Note 18 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

6 Months Ended

Apr. 30, 2024

Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

18. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital.

During the first quarter of fiscal 2023, we contributed four communities we owned, including one active selling community to a new unconsolidated joint venture for $41.1 million of net cash.

During the second quarter of fiscal 2023, one of the Company's unconsolidated joint ventures was dissolved, and we assumed control of the remaining assets and liabilities.

During the second quarter of fiscal 2024, we contributed 11 communities we owned, including three active selling communities to a new unconsolidated joint venture for $53.8 million of net cash.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

	April 30, 2024
				Land
(In thousands)	Homebuilding			Development			Total
Assets:
Cash and cash equivalents	$	136,247		$	662		$	136,909
Inventories		471,849			-			471,849
Other assets		383,937			-			383,937
Total assets	$	992,033		$	662		$	992,695
Liabilities and equity:
Accounts payable and accrued liabilities	$	541,790		$	445		$	542,235
Notes payable		144,877			-			144,877
Total liabilities		686,667			445			687,112
Equity of:
Hovnanian Enterprises, Inc.		148,251			210			148,461
Others		157,115			7			157,122
Total equity		305,366			217			305,583
Total liabilities and equity	$	992,033		$	662		$	992,695
Debt to capitalization ratio		32	%		0	%		32	%

	October 31, 2023
				Land
(In thousands)	Homebuilding			Development			Total
Assets:
Cash and cash equivalents	$	127,547		$	822		$	128,369
Inventories		375,022			-			375,022
Other assets		380,989			-			380,989
Total assets	$	883,558		$	822		$	884,380
Liabilities and equity:
Accounts payable and accrued liabilities	$	524,586		$	605		$	525,191
Notes payable		101,126			-			101,126
Total liabilities		625,712			605			626,317
Equity of:
Hovnanian Enterprises, Inc.		96,281			210			96,491
Others		161,565			7			161,572
Total equity		257,846			217			258,063
Total liabilities and equity	$	883,558		$	822		$	884,380
Debt to capitalization ratio		28	%		0	%		28	%

As of April 30, 2024 and October 31, 2023, we had outstanding advances to unconsolidated joint ventures of $2.2 million and $1.4 million, respectively. These amounts were included in “Accounts payable and accrued liabilities” in the tables above. In some cases, our net investment in unconsolidated joint ventures is less than our proportionate share of equity reflected in the tables above because of differences between asset impairments recorded against our unconsolidated joint venture investments and any impairments recorded in the applicable unconsolidated joint venture. During the six months ended April 30, 2024 and 2023, we did not write-down any of our unconsolidated joint venture investments.

	Three Months Ended April 30, 2024
				Land
(In thousands)	Homebuilding			Development		Total
Revenues	$	124,044		$	-	$	124,044
Cost of sales and expenses		(111,117	)		-		(111,117	)
Joint venture net income	$	12,927		$	-	$	12,927
Our share of net income	$	11,164		$	-	$	11,164

	Three Months Ended April 30, 2023
				Land
(In thousands)	Homebuilding			Development			Total
Revenues	$	81,530		$	-		$	81,530
Cost of sales and expenses		(76,352	)		(3	)		(76,355	)
Joint venture net income (loss)	$	5,178		$	(3	)	$	5,175
Our share of net income	$	5,408		$	-		$	5,408

	Six Months Ended April 30, 2024
				Land
(In thousands)	Homebuilding			Development		Total
Revenues	$	250,469		$	-	$	250,469
Cost of sales and expenses		(219,776	)		-		(219,776	)
Joint venture net income	$	30,693		$	-	$	30,693
Our share of net income	$	26,116		$	-	$	26,116

	Six Months Ended April 30, 2023
				Land
(In thousands)	Homebuilding			Development			Total
Revenues	$	161,131		$	-		$	161,131
Cost of sales and expenses		(153,237	)		(3	)		(153,240	)
Joint venture net income (loss)	$	7,894		$	(3	)	$	7,891
Our share of net income	$	12,568		$	-		$	12,568

The reason “Our share of net income” in homebuilding joint ventures is higher or lower than the “Joint venture net income” in the tables above is a result of our varying ownership percentages in each investment. For the three and six months ended April 30, 2024 and 2023, respectively, we had investments in eight and seven unconsolidated joint ventures, respectively, and our ownership in these joint ventures ranged from 20% to over 50% for both periods. Therefore, depending on mix, if the unconsolidated joint ventures in which we have higher sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a higher overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage; conversely, if the unconsolidated joint ventures in which we have lower sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a lower overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage. For the three months ended April 30, 2024, "Our share of net income" was less than the "Joint venture net income" due to three unconsolidated joint ventures with increased income during the period for which we currently recognize a lower profit-sharing percentage based on the joint venture agreements, partially offset by two unconsolidated joint ventures with increased income during the period for which we currently recognize a higher profit-sharing percentage based on the joint venture agreements. For the six months ended April 30, 2024, "Our share of net income" was less than the "Joint venture net income" due to four unconsolidated joint ventures with increased income during the period for which we currently recognize a lower profit-sharing percentage based on the joint venture agreements, partially offset by one unconsolidated joint venture with increased income during the period for which we currently recognize a higher profit-sharing percentage based on the joint venture agreement. In addition, homebuilding joint venture net income for the three and six months ended April 30, 2024, was positively impacted by an unconsolidated joint venture that was generating income but such income did not impact our share of net income because we had previously written off our investment in such joint venture.

To compensate us for the administrative services we provide as the manager of certain unconsolidated joint ventures, we receive a management fee based on a percentage of the applicable unconsolidated joint ventures' revenues. These management fees, which totaled $4.2 million and $3.1 million for the three months ended April 30, 2024 and 2023, respectively, and $8.5 million and $6.7 million for the six months ended April 30, 2024 and 2023, respectively, are recorded in “Selling, general and administrative” homebuilding expenses in the Condensed Consolidated Statements of Operations.

Our unconsolidated joint ventures may obtain separate project specific mortgage financing. Any unconsolidated joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the unconsolidated joint venture entity is considered a VIE due to the returns being capped to the equity holders; however, in these instances, we have determined that we are not the primary beneficiary, and therefore we do not consolidate these entities.