Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our audited consolidated financial statements and accompanying notes included elsewhere in this Report.

Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “intend,” “objective,” “plan,” “predict,” “projection,” “seek,” “strategy,” “target,” “will” or other words of similar meaning. Some of them are opinions formed based upon general observations, anecdotal evidence and industry experience, but that are not supported by specific investigation or analysis.

These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements. The most important factors that could cause actual results to differ materially from those anticipated by our forward-looking statements include, but are not limited to: an extended slowdown in the real estate markets across the nation, including a slowdown in the market for single family homes or the multifamily rental market; increases in operating costs, including costs related to real estate taxes, construction materials, labor and insurance, and our inability to manage our cost structure, both in our Lennar Homebuilding and Lennar Multifamily businesses; our inability to realize all of the anticipated synergy benefits from the CalAtlantic acquisition or to realize them in the anticipated timeline; our inability to successfully execute our strategies; changes in general economic and financial conditions that reduce demand for our products and services, lower our profit margins or reduce our access to credit; our inability to acquire land at anticipated prices; the possibility that we will incur nonrecurring costs that affect earnings in one or more reporting periods; decreased demand for our homes or Lennar Multifamily rental properties; the possibility that the Tax Cuts and Jobs Act will have more negative than positive impact on us; the possibility that the benefit from our increasing use of technology will not justify its cost; increased competition for home sales from other sellers of new and resale homes; negative effects of increasing mortgage interest rates; our inability to reduce the ratio of our homebuilding debt to our total capital net of cash; a decline in the value of our land inventories and resulting write-downs of the carrying value of our real estate assets; the failure of the participants in various joint ventures to honor their commitments; difficulty obtaining land-use entitlements or construction financing; natural disasters and other unforeseen events for which our insurance does not provide adequate coverage; new laws or regulatory changes that adversely affect the profitability of our businesses; our inability to refinance our debt on terms that are acceptable to us; and changes in accounting conventions that adversely affect our reported earnings.

Please see "Item 1A-Risk Factors" of this Annual Report for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.

Outlook

At the end of our fiscal 2018, we believe the market has taken a natural pause as higher home prices and rapid interest rate increases have combined to create a mismatch between prices and homebuyer expectations. While we saw traffic moderate and sales slow toward the end of 2018, with inventories low, we believe this is a temporary adjustment as strong employment, wage growth, consumer confidence and general economic growth drive the consumer to the market. We still believe that the housing market is primarily driven by the deficit in housing production that has persisted for over a decade. As interest rates have started to ease at the end of 2018 and beginning of 2019, we have seen traffic pick up. Additionally, if the market continues to remain soft, we believe our production-oriented focus should allow us to move quickly to realize reduced costs in an accelerated production pace. Alternatively, if the market returns to normalized levels, we believe we will have a superior position with more homes started and available to sell and the critically needed trade base to deliver them.

In spite of softer market conditions towards the back end of the year, fiscal 2018 was another strong year for Lennar, enhanced by the successful integration of CalAtlantic. Revenues totaled $20.6 billion, representing a 63% increase from 2017. This increase was largely driven by our homebuilding business which saw a 55% increase in deliveries to 45,627 homes primarily as a result of the CalAtlantic acquisition. Gross margins and operating margins, excluding backlog and construction in process write-up, were 21.8%, and 13.3%, respectively, which is an improvement in operating margins of 40 basis points from 2017. This improvement was driven by a reduction in S,G&A as a percentage of home sales revenue to 8.5%, which is an all-time fiscal year low, from 9.2% in 2017. Our new orders increased to 45,826, up 51% compared to fiscal 2017, primarily as a

result of the CalAtlantic acquisition. In addition, we ended the year with a strong sales backlog of 15,616 homes or $6.6 billion, up 75% in homes and 85% in dollar value.

Consistent with our focus to revert to our core homebuilding platform, we sold our Rialto investment and asset management platform for $340 million in the fourth quarter of 2018. While we continue to hold valuable investment assets of Rialto, we will no longer oversee nor be engaged in the active management of Rialto. Subsequent to fiscal year end, we also sold the majority of our retail title agency business and our wholly owned title insurance carrier. In addition, we sold our real estate brokerage business in the first quarter of 2019.

In 2018, our Financial Services segment produced $187.4 million of pre-tax earnings, compared to $155.5 million in 2017. The increase was largely due to an increase in the segment's title and mortgage operations due to the acquisition of CalAtlantic's Financial Services operations.

Our rental apartment business has seen significant pickup in both rents and lease-ups. The Multifamily segment generated $42.7 million in operating earnings in fiscal 2018, which was down from 2017 due to a strategic shift from a merchant build-to-sell model to a build-to-hold model. While we still have a pipeline of 30 merchant-build communities with over 9,000 homes and a total development cost of $3.6 billion, our real focus is to create long-term cash flow and value through the build-out of our Lennar Multifamily Venture I and II.

In fiscal 2019, we are very focused on cash flow generation to reduce debt and to opportunistically repurchase shares. To further enhance our cash flow generation, we are continuing our pivot to a land-lighter operating model with an emphasis on controlling more land through options versus a more cash-intensive land acquisition and development program. We ended the year with approximately 25% of our homesites controlled via option contracts and similar arrangements. Our goal is to increase this to over 40% in the next several years. We expect that this shift in land strategy should increase our returns on inventory and generate additional cash flow.

We are excited about our position and business strategy today. We expect that our Company’s main driver of earnings will continue to be our homebuilding and financial services operations as we expect to deliver over 50,000 homes in fiscal 2019. We benefit from the size and scale we have amassed in each of our strategic markets. We have shed non-core assets to generate cash and have continued to partner with technology companies that can help enhance our customers experience while reducing our overhead. Our reversion to core and technology investment strategies have combined to enable us to rationalize our overall business, recognize significant cash flow and profits, and improve our customers’ experience, while reducing headcount by approximately 1,600 associates from fiscal year end through January 2019. This strategy will continue to reduce company overhead and increase efficiency in our core operations. Overall, we believe we are on track to achieve another year of strong profitability in fiscal 2019.

Results of Operations

Overview

Our net earnings attributable to Lennar were $1.7 billion, or $5.44 per diluted share ($5.46 per basic share) in 2018, $810.5 million, or $3.38 per diluted share ($3.38 per basic share) in 2017, and $911.8 million, or $3.86 per diluted share ($4.05 per basic share) in 2016.

The following table sets forth financial and operational information for the years indicated related to our operations.

	Years Ended November 30,
(Dollars in thousands)	2018				2017			2016
Lennar Homebuilding revenues:
Sales of homes	$	18,810,552			11,035,299			9,558,517
Sales of land	267,045				164,943			182,820
Total Lennar Homebuilding revenues	19,077,597				11,200,242			9,741,337
Lennar Homebuilding costs and expenses:
Costs of homes sold	15,121,738				8,601,346			7,362,853
Costs of land sold	206,971				135,075			138,111
Selling, general and administrative	1,608,164				1,015,848			898,917
Total Lennar Homebuilding costs and expenses	16,936,873				9,752,269			8,399,881
Lennar Homebuilding operating margins	2,140,724				1,447,973			1,341,456
Lennar Homebuilding equity in loss from unconsolidated entities	(91,915		)		(61,708	)		(49,275	)
Lennar Homebuilding other income, net	205,841				22,774			52,751
Lennar Homebuilding loss due to litigation	—				(140,000	)		—
Lennar Homebuilding operating earnings	$	2,254,650			1,269,039			1,344,932
Lennar Financial Services revenues	$	867,831			770,109			687,255
Lennar Financial Services costs and expenses	680,401				614,585			523,638
Lennar Financial Services operating earnings	$	187,430			155,524			163,617
Lennar Multifamily revenues	$	421,132			394,771			287,441
Lennar Multifamily costs and expenses	429,759				407,078			301,786
Lennar Multifamily equity in earnings from unconsolidated entities and other gain	51,322				85,739			85,519
Lennar Multifamily operating earnings	$	42,695			73,432			71,174
Rialto revenues	$	205,071			281,243			233,966
Rialto costs and expenses	190,413				247,549			229,769
Rialto equity in earnings from unconsolidated entities	25,816				25,447			18,961
Rialto other expense, net	(62,058		)		(81,636	)		(39,850	)
Rialto operating loss	$	(21,584	)		(22,495	)		(16,692	)
Total operating earnings	$	2,463,191			1,475,500			1,563,031
Gain on sale of Rialto investment and asset management platform	296,407				—			—
Acquisition and integration costs related to CalAtlantic	152,980				—			—
Corporate general and administrative expenses	343,934				285,889			232,562
Earnings before income taxes	$	2,262,684			1,189,611			1,330,469
Net earnings attributable to Lennar	$	1,695,831			810,480			911,844
Gross margin as a % of revenue from home sales (1)	19.6		%		22.1	%		23.0	%
S,G&A expenses as a % of revenues from home sales	8.5		%		9.2	%		9.4	%
Operating margin as a % of revenues from home sales	11.1		%		12.9	%		13.6	%
Average sales price	$	413,000			376,000			361,000

(1) Excluding the backlog/construction in progress write-up of $414.6 million related to purchase accounting on CalAtlantic homes that were delivered in the year ended November 30, 2018, gross margins on homes sales were $4.1 billion or 21.8%.

2018 versus 2017

Revenues from home sales increased 70% in the year ended November 30, 2018 to $18.8 billion from $11.0 billion in the year ended November 30, 2017. Revenues were higher primarily due to a 55% increase in the number of home deliveries, excluding unconsolidated entities, and a 10% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 45,563 homes in the year ended November 30, 2018 from 29,322 homes in the year ended November 30, 2017, primarily due to the significant increase in volume resulting from the CalAtlantic acquisition. There was an increase in home deliveries in all of our Homebuilding segments. The average sales price of homes delivered, excluding unconsolidated entities, increased to $413,000 in the year ended November 30, 2018 from $376,000 in the year ended November 30, 2017. Sales incentives offered to homebuyers were $23,500 per home delivered in the year ended November 30, 2018, or 5.4% as a percentage of home sales revenue, compared to $22,700 per home delivered in the year ended November 30, 2017, or 5.7% as a percentage of home sales revenue.

Gross margins on home sales were $3.7 billion, or 19.6%, in the year ended November 30, 2018, compared to $2.4 billion, or 22.1%, in the year ended November 30, 2017. The gross margin percentage on home sales decreased compared to the year ended November 30, 2017 primarily due to the backlog/construction in progress write-up of $414.6 million related to purchase accounting adjustments on CalAtlantic homes that were delivered in the year ended November 30, 2018, which impacted gross margins on home sales by 220 basis points. In addition there was an increase in construction costs per home, partially offset by an increase in the average sales price of homes delivered.

Selling, general and administrative expenses were $1.6 billion in the year ended November 30, 2018, compared to $1.0 billion in the year ended November 30, 2017. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.5% in the year ended November 30, 2018, from 9.2% in the year ended November 30, 2017, primarily due to a reduction in personnel and related expenses, brokers commissions, and model and selling expenses as a percentage of home sales revenue. This was achieved through improved operating leverage as a result of an increase in home deliveries and continued benefit from technology initiatives.

Gross profits on land sales were $60.1 million in the year ended November 30, 2018, compared to $29.9 million in the year ended November 30, 2017. Lennar Homebuilding equity in loss from unconsolidated entities was $91.9 million in the year ended November 30, 2018, compared to $61.7 million in the year ended November 30, 2017. In the years ended November 30, 2018 and 2017, Lennar Homebuilding equity in loss from unconsolidated entities was attributable to our share of net operating losses from our unconsolidated entities which were primarily driven by valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities and general and administrative expenses, partially offset by profits from land sales.

Lennar Homebuilding other income, net, totaled $205.8 million in the year ended November 30, 2018, compared to $22.8 million in the year ended November 30, 2017. In the year ended November 30, 2018, other income, net was primarily related to a $164.9 million gain on the sale of an 80% interest in one of our strategic joint ventures, Treasure Island Holdings.

Lennar Homebuilding loss due to litigation of $140 million in the year ended November 30, 2017 was related to litigation regarding a contract we entered into in 2005 to purchase property in Maryland. As a result of the litigation, we purchased the property for $114 million, which approximated our estimate of fair value for the property. In addition, we paid approximately $124 million in interest and other closing costs and have accrued for the amount we expect to pay as reimbursement for attorney's fees.

Lennar Homebuilding interest expense was $316.2 million in the year ended November 30, 2018 ($301.3 million was included in costs of homes sold, $3.6 million in costs of land sold and $11.3 million in other interest expense), compared to $277.8 million in the year ended November 30, 2017 ($260.7 million was included in costs of homes sold, $10.0 million in costs of land sold and $7.2 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries.

Operating earnings for our Lennar Financial Services segment were $187.4 million in the year ended November 30, 2018, compared to $155.5 million in the year ended November 30, 2017. Operating earnings were impacted by an increase in the segment's title and mortgage operations due to the acquisition of CalAtlantic's Financial Services operations, partially offset by a decrease in refinance transactions.

Operating earnings for our Lennar Multifamily segment were $42.7 million in the year ended November 30, 2018, compared to operating earnings of $73.4 million in the year ended November 30, 2017. The decrease in profitability was primarily due to the segment's $61.2 million share of gains as a result of the sale of six operating properties by our Lennar Multifamily's unconsolidated entities and the sale of an investment in an operating property in the year ended November 30, 2018, compared to the segment's $96.7 million share of gains as a result of the sale of seven operating properties by our Lennar Multifamily's unconsolidated entities in the year ended November 30, 2017, as well as an increase in general and administrative expenses for the year ended November 30, 2018. The decrease in profitability for the year ended November 30, 2018 was

partially offset by $16.2 million of promote revenue recognized in the year ended November 30, 2018 related to eight properties in LMV Fund I.

On November 30, 2018, we recorded a $296.4 million gain on the sale of our Rialto investment and asset management platform. Operating loss for our Rialto segment was $18.3 million in the year ended November 30, 2018 (which included $21.6 million of operating loss and an add back of $3.3 million of net loss attributable to noncontrolling interests). Operating earnings for the Rialto segment in the year ended November 30, 2017 were $23.6 million (which included $22.5 million of operating loss and add back of $46.1 million of net loss attributable to noncontrolling interests). The decrease in operating earnings was primarily as a result of non-recurring expenses, partially offset by a decrease in real estate owned and loan impairments due to the liquidation of the FDIC and bank portfolios and a decrease in interest expense.

During the year ended November 30, 2018, we recorded $153.0 million of acquisition and integration costs that were comprised mainly of severance expenses and transaction costs and were included within the acquisition and integration costs related to CalAtlantic line item in the consolidated statement of operations.

Corporate general and administrative expenses were $343.9 million, or 1.7% as a percentage of total revenues, in the year ended November 30, 2018, compared to $285.9 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2017. The decrease in corporate general and administrative expenses as a percentage of total revenues was due to improved operating leverage as a result of an increase in revenues.

Net earnings (loss) attributable to noncontrolling interests were $21.7 million and ($38.7) million in the years ended November 30, 2018 and 2017, respectively. Net earnings attributable to noncontrolling interests during the year ended November 30, 2018 were primarily attributable to net earnings related to our Lennar Homebuilding consolidated joint ventures. Net loss attributable to noncontrolling interests during the year ended November 30, 2017 was primarily attributable to a net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC in 2010.

In the years ended November 30, 2018 and 2017, we had a tax provision of $545.2 million and $417.9 million, respectively. Our overall effective income tax rates were 24.3% and 34.0% for the years ended November 30, 2018 and 2017, respectively. The decrease is primarily the result of the Tax Cuts and Jobs Act enacted in December 2017. The tax reform bill reduced the maximum federal corporate income tax rate to 21%, which also reduced the value of our deferred tax assets. As a result, we recorded a non-cash one-time write down of deferred tax assets that resulted in income tax expense of $68.6 million in the first quarter of fiscal year 2018.

