| REAL ESTATE AND CAPITALIZED INTEREST |
REAL ESTATE AND CAPITALIZED INTEREST
Real estate consists of the following (in thousands):
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At June 30, 2014 |
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At December 31, 2013 |
Homes under contract under construction (1) |
$ |
370,626 |
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$ |
262,633 |
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Unsold homes, completed and under construction (1) |
182,719 |
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147,889 |
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Model homes (1) |
91,509 |
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81,541 |
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Finished home sites and home sites under development |
890,036 |
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813,135 |
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Land held for development (2) |
51,012 |
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52,100 |
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Land held for sale |
28,267 |
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19,112 |
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Communities in mothball status (3) |
23,859 |
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28,889 |
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$ |
1,638,028 |
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$ |
1,405,299 |
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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. 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. |
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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 June 30, 2014, we had four mothballed communities with a carrying value of $21.1 million in our West Region and one mothballed community with a carrying value of $2.8 million in our Central Region. 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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In the latter part of 2011, we announced our intent to wind-down operations in the Las Vegas, Nevada market. We do not have any remaining operations in Nevada as of June 30, 2014; however, we still own 174 lots that we are marketing for sale. The carrying value of those lots was $10.1 million as of June 30, 2014, which is classified as land held for sale.
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):
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2014 |
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2013 |
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2014 |
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2013 |
Capitalized interest, beginning of period |
$ |
38,701 |
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$ |
24,198 |
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$ |
32,992 |
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$ |
21,600 |
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Interest incurred |
14,382 |
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12,642 |
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28,638 |
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25,368 |
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Interest expensed |
(1,396 |
) |
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(4,523 |
) |
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(4,109 |
) |
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(9,651 |
) |
Interest amortized to cost of home and land closings |
(7,332 |
) |
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(6,023 |
) |
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(13,166 |
) |
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(11,023 |
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Capitalized interest, end of period (1) |
$ |
44,355 |
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$ |
26,294 |
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$ |
44,355 |
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$ |
26,294 |
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(1) |
Approximately $511,000 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 June 30, 2014 and December 31, 2013.
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