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 June 30, 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	▪ Creekside Village Green (b)	▪ 1725-35 Hughes Landing Boulevard (b)	▪ Constellation (a)
• 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) (a)
Other	▪ Outlet Collection at Riverwalk	▪ 110 N. Wacker	▪ One Merriweather
• The Summit (a)	▪ 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	▪ Clark County Las Vegas Stadium (a)	▪ Circle T Ranch and
	▪ Millennium Woodlands	▪ Kewalo Basin Harbor	Power Center (a)
	Phase II (a)	▪ Merriweather Post Pavilion	▪ Cottonwood Mall
	▪ One Lakes Edge (b)	▪ Stewart Title of Montgomery	▪ 80% Interest in Fashion
	▪ 85 South Street	County, TX (a)	Show Air Rights
	▪ The Metropolitan Downtown	▪ Summerlin Hospital Medical	▪ Gateway Towers
	Columbia (a) (b)	Center (a)	▪ Ke Kilohana
		▪ The Woodlands Parking Garages	▪ Kendall Town Center
	Hospitality	▪ Woodlands Sarofim #1 (a)	▪ Lakemoor (Volo) Land
	▪ Embassy Suites at Hughes Landing (b)		▪ Maui Ranch Land
	▪ Grandview SHG, LLC (a)		▪ The Outlet Collection at Elk Grove
	▪ The Woodlands Resort &		▪ Two Merriweather
	Conference Center		▪ West Windsor
	▪ The Westin at The Woodlands (c)

(a)

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

(b)

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

(c)

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 June 30,				Six Months Ended June 30,
(In thousands)	2016		2015		2016		2015
Master Planned Communities
Land sales	$	61,098	$	45,433	$	103,040	$	93,514
Builder price participation		6,501		7,907		11,148		13,606
Minimum rents		142		215		282		429
Other land revenues		2,749		3,140		5,772		6,426
Other rental and property revenues		17		9		20		7
Total revenues		70,507		56,704		120,262		113,982

Cost of sales – land		29,008		24,236		44,696		48,132
Land sales operations		5,506		9,721		12,806		17,300
Land sales real estate and business taxes		2,300		2,242		4,594		4,646
Depreciation and amortization		81		95		164		190
Interest income		(5)		(15)		(21)		(31)
Interest expense (*)		(5,004)		(4,684)		(10,343)		(9,446)
Equity in earnings in Real Estate and Other Affiliates		(8,874)		—		(8,874)		—
Total expenses, net of other income		23,012		31,595		43,022		60,791
MPC EBT		47,495		25,109		77,240		53,191

Operating Assets
Minimum rents		41,811		36,697		82,929		71,009
Tenant recoveries		10,914		10,693		21,437		20,266
Hospitality revenues		19,129		11,481		32,038		23,484
Other rental and property revenues		4,416		6,971		7,499		13,245
Total revenues		76,270		65,842		143,903		128,004

Other property operating costs		13,830		18,350		27,948		35,836
Real estate taxes		6,709		5,990		12,851		11,510
Rental property maintenance costs		2,645		2,785		5,646		5,412
Hospitality costs		14,242		8,893		24,717		17,971
Provision for doubtful accounts		(353)		1,266		2,626		2,075
Demolition costs		6		1,496		478		1,613
Development-related marketing costs		1,988		2,748		3,088		5,014
Depreciation and amortization		22,613		22,887		43,814		41,649
Other income, net		(2,750)		—		(3,113)		—
Interest income		(8)		(9)		(16)		(19)
Interest expense		10,116		7,629		19,269		14,123
Equity in earnings from Real Estate and Other Affiliates		(899)		(160)		(2,826)		(1,044)
Total expenses, net of other income		68,139		71,875		134,482		134,140
Operating Assets EBT		8,131		(6,033)		9,421		(6,136)

Strategic Developments
Minimum rents		83		77		134		744
Tenant recoveries		9		8		14		102
Condominium rights and unit sales		125,112		86,513		247,206		121,370
Other land revenues		10		5		20		12
Other rental and property revenues		160		14		278		39
Total revenues		125,374		86,617		247,652		122,267

Condominium rights and unit cost of sales		79,726		56,765		154,541		79,174
Other property operating costs		1,406		1,284		3,030		1,943
Real estate taxes		620		578		1,226		1,258
Rental property maintenance costs		108		115		239		232
Provision for doubtful accounts		1		—		63		—
Demolition costs		484		—		484		—
Development-related marketing costs		4,351		2,846		7,782		6,823
Depreciation and amortization		660		601		1,319		1,617
Other income, net		—		—		(244)		(334)
Interest income		(125)		(166)		(131)		(166)
Interest expense (*)		(1,899)		(1,580)		(3,033)		(3,385)
Equity in earnings from Real Estate and Other Affiliates		(10,502)		(921)		(10,507)		(1,825)
Gain on sale of 80 South Street Assemblage		—		—		(140,479)		—
Total expenses, net of other income		74,830		59,522		14,290		85,337
Strategic Developments EBT		50,544		27,095		233,362		36,930
REP EBT	$	106,170	$	46,171	$	320,023	$	83,985

(*) 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 June 30,				Six Months Ended June 30,
(In thousands)	2016		2015		2016		2015
REP EBT	$	106,170	$	46,171	$	320,023	$	83,985
General and administrative		(20,053)		(19,606)		(40,377)		(38,569)
Corporate interest expense, net		(13,023)		(13,235)		(26,097)		(26,447)
Warrant liability gain (loss)		(44,150)		42,620		(14,330)		(66,190)
Corporate other income, net		6,317		396		6,069		1,529
Corporate depreciation and amortization		(1,598)		(1,487)		(2,627)		(3,124)
Income (loss) before taxes	$	33,663	$	54,859	$	242,661	$	(48,816)

The following reconciles segment revenues to GAAP consolidated revenues:


Reconciliation of Segment Basis Revenues to GAAP Revenues	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2016		2015		2016		2015
Master Planned Communities	$	70,507	$	56,704	$	120,262	$	113,982
Operating Assets		76,270		65,842		143,903		128,004
Strategic Developments		125,374		86,617		247,652		122,267
Total revenues	$	272,151	$	209,163	$	511,817	$	364,253

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:


	June 30,		December 31,
(In thousands)	2016		2015
Master Planned Communities	$	2,006,094	$	2,022,524
Operating Assets		2,496,917		2,365,724
Strategic Developments		1,525,312		1,138,695
Total segment assets		6,028,323		5,526,943
Corporate and other		189,296		194,639
Total assets	$	6,217,619	$	5,721,582

The $386.6 million increase in the Strategic Developments segment asset balance as of June 30, 2016 compared to December 31, 2015 is primarily due to the net change resulting from receipt of sale proceeds in excess of our cost basis relating to the 80 South Street Assemblage transaction and increased development expenditures primarily at Waiea, Anaha, Ae'o and One Merriweather. These increases were partially offset by sales recognized and deposits utilized for construction at Waiea and Anaha, and placing The Westin at The Woodlands in service in the Operating Assets segment.

The increase in the Operating Assets segment asset balance as of June 30, 2016 of $131.2 million compared to December 31, 2015 is primarily due to placing The Westin at The Woodlands in service and additional development expenditures at South Street Seaport.

The decrease in the MPC segment assets primarily relates to distributions of cash from the MPC segment to the corporate parent.