Press Releases

DALLAS-- The Howard Hughes Corporation (NYSE: HHC):

Second Quarter Highlights

• Second quarter net income was $10.9 million, excluding the $23.4 million non-cash warrant gain compared to the second quarter of 2011 net income of $9.1 million, excluding the $56.9 million non-cash warrant gain.
• Entered into an agreement to amend and restate the South Street Seaport ground lease with the City of New York. Construction is expected to begin prior to June 30, 2013 on approximately 195,000 leasable square feet on Pier 17.
• Master Planned Community land sales were $42.3 million for the second quarter 2012, compared to $42.9 million for the second quarter 2011.
• Net operating income for our income-producing Operating Assets was $19.6 million for second quarter 2012, up from $14.1 million in the second quarter of 2011.
• Bed, Bath & Beyond and T.J. Maxx openings at Ward Centers during 2012 are expected to generate $2.0 million of annual net operating income by 2013.
• 3 Waterway Square, a 232,021 square foot office building under construction in The Woodlands, is 90% pre-leased.
• Announced the development of Hughes Landing at Lake Woodlands, a 66-acre mixed use site within The Woodlands. One Hughes Landing, a 195,227 square foot office building will be the first property developed and is expected to be complete in the fourth quarter of 2013.
• Announced the redevelopment of Riverwalk Marketplace into an upscale urban outlet center. Upon completion, the property will comprise approximately 250,000 square feet of retail space.
• Acquired our partner’s equity interest in the 393-unit Millennium Waterway apartment property located in The Woodlands for $6.9 million using proceeds from a $55.6 million ten-year mortgage bearing a 3.75% interest rate.
• Closed on an $18.1 million term refinancing and a $140.0 million revolving credit facility to fund development at our Bridgeland master planned community.

The Howard Hughes Corporation (NYSE: HHC) today announced its results for the second quarter 2012.

For the three months ended June 30, 2012, net income attributable to common stockholders was $34.3 million compared with $66.0 million for the three months ended June 30, 2011. Excluding the $23.4 million warrant gain, net income attributable to common stockholders for the three months ended June 30, 2012 was $10.9 million compared with net income, excluding the $56.9 million warrant gain, of $9.1 million for the three months ended June 30, 2011.

Beginning with the acquisition of our former partner’s 47.5% interest in The Woodlands on July 1, 2011, we consolidated the financial results of The Woodlands. Prior to the acquisition, we accounted for our interest in The Woodlands as an unconsolidated affiliate. Consequently, our financial statements as of and for the three and six months ended June, 2012 are not comparable to the same periods in 2011.

If The Woodlands acquisition had occurred on January 1, 2011, total revenues for the three months ended June 30, 2011 would have been approximately $95.6 million, on a pro forma basis, compared to $93.9 million for the three months ended June 30, 2012. Net income for the three months ended June 30, 2011 would have been approximately $72.7 million, on a pro forma basis, compared to $37.2 million for the three months ended June 30, 2012. The principal reason for the $1.7 million decrease in revenues, on a pro forma basis, is $6.5 million of lower condominium sales at the Nouvelle at Natick property due to the sellout in 2011 of all but the final two units, which were sold in the first half of 2012. The lower condominium sales revenues in the second quarter 2012 were partially offset by $5.0 million of increased revenues at our operating assets due to several properties at The Woodlands reaching stabilization and improved resort and conference revenues resulting from strong local market conditions. For a more complete comparison of operating results between periods, please refer to Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-Q for the three and six months ended June 30, 2012.

David R. Weinreb, CEO of The Howard Hughes Corporation, stated, “During the second quarter, our master planned community businesses and operating assets delivered strong results. Our Houston, Texas, communities continued to capitalize on robust local economic conditions in their residential and commercial development activities, and the net operating income from our operating assets benefited from several properties at The Woodlands reaching stabilized occupancies this year.”

Weinreb continued, “The plans for our development pipeline continue to advance, and our development projects underway are proceeding according to our expectations. Completing the ground lease amendment at South Street Seaport during the second quarter was a significant milestone for the Company, and we are in discussions with several potential tenants for a redeveloped Pier 17. Furthermore, demand for commercial space at The Woodlands is exceptional, and we expect to announce a series of new commercial developments over the next several quarters.”

