Real Estate Affiliates

6 Months Ended

Jun. 30, 2011

Real Estate Affiliates [Abstract]

REAL ESTATE AFFILIATES

NOTE 3 REAL ESTATE AFFILIATES

As of June 30, 2011, we own noncontrolling investments in The Woodlands Partnerships and Circle T whereby, generally, we share in the profits and losses, cash flows and other matters relating to our investments in Real Estate Affiliates in accordance with our respective ownership percentages. As we have joint interest and joint control of these ventures with our venture partners, we account for these joint ventures using the equity method. For cost method investments (Note 1), we recognize earnings to the extent of dividends received from such investments, which are included, along with equity method earnings, in Income from Real Estate Affiliates in our consolidated and combined statements of operations and comprehensive income (loss). In March 2011, we received approximately $3.9 million in dividends from our Summerlin Hospital investment which is reported on the cost method.

As of June 30, 2011, approximately $296.5 million of indebtedness was secured by the properties owned by our Real Estate Affiliates, our share of which was approximately $126.0 million.

On July 1, 2011, HHC completed the acquisition of its venture partner’s 57.5% legal interest, which equates to a 47.5% economic interest based on the joint venture agreement, in The Woodlands Partnerships for $117.5 million. The purchase consideration consisted of $20.0 million in cash paid at closing and a $97.5 million non-interest bearing promissory note due December 1, 2011. Upon completion of the acquisition, The Woodlands Partnerships became a wholly-owned subsidiary of HHC. This business combination did not represent a significant acquisition of assets under the SEC rules. However, the acquisition will require that we apply in our future reports the acquisition method of accounting and record, on a consolidated basis, the assets and liabilities of The Woodlands Partnerships at fair value on the date of acquisition.

Condensed Combined Financial Information of Certain Real Estate Affiliates

The Woodlands Partnerships and Circle T are accounted for on the equity method. The three and six months ended June 30, 2010 revenues and expenses and net income attributable to joint ventures in the table below have been restated to correct the prior presentation to reflect certain eliminations not previously reported. The restatement has no effect on our previously reported Income from Real Estate Affiliates. The following summarized financial information as of June 30, 2011 and December 31, 2010 and for the three and six months ended June 30, 2011 and 2010, is presented below:

	June 30,			December 31,
Condensed Combined Balance Sheets - Certain Real Estate Affiliates	2011			2010
	(In thousands)
Assets:
Land	$	31,077		$	31,077
Building and equipment		242,430			241,436
Less accumulated depreciation		(85,081	)		(81,218	)
Developments in progress		28,725			25,431
Net property and equipment		217,151			216,726
Land held for development and sale		226,777			237,117
Net investment in real estate		443,928			453,843
Cash and cash equivalents		25,493			99,769
Accounts and notes receivable, net		44,782			45,863
Deferred expenses, net		5,094			895
Prepaid expenses and other assets		39,377			41,663
Total assets	$	558,674		$	642,033
Liabilities and Owners’ Equity:
Mortgages, notes and loans payable	$	296,515		$	372,222
Accounts payable, accrued expenses and other liabilities		109,403			122,877
Owners’ equity		152,756			146,934
Total liabilities and owners’ equity	$	558,674		$	642,033
Investment in Real Estate Affiliates, Net
Owners’ equity	$	152,756		$	146,934
Less joint venture partners’ equity		(73,009	)		(70,243	)
Basis differences, loans and cost basis investments		73,386			72,852
Investment in Real Estate Affiliates	$	153,133		$	149,543

The Woodlands Partnerships had total assets, total debt and owner’s equity of $540.7 million, $296.5 million and $107.3 million, respectively, as of June 30, 2011. On December 31, 2010, such amounts were $616.9 million, $372.2 million and $101.1 million, respectively.

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(In thousands)						(In thousands)
Revenue:
Land sales	$	25,907		$	26,085		$	47,880		$	49,471
Tenant rents		4,207			3,620			6,048			4,541
Other		13,799			10,651			26,569			21,987
Total revenues		43,913			40,356			80,497			75,999
Expenses:
Cost of sales — land		12,442			14,057			23,932			26,206
Land sales operations		8,887			5,282			14,206			11,438
Real estate taxes		485			496			984			986
Property maintenance costs		568			383			1,037			468
Property operating costs		9,810			9,896			20,969			20,354
Depreciation and amortization		1,899			1,711			3,829			3,676
Total operating expenses		34,091			31,825			64,957			63,128
Operating income		9,822			8,531			15,540			12,871
Other income		639			570			1,084			1,339
Interest expense		(4,918	)		(5,219	)		(8,927	)		(8,121	)
Provision for income taxes		(970	)		(827	)		(1,467	)		(1,137	)
Net income attributable to joint ventures	$	4,573		$	3,055		$	6,230		$	4,952
Income from Real Estate Affiliates:
Net income attributable to joint ventures	$	4,573		$	3,055		$	6,230		$	4,952
Joint venture partners’ share of income		(2,172	)		(1,451	)		(2,959	)		(2,352	)
Amortization of capital or basis differences, and distributions from cost method investments		(293	)		2,076			4,350			2,572
Income from Real Estate Affiliates	$	2,108		$	3,680		$	7,621		$	5,172
Income from Real Estate Affiliates — By Affiliate:
The Woodlands	$	2,108		$	3,680		$	3,727		$	5,172
Circle T		—			—			—			—
Summerlin Hospital Medical Center		—			—			3,894			—
	$	2,108		$	3,680		$	7,621		$	5,172