Meritage Homes Reports Net Earnings Increase 84% to $256 Million on $3 Billion Revenue

FULL YEAR 2005

-- Record Diluted EPS of $8.88 for 2005, up 77% over 2004

-- Diluted EPS Excluding One-Time Refinancing Charge(a) up 90% to $9.55

-- Return on Stockholders' Equity of 37%

-- Record Year-End Backlog of $2.2 Billion, up 65% over 2004 Year-End

-- 5-Year Compounded Net Earnings Growth Rate of 48%

FOURTH QUARTER 2005

-- Record Net Earnings of $102 Million Increased 97% over 2004

-- Diluted EPS of $3.53 up 88% over 2004

-- Record Revenue of $1.0 Billion, 49% Higher Than 2004

Meritage Homes Corp. (NYSE: MTH) today announced all-timequarterly records for revenue, net earnings and earnings per share,completing the company's 18th consecutive year of record revenue andnet earnings.
Summary Operating Results (Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended Dec. 31, Full Years Ended Dec. 31,
----------------------------------------------------------------------
% %
2005 2004 Change 2005 2004 Change
----------------------------------------------------------------------
Home closing
revenue $1,040,711 $698,254 49% $2,996,946 $2,015,742 49%
----------------------------------------------------------------------
Net earnings $101,977 $51,812 97% $255,665 $138,968 84%
----------------------------------------------------------------------
Diluted EPS $3.53 $1.88 88% $8.88 $5.03 77%
----------------------------------------------------------------------
Diluted EPS
excluding
one-time
refinancing
charge(a) n/a n/a n/a $9.55 $5.03 90%
----------------------------------------------------------------------
(a) One-time charge related to first quarter refinancing of long-term
debt (see "Operating Results" statement for detail - presented for
comparison to company-issued 2005 guidance and 2005 analysts'
estimates.)

Net earnings for the fourth quarter 2005 hit an all-time high of$102 million, or $3.53 per diluted share, compared to $52 million, or$1.88 per diluted share for the fourth quarter 2004. These gains of97% and 88%, respectively, were a result of revenue growth and marginexpansion driven by strong demand and the successful execution ofmanagement's growth strategies. Fourth quarter revenue grew 49% yearover year on a 34% gain in home deliveries and an 11% increase inaverage selling prices to $323,800 in the fourth quarter 2005, from$291,700 in the fourth quarter 2004. New Meritage markets in Floridaand Colorado contributed 40% of the increase in homes closed. Grossmargin widened to 24.6% in the fourth quarter 2005, from 20.5% in thesame quarter 2004, and was the primary reason that earnings exceededmanagement's guidance of $2.88 to $3.13 per diluted share.

Net earnings for the full year 2005 of $256 million were 84%greater than 2004 net earnings of $139 million, yielding a 77%increase in diluted earnings per share to $8.88 in 2005 versus $5.03in 2004. Excluding a one-time debt refinancing charge in the firstquarter to be consistent with analysts' estimates, 2005 dilutedearnings per share increased 90% over the prior year to $9.55.Full-year total revenue grew 49% to $3.0 billion, driven by a 30% gainin unit deliveries to 9,406 homes, and a 15% rise in average sellingprice to $318,600. Gross margin for the full year 2005 was 23.6%,significantly greater than 2004 gross margin of 20.0%, again driven bystrong demand and related price increases in most markets.

"The past year was an outstanding one for Meritage, and for thehomebuilding industry in general. The growth and returns we producedfor our stockholders were among the strongest in the sector, andcontributed to Forbes naming Meritage as one of its 'Platinum 400 -Best Managed Big Companies in America' for the third straight year,"said Steven J. Hilton, co-chairman and chief executive officer ofMeritage. "We posted an after-tax return on assets of 16% and a returnon equity of 37% for the year, compared to 13% and 30%, respectively,last year. We also effectively managed our debt while growing,improving our net debt to capital ratio to 38% at year-end 2005 from45% at year-end 2004. Our record earnings, combined with our firstquarter 2005 debt refinancing, improved our interest coverage ratio to11 times in 2005 from 7 times in 2004, reinforcing Moody's November2005 upgrade of our debt rating to Ba2.

