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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

or

o         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 1-11656

THE HOWARD HUGHES CORPORATION

(Exact name of registrant as specified in its charter)

13355 Noel Road, Suite 950, Dallas, Texas 75240

(Address of principal executive offices, including Zip Code)

(214) 741-7744

(Registrant’s 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 (the “Exchange Act”) 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. o Yes  x 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). Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes  x No

The registrant commenced operations on November 9, 2010.

As of November 10, 2010, there were 37,716,453 shares of the registrant’s common stock outstanding.

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The Howard Hughes Corporation

INDEX

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COMBINED BALANCE SHEETS

(UNAUDITED)

The accompanying notes are an integral part of these combined financial statements.

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COMBINED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(UNAUDITED)

The accompanying notes are an integral part of these combined financial statements.

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COMBINED STATEMENTS OF EQUITY

(UNAUDITED)

The accompanying notes are an integral part of these combined financial statements.

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COMBINED STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of these combined financial statements.

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NOTE 1         ORGANIZATION

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited Combined Financial Statements for the year ended December 31, 2009 which are included in the Company’s Registration Statement on Form 10 for the fiscal year ended December 31, 2009 (Commission File No. 001-34856), as certain footnote disclosures which would substantially duplicate those contained in our Registration Statement have been omitted from this report.  Capitalized terms used, but not defined, in this Quarterly Report have the same meanings as in our Registration Statement.

General

The Howard Hughes Corporation (‘‘HHC’’ or the ‘‘Company’’) is a newly formed Delaware corporation that was created to hold certain assets and liabilities of General Growth Properties, Inc. (‘‘GGP’’) and its subsidiaries (collectively, the ‘‘Predecessors’’). On April 16, 2009 and April 22, 2009 (collectively, the ‘‘Petition Date’’), GGP and certain of its subsidiaries (the ‘‘Debtors’’) filed voluntary petitions under Chapter 11 of Title 11 of the United States Code (the ‘‘Chapter 11 Cases’’) with the Bankruptcy Court for the Southern District of New York (the ‘‘Bankruptcy Court’’). On October 21, 2010, the Bankruptcy Court entered an order confirming the plan of reorganization (the “Plan”) of GGP and certain of the Debtors still remaining in the Chapter 11 Cases (the “TopCo Debtors”). Pursuant to the Plan, the TopCo Debtors emerged from bankruptcy and HHC received certain of the assets and liabilities of the Predecessors (the ‘‘Separation’’), which we refer to as our business or ‘‘the HHC Businesses”. The reorganization of GGP was completed on November 9, 2010 (such time of completion being referred to as the ‘‘Effective Date’’) as described in “Transactions on the Effective Date”, below.

As of September 30, 2010, we had not conducted any business as a separate company and had no separate material assets or liabilities. The operations of the business transferred to us by the Predecessors is presented as if the transferred business was our business for all historical periods described and at the historical cost/carrying value of such assets and liabilities reflected in GGP’s books and records. Unless the context otherwise requires, references to ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to HHC and its combined subsidiaries after giving effect to the transfer of assets and liabilities from the Predecessors.

On the Effective Date, our assets consisted of the following:

·      four master planned communities with an aggregate of 14,653 remaining saleable acres;

·      nine mixed-use development opportunities comprised of 1,129 acres;

·      four mall developmental projects comprised of 647 acres;

·                  seven redevelopment-opportunity retail malls with approximately 1 million square feet of existing gross leasable space; and

·      interests in eleven other real estate assets or projects.

Our ownership interests in properties in which we own a majority or controlling interest are combined under accounting principles generally accepted in the United States of America (‘‘GAAP’’).  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’’), all located in Houston, Texas and, collectively, the ‘‘Woodlands Partnerships’’, 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 accounted for on the equity method. The Woodlands Partnerships, Circle T and certain cost method investments (see Note 3) are collectively referred to in this report as our ‘‘Real Estate Affiliates’’.

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Principles of Combination and Basis of Presentation

The accompanying combined financial statements include the accounts of the HHC Businesses in which we have a controlling interest and are presented on a combined basis as all such HHC Businesses have common control and ownership by GGP. The noncontrolling equity holders’ share of the assets, liabilities and operations are reflected in noncontrolling interests within permanent equity of the Company. All significant intercompany balances and transactions between the HHC Businesses have been eliminated.

