Investments in and Advances to Unconsolidated Entities

We have investments in and advances to various unconsolidated entities. These joint ventures (i) develop land for use by certain joint venture participants and, in other cases, for sale to other third party builders (“Land Development Joint Ventures”); (ii) develop for-sale homes and condominiums (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space and a hotel (“Rental Property Joint Ventures”), which includes our investments in Toll Brothers Realty Trust (the “Trust”) and Toll Brothers Realty Trust II (“Trust II”); and (iv) invest in a portfolio of distressed loans and real estate (“Structured Asset Joint Venture”).

The table below provides information, as of April 30, 2015, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):



	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Number of investments in unconsolidated entities	7		4		10		1		22
Investment in unconsolidated entities	$	144,103	$	205,253	$	100,939	$	16,964	$	467,259
Number of unconsolidated entities with funding commitments by the Company	4		2		4		—		10
Company's remaining funding commitment to unconsolidated entities	$	31,180	$	29,887	$	19,807	$	—	$	80,874

Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at April 30, 2015 regarding the debt financing obtained by category ($ amounts in thousands):



	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Total
Number of joint ventures with debt financing	3		2		8		13
Aggregate loan commitments	$	175,000	$	222,000	$	734,685	$	1,131,685
Amounts borrowed under commitments	$	111,506	$	78,906	$	431,584	$	621,996

More specific and/or recent information regarding our investments in, advances to, and future commitments to these entities is provided below; such activity is also included in the summary information provided above.

Land Development Joint Ventures

See Note 15, "Commitments and Contingencies," for information regarding land purchase agreements that we have with our Land Development Joint Ventures.

In the first quarter of fiscal 2015, we received approximately 48 home sites from a Land Development Joint Venture in consideration of our previous investment in the joint venture. In the third quarter of fiscal 2014, we received approximately 515 home sites from this venture. We have a commitment to this joint venture to fund approximately $15.5 million which represents our expected share of the major infrastructure improvements related to this community. Contributions to this joint venture related to these improvements will be included in “Inventory” in our Condensed Consolidated Balance Sheets when they are actually made.

Home Building Joint Ventures

In the first quarter of fiscal 2015, we entered into a joint venture with an unrelated party to complete the development of a high-rise luxury condominium project in New York City on property that we owned. We contributed $15.9 million as our initial contribution for a 25% interest in this joint venture. We sold the property to the joint venture for $78.5 million and we were reimbursed for development and construction costs incurred by us prior to the sale. The gain of $9.3 million that we achieved on the sale was deferred and will be recognized in our results of operations as units are sold and delivered to the ultimate home buyer. At April 30, 2015, we had an investment of $16.7 million in this joint venture. The joint venture entered into a construction loan agreement of $124.0 million to fund the land purchase and a portion of the cost of the development of the property. At April 30, 2015, the joint venture had $52.1 million borrowed under the construction loan.

We have an investment in a joint venture in which we have a 50% interest to develop a high-rise luxury condominium project in conjunction with a luxury hotel in New York City. At April 30, 2015, we had invested $28.6 million in this joint venture and expect to make additional investments of approximately $21.6 million for the development of this project. In November 2014, this joint venture, along with the hotel joint venture discussed in Rental Property Joint Ventures below, entered into a $160.0 million construction loan agreement to complete the construction of the condominiums and hotel. At April 30, 2015, this joint venture had $26.8 million of outstanding borrowings under the loan agreement.

We have invested in a joint venture in which we have a 50% voting interest to develop 400 Park Avenue South, a high-rise luxury for-sale/rental project in New York City. At April 30, 2015, we had an investment of $132.0 million in this joint venture. Pursuant to the terms of the joint venture agreement, following completion of the construction of the building’s structure, we will acquire, with no additional consideration due from us, ownership of the top 18 floors of the building to sell, for our own account, luxury condominium units. Our partner will receive ownership of the lower floors containing residential rental units and retail space, with no additional consideration due from them. We expect to receive title to our floors during our third quarter of fiscal 2015. At the time of transfer, our investment in this joint venture will be reclassified from “Investments in and advances to unconsolidated entities” on our Condensed Consolidated Balance Sheet to “Inventory.” Contracts at 400 Park Avenue South have always been reported as if the project was wholly owned.

