e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2011
or
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o |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period from______________ to _______________
Commission file number 001-34856
THE HOWARD HUGHES CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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36-4673192 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization) |
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Identification Number) |
13355 Noel Road, Suite 950, Dallas, Texas 75240
(Address of principal executive offices, including Zip Code)
(214) 741-7744
(Registrants telephone number, including area code)
N / A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o | |
Accelerated filer o | |
Non-accelerated filer þ | |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
The number of shares of Common Stock, $0.01 par value, outstanding on August 5, 2011 was 37,942,107.
THE HOWARD HUGHES CORPORATION
INDEX
- 2 -
THE HOWARD HUGHES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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June 30, |
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December 31, |
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2011 |
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2010 |
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(In thousands, except share amounts) |
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Assets: |
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|
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|
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|
Investment in real estate: |
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|
|
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Master Planned Community assets |
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$ |
1,348,138 |
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$ |
1,350,648 |
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Land |
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180,976 |
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180,976 |
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Buildings and equipment |
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344,636 |
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343,006 |
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Less accumulated depreciation |
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(88,894 |
) |
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|
(83,390 |
) |
Developments in progress |
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292,550 |
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293,403 |
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Net property and equipment |
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2,077,406 |
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2,084,643 |
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Investment in Real Estate Affiliates |
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153,133 |
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149,543 |
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Net investment in real estate |
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2,230,539 |
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2,234,186 |
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Cash and cash equivalents |
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275,956 |
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284,682 |
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Accounts receivable, net |
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7,039 |
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8,154 |
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Notes receivable |
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37,405 |
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38,954 |
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Tax indemnity receivable, including interest |
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327,444 |
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323,525 |
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Deferred expenses, net |
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5,903 |
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6,619 |
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Prepaid expenses and other assets |
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141,145 |
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126,587 |
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Total assets |
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$ |
3,025,431 |
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$ |
3,022,707 |
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Liabilities: |
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Mortgages, notes and loans payable |
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$ |
306,668 |
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$ |
318,660 |
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Deferred tax liabilities |
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79,267 |
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78,680 |
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Warrant liabilities |
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298,483 |
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227,348 |
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Uncertain tax position liability |
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144,255 |
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140,076 |
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Accounts payable and accrued expenses |
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65,839 |
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78,836 |
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Total liabilities |
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894,512 |
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843,600 |
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Commitments and Contingencies |
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Equity: |
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Stockholders Equity: |
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Common stock: $.01 par value; 100,000,000 shares authorized,
37,942,107 shares issued and outstanding as of June
30, 2011 and
37,904,506 shares issued and outstanding as of
December 31, 2010 |
|
|
379 |
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|
379 |
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Additional paid-in capital |
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2,709,281 |
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2,708,036 |
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Accumulated deficit |
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|
(577,047 |
) |
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(528,505 |
) |
Accumulated other comprehensive loss |
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(2,503 |
) |
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(1,627 |
) |
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Total stockholders equity |
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2,130,110 |
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2,178,283 |
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Noncontrolling interests |
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809 |
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824 |
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Total equity |
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2,130,919 |
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2,179,107 |
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Total liabilities and equity |
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$ |
3,025,431 |
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$ |
3,022,707 |
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The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
- 3 -
THE HOWARD HUGHES CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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(Consolidated) |
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(Combined) |
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(Consolidated) |
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(Combined) |
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(In thousands, except per share amounts) |
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Revenues: |
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Master Planned Community land sales |
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$ |
18,148 |
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$ |
4,174 |
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$ |
41,540 |
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$ |
7,388 |
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Builder price participation |
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597 |
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1,451 |
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1,118 |
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2,195 |
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Minimum rents |
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16,976 |
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16,969 |
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33,695 |
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34,000 |
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Tenant recoveries |
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4,615 |
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4,433 |
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9,139 |
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9,252 |
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Condominium unit sales |
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6,660 |
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10,424 |
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Other land sale revenues |
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2,248 |
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1,412 |
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3,496 |
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2,524 |
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Other rental and property revenues |
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1,579 |
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2,190 |
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4,512 |
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4,060 |
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Total revenues |
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50,823 |
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30,629 |
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103,924 |
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59,419 |
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Operating Expenses: |
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Master Planned Community cost of sales |
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9,438 |
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1,924 |
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24,874 |
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3,250 |
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Master Planned Community land sales operations |
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4,585 |
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8,856 |
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10,213 |
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17,347 |
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Rental property real estate taxes |
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2,952 |
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|
4,051 |
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6,426 |
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|
7,029 |
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Rental property maintenance costs |
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1,566 |
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|
1,439 |
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3,125 |
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3,283 |
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Condominium unit cost of sales |
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5,272 |
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8,252 |
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Property operating costs |
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9,473 |
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9,729 |
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19,065 |
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|
18,201 |
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Provision for doubtful accounts |
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304 |
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|
256 |
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|
315 |
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|
357 |
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General and administrative |
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8,359 |
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4,861 |
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13,591 |
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8,996 |
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Provisions for impairment |
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208 |
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|
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|
486 |
|
Depreciation and amortization |
|
|
3,185 |
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|
3,975 |
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|
6,384 |
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8,425 |
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Total operating expenses |
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45,134 |
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|
35,299 |
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92,245 |
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|
67,374 |
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Operating income (loss) |
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|
5,689 |
|
|
|
(4,670 |
) |
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|
11,679 |
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(7,955 |
) |
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|
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|
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|
|
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Interest income |
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2,244 |
|
|
|
|
|
|
|
4,756 |
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|
59 |
|
Interest expense |
|
|
|
|
|
|
(541 |
) |
|
|
|
|
|
|
(1,207 |
) |
Warrant liability gain (loss) |
|
|
56,910 |
|
|
|
|
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(69,135 |
) |
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|
|
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|
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|
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|
Income (loss) before income taxes, income from Real
Estate Affiliates, reorganization items and noncontrolling
interests |
|
|
64,843 |
|
|
|
(5,211 |
) |
|
|
(52,700 |
) |
|
|
(9,103 |
) |
Provision for income taxes |
|
|
(958 |
) |
|
|
(16,467 |
) |
|
|
(3,415 |
) |
|
|
(17,953 |
) |
Income from Real Estate Affiliates |
|
|
2,108 |
|
|
|
3,680 |
|
|
|
7,621 |
|
|
|
5,172 |
|
Reorganization items |
|
|
|
|
|
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(10,019 |
) |
|
|
|
|
|
|
(26,614 |
) |
|
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|
|
|
|
|
|
|
|
|
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|
Income (loss) from continuing operations |
|
|
65,993 |
|
|
|
(28,017 |
) |
|
|
(48,494 |
) |
|
|
(48,498 |
) |
Net income attributable to noncontrolling interests |
|
|
(20 |
) |
|
|
(25 |
) |
|
|
(48 |
) |
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|
(73 |
) |
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|
Net income (loss) attributable to common stockholders |
|
$ |
65,973 |
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|
$ |
(28,042 |
) |
|
$ |
(48,542 |
) |
|
$ |
(48,571 |
) |
|
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Basic Income (Loss) Per Share: |
|
$ |
1.74 |
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|
$ |
(0.74 |
) |
|
$ |
(1.28 |
) |
|
$ |
(1.29 |
) |
Diluted Income (Loss) Per Share: |
|
$ |
0.22 |
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|
$ |
(0.74 |
) |
|
$ |
(1.28 |
) |
|
$ |
(1.29 |
) |
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|
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|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss), Net: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
65,993 |
|
|
$ |
(28,017 |
) |
|
$ |
(48,494 |
) |
|
$ |
(48,498 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
|
(748 |
) |
|
|
|
|
|
|
(748 |
) |
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|
|
|
Pension adjustment |
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|
(63 |
) |
|
|
(311 |
) |
|
|
(128 |
) |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
(811 |
) |
|
|
(311 |
) |
|
|
(876 |
) |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
65,182 |
|
|
|
(28,328 |
) |
|
|
(49,370 |
) |
|
|
(48,399 |
) |
Comprehensive loss attributable to
noncontrolling interests |
|
|
(20 |
) |
|
|
(25 |
) |
|
|
(48 |
) |
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
common stockholders |
|
$ |
65,162 |
|
|
$ |
(28,353 |
) |
|
$ |
(49,418 |
) |
|
$ |
(48,472 |
) |
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
- 4 -
THE HOWARD HUGHES CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
(UNAUDITED)
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Accumulated |
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|
Noncontrolling |
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Additional |
|
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|
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|
Other |
|
|
Interests in |
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|
|
|
|
Common |
|
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Paid-In |
|
|
Accumulated |
|
|
GGP |
|
|
Comprehensive |
|
|
Consolidated |
|
|
Total |
|
(In thousands, except share amounts) |
|
Stock |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|
Income (Loss) |
|
|
Ventures |
|
|
Equity |
|
Balance, January 1, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,504,364 |
|
|
$ |
(1,744 |
) |
|
$ |
900 |
|
|
$ |
1,503,520 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,571 |
) |
|
|
|
|
|
|
73 |
|
|
|
(48,498 |
) |
Distributions to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138 |
) |
|
|
(138 |
) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
99 |
|
Contributions from GGP, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,655 |
|
|
|
|
|
|
|
|
|
|
|
65,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,521,448 |
|
|
$ |
(1,645 |
) |
|
$ |
835 |
|
|
$ |
1,520,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2011 |
|
$ |
379 |
|
|
$ |
2,708,036 |
|
|
$ |
(528,505 |
) |
|
$ |
|
|
|
$ |
(1,627 |
) |
|
$ |
824 |
|
|
$ |
2,179,107 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
(48,542 |
) |
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
(48,494 |
) |
Distributions to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63 |
) |
|
|
(63 |
) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(876 |
) |
|
|
|
|
|
|
(876 |
) |
Restricted stock and stock
option grants,
(39,000 common shares) |
|
|
|
|
|
|
1,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011 |
|
$ |
379 |
|
|
$ |
2,709,281 |
|
|
$ |
(577,047 |
) |
|
$ |
|
|
|
$ |
(2,503 |
) |
|
$ |
809 |
|
|
$ |
2,130,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
- 5 -
THE HOWARD HUGHES CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Consolidated) |
|
|
(Combined) |
|
|
|
(In thousands) |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(48,494 |
) |
|
$ |
(48,498 |
) |
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
Income from Real Estate Affiliates |
|
|
(7,621 |
) |
|
|
(5,172 |
) |
Dividends received from Real Estate Affiliates |
|
|
4,074 |
|
|
|
|
|
Provision for doubtful accounts |
|
|
315 |
|
|
|
357 |
|
Depreciation |
|
|
5,435 |
|
|
|
7,356 |
|
Amortization |
|
|
949 |
|
|
|
1,069 |
|
Deferred financing costs |
|
|
277 |
|
|
|
225 |
|
Amortization of intangibles other than in-place leases |
|
|
45 |
|
|
|
101 |
|
Straight-line rent amortization |
|
|
(758 |
) |
|
|
(615 |
) |
Warrant liability loss |
|
|
69,135 |
|
|
|
|
|
Provisions for impairment |
|
|
|
|
|
|
486 |
|
Land/residential development and acquisitions expenditures |
|
|
(33,206 |
) |
|
|
(30,561 |
) |
Cost of sales |
|
|
33,126 |
|
|
|
3,250 |
|
Special Improvement District bond transfers |
|
|
(3,188 |
) |
|
|
|
|
Non-cash reorganization items |
|
|
|
|
|
|
(570 |
) |
Net changes: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
2,512 |
|
|
|
6,465 |
|
Prepaid expenses and other assets |
|
|
(3,803 |
) |
|
|
(7,191 |
) |
Deferred expenses |
|
|
(492 |
) |
|
|
(926 |
) |
Accounts payable and accrued expenses and deferred tax liabilities |
|
|
(234 |
) |
|
|
22,450 |
|
Other, net |
|
|
(1,079 |
) |
|
|
612 |
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
|
16,993 |
|
|
|
(51,162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Development of real estate and property additions/improvements |
|
|
(18,565 |
) |
|
|
(37,110 |
) |
Increase in investments in Real Estate Affiliates |
|
|
(42 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(18,607 |
) |
|
|
(37,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Change in GGP investment, net |
|
|
|
|
|
|
90,715 |
|
Proceeds from issuance of mortgages, notes and loans payable |
|
|
29,000 |
|
|
|
|
|
Principal payments on mortgages, notes and loans payable |
|
|
(38,049 |
) |
|
|
(2,519 |
) |
Proceeds from issuance of Management Warrant |
|
|
2,000 |
|
|
|
|
|
Distributions to noncontrolling interests |
|
|
(63 |
) |
|
|
(138 |
) |
|
|
|
|
|
|
|
Cash (used in) provided by financing activities |
|
|
(7,112 |
) |
|
|
88,058 |
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(8,726 |
) |
|
|
(222 |
) |
Cash and cash equivalents at beginning of period |
|
|
284,682 |
|
|
|
3,204 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
275,956 |
|
|
$ |
2,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
7,410 |
|
|
$ |
21,022 |
|
Interest capitalized |
|
|
8,707 |
|
|
|
20,412 |
|
Reorganization items paid |
|
|
|
|
|
|
1,231 |
|
|
|
|
|
|
|
|
|
|
Non-Cash Transactions: |
|
|
|
|
|
|
|
|
Prepetition liabilities funded by GGP |
|
|
2,714 |
|
|
|
|
|
Mortgage debt market rate adjustment related to emerged entities |
|
|
|
|
|
|
876 |
|
Other non-cash GGP equity transactions |
|
|
|
|
|
|
(25,024 |
) |
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
- 6 -
THE HOWARD HUGHES CORPORATION
NOTES TO CONDENSED CONSOLIDATED & COMBINED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
The accompanying condensed consolidated and combined financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP)
for interim financial statements and in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X as issued by the SEC. Such condensed consolidated and combined financial
statements do not include all of the information and disclosures required by GAAP for complete
financial statements. In addition, readers of this Quarterly Report on Form 10-Q (Quarterly
Report) should refer to the Companys (as defined below) audited Consolidated and Combined
Financial Statements for the year ended December 31, 2010 which are included in the Companys
Annual Report on Form 10-K (the Annual Report) for the fiscal year ended December 31, 2010
(Commission File No. 001-34856). Capitalized terms used, but not defined in this Quarterly Report
have the same meanings as in the Annual Report.
In the opinion of management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of operations and cash flows
for the interim periods have been included. The results for the interim periods ended June 30, 2011
and 2010 are not necessarily indicative of the results to be expected for the full fiscal year. In
addition, certain amounts in the 2010 Combined Financial Statements have been reclassified to
conform to the current period presentation. Finally, HHC management has evaluated all material
events occurring subsequent to the date of the consolidated financial statements up to the date and
time this Quarterly Report is filed.
General
The Howard Hughes Corporation (HHC or the Company) is a Delaware corporation that was
formed on July 1, 2010 to hold, after receipt via a tax-free distribution, certain assets of
General Growth Properties, Inc. (GGP) and certain of its subsidiaries (collectively, the
Predecessors) pursuant to their plans of reorganization (the Plan) under Chapter 11 of the
United States Code (Chapter 11). We are a real estate company that specializes in the
development and operation of master planned communities, operating rental properties and other
strategic real estate opportunities across the United States. Pursuant to the Plan, certain of the
assets and liabilities of the Predecessors (the HHC Businesses) were transferred to us and our
common stock was distributed to the holders of GGPs common stock and common units (the
Separation) on a pro-rata basis (approximately 32.5 million shares of our common stock) on GGPs
date of emergence from bankruptcy, November 9, 2010 (the Effective Date). Also as part of the
Plan, approximately 5.25 million shares of our common stock and 8.0 million warrants were purchased
by certain of the investors sponsoring the Plan for $250 million. Unless the context otherwise
requires, references to we, us and our refer to HHC and its subsidiaries.
The accompanying consolidated balance sheets at June 30, 2011 and December 31, 2010 reflect the
consolidation of HHC and its subsidiaries, as of such date, with all intercompany balances and
transactions eliminated. The accompanying combined financial statements for the periods prior to
the Separation have been prepared in accordance with GAAP on a carve-out basis from the
consolidated financial statements of GGP using the historical results of operations and the bases
of the assets and liabilities of the transferred businesses and including allocations from GGP.
This presentation incorporates the same principles used when preparing consolidated financial
statements, including elimination of intercompany transactions. The presentation also includes the
accounts of the HHC Businesses in which we have a controlling interest. The noncontrolling equity
holders share of the assets, liabilities and operations are reflected in noncontrolling interests
within permanent equity of the Company. The statement of equity and statement of cash flows for the
six months ended June 30, 2010 and the statements of operations and comprehensive income (loss) for
the three and six months ended June 30, 2010 are presented on a carve out basis. The statement of
equity and statements of cash flows for the six months ended June 30, 2011 and the statements of
operations and comprehensive income (loss) for the three and six months ended June 30, 2011 are
presented on a consolidated basis.
As discussed above, we were formed for the purpose of receiving, via a tax-free distribution,
certain assets and assuming certain liabilities of the Predecessors pursuant to the Plan. We
conducted no business and had no separate material assets or liabilities until the Separation was
consummated. No previous historical financial statements for the HHC Businesses have been prepared
and, accordingly, our combined financial statements for
- 7 -
the three and six months ended June 30, 2010 are derived from the books and records of GGP and were
carved-out from GGP at carrying values reflective of such historical cost in such GGP records. Our
historical financial results reflect allocations for certain corporate expenses which include, but
are not limited to, costs related to property management, human resources, security, payroll and
benefits, legal, corporate communications, information services and restructuring and
reorganizations. Costs of the services (approximately $2.9 million and $5.7 million, for the three
and six months ended June 30, 2010, respectively) that were allocated or charged to us were based
on either actual costs incurred or a proportion of costs estimated to be applicable to us based on
a number of factors, most significantly the Companys percentage of GGPs adjusted revenue and
assets and the number of properties. We believe these allocations are reasonable; however, these
results do not reflect what our expenses would have been had the Company been operating as a
separate, stand-alone public company for such period. In addition, the HHC Businesses were operated
as subsidiaries of GGP, which operated as a real estate investment trust during such period. We
operate as a taxable corporation. The historical combined statement of equity and statement of cash
flows presented for the six months ended June 30, 2010, and the statement of operations and
comprehensive income (loss) presented for the three and six months ended June 30, 2010 therefore
are not indicative of the results of operations, or cash flows that would have been obtained if we
had been an independent, stand-alone entity during such period nor are they indicative of our
future performance as an independent, stand-alone entity.
As of June 30, 2011, our assets consisted of the following:
|
|
|
four master planned communities (MPCs); |
|
|
|
thirteen operating assets; and |
|
|
|
seventeen strategic developments. |
Our ownership interests in properties in which we own a majority or controlling interest are
combined for the period from January 1, 2010 through June 30, 2010 and consolidated for the period
from January 1, 2011 through June 30, 2011 under GAAP, with the non-controlling interests in such
consolidated or combined ventures reflected as components of equity. Our interests in TWCPC
Holdings, L.P., (The Woodlands Commercial), the Woodlands Operating Company, L.P. (The Woodlands
Operating) and the Woodlands Land Development Company, L.P. (The Woodlands MPC, and together
with The Woodlands Commercial and the Woodlands Operating, The Woodlands Partnerships), all
located in Houston, Texas, and our interests in Westlake Retail Associates, Ltd (Circle T Ranch)
and 170 Retail Associates Ltd (Circle T Power Center, and together with Circle T Ranch, Circle
T), located in Dallas/Fort Worth, Texas, are held through joint venture entities in which we own
non-controlling interests and are unconsolidated and accounted for on the equity method. (See Note
3 for a description of our acquisition of our venture partners share of The Woodlands Partnerships
on July 1, 2011.) The Woodlands Partnerships, Circle T and certain cost method investments (for
example, our interest in the Summerlin Hospital Medical Center) are collectively referred to in
this report as our Real Estate Affiliates.
Investment in Real Estate
Real estate assets are stated at cost, including acquisition cost, less any provisions for
impairments. Construction and improvement costs incurred in connection with the development of new
properties or the redevelopment of existing properties are capitalized. Real estate taxes and
interest costs incurred during construction periods are also capitalized. Capitalized interest
costs are based on qualified expenditures and interest rates in place during the construction
period. As of June 30, 2011, we have approximately 14,000 remaining saleable acres within our
master planned communities including The Woodlands.
Pre-development costs associated with specifically identified development properties, which
generally include legal and professional fees and other directly-related third-party costs, are
capitalized as part of the property being developed. In the event that management no longer has
the ability or intent to complete a development, the costs previously capitalized are expensed (see
also our impairment policies below).
With respect to the operating retail properties, tenant improvements, either paid directly or in
the form of construction allowances paid to tenants, are capitalized and depreciated over the
shorter of their economic lives or the lease term. Maintenance and repairs are charged to expense
when incurred. Expenditures for significant improvements are capitalized.
- 8 -
Depreciation or amortization expense is computed using the straight-line method based upon the
following estimated useful lives:
|
|
|
|
|
Asset Type |
|
Years |
|
Buildings and improvements |
|
|
40-45 |
|
Equipment, tenant improvements and fixtures |
|
|
5-10 |
|
Impairment
Generally accepted accounting principles related to accounting for the impairment or disposal of
long-lived assets require that if impairment indicators exist and the undiscounted cash flows
expected to be generated by an asset over its anticipated holding period are less than its carrying
amount, the fair value of such assets should be estimated and an impairment provision should be
recorded to write down the carrying amount of such asset to its estimated fair value. The
impairment analysis does not consider the timing of future cash flows and whether the asset is
expected to earn an above or below market rate of return. We review our real estate assets as well
as our investments in Real Estate Affiliates for potential impairment indicators whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable.
If an indicator of potential impairment exists, the asset is tested for recoverability by comparing
its carrying amount to the estimated future undiscounted cash flow during our expected holding
period. The cash flow estimates used both for determining recoverability and estimating fair value
are inherently judgmental and reflect current and projected trends in rental, occupancy, pricing,
development costs, sales pace and capitalization rates, and estimated holding periods for the
applicable assets. Although the estimated fair value of certain assets may be exceeded by the
carrying amount, a real estate asset is only considered to be impaired when its carrying amount is
not expected to be recovered through estimated future undiscounted cash flows. To the extent an
impairment provision is necessary, the excess of the carrying amount of the asset over its
estimated fair value is expensed to operations. In addition, the impairment provision is allocated
proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which
represents the new cost basis of the asset, is depreciated over the remaining useful life of the
asset or, for Master Planned Communities, is expensed as a cost of sales when the asset is sold.
