SEGMENTS

6 Months Ended

Jun. 30, 2012

SEGMENTS

SEGMENTS

NOTE 15SEGMENTS

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 (“MPCs”) — 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 our reports 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 reclassified the commercial operating properties to the operating assets segment and we presented The Woodlands historical financial information on a consolidated basis for all periods so that operating performance between periods is comparable.

·Operating Assets — includes retail and office properties, a multi-family property, The Woodlands Resort and Conference Center and other real estate investments. These assets are currently generating revenues, many of which we believe there is an opportunity to redevelop or reposition the asset to improve operating performance.  As mentioned above under the MPC section, we reclassified the commercial operating properties for The Woodlands, previously included in the MPC segment, to the operating assets segment for all periods presented.

·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, in which the remaining units were sold during the first six months of the year.

The assets included in each segment as of June 30, 2012, are contained in the following chart:

[See the EDGAR documents for referenced chart details.]

As more fully discussed in this report, on July 1, 2011, we acquired our partner’s interest in The Woodlands. 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 and six months ended June 30, 2011, to reflect The Woodlands on a consolidated 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. Accordingly, we account for the results of our Real Estate Affiliates other than The Woodlands using the equity or cost method, as appropriate.

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 and adjustments for interest, as further described below. Management believes that REP EBT provides useful information about the operating performance of all of our assets, projects and properties.

REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate interest income and depreciation expense, provision for 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) 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)  as 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.

Segment operating results are as follows:

	Three Months Ended June 30, 2012
	Consolidated			Real Estate			Segment
	Properties			Affiliates			Basis
	(In thousands)
Master Planned Communities
Land sales	$	43,928		—			$	43,928
Builder price participation	1,528			—			1,528
Minimum rents	121			—			121
Other land revenues	3,531			—			3,531
Other rental and property revenues	19			—			19
Total revenues	49,127			—			49,127
Cost of sales - land	22,978			—			22,978
Land sales operations	8,269			—			8,269
Land sales real estate and business taxes	1,698			—			1,698
Depreciation and amortization	2			—			2
Interest income	(61		)	—			(61		)
Interest expense (1)	(3,657		)	—			(3,657		)
Total expenses	29,229			—			29,229
MPC EBT	19,898			—			19,898
Operating Assets
Minimum rents	20,222			—			20,222
Tenant recoveries	5,956			—			5,956
Resort and conference center revenues	11,970			—			11,970
Other rental and property revenues	6,240			—			6,240
Total revenues	44,388			—			44,388
Rental property real estate taxes	2,607			—			2,607
Rental property maintenance costs	1,885			—			1,885
Resort and conference center operations	7,371			—			7,371
Other property operating costs	14,594			—			14,594
Provision for doubtful accounts	174			—			174
Depreciation and amortization	5,672			—			5,672
Interest income	(41		)	—			(41		)
Interest expense	3,714			—			3,714
Equity in Earnings from Real Estate Affiliates	—			(446		)	(446		)
Total expenses	35,976			(446		)	35,530
Operating Assets EBT	8,412			446			8,858
Strategic Developments
Minimum rents	234			—			234
Tenant recoveries	47			—			47
Condominium unit sales	134			—			134
Other rental and property revenues	9			—			9
Total revenues	424			—			424
Condominium unit cost of sales	36			—			36
Condominium sales operations	13			—			13
Real estate taxes	564			—			564
Rental property maintenance costs	201			—			201
Other property operating costs	441			—			441
Depreciation and amortization	59			—			59
Interest expense	180			—			180
Total expenses	1,494			—			1,494
Strategic Developments EBT	(1,070		)	—			(1,070		)
REP EBT	$	27,240		$	446		$	27,686

