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

3 Months Ended

Mar. 31, 2017

Equity Method Investments and Joint Ventures [Abstract]

We may enter 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. In 2016, we entered into our first new joint venture since 2008. Based on the structure of each joint venture, it 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 March 31, 2017, we had three active equity-method land ventures.

As of March 31, 2017, 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 March 31, 2017 and December 31, 2016 was $1.7 million and $2.3 million, respectively.

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



	As of
	March 31, 2017		December 31, 2016
Assets:
Cash	$	7,533	$	7,446
Real estate	54,252		54,319
Other assets	4,166		6,461
Total assets	$	65,951	$	68,226
Liabilities and equity:
Accounts payable and other liabilities	$	5,506	$	7,339
Notes and mortgages payable	23,332		23,000
Equity of:
Meritage ⁽¹⁾	14,671		14,245
Other	22,442		23,642
Total liabilities and equity	$	65,951	$	68,226



	Three Months Ended March 31,
	2017			2016
Revenue	$	7,599		$	11,071
Costs and expenses	(4,480		)	(4,976		)
Net earnings of unconsolidated entities	$	3,119		$	6,095
Meritage’s share of pre-tax earnings ^{(1) (2)}	$	3,182		$	2,635

(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. As discussed in Note 2 to these unaudited combined financial statements, balances do not include $47,000 and $130,000 of capitalized interest that is a component of our investment balances at March 31, 2017 and December 31, 2016, respectively.


(2)	Our share of pre-tax earnings is recorded in Earnings from financial services unconsolidated entities and other, net and Earnings/(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 three active land ventures, one mortgage venture and various inactive ventures. Our total investment in all of these joint ventures is $16.9 million and $17.1 million as of March 31, 2017 and December 31, 2016, respectively. We believe these ventures are in compliance with their respective debt agreements, if applicable, and such debt is non-recourse to us.