Meritage Homes Corp. Increases Diluted EPS by 85% over 3rd Qtr 2004

-- 97% Increase in Net Earnings over 3rd Qtr 2004 to $70 Million

-- 85% Rise in Diluted EPS over 3rd Qtr. 2004 to $2.40

-- 51% Increase in Dollar Value of Home Orders over 3rd Qtr. 2004 to $971 Million

-- 85% Rise in Dollar Value of Order Backlog over Sept. 30, 2004, to $2.5 Billion

Meritage Homes Corp. today announced all-time quarterly recordsfor net earnings, diluted earnings per share, the dollar value of homeorders and the dollar value of order backlog.

SUMMARY OPERATING RESULTS

(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
----------------------------------------------------------------------
% %
2005 2004 Change 2005(a) 2004 Change
----------------------------------------------------------------------
Home
clos-
ing
revenue $753,505 $462,711 63% $1,956,235 $1,317,488 48%
----------------------------------------------------------------------
Net
earn-
ings $70,253 $35,600 97% $153,688 $87,156 76%
----------------------------------------------------------------------
Diluted
EPS $2.40 $1.30 85% $5.35 $3.14 70%
----------------------------------------------------------------------

(a) Includes a first quarter bond refinancing charge related torepurchasing $276.8 million of our 9.75% senior notes due 2011. Thefunds to repurchase these bonds came from our new $350.0 million 6.25%senior notes due 2015. This bond refinancing charge reduced pre-taxearnings by $31.3 million, reduced net earnings by $19.5 million andreduced diluted EPS by $0.69. Excluding this one-time charge, netearnings for the first nine months of 2005 would have increased 99% to$173.2 million and diluted EPS would have risen 92% to $6.04.

"For the third quarter of 2005 we again delivered excellentresults to our stockholders," said John R. Landon, Meritageco-chairman and CEO. "Among other all-time quarterly records, netearnings reached $70 million, nearly double that of the third quarter2004, diluted EPS rose 85% to $2.40 and after-tax return on equityrose to 33.6%. Our 3rd quarter performance affirms our belief that weare offering the right product at the right price and in the rightlocations, and that we are successfully managing the geographicexpansion of our business by leveraging the competitive advantagesavailable to public builders."

Reflecting strong sales orders from prior quarters, the company'shome closing revenue increased 63% to $754 million in the thirdquarter of this year as compared to the same quarter a year ago, whilethe number of homes closed rose 38% to 2,310 homes. Some home closingswere delayed at quarter end in Houston due to Hurricane Rita. Inaddition, Meritage experienced postponements in Las Vegas in receivingelectric hookups, which has pushed some closings from the thirdquarter to the fourth quarter. For the first nine months of this year,home closing revenue increased 48% over the same period a year earlierto $1.96 billion, nearly equaling the 2004 full-year home closingrevenue of $2.02 billion. The number of homes closed rose 27% for thesame period to 6,192 homes. The average price of homes closed duringthe third quarter increased 18% to approximately $326,000, primarilythe result of increased deliveries in Las Vegas and Florida, where theaverage price of homes closed exceeds the company average.

"Overall, we took orders for 2,929 homes during the third quarter,up 33% from the same quarter last year," added Steven J. Hilton,Meritage co-chairman and CEO. "In addition, the dollar value of ordersrose 51% for the same periods to $971 million. Our Texas division hada particularly strong quarter with a 75% increase in the dollar valueof orders reflecting increased job growth and the expansion of ourproduct line to focus not only on move-up homes but also entry-leveland semi-custom luxury."

"In addition to solid increases in revenue, closings and orders,our earnings and margins expanded in both the third quarter and firstnine months of 2005 versus the same periods in 2004," said Landon."Our margin expansion was the result of increases in sales pricesdriven by strong demand, coupled with the effective management ofconstruction and land costs and the leveraging of SG&A expenses. Forthe third quarter 2005, our home closing gross margin increased 311basis points over the third quarter 2004 to 23.6% while our pre-taxmargin advanced 298 basis points to 14.9%. For the first nine monthsof this year, our home closing gross margin rose 352 basis points to23.0% and our pre-tax margin increased 204 basis points to 12.6%,"added Hilton. "Excluding the one-time bond refinancing charge in thefirst quarter of this year, our pre-tax margin for the first ninemonths of 2005 would have risen 364 basis points to 14.1%."

