Investments in and Advances to Unconsolidated Entities

The Company has investments in and advances to various unconsolidated entities. These entities include land development joint ventures, home building joint ventures, rental apartment joint ventures, Toll Brothers Realty Trust and Trust II, and a structured asset joint venture. At January 31, 2014, the Company had investments in and advances to these unconsolidated entities of $430.6 million and was committed to invest or advance up to an additional $76.9 million to these entities if they require additional funding. The Company’s investments in these entities are accounted for using the equity method of accounting. At January 31, 2014, the Company had purchase commitments to acquire 115 home sites for approximately $12.6 million. In addition, the Company expects to purchase approximately 3,800 additional home sites from several joint ventures in which it has interests. The purchase price of these home sites will be determined at a future date.

More specific information regarding the Company's investments in, advances to and future commitments to these entities is provided below.

Land Development Joint Ventures

The Company has investments in and advances to a number of joint ventures with unrelated parties to develop land (“Land Development Joint Ventures”). Some of these Land Development Joint Ventures develop land for the sole use of the venture participants, including the Company, and others develop land for sale to the joint venture participants and to unrelated builders. The Company recognizes its share of earnings from the sale of home sites and other land by the Land Development Joint Ventures to other builders. With regard to home sites the Company purchases from the Land Development Joint Ventures, the Company adjusts its cost basis in those home sites by its share of the earnings/losses of the joint venture on the home sites the Company purchases. At January 31, 2014, the Company had approximately $157.3 million invested in or advanced to the Land Development Joint Ventures and a funding commitment of $26.0 million to three of the Land Development Joint Ventures which would be funded if additional investment in the ventures is required. At January 31, 2014, two of these joint ventures had aggregate loan commitments of $105.0 million and outstanding borrowings against these commitments of $73.2 million. At January 31, 2014, the Company had a purchase commitment to acquire 115 home sites from one of these Land Development Joint Ventures for an aggregate purchase price of $12.6 million. In addition, the Company expects to purchase approximately 3,800 additional lots from several joint ventures in which it has interests. The purchase price of the lots will be determined at a future date.

In the first quarter of fiscal 2014, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Texas. The joint venture expects to develop a master planned community consisting of up to 6,500 home sites and retail and commercial property. The Company has a 50% interest in this joint venture. Prior to the formation of the joint venture, the Company had entered into a land purchase agreement to acquire the land for approximately $79.3 million. The Company contributed its rights under the purchase agreement to the joint venture and was reimbursed by the Company's joint venture partner for 50% of the costs the Company incurred prior to the formation of the joint venture. At January 31, 2014, the Company had an investment of $40.6 million in this joint venture. The joint venture expects to obtain outside financing of approximately $40.0 million to help fund the development of the property.

In the fourth quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Maryland. The property consists of 945 acres which the joint venture expects to develop into approximately 1,300 home sites. The Company has a 50% interest in this joint venture. The current plan is to develop the property and sell approximately 50% of the home sites to each of the members of the joint venture. The Company contributed $11.8 million of cash to the joint venture. At January 31, 2014, the Company had an investment of $11.9 million in this joint venture.

In the second quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Texas as a master planned community consisting of approximately 2,900 lots. The Company has a 50% interest in this joint venture. The joint venture expects to develop the property in multiple phases and sell groups of lots to the members of the joint venture and to other home builders. The Company contributed $15.5 million of cash to the joint venture. The joint venture entered into a $25.0 million line of credit with a bank, secured by a deed of trust on the property which can be expanded up to $40.0 million under certain conditions. At January 31, 2014, the joint venture had $24.8 million of borrowings under this line of credit. At January 31, 2014, the Company had an investment of $20.3 million in this joint venture and was committed to make additional contributions to this joint venture of up to $12.5 million.

The Company has a 50% interest in a joint venture that owns and is developing a master planned community in Orange County, California, consisting of over 2,000 home sites. At January 31, 2014, the joint venture owned approximately 1,200 home sites. At January 31, 2014, the Company had an investment of $78.2 million in this joint venture and was committed to make additional contributions to this joint venture of up to $10.0 million of additional funds to this joint venture, if needed. The joint venture has an $80.0 million credit facility from a bank to fund the development of the property. At January 31, 2014, the venture had $48.4 million borrowed under the facility.

