PR Newswire | Nov 5, 2020 04:19PM EST

11/05 15:18 CST

The Howard Hughes Corporation(r) Reports Third Quarter 2020 ResultsRobust new home sales growth throughout MPCs, positive momentum and strong collections among Operating Assets, and a successful $750 million bond offering highlight a strong third quarter THE WOODLANDS, Texas, Nov. 5, 2020

THE WOODLANDS, Texas, Nov. 5, 2020 /PRNewswire/ -- The Howard Hughes Corporation(r) (NYSE: HHC) (the "Company," "HHC" or "we") announced today operating results for the third quarter ended September 30, 2020. The financial statements, exhibits and reconciliations of non-GAAP measures in the attached Appendix and the Supplemental Information, as available through the Investors section of our website, provide further detail of these results.

"While the impact of COVID-19 affected all of our business segments in the first half of the year, we saw notable performance improvements and significant sales momentum during the third quarter," said David O'Reilly, Interim Chief Executive Officer; President and Chief Financial Officer.

"While third quarter land sales were lower compared to the third quarter of 2019 as a result of timing related to superpad sales in Summerlin, we did experience positive growth in new home sales throughout our regions. Growth in new home sales, a leading indicator for future land sales, continued to expand in our master planned communities (MPCs) as The Woodlands Hills, Bridgeland and Summerlin all saw greater new home sales compared to the third quarter of 2019 with increases of 185%, 32% and 27%, respectively. We believe that this continued new home sales growth is a result of buyers relocating outside of densely populated cities, seeking walkable communities in natural settings with expansive open green space and sought-after urban amenities. If this trend continues, it will offer us further development opportunities in addition to land sales.

"Our retail collections improved to 66% during the third quarter. In addition, occupancy rates remained above 90% for the majority of our stabilized retail assets as a result of our year-to-date retail leasing activity where we have executed 45 new leases for 148,000 square feet and have executed lease renewals for 50 existing tenants representing 143,000 square feet. Notably, our hotels generated positive NOI during the quarter as occupancy levels continue to rise since the second quarter, with guests ranging from weekend vacationers and business travelers to Major League Baseball teams. Further, our office and multi-family properties maintained strong collections at 97.3% and 98.5%, respectively. Even in the midst of the pandemic, our new multi-family developments are leasing up ahead of projections, due to their high-quality amenities and superior locations within our MPCs.

"We completed construction on our 77% leased, Class-AAA office tower, 110 North Wacker, in September. In connection with the deconsolidation of this asset upon completion of construction, we reported a gain of $267.5 million which reflects our proportionate share of this investment's fair market value. While this gain will not be reflected in our cash balance until the building's ultimate sale, we believe this amount accurately reflects the inherent value created through the development of this project and the value that will ultimately be realized by HHC shareholders.

"Condo sales in Ward Village continued to progress throughout the quarter with 24 homes sold, almost exclusively through a digital homebuyer experience. Our future revenue associated with all of our contracted units is $1.5 billion which is a testament to the community we have built in Hawai'i. The latest tower in pre-development, Victoria Place, is now 71% pre-sold and our other two towers under construction, 'A'ali'i and K'ula, sold 5 and 6 units during the quarter and are well sold at 85% and 77%, respectively.

"At the Seaport, we were able to reopen many of the restaurants on a limited basis during the quarter. We also resumed construction on the Tin Building for the Jean-Georges Food Hall and launched our new concept The Greens on Pier 17's rooftop, where guests can reserve their own socially distanced, mini-lawn space overlooking the Brooklyn Bridge and Lower Manhattan waterfront. The Greens was sold out each day this summer and had a 20-thousand-person waitlist which reinforces our view that the Seaport's location and outdoor space is incredibly valuable. This activation was key to retaining the majority of our sponsorship income that would have been lost due to the postponement of the summer concert series.

