Press Release

The Howard Hughes Corporation Reports Third Quarter 2015 Results

Company Release - 11/9/2015 4:51 PM ET

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

Third Quarter Earnings Highlights

  • Third quarter 2015 adjusted net income increased 102.1%, or $29.1 million, to $57.6 million, compared to third quarter 2014 adjusted net income of $28.5 million. The increase is primarily due to the gain on sale of a non-core asset, income reported on the percentage of completion method for sales contracts obtained on our Waiea and Anaha condominium towers which are under construction at Ward Village, and income from our recently completed commercial development projects as they continue to stabilize. Adjusted net income excludes the following non-cash items: depreciation and amortization; warrant liability gains and losses; and gains and losses relating to the tax indemnity receivable for periods prior to its settlement in December 2014.
  • Net operating income (“NOI”) for our income-producing Operating Assets increased 75.3% to $31.9 million for the third quarter 2015, compared to $18.2 million in the third quarter 2014. The increase is driven primarily by NOI from commercial retail and office properties developed and opened by us in 2014, the December 2014 acquisition of 10-60 Columbia Corporate Center office properties, and completion of The Woodlands Resort & Conference Center redevelopment at the end of 2014.
  • MPC land sales increased 3.8% to $59.4 million for the third quarter 2015 compared to $57.2 million for the third quarter 2014. The increase is primarily due to $27.3 million of higher commercial land sales at our Houston, TX master planned communities (“MPCs”), substantially offset by lower residential lot sales at these MPCs given lower housing demand caused by an uncertain economic climate in the Houston region caused by continued low oil prices in 2015.

The Howard Hughes Corporation Property and Financing Highlights

  • On September 4, 2015, we sold The Club at Carlton Woods, a 36-hole golf and country club in The Woodlands, for net cash proceeds of $25.1 million, and a pre-tax gain of $29.1 million. The Club had NOI losses of $(0.9) million and $(4.4) million for the nine months ended September 30, 2015, and year ended December 31, 2014, respectively. The Club was developed as an amenity to sell lots in a gated community, most of which were sold in prior years.
  • During the third quarter 2015, we announced a partnership with renowned chef and restaurateur Jean-Georges Vongerichten to bring two new, one-of-a-kind culinary experiences to the Seaport District. The projects will consist of a 40,000 square-foot, seafood-themed food market inside the Tin Building and a 10,000 square-foot restaurant in the rebuilt Pier 17. We also pre-leased 7,100 square feet in the historic district to McNally Jackson, a popular New York City-based independent bookstore.
  • As of October 20, 2015, 89.1% of the units at our Waiea condominium development and 85.2% of the units at our Anaha condominium development at Ward Village were contracted for sale. These contracts represent 83.7% and 76.9% of the total residential square feet for sale at Waiea and Anaha, respectively. To date, we have incurred approximately $152.4 million and $81.4 million of total expected development costs of $403 million and $401 million at Waiea and Anaha, respectively.
  • During the third quarter 2015, we began pre-sales at Ward Village for the 389,000 square foot, 466-unit Ae‘o condominium tower designed by Bohlin Cywinski Jackson, including a 54,000 square foot Whole Foods Market flagship store. As of October 20, 2015, 35.8% of the units, representing 29.0% of the total residential square feet, were contracted for sale. Construction is expected to begin in March 2016.
  • On October 23, 2015, we closed on a $6.7 million non-recourse construction loan for Alden Bridge, one of our two self-storage developments in The Woodlands. The loan bears interest at LIBOR plus 2.60% and has an initial maturity date of October 2019 with two, one-year extension options. Construction on the first, 82,000 square foot self-storage facility began in August 2015 and is expected to be completed in the fourth quarter of 2016.

___________________

* Non-recourse debt means that the debt is non-recourse to The Howard Hughes Corporation but is collateralized by a real estate asset and/or is recourse to the subsidiary entity owning such asset.

The Howard Hughes Corporation (NYSE: HHC) (the “Company”) today announced its results for the third quarter 2015.

For the three months ended September 30, 2015, net income attributable to common stockholders was $156.2 million, or $0.76 per diluted common share, compared with $45.6 million, or $0.48 per diluted common share, for the three months ended September 30, 2014. Third quarter 2015 net income attributable to common stockholders includes a non-cash $123.6 million warrant gain and $(25.0) million of non-cash depreciation and amortization expense. Excluding these non-cash items, net income attributable to common stockholders was $57.6 million, or $1.34 per diluted common share. For the third quarter 2014 net income attributable to common stockholders was $28.5 million, or $0.66 per diluted common share, excluding the $24.7 million non-cash warrant gain, $5.5 million non-cash increase in tax indemnity receivable and $(13.0) million of non-cash depreciation and amortization expense.

As we complete and place our developments into service, non-cash depreciation and amortization expense associated with these cash-flowing commercial real estate properties is becoming a more material and growing component of our net income. Adjusted net income is a non-GAAP measure that excludes depreciation and amortization and non-cash warrant liability and tax indemnity receivable gains and losses. The presentation of net income excluding depreciation and amortization is consistent with other companies in the real estate business who also typically report an earnings measure that excludes non-cash depreciation and amortization. The tax indemnity receivable was settled in the fourth quarter 2014 and is not a component of our net income beginning in 2015. For a reconciliation of adjusted net income to net income (loss) attributable to common stockholders, please refer to the Supplemental Information contained in this earnings release.