Rental Property Joint Ventures

In the second quarter of fiscal 2015, we entered into two joint ventures with an unrelated party to develop luxury for-rent residential apartment buildings. Prior to the formation of these joint ventures, we acquired the properties, through two 100%-owned entities, and incurred $18.8 million of land and land development costs. Our partner acquired a 75% interest in each of these entities for $14.5 million, of which $2.3 million was unpaid as of April 30, 2015. At April 30, 2015, we had a combined investment of $5.0 million and funding commitments of $5.5 million in these ventures. In addition, in the second quarter of fiscal 2015, one of the joint ventures entered into a $39.0 million construction loan agreement with two banks to finance the development of this project. At April 30, 2015, this joint venture had no borrowings under the construction loan agreement. The second joint venture expects to enter into a construction loan agreement during the second half of fiscal 2015.

We have an investment in a joint venture in which we have a 50% interest to develop a luxury hotel in conjunction with a high-rise luxury condominium project in the urban New York market. At April 30, 2015, we had invested $16.8 million in this joint venture and expect to make additional investments of approximately $13.9 million for the development of the hotel. In November 2014, this joint venture, along with a joint venture discussed in Home Building Joint Ventures above, entered into a $160.0 million construction loan agreement to complete the construction of the condominiums and the hotel. At April 30, 2015, this joint venture had $12.4 million of outstanding borrowings under the loan agreement.

In fiscal 2005, we, together with an unrelated party, formed Trust II to invest in commercial real estate opportunities. Trust II is owned 50% by us and 50% by our partner. In December 2013, Trust II sold substantially all of its assets to an unrelated party. As a result of this sale, we realized income of approximately $23.5 million in the first quarter of fiscal 2014, representing our share of the gain on the sale. Our share of the gain on sale of assets is included in “Income from unconsolidated entities” for the six months ended April 30, 2014 in our Condensed Consolidated Statement of Operations and Comprehensive Income. In December 2013, we received a $20.0 million cash distribution from Trust II. In addition, in the first quarter of fiscal 2014, we recognized $2.9 million in previously deferred gains on our initial sales of the properties to Trust II. This gain is included in “Other income - net,” for the six months ended April 30, 2014, in our Condensed Consolidated Statement of Operations and Comprehensive Income. At April 30, 2015, we had an investment of $0.7 million in Trust II.

In 1998, prior to the formation of Trust II, we formed the Trust to invest in commercial real estate opportunities. The Trust is effectively owned one-third by us; one-third by Robert I. Toll, Bruce E. Toll (and members of his family), Douglas C. Yearley, Jr. and former members of our senior management; and one-third by an unrelated party. As of April 30, 2015, our investment in the Trust was zero as distributions received from the Trust were in excess of the carrying amount of our net investment. We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $1.2 million and $1.7 million in the six-month periods ended April 30, 2015 and 2014, respectively, and $0.6 million and $1.1 million in the three-month periods ended April 30, 2015 and 2014, respectively. In the first quarter of fiscal 2015, we received a $2.0 million distribution from the Trust which is included in “Income from unconsolidated entities” in our Consolidated Statements of Operations and Comprehensive Income. In the second quarter of fiscal 2014, the Trust refinanced the mortgage on one of its properties and distributed $36.0 million of the net proceeds from the refinancing to its partners. We received $12.0 million as our share of the proceeds and recognized this distribution as income in the second quarter of fiscal 2014.

Guarantees

The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. These guarantees may include any, or all, of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) guarantees of indemnities provided to the lender by the unconsolidated entity with regard to environmental matters; (iv) a hazardous material indemnity that holds the lender harmless for any liability it may suffer 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, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.

We believe that, as of April 30, 2015, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At April 30, 2015, the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $922.2 million and had borrowed an aggregate of $412.5 million. The terms of these guarantees generally range from seven months to 60 months. We estimate that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $922.2 million before any reimbursement from our partners. Based on the amounts borrowed at April 30, 2015, our maximum potential exposure under these guarantees is estimated to be approximately $412.5 million before any reimbursement from our partners.