"Our strategy has been to leverage our advantages as a publichomebuilder to diversify and grow our market share throughacquisitions, startup operations in new markets and growth in existingmarkets, lessening our reliance on any single market," continuedHilton. "Our exceptional record of growth proves our successfulexecution of this strategy. While sales rates and margins are likelyto return to more normalized levels in certain markets, we stillexpect year-over-year order growth in most of our markets and forMeritage as a whole.

"Our homes are selling very well in Phoenix, where our activeadult communities offer a great complement to our traditional, luxuryand move-up communities. In Texas, we're experiencing strong demandfor all of our products in all four markets there. As NorthernCalifornia appears to be normalizing after a period of acceleratedgrowth, we're ramping up in Southern California after our acquisitionthere two years ago. Our latest entry into Florida last year added 12new Meritage communities, and we expect to double Florida sales duringour first full year there in 2006," added Hilton. "In addition, we'readding attached products to our portfolio in several markets, tosupplement our traditional detached housing products and provide moreaffordable alternative housing products. Our active community count isup 32% in 2005, and we expect it to grow roughly another 20% in 2006.We expect these new opportunities to support continued increases inhome closings and revenue."

"We are maintaining our expectations to grow revenue to $3.8 to$3.9 billion in 2006, and to produce net earnings of $11.25 to $11.50per diluted share," said John R. Landon, co-chairman and chiefexecutive officer of Meritage. "We begin the year with a $2.2 billionbacklog, which represents about 56% of expected 2006 revenue, up from44% last year, providing good visibility to continued growth in homeclosings and revenue through the first half of 2006. We expect firstquarter revenue of $825 to $850 million, and net earnings of $2.35 to$2.45 per diluted share, an increase of 52% to 58% over the firstquarter 2005, excluding the one-time bond refinancing charge.

"We believe the long-term fundamentals of homebuilding remainexcellent -- population growth, solid economic and employmentstatistics, and favorable interest rates continue to drive healthydemand," continued Landon. "We are enthusiastic about all of ourmarkets, and believe our increasingly diversified product andgeographic footprint is serving us well today and provides us a greatplatform for future growth. We expect to continue to increase ourmarket share and grow our sales in 2006 and beyond, and look forwardto another good year for Meritage and our stockholders."

Meritage had approximately $73 million outstanding under its $600million revolving bank facility at Dec. 31, 2005. After consideringthe borrowing base and the company's most restrictive borrowingcovenants, another $428 million was available to borrow. The companyrecently increased the maximum borrowing capacity under the facilityfrom $400 million to $600 million by exercising the bank line'saccordion feature.

Meritage has continued its strategy to control a relatively highpercentage of lots through option contracts, believing thesearrangements offer greater flexibility to respond to shifts in marketconditions while producing superior returns. During 2005, the companyexpanded the number of lots under control by 39%, from 38,970 atyear-end 2004 to 54,109 at year-end 2005. This currently represents a5.8-year supply of lots at the 2005 closing rate. Approximately 91% ofthese lots were controlled under option contracts.

Meritage will hold its earnings call on Thursday, Jan. 26, 2006,at 11 a.m. EST/10 a.m. CST/9 a.m. MST/8 a.m. PST. To participate inthe call, please dial in at least five minutes before the start time.The domestic dial-in number for the call is 800-291-3314 and theinternational dial-in number is 706-634-0844, conference ID# 4085294.The conference call and presentation can be accessed through thecompany's Web site at www.meritagehomes.com. The call may also beaccessed through CCBN for two weeks at www.fulldisclosure.com. Areplay of the call will be available from 12 p.m. EST Jan. 26, 2006,through midnight Feb. 1, 2006. The domestic replay telephone number is800-642-1687 and the international replay telephone number is706-645-9291.

