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Lennar Homebuilding Investments In Unconsolidated Entities
9 Months Ended
Aug. 31, 2011
Lennar Homebuilding Investments In Unconsolidated Entities  
Lennar Homebuilding Investments In Unconsolidated Entities

(3) Lennar Homebuilding Investments in Unconsolidated Entities

Summarized condensed financial information on a combined 100% basis related to Lennar Homebuilding's unconsolidated entities that are accounted for by the equity method was as follows:

Balance Sheets

 

     August 31,      November 30,  
(In thousands)    2011      2010  

Assets:

     

Cash and cash equivalents

   $ 70,099         82,573   

Inventories

     3,168,938         3,371,435   

Other assets

     305,238         307,244   
  

 

 

    

 

 

 
   $ 3,544,275         3,761,252   
  

 

 

    

 

 

 

Liabilities and equity:

     

Account payable and other liabilities

   $ 245,345         327,824   

Debt

     1,019,427         1,284,818   

Equity

     2,279,503         2,148,610   
  

 

 

    

 

 

 
   $ 3,544,275         3,761,252   
  

 

 

    

 

 

 

During the first quarter of 2011, a Lennar Homebuilding unconsolidated entity was restructured. As part of the restructuring, the development management agreement (the "Agreement") between the Company and the unconsolidated entity was terminated and a general release agreement was executed whereby the Company was released from any and all obligations, except any future potential third-party claims, associated with the Agreement. As a result of the restructuring, the termination of the Agreement and the execution of the general release agreement, the Company recognized $10 million of deferred management fees related to management services previously performed by the Company prior to November 30, 2010. The Company is not providing any other services to the unconsolidated entity associated with the deferred management fees recognized.

 

In 2007, the Company sold a portfolio of land to a strategic land investment venture with Morgan Stanley Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which the Company has a 20% ownership interest and 50% voting rights. Due to the Company's continuing involvement, the transaction did not qualify as a sale by the Company under GAAP; thus, the inventory has remained on the Company's condensed consolidated balance sheet in consolidated inventory not owned. As of August 31, 2011 and November 30, 2010, the portfolio of land (including land development costs) of $378.5 million and $424.5 million, respectively, is also reflected as inventory in the summarized condensed financial information related to Lennar Homebuilding's unconsolidated entities.

The Lennar 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 summary of the Company's net recourse exposure related to the Lennar Homebuilding unconsolidated entities in which the Company has investments was as follows:

 

     August 31,     November 30,  
(In thousands)    2011     2010  

Several recourse debt - repayment

   $ 62,635        33,399   

Several recourse debt - maintenance

     2,230        29,454   

Joint and several recourse debt - repayment

     48,057        48,406   

Joint and several recourse debt - maintenance

     43,466        61,591   
  

 

 

   

 

 

 

The Company's maximum recourse exposure

     156,388        172,850   

Less: joint and several reimbursement agreements with the Company's partners

     (57,053     (58,878
  

 

 

   

 

 

 

The Company's net recourse exposure

   $ 99,335        113,972   
  

 

 

   

 

 

 

During the nine months ended August 31, 2011, the Company's maximum recourse exposure related to indebtedness of Lennar Homebuilding unconsolidated entities decreased by $52.7 million as a result of $17.7 million paid by the Company primarily through capital contributions to unconsolidated entities and $35.0 million primarily related to the restructuring of a guarantee, the consolidation of a joint venture in the first quarter of 2011 and the joint ventures selling inventory, which was partially offset by a $36.3 million increase in the maximum recourse exposure for consideration given in the form of a several guarantee in connection with the favorable debt maturity extension until 2018 and principal reduction at Heritage Fields El Toro, one of Lennar Homebuilding's unconsolidated entities as discussed in the note to the following table.

As of August 31, 2011, the Company had no obligation guarantees accrued. At November 30, 2010, the Company had $10.2 million of obligation guarantees accrued as a liability on its condensed consolidated balance sheet. During the nine months ended August 31, 2011, the liability was reduced by $10.2 million, of which $7.6 million were cash payments related to obligation guarantees previously recorded and $2.6 million related to a change in estimate of an obligation guarantee. The obligation guarantees are estimated based on current facts and circumstances and any unexpected changes may lead the Company to incur additional obligation guarantees in the future.

