SEGMENTS

3 Months Ended

Mar. 31, 2012

SEGMENTS

SEGMENTS

NOTE 14SEGMENTS

We have three business segments which offer different products and services. Our three segments are managed separately because each requires different operating strategies or management expertise and are reflective of our current management’s operating philosophies and methods. In addition, our current segments or assets within such segments could change in the future as development of certain properties commences or other operational or management changes occur. We do not distinguish or group our combined operations on a geographic basis. Furthermore, all operations are within the United States and no customer or tenant comprises more than 10% of revenues. Our reportable segments are as follows:

·Master Planned Communities — includes the development and sale of land, in large-scale, long-term community development projects in and around Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland. In periods prior to July 1, 2011, this segment included certain commercial properties and other ownership interests owned by The Woodlands, and we had presented The Woodlands operations at our 52.5% proportionate economic share for segment reporting.  Beginning July 1, 2011 when we acquired our partner’s 47.5% economic interest in The Woodlands, for segment reporting, we also presented The Woodlands historical financial information at 100% so that operating performance between periods is comparable.

·Operating Assets — includes commercial, mixed-use and retail properties currently generating revenues, many of which we believe there is an opportunity to redevelop or reposition the asset to increase operating performance.

·Strategic Developments — includes all properties held for development and redevelopment, including the current rental property operations (primarily retail and other interests in real estate at such locations), as well as our one residential condominium project located in Natick (Boston), Massachusetts.

The assets included in each segment as of March 31, 2012, are contained in the following chart:

[See the EDGAR documents for referenced chart details.]

As our segments are managed separately, different operating measures are utilized to assess operating results and allocate resources. The one common operating measure used to assess operating results for the business segments is Real Estate Property Earnings Before Taxes (“REP EBT”) which represents the operating revenues of the properties less property operating expenses, as further described below. Management believes that REP EBT provides useful information about the operating performance of all of our assets, projects and property.

REP EBT, as it relates to our business, is defined as net income (loss) from continuing operations excluding general and administrative expenses, corporate interest income and depreciation expense, benefit from income taxes, warrant liability gain (loss) and the effects of the previously mentioned items within our equity in earnings (loss) from Real Estate Affiliates. We present REP EBT because we use this measure, among others, internally to assess the core operating performance of our assets. We also present this measure because we believe certain investors use it as a measure of a company’s historical operating performance and its ability to service and incur debt. We believe that the inclusion of certain adjustments to net income (loss) from continuing operations to calculate REP EBT is appropriate to provide additional information to investors because REP EBT excludes certain non-recurring and non-cash items, which we believe are not indicative of our core operating performance. REP EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss) from continuing operations, it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

As more fully discussed in this report, on July 1, 2011, we acquired our partner’s interest in The Woodlands’ master planned community. We now own 100% of The Woodlands and consolidate its operations. As such, The Woodlands operating results for historical periods when this investment was a Real Estate Affiliate are now analyzed internally on a non-GAAP consolidation basis by management in order to provide management comparability between periods for analyzing operating results. Segment information presented herein has also been restated for the three months ended March 31, 2011, to reflect The Woodlands on a consolidation basis and provide comparability for all periods. Prior to July 1, 2011, we had presented the operations of our equity method Real Estate Affiliates using the non-GAAP proportionate share method for segment reporting purposes. Under this method, we had presented our share of the revenues and expenses of these Real Estate Affiliates aggregated with the revenues and expenses of consolidated or combined properties. We previously reported the proportionate method because our 52.5% economic interest in The Woodlands represented a significant portion of our Master Planned Community segment. The remaining Real Estate Affiliates, including equity investments owned by The Woodlands, primarily represent entities that own single assets rather than a large business such as The Woodlands; therefore, we no longer use the proportionate share method for any Real Estate Affiliates. Rather, we account for the results of our Real Estate Affiliates other than The Woodlands using the equity or cost method, as appropriate.

Segment operating results are as follows:

	Three Months Ended March 31, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	36,089		$	—		$	36,089
Builder price participation	813			—			813
Minimum rents	132			—			132
Other land revenues	3,485			—			3,485
Other rental and property revenues	16			—			16
Total revenues	40,535			—			40,535
Cost of sales - land	18,679			—			18,679
Land sales operations	7,489			—			7,489
Land sales real estate and business taxes	2,085			—			2,085
Rental property maintenance costs	4			—			4
Depreciation and amortization	2			—			2
Interest income	(70		)	—			(70		)
Interest expense (1)	(3,414		)	—			(3,414		)
Total expenses	24,775			—			24,775
MPC EBT	15,760			—			15,760
Operating Assets
Minimum rents	18,522			—			18,522
Tenant recoveries	5,830			—			5,830
Resort and conference center revenues	9,657			—			9,657
Other rental and property revenues	4,726			—			4,726
Total revenues	38,735			—			38,735
Rental property real estate taxes	2,619			—			2,619
Rental property maintenance costs	1,858			—			1,858
Resort and conference center operations	7,414			—			7,414
Other property operating costs	13,774			—			13,774
Depreciation and amortization	4,857			—			4,857
Interest income	(45		)	—			(45		)
Interest expense	3,346			—			3,346
Equity in Earnings from Real Estate Affiliates (2)	—			(2,677		)	(2,677		)
Total expenses	33,823			(2,677		)	31,146
Operating Assets EBT	4,912			2,677			7,589
Strategic Developments
Minimum rents	243			—			243
Tenant recoveries	34			—			34
Overage rent revenue	52			—			52
Condominium unit sales	134			—			134
Other land revenue	32			—			32
Total revenues	495			—			495
Condominium sales operations	117			—			117
Real estate taxes	1,219			—			1,219
Rental property maintenance costs	115			—			115
Other property operating costs	408			—			408
Depreciation and amortization	59			—			59
Interest expense	74			—			74
Total expenses	1,992			—			1,992
Strategic Developments EBT	(1,497		)	—			(1,497		)
REP EBT	$	19,175		$	2,677		$	21,852

