| REAL ESTATE AND CAPITALIZED INTEREST |
NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST
Real estate consists of the following (in thousands):
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At September 30, 2012 |
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At December 31, 2011 |
Homes under contract under construction (1) |
$ |
205,616 |
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|
$ |
101,445 |
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Unsold homes, completed and under construction (1) |
98,354 |
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|
97,246 |
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Model homes (1) |
55,853 |
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|
49,892 |
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Finished home sites and home sites under development |
524,842 |
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|
441,242 |
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Land held for development (2) |
54,981 |
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|
55,143 |
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Land held for sale |
24,619 |
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|
29,908 |
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Communities in mothball status (3) |
40,560 |
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|
40,549 |
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|
$ |
1,004,825 |
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|
$ |
815,425 |
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(1) |
Includes the allocated land and land development costs associated with each lot for these homes. |
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(2) |
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. In these cases, we may have chosen not to currently develop certain land holdings as they typically represent a portion of a large land parcel that we plan to build out over several years. |
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(3) |
Represents communities where we have decided to cease operations (mothball) as we have determined that their economic performance would be maximized by deferring development. In the future, some of these communities may be re-opened while others may be sold to third parties. If we deem our carrying value to not be fully recoverable, we adjust our carrying value for these assets to fair value at the time they are placed into mothball status. As of September 30, 2012, we had three mothballed communities with a carrying value of $11.2 million in our West Region and eight mothballed communities with a carrying value of $29.4 million in our Central Region. During the nine months ended September 30, 2012, we did not place any additional communities into mothball status. We do not capitalize interest for such mothballed assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are also expensed as incurred.
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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 asset is not deemed fully 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 the land or holding the land for sale in the future. Based on these reviews of all our communities, we recorded the following contract termination and real-estate impairment charges during the three and nine months ended September 30, 2012 and 2011 (in thousands):
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2012 |
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2011 |
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2012 |
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2011 |
Terminated option/purchase contracts and related pre-acquisition costs: |
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West |
$ |
— |
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|
$ |
— |
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|
$ |
— |
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|
$ |
— |
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Central |
263 |
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|
98 |
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|
346 |
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|
100 |
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East |
— |
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|
— |
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|
— |
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|
— |
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Total |
$ |
263 |
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|
$ |
98 |
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|
$ |
346 |
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|
$ |
100 |
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Real estate inventory impairments (1): |
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West |
$ |
42 |
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$ |
295 |
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$ |
284 |
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$ |
552 |
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Central |
54 |
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|
468 |
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|
197 |
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|
1,235 |
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East |
58 |
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|
59 |
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|
77 |
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|
287 |
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Total |
$ |
154 |
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$ |
822 |
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$ |
558 |
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$ |
2,074 |
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Impairments of land held for sale: |
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West |
$ |
— |
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|
$ |
— |
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$ |
669 |
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|
$ |
— |
|
Central |
— |
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|
127 |
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|
— |
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|
127 |
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East |
— |
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|
— |
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|
— |
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|
— |
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Total |
$ |
— |
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|
$ |
127 |
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$ |
669 |
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|
$ |
127 |
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Total impairments: |
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West |
$ |
42 |
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$ |
295 |
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$ |
953 |
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$ |
552 |
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Central |
317 |
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|
693 |
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|
543 |
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|
1,462 |
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East |
58 |
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|
59 |
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|
77 |
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|
287 |
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Total |
$ |
417 |
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$ |
1,047 |
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$ |
1,573 |
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$ |
2,301 |
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(1) |
Included in the real estate inventory impairments are impairments of individual homes in a community where the underlying community was not also impaired, as follows (in thousands): |
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2012 |
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2011 |
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2012 |
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2011 |
Individual home impairments: |
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West |
$ |
42 |
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$ |
166 |
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$ |
284 |
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|
$ |
423 |
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Central |
54 |
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|
239 |
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|
197 |
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|
695 |
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East |
58 |
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|
59 |
|
|
77 |
|
|
287 |
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Total |
$ |
154 |
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|
$ |
464 |
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$ |
558 |
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|
$ |
1,405 |
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The table below reflects the number of communities with real estate inventory impairments for the three- and nine-month periods ended September 30, 2011, excluding home-specific impairments (as noted above) and the fair value of these communities as of September 30, 2011 (dollars in thousands). There were no such impairments recorded for the three and nine month periods ended September 30, 2012.
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Three Months Ended September 30, 2011 |
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Number of
Communities
Impaired
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Impairment Charges |
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Fair Value of Communities Impaired
(Carrying Value less Impairments)
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West |
1 |
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$ |
129 |
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|
2,501 |
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Central |
4 |
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|
229 |
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|
6,894 |
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East |
— |
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— |
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N/A |
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Total |
5 |
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$ |
358 |
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$ |
9,395 |
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Nine Months Ended September 30, 2011 |
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Number of
Communities
Impaired
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Impairment Charges |
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Fair Value of Communities Impaired
(Carrying Value less Impairments)
|
West |
1 |
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|
$ |
129 |
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|
2,501 |
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Central |
6 |
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|
540 |
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|
13,721 |
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East |
— |
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— |
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N/A |
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Total |
7 |
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$ |
669 |
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$ |
16,222 |
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In the latter part of 2011, we announced our intent to wind-down operations in the Las Vegas, Nevada market. As of September 30, 2012, we had 33 lots remaining to sell and close in our two remaining actively selling Nevada communities. The value of those lots and any associated homes inventory was $5.9 million as of September 30, 2012. Based on our current orders pace, we expect to complete our construction operations within 12 to 18 months. The remaining $18.5 million of our Nevada assets relate to properties that we are not currently developing and which we are either actively marketing for sale or which we have mothballed. In the second quarter of 2012, we entered into a sales contract for $6.5 million that relates to a parcel of land, of which approximately $3.3 million was received in July 2012, and the remaining payment due to us January 2013. In addition, in the third quarter of 2012, we sold a second parcel of land to a third party for $1.1 million, all of which was received as of September 30, 2012.
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. To the extent our debt exceeds our qualified assets base, we expense a proportionate share of the interest incurred. A summary of our capitalized interest is as follows (in thousands):
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
|
2012 |
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2011 |
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2012 |
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2011 |
Capitalized interest, beginning of period |
$ |
17,836 |
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$ |
13,205 |
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$ |
14,810 |
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$ |
11,679 |
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Interest incurred |
11,654 |
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|
10,848 |
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|
33,819 |
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|
32,545 |
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Interest expensed |
(5,009 |
) |
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(7,517 |
) |
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(18,718 |
) |
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(23,036 |
) |
Interest amortized to cost of home, land closings and impairments |
(4,296 |
) |
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(2,421 |
) |
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(9,726 |
) |
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(7,073 |
) |
Capitalized interest, end of period (1) |
$ |
20,185 |
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$ |
14,115 |
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$ |
20,185 |
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$ |
14,115 |
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(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 September 30, 2012 and December 31, 2011.
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