Change to Single Release of Quarterly Results Beginning FirstQuarter 2006

Beginning with the first quarter of 2006, Meritage Homes Corp.will announce quarterly results with a single press release,consolidating the former dual releases of operating results and fullfinancial results. Sales, closings and backlog will be reportedsimultaneously and combined with the announcement of earnings andfinancial results in an effort to provide more transparency and betteranalysis of the company's quarterly results.

About Meritage Homes Corp.

Meritage Homes Corp. is one of the nation's largest homebuilders.The company has been on Forbes' Platinum 400 "Best Managed BigCompanies in America" list for three years, on Fortune's "FastestGrowing Companies in America" list five of the last seven years, andis included in the S&P SmallCap 600 Index. Additionally, Fortuneranked Meritage 747th in its "Fortune 1000" list of America's largestcorporations and included the company as a "top pick from 50 greatinvestors" in its Investor's Guide 2004. Meritage operates infast-growing states of the southern and western United States,including six of the top 10 single-family housing markets in thecountry, and has reported 18 consecutive years of record revenue andnet earnings. For more information about the company, please visit theMeritage Web site located at www.meritagehomes.com.
Meritage Homes Corp. and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)

Three Months Ended Years Ended
Dec. 31, Dec. 31,
2005 2004 2005 2004
----------- --------- ----------- -----------
Operating Results

Home closing revenue $1,040,711 $698,254 $2,996,946 $2,015,742
Land closing revenue 202 1,565 4,156 24,262
----------- --------- ----------- -----------
Total closing revenue 1,040,913 699,819 3,001,102 2,040,004

Home closing gross
profit 256,414 143,532 706,453 400,287
Land closing gross
profit 9 94 537 8,183
----------- --------- ----------- -----------
Total closing gross
profit 256,423 143,626 706,990 408,470

Commissions and other
sales costs (53,139) (36,621) (160,114) (116,527)
General and
administrative expenses (42,450) (26,585) (124,979) (79,257)
Other income, net 9,372 3,537 25,805 12,072
Loss on extinguishment
of debt - - (31,477) -
----------- --------- ----------- -----------
Earnings before
provision for income
taxes 170,206 83,957 416,225 224,758
Provision for income
taxes (68,229) (32,145) (160,560) (85,790)
----------- --------- ----------- -----------
Net earnings $101,977 $51,812 $255,665 $138,968
=========== ========= =========== ===========

Earnings per share (a)
Basic:
Earnings per share $3.74 $2.01 $9.48 $5.33
Weighted average
shares outstanding 27,267 25,717 26,977 26,066

Diluted:
Earnings per share $3.53 $1.88 $8.88 $5.03
Weighted average
shares outstanding 28,902 27,528 28,787 27,610

Reconciliation to exclude one-time
charge (b)
------------------------------------
Earnings before provision for income
taxes $416,225
Add: Loss on extinguishment of debt 31,477
-----------
Adjusted amounts:
Earnings before provision of
income taxes 447,702
Provision for income
taxes (172,702)
-----------
Net earnings $275,000
===========

Basic earnings per
share $10.19
Diluted earnings per
share $9.55

(a) All shares and per share results have been restated to reflect
our January 2005 2-for-1 stock split.

(b) First quarter 2005 bond refinancing charge related to our
repurchase of $278.8 million of our 9.75% senior notes due 2011.
The funds to repurchase these bonds came from our concurrent
issuance of $350.0 million 6.25% senior notes due 2015.
Meritage Homes Corp. and Subsidiaries
Non-GAAP Financial Disclosures
(Unaudited)
(Dollars in Thousands)

Three Months Ended Years Ended
Dec. 31, Dec. 31,
2005 2004 2005 2004
--------- -------- ----------- -----------
EBITDA Reconciliation (1)
Net earnings $101,977 $51,812 $255,665 $138,968
Provision for income taxes 68,229 32,145 160,560 85,790
Interest amortized to cost
of sales 11,681 10,847 38,706 32,228
Depreciation and
amortization 4,455 4,264 17,207 13,233
--------- -------- ----------- -----------
EBITDA $186,342 $99,068 $472,138 $270,219
========= ======== =========== ===========

