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, 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 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.

Effective January 1, 2017, we moved the South Street Seaport assets under construction and related activities to the Strategic Developments segment from the Operating Assets segment. South Street Seaport operating properties and related operating results remain presented within the Operating Assets segment. The respective segment earnings and total segment assets presented herein have been adjusted in all periods reported to reflect this change.

The assets included in each segment as of March 31, 2017, are contained as follows:


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	▪ One Hughes Landing	▪ Creekside Park Apartments
• The Woodlands	▪ Downtown Summerlin	▪ Two Hughes Landing	▪ 100 Fellowship Drive
• The Woodlands Hills	▪ Hughes Landing Retail	▪ Three Hughes Landing (b)	▪ HHC 2978 Self-Storage
	▪ 1701 Lake Robbins	▪ 1725-35 Hughes Landing Boulevard	▪ Ke Kilohana
Other	▪ Lakeland Village Center at Bridgeland (b)	▪ 2201 Lake Woodlands Drive	▪ Two Merriweather
• The Summit (a)	▪ Outlet Collection at Riverwalk	▪ One Mall North	▪ m.flats/TEN.M (a)
	▪ South Street Seaport - Historic District / Uplands	▪ One Merriweather (c)	▪ 33 Peck Slip (Grandview SHG, LLC) (a) (e)
	▪ Ward Village Retail	▪ 110 N. Wacker	▪ South Street Seaport - Pier 17 (e)
	▪ 20/25 Waterway Avenue	▪ 9303 New Trails	▪ Waiea
	▪ Waterway Garage Retail	▪ ONE Summerlin
		▪ 3831 Technology Forest Drive	Other
	Multi-family	▪ 3 Waterway Square	▪ AllenTowne
	▪ Constellation (a) (b)	▪ 4 Waterway Square	▪ American City Building
	▪ Millennium Waterway Apartments	▪ 1400 Woodloch Forest	▪ Bridges at Mint Hill
	▪ Millennium Six Pines Apartments		▪ Century Plaza Mall
	▪ One Lakes Edge	Other	▪ Circle T Ranch and
	▪ 85 South Street	▪ HHC 242 Self-Storage (c)	Power Center (a)
	▪ The Metropolitan Downtown	▪ Las Vegas 51s (d)	▪ Cottonwood Mall
	Columbia (a)	▪ Kewalo Basin Harbor	▪ 80% Interest in Fashion
		▪ Stewart Title of Montgomery	Show Air Rights
	Hospitality	County, TX (a)	▪ Kendall Town Center
	▪ Embassy Suites at Hughes Landing	▪ Summerlin Hospital Medical	▪ Lakemoor (Volo) Land
	▪ The Westin at The Woodlands (b)	Center (a)	▪ Landmark Mall (e)
	▪ The Woodlands Resort &	▪ The Woodlands Parking Garages	▪ Maui Ranch Land
	Conference Center	▪ 2000 Woodlands Parkway	▪ The Elk Grove Collection (f)
		▪ Woodlands Sarofim #1 (a)	▪ West Windsor

(a)

A non-consolidated investment. Refer to Note 8 – Real Estate and Other Affiliates in our Condensed Consolidated Financial Statements

(b)

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

(c)

Asset was placed in service and moved from the Strategic Developments segment to the Operating Assets segment during 2017.

(d)

Asset was held as a joint venture until our acquisition of our partner’s 50% interest on March 1, 2017.

(e)

Asset is in redevelopment and moved from the Operating Assets segment to the Strategic Developments segment during 2017.

(f)

Formerly known as The Outlet Collection at Elk Grove.

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 Earnings Before Taxes (“EBT”), which represents the operating revenues of the properties less property operating expenses and adjustments for interest, as further described below. We believe that EBT provides useful information about the operating performance of all of our properties.

EBT, as it relates to each business segment, represents the revenues less expenses of each segment, including interest income, interest expense, and equity in earnings of real estate and other affiliates. EBT excludes corporate expenses and other items that are not allocable to the segments. We present 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 EBT is appropriate to provide additional information to investors.

