Annual report pursuant to Section 13 and 15(d)

Investments in Unconsolidated Entities

v2.4.1.9
Investments in Unconsolidated Entities
 12 Months Ended
Dec. 31, 2014
Equity Method Investments and Joint Ventures [Abstract]  
INVESTMENTS IN UNCONSOLIDATED ENTITIES
INVESTMENTS IN UNCONSOLIDATED ENTITIES
In the past, we have entered into land development joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile and leveraging our capital base. While purchasing land through a joint venture can be beneficial, currently we do not view joint ventures as critical to the success of our homebuilding operations and have not entered into any new land joint ventures since 2008. Based on the structure of these joint ventures, they may or may not be consolidated into our results. Our joint venture partners generally are other homebuilders, land sellers or other real estate investors. We generally do not have a controlling interest in these ventures, which means our joint venture partners could cause the venture to take actions we disagree with, or fail to take actions we believe should be undertaken, including the sale of the underlying property to repay debt or recoup all or part of the partners' investments. As of December 31, 2014, we had two active equity-method land ventures.
In connection with our land development joint ventures, we may also provide certain types of guarantees to associated lenders of the joint venture. These guarantees can be classified into two categories: (i) repayment guarantees and (ii) completion guarantees. We have no such guarantees as of December 31, 2014 and 2013. We have outstanding litigation related to our minority ownership in the South Edge joint venture as there is pending litigation with the venture's lender group regarding our $13.2 million guarantee related to that venture. See Note 15 regarding the outstanding litigation related to this joint venture and the corresponding reserves and charges we have recorded relating thereto.




Surety Bonds. We and our joint venture partners also indemnify third party surety providers with respect to performance bonds issued on behalf of certain of our joint ventures. If a joint venture does not perform its obligations, the surety bond could be called. If these surety bonds are called and the joint venture fails to reimburse the surety, we and our joint venture partners would be obligated to make such payments. These surety indemnity arrangements are generally joint and several obligations with our joint venture partners. Although a majority of the required work may have been performed, these bonds are typically not released until all development specifications under the bond have been met. None of these bonds have been called to date and we believe it is unlikely that any of these bonds will be called or if called, that any such amounts would be material to us. See the table below for detail of our surety bonds.
As of December 31, 2014, we also participated in one mortgage joint venture, which is engaged in mortgage activities and provides services to both our homebuyers as well as other buyers. Our investment in this mortgage joint venture as of December 31, 2014 and December 31, 2013 was $2.0 million and $2.9 million, respectively. Prior year balances included investments in wind-down title joint ventures that are no longer in operation.
Summarized condensed financial information related to unconsolidated joint ventures that are accounted for using the equity method was as follows (in thousands):
 
At December 31, 2014
 
At December 31, 2013
Assets:
 
 
 
Cash
$
6,471

 
$
7,299

Real estate
34,435

 
34,949

Other assets
2,990

 
3,067

Total assets
$
43,896

 
$
45,315

Liabilities and equity:
 
 
 
Accounts payable and other liabilities
$
5,994

 
$
2,889

Notes and mortgages payable
13,346

 
13,453

Equity of:
 
 
 
Meritage (1)
7,735

 
10,332

Other
16,821

 
18,641

Total liabilities and equity
$
43,896

 
$
45,315


 
 
Years Ended December 31,
 
2014
 
2013
 
2012
Revenue
$
28,458

 
$
34,553

 
$
38,230

Costs and expenses
(13,009
)
 
(12,407
)
 
(21,093
)
Net earnings of unconsolidated entities
$
15,449

 
$
22,146

 
$
17,137

Meritage’s share of pre-tax earnings (1) (2)
$
10,443

 
$
12,833

 
$
10,441


(1)
Balance represents Meritage’s interest, as reflected in the financial records of the respective joint ventures. This balance may differ from the balance reflected in our consolidated financial statements due to the following reconciling items: (i) timing differences for revenue and distributions recognition, (ii) step-up basis and corresponding amortization, (iii) capitalization of interest on qualified assets, (iv) income deferrals as discussed in Note (2) below and (v) the cessation of allocation of losses from joint ventures in which we have previously written down our investment balance to zero and where we have no commitment to fund additional losses.
(2)
Our share of pre-tax earnings is recorded in Earnings from financial services unconsolidated entities and other, net and Loss from other unconsolidated entities, net on our consolidated statement of operations and excludes joint venture profit related to lots we purchased from the joint ventures. Such profit is deferred until homes are delivered by us and title passes to a homebuyer.

The joint venture assets and liabilities noted in the table above primarily represent the active land ventures, one mortgage and various inactive ventures. Our total investment in all of these joint ventures is $10.8 million. As of December 31, 2014, we believe these ventures are in compliance with their respective debt agreements, if applicable, and such debt is non recourse to us.