DALLAS-- The Howard Hughes Corporation (NYSE: HHC) today announced its results for the third quarter of 2011, which includes the first full quarter of consolidated results for The Woodlands master planned community.

Net income attributable to common stockholders was $164.3 million for the three months ended September 30, 2011, compared with net loss of $(16.2) million for the three months ended September 30, 2010. Excluding the warrant gain, early extinguishment of debt and basis adjustments described below, net income attributable to common stockholders for the three months ended September 30, 2011 was $9.6 million, or $0.25 per diluted share. Third quarter 2011 net income includes a $169.9 million non-cash gain relating to the decrease in estimated value of outstanding warrants during the quarter, a $(11.3) million after-tax loss relating to the refinancing of $209.5 million of mortgage debt carried on our books at a discount, and a non-cash $(3.9) million after-tax loss to adjust the basis of our equity investment in The Woodlands prior to its consolidation. Diluted loss per common share was $(0.14) for the three months ended September 30, 2011, compared with $(0.43) per share for the same period in 2010. The warrant liability gain is not included in diluted earnings per share according to generally accepted accounting principles.

On July 1, 2011, we acquired our partner’s 47.5% economic interest (represented by a 57.5% legal interest) in The Woodlands master planned community. The consideration consisted of $20.0 million in cash paid at closing and a $97.5 million non-interest bearing note due December 1, 2011. We intend to repay the note at maturity with cash on hand. We consolidated approximately $591.5 million of assets and $346.2 million of liabilities, including $271.2 million of net debt, as of the acquisition date. Prior to the acquisition of our partner’s interest, The Woodlands was accounted for as a non-consolidated equity investment. As part of the consolidation, we eliminated the $134.8 million carrying value of our pre-existing non-controlling interest in The Woodlands, which resulted in a $(3.9) million after-tax book basis adjustment loss. Howard Hughes is in the process of integrating The Woodlands’ operations.

For comparative purposes, MPC land sales and Operating Assets NOI relating to The Woodlands are presented in our Supplemental Information and discussion of results as if we owned 100% of The Woodlands during the periods being compared. We also include the commercial real estate assets of The Woodlands in the Operating Assets segment. These properties in prior periods had been included in the MPC segment. For a reconciliation of Operating Assets NOI to Operating Assets earnings before taxes (EBT), Operating Assets EBT to GAAP-basis loss from continuing operations, and segment-basis MPC land sales revenue to GAAP-basis land sales revenue, please refer to the Supplemental Information contained in this earnings release.

Land sales in our Master Planned Communities (MPC) segment, excluding deferred land sales and other revenue, were $31.2 million for the third quarter 2011, a $7.2 million increase over $24.0 million of land sales for the third quarter 2010. Our former partner’s share of The Woodlands land sales of $18.4 million for the third quarter 2010 was approximately $8.7 million. The Woodlands third quarter 2011 residential and commercial lot sales increased approximately $5.4 million over the prior year, primarily due to higher lot sales volume in the third quarter 2011. Bridgeland sales velocity and average price per lot also continued to increase, with third quarter and year-to-date 2011 lot sales increasing by 16 and 51 lots, to 103 and 260 lots, respectively, over the same periods in 2010. Both Bridgeland and The Woodlands are benefitting from a strong Houston, Texas new home sales market. Summerlin had no lot sales for the third quarter 2011 as builder demand remains unpredictable, reflecting continuing difficult economic and residential housing market conditions in the Las Vegas, Nevada area.

Our Operating Assets segment now includes the commercial real estate properties of The Woodlands. Net operating income (NOI) from the combined retail, office and resort and conference center properties, including our share of the NOI of our non-consolidated ventures, was $13.1 million for the three months ended September 30, 2011, compared with $10.8 million for the three months ended September 30, 2010. Other commercial properties, including two parking garages, ground leases and a private golf club located at The Woodlands, generated a $(2.3) million NOI loss for the third quarter 2011, compared with a $(0.5) million loss for the third quarter 2010.

