Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN UNCONSOLIDATED ENTITIES

v3.19.2
INVESTMENTS IN UNCONSOLIDATED ENTITIES
 6 Months Ended
Jun. 30, 2019
Equity Method Investments and Joint Ventures [Abstract]  
INVESTMENTS IN UNCONSOLIDATED ENTITIES INVESTMENTS IN UNCONSOLIDATED ENTITIES
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 a primary source of land acquisitions. 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 June 30, 2019, we had two active equity-method land ventures with limited operations.
As of June 30, 2019, 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 June 30, 2019 and December 31, 2018 was $1.0 million and $2.8 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
 
June 30, 2019
 
December 31, 2018
Assets:
 
 
 
Cash
$
6,551

 
$
9,595

Real estate
14,091

 
57,631

Other assets
2,425

 
3,644

Total assets
$
23,067

 
$
70,870

Liabilities and equity:
 
 
 
Accounts payable and other liabilities
$
3,961

 
$
8,682

Notes and mortgages payable
—

 
26,808

Equity of:
 
 
 
Meritage (1)
6,347

 
14,472

Other
12,759

 
20,908

Total liabilities and equity
$
23,067

 
$
70,870


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
10,846

 
$
9,982

 
$
19,844

 
$
17,314

Costs and expenses
(3,599
)
 
(3,408
)
 
(9,715
)
 
(7,343
)
Net earnings of unconsolidated entities
$
7,247

 
$
6,574

 
$
10,129

 
$
9,971

Meritage’s share of pre-tax earnings (1) (2)
$
3,654

 
$
3,368

 
$
5,828

 
$
5,978


(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 Other income, net on our unaudited consolidated income statements and excludes joint venture profit related to lots we purchased from the joint ventures, if any. Such profit is deferred until homes are delivered by us and title passes to a homebuyer.
In the second quarter of 2019, we sold our interest in one inactive equity-method land venture, reducing our investment in unconsolidated entities by $7.3 million. Our total investment in all of these joint ventures is $7.6 million and $17.5 million as
of June 30, 2019 and December 31, 2018, respectively. We believe these ventures are in compliance with their respective debt agreements, if applicable, and such debt is non-recourse to us.