Home Building Joint Ventures

At January 31, 2014, the Company had an aggregate of $175.9 million of investments in and advances to various joint ventures with unrelated parties to develop approximately 640 luxury for-sale homes. At January 31, 2014, the Company had $27.6 million of funding commitments to two of these joint ventures.

Rental Apartment Joint Ventures

At January 31, 2014, the Company had an aggregate of $74.8 million of investments in and advances to several joint ventures with unrelated parties to develop luxury for-rent residential apartments ("Rental Apartment Joint Ventures"), commercial space, and a hotel. At January 31, 2014, the Company had $23.3 million of funding commitments to these joint ventures. At January 31, 2014, four of these joint ventures had aggregate loan commitments of $319.8 million and outstanding borrowings against these commitments of $16.6 million.

In the first quarter of 2014, two of the Company's Rental Apartment Joint Ventures entered into $126.0 million of construction loan agreements to finance construction of multi-family residential apartments in suburban Philadelphia and northern New Jersey. At January 31, 2014, these ventures had no borrowings under the new facilities.

In the fourth quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a 287-unit luxury for-rent residential apartment building in the Capitol Riverfront of Washington, D.C. on land that the Company owned and conveyed to the joint venture. The Company has a 50% interest in this joint venture. As part of the Company's initial capital contribution, it contributed land and improvements with a fair value of $27.1 million to the joint venture and subsequently received a cash distribution of $12.5 million to align the capital accounts of each of the members of the joint venture. The joint venture entered into a $54.0 million construction loan agreement with a bank to finance the development of this project. At January 31, 2014, the joint venture had no borrowings under the construction loan agreement. At January 31, 2014, the Company had an investment of $14.6 million in this joint venture.

In the second quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a luxury, 38-story for-rent residential apartment building and retail space in Jersey City, New Jersey on land that the Company owned and conveyed to the joint venture. The Company has a 50% interest in this joint venture. As part of the Company's initial capital contribution, it contributed land and improvements with a fair value of $28.8 million to the joint venture and subsequently received distributions of $10.2 million and a $1.2 million payment by the joint venture on our behalf to align the capital accounts of each of the members of the joint venture. The joint venture entered into a $120.0 million construction loan agreement with a bank to finance the development of this project. At January 31, 2014, the joint venture had no borrowings under the construction loan agreement. At January 31, 2014, the Company had an investment of $25.5 million in this joint venture and was committed to make additional contributions to this joint venture of up to $4.9 million.

Toll Brothers Realty Trust and Trust II

In fiscal 2005, the Company, together with the Pennsylvania State Employees Retirement System (“PASERS”), formed Toll Brothers Realty Trust II (“Trust II”) to invest in commercial real estate opportunities. Trust II is owned 50% by the Company and 50% by an affiliate of PASERS. In December 2013, Trust II sold substantially all of its assets to an unrelated party. As a result of this sale, the Company realized income of approximately $23.5 million in the first quarter of fiscal 2014 representing its share of the gain on the sale which is included in "Income from unconsolidated entities" on the Company's Condensed Consolidated Statement of Operations. In December 2013, the Company received a $20.0 million cash distribution from Trust II. At January 31, 2014, the Company had an investment of $6.4 million in Trust II. In addition, in the first quarter of fiscal 2014, the Company recognized the $2.9 million previously deferred gains on the Company's initial sales of the properties to Trust II; this gain is included in "Other income - net" on the Company's Condensed Consolidated Statement of Operations.

In 1998, prior to the formation of Trust II, the Company formed Toll Brothers Realty Trust (“Trust”) to invest in commercial real estate opportunities. The Trust is effectively owned one-third by the Company; one-third by Robert I. Toll, Bruce E. Toll (and members of his family), Douglas C. Yearley, Jr. and former members of the Company’s senior management; and one-third by an affiliate of PASERS. As of January 31, 2014, the Company had a negative investment in the Trust of $0.9 million resulting primarily from a loss recognized by the Trust in the fourth quarter of fiscal 2013. The Company provides development, finance and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $0.6 million in each of the three-month periods ended January 31, 2014 and 2013.

