Lennar Multifamily Segment (Tables)

9 Months Ended

Aug. 31, 2017

Financial information relating to the Company’s operations was as follows:



(In thousands)	August 31, 2017		November 30, 2016
Assets:
Homebuilding East (1)	$	4,812,569	3,512,990
Homebuilding Central	2,092,624		1,993,403
Homebuilding West	5,093,996		4,318,924
Homebuilding Other	913,250		907,523
Lennar Financial Services	1,385,188		1,754,672
Rialto	1,195,407		1,276,210
Lennar Multifamily	683,258		526,131
Corporate and unallocated	763,081		1,071,928
Total assets	$	16,939,373	15,361,781
Lennar Homebuilding goodwill (2)	$	140,270	—
Lennar Financial Services goodwill (2)	$	59,838	39,838
Rialto goodwill	$	5,396	5,396


(1)	Homebuilding East segment includes the provisional fair values of homebuilding assets acquired as part of the WCI acquisition.


(2)	In connection with the WCI acquisition, the Company allocated $140.3 million of goodwill to the Lennar Homebuilding East reportable segment and $20.0 million to the Lennar Financial Services segment. These amounts are provisional pending completion of the fair value analysis of acquired assets and liabilities.



	Three Months Ended					Nine Months Ended
	August 31,					August 31,
(In thousands)	2017			2016		2017		2016
Revenues:
Homebuilding East	$	1,255,797		1,002,584		3,218,413		2,615,936
Homebuilding Central	602,901			622,304		1,801,424		1,645,131
Homebuilding West	823,500			671,122		2,146,492		1,940,520
Homebuilding Other	202,997			200,959		623,301		532,748
Lennar Financial Services	215,056			191,444		571,462		491,340
Rialto	57,810			63,885		207,804		152,434
Lennar Multifamily	103,415			81,596		291,900		195,264
Total revenues (1)	$	3,261,476		2,833,894		8,860,796		7,573,373
Operating earnings (loss):
Homebuilding East (2)	$	179,908		161,789		277,906		389,433
Homebuilding Central	66,184			67,759		194,986		169,716
Homebuilding West	112,749			92,308		237,333		294,949
Homebuilding Other	27,435			23,026		79,969		54,118
Lennar Financial Services	49,057			53,248		113,448		112,267
Rialto	(3,192		)	(57	)	(10,497	)	(16,533	)
Lennar Multifamily	9,104			2,649		34,816		29,774
Total operating earnings	441,245			400,722		927,961		1,033,724
Corporate general and administrative expenses	72,860			61,164		200,333		164,634
Earnings before income taxes	$	368,385		339,558		727,628		869,090


(1)	Total revenues were net of sales incentives of $165.4 million ($21,800 per home delivered) and $463.4 million ($22,400 per home delivered) for the three and nine months ended August 31, 2017, respectively, compared to $152.3 million ($22,500 per home delivered) and $402.2 million ($22,000 per home delivered) for the three and nine months ended August 31, 2016, respectively.


(2)	Homebuilding East operating earnings for the nine months ended August 31, 2017 included a $140 million loss due to litigation (see Note 17). For both the three and nine months ended August 31, 2016 operating earnings included a gain of $8.7 million on the sale of a clubhouse.

The assets and liabilities related to the Lennar Financial Services segment were as follows:



(In thousands)	August 31, 2017		November 30, 2016
Assets:
Cash and cash equivalents	$	115,016	123,964
Restricted cash	14,152		17,053
Receivables, net (1)	286,902		409,528
Loans held-for-sale (2)	661,649		939,405
Loans held-for-investment, net	37,665		30,004
Investments held-to-maturity	53,631		41,991
Investments available-for-sale (3)	57,784		53,570
Goodwill (4)	59,838		39,838
Other (5)	98,551		99,319
	$	1,385,188	1,754,672
Liabilities:
Notes and other debts payable	$	719,727	1,077,228
Other (6)	230,371		241,055
	$	950,098	1,318,283


(1)	Receivables, net primarily related to loans sold to investors for which the Company had not yet been paid as of August 31, 2017 and November 30, 2016, respectively.


(2)	Loans held-for-sale related to unsold loans carried at fair value.


(3)	Investments available-for-sale are carried at fair value with changes in fair value recorded as a component of accumulated other comprehensive income (loss).


(4)	As of August 31, 2017, goodwill included $20.0 million of goodwill related to the WCI acquisition. The amount provided herein is provisional, pending completion of the fair value analysis of WCI's acquired assets and liabilities assumed (see Note 2).