As discussed above, we were formed for the purpose of receiving, via a tax-free distribution, certain assets and assuming certain liabilities of GGP 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 are derived from the books and records of GGP and were carved-out from GGP at a carrying value 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 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 Company’s percentage of GGP’s 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. In addition, the HHC Businesses were operated as subsidiaries of GGP, which operates as a real estate investment trust (‘‘REIT’’). We will operate as a taxable corporation. The historical combined financial information presented will therefore not be indicative of the results of operations, financial position or cash flows that would have been obtained if we had been an independent, stand-alone entity during the periods shown or of our future performance as an independent, stand-alone entity.

The Debtors’ Bankruptcy

As the Debtors had significant past due, or imminently due, and cross-collateralized or cross-defaulted debt, on the Petition Date, GGP, on behalf of itself and certain of its domestic subsidiaries including certain wholly-owned HHC Businesses, filed voluntary petitions for the Chapter 11 Cases. The Debtors that sought protection under Chapter 11 that are part of HHC are collectively referred to as the ‘‘HHC Debtors’’ and on the Petition Date comprised 33 entities with approximately $268.4 million of secured mortgage loans. However, the entities that own our Bridgeland and Columbia master planned communities, the entities that own substantially all of our eight undeveloped land parcels and our joint ventures, The Woodlands Partnerships and Circle T, among others (collectively, the ‘‘HHC Non-Debtors’’), did not seek such relief.

During the pendency of the Chapter 11 Cases, the Debtors operated as Debtors-in-Possession.  A debtor is afforded certain protection against its creditors and creditors are prohibited from taking certain actions (such as pursuing collection efforts or proceeding to foreclose on secured obligations) related to debts that were owed prior to the commencement of the Chapter 11 Cases. Accordingly, although the commencement of the Chapter 11 Cases triggered defaults on substantially all debt obligations of the Debtors, creditors were stayed from taking any action as a result of such defaults.

During December 2009, three of the HHC Debtors (the ‘‘Emerged Debtors’’) with $215.3 million of secured mortgage loans filed consensual plans of reorganization (the ‘‘Emerged Plans’’). As of December 31, 2009, two of the Emerged Debtors with $146.8 million secured debt had emerged from bankruptcy. The plan of reorganization and emergence from bankruptcy of the remaining Emerged Debtor occurred on July 23, 2010. The HHC Debtors that remained in Chapter 11 at September 30, 2010 (the ‘‘Remaining HHC Debtors’’) emerged from bankruptcy pursuant to the Plan on the Effective Date.

Transactions on the Effective Date

On the Effective Date, approximately 32.5 million shares of common stock of HHC were distributed to the common and preferred unit holders of GGPLP, which includes GGP, and then GGP distributed its portion of such shares pro-rata to holders of GGP common stock (the ‘‘Distribution’’). GGP has not retained any ownership interest in HHC. The Plan generally provided for the payment/settlement or reinstatement of claims against the TopCo Debtors, funded with new equity capital provided by investors sponsoring the Plan (the

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‘‘Plan Sponsors’’). As part of the Plan, approximately 5.3 million shares of our common stock were purchased by certain of the investors sponsoring the Plan for $250 million.  Additionally as part of the Plan, on the Effective Date, we issued warrants to purchase up to approximately 8 million shares of our common stock to the Plan Sponsors.  The warrants have an initial exercise price of $50.00 per share. Approximately 6.08 million warrants are immediately exercisable and approximately 1.92 million warrants are exercisable upon 90 days prior notice for the first 6.5 years after issuance and exercisable without notice any time thereafter.  Each warrant has a term of seven years from the closing date of the investments.