2017 versus 2016

Revenues from home sales increased 15% in the year ended November 30, 2017 to $11.0 billion from $9.6 billion in 2016. Revenues were higher primarily due to an 11% increase in the number of home deliveries, excluding unconsolidated entities, and a 4% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 29,322 homes in the year ended November 30, 2017 from 26,481 homes in 2016. There was an increase in home deliveries in all of our Homebuilding segments. The increase in the number of deliveries was primarily driven by an increase in active communities over 2016 and by higher demand as the number of deliveries per active community increased. The average sales price of homes delivered, excluding unconsolidated entities, increased to $376,000 in the year ended November 30, 2017 from $361,000 in the year ended November 30, 2016, primarily due to product mix (selling at different price points) and increased pricing in certain of our markets due to favorable market conditions. Sales incentives offered to homebuyers were $22,700 per home delivered in the year ended November 30, 2017, or 5.7% as a percentage of home sales revenue, compared to $22,500 per home delivered in the year ended November 30, 2016, or 5.9% as a percentage of home sales revenue.

Gross margins on home sales were $2.4 billion, or 22.1%, in the year ended November 30, 2017, compared to $2.2 billion, or 23.0%, in the year ended November 30, 2016. Gross margin percentage on home sales decreased compared to the year ended November 30, 2016 primarily due to an increase in construction and land costs per home, partially offset by an increase in the average sales price of homes delivered.

Selling, general and administrative expenses were $1.0 billion in the year ended November 30, 2017, compared to $898.9 million in the year ended November 30, 2016. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.2% in the year ended November 30, 2017, from 9.4% in the year ended November 30, 2016 due to improved operating leverage as a result of an increase in home deliveries.

Gross profits on land sales were $29.9 million in the year ended November 30, 2017, compared to $44.7 million in the year ended November 30, 2016.

Lennar Homebuilding equity in loss from unconsolidated entities was $61.7 million in the year ended November 30, 2017, compared to $49.3 million in the year ended November 30, 2016. In the year ended November 30, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of net operating losses from

our unconsolidated entities which were primarily driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by profits from land sales. In the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the FivePoint combination as well as our share of net operating losses associated with the new FivePoint unconsolidated entity formed as the result of this combination. This was partially offset by $12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties.

Lennar Homebuilding other income, net, totaled $22.8 million in the year ended November 30, 2017, compared to $52.8 million in the year ended November 30, 2016. In the year ended November 30, 2016, other income, net included management fee income and a profit participation related to Lennar Homebuilding's strategic joint ventures and gains on the sale of several clubhouses.

Lennar Homebuilding loss due to litigation of $140 million in the year ended November 30, 2017, was related to litigation regarding a contract we entered into in 2005 to purchase property in Maryland. As a result of the litigation, we purchased the property for $114 million, which approximated our estimate of fair value for the property. In addition, we paid approximately $124 million in interest and other closing costs and have accrued for the amount we expect to pay as reimbursement for attorney's fees.

Lennar Homebuilding interest expense was $277.8 million in the year ended November 30, 2017 ($260.7 million was included in costs of homes sold, $10.0 million in costs of land sold and $7.2 million in other interest expense), compared to $245.1 million in the year ended November 30, 2016 ($235.1 million was included in costs of homes sold, $5.3 million in costs of land sold and $4.6 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries.

Operating earnings for our Lennar Financial Services segment were $155.5 million in the year ended November 30, 2017, compared to $163.6 million in the year ended November 30, 2016. Operating earnings decreased due to lower profitability in the segment's mortgage operations as a result of a decrease in refinance transactions, which led to both lower origination volume and profit per loan. This was partially offset by higher profit per transaction in the segment's title operations and earnings from the real estate brokerage business which was acquired as part of the WCI Communities, Inc. ("WCI") acquisition in February 2017.

Operating earnings for our Lennar Multifamily segment were $73.4 million in the year ended November 30, 2017, compared to operating earnings of $71.2 million in the year ended November 30, 2016. The increase in profitability was primarily due to the segment's $96.7 million share of gains as a result of the sale of seven operating properties by Lennar Multifamily's unconsolidated entities, compared to the segment's $91.0 million share of gains as a result of the sale of seven operating properties by Lennar Multifamily's unconsolidated entities in the year ended November 30, 2016.

Operating earnings for our Rialto segment were $23.6 million in the year ended November 30, 2017 (which included $22.5 million of operating loss and an add back of $46.1 million of net loss attributable to noncontrolling interests). Operating earnings in the year ended November 30, 2016 were $2.1 million (which included $16.7 million of operating loss and add back of $18.8 million of net loss attributable to noncontrolling interests). The increase in operating earnings was primarily related to an increase in incentive income related to carried interest distributions from the Rialto real estate funds, as well as an increase in management fee income and equity in earnings from unconsolidated entities. This was partially offset by an increase in REO and loan impairments and general and administrative expenses. In addition, the year ended November 30, 2016 included a $16.0 million write-off of uncollectible receivables related to a hospital, which was acquired through the resolution of one of Rialto's loans from a 2010 portfolio.

Corporate general and administrative expenses were $285.9 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2017, compared to $232.6 million, or 2.1% as a percentage of total revenues, in the year ended November 30, 2016. The increase was primarily due to personnel and related expenses and professional expenses related to technology investments.

Net earnings (loss) attributable to noncontrolling interests were ($38.7) million and $1.2 million in the years ended November 30, 2017 and 2016, respectively. Net loss attributable to noncontrolling interests during the year ended November 30, 2017 was primarily attributable to net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC in 2010. Net earnings attributable to noncontrolling interests during the year ended November 30, 2016 were primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures, partially offset by a net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC.

In the years ended November 30, 2017 and 2016, we had a tax provision of $417.9 million and $417.4 million, respectively. Our overall effective income tax rates were 34.0% and 31.4% for the years ended November 30, 2017 and 2016, respectively. The increase is primarily the result of the new energy efficient home credits expiring during the year ended November 30, 2017, which increased our effective tax rate by 1.74%. For the years ended November 30, 2017 and 2016, the impact of this tax credit was (0.73%) and (2.47%), respectively.

Homebuilding Segments

Our Homebuilding operations construct and sell homes primarily for first-time, move-up, active adult and luxury homebuyers primarily under the Lennar brand name. In addition, our homebuilding operations purchase, develop and sell land to third parties. In certain circumstances, we diversify our operations through strategic alliances and attempt to minimize our risks by investing with third parties in joint ventures. In connection with the CalAtlantic acquisition, we experienced significant growth in our homebuilding operations. As a result, our chief operating decision makers ("CODM") reassessed how they evaluate the business and allocate resources. The CODM manages and assesses our performance at a regional level. Therefore, we performed an assessment of our operating segments in accordance with ASC 280, Segment Reporting, (“ASC 280”) and determined that each of our four homebuilding regions, financial services operations, multifamily operations and Rialto operations are our operating segments. Prior to this change, in accordance with the aggregation criteria defined in ASC 280, our operating segments were aggregated into reportable segments, based primarily upon similar economic characteristics, geography, and product type.

As of and for the year ended November 30, 2018, we have determined that each of our homebuilding regions are our homebuilding operating segments and consist of Homebuilding East, Homebuilding Central, Homebuilding Texas, and Homebuilding West. Information about homebuilding activities in our urban divisions that do not have economic characteristics similar to those in other divisions within the same geographic area is grouped under "Homebuilding Other," which is not a reportable segment. All prior periods have been adjusted to conform with our current presentation.

References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to homebuilding segments are to those four reportable segments.

At November 30, 2018 our homebuilding operating segments and Homebuilding Other consisted of homebuilding divisions located in:

East: Florida, New Jersey, North Carolina and South Carolina

Central: Georgia, Illinois, Indiana, Maryland, Minnesota, Tennessee and Virginia

Texas: Texas

West: Arizona, California, Colorado, Nevada, Oregon, Utah and Washington

Other: Urban divisions and other homebuilding related investments, including FivePoint

The following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated:

Selected Financial and Operational Data

	Years Ended November 30,
(In thousands)	2018				2017			2016
Homebuilding revenues:
East:
Sales of homes	$	6,193,868			4,023,150			3,272,884
Sales of land	55,996				31,699			53,666
Total East	6,249,864				4,054,849			3,326,550
Central:
Sales of homes	2,260,105				915,835			919,562
Sales of land	30,782				7,683			9,418
Total Central	2,290,887				923,518			928,980
Texas:
Sales of homes	2,366,844				1,651,619			1,495,351
Sales of land	54,555				46,112			47,761
Total Texas	2,421,399				1,697,731			1,543,112
West:
Sales of homes	7,934,138				4,379,776			3,782,665
Sales of land	125,712				67,308			65,874
Total West	8,059,850				4,447,084			3,848,539
Other:
Sales of homes	55,597				64,919			88,055
Sales of land	—				12,141			6,101
Total Other	55,597				77,060			94,156
Total homebuilding revenues	$	19,077,597			11,200,242			9,741,337

	Years Ended November 30,
(In thousands)	2018				2017			2016
Operating earnings (loss):
East:
Sales of homes	$	728,934			569,145			523,961
Sales of land	20,287				5,593			21,986
Equity in loss from unconsolidated entities	(818		)		(754	)		(230	)
Other income, net	10,818				1,717			16,358
Total East	759,221				575,701			562,075
Central:
Sales of homes	180,150				86,847			84,925
Sales of land	909				(491	)		2,661
Equity in earnings (loss) from unconsolidated entities	691				(255	)		(74	)
Other income, net	858				1,598			622
Loss due to litigation (1)	—				(140,000	)		—
Total Central	182,608				(52,301	)		88,134
Texas:
Sales of homes	165,094				174,188			161,893
Sales of land	10,808				8,615			8,319
Equity in earnings from unconsolidated entities	469				8			364
Other expense, net	(3,922		)		(2,599	)		(265	)
Total Texas	172,449				180,212			170,311
West:
Sales of homes	1,029,251				601,235			544,783
Sales of land	30,375				12,896			9,228
Equity in loss from unconsolidated entities (2)	(212		)		(13,095	)		(2,052	)
Other income, net	22,888				14,880			33,914
Total West	1,082,302				615,916			585,873
Other:
Sales of homes	(22,779		)		(13,310	)		(18,815	)
Sales of land	(2,305		)		3,255			2,515
Equity in loss from unconsolidated entities (3)	(92,045		)		(47,612	)		(47,283	)
Other income, net (4)	175,199				7,178			2,122
Total Other	58,070				(50,489	)		(61,461	)
Total homebuilding operating earnings	$	2,254,650			1,269,039			1,344,932

(1)

Loss due to litigation regarding a contract we entered into in 2005 to purchase property in Maryland. As a result of the litigation, we purchased the property for $114 million, which approximated our estimate of fair value for the property. In addition, we paid approximately $124 million in interest and other closing costs and have accrued for the amount we expect to pay as reimbursement for attorney's fees.

(2)	Equity in loss for the year ended November 30, 2017 included our share of operational net losses from unconsolidated entities driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by profit from land sales.

(3)

Equity in loss from unconsolidated entities for the year ended November 30, 2018 included our share of operating net losses from unconsolidated entities driven by valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities. Equity in loss for the year ended November 30, 2017 included our share of operational net losses from unconsolidated entities driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by profit from land sales. Equity in loss for the year ended November 30, 2016 included our share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million, partially offset by $12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties.

(4)	Other income, net for the year ended November 30, 2018 included $164.9 million related to a gain on the sale of an 80% interest in one of Lennar Homebuilding's joint ventures, Treasure Island Holdings.

Summary of Homebuilding Data

Deliveries:

	Years Ended November 30,
	Homes
	2018			2017			2016
East	18,161			12,625			10,913
Central	5,865			2,334			2,266
Texas	7,146			5,341			5,010
West	14,352			8,971			8,241
Other	103			123			133
Total	45,627			29,394			26,563

Of the total homes delivered listed above, 64, 72 and 82 represent home deliveries from unconsolidated entities for the years ended November 30, 2018, 2017 and 2016, respectively.

	Years Ended November 30,
	Dollar Value (In thousands)										Average Sales Price
	2018				2017			2016			2018				2017			2016
East	$	6,193,868			4,023,150			3,276,072			$	341,000			319,000			300,000
Central	2,260,105				915,835			919,563			385,000				392,000			406,000
Texas	2,366,844				1,651,619			1,495,351			331,000				309,000			298,000
West	7,934,138				4,379,775			3,782,664			553,000				488,000			459,000
Other	103,330				113,750			140,497			1,003,000				925,000			1,056,000
Total	$	18,858,285			11,084,129			9,614,147			$	413,000			377,000			362,000

Of the total dollar value of home deliveries listed above, $47.7 million, $48.8 million and $55.6 million represent the dollar value of home deliveries from unconsolidated entities for the years ended November 30, 2018, 2017 and 2016, respectively. The home deliveries from unconsolidated entities had an average sales price of $746,000 for the year ended November 30, 2018 and $678,000 for both years ended November 30, 2017 and 2016.

Sales Incentives (1):

	Years Ended November 30,
	(In thousands)
	2018				2017			2016
East	$	444,122			288,138			235,377
Central	157,420				66,554			64,856
Texas	237,703				173,005			160,950
West	222,684				132,920			128,761
Other	8,195				5,122			6,355
Total	$	1,070,124			665,739			596,299

	Years Ended November 30,
	Average Sales Incentives Per Home Delivered										Sales Incentives as a % of Revenue
	2018				2017			2016			2018			2017			2016
East	$	24,500			22,800			21,600			6.7	%		6.7	%		6.7	%
Central	26,800				28,500			28,600			6.5	%		6.8	%		6.6	%
Texas	33,300				32,400			32,100			9.1	%		9.5	%		9.7	%
West	15,500				14,800			15,600			2.7	%		2.9	%		3.3	%
Other	210,200				100,400			104,200			12.8	%		7.3	%		6.7	%
Total	$	23,500			22,700			22,500			5.4	%		5.7	%		5.9	%

(1)	Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities.

New Orders (2):

	Years Ended November 30,
	Homes
	2018			2017			2016
East	19,297			13,214			11,303
Central	5,855			2,428			2,179
Texas	7,078			5,027			5,127
West	13,516			9,573			8,692
Other	80			106			71
Total	45,826			30,348			27,372

Of the total new orders listed above, 58, 65 and 23 represent new orders from unconsolidated entities for the years ended November 30, 2018, 2017 and 2016, respectively.

	Years Ended November 30,
	Dollar Value (In thousands)										Average Sales Price
	2018				2017			2016			2018				2017			2016
East	$	6,505,867			4,190,651			3,417,855			$	337,000			317,000			302,000
Central	2,263,946				968,771			867,632			387,000				399,000			398,000
Texas	2,284,726				1,540,418			1,562,513			323,000				306,000			305,000
West	7,544,235				4,752,656			4,025,723			558,000				496,000			463,000
Other	82,522				106,741			80,214			1,032,000				1,007,000			1,130,000
Total	$	18,681,296			11,559,237			9,953,937			$	408,000			381,000			364,000

Of the total dollar value of new orders listed above, $39.7 million, $48.0 million and $9.2 million represent the dollar value of new orders from unconsolidated entities for the years ended November 30, 2018, 2017 and 2016, respectively. The new orders from unconsolidated entities had an average sales price of $685,000, $738,000 and $401,000 for the years ended November 30, 2018, 2017 and 2016, respectively.

(2)	New orders represent the number of new sales contracts executed with homebuyers, net of cancellations, during the years ended November 30, 2018, 2017 and 2016.

Backlog (3):

	November 30,
	Homes
	2018			2017			2016
East (4)	7,075			3,812			2,865
Central (5)	1,986			715			621
Texas	2,148			1,339			1,653
West	4,401			3,040			2,438
Other	6			29			46
Total	15,616			8,935			7,623

Of the total homes in backlog listed above, 17, 23 and 30 represent homes in backlog from unconsolidated entities at November 30, 2018, 2017 and 2016, respectively.

	November 30,
	Dollar Value (In thousands)										Average Sales Price
	2018				2017			2016			2018				2017			2016
East	$	2,522,710			1,273,847			921,436			$	357,000			334,000			322,000
Central	790,252				295,813			242,950			398,000				414,000			391,000
Texas	760,721				425,485			537,460			354,000				318,000			325,000
West	2,487,451				1,525,424			1,152,886			565,000				502,000			473,000
Other	8,989				29,797			36,806			1,498,000				1,027,000			800,000
Total	$	6,570,123			3,550,366			2,891,538			$	421,000			397,000			379,000

Of the total dollar value of homes in backlog listed above, $7.1 million, $15.2 million and $16.0 million represent the dollar value of homes in backlog from unconsolidated entities at November 30, 2018, 2017 and 2016, respectively. The homes in backlog from unconsolidated entities had an average sales price of $420,000, $659,000 and $533,000 at November 30, 2018, 2017 and 2016, respectively.

