$	132,304	$	390,807	$	229,515
Per share:
Basic earnings	$	1.87	$	1.03	$	3.12	$	1.79
Diluted earnings	$	1.85	$	1.01	$	3.08	$	1.77
Weighted-average number of shares:
Basic	117,839		124,295		119,418		125,177
Diluted	118,925		125,999		120,891		126,780

See accompanying notes.

3

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands)

(Unaudited)

For the three months ended April 30, 2022 and 2021:

	Common Stock		Addi- tional Paid-in Capital		Retained Earnings		Treasury Stock		AOCI		Non-controlling Interest		Total Equity
	$		$		$		$		$		$		$
Balance, January 31, 2022	$	1,279	$	711,558	$	5,100,841	$	(563,618)	$	5,811	$	45,579	$	5,301,450
Net income					220,593								220,593
Purchase of treasury stock							(106,511)						(106,511)
Exercise of stock options, stock based compensation issuances, and employee stock purchase plan issuances			(312)				733						421
Stock-based compensation			3,405										3,405
Dividends declared					(23,495)								(23,495)
Other comprehensive income									13,608				13,608
Income attributable to non-controlling interest											65		65
Capital distributions – net											(29,870)		(29,870)
Balance, April 30, 2022	$	1,279	$	714,651	$	5,297,939	$	(669,396)	$	19,419	$	15,774	$	5,379,666
Balance, January 31, 2021	$	1,529	$	708,668	$	5,245,935	$	(1,162,811)	$	(6,486)	$	47,657	$	4,834,492
Net income					127,866								127,866
Purchase of treasury stock							(253)						(253)
Exercise of stock options, stock based compensation issuances, and employee stock purchase plan issuances			(2,692)				14,658						11,966
Stock-based compensation			3,446										3,446
Dividends declared					(21,228)								(21,228)
Other comprehensive income									4,438				4,438
Income attributable to non-controlling interest											1		1
Capital contributions – net											61		61
Balance, April 30, 2021	$	1,529	$	709,422	$	5,352,573	$	(1,148,406)	$	(2,048)	$	47,719	$	4,960,789

4

For the six months ended April 30, 2022 and 2021:

	Common Stock		Addi- tional Paid-in Capital		Retained Earnings		Treasury Stock		AOCI		Non-controlling Interest		Total Equity
Balance, October 31, 2021	$	1,279	$	714,453	$	4,969,839	$	(391,656)	$	1,109	$	45,431	$	5,340,455
Net income					372,497								372,497
Purchase of treasury stock							(292,279)						(292,279)
Exercise of stock options, stock based compensation issuances, and employee stock purchase plan issuances			(16,822)				14,539						(2,283)
Stock-based compensation			17,020										17,020
Dividends declared					(44,397)								(44,397)
Other comprehensive income									18,310				18,310
Income attributable to non-controlling interest											86		86
Capital distributions - net											(29,743)		(29,743)
Balance, April 30, 2022	$	1,279	$	714,651	$	5,297,939	$	(669,396)	$	19,419	$	15,774	$	5,379,666
Balance, October 31, 2020	$	1,529	$	717,272	$	5,164,086	$	(1,000,454)	$	(7,198)	$	52,241	$	4,927,476
Cumulative effect adjustment upon adoption of ASC 326 - net of tax					(595)								(595)
Net income					224,365								224,365
Purchase of treasury stock							(179,648)						(179,648)
Exercise of stock options, stock based compensation issuances, and employee stock purchase plan issuances			(24,129)				31,696						7,567
Stock-based compensation			16,279										16,279
Dividends declared					(35,283)								(35,283)
Other comprehensive income									5,150				5,150
Loss attributable to non-controlling interest											(20)		(20)
Capital distributions - net											(4,502)		(4,502)
Balance, April 30, 2021	$	1,529	$	709,422	$	5,352,573	$	(1,148,406)	$	(2,048)	$	47,719	$	4,960,789

See accompanying notes.