"We are happy to report that we closed our first homes in Orlandounder the Meritage Homes brand just 10 months after our entry intothat market through a startup operation," added Hilton. "Following ouracquisition of Greater Homes in September, we closed our first homesin Orlando under the Greater Homes name. We are pleased with ourcurrent operations in Orlando and Ft. Myers/Naples, Fla., and feelvery positive about the future of our operations in Florida."

"The company's balance sheet remains in excellent position to fundour anticipated growth," said Landon. The net debt-to-capital ratio(b)improved to 45% at Sept. 30, 2005, as compared to 52% at Sept. 30,2004, typically a seasonal high point in leverage for the year. Forthe third quarter of 2005, EBITDA(b) increased 86% over the thirdquarter of 2004 to $127 million. For the 12 months ending Sept. 30,2005, EBITDA rose 65% to $385 million, resulting in an interestcoverage ratio(b) of 9.1 times as compared to 6.7 times for thecomparable period a year earlier. For the 12 months ending Sept. 30,2005, the company's debt-to-EBITDA ratio(b) was 1.7 times, animprovement from 2.2 times a year ago. At Sept. 30, 2005, Meritage had$151 million outstanding on its $400 million bank credit facility andhad the availability to borrow an additional $168 million afterconsidering $81 million in outstanding letters of credit. ((b) Adefinition and discussion of Meritage's use of non-GAAP measures areincluded with the summary financial information at the end of thisrelease).

"Our robust earnings thus far this year have led to strong returnsto our stockholders," said Hilton. "For the four quarters ended Sept.30, 2005, our after-tax return on average equity was 33.6%, up from27.7% a year ago, and our after-tax return on average assets was13.8%, up from 11.2% for the same period a year earlier."

"At Sept. 30, 2005, we were actively selling homes in 174communities, an increase of 29% over Sept. 30, 2004, and 25% over Dec.31, 2004," said Hilton. "We are targeting an increase to approximately180 communities by year end. To support this community growth, at theend of the third quarter 2005, we had approximately 54,675 lots undercontrol, of which approximately 91% were controlled through purchaseand option contracts. The number of lots we controlled at Sept. 30,2005, represents about a 5.5-year supply based on anticipated 2005closings."

"Looking ahead, order backlog reached a record $2.5 billion atSept. 30, 2005, up 85% over the same date in 2004 and the number ofhomes in backlog at the end of the third quarter 2005 increased 59% to7,536 homes, also an all-time record," added Landon. "While we areaware of investor concerns about demand trends, Meritage increased thedollar value of our home orders in the third quarter by 51% to $971million, and the number of homes ordered advanced 33% to 2,929. We arereaffirming our 2006 guidance of $3.8 to $3.9 billion in revenue and$11.25 to $11.50 in diluted EPS. This guidance would result in a 27%to 30% increase in revenue and an approximate 35% increase in dilutedEPS over our 2005 guidance. Included in this guidance is ourexpectation that interest rates will rise somewhat and that priceappreciation in some of our more robust markets will moderate."

"With our all-time record backlog, our strong third quarter ordermomentum, and our expanded community and lot positions, we areconfident that we will achieve our previously announced 2005 revenueguidance of approximately $3.00 billion, which would be a 47% increaseover $2.04 billion in 2004. We are also reiterating our 2005 dilutedEPS guidance of $8.25 to $8.50, up 64% to 69% over 2004. Excluding aone-time bond refinancing charge of $0.69 per share incurred duringthe first quarter of 2005, current year diluted EPS guidance would be$8.94 to $9.19, which would be 78% to 83% higher than 2004. We alsoanticipate our fourth quarter diluted EPS to approximate $2.88 to$3.13, an increase of 53% to 66% over the prior year's fourthquarter," concluded Hilton.

Meritage will hold its third quarter earnings call on Wednesday,Oct. 26, 2005, at 11 a.m. EDT. To participate in the call, please dialin at least five minutes before the start time. The domestic dial-innumber for the call is 800-291-3314, and the international dial-innumber is 706-634-0844. The conference call and presentation can beaccessed through the company's Web site at www.meritagehomes.com. Thecall may also be accessed through CCBN for two weeks atwww.fulldisclosure.com. A replay of the call will be available from 12p.m. EDT Oct. 26, 2005, through midnight Nov. 2, 2005. The domesticreplay telephone number is 800-642-1687, and the international replaytelephone number is 706-645-9291. The passcode for the replay is1202695.