"During the quarter, we executed on a $750 million bond offering and used the proceeds, along with cash on hand, to pay down $808 million of asset-level debt. The bond offering increased our book value of unencumbered assets by over $1 billion, further diversified our funding sources, and extended our overall maturity profile.

"We continue to make progress on our Transformation Plan. Our corporate-overhead cost reduction initiatives are substantially complete, and we continue to pursue the sale of our non-core assets, committed to achieving the maximum value for these dispositions and having the luxury of patience given our current liquidity position. We have resumed modest investment in pre-development work as our regional leaders continue to seek out the best opportunities across multiple asset types to deploy capital at outsized risk-adjusted returns.

"While we continue to feel the impacts of COVID-19, it is encouraging to see the strength in new home sales in our MPCs, the momentum in condo sales at Ward Village, and the improvements within our Operating Assets and the Seaport. We believe our high-quality assets and strategically located master planned communities put The Howard Hughes Corporation in an excellent position to thrive in a post-COVID environment."

Third Quarter 2020 Highlights

* Net income attributable to common stockholders increased to income of $139.7 million, or $2.51 per diluted share, for the three months ended September 30, 2020, compared to income of $29.8 million, or $0.69 per diluted share, for the three months ended September 30, 2019, primarily due to the $267.5 million gain on the deconsolidation of 110 North Wacker, partially offset by lower land sales revenues due to superpad sales in Summerlin in 2019 that did not recur in 2020, decreased revenues from declines in occupancy at our recently reopened hospitality properties and cancellation of the Las Vegas Aviators 2020 baseball season as a result of the COVID-19 pandemic, and a decrease resulting from a $24.2 million gain on the sale of the Cottonwood Mall during the three months ended September 30, 2019. * We continue to maintain a strong liquidity position with $857.4 million cash as of September 30, 2020. * On August 18, 2020, the Company issued $750 million in 5.375% senior notes due August 2028. These senior notes will be unsecured senior obligations of the Company and will be guaranteed by certain subsidiaries of the Company. The Company used the net proceeds from this issuance, together with cash on hand, for the repayment of existing indebtedness of approximately $807.9 million. * For the three months ended September 30, 2020, we collected 97.3% of our office portfolio billings, 98.5% of our multi-family portfolio billings and 96.2% of our other portfolio billings. As several of our tenants have resumed operations with phased reopenings, collections of our retail portfolio billings have increased from 49.7% for the three months ended June 2020 to 65.7% for three months ended September 30, 2020. * MPC segment earnings before tax ("EBT") decreased by $25.5 million to $36.6 million for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to lower land sales revenues primarily driven by reductions in acres sold at Summerlin due to the timing of superpad sales and lower earnings at The Summit. Bridgeland price per acre increased 8.3% with acres sold remaining consistent with results in the third quarter of 2019. The Woodlands Hills' price per acre increased 9.6% coupled with a 103.6% increase in acres sold due to a higher volume and change in product type of lots sold in the third quarter of 2020, compared to the same period in 2019. * Total Net operating income ("NOI")(1) from the Operating Assets segment, including our share of NOI from equity investments, decreased by 30.7% to $38.2 million for the three months ended September 30, 2020, compared to $55.2 million for the prior year period. The decrease in NOI was primarily due to rent deferrals and collection reserves related to our retail properties, declines in occupancy at our recently reopened hospitality properties and cancellation of the Las Vegas Aviators 2020 baseball season, all as a result of the COVID-19 pandemic. * Progressed public pre-sales of our newest project at Ward Village(r), Victoria Place(r), where as of September 30, 2020, we have executed contracts for 249 condominium units, or 71.3% of total units. Across all of Ward Village(r), potential future revenue associated with total contracted units is $1.50 billion. * Seaport District NOI decreased $3.2 million to a loss of $6.1 million for the three months ended September 30, 2020, compared to the prior year period, primarily due to business closures and cancellation of events related to the COVID-19 pandemic. Multiple changes were made at the Seaport as a result of COVID-19 including expanded outdoor seating at our restaurants, updates to the Tin Building's e-commerce strategy to include grocery and restaurant delivery and the launch of The Greens, which replaced the canceled summer concert series.

