NEW VALLEY LLC

Residential Brokerage Business Acquisition. New Valley is engaged in the real estate business and is seeking to acquire additional real estate properties and operating companies. As of January 1, 2013, the Company owned a 50% interest in Douglas Elliman, and the Company accounted for its 50% using the equity method of accounting. On December 13, 2013, an affiliate of New Valley acquired an additional 20.59% interest in Douglas Elliman from Prudential Real Estate Financial Services of America, Inc. for a purchase price of $60,000 in cash. The acquisition increased the Company's ownership position in Douglas Elliman from 50% to 70.59% and resulted in the Company having control.

The transaction was accounted for as an acquisition of a business in the fourth quarter of 2013. The preliminary fair values of the assets acquired, liabilities assumed and the non-controlling interest recorded for Douglas Elliman as of December 13, 2013 were adjusted during the first quarter of 2014. Goodwill and current liabilities were reduced by $454 and $105, respectively, while intangible assets related to favorable lease agreements were increased by $559. The amounts are preliminary as management is still evaluating the valuations of certain assets acquired in the acquisition. These adjustments have been reflected in the Company's condensed consolidated balance sheet as of December 31, 2013 and September 30, 2014.

Equity Method of Accounting. Prior to December 13, 2013, New Valley accounted for its 50% interest in Douglas Elliman under the equity method of accounting. New Valley recorded income associated with Douglas Elliman of $9,075 and $16,513 for the three and nine months ended September 30, 2013, respectively, which included management fees earned by New Valley from Douglas Elliman.

Summarized income statement information for Douglas Elliman for the three and nine months ended September 30, 2013, is presented below.



	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Revenues	$	127,537		$	315,721
Costs and expenses	109,178			282,885
Depreciation expense	986			2,944
Amortization expense	56			167
Other income	(109		)	(512		)
Interest income, net	(14		)	(22		)
Income tax expense	442			684
Net income	$	16,998		$	29,575

New Valley received cash distributions from Douglas Elliman of $2,961 for the nine months ended September 30, 2013.

Investments in real estate ventures. New Valley also holds equity investments in various real estate projects domestically and internationally. The components of “Investments in real estate ventures” were as follows:



	September 30, 2014		December 31, 2013

Milanosesto Holdings (f/k/a Sesto Holdings)	$	5,037	$	5,037
Land Development	5,037		5,037

10 Madison Square Park West (f/k/a 1107 Broadway)	6,384		6,579
The Whitman	526		1,165
The Marquand	12,000		7,000
11 Beach Street	12,328		11,160
20 Times Square (f/k/a 701 Seventh Avenue)	12,481		11,148
101 Murray Street	25,269		19,256
160 Leroy Street	1,353		1,150
PUBLIC Chrystie House (f/k/a Chrystie Street)	3,180		2,048
25-19 43rd Avenue	733		—
Queens Plaza (f/k/a 23-10 Queens Plaza South)	12,590		8,058
8701 Collins Avenue	4,634		3,794
125 Greenwich Street	9,308		—
Condominium and Mixed Use Development	100,786		71,358

Maryland Portfolio	3,348		3,498
ST Portfolio	15,508		15,984
Apartment Buildings	18,856		19,482

Park Lane Hotel	18,097		19,514
Hotel Taiwana	6,850		7,428
Coral Beach and Tennis Club	2,708		2,964
Hotels	27,655		29,906

Other	1,947		2,419

Investments in real estate ventures	$	154,281	$	128,202

Condominium and Mixed Use Development:

Condominium and mixed use developments investments range in ownership percentage from 5% to 49.5%. New Valley recorded equity income of $5,090 and $7,389 during the three and nine months ended September 30, 2014, respectively. The Company recorded $5,000 of income from real estate ventures for the three and nine months ended September 30, 2014 in connection with its proportionate share of the Marquand’s income from the sale of approximately 40% of its units during the quarter. In addition, during the nine months ended September 30, 2014, the Company recorded $2,254 of income in connection with its proportionate share of the sale of a commercial unit at 10 Madison Square Park West (f/k/a 1107 Broadway). New Valley recorded equity income of $526 and $656 for the three and nine months ended September 30, 2013. During the nine months ended September 30, 2014, New Valley made capital contributions totaling $27,154, primarily related to 101 Murray Street, 23-10 Queens Plaza South and a new investment, 125 Greenwich Street. New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners. New Valley's investment percentage did not change. During the nine months ended September 30, 2014, New Valley and received distributions of $7,791. During the nine months ended September 30, 2013, New Valley made capital contributions totaling $23,984 primarily related to its investment in 101 Murray Street, and received distributions of $2,593. New Valley's maximum exposure to loss as a result of its investments in condominium and mixed use developments was $100,786 at September 30, 2014.

Apartment Buildings:

Apartment buildings investments range in ownership percentage from 7.5% to 16.4%. New Valley recorded net equity losses of $87 and $111 for the three months ended September 30, 2014 and 2013, respectively, related to the apartment portfolios. New Valley recorded equity losses of $251 and $394 for nine months ended September 30, 2014 and 2013, respectively, primarily related to an apartment portfolio. New Valley received distributions of $375 and $250 during the nine months ended September 30, 2014 and 2013, respectively, related to an apartment portfolio. New Valley's maximum exposure to loss as a result of its investment in apartment buildings was $18,856 at September 30, 2014.

Hotels:

Hotel investments range in ownership percentage from 5% to 49%. During the three and nine months ended September 30, 2014, New Valley recorded net equity losses of $2,053 and $4,224. New Valley made capital contributions totaling $1,973 for the nine months ended September 30, 2014, primarily related to Park Lane Hotel. New Valley made capital contributions totaling $21,992 for the nine months ended September 30, 2013, primarily related to the initial investment in Park Lane Hotel. New Valley's maximum exposure to loss as a result of its investments in hotels was $27,655 at September 30, 2014.

Other:

Other investments in real estate ventures relate to an investment in a mortgage company and an insurance company partially owned by Douglas Elliman.

Real Estate Held for Sale:

The components of “Real estate held for sale, net” were as follows:



	September 30, 2014		December 31, 2013
Escena, net	$	10,643	$	10,625
Indian Creek	—		10,286
Real estate held for sale, net	$	10,643	$	20,911

Escena. In October 2013, the Company sold 200 of the 867 residential lots. The remaining project consists of 667 residential lots, consisting of both single family and multi-family lots, an 18-hole golf course, clubhouse restaurant and golf shop, and a seven-acre site approved for a 450-room hotel.

The assets of "Escena, net" are as follows:



	September 30, 2014			December 31, 2013
Land and land improvements	$	8,930		$	8,930
Building and building improvements	1,832			1,530
Other	1,577			1,577
	12,339			12,037
Less accumulated depreciation	(1,696		)	(1,412		)
	$	10,643		$	10,625

The Company recorded an operating loss of $804 and $845 for the three months ended September 30, 2014 and 2013, respectively, from Escena. The Company recorded an operating loss of $571 and $769 for the nine months ended September 30, 2014 and 2013, respectively, from Escena.

Investment in Indian Creek. In March 2013, New Valley invested $7,616 for an 80% interest in Timbo LLC ("Indian Creek") which owns a residential real estate project located on Indian Creek, Florida. As a result of the 80% ownership interest, the consolidated financial statements of the Company included the balances of Indian Creek.

In May 2014, the Indian Creek property was sold for $14,400 and New Valley received a distribution of approximately $7,100. New Valley recognized income of approximately $2,400 from the sale for the nine months ended September 30, 2014.