NOTE 5 REAL ESTATE AND OTHER AFFILIATES

Our investment in real estate and other 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,
	2014		2013		2014		2013		2014		2013		2012
	(In percentages)				(In thousands)
Equity Method Investments:
Circle T Ranch and Power Center (a)	50.00	%	50.00	%	$	9,004	$	9,004	$	-	$	-	$	-
Discovery Land (a)	-		-			-		-		-		-		-
Forest View/Timbermill Apartments (b) (c)	-		-			-		-		-		-		4
HHMK Development, LLC (a) (d)	50.00	%	50.00	%		10		13		2,120		732		-
KR Holdings, LLC (a) (d)	50.00	%	50.00	%		9,183		19,764		19,470		9,877		-
Millennium Waterway Apartments (c) (e)	100.00	%	100.00	%		-		-		-		-		407
Millennium Woodlands Phase II, LLC (c) (f)	81.43	%	81.43	%		1,023		2,174		(1,291)		(74)		-
Parcel C (a) (d)	50.00	%	50.00	%		8,737		5,801		-		-		-
The Metropolitan Downtown Columbia (a)	50.00	%	50.00	%		4,800		3,461		-		-		-
Stewart Title (c)	50.00	%	50.00	%		3,869		3,843		1,301		1,223		902
Summerlin Apartments, LLC (a) (d)	50.00	%	50.00	%		-		-		-		-		-
Summerlin Las Vegas Baseball Club (c) (d)	50.00	%	50.00	%		10,548		10,636		(88)		(13)		-
Woodlands Sarofim #1 (c)	20.00	%	20.00	%		2,595		2,579		175		180		(6)
						49,769		57,275		21,687		11,925		1,307
Cost basis investments						3,917		3,746		1,649		2,503		2,376
Investment in Real Estate and Other Affiliates					$	53,686	$	61,021	$	23,336	$	14,428	$	3,683

(a)

Investment included in Strategic Developments segment.

(b)

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.

(c)

Investment included in Operating Assets segment.

(d)

Equity method variable interest entities.

(e)

On May 31, 2012, we acquired our partner’s interest for $6.9 million and consolidated this property.

(f)

Millennium Woodlands Phase II, LLC was placed into service in the beginning of the third quarter of 2014.

We are not the primary beneficiary of any of the VIEs listed above 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 was $29.5 million and $38.4 million as of December 31, 2014 and 2013, respectively, and was classified as Investments in Real Estate and Other Affiliates in the Consolidated Balance Sheets. As of December 31, 2014, approximately $89.4 million of indebtedness was secured by the properties owned by our Real Estate and Other Affiliates of which our share was approximately $54.6 million based upon our economic ownership. All of this indebtedness is without recourse to us.

The Company is the primary beneficiary of one VIE which is consolidated in the financial statements. The creditors of the consolidated VIE do not have recourse to the Company. As of December 31, 2014, the carrying values of the assets and liabilities associated with the operations of the consolidated VIE were $21.1 million and $0.6 million, respectively. As of December 31, 2013, the carrying values of the assets and liabilities associated with operations of the consolidated VIE were $31.7 million and $0.8 million, respectively. The assets of the VIE are restricted for use only by the particular VIE 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.

Discovery Land

During the second quarter 2014, we announced an agreement to enter into a joint venture with Discovery Land Company (“Discovery Land”) which had not yet been formed as of December 31, 2014. We will contribute our land to the joint venture at the agreed upon value of $226,000 per acre or $125.4 million in 2015. Discovery Land’s capital contribution funding requirement consists of all initial development costs and total project costs up to a maximum of $30.0 million. Discovery Land is the manager of the project.

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 12.00%, 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, after a return of our capital plus a 13% preferred return on our capital. A & B Properties’ participation is capped at $3.0 million.

KR Holdings closed on a $132.0 million first mortgage construction loan on May 15, 2013. Upon the loan 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.

In the fourth quarter 2014, the venture substantially completed construction of a luxury 23-story, 206-unit condominium tower consisting of one, two and three-bedroom units ranging from 760 to 4,100 square feet. As of December 31, 2014, 201 of the 206 units had closed. The venture paid in full the two $20.0 million mezzanine loans and the $132.0 million first mortgage construction loan. We received cash distributions totaling $38.7 million in December 2014.

Summarized financial information for KR Holdings as of December 31, 2014 includes total assets of $37.5 million, total liabilities of $18.7 million, gross sales of $201.0 million and net income of $43.0 million. Summarized financial information for K.R. Holdings 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 $21.5 million and $9.9 million in Equity in earnings from Real Estate and Other Affiliates related to KR Holdings in the Consolidated Statement of Operations for the years ended December 31, 2014 and 2013 respectively. Our investment balance includes deferred profit of $0.2 million 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, 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, 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. During the third quarter 2014, the joint venture completed construction and leasing commenced.

Parcel C

On October 4, 2013, we entered into a joint venture agreement with a local developer, Kettler, Inc. (“Kettler”), 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. Our land was valued 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.

Summerlin Apartments, LLC

On January 24, 2014, we entered into a joint venture with a national multi-family real estate developer, The Calida Group (“Calida”), to construct, own and operate a 124-unit gated luxury apartment development. We and our partner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions. This project represents the first residential development in Summerlin’s 400-acre downtown. We will contribute a 4.5-acre parcel of land with an agreed value of $3.2 million in exchange for a 50% interest in the venture when construction financing closes. Our partner will contribute cash for their 50% interest, act as the development manager, fund all pre-development activities, obtain construction financing and provide any guarantees required by the lender. Upon a sale of the property, we are entitled to 50% of the proceeds up to, and 100% of the proceeds in excess of an amount determined by applying a 7.0% capitalization rate to net operating income (“NOI”). The venture is expected to begin construction in first half 2015 with the first units available for rent by second quarter 2016.

Summerlin Las Vegas Baseball Club, LLC

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. As of the date the joint venture acquired the baseball team, we had funded our capital contribution of $10.5 million. Our strategy in owning an interest is to pursue a potential relocation of the team to a to‑be‑built stadium in our Summerlin master planned community. Efforts to relocate the team are ongoing and 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 Kettler to construct a 380-unit 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 and $45.8 million is outstanding as of December 31, 2014. The loan bears interest at one-month LIBOR plus 2.40% 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 made additional 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. We expect the project to be substantially completed by the first quarter of 2015.