Business Segments

For comparative purposes, Master Planned Communities (“MPC”) land sales and Operating Assets net operating income (“NOI”) relating to The Woodlands are presented in our Supplemental Information and discussion of results as if we consolidated The Woodlands during the three and six months ended June 30, 2011. We have also reclassified the commercial real estate operating assets of The Woodlands to the Operating Assets segment. In the first and second quarters of 2011, these properties had been included in the MPC segment. For a reconciliation of Operating Assets NOI to Operating Assets real estate property earnings before taxes (“REP EBT”), Operating Assets REP EBT to GAAP-basis income (loss), and segment-basis MPC land sales revenue to GAAP-basis land sales revenue, refer to the Supplemental Information contained in this earnings release.

Master Planned Communities

Land sales in our MPC segment, excluding deferred land sales and other revenue, decreased $0.6 million to $42.3 million for the second quarter 2012 compared to the second quarter 2011. Land sales include $7.2 million and $7.3 million of commercial land sales for the three months ended June 30, 2012 and 2011, respectively. Summerlin, Bridgeland and Columbia MPC second quarter 2012 land sales increased $2.1 million, $0.7 million and $0.7 million, respectively, compared to the second quarter of 2011, offset by $4.0 million of lower revenues in the second quarter of 2012 at The Woodlands due primarily to high demand for lots in Lake Woodlands East Shore resulting in the sale of 26 lots in second quarter 2011 compared to only one lot sale in second quarter of 2012 due to this development being nearly sold out.

Residential land sales volumes have remained steady with approximately 92 acres sold during the second quarter of 2012 compared to 90 acres sold in the same period for 2011. Our average price per acre has declined in 2012 compared to 2011 primarily due to higher mix of smaller lot sales at Bridgeland as well as lower lot sales in high-end communities at The Woodlands which command higher per acre prices.

The Houston, Texas economy remains strong. ExxonMobil is constructing a three million square foot corporate campus just south of The Woodlands and is expected to relocate 8,000 to 10,000 employees to this site. We anticipate this development will further increase the demand for housing and commercial space at The Woodlands and Bridgeland master planned communities.

At Summerlin, inventory levels for both new and resale homes continue to decline resulting in improved pricing. Summerlin’s second quarter 2012 land sales include the sale of six custom lots for an aggregate of $2.5 million, compared to no custom lot sales in the second quarter 2011. Summerlin’s pipeline remains robust, with 183 residential lots under contract representing approximately $15.3 million of sales, of which $10.6 million are expected to close in 2012 and $4.6 million in 2013, if all sales are completed.

During the second quarter of 2012, we refinanced $18.1 million of debt relating to our Bridgeland MPC with a ten-year term loan and also entered into a three-year revolving credit facility. The credit facility provides total aggregate borrowing capacity of $140.0 million subject to a $30.0 million maximum outstanding loan amount. The facility is intended to provide working capital for infrastructure and residential lot development.

Operating Assets

NOI from the combined retail, office and resort and conference center and multi-family properties, including our share of the NOI of our non-consolidated ventures of $0.9 million, was $19.6 million for the three months ended June 30, 2012, compared to NOI, including the NOI of our non-consolidated ventures of $0.6 million, of $14.1 million for the three months ended June 30, 2011. The $5.5 million increase in NOI in the second quarter 2012 compared to the second quarter 2011 is primarily attributable to 4 Waterway Square, 9303 New Trails, 20/25 Waterway Avenue and the Millennium Waterway apartments, all located at The Woodlands, reaching stabilized NOI in late 2011/early 2012. In addition, leasing activity at South Street Seaport generated higher rental revenues and contributed to the NOI improvement.

At Ward Centers, T.J. Maxx took occupancy of 36,000 square feet of newly completed space at the Ward Village Shops, and Bed, Bath & Beyond is expected to take occupancy prior to the end of 2012 of approximately 30,000 square feet formerly occupied by Borders. Combined, both of these tenants are expected to contribute approximately $2.0 million to Ward Centers annual NOI in 2013.

