NOTE 16 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 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. 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. For the nine months ended September 30, 2014 one commercial land sales buyer represented 15.1% of total revenues.

· 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 our condominium projects and all properties held for development which have no substantial operations.

Revenue recognition for individual units in a condominium project are accounted for under the percentage of completion method based on the ratio of total project costs incurred to total estimated costs when the following criteria are met: a) construction is beyond a preliminary stage; b) buyer is unable to require a refund of its deposit, except for non-delivery of the unit; c) sufficient units are sold to assure that it will not revert to a rental property; d) sales prices are collectible; and e) aggregate sales proceeds and costs can be reasonably estimated. Estimated revenue and costs are reviewed periodically, and any changes are applied prospectively.

The assets included in each segment as of September 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 *

· Anaha Condominium Project

· Alameda Plaza

· Maryland Communities

· Landmark Mall

· 70 Columbia Corporate Center

· Creekside Village Green

· AllenTowne

· Summerlin

· Outlet Collection at Riverwalk

· Columbia Office Properties ****

· Downtown Summerlin (opened

· Bridges at Mint Hill

· The Woodlands

· Park West

· Golf Courses at Summerlin

October 9, 2014)

· Century Plaza Mall

- Hendricks parcel

· South Street Seaport (under construction)

and TPC Las Vegas (participation interest)

· ExxonMobil

· Circle T Ranch and Power Center **

· Ward Village

· One Hughes Landing

· Hughes Landing Hotel (Embassy Suites)

· Cottonwood Mall

· 20/25 Waterway Avenue

· Two Hughes Landing *****

· Hughes Landing Retail

· Elk Grove Promenade

· Waterway Garage Retail

· 1701 Lake Robbins

· Three Hughes Landing

· 80% Interest in Fashion

· 2201 Lake Woodlands Drive

· ONE Ala Moana ***

Show Air Rights

· Millennium Waterway Apartments

· One Lake's Edge

· Hawaii Whole Foods Market Project

· Millennium Woodlands Phase II, LLC ** / *****

· The Metropolitan Downtown

· Kendall Town Center

· 9303 New Trails Office

Columbia Project **

· Kewalo Basin Harbor

· 110 N Wacker

· 3831 Technology Forest Drive

· Lakeland Village Center

· Stewart Title of Montgomery County, TX **

· Waiea Condominium Project

· Lakemoor (Volo) Land

· Summerlin Hospital Medical Center **

· Waterway Square Hotel (Westin)

· Maui Ranch Land

· Summerlin Las Vegas Baseball Club **

· Parcel C **

· The Club at Carlton Woods

· Summerlin Apartments, LLC **

· The Woodlands Resort &

· West Windsor

Conference Center (under construction)

· Workforce Housing Project

· Waterway Square Garage

· 3 Waterway Square Office

· 4 Waterway Square Office

· Woodlands Sarofim #1 **

· 1400 Woodloch Forest

*	Note receivable
**	An equity or cost method investment
***	Asset consists of two equity method investments
****	Includes Columbia Regional Building which was opened in August 2014
*****	Asset was moved from Strategic Developments to Operating Assets during the quarter

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 gain or loss and the change 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 September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands)						(In thousands)
Master Planned Communities
Land sales	$	59,351		$	53,734		$	260,186		$	166,981
Builder price participation	5,311			2,002			13,251			5,703
Minimum rents	210			196			614			585
Other land revenues	4,103			3,579			9,296			10,211
Other rental and property revenues	198			—			373			—
Total revenues	69,173			59,511			283,720			183,480

Cost of sales - land	27,743			27,063			93,540			82,616
Land sales operations	8,068			7,393			24,629			22,705
Land sales real estate and business taxes	2,927			2,370			7,016			5,348
Depreciation and amortization	101			10			304			25
Interest income	(17		)	—			(96		)	(16		)
Interest expense (*)	(3,332		)	(3,689		)	(13,210		)	(13,295		)
Total expenses	35,490			33,147			112,183			97,383
MPC EBT	33,683			26,364			171,537			86,097

Operating Assets
Minimum rents	24,035			21,160			65,853			59,427
Tenant recoveries	7,581			5,254			20,406			15,547
Resort and conference center revenues	8,150			8,169			27,198			30,543
Other rental and property revenues	6,076			4,493			17,756			14,538
Total revenues	45,842			39,076			131,213			120,055