David R. Weinreb, Chief Executive Officer of The Howard Hughes Corporation, stated, “Our results this quarter demonstrate the continued solid progress toward developing and unlocking value in our larger developments. We are accelerating pre-leasing activity in the Seaport District, with the Jean-Georges and McNally Jackson announcements serving as two examples of the high quality tenant roster that we are assembling for this project. This quarter we also began pre-sales for additional residential condominium units at Ward Village. Ae‘o, a tower designed to meet strong market demand for smaller units averaging less than 1,000 square feet, has over a third of its 466 units under contract, and we will begin construction of the Whole Foods at the base of this tower in March next year.”

Mr. Weinreb continued, “In our MPC business, Summerlin continues to deliver strong land sales volume and pricing, reflecting healthy economic conditions in the Las Vegas Valley and the premier position of our MPC in this market. Land sales in our Houston MPCs continue to be slower than in prior years due to the decline in oil prices.”

Business Segment Operating Results

For comparative purposes, MPC land sales and Operating Assets NOI are presented in our Supplemental Information. 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), segment-basis MPC land sales revenue to GAAP-basis land sales revenue, and Adjusted Net Income, please refer to the Supplemental Information contained in this earnings release. Non-recourse debt means that the debt is non-recourse to The Howard Hughes Corporation, but is collateralized by a real estate asset and/or is recourse to the subsidiary entity owning such asset. All construction cost estimates presented herein are exclusive of land costs.

Operating Assets Highlights

NOI from our combined retail, office, multi-family and resort and conference center properties increased $13.7 million, or 75.3%, to $31.9 million for the third quarter 2015, compared to NOI of $18.2 million for the third quarter 2014. These properties are referred to as our “income-producing Operating Assets.” These amounts include our share of NOI from our non-consolidated equity-method ventures and exclude dispositions and NOI for all periods from properties that are substantially closed for redevelopment and/or were sold during the period.

The increase in NOI in the third quarter 2015 compared to the third quarter 2014 is primarily attributable to the acquisition of the 10-60 Columbia Corporate Center office properties in December 2014, which contributed $2.4 million to the increase, and completion of Downtown Summerlin and The Outlet Collection at Riverwalk during 2014, both of which contributed a combined $3.8 million to the increase. Two Hughes Landing and 3831 Technology Forest Drive office buildings contributed a combined $2.7 million to the increase as they continue to stabilize, and The Woodlands Resort & Conference Center, which completed its redevelopment in the fourth quarter 2014, contributed $2.6 million to the increase. The remaining $2.2 million of the increase is due to smaller changes in NOI at our other operating assets.

South Street Seaport remains substantially closed while redevelopment of Pier 17 and the renovation of the historic area continue.

Master Planned Communities Highlights

Land sales in our MPC segment, exclusive of deferred land sales and other revenue, increased by $2.2 million, or 3.8%, to $59.4 million for the three months ended September 30, 2015, as compared to $57.2 million for the same period in 2014.

Summerlin land sales were relatively flat at $19.3 million for the third quarter 2015 compared to $19.8 million for the third quarter 2014. Price per acre for superpads, Summerlin’s primary residential land product, decreased by $(22,000), or (4.3%), to $492,000 for the third quarter 2015 compared to the third quarter 2014. The slight differences in land pricing between periods at Summerlin reflect changes in the product mix and locations sold during the periods. Pricing and demand remain strong given the scarcity of attractive developable residential acreage, a shortage of resale homes and robust economic conditions in the Las Vegas market.

Within our Summerlin MPC, land development and pre-sales activities are progressing on the development of an exclusive luxury community with our joint venture partner Discovery Land, a leading developer of private clubs and luxury communities. As of September 30, 2015, the project has received buyer deposits totaling $27.3 million, representing $76.0 million in contracted land sales, and we expect the first lot closings to begin in February 2016.

Bridgeland land sales increased to $22.7 million for the third quarter 2015 compared to $8.7 million for the third quarter 2014. The increase is driven by two commercial land sales for a school and a church site totaling $20.5 million during the third quarter 2015. Residential lot sales for the first nine months of 2015 have decreased because homebuilders are currently developing homes for sale on lots purchased during 2014 and because lower oil prices have reduced new home sales demand and velocity in 2015 compared to 2014. These conditions are causing homebuilders to take a more cautious approach to acquiring more finished lot inventory.

Land sales in The Woodlands decreased by ($11.3) million to $17.3 million in the third quarter 2015 compared to the third quarter 2014 primarily due to increased homebuilder caution on increasing their land inventory due to lower housing demand caused by lower oil prices. An uncertain economic climate in the greater Houston area due to the decline in oil prices, and to a lesser extent a lower range of lot types and sizes available in The Woodlands due to its decreasing inventory of available residential land for development, are contributing to a slowing sales velocity.

Strategic Developments Highlights

Pre-sales for the first two market-rate residential condominium towers at Ward Village, Waiea and Anaha, launched in the first quarter 2014, and construction on both towers began later in the year. From July 24, 2015, the last reported sales date, through October 20, 2015, we entered into 12 sales contracts for Anaha and Waiea combined, representing 15.4% of the then available units for sale. Sales contracts require a minimum deposit from the buyer equal to 20% of the contracted price and are subject to a 30-day rescission period, after which time the deposit becomes non-refundable. Substantially all of the contracted units at both towers are past their rescission periods.

