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.

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 and commercial property projects currently under development and all other properties held for development which have no substantial operations.

Revenue recognition for contracted individual units in a condominium project are accounted for under the percentage of completion method 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. Those units that do not meet the criteria are accounted for using the full accrual or deposit method which defers revenue recognition until the unit is closed.

Revenue recognized on the percentage-of-completion method is calculated based upon the ratio of project costs incurred to date compared to total estimated project cost. Total estimated project costs include direct costs such as the carrying value of our land, site planning, architectural, construction costs, financing costs and indirect cost allocations for certain infrastructure and amenity costs which benefit the project based upon the relative fair value of the land prior to development. Changes in estimated project costs impact the amount of revenue and profit recognized on a percentage of completion basis during the period in which they are determined and in future periods.

The assets included in each segment as of March 31, 2015, are contained in the following chart


Master Planned
Communities	Operating Assets		Strategic Developments

	Retail	Office	Under Construction	Other
• Bridgeland	▪ Columbia Regional Building	▪ 10-60 Columbia Corporate Center	▪ ONE Ala Moana (c)	▪ Alameda Plaza
• Conroe	▪ Cottonwood Square	▪ 70 Columbia Corporate Center	▪ Anaha Condominiums	▪ AllenTowne
• Maryland	▪ Creekside Village Green (b)	▪ Columbia Office Properties	▪ Three Hughes Landing	▪ Bridges at Mint Hill
• Summerlin (a)	▪ Downtown Summerlin	▪ One Hughes Landing	▪ 1725-35 Hughes Landing	▪ Century Plaza Mall
• The Woodlands	▪ Hughes Landing Retail (b)	▪ Two Hughes Landing	Boulevard	▪ Circle T Ranch and
	▪ 1701 Lake Robbins	▪ 2201 Lake Woodlands Drive	▪ Hughes Landing Hotel	Power Center (d)
	▪ Landmark Mall	▪ 9303 New Trails	(Embassy Suites)	▪ Cottonwood Mall
	▪ Outlet Collection at Riverwalk	▪ 110 N. Wacker	▪ One Lake's Edge	▪ Elk Grove Promenade
	▪ Park West	▪ 3831 Technology Forest Drive	▪ Summerlin Apartments, LLC (d)	▪ 80% Interest in Fashion
	▪ South Street Seaport	▪ 3 Waterway Square	▪ Waiea Condominiums	Show Air Rights
	(under construction)	▪ 4 Waterway Square	▪ Waterway Square Hotel	▪ Kendall Town Center
	▪ Ward Village	▪ 1400 Woodloch Forest	(Westin)	▪ Lakeland Village Center
	▪ 20/25 Waterway Avenue			▪ Lakemoor (Volo) Land
	▪ Waterway Garage Retail			▪ Maui Ranch Land
				▪ Parcel C (d)
	Other			▪ Seaport District Assemblage
	▪ Golf Courses at TPC Summerlin	▪ Stewart Title of Montgomery		▪ Ward Block M
	and TPC Las Vegas	County, TX (d)		▪ Ward Gateway Towers
	(participation interest)	▪ Summerlin Hospital Medical		▪ Ward Workforce Housing
	▪ Kewalo Basin Harbor	Center (d)		▪ West Windsor
	▪ Merriweather Post Pavilion	▪ Summerlin Las Vegas
	▪ Millennium Waterway Apartments	Baseball Club (d)
	▪ Millennium Woodlands	▪ The Metropolitan Downtown
	Phase II (d)	Columbia Project (b) (d)
	▪ 85 South Street	▪ The Club at Carlton Woods
		▪ The Woodlands Resort &
		Conference Center
		▪ The Woodlands Parking Garages
		▪ Woodlands Sarofim #1 (d)

(a)

The Summerlin MPC includes our Discovery Land joint venture.

(b)

Asset was placed in service and moved from the Strategic Developments segments to the Operating Assets segment during 2015.

(c)

Asset consists of two equity method investments.

(d)

A non-consolidated investment.

