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 in our interim financial statements and elsewhere in this Quarterly Report have been adjusted in all periods reported to reflect this change.

The assets included in each segment as of September 30, 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	▪ Aristocrat
• The Woodlands	▪ Downtown Summerlin	▪ Two Hughes Landing	▪ Creekside Park Apartments
• The Woodlands Hills	▪ Hughes Landing Retail	▪ Three Hughes Landing (b)	▪ 100 Fellowship Drive
	▪ 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	▪ Two Summerlin
	▪ South Street Seaport - Historic District / Uplands	▪ One Merriweather (d)	▪ m.flats/TEN.M (a)
	▪ Ward Village Retail	▪ 110 North Wacker	▪ 33 Peck Slip (a) (f)
	▪ 20/25 Waterway Avenue	▪ 9303 New Trails	▪ South Street Seaport - Pier 17 (f)
	▪ Waterway Garage Retail	▪ ONE Summerlin	▪ Waiea
		▪ 3831 Technology Forest Drive
	Multi-family	▪ 3 Waterway Square	Other
	▪ Constellation (a) (b)	▪ 4 Waterway Square	▪ AllenTowne
	▪ Millennium Waterway Apartments	▪ 1400 Woodloch Forest	▪ American City Building
	▪ Millennium Six Pines Apartments (c)		▪ Bridges at Mint Hill
	▪ One Lakes Edge	Other	▪ Century Plaza Mall
	▪ 85 South Street	▪ HHC 242 Self-Storage (d)	▪ Circle T Ranch and Power Center (a)
	▪ The Metropolitan Downtown	▪ HHC 2978 Self-Storage (d)	▪ Cottonwood Mall
	Columbia (a)	▪ Las Vegas 51s (e)	▪ Downtown Summerlin Apartments
		▪ Kewalo Basin Harbor	▪ The Elk Grove Collection (g)
	Hospitality	▪ Stewart Title of Montgomery	▪ 80% Interest in Fashion
	▪ Embassy Suites at Hughes Landing	County, TX (a)	Show Air Rights
	▪ The Westin at The Woodlands (b)	▪ Summerlin Hospital Medical	▪ Kendall Town Center
	▪ The Woodlands Resort &	Center (a)	▪ Lake Woodlands Crossing Retail Center
	Conference Center	▪ The Woodlands Parking Garages	▪ Landmark Mall (f)
		▪ 2000 Woodlands Parkway	▪ Maui Ranch Land
		▪ Woodlands Sarofim #1 (a)	▪ Merriweather Apartments
			▪ South Street Seaport - Tin Building
			▪ Three Merriweather
			▪ 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 held as a joint venture until our acquisition of our partner’s 18.57% interest on July 20, 2016.

(d)

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

(e)

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

(f)

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

(g)

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 September 30,				Nine Months Ended September 30,
(In thousands)	2017		2016		2017		2016
Master Planned Communities
Land sales	$	54,906	$	44,128	$	177,531	$	147,168
Builder price participation		5,472		4,483		14,613		15,631
Minimum rents		—		95		(8)		376
Other land revenues		4,551		4,043		19,575		12,195
Other rental and property revenues		—		13		—		33
Total revenues		64,929		52,762		211,711		175,403

Cost of sales – land		29,043		21,432		88,288		66,128
Land sales operations		8,180		10,674		24,881		30,454
Provision for doubtful accounts		—		—		2		—
Depreciation and amortization		76		72		247		236
Interest income		8		(5)		(1)		(26)
Interest expense (*)		(6,363)		(5,248)		(17,901)		(15,591)
Equity in (earnings) loss in Real Estate and Other Affiliates		(6,480)		(13,700)		(21,552)		(22,574)
Total expenses		24,464		13,225		73,964		58,627
MPC segment EBT		40,465		39,537		137,747		116,776

Operating Assets
Minimum rents		44,579		44,736		135,564		127,663
Tenant recoveries		11,491		11,652		34,257		33,089
Hospitality revenues		17,776		14,088		57,190		46,126
Other rental and property revenues		5,687		3,471		16,487		10,974
Total revenues		79,533		73,947		243,498		217,852