About Meritage Homes Corp.

Meritage Homes Corp. is one of the nation's largest single-familyhomebuilders, and is traded on the NYSE, symbol: MTH. The companyappears on Forbes' "Platinum 400" list as No. 1 in terms of five-yearannualized total return, and is included in the S&P SmallCap 600Index. Meritage is ranked as one of Fortune's Fastest GrowingCompanies in America, its fifth appearance on this list in sevenyears. Additionally, Fortune ranked Meritage 747th in its "Fortune1000" list of America's largest corporations and included the companyas a "top pick from 50 great investors" in its Investor's Guide 2004.Meritage operates in fast-growing states of the southern and westernUnited States, including six of the top 10 single-family housingmarkets in the country. For more information about the company, pleasevisit the Meritage Web site located at www.meritagehomes.com.

MERITAGE HOMES CORP. AND SUBSIDIARIES
OPERATING RESULTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2005 2004 2005 2004
--------- --------- ----------- -----------
Operating Results
Home closing revenue $753,505 $462,711 $1,956,235 $1,317,488
Land closing revenue 1,945 20,037 3,954 22,697
--------- --------- ----------- -----------
755,450 482,748 1,960,189 1,340,185

Home closing gross profit 178,011 94,885 450,039 256,755
Land closing gross profit 57 7,160 528 8,089
--------- --------- ----------- -----------
178,068 102,045 450,567 264,844

Commissions and other sales
costs (39,635) (28,077) (106,975) (79,906)
General and administrative
expenses (31,894) (19,822) (82,529) (52,672)
Other income, net 5,963 3,366 16,433 8,535
Loss on extinguishment of
debt - - (31,477) -
--------- --------- ----------- -----------
Earnings before provision
for income taxes 112,502 57,512 246,019 140,801
Provision for income taxes (42,249) (21,912) (92,331) (53,645)
--------- --------- ----------- -----------
Net earnings $70,253 $35,600 $153,688 $87,156
========= ========= =========== ===========

Earnings per share:
Basic:
Earnings per share $2.57 $1.38 $5.72 $3.33
Weighted average shares
outstanding 27,311 25,788 26,880 26,182

Diluted:
Earnings per share $2.40 $1.30 $5.35 $3.14
Weighted average shares
outstanding 29,217 27,288 28,748 27,740

MERITAGE HOMES CORP. AND SUBSIDIARIES
NON-GAAP FINANCIAL DISCLOSURES
(UNAUDITED)
(DOLLARS IN THOUSANDS)

Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2005 2004 2005 2004
--------- -------- --------- ---------
EBITDA Reconciliation:(1)
Net earnings $70,253 $35,600 $153,688 $87,156
Provision for income taxes 42,249 21,912 92,331 53,645
Interest amortized to cost
of sales 9,513 7,482 27,025 21,381
Depreciation and amortization 4,729 3,205 12,752 8,969
--------- -------- --------- ---------
EBITDA $126,744 $68,199 $285,796 $171,151
========= ======== ========= =========

Interest coverage ratio:(2)
EBITDA
Interest incurred
Interest coverage ratio

Debt to EBITDA ratio:(3)
Notes payable and other
borrowings
EBITDA
Debt to EBITDA ratio

After-tax stockholder returns:(4)
Net earnings
Average assets
Average equity
After-tax return on assets
After-tax return on equity

Net debt-to-capital: (5)
Notes payable and other
borrowings
Less: cash and cash
equivalents
Net debt
Stockholders' equity
Capital
Net debt-to-capital


MERITAGE HOMES CORP. AND SUBSIDIARIES
NON-GAAP FINANCIAL DISCLOSURES
(UNAUDITED)
(DOLLARS IN THOUSANDS)

Trailing Twelve Months
Ended Sept. 30,
2005 2004
----------- -----------
EBITDA Reconciliation:(1)
Net earnings $205,500 $118,722
Provision for income taxes 124,476 73,155
Interest amortized to cost
of sales 37,871 29,156
Depreciation and amortization 17,016 11,773
----------- -----------
EBITDA $384,863 $232,806
=========== ===========

Interest coverage ratio:(2)
EBITDA $384,863 $232,806
Interest incurred $42,335 $34,876
Interest coverage ratio 9.1 times 6.7 times