We are primarily focused on creating shareholder value by increasing our per share net asset value. Often, the nature of our business results in short-term volatility in our net income due to the timing of MPC land sales, recognition of condominium revenue and operating business pre-opening expenses, and, as such, we believe the following metrics summarized below are most useful in tracking our progress towards net asset value creation.

Nine Months Ended September 30, 2020 Three Months Ended September 30,

$ in thousands 2020 2019 Change % Change 2020 2019 Change % Change

Operating Assets NOI ^ (1)

Office $ 86,098 $ 61,918 $ 24,180 39.1 % $ 23,857 $ 22,996 $ 861 4 %

Retail 30,021 47,188 (17,167) (36.4) % 6,932 15,683 (8,751) (56) %

Multi-family 12,286 14,503 (2,217) (15.3) % 3,924 5,317 (1,393) (26) %

Hospitality 3,163 23,419 (20,256) (86.5) % 626 7,231 (6,605) (91) %

Other 1,257 11,153 (9,896) (88.7) % 583 1,896 (1,313) (69) %

Company's share NOI (a) 10,112 8,820 1,292 14.6 % 2,315 2,043 272 13 %

Total Operating Assets NOI (b) $ 142,937 $ 167,001 $ (24,064) (14.4) % $ 38,237 $ 55,166 $ (16,929) (31) %

Projected stabilized NOI $ 362.3 $ 323.1 $ 39.2 12.1 %Operating Assets ($ in millions)

MPC

Acres Sold - Residential 218 337 (119) (35.4) % 70 147 (77) (53) %

Acres Sold - Commercial 17 - 17 - % 1 - 1 100 %

Price Per Acre - Residential $ 541 $ 543 $ (2) (0.3) % $ 445 $ 574 $ (129) (22) %

Price Per Acre - Commercial $ 131 $ - $ 131 - % $ - $ - $ - 100 %

MPC EBT $ 122,929 $ 149,868 $ (26,939) (18.0) % $ 36,621 $ 62,109 $ (25,488) (41) %

Seaport District NOI ^(1)

Historic District & Pier 17 - $ (5,494) $ (5,156) $ (338) (6.6) % $ (2,022) $ (2,150) $ 128 6 %Landlord

Multi-family 260 303 (43) (14.2) % 46 112 (66) (59) %

Hospitality (12) 41 (53) (129) % - - - 100 %

Historic District & Pier 17 - (4,993) (4,420) (573) (13.0) % (1,657) (879) (778) (89) %Managed Businesses

Events, Sponsorships & (3,190) (536) (2,654) (495.1) % (2,466) 25 (2,491) 9,964 %Catering Business

Company's share NOI (a) (787) (385) (402) (104.4) % (106) (148) 42 28 %

Total Seaport District NOI $ (14,216) $ (10,153) $ (4,063) 40.0 % $ (6,205) $ (3,040) $ (3,165) 104 %

Strategic Developments

Condominium units contracted to 27 82 (55) (67.1) % 11 55 (44) (80) %sell (c)

(a) Includes Company's share of NOI from non-consolidated assets

(b) Excludes properties sold or in redevelopment

(c) Includes units at our buildings that are open or under construction as of September 30, 2020. Excludes two purchaser defaults at K?'ula in the second quarter of 2020.

Financial Data

See the accompanying appendix for a reconciliation of GAAP to non-GAAP(1) financial measures and a statement indicating why management believes the non-GAAP financial measure provides useful information for investors.

