Investments in and Advances to Unconsolidated Entities

3 Months Ended

Jan. 31, 2012

Investments in and Advances to Unconsolidated Entities [Abstract]

Investments in and Advances to Unconsolidated Entities (TO BE UPDATED BY LEGAL)

4. 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 January 31, 2012, the Company had approximately $8.6 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 (“South Edge”), a Development Joint Venture organized to develop a master planned community in the City of Henderson, Nevada. In 2008 and 2009, based on the deterioration of the real estate market in Nevada and the filing of lawsuits against the Company and the other parent companies of the members of South Edge by lenders to South Edge to collect on completion guaranties executed in favor of the lenders, the Company recognized impairments which totaled $70.3 million.

During fiscal 2010, the members of South Edge engaged in negotiations with the lenders to settle the lenders’ claims. Based on the status of the lawsuits and the ongoing negotiations, the Company believed that it had adequately provided for a settlement of these claims.

In December 2010, some of the lenders filed an involuntary bankruptcy petition against South Edge, claiming that the involuntary bankruptcy filing triggered obligations on payment guarantees executed by the Company and the other parent companies of the members of South Edge in favor of the lenders. In February, 2011, the Bankruptcy Court upheld the involuntary petition and appointed a trustee to take over the operations of South Edge. Based on this court decision, the potential liability under the payment guaranty and the further erosion in the value of the real property owned by South Edge, the Company recorded additional impairments of $20 million in the first quarter of fiscal 2011 and $9.6 million in the second quarter of fiscal 2011. The Company reversed $3.9 million of previously recognized impairments on South Edge in the fourth quarter of fiscal 2011 based on its evaluation of its expected potential liability at that time. The total cumulative impairment recognized for South Edge through January 31, 2012 was $96 million.

During the third quarter of fiscal 2011, the Company and a majority of the members of South Edge reached an agreement with the lenders and the bankruptcy trustee to settle the disputes involving South Edge. The settlement provided, among other things, for payments by the members of South Edge to the lenders (the Company’s share was $63.2 million, $57.6 million of which was paid in November 2011) and the conveyance of the real estate free of the prior debt owned by South Edge to a new joint venture organized by four of the members of South Edge.

The Company believes it has made adequate provision at January 31, 2012 for any remaining liabilities with respect to South Edge. The Company’s investment in the successor joint venture to South Edge is carried at nominal value.

The Company did not recognize any impairment charges in connection with the Development Joint Ventures in the three-month period ended January 31, 2012.

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 (the “Planned Community Joint Venture”). During both fiscal 2009 and 2010, the joint venture’s performance was as expected and the Company estimated that the fair value of its investment exceeded its carrying value at the end of each of the reporting periods. In the early part of fiscal 2011, the Company saw signs of increased sales activity consistent with the seasonality of that market and it continued to believe the investment was not impaired. In the late spring of 2011, demand for homes in this community unexpectedly weakened. When the Company evaluates the carrying value of its investment, it considers the current and long-term outlook for the operations of the community and the anticipated period of time, if ever, it would take for the fair value of the investment to recover above the carrying value of the investment. Applying that standard, the Company’s review of the joint venture’s expected future performance based on its historical performance and market conditions at that time, as well as expected sales paces and prices and the joint venture’s expected cash flows led the Company to determine that the value of its investment was impaired and that this impairment was other than temporary. As a result, in the second quarter of fiscal 2011, the Company recognized an impairment charge of $10.0 million. That market continued to worsen and, in the fourth quarter of fiscal 2011, the Company determined that the value of its investment was further impaired and that this impairment was other than temporary and the Company recognized an additional impairment charge of $5.2 million. Therefore, as of January 31, 2012, the Company had recognized cumulative impairment charges in connection with the Planned Community Joint Venture of $15.2 million.

At January 31, 2012, the Company had an investment of $30.7 million, net of the $15.2 million of impairments recognized, in this Planned Community Joint Venture. At January 31, 2012, the participants had 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.

At January 31, 2012, this joint venture did not have any indebtedness.

Condominium Joint Ventures

At January 31, 2012, the Company had an aggregate of $119.4 million of investments in and advances to five joint ventures with unrelated parties to develop luxury for-sale and rental residential units and commercial space (“Condominium Joint Ventures”).

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 $76.7 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, for lease units and retail space.

