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 September 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)	▪ Circle T Ranch and
• The Woodlands	▪ Downtown Summerlin	▪ One Hughes Landing	Power Center (a)
• The Woodlands Hills	▪ Hughes Landing Retail (b)	▪ Two Hughes Landing (b)	▪ Constellation (a)
	▪ 1701 Lake Robbins	▪ Three Hughes Landing (c)	▪ HHC 242 Self-Storage
	▪ Lakeland Village Center (c)	▪ 2201 Lake Woodlands Drive	▪ HHC 2978 Self-Storage
Other	▪ Landmark Mall	▪ 9303 New Trails	▪ Ke Kilohana
• The Summit (a)	▪ Outlet Collection at Riverwalk	▪ 110 N. Wacker	▪ m.flats (formerly Parcel C) (a)
	▪ Park West	▪ ONE Summerlin (b)	▪ One Merriweather
	▪ South Street Seaport	▪ 3831 Technology Forest Drive	▪ Two Merriweather
	(under construction)	▪ 3 Waterway Square	▪ Waiea
	▪ Ward Village	▪ 4 Waterway Square
	▪ 20/25 Waterway Avenue	▪ 1400 Woodloch Forest	Other
	▪ Waterway Garage Retail		▪ Alameda Plaza
			▪ AllenTowne
	Multi-family	Other	▪ Bridges at Mint Hill
	▪ Millennium Waterway Apartments	▪ Clark County Las Vegas Stadium (a)	▪ Century Plaza Mall
	▪ Millennium Six Pines Apartments	▪ Kewalo Basin Harbor	▪ Cottonwood Mall
	▪ One Lakes Edge (b)	▪ Merriweather Post Pavilion	▪ 80% Interest in Fashion
	▪ 85 South Street	▪ Stewart Title of Montgomery	Show Air Rights
	▪ The Metropolitan Downtown	County, TX (a)	▪ Gateway Towers
	Columbia (a) (b)	▪ Summerlin Hospital Medical	▪ Kendall Town Center
		Center (a)	▪ Lakemoor (Volo) Land
	Hospitality	▪ The Woodlands Parking Garages	▪ Maui Ranch Land
	▪ Embassy Suites at Hughes Landing (b)	▪ Woodlands Sarofim #1 (a)	▪ The Outlet Collection at Elk Grove
	▪ Grandview SHG, LLC (a)		▪ West Windsor
	▪ The Westin at The Woodlands (c)
	▪ The Woodlands Resort &
	Conference Center

(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, warrant liability gain (loss), gains or losses on sales of operating properties and gain on acquisition of joint venture partner’s interest. 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 obtain financing. 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 September 30,				Nine Months Ended September 30,
(In thousands)	2016		2015		2016		2015
Master Planned Communities
Land sales	$	44,128	$	45,423	$	147,168	$	138,937
Builder price participation		4,483		6,680		15,631		20,285
Minimum rents		95		171		376		601
Other land revenues		2,585		4,612		8,357		11,038
Other rental and property revenues		13		23		33		30
Total revenues		51,304		56,909		171,565		170,891

Cost of sales – land		21,432		19,674		66,128		67,806
Land sales operations		6,797		7,293		19,603		24,593
Land sales real estate and business taxes		2,419		3,056		7,013		7,702
Depreciation and amortization		72		89		236		279
Interest income		(5)		(14)		(26)		(45)
Interest expense (*)		(5,248)		(4,210)		(15,591)		(13,656)
Equity in earnings in Real Estate and Other Affiliates		(13,699)		—		(22,573)		—
Total expenses, net of other income		11,768		25,888		54,790		86,679
MPC EBT		39,536		31,021		116,775		84,212

Operating Assets
Minimum rents		44,736		37,565		127,663		108,574
Tenant recoveries		11,652		10,685		33,089		30,951
Hospitality revenues		14,088		11,772		46,126		35,256
Other rental and property revenues		3,471		7,400		10,974		20,645
Total revenues		73,947		67,422		217,852		195,426

