Lennar Homebuilding Investments in Unconsolidated Entities

Summarized condensed financial information on a combined 100% basis related to Lennar Homebuilding’s unconsolidated entities that are accounted for by the equity method was as follows:

Statements of Operations

	Years Ended November 30,
(In thousands)	2015		2014		2013
Revenues	$	1,309,517	263,395		570,910
Costs and expenses	969,509		291,993		425,282
Other income	49,343		—		14,602
Net earnings (loss) of unconsolidated entities	$	389,351	(28,598	)	160,230
Lennar Homebuilding equity in earnings (loss) from unconsolidated entities	$	63,373	(355	)	23,803

For the year ended November 30, 2015, net earnings of unconsolidated entities included the sale of approximately 1,800 homesites and a commercial property by El Toro for $1.1 billion that resulted in $373.2 million of gross profit, of which (1) approximately 300 homesites were sold to Lennar for $139.6 million that resulted in $49.3 million of gross profit, of which the Company's portion was deferred, (2) approximately 800 homesites were sold to a joint venture in which the Company has a 50% investment and for which the Company's portion of the gross profit from the sale was deferred, and (3) approximately 700 homesites and a commercial property were sold to third parties. In addition, net earnings for the year ended November 30, 2015 included a gain on debt extinguishment related to a debt paydown by El Toro. These transactions resulted primarily in the recognition of $82.8 million of Lennar Homebuilding equity in earnings for the year ended November 30, 2015.

For the year ended November 30, 2014, Lennar Homebuilding equity in loss from unconsolidated entities related primarily to the Company's share of operating losses from various Lennar Homebuilding unconsolidated entities, which included $4.6 million of valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities, partially offset by $4.7 million of equity in earnings as a result of third-party land sales by one unconsolidated entity. For the year ended November 30, 2013, Lennar Homebuilding equity in earnings from unconsolidated entities included $19.8 million of equity in earnings primarily as a result of sales of homesites to third parties by one unconsolidated entity.

Balance Sheets

	November 30,
(In thousands)	2015		2014
Assets:
Cash and cash equivalents	$	248,980	243,597
Inventories	3,059,054		2,889,267
Other assets	465,404		155,470
	$	3,773,438	3,288,334
Liabilities and equity:
Accounts payable and other liabilities	$	288,192	271,638
Debt	792,886		737,755
Equity	2,692,360		2,278,941
	$	3,773,438	3,288,334

As of November 30, 2015 and 2014, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $741.6 million and $656.8 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of November 30, 2015 and 2014 was $839.5 million and $722.6 million, respectively. The basis difference is primarily as a result of the Company buying an interest in a partner's equity in a Lennar Homebuilding unconsolidated entity at a discount to book value, contributing non-monetary assets to an unconsolidated entity with a higher fair value than book value and deferring equity in earnings on land sales.

During the year ended November 30, 2015, the Company bought out the partner of one of its unconsolidated entities for approximately $10 million of which $7 million was paid in cash and the remainder was financed with a short-term note. As a result, the Company's $70 million investment in the unconsolidated entity was reclassified primarily to inventory.

During the year ended November 30, 2015, El Toro sold approximately 800 homesites to a joint venture, in which the Company has a 50% investment, for $472.0 million of which $320 million was financed through a non-recourse note. This transaction resulted in $157.4 million of gross profit, of which the Company's portion was deferred. In addition, this transaction resulted in an increase in inventory, other assets and debt of the Lennar Homebuilding unconsolidated entities reflected in the summarized condensed financial information presented in the previous table.

The Company’s partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners. The unconsolidated entities follow accounting principles that are in all material respects the same as those used by the Company. The Company shares in the profits and losses of these unconsolidated entities generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager under the direction of a management committee that has shared powers amongst the partners of the unconsolidated entities and receives management fees and/or reimbursement of expenses for performing this function. During the years ended November 30, 2015, 2014 and 2013, the Company received management fees and reimbursement of expenses from Lennar Homebuilding unconsolidated entities totaling $31.3 million, $30.7 million and $18.8 million, respectively.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the unconsolidated entities. Option prices are generally negotiated prices that approximate fair value when the Company receives the options. During the years ended November 30, 2015, 2014 and 2013, $177.6 million, $59.0 million and $192.5 million, respectively, of the unconsolidated entities’ revenues were from land sales to the Company. The Company does not include in its Lennar Homebuilding equity in earnings (loss) from unconsolidated entities its pro-rata share of unconsolidated entities’ earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the unconsolidated entities. This in effect defers recognition of the Company’s share of the unconsolidated entities’ earnings related to these sales until the Company delivers a home and title passes to a third-party homebuyer.

The Lennar Homebuilding entities in which the Company has investments usually 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.

The total debt of the Lennar Homebuilding unconsolidated entities in which the Company has investments was as follows:



	November 30,
(Dollars in thousands)	2015			2014
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	50,411		56,573
Non-recourse land seller debt and other debt (1)	324,000			4,022
Non-recourse debt with completion guarantees (2)	146,760			442,854
Non-recourse debt without completion guarantees	260,734			209,825
Non-recourse debt to the Company	781,905			713,274
The Company’s maximum recourse exposure	10,981			24,481
Total debt	$	792,886		737,755
The Company’s maximum recourse exposure as a % of total JV debt	1		%	3	%


(1)	Non-recourse land seller debt and other debt as of November 30, 2015 included a $320 million non-recourse note related to a transaction between El Toro and an unconsolidated joint venture, described previously.


(2)	The decrease in non-recourse debt with completion guarantees was primarily related to a debt paydown by El Toro as a result of sales of homesites and debt extinguishment.

In most instances in which the Company has guaranteed debt of a Lennar Homebuilding unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. Historically, the Company has had repayment guarantees and/or maintenance guarantees. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral. In the event of default, if the Company’s 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, up to its maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value or the collateral (generally land and improvements) is less than a specified percentage of the loan balance. As of both November 30, 2015 and 2014, the Company did not have any maintenance guarantees related to its Lennar Homebuilding unconsolidated entities.

In connection with many of the loans to Lennar Homebuilding unconsolidated entities, the Company and its joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used.

If the Company is required to make a payment under any guarantee, the payment would constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase the Company's investment in the unconsolidated entity and its share of any funds the entity distributes.

As of both November 30, 2015 and 2014, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of November 30, 2015, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, most of the time the collateral should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 6).