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 and 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. All operations are within the United States, and we do not distinguish or group our combined operations on a geographic basis. 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. These assets are currently generating revenues, and are comprised of commercial real estate properties 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.

The assets included in each segment as of March 31, 2016, are contained in the following chart:


Master Planned			Strategic
Communities	Operating Assets		Developments

	Retail	Office	Under Construction
• Bridgeland	▪ Columbia Regional Building	▪ 10-70 Columbia Corporate Center	▪ Ae'o
• Maryland	▪ Cottonwood Square	▪ Columbia Office Properties	▪ Anaha
• Summerlin (a) (c)	▪ Creekside Village Green (b)	▪ 1725-35 Hughes Landing Boulevard (b)	▪ Constellation (c)
• The Woodlands	▪ Downtown Summerlin	▪ One Hughes Landing	▪ HHC 242 Self-Storage
• The Woodlands Hills	▪ Hughes Landing Retail (b)	▪ Two Hughes Landing	▪ HHC 2978 Self-Storage
	▪ 1701 Lake Robbins	▪ 2201 Lake Woodlands Drive	▪ Lakeland Village Center
	▪ Landmark Mall	▪ 9303 New Trails	▪ m.flats (formerly Parcel C) (c)
	▪ Outlet Collection at Riverwalk	▪ 110 N. Wacker	▪ One Merriweather
	▪ Park West	▪ One Summerlin (b)	▪ Three Hughes Landing
	▪ South Street Seaport	▪ 3831 Technology Forest Drive	▪ Waiea
	(under construction)	▪ 3 Waterway Square
	▪ Ward Village	▪ 4 Waterway Square	Other
	▪ 20/25 Waterway Avenue	▪ 1400 Woodloch Forest	▪ Alameda Plaza
	▪ Waterway Garage Retail		▪ AllenTowne
			▪ Bridges at Mint Hill
	Multi-family	Other	▪ Century Plaza Mall
	▪ Millennium Waterway Apartments	▪ Golf Courses at TPC Summerlin	▪ Circle T Ranch and
	▪ Millennium Woodlands	and TPC Las Vegas	Power Center (c)
	Phase II (c)	(participation interest)	▪ Cottonwood Mall
	▪ One Lakes Edge (b)	▪ Kewalo Basin Harbor	▪ 80% Interest in Fashion
	▪ 85 South Street	▪ Merriweather Post Pavilion	Show Air Rights
	▪ The Metropolitan Downtown	▪ Stewart Title of Montgomery	▪ Gateway Towers
	Columbia (b) (c)	County, TX (c)	▪ Ke Kilohana
		▪ Summerlin Hospital Medical	▪ Kendall Town Center
	Hospitality	Center (c)	▪ Lakemoor (Volo) Land
	▪ Hughes Landing Hotel (b)	▪ Summerlin Las Vegas	▪ Maui Ranch Land
	(Embassy Suites)	Baseball Club (c)	▪ The Outlet Collection at Elk Grove
	▪ The Woodlands Resort &	▪ The Woodlands Parking Garages	▪ West Windsor
	Conference Center	▪ Woodlands Sarofim #1 (c)
	▪ The Westin at The Woodlands (d)

(a)

The Summerlin MPC includes The Summit joint venture.

(b)

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

(c)

A non-consolidated investment. Refer to Note 8 – Real Estate and Other Affiliates.

(d)

Asset was placed in service and moved from the Strategic Developments segment to the Operating Assets segment during 2016.