On April 19, 2012, the joint ventures owning the Forest View and Timbermill tax-credit apartments located in The Woodlands completed their sale to a third party. Our share of the distributable cash, after repayment of debt and transaction costs, was $8.6 million. There was no gain or loss on the sale of these investments.

On May 31, 2012, we acquired our partner’s interest in Millennium Waterway Apartments for $6.9 million following the funding of a $55.6 million ten-year non-recourse mortgage bearing a 3.75% interest rate. We now own 100% of this property which adds a stabilized Class A multi-family property located in The Woodlands Town Center to our portfolio. The property is currently 95.4% occupied and has a stabilized NOI of $4.2 million. In conjunction with this acquisition, we entered into a pre-development agreement with the partner to construct a 314-unit Class A multi-family property as more fully discussed in our Strategic Developments section below.

On June 29, 2012, we entered into an agreement to amend the South Street Seaport ground lease with the New York City Economic Development Corporation to allow for the redevelopment of Pier 17. The terms of the agreement are consistent with those contained in the non-binding letter of intent executed in December 2011. The restated ground lease will become effective when we meet certain milestones, the most important of which is the commencement of construction by June 30, 2013. The amendment will, among other things, eliminate any supplemental or participation rent the City of New York would be entitled to under the existing lease. We expect to begin construction of an approximately 195,000 leasable square foot structure on Pier 17 by June 30, 2013 and must provide a completion guarantee to New York City for the project. We also must pay approximately $1.1 million of esplanade maintenance costs over a five-year period.

On July 26, 2012, we announced the redevelopment of Riverwalk Marketplace into an upscale urban outlet center named The Outlet Collection at Riverwalk. Our plans currently anticipate expanding the existing footprint by approximately 50,000 square feet to 250,000 square feet. Costs of the redevelopment are expected to be approximately $70.0 million with a late 2012 construction start date. The redevelopment is contingent upon obtaining an acceptable amount of pre-leasing for the property and financing.

Strategic Developments

On April 12, 2012, the Columbia Parcel D venture, in which we have a 50% interest and contributed the land, received approval of the final development plan component of the entitlement process. The approval also includes Parcel C, which would allow for up to 817 residential units and 76,000 square feet of retail in the two parcels. Pre-development design and engineering is underway to match the jurisdictional approvals. We have incurred approximately $1.3 million of costs to date. Our anticipated cash investment in this project is expected to total $5.9 million. The total project budget is $90.6 million, including land which is valued by the venture at approximately $20.1 million (compared to our $2.4 million original book value) when financing is obtained and construction commences. Construction is expected to start by early 2013 with completion during 2014. The property is expected to generate stabilized annual NOI of $6.6 million by 2016.

On May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC (“Millennium Phase II”), with The Dinerstein Companies for the construction of a 314-unit Class A multi-family unit in The Woodlands Town Center. Our partner is the managing member of Millennium Phase II. In July 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres of land valued at $15.5 million to the joint venture (compared to our $4.5 million book value), our partner’s contribution of $3.0 million in cash, and by a construction loan in the amount of $37.7 million which is guaranteed by our partner. Total construction costs are estimated to be approximately $38.4 million (exclusive of land value), the estimated completion is the second quarter of 2014, and the property is currently expected to reach stabilized annual NOI of $4.8 million during the third quarter of 2014.

On July 6, 2012, we sold 11.5 acres at Alameda Plaza consisting of 104,705 square feet of mostly vacant retail space for $4.4 million. We are continuing to explore the sale of the remaining 10.5 acres consisting of 85,636 square feet of mostly vacant retail space.

On July 18, 2012, we announced the development of a 66-acre mixed use site called Hughes Landing at Lake Woodlands. Hughes Landing will have up to eight office buildings, hotel, retail and multi-family residential housing. As a result of a high demand for office space in The Woodlands, evidenced by 3 Waterway Square currently being 90% pre-leased, HHC announced construction of the first office building, One Hughes Landing, an eight story, 195,227 square foot Class A Building. Construction of this building is expected to begin in the fall of 2012 with completion anticipated in the fall of 2013. Total budgeted construction cost is $45.0 million (exclusive of land value). The building is expected to reach stabilized annual NOI of $5.0 million during the third quarter of 2014.

