SEGMENTS

9 Months Ended

Sep. 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 management’s operating philosophies and methods. In addition, our segments or assets within such segment 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.

·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, and we believe there is an opportunity to redevelop or reposition many of these assets to improve operating performance.

·Strategic Developments — includes all properties held for development and redevelopment which are not currently operating (primarily retail and other interests in real estate at such locations), and our one residential condominium project located in Natick (Boston), Massachusetts, in which the remaining units were sold during the first six months of 2012.

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

[See the EDGAR documents for referenced chart details.]

As more fully discussed in Note 4, 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.

As our segments are managed separately, different operating measures are utilized to assess operating results and allocate resources among the segments. 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 for 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). 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 September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	40,218		$	—		$	40,218
Builder price participation	1,867			—			1,867
Minimum rents	130			—			130
Other land revenues	6,385			—			6,385
Other rental and property revenues	(7		)	—			(7		)
Total revenues	48,593			—			48,593
Cost of sales - land	21,439			—			21,439
Land sales operations	8,209			—			8,209
Land sales real estate and business taxes	1,751			—			1,751
Depreciation and amortization	64			—			64
Interest income	(49		)	—			(49		)
Interest expense (1)	(3,638		)	—			(3,638		)
Total expenses	27,776			—			27,776
MPC EBT	20,817			—			20,817
Operating Assets
Minimum rents	22,788			—			22,788
Tenant recoveries	6,030			—			6,030
Resort and conference center revenues	8,328			—			8,328
Other rental and property revenues	4,342			—			4,342
Total revenues	41,488			—			41,488
Rental property real estate taxes	2,934			—			2,934
Rental property maintenance costs	2,126			—			2,126
Resort and conference center operations	6,965			—			6,965
Other property operating costs	14,853			—			14,853
Provision for doubtful accounts	237			—			237
Depreciation and amortization	6,440			—			6,440
Interest income	(48		)	—			(48		)
Interest expense	4,313			—			4,313
Equity in Earnings from Real Estate Affiliates	—			(310		)	(310		)
Total expenses	37,820			(310		)	37,510
Operating Assets EBT	3,668			310			3,978
Strategic Developments
Minimum rents	217			—			217
Tenant recoveries	35			—			35
Other rental and property revenues	4,482			—			4,482
Total revenues	4,734			—			4,734
Condominium sales operations	(24		)	—			(24		)
Real estate taxes	640			—			640
Rental property maintenance costs	137			—			137
Other property operating costs	2,080			—			2,080
Provision for doubtful accounts	3			—			3
Depreciation and amortization	56			—			56
Interest expense	(193		)	—			(193		)
Total expenses	2,699			—			2,699
Strategic Developments EBT	2,035			—			2,035
REP EBT	$	26,520		$	310		$	26,830

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

	Three Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	34,152		—			$	34,152
Builder price participation	1,233			—			1,233
Minimum rents	122			—			122
Other land revenues	5,597			—			5,597
Total revenues	41,104			—			41,104
Cost of sales - land	27,033			—			27,033
Land sales operations	8,430			—			8,430
Land sales real estate and business taxes	2,059			—			2,059
Depreciation and amortization	23			—			23
Interest income	(70		)	—			(70		)
Interest expense (1)	(3,808		)	—			(3,808		)
Total expenses	33,667			—			33,667
MPC EBT	7,437			—			7,437
Operating Assets
Minimum rents	19,072			—			19,072
Tenant recoveries	5,387			—			5,387
Resort and conference center revenues	7,200			—			7,200
Other rental and property revenues	4,593			—			4,593
Total revenues	36,252			—			36,252
Rental property real estate taxes	2,829			—			2,829
Rental property maintenance costs	2,016			—			2,016
Resort and conference center operations	6,352			—			6,352
Other property operating costs	14,249			—			14,249
Recovery of doubtful accounts	(136		)	—			(136		)
Depreciation and amortization	6,961			—			6,961
Interest income	(46		)	—			(46		)
Interest expense	4,050			—			4,050
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates	—			(166		)	(166		)
Total expenses	47,580			(166		)	47,414
Operating Assets EBT	(11,328		)	166			(11,162		)
Strategic Developments
Minimum rents	209			—			209
Tenant recoveries	11			—			11
Condominium unit sales	9,071			—			9,071
Other land revenues	(60		)	—			(60		)
Other rental and property revenues	86			—			86
Total revenues	9,317			—			9,317
Condominium unit cost of sales	5,470			—			5,470
Condominium sales operations	245			—			245
Real estate taxes	(819		)	—			(819		)
Rental property maintenance costs	139			—			139
Other property operating costs	712			—			712
Recovery of doubtful accounts	(5		)	—			(5		)
Depreciation and amortization	59			—			59
Interest expense	149			—			149
Total expenses	5,950			—			5,950
Strategic Developments EBT	3,367			—			3,367
REP EBT	$	(524	)	$	166		$	(358	)