5

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Six months ended April 30,
	2022		2021
Cash flow (used in) provided by operating activities:
Net income	$	372,497	$	224,365
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	33,536		33,181
Stock-based compensation	17,020		16,279
Income from unconsolidated entities	(24,970)		(11,677)
Distributions of earnings from unconsolidated entities	29,636		11,464
Deferred tax provision	6,797		3,222
Inventory impairments and write-offs	4,425		2,847
Property, construction and office equipment impairments	6,800		—
Gain on sale of assets	—		(38,706)
Expenses related to early retirement of debt	—		35,211
Other	2,831		1,882
Changes in operating assets and liabilities:
Inventory	(890,202)		(528,048)
Origination of mortgage loans	(931,958)		(906,251)
Sale of mortgage loans	1,027,696		929,763
Receivables, prepaid expenses, and other assets	(239)		77,624
Current income taxes – net	(14,321)		(17,178)
Customer deposits – net	110,460		132,840
Accounts payable and accrued expenses	45,020		60,449
Net cash (used in) provided by operating activities	(204,972)		27,267
Cash flow (used in) provided by investing activities:
Purchase of property, construction, and office equipment – net	(39,140)		(29,606)
Investments in unconsolidated entities	(121,282)		(153,828)
Return of investments in unconsolidated entities	88,371		144,047
Proceeds from the sale of assets	—		80,418
Other	194		579
Net cash (used in) provided by investing activities	(71,857)		41,610
Cash flow used in financing activities:
Proceeds from loans payable	1,826,068		1,335,309
Principal payments of loans payable	(1,879,318)		(1,548,152)
Redemption of senior notes	(409,856)		(294,168)
(Payments) proceeds for stock-based benefit plans – net	(2,279)		7,569
Purchase of treasury stock	(284,276)		(179,648)
Dividends paid	(44,255)		(35,272)
Payments related to noncontrolling interest – net	(25,766)		(4,718)
Net cash used in financing activities	(819,682)		(719,080)
Net decrease in cash, cash equivalents, and restricted cash	(1,096,511)		(650,203)
Cash, cash equivalents, and restricted cash, beginning of period	1,684,412		1,396,604
Cash, cash equivalents, and restricted cash, end of period	$	587,901	$	746,401

See accompanying notes.

6

TOLL BROTHERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation

Our condensed consolidated financial statements include the accounts of Toll Brothers, Inc. (the “Company,” “we,” “us,” or “our”), a Delaware corporation, and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity, in which case we would consolidate the entity.

Our unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The October 31, 2021 balance sheet amounts and disclosures have been derived from our October 31, 2021 audited financial statements. Since the condensed consolidated financial statements do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements, they should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021 (“2021 Form 10-K”). In the opinion of management, the unaudited condensed consolidated financial statements include all recurring adjustments, necessary to present fairly our financial position as of April 30, 2022; the results of our operations and changes in equity for the three-month and six-month periods ended April 30, 2022 and 2021; and our cash flows for the six-month periods ended April 30, 2022 and 2021. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In times of economic disruption when uncertainty regarding future economic conditions is heightened, these estimates and assumptions are subject to greater variability. We are subject to risks and uncertainties, including risks and uncertainties resulting from the COVID-19 pandemic, and are likely to continue to impact our business operations. As a result, actual results could differ from the estimates and assumptions we make and such differences may be material.

Revenue Recognition

Home sales revenues: Revenues and cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer. For the majority of our home closings, our performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed. In certain states where we build, we are not able to complete certain outdoor features prior to the closing of the home. To the extent these separate performance obligations are not complete upon the home closing, we defer a portion of the home sales revenues related to these obligations and subsequently recognize the revenue upon completion of such obligations. As of April 30, 2022, the home sales revenues and related costs we deferred related to these obligations were immaterial. Our contract liabilities, consisting of deposits received from customers for sold but undelivered homes, totaled $812.4 million and $636.4 million at April 30, 2022 and October 31, 2021, respectively. Of the outstanding customer deposits held as of October 31, 2021, we recognized $132.9 million and $243.8 million in home sales revenues during the three months and six months ended April 30, 2022.

Land sales and other revenues: Our revenues from land sales and other generally consist of: (1) land sales to joint ventures in which we retain an interest; (2) bulk sales to third parties of land we have decided no longer meets our development criteria; (3) lot sales to third-party builders within our master planned communities; and (4) sales of commercial and retail properties generally located at our City Living buildings. In general, our performance obligation for each of these land sales is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty. For land sale transactions that contain repurchase options, revenues and related costs are not recognized until the repurchase option expires. In addition, when we sell land to a joint venture in which we retain an interest, we do not recognize revenue or gains on the sale to the extent of our retained interest in such joint venture.