Other property operating costs		17,473		15,611		51,041		43,524
Rental property real estate taxes		7,098		6,406		19,975		19,257
Rental property maintenance costs		3,288		3,247		9,601		8,893
Hospitality operating costs		13,525		12,662		41,534		37,379
Provision for doubtful accounts		453		1,940		1,728		4,566
Demolition costs		34		—		162		—
Provision for impairment		—		35,734		—		35,734
Development-related marketing costs		1,067		457		2,317		902
Depreciation and amortization		33,885		20,732		88,918		64,546
Other income, net		249		(11)		265		(3,126)
Interest income		3		(3)		—		(19)
Interest expense (*)		15,937		12,905		46,004		36,987
Equity in (earnings) loss in Real Estate and Other Affiliates		(317)		210		(3,739)		(2,616)
Total expenses		92,695		109,890		257,806		246,027
Operating Assets segment EBT		(13,162)		(35,943)		(14,308)		(28,175)

Strategic Developments
Minimum rents		75		79		497		216
Tenant recoveries		95		5		370		19
Condominium rights and unit sales		113,852		115,407		342,208		362,613
Other land revenues		10		10		31		30
Other rental and property revenues		242		54		822		328
Total revenues		114,274		115,555		343,928		363,206

Condominium rights and unit cost of sales		86,531		83,218		253,209		237,759
Other property operating costs		3,881		924		9,112		3,989
Rental property real estate taxes		580		627		1,790		1,853
Rental property maintenance costs		92		85		415		324
Provision for doubtful accounts		(5)		—		(2)		63
Demolition costs		141		256		141		1,218
Development-related marketing costs		4,799		4,259		12,470		14,684
Depreciation and amortization		18		659		1,177		1,978
Other income, net		(122)		(298)		(137)		(542)
Interest income		(30)		(140)		(124)		(271)
Interest expense (*)		(6,953)		(4,866)		(18,197)		(12,710)
Equity in (earnings) loss in Real Estate and Other Affiliates		(670)		(3)		(530)		(10,510)
Gains on sales of properties		(237)		(70)		(32,452)		(140,549)
Total expenses		88,025		84,651		226,872		97,286
Strategic Developments segment EBT		26,249		30,904		117,056		265,920
Total consolidated segment EBT	$	53,552	$	34,498	$	240,495	$	354,521

(*) 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 income before taxes:


Reconciliation of EBT to income before taxes	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2017		2016		2017		2016
MPC segment EBT	$	40,465	$	39,537	$	137,747	$	116,776
Operating Assets segment EBT		(13,162)		(35,943)		(14,308)		(28,175)
Strategic Developments segment EBT		26,249		30,904		117,056		265,920
Total consolidated segment EBT		53,552		34,498		240,495		354,521
Corporate and other items:
General and administrative		(22,362)		(21,128)		(63,423)		(61,505)
Corporate interest expense, net		(12,875)		(13,263)		(36,595)		(39,358)
Warrant liability loss		—		(7,300)		(43,443)		(21,630)
Gain on acquisition of joint venture partner's interest		—		27,087		5,490		27,087
Loss on redemption of senior notes due 2021		—		—		(46,410)		—
Corporate other (expense) income, net		(33)		123		878		6,190
Corporate depreciation and amortization		(1,920)		(1,859)		(5,851)		(4,486)
Total Corporate and other items		(37,190)		(16,340)		(189,354)		(93,702)
Income before taxes	$	16,362	$	18,158	$	51,141	$	260,819

The following reconciles segment revenues to consolidated revenues:


Reconciliation of Segment Basis Revenues to Revenues	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2017		2016		2017		2016
Master Planned Communities	$	64,929	$	52,762	$	211,711	$	175,403
Operating Assets		79,533		73,947		243,498		217,852
Strategic Developments		114,274		115,555		343,928		363,206
Total revenues	$	258,736	$	242,264	$	799,137	$	756,461

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)	2017		2016
Master Planned Communities	$	2,054,621	$	1,982,639
Operating Assets		2,450,306		2,344,949
Strategic Developments		1,708,327		1,451,460
Total segment assets		6,213,254		5,779,048
Corporate and other		510,442		588,334
Total assets	$	6,723,696	$	6,367,382

The increase in the Operating Assets segment asset balance as of September 30, 2017 compared to December 31, 2016 is primarily due to placing One Merriweather, HHC 242 and HHC 2978 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 increase in the Strategic Developments segment asset balance as of September 30, 2017 compared to December 31, 2016 is primarily due to the transfers of Landmark Mall and 33 Peck Slip into the segment and increased development expenditures primarily at South Street Seaport and our Ward condominium projects under construction.