Unaudited Pro Forma Condensed Combined Balance Sheet

The following unaudited pro forma condensed combined balance sheet has been developed based on currently available information by applying certain pro forma adjustments which reflect the Separation of HHC from the Predecessors and other transactions provided by the Plan, to the September 30, 2010 historical combined balance sheet that appears elsewhere in this Quarterly Report. The unaudited pro forma condensed combined balance sheet gives effect to such transactions as if they had occurred on September 30, 2010 and are described more fully in the notes to the unaudited pro forma combined balance sheet which should be read in conjunction with such pro forma condensed combined balance sheet.  The unaudited pro forma condensed combined balance sheet presented below is for illustrative purposes only and is not necessarily indicative of the financial position that would have actually been reported had the transactions reflected in the pro forma adjustments occurred as of September 30, 2010.  In addition, the unaudited pro forma condensed combined balance sheet should be read in conjunction with the combined financial statements and related notes.

The accounting by HHC to reflect the emergence from bankruptcy of the Emerged Debtors is limited to recording the liabilities of such Debtors that are impacted by confirmed plans of reorganization at the estimated present values of the amounts expected to be paid upon emergence from bankruptcy since the provisions of the Plan do not meet the criteria for fresh-start reporting under generally accepted accounting principles (ASC 852-10-45-29). Historical liability amounts presented in the unaudited pro forma balance sheet for debtors which have emerged from bankruptcy at September 30, 2010 reflect these fair value adjustments in mortgages, notes and loans payable not subject to compromise. However, as certain of the HHC Debtors remain in bankruptcy at September 30, 2010, their liabilities remain subject to compromise and, therefore, the HHC historical balance sheet at September 30, 2010 has no such present value adjustment.

Fresh-start reporting does not apply to HHC because existing holders of GGP common stock received greater than 50% (approximately 79.7%) of the voting shares of HHC and the reorganization value of HHC’s assets exceeds the total of all post-petition liabilities and allowed claims (ASC 852-10-45-19). Further, the acquisition method of accounting does not apply to HHC at emergence because the criteria for application of the acquisition method of accounting, specifically, a transaction or event yielding a change of control, that is, a business combination, has not occurred. Since the provisions of the Plan provide that the Distribution occurs such that all members with each class of equity are treated equally, the Distribution is treated as a pro-rata spin-off and such non-monetary transaction is accounted for at the recorded or historical carrying values (ASC 505-60 and ASC 845-10-30-10).

In addition to the impact of the debt and equity recapitalization events described above, the significant transactions included in this pro forma balance sheet also occurred on the Effective Date in accordance with the Plan, and will be recorded by GGP, and/or HHC, as applicable in the fourth quarter of 2010.

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Notes to Pro Forma Condensed Combined Balance Sheet

(1) Reflects the initial $250 million investment by the Plan Sponsors (approximately 5,250,000 shares of our common stock).

(2) Reflects the withdrawal by GGP of all permitted cash or cash equivalent balances from the HHC Accounts totaling $2.8 million, excluding $6.1 million of net proceeds from sales at our Summerlin Master Planned Community closing in October, 2010, in accordance with the Separation Agreement.

(3) Reflects the right to receive payments approximating the capital lease revenue that GGP receives from the Arizona 2 Office in Phoenix, Arizona totaling $31.4 million in accordance with the Plan.

(4) Reflects establishment of the Tax Indemnity Cap of $303.8 million based upon our current estimates of the components of the Indemnity Cap in the Investment Agreements (See Note 5- Income Taxes). Also includes the establishment of an obligation of GGP to pay up to $5.0 million of pre-petition liabilities.

(5) Reflects the reclassification of $64.0 million of mortgages, notes and loans payable and $74.1 million of accounts payable and accrued expenses subject to compromise to the appropriate categories of liabilities not subject to compromise. The adjustment also eliminates $27.7 million of pre-petition mechanics and materialmens’ liens payable included in the historical combined balance sheet because any remaining amounts due relating to these liabilities at the Effective Date were retained by GGP in accordance with the Plan. The amount of liens to be retained by GGP at emergence was substantially lower than the historical amount at September 30, 2010 due to settlement activity since such date.

(6) Reflects the prepayment of a portion of the loan obligation on the 110 N. Wacker property totaling $16.0 million by GGP.

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(7) Reflects an adjustment of $537.9 million for the re-measurement of the deferred tax liability utilizing the pro forma carrying amounts of HHC assets and liabilities, and the current taxable and non-taxable entities to be held by HHC.