As of January 31, 2012, the Company had recognized cumulative impairment charges against its investments in the Condominium Joint Ventures and its pro rata share of impairment charges recognized by these Condominium Joint Ventures in the amount of $63.9 million. The Company did not recognize any impairment charges in connection with its Condominium Joint Ventures in the three-month period ended January 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 January 31, 2012, the Company had an investment of $0.4 million in Trust II. Prior to the formation of Trust II, the Company formed Toll Brothers Realty Trust (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 January 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 $0.5 million in each of the three-month periods ended January 31, 2012 and 2011. 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 January 31, 2012, the Company had an investment of $34.2 million in this Structured Asset Joint Venture. At January 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 January 31, 2012, the Company had accrued $2.6 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 $20.0 million of impairment charges related to its investments in and advances to its Development Joint Ventures in the three-month period ended January 31, 2011. The Company did not recognize any impairment charges related to its investments in and advances to unconsolidated entities in the three-month period ended January 31, 2012. The fiscal 2011 impairment charges related to these entities are included in “Loss from unconsolidated entities” in the Company’s consolidated statement of operations for the three month period ended January 31, 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 as follows (in thousands):

Condensed Balance Sheets:

		September 30,		September 30,		September 30,		September 30,		September 30,
	January 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Toll Brothers Realty Trust I and II		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	13,067	$	9,282	$	10,620	$	29,996	$	62,965
Inventory		191,031		296,781		5,542				493,354
Non-performing loan portfolio								288,130		288,130
Rental properties						176,979				176,979
Real estate owned (“REO”)						1,087		239,573		240,660
Other assets (1)		21,047		58,989		9,033		172,024		261,093
Total assets	$	225,145	$	365,052	$	203,261	$	729,723	$	1,523,181
Debt (1)	$	71,444	$	35,363	$	198,066	$	311,562	$	616,435
Other liabilities		21,127		9,363		4,473		424		35,387
Members’ equity		132,574		320,326		722		170,995		624,617
Non-controlling interest								246,742		246,742
Total liabilities and equity	$	225,145	$	365,052	$	203,261	$	729,723	$	1,523,181
Company’s net investment in unconsolidated entities (2)	$	8,592	$	150,135	$	700	$	34,199	$	193,626

		September 30,		September 30,		September 30,		September 30,		September 30,
	October 31, 2011
	Develop- ment Joint Ventures		Home Building Joint Ventures		Toll Brothers Realty Trust I and 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						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
Non-controlling 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 January 31, 2012 and October 31, 2011 of the Structured Asset Joint Venture is $165.5 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 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:

		September 30,		September 30,		September 30,			September 30,			September 30,
	For the three months ended January 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Toll Brothers Realty Trust I and II			Structured Asset Joint Venture			Total
Revenues	$	33,584	$	23,430	$	9,476		$	8,133		$	74,623
Cost of revenues		31,771		17,794		3,343			11,067			63,975
Other expenses		225		945		6,785			2,631			10,586
Loss on disposition of loans and REO									44			44
Total expenses—net		31,996		18,739		10,128			13,742			74,605
Income (loss) from operations		1,588		4,691		(652	)		(5,609	)		18
Other income		2,653		5					137			2,795
Net income (loss) before noncontrolling interest		4,241		4,696		(652	)		(5,472	)		2,813
Less: Net loss attributable to noncontrolling interest									(3,283	)		(3,283	)
Net income (loss)	$	4,241		4,696	$	(652	)	$	(2,189	)	$	6,096
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	1,996	$	4,520	$	623		$	(452	)	$	6,687

		September 30,			September 30,		September 30,			September 30,			September 30,
	For the three months ended January 31, 2011
	Develop- ment Joint Ventures			Home Building Joint Ventures		Toll Brothers Realty Trust I and II			Structured Asset Joint Venture			Total
Revenues	$	1,085		$	88,014	$	9,150		$	12,002		$	110,251
Cost of revenues		1,159			69,169		3,489			9,558			83,375
Other expenses		157			3,009		6,002			3,271			12,439
Gain on disposition of loans and REO										(11,374	)		(11,374	)
Total expenses—net		1,316			72,178		9,491			1,455			84,440
Income (loss) from operations		(231	)		15,836		(341	)		10,547			25,811
Other income		2,379			36					88			2,503
Net income (loss) before noncontrolling interest		2,148			15,872		(341	)		10,635			28,314
Less: Net income attributable to noncontrolling interest										(6,383	)		(6,383	)
Net income (loss)	$	2,148		$	15,872	$	(341	)		4,252		$	21,931
Company’s equity in (losses) earnings of unconsolidated entities (3)	$	(20,000	)	$	7,934	$	464		$	600		$	(11,002	)

(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.