(3)	During the year ended November 30, 2018, we acquired a total of 6,481 homes in backlog in connection with the CalAtlantic acquisition. Of the homes acquired that were in backlog, 2,126 homes were in the East, 1,281 homes were in the Central, 877 homes were in Texas and 2,197 homes were in the West.

(4)	During the year ended November 30, 2017, we acquired 359 homes in backlog as a result of the WCI acquisition. During the year ended November 30, 2016, we acquired 110 homes in backlog from other homebuilders.

(5)	During the year ended November 30, 2016, we acquired 58 homes in backlog.

Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners.

We experienced cancellation rates as follows:

	Years Ended November 30,
	2018			2017			2016
East	14	%		15	%		14	%
Central	11	%		11	%		13	%
Texas	21	%		21	%		22	%
West	14	%		14	%		14	%
Other	21	%		24	%		17	%
Total	15	%		15	%		16	%

Active Communities:

	November 30,
	2018 (1)			2017			2016
East (2)	481			306			261
Central	243			86			81
Texas	240			158			155
West	361			211			194
Other	4			4			4
Total	1,329			765			695

Of the total active communities listed above, five communities represent active communities being developed by unconsolidated entities as of November 30, 2018. Of the total active communities listed above, four and two communities represent active communities being constructed by unconsolidated entities as of November 30, 2017 and 2016, respectively.

(1)	We acquired 542 active communities as part of the CalAtlantic acquisition on February 12, 2018. Of the communities acquired, 177 were in the East, 135 were in the Central, 99 were in Texas and 131 were in the West.

(2)	We acquired 51 active communities as part of the WCI acquisition on February 10, 2017.

Selected Pro Forma Homebuilding Data

On February 12, 2018, we completed our acquisition of CalAtlantic. To aid readers with comparability of key homebuilding metrics, we are including pro forma homebuilding information about combined new orders and deliveries of Lennar and CalAtlantic for the years ended November 30, 2018 and 2017 reflecting our updated homebuilding segments as if the acquisition occurred on December 1, 2016.

Pro forma Deliveries:

	Years Ended November 30,
	Homes
	2018			2017
East	19,231			17,339
Central	6,506			5,376
Texas	7,582			7,635
West	15,434			13,355
Other	103			123
Total	48,856			43,828

Pro forma New Orders:

	Years Ended November 30,
	Homes
	2018			2017
East	20,041			18,162
Central	6,484			5,520
Texas	7,372			7,144
West	14,303			14,362
Other	80			106
Total	48,280			45,294

The following table details our gross margins on home sales for each of our reportable homebuilding segments and Homebuilding Other:

	Years Ended November 30,
(Dollars in thousands)	2018 (1)				2017			2016
East:
Sales of homes	$	6,193,868			4,023,150			3,272,884
Costs of homes sold	4,900,188				3,054,456			2,436,755
Gross margins on home sales	1,293,680			20.9%	968,694		24.1%	836,129		25.5%
Central:
Sales of homes	2,260,105				915,835			919,562
Costs of homes sold	1,882,114				736,586			744,997
Gross margins on home sales	377,991			16.7%	179,249		19.6%	174,565		19.0%
Texas:
Sales of homes	2,366,844				1,651,619			1,495,351
Costs of homes sold	1,952,366				1,303,268			1,168,825
Gross margins on home sales	414,478			17.5%	348,351		21.1%	326,526		21.8%
West:
Sales of homes	7,934,138				4,379,776			3,782,665
Costs of homes sold	6,331,368				3,448,691			2,941,798
Gross margins on home sales	1,602,770			20.2%	931,085		21.3%	840,867		22.2%
Other:
Sales of homes	55,597				64,919			88,055
Costs of homes sold (2)	55,702				58,345			70,478
Gross margins on home sales (2)	(105		)	(0.2)%	6,574		10.1%	17,577		20.0%
Total gross margins on home sales	$	3,688,814		19.6%	2,433,953		22.1%	2,195,664		23.0%

(1) During the year ended November 30, 2018, gross margin on home sales included backlog/construction in progress write-up of $414.6 million related to purchase accounting on CalAtlantic homes that were delivered in the year ended November 30, 2018.

(2) Costs of homes sold include period costs in Urban divisions that impact costs of homes sold without any sales of homes revenue.

2018 versus 2017

Homebuilding East: Revenues from home sales increased in 2018 compared to 2017, primarily due to an increase in the number of home deliveries in all the states in the segment. Revenues from home sales also increased as a result of the increase in the average sales price of homes delivered in Florida and the Carolinas, partially offset by a decrease in the average sales price of homes delivered in New Jersey. The increase in the number of deliveries was primarily driven by an increase in active communities including communities acquired from CalAtlantic. The increase in the average sales price of homes delivered in Florida and the Carolinas was primarily due to an increase in home deliveries in higher-priced communities, including higher-priced communities acquired from CalAtlantic. The decrease in the average sales price of homes delivered in New Jersey was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities and opening lower-priced communities during the year ended November 30, 2018. Gross margin percentage on home sales for the year ended November 30, 2018 decreased compared to the same period last year primarily due to increases in construction and land costs per home and purchase accounting adjustments on CalAtlantic homes that were in backlog/construction in progress when we acquired CalAtlantic, which reduced the gross margin percentage on those deliveries. This was partially offset by an increase in the average sales price of homes delivered.

Homebuilding Central: Revenues from home sales increased in 2018 compared to 2017, primarily due to an increase in the number of home deliveries in all the states in the segment. The increase in the number of deliveries was primarily driven by an increase in active communities including communities acquired from CalAtlantic. The average sales prices in the segment decreased in 2018 compared to 2017, primarily due to communities acquired from CalAtlantic in Indiana and Illinois, which are lower-priced communities, and a decrease in average sales prices in Georgia and Minnesota. The decrease in the average sales price of homes delivered in Georgia and Minnesota was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities and opening lower-priced communities during the year ended November 30, 2018. Gross margin percentage on home sales for the year ended November 30, 2018 decreased compared to the same period last year primarily due to increases in construction and land costs per home and purchase accounting adjustments on CalAtlantic homes that were in backlog/construction in progress when we acquired CalAtlantic, which reduced the gross margin percentage on those deliveries.

Homebuilding Texas: Revenues from home sales increased in 2018 compared to 2017, primarily due to an increase in the number of home deliveries and in the average sales price of homes delivered. The increase in the number of deliveries was primarily driven by an increase in active communities including communities acquired from CalAtlantic. The increase in the average sales price of homes delivered was primarily due to an increase in home deliveries in higher-priced communities, including higher-priced communities acquired from CalAtlantic. Gross margin percentage on home sales for the year ended November 30, 2018 decreased compared to the same period last year primarily due to increases in construction and land costs per home and purchase accounting adjustments on CalAtlantic homes that were in backlog/construction in progress when we acquired CalAtlantic, which reduced the gross margin percentage on those deliveries. This was partially offset by an increase in the average sales price of homes delivered.

Homebuilding West: Revenues from home sales increased in 2018 compared to 2017, primarily due to an increase in the number of home deliveries and average sales price of homes delivered in all the states in the segment. The increase in the number of deliveries was primarily driven by an increase in active communities including communities acquired from CalAtlantic. The increase in the average sales price of homes delivered was primarily due to an increase in home deliveries in higher-priced communities, including higher-priced communities acquired from CalAtlantic. Gross margin percentage on home sales for the year ended November 30, 2018 decreased compared to the same period last year primarily due to increases in construction and land costs per home and purchase accounting adjustments on CalAtlantic homes that were in backlog/construction in progress when we acquired CalAtlantic, which reduced the gross margin percentage on those deliveries. This was partially offset by an increase in the average sales price of homes delivered.

2017 versus 2016

Homebuilding East: Revenues from home sales increased in 2017 compared to 2016, primarily due to an increase in the number of home deliveries in all states in the segment. Revenues from home sales also increased as a result of the increase in the average sales price of homes delivered in Florida and the Carolinas, partially offset by a decrease in the average sales price of homes delivered in New Jersey. The increase in the number of deliveries was primarily driven by an increase in active communities during 2017 primarily related to the WCI acquisition. The increase in the average sales price of homes delivered in Florida and the Carolinas was primarily due to an increase in home deliveries in higher-priced communities and favorable market conditions. The decrease in the average sales price of homes delivered in New Jersey was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities and opening lower-priced communities during the year ended November 30, 2017. Gross margin percentage on home sales for the year ended November 30, 2017 decreased compared to 2016 primarily due to an increase in direct construction costs per home, partially offset by an increase in the average sales price of homes delivered.

Homebuilding Central: Revenues from home sales decreased slightly in 2017 compared to 2016, primarily due to a decrease in the number of home deliveries in Georgia and Virginia and a slight decrease in the average sales price of homes delivered in all the states in the segment. This was partially offset by an increase in the number of home deliveries in Minnesota and Tennessee. The decrease in the number of deliveries in Georgia and Virginia was primarily due to a decrease in deliveries per active community as a result of timing of opening and closing of communities. The increase in the number of deliveries in Minnesota and Tennessee was primarily driven by higher demand as the number of deliveries per active community increased. The decrease in the average sales price of homes delivered in all states in Homebuilding Central, was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities and opening lower-priced communities during the year ended November 30, 2017. Gross margin percentage on home sales for the year ended November 30, 2017 decreased compared to 2016 primarily due to an increase in land and direct construction costs per home.

Homebuilding Texas: Revenues from home sales increased in 2017 compared to 2016, primarily due to an increase in the number of home deliveries and an increase in the average sales price of homes delivered. The increase in the number of deliveries in Homebuilding Texas was primarily driven by higher demand as the number of deliveries per active community increased and the number of active communities increased. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. Gross margin percentage on home sales for the year ended November 30, 2017 decreased compared to the same period last year primarily due to an increase in land and direct construction costs per home, partially offset by an increase in the average sales price of homes delivered.

Homebuilding West: Revenues from home sales increased in 2017 compared to 2016, primarily due to an increase in the number of home deliveries in all the states in the segment, except Colorado and an increase in the average sales price in all the states in the segment, except Oregon. The increase in the number of home deliveries is primarily driven by higher demand as the number of deliveries per active community increased. The decrease in the number of deliveries in Colorado was primarily due to a decrease in deliveries per active community as a result of timing of opening and closing of communities. The increase in the average sales price of homes delivered was primarily due to a change in product mix and favorable market conditions. The decrease in the average sales price of homes delivered in Oregon was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities and opening lower-priced communities during the year ended November 30, 2017. Gross margin percentage on home sales for the year ended November 30, 2017 decreased compared to the same period last year primarily due to an increase in direct construction and land costs per home, partially offset by an increase in the average sales price of homes delivered.

Lennar Financial Services Segment

Our Lennar Financial Services reportable segment provides mortgage financing, title insurance and closing services for both buyers of our homes and others. Our Lennar Financial Services segment sells substantially all of the loans it originates within a short period in the secondary mortgage market, a majority of them on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements. Occasional claims of this type are a normal incident of our loan securitization activities. We do not believe these claims will have a material adverse effect on our business.

The following table sets forth selected financial and operational information related to our Lennar Financial Services segment:

	Years Ended November 30,
(Dollars in thousands)	2018				2017			2016
Revenues	$	867,831			770,109			687,255
Costs and expenses	680,401				614,585			523,638
Operating earnings	$	187,430			155,524			163,617
Dollar value of mortgages originated	$	11,079,000			8,973,000			9,343,000
Number of mortgages originated	36,500				31,600			33,500
Mortgage capture rate of Lennar homebuyers	73		%		80	%		82	%
Number of title and closing service transactions	118,000				110,000			116,000
Number of title policies issued	297,600				314,800			298,900

Subsequent to November 30, 2018, we sold the majority of our retail title business, our title insurance underwriting business, and our real estate brokerage business and contracted to sell our business of offering residential mortgages to non-Lennar homebuyers.

Lennar Multifamily Segment

We have been actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. Our Lennar Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets.

Originally, our Lennar Multifamily segment focused on building multifamily properties and selling them shortly after they were completed. However, more recently we have focused on creating and participating in ventures that build multifamily properties with the intention of retaining them after they are completed.

As of November 30, 2018 and 2017, our balance sheet had $874.2 million and $710.7 million, respectively, of assets related to our Lennar Multifamily segment, which included investments in unconsolidated entities of $481.1 million and $407.5 million, respectively. Our net investment in the Lennar Multifamily segment as of November 30, 2018 and 2017 was $703.6 million and $561.0 million, respectively. During the year ended November 30, 2018, our Lennar Multifamily segment sold, through its unconsolidated entities, 6 operating properties and an investment in an operating property resulting in the segment's $61.2 million share of gains. During both years ended November 30, 2017 and 2016, our Lennar Multifamily segment sold seven operating properties, through its unconsolidated entities, resulting in the segment's $96.7 million and $91.0 million share of gains, respectively. During the year ended November 30, 2016, our Lennar Multifamily segment sold land to third parties generating gross profit of $5.6 million.

Our Lennar Multifamily segment had equity investments in 22 and 27 unconsolidated entities (including the Lennar Multifamily Venture Fund I LP (the "Venture Fund") and Lennar Multifamily Venture Fund II LP, ("Venture Fund II") as of November 30, 2018 and 2017, respectively. As of November 30, 2018, our Lennar Multifamily segment had interests in 55 communities with development costs of $6.3 billion, of which 23 communities were completed and operating, 5 communities were partially completed and leasing, 19 communities were under construction and the remaining communities were either owned or under contract. As of November 30, 2018, our Lennar Multifamily segment also had a pipeline of potential future projects totaling $3.5 billion of anticipated development costs across a number of states that will be developed primarily by unconsolidated entities.

The Venture Fund is a long-term multifamily development investment vehicle involved in the development, construction and property management of class-A multifamily assets with $2.2 billion in equity commitments, including a $504 million co-investment commitment by us comprised of cash, undeveloped land and preacquisition costs.

In March 2018, the Lennar Multifamily segment completed the first closing of a second Lennar Multifamily Venture, Venture Fund II, for the development, construction and property management of Class-A multifamily assets. As of November 30, 2018, Venture Fund II had approximately $787 million of equity commitments, including a $255 million co-investment commitment by Lennar comprised of cash, undeveloped land and preacquisition costs. As of and for the year ended November 30, 2018, $252.1 million in equity commitments were called, of which we contributed our portion of $81.2 million, which was made up of a $188.4 million inventory and cash contributions, offset by $107.2 million of distributions as a return of capital, resulting in a remaining equity commitment for the Company of $173.8 million. As of November 30, 2018, the carrying value of our investment in Venture Fund II was $63.0 million. The difference between our net contributions and the carrying value of our investments was related to a basis difference. Venture Fund II is currently seeded with eight undeveloped

multifamily assets that were previously purchased by the Lennar Multifamily segment totaling approximately 3,000 apartments with projected project costs of approximately $1.3 billion.

Rialto Segment

As of November 30, 2018, our Rialto operating segment was a commercial real estate investment, investment management, and finance company focused on raising, investing and managing third-party capital, originating and selling into securitizations commercial mortgage loans as well as investing our own capital in real estate related mortgage loans, properties and related securities. We sold our Rialto investment and asset management platform on November 30, 2018 for $340 million, which resulted in a gain of $296.4 million. We retained our RMF business, which moved into our Financial Services segment as of December 1, 2018. We also retained our fund investments along with our carried interests in various Rialto funds and investments in other Rialto balance sheet assets. Our limited partner investments in Rialto funds and investment vehicles totaled $297.4 million at November 30, 2018, and we are committed to invest as much as an additional $71.6 million in Rialto funds.

