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, 2023

Real estate consists of the following (in thousands):


	At December 31,
	2023		2022
Homes under contract under construction (1)	$	704,206	$	822,428
Unsold homes, completed and under construction (1)	1,260,855		1,155,543
Model homes (1)	118,252		97,198
Finished home sites and home sites under development (2) (3)	2,637,978		2,283,094
	$	4,721,291	$	4,358,263

(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. 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 $10.7 million and $66.8 million as of December 31, 2023 and 2022, 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. In communities where impairment indicators are present, we may also evaluate alternative product offerings or other strategies for the land, such as pausing development, selling, or holding the land for sale. We recorded nominal impairment charges for the years ended December 31, 2023 and 2022, and $2.1 million for the year ended December 31, 2021, respectively.

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,
	2023		2022		2021
Capitalized interest, beginning of year	$	60,169	$	56,253	$	58,940
Interest incurred	57,759		60,599		62,836
Interest expensed	—		(41)		(318)
Interest amortized to cost of home and land closings	(63,412)		(56,642)		(65,205)
Capitalized interest, end of year (1)	$	54,516	$	60,169	$	56,253

(1)Approximately $346,000, $208,000 and $208,000 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, 2023, 2022 and 2021, respectively.