Assets that have been impaired will in the future have lower depreciation and cost of sale
expenses, but the impairment will have no impact on cash flow.
No impairment provisions were recorded in the three and six months ended June 30, 2011 and
approximately $0.2 million and $0.5 million, respectively, of impairment provisions, on
predevelopment costs at certain of our Strategic Developments properties, were recorded in the
three and six months ended June 30, 2010. As of June 30, 2011, no additional impairments were taken
because we believe that the carrying amounts are recoverable. Despite this conclusion, additional
impairment charges in the future could result if our plans regarding our assets change and/or
economic conditions deteriorate. We can provide no assurance that material impairment charges with
respect to Master Planned Community assets, Operating Assets, Strategic Developments, Real Estate
Affiliates or Developments in progress will not occur in future periods. Accordingly, we will
continue to monitor circumstances and events in future periods to determine whether additional
impairments are warranted.
Investments in Real Estate Affiliates
We account for investments in joint ventures where we own a non-controlling participating interest
using the equity method and, investments in joint ventures where we have virtually no influence on
the joint ventures operating and financial policies, on the cost method. Under the equity method,
the cost of our investment is adjusted for our share of the equity in earnings (losses) of such
Real Estate Affiliates from the date of acquisition and reduced by distributions received.
Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets,
liabilities and funding obligations are shared in accordance with our ownership percentages. We
generally also share in the profit and losses, cash flows and other matters relating to our Real
Estate Affiliates in accordance with our respective ownership percentages. Differences between the
carrying amount of our investment in the Real Estate Affiliates and our share of the underlying
equity of such Real Estate Affiliates, arising for example, from acquisition accounting or
impairment provisions, are amortized over the related lives ranging from 5 to 45 years. For cost
method investments, we recognize earnings when dividends are received from such investments, and
along with equity method earnings, is included in Income from Real Estate Affiliates in our
consolidated and combined statements of operations and comprehensive income (loss).
- 9 -
Warrants
As described above, on the Effective Date, we issued warrants to purchase 8.0 million shares of our
common stock to certain of the sponsors of the Plan (the Sponsors Warrants) with an estimated
initial value of approximately $69.5 million. The warrants have an initial exercise price of $50.00
per share and will be subject to adjustment for future stock dividends, splits or reverse splits of
our common stock or certain other events. Approximately 6.1 million warrants are immediately
exercisable and approximately 1.9 million warrants are exercisable upon 90 days prior notice for
the first 6.5 years after issuance and exercisable without notice any time thereafter. Sponsors
Warrants expire on November 9, 2017.
In addition, in 2010 and 2011, the Company entered into certain warrant agreements with David R.
Weinreb, our Chief Executive Officer, Grant Herlitz, our President, and Andrew C. Richardson, our
Chief Financial Officer (the Management Warrants), in each case prior to his appointment to
such position. Warrants for an aggregate of 2,862,687 shares were issued pursuant to such
agreements in exchange for approximately $19.0 million from such executives at the commencement
of their respective employment, which was deemed to be the fair value of such warrants. Mr.
Weinreb and Mr. Herlitzs warrants have exercise prices of $42.23 per share and Mr. Richardsons
warrant has an exercise price of $54.50 per share. Generally, the Management Warrants become
exercisable in November 2016 and expire by February 2018.
The aggregate estimated $298.5 million and $227.3 million fair values of the Sponsors Warrants
and Management Warrants as of June 30, 2011 and December 31, 2010, respectively, have been
recorded as a liability because the holders of the warrants could require HHC to settle such
warrants in cash upon a change of control. Such fair values were estimated using an option
pricing model and level 3 inputs due to the unavailability of comparable market data. Changes in
fair value of the Sponsors Warrants and the Management Warrants have been and will continue to be
recognized in earnings and, accordingly, the warrant liability gains reflecting a decrease in
value of approximately $56.9 million and the warrant liability losses reflecting an increase in
value of $69.1 million, were recognized for the three and six months ended June 30, 2011,
respectively.
Contingent Stock Agreement
In conjunction with GGPs acquisition of The Rouse Company (TRC) in November 2004, GGP assumed
TRCs obligations under the Contingent Stock Agreement, (the CSA). TRC entered into the CSA in
1996 when it acquired The Hughes Corporation (Hughes). This acquisition included various assets,
including Summerlin (the CSA Assets), a development in our Master Planned Communities segment.
The CSA provided that the beneficiaries receive a share of the cash flow and income from the
development or sale of the CSA assets and a final payment representing their share of the valuation
of the CSA Assets as of December 31, 2009. The Plan provided that the final payment and settlement
of all other claims under the CSA was an obligation of GGP and was $230 million (down from the $245
million estimate at December 31, 2009), and such amount was distributed by GGP after the Effective
Date. Accordingly, during September 2010, we reduced our carrying value of the CSA assets, and the
related GGP equity, by $15 million for this revised estimate.
Fair Value Measurements
The accounting principles for fair value measurements establish a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value. These tiers include:
|
|
|
Level 1 defined as observable inputs such as quoted prices for identical assets or
liabilities in active markets; |
|
|
|
Level 2 defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and |
|
|
|
Level 3 defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions. |
The asset or liability fair value measurement level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value measurement. Valuation techniques
used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Any fair values utilized or disclosed in our financial statements were developed for the purpose of
complying with the accounting principles established for fair value measurements.
- 10 -
The Company is required to estimate the fair value of its long-lived assets, such as its real
estate investments, that it determines are impaired. For the three and six months ended June 30,
2011, no real estate assets were considered impaired and therefore no real estate assets were
measured at fair value in such period. Those assets which were impaired in 2010 were recorded at
their estimated fair value in the period in which the impairment occurred.
The only liabilities presented at fair value and measured on a recurring basis at June 30, 2011 are
the Sponsors Warrants and Management Warrants for which we recognized approximately $56.9 million
of income and $69.1 million, of expense, respectively, in the three and six months ended June 30,
2011 for the changes in the recorded valuation of such warrants and a swap entered into in May 2011
with a recorded fair value of $0.7 million (Note 4). As of December 31, 2010, we did not have any
derivative financial instruments and our investments in marketable securities were immaterial.
For the three and six months ended June 30, 2010, non-recurring fair value measurements included
approximately $0.2 million and $0.5 million, respectively, of impairment provisions, representing
the full write-off of various pre-development costs that were determined to be non-recoverable due
to the related projects being terminated. In addition, no debt was measured at fair value during
the three and six months ended June 30, 2010 as no HHC Debtors emerged from bankruptcy during this
time period.
Fair Value of Financial Instruments
The fair values of our financial instruments approximate their carrying amount in our financial
statements except for debt. Managements required estimates of fair value are presented below for
our debt at June 30, 2011 and December 31, 2010. This fair value was estimated solely for
financial statement reporting purposes and should not be used for any other purposes, including
estimating the value of any of the Companys securities. We estimated the fair value of this debt
based on quoted market prices for publicly-traded debt, recent financing transactions (which may
not be comparable), estimates of the fair value of the property that serves as collateral for such
debt, historical risk premiums for loans of comparable quality, the current London Interbank
Offered Rate (LIBOR), a widely quoted market interest rate which is frequently the index used to
determine the rate at which we borrow funds, U.S. treasury obligation interest rates and on the
discounted estimated future cash payments to be made on such debt. The discount rates estimated
reflect our judgment as to what the approximate current lending rates for loans or groups of loans
with similar maturities and credit quality would be if credit markets were operating efficiently
and assume that the debt is outstanding through maturity. We have utilized available market
information or present value techniques to estimate the amounts required to be disclosed. Since
such amounts are estimates that are based on limited available market information for similar
transactions and do not acknowledge transfer or other repayment restrictions that may exist in
specific loans, it is unlikely that the estimated fair value of any of such debt could be realized
by immediate settlement of the obligation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
(In thousands) |
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
Fixed-rate debt |
|
$ |
154,949 |
|
|
$ |
168,447 |
|
|
$ |
191,037 |
|
|
$ |
202,897 |
|
Variable-rate debt |
|
|
93,902 |
|
|
|
94,378 |
|
|
|
65,518 |
|
|
|
65,629 |
|
SID bonds (*) |
|
|
57,817 |
|
|
|
57,817 |
|
|
|
62,105 |
|
|
|
62,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
306,668 |
|
|
$ |
320,642 |
|
|
$ |
318,660 |
|
|
$ |
330,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Due to the uncertain repayment terms of special improvement district (SID) bonds, the carrying value has been used as an approximation of fair value. |
Revenue Recognition and Related Matters
Revenues from land sales are recognized using the full accrual method if various criteria provided
by GAAP relating to the terms of the transactions and our subsequent involvement with the land sold
are met. Revenues relating to transactions that do not meet the established criteria are deferred
and recognized when the criteria are
- 11 -
met or using the installment or cost recovery methods, as appropriate in the circumstances. In
addition, we recognize revenue related to our right to participate in the ultimate home sale
proceeds of the builders we sell our lots to as such amounts are collected.
Cost of land sales is determined as a specified percentage of land sales revenues recognized for
each community development project. These cost ratios used are based on actual costs incurred and
estimates of future development costs and sales revenues to completion of each project. The ratios
are reviewed regularly and revised for changes in sales and cost estimates or development plans.
Significant changes in these estimates or development plans, whether due to changes in market
conditions or other factors, could result in changes to the cost ratio used for a specific project.
For certain parcels of land, however, the specific identification method is used to determine cost
of sales including acquired parcels we do not intend to develop or for which development was
complete at the date of acquisition.
Nouvelle at Natick is a 215 unit residential condominium project, located in Natick, Massachusetts.
Pursuant to the Plan, only the unsold units at Nouvelle at Natick on the Effective Date were
distributed to us and no deferred revenue or sales proceeds from unit closings prior to the
Effective Date were allocated to us. As of June 30, 2011, 33 units were unsold at Nouvelle at
Natick, of which eight were under contract for sale. Income related to unit sales subsequent to the
Effective Date is accounted for on a unit-by-unit full accrual method.
Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases.
Minimum rent revenues also include amounts collected from tenants to allow the termination of their
leases prior to their scheduled termination dates and accretion related to above and below-market
tenant leases on acquired properties. Certain of our leases include both a base rent component and
a component which requires tenants to pay amounts related to all, or substantially all, of their
share of real estate taxes and certain property operating expenses, including common area
maintenance and insurance. The portion of the tenant rent from these leases attributable to real
estate tax and operating expense recoveries are recorded as tenant recoveries.
Straight-line rent receivables, which represent the current net cumulative rents recognized prior
to when billed and collectible as provided by the terms of the leases, of $2.7 million and $2.0
million as of June 30, 2011 and December 31, 2010, respectively, are included in Accounts
receivable, net in our consolidated balance sheets.
Income Taxes
Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets
and liabilities are recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases
of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Deferred income taxes also reflect the impact of operating loss and tax
credit carryforwards. A valuation allowance is provided if we believe it is more likely than not
that all or some portion of the deferred tax asset will not be realized. There are events or
circumstances that could occur in the future that could limit the benefit of deferred tax assets,
such as an inability to generate taxable income in the future or a change in ownership. An increase
or decrease in the valuation allowance that results from a change in circumstances, and which
causes a change in our judgment about the realizability of the related deferred tax asset, is
included in the current year deferred tax provision. In addition, we recognize and report interest
and penalties, if necessary, related to uncertain tax positions within our provision for income tax
expense.
In many of our Master Planned Communities, gains with respect to sales of land for commercial use
are reported for tax purposes on the percentage of completion method. Under the percentage of
completion method, gain is recognized for tax purposes as costs are incurred in satisfaction of
contractual obligations. The method used for determining the percentage complete for income tax
purposes is different than that used for financial statement purposes. In addition, gains with
respect to sales of land for single family residences are reported for tax purposes under the
completed contract method. Under the completed contract method, gain is recognized for tax
purposes when 95% of the costs of our contractual obligations are incurred or the contractual
obligation is transferred.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed
after adjusting the numerator and denominator of the basic EPS computation for the effects of all
potentially dilutive common
- 12 -
shares. The dilutive effect of options and nonvested stock issued under stock-based compensation
plans is computed using the treasury stock method. The dilutive effect of Sponsor Warrants and
Management Warrants is computed using the if-converted method.
As defined and described in Note 6, certain HHC Replacement Options outstanding are required to be
settled by GGP and therefore do not represent dilutive securities at any date presented. Of the HHC
Replacement Options outstanding that are required to be settled by HHC, diluted EPS excludes
options where the exercise price was higher than the average market price of our common stock and
options for which vesting requirements were not satisfied. Such options totaled 2,522 shares as of
June 30, 2011.
As discussed above, in connection with the Separation on November 9, 2010, GGP distributed to its
stockholders 32.5 million shares of our common stock and approximately 5.25 million shares were
purchased by certain investors sponsoring the Plan. This share amount is being used in the
calculation of basic and diluted EPS for the three and six months ended June 30, 2010 as our common
stock was not traded prior to November 9, 2010 and there were no dilutive securities in the prior
periods.
Information related to our EPS calculations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common
stockholders |
|
$ |
65,973 |
|
|
$ |
(28,042 |
) |
|
$ |
(48,542 |
) |
|
$ |
(48,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding basic |
|
|
37,897 |
|
|
|
37,716 |
|
|
|
37,897 |
|
|
|
37,716 |
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common
stockholders |
|
$ |
65,973 |
|
|
$ |
(28,042 |
) |
|
$ |
(48,542 |
) |
|
$ |
(48,571 |
) |
Warrant liability gain |
|
|
(56,910 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income available to common
stockholders |
|
$ |
9,063 |
|
|
$ |
(28,042 |
) |
|
$ |
(48,542 |
) |
|
$ |
(48,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding basic |
|
|
37,897 |
|
|
|
37,716 |
|
|
|
37,897 |
|
|
|
37,716 |
|
Diluted effect: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
2,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding diluted |
|
|
40,870 |
|
|
|
37,716 |
|
|
|
37,897 |
|
|
|
37,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities not included above |
|
|
669 |
|
|
|
|
|
|
|
9,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share |
|
$ |
1.74 |
|
|
$ |
(0.74 |
) |
|
$ |
(1.28 |
) |
|
$ |
(1.29 |
) |
Diluted Earnings (Loss) Per Share |
|
$ |
0.22 |
|
|
$ |
(0.74 |
) |
|
$ |
(1.28 |
) |
|
$ |
(1.29 |
) |
Municipal Utility Districts
In Houston, Texas, certain development costs are reimbursable through the creation of Municipal
Utility Districts (MUDs) and Water Control and Improvement Districts, which are separate
political subdivisions authorized by Article 16, Section 59 of the Texas Constitution and governed
by the Texas Commission on Environmental Quality (TCEQ). MUDs are formed to provide municipal
water, waste water, drainage services, recreational facilities and roads to those areas where they
are currently unavailable through the regular city services. Typically, the developer advances
funds for the creation of the facilities, which must be designed, bid and constructed in accordance
with the City of Houstons and TCEQ requirements. The developer initiates
- 13 -
the MUD process by filing the applications for the formation of the MUD, and once the applications
have been approved, a board of directors is elected for the MUD and given the authority to issue ad
valorem tax bonds and the authority to tax residents. The MUD board authorizes and approves all MUD
development contracts and pay estimates. The Company estimates the costs it believes will be
eligible for reimbursement and classifies them as MUD receivables. MUD bond sale proceeds are used
to reimburse the developer for its construction costs, including interest. MUD taxes are used to
pay the debt service on the bonds and the operating expenses of the MUD. The Company has not
incurred any debt relating to the MUDs.
Reorganization and Other 2010 Bankruptcy-Related Items
As certain of the HHC Businesses had filed for bankruptcy protection in April 2009 (the HHC
Debtors), these entities are required by GAAP to separately present as Reorganization items
elements of expense or income that were incurred or realized as a result of the bankruptcy filings.
These items include professional fees and similar types of expenses and gains and interest earned
on cash accumulated by certain of our subsidiaries, all as a result of the bankruptcy.
Reorganization items specific to the HHC Debtors have been allocated to us and have been reflected
in our combined statement of operations and comprehensive income (loss) for the three and six
months ended June 30, 2010 and in the table presented below.
Reorganization items are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
Reorganization Items |
|
June 30, 2010 |
|
|
June 30, 2010 |
|
(In thousands) |
|
|
|
|
|
|
|
|
Gains on liabilities subject to compromise vendors (a) |
|
$ |
(36 |
) |
|
$ |
(282 |
) |
Losses on liabilities subject to compromise, net mortgage debt (b) |
|
|
365 |
|
|
|
365 |
|
Interest income (c) |
|
|
(1 |
) |
|
|
(1 |
) |
U.S. Trustee fees |
|
|
131 |
|
|
|
270 |
|
Restructuring costs (d) |
|
|
9,560 |
|
|
|
26,262 |
|
|
|
|
|
|
|
|
Total reorganization items |
|
$ |
10,019 |
|
|
$ |
26,614 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This amount includes gains from repudiation, rejection or termination of contracts or
guarantee of obligations. Such gains reflect agreements reached with certain critical vendors,
which were authorized by the Bankruptcy Court, and for which payments on an installment basis began
in July 2009. |
|
(b) |
|
Net losses include the Fair Value adjustments of mortgage debt relating to entities that
emerged from bankruptcy. |
|
(c) |
|
Interest income primarily reflects amounts earned on cash
accumulated as a result of our Chapter 11 cases. |
|
(d) |
|
Restructuring costs primarily include professional fees incurred related to the bankruptcy
filings, our allocated share of the Key Employee Incentive Plan (KEIP) payment, finance costs
incurred by debtors upon emergence from bankruptcy and any associated write-off of unamortized
deferred finance costs related to emerged debtors. |
Gains on liabilities subject to compromise vendors represent the income effects of the
settlement of certain liabilities of the HHC Debtors that were incurred prior to their bankruptcy
filings in 2009. All liabilities incurred by the HHC Debtors prior to such bankruptcy filings were
subject to compromise in 2010 as the amounts to be paid were subject to settlement, adjustment, or
reinstatement as provided by Chapter 11. The amounts of the various categories of liabilities that
were subject to compromise are set forth below and represented the then estimates of known or
potential liabilities likely to be resolved in connection with the then planned 2010 emergence from
bankruptcy of the HHC Debtors. As the plans of reorganization for the HHC Debtors ultimately
approved subsequent to June 30, 2010 provided for, in general, full payment of allowed claims,
substantially all recorded liabilities of the HHC Debtors that were subject to compromise at June
30, 2010 were settled, reinstated or retained by the Effective Date. In addition, GGP agreed that
it would reimburse HHC up to $5.0 million for liability claims related to periods prior to the HHC
Debtors bankruptcy filings, the majority of which has been paid as of June 30, 2011.
- 14 -
The amounts subject to compromise at June 30, 2010 consisted of the following items:
|
|
|
|
|
(In thousands) |
|
|
|
|
Mortgages and secured notes |
|
$ |
132,849 |
|
Accounts payable and accrued liabilities |
|
|
100,774 |
|
|
|
|
|
Total liabilities subject to compromise |
|
$ |
233,623 |
|
|
|
|
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions. These estimates and assumptions affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
periods. For example, estimates and assumptions have been made with respect to useful lives of
assets, capitalization of development and leasing costs, provision for income taxes, recoverable
amounts of receivables and deferred taxes, initial valuations and related amortization periods of
deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived
assets and goodwill, fair value of warrants and debt and cost ratios and completion percentages
used for land sales. Actual results could differ from these and other estimates.
Recently Issued Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (FASB) issued a new standard which changes
the requirements for presenting comprehensive income in the financial statements. The new standard
eliminates the option to present other comprehensive income (OCI) in the statement of stockholders
equity and instead requires net income, components of OCI, and total comprehensive income to be
presented in one continuous statement or two separate but consecutive statements. The standard will
be effective for us beginning with our first quarter 2012 reporting and will be applied
retrospectively. HHC had elected to present OCI in one continuous statement in all its previous
filings and accordingly, the effective date of this standard will not have an effect on our results
of operating, financial position, or cash flows in our consolidated financial statements.
In May 2011, the FASB issued Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs. The standard revises guidance for fair value measurement and
expands the disclosure requirements. It is effective for fiscal years beginning after December 15,
2011. We are currently evaluating the impact that the adoption of this standard will have on our
Consolidated Financial Statements.
- 15 -
NOTE 2 INTANGIBLE ASSETS AND LIABILITIES
The following table summarizes our intangible assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Net |
|
|
|
Gross Asset |
|
|
(Amortization) |
|
|
Carrying |
|
(In thousands) |
|
(Liability) |
|
|
/ Accretion |
|
|
Amount |
|
As of June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases: |
|
|
|
|
|
|
|
|
|
|
|
|
In-place value |
|
$ |
11,738 |
|
|
$ |
(10,385 |
) |
|
$ |
1,353 |
|
Above-market |
|
|
1,820 |
|
|
|
(1,814 |
) |
|
|
6 |
|
Below-market |
|
|
|
|
|
|
|
|
|
|
|
|
Ground leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Above-market |
|
|
(3,545 |
) |
|
|
874 |
|
|
|
(2,671 |
) |
Below-market |
|
|
23,096 |
|
|
|
(2,247 |
) |
|
|
20,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases: |
|
|
|
|
|
|
|
|
|
|
|
|
In-place value |
|
$ |
11,824 |
|
|
$ |
(10,221 |
) |
|
$ |
1,603 |
|
Above-market |
|
|
1,820 |
|
|
|
(1,701 |
) |
|
|
119 |
|
Below-market |
|
|
(77 |
) |
|
|
77 |
|
|
|
|
|
Ground leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Above-market |
|
|
(3,545 |
) |
|
|
638 |
|
|
|
(2,907 |
) |
Below-market |
|
|
23,096 |
|
|
|
(2,078 |
) |
|
|
21,018 |
|
The gross asset balances of the in-place value of tenant leases are included in Buildings and
equipment in our consolidated balance sheets. The above-market and below-market tenant and ground
leases are included in Prepaid expenses and other assets and Accounts payable and accrued expenses
in our consolidated balance sheets.