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

	Nine Months Ended September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	120,235		—			$	120,235
Builder price participation	4,208			—			4,208
Minimum rents	384			—			384
Other land revenues	13,401			—			13,401
Other rental and property revenues	28			—			28
Total revenues	138,256			—			138,256
Cost of sales - land	63,096			—			63,096
Land sales operations	25,382			—			25,382
Land sales real estate and business taxes	5,533			—			5,533
Depreciation and amortization	67			—			67
Interest income	(179		)	—			(179		)
Interest expense (1)	(10,709		)	—			(10,709		)
Total expenses	83,190			—			83,190
MPC EBT	55,066			—			55,066
Operating Assets
Minimum rents	61,532			—			61,532
Tenant recoveries	17,817			—			17,817
Resort and conference center revenues	29,954			—			29,954
Other rental and property revenues	15,307			—			15,307
Total revenues	124,610			—			124,610
Rental property real estate taxes	8,160			—			8,160
Rental property maintenance costs	5,851			—			5,851
Resort and conference center operations	21,750			—			21,750
Other property operating costs	43,274			—			43,274
Provision for doubtful accounts	386			—			386
Depreciation and amortization	16,969			—			16,969
Interest income	(134		)	—			(134		)
Interest expense	11,373			—			11,373
Equity in Earnings from Real Estate Affiliates (2)	—			(3,432		)	(3,432		)
Total expenses	107,629			(3,432		)	104,197
Operating Assets EBT	16,981			3,432			20,413
Strategic Developments
Minimum rents	693			—			693
Tenant recoveries	115			—			115
Condominium unit sales	267			—			267
Other land revenues	32			—			32
Other rental and property revenues	4,544			—			4,544
Total revenues	5,651			—			5,651
Condominium unit cost of sales	96			—			96
Condominium sales operations	47			—			47
Real estate taxes	2,423			—			2,423
Rental property maintenance costs	453			—			453
Other property operating costs	3,032			—			3,032
Recovery of doubtful accounts	(101		)	—			(101		)
Depreciation and amortization	173			—			173
Interest expense	61			—			61
Total expenses	6,184			—			6,184
Strategic Developments EBT	(533		)	—			(533		)
REP EBT	$	71,514		$	3,432		$	74,946

(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.

