| REAL ESTATE AND CAPITALIZED INTEREST |
NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST
Real estate consists of the following (in thousands):
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December 31, 2012 |
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December 31, 2011 |
Homes under contract under construction (1) |
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$ |
192,948 |
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$ |
101,445 |
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Unsold homes, completed and under construction (1) |
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107,466 |
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97,246 |
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Model homes (1) |
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62,411 |
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49,892 |
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Finished home sites and home sites under development |
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634,106 |
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441,242 |
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Land held for development (2) |
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56,118 |
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55,143 |
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Land held for sale |
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21,650 |
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29,908 |
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Communities in mothball status (3) |
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38,488 |
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40,549 |
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$ |
1,113,187 |
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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 December 31, 2012, we had eight mothballed communities with a carrying value of $35.1 million in our West Region and two mothballed communities with a carrying value of $3.4 million in our Central Region. During the 2012, we did not place any additional communities into mothball status and we removed one community and $2.0 million out of mothball status. We do not capitalize interest for such mothballed assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are also expensed as incurred.
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As previously noted, in accordance with ASC 360-10, each of our land inventory and related real estate assets is reviewed for recoverability when impairment indicators are present, as our inventory is considered “long-lived” in accordance with GAAP. Due to the current environment, we evaluate all of our real estate assets for impairment on a quarterly basis. ASC 360-10 requires impairment charges to be recorded if the asset is not deemed recoverable and the fair value of such asset is less than its carrying amounts. Our determination of fair value is based on projections and estimates. We also evaluate alternative product offerings in communities where impairment indicators are present and other strategies for the land exist, such as selling or holding the land for sale. Based on these reviews of all our communities, we recorded the following real-estate and joint-venture impairment charges during the years ended December 31, 2012, 2011 and 2010 (in thousands):
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Years Ended December 31, |
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2012 |
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2011 |
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2010 |
Terminated option/purchase contracts: |
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West |
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$ |
217 |
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$ |
863 |
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$ |
— |
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Central |
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129 |
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1,904 |
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1,030 |
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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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$ |
346 |
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$ |
2,767 |
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$ |
1,030 |
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Real estate inventory impairments (1): |
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West |
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$ |
732 |
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$ |
4,542 |
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$ |
1,930 |
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Central |
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90 |
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865 |
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3,153 |
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East |
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172 |
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696 |
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321 |
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Total |
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$ |
994 |
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$ |
6,103 |
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$ |
5,404 |
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Impairments of joint venture investments: |
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West |
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$ |
— |
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$ |
— |
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$ |
295 |
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Central |
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— |
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— |
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— |
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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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$ |
— |
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$ |
— |
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$ |
295 |
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Impairments of land held for sale: |
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West |
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$ |
669 |
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$ |
5,928 |
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$ |
— |
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Central |
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— |
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127 |
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17 |
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East |
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— |
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399 |
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— |
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Total |
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$ |
669 |
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$ |
6,454 |
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$ |
17 |
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Total impairments: |
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West |
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$ |
1,618 |
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$ |
11,333 |
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$ |
2,225 |
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Central |
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219 |
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2,896 |
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4,200 |
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East |
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172 |
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1,095 |
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321 |
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Total |
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$ |
2,009 |
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$ |
15,324 |
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$ |
6,746 |
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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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Years Ended December 31, |
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2012 |
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2011 |
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2010 |
Individual home impairments: |
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West |
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$ |
732 |
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$ |
1,134 |
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$ |
1,535 |
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Central |
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90 |
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715 |
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1,651 |
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East |
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172 |
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341 |
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321 |
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Total |
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$ |
994 |
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$ |
2,190 |
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$ |
3,507 |
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The tables below reflect the number of communities with real estate inventory impairments for the years ended December 31, 2011 and 2010, excluding home-specific impairments (as noted above) and the fair value of these communities (dollars in thousands). There were no such impairments recorded for the year ended December 31, 2012.
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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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Year Ended December 31, 2011 |
West |
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7 |
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$ |
3,408 |
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$ |
27,621 |
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Central |
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6 |
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150 |
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9,446 |
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East |
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1 |
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355 |
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2,006 |
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Total |
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14 |
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$ |
3,913 |
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$ |
39,073 |
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Year Ended December 31, 2010 |
West |
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1 |
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$ |
395 |
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5,122 |
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Central |
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6 |
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1,502 |
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7,951 |
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East |
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— |
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— |
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N/A |
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Total |
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7 |
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$ |
1,897 |
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$ |
13,073 |
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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 December 31, 2012, we had 24 lots remaining to sell and close in our one remaining actively selling Nevada community.
The value of those lots and any associated homes inventory was $4.8 million as of December 31, 2012. Based on our current
orders pace, we expect to complete our construction operations within six to nine months. The remaining $17.8 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 was received in January 2013. In addition, in the fourth quarter of 2012, we entered into a a sales contract for approximately $2.4 million for an additional parcel of land which approximates its carrying value. This sale is expected to close in the first half of 2013.
Subject to sufficient qualifying assets, we capitalize our development period interest costs incurred in connection with the development and construction of real estate. Capitalized interest is allocated to active real estate when incurred and charged to cost of closings when the related property is delivered. A summary of our capitalized interest is as follows (in thousands):
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Years Ended December 31, |
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2012 |
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2011 |
Capitalized interest, beginning of year |
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$ |
14,810 |
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$ |
11,679 |
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Interest incurred |
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46,135 |
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43,393 |
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Interest expensed |
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(24,244 |
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(30,399 |
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Interest amortized to cost of home, land closings and impairments |
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(15,101 |
) |
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(9,863 |
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Capitalized interest, end of year (1) |
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$ |
21,600 |
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$ |
14,810 |
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(1) |
Approximately $539,000 and $750,000 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, 2012 and 2011, respectively.
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