During the second half of 2011, The Howard Hughes Corporation entered into agreements with partners to pursue development opportunities for its Ala Moana condominium rights and Bridges at Mint Hill property, and an agreement to develop apartments on a land parcel located at Columbia Town Center. The joint venture agreements for the Ala Moana and Columbia Town Center projects contemplate The Howard Hughes Corporation having an equal interest with its local development partner. We expect to be the majority equity partner in the Bridges at Mint Hill development. Our equity in the ventures will consist of the value of the condominium rights for Ala Moana and the value of the land for Columbia and Bridges at Mint Hill joint ventures. All of these joint venture development opportunities are contingent upon the approval of the applicable development plans by the various parties and obtaining financing for the development and construction of the projects. At this time, we have agreed with our partners to jointly conduct pre-development activities, and there can be no assurance that any of these ventures will result in actual development or construction.

David R. Weinreb, CEO of The Howard Hughes Corporation, stated, “We are pleased to be working with three high quality local partners to develop and unlock the value of these assets. Market conditions appear to be favorable for these developments, and we currently believe that construction for each could begin by 2013.”

Mr. Weinreb continued, “The progress our development and leasing teams are making on creating plans for several of our assets continues to affirm my view about the substantial opportunities in our company. The development planning for many of our other assets, such as Ward Centers and South Street Seaport, is ongoing, and we will announce more specific development plans as they are finalized.”

ABOUT THE HOWARD HUGHES CORPORATION

The Howard Hughes Corporation owns, manages and develops commercial, residential and mixed-use real estate throughout the country. Created from a selected subset of 34 assets previously held by General Growth Properties, the company’s properties include master planned communities, operating properties, development opportunities and other unique assets spanning 18 states from New York to Hawaii. The Howard Hughes Corporation is traded on the New York Stock Exchange as HHC, and is headquartered in Dallas, Texas. For more information about HHC, visit www.howardhughes.com.

Safe Harbor Statement

Statements made in this press release that are not historical facts, including statements accompanied by words such as “will,” “believe,” “expect,”, “enables,” “realize” or similar words, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s expectations, estimates, assumptions, and projections as of the date of this release and are not guarantees of future performance. Actual results may differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially are set forth as risk factors in The Howard Hughes Corporation’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2010 and its Quarterly Reports on Form 10-Q. The Howard Hughes Corporation cautions you not to place undue reliance on the forward-looking statements contained in this release. The Howard Hughes Corporation does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.

THE HOWARD HUGHES CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                       
          Three Months Ended September 30,   Nine Months Ended September 30,
          2011   2010   2011   2010
          (Consolidated)   (Combined)   (Consolidated)   (Combined)
          (In thousands, except per share amounts)
Revenues:                      
  Master Planned Community land sales   $ 33,246     $ 7,297     $ 74,786     $ 14,686  
  Builder price participation     2,145       1,148       3,263       3,343  
  Minimum rents       19,403       16,349       53,098       50,349  
  Tenant recoveries       5,399       4,637       14,538       13,891  
  Condominium unit sales     9,071       -       19,495       -  
  Resort and conference center revenues     7,200       -       7,200       -  
  Other land revenues     3,886       1,589       7,382       4,112  
  Other rental and property revenues     6,540       1,440       11,051       5,500  
    Total revenues     86,890       32,460       190,813       91,881  
Operating Expenses:                  
  Master Planned Community cost of sales     27,035       3,751       51,909       7,001  
  Master Planned Community operations     7,398       6,306       17,611       23,653  
  Rental property real estate taxes     1,639       4,131       8,064       11,161  
  Rental property maintenance costs     2,341       1,484       5,467       4,766  
  Condominium unit cost of sales     5,470       -       13,723       -  
  Resort and conference center operations     6,352       -       6,352       -  
  Other property operating costs     16,964       8,994       36,028       27,195  
  Provision for doubtful accounts     275       744       590       1,101  
  General and administrative     9,990       3,467       23,581       12,463  
  Provisions for impairment     -       92       -       578  
  Depreciation and amortization     7,208       4,109       13,592       12,535  
    Total operating expenses     84,672       33,078       176,917       100,453  
                       