About The Howard Hughes Corporation(r)

The Howard Hughes Corporation owns, manages and develops commercial, residential and mixed-use real estate throughout the U.S. Its award-winning assets include the country's preeminent portfolio of master planned communities, as well as operating properties and development opportunities including: the Seaport District in New York; Columbia, Maryland; The Woodlands(r), The Woodlands Hills(r), and Bridgeland(r) in the Greater Houston, Texas area; Summerlin(r), Las Vegas; and Ward Village(r) in Honolulu, Hawai'i. The Howard Hughes Corporation's portfolio is strategically positioned to meet and accelerate development based on market demand, resulting in one of the strongest real estate platforms in the country. Dedicated to innovative place making, the Company is recognized for its ongoing commitment to design excellence and to the cultural life of its communities. The Howard Hughes Corporation is traded on the New York Stock Exchange as HHC. For additional information visit www.howardhughes.com.

The Howard Hughes Corporation has partnered with Say, the fintech startup reimagining shareholder communications, to allow investors to submit and upvote questions they would like to see addressed on the Company's third quarter earnings call. Say verifies all shareholder positions and provides permission to participate on the November 6, 2020 call, during which the Company's leadership will be answering top questions. Utilizing the Say platform, The Howard Hughes Corporation elevates its capabilities for responding to Company shareholders, making its investor relations Q&A more transparent and engaging.

The Howard Hughes Corporation will host its investor conference call on Friday, November 6, 2020, at 9:00 a.m Central Standard Time (10:00 a.m. Eastern Standard Time) to discuss third quarter 2020 results. To participate, please dial 1-877-883-0383 within the U.S., 1-877-885-0477 within Canada, or 1-412-902-6506 when dialing internationally. All participants should dial in at least five minutes prior to the scheduled start time, using 0985696 as the passcode. In addition to dial-in options, institutional and retail shareholders can participate by going to app.saytechnologies.com/howardhughes. Shareholders can email hello@saytechnologies.com for any support inquiries.

Safe Harbor Statement

We may make forward-looking statements in this press release and in other reports and presentations that we file or furnish with the Securities and Exchange Commission (the "SEC"). In addition, our management may make forward-looking statements orally to analysts, investors, creditors, the media and others. Forward-looking statements include:

* projected impact of COVID-19, including the recent surge of COVID-19 cases in regions where we operate, on our business * expected impact of numerous governmental restrictions and other orders instituted in response to the COVID-19 pandemic on our business * announcement of certain changes, which we refer to as our "Transformation Plan", including new executive leadership, reduction in our overhead expenses, the proposed sale of our non-core assets and accelerated growth in our core MPC assets * expected performance of our stabilized, income-producing properties and the performance and stabilization timing of properties that we have recently placed into service or are under construction * capital required for our operations and development opportunities for the properties in our Operating Assets, Seaport District and Strategic Developments segments * expected commencement and completion for property developments and timing of sales or rentals of certain properties * expected performance of each business segment * forecasts of economic performance * future liquidity, finance opportunities, development opportunities, development spending and management plans

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. These risk factors are described in our Annual Report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained on our Investor relations website at www.investor.howardhughes.com. Any factor could, by itself, or together with one or more other factors, adversely affect our business, results of operations, plans, objectives, future performance or financial condition. There may be other factors currently unknown to us that we have not described in our Annual Report or other SEC filings that could cause results to differ from our expectations. These forward-looking statements present our estimates and assumptions as of the date of this press release. 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 release.

Our Financial Presentation

As discussed throughout this release, we use certain non-GAAP performance measures, in addition to the required GAAP presentations, as we believe these measures improve the understanding of our operational results and make comparisons of operating results among peer companies more meaningful. We continually evaluate the usefulness, relevance, limitations and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change. A non-GAAP financial measure used throughout this release is Net operating income ("NOI"). We provide a more detailed discussion about this non-GAAP measure in our reconciliation of non-GAAP measures provided in the appendix in this earnings release.