About the Howard Hughes Corporation

The Howard Hughes Corporation owns, manages and develops commercial, residential and mixed-use real estate throughout the United States. Our properties include master planned communities, commercial mixed-use, retail and office 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 under the ticker symbol “HHC”, and is headquartered in Dallas, Texas. For more information, 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,” “plan,” “intend,” “transform” and other words of similar expression, 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 Quarterly and Annual Reports. 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   (UNAUDITED)
			Three Months Ended June 30,									Six Months Ended June 30,
			2012				2011					2012				2011
			(In thousands, except per share amounts)
Revenues:
Master Planned Community land sales			$	43,928			$	18,148				$	80,017			$	41,540
Builder price participation				1,528				597					2,341				1,118
Minimum rents				20,577				16,976					39,474				33,695
Tenant recoveries				6,003				4,615					11,867				9,139
Condominium unit sales				134				6,660					267				10,424
Resort and conference center revenues				11,970				-					21,626				-
Other land revenues				3,531				2,257					7,048				3,556
Other rental and property revenues				6,268				1,568					11,062				4,451
Total revenues				93,939				50,821					173,702				103,923
Expenses:
Master Planned Community cost of sales				22,978				9,438					41,657				24,874
Master Planned Community operations				9,979				4,941					21,026				11,027
Rental property real estate taxes				3,171				2,630					7,009				5,783
Rental property maintenance costs				2,086				1,563					4,041				3,123
Condominium unit cost of sales				36				5,273					96				8,252
Resort and conference center operations				7,371				-					14,785				-
Other property operating costs				15,044				10,135					29,373				20,004
Provision for doubtful accounts				164				304					45				315
General and administrative				8,160				7,662					16,557				12,483
Depreciation and amortization				5,893				3,186					10,951				6,383
Total expenses				74,882				45,132					145,540				92,244
Operating income				19,057				5,689					28,162				11,679
Interest income				2,342				2,243					4,673				4,754
Interest expense				(200	)			-					(201	)			-
Warrant liability gain (loss)				23,430				56,910					(98,421	)			(69,135	)
Loss on remeasurement of tax indemnity receivable				(8,782	)			-					(8,782	)			-
Equity in earnings from Real Estate Affiliates				446				2,110					3,122				7,623
Income (loss) before taxes				36,293				66,952					(71,447	)			(45,079	)
Provision for income taxes				1,301				959					5,085				3,415
Net income (loss)				34,992				65,993					(76,532	)			(48,494	)
Net income attributable to noncontrolling interests				(682	)			(20	)				(1,418	)			(48	)
Net income (loss) attributable to common stockholders			$	34,310			$	65,973				$	(77,950	)		$	(48,542	)
Basic Income (Loss) Per Share:			$	0.91			$	1.74				$	(2.06	)		$	(1.28	)
Diluted Income (Loss) Per Share:			$	0.27			$	0.22				$	(2.06	)		$	(1.28	)

THE HOWARD HUGHES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
		June 30,				December 31,
		2012				2011
Assets:		(In thousands, except share amounts)
Investment in real estate:
Master Planned Community assets		$	1,597,244			$	1,602,437
Land			253,024				236,363
Buildings and equipment			627,554				556,786
Less: accumulated depreciation			(101,169	)			(92,494	)
Developments in progress			204,450				195,034
Net property and equipment			2,581,103				2,498,126
Investment in Real Estate Affiliates			32,597				62,595
Net investment in real estate			2,613,700				2,560,721
Cash and cash equivalents			254,288				227,566
Accounts receivable, net			15,315				15,644
Municipal Utility District receivables, net			94,710				86,599
Notes receivable, net			30,182				35,354
Tax indemnity receivable, including interest			326,972				331,771
Deferred expenses, net			12,549				10,338
Prepaid expenses and other assets, net			119,987				127,156
Total assets		$	3,467,703			$	3,395,149
Liabilities:
Mortgages, notes and loans payable		$	659,397			$	606,477
Deferred tax liabilities			76,876				75,966
Warrant liabilities			226,185				127,764
Uncertain tax position liability			133,404				129,939
Accounts payable and accrued expenses			119,435				125,404
Total liabilities			1,215,297				1,065,550
Commitments and Contingencies (see Note 13 )
Equity:
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued			-				-
Common stock: $.01 par value; 150,000,000 shares authorized,
37,973,640 shares issued and outstanding as of June 30, 2012 and
37,945,707 shares issued and outstanding as of December 31, 2011			379				379
Additional paid-in capital			2,713,178				2,711,109
Accumulated deficit			(459,275	)			(381,325	)
Accumulated other comprehensive loss			(8,308	)			(5,578	)
Total stockholders' equity			2,245,974				2,324,585
Noncontrolling interests			6,432				5,014
Total equity			2,252,406				2,329,599
Total liabilities and equity		$	3,467,703			$	3,395,149