Amortization/accretion of these intangible assets and liabilities decreased our income (excluding
the impact of noncontrolling interests and the provision for income taxes) by $0.1 million and $0.3
million, respectively, for the three and six months ended June 30, 2011 and by $0.2 million and
$0.4 million, respectively, for the three and six months ended June 30, 2010
Future amortization of these intangible assets and liabilities is estimated to decrease net income
(excluding the impact of noncontrolling interests and the provision for income taxes) by
approximately $0.2 million for the remainder of 2011 and $0.3 million in 2012, $0.2 million in
2013, $0.1 million in 2014 and $18.7 million thereafter.
NOTE 3 REAL ESTATE AFFILIATES
As of June 30, 2011, we own noncontrolling investments in The Woodlands Partnerships and Circle T
whereby, generally, we share in the profits and losses, cash flows and other matters relating to
our investments in Real Estate Affiliates in accordance with our respective ownership percentages.
As we have joint interest and joint control of these ventures with our venture partners, we account
for these joint ventures using the equity method. For cost method investments (Note 1), we
recognize earnings to the extent of dividends received from such investments, which are included,
along with equity method earnings, in Income from Real Estate Affiliates in our consolidated and
combined statements of operations and comprehensive income (loss). In March 2011, we received
approximately $3.9 million in dividends from our Summerlin Hospital investment which is reported on
the cost method.
As of June 30, 2011, approximately $296.5 million of indebtedness was secured by the properties
owned by our Real Estate Affiliates, our share of which was approximately $126.0 million.
- 16 -
On July 1, 2011, HHC completed the acquisition of its venture partners 57.5% legal interest, which
equates to a 47.5% economic interest based on the joint venture agreement, in The Woodlands
Partnerships for $117.5 million. The purchase consideration consisted of $20.0 million in cash paid
at closing and a $97.5 million non-interest bearing promissory note due December 1, 2011. Upon
completion of the acquisition, The Woodlands Partnerships became a wholly-owned subsidiary of HHC.
This business combination did not represent a significant acquisition of assets under the SEC
rules. However, the acquisition will require that we apply in our future reports the acquisition
method of accounting and record, on a consolidated basis, the assets and liabilities of The
Woodlands Partnerships at fair value on the date of acquisition.
Condensed Combined Financial Information of Certain Real Estate Affiliates
The Woodlands Partnerships and Circle T are accounted for on the equity method. The three and six
months ended June 30, 2010 revenues and expenses and net income attributable to joint ventures in the table below have been restated
to correct the prior presentation to reflect
certain eliminations not previously reported. The restatement has no effect on our previously reported Income from Real Estate Affiliates. The following summarized financial information as of June 30, 2011 and
December 31, 2010 and for the three and six months ended June 30, 2011 and 2010, is presented
below:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
Condensed Combined Balance Sheets - Certain Real Estate Affiliates |
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
31,077 |
|
|
$ |
31,077 |
|
Building and equipment |
|
|
242,430 |
|
|
|
241,436 |
|
Less accumulated depreciation |
|
|
(85,081 |
) |
|
|
(81,218 |
) |
Developments in progress |
|
|
28,725 |
|
|
|
25,431 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
217,151 |
|
|
|
216,726 |
|
Land held for development and sale |
|
|
226,777 |
|
|
|
237,117 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
443,928 |
|
|
|
453,843 |
|
Cash and cash equivalents |
|
|
25,493 |
|
|
|
99,769 |
|
Accounts and notes receivable, net |
|
|
44,782 |
|
|
|
45,863 |
|
Deferred expenses, net |
|
|
5,094 |
|
|
|
895 |
|
Prepaid expenses and other assets |
|
|
39,377 |
|
|
|
41,663 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
558,674 |
|
|
$ |
642,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Owners Equity: |
|
|
|
|
|
|
|
|
Mortgages, notes and loans payable |
|
$ |
296,515 |
|
|
$ |
372,222 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
109,403 |
|
|
|
122,877 |
|
Owners equity |
|
|
152,756 |
|
|
|
146,934 |
|
|
|
|
|
|
|
|
Total liabilities and owners equity |
|
$ |
558,674 |
|
|
$ |
642,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Real Estate Affiliates, Net |
|
|
|
|
|
|
|
|
Owners equity |
|
$ |
152,756 |
|
|
$ |
146,934 |
|
Less joint venture partners equity |
|
|
(73,009 |
) |
|
|
(70,243 |
) |
Basis differences, loans and cost basis investments |
|
|
73,386 |
|
|
|
72,852 |
|
|
|
|
|
|
|
|
Investment in Real Estate Affiliates |
|
$ |
153,133 |
|
|
$ |
149,543 |
|
|
|
|
|
|
|
|
The Woodlands Partnerships had total assets, total debt and owners equity of $540.7 million,
$296.5 million and $107.3 million, respectively, as of June 30, 2011. On December 31, 2010, such
amounts were $616.9 million, $372.2 million and $101.1 million, respectively.
- 17 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
25,907 |
|
|
$ |
26,085 |
|
|
$ |
47,880 |
|
|
$ |
49,471 |
|
Tenant rents |
|
|
4,207 |
|
|
|
3,620 |
|
|
|
6,048 |
|
|
|
4,541 |
|
Other |
|
|
13,799 |
|
|
|
10,651 |
|
|
|
26,569 |
|
|
|
21,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
43,913 |
|
|
|
40,356 |
|
|
|
80,497 |
|
|
|
75,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales land |
|
|
12,442 |
|
|
|
14,057 |
|
|
|
23,932 |
|
|
|
26,206 |
|
Land sales operations |
|
|
8,887 |
|
|
|
5,282 |
|
|
|
14,206 |
|
|
|
11,438 |
|
Real estate taxes |
|
|
485 |
|
|
|
496 |
|
|
|
984 |
|
|
|
986 |
|
Property maintenance costs |
|
|
568 |
|
|
|
383 |
|
|
|
1,037 |
|
|
|
468 |
|
Property operating costs |
|
|
9,810 |
|
|
|
9,896 |
|
|
|
20,969 |
|
|
|
20,354 |
|
Depreciation and amortization |
|
|
1,899 |
|
|
|
1,711 |
|
|
|
3,829 |
|
|
|
3,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
34,091 |
|
|
|
31,825 |
|
|
|
64,957 |
|
|
|
63,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
9,822 |
|
|
|
8,531 |
|
|
|
15,540 |
|
|
|
12,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
639 |
|
|
|
570 |
|
|
|
1,084 |
|
|
|
1,339 |
|
Interest expense |
|
|
(4,918 |
) |
|
|
(5,219 |
) |
|
|
(8,927 |
) |
|
|
(8,121 |
) |
Provision for income taxes |
|
|
(970 |
) |
|
|
(827 |
) |
|
|
(1,467 |
) |
|
|
(1,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to joint ventures |
|
$ |
4,573 |
|
|
$ |
3,055 |
|
|
$ |
6,230 |
|
|
$ |
4,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Real Estate Affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to joint ventures |
|
$ |
4,573 |
|
|
$ |
3,055 |
|
|
$ |
6,230 |
|
|
$ |
4,952 |
|
Joint venture partners share of income |
|
|
(2,172 |
) |
|
|
(1,451 |
) |
|
|
(2,959 |
) |
|
|
(2,352 |
) |
Amortization of capital or basis differences, and
distributions from cost method investments |
|
|
(293 |
) |
|
|
2,076 |
|
|
|
4,350 |
|
|
|
2,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Real Estate Affiliates |
|
$ |
2,108 |
|
|
$ |
3,680 |
|
|
$ |
7,621 |
|
|
$ |
5,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Real Estate Affiliates By Affiliate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands |
|
$ |
2,108 |
|
|
$ |
3,680 |
|
|
$ |
3,727 |
|
|
$ |
5,172 |
|
Circle T |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summerlin Hospital Medical Center |
|
|
|
|
|
|
|
|
|
|
3,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,108 |
|
|
$ |
3,680 |
|
|
$ |
7,621 |
|
|
$ |
5,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE
Mortgages, notes and loans payable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable |
|
$ |
154,949 |
|
|
$ |
191,037 |
|
Special Improvement District bonds |
|
|
57,817 |
|
|
|
62,105 |
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable |
|
|
93,902 |
|
|
|
65,518 |
|
|
|
|
|
|
|
|
Total mortgages, notes and loans payable |
|
$ |
306,668 |
|
|
$ |
318,660 |
|
|
|
|
|
|
|
|
- 18 -
The following table presents our mortgages, notes, and loans payable by property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Interest |
|
|
|
|
Property (In thousands) |
|
Principal |
|
|
Discount |
|
|
Value |
|
|
Rate |
|
|
Maturity |
|
Mortgages, notes and loans payable
Ward Centers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ward Gateway Industrial Village |
|
$ |
86,823 |
|
|
$ |
(6,612 |
) |
|
$ |
80,211 |
|
|
|
5.61 |
% |
|
October 2016 |
Ward Entertainment Center Ward Centre |
|
|
55,584 |
|
|
|
(2,411 |
) |
|
|
53,173 |
|
|
|
4.33 |
% |
|
January 2014 |
Ward Village Shops |
|
|
377 |
|
|
|
|
|
|
|
377 |
|
|
|
5.35 |
% |
|
June 2025 |
Ward Warehouse Ward Plaza |
|
|
67,302 |
|
|
|
(2,400 |
) |
|
|
64,902 |
|
|
|
2.69 |
% (a) |
|
October 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111 N. Wacker |
|
|
29,000 |
|
|
|
|
|
|
|
29,000 |
|
|
|
5.21 |
% (b) |
|
November 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note #1 |
|
|
2,249 |
|
|
|
(180 |
) |
|
|
2,069 |
|
|
|
6.50 |
% |
|
June 2033 |
Note #2 |
|
|
3,394 |
|
|
|
|
|
|
|
3,394 |
|
|
|
6.50 |
% |
|
December 2017 |
Note #3 |
|
|
15,452 |
|
|
|
|
|
|
|
15,452 |
|
|
|
6.50 |
% |
|
May 2026 |
Note #4 |
|
|
273 |
|
|
|
|
|
|
|
273 |
|
|
|
6.50 |
% |
|
December 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgages, notes and loans payable |
|
|
260,454 |
|
|
|
(11,603 |
) |
|
|
248,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Improvement District bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summerlin West S808 |
|
|
1,053 |
|
|
|
|
|
|
|
1,053 |
|
|
|
7.75 |
% |
|
April 2021 |
Summerlin West S809 |
|
|
1,518 |
|
|
|
|
|
|
|
1,518 |
|
|
|
6.65 |
% |
|
April 2023 |
Summerlin West S810 |
|
|
23,048 |
|
|
|
|
|
|
|
23,048 |
|
|
|
7.13 |
% |
|
April 2031 |
Summerlin South S108 |
|
|
1,426 |
|
|
|
|
|
|
|
1,426 |
|
|
|
5.95 |
% |
|
December 2016 |
Summerlin South S124 |
|
|
438 |
|
|
|
|
|
|
|
438 |
|
|
|
5.95 |
% |
|
December 2019 |
Summerlin South S128 |
|
|
898 |
|
|
|
|
|
|
|
898 |
|
|
|
7.30 |
% |
|
December 2020 |
Summerlin South S128C |
|
|
6,060 |
|
|
|
|
|
|
|
6,060 |
|
|
|
6.05 |
% |
|
December 2030 |
Summerlin South S132 |
|
|
4,124 |
|
|
|
|
|
|
|
4,124 |
|
|
|
7.88 |
% |
|
December 2020 |
Summerlin South S151 |
|
|
14,243 |
|
|
|
|
|
|
|
14,243 |
|
|
|
6.00 |
% |
|
June 2025 |
The Shops @ Summerlin Centre S108 |
|
|
943 |
|
|
|
|
|
|
|
943 |
|
|
|
5.95 |
% |
|
December 2016 |
The Shops @ Summerlin Centre S128 |
|
|
4,066 |
|
|
|
|
|
|
|
4,066 |
|
|
|
6.05 |
% |
|
December 2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Special Improvement District bonds |
|
|
57,817 |
|
|
|
|
|
|
|
57,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
318,271 |
|
|
$ |
(11,603 |
) |
|
$ |
306,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based on LIBOR of 0.1872% at June 30, 2011 plus
the specified spread in the loan. |
|
(b) |
|
Based on the May
10, 2011 cash flow hedge described below. |
The weighted average interest rate on our mortgages, notes and loans payable, inclusive of
interest rate hedges, was 4.99% and 5.14% as of June 30, 2011 and December 31, 2010, respectively.
Collateralized Mortgages, Notes and Loans Payable
As of June 30, 2011, we had $248.9 million of collateralized mortgages, notes and loans payable.
All of the debt is non-recourse and is secured by the individual properties as listed in the table
above, except for a $7.0 million recourse guarantee associated with the 110 N. Wacker mortgage,
which is more fully discussed below. The Bridgeland MPC loan is secured by approximately 7,615
acres of land within the Bridgelands MPC. In addition, certain of our loans contain provisions
which grant the lender a security interest in the operating cash flow of the property that
represents the collateral for the loan. Such provisions are not expected to materially impact our
operations in 2011. Certain mortgage notes may be prepaid, but may be subject to a prepayment
penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.
On May 10, 2011, the Company closed a $29.0 million first mortgage financing secured by its office
building located at 110 N. Wacker Drive in Chicago, Illinois and bearing interest at LIBOR plus
2.25%. The loan matures on October 31, 2019 and its term is coterminous with the expiration of the
first term of the existing tenants lease (Note 9). The loan has an interest-only period through
April 2015 and, thereafter, amortizes ratably to $12.0 million through maturity. The proceeds from
the financing were used to repay the existing $28.2 million mortgage and to pay closing costs and
other expenses. The Company provided a $7.0 million repayment guarantee for the loan, which is
reduced on a dollar for dollar basis during the amortization period.
In order to limit the Companys exposure to interest rate fluctuations related to the variable rate
debt disclosed above, the Company entered into an interest rate swap. This interest rate swap was
designated as a cash flow hedge and fixed the interest rate at 5.21% per annum. The effective
portion of the swaps gains or losses due to changes in fair value are initially recorded in
accumulated other comprehensive loss and are subsequently reclassified into earnings when the
interest payments are remitted. The gross notional amount of the swap is $29.0 million and matures
on October 31, 2019. The fixed pay rate is 2.96% and the variable receive rate is
- 19 -
based on the monthly LIBOR rate. The fair value of the swap was estimated using Level 2
measurements based on the hedged variable cash flows and forward yield curves relating to the
variable interest rates on which the cash flows are based. At June 30, 2011, the swap liability was
$0.7 million and is recorded in accounts payable and accrued expenses. The swap was determined to
be highly effective and as a result the impact to earnings for the three and six months ended June
30, 2011 due to ineffectiveness was immaterial.
Special Improvement District Bonds
The Summerlin master planned community uses Special Improvement District bonds to finance certain
common infrastructure. These bonds are issued by the municipalities and, although unrated, are
secured by the assessments on the land and approximately 1,971 acres of land within the Summerlin
MPC. The majority of proceeds from each bond issued is held in a construction escrow and dispersed
to us as infrastructure projects are completed, inspected by the municipalities and approved for
reimbursement. Accordingly, the cash raised but not yet spent related to the Special Improvement
District bonds has been classified as a receivable within Prepaid and other assets. We pay the debt
service on the bonds semi-annually, but typically receive reimbursement of all principal
amortization paid by us from certain purchasers of our land; therefore, the Special Improvement
District receivable (included in Prepaid expenses and other assets) and Special Improvement
District bonds (included in Mortgages, notes and loans payable) largely offset (Note 7). In
addition, as the Summerlin master planned community sells land, the purchasers assume a
proportionate share of the bond obligation.
Letters of Credit and Surety Bonds
We had outstanding letters of credit and surety bonds of $33.5 million as of June 30, 2011 and
$38.7 million as of December 31, 2010. These letters of credit and bonds were issued primarily in
connection with insurance requirements, special real estate assessments and construction
obligations.
NOTE 5 INCOME TAXES
We are taxed as a C Corporation. One of our consolidated entities, Victoria Ward, Limited. (Ward,
substantially all of which is owned by us) elected to be taxed as a REIT under sections 856-860 of
the Internal Revenue Code of 1986, as amended (the Code), commencing with the taxable year
beginning January 1, 2002. To qualify as a REIT, Ward must meet a number of organizational and
operational requirements, including requirements to distribute at least 90% of its ordinary taxable
income and to distribute to stockholders or pay tax on 100% of capital gains and to meet certain
asset and income tests. Ward was in compliance with the REIT requirements for 2010 and we intend
to operate Ward as a REIT in all periods subsequent to the Effective Date.
Warrant liability gain or loss as calculated for GAAP purposes reflects the change in the estimated
Warrant Liability based on an option pricing model and is not deductible for tax purposes. Changes
in the Companys stock price can materially change the estimated liability from quarter to quarter.
For financial reporting purposes, the tax effect of the warrant liability gain or loss will be
treated as a discrete item within the provision for income taxes due to the volatility of the
change in estimated liability from quarter to quarter.
Unrecognized tax benefits recorded pursuant to uncertain tax positions were $120.1 million as of
June 30, 2011 and December 31, 2010, excluding interest, of which none would impact our effective
tax rate. Accrued interest related to these unrecognized tax benefits amounted to $24.2 million as
of June 30, 2011 and $20.0 million as of December 31, 2010. We recognized an increase of interest
expense related to the unrecognized tax benefits of $2.0 million and $4.2 million, respectively,
for the three and six months ended June 30, 2011. Based on the expected outcome of existing
examinations or examinations that may commence, or as a result of the expiration of the statute of
limitations for specific jurisdictions, management does not believe that the unrecognized tax
benefits, excluding accrued interest, for tax positions taken regarding previously filed tax
returns will materially increase or decrease during the next twelve months. As described in the
Annual Report, pursuant to the Tax Matters Agreement, GGP has indemnified us from and against
93.75% of any and all losses, claims, damages, liabilities and reasonable expenses to which we
become subject (the Tax Indemnity Cap), in each case solely to the extent directly attributable
to certain taxes related to sales of certain assets in our Master Planned Communities segment prior
to March 31, 2010, in an amount up to $303.8 million, plus interest and penalties related to these
amounts so long as GGP controls the action in the Tax Court related to the dispute with the IRS.
The unrecognized tax benefits and related accrued interest recorded through June 30, 2011 are
primarily related to the taxes that are the subject of the Tax Indemnity Cap.
- 20 -
NOTE 6 STOCK-BASED PLANS
Incentive Stock Plans
On November 9, 2010, HHC adopted The Howard Hughes Corporation 2010 Equity Incentive Plan (the
''Equity Plan). Pursuant to the Equity Plan, 3,698,050 shares of HHC common stock are reserved
for issuance. The Equity Plan provides for grants of options, stock appreciation rights, restricted
stock, other stock-based awards and performance-based compensation (collectively, ''the Awards).
Directors, employees and consultants of HHC and its subsidiaries and affiliates are eligible for
Awards.
Prior to the Separation, the Predecessors granted qualified and non-qualified stock options and
restricted stock to certain GGP officers and key employees whose compensation costs related
specifically to our assets. Accordingly, an allocation of stock-based compensation costs of
approximately $0.2 million and $0.3 million, respectively, pertaining to such employees has been
reflected in our combined statement of operations and comprehensive income (loss) for the three and
six months ended June 30, 2010.
Stock Options
There were no grants of stock options under the Equity Plan in 2010. In the six months ended June
30, 2011, 679,340 options to purchase shares of our common stock were granted to certain of our
employees. Such options had a weighted average exercise price of approximately $58.53, vest at the
rate of 20% per year on each of the first five anniversaries of the grant date, may not be
exercised prior to December 31, 2016 and, unless earlier terminated under certain circumstances,
expire ten years from the grant date. Compensation expense related to stock options was
approximately $0.9 million for the six months ended June 30, 2011.
Pursuant to the Plan, each outstanding option to acquire shares of GGP stock (Old GGP Options)
was converted on the Effective Date into (i) an option to acquire the same number of shares of
common stock of reorganized GGP (New GGP Options) and (ii) a separate option to acquire 0.0983
shares of our common stock for each existing option for one share of GGP common stock (HHC
Replacement Options). The HHC Replacement Options were fully vested as of the Effective Date and
have the same terms and conditions as the Old GGP Options except that we have agreed with GGP that
all exercises of New GGP Options and HHC Replacement Options in 2011 and beyond would be settled by
the respective employer at the time of exercise. As of June 30, 2011 and January 1, 2011, there
were 53,393 and 164,138, respectively, HHC Replacement Options outstanding. Of such amounts, only
2,522 of such options represent potentially dilutive shares at such dates as all remaining amounts
were held by GGP employees. In addition, 25,994 New GGP Options (with a weighted average exercise
price of $45.99 as compared to a June 30, 2010 GGP closing stock price of $16.69 and a weighted
average remaining contracted term of 0.7 years) were held by our employees at June 30, 2011 and
therefore our potential net share settlement obligation for such New GGP Options is expected to be
nominal.
The following tables summarize HHC Replacement Option activity as of and for the six months ended
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
HHC Replacement Options outstanding at January 1 |
|
|
164,138 |
|
|
$ |
133.28 |
|
Exercised (a) |
|
|
(19,265 |
) |
|
|
40.71 |
|
Expired |
|
|
(91,480 |
) |
|
|
139.01 |
|
|
|
|
|
|
|
|
HHC Replacement Options outstanding at June 30 |
|
|
53,393 |
|
|
$ |
156.88 |
(b) |
|
|
|
|
|
|
|
|
|
|
(a) |
|
All net share settled by GGP. |
|
(b) |
|
Weighted average remaining contractual term of 0.7 years. |
- 21 -
Restricted Stock
Pursuant to the Equity Plan, the Company granted 8,247 and 8,953 shares of restricted common stock
in November 2010 and June 2011, respectively, to certain non-employee directors as part of their
annual retainer for their services on the board of directors. Our chairman has waived all
compensation, including any restricted stock grants, for services rendered as a director.