(5)	As of August 31, 2017 and November 30, 2016, other assets included mortgage loan commitments carried at fair value of $17.5 million and $7.4 million, respectively, and mortgage servicing rights carried at fair value of $27.7 million and $23.9 million, respectively. In addition, other assets also included forward contracts carried at fair value of $26.5 million as of November 30, 2016.


(6)	As of August 31, 2017 and November 30, 2016, other liabilities included $56.1 million and $57.4 million, respectively, of certain of the Company’s self-insurance reserves related to construction defects, general liability and workers’ compensation. Other liabilities also included forward contracts carried at fair value of $5.5 million August 31, 2017.

The assets and liabilities related to the Rialto segment were as follows:



(In thousands)	August 31, 2017		November 30, 2016
Assets:
Cash and cash equivalents	$	154,814	148,827
Restricted cash (1)	30,928		9,935
Receivables, net (2)	—		204,518
Loans held-for-sale (3)	304,984		126,947
Loans receivable, net	52,779		111,608
Real estate owned, net	123,695		243,703
Investments in unconsolidated entities	249,551		245,741
Investments held-to-maturity	142,462		71,260
Other	136,194		113,671
	$	1,195,407	1,276,210
Liabilities:
Notes and other debts payable (4)	$	617,152	622,335
Other	86,177		85,645
	$	703,329	707,980

(1)

Restricted cash primarily consisted of cash set aside for future investments on behalf of a real estate investment trust that Rialto is a sub-advisor to. It also included upfront deposits and application fees RMF receives before originating loans and is recognized as income once the loan has been originated, as well as cash held in escrow by the Company’s loan servicer provider on behalf of customers and lenders and is disbursed in accordance with agreements between the transacting parties.


(2)	Receivables, net primarily related to loans sold but not settled as of November 30, 2016.


(3)	Loans held-for-sale related to unsold loans originated by RMF carried at fair value and loans in the FDIC Portfolios carried at lower of cost or market.


(4)	As of August 31, 2017 and November 30, 2016, notes and other debts payable primarily included $349.2 million and $348.7 million, respectively, related to Rialto's 7.00% senior notes due 2018, and $182.7 million and $223.5 million, respectively, related to Rialto's warehouse repurchase facilities.

The assets and liabilities related to the Lennar Multifamily segment were as follows:



(In thousands)	August 31, 2017		November 30, 2016
Assets:
Cash and cash equivalents	$	3,305	6,600
Receivables (1)	71,464		58,929
Land under development	179,965		139,713
Investments in unconsolidated entities	397,119		318,559
Other assets	31,405		2,330
	$	683,258	526,131
Liabilities:
Accounts payable and other liabilities	$	128,162	117,973


(1)	Receivables primarily related to general contractor services, net of deferrals and management fee income receivables due from unconsolidated entities as of August 31, 2017 and November 30, 2016, respectively.

Equity Method Investments

Balance Sheets



(In thousands)	August 31, 2017		November 30, 2016
Assets:
Cash and cash equivalents	$	806,972	221,334
Inventories	3,785,662		3,889,795
Other assets	1,227,756		1,334,116
	$	5,820,390	5,445,245
Liabilities and equity:
Accounts payable and other liabilities	$	697,065	791,245
Debt (1)	754,749		888,664
Equity	4,368,576		3,765,336
	$	5,820,390	5,445,245


(1)	Debt presented above is net of debt issuance costs of $5.4 million and $4.2 million, as of August 31, 2017 and November 30, 2016, respectively.

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)	August 31, 2017			November 30, 2016
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	68,302		48,945
Non-recourse land seller debt and other debt (1)	1,997			323,995
Non-recourse debt with completion guarantees	275,959			147,100
Non-recourse debt without completion guarantees	342,987			320,372
Non-recourse debt to the Company	689,245			840,412
The Company’s maximum recourse exposure (2)	70,929			52,438
Debt issuance costs	(5,425		)	(4,186	)
Total debt	$	754,749		888,664
The Company’s maximum recourse exposure as a % of total JV debt	9		%	6	%


(1)	Non-recourse land seller debt and other debt as of November 30, 2016 included a $320 million non-recourse note related to a transaction between one of the Company's unconsolidated entities and another unconsolidated joint venture, which was settled in December 2016.


(2)	As of August 31, 2017 and November 30, 2016, the Company's maximum recourse exposure was primarily related to the Company providing repayment guarantees on three unconsolidated entities' debt and one unconsolidated entity's debt, respectively.