Waiea will have 174 total units, of which 89.1% have been contracted as of October 20, 2015. These contracted sales represent 83.7% of the total residential square feet available for sale. Total development costs are expected to be approximately $403 million (excluding land value). We expect to complete the project by the end of 2016. As of September 30, 2015, we have incurred $152.4 million of development costs.

Anaha will have 317 total units, of which 85.2% have been contracted as of October 20, 2015. These contracted sales represent 76.9% of the total residential square feet available for sale. Total development costs are expected to be approximately $401 million (excluding land value). We expect to complete the project by mid-2017. As of September 30, 2015, we have incurred $81.4 million of development costs.

Construction of the 389,000 square foot Ae‘o tower and the 54,000 square foot Whole Foods Market, located on the same block, is expected to begin in March 2016 with completion scheduled in 2018. Pre-sales began in July 2015, and as of October 20, 2015, 167 of the 466 total units were under contract, representing 29.0% of the total residential square feet available for sale. This tower was designed with unit sizes averaging approximately 836 square feet, smaller than the average 1,687 square foot unit size for Waiea and Anaha. We believe there is strong demand for smaller unit sizes having a quality similar to our other offerings, resulting in an overall purchase price that is more affordable to a larger segment of the market. We have incurred $14.4 million of pre-development costs on this development as of September 30, 2015 and are finalizing the project budget.

Pre-sales began in July 2015 on the first tower of the iconic Gateway Towers designed by Richard Meier & Partners. These towers will frame the main entrance of the community and planned village green and are an important element in communicating to the market our vision for a fully-developed Ward Village. With this product, we are bringing a level of product quality and overall experience never before seen in the market and pricing that sets a new peak for Ward Village. As a result, we are expecting a more measured and longer time period for absorption than at our other Ward Village developments. We have incurred $13.2 million of pre-development costs for the first tower as of September 30, 2015 and are finalizing the project budget. Construction will begin once we obtain an acceptable level of pre-sales and financing.

For a more complete description of all of our Strategic Developments please refer to “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Strategic Developments” in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.

About The Howard Hughes Corporation®

The Howard Hughes Corporation owns, manages and develops commercial, residential and mixed-use real estate throughout the U.S. Our properties include master planned communities, operating properties, development opportunities and other unique assets spanning 16 states from New York to Hawai‘i. The Howard Hughes Corporation is traded on the New York Stock Exchange as HHC and is headquartered in Dallas, TX. For additional 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,” “plan,” “intend,” “assume,” “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. These factors include the continued effects of low oil prices on the Houston market. 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, except as required by law.

 

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 
  Three Months Ended September 30,   Nine Months Ended September 30,
2015   2014 2015   2014
(In thousands, except per share amounts)
Revenues:
Master Planned Community land sales $ 45,423 $ 59,351 $ 138,937 $ 260,186
Builder price participation 6,680 5,311 20,285 13,251
Minimum rents 37,814 24,380 109,997 66,929
Tenant recoveries 10,706 7,601 31,074 20,509
Condominium rights and unit sales 78,992 4,032 200,362 11,516
Resort and conference center revenues 11,772 8,150 35,256 27,198
Other land revenues 4,617 4,112 11,055 9,322
Other rental and property revenues   7,438     6,291     20,729     18,601  
Total revenues   203,442     119,228     567,695     427,512  
 
Expenses:
Master Planned Community cost of sales 19,674 27,743 67,806 93,540
Master Planned Community operations 10,349 10,995 32,295 31,645
Other property operating costs 16,680 15,198 54,459 45,603
Rental property real estate taxes 6,908 4,559 19,676 12,540
Rental property maintenance costs 3,094 2,313 8,738 6,402
Condominium rights and unit cost of sales 47,573 2,026 126,747 5,788
Resort and conference center operations 8,767 8,910 26,738 22,833
Provision for doubtful accounts 1,007 119 3,082 293
Demolition costs 1,024 760 2,637 6,711
Development-related marketing costs 7,639 6,387 19,476 15,909
General and administrative 18,526 14,759 57,095 49,138
Other income, net 659 (11,409 ) (1,204 ) (27,468 )
Depreciation and amortization   24,998     13,018     71,577     35,000  
Total expenses   166,898     95,378     489,122     297,934  
 
Operating income 36,544 23,850 78,573 129,578
 
Interest income 109 (1,162 ) 516 19,651
Interest expense (15,212 ) (12,136 ) (43,143 ) (28,354 )
Warrant liability gain (loss) 123,640 24,690 57,450 (139,120 )
Gain on sale of The Club at Carlton Woods 29,073 29,073
Increase (reduction) in tax indemnity receivable 5,454 (5,473 )
Equity in earnings from Real Estate and Other Affiliates   295     5,509     3,164     18,164  
Income (loss) before taxes 174,449 46,205 125,633 (5,554 )
Provision for income taxes   18,237     590     24,795     49,895  
Net income (loss) 156,212 45,615 100,838 (55,449 )
Net loss (income) attributable to noncontrolling interests   12             (12 )
Net income (loss) attributable to common stockholders $ 156,224   $ 45,615   $ 100,838   $ (55,461 )
 