Forfeited Customer Deposits: Forfeited customer deposits are recognized in “Home sales revenues” in our Condensed Consolidated Statements of Operations and Comprehensive Income in the period in which we determine that the customer will not complete the purchase of the home and we have the right to retain the deposit.

Sales Incentives: In order to promote sales of our homes, we may offer our home buyers sales incentives. These incentives vary by type of incentive and by amount on a community-by-community and home-by-home basis. Incentives are reflected as a

7

reduction in home sales revenues. Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848),” as amended by ASU 2021-01 in January 2021, directly addressing the effects of reference rate reform on financial reporting as a result of the cessation of the publication of certain LIBOR rates beginning December 31, 2021, with complete elimination of the publication of the LIBOR rates by June 30, 2023. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform by virtue of referencing LIBOR or another reference rate expected to be discontinued. This guidance became effective on March 12, 2020 and can be adopted no later than December 31, 2022, with early adoption permitted. We are currently evaluating the impact, but do not expect that the adoption of ASU 2020-04, as amended by ASU 2021-01, will have a material impact on our consolidated financial statements or disclosures.

Reclassification

Certain prior period amounts have been reclassified to conform to the fiscal 2022 presentation.

2. Inventory

Inventory at April 30, 2022 and October 31, 2021 consisted of the following (amounts in thousands):

	April 30, 2022		October 31, 2021
Land controlled for future communities	$	218,402	$	185,656
Land owned for future communities	933,730		564,737
Operating communities	7,826,684		7,165,491
	$	8,978,816	$	7,915,884

Operating communities include communities offering homes for sale; communities that have sold all available home sites but have not completed delivery of the homes and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities, and the carrying cost of model homes.

Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”).

The amounts we have provided for inventory impairment charges and the expensing of costs that we believe not to be recoverable, for the periods indicated, are shown in the table below (amounts in thousands):

	Three months ended April 30,				Six months ended April 30,
	2022		2021		2022		2021
Land controlled for future communities	$	2,192	$	1,581	$	2,985	$	1,747
Land owned for future communities	—		—		1,440		—
Operating communities	—		—		—		1,100
	$	2,192	$	1,581	$	4,425	$	2,847

See Note 13, “Commitments and Contingencies,” for information regarding land purchase commitments.

At April 30, 2022, we evaluated our land purchase contracts, including those to acquire land for apartment developments, to determine whether any of the selling entities were variable interest entities (“VIEs”) and, if they were, whether we were the primary beneficiary of any of them. Under these land purchase contracts, we do not possess legal title to the land; our risk is generally limited to deposits paid to the sellers and predevelopment costs incurred; and the creditors of the sellers generally have no recourse against us. At April 30, 2022, we determined that 235 land purchase contracts, with an aggregate purchase price of $3.91 billion, on which we had made aggregate deposits totaling $356.1 million, were VIEs, and that we were not the primary beneficiary of any VIE related to our land purchase contracts. At October 31, 2021, we determined that 289 land purchase contracts, with an aggregate purchase price of $3.67 billion, on which we had made aggregate deposits totaling $302.4 million, were VIEs and that we were not the primary beneficiary of any VIE related to our land purchase contracts.

8

Interest incurred, capitalized, and expensed, for the periods indicated, was as follows (amounts in thousands):

	Three months ended April 30,				Six months ended April 30,
	2022		2021		2022		2021
Interest capitalized, beginning of period	$	247,942	$	302,961	$	253,938	$	297,975
Interest incurred	31,888		38,047		62,893		79,315
Interest expensed to home sales cost of revenues	(40,822)		(44,092)		(73,259)		(77,417)
Interest expensed to land sales and other cost of revenues	(219)		(579)		(3,628)		(2,417)
Interest capitalized on investments in unconsolidated entities	(1,516)		(1,192)		(2,806)		(2,326)
Previously capitalized interest on investments in unconsolidated entities transferred to inventory	60		—		195		15
Interest capitalized, end of period	$	237,333	$	295,145	$	237,333	$	295,145

