Inventory

9 Months Ended

Jun. 30, 2021

The components of our owned inventory are as follows as of June 30, 2021 and September 30, 2020:


in thousands	June 30, 2021		September 30, 2020
Homes under construction	$	668,280	$	525,021
Development projects in progress	532,929		589,763
Land held for future development	19,879		28,531
Land held for sale	7,173		12,622
Capitalized interest	109,943		119,659
Model homes	69,867		75,142
Total owned inventory	$	1,408,071	$	1,350,738

Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction, including the cost of the underlying lot. We had 40 (with a cost of $12.0 million) and 133 (with a cost of $42.2 million) substantially completed homes that were not subject to a sales contract (spec homes) as of June 30, 2021 and September 30, 2020, respectively.

Development projects in progress consist principally of land acquisition, land development and other common costs. These land related costs are allocated to individual lots on a pro-rata basis, and the lot costs are transferred to homes under construction when home construction begins for the respective lots. Certain of the fully developed lots in this category are reserved by a customer deposit or sales contract.

Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable carrying costs, such as interest and real estate taxes, are expensed as incurred.

Land held for sale includes land and lots that do not fit within our homebuilding programs and strategic plans in certain markets, and land is classified as held for sale once certain criteria are met (refer to Note 2 to the audited consolidated financial statements within our 2020 Annual Report). These assets are recorded at the lower of the carrying value or fair value less costs to sell.

The amount of interest we are able to capitalize depends on our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress but excludes land held for future development and land held for sale (see Note 6 for additional information on capitalized interest).

Total owned inventory by reportable segment is presented in the table below as of June 30, 2021 and September 30, 2020:


in thousands	Projects in Progress (a)		Land Held for Future Development		Land Held for Sale		Total Owned Inventory
June 30, 2021
West Segment	$	682,550	$	3,483	$	690	$	686,723
East Segment	263,799		10,888		874		275,561
Southeast Segment	274,310		5,508		5,609		285,427
Corporate and unallocated (b)	160,360		—		—		160,360
Total	$	1,381,019	$	19,879	$	7,173	$	1,408,071
September 30, 2020
West Segment	$	627,986	$	3,483	$	4,516	$	635,985
East Segment	241,799		14,077		3,702		259,578
Southeast Segment	266,905		10,971		4,404		282,280
Corporate and unallocated (b)	172,895		—		—		172,895
Total	$	1,309,585	$	28,531	$	12,622	$	1,350,738

(a) Projects in progress include homes under construction, development projects in progress, capitalized interest, and model home categories from the preceding table.

(b) Projects in progress amount includes capitalized interest and indirect costs that are maintained within our Corporate and unallocated segment.

Inventory Impairments

The following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:


	Three Months Ended June 30,				Nine Months Ended June 30,
in thousands	2021		2020		2021		2020






Land Held for Sale:
West	$	—	$	89	$	—	$	89

Southeast	—		8		—		8
Corporate and unallocated (a)	—		1,160		—		1,160
Total impairment charges on land held for sale	$	—	$	1,257	$	—	$	1,257
Abandonments:
West	$	—	$	452	$	—	$	452
East	—		32		465		32
Southeast	231		525		231		525

Total abandonments charges	$	231	$	1,009	$	696	$	1,009






Total impairment and abandonment charges	$	231	$	2,266	$	696	$	2,266

(a) Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.

When conducting our community level review for the recoverability of inventory related to projects in progress, we consider both qualitative and quantitative factors to establish a quarterly “watch list” of communities. Each community is evaluated qualitatively and quantitatively to determine if there are factors driving the low profitability levels. Communities with more than ten homes remaining to close with potential indicators of impairment resulting from this initial evaluation are subjected to additional financial and operational reviews that consider the competitive environment and other factors contributing to gross margins below our specified threshold. Our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. For certain communities, it may be prudent to reduce sales prices or further increase sales incentives in response to a variety of factors, including competitive market conditions in those specific submarkets for the product and locations of these communities. For communities where the current competitive and market dynamics indicate that assets may not be recoverable, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and quantitative analyses reflecting market and asset specific information. The quantitative analyses compare the projected future undiscounted cash flows for each such community with its current carrying value. If the aggregate undiscounted cash flows from our quantitative analyses are in excess of the carrying value, the asset is considered to be recoverable and is not impaired. If the aggregate undiscounted cash flows are less than the carrying value, we perform a discounted cash flow analysis to determine the fair value of the community.

We performed our quarterly inventory impairment assessment for the quarter ended June 30, 2021 taking into consideration the qualitative and quantitative factors discussed above, and determined that no community required a formal impairment analysis (projected cash flow analysis). No project in progress impairment charges were recognized during the three and nine months ended June 30, 2021 and 2020, respectively.

Impairments on land held for sale generally represent write downs of these properties to net realizable value based on sales contracts, letters of intent, current market conditions, and recent comparable land sale transactions, as applicable. Absent an executed sales contract, our assumptions related to land sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions, and our estimates of sale prices could differ significantly from actual results. There were no land held for sale impairment charges recognized during the three and nine months ended June 30, 2021 and $1.3 million of land held for sale impairment charges recognized during the three and nine months ended June 30, 2020.

From time-to-time, we may determine to abandon lots or not exercise certain option contracts that are not projected to produce adequate results or no longer fit with our long-term strategic plan. Additionally, in certain limited instances, we are forced to abandon lots due to seller non-performance, or permitting or other regulatory issues that do not allow us to build on those lots. If we intend to abandon or walk away from a property, we record an abandonment charge to earnings for the deposit amount and any related capitalized costs in the period such decision is made. There were $0.2 million and $0.7 million of abandonment charges recognized during the three and nine months ended June 30, 2021, respectively, and $1.0 million of abandonment charges recognized during the three and nine months ended June 30, 2020.

Lot Option Agreements and Variable Interest Entities (VIE)

As previously discussed, we also have access to land inventory through lot option contracts, which generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. The majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a specified price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit, and other non-refundable amounts incurred. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.

The following table provides a summary of our interests in lot option agreements as of June 30, 2021 and September 30, 2020:


in thousands	Deposits & Non-refundable Pre-acquisition Costs Incurred		Remaining Obligation
As of June 30, 2021


Unconsolidated lot option agreements	$	106,569	$	622,047

As of September 30, 2020


Unconsolidated lot option agreements	$	75,921	$	395,133