 

The recourse debt exposure in the previous table represents the Company's maximum recourse exposure to loss from guarantees and does not take into account the underlying value of the collateral or the other assets of the borrowers that are available to repay the debt or to reimburse the Company for any payments on its guarantees. The Lennar Homebuilding unconsolidated entities that have recourse debt have a significant amount of assets and equity. The summarized balance sheets of Lennar Homebuilding's unconsolidated entities with recourse debt were as follows:

 

In addition, in most instances in which the Company has guaranteed debt of a Lennar Homebuilding unconsolidated entity, the Company's partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. Some of the Company's guarantees are repayment guarantees and some are maintenance guarantees. 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 the event of default, if the Company's 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, up to its maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a maintenance guarantee to bring the value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase the Company's investment in the unconsolidated entity and its share of any funds the unconsolidated entity distributes.

In connection with many of the loans to Lennar 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.

During the three months ended August 31, 2011, there were: (1) no payments under the Company's maintenance guarantees and (2) other loan paydowns of $3.1 million, a portion of which related to amounts paid under the Company's repayment guarantees. During the three months ended August 31, 2010, there were: (1) payments of $3.0 million under the Company's maintenance guarantees, (2) at the election of the Company, a loan paydown of $50.3 million, representing both the Company's and its partner's share, in return for a 4-year loan extension and the rights to obtain preferred returns and priority distributions at one of Lennar Homebuilding's unconsolidated entities, and (3) a $19.3 million payment to extinguish debt at a discount and buyout the partner of one of Lennar Homebuilding's unconsolidated entities that resulted in a net pre-tax gain of $7.7 million. In addition, during the three months ended August 31, 2010, there were other loan paydowns of $0.9 million. During the three months ended August 31, 2011 and 2010, there were no payments under completion guarantees.

 

During the nine months ended August 31, 2011, there were: (1) payments of $1.7 million under the Company's maintenance guarantees and (2) other loan paydowns of $16.1 million, a portion of which related to amounts paid under the Company's repayment guarantees. During the nine months ended August 31, 2010, there were: (1) payments of $8.0 million under the Company's maintenance guarantees, (2) at the election of the Company, a loan paydown of $50.3 million, representing both the Company's and its partner's share, in return for a 4-year loan extension and the rights to obtain preferred returns and priority distributions at one of Lennar Homebuilding's unconsolidated entities, and (3) a $19.3 million payment to extinguish debt at a discount and buyout the partner of one of Lennar Homebuilding's unconsolidated entities that resulted in a net pre-tax gain of $7.7 million. In addition, during the nine months ended August 31, 2010, there were other loan paydowns of $27.9 million, a portion of which related to amounts paid under the Company's repayment guarantees. During the nine months ended August 31, 2011 and 2010, there were no payments under completion guarantees.

As of August 31, 2011, the fair values of the maintenance guarantees, repayment guarantees and completion guarantees were not material. The Company believes that as of August 31, 2011, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, most of the time the collateral should 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 for its joint ventures (see Note 12).

The total debt of the Lennar Homebuilding unconsolidated entities in which the Company has investments was as follows:

 

     August 31,     November 30,  
(In thousands)    2011     2010  

The Company's net recourse exposure

   $ 99,335        113,972   

Reimbursement agreements from partners

     57,053        58,878   
  

 

 

   

 

 

 

The Company's maximum recourse exposure

   $ 156,388        172,850   
  

 

 

   

 

 

 

Non-recourse bank debt and other debt (partner's share of several recourse)

   $ 152,516        79,921   

Non-recourse land seller debt or other debt

     26,400        58,604   

Non-recourse debt with completion guarantees

     485,994        600,297   

Non-recourse debt without completion guarantees

     198,129        373,146   
  

 

 

   

 

 

 

Non-recourse debt to the Company

     863,039        1,111,968   
  

 

 

   

 

 

 

Total debt

   $ 1,019,427        1,284,818   
  

 

 

   

 

 

 

The Company's maximum recourse exposure as a % of total JV debt

     15     13
  

 

 

   

 

 

 

Subsequent to August 31, 2011, the Company entered into a transaction in which it received a net asset distribution from Platinum Triangle Partners, a Lennar Homebuilding unconsolidated entity, resulting in an immaterial gain. Upon the distribution of the net assets, the partners repaid the respective debt amounts assumed. As a result, the Company's maximum recourse exposure related to indebtedness of its Lennar Homebuilding unconsolidated entities decreased.