During the three months ended April 30, 2022 and April 30, 2021, we incurred approximately $94,000 and $246,000 of interest related to our interest rate swaps which is included in accumulated other comprehensive income, respectively, and approximately $106,000 and $32,000 was reclassified out of accumulated other comprehensive income to home sales cost of revenues, respectively. During the six months ended April 30, 2022 and April 30, 2021, we incurred approximately $368,000 and $400,000 of interest related to our interest rate swaps which is included in accumulated other comprehensive income, respectively, and approximately $182,000 and $42,000 was reclassified out of accumulated other comprehensive income to home sales cost of revenues, respectively.

3. Investments in Unconsolidated Entities

We have investments in various unconsolidated entities and our ownership interest in these investments ranges from 5.0% to 50%. These entities, which are structured as joint ventures and either: (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”); or (iv) provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).

The table below provides information as of April 30, 2022, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):

	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Gibraltar Joint Ventures		Total
Number of unconsolidated entities	14		2		38		4		58
Investment in unconsolidated entities (1)	$	285,070	$	6,676	$	383,135	$	9,504	$	684,385
Number of unconsolidated entities with funding commitments by the Company	11		—		15		1		27
Company’s remaining funding commitment to unconsolidated entities (2)	$	107,738	$	—	$	132,526	$	18,799	$	259,063

(1)    Our total investment includes $84.2 million related to 13 unconsolidated joint venture-related variable interests in VIEs and our maximum exposure to losses related to these VIEs is approximately $263.1 million as of April 30, 2022. Our ownership interest in such unconsolidated Joint Venture VIEs ranges from 20% to 50%.

(2)    Our remaining funding commitment includes approximately $168.1 million related to our unconsolidated joint venture-related variable interests in VIEs.

Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at April 30, 2022, regarding the debt financing obtained by category ($ amounts in thousands):

	Land Development Joint Ventures		Rental Property Joint Ventures		Total
Number of joint ventures with debt financing	8		29		37
Aggregate loan commitments	$	507,427	$	2,789,904	$	3,297,331
Amounts borrowed under loan commitments	$	375,481	$	1,492,027	$	1,867,508

9

More specific and/or recent information regarding our investments in, advances to, and future commitments to these entities is provided below.

New Joint Ventures

The table below provides information on joint ventures entered into during the six-months ended April 30, 2022 ($ amounts in thousands):

	Land Development Joint Ventures		Rental Property Joint Ventures		Gibraltar Joint Ventures
Number of unconsolidated joint ventures entered into during the period	2		7		1
Investment balance at April 30, 2022	$	13,816	$	69,513	$	2,093

In addition, in the first quarter of fiscal 2022, we entered into a joint venture with an unrelated party to develop a luxury for-rent residential apartment project in Washington, D.C. on land which we contributed to the venture. The land we contributed has a carrying value of $60.1 million and remains on our balance sheet under “Receivables, prepaid expenses, and other assets”. Under the terms of the joint venture agreement, our partner has the right to put their interest back to us if certain conditions are not satisfied. If those conditions are satisfied, we would expect to deconsolidate this land and recognize a land sale at that time. In the second quarter of fiscal 2022, the joint venture entered into a $162.7 million construction loan commitment agreement to finance the development of the project. As of April 30, 2022, no amounts were borrowed under this commitment.

The table below provides information on joint ventures entered into during the six-months ended April 30, 2021 ($ amounts in thousands):

	Land Development Joint Ventures		Rental Property Joint Ventures
Number of unconsolidated joint ventures entered into during the period	4		3
Investment balance at April 30, 2021	$	86,200	$	43,700

Results of Operations and Intra-entity Transactions

From time to time, certain of our land development and rental property joint ventures sell assets to unrelated parties or to our joint venture partner. In connection with these sales, we recognized gains of $11.5 million in the three-month period ended April 30, 2021. No gains were recognized in the three-month period ended April 30, 2022. In the six-month periods ended April 30, 2022 and 2021, we recognized gains of $21.0 million and $17.5 million, respectively. These gains are included in “Income from unconsolidated entities” on our Condensed Consolidated Statements of Operations and Comprehensive Income.