(8) Reflects the settlement/or conversion to equity of intercompany balances in accordance with the Separation Agreement.

Accounting for Reorganization

The accompanying combined financial statements and the combined condensed financial statements of the HHC Debtors presented below have been prepared in accordance with GAAP related to financial reporting by entities in reorganization under the Bankruptcy Code, and on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Such accounting guidance also provides that if a debtor, or group of debtors, has significant combined assets and liabilities of entities which have not sought Chapter 11 bankruptcy protection, the debtors and non-debtors should continue to be combined. However, separate disclosure of financial statement information solely relating to the debtor entities should be presented. Therefore, the combined condensed financial statements presented below solely reflect the financial position and results of operations for the HHC Debtors which had not emerged from bankruptcy as of September 30, 2010.

Unaudited Combined Condensed Balance Sheets

As described above, certain of the HHC Debtors had emerged from bankruptcy protection as of September 30, 2010. The unaudited combined condensed statements of operations, for the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010, as well as the unaudited combined condensed statements of cash flows for the nine months ended September 30, 2010 presented below include the Topco Debtors that are HHC Businesses, and exclude Emerged Debtors.  Since the HHC Debtors commenced their respective Chapter 11 Cases on two different dates in April 2009, the unaudited combined condensed statements of operations and cash flows of the Topco Debtors that are HHC Businesses have been prepared for the period May 1, 2009 to September 30, 2009.

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Unaudited Combined Condensed Statements of Operations

Unaudited Combined Condensed Statements of Cash Flows

Classification of Liabilities Not Subject to Compromise

Liabilities not subject to compromise include: (1) liabilities held by HHC Non-Debtors; (2) liabilities incurred after the Petition Date; (3)  pre-Petition Date liabilities the Emerged Debtors expect to pay in full, even though certain of these amounts may not be paid until a plan of reorganization is effective; and (4) liabilities related to pre-petition contracts that affirmatively have not been rejected.

All liabilities incurred by the Debtors prior to the Petition Date other than those specified above are considered liabilities subject to compromise. The amounts of the various categories of liabilities that are subject to compromise are set forth below. These amounts represent the Company’s estimates of known or potential pre-Petition Date claims that are likely to be resolved in connection with the bankruptcy filings. Such claims remain subject to future adjustments. Adjustments may result from negotiations, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of any collateral securing claims, proofs of claim, or other events.  The amounts subject to compromise consisted of the following items:

The classification of liabilities “not subject to compromise” versus liabilities “subject to compromise” is based on currently available information and analysis. Debtors subject to the remaining Chapter 11 Cases had their plans of reorganization confirmed as of October 21, 2010, and the Plan provides that these Debtors will pay 100% of allowed pre-petition liability claims, including those relating to the HHC assets. However, additional analysis remains to be completed and the Bankruptcy Court may be requested to rule on pre-petition liabilities to be allowed and paid pursuant to

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the Plan.  Accordingly, the amounts in these two categories ultimately paid may change.  The amount of any such changes could be significant.

Reorganization Items

Reorganization items under the Chapter 11 Cases are expense or income items that were incurred or realized by the HHC Debtors as a result of the Chapter 11 Cases and are presented separately in the Combined Statements of Loss and Comprehensive Loss and in the combined condensed statements of operations of the HHC Debtors presented above. These items include professional fees and similar types of expenses and gains and interest earned on cash accumulated by the HHC Debtors, all as a result of the Chapter 11 Cases.  Reorganization items specific to the HHC Businesses have been allocated to us and have been reflected in our combined financial statements and in the tables presented below.

The key employee incentive program (the “KEIP”) was intended to retain certain key employees of GGP during the pendency of the Chapter 11 Cases and provided for payment (in two installments) to these GGP employees upon successful emergence from bankruptcy.  The first KEIP payment was made on November 12, 2010. As certain of these employees became our employees on the Effective Date, a portion of the KEIP has been deemed to relate to us and therefore, we are recognizing our estimated KEIP expense in the period from the date the KEIP was approved by the Bankruptcy Court to November 9, 2010, our date of emergence from bankruptcy.  We accrued a liability for the KEIP in Accounts payable and accrued expenses on the Combined Balance Sheets of $11.7 million as of September 30, 2010 and $2.3 million as of December 31, 2009.  In addition, we recognized the resulting expense in Reorganization items on the Combined Statements of Loss and Comprehensive Loss of $3.6 million for the three months ended September 30, 2010 and $9.4 million for the nine months ended September 30, 2010.  No expense was recognized during the nine months ended September 30, 2009 as the KEIP was approved by the Bankruptcy Court in October 2009.

