NOTE 5 REAL ESTATE AFFILIATES

Our investment in real estate affiliates which are reported on the equity and cost methods are as follows:

	Economic/ Legal Ownership						Carrying Value				Share of Earnings/Dividends

	December 31,						December 31,				December 31,
	2013			2012			2013		2012		2013			2012			2011
	(In percentages)						(In thousands)				(In thousands)
Equity Method Investments:
Circle T Ranch and Power Center		50.00	%		50.00	%	$	9,004	$	9,004	$	—		$	—		$	(1	)
Forest View /Timbermill Apartments (a)		—			—			—		—		—			4			5
HHMK Development, LLC (d)		50.00	%		50.00	%		13		1,257		732			—			—
KR Holdings, LLC (d)		50.00	%		50.00	%		19,764		—		9,877			—			—
Millennium Waterway Apartments (c)		100.00	%		100.00	%		—		—		—			407			682
Millennium Woodlands Phase II, LLC (d)		81.43	%		81.43	%		2,174		2,190		(74	)		—			—
Parcel C (d)		50.00	%		—			5,801		—		—			—			—
Stewart Title		50.00	%		50.00	%		3,843		3,871		1,223			902			204
Summerlin Las Vegas Baseball Club (d)		50.00	%		—			10,636		300		(13	)		—			—
The Metropolitan Downtown Columbia Project (b)		50.00	%		50.00	%		3,461		4,330		—			—			—
The Woodlands (e)		100.00	%		100.00	%		—		—		—			—			3,731
Woodlands Sarofim #1		20.00	%		20.00	%		2,579		2,450		180			(6	)		64


								57,275		23,402		11,925			1,307			4,685
Cost basis investments (g)								3,746		8,777		2,503	(f)		2,376	(f)		3,893	(f)


Investment in Real Estate Affiliates							$	61,021	$	32,179	$	14,428		$	3,683		$	8,578

(a): On April 19, 2012, the joint ventures owning the Forest View and Timbermill Apartments completed their sale to a third party. Our share of the distributable cash, after repayment of debt and transaction expenses, was $8.6 million.
(b): These entities were previously considered VIEs, whose reassessment in 2013 caused them to no longer be considered VIEs. Please refer to discussion in section following the table.
(c): On May 31, 2012, we acquired our partner's interest for $6.9 million and consolidated this property.
(d): Equity method VIEs.
(e): As of July 1, 2011, The Woodlands is consolidated and no longer a Real Estate Affiliate (please refer to Note 4 – Acquisitions and Dispositions). Prior to July 1, 2011, we owned a 52.5% economic interest in The Woodlands.
(f): Includes distribution received from Summerlin Hospital Medical Center.
(g): The lower carrying value as of December 31, 2013 is attributable to the sale of our interest in Head Acquisition, LP (Hexalon) on October 30, 2013 that resulted in a gain of approximately $8.5 million.

Millennium Woodlands Phase II, LLC, Parcel C, KR Holdings, HHMK Development, LLC, and Summerlin Las Vegas Baseball Club entities included in the table above are VIEs. We are not the primary beneficiary of any of these VIEs because we do not have the power to direct activities that most significantly impact the economic performance of such joint ventures and therefore we report our interests on the equity method. Our maximum exposure to loss as a result of these investments is limited to the aggregate carrying value of the investment as we have not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of these VIEs. The aggregate carrying value of the unconsolidated VIEs were $38.4 million and $7.8 million as of December 31, 2013 and 2012, respectively, and was classified as Investments in Real Estate Affiliates in the Consolidated Balance Sheets. As of December 31, 2013, approximately $69.2 million of indebtedness was secured by the properties owned by our Real Estate Affiliates of which our share was approximately $39.0 million based upon our economic ownership. All of this debt is without recourse to us.

As of December 31, 2013, the Company determined that it was the primary beneficiary of two VIEs. The creditors of the consolidated VIEs do not have recourse to the Company's general credit. As of December 31, 2013, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $31.7 million and $0.8 million, respectively. As of December 31, 2012, the carrying values of the assets and liabilities associated with operations of the consolidated VIEs were $28.3 million and $1.0 million, respectively. The assets of the VIEs are restricted for use only by the particular VIEs and are not available for our general operations.

Our recent and more significant investments in Real Estate Affiliates and the related accounting considerations are described below.

Bridges at Mint Hill Joint Venture

On September 8, 2011, we entered into a joint venture with the owner of land adjacent to our property, located near Charlotte, NC to develop a shopping center on our combined properties. On October 30, 2012, we contributed $4.5 million in cash to the Bridges at Mint Hill joint venture in accordance with the joint venture's operating agreement. The cash was used to repay a mortgage secured by the land contributed by our partner. As a result of our additional contribution, our ownership percentage increased from 79.0% to 90.5%, and we attained the ability to direct the significant economic activities of the entity; therefore, we began consolidating this joint venture in the fourth quarter of 2012.

Parcel C

On October 4, 2013, we entered into a joint venture agreement with Kettler, Inc., to construct a 437 unit, Class A apartment building with 31,000 square feet of ground floor retail on Parcel C in downtown Columbia, MD. We contributed approximately five acres of land having an approximate book value of $4.0 million to the joint venture. The transaction values our land at $23.4 million or $53,500 per constructed unit. When the venture closes on the construction loan and upon completion of certain other conditions, including obtaining completed site development and construction plans and an approved project budget, our partner will be required to contribute cash to the venture.