Other property operating costs		15,611		15,659		43,559		51,495
Real estate taxes		6,406		6,447		19,257		17,956
Rental property maintenance costs		3,247		2,968		8,893		8,380
Hospitality costs		12,662		8,767		37,379		26,738
Provision for doubtful accounts		1,940		975		4,566		3,050
Demolition costs		16		798		494		2,411
Provision for impairment		35,734		—		35,734		—
Development-related marketing costs		1,950		2,367		5,038		7,381
Depreciation and amortization		20,732		22,936		64,546		64,585
Other income, net		(13)		—		(3,126)		—
Interest income		(3)		(10)		(19)		(29)
Interest expense		9,772		8,002		29,041		22,124
Equity in earnings from Real Estate and Other Affiliates		209		(289)		(2,617)		(1,333)
Total expenses, net of other income		108,263		68,620		242,745		202,758
Operating Assets EBT		(34,316)		(1,198)		(24,893)		(7,332)

Strategic Developments
Minimum rents		79		78		216		822
Tenant recoveries		5		7		19		109
Condominium rights and unit sales		115,407		78,992		362,613		200,362
Other land revenues		10		5		30		17
Other rental and property revenues		54		29		328		68
Total revenues		115,555		79,111		363,206		201,378

Condominium rights and unit cost of sales		83,218		47,573		237,759		126,747
Other property operating costs		924		1,021		3,954		2,964
Real estate taxes		627		461		1,853		1,720
Rental property maintenance costs		85		126		324		358
Provision for doubtful accounts		—		32		63		32
Demolition costs		240		226		724		226
Development-related marketing costs		2,766		5,272		10,548		12,095
Depreciation and amortization		659		528		1,978		2,145
Other income, net		(298)		435		(542)		101
Interest income		(140)		(21)		(271)		(188)
Interest expense (*)		(1,731)		(1,903)		(4,764)		(5,289)
Equity in earnings from Real Estate and Other Affiliates		(3)		(6)		(10,510)		(1,831)
Gain on sale of 80 South Street Assemblage		(70)		—		(140,549)		—
Total expenses, net of other income		86,277		53,744		100,567		139,080
Strategic Developments EBT		29,278		25,367		262,639		62,298
REP EBT	$	34,498	$	55,190	$	354,521	$	139,178

(*) 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 September 30,				Nine Months Ended September 30,
(In thousands)	2016		2015		2016		2015
REP EBT	$	34,498	$	55,190	$	354,521	$	139,178
General and administrative		(21,128)		(18,526)		(61,505)		(57,095)
Corporate interest expense, net		(13,263)		(13,262)		(39,358)		(39,709)
Warrant liability gain (loss)		(7,300)		123,640		(21,630)		57,450
Corporate other income expense, net		123		(222)		6,190		1,304
Gain on sale of The Club at Carlton Woods		—		29,073		—		29,073
Gain on acquisition of joint venture partner’s interest		27,087		—		27,087		—
Corporate depreciation and amortization		(1,859)		(1,444)		(4,486)		(4,568)
Income before taxes	$	18,158	$	174,449	$	260,819	$	125,633

The following reconciles segment revenues to GAAP consolidated revenues:


Reconciliation of Segment Basis Revenues to GAAP Revenues	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2016		2015		2016		2015
Master Planned Communities	$	51,304	$	56,909	$	171,565	$	170,891
Operating Assets		73,947		67,422		217,852		195,426
Strategic Developments		115,555		79,111		363,206		201,378
Total revenues	$	240,806	$	203,442	$	752,623	$	567,695

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:


	September 30,		December 31,
(In thousands)	2016		2015
Master Planned Communities	$	2,026,761	$	2,022,524
Operating Assets		2,580,682		2,365,724
Strategic Developments		1,314,753		1,138,695
Total segment assets		5,922,196		5,526,943
Corporate and other		548,187		194,639
Total assets	$	6,470,383	$	5,721,582

The $176.1 million increase in the Strategic Developments segment asset balance as of September 30, 2016 compared to December 31, 2015 is primarily due to the receipt of cash for the remaining sales price from cash buyers at Waiea prior to closing.

The increase in the Operating Assets segment asset balance as of September 30, 2016 of $215.0 million compared to December 31, 2015 is primarily due to the buyout of our partner’s interest in Millennium Six Pines Apartments (formerly known as Millennium Woodlands Phase II, LLC), placing in service The Westin at The Woodlands, Three Hughes Landing, Lakeland Village Center and additional development expenditures at South Street Seaport.

The $353.5 million increase in the Corporate and other asset balance as of September 30, 2016 compared to December 31, 2015 is primarily due to the proceeds from the 80 South Street sale in March 2016. The development costs were reported in the Strategic Developments segment at year end and the cash is reported in Corporate and other as of September 30, 2016.