Subsequently, receipt of 1,352 of the shares of restricted stock issued in November 2010 was waived
by one of the directors as he also elected to not receive compensation for his service as a
director. The restrictions on all shares of restricted common stock issued in 2010 lapsed on June
1, 2011, and restrictions on all shares of restricted common stock issued in 2011 lapse on the
earlier of the Companys annual stockholders meeting or June 1, 2012. The Company granted 20,000
shares of restricted common stock to our CFO in March 2011 and 10,000 shares to our general counsel
in May 2011 in connection with their employment agreements and pursuant to the Equity Plan. The
restricted shares granted to our CFO generally do not vest until March 28, 2016, and the restricted
shares granted to our general counsel generally do not vest unit May 2, 2016.
NOTE 7 OTHER ASSETS AND LIABILITIES
The following table summarizes the significant components of prepaid expenses and other assets.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(in thousands) |
|
2011 |
|
|
2010 |
|
Special Improvement District receivable |
|
$ |
45,089 |
|
|
$ |
46,250 |
|
MUD and other receivables |
|
|
46,194 |
|
|
|
33,455 |
|
Prepaid expenses |
|
|
5,135 |
|
|
|
2,859 |
|
Below-market ground leases (Note 2) |
|
|
20,849 |
|
|
|
21,018 |
|
Security and escrow deposits |
|
|
8,049 |
|
|
|
6,814 |
|
Above-market tenant leases (Note 2) |
|
|
6 |
|
|
|
119 |
|
Uncertain tax position asset |
|
|
10,407 |
|
|
|
8,945 |
|
Other |
|
|
5,416 |
|
|
|
7,127 |
|
|
|
|
|
|
|
|
|
|
$ |
141,145 |
|
|
$ |
126,587 |
|
|
|
|
|
|
|
|
The following table summarizes the significant components of accounts payable and accrued
expenses.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(in thousands) |
|
2011 |
|
|
2010 |
|
Construction payable |
|
$ |
6,559 |
|
|
$ |
15,531 |
|
Accounts payable and accrued expenses |
|
|
20,962 |
|
|
|
29,745 |
|
Above-market ground leases (Note 2) |
|
|
2,671 |
|
|
|
2,907 |
|
Deferred gains/income |
|
|
8,377 |
|
|
|
5,631 |
|
Accrued interest |
|
|
1,496 |
|
|
|
1,633 |
|
Accrued real estate taxes |
|
|
3,535 |
|
|
|
3,953 |
|
Tenant and other deposits |
|
|
3,467 |
|
|
|
3,555 |
|
Insurance reserve |
|
|
4,212 |
|
|
|
4,229 |
|
Accrued payroll and other employee liabilities |
|
|
5,078 |
|
|
|
3,930 |
|
Other |
|
|
9,482 |
|
|
|
7,722 |
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses |
|
$ |
65,839 |
|
|
$ |
78,836 |
|
|
|
|
|
|
|
|
- 22 -
NOTE 8 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, we are involved in legal proceedings relating
to the ownership and operations of our properties. In managements opinion, the liabilities, if
any, that may ultimately result from such legal actions are not expected to have a material effect
on our consolidated financial position, results of operations or liquidity.
We lease land or buildings at certain properties from third parties. The leases generally provide
us with a right of first refusal in the event of a proposed sale of the property by the landlord.
Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined
over the term of the lease. Contractual rental expense, including participation rent, was $1.0
million and $1.6 million for the three and six months ended June 30, 2011, respectively.
Contractual rental expense, including participation rent, was $0.7 million and $1.3 million for the
three and six months ended June 30, 2010, respectively. The amortization of above and below-market
ground leases and straight-line rents included in the contractual rent amount is not significant.
See Note 5 for our obligations related to uncertain tax positions for disclosure of additional
contingencies.
NOTE 9 TRANSACTIONS WITH GGP AND WITH RELATED PARTIES
Prior to the Effective Date, we entered into a transition services agreement (the TSA) whereby
GGP will provide to us, on a transitional basis, certain specified services on an interim basis for
various terms not exceeding 24 months following the Separation, subject to our right of earlier
termination. Concurrently, we entered into a reverse transition services agreement (RTSA) whereby
we will provide GGP with certain income tax and accounting support services, also subject to
earlier termination prior to its scheduled expiration of November 9, 2013. For the six months ended
June 30, 2011, we incurred approximately $0.4 million of expenses related to the TSA and earned a
negligible amount of reimbursements under RTSA. In addition, for the three and six months ended
June 30, 2011 and 2010, approximately $1.5 million and $3.0 million, respectively, of rental income
was recognized from GGP and its subsidiaries.
During January 2011, the Audit Committee of our Board of Directors approved a Transition Agreement
with TPMC Realty Services Group, Inc. (TPMC). David Weinreb, a director and our CEO, is the sole
equity owner of TPMC and the chief executive officer of TPMC and Grant Herlitz, our president, is
the president of TPMC. The Transition Agreement provided for, among other things, certain mutual
transactions and services that facilitated the continuity of Company management, the net value of
which was approximately $65,000 for the six months ended June 30, 2011. In addition, the
reimbursement to TPMC of approximately $0.9 million of expenses as contemplated by Mr. Weinrebs
employment agreement with us was approved. Such reimbursements are reflected as an administrative
expense for the six months ended June 30, 2011.
With the approval of our Board of Directors, we entered into a lease agreement for 3,253 square
feet of office space in Los Angeles, California with an affiliate of TPMC, which commenced on May
1, 2011. Rental expense to be recognized for such lease will be approximately $111,965 per year and
the lease is scheduled to terminate in July 2016.
NOTE 10 SEGMENTS
We have three business segments which offer different products and services. In 2010, we reported
in two segments predominantly as the assets within our current Operating Assets segment and our
current Strategic Developments segment were managed jointly as a group. Our current three
segments are managed separately because each requires different operating strategies or
management expertise. These segments are different than those of the Predecessors with respect to
the HHC Businesses and are reflective of our current managements operating philosophies and
methods. All resulting changes from the Predecessors previous presentation of our segments have
been applied to all periods presented. In addition, our current segments or assets within such
segments could change in the future as development of certain properties commence or other
operational or management changes occur. We do not distinguish or group our combined operations
on a geographic basis. Further, all operations are within the United States and no customer or
tenant comprises more than 10% of revenues. Our reportable segments are as follows:
- 23 -
|
|
|
Master Planned Communities includes the development and sale of land, in large-scale,
long-term community development projects in and around Las Vegas, Nevada; Houston, Texas
and Columbia, Maryland. This segment also includes certain office properties and other
ownership interests owned by The Woodlands Partnerships as such assets are managed jointly
with The Woodlands Master Planned Community. |
|
|
|
Operating Assets includes commercial, mixed use and retail properties currently
generating revenues, many of which we believe there is an opportunity to redevelop or
reposition the asset to increase operating performance. |
|
|
|
Strategic Developments includes all properties held for development and
redevelopment, including the current rental property operations (primarily retail and
other interests in real estate at such locations) as well as our one residential
condominium project located in Natick (Boston), Massachusetts. |
The assets included in each segment are contained in the following chart:
As our segments 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 the business segments is Real Estate Property Earnings Before Taxes (EBT) which
represents the operating revenues of the properties less property operating expenses, as further
described below. Management believes that EBT provides useful information about the operating
performance of all of our assets, projects and property.
EBT is defined as net income (loss) from continuing operations as adjusted for: (1)
reorganization items; (2) income tax provision (benefit); (3) warrant liability gain (loss); and
(4) general and administrative costs. The net income (loss) from our Real Estate Affiliates, at
our proportionate share, is similarly adjusted for items (1) through (4) immediately above. We
present EBT because we use this measure, among others, internally to assess the core operating
performance of our assets. We also present this measure because we believe certain investors use
it as a measure of a companys historical operating performance and its ability to service and
incur debt. We believe that the inclusion of certain adjustments to net income (loss) from
continuing operations to calculate EBT is appropriate to provide additional information to
investors because EBT excludes certain non-recurring and non-cash items, including reorganization
items related to the bankruptcy, which we believe are not indicative of our core operating
performance. 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, it has
limitations as an analytical tool, and should not be considered in isolation, or as a substitute
for analysis of our results as reported under GAAP.
We report the operations of our equity method Real Estate Affiliates using the proportionate share
method, whereby our share of the revenues and expenses of these Real Estate Affiliates are
aggregated with the revenues and expenses of consolidated or combined properties. Our investment in
the Summerlin Hospital Medical Center is accounted for on the cost method. Approximately $3.9
million was received in the first quarter of 2011 as dividends related to this investment and has
been reflected as other rental and property revenues for the six months ended June 30, 2011 within
the Operating Assets segment.
The total cash expenditures for additions to long-lived assets for the Master Planned Communities
segment
- 24 -
was $27.0 million for the six months ended June 30, 2011 and $30.6 million for the six months
ended June 30, 2010. Similarly, cash expenditures for long-lived assets for the Operating Assets
and Strategic Developments segments was $16.5 million and $2.1 million, respectively, for the six
months ended June 30, 2011 and $36.5 million and $0.6 million, respectively, for the six months
ended June 30, 2010. Such amounts for the Master Planned Communities segment and certain amounts
in the Strategic Developments segment are included in the amounts listed in our consolidated and
combined statements of cash flow as Land/residential development and acquisitions expenditures.
With respect to the long-lived assets within the Operating Assets segment and certain other
investing amounts in the Strategic Developments segment, such amounts are included in the amounts
listed as Development of real estate and property additions/improvements primarily previously
accrued, respectively, in our consolidated and combined statements of cash flows.
As more fully discussed in this report, on July 1, 2011 we acquired our partners interest in The
Woodlands master planned community for $117.5 million. We now own 100% of The Woodlands and will
consolidate its operations beginning the third quarter 2011.
- 25 -
Segment operating results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
Consolidated |
|
|
Real Estate |
|
|
Segment |
|
|
|
Properties |
|
|
Affiliates |
|
|
Basis |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
18,148 |
|
|
$ |
12,982 |
|
|
$ |
31,130 |
|
Builder price participation |
|
|
597 |
|
|
|
619 |
|
|
|
1,216 |
|
Minimum rents |
|
|
383 |
|
|
|
2,302 |
|
|
|
2,685 |
|
Other land sale revenues |
|
|
2,248 |
|
|
|
592 |
|
|
|
2,840 |
|
Other rental and property revenues |
|
|
1 |
|
|
|
11,257 |
|
|
|
11,258 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
21,377 |
|
|
|
27,752 |
|
|
|
49,129 |
|
Cost of sales land |
|
|
9,438 |
|
|
|
6,532 |
|
|
|
15,970 |
|
CSA participation expense |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales operations |
|
|
3,044 |
|
|
|
3,949 |
|
|
|
6,993 |
|
Land sales real estate and business taxes |
|
|
1,541 |
|
|
|
471 |
|
|
|
2,012 |
|
Rental property real estate taxes |
|
|
54 |
|
|
|
268 |
|
|
|
322 |
|
Rental property maintenance costs |
|
|
59 |
|
|
|
299 |
|
|
|
358 |
|
Property operating costs |
|
|
207 |
|
|
|
11,162 |
|
|
|
11,369 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
66 |
|
|
|
1,006 |
|
|
|
1,072 |
|
Interest income (a) |
|
|
1,165 |
|
|
|
(335 |
) |
|
|
830 |
|
Interest expense (b) |
|
|
(2,602 |
) |
|
|
1,584 |
|
|
|
(1,018 |
) |
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
12,972 |
|
|
|
24,936 |
|
|
|
37,908 |
|
|
|
|
|
|
|
|
|
|
|
MPC EBT |
|
|
8,405 |
|
|
|
2,816 |
|
|
|
11,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
16,357 |
|
|
|
|
|
|
|
16,357 |
|
Tenant recoveries |
|
|
4,522 |
|
|
|
|
|
|
|
4,522 |
|
Other rental and property revenues |
|
|
1,551 |
|
|
|
|
|
|
|
1,551 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
22,430 |
|
|
|
|
|
|
|
22,430 |
|
Rental property real estate taxes |
|
|
2,439 |
|
|
|
|
|
|
|
2,439 |
|
Rental property maintenance costs |
|
|
1,378 |
|
|
|
|
|
|
|
1,378 |
|
Property operating costs |
|
|
7,977 |
|
|
|
|
|
|
|
7,977 |
|
Provision for doubtful accounts |
|
|
291 |
|
|
|
|
|
|
|
291 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,060 |
|
|
|
|
|
|
|
3,060 |
|
Interest income |
|
|
(3,409 |
) |
|
|
|
|
|
|
(3,409 |
) |
Interest expense |
|
|
2,602 |
|
|
|
|
|
|
|
2,602 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
14,338 |
|
|
|
|
|
|
|
14,338 |
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
|
8,092 |
|
|
|
|
|
|
|
8,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
236 |
|
|
|
|
|
|
|
236 |
|
Tenant recoveries |
|
|
93 |
|
|
|
|
|
|
|
93 |
|
Condominium unit sales |
|
|
6,660 |
|
|
|
|
|
|
|
6,660 |
|
Other rental and property revenues |
|
|
27 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
7,016 |
|
|
|
|
|
|
|
7,016 |
|
Condominium unit cost of sales |
|
|
5,272 |
|
|
|
|
|
|
|
5,272 |
|
Real estate taxes |
|
|
459 |
|
|
|
|
|
|
|
459 |
|
Rental property maintenance costs |
|
|
129 |
|
|
|
|
|
|
|
129 |
|
Property operating costs |
|
|
1,289 |
|
|
|
|
|
|
|
1,289 |
|
Provision for doubtful accounts |
|
|
13 |
|
|
|
|
|
|
|
13 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
7,221 |
|
|
|
|
|
|
|
7,221 |
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments EBT |
|
|
(205 |
) |
|
|
|
|
|
|
(205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBT |
|
$ |
16,292 |
|
|
$ |
2,816 |
|
|
$ |
19,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects a reclassification of amounts recongnized in this segment in the three months ended
March 31, 2011. |
|
(b) |
|
Negative interest expense relates to interest costs of debt at our Operating Assets segment
which are allocated to the MPC segment assets eligible for interest capitalization. |
-26-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Combined |
|
|
Real Estate |
|
|
Segment |
|
|
|
Properties |
|
|
Affiliates |
|
|
Basis |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
4,174 |
|
|
$ |
12,282 |
|
|
$ |
16,456 |
|
Builder price participation |
|
|
1,451 |
|
|
|
496 |
|
|
|
1,947 |
|
Minimum rents |
|
|
494 |
|
|
|
1,341 |
|
|
|
1,835 |
|
Other land sale revenues |
|
|
1,412 |
|
|
|
559 |
|
|
|
1,971 |
|
Other rental and property revenues |
|
|
208 |
|
|
|
8,585 |
|
|
|
8,793 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
7,739 |
|
|
|
23,263 |
|
|
|
31,002 |
|
Cost of sales land |
|
|
1,924 |
|
|
|
7,379 |
|
|
|
9,303 |
|
CSA participation expense |
|
|
(4,689 |
) |
|
|
|
|
|
|
(4,689 |
) |
Land sales operations |
|
|
9,170 |
|
|
|
744 |
|
|
|
9,914 |
|
Land sales real estate and business taxes |
|
|
4,375 |
|
|
|
635 |
|
|
|
5,010 |
|
Rental property real estate taxes |
|
|
254 |
|
|
|
260 |
|
|
|
514 |
|
Rental property maintenance costs |
|
|
74 |
|
|
|
291 |
|
|
|
365 |
|
Property operating costs |
|
|
155 |
|
|
|
7,886 |
|
|
|
8,041 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
103 |
|
|
|
970 |
|
|
|
1,073 |
|
Interest income |
|
|
|
|
|
|
(299 |
) |
|
|
(299 |
) |
Interest expense (*) |
|
|
(4,053 |
) |
|
|
1,280 |
|
|
|
(2,773 |
) |
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
7,313 |
|
|
|
19,146 |
|
|
|
26,459 |
|
|
|
|
|
|
|
|
|
|
|
MPC EBT |
|
|
426 |
|
|
|
4,117 |
|
|
|
4,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
16,209 |
|
|
|
|
|
|
|
16,209 |
|
Tenant recoveries |
|
|
4,340 |
|
|
|
|
|
|
|
4,340 |
|
Other rental and property revenues |
|
|
1,956 |
|
|
|
|
|
|
|
1,956 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
22,505 |
|
|
|
|
|
|
|
22,505 |
|
Rental property real estate taxes |
|
|
2,489 |
|
|
|
|
|
|
|
2,489 |
|
Rental property maintenance costs |
|
|
1,184 |
|
|
|
|
|
|
|
1,184 |
|
Property operating costs |
|
|
7,374 |
|
|
|
|
|
|
|
7,374 |
|
Provision for doubtful accounts |
|
|
226 |
|
|
|
|
|
|
|
226 |
|
Provisions for impairment |
|
|
178 |
|
|
|
|
|
|
|
178 |
|
Depreciation and amortization |
|
|
3,812 |
|
|
|
|
|
|
|
3,812 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
4,587 |
|
|
|
|
|
|
|
4,587 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
19,850 |
|
|
|
|
|
|
|
19,850 |
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
|
2,655 |
|
|
|
|
|
|
|
2,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
266 |
|
|
|
|
|
|
|
266 |
|
Tenant recoveries |
|
|
93 |
|
|
|
|
|
|
|
93 |
|
Condominium unit sales |
|
|
|
|
|
|
|
|
|
|
|
|
Other rental and property revenues |
|
|
26 |
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
385 |
|
|
|
|
|
|
|
385 |
|
Condominium unit cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
1,308 |
|
|
|
|
|
|
|
1,308 |
|
Rental property maintenance costs |
|
|
181 |
|
|
|
|
|
|
|
181 |
|
Property operating costs |
|
|
2,200 |
|
|
|
|
|
|
|
2,200 |
|
Provision for doubtful accounts |
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Provisions for impairment |
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Depreciation and amortization |
|
|
60 |
|
|
|
|
|
|
|
60 |
|
Interest expense |
|
|
7 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
3,816 |
|
|
|
|
|
|
|
3,816 |
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments EBT |
|
|
(3,431 |
) |
|
|
|
|
|
|
(3,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBT |
|
$ |
(350 |
) |
|
$ |
4,117 |
|
|
$ |
3,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Negative interest expense relates to interest costs of debt at our Operating Assets
segment which are allocated to the MPC segment assets eligible for interest capitalization. |
-27-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
Consolidated |
|
|
Real Estate |
|
|
Segment |
|
|
|
Properties |
|
|
Affiliates |
|
|
Basis |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
41,540 |
|
|
$ |
23,844 |
|
|
$ |
65,384 |
|
Builder price participation |
|
|
1,118 |
|
|
|
1,293 |
|
|
|
2,411 |
|
Minimum rents |
|
|
776 |
|
|
|
3,269 |
|
|
|
4,045 |
|
Other land sale revenues |
|
|
3,496 |
|
|
|
1,053 |
|
|
|
4,549 |
|
Other rental and property revenues |
|
|
106 |
|
|
|
17,500 |
|
|
|
17,606 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
47,036 |
|
|
|
46,959 |
|
|
|
93,995 |
|
Cost of sales land |
|
|
24,874 |
|
|
|
12,564 |
|
|
|
37,438 |
|
CSA participation expense |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales operations |
|
|
7,161 |
|
|
|
6,235 |
|
|
|
13,396 |
|
Land sales real estate and business taxes |
|
|
3,052 |
|
|
|
999 |
|
|
|
4,051 |
|
Rental property real estate taxes |
|
|
107 |
|
|
|
530 |
|
|
|
637 |
|
Rental property maintenance costs |
|
|
99 |
|
|
|
545 |
|
|
|
644 |
|
Property operating costs |
|
|
371 |
|
|
|
17,021 |
|
|
|
17,392 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
143 |
|
|
|
2,082 |
|
|
|
2,225 |
|
Interest income |
|
|
|
|
|
|
(569 |
) |
|
|
(569 |
) |
Interest expense (a) |
|
|
(5,128 |
) |
|
|
2,855 |
|
|
|
(2,273 |
) |
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
30,679 |
|
|
|
42,262 |
|
|
|
72,941 |
|
|
|
|
|
|
|
|
|
|
|
MPC EBT |
|
|
16,357 |
|
|
|
4,697 |
|
|
|
21,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
32,470 |
|
|
|
|
|
|
|
32,470 |
|
Tenant recoveries |
|
|
9,004 |
|
|
|
|
|
|
|
9,004 |
|
Other rental and property revenues (b) |
|
|
3,396 |
|
|
|
3,894 |
|
|
|
7,290 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
44,870 |
|
|
|
3,894 |
|
|
|
48,764 |
|
Rental property real estate taxes |
|
|
4,874 |
|
|
|
|
|
|
|
4,874 |
|
Rental property maintenance costs |
|
|
2,694 |
|
|
|
|
|
|
|
2,694 |
|
Property operating costs |
|
|
16,094 |
|
|
|
|
|
|
|
16,094 |
|
Provision for doubtful accounts |
|
|
12 |
|
|
|
|
|
|
|
12 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,124 |
|
|
|
|
|
|
|
6,124 |
|
Interest income |
|
|
(4,756 |
) |
|
|
|
|
|
|
(4,756 |
) |
Interest expense |
|
|
5,128 |
|
|
|
|
|
|
|
5,128 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
30,170 |
|
|
|
|
|
|
|
30,170 |
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
|
14,700 |
|
|
|
3,894 |
|
|
|
18,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
449 |
|
|
|
|
|
|
|
449 |
|
Tenant recoveries |
|
|
135 |
|
|
|
|
|
|
|
135 |
|
Condominium unit sales |
|
|
10,424 |
|
|
|
|
|
|
|
10,424 |
|
Other rental and property revenues |
|
|
1,010 |
|
|
|
|
|
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
12,018 |
|
|
|
|
|
|
|
12,018 |
|
Condominium unit cost of sales |
|
|
8,252 |
|
|
|
|
|
|
|
8,252 |
|
Real estate taxes |
|
|
1,445 |
|
|
|
1 |
|
|
|
1,446 |
|
Rental property maintenance costs |
|
|
332 |
|
|
|
|
|
|
|
332 |
|
Property operating costs |
|
|
2,600 |
|
|
|
|
|
|
|
2,600 |
|
Provision for doubtful accounts |
|
|
303 |
|
|
|
|
|
|
|
303 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
117 |
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
13,049 |
|
|
|
1 |
|
|
|
13,050 |
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments EBT |
|
|
(1,031 |
) |
|
|
(1 |
) |
|
|
(1,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBT |
|
$ |
30,026 |
|
|
$ |
8,590 |
|
|
$ |
38,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Negative interest expense relates to interest costs of debt at our Operating Assets segment
which are allocated to the MPC segment assets eligible for interest capitalization. |
|
(b) |
|
Reflects the $3.9 million cash dividend from Summerlin Hospital Medical Center which is a Real
Estate Affiliate accounted for using the cost method as described above. |
-28-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
Combined |
|
|
Real Estate |
|
|
Segment |
|
|
|
Properties |
|
|
Affiliates |
|
|
Basis |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
7,388 |
|
|
$ |
24,154 |
|
|
$ |
31,542 |
|
Builder price participation |
|
|
2,195 |
|
|
|
901 |
|
|
|
3,096 |
|
Minimum rents |
|
|
988 |
|
|
|
2,384 |
|
|
|
3,372 |
|
Other land sale revenues |
|
|
2,524 |
|
|
|
917 |
|
|
|
3,441 |
|
Other rental and property revenues |
|
|
438 |
|
|
|
15,844 |
|
|
|
16,282 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
13,533 |
|
|
|
44,200 |
|
|
|
57,733 |
|
Cost of sales land |
|
|
3,250 |
|
|
|
13,758 |
|
|
|
17,008 |
|
CSA participation expense |
|
|
(4,689 |
) |
|
|
|
|
|
|
(4,689 |
) |
Land sales operations |
|
|
13,367 |
|
|
|
3,711 |
|
|
|
17,078 |
|
Land sales real estate and business taxes |
|
|
8,669 |
|
|
|
1,271 |
|
|
|
9,940 |
|
Rental property real estate taxes |
|
|
508 |
|
|
|
517 |
|
|
|
1,025 |
|
Rental property maintenance costs |
|
|
122 |
|
|
|
246 |
|
|
|
368 |
|