Supplemental Information

June 30, 2012

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 (“REP EBT”), which represents the operating revenues of the properties less property operating expenses. We have defined REP EBT as net income (loss) excluding general and administrative expenses, corporate interest income and depreciation expense, investment in real estate basis adjustment, provision for income taxes, warrant liability gain (loss), reorganization items and the effect of the previously mentioned items within our equity in earnings (loss) from Real Estate Affiliates. Management believes that REP EBT provides useful information about the operating performance of all our assets, projects and property. However, REP EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss).

Reconciliation of REP EBT to GAAP-basis		Three Months Ended June 30,										Six Months Ended June 30,
net income (loss)		2012				2011						2012				2011
		(In thousands)										(In thousands)
Real estate property EBT:
Master Planned Communities		$	19,898			$	14,666					$	34,249			$	27,145
Operating Assets			8,858				4,125						16,435				9,971
Strategic Developments			(1,070	)			(195	)					(2,568	)			(535	)
Real Estate Affiliates			(446	)			(6,334	)					(3,122	)			(12,329	)
			27,240				12,262						44,994				24,252
General and administrative			(8,160	)			(7,662	)					(16,557	)			(12,483	)
Interest income			2,240				3,391						4,457				4,721
Interest expense			37				(44	)					42				(30	)
Warrant liability gain (loss)			23,430				56,910						(98,421	)			(69,135	)
Provision for income taxes			(1,301	)			(959	)					(5,085	)			(3,415	)
Loss on remeasurement of tax indemnity receivable			(8,782	)			-						(8,782	)			-
Equity in earnings from Real Estate Affiliates			446				2,110						3,122				7,623
Corporate depreciation			(158	)			(15	)					(302	)			(27	)
Net income (loss)		$	34,992			$	65,993					$	(76,532	)		$	(48,494	)

MPC Sales Summary for the Three Months Ended June 30,
									Land Sales								Acres Sold				Number of Lots/Units				Price per acre						Price per lot
									Three Months Ended June 30,
										2012				2011			2012		2011		2012		2011			2012			2011			2012			2011
($ in thousands)
Residential Land Sales
Maryland - Columbia				Single family - detached					$	-			$	850			-		0.9		-		4		$	-		$	944		$	-		$	213
Maryland - Columbia				Townhomes						2,233				675			0.7		0.2		15		5			-			-			149			135
Bridgeland				Single family - detached						5,669				4,976			21.6		18.9		111		94			262			263			51			53
Summerlin				Single family - detached (1)						10,242				11,428			26.0		27.9		150		116			394			410			68			99
				Custom lots						2,456				-			3.4		-		6		-			722			-			409			-
The Woodlands				Single family - detached (2)						14,527				17,603			40.5		42.4		161		177			359			415			90			99
				Subtotal						35,127				35,532			92.2		90.3		443		396
Commercial Land Sales
Summerlin				Retail						784				-			1.0		-							784			-
The Woodlands				Office and other						5,106				4,206			10.4		10.1							491			416
				Retail						1,250				3,115			1.2		5.5							1,042			566
				Other						50				-			0.8		-							63			-
				Subtotal						7,190				7,321			13.4		15.6
Total acreage sales revenue										42,317				42,853
Deferred revenue										(77	)			(928	)
Deferred revenue - Woodlands										-				442
Special Improvement District revenue										1,688				1,147
Total segment land sales revenue									$	43,928			$	43,514
The Woodlands acreage sales (3)										-				(25,366	)
Total land sales revenue - GAAP basis									$	43,928			$	18,148
(1) The Summerlin 2012 revenue per acre of $394,000 includes 66 single family finished lots that average $687,600 per acre and 84 super pad lots that average $225,000 per acre.
(2) The Woodlands 2011 lot sales revenues have been restated to include builder price participation collected at lot closing to conform with the 2012 lot sales presentation.
(3) The Woodlands acreage sales for the three months ended June 30, 2011 are deducted from Total segment land sales revenue to derive Total land sales revenue - GAAP basis because The Woodlands' operating results were not consolidated during this period.