Debt to EBITDA ratio:(3)
Notes payable and other
borrowings $671,782 $516,727
EBITDA $384,863 $232,806
Debt to EBITDA ratio 1.7 times 2.2 times

After-tax stockholder returns: (4)
Net earnings $205,500 $118,722
Average assets $1,484,867 $1,057,835
Average equity $612,410 $428,954
After-tax return on assets 13.8% 11.2%
After-tax return on equity 33.6% 27.7%

Net debt-to-capital: (5)
Notes payable and other
borrowings $671,782 $516,727
Less: cash and cash
equivalents 40,185 19,340
----------- -----------
Net debt $631,597 $497,387
Stockholders' equity 761,922 468,321
----------- -----------
Capital $1,393,519 $965,708
Net debt-to-capital 45.3% 51.5%

(1) EBITDA represents net earnings before interest amortized tocost of sales, income taxes, depreciation and amortization. EBITDA isa non-GAAP financial measure. A non-GAAP financial measure is anumerical historical or future financial performance, financialposition or cash flows that excludes amounts, or is subject toadjustments that have the effect of excluding amounts, that areincluded in the most directly comparable measure calculated andpresented in accordance with GAAP in the statement of earnings,balance sheet, or statement of cash flows (or equivalent statements)of the issuer; or includes amounts, or is subject to adjustments thathave the effect of including amounts, that are excluded from the mostdirectly comparable measure so calculated and presented. In thisregard, GAAP refers to generally accepted accounting principles in theUnited States. We have provided a reconciliation of this non-GAAPfinancial measure to the most directly comparable GAAP financialmeasure.

EBITDA is presented here because it is used by management toanalyze and compare Meritage with other homebuilding companies on thebasis of operating performance and we believe is a financial measurewidely used by investors and analysts in the homebuilding industry.EBITDA as presented may not be comparable to similarly titled measuresreported by other companies because not all companies calculate EBITDAin an identical manner and, therefore, is not necessarily an accuratemeans of comparison between companies. EBITDA is not intended torepresent cash flows for the period or funds available formanagement's discretionary use nor has it been presented as analternative to operating income or as an indicator of operatingperformance and it should not be considered in isolation or as asubstitute for measures of performance prepared in accordance withgenerally accepted accounting principles in the United States ofAmerica.

(2) Interest coverage ratio is calculated as the trailing fourquarters EBITDA divided by the trailing four quarters interestincurred.

(3) Debt to EBITDA ratio is calculated as notes payable and otherborrowings divided by the trailing four quarters EBITDA.

(4) After-tax return on assets and equity are calculated as thetrailing four quarters net earnings divided by the trailing fourquarters average assets and equity, respectively.

(5) Net debt-to-capital is calculated as notes payable and otherborrowings less cash divided by notes payable and other borrowings.

MERITAGE HOMES CORP. AND SUBSIDIARIES
BALANCE SHEET DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)

Sept. 30, 2005 Dec. 31, 2004
-------------- ---------------
Total assets $1,887,637 $1,265,394
Real estate 1,409,433 867,218
Cash and cash equivalents 40,185 47,876
Consolidated real estate not owned 2,557 18,344
Total liabilities and minority
interests 1,126,715 742,839
Notes and loans payable 671,782 471,415
Liabilities related to real estate not
owned 2,143 14,780
Stockholders' equity 761,922 522,555

MERITAGE HOMES CORP. AND SUBSIDIARIES
OPERATING DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)

For The
Three Months Ended Sept. 30
-------------------------------
2005 2004
--------------- ---------------
Homes $ Homes $
------ -------- ------ --------
Homes Ordered:
Texas 1,318 304,346 805 173,816
Arizona 954 328,379 914 219,349
California 400 236,709 391 215,685
Nevada 165 66,791 93 34,073
Florida 61 23,262 - -
Colorado 31 11,048 - -
------ -------- ------ --------
Total 2,929 970,535 2,203 642,923
====== ======== ====== ========

Homes Closed:
Texas 879 197,926 700 152,060
Arizona 765 213,975 560 127,516
California 406 244,703 367 166,819
Nevada 138 52,980 44 16,316
Florida 122 43,921 - -
------ -------- ------ --------
Total 2,310 753,505 1,671 462,711
====== ======== ====== ========

