Howard Hughes Corp - Annual Report: 2019 (Form 10-K)

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•	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 Master Planned Communities (“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;

•	forecasts of our future economic performance;

•	expected capital required for our operations and development opportunities for our properties;

•	expected performance of our MPC segment;

•	expected commencement and completion for property developments and timing of sales or rentals of certain properties;

•	estimates of our future liquidity, development opportunities, development spending and management plans; and

•	descriptions of assumptions underlying or relating to any of the foregoing.

•	our inability to obtain operating and development capital, including our inability to obtain or refinance debt capital from lenders and the capital markets;

•	a prolonged recession in the national economy and adverse economic conditions in the homebuilding, condominium development, retail, office and hospitality sectors;

•	our inability to compete effectively;

•	the successful transition of our new Chief Executive Officer and to execute on our Transformation Plan;

•	the successful relocation of our headquarters from Dallas, Texas to The Woodlands, Texas and the retention of senior members of management and key employees in connection with the Transformation Plan;

•	the sale of our non-core assets;

•	natural disasters (including the results of litigation or any other potential negative impact from Hurricane Harvey on the Houston, Texas region), terrorist activity, acts of violence, breaches of our data security, contamination of our properties by hazardous or toxic substances, or other similar disruptions, as well as losses that are not insured or exceed the applicable insurance limits;

•	our ability to lease new or redeveloped space;

•	our ability to obtain the necessary governmental permits for the development of our properties and necessary regulatory approvals pursuant to an extensive entitlement process involving multiple and overlapping regulatory jurisdictions, which often require discretionary action by local governments;

•	increased construction costs exceeding our original estimates, delays or overruns, claims for construction defects, or other factors affecting our ability to develop, redevelop or construct our properties;

•	regulation of the portion of our business that is dedicated to the formation and sale of condominiums, including regulatory filings to state agencies, additional entitlement processes and requirements to transfer control to a condominium association’s board of directors in certain situations, as well as defaults by purchasers on their obligations to purchase condominiums;

•	fluctuations in regional and local economies, the residential housing and condominium markets, local real estate conditions, tenant rental rates and competition from competing retail properties and the internet;

•	our ability to retain key executive personnel;

•	our ability to collect rent, attract tenants and customers to our hotels;

•	our indebtedness, including our $1,000,000,000 5.375% senior notes due 2025, our $615,000,000 Term Loan (as defined below) and $85,000,000 Revolver Loan (as defined below) (which currently remains undrawn) and that are secured by

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•	our directors’ involvement or interests in other businesses, including real estate activities and investments;

•	our inability to control certain of our properties due to the joint ownership of such property and our inability to successfully attract desirable strategic partners;

•	the potential impact of the recently enacted U.S. tax reform legislation; and

•	the other risks described in “Item 1A. Risk Factors.”

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•	71 assets, including our investments in joint ventures and other assets, consisting of 14 retail, 32 office, nine multi-family, three hospitality properties and 13 other operating assets and investments.

•	Excluding our projects under construction, we own approximately 9.0 million square feet of retail and office space, 2,909 multi-family units and 909 rooms in our hospitality assets.

•	We own the MPCs of Summerlin in Las Vegas; The Woodlands, The Woodlands Hills and Bridgeland in Houston; and Columbia in Maryland.

•	Our MPCs encompass over 80,000 gross acres of land and include approximately 9,943 remaining saleable acres of land.

•	Spans across approximately 453,000 square feet and several city blocks, including Pier 17, the Tin Building and the Historic District. The Seaport District also includes the 250 Water Street parking lot and our interest in the 66-room Mr. C Seaport hotel.

•	As of December 31, 2019, total project costs, not including insurance proceeds, for Pier 17, the Tin Building and Seaport District Historic Area / Uplands, are estimated to be $832.5 million, of which $654.6 million has already been spent.

•	Consists of 21 development or redevelopment projects, excluding the Seaport District.

•	As of December 31, 2019, total project costs, excluding the Seaport District, are estimated to be $3.5 billion, of which $2.1 billion has already been spent. Our remaining equity requirements, net of debt and buyer deposits to be drawn, are $74.5 million relative to $422.9 million of cash on hand as of December 31, 2019.