Operating income (loss)       2,218       (618 )     13,896       (8,572 )
                       
Interest income         2,341       59       7,097       118  
Interest expense         -       (681 )     -       (1,888 )
Early extinguishment of debt       (11,305 )     -       (11,305 )     -  
Warrant liability gain       169,897       -       100,762       -  
Investment in real estate affiliate basis adjustment     (6,053 )     -       (6,053 )     -  
Equity in earnings from Real Estate Affiliates     166       1,222       7,787       6,394  
Income (loss) before taxes and reorganization items     157,264       (18 )     112,184       (3,948 )
Benefit (provision) for income taxes     7,760       350       4,344       (17,603 )
                       
Reorganization items       -       (16,515 )     -       (43,129 )
Net income (loss)         165,024       (16,183 )     116,528       (64,680 )
Net income attributable to noncontrolling interests     (729 )     (47 )     (777 )     (121 )
Net income (loss) attributable to common stockholders   $ 164,295     $ (16,230 )   $ 115,751     $ (64,801 )
                       
Basic Income (Loss) Per Share:   $ 4.33     $ (0.43 )   $ 3.05     $ (1.72 )
Diluted Income (Loss) Per Share:   $ (0.14 )   $ (0.43 )   $ 0.38     $ (1.72 )
                       
                       
Comprehensive Income (Loss), Net of Tax:                
  Net income (loss)     $ 165,024     $ (16,183 )   $ 116,528     $ (64,680 )
  Other comprehensive income (loss):                
    Interest rate swap (a)     (2,024 )     -       (2,772 )     -  
    Pension plan adjustment     -       88       -       188  
  Other comprehensive income (loss)     (2,024 )     88       (2,772 )     188  
  Comprehensive income (loss)     163,000       (16,095 )     113,756       (64,492 )
    Comprehensive income attributable to noncontrolling interests     (729 )     (47 )     (777 )     (121 )
  Comprehensive income (loss) attributable to common stockholders   $ 162,271     $ (16,142 )   $ 112,979     $ (64,613 )
                       
  (a) Net of deferred tax expense of $1.1 million during both the three and nine months ended September 30, 2011.
   
   
 
THE HOWARD HUGHES CORPORATION
CONSOLIDATED BALANCE SHEETS
               
          September 30,   December 31,
          2011   2010
Assets:   (In thousands, except share amounts)
Investment in real estate:        
  Master Planned Community assets   $ 1,611,125     $ 1,350,648  
  Land     259,557       180,976  
  Buildings and equipment     523,871       343,006  
  Less accumulated depreciation     (94,771 )     (83,390 )
  Developments in progress     190,287       293,403  
    Net property and equipment     2,490,069       2,084,643  
  Investment in Real Estate Affiliates     61,214       149,543  
    Net investment in real estate     2,551,283       2,234,186  
Cash and cash equivalents     293,363       284,682  
Accounts receivable, net     15,555       8,154  
Municipal Utility District receivables     110,054       28,103  
Notes receivable, net     39,141       38,954  
Tax indemnity receivable, including interest     329,668       323,525  
Deferred expenses, net     7,899       6,619  
Prepaid expenses and other assets     130,013       98,484  
    Total assets   $ 3,476,976     $ 3,022,707  
               
Liabilities:        
Mortgages, notes and loans payable   $ 708,172     $ 318,660  
Deferred tax liabilities     72,339       78,680  
Warrant liabilities     128,586       227,348  
Uncertain tax position liability     146,985       140,076  
Accounts payable and accrued expenses     122,079       78,836  
  Total liabilities     1,178,161       843,600  
Commitments and Contingencies        
               
Equity:              
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued     -       -  
Common stock: $.01 par value; 150,000,000 shares authorized,     -       -  
  37,942,107 shares issued and outstanding as of September 30, 2011 and     -       -  
  37,904,506 shares issued and outstanding as of December 31, 2010     379       379  
Additional paid-in capital     2,710,536       2,708,036  
Accumulated deficit     (412,754 )     (528,505 )
Accumulated other comprehensive loss     (4,399 )     (1,627 )
  Total stockholders' equity     2,293,762       2,178,283  
Noncontrolling interests     5,053       824  
  Total equity     2,298,815       2,179,107  
    Total liabilities and equity   $ 3,476,976     $ 3,022,707  
                     
