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

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

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

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

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

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

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

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

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

ABOUT THE HOWARD HUGHES CORPORATION

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

Safe Harbor Statement

Statements made in this press release that are not historical facts, including statements accompanied by words such as “will,” “believe,” “expect,”, “enables,” “realize” or similar words, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s expectations, estimates, assumptions, and projections as of the date of this release and are not guarantees of future performance. Actual results may differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially are set forth as risk factors in The Howard Hughes Corporation’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2010 and its Quarterly Reports on Form 10-Q. The Howard Hughes Corporation cautions you not to place undue reliance on the forward-looking statements contained in this release. The Howard Hughes Corporation does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.
THE HOWARD HUGHES CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
       
Three Months Ended September 30, Nine Months Ended September 30,
2011 2010 2011 2010
(Consolidated) (Combined) (Consolidated) (Combined)
(In thousands, except per share amounts)
Revenues:
Master Planned Community land sales $ 33,246 $ 7,297 $ 74,786 $ 14,686
Builder price participation 2,145 1,148 3,263 3,343
Minimum rents 19,403 16,349 53,098 50,349
Tenant recoveries 5,399 4,637 14,538 13,891
Condominium unit sales 9,071 - 19,495 -
Resort and conference center revenues 7,200 - 7,200 -
Other land revenues 3,886 1,589 7,382 4,112
Other rental and property revenues   6,540     1,440     11,051     5,500  
Total revenues   86,890     32,460     190,813     91,881  
Operating Expenses:
Master Planned Community cost of sales 27,035 3,751 51,909 7,001
Master Planned Community operations 7,398 6,306 17,611 23,653
Rental property real estate taxes 1,639 4,131 8,064 11,161
Rental property maintenance costs 2,341 1,484 5,467 4,766
Condominium unit cost of sales 5,470 - 13,723 -
Resort and conference center operations 6,352 - 6,352 -
Other property operating costs 16,964 8,994 36,028 27,195
Provision for doubtful accounts 275 744 590 1,101
General and administrative 9,990 3,467 23,581 12,463
Provisions for impairment - 92 - 578
Depreciation and amortization   7,208     4,109     13,592     12,535  
Total operating expenses   84,672     33,078     176,917     100,453  
 
Operating income (loss) 2,218 (618 ) 13,896 (8,572 )
 
Interest income 2,341 59 7,097 118
Interest expense - (681 ) - (1,888 )
Early extinguishment of debt (11,305 ) - (11,305 ) -
Warrant liability gain 169,897 - 100,762 -
Investment in real estate affiliate basis adjustment (6,053 ) - (6,053 ) -
Equity in earnings from Real Estate Affiliates   166     1,222     7,787     6,394  
Income (loss) before taxes and reorganization items 157,264 (18 ) 112,184 (3,948 )
Benefit (provision) for income taxes 7,760 350 4,344 (17,603 )
 
Reorganization items   -     (16,515 )   -     (43,129 )
Net income (loss) 165,024 (16,183 ) 116,528 (64,680 )
Net income attributable to noncontrolling interests   (729 )   (47 )   (777 )   (121 )
Net income (loss) attributable to common stockholders $ 164,295   $ (16,230 ) $ 115,751   $ (64,801 )
 
Basic Income (Loss) Per Share: $ 4.33 $ (0.43 ) $ 3.05 $ (1.72 )
Diluted Income (Loss) Per Share: $ (0.14 ) $ (0.43 ) $ 0.38 $ (1.72 )
 
 
Comprehensive Income (Loss), Net of Tax:
Net income (loss) $ 165,024 $ (16,183 ) $ 116,528 $ (64,680 )
Other comprehensive income (loss):
Interest rate swap (a) (2,024 ) - (2,772 ) -
Pension plan adjustment   -     88     -     188  
Other comprehensive income (loss)   (2,024 )   88     (2,772 )   188  
Comprehensive income (loss) 163,000 (16,095 ) 113,756 (64,492 )
Comprehensive income attributable to noncontrolling interests   (729 )   (47 )   (777 )   (121 )
Comprehensive income (loss) attributable to common stockholders $ 162,271   $ (16,142 ) $ 112,979   $ (64,613 )
             
(a) Net of deferred tax expense of $1.1 million during both the three and nine months ended September 30, 2011.
 