Structured Asset Joint Venture

The Company, through Gibraltar Capital and Asset Management LLC (“Gibraltar”), is a 20% participant with two unrelated parties that purchased a 40% interest in an entity that owns and controls a portfolio of loans and real estate (“Structured Asset Joint Venture”). At January 31, 2014, the Company had an investment of $22.6 million in this Structured Asset Joint Venture.

Guarantees

The unconsolidated entities in which the Company has investments generally 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 which may include any or all of the following: (i) project completion including any cost overruns, in whole or in part, (ii) repayment guarantees, generally covering a percentage of the outstanding loan, (iii) indemnification of the lender as to environmental matters affecting the unconsolidated entity, (iv) a hazardous material indemnity that holds the lender harmless against any obligations for which the lender may incur liability resulting from the threat or presence of any hazardous or toxic substances at or near the property covered by a loan, and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.

In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, the Company generally has a reimbursement agreement with its partner that provides that neither party is responsible for more than its proportionate share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share.

The Company believes that, as of January 31, 2014, in the event it becomes legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay a significant portion of the obligation. If it is not, the Company and its partners would need to contribute additional capital to the venture. At January 31, 2014, the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $424.8 million and had borrowed an aggregate of $89.8 million. The term of these guarantees generally range from 22 months to 48 months. The Company estimates that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $424.8 million before any reimbursement from the Company's partners. Based on the amounts borrowed at January 31, 2014, the Company's maximum potential exposure under these guarantees is estimated to be approximately $89.8 million before any reimbursement from the Company's partners.

In addition, the Company has guaranteed approximately $11.5 million of ground lease payments and insurance deductibles for three joint ventures.

As of January 31, 2014, the estimated aggregate fair value of the guarantees was approximately $2.0 million. The Company has not made payments under any of the guarantees, nor has it been called upon to do so.

Variable Interest Entities

At January 31, 2014, the Company determined that three of its joint ventures were VIEs under the guidance within FASB Accounting Standards Codification ("ASC") 810, "Consolidation." The Company has, however, concluded that it was not the primary beneficiary of the VIEs because the power to direct the activities of these VIEs that most significantly impact their performance was shared by the Company and the VIEs' other members. Business plans, budgets and other major decisions are required to be unanimously approved by all members. Management and other fees earned by the Company are nominal and believed to be at market rates and there is no significant economic disproportionality between the Company and other members.

The information presented below regarding the investments, commitments and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above. At January 31, 2014 and October 31, 2013, the Company's investments in its unconsolidated joint ventures deemed to be VIEs, which are included in "Investments in and advances to unconsolidated entities" in the accompanying Condensed Consolidated Balance Sheets, totaled $27.1 million and $22.9 million, respectively. At January 31, 2014, the maximum exposure of loss to the Company's investments in unconsolidated joint ventures that are VIEs is limited to its investment in the unconsolidated VIEs, except with regard to $37.7 million of additional commitments to the VIEs and $9.5 million of guarantees under ground lease agreements. At October 31, 2013, the maximum exposure to loss of the Company's investments in unconsolidated joint ventures that are VIEs is limited to its investment in the unconsolidated VIEs, except with regard to a $41.7 million additional commitment to fund the joint ventures and a $9.6 million guaranty of ground lease payments.

Joint Venture Condensed Financial Information

The condensed balance sheets, as of the dates indicated, and the condensed statements of operations and comprehensive income for the periods indicated, for the unconsolidated entities in which the Company has an investment, aggregated by type of business, are included below (in thousands). The column titled "Rental Property Joint Ventures" includes the Rental Apartment Joint Ventures and Toll Brothers Realty Trust and Trust II described above.

Condensed Balance Sheets:



	January 31, 2014
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	29,003	$	24,860	$	32,191	$	25,835	$	111,889
Inventory	448,357		381,163		395				829,915
Non-performing loan portfolio							97,801		97,801
Rental properties					126,237				126,237
Rental properties under development					152,190				152,190
Real estate owned (“REO”)							190,217		190,217
Other assets (1)	10,330		68,288		13,412		155,925		247,955
Total assets	$	487,690	$	474,311	$	324,425	$	469,778	$	1,756,204
Debt (1)	$	139,801	$	10,927	$	195,642	$	155,900	$	502,270
Other liabilities	25,310		23,784		18,489		1,380		68,963
Members’ equity	322,579		439,600		110,294		124,999		997,472
Noncontrolling interest							187,499		187,499
Total liabilities and equity	$	487,690	$	474,311	$	324,425	$	469,778	$	1,756,204
Company’s net investment in unconsolidated entities (2)	$	157,293	$	175,904	$	74,843	$	22,575	$	430,615



