NOTE 15 SEGMENTS

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, office and industrial properties, a multi-family property, The Woodlands Resort & 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 or redevelopment which have no substantial operations.

The assets included in each segment as of June 30, 2014, are contained in the following chart:

Master Planned

Operating Assets

Strategic Developments

Communities

Retail

Office / Other

Under Construction

· Bridgeland

· Cottonwood Square

· Arizona 2 Lease *

· Creekside Village Green

· Alameda Plaza

· Maryland Communities

· Landmark Mall

· 70 Columbia Corporate Center

· ExxonMobil

· AllenTowne

· Summerlin

· Park West

· Columbia Office Properties ****

· Hughes Landing Retail

· Anaha Condominium Project

· The Woodlands

· Outlet Collection at Riverwalk

· Golf Courses at Summerlin

· Millennium Woodlands Phase II, LLC **

· Bridges at Mint Hill

· South Street Seaport

and TPC Las Vegas (participation interest)

· ONE Ala Moana ***

· Century Plaza Mall

· Ward Village

· 2201 Lake Woodlands Drive

· One Lake’s Edge

· Circle T Ranch and Power Center **

· 20/25 Waterway Avenue

· Millennium Waterway Apartments

· The Metropolitan Downtown

· Cottonwood Mall

· Waterway Garage Retail

· 9303 New Trails Office

Columbia Project **

· Elk Grove Promenade

· 110 N Wacker

· 3831 Technology Forest Drive

· 80% Interest in Fashion

· One Hughes Landing

· Downtown Summerlin

Show Air Rights

· Stewart Title of Montgomery County, TX **

· Two Hughes Landing

· Hawaii Whole Foods Market Project

· Summerlin Hospital Medical Center **

· Waiea Condominium Project

· Kendall Town Center

· Summerlin Las Vegas Baseball Club **

· Waterway Square Hotel

· Kewalo Basin Harbor

· The Club at Carlton Woods

· Lakemoor (Volo) Land

· The Woodlands Resort &

· Maui Ranch Land

Conference Center (under construction)

· Parcel C **

· Woodlands Sarofim #1 **

· Summerlin Apartments, LLC **

· 1400 Woodloch Forest

· West Windsor

· Waterway Square Garage

· Workforce Housing Project

· 3 Waterway Square Office

· 4 Waterway Square Office

*	Notes receivable
**	An equity or cost method investment
***	Asset consists of two equity method investments
****	Includes the Columbia Regional Building which is under construction

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. We believe REP EBT provides useful information about the operating performance for all of our properties.

REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, other income, corporate interest income, corporate interest and depreciation expense, provision for income taxes, warrant liability loss and the reduction in tax indemnity receivable. We present REP EBT because we use this measure, among others, internally to assess the 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.

Segment operating results are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(In thousands)						(In thousands)
Master Planned Communities
Land sales	$	153,164		$	66,021		$	200,835		$	113,247
Builder price participation	3,843			2,426			7,940			3,701
Minimum rents	207			194			404			389
Other land revenues	2,689			3,830			5,193			6,632
Other rental and property revenues	108			—			175			—
Total revenues	160,011			72,471			214,547			123,969

Cost of sales - land	42,719			29,854			65,797			55,553
Land sales operations	9,275			8,359			16,579			15,312
Land sales real estate and business taxes	2,135			1,435			4,089			2,978
Depreciation and amortization	103			8			203			15
Interest income	(22		)	(1		)	(79		)	(16		)
Interest expense (*)	(4,813		)	(3,646		)	(9,879		)	(9,606		)
Total expenses	49,397			36,009			76,710			64,236
MPC EBT	110,614			36,462			137,837			59,733

Operating Assets
Minimum rents	21,918			19,756			41,818			38,267
Tenant recoveries	6,941			5,041			12,825			10,293
Resort and conference center revenues	9,622			11,270			19,048			22,374
Other rental and property revenues	6,570			6,612			11,680			10,045
Total revenues	45,051			42,679			85,371			80,979

Other property operating costs	15,485			15,894			28,666			30,796
Rental property real estate taxes	3,762			2,923			6,869			5,906
Rental property maintenance costs	2,008			2,032			3,808			3,688
Resort and conference center operations	6,412			7,680			13,923			15,156
Provision for doubtful accounts	31			277			174			706
Demolition costs	3,434			—			5,928			—
Development-related marketing costs	2,711			658			4,790			721
Depreciation and amortization	9,531			6,398			18,541			12,516
Interest income	(11		)	(44		)	(130		)	(90		)
Interest expense	3,928			3,893			5,972			10,698
Equity in Earnings from Real Estate and Other Affiliates	(767		)	(363		)	(2,572		)	(3,096		)
Total expenses	46,524			39,348			85,969			77,001
Operating Assets EBT	(1,473		)	3,331			(598		)	3,978