Rialto's operating losses were as follows:

	Years Ended November 30,
(In thousands)	2018				2017			2016
Revenues	$	205,071			281,243			233,966
Costs and expenses (1)	190,413				247,549			229,769
Rialto equity in earnings from unconsolidated entities	25,816				25,447			18,961
Rialto other expense, net (2)	(62,058		)		(81,636	)		(39,850	)
Operating loss (3)	$	(21,584	)		(22,495	)		(16,692	)

(1)	Costs and expenses included loan impairments of $2.1 million, $32.6 million and $18.2 million for the years ended November 30, 2018, 2017 and 2016, respectively, primarily associated with the segment's FDIC loans portfolio (before noncontrolling interests).

(2)	Rialto other expense, net, included REO impairments of $33.2 million, $63.6 million and $24.4 million for the years ended November 30, 2018, 2017 and 2016, respectively. Additionally, for the year ended November 30, 2018, Rialto other expense, net, included non-recurring expenses.

(3)	Operating loss for the years ended November 30, 2018, 2017 and 2016 included net loss attributable to noncontrolling interests of $3.3 million, $46.1 million and $18.8 million, respectively.

The following is a detail of Rialto other expense, net:

	Years Ended November 30,
(In thousands)	2018				2017			2016
Realized gains on REO sales, net	$	3,734			4,578			17,495
Unrealized losses on transfer of loans receivable to REO and impairments, net	(33,099		)		(64,623	)		(23,087	)
REO and other expenses	(70,084		)		(49,432	)		(54,008	)
Rental and other income	37,391				27,841			19,750
Rialto other expense, net	$	(62,058	)		(81,636	)		(39,850	)

RMF

RMF originates and sells into securitizations five, seven and ten year commercial first mortgage loans, which are secured by income producing properties. This business has become a significant contributor to Rialto's revenues.

During the year ended November 30, 2018, RMF originated loans with a total principal balance of $1.4 billion, all of which was recorded as loans held-for-sale, and sold $1.5 billion of loans into 16 separate securitizations. During the year ended November 30, 2017, RMF originated loans with a principal balance of $1.7 billion of which $1.6 billion were recorded as loans held-for-sale and $98.4 million were recorded as accrual loans within loans receivable, net, and sold $1.5 billion of loans into 12 separate securitizations. As of November 30, 2018, originated loans with an unpaid balance of $218.4 million were sold into a securitization trust but not settled and thus were included as receivables, net. As of November 30, 2017, there were no unsettled transactions.

Investments

Rialto was the sponsor of and an investor in private equity vehicles that invest in and manage real estate related assets and other related investments. During the year ended November 30, 2018, Rialto also earned fees for its role as a manager of these vehicles and for providing asset management and other services to those vehicles and other third parties. We retained our fund investments along with our carried interests in various Rialto funds and investments in other Rialto balance sheet assets.

At November 30, 2018 and 2017, the carrying value of Rialto's commercial mortgage-backed securities ("CMBS") was $197.0 million and $179.7 million, respectively. These securities were purchased at discount rates ranging from 9% to 84% with coupon rates ranging from 1.3% to 5.0%, stated and assumed final distribution dates between November 2020 and December 2027, and stated maturity dates between November 2043 and March 2059. The Rialto segment reviewed changes in estimated cash flows periodically to determine if an other-than-temporary impairment has occurred on its CMBS. Based on management’s assessment, no impairment charges were recorded during any of the years ended November 30, 2018, 2017 and 2016. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity.

Financial Condition and Capital Resources

At November 30, 2018, we had cash and cash equivalents related to our homebuilding, financial services, Rialto and multifamily operations of $1.6 billion, compared to $2.7 billion and $1.3 billion at November 30, 2017 and 2016, respectively.

We finance all of our activities including homebuilding, financial services, Rialto, multifamily and general operating needs primarily with cash generated from our operations, debt issuances and equity offerings as well as cash borrowed under our warehouse lines of credit and our unsecured revolving credit facility (the "Credit Facility").

Operating Cash Flow Activities

During 2018, 2017 and 2016, cash provided by operating activities totaled $1.7 billion, $996.9 million and $507.8 million, respectively. During 2018, cash provided by operating activities was positively impacted by our net earnings, an increase in accounts payable and other liabilities of $412.8 million, deferred income tax expense of $268.0 million and a decrease in loans held-for-sale of $5.8 million of which $153.3 million related to Rialto, partially offset by an increase in loans held-for-sale of $147.5 million related to Lennar Financial Services. In addition, cash provided by operating activities was negatively impacted by an increase in other assets of $36.9 million, an increase in receivables of $431.2 million and an increase in inventories due to strategic land purchases, land development and construction costs of $135.9 million. For the year ended November 30, 2018, distributions of earnings from unconsolidated entities were $113.1 million, which included (1) $69.9 million from Lennar Homebuilding unconsolidated entities, (2) $37.8 million from Lennar Multifamily unconsolidated entities, and (3) $5.4 million from Rialto unconsolidated entities.

During 2017, cash provided by operating activities was positively impacted by our net earnings, a decrease in receivables, an increase in accounts payable and other liabilities and a decrease in restricted cash, partially offset by an increase in other assets and an increase in loans held-for-sale of $108.9 million related to Rialto. In addition, cash provided by operating activities was negatively impacted by an increase in inventories due to strategic land purchases, land development and construction costs. For the year ended November 30, 2017, distributions of earnings from unconsolidated entities were $137.7 million, which included (1) $35.0 million from Lennar Homebuilding unconsolidated entities, (2) $12.9 million from Rialto unconsolidated entities, and (3) $89.7 million from Lennar Multifamily unconsolidated entities.

During 2016, cash provided by operating activities was positively impacted by our net earnings, a net decrease in loans held-for-sale primarily related to RMF due to the timing of the securitizations and an increase in accounts payable and other liabilities, partially offset by a smaller increase in inventories than in 2015 due to our soft-pivot strategy, and an increase in receivables and other assets. For the year ended November 30, 2016, distributions of earnings from unconsolidated entities were $102.0 million, which included (1) $86.3 million from Lennar Multifamily unconsolidated entities, (2) $14.0 million from Rialto unconsolidated entities, and (3) $1.7 million from Lennar Homebuilding unconsolidated entities.

Investing Cash Flow Activities

During 2018, 2017 and 2016, cash used in investing activities totaled $608.1 million, $869.8 million and $85.8 million, respectively. During 2018, our cash used in investing activities was primarily due to our $1.1 billion acquisition of CalAtlantic, net of cash acquired, net additions to operating properties and equipment of $130.4 million and cash contributions of $405.5 million to unconsolidated entities, which included (1) $230.9 million to Lennar Homebuilding unconsolidated entities, (2) $113.0 million to Lennar Multifamily unconsolidated entities primarily for working capital and (3) $61.7 million to Rialto unconsolidated entities. This was partially offset by the receipt of $340 million from the sale of our Rialto investment and asset management platform to investment funds managed by Stone Point Capital, $225.3 million of proceeds from the sale of investments in unconsolidated entities, including $200 million of proceeds from the sale of an 80% interest in one of our strategic joint ventures, Treasure Island Holdings, proceeds from maturities/sales of investment securities of $85.2 million, and distributions of capital from unconsolidated entities of $362.5 million, which primarily included (1) $172.0 million from Lennar Multifamily unconsolidated entities, (2) $141.0 million from Lennar Homebuilding unconsolidated entities, and (3) $49.3 million from Rialto unconsolidated entities.

During 2017, our cash used in investing activities was primarily due to our $611.1 million acquisition of WCI, net of cash acquired. In addition, we had cash contributions to unconsolidated entities of $430.3 million, which included (1) $261.9 million to Lennar Homebuilding unconsolidated entities primarily for working capital and paydowns of joint venture debt,

including $120.7 million to FivePoint, (2) $119.7 million to Lennar Multifamily unconsolidated entities primarily for working capital and (3) $48.7 million to Rialto unconsolidated entities comprised primarily of $32.9 million contributed to Fund III, $8.8 million contributed to RCP and $7.0 million contributed to other investments. In addition, cash used in investing activities was impacted by purchases of CMBS bonds by our Rialto segment. This was partially offset by the receipt of $165.4 million of principal payments on loans receivable and other, $86.6 million of proceeds from the sales of REO and distributions of capital from unconsolidated entities of $207.3 million, which primarily included (1) $83.0 million from Lennar Multifamily unconsolidated entities, of which $26.8 million was distributed by the Venture Fund, (2) $80.9 million from Lennar Homebuilding unconsolidated entities, and (3) $41.6 million from Rialto unconsolidated entities comprised primarily of $21.2 million distributed by Fund II, $5.4 million distributed by Fund III, $7.0 million distributed by the Mezzanine Fund, and $5.4 million distributed by the CMBS Funds.

During 2016, our cash used in investing activities was primarily impacted by cash contributions to unconsolidated entities of (1) $198.2 million to Lennar Multifamily unconsolidated entities primarily related to contributions to the Venture Fund, (2) $184.2 million to Lennar Homebuilding unconsolidated entities primarily for working capital, (3) $43.4 million to Rialto unconsolidated entities comprised of $28.8 million contributed to the CMBS Funds, $7.2 million contributed to Fund III, $5.7 million contributed to RCP and $1.7 million contributed to other investments. In addition, cash used in investing activities was impacted by purchases of CMBS by our Rialto segment and origination of loans receivable primarily related to floating rate loans originated by RMF. This was partially offset by distributions of capital from unconsolidated entities of (1) $251.2 million from Lennar Multifamily unconsolidated entities, of which $193.7 million was distributed by the Venture Fund, (2) $44.6 million from Lennar Homebuilding unconsolidated entities, and (3) $27.4 million from Rialto unconsolidated entities comprised of $12.8 million distributed by Fund II, $11.7 million distributed by the Mezzanine Fund and $2.9 million distributed by the CMBS Funds; by the receipt of $97.9 million of proceeds from the sales of REO; and receipt of $84.4 million of principal payments on loans receivable and settlement of accrual loans.

Financing Cash Flow Activities

During 2018, 2017 and 2016, our cash (used in) provided by financing activities totaled ($2.2) billion, $1.2 billion and ($250.9) million, respectively. During 2018, our cash used in financing activities was primarily impacted by (1) $575 million aggregate principal redemption of our 8.375% senior notes due 2018 (the "8.375% Senior Notes"), (2) $454.7 million net repayments under our revolving Credit Facility, (3) $359.0 million of aggregate principal payment on Rialto's 7.00% senior notes due December 2018 and other notes payable, (4) payment at maturity of $275 million aggregate principal amount of 4.125% senior notes due 2018 (the "4.125% Senior Notes"), (5) $250 million aggregate principal redemption of our 6.95% senior notes due 2018 (the "6.95% Senior Notes"), (6) $138.5 million principal payments on other borrowings, and (7) $89.6 million of payments related to noncontrolling interests. This was partially offset by $272.9 million of net borrowings under our Lennar Financial Services and Rialto warehouse facilities.

During 2017, our cash provided by financing activities was primarily attributed to the receipt of proceeds related to the (1) issuance of $600 million aggregate principal amount of 4.125% senior notes due 2022, (2) issuance of $650 million aggregate principal amount of 4.50% senior notes due 2024, (3) issuance of $300 million aggregate principal amount of 2.95% senior notes due 2020 (the "2.95% Senior Notes"), (4) issuance of $900 million aggregate principal amount of 4.750% senior notes due 2027 (the "4.750% Senior Notes"), (5) $31.2 million of proceeds from other borrowings, (6) $99.6 million of proceeds from the issuance of Rialto notes payable and (7) $195.5 million of proceeds from other liabilities. This was partially offset by (1) the retirement of $400 million aggregate principal amount of our 12.25% senior notes due 2017, (2) the redemption of $400 million aggregate principal amount of our 4.75% senior notes due 2017, (3) the redemption of $250 million principal amount of our 6.875% senior notes due 2021 that had been issued by WCI, (4) $199.7 million of net repayments under our warehouse facilities, which was comprised of $139.8 million of net repayments under our Lennar Financial Services warehouse repurchase facilities and $59.9 million of net repayments under our Rialto warehouse facilities, (5) $74.4 million of payments related to noncontrolling interests, and (5) $139.7 million of principal payments on other borrowings. The proceeds from the issuance of the 2.95% Senior Notes and the 4.750% Senior Notes were used primarily to pay the cash portion of the consideration related to the merger with CalAtlantic.

During 2016, our cash used in financing activities was primarily impacted by (1) the redemption of $250 million aggregate principal amount of our 6.50% senior notes due April 2016, (2) $234.0 million of cash payments in connection with exchanges or conversions of our 2.75% convertible senior notes due December 2020, (3) $211.0 million of principal payments on other borrowings, (4) $111.3 million of net repayments under our Rialto's warehouse repurchase facilities, and (5) $127.4 million of payments related to noncontrolling interests. The cash used in financing activities was partially offset by the receipt of proceeds of the sale of $500 million aggregate principal amount of our 4.750% senior notes due 2021 and $218.8 million of net borrowings under our Lennar Financial Services' warehouse repurchase facilities.

Debt to total capital ratios are financial measures commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our Lennar Homebuilding operations. Lennar Homebuilding debt to total capital and net Lennar Homebuilding debt to total capital were calculated as follows:

	November 30,
(Dollars in thousands)	2018				2017
Lennar Homebuilding debt	$	8,543,868			6,410,003
Stockholders’ equity	14,581,535				7,872,317
Total capital	$	23,125,403			14,282,320
Lennar Homebuilding debt to total capital	36.9		%		44.9	%
Lennar Homebuilding debt	$	8,543,868			6,410,003
Less: Lennar Homebuilding cash and cash equivalents	1,337,807				2,282,925
Net Lennar Homebuilding debt	$	7,206,061			4,127,078
Lennar Homebuilding net debt to total capital (1)	33.1		%		34.4	%

(1)

Lennar Homebuilding net debt to total capital is a non-GAAP financial measure defined as net Lennar Homebuilding debt (Lennar Homebuilding debt less Lennar Homebuilding cash and cash equivalents) divided by total capital (net Lennar Homebuilding debt plus stockholders' equity). We believe the ratio of net Lennar Homebuilding debt to total capital is a relevant and a useful financial measure to investors in understanding the leverage employed in our Lennar Homebuilding operations. However, because net Lennar Homebuilding debt to total capital is not calculated in accordance with GAAP, this financial measure should not be considered in isolation or as an alternative to financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement our GAAP results.

At November 30, 2018, Lennar Homebuilding debt to total capital was lower compared to the prior year period, primarily as a result of an increase in stockholders' equity primarily related to the issuance of shares in connection with the CalAtlantic acquisition and net earnings, partially offset by an increase in homebuilding debt primarily related to an increase in Lennar Homebuilding debt due to the CalAtlantic acquisition.

We are continually exploring various types of transactions to manage our leverage and liquidity positions, take advantage of market opportunities and increase our revenues and earnings. These transactions may include the issuance of additional indebtedness, the repurchase of our outstanding indebtedness for cash or equity, the repurchase of our common stock, the acquisition of homebuilders and other companies, the purchase or sale of assets or lines of business, the issuance of common stock or securities convertible into shares of common stock, and/or pursuing other financing alternatives. In connection with some of our non-homebuilding businesses, we are also considering other types of transactions such as sales, restructuring, joint ventures, spin-offs or initial public offerings as we intend to move back towards being a pure play homebuilding company over time. On November 30, 2018, we sold the Rialto Management Group. However, we retained the right to receive carried interest distributions from some of the funds and other investment vehicles. We also retained limited partner investments in Rialto funds and investment vehicles that totaled $297.4 million at November 30, 2018, and are committed to invest as much as an additional $71.6 million in Rialto funds.

