Meritage Homes Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Capitalized Interest

Real Estate and Capitalized Interest

6 Months Ended

Jun. 30, 2011

Real Estate and Capitalized Interest [Abstract]

REAL ESTATE AND CAPITALIZED INTEREST

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

Real estate consists of the following (in thousands):


	At		At
	June 30, 2011		December 31, 2010

Homes under contract under construction (1)	$	109,836	$	96,844
Unsold homes, completed and under construction (1)		82,790		86,869
Model homes (1)		43,999		36,966
Finished home sites and home sites under development		474,007		454,718
Land held for development or sale (2)		65,596		63,531

	$	776,228	$	738,928


(1)		Also includes the allocated land and land development costs associated with each lot for these homes.

(2)		Includes communities that we have decided to stop development (mothball) where we have determined that the current economic performance would be maximized by deferring development. In the future, such communities may either be re-opened or sold to third parties. We do not capitalize interest for such mothballed assets, and all costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are expensed as incurred.

As previously noted, in accordance with ASC 360-10, each of our land inventory and related real estate assets is reviewed for recoverability when impairment indicators are present, as our inventory is considered “long-lived” in accordance with GAAP. Due to the current economic environment, we evaluate all of our real estate assets for impairment on a quarterly basis. ASC 360-10 requires impairment charges to be recorded if the fair value of such assets is less than their carrying amounts. Our determination of fair value is based on projections and estimates. Based on these reviews of all our communities, we recorded the following real-estate and joint-venture impairment charges during the three- and six-month periods ended June 30, 2011 and 2010 (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Terminated option/purchase contracts and related pre-acquisition costs:
West	$	0	$	0	$	0	$	0
Central		2		0		2		0
East		0		0		0		0

Total	$	2	$	0	$	2	$	0


Real estate inventory impairments (1):
West	$	57	$	11	$	257	$	93
Central		432		293		767		753
East		99		0		228		0

Total	$	588	$	304	$	1,252	$	846


Total impairments:
West	$	57	$	11	$	257	$	93
Central		434		293		769		753
East		99		0		228		0

Total	$	590	$	304	$	1,254	$	846


(1)		Included in the real estate inventory impairments are impairments of individual homes in a community where the underlying lots in the community were not also impaired, as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Individual home impairments (in thousands):
West	$	57	$	11	$	257	$	93
Central		121		243		456		703
East		99		0		228		0

Total	$	277	$	254	$	941	$	796

The tables below reflect the number of communities with real estate inventory impairments for the three- and six-month periods ended June 30, 2011 and 2010, excluding home-specific impairments (as noted above) and the fair value of these communities as of June 30, 2011 and 2010 (dollars in thousands):


	Three Months Ended June 30, 2011
	Number of
	Communities				Fair Value of Communities Impaired
	Impaired		Impairment Charges		(Carrying Value less Impairments)

West		0	$	0	$	N/A
Central		2		311		6,827
East		0		0		N/A

Total		2	$	311	$	6,827


	Three Months Ended June 30, 2010
	Number of
	Communities				Fair Value of Communities Impaired
	Impaired		Impairment Charges		(Carrying Value less Impairments)

West		0	$	0	$	N/A
Central		1		50		88
East		0		0		N/A

Total		1	$	50	$	88


	Six Months Ended June 30, 2011
	Number of
	Communities				Fair Value of Communities Impaired
	Impaired		Impairment Charges		(Carrying Value less Impairments)

West		0	$	0	$	N/A
Central		2		311		6,827
East		0		0		N/A

Total		2	$	311	$	6,827


	Six Months Ended June 30, 2010
	Number of
	Communities				Fair Value of Communities Impaired
	Impaired		Impairment Charges		(Carrying Value less Impairments)

West		0	$	0	$	N/A
Central		1		50		88
East		0		0		N/A

Total		1	$	50	$	88

Subject to sufficient qualifying assets, we capitalize interest incurred in connection with the development and construction of real estate. Completed homes and land not actively under development do not qualify for interest capitalization. Capitalized interest is allocated to real estate when incurred and charged to cost of closings when the related property is delivered. A summary of our capitalized interest is as follows (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Capitalized interest, beginning of period	$	12,309		$	13,076		$	11,679		$	14,187
Interest incurred		10,848			11,343			21,697			21,745
Interest expensed		(7,496	)		(8,553	)		(15,519	)		(16,848	)
Interest amortized to cost of home, land closings and impairments		(2,456	)		(3,429	)		(4,652	)		(6,647	)

Capitalized interest, end of period	$	13,205		$	12,437		$	13,205		$	12,437


(1)		Approximately $750,000 of the capitalized interest is related to our joint venture investments and is a component of “Investments in unconsolidated entities” on our consolidated balance sheets as of June 30, 2011 and 2010.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

+ References + Details