Property operating costs |
|
|
290 |
|
|
|
14,985 |
|
|
|
15,275 |
|
Provisions for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
176 |
|
|
|
1,997 |
|
|
|
2,173 |
|
Interest income |
|
|
|
|
|
|
(703 |
) |
|
|
(703 |
) |
Interest expense (*) |
|
|
(7,880 |
) |
|
|
2,646 |
|
|
|
(5,234 |
) |
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
13,813 |
|
|
|
38,428 |
|
|
|
52,241 |
|
|
|
|
|
|
|
|
|
|
|
MPC EBT |
|
|
(280 |
) |
|
|
5,772 |
|
|
|
5,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
32,474 |
|
|
|
|
|
|
|
32,474 |
|
Tenant recoveries |
|
|
9,061 |
|
|
|
|
|
|
|
9,061 |
|
Other rental and property revenues |
|
|
3,602 |
|
|
|
|
|
|
|
3,602 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
45,137 |
|
|
|
|
|
|
|
45,137 |
|
Rental property real estate taxes |
|
|
5,029 |
|
|
|
|
|
|
|
5,029 |
|
Rental property maintenance costs |
|
|
2,804 |
|
|
|
|
|
|
|
2,804 |
|
Property operating costs |
|
|
14,672 |
|
|
|
|
|
|
|
14,672 |
|
Provision for doubtful accounts |
|
|
388 |
|
|
|
|
|
|
|
388 |
|
Provisions for impairment |
|
|
430 |
|
|
|
|
|
|
|
430 |
|
Depreciation and amortization |
|
|
8,162 |
|
|
|
|
|
|
|
8,162 |
|
Interest income |
|
|
(59 |
) |
|
|
|
|
|
|
(59 |
) |
Interest expense |
|
|
9,073 |
|
|
|
|
|
|
|
9,073 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
40,499 |
|
|
|
|
|
|
|
40,499 |
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
|
4,638 |
|
|
|
|
|
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
|
538 |
|
|
|
|
|
|
|
538 |
|
Tenant recoveries |
|
|
191 |
|
|
|
|
|
|
|
191 |
|
Condominium unit sales |
|
|
|
|
|
|
|
|
|
|
|
|
Other rental and property revenues |
|
|
20 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
749 |
|
|
|
|
|
|
|
749 |
|
Condominium unit cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
1,492 |
|
|
|
|
|
|
|
1,492 |
|
Rental property maintenance costs |
|
|
357 |
|
|
|
|
|
|
|
357 |
|
Property operating costs |
|
|
3,239 |
|
|
|
|
|
|
|
3,239 |
|
Provision for doubtful accounts |
|
|
(31 |
) |
|
|
|
|
|
|
(31 |
) |
Provisions for impairment |
|
|
56 |
|
|
|
|
|
|
|
56 |
|
Depreciation and amortization |
|
|
87 |
|
|
|
|
|
|
|
87 |
|
Interest expense |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
5,214 |
|
|
|
|
|
|
|
5,214 |
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments EBT |
|
|
(4,465 |
) |
|
|
|
|
|
|
(4,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBT |
|
$ |
(107 |
) |
|
$ |
5,772 |
|
|
$ |
5,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Negative interest expense relates to interest costs of debt at our Operating Assets segment which
are allocated to the MPC segment assets eligible for interest capitalization. |
-29-
The following reconciles EBT to GAAP-basis income (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Reconciliation of EBT to GAAP-basis
income (loss) from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property EBT: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment basis |
|
$ |
19,108 |
|
|
$ |
3,767 |
|
|
$ |
38,616 |
|
|
$ |
5,665 |
|
Real Estate Affiliates |
|
|
(2,816 |
) |
|
|
(4,117 |
) |
|
|
(8,590 |
) |
|
|
(5,772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated properties |
|
|
16,292 |
|
|
|
(350 |
) |
|
|
30,026 |
|
|
|
(107 |
) |
General and administrative |
|
|
(8,359 |
) |
|
|
(4,861 |
) |
|
|
(13,591 |
) |
|
|
(8,996 |
) |
Warrant liability gain (loss) |
|
|
56,910 |
|
|
|
|
|
|
|
(69,135 |
) |
|
|
|
|
Provision for income taxes |
|
|
(958 |
) |
|
|
(16,467 |
) |
|
|
(3,415 |
) |
|
|
(17,953 |
) |
Income from Real Estate Affiliates |
|
|
2,108 |
|
|
|
3,680 |
|
|
|
7,621 |
|
|
|
5,172 |
|
Reorganization costs |
|
|
|
|
|
|
(10,019 |
) |
|
|
|
|
|
|
(26,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
65,993 |
|
|
$ |
(28,017 |
) |
|
$ |
(48,494 |
) |
|
$ |
(48,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following reconciles segment revenue to GAAP-basis consolidated and combined revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Reconciliation of segment basis
revenues to GAAP revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities Total
segment |
|
$ |
49,129 |
|
|
$ |
31,002 |
|
|
$ |
93,995 |
|
|
$ |
57,733 |
|
Operating Assets Total segment |
|
|
22,430 |
|
|
|
22,505 |
|
|
|
48,764 |
|
|
|
45,137 |
|
Strategic Developments Total segment |
|
|
7,016 |
|
|
|
385 |
|
|
|
12,018 |
|
|
|
749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
|
78,575 |
|
|
|
53,892 |
|
|
|
154,777 |
|
|
|
103,619 |
|
Less: The Woodlands Partnerships
revenues, at our ownership share |
|
|
(27,752 |
) |
|
|
(23,263 |
) |
|
|
(46,959 |
) |
|
|
(44,200 |
) |
Operating Assets Real Estate
Affiliates revenues |
|
|
|
|
|
|
|
|
|
|
(3,894 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues GAAP basis |
|
$ |
50,823 |
|
|
$ |
30,629 |
|
|
$ |
103,924 |
|
|
$ |
59,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assets by segment and the reconciliation of total segment assets to the total assets in the
consolidated balance sheets at June 30, 2011 and December 31, 2010 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Assets by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
$ |
1,936,334 |
|
|
$ |
1,823,399 |
|
Operating Assets |
|
|
585,123 |
|
|
|
718,330 |
|
Strategic Developments |
|
|
207,333 |
|
|
|
215,037 |
|
|
|
|
|
|
|
|
Total segment assets |
|
|
2,728,790 |
|
|
|
2,756,766 |
|
Corporate and other |
|
|
597,027 |
|
|
|
601,902 |
|
Less Real Estate Affiliates |
|
|
(300,386 |
) |
|
|
(335,961 |
) |
|
|
|
|
|
|
|
Total assets |
|
$ |
3,025,431 |
|
|
$ |
3,022,707 |
|
|
|
|
|
|
|
|
-30-
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references to numbered Notes are to specific footnotes to our Condensed Consolidated and
Combined Financial Statements included in this Quarterly Report and which descriptions are
incorporated into the applicable response by reference. The following discussion should be read in
conjunction with such Condensed Consolidated and Combined Financial Statements and related Notes.
Capitalized terms used, but not defined, in this Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) have the same meanings as in such Notes or in our
Annual Report.
Forward-looking information
We may make forward-looking statements in this Quarterly Report and in other reports that we file
with the SEC. In addition, our management may make forward-looking statements orally to analysts,
investors, creditors, the media and others.
Forward-looking statements include:
|
|
|
Projections of our revenues, net operating income, earnings per share, EBT, capital
expenditures, income tax and other contingent liabilities, dividends, leverage, capital
structure or other financial items; |
|
|
|
|
Forecasts of our future economic performance; and |
|
|
|
|
Descriptions of assumptions underlying or relating to any of the foregoing. |
In this Quarterly Report, for example, we make forward-looking statements discussing our
expectations about:
|
|
|
Capital required for our operations and development opportunities for the properties in
our Strategic Developments segment; |
|
|
|
|
Expected performance of our Master Planned Communities segment and other current income
producing properties; and |
|
|
|
|
Future liquidity, development opportunities, development spending and management plans. |
Forward-looking statements discuss matters that are not historical facts. Because they discuss
future events or conditions, forward-looking statements often include words such as anticipate,
believe, estimate, expect, intend, plan, project, target, can, could, may,
should, would, or similar expressions. Forward-looking statements should not be unduly relied
upon. They give our expectations about the future and are not guarantees. Forward-looking
statements speak only as of the date they are made and we might not update them to reflect changes
that occur after the date they are made.
There are several factors, many beyond our control, which could cause results to differ materially
from our expectations. These factors are described in our Annual Report and are incorporated herein
by reference. Any factor could by itself, or together with one or more other factors, adversely
affect our business, results of operations or financial condition. There are also other factors
that we have not described in this Quarterly Report or in our Annual Report that could cause
results to differ from our expectations. These forward-looking statements present our estimates and
assumptions only as of the date of this Quarterly Report. Except as may be required by law, we
undertake no obligation to modify or revise any forward-looking statements to reflect events or
circumstances occurring after the date of this report.
-31-
Overview
We are a real estate company created to specialize in the development of master planned
communities, the redevelopment or repositioning of real estate assets currently generating
revenues, also called operating assets, and other strategic real estate opportunities in the form
of entitled and unentitled land and other development rights. Our assets are located across the
United States and our goal is to create sustainable, long-term growth and value for our
stockholders. We expect the competitive position and desirable location of certain of our assets
(which collectively comprise millions of square feet and thousands of acres of developable land),
combined with their operations and long-term opportunity through entitlements, land and home site
sales and project developments, to drive our income and growth. We are focused on maximizing value
from our assets and our board of directors and management team continues to develop and refine
business plans to achieve that goal.
We operate our business in three segments: Master Planned Communities, Operating Assets and
Strategic Developments. Unlike real estate companies that are limited in their activities because
they have elected to be taxed as a real estate investment trust, we have no restrictions on our
operating activities or types of services that we can offer, which we believe provides us with
flexibility for maximizing the value of our real estate portfolio.
Many of our assets will require re-positioning to maximize their value. In addition, we are
pursuing development opportunities for a number of our assets that were previously postponed due to
lack of liquidity resulting from deteriorating economic conditions, the credit market collapse and
the bankruptcy filing of the Predecessors, and to develop plans for other assets for which no
formal plans had previously been developed. In late 2010, as the reorganization transactions were
structured and new management for The Howard Hughes Corporation was put in place, we commenced a
process to assess the opportunities for these assets, which currently are in various stages of
completion. We are also in the process of creating development plans for several of our assets,
determining how to finance their completion and how to maximize their long-term value potential.
Based on the results of this ongoing assessment, we have identified certain assets which we believe
have the most attractive immediate development opportunities. These assets include Ward Centers,
The Shops at Summerlin Centre, South Street Seaport, Riverwalk Marketplace, Ala Moana air rights,
Cottonwood Mall, Bridges at Mint Hill and certain land parcels located in the Columbia Town Center.
Each of these assets has unique attributes and many are extremely complex due to their size, zoning
and other approvals needed to maximize long term value. We have assembled a team for each of these
assets comprised of seasoned development, leasing, architectural and construction professionals to
create detailed development plans based upon our evaluation of the opportunities for each asset.
We also seek to create development plans that will minimize cash flow disruptions, where possible.
For those assets that currently generate cash flow, such as Riverwalk Marketplace, South Street
Seaport and Ward Centers, our leasing strategy is conducted to preserve the flexibility to
redevelop the property in the near term. As a result, we frequently cannot sign long-term leases
or must require lease provisions allowing us to terminate the lease prior to its expiration. Both
of these restrictions are typically unattractive to established retailers. Despite such
challenges, for the six months ended June 30, 2011, we executed new or renewal leases for 35,000
square feet at Riverwalk Marketplace, 47,000 square feet at South Street Seaport, and 75,000 square
feet at Ward Centers.
On July 1, 2011, we acquired our partners interest in The Woodlands master planned community (Note
3). The Woodlands is considered to be one of the most successful MPCs in the U.S. and as of June
30, 2011 had approximately 1,330 acres of unsold residential land, representing approximately 4,355
lots, and approximately 920 acres of unsold land for commercial use. The Woodlands also has full or
partial ownership interests in commercial properties totaling approximately 434,328 square feet of
office space, 203,282 square feet of retail and industrial space, 865 rental apartment units, and
also owns and operates a 440 room conference center facility and a 36-hole country club. This
strategic acquisition provides us with an experienced, well-regarded management team and operating
platform, as well as a highly-recognized brand in the Houston, Texas market. We have begun
integrating the Woodlands platform into our MPC business and expect to complete the process by
early 2012.
-32-
Basis of Presentation
We were formed in July 2010 for the purpose of holding certain assets and assuming certain
liabilities of the Predecessors pursuant to the Plan as discussed in Note 1. Following the
Separation, we have operated our business as a stand-alone real estate development company and the
financial information for the three and six months ended June 30, 2011 reflects the consolidated
results of the HHC Businesses represented by the spin-off. The financial information for the three
and six months ended June 30, 2010 included in this Quarterly Report was carved-out from the
financial information of GGP, has been presented on a combined basis because the entities presented
were under common control and ownership. Only property management and other costs and property
specific overhead items, as discussed below, have been allocated or reflected in the accompanying
combined financial statements.
The historical combined financial position, results of operations and cash flows for the three and
six months ended June 30, 2010 included in this Quarterly Report do not necessarily reflect the
financial condition or results that we would have achieved as a separate, publicly-traded company
during the period presented or those that we will achieve in the future. Accordingly, our
consolidated operations after our spin-off are not comparable to the operations of our assets,
presented on a carve-out basis, prior to our spin-off or in previous years. In addition, our
operations were significantly impacted by transactions that related to the spin-off and other
events integral to GGPs emergence from bankruptcy pursuant to the Plan (Note 1). Finally, our
businesses were operated prior to spin-off through subsidiaries of GGP, which operated as a real
estate investment trust (REIT). We operate as a taxable corporation, except for our investment
in Victoria Ward, Limited, which has elected to be treated as a REIT.
We have presented the following discussion of our results of operations on a segment basis under
the proportionate share method. Under the proportionate share method, our share of the revenues and
expenses of the properties owned by our Real Estate Affiliates are aggregated with the revenues and
expenses of our consolidated properties. See Note 10 for additional information including
reconciliations of our segment basis results to GAAP basis results.
Results of Operations
Our revenues primarily are derived from the sale of individual lots at our master planned
communities to home builders and from tenants at our operating assets in the form of fixed minimum
rents, overage or percentage rent and recoveries of operating expenses.
We use a number of operating measures for assessing operating performance of our communities,
assets, properties and projects within our segments, some of which may not be common among all
three of our segments. We believe that investors may find some operating measures more useful than
others when separately evaluating each segment. One common operating measure used to assess
operating results for our business segments is Real Estate Property Earnings Before Taxes (EBT).
Management believes that EBT provides useful information about our operating performance.
EBT is defined as net income (loss) from continuing operations as adjusted for: (1) reorganization
items (2) income tax provision (benefit); (3) warrant liability gain (loss); and (4) general and
administrative costs. The net income (loss) from our Real Estate Affiliates, at our proportionate
share, is similarly adjusted for items (1) through (4) immediately above. We present EBT because we
use this measure, among others, internally to assess the core operating performance of our assets.
We also present this measure because we believe certain investors use it as a measure of a
companys historical operating performance. We believe that the inclusion of certain adjustments
to net income (loss) from continuing operations to calculate EBT is appropriate to provide
additional information to investors because EBT excludes certain non-recurring and non-cash items,
including reorganization items related to the bankruptcy, which we believe are not indicative of
our core operating performance. (See also Note 10)
-33-
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, as it has limitations as an
analytical tool, and should not be considered in isolation, or as a substitute for analysis of our
results as reported under GAAP. Some of the limitations of this metric are that it:
|
|
|
does not reflect our cash expenditures, or future requirements for capital
expenditures or contractual commitments; |
|
|
|
|
does not reflect income taxes that we may be required to pay; |
|
|
|
|
does not reflect any cash requirements for replacement of depreciated or amortized
assets or that these assets have different useful lives; |
|
|
|
|
does not reflect limitations on, or costs related to, transferring earnings from our
Real Estate Affiliates to us; and |
|
|
|
|
may be calculated differently by other companies in our industry, limiting its
usefulness as a comparative measure. |
Operating Assets Net Operating Income
The Company believes that Net Operating Income 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) 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.
Because NOI excludes general and administrative expenses, interest expense, impairments,
depreciation and amortization, gains and losses from property dispositions, allocations to
non-controlling interests, reorganization items, provision for income taxes, discontinued
operations and extraordinary items, the Company believes 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. 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 Companys operating results, gross
margins and investment returns.
In addition, management believes that NOI provides useful information to the investment community
about the performance of our Operating Assets. However, 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. For reference, and as an aid in understanding managements computation of NOI, a
reconciliation of NOI to EBT has been presented in the Operating Assets segment discussion below
and a reconciliation of EBT to consolidated operating income (loss) from continuing operations as
computed in accordance with GAAP has been presented in Note 10.
Three Months Ended June 30, 2011 and 2010
Master Planned Communities Segment
MPC revenues vary between periods based on economic conditions and several factors such as
location, development density and commercial or residential use, among others. Reported results
may differ significantly from actual cash flows generated principally because cost of sales is
based on our carrying value of land, a majority of which was acquired in prior periods and may
also have been previously written down through impairment charges. Expenditures for improvements
in the current period are capitalized and therefore generally would not be reflected in the
income statement in the current year.
-34-
MPC sales data is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Sales |
|
|
Acres Sold |
|
|
Number of Lots/Units |
|
|
Price per acre |
|
|
Price per lot |
|
|
|
|
|
Three Months Ended June 30, |
|
($ in thousands) |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Residential Land
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland Columbia |
|
Single family - detached |
|
$ |
850 |
|
|
$ |
|
|
|
|
0.9 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
$ |
944 |
|
|
$ |
|
|
|
$ |
213 |
|
|
$ |
|
|
Maryland Columbia |
|
Townhomes |
|
|
675 |
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeland |
|
Single family - detached |
|
|
4,976 |
|
|
|
3,320 |
|
|
|
18.9 |
|
|
|
13.4 |
|
|
|
94 |
|
|
|
70 |
|
|
|
263 |
|
|
|
248 |
|
|
|
53 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summerlin |
|
Single family - detached |
|
|
11,428 |
|
|
|
|
|
|
|
27.9 |
|
|
|
|
|
|
|
116 |
|
|
|
|
|
|
|
410 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands |
|
Single family - detached |
|
|
17,089 |
|
|
|
17,583 |
|
|
|
42.4 |
|
|
|
50.4 |
|
|
|
177 |
|
|
|
196 |
|
|
|
403 |
|
|
|
349 |
|
|
|
97 |
|
|
|
90 |
|
|
|
Single family - attached |
|
|
|
|
|
|
988 |
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
282 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
35,018 |
|
|
$ |
21,891 |
|
|
|
90.3 |
|
|
|
67.3 |
|
|
|
396 |
|
|
|
318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Land Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands |
|
Office and other |
|
$ |
4,206 |
|
|
$ |
3,804 |
|
|
|
10.1 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
3,115 |
|
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
7,321 |
|
|
|
3,804 |
|
|
|
15.6 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acreage sales revenue |
|
|
42,339 |
|
|
|
25,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
(928 |
) |
|
|
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue Woodlands |
|
|
167 |
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Improvement District revenue |
|
|
1,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venture partners share of The Woodlands Partnerships acreage sales |
|
|
(11,595 |
) |
|
|
(10,629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment land sales revenue |
|
$ |
31,130 |
|
|
$ |
16,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment land sales revenue |
|
$ |
31,130 |
|
|
$ |
16,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Real Estate Affiliates land sales revenue |
|
|
(12,982 |
) |
|
|
(12,282 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total land sales revenue GAAP basis |
|
$ |
18,148 |
|
|
$ |
4,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of 2011, we sold 396 lots, representing 90.3 residential acres as
compared to the 318 lots representing 67.3 acres in 2010. The majority of the increase in lots
sold is attributable to our Summerlin community, which sold 116 lots in the second quarter 2011
compared to no sales for the same period in 2010. Summerlin sold no lots during the second quarter
of 2010 due to the poor Las Vegas residential market conditions and our decision to not
significantly reduce prices to maintain market share. Variances in residential selling prices per
lot and acre are principally caused by type of lots sold, its location and intended development
density.