MPC Sales Summary for the Six Months Ended June 30,
								Land Sales								Acres Sold				Number of Lots/Units				Price per acre						Price per lot
								Six Months Ended June 30,
								2012				2011				2012		2011		2012		2011		2012			2011			2012			2011
($ in thousands)
Residential Land Sales
Maryland - Columbia				Single family - detached				$	-			$	850			-		0.9		-		4		$	-		$	944		$	-		$	213
Maryland - Columbia				Townhomes					4,156				1,615			1.2		0.5		28		12			-			-			148			135
Bridgeland				Single family - detached					11,014				8,697			41.5		31.9		209		157			266			273			53			55
Summerlin				Single family - detached (1)					16,560				25,504			50.5		62.4		259		312			328			409			64			82
				Custom lots					3,246				-			4.1		-		8		-			792			-			406			-
The Woodlands				Single family - detached (2)					35,562				35,572			98.7		96.3		363		394			360			369			98			90
				Subtotal					70,538				72,238			196.0		192.0		867		879
Commercial Land Sales
Summerlin				Not-for-profit					-				3,616			-		16.1							-			225
				Retail					784				-			1.0		-							784			-
The Woodlands				Office and other					5,106				6,007			10.4		13.2							491			455
				Retail					1,250				4,697			1.2		7.4							1042			635
				Other					50				-			0.8		-							63			-
				Subtotal					7,190				14,320			13.4		36.7
Total acreage sales revenue									77,728				86,558
Deferred revenue									(820	)			(2,769	)
Deferred revenue - Woodlands									-				496
Special Improvement District revenue									3,109				4,028
Total segment land sales revenue								$	80,017			$	88,313
The Woodlands acreage sales (3)									-				(46,773	)
Total land sales revenue - GAAP basis								$	80,017			$	41,540
(1) The Summerlin 2012 revenue per acre of $328,000 includes 80 single family finished lots that average $687,100 per acre and 179 super pad lots that average $225,000 per acre.
(2) The Woodlands 2011 lot sales revenues have been restated to include builder price participation collected at lot closing to conform with the 2012 lot sales presentation.
(3) The Woodlands acreage sales for the six months ended June 30, 2011 are deducted from Total segment land sales revenue to derive Total land sales revenue - GAAP basis because The Woodlands' operating results were not consolidated during this period.

Operating Assets Net Operating Income

The Company believes that NOI is a useful supplemental measure of the performance of our 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) excluding the operations of properties held for disposition. NOI also excludes straight line rents, market lease amortization, impairments, depreciation, ground rent and other amortization expense.

Because NOI excludes general and administrative expenses, interest expense, impairments, depreciation and amortization, gains and losses from property dispositions, earnings attributable to non-controlling interests and provision for income taxes, we believe that it 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. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on our operating results, gross margins and investment returns.

Although we believe that NOI provides useful information to the investors about the performance of our Operating Assets due to the exclusions noted above, NOI should only be used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP operating income (loss) or net income (loss) available to common stockholders.