Segment operating results are as follows:


	Three Months Ended March 31,
(In thousands)	2017		2016
Master Planned Communities
Land sales	$	53,481	$	41,942
Builder price participation		4,661		4,647
Minimum rents		(8)		143
Other land revenues		10,572		3,023
Total revenues		68,706		49,755

Cost of sales – land		25,869		15,688
Land sales operations		9,394		9,594
Provision for doubtful accounts		2		—
Depreciation and amortization		92		83
Interest income		(8)		(16)
Interest expense (*)		(5,549)		(5,339)
Equity in earnings in Real Estate and Other Affiliates		(5,280)		—
Total expenses		24,520		20,010
MPC segment EBT		44,186		29,745

Operating Assets
Minimum rents		45,962		41,118
Tenant recoveries		11,230		10,523
Hospitality revenues		19,711		12,909
Other rental and property revenues		5,184		3,083
Total revenues		82,087		67,633

Other property operating costs		15,523		14,118
Real estate taxes		6,845		6,142
Rental property maintenance costs		2,833		3,001
Hospitality operating costs		13,845		10,475
Provision for doubtful accounts		530		2,979
Demolition costs		65		—
Development-related marketing costs		418		256
Depreciation and amortization		22,789		21,201
Other income, net		178		(363)
Interest income		—		(8)
Interest expense (*)		14,524		11,337
Equity in earnings from Real Estate and Other Affiliates		(3,385)		(1,908)
Total expenses		74,165		67,230
Operating Assets segment EBT		7,922		403

Strategic Developments
Minimum rents		372		48
Tenant recoveries		169		5
Condominium rights and unit sales		80,145		122,094
Other land revenues		10		10
Other rental and property revenues		273		121
Total revenues		80,969		122,278

Condominium rights and unit cost of sales		60,483		74,815
Other property operating costs		2,985		1,624
Real estate taxes		692		606
Rental property maintenance costs		195		131
Provision for doubtful accounts		3		62
Demolition costs		—		472
Development-related marketing costs		3,787		4,275
Depreciation and amortization		668		659
Other income, net		(15)		(244)
Interest income		(65)		(6)
Interest expense (*)		(4,539)		(3,318)
Equity in earnings from Real Estate and Other Affiliates		145		(24)
Gains on sales of properties		(32,215)		(140,479)
Total expenses		32,124		(61,427)
Strategic Developments segment EBT		48,845		183,705
Total consolidated segment EBT	$	100,953	$	213,853

(*) 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 EBT to GAAP income before taxes:


Reconciliation of EBT to GAAP income before taxes	Three Months Ended March 31,
(In thousands)	2017		2016
MPC segment EBT	$	44,186	$	29,745
Operating Assets segment EBT		7,922		403
Strategic Developments segment EBT		48,845		183,705
Total consolidated segment EBT		100,953		213,853
Corporate and other items:
General and administrative		(18,117)		(20,324)
Corporate interest expense, net		(12,873)		(13,076)
Warrant liability (loss) gain		(12,562)		29,820
Gain on acquisition of joint venture partner's interest		5,490		—
Loss on redemption of senior notes due 2021		(46,410)		—
Corporate other income, net		850		(246)
Corporate depreciation and amortization		(1,975)		(1,029)
Total Corporate and other items		(85,597)		(4,855)
Income before taxes	$	15,356	$	208,998

The following reconciles segment revenues to GAAP consolidated revenues:


Reconciliation of Segment Basis Revenues to GAAP Revenues	Three Months Ended March 31,
(In thousands)	2017		2016
Master Planned Communities	$	68,706	$	49,755
Operating Assets		82,087		67,633
Strategic Developments		80,969		122,278
Total revenues	$	231,762	$	239,666

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)	2017		2016
Master Planned Communities	$	1,996,294	$	1,982,639
Operating Assets		2,437,638		2,344,949
Strategic Developments		1,518,283		1,451,460
Total segment assets		5,952,215		5,779,048
Corporate and other		455,927		588,334
Total assets	$	6,408,142	$	6,367,382

The $92.7 million increase in the Operating Assets segment asset balance as of March 31, 2017 compared to December 31, 2016 is primarily due to placing One Merriweather and HHC 242 Self-Storage in service as well as the acquisition of our joint venture partner’s 50% interest in the Las Vegas 51s. These increases were partially offset by the transfer of Landmark Mall and our investment in 33 Peck Slip to Strategic Developments in January 2017.

The $66.8 million increase in the Strategic Developments segment asset balance as of March 31, 2017 compared to December 31, 2016 is primarily due to the transfer of Landmark Mall into the segment, as discussed above, and increased development expenditures primarily at Anaha and Ae`o, partially offset by additional closings at Waiea.

Corporate and other assets as of March 31, 2017 consist primarily of cash and cash equivalents. The $132.4 million decrease in the Corporate and other asset balance as of March 31, 2017 compared to December 31, 2016 is primarily due to decreased cash balances in the first quarter.