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $2.4 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

	Three Months Ended March 31, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	23,392		$	21,408		$	44,800
Builder price participation	521			565			1,086
Minimum rents	—			7			7
Other land revenues	1,247			1,680			2,927
Total revenues	25,160			23,660			48,820
Cost of sales - land	15,436			11,490			26,926
Land sales operations	4,241			1,822			6,063
Land sales real estate and business taxes	1,511			1,007			2,518
Depreciation and amortization	—			23			23
Interest income	(1,165		)	(186		)	(1,351		)
Interest expense (1)	(2,526		)	(877		)	(3,403		)
Total expenses	17,497			13,279			30,776
Venture partner share of The Woodlands EBT	—			(4,931		)	(4,931		)
MPC EBT	7,663			5,450			13,113
Operating Assets
Minimum rents	16,507			1,400			17,907
Tenant recoveries	4,482			569			5,051
Resort and conference center revenues	—			8,665			8,665
Other rental and property revenues	1,899			2,866			4,765
Total revenues	22,888			13,500			36,388
Rental property real estate taxes	2,488			487			2,975
Rental property maintenance costs	1,356			131			1,487
Resort and conference center operations	—			6,701			6,701
Other property operating costs	8,372			3,914			12,286
Provision for doubtful accounts	163			(9		)	154
Depreciation and amortization	3,128			1,864			4,992
Interest income	(16		)	(1		)	(17		)
Interest expense	2,540			1,313			3,853
Equity in Earnings from Real Estate Affiliates (2)	—			(3,288		)	(3,288		)
Total expenses	18,031			11,112			29,143
Venture partner share of The Woodlands EBT	—			(702		)	(702		)
Operating Assets EBT	4,857			1,686			6,543
Strategic Developments
Minimum rents	213			—			213
Tenant recoveries	42			—			42
Condominium unit sales	3,764			—			3,764
Other rental and property revenues	1,034			—			1,034
Total revenues	5,053			—			5,053
Condominium unit cost of sales	2,980			—			2,980
Real estate taxes	986			—			986
Rental property maintenance costs	203			—			203
Other property operating costs	1,159			—			1,159
Depreciation and amortization	58			—			58
Total expenses	5,386			—			5,386
Strategic Developments EBT	(333		)	—			(333		)
REP EBT	$	12,187		$	7,136		$	19,323

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $3.9 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

The following reconciles REP EBT to GAAP-basis income (loss) from continuing operations:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Reconciliation of REP EBT to GAAP-basis income (loss) from continuing operations
Real estate property EBT:
Segment basis	$	21,852		$	19,323
Real Estate Affiliates	(2,677		)	(7,136		)
	19,175			12,187
General and administrative	(9,822		)	(5,017		)
Interest income	2,217			1,331
Interest expense	6			14
Warrant liability loss	(121,851		)	(126,045		)
Provision for income taxes	(3,784		)	(2,457		)
Equity in earnings from Real Estate Affiliates	2,677			5,513
Corporate depreciation	(140		)	(13		)
Net income (loss) from continuing operations	$	(111,522	)	$	(114,487	)

The following reconciles segment revenue to GAAP-basis consolidated and combined revenues:

	Three Months Ended March 31,
	2012		2011
	(In thousands)
Reconciliation of Segment Basis Revenues to GAAP Revenues
Master Planned Communities - Total Segment	$	40,535	$	48,820
Operating Assets - Total Segment	38,735		36,388
Strategic Developments - Total Segment	495		5,053
Total Segment revenues	79,765		90,261
Less: The Woodlands revenues	—		(37,160		)
Total revenues - GAAP basis	$	79,765	$	53,101

The assets by segment and the reconciliation of total segment assets to the total assets in the condensed consolidated balance sheets at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31,		December 31,
	2012		2011
	(In thousands)
Master Planned Communities	$	1,780,851	$	1,778,515
Operating Assets	860,163		869,186
Strategic Developments	196,100		189,807
Total segment assets	2,837,114		2,837,508
Corporate and other	553,174		557,641
Total assets	$	3,390,288	$	3,395,149