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

	Three Months Ended June 30, 2011
	Consolidated			Real Estate			Segment
	Properties			Affiliates			Basis
	(In thousands)
Master Planned Communities
Land sales	$	18,148		$	25,366		$	43,514
Builder price participation	597			542			1,139
Minimum rents	—			7			7
Other land revenues	2,248			2,245			4,493
Total revenues	20,993			28,160			49,153
Cost of sales - land	9,438			12,442			21,880
Land sales operations	3,119			4,403			7,522
Land sales real estate and business taxes	1,541			899			2,440
Depreciation and amortization	—			23			23
Interest income (1)	1,165			(178		)	987
Interest expense (2)	(2,602		)	(1,493		)	(4,095		)
Total expenses	12,661			16,096			28,757
Venture partner share of The Woodlands EBT	—			(5,730		)	(5,730		)
MPC EBT	8,332			6,334			14,666
Operating Assets
Minimum rents	16,740			1,543			18,283
Tenant recoveries	4,522			492			5,014
Resort and conference center revenues	—			10,441			10,441
Other rental and property revenues	1,541			4,127			5,668
Total revenues	22,803			16,603			39,406
Rental property real estate taxes	2,171			486			2,657
Rental property maintenance costs	1,434			253			1,687
Resort and conference center operations	—			7,203			7,203
Other property operating costs	9,135			5,239			14,374
Provision for doubtful accounts	290			—			290
Depreciation and amortization	3,112			2,104			5,216
Interest income	(17		)	(1		)	(18		)
Interest expense	2,553			1,004			3,557
Equity in Earnings from Real Estate Affiliates	—			315			315
Total expenses	18,678			16,603			35,281
Venture partner share of The Woodlands EBT	—			—			—
Operating Assets EBT	4,125			—			4,125
Strategic Developments
Minimum rents	236			—			236
Tenant recoveries	93			—			93
Condominium unit sales	6,660			—			6,660
Other rental and property revenues	9			—			9
Other land revenues	27			—			27
Total revenues	7,025			—			7,025
Condominium unit cost of sales	5,273			—			5,273
Condominium sales operations	281						281
Real estate taxes	460			—			460
Rental property maintenance costs	129			—			129
Other property operating costs	1,000			—			1,000
Provision for doubtful accounts	13			—			13
Depreciation and amortization	59			—			59
Interest expense	5			—			5
Total expenses	7,220			—			7,220
Strategic Developments EBT	(195		)	—			(195		)
REP EBT	$	12,262		$	6,334		$	18,596

(1) Reclassification of amounts recognized in this segment for the three months ended March 31, 2011.

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

	Six Months Ended June 30, 2012
	Consolidated			Real Estate			Segment
	Properties			Affiliates			Basis
	(In thousands)
Master Planned Communities
Land sales	$	80,017		—			$	80,017
Builder price participation	2,341			—			2,341
Minimum rents	254			—			254
Other land revenues	7,016			—			7,016
Other rental and property revenues	35			—			35
Total revenues	89,663			—			89,663
Cost of sales - land	41,657			—			41,657
Land sales operations	17,173			—			17,173
Land sales real estate and business taxes	3,782			—			3,782
Depreciation and amortization	3			—			3
Interest income	(130		)	—			(130		)
Interest expense (1)	(7,071		)	—			(7,071		)
Total expenses	55,414			—			55,414
MPC EBT	34,249			—			34,249
Operating Assets
Minimum rents	38,744			—			38,744
Tenant recoveries	11,787			—			11,787
Resort and conference center revenues	21,626			—			21,626
Other rental and property revenues	10,965			—			10,965
Total revenues	83,122			—			83,122
Rental property real estate taxes	5,226			—			5,226
Rental property maintenance costs	3,725			—			3,725
Resort and conference center operations	14,785			—			14,785
Other property operating costs	28,421			—			28,421
Provision for doubtful accounts	149			—			149
Depreciation and amortization	10,529			—			10,529
Interest income	(86		)	—			(86		)
Interest expense	7,060			—			7,060
Equity in Earnings from Real Estate Affiliates (2)	—			(3,122		)	(3,122		)
Total expenses	69,809			(3,122		)	66,687
Operating Assets EBT	13,313			3,122			16,435
Strategic Developments
Minimum rents	476			—			476
Tenant recoveries	80			—			80
Condominium unit sales	267			—			267
Other land revenues	32			—			32
Other rental and property revenues	62			—			62
Total revenues	917			—			917
Condominium unit cost of sales	96			—			96
Condominium sales operations	71			—			71
Real estate taxes	1,783			—			1,783
Rental property maintenance costs	316			—			316
Other property operating costs	952			—			952
Provision for doubtful accounts	(104		)	—			(104		)
Depreciation and amortization	117			—			117
Interest expense	254			—			254
Total expenses	3,485			—			3,485
Strategic Developments EBT	(2,568		)	—			(2,568		)
REP EBT	$	44,994		$	3,122		$	48,116

(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.