                     
 

Supplemental Information

September 30, 2011

As our three segments, Master Planned Communities, Operating Assets and Strategic Developments, are managed separately, different operating measures are utilized to assess operating results and allocate resources. The one common operating measure used to assess operating results for our business segments is real estate property earnings before taxes (“EBT”) which represents the operating revenues of the properties less property operating expenses. EBT is defined as net income (loss) from continuing operations as adjusted for: (1) reorganization items; (2) income tax provision (benefit); (3) warrant liability expense; and (4) general and administrative costs. The net income from our Real Estate Affiliates, at our proportionate share, is similarly adjusted for items (1) through (4) immediately above. Management believes that EBT provides useful information about the operating performance of all our assets, projects and property. However, EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss) from continuing operations.

             
        Three Months Ended September 30,   Nine Months Ended September 30,
(In thousands)     2011     2010   2011     2010
Reconciliation of EBT to GAAP-basis                    
  income (loss) from continuing operations                    
Real estate property EBT:                    
    Master Planned Communities   $ 10,693       $ 6,642     $ 40,443       $ 14,220  
    Operating Assets     (10,816 )       766       4,164         5,480  
    Strategic Developments     3,367         (3,088 )     2,839         (7,553 )
  Segment basis   $ 3,244       $ 4,320     $ 47,446       $ 12,147  
  Real Estate Affiliates     -         (2,093 )     (10,282 )       (10,026 )
  Segment EBT     3,244         2,227       37,164         2,121  
General and administrative     (9,990 )       (3,467 )     (23,581 )       (12,463 )
Warrant liability gain       169,897         -       100,762         -  
Benefit (provision) for income taxes     7,760         350       4,344         (17,603 )
Equity in earnings from Real Estate Affiliates     166         1,222       3,892   (a)     6,394  
Investment in real estate affiliate basis adjustment     (6,053 )       -       (6,053 )       -  
Reorganization items       -         (16,515 )     -         (43,129 )
  Income (loss)   $ 165,024       $ (16,183 )   $ 116,528       $ (64,680 )
                         
                         

(a) The segment EBT includes a $3.9 million dividend from Summerlin Hospital Medical Center. The dividend is reflected in equity in earnings from Real Estate Affiliates.

 
 
 

MPC Sales Summary
                                             
        Land Sales *   Acres Sold   Number of Lots/Units   Price per acre   Price per lot
       

 

              

Three Months Ended September 30,

                
        2011   2010   2011   2010   2011   2010   2011   2010   2011   2010
($ in thousands)                                        
Residential Land Sales                                        
Maryland - Columbia  

Single family - detached

   $ 630   $ -     0.5   -   3   -   $ 1,260   $ -   $ 210   $ -
Maryland - Columbia   Townhomes     1,697     -     0.5   -   12   -     n/a     n/a     141     -
                                             
Bridgeland   Single family - detached     5,149     4,201     20.3   17.0   103   87     254     247     50     48
                                             
Summerlin   Single family - detached     -     -     -   -   -   -     -     -     -     -
    Custom lots     -     1,362     -   1.0   -   2     -     1,362     -     681
                                             
The Woodlands   Single family - detached     19,043     11,486     53.5   29.6   216   105     356     388     88     109
    Single family - attached     887     -     2.3   -   34   -     386     -     26     -
    Subtotal   $ 27,406   $ 17,049     77.1   47.6   368   194                
                                             
Commercial Land Sales                                        
The Woodlands   Office and other   $ -   $ 6,905     -   11.3             -     611        
    Apartments and assisted living     1,839     -     5.3   -             347     -        
    Retail     2,001     -     5.0   -             400     -        
    Subtotal     3,840     6,905     10.3   11.3                        
Total acreage sales revenue     31,246     23,954                                  
Deferred revenue     2,000     1,709                                  
Special Improvement District revenue     -     28                                  
Total segment land sales revenue   $ 33,246   $ 25,691                                  
Less: Real Estate Affiliates land sales revenue     -     (18,394 )                                
Total land sales revenue- GAAP basis   $ 33,246   $ 7,297                                  
           

 

                                

* Land sales do not include $2.1 million and $2.3 million of builder price participation revenue for the three months ended September 30, 2011 and 2010, respectively. Prior year amount includes The Woodlands at 100%.