In the six-month period ended April 30, 2021, we recognized other-than-temporary impairment charges on our investments in certain Home Building Joint Ventures of $2.1 million. There were no other-than-temporary impairment charges recognized in the six-month period ended April 30, 2022 or the three-month periods ended April 30, 2022 and 2021.

In the three-month periods ended April 30, 2022 and 2021, we purchased land from unconsolidated entities, principally related to our acquisition of lots from our Land Development Joint Ventures, totaling $14.1 million and $3.5 million, respectively. In the six-month periods ended April 30, 2022 and 2021, we purchased land from unconsolidated entities, principally related to our acquisition of lots from our Land Development Joint Ventures, totaling $37.9 million and $7.8 million, respectively. Our share of income from the lots we acquired was insignificant in each period. In the three-month periods ended April 30, 2022 and 2021, we sold land to unconsolidated entities, which principally involved land sales to our Rental Property Joint Ventures, totaling $73.9 million and $82.6 million, respectively. In the six-month periods ended April 30, 2022 and 2021, we sold land to unconsolidated entities, which principally involved land sales to our Rental Property Joint Ventures, totaling $151.9 million and $140.0 million, respectively. These amounts are included in “Land sales and other revenue” on our Condensed Consolidated Statements of Operations and Comprehensive Income and are generally sold at or near our land basis.

Guarantees

The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we have guaranteed portions of debt of unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.

10

In some instances, we and our joint venture partner have provided joint and several guarantees in connection with loans to unconsolidated entities. In these situations, we generally seek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee; however, we are not always successful. In addition, if the joint venture partner does not have adequate financial resources to meet its obligations under such a reimbursement agreement, we may be liable for more than our proportionate share.

We believe that, as of April 30, 2022, in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture.

Information with respect to certain of the Company’s unconsolidated entities’ outstanding debt obligations, loan commitments and our guarantees thereon are as follows ($ amounts in thousands):

	April 30, 2022
Loan commitments in the aggregate	$	2,789,200
Our maximum estimated exposure under repayment and carry cost guarantees if the full amount of the debt obligations were borrowed (1)	$	481,900
Debt obligations borrowed in the aggregate	$	1,359,400
Our maximum estimated exposure under repayment and carry cost guarantees of the debt obligations borrowed	$	266,600
Estimated fair value of guarantees provided by us related to debt and other obligations	$	12,900
Terms of guarantees	1 month - 4.0 years

(1)    Our maximum estimated exposure under repayment and carry cost guarantees includes approximately $95.0 million related to our unconsolidated Joint Venture VIEs.

The maximum exposure estimates presented above do not take into account any recoveries from the underlying collateral or any reimbursement from our partners. We have not made payments under any of the outstanding guarantees, nor have we been called upon to do so.

Variable Interest Entities

We have both unconsolidated and consolidated joint venture-related variable interests in VIEs. Information regarding our involvement in unconsolidated joint-venture related variable interests in VIEs has been disclosed throughout information presented above.

The table below provides information as of April 30, 2022 and October 31, 2021, regarding our consolidated joint venture-related variable interests in VIEs ($ amounts in thousands):

	Balance Sheet Classification	April 30, 2022		October 31, 2021
Number of Joint Venture VIEs that the Company is the primary beneficiary and consolidates		5		5
Carrying value of consolidated VIEs assets	Receivables prepaid expenses, and other assets	$	36,000	$	90,800
Our partners’ interests in consolidated VIEs	Noncontrolling interest	$	9,700	$	39,400

Our ownership interest in the above consolidated Joint Venture VIEs ranges from 50% to 98%. We are actively looking for additional partners for these investments and to the extent we are able to find such partners, we will reduce our ownership interest in these entities.

As shown above, we are the primary beneficiary of certain VIEs due to our controlling financial interest in such ventures as we have the power to direct the activities that most significantly impact the joint ventures’ performance and the obligation to absorb expected losses or receive benefits from the joint ventures. The assets of these VIEs can only be used to settle the obligations of the VIEs. In addition, in certain of the joint ventures, in the event additional contributions are required to be funded to the joint ventures prior to the admission of any additional investor at a future date, we will fund 100% of such contributions, including our partner’s pro rata share, which we expect would be funded through an interest-bearing loan. For other VIEs, we are not the primary beneficiary because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions

11

are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and other members.

