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.

Operating Assets – includes retail, office, hospitality and multi-family properties along with other real estate investments. The Club at Carlton Woods was also included in Operating Assets until its sale on September 4, 2015. These assets are currently generating revenues, and are comprised of commercial real estate properties recently developed or acquired by us, and properties where we believe there is an opportunity to redevelop, reposition, or sell to improve segment performance or to recycle capital.

Strategic Developments – includes our residential condominium and commercial property projects currently under development 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,
(In thousands)	2015		2014		2013

Master Planned Communities
Land sales	$	187,399	$	325,099	$	251,217
Builder price participation		26,846		20,908		9,356
Minimum rents		842		818		781
Other land revenues		14,778		16,470		13,416
Total revenues		229,865		363,295		274,770

Cost of sales – land		88,065		119,672		124,040
Land sales operations		34,443		31,932		30,826
Land sales real estate and business taxes		10,464		9,862		7,588
Provision for (recovery of) doubtful accounts		—		(11)		—
Depreciation and amortization		640		397		32
Interest income		(60)		(118)		(16)
Interest expense (*)		(18,053)		(19,620)		(18,678)
Total expenses		115,499		142,114		143,792
MPC EBT		114,366		221,181		130,978

Operating Assets
Minimum rents		149,064		95,807		80,124
Tenant recoveries		39,415		28,133		20,901
Hospitality revenues		45,374		37,921		39,201
Other rental and property revenues		25,453		24,429		20,360
Total revenues		259,306		186,290		160,586

Other property operating costs		68,078		62,752		61,146
Rental property real estate taxes		21,856		14,860		12,065
Rental property maintenance costs		10,236		8,592		7,552
Hospitality expenses		34,839		31,829		29,454
Provision for doubtful accounts		3,998		1,399		835
Demolition costs		2,675		6,712		2,078
Development-related marketing costs		9,747		9,770		3,462
Depreciation and amortization		89,075		49,272		31,427
Other income		(524)		—		—
Interest income		(37)		(151)		(135)
Interest expense		31,148		17,081		19,146
Equity in Earnings from Real Estate and Other Affiliates		(1,883)		(2,025)		(3,893)
Total expenses		269,208		200,091		163,137
Operating Assets EBT		(9,902)		(13,801)		(2,551)

Strategic Developments
Minimum rents		899		609		763
Tenant recoveries		127		220		167
Condominium rights and unit sales		305,284		83,565		32,969
Other land revenues		25		33		—
Other rental and property revenues		1,582		553		163
Total revenues		307,917		84,980		34,062

Condominium rights and unit cost of sales		191,606		49,995		16,572
Other property operating costs		4,673		4,282		5,547
Real estate taxes		2,282		2,547		2,226
Rental property maintenance costs		476		543		531
Provision for doubtful accounts		32		16		—
Demolition costs		622		22		—
Development-related marketing costs		15,719		13,013		1,449
Depreciation and amortization		3,240		1,706		189
Other expense/(income)		104		(2,373)		(3,609)
Interest income		(202)		—		—
Interest expense (*)		(6,633)		(11,918)		(4,318)
Equity in Earnings from Real Estate and Other Affiliates		(1,838)		(21,311)		(10,535)
Total expenses		210,081		36,522		8,052
Strategic Developments EBT		97,836		48,458		26,010
REP EBT	$	202,300	$	255,838	$	154,437

(*)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 income (loss) before taxes:


Reconciliation of REP EBT to GAAP	Year Ended December 31,
income (loss) before taxes	2015		2014		2013
(In thousands)
REP EBT	$	202,300	$	255,838	$	154,437
General and administrative		(81,345)		(73,569)		(48,466)
Corporate interest income/(expense), net		(52,995)		(30,819)		(10,575)
Warrant liability gain (loss)		58,320		(60,520)		(181,987)
Gain on sale of The Club at Carlton Woods		29,073		-		-
Increase (reduction) in tax indemnity receivable		-		90		(1,206)
Loss on settlement of tax indemnity receivable		-		(74,095)		-
Corporate other income, net		1,409		27,098		25,869
Corporate depreciation and amortization		(6,042)		(4,583)		(2,197)
Income (loss) before taxes	$	150,720	$	39,440	$	(64,125)

The following reconciles segment revenues to GAAP consolidated revenues:


Reconciliation of Segment Basis Revenues to	Year Ended December 31,
GAAP Revenues (In thousands)	2015		2014		2013

Master Planned Communities	$	229,865	$	363,295	$	274,770
Operating Assets		259,306		186,290		160,586
Strategic Developments		307,917		84,980		34,062
Total revenues	$	797,088	$	634,565	$	469,418

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


	December 31,
(In thousands)	2015		2014

Master Planned Communities	$	2,022,524	$	1,875,550
Operating Assets		2,365,724		1,926,192
Strategic Developments		1,138,695		876,246
Total segment assets		5,526,943		4,677,988
Corporate and other		194,639		427,280
Total assets	$	5,721,582	$	5,105,268

The increase in the Operating Assets segment asset balance as of December 31, 2015 of $439.5 million compared to 2014 is primarily due to placing Hughes Landing Hotel, One Lakes Edge, Creekside Village, The Metropolitan Downtown Columbia, One Summerlin and Hughes Landing Retail in service and additional development and leasing costs at Downtown Summerlin.

The $262.4 million increase in the Strategic Developments segment asset balance as of December 31, 2015 compared to December 31, 2014 is primarily due to the following:

Increases in asset balance

$603.1 million of development expenditures relating to the 80 South Street Assemblage, 1725 Hughes Landing Boulevard, 1735 Hughes Landing Boulevard, Waterway Square Hotel (Westin), Three Hughes Landing, Hughes Landing Hotel (Embassy Suites), the Merriweather District, and our Ward Village condominium projects;

$191.0 million in condominium receivables due to percent complete revenue recognition in excess of buyers deposits;

Receipt of $47.8 million in condominium buyer deposits at Ae`o and Gateway Towers; and

Proceeds of $24.5 million from our construction financings at Ward Village, Waterway Hotel (Westin) and Hughes Landing Hotel (Embassy Suites).

Reductions in asset balance

$278.8 million resulting from the transfer of 1725 Hughes Landing Boulevard, 1735 Hughes Landing Boulevard, Hughes Landing Hotel, Hughes Landing Retail, One Lakes Edge and Creekside Village to the Operating Assets segment;

Cost of sales of $120.1 million for Waiea and $70.6 million for Anaha; and

$144.1 million resulting from condominium buyer deposits used for the development of Waiea and Anaha.

Corporate and other assets as of December 31, 2015 consist primarily of cash and cash equivalents. The $232.6 million decrease at December 31, 2015 compared to December 31, 2014 is primarily due to cash used to fund further development and redevelopment efforts within our Operating Assets and MPC segments.