Additionally, we sold 15.6 commercial acres in the quarter ended June 30, 2011 as compared to 10.0
acres in the quarter ended June 30, 2010. These acres were sold from The Woodlands MPC. The
change in price per acre and price per lot for all of our communities is largely attributable to
selling of certain product types in different locations.
-35-
Percentage Change in Major Items of Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Master Planned Communities (*) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
31,130 |
|
|
$ |
16,456 |
|
|
$ |
14,674 |
|
|
|
89.2 |
% |
Other land sale revenues |
|
|
4,056 |
|
|
|
3,918 |
|
|
|
138 |
|
|
|
3.5 |
|
Other rental and property revenues |
|
|
13,943 |
|
|
|
10,628 |
|
|
|
3,315 |
|
|
|
31.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
49,129 |
|
|
|
31,002 |
|
|
|
18,127 |
|
|
|
58.5 |
|
Cost of sales land |
|
|
15,970 |
|
|
|
9,303 |
|
|
|
6,667 |
|
|
|
71.7 |
|
Land sales operations |
|
|
9,005 |
|
|
|
10,235 |
|
|
|
(1,230 |
) |
|
|
(12.0 |
) |
Rental property operations |
|
|
12,049 |
|
|
|
8,920 |
|
|
|
3,129 |
|
|
|
35.1 |
|
Depreciation and amortization |
|
|
1,072 |
|
|
|
1,073 |
|
|
|
(1 |
) |
|
|
(0.1 |
) |
Interest, net |
|
|
(188 |
) |
|
|
(3,072 |
) |
|
|
2,884 |
|
|
|
93.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
37,908 |
|
|
|
26,459 |
|
|
|
11,449 |
|
|
|
43.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC EBT |
|
$ |
11,221 |
|
|
$ |
4,543 |
|
|
$ |
6,678 |
|
|
|
147.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Our master planned communities segment includes revenues and expenses
related to The Woodlands Partnerships, one of our Real Estate Affiliates (Note
1). For a detailed breakdown of EBT, refer to Note 10. |
Land sales increased $14.7 million for the quarter ended June 30, 2011 primarily as a result of an
$11.4 million increase in land sales in our Summerlin community as described above, substantially all of which were related to three finished lot sale contracts. Additionally,
our Columbia and Bridgeland communities showed a combined increase of approximately $2.3 million
primarily due to selling 24 additional lots in Bridgeland in the second quarter of 2011 as compared
to 2010. Columbia had no lot sales in 2010.
Other rental and property revenues and related property operations increased $3.3 million and $3.1
million, respectively, for the three months ended June 30, 2011 as compared to the three months
ended June 30, 2010. The increased revenues were primarily due to operating expenses, a majority of
which are recoverable from tenants, associated with certain of The Woodlands retail and office
assets. Approximately 57,000 square feet of newly-built commercial space was leased after the
second quarter of 2010, primarily under the triple-net operating leases. In addition, in May 2011,
we reached an agreement to reduce a contingent purchase price obligation to a former owner of the
Bridgeland property by approximately $1.0 million.
The cost of land sales increase of $6.7 million for the quarter ended June 30, 2011 compared to the
same period in 2010 is directly related to the increase in land sales and the higher proportion of
sales at Summerlin for the second quarter of 2011 compared to the second quarter of 2010. The
Summerlin sales in 2011 had a lower margin than the combined Bridgeland and Woodlands sales in the
second quarter 2010. Cost of land sales is based on our carrying values of the lots sold and varies
by community based upon our historical purchase price of the land and cost of improvements made,
and to be made, by us, less any impairment charges previously recorded on the land.
Land sales operations decreased $1.2 million for the quarter ended June 30, 2011 compared to the
same period in 2010. The primary reason for such decrease in 2011 is a reduction in real estate tax
expense in Summerlin as a result of a successful tax appeal. This savings was partially offset by
increases in other operational costs from our other communities.
Interest, net reflects the amount of interest that is capitalized at the project level. The net
benefit or capitalization has decreased $2.9 million due to lower company-wide leverage compared to
the prior year.
In addition to EBT for the Master Planned Communities, management believes that certain members of
the investment community measure the value of the assets in this segment based on a computation of
their annual contribution to liquidity and capital available for investment. Accordingly, the
following table showing MPC Net Contribution for the three months ended June 30, 2011 and 2010 is
presented. MPC Net Contribution is
defined as MPC EBT, plus MPC cost of sales, provisions for impairment and depreciation and
amortization, and reduced by MPC development and acquisitions expenditures including our share of
such expenditures by The Woodlands Partnerships. Current period expenditures primarily relate to
land expected to be sold in future
-36-
periods. The improvement in MPC Net Contribution during 2011
compared to 2010 is primarily attributable to increased land sales and the results of efforts to
reduce operational costs. Although MPC Net Contribution can be computed from GAAP elements of
income and cash flows, it is not a GAAP based operational metric and should not be used to measure
operating performance of the MPC assets as a substitute for GAAP measures of such performance.
MPC Net Contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
MPC EBT (*) |
|
$ |
11,221 |
|
|
$ |
4,543 |
|
|
$ |
6,678 |
|
|
|
147 |
% |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales land |
|
|
15,970 |
|
|
|
9,303 |
|
|
|
6,667 |
|
|
|
71.7 |
|
Depreciation and amortization |
|
|
1,072 |
|
|
|
1,073 |
|
|
|
(1 |
) |
|
|
(0.1 |
) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC land/residential development
and acquisitions expenditures |
|
|
(14,491 |
) |
|
|
(16,804 |
) |
|
|
2,313 |
|
|
|
13.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC Net Contribution |
|
$ |
13,772 |
|
|
$ |
(1,885 |
) |
|
$ |
15,657 |
|
|
|
830.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Our master planned communities segment includes revenues and expenses
related to The Woodlands Partnerships, one of our Real Estate Affiliates (Note
1). For a detailed breakdown of EBT, refer to Note 10. |
Operating Assets Segment
We view net operating income as an important measure of the operating performance of our Operating
Assets. These assets typically generate rental revenues sufficient to cover their operating costs,
and variances between years in net operating income typically results from changes in occupancy,
tenant mix and operating expenses. The following reconciles Operating Assets NOI to EBT.
Operating Assets NOI and EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Income (NOI) |
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Operating Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ward Centers |
|
$ |
5,231 |
|
|
$ |
5,712 |
|
|
$ |
(481 |
) |
|
|
(8.4 |
)% |
110 N. Wacker |
|
|
1,530 |
|
|
|
1,529 |
|
|
|
1 |
|
|
|
0.1 |
|
South Street Seaport |
|
|
1,081 |
|
|
|
1,274 |
|
|
|
(193 |
) |
|
|
(15.1 |
) |
Columbia Office Properties |
|
|
987 |
|
|
|
745 |
|
|
|
242 |
|
|
|
32.5 |
|
Rio West Mall |
|
|
304 |
|
|
|
483 |
|
|
|
(179 |
) |
|
|
(37.1 |
) |
Landmark Mall |
|
|
137 |
|
|
|
477 |
|
|
|
(340 |
) |
|
|
(71.3 |
) |
Riverwalk Marketplace |
|
|
232 |
|
|
|
741 |
|
|
|
(509 |
) |
|
|
68.7 |
|
Cottonwood Square |
|
|
134 |
|
|
|
139 |
|
|
|
(5 |
) |
|
|
(3.6 |
) |
Park West |
|
|
217 |
|
|
|
42 |
|
|
|
175 |
|
|
|
416.7 |
|
Other properties |
|
|
547 |
|
|
|
60 |
|
|
|
487 |
|
|
|
812.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Assets NOI |
|
|
10,400 |
|
|
|
11,202 |
|
|
|
(802 |
) |
|
|
(7.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight-line and market lease amortization rent |
|
|
(55 |
) |
|
|
30 |
|
|
|
(85 |
) |
|
|
(283.3 |
) |
Provisions for impairment |
|
|
|
|
|
|
(178 |
) |
|
|
178 |
|
|
|
100.0 |
|
Depreciation and amortization |
|
|
(3,060 |
) |
|
|
(3,812 |
) |
|
|
752 |
|
|
|
19.7 |
|
Interest, net |
|
|
807 |
|
|
|
(4,587 |
) |
|
|
5,394 |
|
|
|
117.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
$ |
8,092 |
|
|
$ |
2,655 |
|
|
$ |
5,437 |
|
|
|
204.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-37-
The $0.8 million aggregate decrease in NOI for the three months ended June 30, 2011 as
compared to the three months ended June 30, 2010 is primarily due to approximately $1.7 million of
NOI decreases relating to five properties, partially offset by $0.9 million of increased NOI from
three assets. Ward Centers NOI decreased by $0.5 million due to approximately $0.2 million in
higher energy costs in 2011 and approximately $0.3 million of lower rental revenues primarily
relating to a tenant in liquidation. South Street Seaports NOI decreased by approximately $0.2
million due primarily to revenue-generating events at the property in the second quarter of 2010,
such as activities relating to World Cup soccer, which were not replicated in 2011. Rio West had a
decrease in NOI of $0.2 million related primarily to marketing, legal, and other costs directly
attributable to the property in 2011 that were part of corporate general and administrative expense
and not charged to the property in 2010. Landmark Mall had a $0.3 million decrease in NOI due to
rent relief provided to certain tenants and increased vacancy from lease terminations. Riverwalk
Marketplace had a $0.5 million decrease in NOI primarily caused by the receipt in the second
quarter of 2010 of a $0.4 million payment from a tenant representing a settlement amount for past
due rent.
The NOI decreases were partially offset by the following NOI increases: (i) a $0.2 million
increase at the Columbia Office Properties resulting from staff reduction cost savings and
reduction in overall property maintenance expenses; (ii) a $0.2 million increase in NOI at Park
West due to an increase in percentage rent and an increase in tenant recoveries due to a tax charge
from 2010 reimbursed by the tenants in 2011; (iii) a $0.5 million increase in Other Properties of
which approximately $0.2 million is attributable to higher distributions of profits from the
Summerlin golf courses in 2011.
Percentage Change in Major Items of Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Operating Assets (*) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
16,357 |
|
|
$ |
16,209 |
|
|
$ |
148 |
|
|
|
0.9 |
% |
Other rental and property revenues |
|
|
6,073 |
|
|
|
6,296 |
|
|
|
(223 |
) |
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
22,430 |
|
|
|
22,505 |
|
|
|
(75 |
) |
|
|
(0.3 |
) |
Rental property real estate taxes |
|
|
2,439 |
|
|
|
2,489 |
|
|
|
(50 |
) |
|
|
(2.0 |
) |
Rental property maintenance costs |
|
|
1,378 |
|
|
|
1,184 |
|
|
|
194 |
|
|
|
16.4 |
|
Property operating costs |
|
|
7,977 |
|
|
|
7,374 |
|
|
|
603 |
|
|
|
8.2 |
|
Provision for doubtful accounts |
|
|
291 |
|
|
|
226 |
|
|
|
65 |
|
|
|
28.8 |
|
Provisions for impairment |
|
|
|
|
|
|
178 |
|
|
|
(178 |
) |
|
|
(100.0 |
) |
Depreciation and amortization |
|
|
3,060 |
|
|
|
3,812 |
|
|
|
(752 |
) |
|
|
(19.7 |
) |
Interest, net |
|
|
(807 |
) |
|
|
4,587 |
|
|
|
(5,394 |
) |
|
|
(117.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
14,338 |
|
|
|
19,850 |
|
|
|
(5,512 |
) |
|
|
(27.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
$ |
8,092 |
|
|
$ |
2,655 |
|
|
$ |
5,437 |
|
|
|
204.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
For a detailed breakdown of our Operating Assets segment EBT, refer to Note 10. |
Significant variances in major items of revenues and expenses in EBT not explained in the NOI
items described immediately above are detailed below.
The $0.8 million decrease in depreciation and amortization for the three months ended June 30, 2011
compared to the three months ended June 30, 2010 was primarily due to reduced carrying values for
Landmark Mall and Riverwalk Marketplace as a result of fourth quarter 2010 impairment provisions.
Interest, net decreased for the three months ended June 30, 2011 compared to the three months ended
June 30, 2010 primarily as a result of a principal pay down at 110 N. Wacker.
-38-
Strategic Developments Segment
Percentage Change in Major Items of Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Strategic Developments (*) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
236 |
|
|
$ |
266 |
|
|
$ |
(30 |
) |
|
|
(11.3 |
)% |
Condominium unit sales |
|
|
6,660 |
|
|
|
|
|
|
|
6,660 |
|
|
|
100.0 |
|
Other rental and property revenues |
|
|
120 |
|
|
|
119 |
|
|
|
1 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
7,016 |
|
|
|
385 |
|
|
|
6,631 |
|
|
|
1722.3 |
|
Condominium unit cost of sales |
|
|
5,272 |
|
|
|
|
|
|
|
5,272 |
|
|
|
n/a |
|
Rental and other property operations |
|
|
1,890 |
|
|
|
3,719 |
|
|
|
(1,829 |
) |
|
|
(49.2 |
) |
Provisions for impairment |
|
|
|
|
|
|
30 |
|
|
|
(30 |
) |
|
|
(100.0 |
) |
Depreciation and amortization |
|
|
59 |
|
|
|
60 |
|
|
|
(1 |
) |
|
|
(1.7 |
) |
Interest, net |
|
|
|
|
|
|
7 |
|
|
|
(7 |
) |
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
7,221 |
|
|
|
3,816 |
|
|
|
3,405 |
|
|
|
89.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments EBT |
|
$ |
(205 |
) |
|
$ |
(3,431 |
) |
|
$ |
3,226 |
|
|
|
94.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
For a detailed breakdown of our Strategic Developments segment EBT, refer to Note 10. |
The increases in condominium unit sales and cost of sales for the three months ended June 30,
2011 as compared to the three months ended June 30, 2010 is related to our Nouvelle at Natick
project. During the second quarter of 2011, we sold 13 units and at June 30, 2011 we had 33 units
remaining in inventory of which eight were under contract for sale. No condominium unit sales
revenues were recognized in the three months ended June 30, 2010 because pursuant to the Plan, only
the unsold units at the Effective Date were distributed to us and therefore, no condominium sales
revenues prior to the Effective Date were allocated to us.
The decrease in rental and other property operations for the three months ended June 30, 2011 as
compared to the three months ended June 30, 2010 is primarily due to decrease in real estate taxes
at our Elk Grove property resulting from a successful tax assessment appeal.
Certain Significant Consolidated and Combined Revenues and Expenses
The following table contains certain significant revenues and expenses on a consolidated and
combined basis. Variances related to revenues and expenses included in NOI or EBT are explained
within the segment variance discussion contained within this MD&A using the combined consolidated
and proportionate share of our Real Estate Affiliates revenues and expenses associated with the
related segment. Significant variances for consolidated or combined revenues and expenses not
explained in NOI or EBT are described below.
-39-
Certain Significant Consolidated and Combined Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Minimum rents |
|
|
16,976 |
|
|
$ |
16,969 |
|
|
$ |
7 |
|
|
|
|
% |
Tenant recoveries |
|
|
4,615 |
|
|
|
4,433 |
|
|
|
182 |
|
|
|
4.1 |
|
Master Planned Community land sales |
|
|
18,148 |
|
|
|
4,174 |
|
|
|
13,974 |
|
|
|
334.8 |
|
Builder price participation |
|
|
597 |
|
|
|
1,451 |
|
|
|
(854 |
) |
|
|
(58.9 |
) |
Condominium unit sales |
|
|
6,660 |
|
|
|
|
|
|
|
6,660 |
|
|
|
n/a |
|
Other land sale revenues |
|
|
2,248 |
|
|
|
1,412 |
|
|
|
836 |
|
|
|
59.2 |
|
Other rental and property revenues |
|
|
1,579 |
|
|
|
2,190 |
|
|
|
(611 |
) |
|
|
(27.9 |
) |
Master Planned Community cost of sales |
|
|
(9,438 |
) |
|
|
(1,924 |
) |
|
|
(7,514 |
) |
|
|
(390.5 |
) |
Master Planned Community land sales
operations |
|
|
(4,585 |
) |
|
|
(8,856 |
) |
|
|
4,271 |
|
|
|
48.2 |
|
Condominium unit cost of sales |
|
|
(5,272 |
) |
|
|
|
|
|
|
(5,272 |
) |
|
|
(n/a |
) |
Rental property real estate taxes |
|
|
(2,952 |
) |
|
|
(4,051 |
) |
|
|
1,099 |
|
|
|
27.1 |
|
Rental property maintenance costs |
|
|
(1,566 |
) |
|
|
(1,439 |
) |
|
|
(127 |
) |
|
|
(8.8 |
) |
Property operating costs |
|
|
(9,473 |
) |
|
|
(9,729 |
) |
|
|
256 |
|
|
|
2.6 |
|
Provision for doubtful accounts |
|
|
(304 |
) |
|
|
(256 |
) |
|
|
(48 |
) |
|
|
(18.8 |
) |
General and administrative |
|
|
(8,359 |
) |
|
|
(4,861 |
) |
|
|
(3,498 |
) |
|
|
(72.0 |
) |
Provisions for impairment |
|
|
|
|
|
|
(208 |
) |
|
|
208 |
|
|
|
100.0 |
|
Depreciation and amortization |
|
|
(3,185 |
) |
|
|
(3,975 |
) |
|
|
790 |
|
|
|
19.9 |
|
Interest income |
|
|
2,244 |
|
|
|
|
|
|
|
2,244 |
|
|
|
n/a |
|
Interest expense |
|
|
|
|
|
|
(541 |
) |
|
|
541 |
|
|
|
100.0 |
|
Warrant liability gain |
|
|
56,910 |
|
|
|
|
|
|
|
56,910 |
|
|
|
n/a |
|
Provision for income taxes |
|
|
(958 |
) |
|
|
(16,467 |
) |
|
|
15,509 |
|
|
|
94.2 |
|
Income from Real Estate Affiliates |
|
|
2,108 |
|
|
|
3,680 |
|
|
|
(1,572 |
) |
|
|
(42.7 |
) |
Reorganization items |
|
|
|
|
|
|
(10,019 |
) |
|
|
10,019 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
65,993 |
|
|
$ |
(28,017 |
) |
|
$ |
94,010 |
|
|
|
335.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For an explanation of our general and administrative variances in the table above, please
refer to the Certain Significant Consolidated and Combined Revenues and Expenses for the six months
ended June 30, 2011 and 2010 below.
The decrease in depreciation and amortization for the three months ended June 30, 2011 as compared
to the same period in the prior year primarily resulted from the decrease in the carrying amount of
buildings and equipment due to the impairment charges recorded in 2010 as well as write-offs of
tenant allowances and assets becoming fully amortized in 2010 and 2011.
The decrease in the provision for income taxes for the three months ended June 30, 2011 compared to
the three months ended June 30, 2010 was primarily due to higher uncertain tax positions (FIN 48)
interest expense relating to the increased uncertain tax position liability recorded for the three
months ended June 30, 2010 as a result of a change in facts or circumstances during that period.
Other significant changes in estimated deferred tax elements, including valuation amounts, with
respect to certain of our MPCs and Strategic Developments assets during the three months ended June
30, 2011, contributed to the decrease in the provision for income taxes.
Warrant liability gain reflects the change in estimated value of the Sponsors Warrants and
Management Warrants (Note 1) during the three months ending June 30, 2011, primarily attributable
to changes in our stock
price. No such adjustment was recorded in the three months ended June 30, 2010 as such warrants
were not issued until November 2010 and February 2011.
Reorganization items under the bankruptcy filings are expense or income items that were incurred or
realized by the HHC Debtors as a result of the bankruptcy filings under Chapter 11. These items
include professional fees and similar types of expenses incurred directly related to the bankruptcy
filings, gains or losses resulting from activities of the reorganization process, including gains
related to recording the mortgage debt at fair value upon emergence from bankruptcy and interest
earned on cash accumulated by the Debtors. Due to the consummation of the Plan in November 2010, no
items were classified as reorganization items in 2011. See Note 1 Reorganization items for
additional detail.
-40-
Six Months Ended June 30, 2011 and 2010
Master Planned Communities Segment
MPC revenues vary between periods based on economic conditions and several factors such as
location, development density and commercial or residential use, among others. Reported results
may differ significantly from actual cash flows generated principally because cost of sales is
based on our carrying value of land, a majority of which was acquired in prior periods and may
also have been written down through impairment charges in such previous periods. Expenditures
for improvements in the current period are capitalized and therefore generally would not be
reflected in the income statement in the current year.