	October 31, 2013
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	30,826	$	31,164	$	35,014	$	40,097	$	137,101
Inventory	350,150		338,814		4,998				693,962
Non-performing loan portfolio							107,411		107,411
Rental properties					164,325				164,325
Rental properties under development					133,081				133,081
Real estate owned (“REO”)							202,259		202,259
Other assets (1)	12,700		70,180		18,526		155,921		257,327
Total assets	$	393,676	$	440,158	$	355,944	$	505,688	$	1,695,466
Debt (1)	$	135,200	$	11,977	$	235,226	$	155,900	$	538,303
Other liabilities	21,015		19,636		9,461		379		50,491
Members’ equity	237,461		408,545		111,257		139,764		897,027
Noncontrolling interest							209,645		209,645
Total liabilities and equity	$	393,676	$	440,158	$	355,944	$	505,688	$	1,695,466
Company’s net investment in unconsolidated entities (2)	$	142,448	$	166,271	$	68,711	$	25,703	$	403,133


(1)	Included in other assets of the Structured Asset Joint Venture at January 31, 2014 and October 31, 2013 is $155.9 million of restricted cash held in a defeasance account which will be used to repay debt of the Structured Asset Joint Venture.

(2)

Differences between the Company’s net investment in unconsolidated entities and its underlying equity in the net assets of the entities is primarily a result of the acquisition price of an investment in a land development joint venture in fiscal 2012 which was in excess of the Company's pro-rata share of the underlying equity, impairments related to the Company’s investments in unconsolidated entities, a loan made to one of the entities by the Company, interest capitalized on the Company's investment, and distributions from entities in excess of the carrying amount of the Company’s net investment.

Condensed Statements of Operations and Comprehensive Income:



	For the three months ended January 31, 2014
	Land Development Joint Ventures			Home Building Joint Ventures		Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	1,544		$	11,581	$	9,449		$	283		$	22,857
Cost of revenues	681			10,374		3,971			2,350			17,376
Other expenses	255			999		12,055			459			13,768
Total expenses	936			11,373		16,026			2,809			31,144
Gain on disposition of loans and REO									3,908			3,908
Income (loss) from operations	608			208		(6,577		)	1,382			(4,379		)
Other income	1			39		42,858			123			43,021
Net income	609			247		36,281			1,505			38,642
Less: income attributable to noncontrolling interest									(903		)	(903		)
Net income attributable to controlling interest	609			247		36,281			602			37,739
Other comprehensive income						786						786
Total comprehensive income	$	609		$	247	$	37,067		$	602		$	38,525
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	(32	)	$	182	$	23,750		$	(985	)	$	22,915



	For the three months ended January 31, 2013
	Land Development Joint Ventures			Home Building Joint Ventures		Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	1,627		$	8,970	$	9,682		$	9,705		$	29,984
Cost of revenues	1,219			7,105		4,293			10,338			22,955
Other expenses	191			464		5,495			1,058			7,208
Total expenses	1,410			7,569		9,788			11,396			30,163
Gain on disposition of loans and REO									26,892			26,892
Income (loss) from operations	217			1,401		(106		)	25,201			26,713
Other income	3			14		5			79			101
Net income (loss)	220			1,415		(101		)	25,280			26,814
Less: income attributable to noncontrolling interest									(15,168		)	(15,168		)
Net income (loss) attributable to controlling interest	220			1,415		(101		)	10,112			11,646
Other comprehensive income						302						302
Total comprehensive income	$	220		$	1,415	$	201		$	10,112		$	11,948
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	(98	)	$	710	$	558		$	1,913		$	3,083

(3)

Differences between the Company’s equity in earnings (losses) of unconsolidated entities and the underlying net income (loss) of the entities is primarily a result of prior impairments related to the Company’s investment in unconsolidated entities, distributions from entities in excess of the carrying amount of the Company’s net investment, and the Company’s share of the entities’ profits related to home sites purchased by the Company which reduces the Company’s cost basis of the home sites.