Lennar Homebuilding Investments In Unconsolidated Entities

6 Months Ended

May 31, 2016

Equity Method Investments and Joint Ventures [Abstract]

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



	Three Months Ended				Six Months Ended
	May 31,				May 31,
(In thousands)	2016			2015	2016		2015
Revenues	$	208,636		180,790	308,362		623,747
Costs and expenses	201,370			154,139	298,570		453,018
Other income	—			—	—		2,943
Net earnings of unconsolidated entities	$	7,266		26,651	9,792		173,672
Lennar Homebuilding equity in earnings (loss) from unconsolidated entities	$	(9,633	)	6,494	(6,633	)	35,393

For both the three and six months ended May 31, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of costs associated with the FivePoint combination. This was partially offset by $6.7 million and $12.7 million, respectively, of equity in earnings from one of the Company's unconsolidated entities for the three and six months ended May 31, 2016 primarily due to sales of 253 homesites and 471 homesites, respectively, to third parties for $52.1 million and $114.1 million, respectively, that resulted in gross profits of $18.3 million and $39.0 million, respectively. For both the three and six months ended May 31, 2016, 312 homesites were sold to Lennar by one of the Company's unconsolidated entities for $92.0 million that resulted in $29.7 million, of gross profit, of which the Company's portion was deferred.

For the three months ended May 31, 2015, Lennar Homebuilding equity in earnings included $11.6 million of equity in earnings from one of the Company's unconsolidated entities primarily due to sales of approximately 60 homesites and a commercial property to third parties for $121.3 million that resulted in $37.6 million of gross profit.

For the six months ended May 31, 2015, Lennar Homebuilding equity in earnings included $43.0 million of equity in earnings from one of the Company's unconsolidated entities primarily due to (1) sales of approximately 660 homesites to third parties for $407.2 million that resulted in $138.4 million of gross profit and (2) sales of 300 homesites to Lennar for $126.4 million that resulted in $44.6 million of gross profit, of which the Company's portion was deferred.

Balance Sheets



(In thousands)	May 31, 2016		November 30, 2015
Assets:
Cash and cash equivalents	$	373,846	248,980
Inventories	3,081,630		3,059,054
Other assets	921,025		465,404
	$	4,376,501	3,773,438
Liabilities and equity:
Accounts payable and other liabilities	$	283,492	288,192
Debt	857,594		792,886
Equity	3,235,415		2,692,360
	$	4,376,501	3,773,438

On May 2, 2016 (the “Closing Date”), the Company contributed, or obtained the right to contribute, its investment in three strategic joint ventures previously managed by FivePoint Communities in exchange for an investment in a newly formed FivePoint entity. The fair values of the assets contributed to the newly formed FivePoint entity, included within the unconsolidated entities summarized condensed balance sheet presented above, are preliminary and will be adjusted when additional information is obtained during the transaction’s measurement period (a period of up to one year from the Closing Date) that may change the fair value allocation as of the acquisition date. A portion of the assets of one of the three strategic joint ventures was retained by Lennar and its venture partner in a new unconsolidated entity. The transactions did not have a material impact to the Company’s financial position or cash flows. The Company recorded its share of combination costs in equity in loss from unconsolidated entities on the condensed consolidated statement of operations for the three and six months ended May 31, 2016.

As of May 31, 2016 and November 30, 2015, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $785.9 million and $741.6 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of May 31, 2016 and November 30, 2015 was $1.2 billion and $839.5 million, respectively. The basis difference is primarily as a result of the Company contributing its investment in three strategic joint ventures with a higher fair value than book value for an investment in the newly formed FivePoint entity, contributing non-monetary assets to an unconsolidated entity with a higher fair value than book value and deferring equity in earnings on land sales.

The Lennar Homebuilding unconsolidated 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, including Lennar's maximum recourse exposure, were as follows:



(Dollars in thousands)	May 31, 2016			November 30, 2015
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	49,606		50,411
Non-recourse land seller debt and other debt	323,995			324,000
Non-recourse debt with completion guarantees	141,811			146,760
Non-recourse debt without completion guarantees	301,331			260,734
Non-recourse debt to the Company	816,743			781,905
The Company’s maximum recourse exposure (1)	40,851			10,981
Total debt	$	857,594		792,886
The Company’s maximum recourse exposure as a % of total JV debt	5		%	1	%


(1)	The increase in the Company's maximum recourse exposure was primarily related to the Company providing a repayment guarantee on an unconsolidated entity's debt.

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 of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. As of both May 31, 2016 and November 30, 2015, the Company did not have any maintenance guarantees or joint and several repayment 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 unconsolidated entity distributes.

As of both May 31, 2016 and November 30, 2015, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of May 31, 2016, 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 11).