Other property operating costs	14,116			17,640			42,782			48,436
Rental property real estate taxes	3,716			3,148			10,585			9,054
Rental property maintenance costs	2,154			1,906			5,962			5,594
Resort and conference center operations	8,910			7,381			22,833			22,537
Provision for doubtful accounts	103			201			277			907
Demolition costs	761			1,386			6,689			1,386
Development-related marketing costs	589			1,050			5,379			1,771
Depreciation and amortization	11,261			9,171			29,802			21,687
Interest income	(11		)	(32		)	(141		)	(122		)
Interest expense	4,917			4,017			10,889			14,715
Equity in Earnings from Real Estate and Other Affiliates	(202		)	(647		)	(2,774		)	(3,743		)
Total expenses	46,314			45,221			132,283			122,222
Operating Assets EBT	(472		)	(6,145		)	(1,070		)	(2,167		)

Strategic Developments
Minimum rents	137			182			473			586
Tenant recoveries	18			38			92			135
Condominium rights and unit sales	4,032			810			11,516			31,191
Other land revenues	9			—			26			—
Other rental and property revenues	17			(2		)	472			18
Total revenues	4,213			1,028			12,579			31,930

Condominium rights and unit cost of sales	2,026			406			5,788			15,678
Other property operating costs	1,083			2,691			2,821			3,692
Real estate taxes	843			549			1,955			1,759
Rental property maintenance costs	159			142			440			402
Provision for doubtful accounts	16			3			16			3
Demolition costs	(1		)	—			22			—
Development-related marketing costs	5,798			—			10,530			—
Depreciation and amortization	445			48			1,483			139
Other income	—			(2,652		)	(2,373		)	(3,609		)
Interest expense (*)	(3,198		)	(401		)	(9,828		)	(1,363		)
Equity in Earnings from Real Estate and Other Affiliates	(5,307		)	(2,947		)	(15,390		)	(8,291		)
Total expenses	1,864			(2,161		)	(4,536		)	8,410
Strategic Developments EBT	2,349			3,189			17,115			23,520

REP EBT	$	35,560		$	23,408		$	187,582		$	107,450

(*) Negative interest expense amounts are due to interest capitalized in our Master Planned Communities and Strategic Developments segments related to Operating Assets segment debt and the Senior Notes.

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

Reconciliation of REP EBT to GAAP-net	Three Months Ended September 30,						Nine Months Ended September 30,
income (loss)	2014			2013			2014			2013
	(In thousands)						(In thousands)
REP EBT	$	35,560		$	23,408		$	187,582		$	107,450
General and administrative	(14,759		)	(11,914		)	(49,138		)	(34,310		)
Interest (expense)/income, net *	(14,938		)	1,955			(21,089		)	6,259
Warrant liability gain (loss)	24,690			(4,479		)	(139,120		)	(148,706		)
Provision for income taxes	(590		)	(5,172		)	(49,895		)	(21,012		)
Increase (reduction) in tax indemnity receivable	5,454			730			(5,473		)	(8,673		)
Other income, net *	11,409			3,662			25,095			8,118
Depreciation and amortization *	(1,211		)	(757		)	(3,411		)	(1,359		)
Net income (loss)	$	45,615		$	7,433		$	(55,449	)	$	(92,233	)

* Represents amounts not allocated to segments.

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

Reconciliation of Segment Basis Revenues to	Three Months Ended September 30,				Nine Months Ended September 30,
GAAP Revenues	2014		2013		2014		2013
	(In thousands)				(In thousands)
Master Planned Communities	$	69,173	$	59,511	$	283,720	$	183,480
Operating Assets	45,842		39,076		131,213		120,055
Strategic Developments	4,213		1,028		12,579		31,930
Total revenues	$	119,228	$	99,615	$	427,512	$	335,465

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:

	September 30, 2014		December 31, 2013
	(In thousands)
Master Planned Communities	$	1,855,671	$	1,760,639
Operating Assets (a)	1,351,090		1,158,337
Strategic Developments	1,068,491		462,525
Total segment assets	4,275,252		3,381,501
Corporate and other (b)	1,035,917		1,186,367
Total assets	$	5,311,169	$	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 September 30, 2014 of $605.9 million compared to December 31, 2013 is primarily due to development costs of $190.5 million for Downtown Summerlin, $125.0 million of deposits collected on the sale of condominium units for both our market rate towers at Ward Village, $60.4 million for the ExxonMobil office buildings, $41.3 million for Hughes Landing multi-family, $35.8 million for various other development projects at The Woodlands, $41.2 million for Ward Village, $21.4 million increase in the carrying value of our investment in the ONE Ala Moana project, $21.6 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, $17.1 million for Hughes Landing retail, and $16.1 million in purchase deposits for a land parcel near the South Street Seaport.

The decrease in the Corporate segment’s asset balance as of September 30, 2014 of $150.5 million compared to December 31, 2013 is primarily due to cash used to fund development activities.