Contact Information:

David R. O'ReillyInterim Chief Executive Officer, President and Chief Financial Officer(214) 741-7744David.O'Reilly@howardhughes.com

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

Nine Months Ended Three Months Ended September 30, September 30,

thousands, except per share amounts 2020 2019 2020 2019

REVENUES

Condominium rights and unit sales $ 185 $ 443,931 $ 142 $ 9,999

Master Planned Communities land sales 136,053 177,001 39,248 77,368

Rental revenue 241,522 206,168 70,072 70,344

Other land, rental and property revenues 82,092 165,054 35,748 63,801

Builder price participation 25,936 24,224 9,230 9,660

Total revenues 485,788 1,016,378 154,440 231,172

EXPENSES

Condominium rights and unit cost of sales 105,336 365,324 1,087 7,010

Master Planned Communities cost of sales 58,560 78,128 15,899 33,304

Operating costs 168,763 221,529 58,272 81,222

Rental property real estate taxes 44,225 28,585 15,448 9,080

Provision for (recovery of) doubtful accounts 4,954 (195) 1,387 (107)

Demolition costs - 737 - 138

Development-related marketing costs 6,541 16,874 1,912 5,341

General and administrative 84,755 92,322 23,441 33,990

Depreciation and amortization 160,995 115,142 52,395 40,093

Total expenses 634,129 918,446 169,841 210,071

OTHER

Provision for impairment (48,738) - - -

Gain (loss) on sale or disposal of real estate and other 46,232 24,051 108 24,201assets, net

Other (loss) income, net (793) 11,798 1,284 1,337

Total other (3,299) 35,849 1,392 25,538

Operating income (loss) (151,640) 133,781 (14,009) 46,639

Selling profit from sales-type leases - 13,537 - 13,537

Interest income 1,908 7,696 358 2,872

Interest expense (98,717) (76,358) (31,872) (28,829)

Gain (loss) on extinguishment of debt (13,166) - (13,166) -

Equity in earnings (losses) from real estate and other 269,635 20,847 266,838 4,542affiliates

Income (loss) before taxes 8,020 99,503 208,149 38,761

Provision (benefit) for income taxes 3,203 24,207 44,147 8,718

Net income (loss) 4,817 75,296 164,002 30,043

Net (income) loss attributable to noncontrolling interests (24,325) (240) (24,292) (285)

Net income (loss) attributable to common stockholders $ (19,508) $ 75,056 $ 139,710 $ 29,758

Basic income (loss) per share $ (0.38) $ 1.74 $ 2.52 $ 0.69

Diluted income (loss) per share $ (0.38) $ 1.73 $ 2.51 $ 0.69

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

September 30, December 31,

thousands except par values and share amounts 2020 2019

ASSETS

Investment in real estate:

Master Planned Communities assets $ 1,693,478 $ 1,655,674

Buildings and equipment 4,069,640 3,813,595

Less: accumulated depreciation (600,211) (507,933)

Land 361,418 353,022

Developments 1,110,101 1,445,997

Net property and equipment 6,634,426 6,760,355

Investment in real estate and other affiliates 389,882 121,757

Net investment in real estate 7,024,308 6,882,112

Net investment in lease receivable 2,928 79,166

Cash and cash equivalents 857,390 422,857

Restricted cash 233,111 197,278

Accounts receivable, net 10,087 12,279

Municipal Utility District receivables, net 331,451 280,742

Notes receivable, net 52,136 36,379

Deferred expenses, net 112,503 133,182

Operating lease right-of-use assets, net 57,087 69,398

Prepaid expenses and other assets, net 360,244 300,373

Total assets $ 9,041,245 $ 8,413,766

LIABILITIES

Mortgages, notes and loans payable, net $ 4,219,334 $ 4,096,470

Operating lease obligations 69,246 70,413

Deferred tax liabilities 178,433 180,748

Accounts payable and accrued expenses 830,209 733,147

Total liabilities 5,297,222 5,080,778

Redeemable noncontrolling interest 30,361 -

EQUITY

Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued - -

Common stock: $.01 par value; 150,000,000 shares authorized, 55,974,883 issuedand 54,921,748 outstanding as of September 30, 2020, and 150,000,000 shares 561 437authorized, 43,635,893 shares issued and 42,585,633 outstanding as of December31, 2019

