REAL ESTATE AFFILIATES

3 Months Ended

Mar. 31, 2012

REAL ESTATE AFFILIATES

REAL ESTATE AFFILIATES

NOTE 6REAL ESTATE AFFILIATES

In the ordinary course of business, we enter into partnerships or joint ventures primarily for the development and operations of real estate assets.  These partnerships or joint ventures are typically characterized by a non-controlling ownership interest with decision making and distribution of expected gains and losses being proportionate to the ownership interest.  We account for these partnerships and joint ventures in accordance with ASC 810, as amended (“ASC 810”).

In accordance with ASC 810, we assess our joint ventures at inception to determine if any meet the qualifications of a variable interest entity (“VIE”). We consider a partnership or joint venture a VIE if: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity); or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, we reassess our initial determination of whether the partnership or joint venture is a VIE. We also perform a qualitative assessment of each VIE to determine if we are the primary beneficiary, as required by ASC 810.

We account for investments in joint ventures deemed to be variable interest entities for which we are not considered to be the primary beneficiary using the equity method, and investments in joint ventures where we have virtually no influence on the joint venture’s operating and financial policies, on the cost method. Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages.

The Bridges at Mint Hill, LLC, Parcel D Development, LLC, and the HHMK Development, LLC joint venture entities included in the table below are VIEs. The aggregate carrying value of the unconsolidated VIEs was $3.6 million and $3.2 million as of March 31, 2012 and December 31, 2011, respectively, and was classified as Investments in Real Estate Affiliates in the Condensed Consolidated Balance Sheet. Because these joint ventures are in the pre-development stage, there were no earnings for the three months ended March 31, 2012. We did not hold an interest in any VIEs as of or during the three months ended March 31, 2011. 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 on behalf of these VIEs. Our initial ownership in the Bridges at Mint Hill, LLC is 79.0%, and our ownership percentage could increase to 90.5% if we are required to make a $4.5 million cash contribution to the venture related to the mortgage secured land to be contributed by our partner.

Below is a summary of our Investments in Real Estate Affiliates:

	Economic Ownership				Carrying Value				Share of Earnings
	March 31,		December 31,		March 31,		December 31,		Three months ended March 31,
	2012		2011		2012		2011		2012		2011
	(In percentages)				(In thousands)				(In thousands)
The Woodlands (a)					$	—	$	—	$	—	$	1,619
Circle T	50.00	%	50.00	%	9,004		9,004		—		—
Millennium Waterway Apartments (b) (c)	83.55	%	83.55	%	22,218		21,998		220		—
Woodlands Sarofim #1 (b)	20.00	%	20.00	%	2,474		2,456		18		—
Stewart Title (b)	50.00	%	50.00	%	3,552		3,643		59		—
Forest View/ Timbermill Apartments (b) (d)	50.00	%	50.00	%	9,350		9,346		4		—
Bridges at Mint Hill, LLC	79.00	%	79.00	%	322		180		—		—
Parcel D Development, LLC	50.00	%	50.00	%	3,289		2,990		—		—
HHMK Development, LLC	50.00	%	50.00	%	—		—		—		—
					50,209		49,617		301		1,619
Cost basis investments (e)					12,882		12,978		2,376		3,894
Investment in Real Estate Affiliates					$	63,091	$	62,595	$	2,677	$	5,513

(a)	As of July 1, 2011, The Woodlands is consolidated and no longer a Real Estate Affiliate (Refer to Note 3).
(b)	Equity investment owned by The Woodlands, which was a non-consolidated investment as of March 31, 2011.
(c)	On April 23, 2012, we agreed to acquire our partner’s interest in the Millennium Waterway Apartments at an implied valuation of $74.1 million for the property. The purchase is expected to close during the second quarter of 2012 upon completion of a $55.4 million ten-year agency financing.
(d)	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. Also in April, we received approximately $0.8 million in distributions from earnings from these joint ventures.
(e)	Share of Earnings represents dividends received from Summerlin Hospital Medical Center.

As of March 31, 2012, approximately $59.8 million of indebtedness was secured by the properties owned by our Real Estate Affiliates in which our share was approximately $43.6 million (Millennium Waterway Apartments - $39.4 million; Woodlands Sarofim #1 - $1.4 million; and Forest View/Timbermill Apartments - $2.8 million) based upon our economic ownership. All of this debt is non-recourse to us.