Meritage Homes Profile
Meritage Homes Corporation (Meritage Homes) operates as a designer and builder of single-family attached and detached homes.
The company primarily builds in historically high-growth regions of the United States and offers a variety of entry-level and first move-up homes. The company has operations in three regions: West, Central and East, which are consisted of ten states: Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee. These three regions are the company’s principal homebuilding reporting segments. The company also operates a financial services reporting segment. In this segment, the company offers title and escrow, mortgage, and insurance services. Carefree Title Agency, Inc. (‘Carefree Title’), the company’s wholly-owned title company, provides title insurance and closing/settlement services to the company’s homebuyers in certain states. Managing the company’s own title operations allows the company greater control over the entire escrow and closing cycles in addition to generating additional revenue. Meritage Homes Insurance Agency, Inc. (‘Meritage Insurance’), the company’s wholly-owned insurance broker, works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to the company’s homebuyers. The company’s financial services operations also provide mortgage services to its homebuyers through an unconsolidated joint venture.
The company’s homebuilding activities are conducted under the name of Meritage Homes in each of the company’s homebuilding markets. As of December 31, 2023, the company was actively selling homes in 270 communities. The company’s homebuilding construction, development and sales activities are conducted through its subsidiaries.
Strategy
The company’s operational strategy focuses on building affordable, quick move-in homes that are designed to meet the growing demand for entry-level and first move-up product. The company’s LiVE.NOW communities are targeted to the entry-level price point combining nicely-appointed affordable homes with simplified and streamlined construction and sales processes aimed to create a stress-free buying experience for its customers while also allowing the company’s trade partners and suppliers to work more efficiently, which allows the company to pass resulting savings on to its customers.
The company has a 100% speculative (‘spec’) home building strategy for its entry-level product, so the company pre-starts all of its homes with preselected plans and features from the company’s reduced SKU counts and plan libraries. The company’s strategy also encompasses a simplification of the home buying process for the first move-up segment, a demographic the company has historically had a significant presence in. For the company’s first move-up product, the company’s pre-set option packages provide an experience that simplifies the sale and design processes, providing an efficient and less stressful way for homebuyers to personalize their new homes through professionally-curated design collections versus the traditional a-la-carte design center offerings, although in 2023 most of these first move-up offerings were also pre-started prior to sales order to expedite the building cycle time and offer quick move-ins for the company’s buyers.
The company continues to focus on innovation in every new home the company builds, employing industry-leading building techniques and technologies aimed at surpassing the baseline standards for energy-efficient homebuilding. Accordingly, at a minimum, every new home the company constructs meets or exceeds ENERGY STAR standards and comes standard with the MERV-13 air filter, one of the most advanced air filtration systems offered for residential construction, and a multispeed heating, ventilation and air conditioning (‘HVAC’) system that is designed to operate more efficiently than traditional HVAC systems, allowing owners to better manage the comfort of their home. These standard offerings provide the company’s customers with homes that utilize, on average, half of the energy of a typical U.S. home of the same size. As a result of the company’s commitment to interior air quality, the company received the U.S. Environmental Protection Agency’s (‘EPA’) ENERGY STAR and Indoor airPLUS certifications in 2023. In addition, all homes the company builds include home automation features through the company’s M.Connected Home Automation Suite, which includes a central hub that allows users to monitor and control key components of their homes, such as Wi-Fi enabled thermostats, garage doors and smart door locks.
Land Acquisition and Development
During the year ended December 31, 2023, the company secured approximately 16,000 net new lots. The company ended the year with 64,313 lots under control as of December 31, 2023. As of December 31, 2023, the company had a 4.6 year supply of lots. Nearly all of the lots placed under control in 2023 are designated for entry-level communities. The company is focused on growing its market share in its existing markets, including Salt Lake City and Jacksonville, the two new markets the company entered this year. The company continually evaluates its markets, monitoring and adjusting its lot supply through lot and land acquisitions to ensure the company has a sufficient pipeline that is in sync with local market dynamics. During 2023, the company closed 13,976 homes, purchased approximately 14,900 lots, and started construction on 14,524 homes.
The company is purchasing primarily undeveloped land as the opportunity to purchase partially developed or substantially finished lots in desired locations is limited. Finished lots are those on which the development has been completed by a third party and are ready for immediate home construction. The entitlement and development of raw and undeveloped land and partially developed lots require a longer lead time before new communities are able to open for sales.
Once the company secures undeveloped land, the company generally supervises and controls the development of the land through contractual agreements with professional consultants and subcontractors. These activities may include site planning and engineering, as well as constructing road, sewer, water, utilities, drainage, landscaping improvements, recreation amenities and other improvements and refinements. The company develops a design and marketing plan tailored to each community, which includes the determination of type, size, style and price range of homes. The company may also determine the overall community design for each project the company develops, including street and community layout, individual lot size and layout, and common areas and amenities to be included within the community. The homes offered depend upon many factors, including the guidelines, if any, of the existing community, housing available in the area, the needs and desired housing product for a particular market, pricing targets for the surrounding metro and the company’s lot sizes, though the company almost exclusively use the company’s standardized home design plans in its communities. The company also builds homes in master-planned communities with home sites that are adjacent to or near major amenities, such as golf courses or recreation facilities.