The following table summarizes our Lennar Homebuilding senior notes and other debts payable:

	November 30,
(Dollars in thousands)	2018				2017
0.25% convertible senior notes due 2019	$	1,291			—
4.500% senior notes due 2019	499,585				498,793
4.50% senior notes due 2019	599,176				598,325
6.625% senior notes due 2020 (1)	311,735				—
2.95% senior notes due 2020	298,838				298,305
8.375% senior notes due 2021 (1)	435,897				—
4.750% senior notes due 2021	498,111				497,329
6.25% senior notes due December 2021 (1)	315,283				—
4.125% senior notes due 2022	596,894				595,904
5.375% senior notes due 2022 (1)	261,055				—
4.750% senior notes due 2022	570,564				569,484
4.875% senior notes due December 2023	395,759				394,964
4.500% senior notes due 2024	646,078				645,353
5.875% senior notes due 2024 (1)	452,833				—
4.750% senior notes due 2025	497,114				496,671
5.25% senior notes due 2026 (1)	409,133				—
5.00% senior notes due 2027 (1)	353,275				—
4.75% senior notes due 2027	892,297				892,657
4.125% senior notes due December 2018	—				274,459
6.95% senior notes due 2018	—				249,342
Mortgage notes on land and other debt	508,950				398,417
	$	8,543,868			6,410,003

(1)

These notes were obligations of CalAtlantic when it was acquired, and were subsequently exchanged in part for notes of Lennar Corporation as follows: $267.7 million principal amount of 6.625% senior notes due 2020, $397.6 million principal amount of 8.375% senior notes due 2021, $292.0 million principal amount of 6.25% senior notes due 2021, $240.8 million principal amount of 5.375% senior notes due 2022, $421.4 million principal amount of 5.875% senior notes due 2024, $395.5 million principal amount of 5.25% senior notes due 2026 and $347.3 million principal amount of 5.00% senior notes due 2027. As part of purchase accounting, the senior notes have been recorded at their fair value as of the date of acquisition (February 12, 2018).

The carrying amounts of the senior notes listed above are net of debt issuance costs of $31.2 million and $33.5 million, as of November 30, 2018 and 2017, respectively.

Our Lennar Homebuilding average debt outstanding was $9.1 billion with an average rate for interest incurred of 4.8% for the year ended November 30, 2018, compared to $5.7 billion with an average rate for interest incurred of 4.8% for the year ended November 30, 2017. Interest incurred related to Lennar Homebuilding debt for the year ended November 30, 2018 was $423.7 million, compared to $290.3 million in 2017. The majority of our short-term financing needs, including financings for land acquisition and development activities and general operating needs, are met with cash generated from operations, proceeds from debt as well as borrowings under our Credit Facility.

The terms of each of our senior notes outstanding at November 30, 2018 were as follows:

Senior Notes Outstanding (1)		Principal Amount				Net Proceeds (2)			Price			Dates Issued
(Dollars in thousands)
0.25% convertible senior notes due 2019		$	1,300			(3)			(3)			(3)
4.500% senior notes due 2019		500,000				495,725			(4)			February 2014
4.50% senior notes due 2019		600,000				595,801			(5)			November 2014, February 2015
6.625% senior notes due 2020		300,000				(3)			(3)			(3)
2.95% senior notes due 2020		300,000				298,800			100	%		November 2017
8.375% senior notes due 2021		400,000				(3)			(3)			(3)
4.750% senior notes due 2021		500,000				495,974			100	%		March 2016
6.25% senior notes due December 2021		300,000				(3)			(3)			(3)
4.125% senior notes due 2022		600,000				595,160			100	%		January 2017
5.375% senior notes due 2022		250,000				(3)			(3)			(3)
4.750% senior notes due 2022		575,000				567,585			(6)			October 2012, February 2013, April 2013
4.875% senior notes due December 2023		400,000				393,622			99.169	%		November 2015
4.500% senior notes due 2024		650,000				644,838			100	%		April 2017
5.875% senior notes due 2024		425,000				(3)			(3)			(3)
4.750% senior notes due 2025		500,000				495,528			100	%		April 2015
5.25% senior notes due 2026		400,000				(3)			(3)			(3)
5.00% senior notes due 2027		350,000				(3)			(3)			(3)
4.75% senior notes due 2027		900,000				894,650			100	%		November 2017

(1)	Interest is payable semi-annually for each of the series of senior notes. The senior notes are unsecured and unsubordinated, but are guaranteed by substantially all of our 100% owned homebuilding subsidiaries.

(2)	We generally use the net proceeds for working capital and general corporate purposes, which can include the repayment or repurchase of other outstanding senior notes.

(3)	These notes were obligations of CalAtlantic when it was acquired, and were subsequently exchanged in part for notes of Lennar Corporation. As part of purchase accounting, the senior notes have been recorded at their fair value as of the date of acquisition (February 12, 2018).

(4)	We issued $400 million aggregate principal amount at a price of 100% and $100 million aggregate principal amount at a price of 100.5%.

(5)	We issued $350 million aggregate principal amount at a price of 100% and $250 million aggregate principal amount at a price of 100.25%.

(6)	We issued $350 million aggregate principal amount at a price of 100%, $175 million aggregate principal amount at a price of 98.073% and $50 million aggregate principal amount at a price of 98.250%.

During the second quarter of 2018, holders of $6.7 million principal amount of CalAtlantic’s 1.625% convertible senior notes due 2018 and $266.2 million principal amount of CalAtlantic’s 0.25% convertible senior notes due 2019 either caused us to purchase them for cash or converted them into a combination of our Class A and Class B common stock and cash, resulting in our issuing approximately 3,654,000 shares of Class A common stock and 72,000 shares of Class B common stock, and paying $59.1 million in cash to former noteholders. All but $1.3 million of the principal balance of the convertible senior notes had either been converted or redeemed.

In November 2018, we redeemed $275 million aggregate principal amount of the 4.125% Senior Notes. The redemption price, which was paid in cash, was 100% of the principal amount plus accrued but unpaid interest.

In June 2018, we redeemed $250 million aggregate principal amount of the 6.95% Senior Notes. The redemption price, which was paid in cash, was 100% of the principal amount plus accrued but unpaid interest.

In May 2018, we redeemed $575 million aggregate principal amount of the 8.375% Senior Notes. The redemption price, which was paid in cash, was 100% of the principal amount plus accrued but unpaid interest. The 8.375% Senior Notes with $575 million of principal amount were obligations of CalAtlantic when it was acquired and $485.6 million principal amount was subsequently exchanged in part for notes of Lennar Corporation.

Currently, substantially all of our 100% owned homebuilding subsidiaries are guaranteeing all our senior notes (the "Guaranteed Notes"). The guarantees are full and unconditional. The principal reason our 100% owned homebuilding

subsidiaries are guaranteeing the Guaranteed Notes is so holders of the Guaranteed Notes will have rights at least as great with regard to those subsidiaries as any other holders of a material amount of our unsecured debt. Therefore, the guarantees of the Guaranteed Notes will remain in effect with regard to a guarantor subsidiary only while it guarantees a material amount of the debt of Lennar Corporation, as a separate entity, to others. At any time when a guarantor subsidiary is no longer guaranteeing at least $75 million of Lennar Corporation’s debt other than the Guaranteed Notes, either directly or by guaranteeing other subsidiaries’ obligations as guarantors of Lennar Corporation’s debt, the guarantor subsidiary’s guarantee of the Guaranteed Notes will be suspended. Therefore, if the guarantor subsidiaries cease guaranteeing Lennar Corporation’s obligations under our Credit Facility and our letter of credit facilities and are not guarantors of any new debt, the guarantor subsidiaries’ guarantees of the Guaranteed Notes will be suspended until such time, if any, as they again are guaranteeing at least $75 million of Lennar Corporation’s debt other than the Guaranteed Notes.

If our guarantor subsidiaries are guaranteeing revolving credit lines totaling at least $75 million, we will treat the guarantees of the Guaranteed Notes as remaining in effect even during periods when Lennar Corporation’s borrowings under the revolving credit lines are less than $75 million. A subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed of.

In February 2018, we amended the credit agreement governing our Credit Facility to increase the maximum borrowings from $2.0 billion to $2.6 billion and extended the maturity on $2.2 billion of the Credit Facility from June 2022 to April 2023, with $70 million that matured in June 2018 and the remaining $50 million maturing in June 2020. As of November 30, 2018, the Credit Facility included a $315 million accordion feature, subject to additional commitments. The proceeds available under the Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes. The credit agreement also provides that up to $500 million in commitments may be used for letters of credit. As of both November 30, 2018 and 2017, we had no outstanding borrowings under the Credit Facility. Under the Credit Facility agreement, we are required to maintain a minimum consolidated tangible net worth, a maximum leverage ratio and either a liquidity or an interest coverage ratio. These ratios are calculated per the Credit Facility agreement, which involves adjustments to GAAP financial measures. We believe we are in compliance with our debt covenants at November 30, 2018. In addition, we had $285 million in letter of credit facilities with different financial institutions at November 30, 2018.

Under the amended Credit Agreement executed in February 2018 (the " Credit Agreement"), as of the end of each fiscal quarter, we are required to maintain minimum consolidated tangible net worth of approximately $6.0 billion plus the sum of 50% of the cumulative consolidated net income for each completed fiscal quarter subsequent to February 28, 2018, if positive, and 50% of the net cash proceeds from any equity offerings from and after February 28, 2018, minus the lesser of 50% of the amount paid after February 12, 2018 to repurchase common stock and $100 million. We are required to maintain a leverage ratio that shall not exceed 65% and may be reduced by 2.5% per quarter if our interest coverage ratio is less than 2.25:1.00 for two consecutive fiscal calendar quarters. The leverage ratio will have a floor of 60%. If our interest coverage ratio subsequently exceeds 2.25:1.00 for two consecutive fiscal calendar quarters, the leverage ratio we will be required to maintain will be increased by 2.5% per quarter to a maximum of 65%. As of the end of each fiscal quarter, we are also required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio equal to or greater than 1.50:1.00 for the last twelve months then ended. We believe that we were in compliance with our debt covenants at November 30, 2018.

The following summarizes our required debt covenants and our actual levels or ratios with respect to those covenants as calculated per the Credit Agreement as of November 30, 2018:

(Dollars in thousands)	Covenant Level				Level Achieved as of November 30, 2018
Minimum net worth test	$	6,539,138			9,392,336
Maximum leverage ratio	65.0		%		40.1	%
Liquidity test (1)	1.00				3.30

(1)	We are only required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio of equal to or greater than 1.50:1.00 for the last twelve months then ended. Although we are in compliance with our debt covenants for both calculations, we have only disclosed our liquidity test.

The terms minimum net worth test, maximum leverage ratio, liquidity test and interest coverage ratio used in the Credit Agreement are specifically calculated per the Credit Agreement and differ in specified ways from comparable GAAP or common usage terms.

Our performance letters of credit outstanding were $598.4 million and $384.4 million at November 30, 2018 and 2017, respectively. Our financial letters of credit outstanding were $165.4 million and $127.4 million at November 30, 2018 and

2017, respectively. Performance letters of credit are generally posted with regulatory bodies to guarantee the performance of certain development and construction activities. Financial letters of credit are generally posted in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at November 30, 2018, we had outstanding surety bonds of $2.7 billion including performance surety bonds related to site improvements at various projects (including certain projects of our joint ventures) and financial surety bonds.

At November 30, 2018, the Lennar Financial Services segment warehouse facilities were as follows:

(In thousands)	Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures December 2018 (1)	$	400,000
364-day warehouse repurchase facility that matures March 2019 (2)	300,000
364-day warehouse repurchase facility that matures June 2019	700,000
364-day warehouse repurchase facility that matures October 2019 (3)	500,000
Total	$	1,900,000

(1)	Subsequent to November 30, 2018, the maturity date was extended to February 2019. Maximum aggregate commitment includes an uncommitted amount of $250 million.

(2)	Maximum aggregate commitment includes an uncommitted amount of $300 million.

(3)	Maximum aggregate commitment includes an uncommitted amount of $400 million.

Our Lennar Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $1.3 billion and $937.2 million, at November 30, 2018 and 2017, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $1.3 billion and $974.1 million, at November 30, 2018 and 2017, respectively. The combined effective interest rate on the facilities at November 30, 2018 was 4.5%. If the facilities are not renewed or replaced, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

At November 30, 2018, RMF warehouse facilities were as follows:

(In thousands)	Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures November 2019	$	200,000
364-day warehouse repurchase facility that matures December 2019	200,000
364-day warehouse repurchase facility that matures December 2019	250,000
364-day warehouse repurchase facility that matures December 2019	200,000
Total - Loans origination and securitization business	$	850,000
Warehouse repurchase facility that matures December 2019 (two - one year extensions) (1)	50,000
Total	$	900,000

(1)	Rialto uses this warehouse repurchase facility to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans receivable, net. There were no borrowings under this facility as of both November 30, 2018 and 2017.

Borrowings under the facilities that finance RMF's loan originations and securitization activities were $178.8 million and $162.1 million as of November 30, 2018 and 2017, respectively, and were secured by a 75% interest in the originated commercial loans financed. The facilities require immediate repayment of the 75% interest in the secured commercial loans when the loans are sold in a securitization and the proceeds are collected. These warehouse repurchase facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature.

In March 2018, Rialto paid off the remaining principal balance of its 7.00% senior notes due December 2018 (the "7.00% Senior Notes"). As of November 30, 2017, the carrying amount, net of debt issuance costs, of the 7.00% Senior Notes was $349.4 million.

Changes in Capital Structure

We had a stock repurchase program adopted in 2001, which originally authorized us to purchase up to 20 million shares of our outstanding common stock. During the year ended November 30, 2018, under our stock repurchase program, we repurchased 6.0 million shares of Class A common stock for $249.9 million at an average share price of $41.63. During the

years ended November 30, 2017 and 2016, there were no share repurchases of common stock under the stock repurchase program.

Subsequent to November 30, 2018, our Board of Directors authorized us to repurchase up to the lesser of $1 billion in value, or 25 million in shares, of our outstanding Class A or Class B common stock. The repurchase authorization has no expiration date.

During the years ended November 30, 2018, treasury stock increased by 7.0 million shares of Class A common stock due primarily to 6.0 million shares of common stock repurchased during the year through our stock repurchase program. During the year ended November 30, 2017, treasury stock increased by 0.6 million shares of Class A common stock primarily due to activity related to our equity compensation plan.

During the years ended November 30, 2018, 2017 and 2016, our Class A and Class B common stockholders received an aggregate per share annual dividend of $0.16.

Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity.

Off-Balance Sheet Arrangements

Lennar Homebuilding - Investments in Unconsolidated Entities

At November 30, 2018, we had equity investments in 59 homebuilding and land unconsolidated entities (of which 5 had recourse debt, 10 had non-recourse debt and 44 had no debt), compared to 38 homebuilding and land unconsolidated entities at November 30, 2017. At November 30, 2018, the 59 unconsolidated joint ventures includes 20 unconsolidated entities in which CalAtlantic or a subsidiary is the participant. Historically, we have invested in unconsolidated entities that acquired and developed land (1) for our homebuilding operations or for sale to third parties or (2) for the construction of homes for sale to third-party homebuyers. Additionally in recent years, we have invested in technology companies that are looking to improve the homebuilding and financial services industry in order to better serve our customers and increase efficiencies. Through these entities, we have primarily sought to reduce and share our risk by limiting the amount of our capital invested in land, while obtaining access to potential future homesites and allowing us to participate in strategic ventures. The use of these entities also, in some instances, has enabled us to acquire land which we could not otherwise obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. Participants in these joint ventures have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to homesites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partner. Each joint venture is governed by an executive committee consisting of members from the partners.

Although the strategic purposes of our joint ventures and the nature of our joint ventures' partners vary, the joint ventures are generally designed to acquire, develop and/or sell specific assets during a limited life-time. The joint ventures are typically structured through non-corporate entities in which control is shared with our venture partners. Each joint venture is unique in terms of its funding requirements and liquidity needs. We and the other joint venture participants typically make pro-rata cash contributions to the joint venture. In many cases, our risk is limited to our equity contribution and potential future capital contributions. Additionally, most joint ventures obtain third-party debt to fund a portion of the acquisition, development and construction costs of their communities. The joint venture agreements usually permit, but do not require, the joint ventures to make additional capital calls in the future. However, capital calls relating to the repayment of joint venture debt under payment guarantees generally is required.

Under the terms of our joint venture agreements, we generally have the right to share in earnings and distributions of the entities on a pro-rata basis based on our ownership percentage. Some joint venture agreements provide for a different allocation of profit and cash distributions if and when the cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return). Lennar Homebuilding equity in earnings (loss) from unconsolidated entities excludes our pro-rata share of joint ventures’ earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our costs of purchasing the land from the joint ventures or reduce the investment in certain cost sharing unconsolidated entities. This in effect defers recognition of our share of the joint ventures’ earnings related to these sales until we deliver a home and title passes to a third-party homebuyer.