 

                                            
                                             
 
        Land Sales *   Acres Sold   Number of Lots/Units   Price per acre   Price per lot
        Nine Months Ended September 30,
        2011   2010   2011   2010   2011   2010   2011   2010   2011   2010
($ in thousands)                                        
Residential Land Sales                                        
Maryland - Columbia   Single family - detached   $ 1,480     $ -     1.4   -   7   -   $ 1,057   $ -   $ 211   $ -
Maryland - Columbia   Townhomes     3,311       -     1.0   -   24   -     n/a     n/a     138     -
                                             
Bridgeland   Single family - detached     13,846       10,391     52.2   40.9   260   209     265     254     53     50
                                             
Summerlin   Single family - detached     25,504       -     62.4   -   312   -     409     -     82     -
    Custom lots     -       1,362     -   1.0   -   2     -     1,362     -     681
                                             
The Woodlands   Single family - detached     53,261       48,419     149.8   140.6   610   565     356     344     87     86
    Single family - attached     887       988     2.3   3.5   34   52     386     282     26     19
    Subtotal   $ 98,289     $ 61,160     269.1   186.0   1,247   828                
                                             
Commercial Land Sales                                        
Summerlin   Not-for-profit   $ 3,615     $ -     16.0   -             226     -        
                                             
The Woodlands   Office and other   $ 1,800     $ 10,709     3.2   21.3             563     503        
    Apartments and assisted living     1,839       -     5.3   -             347     -        
    Retail     5,115       4,470     10.5   14.7             487     304        
    Subtotal     12,369       15,179     35.0   36.0                        
Total acreage sales revenue     110,658       76,339                                  
Deferred revenue     (769 )     2,818                                  
Deferred revenue - Woodlands     6,285       (97 )                                
Special Improvement District revenue     4,028       28                                  
Total segment land sales revenue   $ 120,202     $ 79,088                                  
Less: Real Estate Affiliates land sales revenue     (45,416 )     (64,402 )                                
Total land sales revenue- GAAP basis   $ 74,786     $ 14,686                                  
                                             

* Land sales do not include $5.7 million and $6.2 million of builder price participation revenue for the nine months ended September 30, 2011 and 2010, respectively. Such amounts include The Woodlands at 100%.

 

                                        
 

Operating Assets Net Operating Income (“NOI”)

The Company believes that NOI is a useful supplemental measure of the performance of its Operating Assets. We define NOI as property specific revenues (rental income, tenant recoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses) and excluding the operations of properties held for disposition. NOI also excludes straight line rents, market lease amortization, impairments, depreciation and other amortization expense. Other real estate companies may use different methodologies for calculating NOI, and accordingly, the NOI of our Operating Assets may not be comparable to other real estate companies.

The Company also believes that NOI provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in occupancy rates, rental rates, and operating costs. This measure thereby provides an operating perspective not immediately apparent from GAAP continuing operations or net income attributable to common stockholders. The Company uses NOI to evaluate its operating performance on a property-by-property basis because NOI allows the Company to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on the Company’s operating results, gross margins and investment returns. NOI should only by used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP income (loss) from continuing operations, operating income (loss) or net income (loss) available to common stockholders.