Operating Assets NOI and REP EBT
			Three Months Ended June 30,									Six Months Ended June 30,
			2012				2011					2012				2011
			(In thousands)									(In thousands)
Operating Assets
Retail
Ward Centers			$	5,555			$	5,232				$	11,119			$	10,819
South Street Seaport (a)				1,749				886					2,207				1,538
Rio West Mall				330				305					730				677
Landmark Mall (a)				234				161					509				519
Riverwalk Marketplace (a)				315				139					479				209
Cottonwood Square				110				134					223				216
Park West				222				217					488				331
20/25 Waterway Avenue				396				301					835				527
Waterway Garage Retail				7				14					10				14
	Total Retail			8,918				7,389					16,600				14,850
Office
110 N. Wacker				1,507				1,462					3,037				2,992
Columbia Office Properties				695				797					1,105				1,401
4 Waterway Square				1,607				323					2,662				676
9303 New Trails				571				110					960				276
1400 Woodloch Forest				444				141					819				410
2201 Lake Woodlands Drive				(2	)			83					(2	)			166
	Total Office			4,822				2,916					8,581				5,921
Millennium Waterway Apartments (b)				260				-					260				-
The Woodlands Resort and Conference Center				4,599				3,238					6,841				5,202
Total Retail, Office, Multi-family, Resort and Conference Center				18,599				13,543					32,282				25,973
The Club at Carlton Woods				(1,294	)			(1,444	)				(2,302	)			(2,513	)
The Woodlands Parking Garages				(238	)			(205	)				(493	)			(437	)
The Woodlands Ground leases				92				130					191				215
Other Properties				391				1,184					721				1,539
	Total Other			(1,049	)			(335	)				(1,883	)			(1,196	)
	Total Operating Assets NOI			17,550				13,208					30,399				24,777
Straight-line lease amortization				207				(13	)				417				871
Depreciation and amortization				(5,672	)			(5,216	)				(10,529	)			(10,207	)
Equity in earnings from Real Estate Affiliates				446				(315	)				3,122				2,971
Interest, net				(3,673	)			(3,539	)				(6,974	)			(7,374	)
Less: Partners' share of Operating Assets REP EBT				-				-					-				(1,067	)
	Operating assets REP EBT		$	8,858			$	4,125				$	16,435			$	9,971

				Three Months Ended June 30,												Six Months Ended June 30,
				2012					2011							2012				2011
				(In thousands)												(In thousands)
Operating Assets NOI - Equity and Cost Method Investments
		Millennium Waterway Apartments (b)		$	734					$	220					$	1,768				$	198
		Woodlands Sarofim # 1			190						381						476					781
		Stewart Title (title company)			536						218						669					259
		Forest View/Timbermill Apartments (c)			88						432						582					852
		Total NOI - equity investees as of June 30, 2012			1,548						1,251						3,495					2,090
		Adjustments to NOI (d)			(517	)					(900	)					(1,452	)				(1,799	)
		Equity Method Investments REP EBT			1,031						351						2,043					291
		Less: Joint Venture Partner's Share of REP EBT			(585	)					(666	)					(1,297	)				(1,214	)
		Equity in earnings (loss) from Real Estate Affiliates			446						(315	)					746					(923	)
		Distributions from Summerlin Hospital Investment			-						-						2,376					3,894
		Equity in earnings (loss) from Real Estate Affiliates		$	446					$	(315	)				$	3,122				$	2,971
Company's Share of Equity Method Investments NOI
		Millennium Waterway Apartments (b)		$	613					$	184					$	1,477				$	165
		Woodlands Sarofim # 1			38						76						95					156
		Stewart Title (title company)			268						109						335					130
		Forest View/Timbermill Apartments (c)			44						216						291					426
		Total NOI - equity investees		$	963					$	585					$	2,198				$	877
				Economic						June 30, 2012
				Ownership						Debt
										(In thousands)
		Millennium Waterway Apartments (b)			83.55	%				$	-
		Woodlands Sarofim #1			20.00	%					6,950
		Stewart Title (title company)			50.00	%					-
		Forest View/Timbermill Apartments (c)			50.00	%					-
(a)		Straight-line ground rent amortization was excluded from 2011 to conform with 2012.
(b)		On May 31, 2012, we acquired our partner’s interest in the 393-unit Millennium Waterway Apartments. NOI for periods prior to June 1, 2012 is included in Operating Assets NOI - Equity and Cost Method Investments.
(c)		On April 19, 2012, the joint ventures owning the Forest View and Timbermill apartments completed their sale to a third party. Our share of the distributable cash, after repayment of debt and transaction expenses, was $8.6 million.
(d)		Adjustments to NOI primarily 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