ONE Ala Moana Condominium Project

On October 11, 2011, we and an entity jointly owned by two local development partners formed a joint venture called HHMK Development, LLC ("HHMK Development") to explore the development of a luxury condominium tower at the Ala Moana Center in Honolulu, Hawaii. On June 14, 2012, we formed another 50/50 joint venture, KR Holdings, with the same partner. We own 50% of each venture and our partners jointly own the remaining 50%.

On September 17, 2012, KR Holdings closed on two $20.0 million non-recourse mezzanine loan commitments with List Island Properties, LLC and A & B Properties, Inc. These loans have a blended interest rate of 12%, were drawn in full on May 15, 2013 and mature on April 30, 2018 with the option to extend for one year. In addition to the mezzanine loans, A & B Properties and List Island Properties both have profit interests in KR Holdings, which entitles them to receive a share of the profits, up to a maximum of $3.0 million, after a return of, and a 13.0% preferred return on, our capital.

KR Holdings closed the first mortgage construction loan on May 15, 2013. Upon closing and under the terms of the venture agreement, we sold to KR Holdings our interest in the condominium rights for net cash proceeds of $30.8 million and a 50% equity interest in KR Holdings. Our partner contributed $16.8 million of cash for their 50% equity interest.

The construction loan will be drawn over the course of construction with the total proceeds not to exceed $132.0 million. The loan is secured by the condominium rights and buyers' deposits, has no recourse to us, matures on May 15, 2016, and bears interest at one-month LIBOR plus 3.00%. KR Holdings summarized financial information as of December 31, 2013 includes total assets of $189.0 million, total liabilities of $135.7 million, revenues of $131.2 million and net income of $19.7 million. The venture uses the percentage of completion method to recognize earnings and we recorded $9.9 million in equity in earnings from Real Estate Affiliates related to KR Holdings in the Consolidated Statement of Operations for the year ended December 31, 2013. Our investment balance includes deferred profit of $6.9 million related to the partial sale of land to the joint venture which is being recognized on the same percentage of completion basis as KR Holdings.

Millennium Woodlands Phase II, LLC

On May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC ("Millennium Phase II"), with The Dinerstein Companies, the same joint venture partner in the Millennium Waterway Apartments I project, for the construction of a new 314-unit Class A multi-family complex in The Woodlands Town Center. Our partner is the managing member of Millennium Phase II. As the managing member, our partner controls, directs, manages and administers the affairs of Millennium Phase II. On July 5, 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres of land valued at $15.5 million to the joint venture, our partner's contribution of $3.0 million in cash and a construction loan in the amount of $37.7 million which is guaranteed by our partner. The development of Millennium Phase II further expands our multi-family portfolio in The Woodlands Town Center.

Summerlin Las Vegas Baseball Club

On August 6, 2012, we entered into a joint venture for the purpose of acquiring 100% of the operating assets of the Las Vegas 51s, a Triple-A baseball team which is a member of the Pacific Coast League. We own 50% of the venture and our partners jointly own the remaining 50%. Unanimous consent of the partners is required for all major decisions. In August 2012, we contributed $0.3 million to the joint venture pending final approval of the acquisition by Major League Baseball. In May 2013, after approval was received, we funded our remaining capital obligation of $10.2 million and the joint venture completed the acquisition of the baseball team. Our strategy in acquiring an ownership interest is to pursue a potential relocation of the team to a to-be-built stadium in our Summerlin master planned community. There can be no assurance that such a stadium will ultimately be built.

The Metropolitan Downtown Columbia Project

On October 27, 2011, we entered into a joint venture, Parcel D Development, LLC ("Parcel D"), with a local developer, Kettler, Inc., to construct a Class A apartment building with ground floor retail space in downtown Columbia, Maryland. We and our partner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions. On July 11, 2013, the joint venture closed a $64.1 million construction loan which is non-recourse to us. The loan bears interest at one-month LIBOR plus 2.4% and matures in July 2020. At loan closing, our land contribution was valued at $53,500 per unit, or $20.3 million, and Kettler contributed $13.3 million in cash, of which $7.0 million was distributed to us. Both we and Kettler are required to each make future contributions of $3.1 million to the joint venture in accordance with the loan agreement, thus increasing our total capital account to $16.4 million. This transaction was accounted for as a partial sale of the land for which we recognized a net profit of $0.7 million. As of December 31, 2013, we have contributed the $3.1 million to the joint venture.

Upon formation of the joint venture, we determined that Parcel D was a VIE, and that we were not the primary beneficiary. Accordingly, we accounted for our investment in Parcel D using the equity method. Upon closing of the first mortgage construction loan, the entity was recapitalized resulting in a reconsideration of the initial determination of VIE status. As of a result of the reconsideration, we determined that Parcel D was no longer considered a VIE. We still account for our investment in Parcel D using the equity method.

Other

Our interest in Westlake Retail Associates, Ltd. ("Circle T Ranch") and 170 Retail Associates ("Circle T Power Center"), and together with Circle T Ranch, ("Circle T"), located in the Dallas/Fort Worth, Texas area are held through joint venture entities in which we own non-controlling interests. Woodlands Sarofim #1 Ltd. ("Woodlands Sarofim") industrial buildings and Stewart Title of Montgomery County, Inc. ("Stewart Title"), are located in The Woodlands, and are reflected in our financial statements as non-consolidated joint ventures and are accounted for on the equity method.