	Nine Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	75,692		46,773			$	122,465
Builder price participation	2,351			1,108			3,459
Minimum rents	739			14			753
Other land revenues	9,093			3,924			13,017
Total revenues	87,875			51,819			139,694
Cost of sales - land	51,907			23,932			75,839
Land sales operations	16,343			8,439			24,782
Land sales real estate and business taxes	5,110			899			6,009
Depreciation and amortization	23			46			69
Interest income	(70		)	(364		)	(434		)
Interest expense (1)	(8,936		)	(2,370		)	(11,306		)
Total expenses	64,377			30,582			94,959
Venture partner share of The Woodlands EBT				(10,088		)	(10,088		)
MPC EBT	23,498			11,149			34,647
Operating Assets
Minimum rents	51,701			2,803			54,504
Tenant recoveries	14,391			1,061			15,452
Resort and conference center revenues	7,200			19,106			26,306
Other rental and property revenues	8,034			6,992			15,026
Total revenues	81,326			29,962			111,288
Rental property real estate taxes	7,167			972			8,139
Rental property maintenance costs	4,807			477			5,284
Resort and conference center operations	6,352			13,904			20,256
Other property operating costs	31,716			9,060			40,776
Provision for (recovery of) doubtful accounts	317			(9		)	308
Depreciation and amortization	13,200			3,968			17,168
Interest income	(79		)	(2		)	(81		)
Interest expense	9,143			2,316			11,459
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates (2)	—			(3,139		)	(3,139		)
Total expenses	83,928			27,547			111,475
Venture partner share of The Woodlands EBT				(1,067		)	(1,067		)
Operating Assets EBT	(2,602		)	1,348			(1,254		)
Strategic Developments
Minimum rents	658			—			658
Tenant recoveries	146			—			146
Condominium unit sales	19,495			—			19,495
Other rental and property revenues	1,096			—			1,096
Other land revenue	—			—			—
Total revenues	21,395			—			21,395
Condominium unit cost of sales	13,722			—			13,722
Condominium sales operations	860			—			860
Real estate taxes	626			—			626
Rental property maintenance costs	471			—			471
Other property operating costs	2,697			—			2,697
Recovery of doubtful accounts	(143		)	—			(143		)
Provision for impairment	—			—			—
Depreciation and amortization	176			—			176
Interest expense	154			—			154
Total expenses	18,563			—			18,563
Strategic Developments EBT	2,832			—			2,832
REP EBT	$	23,728		$	12,497		$	36,225

(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 September 30,						Nine Months Ended September 30,
income (loss)	2012			2011			2012			2011
	(In thousands)						(In thousands)
Real estate property EBT:
Segment basis	$	26,830		$	(358	)	$	74,946		$	36,225
Real Estate Affiliates	(310		)	(166		)	(3,432		)	(12,497		)
	26,520			(524		)	71,514			23,728
General and administrative	(9,339		)	(8,673		)	(25,896		)	(21,156		)
Corporate interest income	2,315			2,616			6,814			7,309
Warrant liability gain (loss)	(64,303		)	169,897			(162,724		)	100,762
Benefit (provision) for income taxes	(2,618		)	7,760			(7,703		)	4,344
Reduction in tax indemnity receivable	(2,873		)	—			(11,655		)	—
Equity in earnings from Real Estate Affiliates	310			166			3,432			7,787
Investment in Real Estate Affiliate basis adjustment	—			(6,053		)	—			(6,053		)
Corporate depreciation	(204		)	(165		)	(506		)	(193		)
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528

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

Reconciliation of Segment Basis Revenues to	Three Months Ended September 30,				Nine Months Ended September 30,
GAAP Revenues	2012		2011		2012		2011
	(In thousands)				(In thousands)
Master Planned Communities - Total Segment	$	48,593	$	41,104	$	138,256	$	139,694
Operating Assets - Total Segment	41,488		36,252		124,610		111,288
Strategic Developments - Total Segment	4,734		9,317		5,651		21,395
Total Segment revenues	94,815		86,673		268,517		272,377
Less: The Woodlands Partnerships revenues	—		—		—		(81,781		)
Total revenues - GAAP basis	$	94,815	$	86,673	$	268,517	$	190,596

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

	September 30,		December 31,
	2012		2011
	(In thousands)
Master Planned Communities	$	1,787,034	$	1,778,515
Operating Assets	950,665		869,186
Strategic Developments	217,217		189,807
Total segment assets	2,954,916		2,837,508
Corporate and other	569,154		557,641
Total assets	$	3,524,070	$	3,395,149