Meritage Homes Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Capitalized Interest

Real Estate and Capitalized Interest

3 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

REAL ESTATE AND CAPITALIZED INTEREST

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

Real estate consists of the following (in thousands):



	At March 31, 2013		At December 31, 2012
Homes under contract under construction (1)	$	247,682	$	192,948
Unsold homes, completed and under construction (1)	105,094		107,466
Model homes (1)	64,783		62,411
Finished home sites and home sites under development	617,507		634,106
Land held for development (2)	57,081		56,118
Land held for sale	22,430		21,650
Communities in mothball status (3)	37,562		38,488
	$	1,152,139	$	1,113,187

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


(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. For these parcels, we may have chosen not to currently develop certain land holdings as they typically represent a portion of a larger land parcel that we plan to build out over several years.

(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 March 31, 2013, we had seven mothballed communities with a carrying value of $34.3 million in our West Region and two mothballed communities with a carrying value of $3.3 million in our Central Region. During the three months ended March 31, 2013, we did not place any additional communities into mothball status, and we moved one community in the West Region out of mothball status. We do not capitalize interest for such mothballed assets, and all ongoing costs of land ownership are also expensed as incurred.

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 real-estate impairment charges of $46,000 and $293,000 during the three months ended March 31, 2013 and 2012, respectively. These charges are included in Cost of home closings in our Statement of Operations.

In the latter part of 2011, we announced our intent to wind-down operations in the Las Vegas, Nevada market. As of March 31, 2013, we had 22 lots remaining to close with no actively selling communities. The value of those lots and any associated homes inventory was $4.1 million as of March 31, 2013. Based on our current pace, we expect to complete our construction operations within the next six months. The remaining $12.6 million of Nevada assets relate to properties that we are not currently developing and we are either actively marketing for sale or we have mothballed. In the first quarter of 2013, we completed a land sale aggregating $2.4 million in proceeds as well as collected the remaining $3.2 million balance of a $6.5 million land sale relating to two Nevada parcels previously reflected as held for sale on our balance sheet.

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):



	Three Months Ended
	March 31,
	2013			2012
Capitalized interest, beginning of period	$	21,600		$	14,810
Interest incurred	12,726			10,847
Interest expensed	(5,128		)	(7,371		)
Interest amortized to cost of home, land closings and impairments	(5,000		)	(2,378		)
Capitalized interest, end of period (1)	$	24,198		$	15,908


(1)	Approximately $537,000 and $539,000 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 March 31, 2013 and December 31, 2012, respectively.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

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