Strategic Developments
Minimum rents	73			184			336			404
Tenant recoveries	(57		)	24			74			97
Condominium rights and unit sales	4,358			30,381			7,484			30,381
Other land revenues	9			—			17			—
Other rental and property revenues	186			23			455			23
Total revenues	4,569			30,612			8,366			30,905

Condominium rights and unit cost of sales	2,191			15,272			3,762			15,272
Other property operating costs	1,094			446			1,721			1,001
Real estate taxes	479			436			1,112			1,210
Rental property maintenance costs	166			111			281			260
Demolition costs	1			—			23			—
Development-related marketing costs	2,588			—			4,732			—
Depreciation and amortization	614			48			1,038			91
Other income	—			(954		)	(2,373		)	(954		)
Interest expense (*)	(3,981		)	(675		)	(6,630		)	(962		)
Equity in Earnings from Real Estate and Other Affiliates	(5,820		)	(5,344		)	(10,083		)	(5,344		)
Total expenses	(2,668		)	9,340			(6,417		)	10,574
Strategic Developments EBT	7,237			21,272			14,783			20,331
REP EBT	$	116,378		$	61,065		$	152,022		$	84,042

(*) Negative interest expense amounts relate to interest capitalized on debt assigned to our Operating Assets and Strategic Development segments.

The following reconciles REP EBT to GAAP-basis net income (loss):

Reconciliation of REP EBT to GAAP-net	Three Months Ended June 30,						Six Months Ended June 30,
income (loss)	2014			2013			2014			2013
	(In thousands)						(In thousands)

REP EBT	$	116,378		$	61,065		$	152,022		$	84,042
General and administrative	(17,497		)	(11,225		)	(34,379		)	(22,392		)
Corporate interest (expense)/income, net	4,829			1,594			(6,151		)	4,300
Warrant liability loss	(67,370		)	(111,200		)	(163,810		)	(144,227		)
Provision for income taxes	(44,532		)	(13,361		)	(49,305		)	(15,840		)
Reduction in tax indemnity receivable	(10,927		)	(7,499		)	(10,927		)	(9,403		)
Corporate other income	5,611			4,456			13,686			4,456
Corporate depreciation	(1,225		)	(326		)	(2,200		)	(602		)
Net loss	$	(14,733	)	$	(76,496	)	$	(101,064	)	$	(99,666	)

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

Reconciliation of Segment Basis Revenues to	Three Months Ended June 30,				Six Months Ended June 30,
GAAP Revenues	2014		2013		2014		2013
	(In thousands)				(In thousands)

Master Planned Communities	$	160,011	$	72,471	$	214,547	$	123,969
Operating Assets	45,051		42,679		85,371		80,979
Strategic Developments	4,569		30,612		8,366		30,905
Total revenues	$	209,631	$	145,762	$	308,284	$	235,853

The assets by segment and the reconciliation of total segment assets to the total assets in the Condensed Consolidated Balance Sheets are summarized as follows:

	June 30,		December 31,
	2014		2013
	(In thousands)
Master Planned Communities	$	1,850,308	$	1,760,639
Operating Assets (a)	1,243,514		1,158,337
Strategic Developments	908,015		462,525
Total segment assets	4,001,837		3,381,501
Corporate and other (b)	978,744		1,186,367
Total assets	$	4,980,581	$	4,567,868

(a) Certain assets included in our Operating Assets segment are in various stages of redevelopment and are included in Developments on our Condensed Consolidated Balance Sheets.

(b) Assets included in Corporate and other consist primarily of Cash and cash equivalents and the Tax Indemnity receivable, including accrued interest.

A portion of the tax indemnification asset in the amount of $185.7 million was incorrectly included in the Operating Assets segment at December 31, 2013 rather than the Corporate segment. The amounts in the table above at December 31, 2013 have been corrected to appropriately include the entire tax indemnification asset of $320.5 million in the Corporate segment.

The increase in the Strategic Developments segment’s asset balance as of June 30, 2014 of $445.5 million compared to December 31, 2013 is primarily due to $103.2 million of deposits collected on the sale of condominium units for both our market rate towers at Ward Village, $20.6 million in buildings and equipment from the completion of the transformation of the IBM building at Ward Village into an information center and sales gallery and development and other costs of $151.3 million for Downtown Summerlin, $25.1 million for Hughes Landing multi-family, $17.2 million for Ward Village, $32.0 million for the ExxonMobil office buildings, $12.4 million for Hughes Landing retail, $27.1 million for various projects under construction at The Woodlands, $9.7 million in purchase deposits for a land parcel near the Seaport and $14.3 million increase in the carrying value of our investment in the ONE Ala Moana project.

The decrease in the Corporate segment’s asset balance as of June 30, 2014 of $207.6 million compared to December 31, 2013 is primarily due to cash used to fund development activities.