Additional paid-in capital 3,942,173 3,343,983

Accumulated deficit (65,910) (46,385)

Accumulated other comprehensive loss (42,831) (29,372)

Treasury stock, at cost, 1,053,135 shares as of September 30, 2020, and1,050,260 (120,706) (120,530)

shares as of December 31, 2019

Total stockholders' equity 3,713,287 3,148,133

Noncontrolling interests 375 184,855

Total equity 3,713,662 3,332,988

Total liabilities and equity $ 9,041,245 $ 8,413,766

Appendix - Reconciliation of Non-GAAP Measures

For the Nine and Three Months Ended September 30, 2020 and 2019

Below are GAAP to non-GAAP reconciliations of certain financial measures, as required under Regulation G of the Securities Exchange Act of 1934. Non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be comparable to similarly titled measures.

As a result of our four segments, Operating Assets, Master Planned Communities ("MPC"), Seaport District and Strategic Developments, being managed separately, we use different operating measures to assess operating results and allocate resources among these four segments. The one common operating measure used to assess operating results for our business segments is earnings before tax ("EBT"). EBT, as it relates to each business segment, represents the revenues less expenses of each segment, including interest income, interest expense and equity in earnings of real estate and other affiliates. EBT excludes corporate expenses and other items that are not allocable to the segments. We present EBT because we use this measure, among others, internally to assess the core operating performance of our assets. However, segment EBT should not be considered as an alternative to GAAP net income.

Nine Months Ended Three Months Ended September 30, September 30,

thousands 2020 2019 $ Change 2020 2019 $ Change

Operating Assets Segment EBT

Total revenues (a) $ 280,201 $ 305,395 $ (25,194) $ 81,667 $ 104,223 $ (22,556)

Total operating expenses (b) (142,052) (139,589) (2,463) (47,590) (47,950) 360

Segment operating income (loss) 138,149 165,806 (27,657) 34,077 56,273 (22,196)

Depreciation and amortization (115,479) (84,890) (30,589) (41,395) (28,844) (12,551)

Interest expense, net (70,341) (60,695) (9,646) (21,045) (21,645) 600

Other income (loss), net 150 1,186 (1,036) (17) 63 (80)

Equity in earnings (losses) from real estate and 5,831 3,195 2,636 962 441 521other affiliates

Gain (loss) on sale or disposal of real estate 38,232 - 38,232 108 - 108

Gain (loss) on extinguishment of debt (1,521) - (1,521) (1,521) - (1,521)

Selling profit from sales-type leases - 13,537 (13,537) - 13,537 (13,537)

Provision for impairment (48,738) - (48,738) - - -

Segment EBT (53,717) 38,139 (91,856) (28,831) 19,825 (48,656)

MPC Segment EBT

Total revenues 171,517 216,042 (44,525) 52,158 92,287 (40,129)

Total operating expenses (78,751) (109,676) 30,925 (23,059) (43,697) 20,638

Segment operating income (loss) 92,766 106,366 (13,600) 29,099 48,590 (19,491)

Depreciation and amortization (273) (334) 61 (91) (88) (3)

Interest income, net 26,033 24,376 1,657 9,176 8,550 626

Other income (loss), net - 601 (601) - 534 (534)

Equity in earnings (losses) from real estate and 4,403 18,859 (14,456) (1,563) 4,523 (6,086)other affiliates

Segment EBT 122,929 149,868 (26,939) 36,621 62,109 (25,488)

Seaport District Segment EBT

Total revenues 16,170 43,051 (26,881) 4,204 23,130 (18,926)

Total operating expenses (34,297) (59,735) 25,438 (11,522) (27,330) 15,808

Segment operating income (loss) (18,127) (16,684) (1,443) (7,318) (4,200) (3,118)

Depreciation and amortization (34,825) (19,713) (15,112) (7,174) (6,767) (407)

