Variable Interest Entities

6 Months Ended

May 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company evaluated the joint venture agreements of its joint ventures that were formed or that had reconsideration events, such as changes in the governing documents or to debt arrangements, during the six months ended May 31, 2019. Based on the Company's evaluation, during the six months ended May 31, 2019, the Company consolidated four entities that had a total combined assets and liabilities of $500.7 million and $585.0 million, respectively. During the six months ended May 31, 2019, there were no VIEs that were deconsolidated.

Consolidated VIEs

As of May 31, 2019, the carrying amounts of the VIEs’ assets and non-recourse liabilities that consolidated were $1.4 billion and $928.9 million, respectively. As of November 30, 2018, the carrying amounts of the VIEs’ assets and non-recourse liabilities that consolidated were $666.2 million and $242.5 million, respectively. Those assets are owned by, and those liabilities are obligations of, the VIEs, not the Company.

The increase in VIEs' assets and non-recourse liabilities during the six months ended May 31, 2019 was primarily due to the consolidation of a previously unconsolidated entity, which resulted from a reconsideration event that required the reassessment of a homebuilding unconsolidated entity. The reconsideration event was the change of the entity’s conclusion with respect to future capital calls required to fund operations and debt repayments. Upon reconsideration, the Company determined that the homebuilding entity continued to meet the accounting definition of a VIE and the Company was deemed to be the primary beneficiary. The Company consolidated the previously unconsolidated entity’s net assets at estimated fair value. The determination of fair value of the homebuilding entity’s net assets requires the discounting of estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the homebuilding entity and related cash flow streams. The Company used a 15% discount rate in determining the fair value of the entity, which was subject to perceived risks associated with the entity’s cash flow streams. There was no non-controlling interest recorded in consolidation. As a result, the Company recorded a one-time loss of $48.9 million from the consolidation which was included in Homebuilding other income (expense), net on the condensed consolidated statements of operations. At May 31, 2019, the consolidated homebuilding entity had total assets and liabilities of $240.5 million and $356.4 million, respectively.

A VIE’s assets can only be used to settle obligations of that VIE. The VIEs are not guarantors of the Company’s senior notes or other debts payable. The assets held by a VIE usually are collateral for that VIE’s debt. The Company and other partners do not generally have an obligation to make capital contributions to a VIE unless the Company and/or the other partner(s) have entered into debt guarantees with a VIE’s banks. Other than debt guarantee agreements with a VIE’s banks, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to a VIE. While the Company has option contracts to purchase land from certain of its VIEs, the Company is not required to purchase the assets and could walk away from the contracts.

Unconsolidated VIEs

At May 31, 2019 and November 30, 2018, the Company’s recorded investments in VIEs that are unconsolidated and its estimated maximum exposure to loss were as follows:



	May 31, 2019			November 30, 2018
(In thousands)	Investments in Unconsolidated VIEs		Lennar’s Maximum Exposure to Loss	Investments in Unconsolidated VIEs	Lennar’s Maximum Exposure to Loss
Homebuilding (1)	$	103,818	104,117	123,064	184,945
Multifamily (2)	495,513		810,723	463,534	710,754
Financial Services (3)	167,014		167,014	136,982	136,982
Lennar Other (4)	65,374		65,374	63,919	63,919
	$	831,719	1,147,228	787,499	1,096,600

(1)

As of May 31, 2019, the maximum exposure to loss of Homebuilding’s investments in unconsolidated VIEs was limited primarily to its investments in the unconsolidated VIEs. As of November 30, 2018, the maximum exposure to loss of Homebuilding’s investments in unconsolidated VIEs was limited to its investments in the unconsolidated VIEs, except with regard to repayment guarantees of one unconsolidated entity's debt of $54.8 million.

(2)

As of May 31, 2019 and November 30, 2018, the maximum exposure to loss of Multifamily's investments in unconsolidated VIEs was limited to its investments in the unconsolidated VIEs, except with regard to the remaining equity commitment of $309.2 million and $237.0 million, respectively, to fund LMV I and LMV II for future expenditures related to the construction and development of its projects and $1.2 million and $4.6 million, respectively, of letters of credit outstanding for certain of the unconsolidated VIEs that could be drawn upon in the event of default under their debt agreements.


(3)	At both May 31, 2019 and November 30, 2018, the maximum recourse exposure to loss of the Financial Services segment was limited to its investments in the unconsolidated VIEs, which included $167.0 million and $137.0 million, respectively, related to the Financial Services' CMBS investments held-to-maturity.


(4)	At both May 31, 2019 and November 30, 2018, the maximum recourse exposure to loss of the Lennar Other segment was limited to its investments in the unconsolidated VIEs, which included $60.4 million and $60.0 million, respectively, related to the Lennar Other segment's CMBS investments held-to-maturity.

While these entities are VIEs, the Company has determined that the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance is generally shared and the Company and its partners are not de-facto agents. While the Company generally manages the day-to-day operations of the VIEs, each of these VIEs has an executive committee made up of representatives from each partner. The members of the executive committee have equal votes and major decisions require unanimous consent and approval from all members. The Company does not have the unilateral ability to exercise participating voting rights without partner consent.

As of May 31, 2019, the Company and other partners did not have an obligation to make capital contributions to the VIEs, except for $309.2 million remaining equity commitment to fund LMV I and LMV II for future expenditures related to the

construction and development of the projects and $1.2 million of letters of credit outstanding for certain Multifamily unconsolidated VIEs that could be drawn upon in the event of default under their debt agreements. In addition, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to the VIEs. Except for the unconsolidated VIEs discussed above, the Company and the other partners did not guarantee any debt of the other unconsolidated VIEs. While the Company has option contracts to purchase land from certain of its unconsolidated VIEs, the Company is not required to purchase the assets and could walk away from the contracts.

Option Contracts

The Company has access to land through option contracts, which generally enables it to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company has determined whether to exercise the option.

The Company evaluates all option contracts for land to determine whether they are VIEs and, if so, whether the Company is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, if the Company is deemed to be the primary beneficiary or makes a significant deposit for optioned land, it may need to consolidate the land under option at the purchase price of the optioned land.

During the six months ended May 31, 2019, consolidated inventory not owned increased by $185.7 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of May 31, 2019. The increase was primarily related to the consolidation of option contracts, partially offset by the Company exercising its options to acquire land under previously consolidated contracts. To reflect the purchase price of the inventory consolidated, the Company had a net reclass related to option deposits from consolidated inventory not owned to land under development in the accompanying condensed consolidated balance sheet as of May 31, 2019. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and the Company’s cash deposits.

The Company’s exposure to losses related to its option contracts with third parties and unconsolidated entities consisted of its non-refundable option deposits and pre-acquisition costs totaling $326.8 million and $209.5 million at May 31, 2019 and November 30, 2018, respectively. Additionally, the Company had posted $69.1 million and $72.4 million of letters of credit in lieu of cash deposits under certain land and option contracts as of May 31, 2019 and November 30, 2018, respectively.