Homebuilding Investments In Unconsolidated Entities

6 Months Ended

May 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Homebuilding Investments in Unconsolidated Entities

Summarized condensed financial information on a combined 100% basis related to 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)	2019		2018		2019	2018
Revenues	$	65,686	100,952		156,330	169,141
Costs and expenses	90,363		148,678		214,114	256,102
Other income (1)	75,868		105,192		76,065	105,192
Net earnings of unconsolidated entities	$	51,191	57,466		18,281	18,231
Homebuilding equity in earnings (loss) from unconsolidated entities	$	19,614	(12,670	)	5,858	(26,798	)

(1)

During the three and six months ended May 31, 2019, other income was primarily attributable to a $64.9 million gain on the settlement of contingent consideration recorded by one Homebuilding unconsolidated entity, of which the Company's pro-rata share was $25.9 million. During the three and six months ended May 31, 2018, other income was primarily due to FivePoint recording income resulting from the Tax Cuts and Jobs Act of 2017’s reduction in its corporate tax rate to reduce its liability pursuant to its tax receivable agreement (“TRA Liability”) with its non-controlling interests. However, the Company has a 70% interest in the FivePoint TRA Liability. Therefore, the Company did not include in Homebuilding’s equity in earnings (loss) from unconsolidated entities its pro-rata share of earnings related to the Company’s portion of the TRA Liability. As a result, the Company’s unconsolidated entities have net earnings, but the Company has an equity in loss from unconsolidated entities.

For the three and six months ended May 31, 2019, Homebuilding equity in earnings from unconsolidated entities was primarily attributable to the Company's share of net operating income from one of Homebuilding's unconsolidated entities which was primarily attributable to a gain on settlement of contingent consideration.

For the three and six months ended May 31, 2018, Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of valuation adjustments related to assets of Homebuilding's unconsolidated entities and the Company's share of net operating losses from its unconsolidated entities excluding other income.

Balance Sheets



(In thousands)	May 31, 2019		November 30, 2018
Assets:
Cash and cash equivalents	$	651,681	781,833
Inventories	4,177,728		4,291,470
Other assets	988,714		1,045,274
	$	5,818,123	6,118,577
Liabilities and equity:
Accounts payable and other liabilities	$	757,410	874,355
Debt (1)	825,275		1,202,556
Equity	4,235,438		4,041,666
	$	5,818,123	6,118,577
Homebuilding investments in unconsolidated entities (2)	$	983,683	870,201


(1)	Debt presented above is net of debt issuance costs of $9.9 million and $12.4 million, as of May 31, 2019 and November 30, 2018, respectively. The decrease in debt was primarily related to the Company's consolidation of a previously unconsolidated entity as of May 31, 2019.


(2)	Homebuilding investments in unconsolidated entities as of November 30, 2018, does not include $62.0 million of the negative investment balance for one unconsolidated entity as it was reclassed to other liabilities.

As of May 31, 2019 and November 30, 2018, the Company’s recorded investments in Homebuilding unconsolidated entities were $983.7 million and $870.2 million, respectively, while the underlying equity in Homebuilding unconsolidated entities partners’ net assets as of May 31, 2019 and November 30, 2018 was $1.3 billion and $1.2 billion, respectively. The basis difference was 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. Included in the Company's recorded investments in Homebuilding unconsolidated entities is the Company's 40% ownership of FivePoint. As of May 31, 2019 and November 30, 2018, the carrying amount of the Company's investment was $389.1 million and $342.7 million, respectively.

During the six months ended May 31, 2018, the Company sold 80% of a strategic joint venture to a third-party resulting in a gain of $164.9 million recorded in Homebuilding other income, net within the accompanying Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

The 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 Homebuilding unconsolidated entities in which the Company has investments, including Lennar's maximum recourse exposure, were as follows:



(Dollars in thousands)	May 31, 2019			November 30, 2018
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	46,816		48,313
Non-recourse debt with completion guarantees	144,588			239,568
Non-recourse debt without completion guarantees	634,086			861,371
Non-recourse debt to the Company	825,490			1,149,252
The Company’s maximum recourse exposure (1)	9,653			65,707
Debt issuance costs	(9,868		)	(12,403	)
Total debt (1)	$	825,275		1,202,556
The Company’s maximum recourse exposure as a % of total JV debt	1		%	5	%


(1)	As of May 31, 2019 and November 30, 2018, the Company's maximum recourse exposure was primarily related to the Company providing repayment guarantees on two and four unconsolidated entities' debt, respectively. The decrease in maximum recourse exposure and total debt was primarily related to the Company's consolidation of a previously unconsolidated entity as of May 31, 2019.

In most instances in which the Company has guaranteed debt of a 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 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 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, 2019 and November 30, 2018, the fair values of the repayment guarantees, maintenance guarantees, and completion guarantees were not material. The Company believes that as of May 31, 2019, in the event it becomes legally obligated to perform under a guarantee of the obligation of a 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 of the Notes to the Condensed Consolidated Financial Statements).