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, 2019

Real estate consists of the following (in thousands):


	At December 31,
	2019		2018
Homes under contract under construction (1)	$	564,762	$	480,143
Unsold homes, completed and under construction (1)	686,948		644,717
Model homes (1)	121,340		146,327
Finished home sites and home sites under development (2)	1,371,311		1,471,434
	$	2,744,361	$	2,742,621

(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. Land held for development primarily reflects 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 may 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.

Subject to sufficient qualifying assets, we capitalize our development period interest costs incurred in connection with the development and construction of real estate. Capitalized interest is allocated to active real estate when incurred and charged to cost of closings when the related property is closed. A summary of our capitalized interest is as follows (in thousands):


	Years Ended December 31,
	2019		2018		2017
Capitalized interest, beginning of year	$	88,454	$	78,564	$	68,196
Interest incurred	83,856		85,278		79,045
Interest expensed	(8,370)		(785)		(3,853)
Interest amortized to cost of home and land closings	(81,926)		(74,603)		(64,824)
Capitalized interest, end of year (1)	$	82,014	$	88,454	$	78,564

(1)Approximately $279,000, $454,000 and $517,000 of the capitalized interest is related to our joint venture investments and is a component of Investments in unconsolidated entities in our consolidated balance sheet as of December 31, 2019, 2018 and 2017, respectively.