MPC sales data is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Sales |
|
|
Acres Sold |
|
|
Number of Lots/Units |
|
|
Price per acre |
|
|
Price per lot |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
($ in thousands) |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Residential Land Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland Columbia |
|
Single family - detached |
|
$ |
850 |
|
|
$ |
|
|
|
|
0.9 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
$ |
944 |
|
|
$ |
|
|
|
$ |
213 |
|
|
$ |
|
|
Maryland Columbia |
|
Townhomes |
|
|
1,615 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
135 |
|
|
|
|
|
|
Bridgeland |
|
Single family - detached |
|
|
8,697 |
|
|
|
6,190 |
|
|
|
31.9 |
|
|
|
24.0 |
|
|
|
157 |
|
|
|
122 |
|
|
|
273 |
|
|
|
258 |
|
|
|
55 |
|
|
|
51 |
|
|
Summerlin |
|
Single family - detached |
|
|
25,504 |
|
|
|
|
|
|
|
62.4 |
|
|
|
|
|
|
|
312 |
|
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
Custom lots |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands |
|
Single family - detached |
|
|
34,341 |
|
|
|
36,931 |
|
|
|
96.3 |
|
|
|
111.0 |
|
|
|
394 |
|
|
|
460 |
|
|
|
357 |
|
|
|
333 |
|
|
|
87 |
|
|
|
80 |
|
|
|
Single family - attached |
|
|
|
|
|
|
988 |
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
282 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
71,007 |
|
|
$ |
44,109 |
|
|
|
192.0 |
|
|
|
138.5 |
|
|
|
879 |
|
|
|
634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Land Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summerlin |
|
Not-for-profit |
|
$ |
3,615 |
|
|
$ |
|
|
|
|
16.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands |
|
Office and other |
|
$ |
6,007 |
|
|
$ |
3,804 |
|
|
|
13.2 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
455 |
|
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
4,697 |
|
|
|
4,470 |
|
|
|
7.4 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
635 |
|
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
14,319 |
|
|
|
8,274 |
|
|
|
36.6 |
|
|
|
24.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acreage sales revenue |
|
|
85,326 |
|
|
|
52,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
(2,769 |
) |
|
|
1,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue Woodlands |
|
|
195 |
|
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Improvement District revenue |
|
|
4,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venture partners share of The Woodlands |
|
|
(21,396 |
) |
|
|
(21,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment land sales revenue |
|
$ |
65,384 |
|
|
$ |
31,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment land sales revenue |
|
$ |
65,384 |
|
|
$ |
31,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Real Estate Affiliates land sales
revenue |
|
|
(23,844 |
) |
|
|
(24,154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total land sales revenue GAAP basis |
|
$ |
41,540 |
|
|
$ |
7,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first six months of 2011 we sold 879 lots, representing 192.0 residential acres as
compared to 634 lots, representing 138.5 acres for the first six months of 2010. The majority of
the acres sold during the first half of 2011 were from our Summerlin, Bridgeland and Woodlands
communities. Our Summerlin community accounts for the majority of the increase as we sold 62.4
more residential acres for the six months ended June 30, 2011 as compared to the six months ended
June 30, 2010. Summerlin sold no residential land during the first half of 2010 due to poor Las
Vegas residential market conditions and our decision to not significantly reduce prices to maintain
market share. Variances in residential selling prices per lot and acre are principally caused by
type of lots sold, its location and intended development density.
Additionally, we sold 36.6 commercial acres in the six months ended June 30, 2011 as compared to
24.7 commercial acres in the six months ended June 30, 2010. The change in price per acre and
price per lot for all our communities is largely attributable to selling certain product type in
different locations.
-41-
Percentage Change in Major Items of Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Master Planned Communities (*) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
$ |
65,384 |
|
|
$ |
31,542 |
|
|
$ |
33,842 |
|
|
|
107.3 |
% |
Other land sale revenues |
|
|
6,960 |
|
|
|
6,537 |
|
|
|
423 |
|
|
|
6.5 |
|
Other rental and property revenues |
|
|
21,651 |
|
|
|
19,654 |
|
|
|
1,997 |
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
93,995 |
|
|
|
57,733 |
|
|
|
36,262 |
|
|
|
62.8 |
|
Cost of sales land |
|
|
37,438 |
|
|
|
17,008 |
|
|
|
20,430 |
|
|
|
120.1 |
|
Land sales operations |
|
|
17,447 |
|
|
|
22,329 |
|
|
|
(4,882 |
) |
|
|
(21.9 |
) |
Rental property operations |
|
|
18,673 |
|
|
|
16,668 |
|
|
|
2,005 |
|
|
|
12.0 |
|
Depreciation and amortization |
|
|
2,225 |
|
|
|
2,173 |
|
|
|
52 |
|
|
|
2.4 |
|
Interest, net |
|
|
(2,842 |
) |
|
|
(5,937 |
) |
|
|
3,095 |
|
|
|
52.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
72,941 |
|
|
|
52,241 |
|
|
|
20,700 |
|
|
|
39.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC EBT |
|
$ |
21,054 |
|
|
$ |
5,492 |
|
|
$ |
15,562 |
|
|
|
283.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Our master planned communities segment includes revenues and expenses
related to The Woodlands Partnerships, one of our Real Estate Affiliates (Note
1). For a detailed breakdown of EBT, refer to Note 10. |
As described above, land sales increased $33.8 million for the six months ended June 30, 2011 as
land sales in our Summerlin community increased $30.4 million. Approximately $20.1 million of the
six months ended June 30, 2011 sales were related to finished lot sale contracts at Summerlin.
Additionally, our Columbia and Bridgeland communities showed a combined increase of $3.8 million
which was partially offset by a slight decrease in sales at the Woodlands.
Other rental and property revenue and related property operations increased for the six months
ended June 30, 2011 as compared to the six months ended June 30, 2010 due to the increases in
operational costs for certain of The Woodlands operating assets, a majority of which is recoverable
from tenants associated with certain of The
Woodlands retail and office assets. Also, included in this increase is a $1.0 million reduction in
a contingent purchase price obligation relating to Bridgeland.
The cost of sales land increase of $20.4 million for the six months ended June 30, 2011 is
directly related to the increase in land sales and the higher proportion of sales at Summerlin for
2011 compared to no Summerlin sales in the six months ended June 30, 2010. The Summerlin sales in
2011 had a lower margin than the combined Bridgeland and Woodlands sales in 2010. Cost of sales -
land is based on our carrying values of the lots sold and varies by community based upon our
historical purchase price of the land and cost of improvements made, and to be made, by us, less
any impairment charges previously recorded on the land.
Land sales operations decreased $4.9 million for the six months ended June 30, 2011. The primary
reason was a $5.7 million reduction in real estate tax expense in Summerlin as a result of a
successful tax appeal. This savings was partially offset by increases in other operational costs
from all of our communities.
Interest, net reflects the amount of interest expense that is capitalized at the project level.
The net benefit or capitalization has decreased $3.1 million as there is less interest expense to
capitalize under our current debt structure as compared to the prior year.
In addition to EBT for the Master Planned Communities, management believes that certain members of
the investment community measure the value of the assets in this segment based on a computation of
their annual contribution to liquidity and capital available for investment. Accordingly, the
following table showing MPC Net Contribution for 2011 and 2010 is presented. MPC Net Contribution
is defined as MPC EBT, plus MPC cost of sales, provisions for impairment and depreciation and
amortization, and reduced by MPC development and acquisitions expenditures including our share of
such expenditures by The Woodlands Partnerships. Current period expenditures primarily relate to
land expected to be sold in future periods. The improvement in MPC Net Contribution during 2011
compared to 2010 is primarily attributable to increased land sales and the results of
-42-
efforts to
reduce operational costs. Although MPC Net Contribution can be computed from GAAP elements of
income and cash flows, it is not a GAAP based operational metric and should not be used to measure
operating performance of the MPC assets as a substitute for GAAP measures of such performance.
MPC Net Contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
MPC EBT (*) |
|
$ |
21,054 |
|
|
$ |
5,492 |
|
|
$ |
15,562 |
|
|
|
283.4 |
% |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales land |
|
|
37,438 |
|
|
|
17,008 |
|
|
|
20,430 |
|
|
|
120.1 |
% |
Depreciation and amortization |
|
|
2,225 |
|
|
|
2,173 |
|
|
|
52 |
|
|
|
2.4 |
% |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC land/residential development
and acquisitions expenditures |
|
|
(38,019 |
) |
|
|
(26,235 |
) |
|
|
(11,784 |
) |
|
|
(44.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC Net Contribution |
|
$ |
22,698 |
|
|
$ |
(1,562 |
) |
|
$ |
24,260 |
|
|
|
1553.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Our master planned communities segment includes revenues and expenses
related to The Woodlands Partnerships, one of our Real Estate Affiliates (Note
1). For a detailed breakdown of EBT, refer to Note 10. |
Operating Assets Segment
We view net operating income as an important measure of the operating performance of our Operating
Assets. These assets typically generate rental revenues sufficient to cover their operating costs,
and variances between years in net operating income typically results from changes in occupancy,
tenant mix and operating expenses. The following reconciles Operating Assets NOI to EBT.
Operating Assets NOI and EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Income (NOI) |
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Operating Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ward Centers |
|
$ |
10,819 |
|
|
$ |
11,654 |
|
|
$ |
(835 |
) |
|
|
(7.2 |
)% |
110 N. Wacker |
|
|
3,060 |
|
|
|
3,059 |
|
|
|
1 |
|
|
|
|
|
South Street Seaport |
|
|
1,648 |
|
|
|
2,165 |
|
|
|
(517 |
) |
|
|
(23.9 |
) |
Columbia Office Properties |
|
|
1,708 |
|
|
|
1,473 |
|
|
|
235 |
|
|
|
16.0 |
|
Rio West Mall |
|
|
676 |
|
|
|
1,036 |
|
|
|
(360 |
) |
|
|
(34.7 |
) |
Landmark Mall |
|
|
470 |
|
|
|
861 |
|
|
|
(391 |
) |
|
|
(45.4 |
) |
Riverwalk Marketplace |
|
|
396 |
|
|
|
722 |
|
|
|
(326 |
) |
|
|
45.2 |
|
Cottonwood Square |
|
|
216 |
|
|
|
260 |
|
|
|
(44 |
) |
|
|
(16.9 |
) |
Park West |
|
|
331 |
|
|
|
167 |
|
|
|
164 |
|
|
|
98.2 |
|
Other properties |
|
|
5,127 |
(*) |
|
|
397 |
|
|
|
4,730 |
|
|
|
1,191.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Assets NOI |
|
|
24,451 |
|
|
|
21,794 |
|
|
|
2,657 |
|
|
|
12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight-line and market lease amortization rent |
|
|
639 |
|
|
|
450 |
|
|
|
189 |
|
|
|
42.0 |
|
Provisions for impairment |
|
|
|
|
|
|
(430 |
) |
|
|
430 |
|
|
|
100.0 |
|
Depreciation and amortization |
|
|
(6,124 |
) |
|
|
(8,162 |
) |
|
|
2,038 |
|
|
|
25.0 |
|
Interest, net |
|
|
(372 |
) |
|
|
(9,014 |
) |
|
|
8,642 |
|
|
|
95.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
$ |
18,594 |
|
|
$ |
4,638 |
|
|
$ |
13,956 |
|
|
|
300.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Includes $3.9 million dividend from Summerlin Hospital Medical Center. |
-43-
The $2.7 million aggregate NOI increase for the six months ended June 30, 2011 as compared to
the six months ended June 30, 2010 is primarily the result of $5.1 million of increased NOI from
two assets partially offset by approximately $2.4 million of decreases mostly attributable to five
properties. The increases were partially attributable to: (i) a $0.2 million increase in NOI at the
Columbia Office Properties as a result of a reduction in the occupancy-related operating costs; and
(ii) dividends of $3.9 million from Summerlin Hospital Medical Center received in March of 2011,
which are recorded in Income from Real Estate Affiliates. No dividends were received from Summerlin
Hospital in 2010.
The NOI decreases were caused by (i) a $0.8 million decrease at Ward Centers due to lower rent from
a tenant in liquidation, an increase in bad debt expense and higher utility costs; (ii) South
Street Seaport had a $0.5 million decrease in NOI as a result of approximately $0.3 million of dock
repairs to Pier 17 in 2011 and approximately $0.2 million in non-recurring special event revenues
earned in 2010 from a World Cup soccer promotional event; (iii) Rio West Mall had a decrease in NOI
because of lower occupancy and an increase in allocated advertising and marketing compared to NOI
in 2010; (iv) Landmark and Riverwalk experienced a combined $0.7 million NOI decrease as a result
of lower occupancy and rental concessions granted to certain tenants. In addition, Riverwalks
comparative NOI was negatively impacted by approximately $0.4 million received in 2010 relating to
a rent settlement with a tenant.
Percentage Change in Major Items of Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Operating Assets (*) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
32,470 |
|
|
$ |
32,474 |
|
|
$ |
(4 |
) |
|
|
|
% |
Other rental and property revenues |
|
|
16,294 |
|
|
|
12,663 |
|
|
|
3,631 |
|
|
|
28.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
48,764 |
|
|
|
45,137 |
|
|
|
3,627 |
|
|
|
8.0 |
|
Rental property real estate taxes |
|
|
4,874 |
|
|
|
5,029 |
|
|
|
(155 |
) |
|
|
(3.1 |
) |
Rental property maintenance costs |
|
|
2,694 |
|
|
|
2,804 |
|
|
|
(110 |
) |
|
|
(3.9 |
) |
Property operating costs |
|
|
16,094 |
|
|
|
14,672 |
|
|
|
1,422 |
|
|
|
9.7 |
|
Provision for doubtful accounts |
|
|
12 |
|
|
|
388 |
|
|
|
(376 |
) |
|
|
(96.9 |
) |
Provisions for impairment |
|
|
|
|
|
|
430 |
|
|
|
(430 |
) |
|
|
(100.0 |
) |
Depreciation and amortization |
|
|
6,124 |
|
|
|
8,162 |
|
|
|
(2,038 |
) |
|
|
(25.0 |
) |
Interest, net |
|
|
372 |
|
|
|
9,014 |
|
|
|
(8,642 |
) |
|
|
(95.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
30,170 |
|
|
|
40,499 |
|
|
|
(10,329 |
) |
|
|
(25.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets EBT |
|
$ |
18,594 |
|
|
$ |
4,638 |
|
|
$ |
13,956 |
|
|
|
300.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
For a detailed breakdown of our Operating Assets segment EBT, refer to Note 10. |
Significant variances in major items of revenues and expenses in EBT not explained in the NOI
items described immediately above are detailed below.
The $2.0 million decrease in depreciation and amortization for the six months ended June 30, 2011
compared to the six months ended June 30, 2010 is primarily due to reduced carrying values for
Landmark Mall and Riverwalk Marketplace as a result of fourth quarter 2010 impairment provisions.
Interest, net decreased for the six months ended June 30, 2011 compared to the six months ended
June 30, 2010 primarily as a result of a principal pay down at 110 N. Wacker in 2010 as part of the
Plan (Note 1).
-44-
Strategic Developments
Percentage Change in Major Items of Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Strategic Developments (*) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
449 |
|
|
$ |
538 |
|
|
$ |
(89 |
) |
|
|
(16.5 |
)% |
Condominium unit sales |
|
|
10,424 |
|
|
|
|
|
|
|
10,424 |
|
|
|
n/a |
|
Other rental and property revenues |
|
|
1,145 |
|
|
|
211 |
|
|
|
934 |
|
|
|
442.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
12,018 |
|
|
|
749 |
|
|
|
11,269 |
|
|
|
1504.5 |
|
Condominium unit cost of sales |
|
|
8,252 |
|
|
|
|
|
|
|
8,252 |
|
|
|
n/a |
|
Rental and other property operations |
|
|
4,681 |
|
|
|
5,057 |
|
|
|
(376 |
) |
|
|
(7.4 |
) |
Provisions for impairment |
|
|
|
|
|
|
56 |
|
|
|
(56 |
) |
|
|
(100.0 |
) |
Depreciation and amortization |
|
|
117 |
|
|
|
87 |
|
|
|
30 |
|
|
|
34.5 |
|
Interest, net |
|
|
|
|
|
|
14 |
|
|
|
(14 |
) |
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
13,050 |
|
|
|
5,214 |
|
|
|
7,836 |
|
|
|
150.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments EBT |
|
$ |
(1,032 |
) |
|
$ |
(4,465 |
) |
|
$ |
3,433 |
|
|
|
76.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
For a detailed breakdown of our Strategic Developments segment EBT, refer to Note 10. |
The increases in condominium unit sales and cost of sales for the six months ended June 30,
2011 as compared to the six months ended June 30, 2010 is primarily due to sales revenues and costs
of sales, respectively, at our Nouvelle at Natick project due to the sale of 23 units in 2011. No
condominium unit sales revenues were
recognized in the six months ended June 30, 2010 as, pursuant to the Plan, only the unsold units at
the Effective Date were distributed to us and therefore, no condominium sales revenues prior to the
Effective Date were allocated to us.
The increase in other rental and property revenues for the six months ended June 30, 2011 as
compared to the six months ended June 30, 2010 is primarily due to the sale of two ancillary
parcels of land, aggregating approximately 4.6 acres, at the Kendall Town Center property. The
decrease in rental and other property operating expenses is primarily due to a decrease in real
estate taxes at our Elk Grove property.
Certain Significant Consolidated and Combined Revenues and Expenses
The following table contains certain significant revenues and expenses on a consolidated and
combined basis. Variances related to revenues and expenses included in NOI or EBT are explained
within the segment variance discussion contained within this MD&A using the combined consolidated
and proportionate share of our Real Estate Affiliates revenues and expenses associated with the
related segment. Significant variances for consolidated or combined revenues and expenses not
explained in NOI or EBT are described below.
-45-
Certain Significant Consolidated and Combined Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Minimum rents |
|
$ |
33,695 |
|
|
$ |
34,000 |
|
|
$ |
(305 |
) |
|
|
(0.9 |
)% |
Tenant recoveries |
|
|
9,139 |
|
|
|
9,252 |
|
|
|
(113 |
) |
|
|
(1.2 |
) |
Master Planned Community land sales |
|
|
41,540 |
|
|
|
7,388 |
|
|
|
34,152 |
|
|
|
462.3 |
|
Builder price participation |
|
|
1,118 |
|
|
|
2,195 |
|
|
|
(1,077 |
) |
|
|
(49.1 |
) |
Condominium unit sales |
|
|
10,424 |
|
|
|
|
|
|
|
10,424 |
|
|
|
n/a |
|
Other land sale revenues |
|
|
3,496 |
|
|
|
2,524 |
|
|
|
972 |
|
|
|
38.5 |
|
Other rental and property revenues |
|
|
4,512 |
|
|
|
4,060 |
|
|
|
452 |
|
|
|
11.1 |
|
Master Planned Community cost of sales |
|
|
(24,874 |
) |
|
|
(3,250 |
) |
|
|
(21,624 |
) |
|
|
(665.4 |
) |
Master Planned Community land sales operations |
|
|
(10,213 |
) |
|
|
(17,347 |
) |
|
|
7,134 |
|
|
|
41.1 |
|
Condominium unit cost of sales |
|
|
(8,252 |
) |
|
|
|
|
|
|
(8,252 |
) |
|
|
(n/a |
) |
Rental property real estate taxes |
|
|
(6,426 |
) |
|
|
(7,029 |
) |
|
|
603 |
|
|
|
8.6 |
|
Rental property maintenance costs |
|
|
(3,125 |
) |
|
|
(3,283 |
) |
|
|
158 |
|
|
|
4.8 |
|
Property operating costs |
|
|
(19,065 |
) |
|
|
(18,201 |
) |
|
|
(864 |
) |
|
|
(4.7 |
) |
Provision for doubtful accounts |
|
|
(315 |
) |
|
|
(357 |
) |
|
|
42 |
|
|
|
11.8 |
|
General and administrative |
|
|
(13,591 |
) |
|
|
(8,996 |
) |
|
|
(4,595 |
) |
|
|
(51.1 |
) |
Provisions for impairment |
|
|
|
|
|
|
(486 |
) |
|
|
486 |
|
|
|
100.0 |
|
Depreciation and amortization |
|
|
(6,384 |
) |
|
|
(8,425 |
) |
|
|
2,041 |
|
|
|
24.2 |
|
Interest income |
|
|
4,756 |
|
|
|
59 |
|
|
|
4,697 |
|
|
|
7,961.0 |
|
Interest expense |
|
|
|
|
|
|
(1,207 |
) |
|
|
1,207 |
|
|
|
100.0 |
|
Warrant liability loss |
|
|
(69,135 |
) |
|
|
|
|
|
|
(69,135 |
) |
|
|
n/a |
|
Provision for income taxes |
|
|
(3,415 |
) |
|
|
(17,953 |
) |
|
|
14,538 |
|
|
|
81.0 |
|
Income from Real Estate Affiliates |
|
|
7,621 |
|
|
|
5,172 |
|
|
|
2,449 |
|
|
|
47.4 |
|
Reorganization items |
|
|
|
|
|
|
(26,614 |
) |
|
|
26,614 |
|
|
|
100.0 |
|
Discontinued operations loss on dispositions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(48,494 |
) |
|
$ |
(48,498 |
) |
|
$ |
4 |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As described in Note 1, we did not become a public company until November 2010 and did not
operate as an entity separate from GGP; therefore our 2010 financial results reflect allocations
made by GGP for general and administrative expenses based on actual costs incurred or based upon
our percentage of GGPs total assets and revenues. Since our separation from GGP we have been
operating as an independent public company and have been building our organization to analyze,
create and implement development plans for our assets. Our general and administrative expenses for
the first three and six months of 2011 reflect our public company costs as well as costs relating
to increasing the scale and capabilities of our company to develop our assets. As of January 1,
March 31 and June 30, 2011, we had 164, 176 and 190 employees, respectively. For the reasons
stated above,
we believe that our first and second quarter 2011 general and administrative costs are more
comparable than with prior year amounts.
For the three months ended June 30, 2011 our general and administrative costs totaled $8.4 million,
an increase of $3.2 million compared to $5.2 million for the three months ended March 31, 2011.
Approximately $0.9 million of the increase relates to non-cash employee stock option compensation
expense recognized in the second quarter 2011 compared to minimal option costs in the first quarter
2011. Please refer to Note 6 for a more complete description of stock options. Incentive
compensation accruals for the second quarter 2011 increased by approximately $1.5 million to $2.1
million primarily related to increased staffing levels and a revised estimate for the full year
2011. Quarterly accruals for 2011 incentive compensation are expected to be paid in the first
quarter 2012. Other compensation costs, which include salaries and benefits, were increased by $0.8
million to $2.6 million for the second quarter 2011. This increase was also caused by higher
staffing levels during the second quarter 2011. Professional and consulting fees increased by
approximately $0.6 million to $1.7 million. The increase principally reflects outside consulting
costs relating to transitioning to an independent public company. We expect that these costs
peaked in the second quarter 2011 and should decline throughout the remainder of the year. These
increases were partially offset by $0.6 million of lower travel costs in the second quarter 2011
compared to the first quarter 2011. The first quarter 2011 general and administrative expenses
included a $0.9 million one-time expense reimbursement (a majority of which were classified as
travel expense) relating to our CEOs employment agreement. For a more complete description of
this item, please refer to Note 9.
-46-
Our third quarter 2011 results will include, on a consolidated basis, the results of The Woodlands
Partnerships, which as of July 1, 2011 are wholly-owned by us. For the three and six months ended
June 30, 2011, The Woodlands had $1.3 million and $3.4 million, respectively, of general and
administrative expenses. For the first six months of 2011, we accounted for our investments in The
Woodlands Partnerships as a non-consolidated equity investment.