Joint Venture Condensed Combined Financial Information

The Condensed Combined Balance Sheets, as of the dates indicated, and the Condensed Combined Statements of Operations, for the periods indicated, for the unconsolidated entities in which we have an investment are included below (in thousands):

Condensed Combined Balance Sheets:

	April 30, 2022		October 31, 2021
Cash and cash equivalents	$	189,373	$	153,582
Inventory	1,037,284		964,962
Loans receivable – net	58,547		86,727
Rental properties	1,447,011		1,496,355
Rental properties under development	1,205,474		697,659
Other assets	250,783		227,579
Total assets	$	4,188,472	$	3,626,864
Debt – net of deferred financing costs	$	1,861,211	$	1,677,619
Other liabilities	267,771		248,545
Members’ equity	2,059,490		1,700,700
Total liabilities and equity	$	4,188,472	$	3,626,864
Company’s net investment in unconsolidated entities (1)	$	684,385	$	599,101

(1)    Our underlying equity in the net assets of the unconsolidated entities exceeded our net investment in unconsolidated entities by $22.1 million and $16.5 million as of April 30, 2022 and October 31, 2021, respectively, and these differences are primarily a result of other than temporary impairments we have recognized; interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; unrealized gains on our retained joint venture interests; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment.

Condensed Combined Statements of Operations:

	Three months ended April 30,				Six months ended April 30,
	2022		2021		2022		2021
Revenues	$	130,771	$	86,422	$	286,523	$	178,952
Cost of revenues	86,219		60,136		194,701		156,859
Other expenses	39,172		35,081		82,776		70,470
Total expenses	125,391		95,217		277,477		227,329
Loss on disposition of loans and real estate owned	—		(209)		(113)		(209)
Income (loss) from operations	5,380		(9,004)		8,933		(48,586)
Other income (2)	7,064		34,385		40,410		35,332
Income (loss) before income taxes	12,444		25,381		49,343		(13,254)
Income tax expense (benefit)	74		(152)		156		(1,659)
Net income (loss) including earnings from noncontrolling interests	12,370		25,533		49,187		(11,595)
Less: income attributable to noncontrolling interest	—		—		—		(174)
Net income (loss) attributable to controlling interest	$	12,370	$	25,533	$	49,187	$	(11,769)
Company’s equity in earnings of unconsolidated entities (3)	$	2,933	$	10,483	$	24,970	$	11,677

(2)     The six months ended April 30, 2022 includes $29.9 million related to the sale of an asset by one Rental Property Joint Venture. The three months and six months ended April 30, 2021 includes $32.6 million related to the sale of an asset by one Rental Property Joint Venture.

(3)    Differences between our equity in earnings of unconsolidated entities and the underlying net income (loss) of the entities are primarily a result of distributions from entities in excess of the carrying amount of our investment; promote earned on the gains recognized by joint ventures and those promoted cash flows being distributed; other than temporary impairments

12

we have recognized; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; gains recognized from the sale of our investment to our joint venture partner; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.

4. Receivables, Prepaid Expenses, and Other Assets

Receivables, prepaid expenses, and other assets at April 30, 2022 and October 31, 2021, consisted of the following (amounts in thousands):

	April 30, 2022		October 31, 2021
Expected recoveries from insurance carriers and others	$	15,960	$	16,773
Improvement cost receivable	65,484		67,626
Escrow cash held by our wholly owned title company	51,603		41,429
Properties held for rental apartment and commercial development	311,776		381,401
Prepaid expenses	34,328		34,960
Right-of-use asset	101,139		96,276
Other	142,412		99,613
	$	722,702	$	738,078

See Note 6, “Accrued Expenses,” for additional information regarding the expected recoveries from insurance carriers and others.

As of April 30, 2022 and October 31, 2021, properties held for rental apartment and commercial development include $36.0 million and $90.8 million, respectively, of assets related to consolidated VIEs. See Note 3, “Investments in Unconsolidated Entities” for additional information regarding VIEs.

5. Loans Payable, Senior Notes, and Mortgage Company Loan Facility

Loans Payable

At April 30, 2022 and October 31, 2021, loans payable consisted of the following (amounts in thousands):