Interest coverage ratio (2)
EBITDA $472,138 $270,219
Interest incurred $42,943 $38,855
Interest coverage ratio 11.0 times 7.0 times

Debt to EBITDA ratio (3)
Notes payable and other
borrowings $592,124 $471,415
EBITDA $472,138 $270,219
Debt to EBITDA ratio 1.3 1.7

After-tax stockholder
returns (4)
Net earnings $255,665 $138,968
Average assets $1,618,376 $1,109,967
Average equity $686,780 $467,225
After-tax return on assets 15.8% 12.5%
After-tax return on equity 37.2% 29.7%

Net debt-to-capital (5)
Notes payable and other
borrowings $592,124 $471,415
Less: cash and cash
equivalents 65,812 47,876
----------- -----------
Net debt $526,312 $423,539
Stockholders' equity 851,005 522,555
----------- -----------
Capital $1,377,317 $946,094
Net debt-to-capital 38.2% 44.8%

(1) EBITDA represents net earnings before interest expense amortized
to cost of sales, income taxes, depreciation and amortization.
EBITDA is a non-GAAP financial measure. A non-GAAP financial measure
is a numerical measure of a company's historical or future financial
performance, financial position or cash flows that excludes amounts,
or is subject to adjustments that have the effect of excluding
amounts, that are included in the most directly comparable measure
calculated and presented in accordance with GAAP in the statement of
earnings, balance sheet, or statement of cash flows (or equivalent
statements) of the company; or includes amounts, or is subject to
adjustments that have the effect of including amounts, that are
excluded from the most directly comparable measure so calculated and
presented. In this regard, GAAP refers to generally accepted
accounting principles in the United States. We have provided a
reconciliation of this non-GAAP financial measure to the most
directly comparable GAAP financial measure. EBITDA is presented here
because it is used by management to analyze and compare Meritage with
other homebuilding companies on the basis of operating performance
and we believe is a financial measure widely used by investors and
analysts in the homebuilding industry. EBITDA as presented may not
be comparable to similarly titled measures reported by other
companies because not all companies calculate EBITDA in an identical
manner and, therefore, is not necessarily an accurate means of
comparison between companies. EBITDA is not intended to represent
cash flows for the period or funds available for management's
discretionary use nor has it been presented as an alternative to
operating income or as an indicator of operating performance and it
should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles in the United States of America.

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

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

(4) Return on assets is defined as net earnings for the trailing four
quarters divided by the average of beginning and ending total assets
for the same period. Return on equity is defined as net earnings for
the trailing four quarters divided by the average of beginning and
ending stockholders' equity for the same period.

(5) Net debt-to-capital is calculated as notes payable and other
borrowings less cash and cash equivalents, divided by the sum of
notes payable and other borrowings, less cash and cash equivalents,
plus stockholders' equity.
Meritage Homes Corp. and Subsidiaries
Balance Sheet Data
(Unaudited)
(Dollars in Thousands)
As of Dec. 31,
2005 2004
----------- -----------
Total assets $1,971,357 $1,265,394
Real estate 1,390,803 867,218
Cash and cash equivalents 65,812 47,876
Real estate not owned 1,464 18,344
Total liabilities 1,120,352 742,839
Notes and other borrowings payable 592,124 471,415
Liabilities related to real estate not owned 968 14,780
Stockholders' equity 851,005 522,555
Meritage Homes Corp. and Subsidiaries
Operating Data -- Unaudited
($ in thousands)

For the Three Months Ended Dec. 31,
2005 2004
------ ------
Homes $Value Homes $Value
------ ----------- ------ ---------
Homes Ordered:
Texas 906 $223,142 744 $159,041
Arizona 706 260,078 713 195,030
California 209 131,979 439 260,025
Nevada 138 54,669 159 55,788
Florida 112 52,934 - -
Colorado 1 561 - -
------ ----------- ------ ---------
Total 2,072 $723,363 2,055 $669,884
====== =========== ====== =========