In many instances, we are designated as the manager of a venture under the direction of a management committee that has shared power among the partners of the unconsolidated entity and we receive fees for such services. In addition, we often enter into option or purchase contracts to acquire properties from our joint ventures, generally for market prices at specified dates in the future. Option contracts, in some instances, require us to make deposits using cash or irrevocable letters of credit toward the exercise price. These option deposits are generally negotiated on a case by case basis.

We regularly monitor the results of our unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. Joint ventures in which we have investments may be subject to a variety of financial and non-financial debt covenants related primarily to equity maintenance, fair value of collateral and minimum homesite takedown or sale requirements. We monitor the performance of joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment.

Our arrangements with joint ventures generally do not restrict our activities or those of the other participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed as competitive with the activities of these ventures in the localities where the joint ventures do business.

As discussed above, the joint ventures in which we invest generally supplement equity contributions with third-party debt to finance their activities. In some instances, the debt financing is non-recourse, thus neither we nor the other equity partners are a party to the debt instruments. In other cases, we and the other partners agree to provide credit support in the form of repayment or maintenance guarantees.

Material contractual obligations of our unconsolidated joint ventures primarily relate to the debt obligations described above. The joint ventures generally do not enter into lease commitments because the entities are managed either by us, or another of the joint venture participants, who supply the necessary facilities and employee services in exchange for market-based management fees. However, they do enter into management contracts with the participants who manage them. Some joint ventures also enter into agreements with developers, which may be us or other joint venture participants, to develop raw land into finished homesites or to build homes.

The joint ventures often enter into option or purchase agreements with buyers, which may include us or other joint venture participants, to deliver homesites or parcels in the future at market prices. Option deposits are recorded by the joint ventures as liabilities until the exercise dates at which time the deposit and remaining exercise proceeds are recorded as revenue. Any forfeited deposit is recognized as revenue at the time of forfeiture. Our unconsolidated joint ventures generally do not enter into off-balance sheet arrangements.

As described above, the liquidity needs of joint ventures in which we have investments vary on an entity-by-entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and development activities, the entities generally require cash, which is provided through a combination of equity contributions and debt financing, to fund acquisition and development of properties. As the properties are completed and sold, cash generated is available to repay debt and for distribution to the joint ventures' members. Thus, the amount of cash available for a joint venture to distribute at any given time is primarily a function of the scope of the joint venture’s activities and the stage in the joint venture’s life cycle.

We track our share of cumulative earnings and cumulative distributions of our joint ventures. For purposes of classifying distributions received from joint ventures in our statements of cash flows, cumulative distributions are treated as returns on capital to the extent of cumulative earnings and included in our consolidated statements of cash flows as cash flow from operating activities. Cumulative distributions in excess of our share of cumulative earnings are treated as returns of capital and included in our consolidated statements of cash flows as cash flows from investing activities.

Summarized 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:

Statements of Operations and Selected Information

	Years Ended November 30,
(Dollars in thousands)	2018				2017			2016
Revenues	$	525,931			471,899			439,874
Costs and expenses	729,700				616,217			578,831
Other income, net (1)	186,982				23,253			—
Net loss of unconsolidated entities (1)	$	(16,787	)		(121,065	)		(138,957	)
Lennar Homebuilding equity in loss from unconsolidated entities (1)	$	(91,915	)		(61,708	)		(49,275	)
Lennar Homebuilding cumulative share of net earnings - deferred at November 30	$	35,233			47,621			41,495
Lennar Homebuilding investments in unconsolidated entities (2)	$	996,926			900,769			811,723
Equity of the unconsolidated entities	$	4,238,265			4,196,811			3,765,336
Lennar Homebuilding investment % in the unconsolidated entities (3)	24		%		21	%		22	%

(1)

During the year ended November 30, 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, we have a 70% interest in the FivePoint TRA Liability. Therefore, we did not include in Lennar Homebuilding’s equity in loss from unconsolidated entities the pro-rata share of earnings related to our portion of the TRA Liability. As a result, our unconsolidated entities have net losses of only $16.8 million, but we have an equity in loss from unconsolidated entities of $91.9 million.

(2)	Does not include the ($62.0) million investment balance for one unconsolidated entity as it was reclassed to other liabilities.

(3)	Our share of profit and cash distributions from operations could be higher compared to our ownership interest in unconsolidated entities if certain specified internal rate of return or cash flow milestones are achieved.

For the year ended November 30, 2018, Lennar Homebuilding equity in loss from unconsolidated entities was

primarily attributable to our share of net operating losses from our unconsolidated entities which were primarily driven by valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities and general and administrative expenses, partially offset by profits from land sales.

For the year ended November 30, 2017, one of our unconsolidated entities had equity in earnings of $11.9 million relating to an equity method investee selling 475 homesites to a third-party land bank. Simultaneous with the purchase by the land bank, we entered into an option contract to purchase all 475 homesites from the land bank. Due to our continuing involvement with respect to the homesites sold from the investee entity, we deferred all of our equity in earnings from the unconsolidated entity relating to the sale transaction, which amounted to $4.9 million.

For the year ended November 30, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of net operating losses from our unconsolidated entities, which were primarily driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by the profits from land sales.

For the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million. This was partially offset by $12.7 million of equity in earnings primarily due to sales of homesites to third parties by one of our unconsolidated entities.

Balance Sheets

	November 30,
(In thousands)	2018				2017
Assets:
Cash and cash equivalents	$	782,565			953,261
Inventories	4,291,470				3,751,525
Other assets	1,251,884				1,061,507
	$	6,325,919			5,766,293
Liabilities and equity:
Accounts payable and other liabilities	$	875,380			832,151
Debt (1)	1,212,274				737,331
Equity	4,238,265				4,196,811
	$	6,325,919			5,766,293

(1)	Debt is net of debt issuance costs of $12.4 million and $5.7 million, for the years ended November 30, 2018 and 2017, respectively. The increase in debt in 2018 was primarily related to $500 million of senior notes issued by FivePoint.

In May 2017, FivePoint completed its initial public offering ("IPO"). Concurrent with the IPO, we invested an additional $100 million in FivePoint in a private placement. As of November 30, 2018, we own approximately 40% of FivePoint and the carrying amount of our investment is $342.7 million.

As of November 30, 2018 and 2017, our recorded investments in Lennar Homebuilding unconsolidated entities were $996.9 million and $900.8 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of both November 30, 2018 and 2017 was $1.3 billion. The basis difference is primarily as a result of us contributing our 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 us.

The Lennar Homebuilding unconsolidated entities in which we have investments usually 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.

Debt to total capital of the Lennar Homebuilding unconsolidated entities in which we have investments was calculated as follows:

	November 30,
(Dollars in thousands)	2018				2017
Debt	$	1,212,274			737,331
Equity	4,238,265				4,196,811
Total capital	$	5,450,539			4,934,142
Debt to total capital of our unconsolidated entities	22.2		%		14.9	%

Our investments in Lennar Homebuilding unconsolidated entities by type of venture were as follows:

	November 30,
(In thousands)	2018				2017
Land development	$	814,835			841,507
Homebuilding	64,523				32,754
Strategic technology investments	117,568				26,508
Total investments (1)	$	996,926			900,769

(1)	Does not include the ($62.0) million investment balance for one unconsolidated entity as it was reclassed to other liabilities.

Indebtedness of an unconsolidated entity is secured by its own assets. Some unconsolidated entities own multiple properties and other assets. There is no cross collateralization of debt of different unconsolidated entities. We also do not use our investment in one unconsolidated entity as collateral for the debt of another unconsolidated entity or commingle funds among Lennar Homebuilding unconsolidated entities.

In connection with loans to a Lennar Homebuilding unconsolidated entity, we and our partners often guarantee to a lender, either jointly and severally or on a several basis, any or all of the following: (i) the completion of the development, in whole or in part, (ii) indemnification of the lender from environmental issues, (iii) indemnification of the lender from "bad boy acts" of the unconsolidated entity (or full recourse liability in the event of an unauthorized transfer or bankruptcy) and (iv) that the loan to value and/or loan to cost will not exceed a certain percentage (maintenance or remargining guarantee) or that a percentage of the outstanding loan will be repaid (repayment guarantee).

The total debt of Lennar Homebuilding unconsolidated entities in which we have investments, including Lennar's maximum recourse exposure, was as follows:

	November 30,
(Dollars in thousands)	2018				2017
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	48,313			64,197
Non-recourse land seller debt and other debt	—				1,997
Non-recourse debt with completion guarantees	239,568				255,903
Non-recourse debt without completion guarantees (1)	871,088				351,800
Non-recourse debt to Lennar	1,158,969				673,897
Lennar’s maximum recourse exposure (2)	65,707				69,181
Debt issuance costs	$	(12,402	)		(5,747	)
Total debt	$	1,212,274			737,331
Lennar’s maximum recourse exposure as a % of total JV debt	5		%		9	%

(1)	The increase in non-recourse debt without completion guarantees was primarily related to $500 million of senior notes issued by FivePoint.

(2)	As of November 30, 2018 and 2017, our maximum recourse exposure was primarily related to us providing a repayment guarantee on four unconsolidated entities' debt and three unconsolidated entities' debt, respectively.

During the year ended November 30, 2018, our maximum recourse exposure related to indebtedness of Lennar Homebuilding unconsolidated entities decreased by $3.5 million. The decrease was primarily attributable to a $13.0 million decrease in maximum recourse indebtedness resulting from a joint venture selling assets, partially offset by us providing a repayment guarantee on unconsolidated entities' debt of $2.6 million on Lennar Homebuilding unconsolidated entities debt, an increase in recourse debt due to additional borrowings of $6.2 million.

The recourse debt exposure in the previous table represents our maximum 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 debt or to reimburse us for any payments on our guarantees.

In addition, in most instances in which we have guaranteed debt of a Lennar Homebuilding unconsolidated entity, our partners have also guaranteed that debt and are required to contribute their share of the guarantee payment. In a repayment guarantee, we and our venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral.

In connection with many of the loans to Lennar Homebuilding unconsolidated entities, we and our 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 we are required to make a payment under any guarantee, the payment would generally constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase our share of any funds the unconsolidated entity distributes.

As of both November 30, 2018 and 2017, the fair values of the repayment and completion guarantees were not material. We believe that as of November 30, 2018, in the event we become legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, the collateral is expected to be sufficient to repay at least a significant portion of the obligation or we and our partners would contribute additional capital into the venture. In certain instances, we have placed performance letters of credit and surety bonds with municipalities for our joint ventures (see Note 7 of the notes to our consolidated financial statements).

In view of credit market conditions during the past several years, it is not uncommon for lenders and/or real estate developers, including joint ventures in which we have interests, to assert non-monetary defaults (such as failure to meet construction completion deadlines or declines in the market value of collateral below required amounts) or technical monetary

defaults against the real estate developers. In most instances, those asserted defaults are resolved by modifications of the loan terms, additional equity investments or other concessions by the borrowers. In addition, in some instances, real estate developers, including joint ventures in which we have interests, are forced to request temporary waivers of covenants in loan documents or modifications of loan terms, which are often, but not always obtained. However, in some instances developers, including joint ventures in which we have interests, are not able to meet their monetary obligations to lenders, and are thus declared in default. Because we sometimes guarantee all or portions of the obligations to lenders of joint ventures in which we have interests, when these joint ventures default on their obligations, lenders may or may not have claims against us. Normally, we do not make payments with regard to guarantees of joint venture obligations while the joint ventures are contesting assertions regarding sums due to their lenders. When it is determined that a joint venture is obligated to make a payment that we have guaranteed and the joint venture will not be able to make that payment, we accrue the amounts probable to be paid by us as a liability. Although we generally fulfill our guarantee obligations within a reasonable time after we determine that we are obligated with regard to them, at any point in time it is possible that we will have some balance of unpaid guarantee liability. At both November 30, 2018 and 2017, we had no liabilities accrued for unpaid guarantees of joint venture indebtedness on our consolidated balance sheets.

The following table summarizes the principal maturities of our Lennar Homebuilding unconsolidated entities ("JVs") debt as per current debt arrangements as of November 30, 2018 and it does not represent estimates of future cash payments that will be made to reduce debt balances. Many JV loans have extension options in the loan agreements that would allow the loans to be extended into future years.

		Principal Maturities of Unconsolidated JVs by Period
(In thousands)		Total JV Debt				2019			2020			2021			Thereafter			Other
Maximum recourse debt exposure to Lennar		$	65,707			43,596			19,562			2,549			—			—
Debt without recourse to Lennar		1,158,969				388,740			137,775			129,089			503,365			—
Debt issuance costs		(12,402		)		—			—			—			—			(12,402	)
Total		$	1,212,274			432,336			157,337			131,638			503,365			(12,402	)

The table below indicates the assets, debt and equity of our 10 largest Lennar Homebuilding unconsolidated joint venture investments by the carrying value of Lennar's investment as of November 30, 2018:

(Dollars in thousands)	Lennar’s Investment				Total JV Assets			Maximum Recourse Debt Exposure to Lennar			Total Debt Without Recourse to Lennar			Total JV Debt			Total JV Equity			JV Debt to Total Capital Ratio
FivePoint	$	342,671			2,958,867			—			565,130			565,130			1,868,970			23	%
Opendoor (1)	66,712				—			—			—			—			—			—	%
Dublin Crossings (2)	64,395				215,557			—			—			—			176,606			—	%
Heritage Hills Irvine	61,171				160,277			2,625			18,379			21,004			133,949			14	%
Heritage Fields El Toro	45,131				1,158,728			—			5,919			5,919			1,006,699			1	%
SC East Landco	41,040				97,797			—			—			—			97,499			—	%
Runkle Canyon	38,349				76,905			—			—			—			76,699			—	%
Hippo Analytics (1)	32,859				—			—			—			—			—			—	%
E.L. Urban Communities	30,940				53,640			—			12,395			12,395			40,362			23	%
Mesa Canyon Community Partners (2)	30,378				127,864			—			37,112			37,112			91,085			29	%
10 largest JV investments (3)	753,646				4,849,635			2,625			638,935			641,560			3,491,869			16	%
Other JVs (4)	243,280				1,476,284			63,082			520,034			583,116			746,396			44	%
Total	$	996,926			6,325,919			65,707			1,158,969			1,224,676			4,238,265			22	%
Debt issuance costs								—			(12,402	)		(12,402	)
Total JV debt								65,707			1,146,567			1,212,274

(1)	Financial statements are not publicly available and thus only our investment balance has been included in the table above.

(2)	Joint ventures acquired from CalAtlantic.

(3)

The 10 largest joint ventures by the carrying value of Lennar's investment presented above represent the majority of total JVs assets and equity, 4% of total JV maximum recourse debt exposure to Lennar and 55% of total JV debt without recourse to Lennar. FivePoint, Opendoor, and Hippo Analytics are included in Homebuilding Other. The remaining joint ventures listed are included in the Homebuilding West segment. Treasure Island Community Development is no longer included above due to the sale of an 80% interest in Treasure Island Holdings.

(4)	Includes CPHP Development, LLC which has assets of $261.2 million, maximum recourse debt exposure to Lennar of $52.2 million, total JV debt of $333.8 million, and total JV equity of ($96.7) million. Lennar's investment balance does not include the ($62.0) million investment as it was reclassed to other liabilities.

Lennar Multifamily - Investments in Unconsolidated Entities

At November 30, 2018, Lennar Multifamily had equity investments in 22 unconsolidated entities that are engaged in multifamily residential developments (of which 8 had non-recourse debt and 14 had no debt), compared to 27 unconsolidated entities at November 30, 2017. We invest in unconsolidated entities that acquire and develop land to construct multifamily rental properties. Through these entities, we are focusing on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. Participants in these joint ventures have been financial partners. Joint ventures with financial partners have allowed us to combine our development and construction expertise with access to our partners’ capital. Each joint venture is governed by an operating agreement that provides significant substantive participating voting rights on major decisions to our partners.