Basic income (loss) per share: $ 3.96   $ 1.16   $ 2.55   $ (1.41 )
 
Diluted income (loss) per share: $ 0.76   $ 0.48   $ 1.01   $ (1.41 )
 
 

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

 
  September 30,   December 31,
2015 2014
(In thousands, except share amounts)
Assets:
Investment in real estate:
Master Planned Community assets $ 1,672,763 $ 1,641,063
Land 305,634 317,211
Buildings and equipment 1,478,489 1,243,979
Less: accumulated depreciation (213,040 ) (157,182 )
Developments   1,205,124     914,303  
Net property and equipment 4,448,970 3,959,374
Investment in Real Estate and Other Affiliates   56,191     53,686  
Net investment in real estate 4,505,161 4,013,060
Cash and cash equivalents 450,647 560,451
Accounts receivable, net 32,051 28,190
Municipal Utility District receivables, net 136,196 104,394
Notes receivable, net 23,610 28,630
Deferred expenses, net 73,263 75,070
Prepaid expenses and other assets, net   323,596     310,136  
Total assets $ 5,544,524   $ 5,119,931  
 
Liabilities:
Mortgages, notes and loans payable $ 2,322,296 $ 1,993,470
Deferred tax liabilities 84,214 62,205
Warrant liabilities 308,630 366,080
Uncertain tax position liability 4,823 4,653
Accounts payable and accrued expenses   489,035     466,017  
Total liabilities   3,208,998     2,892,425  
 
 
Equity:
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued
Common stock: $.01 par value; 150,000,000 shares authorized, 39,715,005 shares issued and outstanding as of September 30, 2015 and 39,638,094 shares issued and outstanding as of December 31, 2014 398 396
Additional paid-in capital 2,845,021 2,838,013
Accumulated deficit (506,096 ) (606,934 )
Accumulated other comprehensive loss   (7,569 )   (7,712 )
Total stockholders' equity 2,331,754 2,223,763
Noncontrolling interests   3,772     3,743  
Total equity   2,335,526     2,227,506  
Total liabilities and equity $ 5,544,524   $ 5,119,931  
 

Supplemental Information

September 30, 2015

As our three segments, Master Planned Communities, Operating Assets and Strategic Developments, are managed separately, we use different operating measures to assess operating results and allocate resources among these three segments. The one common operating measure used to assess operating results for our business segments is real estate property earnings before taxes (“REP EBT”). REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate interest income and corporate interest and depreciation expense, provision for income taxes, warrant liability gain (loss), other income, gains on sales relating to operating properties and, prior to 2015, the changes in tax indemnity receivable. We present REP EBT because we use this measure, among others, internally to assess the core operating performance of our assets. However, REP EBT should not be considered as an alternative to GAAP net income (loss).

       
Reconciliation of REP EBT to GAAP Three Months Ended September 30, Nine Months Ended September 30,
income (loss) before taxes 2015 2014 2015 2014
(In thousands) (In thousands)
REP EBT $ 55,190 $ 35,560 $ 139,178 $ 187,582
General and administrative (18,526 ) (14,759 ) (57,095 ) (49,138 )
Corporate interest income (expense), net (13,262 ) (14,938 ) (39,709 ) (21,089 )
Warrant liability gain (loss) 123,640 24,690 57,450 (139,120 )
Gain on sale of The Club at Carlton Woods 29,073 - 29,073
Increase (reduction) in tax indemnity receivable - 5,454 - (5,473 )
Corporate other income (expense), net (222 ) 11,409 1,304 25,095
Corporate depreciation and amortization   (1,444 )   (1,211 )   (4,568 )   (3,411 )
Income (loss) before taxes $ 174,449   $ 46,205   $ 125,633   $ (5,554 )
 
   
Reconciliation of Adjusted Net Income to Net Income   Three Months Ended September 30,
attributable to common stockholders 2015 2014
(In thousands)
Adjusted Net Income $ 57,582 $ 28,489
Depreciation and amortization (24,998 ) (13,018 )
Warrant liability gain 123,640 24,690
Increase in tax indemnity receivable       5,454  
Net income attributable to common stockholders $ 156,224   $ 45,615  
 
 

MPC Land Sales Summary

Three Months Ended September 30, 2015

 
  MPC Sales Summary
Land Sales   Acres Sold   Number of Lots/Units   Price per Acre   Price per Lot/Units
Three Months Ended September 30,
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
 
Bridgeland
Residential
Single family - detached $ 2,273 $ 8,734 5.8 18.8 34 109 $ 392 $ 465 $ 67 $ 80
Commercial
Not for profit   20,475       160.2       128          
Total   22,748     8,734   166.0   18.8 34   109   137     465   67     80

Changes in dollars, acres and lots

14,014 147.2 (75 ) (328 ) (13 )

% Change

NM NM (68.8 ) % (70.5 ) % (16.3 ) %
 
Maryland Communities
No land sales
 
Summerlin
Residential
Superpad sites 17,754 16,511 36.1 32.1 160 167 492 514 111 99
Custom lots 1,580 2,670 0.8 1.8 2 4 1,975 1,483 790 668
Commercial
Retail       650     0.7         929      
Total   19,334     19,831   36.9   34.6 162   171   524     573   119     112
Changes in dollars, acres and lots (497 ) 2.3 (9 ) (49 ) 7