Homes Closed:
Texas 1,124 $249,094 981 $211,390
Arizona 1,013 311,099 917 244,760
California 497 279,626 399 206,795
Nevada 249 92,245 97 35,309
Florida 323 105,838 - -
Colorado 8 2,809 - -
------ ----------- ------ ---------
Total 3,214 $1,040,711 2,394 $698,254
====== =========== ====== =========


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

As Of and For the Years Ended Dec. 31,
2005 2004
------ ------
Homes $Value Homes $Value
------- ----------- ------ -----------
Homes Ordered:
Texas 4,264 $983,579 3,518 $752,770
Arizona 3,558 1,174,452 3,490 884,771
California 1,646 976,921 1,582 821,266
Nevada 653 249,104 417 146,141
Florida 410 182,168 - -
Colorado 40 14,631 - -
------- ----------- ------ -----------
Total 10,571 $3,580,855 9,007 $2,604,948
======= =========== ====== ===========


Homes Closed:
Texas 3,576 $787,204 3,152 $681,099
Arizona 3,122 873,137 2,331 585,743
California 1,627 947,228 1,367 628,324
Nevada 541 201,907 404 120,576
Florida 532 184,661 - -
Colorado 8 2,809 - -
------- ----------- ------ -----------
Total 9,406 $2,996,946 7,254 $2,015,742
======= =========== ====== ===========


Order Backlog:
Texas 2,173 $509,465 1,485 $313,090
Arizona 2,427 838,702 1,991 537,387
California 714 420,964 695 391,271
Nevada 349 126,400 237 79,203
Florida (a) 699 274,247 - -
Colorado 32 11,822 - -
------- ----------- ------ -----------
Total 6,394 $2,181,600 4,408 $1,320,951
======= =========== ====== ===========

(a) As part of our February 2005 acquisition of Colonial Homes of
Florida, we purchased order backlog of 367 homes with a value of
approximately $130 million, and as part of our September 2005
acquisition of Greater Homes Inc. we purchased order backlog of
454 homes with a value of approximately $147 million.


4th Qtr 2005 4th Qtr 2004
------------------ ----------------
Beg. End Beg. End
Active ------ ----------- ------ ---------
Communities:
Texas 101 108 89 89
Arizona 35 35 27 26
California 18 20 17 18
Nevada 6 6 2 6
Florida 10 12 n/a n/a
Colorado 4 3 n/a n/a
------ ----------- ------ ---------
Total 174 184 135 139
====== =========== ====== =========

This press release contains forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Suchstatements include statements concerning our expectations for thelong-term fundamentals of the homebuilding market; our future marketshare growth; that sales rates and margins are likely to return tomore normalized levels; our growth in the number of active communitiesduring 2006, and that such growth will support higher closings andrevenue; expected future lot supply; that we expect sales to double inFlorida in 2006; and our estimated revenue and diluted earnings pershare for the first quarter and full year 2006. Such statements arebased upon the current beliefs and expectations of our management andare subject to significant risks and uncertainties. Actual results maydiffer from those set forth in the forward-looking statements.

Meritage's business is subject to a number of risks anduncertainties including: fluctuations in home prices, orders andcancellation rates in our markets; 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 HomesInc.; our dependence on key personnel and the availability ofsatisfactory subcontractors; our ability to take certain actionsbecause of restrictions contained in the indentures for our seniornotes and the agreement for our unsecured credit facility; our lack ofgeographic diversification; the cost and availability of insurance,including the unavailability of insurance for the presence of mold;our potential exposure to natural disasters; the impact of inflation;the impact of construction defect and home warranty claims; thestrength and competitive pricing of the single-family housing market;demand for and acceptance of our homes; changes in the availabilityand pricing of real estate in the markets in which we operate, ourability to acquire additional land or options to acquire additionalland on acceptable terms, particularly in our startup 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 Sept. 30, 2005. Asa result of these and other factors, the company's stock and noteprices may fluctuate dramatically.