	Six Months Ended June 30, 2011
	Consolidated			Real Estate			Segment
	Properties			Affiliates			Basis
	(In thousands)
Master Planned Communities
Land sales	$	41,540		$	46,773		$	88,313
Builder price participation	1,118			1,108			2,226
Minimum rents	—			14			14
Other land revenues	3,496			3,924			7,420
Total revenues	46,154			51,819			97,973
Cost of sales - land	24,874			23,932			48,806
Land sales operations	7,361			8,439			15,800
Land sales real estate and business taxes	3,051			899			3,950
Depreciation and amortization	—			46			46
Interest income	—			(364		)	(364		)
Interest expense (1)	(5,128		)	(2,370		)	(7,498		)
Total expenses	30,158			30,582			60,740
Venture partner share of The Woodlands EBT	—			(10,088		)	(10,088		)
MPC EBT	15,996			11,149			27,145
Operating Assets
Minimum rents	33,246			2,803			36,049
Tenant recoveries	9,004			1,061			10,065
Resort and conference center revenues	—			19,106			19,106
Other rental and property revenues	3,441			6,992			10,433
Total revenues	45,691			29,962			75,653
Rental property real estate taxes	4,338			972			5,310
Rental property maintenance costs	2,791			477			3,268
Resort and conference center operations	—			13,904			13,904
Other property operating costs	18,019			9,060			27,079
Provision for doubtful accounts	453			(9		)	444
Depreciation and amortization	6,239			3,968			10,207
Interest income	(33		)	(2		)	(35		)
Interest expense	5,093			2,316			7,409
Equity in Earnings from Real Estate Affiliates (2)	—			(2,971		)	(2,971		)
Total expenses	36,900			27,715			64,615
Venture partner share of The Woodlands EBT	—			(1,067		)	(1,067		)
Operating Assets EBT	8,791			1,180			9,971
Strategic Developments
Minimum rents	449			—			449
Tenant recoveries	135			—			135
Condominium unit sales	10,424			—			10,424
Other rental and property revenues	1,010			—			1,010
Other land revenue	60			—			60
Total revenues	12,078			—			12,078
Condominium unit cost of sales	8,252			—			8,252
Condominium sales operations	615			—			615
Real estate taxes	1,445			—			1,445
Rental property maintenance costs	332			—			332
Other property operating costs	1,985			—			1,985
Provision for doubtful accounts	(138		)	—			(138		)
Depreciation and amortization	117			—			117
Interest expense	5			—			5
Total expenses	12,613			—			12,613
Venture partner share of The Woodlands EBT	—			—			—
Strategic Developments EBT	(535		)	—			(535		)
REP EBT	$	24,252		$	12,329		$	36,581

(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):

Reconciliation of REP EBT to GAAP-net	Three Months Ended June 30,						Six Months Ended June 30,
income (loss)	2012			2011			2012			2011
	(In thousands)						(In thousands)
Real estate property EBT:
Segment basis	$	27,686		$	18,596		$	48,116		$	36,581
Real Estate Affiliates	(446		)	(6,334		)	(3,122		)	(12,329		)
	27,240			12,262			44,994			24,252
General and administrative	(8,160		)	(7,662		)	(16,557		)	(12,483		)
Interest income	2,240			3,391			4,457			4,721
Interest expense	37			(44		)	42			(30		)
Warrant liability gain (loss)	23,430			56,910			(98,421		)	(69,135		)
Provision for income taxes	(1,301		)	(959		)	(5,085		)	(3,415		)
Loss on remeasurement of tax indemnity receivable	(8,782		)	—			(8,782		)	—
Equity in earnings from Real Estate Affiliates	446			2,110			3,122			7,623
Corporate depreciation	(158		)	(15		)	(302		)	(27		)
Net income (loss)	$	34,992		$	65,993		$	(76,532	)	$	(48,494	)

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

Reconciliation of Segment Basis Revenues to	Three Months Ended June 30,					Six Months Ended June 30,
GAAP Revenues	2012		2011			2012		2011
	(In thousands)					(In thousands)
Master Planned Communities - Total Segment	$	49,127	$	49,153		$	89,663	$	97,973
Operating Assets - Total Segment	44,388		39,406			83,122		75,653
Strategic Developments - Total Segment	424		7,025			917		12,078
Total Segment revenues	93,939		95,584			173,702		185,704
Less: The Woodlands Partnerships revenues	—		(44,763		)	—		(81,781		)
Total revenues - GAAP basis	$	93,939	$	50,821		$	173,702	$	103,923

The assets by segment and the reconciliation of total segment assets to the total assets in the consolidated balance sheets at June 30, 2012 and December 31, 2011 are summarized as follows:

	June 30,		December 31,
	2012		2011
	(In thousands)
Master Planned Communities	$	1,792,214	$	1,778,515
Operating Assets	909,359		869,186
Strategic Developments	201,865		189,807
Total segment assets	2,903,438		2,837,508
Corporate and other	564,265		557,641
Total assets	$	3,467,703	$	3,395,149