Meritage Homes Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Investments in Unconsolidated Entities

Investments in Unconsolidated Entities

9 Months Ended

Sep. 30, 2015

Equity Method Investments and Joint Ventures [Abstract]

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 are generally 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 September 30, 2015, we had two active equity-method land ventures.

We have outstanding litigation reserves related to a minority ownership in one of our inactive joint ventures, the South Edge joint venture. There is pending litigation with the venture's lender group regarding our guarantee related to that venture and, separate pending arbitration proceedings regarding a dispute we have with certain members of the joint venture. See Note 15 regarding the outstanding litigation related to this joint venture.

As of September 30, 2015, 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 September 30, 2015 and December 31, 2014 was $1.7 million and $2.0 million, respectively.

Summarized condensed financial information related to unconsolidated joint ventures that are accounted for using the equity method was as follows (in thousands):



	At September 30, 2015		At December 31, 2014
Assets:
Cash	$	7,320	$	6,471
Real estate	33,338		34,435
Other assets	3,456		2,990
Total assets	$	44,114	$	43,896
Liabilities and equity:
Accounts payable and other liabilities	$	5,755	$	5,994
Notes and mortgages payable	13,345		13,346
Equity of:
Meritage (1)	7,890		7,735
Other	17,124		16,821
Total liabilities and equity	$	44,114	$	43,896



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenue	$	10,252		$	7,982		$	25,406		$	19,905
Costs and expenses	(4,649		)	(3,744		)	(12,057		)	(9,609		)
Net earnings of unconsolidated entities	$	5,603		$	4,238		$	13,349		$	10,296
Meritage’s share of pre-tax earnings (1) (2)	$	3,754		$	2,649		$	8,763		$	6,917

(1)

Balance represents Meritage’s interest, as reflected in the financial records of the respective joint ventures. This balance may differ from the balance reported 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 income statements 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 two active land ventures, one mortgage venture and various inactive ventures. Our total investment in all of these joint ventures is $10.4 million and $10.8 million as of September 30, 2015 and December 31, 2014, respectively. As of September 30, 2015, we believe these ventures are in compliance with their respective debt agreements, if applicable, and such debt is non recourse to us.