Order Backlog:
Texas
Arizona
California
Nevada
Florida (c)
Colorado
Total


As Of And For The
Nine Months Ended Sept. 30
-----------------------------------
2005 2004
----------------- -----------------
Homes $ Homes $
------ ---------- ------ ----------
Homes Ordered:
Texas 3,358 760,437 2,774 593,729
Arizona 2,852 914,374 2,777 689,741
California 1,437 844,942 1,143 561,241
Nevada 515 194,435 258 90,353
Florida 298 129,234 - -
Colorado 39 14,070 - -
------ ---------- ------ ----------
Total 8,499 2,857,492 6,952 1,935,064
====== ========== ====== ==========

Homes Closed:
Texas 2,452 538,110 2,171 469,709
Arizona 2,109 562,038 1,414 340,983
California 1,130 667,602 968 421,529
Nevada 292 109,662 307 85,267
Florida 209 78,823 - -
------ ---------- ------ ----------
Total 6,192 1,956,235 4,860 1,317,488
====== ========== ====== ==========

Order Backlog:
Texas 2,391 535,417 1,722 365,439
Arizona 2,734 889,723 2,195 587,117
California 1,002 568,611 655 338,041
Nevada 460 163,976 175 58,724
Florida (c) 910 327,151 - -
Colorado 39 14,070 - -
------ ---------- ------ ----------
Total 7,536 2,498,948 4,747 1,349,321
====== ========== ====== ==========

(c) As part of our February 2005 acquisition of Colonial Homes ofFlorida, we purchased order backlog of 367 homes with a value ofapproximately $130 million, and as part of our September 2005acquisition of Greater Homes of Orlando, we purchased order backlog of454 homes with a value of approximately $147 million.

3rd Qtr 2005 3rd Qtr 2004
------------- ---------------
Active Beg. End Beg. End
---- ---- ---- ----
Communities:
Texas 98 101 87 89
Arizona 30 35 30 27
California 22 18 17 17
Nevada 6 6 3 2
Florida 6 10 n/a n/a
Colorado 1 4 n/a n/a
---- ---- ---- ----
Total 163 174 137 135
==== ==== ==== ====

This press release contains forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Suchstatements include statements concerning the success of our futureoperations in Florida; the number of communities we will be operatingin at the end of 2005; our future lot supply; our estimated revenueand diluted earnings per share in 2005 and 2006; and that weanticipate that traffic, sales demand and pricing power in some of ourmore robust markets will moderate to what we believe are moresustainable levels. Such statements are based upon the current beliefsand expectations of our management and are subject to significantrisks and uncertainties. Actual results may differ from those setforth in the forward-looking statements.

Meritage's business is subject to a number of risks anduncertainties including: interest rates and changes in theavailability and pricing of residential mortgages; our success inlocating and negotiating favorably with possible acquisitioncandidates; the success of our program to integrate existingoperations with any new operations or those of past or futureacquisitions, including Colonial Homes of Florida and Greater Homes;our dependence on key personnel and the availability of satisfactorysubcontractors; our ability to take certain actions because ofrestrictions contained in the indentures for our senior notes and theagreement for our unsecured credit facility; our lack of geographicdiversification; the cost and availability of insurance, including theunavailability of insurance for the presence of mold; our potentialexposure to natural disasters; the impact of inflation; the impact ofconstruction defect and home warranty claims; the strength andcompetitive pricing of the single-family housing market; demand forand acceptance of our homes; changes in the availability and pricingof real estate in the markets in which we operate, our ability toacquire additional land or options to acquire additional land onacceptable terms, particularly in our start-up markets; generaleconomic slow downs; consumer confidence, which can be impacted byeconomic and other factors such as terrorism, war, or threats thereofand changes in energy prices or stock markets; our level ofindebtedness and our ability to raise additional capital when and ifneeded; legislative or other initiatives that seek to restrain growthor new housing construction or similar measures and other factorsidentified in documents filed by us with the Securities and ExchangeCommission, including those set forth in our Form 10-K for the yearended Dec. 31, 2004 under the caption "Management's Discussion andAnalysis of Financial Condition and Results of Operations - FactorsThat May Affect Our Future Results and Financial Condition" and inExhibit 99.1 of our Form 10-Q for the quarter ended June 30, 2005. Asa result of these and other factors, the company's stock and noteprices may fluctuate dramatically.