NOTE 17 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 year ended December 31, 2014, one commercial land sales buyer represented 11% of revenues of the Company.

Operating Assets – includes retail, office, and multi-family properties, The Woodlands Resort & Conference Center, The Club at Carlton Woods and other real estate investments. These assets are currently generating revenues, and we believe there is an opportunity to redevelop or reposition certain of these assets to improve operating performance.

Strategic Developments – includes our condominium projects and all other properties held for development which have no substantial operations.

Our segments are managed separately, therefore we use different operating measures 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 that REP EBT provides useful information about the operating performance of all of our properties.

REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate other income, corporate interest income, corporate interest and depreciation expense, provision for income taxes, warrant liability gain (loss), loss on settlement of tax indemnity receivable, and the change in tax indemnity receivable. 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.

Segment operating results are as follows:


	Year Ended December 31,
	2014		2013		2012
	(In thousands)
Master Planned Communities
Land sales	$	325,099	$	251,217	$	182,643
Builder price participation		20,908		9,356		5,747
Minimum rents		818		781		576
Other land revenues		16,470		13,416		18,073
Total revenues		363,295		274,770		207,039
Cost of sales - land		119,672		124,040		89,298
Land sales operations		31,932		30,826		32,817
Land sales real estate and business taxes		9,862		7,588		7,558
Provision for (recovery of) doubtful accounts		(11)		-		-
Depreciation and amortization		397		32		72
Interest income		(118)		(16)		(45)
Interest expense (*)		(19,620)		(18,678)		(14,598)
Total expenses		142,114		143,792		115,102
MPC EBT		221,181		130,978		91,937

Operating Assets
Minimum rents		95,807		80,124		81,140
Tenant recoveries		28,133		20,901		23,210
Resort and conference center revenues		37,921		39,201		39,782
Other rental and property revenues		24,429		20,360		20,959
Total revenues		186,290		160,586		165,091

Other property operating costs		62,752		61,146		60,072
Rental property real estate taxes		14,860		12,065		11,292
Rental property maintenance costs		8,592		7,552		8,073
Resort and conference center operations		31,829		29,454		29,112
Provision for doubtful accounts		1,399		835		1,335
Demolition costs		6,712		2,078		-
Development-related marketing costs		9,770		3,462		-
Depreciation and amortization		49,272		31,427		23,318
Interest income		(151)		(135)		(185)
Interest expense		17,081		19,146		16,289
Equity in Earnings from Real Estate and Other Affiliates		(2,025)		(3,893)		(3,683)
Total expenses		200,091		163,137		145,623
Operating Assets EBT		(13,801)		(2,551)		19,468

Strategic Developments
Minimum rents		609		763		905
Tenant recoveries		220		167		141
Condominium rights and unit sales		83,565		32,969		267
Other land revenues		33		-		-
Other rental and property revenues		553		163		3,443
Total revenues		84,980		34,062		4,756

Condominium rights and unit cost of sales		49,995		16,572		96
Other property operating costs		4,282		5,547		3,094
Real estate taxes		2,547		2,226		2,351
Rental property maintenance costs		543		531		582
Provision for (recovery of) doubtful accounts		16		-		(111)
Demolition costs		22		-		-
Development-related marketing costs		13,013		1,449		-
Other income, net		(2,373)		(3,609)		-
Depreciation and amortization		1,706		189		225
Interest expense (*)		(11,918)		(4,318)		219
Equity in Earnings from Real Estate and Other Affiliates		(21,311)		(10,535)		-
Total expenses		36,522		8,052		6,456
Strategic Developments EBT		48,458		26,010		(1,700)
REP EBT	$	255,838	$	154,437	$	109,705

(*)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 income (loss) before taxes:


	Year Ended December 31,
Reconciliation of REP EBT to GAAP-net income (loss) before taxes	2014		2013		2012
	(In thousands)
REP EBT	$	255,838	$	154,437	$	109,705
General and administrative		(73,569)		(48,466)		(36,548)
Corporate interest income/(expense), net		(30,819)		(10,575)		10,153
Warrant liability loss		(60,520)		(181,987)		(185,017)
Increase (reduction) in tax indemnity receivable		90		(1,206)		(20,260)
Loss on settlement of tax indemnity receivable		(74,095)		-		-
Corporate other income, net		27,098		25,869		2,125
Corporate depreciation and amortization		(4,583)		(2,197)		(814)
Income (loss) before taxes	$	39,440	$	(64,125)	$	(120,656)

The following reconciles segment revenues to GAAP‑basis consolidated revenues:


	Year Ended December 31,
Reconciliation of Segment Basis Revenues to GAAP Revenues	2014		2013		2012
	(In thousands)
Master Planned Communities	$	363,295	$	274,770	$	207,039
Operating Assets		186,290		160,586		165,091
Strategic Developments		84,980		34,062		4,756
Total revenues	$	634,565	$	469,418	$	376,886

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


	Year Ended December 31,
	2014		2013
	(In thousands)
Master Planned Communities	$	1,877,043	$	1,760,639
Operating Assets		1,934,350		1,158,337
Strategic Developments		879,896		462,525
Total segment assets		4,691,289		3,381,501
Corporate and other		428,642		1,186,367
Total assets	$	5,119,931	$	4,567,868

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 Operating Asset segment asset balance as of December 31, 2014 of $776.0 million compared to 2013 is primarily due to the opening of Downtown Summerlin, $423.7 million; the reopening of The Outlet Collection at Riverwalk, $53.8 million; the acquisitions of 10-60 Columbia Office Properties, $130 million, 85 South Street, $24.4 million and the fee simple interest at 110 Wacker, $12.2 million; the placing in service of Two Hughes Landing, $45.2 million and 3831 Technology Forest Drive, $16.6 million; increased development expenditures at Seaport, $61.0 million; and the completion of the renovation at The Woodlands Resort & Conference Center $52.4 million.

The increase in the Strategic Development segment’s asset balance as of December 31, 2014 of $394.1 million compared to December 31, 2013 is primarily due to $151.6 million of buyer deposits collected on the sale of condominium units for both Waiea Condominiums and Anaha Condominiums in Ward Village, the $141.8 million purchase of a land parcel near South Street Seaport, development costs of $78.0 million for the 1725-35 Hughes Landing Boulevard office buildings, $41.6 million for Ward Village, $58.7 million for One Lake’s Edge, $20.3 million for Hughes Landing Retail, $18.8 million for Waterway Square Hotel (Westin), $31.9 million for various other development projects at The Woodlands, $22.2 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 the reduction of $163.8 million resulting from the transfer of Downtown Summerlin and Two Hughes Landing to the Operating segment.

Corporate and other assets as of December 31, 2014 consist primarily of Cash and cash equivalents. The $757.7 million decrease compared to December 31, 2013 is primarily due to cash used to fund the Conroe and Seaport District Assemblage acquisitions, as well as a $65.3 million tax payment made to the IRS as a result of the Tax Court case ruling net of $138.0 million received from GGP in connection with the Settlement Agreement. See Note 9 – Income Taxes.