Interest expense, net (12,490) (8,440) (4,050) (2,811) (4,984) 2,173

Other income (loss), net (2,187) (147) (2,040) 1,590 - 1,590

Equity in earnings (losses) from real estate and (8,964) (1,788) (7,176) (288) (705) 417other affiliates

Gain (loss) on sale or disposal of real estate - (6) 6 - - -

Gain (loss) on extinguishment of debt (11,645) - (11,645) (11,645) - (11,645)

Segment EBT (88,238) (46,778) (41,460) (27,646) (16,656) (10,990)

Nine Months Ended Three Months Ended September 30, September 30,

thousands 2020 2019 $ Change 2020 2019 $ Change

Strategic Developments Segment EBT

Total revenues $ 17,749 $ 451,873 $ (434,124) $ 16,365 $ 11,515 $ 4,850

Total operating expenses (126,738) (382,341) 255,603 (9,922) (11,327) 1,405

Segment operating (loss) income (108,989) 69,532 (178,521) 6,443 188 6,255

Depreciation and amortization (5,054) (4,386) (668) (1,643) (2,070) 427

Interest income, net 4,909 9,499 (4,590) 1,921 3,002 (1,081)

Other income (loss), net 1,427 664 763 134 354 (220)

Equity in earnings (losses) from real estate and 268,365 581 267,784 267,727 283 267,444other affiliates

Gain (loss) on sale or disposal of real estate, 8,000 24,057 (16,057) - 24,201 (24,201)net

Segment EBT 168,658 99,947 68,711 274,582 25,958 248,624

Consolidated Segment EBT

Total revenues 485,637 1,016,361 (530,724) 154,394 231,155 (76,761)

Total operating expenses (381,838) (691,341) 309,503 (92,093) (130,304) 38,211

Segment operating income (loss) 103,799 325,020 (221,221) 62,301 100,851 (38,550)

Depreciation and amortization (155,631) (109,323) (46,308) (50,303) (37,769) (12,534)

Interest expense, net (51,889) (35,260) (16,629) (12,759) (15,077) 2,318

Other (loss) income, net (610) 2,304 (2,914) 1,707 951 756

Equity in earnings (losses) from real estate and 269,635 20,847 248,788 266,838 4,542 262,296other affiliates

Gain (loss) on sale or disposal of real estate, 46,232 24,051 22,181 108 24,201 (24,093)net

Gain (loss) on extinguishment of debt (13,166) - (13,166) (13,166) - (13,166)

Selling profit from sales-type leases - 13,537 (13,537) - 13,537 (13,537)

Provision for impairment (48,738) - (48,738) - - -

Consolidated segment EBT 149,632 241,176 (91,544) 254,726 91,236 163,490

Corporate income, expenses and other items (144,815) (165,880) 21,065 (90,724) (61,193) (29,531)

Net income (loss) 4,817 75,296 (70,479) 164,002 30,043 133,959

Net (income) loss attributable to noncontrolling (24,325) (240) (24,085) (24,292) (285) (24,007)interests

Net income (loss) attributable to common $ (19,508) $ 75,056 $ (94,564) $ 139,710 $ 29,758 $ 109,952stockholders

Total revenues includes hospitality revenues of $27.9 million for the nine(a) months ended September 30, 2020, $68.5 million for the nine months ended September 30, 2019, $8.1 million for the three months ended September 30, 2020, and $20.0 million for the three months ended September 30, 2019.

Total operating expenses includes hospitality operating costs of $24.8 million for the nine months ended September 30, 2020, $46.3 million for the(b) nine months ended September 30, 2019, $7.6 million for the three months ended September 30, 2020 and $14.1 million for the three months ended September 30, 2019.