In addition, we have guaranteed approximately $10.9 million of ground lease payments and insurance deductibles for three joint ventures.

As of April 30, 2015, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $4.5 million. We have not made payments under any of the guarantees, nor have we been called upon to do so.

Variable Interest Entities

At April 30, 2015, we determined that one of our joint ventures was a VIE under the guidance within ASC 810, “Consolidation.” At October 31, 2014, we had determined that three of our joint ventures were VIEs under this guidance; we have concluded that we were 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 us 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 us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and the 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 April 30, 2015 and October 31, 2014, our investments in 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 $7.0 million and $46.4 million, respectively. At April 30, 2015, the maximum exposure of loss to our investment in the unconsolidated joint venture that is a VIE is limited to our investment in the unconsolidated VIE, except with regard to $0.4 million of additional commitments to the VIE. At October 31, 2014, the maximum exposure of loss to our investment in unconsolidated joint ventures that are VIEs is limited to our investment in the unconsolidated VIEs, except with regard to $43.4 million of additional commitments to fund the joint ventures and a $9.1 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 we have an investment, aggregated by type of business, are included below (in thousands).

Condensed Balance Sheets:



	April 30, 2015
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	29,519	$	13,378	$	32,607	$	13,347	$	88,851
Inventory	245,998		627,461						873,459
Non-performing loan portfolio							41,522		41,522
Rental properties					245,087				245,087
Rental properties under development					330,394				330,394
Real estate owned (“REO”)							162,843		162,843
Other assets (1)	55,346		69,551		12,773		77,990		215,660
Total assets	$	330,863	$	710,390	$	620,861	$	295,702	$	1,957,816
Debt (1)	$	112,620	$	86,186	$	431,584	$	77,950	$	708,340
Other liabilities	31,308		56,870		29,922		5		118,105
Members’ equity	186,935		567,334		159,355		87,111		1,000,735
Noncontrolling interest							130,636		130,636
Total liabilities and equity	$	330,863	$	710,390	$	620,861	$	295,702	$	1,957,816
Company’s net investment in unconsolidated entities (2)	$	144,103	$	205,253	$	100,939	$	16,964	$	467,259



	October 31, 2014
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	31,968	$	21,821	$	33,040	$	23,462	$	110,291
Inventory	258,092		465,144						723,236
Non-performing loan portfolio							57,641		57,641
Rental properties					140,238				140,238
Rental properties under development					327,315				327,315
Real estate owned (“REO”)							184,753		184,753
Other assets (1)	30,166		75,164		14,333		77,986		197,649
Total assets	$	320,226	$	562,129	$	514,926	$	343,842	$	1,741,123
Debt (1)	$	102,042	$	8,713	$	333,128	$	77,950	$	521,833
Other liabilities	23,854		56,665		43,088		177		123,784
Members’ equity	194,330		496,751		138,710		106,298		936,089
Noncontrolling interest							159,417		159,417
Total liabilities and equity	$	320,226	$	562,129	$	514,926	$	343,842	$	1,741,123
Company’s net investment in unconsolidated entities (2)	$	140,221	$	189,509	$	97,353	$	19,995	$	447,078


(1)	Included in other assets of the Structured Asset Joint Venture at April 30, 2015 and October 31, 2014 is $78.0 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 our net investment in unconsolidated entities and our underlying equity in the net assets of the entities are primarily a result of the acquisition price of an investment in a land development joint venture in fiscal 2012 that was in excess of our pro-rata share of the underlying equity; impairments related to our investment in unconsolidated entities; a loan made to one of the entities by us; interest capitalized on our investment; the estimated fair value of the guarantees provided to the joint ventures; and distributions from entities in excess of the carrying amount of our net investment.