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					Nine Months Ended
	August 31,					August 31,
(In thousands)	2017			2016		2017		2016
Revenues	$	144,966		43,889		323,689		352,251
Costs and expenses	151,643			110,649		421,554		409,219
Other income	12,578			—		18,695		—
Net earnings (loss) of unconsolidated entities	$	5,901		(66,760	)	(79,170	)	(56,968	)
Lennar Homebuilding equity in loss from unconsolidated entities	$	(9,651	)	(18,034	)	(42,691	)	(24,667	)

The following table reflects Rialto's investments in funds that invest in and manage real estate related assets and other investments:



								August 31, 2017		August 31, 2017		November 30, 2016
(Dollars in thousands)	Inception Year	Equity Commitments		Equity Commitments Called		Commitment to Fund by the Company		Funds Contributed by the Company		Investment
Rialto Real Estate Fund, LP	2010	$	700,006	$	700,006	$	75,000	$	75,000	$	46,623	58,116
Rialto Real Estate Fund II, LP	2012	1,305,000		1,305,000		100,000		100,000		81,169		96,192
Rialto Mezzanine Partners Fund, LP	2013	300,000		300,000		33,799		33,799		20,632		23,643
Rialto Capital CMBS Funds	2014	119,174		119,174		52,474		52,474		50,545		50,519
Rialto Real Estate Fund III	2015	1,887,000		469,150		140,000		33,533		33,268		9,093
Rialto Credit Partnership, LP	2016	220,000		150,786		19,999		13,707		13,800		5,794
Other investments										3,514		2,384
										$	249,551	245,741

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

Balance Sheets



(In thousands)	August 31, 2017		November 30, 2016
Assets:
Cash and cash equivalents	$	80,337	230,229
Loans receivable	595,149		406,812
Real estate owned	307,669		439,191
Investment securities	1,700,572		1,379,155
Investments in partnerships	409,670		398,535
Other assets	49,452		29,036
	$	3,142,849	2,882,958
Liabilities and equity:
Accounts payable and other liabilities	$	40,239	36,131
Notes payable (1)	587,813		532,264
Equity	2,514,797		2,314,563
	$	3,142,849	2,882,958


(1)	Notes payable are net of debt issuance costs of $3.4 million and $2.9 million, as of August 31, 2017 and November 30, 2016, respectively.

Statements of Operations



	Three Months Ended			Nine Months Ended
	August 31,			August 31,
(In thousands)	2017		2016	2017	2016
Revenues	$	64,267	51,485	182,453	147,021
Costs and expenses	26,752		24,472	83,753	66,075
Other income, net (1)	245		28,947	9,893	40,495
Net earnings of unconsolidated entities	$	37,760	55,960	108,593	121,441
Rialto equity in earnings from unconsolidated entities	$	4,858	5,976	11,310	14,337


(1)	Other income, net, included realized and unrealized gains (losses) on investments.

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

Balance Sheets



(In thousands)	August 31, 2017		November 30, 2016
Assets:
Cash and cash equivalents	$	51,725	43,658
Operating properties and equipment	2,832,790		2,210,627
Other assets	35,848		33,703
	$	2,920,363	2,287,988
Liabilities and equity:
Accounts payable and other liabilities	$	220,881	196,617
Notes payable (1)	821,500		577,085
Equity	1,877,982		1,514,286
	$	2,920,363	2,287,988


(1)	Notes payable are net of debt issuance costs of $17.4 million and $12.3 million, as of August 31, 2017 and November 30, 2016, respectively.

Statements of Operations



	Three Months Ended			Nine Months Ended
	August 31,			August 31,
(In thousands)	2017		2016	2017	2016
Revenues	$	18,822	13,796	44,414	31,759
Costs and expenses	28,904		24,611	75,727	50,341
Other income, net	47,210		20,335	125,939	90,729
Net earnings of unconsolidated entities	$	37,128	9,520	94,626	72,147
Lennar Multifamily equity in earnings from unconsolidated entities (1)	$	11,645	5,060	44,219	38,754

(1)

During three and nine months ended August 31, 2017, the Lennar Multifamily segment sold two and five operating properties, respectively, through its unconsolidated entities resulting in the segment's $15.4 million and $52.9 million share of gains, respectively. During the three and nine months ended August 31, 2016, the Lennar Multifamily segment sold one and three operating properties, respectively, through its unconsolidated entities resulting in the segment's $8.0 million and $43.8 million share of gains, respectively.

The Company’s recorded investments in unconsolidated entities were as follows:



(In thousands)	August 31, 2017		November 30, 2016
Lennar Homebuilding	$	1,016,588	811,723
Rialto	$	249,551	245,741
Lennar Multifamily	$	397,119	318,559