Fair Value Disclosures

3 Months Ended

Jan. 31, 2020

Fair Value Disclosures

Financial Instruments

The table below provides, as of the dates indicated, a summary of assets/(liabilities) related to our financial instruments, measured at fair value on a recurring basis (amounts in thousands):



		Fair value
Financial Instrument	Fair value hierarchy	January 31, 2020			October 31, 2019
Residential Mortgage Loans Held for Sale	Level 2	$	111,995		$	218,777
Forward Loan Commitments — Residential Mortgage Loans Held for Sale	Level 2	$	181		$	298
Interest Rate Lock Commitments (“IRLCs”)	Level 2	$	852		$	964
Forward Loan Commitments — IRLCs	Level 2	$	(852	)	$	(964	)

At January 31, 2020 and October 31, 2019, the carrying value of cash and cash equivalents and customer deposits held in escrow approximated fair value.

Mortgage Loans Held for Sale

At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value.

The table below provides, as of the dates indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale (amounts in thousands):



	Aggregate unpaid principal balance		Fair value		Excess
At January 31, 2020	$	110,756	$	111,995	$	1,239
At October 31, 2019	$	216,280	$	218,777	$	2,497

Inventory

We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of inventory was determined using Level 3 criteria. See Note 1, “Significant Accounting Policies – Inventory,” in our 2019 Form 10-K for information regarding our methodology for determining fair value. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired operating communities:



Three months ended:	Selling price per unit ($ in thousands)	Sales pace per year (in units)	Discount rate
Fiscal 2020:
January 31	—	—	—

Fiscal 2019:
January 31	836 - 13,495	2 - 12	12.5% - 15.8%
April 30	372 - 1,915	2 - 19	12.0% - 26.0%
July 31	530 - 1,113	2 - 9	7.8% - 13%
October 31	478 - 857	2 - 5	13.8% - 14.5%

The table below provides, for the periods indicated, the number of operating communities that we reviewed for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and, as of the end of the period indicated, the fair value of those communities, net of impairment charges ($ amounts in thousands):



		Impaired operating communities
Three months ended:	Number of communities tested	Number of communities	Fair value of communities, net of impairment charges		Impairment charges recognized
Fiscal 2020:
January 31	65	—	$	—	$	—
					$	—
Fiscal 2019:
January 31 (1)	49	5	$	37,282	$	5,785
April 30 (2)	64	6	$	36,159	17,495
July 31	69	3	$	5,436	1,100
October 31 (3)	71	7	$	18,910	6,695
					$	31,075


(1)	Includes impairments of $2.8 million (one community), $1.5 million (three communities), and $1.5 million (one community) located in our City Living, North, and South segments, respectively.


(2)	Includes impairments of $2.0 million (one community), $15.0 million (four communities), and $0.5 million (one community) located in our City Living, North, and South segments, respectively.


(3)	Includes impairments of $5.1 million (four communities), $0.6 million (two communities) and $1.0 million (one community) located in our North, South, and Pacific segments, respectively

Debt

The table below provides, as of the dates indicated, the book value and estimated fair value of our debt (amounts in thousands):



		January 31, 2020				October 31, 2019
	Fair value hierarchy	Book value		Estimated fair value		Book value		Estimated fair value
Loans payable (1)	Level 2	$	1,280,147	$	1,281,745	$	1,114,577	$	1,112,040
Senior notes (2)	Level 1	2,669,876		2,849,347		2,669,876		2,823,043
Mortgage company loan facility (3)	Level 2	97,653		97,653		150,000		150,000
		$	4,047,676	$	4,228,745	$	3,934,453	$	4,085,083


(1)	The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.


(2)	The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date.

(3)

We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details