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Inventory | 12 Months Ended
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Sep. 30, 2020
Real Estate [Abstract] |
Inventory | Inventory The components of our owned inventory as of September 30, 2020 and September 30, 2019 are as follows:
in thousands | September 30, 2020 |  | September 30, 2019
Homes under construction | $ | 525,021 |  |  | $ | 507,542 |
Development projects in progress | 589,763 |  |  | 738,201 |
Land held for future development | 28,531 |  |  | 28,531 |
Land held for sale | 12,622 |  |  | 12,662 |
Capitalized interest | 119,659 |  |  | 136,565 |
Model homes | 75,142 |  |  | 80,747 |
Total owned inventory | $ | 1,350,738 |  |  | $ | 1,504,248 |
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 133 (with a cost of $42.2 million) and 238 (with a cost of $82.2 million) substantially completed homes that were not subject to a sales contract (spec homes) as of September 30, 2020 and 2019, 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 interest and real estate taxes on land held for future development 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). 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 September 30, 2020 and September 30, 2019:
in thousands | Projects in Progress (a) |  | Land Held for Future Development |  | Land Held for Sale |  | Total Owned Inventory
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 |
September 30, 2019 |  |  |  |  |  |  |
West Segment | $ | 723,094 |  |  | $ | 3,483 |  |  | $ | 5,160 |  |  | $ | 731,737 |
East Segment | 228,937 |  |  | 14,077 |  |  | 4,104 |  |  | 247,118 |
Southeast Segment | 318,737 |  |  | 10,971 |  |  | 3,398 |  |  | 333,106 |
Corporate and unallocated (b) | 192,287 |  |  | — |  |  | — |  |  | 192,287 |
Total | $ | 1,463,055 |  |  | $ | 28,531 |  |  | $ | 12,662 |  |  | $ | 1,504,248 |
(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 and Abandonments The following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:
| Fiscal Year Ended September 30,
in thousands | 2020 |  | 2019 |  | 2018
Projects in Progress: |  |  |  |  |
West | $ | — |  |  | $ | 92,912 |  |  | $ | — |
Southeast | — |  |  | 858 |  |  | 793 |
Corporate and unallocated (a) | — |  |  | 16,260 |  |  | 212 |
Total impairments on projects in progress | $ | — |  |  | $ | 110,030 |  |  | $ | 1,005 |
Land Held for Sale: |  |  |  |  |
West | $ | 89 |  |  | $ | 37,963 |  |  | $ | — |
East | — |  |  | — |  |  | 168 |
Southeast | 8 |  |  | — |  |  | 3,218 |
Corporate and unallocated (a) | 1,160 |  |  | 625 |  |  | 2,108 |
Total impairments on land held for sale | $ | 1,257 |  |  | $ | 38,588 |  |  | $ | 5,494 |
Abandonments: |  |  |  |  |
West | $ | 923 |  |  | $ | — |  |  | $ | — |
East | 82 |  |  | — |  |  | — |
Southeast | 641 |  |  | — |  |  | — |
Total abandonments | $ | 1,646 |  |  | $ | — |  |  | $ | — |
Total continuing operations | $ | 2,903 |  |  | $ | 148,618 |  |  | $ | 6,499 |
Discontinued Operations: |  |  |  |  |
Land Held for Sale | $ | — |  |  | $ | — |  |  | $ | 450 |
Total discontinued operations | $ | — |  |  | $ | — |  |  | $ | 450 |
Total impairments and abandonments | $ | 2,903 |  |  | $ | 148,618 |  |  | $ | 6,949 |
(a) Amount represents capitalized interest and indirect costs that were impaired. Capitalized interest and indirect costs are maintained within our Corporate and unallocated segment. Projects in Progress Impairments 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. During the year ended September 30, 2020, we performed our quarterly inventory impairment assessment 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 fiscal 2020. During the year ended September 30, 2019, we performed discounted cash flow analysis on ten communities, nine in the West segment and one in the Southeast segment, and recognized a total of $110.0 million impairment charges related to our projects in progress. Refer to below for further discussion. During the year ended September 30, 2018, we performed discounted cash flow analysis on one community in the Southeast segment, and recognized an impairment charge of $1.0 million principally due to a reduction in price taken that is other than temporary based on the competitive and market dynamics. The table below presents, by reportable segment, details of the impairment charges taken on projects in progress for the periods presented (no discounted cash flow analysis was performed during fiscal 2020):
$ in thousands | Results of Discounted Cash Flow Analyses Prepared
Segment | # of Communities Impaired |  | # of Lots Impaired |  | Impairment Charge |  | Estimated Fair Value of Impaired Inventory at Time of Impairment
Year Ended September 30, 2019
West | 9 |  |  | 839 |  |  | $ | 92,912 |  |  | $ | 69,449 |
Southeast | 1 |  |  | 15 |  |  | 858 |  |  | 1,367 |
Corporate and unallocated (a) | — |  |  | — |  |  | 16,260 |  |  | 14,166 |
Total | 10 |  |  | 854 |  |  | $ | 110,030 |  |  | $ | 84,982 |
Year Ended September 30, 2018 |  |  |
Southeast | 1 |  |  | 25 |  |  | $ | 793 |  |  | $ | 1,312 |
Corporate and unallocated (a) | — |  |  | — |  |  | 212 |  |  | — |
Total | 1 |  |  | 25 |  |  | $ | 1,005 |  |  | $ | 1,312 |