The Venture Fund is a long-term multifamily development investment vehicle involved in the development, construction and property management of class-A multifamily assets with $2.2 billion in equity commitments, including a $504 million co-investment commitment by us comprised of cash, undeveloped land and preacquisition costs. The Venture Fund is currently seeded with 39 undeveloped multifamily assets that were previously purchased or under contract by the Lennar Multifamily segment totaling approximately 11,700 apartments with projected project costs of $4.1 billion as of November 30, 2018. There are 17 completed and operating multifamily assets with 4,900 apartments. During the year ended November 30, 2018, $384.3 million in equity commitments were called, of which we contributed $90.1 million. During the year ended November 30, 2018, we received $18.0 million of distributions as a return of capital from the Venture Fund. As of November 30, 2018, $1.8 billion of the $2.2 billion in equity commitments had been called, of which we had contributed $440.8 million representing our pro-rata portion of the called equity, resulting in a remaining equity commitment for us of $63.2 million. As of November 30, 2018 and 2017, the carrying value of our investment in the Venture Fund was $383.4 million and $323.8 million, respectively.

In March 2018, the Lennar Multifamily segment completed the first closing of a second Lennar Multifamily Venture, Venture Fund II, for the development, construction and property management of class-A multifamily assets. As of November 30, 2018, Venture Fund II had approximately $787 million of equity commitments, including a $255 million co-investment commitment by Lennar comprised of cash, undeveloped land and preacquisition costs. As of and for the year ended November 30, 2018, $252.1 million in equity commitments were called, of which we contributed our portion of $81.2 million, which was made up of $188.4 million in inventory and cash contributions, offset by $107.2 million of distributions as a return of capital, resulting in a remaining equity commitment for us of $173.8 million. As of November 30, 2018, the carrying value of our investment in Venture Fund II was $63.0 million. The difference between our net contributions and the carrying value of our investments was related to a basis difference. Venture Fund II is currently seeded with eight undeveloped multifamily assets that were previously purchased by the Lennar Multifamily segment totaling approximately 3,000 apartments with projected project costs of approximately $1.3 billion as of November 30, 2018.

The joint ventures are typically structured through non-corporate entities in which control is shared with our venture partners. Each joint venture is unique in terms of its funding requirements and liquidity needs. We and the other joint venture participants typically make pro-rata cash contributions to the joint venture except for cost over-runs relating to the construction of the project. In all cases, we have been required to provide guarantees of completion and cost over-runs to the lenders and partners. These completion guarantees may require us to complete the improvements for which the financing was obtained. Therefore, our risk is limited to our equity contribution, draws on letters of credit and potential future payments under the guarantees of completion and cost over-runs. In certain instances, payments made under the cost over-run guarantees are considered capital contributions.

Additionally, the joint ventures obtain third-party debt to fund a portion of the acquisition, development and construction costs of the rental projects. The joint venture agreements usually permit, but do not require, the joint ventures to make additional capital calls in the future. However, the joint venture debt does not have repayment or maintenance guarantees. Neither we nor the other equity partners are a party to the debt instruments. In some cases, we agree to provide credit support in the form of a letter of credit provided to the bank.

We regularly monitor the results of our unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. We also monitor the performance of joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate

and assess possible impairment of our investment. We believe all of the joint ventures were in compliance with their debt covenants at November 30, 2018.

Under the terms of our joint venture agreements, we generally have the right to share in earnings and distributions of the entities on a pro-rata basis based on our ownership percentages. Most joint venture agreements provide for a different allocation of profit and cash distributions if and when the cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return).

In many instances, we are designated as the development manager and/or the general contractor and/or the property manager of the unconsolidated entity and receive fees for such services. In addition, we generally do not plan to enter into purchase contracts to acquire rental properties from our Lennar Multifamily joint ventures.

Our arrangements with joint ventures generally do not restrict our activities or those of the other participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed as competitive with the activities of these ventures in the localities where the joint ventures do business.

Material contractual obligations of our unconsolidated joint ventures primarily relate to the debt obligations described above. The joint ventures generally do not enter into lease commitments because the entities are managed either by us or the other partners, who supply the necessary facilities and employee services in exchange for market-based management fees. However, they do enter into management contracts with the participants who manage them.

As described above, the liquidity needs of joint ventures in which we have investments vary on an entity-by-entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and development activities, the entities generally require cash, which is provided through a combination of equity contributions and debt financing, to fund acquisition, development and construction of multifamily rental properties. As the properties are completed and sold, cash generated will be available to repay debt and for distribution to the joint venture’s members. Thus, the amount of cash available for a joint venture to distribute at any given time is primarily a function of the scope of the joint venture’s activities and the stage in the joint venture’s life cycle.

Summarized financial information on a combined 100% basis related to Lennar Multifamily’s investments in unconsolidated entities that are accounted for by the equity method was as follows:

Balance Sheets

	November 30,
(In thousands)	2018				2017
Assets:
Cash and cash equivalents	$	61,571			37,073
Operating properties and equipment	3,708,613				2,952,070
Other assets	40,899				36,772
	$	3,811,083			3,025,915
Liabilities and equity:
Accounts payable and other liabilities	$	199,119			212,123
Notes payable (1)	1,381,656				879,047
Equity	2,230,308				1,934,745
	$	3,811,083			3,025,915

(1)	Notes payable are net of debt issuance costs of $15.7 million and $17.6 million, for the years ended November 30, 2018 and 2017, respectively.

The following table summarizes the principal maturities of our Lennar Multifamily unconsolidated entities debt as per current debt arrangements as of November 30, 2018 and does not represent estimates of future cash payments that will be made to reduce debt balances.

		Principal Maturities of Lennar Multifamily Unconsolidated JVs by Period
(In thousands)		Total JV Debt				2019			2020			2021			Thereafter			Other
Debt without recourse to Lennar Multifamily		$	1,397,353			281,093			595,139			164,035			357,086			—
Debt issuance costs		(15,697		)		—			—			—			—			(15,697	)
Total		$	1,381,656			281,093			595,139			164,035			357,086			(15,697	)

Statements of Operations and Selected Information

	Years Ended November 30,
(Dollars in thousands)	2018				2017			2016
Revenues	$	117,985			67,578			45,287
Costs and expenses	172,089				108,610			68,976
Other income, net	93,778				207,793			191,385
Net earnings of unconsolidated entities	$	39,674			166,761			167,696
Lennar Multifamily equity in earnings from unconsolidated entities and other gain (1)	$	51,322			85,739			85,519
Our investments in unconsolidated entities	$	481,129			407,544			318,559
Equity of the unconsolidated entities	$	2,230,308			1,934,745			1,514,286
Our investment % in the unconsolidated entities (2)	22		%		21	%		21	%

(1)

During the year ended November 30, 2018 the Lennar Multifamily segment sold, through its unconsolidated entities, six operating properties and an investment in an operating property resulting in the segment's $61.2 million share of gains. The gain of $15.7 million recognized on the sale of the investment in an operating property and recognition of our share of deferred development fees that were capitalized at the joint venture level are included in Lennar Multifamily equity in earnings from unconsolidated entities and other gain, and are not included in net earnings of unconsolidated entities. During each of the years ended November 30, 2017 and 2016, the Lennar Multifamily segment sold seven operating properties through its unconsolidated entities resulting in the segment's $96.7 million and $91.0 million share of gains, respectively.

(2)	Our share of profit and cash distributions from sales of operating properties could be higher compared to our ownership interest in unconsolidated entities if certain specified internal rate of return milestones are achieved.

Rialto - Investments in Unconsolidated Entities

Rialto was the sponsor of and an investor in private equity vehicles that invest in and manage real estate related assets and other related investments. We sold our Rialto Management Group on November 30, 2018. We retained our fund investments along with our carried interests in various Rialto funds and investments in other Rialto balance sheet assets. Our limited partner investments in Rialto funds and investment vehicles totaled $297.4 million at November 30, 2018, and we are committed to invest as much as an additional $71.6 million in Rialto funds.

As part of the sale of the Rialto investment and asset management platform, we retained our ability to receive a portion of payments with regard to carried interests if funds meet specified performance thresholds. We will periodically receive advance distributions related to the carried interests in order to cover income tax obligations resulting from allocations of taxable income to the carried interests. These distributions are not subject to clawbacks but will reduce future carried interest payments to which we become entitled from the applicable funds and have been recorded as revenues.

Advanced and carried interest distributions received during the years ended November 30, 2018, 2017 and 2016 were $25.5 million, $44.2 million and $10.1 million, respectively. The following table represents amounts we would have received had the funds ceased operations and hypothetically liquidated all their investments at their estimated fair values on November 30, 2018, both gross and net of amounts already received as advanced tax distributions. The actual amounts we may receive could be materially different from amounts presented in the table below.

(In thousands)	Hypothetical Carried Interest				Paid as Advanced Tax Distribution			Paid as Carried Interest			Hypothetical Carried Interest, Net
Rialto Real Estate Fund, LP	$	173,030			52,541			48,952			71,537
Rialto Real Estate Fund II, LP	56,068				15,609			—			40,459
	$	229,098			68,150			48,952			111,996

Rialto previously adopted carried interest plans under which we and participating employees will receive 60% and 40%, respectively, of carried interest payments, net of expenses, received by entities that are general partners of a number of Rialto funds or other investment vehicles. When Rialto Management Group was sold, we retained our right to receive 60% of the distributions of carried interest payments received from funds that existed at the time of the sale.

Summarized condensed financial information on a combined 100% basis related to Rialto’s investments in unconsolidated entities that are accounted for by the equity method was as follows:

Balance Sheets

	November 30,
(In thousands)	2018				2017
Assets:
Cash and cash equivalents	$	50,043			95,552
Loans receivable	705,414				538,317
Real estate owned	273,802				348,601
Investment securities	2,296,768				1,849,795
Investments in partnerships	380,290				393,874
Other assets	38,682				42,949
	$	3,744,999			3,269,088
Liabilities and equity:
Accounts payable and other liabilities	$	30,236			48,374
Notes payable (1)	595,491				576,810
Equity	3,119,272				2,643,904
	$	3,744,999			3,269,088

(1)	Notes payable are net of debt issuance costs of $4.6 million and $3.1 million, as of November 30, 2018 and 2017, respectively.

Statements of Operations and Selected Information

	Years Ended November 30,
(Dollars in thousands)	2018				2017			2016
Revenues	$	373,355			238,981			200,346
Costs and expenses	103,138				104,343			96,343
Other income (expenses), net (1)	(58,757		)		109,927			49,342
Net earnings of unconsolidated entities	$	211,460			244,565			153,345
Rialto equity in earnings from unconsolidated entities	$	25,816			25,447			18,961
Rialto's investments in unconsolidated entities	$	297,379			265,418			245,741
Equity of the unconsolidated entities	$	3,119,272			2,643,904			2,314,563
Rialto's investment % in the unconsolidated entities	10		%		10	%		11	%

(1)	Other income (expenses), net, included realized and unrealized gains (losses) on investments.

Option Contracts

We often obtain access to land through option contracts, which generally enable us to control portions of properties owned by third parties (including land funds) and unconsolidated entities until we have determined whether to exercise the options.

The table below indicates the number of homesites owned and homesites to which we had access through option contracts with third parties ("optioned") or unconsolidated JVs (i.e., controlled homesites) at November 30, 2018 and 2017:

	Controlled Homesites
November 30, 2018	Optioned			JVs			Total			Owned Homesites			Total Homesites
East	25,699			3,482			29,181			72,367			101,548
Central	5,837			—			5,837			31,684			37,521
Texas	18,890			—			18,890			31,733			50,623
West	8,863			4,576			13,439			62,732			76,171
Other	—			1,276			1,276			3,132			4,408
Total homesites	59,289			9,334			68,623			201,648			270,271

	Controlled Homesites
November 30, 2017	Optioned			JVs			Total			Owned Homesites			Total Homesites
East	16,556			482			17,038			48,473			65,511
Central	3,054			—			3,054			20,572			23,626
Texas	9,103			—			9,103			23,539			32,642
West	3,369			4,963			8,332			48,268			56,600
Other	—			—			—			274			274
Total homesites	32,082			5,445			37,527			141,126			178,653

We evaluate all option contracts for land to determine whether they are VIEs and, if so, whether we are the primary beneficiary of certain of these option contracts. Although we do not have legal title to the optioned land, if we are deemed to be the primary beneficiary or make a significant deposit for optioned land, we may need to consolidate the land under option at the purchase price of the optioned land.

During the year ended November 30, 2018, consolidated inventory not owned decreased by $184.3 million with a corresponding decrease to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2018. The decrease was primarily related to a higher amount of homesite takedowns than construction started on homesites not owned. To reflect the purchase price of the inventory consolidated, we had a net reclassification related to option deposits from consolidated inventory not owned to land under development in the accompanying consolidated balance sheet as of November 30, 2018. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and our cash deposits.

Our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of our non-refundable option deposits and pre-acquisition costs totaling $209.5 million and $137.0 million at November 30, 2018 and 2017, respectively. Additionally, we had posted $72.4 million and $51.8 million of letters of credit in lieu of cash deposits under certain land and option contracts as of November 30, 2018 and 2017, respectively.

Contractual Obligations and Commercial Commitments

The following table summarizes certain of our contractual obligations at November 30, 2018:

					Payments Due by Period
(In thousands)	Total				Less than 1 year			1 to 3 years			3 to 5 years			More than 5 years
Lennar Homebuilding - Senior notes and other debts payable (1)	$	8,467,148			1,270,534			1,712,372			1,809,496			3,674,746
Lennar Financial Services - Notes and other debts payable	1,256,174				1,256,174			—			—			—
Rialto - Notes and other debts payable (2)	325,725				193,316			1,121			15,596			115,692
Interest commitments under interest bearing debt (3)	1,860,229				406,628			640,439			416,074			397,088
Operating leases	230,905				55,302			86,644			46,891			42,068
Other contractual obligations (4)	308,642				179,737			128,905			—			—
Total contractual obligations (5)	$	12,448,823			3,361,691			2,569,481			2,288,057			4,229,594

(1)	The amounts presented in the table above exclude debt issuance costs and any discounts/premiums and purchase accounting adjustments.

(2)	Primarily includes notes payable and other debts payable of $178.8 million related to the Rialto warehouse repurchase facilities, used by RMF, and $132.4 million related to Rialto's long-term loan facilities ("CMBS Loan Facilities") to finance the purchase of CMBS. These amounts exclude debt issuance costs and any discounts/premiums.

(3)	Interest commitments on variable interest-bearing debt are determined based on the interest rate as of November 30, 2018.

(4)	Amounts include $63.2 million remaining equity commitment to fund the Venture Fund for future expenditures related to the construction and development of the projects, $173.8 million remaining equity commitment to fund Venture Fund II for future expenditures related to construction and development of projects and $71.6 million of commitments to invest in Rialto funds.

(5)	Total contractual obligations exclude our gross unrecognized tax benefits and accrued interest and penalties totaling $67.6 million as of November 30, 2018, because we are unable to make reasonable estimates as to the period of cash settlement with the respective taxing authorities.

We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land generally enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether to exercise our options. This reduces our financial risk associated with land holdings. At November 30, 2018, we had access to 68,623 homesites through option contracts with third parties and unconsolidated entities in which we have investments. At November 30, 2018, we had $209.5 million of non-refundable option deposits and pre-acquisition costs related to certain of these homesites and had posted $72.4 million of letters of credit in lieu of cash deposits under certain land and option contracts.

At November 30, 2018, we had letters of credit outstanding in the amount of $763.8 million (which included the $72.4 million of letters of credit discussed above). These letters of credit are generally posted either with regulatory bodies to guarantee our performance of certain development and construction activities, or in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at November 30, 2018, we had outstanding surety bonds of $2.7 billion including performance surety bonds related to site improvements at various projects (including certain projects of our joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all of the development and construction activities are completed. As of November 30, 2018, there were approximately $1.4 billion, or 52%, of anticipated future costs to complete related to these site improvements. We do not presently anticipate any draws upon these bonds or letters of credit, but if any such draws occur, we do not believe they would have a material effect on our financial position, results of operations or cash flows.

Our Lennar Financial Services segment had a pipeline of loan applications in process of $3.5 billion at November 30, 2018. Loans in process for which interest rates were committed to the borrowers totaled approximately $584 million as of November 30, 2018. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers or borrowers may not meet certain criteria at the time of closing, the total commitments do not necessarily represent future cash requirements.