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, and warrant liability gain (loss). 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:


	Three Months Ended March 31,
(In thousands)	2016		2015
Master Planned Communities
Land sales	$	41,942	$	48,081
Builder price participation		4,647		5,698
Minimum rents		143		215
Other land revenues		3,023		3,284
Total revenues		49,755		57,278

Cost of sales – land		15,688		23,896
Land sales operations		7,300		7,579
Land sales real estate and business taxes		2,294		2,404
Depreciation and amortization		83		95
Interest income		(16)		(16)
Interest expense (*)		(5,339)		(4,762)
Total expenses, net of other income		20,010		29,196
MPC EBT		29,745		28,082

Operating Assets
Minimum rents		41,118		34,312
Tenant recoveries		10,523		9,573
Hospitality revenues		12,909		12,003
Other rental and property revenues		3,083		6,274
Total revenues		67,633		62,162

Other property operating costs		14,118		17,486
Real estate taxes		6,142		5,520
Rental property maintenance costs		3,001		2,627
Hospitality expenses		10,475		9,078
Provision for doubtful accounts		2,979		809
Demolition costs		472		117
Development-related marketing costs		1,100		2,266
Depreciation and amortization		21,201		18,762
Other income		(363)		—
Interest income		(8)		(10)
Interest expense		9,153		6,495
Equity in Earnings from Real Estate and Other Affiliates		(1,927)		(885)
Total expenses, net of other income		66,343		62,265
Operating Assets EBT		1,290		(103)

Strategic Developments
Minimum rents		48		667
Tenant recoveries		5		94
Condominium rights and unit sales		122,094		34,857
Other land revenues		10		6
Other rental and property revenues		121		26
Total revenues		122,278		35,650

Condominium rights and unit cost of sales		74,815		22,409
Other property operating costs		1,624		659
Real estate taxes		606		680
Rental property maintenance costs		131		117
Provision for doubtful accounts		62		—
Demolition costs		—		—
Development-related marketing costs		3,431		3,977
Depreciation and amortization		659		1,016
Other expense/(income)		(244)		(333)
Interest income		(6)		—
Interest expense (*)		(1,134)		(1,807)
Equity in Earnings from Real Estate and Other Affiliates		(5)		(904)
Gain on sale of 80 South Street Assemblage		(140,479)		—
Total expenses, net of other income		(60,540)		25,814
Strategic Developments EBT		182,818		9,836
REP EBT	$	213,853	$	37,815

(*) 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 income (loss) before taxes	Three Months Ended March 31,
(In thousands)	2016		2015
REP EBT	$	213,853	$	37,815
General and administrative		(20,324)		(18,963)
Corporate interest income/(expense), net		(13,076)		(13,212)
Warrant liability gain (loss)		29,820		(108,810)
Corporate other (expense) income, net		(246)		1,132
Corporate depreciation and amortization		(1,029)		(1,637)
Income (loss) before taxes	$	208,998	$	(103,675)

The following reconciles segment revenues to GAAP consolidated revenues:


Reconciliation of Segment Basis Revenues to GAAP Revenues	Three Months Ended March 31,
(In thousands)	2016		2015
Master Planned Communities	$	49,755	$	57,278
Operating Assets		67,633		62,162
Strategic Developments		122,278		35,650
Total revenues	$	239,666	$	155,090

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,
(In thousands)	2016		2015
Master Planned Communities	$	2,005,373	$	2,022,524
Operating Assets		2,439,617		2,365,724
Strategic Developments		1,330,823		1,138,695
Total segment assets		5,775,813		5,526,943
Corporate and other		256,161		194,639
Total assets	$	6,031,974	$	5,721,582

The increase in the Operating Assets segment asset balance as of March 31, 2016 of $73.9 million compared to December 31, 2015 is primarily due to placing The Westin at The Woodlands in service and additional development costs at South Street Seaport.

The $192.1 million increase in the Strategic Developments segment asset balance as of March 31, 2016 compared to December 31, 2015 is primarily due to the net change resulting from the sale of the 80 South Street Assemblage and increased development expenditures primarily at Waiea, Anaha, Ae’o and One Merriweather, partially offset by the cost of sales and deposits utilized for construction at Waiea and Anaha and placing The Westin at The Woodlands in service in the Operating Assets segment.

Corporate and other assets as of March 31, 2016 consist primarily of cash and cash equivalents. The $61.5 million increase at March 31, 2016 compared to December 31, 2015 is primarily due to increased cash balances in the first quarter.