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 March 31,
	2015		2014
	(In thousands)
Master Planned Communities
Land sales	$	48,081	$	47,671
Builder price participation		5,698		4,097
Minimum rents		215		197
Other land revenues		3,286		2,504
Other rental and property revenues		(2)		67
Total revenues		57,278		54,536

Cost of sales - land		23,896		23,078
Land sales operations		7,579		7,304
Land sales real estate and business taxes		2,404		1,954
Depreciation and amortization		95		100
Interest income		(16)		(57)
Interest expense (*)		(4,762)		(5,066)
Total expenses		29,196		27,313
MPC EBT		28,082		27,223

Operating Assets
Minimum rents		34,312		19,900
Tenant recoveries		9,573		5,884
Resort and conference center revenues		12,003		9,426
Other rental and property revenues		6,274		5,110
Total revenues		62,162		40,320

Other property operating costs		17,486		13,181
Rental property real estate taxes		5,520		3,107
Rental property maintenance costs		2,627		1,800
Resort and conference center operations		9,078		7,511
Provision for doubtful accounts		809		143
Demolition costs		117		2,494
Development-related marketing costs		2,266		2,079
Depreciation and amortization		18,762		9,010
Other income		—		—
Interest income		(10)		(119)
Interest expense		6,495		2,044
Equity in Earnings from Real Estate and Other Affiliates		(885)		(1,805)
Total expenses		62,265		39,445
Operating Assets EBT		(103)		875

Strategic Developments
Minimum rents		667		263
Tenant recoveries		94		131
Condominium rights and unit sales		34,857		3,126
Other land revenues		6		8
Other rental and property revenues		26		269
Total revenues		35,650		3,797

Condominium rights and unit cost of sales		22,409		1,571
Other property operating costs		659		626
Real estate taxes		680		633
Rental property maintenance costs		117		115
Provision for doubtful accounts		—		—
Demolition costs		—		22
Development-related marketing costs		3,977		2,145
Depreciation and amortization		1,016		424
Other income		(333)		(2,373)
Interest expense (*)		(1,807)		(2,649)
Equity in Earnings from Real Estate and Other Affiliates		(904)		(4,263)
Total expenses		25,814		(3,749)
Strategic Developments EBT		9,836		7,546
REP EBT	$	37,815	$	35,644

(*)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:


Reconciliation of REP EBT to GAAP	Three Months Ended March 31,
loss before taxes	2015		2014
	(In thousands)

REP EBT	$	37,815	$	35,644
General and administrative		(18,963)		(16,882)
Corporate interest income/(expense), net		(13,212)		(10,980)
Warrant liability loss		(108,810)		(96,440)
Corporate other income, net		1,132		8,075
Corporate depreciation and amortization		(1,637)		(975)
Loss before taxes	$	(103,675)	$	(81,558)

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


Reconciliation of Segment Basis Revenues to	Three Months Ended March 31,
GAAP Revenues	2015		2014
	(In thousands)

Master Planned Communities	$	57,278	$	54,536
Operating Assets		62,162		40,320
Strategic Developments		35,650		3,797
Total revenues	$	155,090	$	98,653

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:


	March 31,		December 31,
	2015		2014
	(In thousands)
Master Planned Communities	$	1,920,953	$	1,877,043
Operating Assets		2,027,494		1,934,350
Strategic Developments		1,000,014		879,896
Total segment assets		4,948,461		4,691,289
Corporate and other		300,315		428,642
Total assets	$	5,248,776	$	5,119,931

The increase in the Strategic Development segment asset balance as of March 31, 2015 of $120.1 million compared to December 31, 2014 is primarily due to the acquisition of additional land and air rights near South Street Seaport, increase in development costs of $34.1 million for Ward Village, $17.6 million for the 1725-35 Hughes Landing Boulevard office buildings, $17.3 million for Three Hughes Landing, $14.6 million for Waterway Square Hotel (Westin) and $10.7 million for One Lake’s Edge, the collection of $9.6 million of buyer deposits on the pre-sales of condominium units for both Waiea Condominiums and Anaha Condominiums in Ward Village, the reduction of $46.2 million resulting from the transfer of Hughes Landing Retail, Creekside Village and The Metropolitan Downtown Columbia to the Operating segment, the use of $21.6 million of buyer deposits to reimburse for development costs for Ward Village and the cash distribution of $8.9 million from the investment in ONE Ala Moana.

Corporate and other assets as of March 31, 2015 consist primarily of Cash and cash equivalents. The $128.3 million decrease compared to December 31, 2014 is primarily due to our pre-development and development activities.