Our Lennar Financial Services segment uses mandatory mortgage-backed securities ("MBS") forward commitments, option contracts, futures contracts and investor commitments to hedge our mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments, option contracts, futures contracts and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and the

option contracts. At November 30, 2018, we had open commitments amounting to $1.5 billion to sell MBS with varying settlement dates through February 2019 and there were no open futures contracts.

The following sections discuss market and financing risk, seasonality and interest rates and changing prices that may have an impact on our business:

Market and Financing Risk

We finance our contributions to JVs, land acquisition and development activities, construction activities, financial services activities, Lennar Multifamily activities and general operating needs primarily with cash generated from operations, debt and equity issuances, as well as borrowings under our Credit Facility and warehouse repurchase facilities. We also purchase land under option agreements, which enables us to control homesites until we have determined whether to exercise the options. We try to manage the financial risks of adverse market conditions associated with land holdings by what we believe to be prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process and limitation of risks by using partners to share the costs of purchasing and developing land as well as obtaining access to land through option contracts. Although we believed our land underwriting standards were conservative, we did not anticipate the severe decline in land values and the sharply reduced demand for new homes encountered in the prior economic downturn.

Interest Rates and Changing Prices

Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates as well as increased material and labor costs, may reduce gross margins. An increase in material and labor costs is particularly a problem during a period of declining home prices. Conversely, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.

New Accounting Pronouncements

See Note 1 of the notes to our consolidated financial statements for a comprehensive list of new accounting pronouncements.

Critical Accounting Policies and Estimates

Our accounting policies are more fully described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this document. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to our consolidated financial statements. Listed below are those policies and estimates that we believe are critical and require the use of significant judgment in their application.

Business Acquisitions

In accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations ("ASC 805"), we account for business acquisitions by allocating the purchase price of the transaction to the estimated fair values of the assets acquired and liabilities assumed. Any amount of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. We believe that the accounting estimate for business combinations is a critical accounting estimate because of the judgment required in assessing the fair value of the assets acquired and liabilities assumed. We develop our estimate of fair value through various valuation methods, including the use of discounted expected future cash flows based on market-based assessments. These assessments are based on current market valuations as well as the current and anticipated future economic conditions in each of our markets. Given these estimates and assumptions of cash flows are based on market conditions that are inherently uncertain, changes in the accuracy of the estimates and assumptions could be affected.

Goodwill

We have recorded a significant amount of goodwill in connection with the recent acquisition of CalAtlantic. We record goodwill associated with acquisitions of businesses when the purchase price of the business exceeds the fair value of the net tangible and identifiable assets acquired. In accordance with ASC Topic 350, Intangibles-Goodwill and Other ("ASC 350"), we evaluate goodwill for potential impairment on at least an annual basis. We evaluate potential impairment by comparing the

carrying value of each of our reporting units to their estimated fair values. We believe that the accounting estimate for goodwill is a critical accounting estimate because of the judgment required in assessing the fair value of each of our reporting units. We estimate fair value through various valuation methods, including the use of discounted expected future cash flows of each reporting unit. The expected future cash flows for each segment are significantly impacted by current market conditions. If these market conditions and resulting expected future cash flows for each reporting unit decline significantly, the actual results for each segment could differ from our estimate, which would cause goodwill to be impaired. Our accounting for goodwill represents our best estimate of future events.

Lennar Homebuilding and Lennar Multifamily Operations

Lennar Homebuilding Revenue Recognition

Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowner, the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the home, the new homeowner’s receivable is not subject to future subordination and we do not have a substantial continuing involvement with the new home. Revenues from sales of land are recognized when a significant down payment is received, the earnings process is complete, title passes and collectability of the receivable is reasonably assured. We believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue.

Lennar Multifamily Revenue Recognition

Our Lennar Multifamily segment provides management services with respect to the development, construction and property management of rental projects in joint ventures in which we have investments. As a result, our Lennar Multifamily segment earns and receives fees, which are generally based upon a stated percentage of development and construction costs and a percentage of gross rental collections. These fees are included in Lennar Multifamily revenue and are recorded over the period in which the services are performed, fees are determinable and collectability is reasonably assured. In addition, our Lennar Multifamily segment provides general contractor services for the construction of some of its rental projects and recognizes the revenue over the period in which the services are performed under the percentage of completion method. We believe that the accounting policy related to Lennar Multifamily revenue recognition is a critical accounting policy because it represents a significant portion of our Lennar Multifamily's revenues and is expected to continue to grow in the future as the segment builds more rental properties.

Inventories

Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. We review our inventory for indicators of impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development state of the community. There were 1,324 and 761 active communities, excluding unconsolidated entities, as of November 30, 2018 and 2017, respectively. If the undiscounted cash flows expected to be generated by a community are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such community to its estimated fair value.

In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales, and the estimated fair value of the land itself. We pay particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From this review, we identify communities in which to assess if the carrying values exceed their undiscounted cash flows. Although gross margin percentages for the year ended November 30, 2018 have decreased compared to the year ended November 30, 2017 primarily due to purchase accounting adjustments and an increase in direct construction costs, revenues have increased for all of our Homebuilding segments, compared to the year ended November 30, 2017. The increase is primarily due to an increase in home deliveries in all of our Homebuilding segments, and an increase in the average sales price of homes delivered in all of our Homebuilding segments resulting primarily from the acquisition of CalAtlantic.

We estimate the fair value of our communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above.

Each of the homebuilding markets in which we operate is unique, as homebuilding has historically been a local business driven by local market conditions and demographics. Each of our homebuilding markets has specific supply and demand relationships reflective of local economic conditions. Our projected cash flows are impacted by many assumptions. Some of the most critical assumptions in our cash flow models are our projected absorption pace for home sales, sales prices and costs to build and deliver our homes on a community by community basis.

In order to arrive at the assumed absorption pace for home sales and the assumed sales prices included in our cash flow model, we analyze our historical absorption pace and historical sales prices in the community and in other comparable communities in the geographical area. In addition, we consider internal and external market studies and place greater emphasis on more current metrics and trends, which generally include, but are not limited to, statistics and forecasts on population demographics and on sales prices in neighboring communities, unemployment rates and availability and sales price of competing product in the geographical area where the community is located as well as the absorption pace realized in our most recent quarters and the sales prices included in our current backlog for such communities.

Generally, if we notice a variation from historical results over a span of two fiscal quarters, we consider such variation to be the establishment of a trend and adjust our historical information accordingly in order to develop assumptions on the projected absorption pace and sales prices in the cash flow model for a community.

In order to arrive at our assumed costs to build and deliver our homes, we generally assume a cost structure reflecting contracts currently in place with our vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Those costs assumed are used in our cash flow models for our communities.

Since the estimates and assumptions included in our cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions or strategies that may lead to us incurring additional impairment charges in the future.

Using all the available information, we calculate our best estimate of projected cash flows for each community. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change from market to market and community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate we believe a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. We generally use a discount rate of approximately 20%, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory.

We estimate the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or our assumptions change. For example, changes in market conditions and other specific developments or changes in assumptions may cause us to re-evaluate our strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.

We also have access to land inventory through option contracts, which generally enables us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our options. A majority of our option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. In determining whether to walk-away from an option contract, we evaluate the option primarily based upon the expected cash flows from the property under option.

Our investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case our investments are written down to fair value. We review option contracts for indicators of impairment during each reporting period. The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and development of the optioned property would no longer meet our targeted return on investment with appropriate consideration given to the length of time available to exercise the option. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause us to re-evaluate the likelihood of exercising our land options.

If we intend to walk-away from an option contract, we record a charge to earnings in the period such decision is made for the deposit amount and any related pre-acquisition costs associated with the option contract.

We believe that the accounting related to inventory valuation and impairment is a critical accounting policy because: (1) assumptions inherent in the valuation of our inventory are highly subjective and susceptible to change and (2) the impact of recognizing impairments on our inventory has been and could continue to be material to our consolidated financial statements.

Our evaluation of inventory impairment, as discussed above, includes many assumptions. The critical assumptions include the timing of the home sales within a community, management’s projections of selling prices and costs and the discount rate applied to estimate the fair value of the homesites within a community on the balance sheet date. Our assumptions on the timing of home sales are critical because the homebuilding industry has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic conditions could materially affect the projected sales price, costs to develop the homesites and/or absorption rate in a community. Our assumptions on discount rates are critical because the selection of a discount rate affects the estimated fair value of the homesites within a community. A higher discount rate reduces the estimated fair value of the homesites within the community, while a lower discount rate increases the estimated fair value of the homesites within a community. Because of changes in economic and market conditions and assumptions and estimates required of management in valuing inventory during changing market conditions, actual results could differ materially from management’s assumptions and may require material inventory impairment charges to be recorded in the future.

Product Warranty

Although we subcontract virtually all aspects of construction to others and our contracts call for the subcontractors to repair or replace any deficient items related to their trades, we are primarily responsible to homebuyers to correct any deficiencies. Additionally, in some instances, we may be held responsible for the actions of or losses incurred by subcontractors. Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based upon historical data and trends with respect to similar product types and geographical areas. We believe the accounting estimate related to the reserve for warranty costs is a critical accounting estimate because the estimate requires a large degree of judgment.

At November 30, 2018, the reserve for warranty costs was $319.1 million, which included $3.1 million of adjustments to pre-existing warranties from changes in estimates during the current year primarily related to specific claims related to certain of our homebuilding communities and other adjustments as well as $141.0 million of warranties assumed related to the CalAtlantic acquisition. While we believe that the reserve for warranty costs is adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Additionally, there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve.

Lennar Homebuilding and Lennar Multifamily Investments in Unconsolidated Entities

We strategically invest in unconsolidated entities that acquire and develop land (1) for our homebuilding operations or for sale to third parties, (2) for construction of homes for sale to third-party homebuyers or (3) for the construction and sale of multifamily rental properties. Our Lennar Homebuilding partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners. Additionally in recent years, we have invested in technology companies that are looking to improve the homebuilding and financial services industry in order to better serve our customers and increase efficiencies. Our Lennar Multifamily partners are all financial partners.

Most of the unconsolidated entities through which we acquire and develop land are accounted for by the equity method of accounting because we are not the primary beneficiary or a de-facto agent, and we have a significant, but less than controlling, interest in the entities. We record our investments in these entities in our consolidated balance sheets as "Lennar Homebuilding or Lennar Multifamily Investments in Unconsolidated Entities" and our pro-rata share of the entities’ earnings or losses in our consolidated statements of operations as "Lennar Homebuilding or Lennar Multifamily Equity in Earnings (Loss) from Unconsolidated Entities," as described in Note 5 and Note 9 of the notes to our consolidated financial statements. For most unconsolidated entities, we generally have the right to share in earnings and distributions on a pro-rata basis based upon ownership percentages. However, certain Lennar Homebuilding unconsolidated entities and all of our Lennar Multifamily unconsolidated entities provide for a different allocation of profit and cash distributions if and when cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return). Advances to these entities are included in the investment balance.

Management looks at specific criteria and uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a critical accounting policy due to the judgment required in determining whether we are the primary beneficiary or have control or significant influence.

We believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling interest, but rather share control with our partners. At November 30, 2018, the Lennar Homebuilding unconsolidated entities in which we had investments had total assets of $6.3

billion and total liabilities of $2.1 billion. At November 30, 2018, the Lennar Multifamily unconsolidated entities in which we had investments had total assets of $3.8 billion and total liabilities of $1.6 billion.

We evaluate the long-lived assets in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the fair value of our investment in the unconsolidated entity below its carrying amount has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.

The evaluation of our investment in unconsolidated entities includes certain critical assumptions: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors.

Our assumptions on the projected future distributions from unconsolidated entities are dependent on market conditions. Specifically, distributions are dependent on cash to be generated from the sale of inventory by the Lennar Homebuilding unconsolidated entities or operating assets by the Lennar Multifamily unconsolidated entities. Such long-lived assets are also reviewed for potential impairment by the unconsolidated entities. The unconsolidated entities generally also use a discount rate of between 10% and 20% in their reviews for impairment, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in our Lennar Homebuilding or Lennar Multifamily equity in earnings (loss) from unconsolidated entities with a corresponding decrease to our Lennar Homebuilding or Lennar Multifamily investment in unconsolidated entities. We believe our assumptions on the projected future distributions from the unconsolidated entities are critical because the operating results of the unconsolidated entities from which the projected distributions are derived are dependent on the status of the homebuilding industry, which has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic conditions could materially affect the projected operational results of the unconsolidated entities from which the distributions are derived.

Additionally, we evaluate if a decrease in the value of an investment below its carrying amount is other than-temporary. This evaluation includes certain critical assumptions made by management and other factors such as age of the venture, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the unconsolidated entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investments, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners and banks. If the decline in the fair value of the investment is other-than-temporary, then these losses are included in Lennar Homebuilding other income, net or Lennar Multifamily costs and expenses.

We believe our assumptions on discount rates are critical accounting policies because the selection of the discount rates affects the estimated fair value of our investments in unconsolidated entities. A higher discount rate reduces the estimated fair value of our investments in unconsolidated entities, while a lower discount rate increases the estimated fair value of our investments in unconsolidated entities. Because of changes in economic conditions, actual results could differ materially from management’s assumptions and may require material valuation adjustments to our investments in unconsolidated entities to be recorded in the future.

Consolidation of Variable Interest Entities

GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Our variable interest in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets, (3) management services and development agreements between us and a VIE, (4) loans provided by us to a VIE or other partner and/or (5) guarantees provided by members to banks and other third parties. We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs.

Generally, all major decision making in our joint ventures is shared among all partners. In particular, business plans and budgets are generally required to be unanimously approved by all partners. Usually, management and other fees earned by us are nominal and believed to be at market and there is no significant economic disproportionality between us and other partners. Generally, we purchase less than a majority of the JV’s assets and the purchase prices under our option contracts are believed to be at market.

Generally, our unconsolidated entities become VIEs and consolidate when the other partner(s) lack the intent and financial wherewithal to remain in the entity. As a result, we continue to fund operations and debt paydowns through partner loans or substituted capital contributions. The accounting policy relating to variable interest entities is a critical accounting policy because the determination of whether an entity is a VIE and, if so, whether we are primary beneficiary may require us to exercise significant judgment.

Lennar Financial Services Operations

Revenue Recognition

Title premiums on policies issued directly by us are recognized as revenue on the effective date of the title policies and escrow fees and loan origination revenues are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. Revenues from title policies issued by independent agents are recognized as revenue when notice of issuance is received from the agent, which is generally when cash payment is received by us. Expected gains and losses from the sale of loans and their related servicing rights are included in the measurement of all written loan commitments that are accounted for at fair value through earnings at the time of commitment. Interest income on loans held-for-sale and loans held-for-investment is recognized as earned over the terms of the mortgage loans based on the contractual interest rates. We believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue.

Loan Origination Liabilities

Substantially all of the loans our Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties related to loan sales. Over the last several years there has been an industry-wide effort by purchasers to defray their losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. A number of claims of that type have been brought against us. We do not believe these claims will have a material adverse effect on our business.

Our mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors. We establish reserves for such possible losses based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans, as well as previous settlements. While we believe that we have adequately reserved for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed our expectations, additional recourse expense may be incurred. This allowance requires management’s judgment and estimates. For these reasons, we believe that the accounting estimate related to the loan origination losses is a critical accounting estimate.

Rialto Mortgage Finance - Loans Held-for-Sale

The originated mortgage loans are classified as loans held-for-sale and are recorded at fair value. We elected the fair value option for RMF's loans held-for-sale in accordance with ASC Topic 825, Financial Instruments, which permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Changes in fair values of the loans are reflected in Rialto revenues in the accompanying consolidated statements of operations. Interest income on these loans is calculated based on the interest rate of the loan and is recorded in Rialto revenues in the accompanying consolidated statements of operations. Substantially all of the mortgage loans originated are sold within a short period of time in securitizations on a servicing released, non-recourse basis; although, we remain liable for certain limited industry-standard representations and warranties related to loan sales. We recognize revenue on the sale of loans into securitization trusts when control of the loans has been relinquished.

We believe this is a critical accounting policy due to the significant judgment involved in estimating the fair values of loans held-for-sale during the period between when the loans are originated and the time the loans are sold and because of its significance to our Rialto segment.