Condensed Statements of Operations and Comprehensive Income:



	For the six months ended April 30, 2015
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	31,759	$	36,259	$	15,327		$	2,961		$	86,306
Cost of revenues	16,116		31,358		7,227			8,848			63,549
Other expenses	533		2,876		8,698			592			12,699
Total expenses	16,649		34,234		15,925			9,440			76,248
Gain on disposition of loans and REO								23,586			23,586
Income (loss) from operations	15,110		2,025		(598		)	17,107			33,644
Other income	11		341					1,355			1,707
Net income (loss)	15,121		2,366		(598		)	18,462			35,351
Less: income attributable to noncontrolling interest								(11,077		)	(11,077		)
Net income (loss) attributable to controlling interest	15,121		2,366		(598		)	7,385			24,274
Other comprehensive loss					(45		)				(45		)
Total comprehensive income (loss)	$	15,121	$	2,366	$	(643	)	$	7,385		$	24,229
Company’s equity in earnings of unconsolidated entities (3)	$	5,381	$	1,458	$	2,815		$	1,474		$	11,128



	For the six months ended April 30, 2014
	Land Development Joint Ventures		Home Building Joint Ventures			Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	111,950	$	23,228		$	17,006		$	3,789		$	155,973
Cost of revenues	62,170		21,825			7,390			6,482			97,867
Other expenses	465		2,047			21,558			874			24,944
Total expenses	62,635		23,872			28,948			7,356			122,811
Gain on disposition of loans and REO									6,458			6,458
Income (loss) from operations	49,315		(644		)	(11,942		)	2,891			39,620
Other income	5		201			43,199			1,533			44,938
Net income (loss)	49,320		(443		)	31,257			4,424			84,558
Less: income attributable to noncontrolling interest									(2,654		)	(2,654		)
Net income (loss) attributable to controlling interest	49,320		(443		)	31,257			1,770			81,904
Other comprehensive income						729						729
Total comprehensive income (loss)	$	49,320	$	(443	)	$	31,986		$	1,770		$	82,633
Company’s equity in earnings of unconsolidated entities (3)	$	103	$	327		$	36,622		$	190		$	37,242



	For the three months ended April 30, 2015
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	13,484	$	16,965	$	7,716		$	2,072		$	40,237
Cost of revenues	6,486		14,445		3,958			2,773			27,662
Other expenses	299		1,301		4,309			266			6,175
Total expenses	6,785		15,746		8,267			3,039			33,837
Gain on disposition of loans and REO								15,955			15,955
Income (loss) from operations	6,699		1,219		(551		)	14,988			22,355
Other income	11		268					768			1,047
Net income (loss)	6,710		1,487		(551		)	15,756			23,402
Less: income attributable to noncontrolling interest								(9,454		)	(9,454		)
Net income (loss) attributable to controlling interest	6,710		1,487		(551		)	6,302			13,948
Other comprehensive loss					(23		)				(23		)
Total comprehensive income (loss)	$	6,710	$	1,487	$	(574	)	$	6,302		$	13,925
Company’s equity in earnings of unconsolidated entities (3)	$	2,939	$	916	$	1,114		$	1,258		$	6,227



	For the three months ended April 30, 2014
	Land Development Joint Ventures		Home Building Joint Ventures			Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	110,406	$	11,647		$	7,557		$	3,505		$	133,115
Cost of revenues	61,488		11,451			3,419			4,132			80,490
Other expenses	210		1,047			9,504			415			11,176
Total expenses	61,698		12,498			12,923			4,547			91,666
Gain on disposition of loans and REO									2,551			2,551
Income (loss) from operations	48,708		(851		)	(5,366		)	1,509			44,000
Other income	4		162			342			1,409			1,917
Net income (loss)	48,712		(689		)	(5,024		)	2,918			45,917
Less: income attributable to noncontrolling interest									(1,751		)	(1,751		)
Net income (loss) attributable to controlling interest	48,712		(689		)	(5,024		)	1,167			44,166
Other comprehensive loss						(56		)				(56		)
Total comprehensive income (loss)	$	48,712	$	(689	)	$	(5,080	)	$	1,167		$	44,110
Company’s equity in earnings of unconsolidated entities (3)	$	135	$	145		$	12,872		$	1,175		$	14,327

(3)

Differences between our equity in earnings of unconsolidated entities and the underlying net income (loss) of the entities are primarily a result of a basis difference of an acquired joint venture interest, distributions from entities in excess of the carrying amount of our net investment, and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.