Reorganization items are as follows:

(1)   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.

(2)   Such net gains include the Fair Value adjustments of mortgage debt relating to entities that emerged from bankruptcy.

(3)   Interest income primarily reflects amounts earned on cash accumulated as a result of our Chapter 11 cases.

(4)   Estimate of fees due remains subject to confirmation and review by the Office of the United States Trustee (“U.S. Trustee”).

(5)   Restructuring costs primarily include professional fees incurred related to the bankruptcy filings, our allocated share of the estimated KEIP payment, finance costs incurred by the Emerged Debtors and the write off of unamortized deferred finance costs related to the Emerged Debtors.

Impairment

Properties, developments in progress and land held for development or redevelopment, including assets to be sold after such development or redevelopment

GAAP related to the accounting for the impairment or disposal of long-lived assets requires that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its Fair Value (defined in Fair Value Measurements below). We review our combined and uncombined real estate

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assets, including operating properties, land held for development and sale and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Impairment indicators for our Master Planned Communities segment (defined in Note 10) are assessed separately for each community and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs or cancellation rates, and projected losses on expected future sales.

Impairment indicators for our Strategic Development segment (defined in Note 10) are assessed separately for each property and include, but are not limited to, significant decreases in comparable property sale prices, in real estate property net operating income and occupancy percentages.

Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development, and developments in progress are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, development costs, market factors and sustainability of development projects.

If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows.  The cash flow estimates used both for determining recoverability and estimating Fair Value are inherently judgmental and reflect current and projected trends in development costs, land sales prices, rental, occupancy 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 cannot 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 reduce 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.

We recorded impairment charges related to our properties held for development, redevelopment and sale and developments in progress of $0.1 million and $0.6 million for the three and nine months ended September 30, 2010 and $40.6 million and $180.8 million for the three and nine months ended September 30, 2009, respectively, as presented in the General section below.  All of these impairment charges are included in provisions for impairment in our combined financial statements.

Investment in Real Estate Affiliates

In accordance with GAAP related to the equity method of accounting for investments, a series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the Real Estate Affiliates has occurred which is other-than-temporary. The investment in each of the Real Estate Affiliates is evaluated periodically and as deemed necessary for recoverability and valuation declines that are other than temporary. Accordingly, in addition to the property-specific impairment analysis that we perform on the investment properties, land held for development and sale and developments in progress owned by such joint ventures (as part of our investment property impairment process described above), we also considered the ownership and distribution preferences and limitations and rights to sell and repurchase our ownership interests. Based on such evaluations, no provisions for impairment were recorded for the three and nine months ended September 30, 2010 and 2009 related to our investments in Real Estate Affiliates.  See Note 3 for further disclosure of the provisions for impairment related to certain properties within our Real Estate Affiliates.

General

Although all of the properties in our Master Planned Communities segment and two of our operating properties in our Strategic Development segment had impairment indicators and carrying values in excess of estimated Fair Value at September 30, 2010, aggregate undiscounted cash flows for such master planned communities properties and the two strategic development properties exceeded their respective aggregate book values. Based on the Company’s plans with respect to those properties, we believe that the carrying amounts are recoverable and therefore, under applicable GAAP guidance, no additional impairments were taken.  Nonetheless, if our plans regarding our assets change, additional impairment charges in the future could result.    In addition, we have a new Board of Directors and a new HHC management team, a group independent of GGP, as of the Effective Date, and our ability to execute our long-term development strategies will be dependent upon our ability to generate cash flows and additional capital as a separate, publicly-traded company.  Such new

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board and management team may change existing plans for the assets, which may result in future impairment provisions being required. Therefore, we can provide no assurance that material impairment charges with respect to our properties held for development, redevelopment and sale and development in progress and our investment in Real Estate Affiliates 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.