 
THE HOWARD HUGHES CORPORATION
CONSOLIDATED BALANCE SHEETS
       
September 30, December 31,
2011 2010
Assets: (In thousands, except share amounts)
Investment in real estate:
Master Planned Community assets $ 1,611,125 $ 1,350,648
Land 259,557 180,976
Buildings and equipment 523,871 343,006
Less accumulated depreciation (94,771 ) (83,390 )
Developments in progress   190,287     293,403  
Net property and equipment 2,490,069 2,084,643
Investment in Real Estate Affiliates   61,214     149,543  
Net investment in real estate 2,551,283 2,234,186
Cash and cash equivalents 293,363 284,682
Accounts receivable, net 15,555 8,154
Municipal Utility District receivables 110,054 28,103
Notes receivable, net 39,141 38,954
Tax indemnity receivable, including interest 329,668 323,525
Deferred expenses, net 7,899 6,619
Prepaid expenses and other assets   130,013     98,484  
Total assets $ 3,476,976   $ 3,022,707  
 
Liabilities:
Mortgages, notes and loans payable $ 708,172 $ 318,660
Deferred tax liabilities 72,339 78,680
Warrant liabilities 128,586 227,348
Uncertain tax position liability 146,985 140,076
Accounts payable and accrued expenses   122,079     78,836  
Total liabilities   1,178,161     843,600  
Commitments and Contingencies
 
Equity:
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued - -
Common stock: $.01 par value; 150,000,000 shares authorized, - -
37,942,107 shares issued and outstanding as of September 30, 2011 and - -
37,904,506 shares issued and outstanding as of December 31, 2010 379 379
Additional paid-in capital 2,710,536 2,708,036
Accumulated deficit (412,754 ) (528,505 )
Accumulated other comprehensive loss   (4,399 )   (1,627 )
Total stockholders' equity 2,293,762 2,178,283
Noncontrolling interests   5,053     824  
Total equity   2,298,815     2,179,107  
Total liabilities and equity $ 3,476,976   $ 3,022,707  
 
 

Supplemental Information

September 30, 2011

As our three segments, Master Planned Communities, Operating Assets and Strategic Developments, are managed separately, different operating measures are utilized to assess operating results and allocate resources. The one common operating measure used to assess operating results for our business segments is real estate property earnings before taxes (“EBT”) which represents the operating revenues of the properties less property operating expenses. EBT is defined as net income (loss) from continuing operations as adjusted for: (1) reorganization items; (2) income tax provision (benefit); (3) warrant liability expense; and (4) general and administrative costs. The net income from our Real Estate Affiliates, at our proportionate share, is similarly adjusted for items (1) through (4) immediately above. Management believes that EBT provides useful information about the operating performance of all our assets, projects and property. However, EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss) from continuing operations.
     
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2011     2010 2011   2010
Reconciliation of EBT to GAAP-basis
income (loss) from continuing operations
Real estate property EBT:
Master Planned Communities $ 10,693 $ 6,642 $ 40,443 $ 14,220
Operating Assets (10,816 ) 766 4,164 5,480
Strategic Developments   3,367     (3,088 )   2,839     (7,553 )
Segment basis $ 3,244 $ 4,320 $ 47,446 $ 12,147
Real Estate Affiliates   -     (2,093 )   (10,282 )   (10,026 )
Segment EBT 3,244 2,227 37,164 2,121
General and administrative (9,990 ) (3,467 ) (23,581 ) (12,463 )
Warrant liability gain 169,897 - 100,762 -
Benefit (provision) for income taxes 7,760 350 4,344 (17,603 )
Equity in earnings from Real Estate Affiliates 166 1,222 3,892 (a) 6,394
Investment in real estate affiliate basis adjustment (6,053 ) - (6,053 ) -
Reorganization items   -     (16,515 )   -     (43,129 )
Income (loss) $ 165,024   $ (16,183 ) $ 116,528   $ (64,680 )
 
     

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

 
 

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

 
     

Three Months Ended September 30,
       
2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
($ in thousands)
Residential Land Sales
Maryland - Columbia

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

 

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

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

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

 

Operating Assets Net Operating Income (“NOI”)

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

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

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

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

Copyright Business Wire 2010