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					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	)

For both the three and nine months ended August 31, 2017, one of the Company’s unconsolidated entities had equity in earnings of $18.8 million relating to an equity method investee selling 475 homesites to a third-party land bank. Simultaneous with the purchase by the land bank, the Company entered into an option contract to purchase all 475 homesites from the land bank. Due to the Company’s continuing involvement with respect to the homesites sold from the investee entity, the Company deferred all of its equity in earnings from the unconsolidated entity relating to the sale transaction, which amounted to $7.8 million.

For the three months ended August 31, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of net operating losses from unconsolidated entities and its deferral of equity in earnings from the land sale transaction discussed above. The net earnings of unconsolidated entities were primarily driven by the unconsolidated entity’s equity in earnings relating to the land sale offset by general and administrative expenses during the three months ended August 31, 2017.

For the nine months ended August 31, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company’s share of net operating losses from its unconsolidated entities and its deferral of equity in earnings from the land sale transaction discussed above. The net loss from unconsolidated entities was primarily driven by general and administrative expenses, partially offset by the unconsolidated entity’s equity in earnings from the land sale discussed above.

For both the three and nine months ended August 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 and the Company’s share of net operating losses associated with the new FivePoint unconsolidated entity. For the nine months ended August 31, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was partially offset by equity in earnings from one of the Company's unconsolidated entities primarily due to sales of homesites to third parties.

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.

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 FivePoint entity. The fair values of the assets contributed to this FivePoint entity are included within the unconsolidated entities summarized condensed balance sheet presented above. A portion of the assets of one of the three strategic joint ventures transferred to a new unconsolidated entity was retained by Lennar and its venture partner. The transactions did not have a material impact to the Company’s financial position or cash flows for the year ended November 30, 2016. For the year ended November 30, 2016, the Company recorded $42.6 million of its share of combination costs and operational net losses in equity in loss from unconsolidated entities on the consolidated statement of operations.

In May 2017, FivePoint completed its initial public offering ("IPO"). Concurrent with the IPO, the Company invested $100 million in FivePoint. As of August 31, 2017, the Company owns approximately 40% of FivePoint and the carrying amount of the Company's investment is $361.1 million.

As of August 31, 2017 and November 30, 2016, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $1.0 billion and $811.7 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of August 31, 2017 and November 30, 2016 was $1.4 billion and $1.2 billion, 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 FivePoint entity and deferring equity in earnings on land sales to the Company.

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)	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.

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. 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 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 August 31, 2017 and November 30, 2016, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of August 31, 2017, 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, the collateral would 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 with regard to obligations of its joint ventures (see Note 12).