% Change

(2.5 ) % 6.6 % (5.3 ) % (8.6 ) % 6.3 %
 
The Woodlands
Residential
Single family - detached 5,609 28,410 9.2 37.5 32 152 610 758 175 187
Single family - attached 4,872 235 5.0 0.3 56 5 974 783 87 47
Commercial
Medical   6,837       3.3       2,072          
Total   17,318     28,645   17.5   37.8 88   157   990     758   119     182
Changes in dollars, acres and lots (11,327 ) (20.3 ) (69 ) 232 (63 )

% Change

 

(39.5 ) % (53.7 ) % (43.9 ) % 30.6 % (34.6 ) %
 
Total acreage sales revenue   59,400     57,210   220.4   91.2 284   437
 
Deferred revenue (13,994 ) (246 )
Special Improvement District revenue *   17     2,387  
Total segment land sale revenue - GAAP basis $ 45,423   $ 59,351  
 

* Applicable exclusively to Summerlin.

NM – Not Meaningful

 
 

MPC Land Sales Summary

Nine months Ended September 30, 2015

 
    MPC Sales Summary
Land Sales   Acres Sold   Number of Lots/Units   Price per Acre   Price per Lot/Units
Nine Months Ended September 30,
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
 
Bridgeland
Residential
Single family - detached $ 8,346 $ 15,575 21.3 35.0 94 172 $ 392 $ 445 $ 89 $ 91
Commercial
Not for profit   20,475       160.2       128          
Total   28,821     15,575   181.5   35.0 94   172   159     445   89     91
Changes in dollars, acres and lots 13,246 146.5 (78 ) (286 ) (2 )

% Change

85.0 % 418.6 % (45.3 ) % (64.3 ) % (2.2 ) %
 
Maryland Communities
No land sales
 
Summerlin
Residential
Superpad sites 63,784 60,077 117.2 116.0 393 570 544 518 162 105
Single family - detached 13,650 11,170 14.9 13.0 75 60 916 859 182 186
Custom lots 7,900 11,906 5.3 9.2 13 19 1,491 1,294 608 627
Commercial
Retail 650 0.7 929
Other   3,136   2,250   3.6   10.0     871     225      
Total   88,470     86,053   141.0   148.9 481   649   627     578   177     128
Changes in dollars, acres and lots 2,417 (7.9 ) (168 ) 49 49

% Change

2.8 % (5.3 ) % (25.9 ) % 8.5 % 38.3 %
 
The Woodlands
Residential
Single family - detached 19,468 61,947 31.2 85.2 112 335 624 727 174 185
Single family - attached 5,280 3,561 5.8 5.0 65 59 910 712 81 60
Commercial
Not for profit 733 5.0 147
Medical 6,837 70,550 3.3 58.9 2,072 1,198
Retail 17,401 30.3 574
Other   1,321     0.9       1,468          
Total   33,639     153,459   46.2   179.4 177   394   728     855   140     166
Changes in dollars, acres and lots (119,820 ) (133.2 ) (217 ) (127 ) (26 )

% Change

(78.1 ) % (74.2 ) % (55.1 ) % (14.9 ) % (15.7 ) %
 
Total acreage sales revenue   150,930     255,087   368.7   363.3 752   1,215
 
Deferred revenue (16,101 ) (4,171 )
Special Improvement District revenue *   4,108     9,270  
Total segment land sale revenue - GAAP basis $ 138,937   $ 260,186  
 

* Applicable exclusively to Summerlin.

NM – Not Meaningful

Operating Assets Net Operating Income

The Company believes that NOI is a useful supplemental measure of the performance of our Operating Assets because 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 define NOI as revenues (rental income, tenant recoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI also excludes straight line rents and tenant incentives amortization, net interest expense, ground rent amortization, demolition costs, amortization, depreciation, development-related marketing costs and equity in earnings from Real Estate and Other Affiliates.

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 net income (loss).

 
Operating Assets NOI and REP EBT
 
  Three Months Ended September 30, Nine Months Ended September 30,
2015   2014   Change 2015   2014   Change
(In thousands) (In thousands)
Retail
Columbia Regional (a) $ 535 $ $ 535 $ 1,000 $ $ 1,000
Cottonwood Square 189 166 23 494 499 (5 )
Creekside Village Green (b) 314 314 539 539
Downtown Summerlin (b) 2,507 2,507 6,700 6,700
Hughes Landing Retail (b) 400 400 786 786
1701 Lake Robbins (c) 111 90 21 296 90 206
Landmark Mall (d) (116 ) 341 (457 ) (302 ) 965 (1,267 )
Outlet Collection at Riverwalk (e) 1,726 405 1,321 4,845 (406 ) 5,251
Park West (f) 211 462 (251 ) 1,386 1,550 (164 )
Ward Village (g) 6,370 6,234 136 19,385 18,034 1,351
20/25 Waterway Avenue 437 455 (18 ) 1,384 1,219 165
Waterway Garage Retail   186     185     1     539     517     22  
Total Retail   12,870     8,338     4,532     37,052     22,468     14,584  
Office
10-70 Columbia Corporate Center (h) 2,925 491 2,434 9,449 1,160 8,289
Columbia Office Properties (i) 263 453 (190 ) 342 1,137 (795 )
One Hughes Landing (j) 1,475 1,437 38 4,112 3,397 715
Two Hughes Landing (k) 2,528 286 2,242 3,380 286 3,094
2201 Lake Woodlands Drive (32 ) 39 (71 ) (119 ) 143 (262 )
9303 New Trails 476 483 (7 ) 1,459 1,503 (44 )
110 N. Wacker 1,519 1,440 79 4,577 4,474 103
One Summerlin (b) (148 ) (148 ) (317 ) (317 )
3831 Technology Forest Drive (l) 487 487 1,415 1,415
3 Waterway Square 1,499 1,638 (139 ) 4,670 4,765 (95 )
4 Waterway Square 1,520 1,479 41 4,462 4,327 135
1400 Woodloch Forest   485     273     212     1,248     806     442  
Total Office   12,997     8,019     4,978     34,678     21,998     12,680  
 