               
      Net Operating Income (NOI) Three Months Ended September 30,     Net Operating Income (NOI) Nine Months Ended September 30,  
        2011         2010         2011         2010    
(In thousands)                        
Operating Assets                        
                           
Retail                          
Ward Centers   $ 5,630       $ 5,565       $ 16,449       $ 17,219    
South Street Seaport     1,502         787         3,150         2,952    
Rio West Mall     287         444         963         1,480    
Landmark Mall     83         287         553         1,149    
Riverwalk Marketplace     194         (117 )       590         605    
Cottonwood Square     83         114         299         373    
Park West       159         87         490         255    
20/25 Waterway Avenue     377         113         902         457    
Waterway Garage Retail     (8 )       -         6         -    
  Total Retail     8,307         7,280         23,402         24,490    
Office                          
110 N. Wacker     1,526         1,530         4,586         4,589    
Columbia Office Properties     259         660         2,033         2,133    
4 Waterway Square     425         45         1,102         (161 )  
9303 New Trails     299         330         852         831    
1400 Woodloch Forest     239         245         649         756    
2201 Lake Woodlands Drive     83         84         249         239    
  Total Office     2,831         2,894         9,471         8,387    
                           
The Woodlands Resort and Conference Center     848         317         6,051         3,913    
Total Retail, Office, Resort and Conference Center     11,986         10,491         38,924         36,790    
                           
The Club at Carlton Woods     (1,420 )       (1,512 )       (3,932 )       (4,161 )  
The Woodlands Parking Garages     (469 )       (201 )       (902 )       (578 )  
The Woodlands Ground leases     97         91         310         263    
Other properties     (508 ) (a)     1,073         5,453   (b)     3,096    
  Total Other     (2,300 )       (549 )       929         (1,380 )  
  Total Operating Assets NOI     9,686         9,942         39,853         35,410    
                           
Straight-line and market lease amortization rent     506         (24 )       1,356         466    
Provisions for impairment     -         (92 )       -         (522 )  
Early extinguishment of debt     (11,305 )       -         (11,305 )       -    
Depreciation and amortization     (6,942 )       (5,808 )       (16,958 )       (17,530 )  
Equity in earnings from nonconsolidated affiliates     132         (122 )       (352 )       (14 )  
Interest, net     (2,893 )       (4,207 )       (7,766 )       (13,650 )  
Less: Partners' share of Operating Assets EBT     -         1,076         (664 )       1,320    
  Operating Assets EBT (100% Owned)     (10,816 )       765         4,164         5,480    
                           
Operating Assets NOI - Equity Method Investments                        
  Millennium Waterway Apartments   $ 779       $ (175 )     $ 741       $ (24 )  
  Woodlands Sarofim #1     364         394         1,138         1,177    
  Stewart Title (title company)     323         354         667         784    
  Forest View/Timbermill Apartments     465         409         1,317         1,198    
  Total NOI -- equity investees of September 30, 2011 (c)     1,931         982         3,863         3,135    
                           
  Adjustments to NOI     (1,411 ) (d)     (833 ) (d)     (3,748 ) (d)     (2,140 ) (d)
  Net Income     520         149         115         995    
  Less: JV Partner's Share of Net Income     (388 )       (381 )       (905 )       (1,022 )  
  The Woodlands Share of Net Income     132         (232 )       (790 )       (27 )  
Equity in earnings from nonconsolidated affiliates     132         (122 )       (352 )       (14 )  
  (adjusted for The Company's ownership of The Woodlands)                        
      Economic     September 30, 2011        
      Ownership     Debt     Cash        
  Millennium Waterway Apartments     83.55 %     $ 47,175       $ 1,720          
  Woodlands Sarofim #1     20.00 %       7,153         665          
  Stewart Title (title company)     50.00 %       -         236          
  Forest View/Timbermill Apartments     50.00 %       5,840         -          
                           
(a) Includes $0.5 million loss associated with the Golf Courses at Summerlin.
(b) Includes $3.9 million dividends from Summerlin Hospital Medical Center.
(c) Our share of equity investees' NOI is $1.1 million and $0.3 million for the three months ended September 30, 2011
 

and 2010, respectively, and $1.8 million and $1.2 million for the nine months ended September 30, 2011 and 2010, respectively.
(d) Adjustments to NOI include straight-line and market lease amortization, depreciation and amortization and non-real estate taxes.
 

 

The Howard Hughes Corporation
Christopher Stang, 214-741-7744
christopher.stang@howardhughes.com

 

Source: The Howard Hughes Corporation