Meritage Homes Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

REAL ESTATE AND CAPITALIZED INTEREST

REAL ESTATE AND CAPITALIZED INTEREST

12 Months Ended

Dec. 31, 2021

Real estate consists of the following (in thousands):


	At December 31,
	2021		2020
Homes under contract under construction (1)	$	1,039,822	$	873,365
Unsold homes, completed and under construction (1)	484,999		357,861
Model homes (1)	81,049		82,502
Finished home sites and home sites under development (2) (3)	2,128,538		1,464,311
	$	3,734,408	$	2,778,039

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

(2)Includes raw land, land held for development and land held for sale, less impairments, if any. Land held for development primarily represents land and land development costs related to land where development activity is not currently underway but is expected to begin in the future. For these parcels, we have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years. We do not capitalize interest for inactive assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are expensed as incurred.

(3)Includes land held for sale of $62.1 million and $72.7 million as of December 31, 2021 and 2020, respectively.

As previously noted, in accordance with ASC 360-10, each of our land inventory and related real estate assets is reviewed for recoverability when certain criteria are met, but at least annually, as our inventory is considered “long-lived” in accordance with GAAP. ASC 360-10 requires impairment charges to be recorded if the asset is not deemed recoverable and the fair value of such assets is less than their carrying amounts. Our determination of fair value is based on projections and estimates. We also evaluate alternative product offerings in communities where impairment indicators are present and other strategies for the land exist, such as selling or holding the land for sale. We recorded impairment charges of approximately $2.1 million, $24.9 million and $7.3 million for the years ended December 31, 2021, 2020, and 2019 respectively, primarily as a result of upcoming dispositions of certain assets that no longer fit our strategy of entry-level and first move-up communities.

Subject to sufficient qualifying assets, we capitalize our development period interest costs incurred to applicable qualifying assets in connection with our real estate development and construction activities. Capitalized interest is allocated to active 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):


	Years Ended December 31,
	2021		2020		2019
Capitalized interest, beginning of year	$	58,940	$	82,014	$	88,454
Interest incurred	62,836		66,289		83,856
Interest expensed	(318)		(2,177)		(8,370)
Interest amortized to cost of home and land closings	(65,205)		(87,186)		(81,926)
Capitalized interest, end of year (1)	$	56,253	$	58,940	$	82,014

(1)Approximately $208,000, $217,000 and $279,000 of the capitalized interest is related to our joint venture investments and is a component of Investments in unconsolidated entities in our consolidated balance sheets as of December 31, 2021, 2020 and 2019, respectively.