(a) Amount represents the capitalized interest and indirect cost that were impaired. Capitalized interest and indirect costs are maintained within our Corporate and unallocated segment. During the second quarter of fiscal 2019, we recognized impairment charges of $147.6 million related to fifteen communities in our California submarkets, all of which were previously land held for future development assets. As of the beginning of the quarter, nine of these communities were included in projects in progress due to their activation for development in prior periods, while the remaining six communities were classified as land held for future development (refer to below section titled "Land Held for Sale Impairments" for further discussion). We performed discounted cash flow analyses for the nine communities in projects in progress and recognized $109.0 million impairment charges, principally due to a reduction in price that is other than temporary based on competitive and market dynamics. Valuation assumptions for communities tested for impairment are specific to each community. For projects in progress impaired during the periods presented, we determined the fair value of each community by discounting its estimated future cash flows at a rate commensurate with the risks inherent in the project. The discount rate used depends on the development stage and expected duration of the project, local market conditions, and other specific factors. The estimated future cash flows for each community were determined based on the expected pace of closings and average sales price of the community less expected costs for land acquisition and land development, direct construction, overhead, and interest. We determined the fair value of land held for sale assets impaired during the periods presented based on sales contracts, letters of intent, and recent comparable land sale transactions, as applicable. The assumptions used in the determination of fair value of both projects in progress and land held for sale communities are based on factors known to us at the time such estimates are made and our expectations of future operations and market conditions. Should the estimates or expectations used in determining estimated fair values deteriorate in the future, we may be required to recognize additional impairment charges and write-offs related to these assets, and such amounts could be material. The table below presents the ranges or values of significant quantitative unobservable inputs we used in determining the fair value of the communities impaired during the periods presented:
|  |  | Fiscal Year Ended September 30,
Unobservable Inputs |  |  |  | 2019 |  | 2018
Average selling price (in thousands) |  |  |  | $350 - $615 |  | $356
Closings per community per month |  |  |  | 1 - 4 |  | 1 - 6
Discount rate |  |  |  | 14.7% - 16.8% |  | 15.1 | %
Land Held for Sale Impairments 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. During the year ended September 30, 2020, we recognized $1.3 million land held for sales impairment charges related to two held for sale communities in our West and Southeast segments. During the second quarter of fiscal 2019, concurrent with the California projects in progress impairment analyses described above, we performed a strategic review of our remaining land held for future development assets in California and determined to sell these parcels. As a consequence of change in strategy with respect to the future use of these assets, we recognized land held for sale impairments totaling $38.6 million for six communities in our West segment. During the year ended September 30, 2018, we recognized $5.5 million land held for sales impairment charges related to two held for sale communities in the East and Southeast segments. In addition, we recognized $0.5 million land held for sales impairment charges related to one held for sale community in our discontinued operations. Abandonments 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. In determining whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. 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. During the year ended September 30, 2020, we recognized $1.6 million abandonment charges related to six unde r contract land acquisition deals that we decided to terminate. There were no abandonment charges recognized during our fiscal 2019 and 2018. Lot Option Agreements 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 September 30, 2020 and September 30, 2019:
in thousands | Deposits & Non-refundable Pre-acquisition Costs Incurred |  | Remaining Obligation |  |
As of September 30, 2020 |  |  |  |  |
Unconsolidated lot option agreements | $ | 75,921 |  |  | $ | 395,133 |  |  |
As of September 30, 2019 |  |  |  |  |
Unconsolidated lot option agreements | $ | 78,202 |  |  | $ | 389,705 |  |  |

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- Definition The entire disclosure for inventory. Includes, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the classes of inventory, and the nature of the cost elements included in inventory. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 330 -URI http://asc.fasb.org/topic&trid=2126998 + Details
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