NOI

We believe that NOI is a useful supplemental measure of the performance of our Operating Assets and Seaport District portfolio because it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in rental and occupancy rates and operating costs. We define NOI as operating revenues (rental income, tenant recoveries and other revenue) less operating expenses (real estate taxes, repairs and maintenance, marketing and other property expenses, including our share of NOI from equity investees). NOI excludes straight-line rents and amortization of tenant incentives, net; interest expense, net; ground rent amortization; demolition costs; other (loss) income; amortization; depreciation; development-related marketing cost; gain on sale or disposal of real estate and other assets, net; provision for impairment and equity in earnings from real estate and other affiliates. All management fees have been eliminated for all internally-managed properties. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that property-specific factors such as lease structure, lease rates and tenant base have on our operating results, gross margins and investment returns. Variances between years in NOI typically result from changes in rental rates, occupancy, tenant mix and operating expenses. Although we believe that NOI provides useful information to investors about the performance of our Operating Assets and Seaport District assets, due to the exclusions noted above, NOI should only be used as an additional measure of the financial performance of the assets of this segment of our business and not as an alternative to GAAP Net income (loss). For reference, and as an aid in understanding our computation of NOI, a reconciliation of segment EBT to NOI for Operating Assets and Seaport District has been presented in the tables below.

Nine Months Ended Three Months Ended September 30, September 30,

(Unaudited) (Unaudited)

thousands 2020 2019 2020 2019

Total Operating Assets segment EBT (a) $ (53,717) $ 38,139 $ (28,831) $ 19,825

Add back:

Depreciation and amortization 115,479 84,890 41,395 28,844

Interest expense, net 70,341 60,695 21,045 21,645

Equity in (earnings) losses from real estate and other (5,831) (3,195) (962) (441)affiliates

(Gain) loss on sale or disposal of real estate and other (38,232) - (108) -assets, net

(Gain) loss on extinguishment of debt 1,521 - 1,521 -

Selling profit from sales-type leases - (13,537) - (13,537)

Provision for impairment 48,738 - - -

Impact of straight-line rent (4,585) (7,911) 1,766 (2,529)

Other 123 259 69 477

Total Operating Assets NOI - Consolidated 133,837 159,340 35,895 54,284

Redevelopments

110 North Wacker - 4 (11) 2

Total Operating Asset Redevelopments NOI - 4 (11) 2

Dispositions

100 Fellowship Drive (1,012) (1,163) 38 (1,163)

Total Operating Asset Dispositions NOI (1,012) (1,163) 38 (1,163)

Consolidated Operating Assets NOI excluding 132,825 158,181 35,922 53,123properties sold or in redevelopment

Company's Share NOI - Equity Investees 6,388 5,195 2,315 2,043

Distributions from Summerlin Hospital Investment 3,724 3,625 - -

Total Operating Assets NOI $ 142,937 $ 167,001 $ 38,237 $ 55,166

(a) Segment EBT excludes corporate expenses and other items that are not allocable to the segments.

Nine Months Ended Three Months Ended September 30, September 30,

(Unaudited) (Unaudited)

thousands 2020 2019 2020 2019

Total Seaport District segment EBT (a) $ (88,238) $ (46,778) $ (27,646) $ (16,656)

Add back:

Depreciation and amortization 34,825 19,713 7,174 6,767

Interest expense, net 12,490 8,440 2,811 4,984

Equity in (earnings) losses from real estate and other 8,964 1,788 288 705affiliates

(Gain) loss on sale or disposal of real estate - 6 - -

(Gain) loss on extinguishment of debt 11,645 - 11,645 -

Impact of straight-line rent 2,360 1,658 1,027 412

Other (income) loss, net (b) 4,525 5,405 (1,398) 896

Total Seaport District NOI - Consolidated (13,429) (9,768) (6,099) (2,892)

Company's Share NOI - Equity Investees (787) (385) (106) (148)

Total Seaport District NOI $ (14,216) $ (10,153) $ (6,205) $ (3,040)

(a) Segment EBT excludes corporate expenses and other items that are not allocable to the segments.

Includes miscellaneous development-related items as well as the loss(b) related to the write-off of inventory due to the permanent closure of 10 Corso Como Retail and Caf? in the first quarter of 2020, and income related to inventory liquidation sales in the third quarter of 2020.

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SOURCE The Howard Hughes Corporation