85 South Street (m) 144 144 359 359
Millennium Waterway Apartments 1,106 1,176 (70 ) 3,151 3,348 (197 )
One Lake's Edge (b) 688 688 147 147
The Woodlands Resort & Conference Center (n)   3,006     445     2,561     8,518     4,365     4,153  
Total Retail, Office, Multi-family, Resort & Conference Center   30,811     17,978     12,833     83,905     52,179     31,726  
 
The Woodlands Ground leases 330 119 211 856 341 515
The Woodlands Parking Garages (184 ) (155 ) (29 ) (455 ) (444 ) (11 )
Other Properties   951     176     775     2,827     707     2,120  
Total Other   1,097     140     957     3,228     604     2,624  
Operating Assets NOI - Consolidated and Owned   31,908     18,118     13,790     87,133     52,783     34,350  
 
Redevelopments
South Street Seaport (b)   (22 )   652     (674 )   (423 )   823     (1,246 )
Total Operating Asset Redevelopments (22 ) 652 (674 ) (423 ) 823 (1,246 )
 
Dispositions
The Club at Carlton Woods (b) 751 (1,267 ) 2,018 (942 ) (3,279 ) 2,337
Rio West Mall                   79     (79 )
Total Operating Asset Dispositions   751     (1,267 )   2,018     (942 )   (3,200 )   2,258  
Total Operating Assets NOI - Consolidated   32,637     17,503     15,134     85,768     50,406     35,362  
 
Straight-line lease amortization (o) 408 (660 ) 1,068 2,632 (1,632 ) 4,264
Demolition costs (p) (798 ) (761 ) (37 ) (2,411 ) (6,689 ) 4,278
Development-related marketing costs (2,367 ) (589 ) (1,778 ) (7,381 ) (5,379 ) (2,002 )
Depreciation and amortization (22,936 ) (11,261 ) (11,675 ) (64,585 ) (29,802 ) (34,783 )
Write-off of lease intangibles and other (439 ) (439 ) (593 ) (593 )
Equity in earnings from Real Estate and Other Affiliates 289 202 87 1,333 2,774 (1,441 )
Interest, net   (7,992 )   (4,906 )   (3,086 )   (22,095 )   (10,748 )   (11,347 )
Total Operating Assets REP EBT (q) $ (1,198 ) $ (472 ) $ (726 ) $ (7,332 ) $ (1,070 ) $ (6,262 )
 
Operating Assets NOI - Equity and Cost Method Investments
Millennium Woodlands Phase II $ 496 $ (119 ) $ 615 $ 503 $ (119 ) $ 622
Stewart Title Company 330 771 (441 ) 1,329 1,830 (501 )
Summerlin Baseball Club 211 51 160 780 415 365
The Metropolitan Downtown Columbia (b) 652 652 283 283
Woodlands Sarofim # 1   465     304     161     1,194     1,094     100  
Total NOI - equity investees 2,154 1,007 1,147 4,089 3,220 869
 
Adjustments to NOI (r)   (805 )   (41 )   (764 )   (2,260 )   (120 )   (2,140 )
Equity Method Investments REP EBT 1,349 966 383 1,829 3,100 (1,271 )
Less: Joint Venture Partner's Share of REP EBT   (1,061 )   (632 )   (429 )   (2,244 )   (1,975 )   (269 )
Equity in earnings from Real Estate and Other Affiliates   289     334     (46 )   (415 )   1,125     (1,540 )
 
Distributions from Summerlin Hospital Investment (s)       (132 )   132     1,747     1,649     98  
Segment equity in earnings from Real Estate and Other Affiliates $ 289   $ 202   $ 87   $ 1,333   $ 2,774   $ (1,442 )
 
Company's Share of Equity Method Investments NOI
Millennium Woodlands Phase II $ 404 $ (97 ) $ 501 $ 410 $ (97 ) $ 507
Stewart Title Company 165 385 (220 ) 665 915 (250 )
Summerlin Baseball Club 105 26 79 390 208 182
The Metropolitan Downtown Columbia (b) 327 327 142 142
Woodlands Sarofim # 1   93     61     32     239     219     20  
Total NOI - equity investees $ 1,094   $ 375   $ 719   $ 1,846   $ 1,245   $ 601  
 
     
Economic Nine Months Ended September 30, 2015
Ownership Debt Cash
(In thousands)
Millennium Woodlands Phase II 81.43 % $ 37,700 $ 1,532
Stewart Title Company 50.00 % 312
Summerlin Baseball Club 50.00 % 938
The Metropolitan Downtown Columbia (b) 50.00 % 57,886 1,090
Woodlands Sarofim # 1 20.00 % 6,004 785
 

(a) Stabilized annual NOI of $2.2 million is expected by the end of the second quarter 2016.

