Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Capitalized Interest

v2.4.0.8
Real Estate and Capitalized Interest
 9 Months Ended
Sep. 30, 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 September 30, 2013
 
At December 31, 2012
Homes under contract under construction (1)
$
316,508

 
$
192,948

Unsold homes, completed and under construction (1)
123,602

 
107,466

Model homes (1)
78,017

 
62,411

Finished home sites and home sites under development
721,492

 
634,106

Land held for development (2)
53,053

 
56,118

Land held for sale
19,630

 
21,650

Communities in mothball status (3)
32,912

 
38,488

 
$
1,345,214

 
$
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 September 30, 2013, we had six mothballed communities with a carrying value of $29.6 million in our West Region and two mothballed communities with a carrying value of $3.3 million in our Central Region. 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. In recent years, due to the volatile 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 $584,000 and $776,000 during the three and nine months ended September 30, 2013, respectively, as compared to $417,000 and $1.6 million for the same periods in 2012. These charges are included in Cost of closings in our income statements.
In the latter part of 2011, we announced our intent to wind-down operations in the Las Vegas, Nevada market. The remaining $11.8 million of assets we own in Nevada relate to properties that we are not currently developing and are either actively marketing for sale or have mothballed.
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 our customers. 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Capitalized interest, beginning of period
$
26,294

 
$
17,836

 
$
21,600

 
$
14,810

Interest incurred
12,508

 
11,654

 
37,876

 
33,819

Interest expensed
(3,462
)
 
(5,009
)
 
(13,113
)
 
(18,718
)
Interest amortized to cost of home and land closings
(6,342
)
 
(4,296
)
 
(17,365
)
 
(9,726
)
Capitalized interest, end of period (1)
$
28,998

 
$
20,185

 
$
28,998

 
$
20,185

 
(1)
Approximately $511,000 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 September 30, 2013 and December 31, 2012, respectively.