NOTE 18. BUSINESS SEGMENTS

Our current business strategy includes two operating segments: Real Estate Operations and Strategic Capital. We generate revenues, earnings, net operating income and cash flows through our segments, as follows:

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Real Estate Operations. This operating segment represents the ownership and development of operating properties and is the largest component of our revenues and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. Our Real Estate Operations segment also includes development activities that lead to rental operations, including land held for development and properties currently under development. Within this line of business, we utilize the following: (i) our land bank; (ii) the development expertise of our local teams; and (iii) our customer relationships. Land we own and lease to customers under ground leases is also included in this segment.

•

Strategic Capital. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset management and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.

Reconciliations are presented below for: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to Total Assets. Our chief operating decision makers rely primarily on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of Total Revenues, Operating Income, Earnings Before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain corporate income and expenses, are not allocated but reflected as reconciling items. The following reconciliations are presented in thousands:

	Years Ended December 31,
		2017			2016			2015
Revenues:
Real estate operations segment:
U.S.	$	2,025,184		$	2,040,308		$	1,801,858
Other Americas		84,789			58,519			57,316
Europe		73,708			75,602			69,576
Asia		60,564			55,144			50,495
Total real estate operations segment		2,244,245			2,229,573			1,979,245
Strategic capital segment:
U.S.		176,720			39,360			39,396
Other Americas		28,494			22,799			22,507
Europe		106,862			186,652			112,744
Asia		61,813			54,751			43,182
Total strategic capital segment		373,889			303,562			217,829

Total revenues		2,618,134			2,533,135			2,197,074

Segment net operating income:
Real estate operations segment:
U.S. (1)		1,519,164			1,520,571			1,256,188
Other Americas		58,842			38,114			38,061
Europe		51,277			54,406			39,721
Asia		33,234			33,283			34,395
Total real estate operations segment		1,662,517			1,646,374			1,368,365
Strategic capital segment:
U.S. (1)		106,471			(1,622	)		(1,925	)
Other Americas		16,811			12,777			13,496
Europe		68,127			144,132			86,215
Asia		27,339			19,769			11,621
Total strategic capital segment		218,748			175,056			109,407

Total segment net operating income		1,881,265			1,821,430			1,477,772

Reconciling items:
General and administrative expenses		231,059			222,067			217,227
Depreciation and amortization expenses		879,140			930,985			880,373
Operating income		771,066			668,378			380,172
Earnings from unconsolidated entities, net		248,567			206,307			159,262
Interest expense		(274,486	)		(303,146	)		(301,363	)
Interest and other income, net		13,731			8,101			25,484
Gains on dispositions of investments in real estate and revaluation of equity investments upon acquisition of a controlling interest, net		1,182,965			757,398			758,887
Foreign currency and derivative gains (losses), net		(57,896	)		7,582			12,466
Gains (losses) on early extinguishment of debt, net		(68,379	)		2,484			(86,303	)
Earnings before income taxes	$	1,815,568		$	1,347,104		$	948,605

	December 31,
		2017		2016
Assets:
Real estate operations segment:
U.S.	$	19,058,610	$	21,286,422
Other Americas		1,767,385		978,476
Europe		1,008,340		1,346,589
Asia		1,083,764		936,462
Total real estate operations segment		22,918,099		24,547,949
Strategic capital segment (2):
U.S.		16,818		18,090
Europe		25,280		47,635
Asia		544		1,301
Total strategic capital segment		42,642		67,026
Total segment assets		22,960,741		24,614,975

Reconciling items:
Investments in and advances to unconsolidated entities		5,496,450		4,230,429
Assets held for sale or contribution		342,060		322,139
Notes receivable backed by real estate		34,260		32,100
Cash and cash equivalents		447,046		807,316
Other assets		200,518		242,973
Total reconciling items		6,520,334		5,634,957
Total assets	$	29,481,075	$	30,249,932

(1)	This includes compensation and personnel costs for employees who were located in the U.S. but also support other regions.

(2)	Represents management contracts and goodwill recorded in connection with business combinations associated with the Strategic Capital segment. Goodwill was $25.3 million at December 31, 2017 and 2016.