As of December 31, 2023, in addition to the company’s 46,294 owned lots, the company also had 18,019 lots under committed purchase or option contracts. The company purchases and develops land primarily to support its homebuilding operations, although the company may sell land and lots to other developers and homebuilders from time to time where the company has excess land positions or for other strategic reasons.
Construction Operations
The company typically acts as the general contractor for its projects and hire experienced subcontractors on a geographic basis to complete construction at fixed prices. The company also enters into longer-term and national or regional contracts with subcontractors and suppliers, where possible, to obtain more favorable terms, and to control product consistency and availability. The company’s purchasing and construction managers coordinate and monitor the activities of subcontractors and suppliers, and monitor compliance with zoning, building and safety codes.
The company generally builds and sells homes in phases within its larger projects, which creates efficiencies in land development, home construction operations and cash management. The company also improves customer satisfaction by reducing the number of vacant lots and construction activity surrounding completed and occupied homes. The company’s homes are typically completed within three to five months from the start of construction, depending upon the geographic location and the size and complexity of the home.
Marketing and Sales
The company has robust communication and marketing plans that reach prospective customers through a combination of online advertising, online listings, social media, email and articles. The company leverages a suite of digital offerings to provide its customers with a simple and streamlined sales and marketing experience, including:
Online scheduling to allow customers to schedule in-person, self-guided model home tours after hours in select locations;
Virtual tours in all of the company’s communities for realtors and prospective buyers;
Extensive online tools, such as 3-D tours and dynamic floor plans to mimic the live experience of walking through a model home;
The company’s chat bot, Virtual Assistant Liaison (‘VAL’), provides customers and owners with information and support on the company’s website;
Pre-qualifying buyers for mortgages through digital solutions on the company’s website;
Collecting earnest money payments remotely through third-party hosted money-transfer solutions;
Warranty portal for the company’s homeowners to submit and track warranty-related matters;
Comprehensive online suite of financial services such as on-demand homeowners’ insurance quotes; and
Digital signing of sales contracts and drive-through and partial or fully virtual closings in states where such services are permitted.
In addition, the company’s local marketing efforts are focused on opening new communities with strong interest lists and driving consumer traffic through digital media campaigns, virtual events for both prospective buyers and real estate agents, grass roots marketing, and strategically placed signage in the surrounding areas of the company’s communities.
In addition to the company’s robust digital marketing platform, the company uses furnished model homes as a marketing tool to demonstrate to prospective homebuyers the advantages of the designs and features of the company’s homes. As of December 31, 2023, the company owned 327 completed model homes, had 41 models under construction and leased back 2 model homes previously sold to buyers. The company generally employs or contracts with interior and landscape designers who enhance the appeal of the company’s model homes, which highlight the features and options available. The company typically builds between one and three model homes for each actively selling community, depending upon the products to be offered and the number of homes to be built in the project.
The company’s strategy of providing simplification and transparency extends to its approach to interior design and finishes perspective, which is particularly appealing to the company’s entry-level and first move up buyer segments. Leveraging feedback from the company’s homebuyers and based on its core values of innovating with the customer in mind, the company took action to completely rethink how the home buying and design process should work to meet the needs of today’s buyer. The company offers pre-selected combinations of flooring, cabinetry, countertops and fixtures that are all professionally designed to meet its buyer’s preferences, and the company’s homebuyers benefit from bulk-purchase savings that the company passes through from its national vendor partnerships.
The company’s homes generally are sold by its commissioned local sales associate employees. The company also employs a team of online sales associates who offer assistance to potential buyers viewing its communities and products online through digital offerings, such as virtual tours and 3-D tours and dynamic floor plans. The company’s sales associates are licensed real estate agents where required by law.
Investments in Unconsolidated Entities — Joint Ventures
The company has two active land development ventures. In addition to the land development joint ventures, the company participates in one mortgage business joint venture. The mortgage joint venture is engaged in mortgage activities and primarily provides services to the company’s homebuyers.
In connection with the company’s land development joint ventures, the company may also provide certain types of limited guarantees to associated lenders and municipalities.
Customer Financing
Most of the company’s homebuyers require financing to purchase their home. Accordingly, the company refers them to mortgage lenders that offer a variety of financing options. While the company’s homebuyers may obtain financing from any mortgage provider of their choice, the company has a joint venture arrangement with an established mortgage broker that acts as a preferred mortgage broker to help facilitate the financing process, as well as generate additional revenue for the company through its interest in the joint venture. The company also has referral relationships with unaffiliated preferred mortgage lenders.
Government Regulation and Environmental Matters
In order for the company’s homebuyers to finance their home purchases with Federal Housing Administration (‘FHA’)-insured, Veterans Administration (‘VA’)-guaranteed or United States Department of Agriculture (‘USDA’)-guaranteed mortgages, the company is required to build such homes in accordance with the regulatory requirements of those agencies.
Seasonality
Historically, the company has experienced seasonal variations in its quarterly operating results and capital requirements. The company typically sells more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the second and third quarters (year ended December 2023) to build the company’s inventories to satisfy the deliveries in the second half of the year. The company typically benefits from the cash generated from home closings more in the third and fourth quarters than in the first and second quarters.
History
Meritage Homes Corporation was founded in 1985. The company was incorporated in the state of Maryland in 1988.