The decrease in depreciation and amortization for the six months ended June 30, 2011 primarily
results from the decrease in the carrying amount of buildings and equipment due to the impairment
charges recorded in 2010 as well as write-offs of tenant allowances and assets becoming fully
amortized in 2010 and 2011.
The decrease in the provision for income taxes for the six months ended June 30, 2011 compared to
the six months ended June 30, 2010 was primarily due to higher FIN 48 interest expense relating to
the increased uncertain tax position liability recorded for the six months ended June 30, 2010 as a
result of a change in facts or circumstances during that period. Other significant changes in
deferred tax elements, including valuation amounts, with respect to certain of our Master Planned
Communities and Strategic Developments assets during the six months ended June 30, 2011 contributed
to the decrease in the provision for income taxes.
Warrant liability loss in 2011 is due to the change in estimated value of the Sponsors Warrants and
Management Warrants (Note 1) during the six months ending June 30, 2011. No such adjustment was
recorded in the six months ended June 30, 2010 as such warrants were not issued until November 2010
and February 2011.
Reorganization items under the bankruptcy filings are expense or income items that were incurred or
realized by the HHC Debtors as a result of the bankruptcy filings under Chapter 11. These items
include professional fees and similar types of expenses incurred directly related to the bankruptcy
filings, gains or losses resulting from activities of the reorganization process, including gains
related to recording the mortgage debt at fair value upon emergence from bankruptcy and interest
earned on cash accumulated by the Debtors. Due to the consummation of the Plan in November 2010, no
items were classified as reorganization items in 2011. See Note 1 Reorganization items for
additional detail.
Liquidity and Capital Resources
Our primary sources of cash for 2011 includes cash flow from land sales in our Master Planned
Communities segment, cash generated from our operating assets, net proceeds from asset sales and
first mortgage financings secured by our assets. Our primary uses of cash include working capital,
overhead, debt repayment, property improvements pre-development and development costs.
Additionally, by December 1, 2011, the Company expects to fund with cash on hand the $117.5 million
acquisition of its partners interest in The Woodlands Partnership (See Note 3). We believe that
our sources of cash, including existing cash on hand, will provide sufficient liquidity to meet our
existing contracted obligations, including the $117.5 million acquisition of The Woodlands
Partnership interest, and anticipated ordinary course operating expenses for at least the next
twelve
months. The pursuit of development and redevelopment opportunities in our Operating Assets and
Strategic Developments segments are capital intensive and will require significant additional
funding. We intend to raise this additional funding with a mix of construction, bridge and
long-term financings and by entering into joint venture arrangements.
In March 2011, The Woodlands Partnerships refinanced certain of its debt by entering into a $270
million credit facility which matures in 2014 and a $36.1 million financing which matures in 2012.
As of June 30, 2011, our consolidated debt was $306.7 million and our share of the debt of our Real
Estate Affiliates aggregated $126.0 million.
As another illustration of our liquidity, the following table summarizes our Net Debt on a
segment basis. Net Debt is defined as our share of mortgages, notes and loans payable, at our
ownership share and based on outstanding principle balances, reduced by short-term liquidity sources to satisfy such obligations such as our
ownership share of cash and cash equivalents and Special Improvement District receivable. Although
Net Debt is not a recognized GAAP financial measure, it is readily computable from existing GAAP
information and we believe, as with our other non-GAAP measures, that such information is useful to
our investors and other users of our financial statements.
-47-
Segment Basis Net Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Total |
|
|
|
Planned |
|
|
Operating |
|
|
Strategic |
|
|
Segment |
|
|
Segment |
|
|
June 30, |
|
Segment Basis (a) |
|
Communities |
|
|
Assets |
|
|
Developments |
|
|
Totals |
|
|
Amounts |
|
|
2011 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages, notes and loans payable |
|
$ |
200,194 |
(b) |
|
$ |
239,086 |
|
|
$ |
5,010 |
|
|
$ |
444,290 |
|
|
$ |
|
|
|
$ |
444,290 |
|
Less: Cash and cash equivalents |
|
|
(26,874 |
)(c) |
|
|
(63,657 |
) |
|
|
|
|
|
|
(90,531 |
) |
|
|
(196,260 |
) |
|
|
(286,791 |
) |
Special Improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
District receivable |
|
|
(45,089 |
) |
|
|
|
|
|
|
|
|
|
|
(45,089 |
) |
|
|
|
|
|
|
(45,089 |
) |
Municiple Utility District
receivable |
|
|
(66,028 |
)(d) |
|
|
|
|
|
|
|
|
|
|
(66,028 |
) |
|
|
|
|
|
|
(66,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt |
|
$ |
62,203 |
|
|
$ |
175,429 |
|
|
$ |
5,010 |
|
|
$ |
242,642 |
|
|
$ |
(196,260 |
) |
|
$ |
46,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Refer to Note 10 Segments in the Notes to the Condensed Consolidated
and Combined Financial Statements. |
|
(b) |
|
Includes our $126.0 million share of debt of our Real Estate Affiliates. |
|
(c) |
|
Includes our $10.8 million share of cash and cash
equivalents of our Real Estate Affiliates. |
|
(d) |
|
Includes our $26.2 million share of MUD receivable of our
Real Estate Affiliates. |
As discussed in Note 3 to the Condensed Consolidated and Combined Financial Statements, on
July 1, 2011 we acquired our partners interest in The Woodlands for $117.5 million of total
consideration, consisting of $20.0 million cash paid at closing and a $97.5 million non-interest
bearing note due December 1, 2011. The following Adjusted Segment Basis Net Debt Table computes
our net debt, using outstanding principal balances of debt as of, and assuming the acquisition of
our partners interest occurred on, June 30, 2011.
Adjusted Segment Basis Net Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Total |
|
|
|
Planned |
|
|
Operating |
|
|
Strategic |
|
|
Segment |
|
|
Segment |
|
|
June 30, |
|
Adjusted Segment Basis (a) |
|
Communities |
|
|
Assets |
|
|
Developments |
|
|
Totals |
|
|
Amounts |
|
|
2011 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages, notes and loans payable |
|
$ |
511,950 |
(b) |
|
$ |
239,086 |
|
|
$ |
5,010 |
|
|
$ |
756,046 |
|
|
$ |
|
|
|
$ |
756,046 |
|
Less: Cash and cash equivalents |
|
|
(21,530 |
) (c) |
|
|
(63,657 |
) |
|
|
|
|
|
|
(85,187 |
) |
|
|
(196,260 |
) |
|
|
(281,447 |
) |
Special Improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
District receivable |
|
|
(45,089 |
) |
|
|
|
|
|
|
|
|
|
|
(45,089 |
) |
|
|
|
|
|
|
(45,089 |
) |
Municiple Utility District
receivable |
|
|
(101,505 |
) (d) |
|
|
|
|
|
|
|
|
|
|
(101,505 |
) |
|
|
|
|
|
|
(101,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt |
|
$ |
343,826 |
|
|
$ |
175,429 |
|
|
$ |
5,010 |
|
|
$ |
524,265 |
|
|
$ |
(196,260 |
) |
|
$ |
328,005 |
|
|
|
|
|
|
|
|
|
|
|
|
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(a) |
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Refer to Note 10 Segments in the Notes to the Condensed Consolidated
and Combined Financial Statements. |
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(b) |
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Includes $97.5 million of The Woodlands acquisition debt, $296.5
million of consolidated and $43.8 million proportionate share
non-consolidated joint venture debt of The Woodlands. |
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(c) |
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Includes $25.5 million of The Woodlands cash less $20.0 million cash
paid for acquisition. |
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(d) |
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Includes $61.7 million of The Woodlands MUD receivable. |
Summary of Cash Flows
Cash Flows from Operating Activities
Net cash provided by (used in) operating activities was $17.0 million for the six months ended June
30, 2011 and $(51.2) million for the six months ended June 30, 2010. The improvement in cash
provided by operating activities during 2011 is primarily related to increased land sales in the
MPC segment as well as lower interest paid.
Cash used for Land/residential development and acquisitions expenditures was $33.2 million for the
six months ended June 30, 2011, a decrease from $30.6 million for the six months ended June 30,
2010.
Net operating cash provided by our Real Estate Affiliates was $4.1 million in 2011 primarily due to
the $3.9 million dividends received from our Summerlin Hospital Medical Center cost basis
investment whereas no such dividends were received in 2010.
-48-
Net cash provided by (used in) certain assets and liabilities, including accounts and notes
receivable, prepaid expense and other assets, deferred expenses, and accounts payable and accrued
expenses and deferred tax liabilities was a use of operating cash of approximately $(3.1) million
in 2011 and a source of operating cash of $21.4 million in 2010. Accounts payable and accrued
expenses and deferred tax liabilities provided approximately $24.5 million of operating cash in
2010 as payments of a majority of amounts due were delayed until after the November 2010 bankruptcy
emergence of the Predecessors (Note 1).
Cash Flows from Investing Activities
Net cash used in investing activities was $18.6 million for the six months ended June 30, 2011 and
$37.1 million for the six months ended June 30, 2010.
Cash used for acquisition/development of real estate and property additions/improvements was $18.6
million for the six months ended June 30, 2011, a decrease from $37.1 million for the six months
ended June 30, 2010.
Cash Flows from Financing Activities
Net cash used by financing activities was $7.1 million for the six months ended June 30, 2011
compared to cash provided by financing operations of $88.1 million for the six months ended June
30, 2010.
Cash provided by financing activities of $29.0 million resulted from the mortgage financing secured
by the 110 N. Wacker Drive office building located in Chicago, Illinois (See Note 4).
Principal payments on mortgages, notes and loans payable, including the refinancing of the 110 N.
Wacker debts, were $38.0 million for the six months ended June 30, 2011 and $2.5 million for the
six months ended
June 30, 2010. The 2011 amount also includes $5.0 million relating to contingent purchase price
obligation at our Bridgeland MPC. In addition, through the second quarter of 2010, we received
contributions from GGP of $90.7 million.
Seasonality
Our Master Planned Communities segment and Strategic Developments segment are not subject to
significant seasonal variations. Rental income recognized is higher during the second half of the
year for the retail properties within our Operating Assets segment because occupancies for
short-term tenants increase during such period. In addition, the majority of our tenants have
December or January lease years for purposes of calculating annual overage rent amounts, which are
most commonly achieved in the fourth quarter. As a result, revenue production for rental income is
generally highest in the fourth quarter of each year.
Critical Accounting Policies
Critical accounting policies are those that are both significant to the overall presentation of our
financial condition and results of operations and require management to make difficult, complex or
subjective judgments. Our critical accounting policies are disclosed in our 2010 Annual Report.
There have been no significant changes in our critical accounting policies in 2011.
REIT Requirements
In order for Ward to remain qualified as a REIT for federal income tax purposes, Ward must
distribute or pay tax on 100% of its capital gains and distribute at least 90% of our ordinary
taxable income to its stockholders, including us. See Note 5 for more detail on Wards ability to
remain qualified as a REIT.
Recently Issued Accounting Pronouncements
See Note 1 to the Condensed Consolidated and Combined Financial Statements.
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ITEM 3 |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Except as provided below, there have been no significant changes in the market risks described in
our Annual Report.
The Company is exposed to market risk from changes in the variable interest rate based on LIBOR
incurred on the Companys $29.0 million first mortgage financing. As described in Note 4, we have
entered into an interest rate swap contract which effectively fixes the Companys net interest rate
to a fixed rate of 5.21% on the $29.0 million first mortgage financing. As of June 30, 2011, the
fair value of the swap was $0.7 million.
-49-
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ITEM 4 |
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CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the
Securities Exchange Act of 1934, as amended, (the Exchange Act)). Based on that evaluation, the
CEO and the CFO have concluded that our disclosure controls and procedures are effective.
Internal Controls over Financial Reporting
There have been no changes in our internal controls during our most recently completed fiscal
quarter that have materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
PART II OTHER INFORMATION
Other than the Chapter 11 Cases, neither the Company nor any of the Real Estate Affiliates is
currently involved in any material pending legal proceedings nor, to our knowledge, is any material
legal proceeding currently threatened against the Company or any of the Real Estate Affiliates.
There are
no material changes to the risk factors previously disclosed in our
Annual Report, with the exception of the additional risk factor
discussed below.
Acquisition
of The Woodlands
On July 1, 2011, we completed the acquisition of
our venture partners 57.5% legal interest in The Woodlands Partnerships for $117.5 million.
We now own 100% of the The Woodlands Partnerships and expect to
integrate its organization into our Company.
If we are unable to effectively integrate
its organization with ours, our business may be negatively affected.
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ITEM 2 |
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
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ITEM 3 |
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DEFAULTS UPON SENIOR SECURITIES |
None.
None
The Exhibit Index following the signature page to the Quarterly Report lists the exhibits furnished
as required by Item 601 of Regulation S-K and is incorporated by reference.
-50-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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The Howard Hughes Corporation.
(Registrant)
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Date: August 9, 2011 |
By: |
/s/ Andrew C. Richardson
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Andrew C. Richardson |
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Chief Financial Officer |
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-51-
EXHIBIT INDEX
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Exhibit No. |
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Description of Exhibit |
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2.1
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Separation Agreement, dated November 9,
2010, between The Howard Hughes Corporation and
General Growth Properties, Inc. (incorporated by
reference to Exhibit 2.1 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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2.2
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Partnership Interest Purchase Agreement dated as
of June 20, 2011 among TWC Commercial
Properties, LLC, TWC Commercial Properties, LP,
TWC Operating, LLC, TWC Operating, LP, TWC Land
Development, LLC, TWC Land Development, LP and
MS TWC, Inc., MS/TWC Joint Venture (incorporated
by reference to Exhibit 2.1 to the Companys
Current Report on Form 8-K, filed July 5, 2011) |
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3.1
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Amended and Restated Certificate of
Incorporation of The Howard Hughes Corporation
(incorporated by reference to Exhibit 3.1 to the
Companys Current Report on Form 8-K, filed
November 12, 2010) |
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3.2
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Amended and Restated Bylaws of The Howard
Hughes Corporation (incorporated by reference to
Exhibit 3.2 to the Companys Current Report on
Form 8-K, filed November 12, 2010) |
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10.1
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Transition Services Agreement, dated
November 9, 2010, between The Howard Hughes
Corporation, GGP Limited Partnership and General
Growth Management, Inc. (incorporated by
reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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10.2
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Reverse Transition Services Agreement,
dated November 9, 2010, between The Howard
Hughes Corporation, GGP Limited Partnership and
General Growth Management, Inc. (incorporated by
reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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10.3
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Employee Matters Agreement, dated November
9, 2010, between The Howard Hughes Corporation,
GGP Limited Partnership and General Growth
Management, Inc. (incorporated by reference to
Exhibit 10.3 to the Companys Current Report on
Form 8-K, filed November 12, 2010) |
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10.4
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Employee Leasing Agreement, dated November
9, 2010, between The Howard Hughes Corporation,
GGP Limited Partnership and General Growth
Management, Inc. (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K, filed November 12, 2010) |
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10.5
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Tax Matters Agreement, dated November 9,
2010, between The Howard Hughes Corporation and
General Growth Properties, Inc. (incorporated by
reference to Exhibit 10.5 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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10.6
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Surety Bond Indemnity Agreement, dated
November 9, 2010, between The Howard Hughes
Corporation and General Growth Properties, Inc.
(incorporated by reference to Exhibit 10.6 to
the Companys Current Report on Form 8-K, filed
November 12, 2010) |
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10.7
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Form of indemnification agreement for
directors and certain executive officers of The
Howard Hughes Corporation (incorporated by
reference to Exhibit 10.7 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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10.8
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Warrant Agreement, dated November 9, 2010,
between The Howard Hughes Corporation and Mellon
Investor Services LLC (incorporated by reference
to Exhibit 10.8 to the Companys Current Report
on Form 8-K, filed November 12, 2010) |
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10.9
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Letter Agreement, dated November 9, 2010,
between The Howard Hughes Corporation and
Brookfield Retail Holdings LLC (incorporated by
reference to Exhibit 10.9 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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10.10
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Letter Agreement, dated November 9, 2010,
between The Howard Hughes Corporation and The
Fairholme Fund and Fairholme Focused Income Fund
(incorporated by reference to Exhibit 10.10 to
the Companys Current Report on Form 8-K, filed
November 12, 2010) |
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10.11
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Letter Agreement, dated November 9, 2010,
between The Howard Hughes Corporation and
Pershing Square Capital Management, L.P.
(incorporated by reference to Exhibit 10.11 to
the Companys Current Report on Form 8-K, filed
November 12, 2010) |
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10.12
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Registration Rights Agreement, dated
November 9, 2010, between The Howard Hughes
Corporation and M.B. Capital Partners, M.B.
Capital Partners III and M.B. Capital Units LLC
(incorporated by reference to Exhibit 99.1 to
the Companys Current Report on Form 8-K, filed
November 12, 2010) |
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10.13
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Registration Rights Agreement, dated
November 9, 2010, between The Howard Hughes
Corporation and Brookfield Retail Holdings LLC,
Brookfield Retail Holdings II LLC, Brookfield
Retail Holdings III LLC, Brookfield Retail
Holdings IV-A LLC, Brookfield Retail Holdings
IV-D LLC, Brookfield Retail Holdings V LP and
Brookfield US Retail Holdings LLC (incorporated
by reference to Exhibit 99.2 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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10.14
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Registration Rights Agreement, dated
November 9, 2010, between The Howard Hughes
Corporation and The Fairholme Fund and Fairholme
Focused Income Fund (incorporated by reference
to Exhibit 99.3 to the Companys Current Report
on Form 8-K, filed November 12, 2010) |
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10.15
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Registration Rights Agreement, dated
November 9, 2010, between The Howard Hughes
Corporation and Pershing Square Capital
Management, L.P., Blackstone Real Estate
Partners VI L.P., Blackstone Real Estate
Partners (AIV) VI L.P., Blackstone Real Estate
Partners VI.F L.P., Blackstone Real Estate
Partners VI.TE.1 L.P., Blackstone Real Estate
Partners VI.TE.2 L.P., Blackstone Real Estate
Holdings VI L.P., and Blackstone GGP Principal
Transaction Partners L.P. (incorporated by
reference to Exhibit 99.4 to the Companys
Current Report on Form 8-K, filed November 12,
2010) |
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10.17*
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The Howard Hughes Corporation 2010 Equity
Incentive Plan (incorporated by reference to
Exhibit 10.13 to the Companys Current Report on
Form 8-K, filed November 12, 2010) |
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10.18*
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Form of Restricted Stock Agreement for
Nonemployee Directors under The Howard Hughes
Corporation 2010 Equity Incentive Plan (incorporated by reference to
Exhibit 10.18 to the Companys Annual Report on Form 10-K, filed
April 7, 2011) |
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10.22*
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Employment Agreement, dated as of November
22, 2010, between The Howard Hughes Corporation
and David R. Weinreb (incorporated by reference
to Exhibit 10.3 to the Companys Current Report
on Form 8-K, filed November 29, 2010) |
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10.23*
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Warrant Purchase Agreement, dated November
22, 2010, between The Howard Hughes Corporation
and David R. Weinreb (incorporated by reference
to Exhibit 10.1 to the Companys Current Report
on Form 8-K, filed November 29, 2010) |
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10.24*
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Employment Agreement, dated as of November
22, 2010, between The Howard Hughes Corporation
and Grant Herlitz (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K, filed November 29, 2010) |
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10.25*
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Warrant Purchase Agreement, dated November
22, 2010, between The Howard Hughes Corporation
and Grant Herlitz (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K, filed November 29, 2010) |
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10.26*
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Employment Agreement, dated as of February
25, 2011, between The Howard Hughes Corporation
and Andrew C. Richardson (incorporated by
reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K, filed March 3 2011) |
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10.27*
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Warrant Purchase Agreement, dated February
25, 2011, between The Howard Hughes Corporation
and Andrew C. Richardson (incorporated by
reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed March 3, 2011) |
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31.1**
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Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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31.2**
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Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1**
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Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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32.2**
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Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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101.INS**
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XBRL Instance Document. |
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101.SCH**
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XBRL Taxonomy Extension Schema Document. |
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB**
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XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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101.DEF**
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XBRL Taxonomy Extension Definition Linkbase Document. |
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* |
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Management contract, compensatory plan or arrangement |
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** |
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New exhibit filed with this report. |
Pursuant to Item 601(b)(4)(v) of Regulation S-K, the registrant has not filed debt instruments
relating to long-term debt that is not registered and for which the total amount of securities
authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on
a consolidated basis as of June 30, 2011. The registrant agrees to furnish a copy of such
agreements to the SEC upon request.
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible
Business Reporting Language): (i) the Consolidated and Combined Statements of Operations and
Comprehensive Income (Loss) for the three and six months ended June 30, 2011 and 2010, (ii) the
Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (iii) Consolidated and Combined
Statements of Equity for the six months ended June 30, 2011 and 2010, and (iv) the Consolidated and
Combined Statements of Cash Flows for the six months ended
June 30, 2011 and 2010. Users of this
data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed
not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of
the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and
Exchange Act of 1934, and otherwise is not subject to liability under these sections.
-52-
exv31w1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, David Weinreb, certify that:
1. I have reviewed this report on Form 10-Q of The Howard Hughes Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting.
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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Date: August 9, 2011 |
By: |
/s/ David R. Weinreb
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David R. Weinreb |
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Chief Executive Officer |
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exv31w2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew Richardson, certify that:
1. I have reviewed this report on Form 10-Q of The Howard Hughes Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting.
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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Date: August 9, 2011 |
By: |
/s/ Andrew C. Richardson
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Andrew C. Richardson |
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Chief Financial Officer |
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exv32w1
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Howard Hughes Corporation, (the Company) for
the period ending June 30, 2011, as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, David Weinreb, in my capacity as Chief Executive Officer of the
Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects,
the financial condition and results of operations of the Company.
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Date: August 9, 2011 |
By: |
/s/ David R. Weinreb
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David R. Weinreb |
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Chief Executive Officer |
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exv32w2
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Howard Hughes Corporation (the Company) for the
period ending June 30, 2011, as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Andrew Richardson, in my capacity as Chief Financial Officer of the
Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
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Date: August 9, 2011 |
By: |
/s/ Andrew C. Richardson
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Andrew C. Richardson |
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Chief Financial Officer |
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