(b) Please refer to discussion regarding this property in our third quarter Form 10-Q.

(c) Property was acquired in July 2014.

(d) The lower NOI is due to a one-time favorable property tax settlement with the City of Alexandria of $0.7 million that occurred in the first quarter 2014.

(e) Property was re-opened May 2014 after an extensive redevelopment. Stabilized annual NOI of $7.8 million is expected by early 2017 based on leases in place as of September 30, 2015.

(f) NOI decreased for the three months and nine months ended September 30, 2015, due to the loss of a 18,339 square foot tenant, resulting in the subsequent re-leasing of the space.

(g) NOI increase is primarily due to higher rental rates and increased occupancy.

(h) In December 2014, we acquired 10–60 Columbia Corporate Center comprised of six adjacent office buildings totaling 699,884 square feet. We acquired 70 Columbia Corporate Center in 2012.

(i) NOI decreased due primarily to water damage at one of the buildings, resulting in 13,745 square feet being vacated.

(j) NOI increase for the nine months ended September 30, 2015 is primarily due to increased occupancy.

(k) Building was placed in service in 2014.

(l) Building was placed in service in 2014 and is 100% leased to a single tenant.

(m) Building was acquired in October 2014.

(n) The renovation project has increased NOI due to the higher revenue per available room (“RevPAR”) resulting from the new and upgraded rooms. RevPAR is calculated by dividing total room revenues by total occupied rooms for the period.

(o) The net change in straight-line lease amortization for the three and nine months ended September 30, 2015 compared to the same periods in 2014 is primarily due to new leases at Downtown Summerlin and 10-60 Columbia Corporate Center purchased in December 2014.

(p) Demolition costs for 2014 relate to Pier 17 and for 2015 relate to the Fulton Market Building, both at South Street Seaport.

(q) For a detailed breakdown of our Operating Asset segment REP EBT, please refer to Note 16 - Segments in the Condensed Consolidated Financial Statements in our third quarter 2015 Form 10-Q.

(r) Adjustments to NOI include straight-line rent and market lease amortization, demolition costs, depreciation and amortization and non-real estate taxes. The increases are primarily due to placing Millennium Woodlands Phase II in third quarter 2014 and The Metropolitan Downtown Columbia in service in 2015.

(s) During the first quarters of 2015 and 2014, we received distributions of $1.7 million and $1.8 million, respectively, from our Summerlin Hospital investment. Distributions from the Summerlin Hospital are typically made one time per year in the first quarter.

 

Commercial Properties NOI

 
 

Square

   

Feet/Number

Three Months Ended

Projected Annual

Debt Balance as of

($ in millions)

of Units

  % Leased (a)

September 30, 2015

Stabilized NOI

(b)

September 30, 2015

(c)

 
Commercial Properties - Stabilized
 
Retail
Cottonwood Square 77,079 96 % $ 0.2 $ 0.6 $
1701 Lake Robbins 12,376 100 % 0.1 0.4 4.6
Landmark Mall (d) 320,325 65 % (0.1) 0.8
Park West (d) 249,177 71 % 0.2 2.1
Ward Village 1,273,845 89 % 6.4 24.8 238.7
20/25 Waterway Avenue 50,022 100 % 0.4 1.7 14.2
Waterway Garage Retail 21,513 100 % 0.2   0.8  
Total Retail - Stabilized 2,004,337 84 % $ 7.4 $ 31.2 $ 257.5
 
Office
10-70 Columbia Corporate Center 887,714 90 % $ 2.9 $ 13.2 $ 100.0
Columbia Office Properties (d) 220,471 28 % 0.3 0.3
One Hughes Landing 197,719 100 % 1.5 5.3 52.0
9303 New Trails 97,553 94 % 0.5 2.0 12.8
110 N. Wacker 226,000 100 % 1.5 6.1 27.4
3831 Technology Forest Drive 95,078 100 % 0.5 2.2 22.9
3 Waterway Square 232,021 100 % 1.5 6.8 52.0
4 Waterway Square 218,551 100 % 1.5 5.9 37.5
1400 Woodloch Forest 95,667 100 % 0.5   1.7  
Total Office - Stabilized 2,270,774 89 % $ 10.7 $ 43.5 $ 304.6
 
Multi-family, Resort & Conference Center & Other
85 South Street 21 100 % $ 0.1 $ 0.4 $
Millennium Waterway Apartments 393 89 % 1.1 4.0 55.6
Other Assets (e) N/A N/A   1.5   4.2  
Total Multi-family, Resort & Conference Center & Other - Stabilized 414 90 % $ 2.7 $ 8.6 $ 55.6
 
