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Meritage plans to spend $1.5B on land in 2021 and beyond

Tuesday, February 2, 2021   /   by Juan Grimaldo

Meritage plans to spend $1.5B on land in 2021 and beyond

With a record-breaking fourth quarter, Meritage Homes Corp. is poised to spend more than $1.5 billion on land this year to beef up its community count across the country.

In his first earnings call as CEO of Meritage, Phillippe Lord told analysts he plans to be operating 300 communities by June 2022, which means the Scottsdale-based homebuilder will continue to be aggressive in land purchases in 2021 and beyond.

Lord was promoted last year from COO to take the place of Steve Hilton, who retired from the company he founded 35 years ago, but still remains as executive chairman.

Lord told analysts in the Meritage (NYSE: MTH) fourth quarter earnings call on Jan. 28 that the company closed out some high selling communities in metro Phoenix and is replacing them with more high-selling communities.

"We haven't seen any slowdown in Phoenix yet," Lord told analysts. "We certainly have been pushing prices aggressively there. In-migration is going on in Phoenix and the market is really strong."

Based on the number of home closings in 2020, Meritage is the fourth largest homebuilder in metro Phoenix, closing on 1,483 homes, according to RL Brown Housing Reports.

In Tucson, Meritage is the second largest builder, said Jim Daniel, president of RL Brown Housing Reports.

It also is the seventh largest publicly traded homebuilder in the nation, based on homes closed in 2019 in its markets in Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.

"Meritage has 65 active subdivisions — with at least one new home closing or permit in the last 12 months — in the Phoenix and Tucson markets with a total lot count of 10,898, of which 2,230 are available," Daniel said. "Meritage also has 22 future platted communities within the Phoenix/Tucson markets, where there are no permits issued yet, that account for 2,351 lots."

In 2020, Meritage spent more than $106 million on land in the Phoenix market and more than $22 million on land in the Tucson market, Daniel said.

One of its newest communities to open is Vistas at Palm Valley in Goodyear, where 197 homes ranging from 1,932 to 3,628 square feet will be sold starting from the mid $300,000s.

These growth plans come at a time when Meritage achieved another record quarter, with Q4 sales orders of 3,174 homes topping Q4 2019 by 52% nationwide.

As of Dec. 31, Meritage had $745.6 million in cash and cash equivalents, up from $319.5 million during the same period in 2019.

During the fourth quarter of 2020, Meritage invested $506 million in land acquisition and development nationwide, putting 11,200 new lots under control, which is a quarterly record, Lord told analysts in the Q4 earnings call.

That land investment is a good sign, according to analyst Kenneth Leon, director of equity research at CFRA Research.

"With $506 million in land acquisitions in Q4 2020, we think MTH can reach its target of adding new selling communities," Leon wrote in his report. "Nearly 81% of total new lots are planned for LiveNow entry level homes."

For the fourth quarter ended Dec. 31, Meritage reported net earnings of $152.5 million in $1.4 billion in home closing revenue, up from $103.6 million in net earnings on $1.1 billion in home closing revenue for the same period in 2019.

For the 12 months ended Dec. 31, Meritage reported $423.5 million in net earnings on $4.5 billion in home closing revenue, up from $249.7 million in net earnings on $3.6 billion in home closing revenue in 2019.

In its guidance for 2021, Meritage is expected to generate between $4.2 billion and $4.6 billion in home closing revenue. Plans call for ending 2021 with somewhere between 235 and 245 communities toward its goal of 300 communities by June 2022.

For a deeper dive into what Meritage is planning for 2021 in metro Phoenix, register for the Feb. 25 homebuilder panel discussion.

Keller Williams Realty Elite- The Grimaldo Group
Juan Grimaldo
2403 N Pebble Creek Pkwy #101
Goodyear, AZ 85395

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