| 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
March 31,
2012
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At
December 31,
2011
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Homes under contract under construction (1)
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$ |
133,930 |
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$ |
101,445 |
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Unsold homes, completed and under construction (1)
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91,301 |
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97,246 |
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Model homes (1)
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53,265 |
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49,892 |
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Finished home sites and home sites under development (2)
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498,645 |
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467,867 |
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Land held for development (2)(3)
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68,242 |
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69,067 |
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Land held for sale
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22,651 |
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29,908 |
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$ |
868,034 |
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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. |
| (2) |
Includes 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. 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. |
| (3) |
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 or resume 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. |
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 or holding the land for sale. Based on these reviews
of all our communities, we recorded the following contract termination and real-estate impairment charges during the three-months ended March 31, 2012 and 2011 (in thousands):
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Three Months Ended
March
31,
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2012 |
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2011 |
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Terminated option/purchase contracts and related pre-acquisition costs:
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West
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$ |
0 |
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$ |
0 |
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Central
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83 |
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0 |
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East
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0 |
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0 |
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Total
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$ |
83 |
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$ |
0 |
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Real estate inventory impairments (1):
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West
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$ |
126 |
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$ |
200 |
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Central
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72 |
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|
335 |
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East
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12 |
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129 |
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Total
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$ |
210 |
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$ |
664 |
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Total impairments:
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West
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$ |
126 |
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$ |
200 |
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Central
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|
155 |
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|
335 |
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East
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12 |
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129 |
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Total
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$ |
293 |
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$ |
664 |
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| (1) |
Included in the real estate inventory impairments are impairments of individual homes, both completed and under construction, in a community where the underlying lots
in the community were not also impaired. For the three months ended March 31, 2012 and 2011, all real-estate inventory impairments are comprised of individual home impairments, and there were no community-level impairments.
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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
March 31,
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2012 |
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2011 |
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Capitalized interest, beginning of period
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$ |
14,810 |
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$ |
11,679 |
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Interest incurred
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10,847 |
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10,849 |
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Interest expensed
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(7,371 |
) |
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(8,023 |
) |
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Interest amortized to cost of home, land closings and impairments
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(2,378 |
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(2,196 |
) |
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Capitalized interest, end of period (1)
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$ |
15,908 |
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$ |
12,309 |
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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 March 31, 2012 and December 31, 2011. |
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