Total Commercial Properties - Stabilized $ 20.8 $ 83.3 $ 617.7
 
Commercial Properties - Recently Developed And Not Yet Stabilized
 
Retail
Columbia Regional 88,556 77 % $ 0.5 $ 2.1 $ 22.2
Creekside Village Green 74,581 81 % 0.3 2.2
Downtown Summerlin 818,521 84 % 2.5 37.2 277.9
Hughes Landing Retail 123,000 91 % 0.4 3.5 25.4
Outlet Collection at Riverwalk 248,157 91 % 1.7   7.8   55.5
Total Retail - Not Stabilized 1,352,815 85 % $ 5.4 $ 52.8 $ 381.0
 
Office
Two Hughes Landing 197,714 79 % $ 2.5 $ 5.2 $ 33.2
One Summerlin 206,279 56 % (0.1)   (f)
Total Office - Not Stabilized 403,993 67 % $ 2.4 $ 5.2 $ 33.2
 
Multi-family, Resort & Conference Center & Other
One Lake's Edge 390 51 % $ 0.7 $ 6.9 $ 65.5
The Metropolitan Downtown Columbia Project 380 79 % 0.3 3.4 28.9
The Woodlands Resort & Conference Center 406 N/A 3.0 16.4 83.3
Millennium Woodlands Phase II 314 81 % 0.4   4.0   30.7
Total Multi-family, Resort & Conference Center & Other - Not Stabilized 1,490 70 % $ 4.4 $ 30.7 $

208.4

 
Total Commercial Properties - Not Stabilized $ 12.2 $ 88.7 $

622.6

 
Under Construction or Renovation
 
Retail
South Street Seaport 362,000 N/A $ $ N/A (g) $
Lakeland Village Center 83,339 26 %   1.7  
Total Retail - Not Stabilized 445,339 26 % $ $ 1.7 $
 
Office
1725-35 Hughes Landing Boulevard 647,000 74 % $ $ 10.7 (h) $ 81.7
Three Hughes Landing 324,000 %   9.1   14.0
Total Office - Not Stabilized 971,000 49 % $ $ 19.8 $

95.7

 

 
Multi-family, Resort & Conference Center & Other
Alden Bridge Self-Storage Facility 670 N/A $ $ 0.8 $
Waterway Square Hotel (Westin) 302 N/A 10.5 24.2
Hughes Landing Hotel (Embassy Suites) 206 N/A     4.5   11.0
Total Multi-family, Resort & Conference Center & Other - Under Construction 1,178 N/A $ $ 15.8 $ 35.2
 
Total Commercial Properties - Under Construction $ $ 37.3 $ 130.9
 
Total Commercial Properties
 
Retail
Stabilized 2,004,337 84 % $ 7.4 $ 31.2 $ 257.5
Not Stabilized 1,352,815 85 % 5.4 52.8 381.0
Under Construction 445,339 26 %   1.7  
Total Retail 3,802,491

78

% $ 12.8 $ 85.7 $

638.5

 
Office
Stabilized 2,270,774 89 % $ 10.7 $ 43.5 $ 304.6
Not Stabilized 403,993 67 % 2.4 5.2 33.2
Under Construction 971,000 49 %   19.8  

95.7

Total Office 3,645,767 76 % $ 13.1 $ 68.5 $

433.5

 
Multi-family, Resort & Conference Center & Other
Stabilized 414 90 % $ 2.7 $ 8.6 $ 55.6
Not Stabilized 1,490 70 % 4.4 30.7

208.4

Under Construction 1,178 N/A     15.8   35.2
Total Multi-family, Resort & Conference Center & Other 3,082 74 % $ 7.1 $ 55.1 $

299.2

           
Total Commercial Properties $ 33.0 $ 209.3 $

1,371.2

 

(a) Percentage leased is as of September 30, 2015 unless a more recent leasing statistic is disclosed in the September 30, 2015 10-Q filing or in this release. Statistic indicates percentage pre-leased for projects under development.

(b) For stabilized properties, Projected Annual Stabilized NOI is computed as follows:

i. Retail, Hotel, Resort & Conference Center and Other NOI represents the last twelve months actual NOI generated by the property.

ii. Office and Multifamily represents the most recent quarter NOI for the property annualized.

For properties not stabilized or under construction, Projected Annual Stabilized NOI is shown based upon the most recent estimates disclosed in our periodic filings and CEO Letter dated March 13, 2015. We do not necessarily update these projections on a regular basis and such projections may vary based upon many factors, more fully described under “Forward Looking Statements” and “Risk Factors” in our filings with the Securities and Exchange Commission. There can be no assurance as to when or if these properties will achieve Projected Annual Stabilized NOI.

(c) Represents the outstanding balance of the mortgage debt directly attributable to the asset. The total debt balance excludes corporate and other debt not directly attributable to, or secured by, the properties.

(d) Property is a redevelopment opportunity but is being operated to maximize cash flow “as is” until such time as we begin active redevelopment.

(e) Amount includes our share of our Equity Method Investments NOI. The Metropolitan Downtown Columbia Project and Millennium Woodlands Phase II are disclosed separately within this schedule.

(f) One Summerlin projected annual stabilized NOI is included as part of Downtown Summerlin projected annual stabilized NOI.

(g) Amount not disclosed.

(h) ExxonMobil has pre-leased the entire West Building and 160,000 square feet of the East Building. We are seeking tenants for the remaining 171,802 square feet of the East Building.

The Howard Hughes Corporation
Caryn Kboudi, 214-741-7744
caryn.kboudi@howardhughes.com

Source: The Howard Hughes Corporation