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Management Team with Track Record of Value Creation.  We have completed the development of over 5.2 million square feet of office and retail operating properties, 2,516 multi-family units and 909 hospitality keys since 2011. Excluding land which we own, we have invested approximately $2.0 billion in these developments, which is projected to generate a 9.5% yield on cost, or $192.7 million per year of NOI upon stabilization. At today’s market cap rates, this implies value creation to our shareholders in excess of $1.0 billion. Our investment of approximately $444.9 million of cash equity in our development projects since inception, which is computed as total costs excluding land less the related construction debt, is projected to generate a 25.5% return on cash equity assuming a 5.0% cost of debt, which approximates our weighted-average cost. These investments and returns exclude condominium development as well as projects under construction such as the Seaport District. We exclude condominium developments since they do not result in recurring NOI, and we exclude projects under development due to the wider range of NOI they are expected to generate upon stabilization. In Ward Village, we have either opened or have under construction 2,697 condominium units, which have approximately 89.8% units sold as of December 31, 2019 at a targeted profit margin, excluding land costs, of 23.6% or $747.3 million.

•	Unique, Diverse Portfolio.  We own a portfolio with many diverse market leading assets located across 9 states with a combination of steady cash flow and longer-term value creation opportunities.

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Significant Value Creation Opportunity.  We own one of the preeminent development pipelines in the world with over 50.0 million square feet of vertical entitlements remaining across our portfolio. This represents approximately 10 times the 5.2 million square feet we have delivered in the last nine years without having to acquire another development site or external asset, which we believe is a significant competitive advantage over other real estate development corporations.

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Low Leverage, Flexible Balance Sheet.  As of December 31, 2019, our total debt equaled approximately 48.7% of the book value of our total assets, which we believe is significantly less than our market value. Our net debt, which includes our share of debt of real estate and other affiliates less cash and Special Improvement District (“SID”) and Municipal Utility District (“MUD”) receivables, equaled approximately 36.6% of our total enterprise value. “Real estate and other affiliates” refers to partnerships or joint ventures primarily for the development and operation of real estate assets. We finished the year with $422.9 million of cash on hand. We have focused our efforts on obtaining non-recourse debt for both our construction financing and long-term fixed-rate mortgage financing and have limited cross-collateralization for construction financing. Our low leverage, with a focus on project specific financing, provides substantial insulation against potential downturns and provides us with the flexibility to evaluate new real estate project opportunities.

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Self-Funded Business Plan.  One of our key differentiators is our ability to self-fund significant portions of our new development without having to dispose of our recently completed developments or raise additional equity. Our residential land sales, recurring NOI and profits on the sales of condominium units generate substantial amounts of free cash flow, which is used to fund the equity required to execute our many development opportunities. Furthermore, we are not required to pay dividends and are not restricted from investing in any asset type, amenity or service, providing further flexibility as compared to many other real estate companies, which are limited in their activities because they have elected to be taxed as real estate investment trusts (“REIT”). We believe our structure currently provides significant financial and operating flexibility to maximize the value of our real estate portfolio.

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(a)	Asset was placed in service and moved from Strategic Developments to Operating Assets during 2019.

(b)	Asset was derecognized and a Net investment in lease receivable was recorded during 2019. Refer to Note 1 - Summary of Significant Accounting Policies for additional information.

(c)	Asset was placed in service and moved from Strategic Developments to Operating Assets during 2018.

(d)	Lakefront North is comprised of two office buildings.

(e)	Asset was acquired in 2019.

(f)	Asset was held as a joint venture until our acquisition of our partner’s interest.

(g)	A non-consolidated investment. Refer to Note 2 - Real Estate and Other Affiliates in our Notes to Consolidated Financial Statements.

(h)	Formerly known as Summerlin Ballpark.

(i)	Formerly known as Columbia Multi-family.

(j)	Assets demolished and represent future development rights.

(k)	Includes retail within the recently opened Waiea, Anaha, Ae‘o and Ke Kilohana condominium towers.

(l)	Asset is in redevelopment and moved from Operating Assets to Strategic Developments during 2018.

•	the size and scope of our MPCs;

•	years of experience serving and strong reputation within the industry;

•	the recreational and cultural amenities available within our communities;

•	the commercial centers in the communities, including the properties that we own and/or operate or may develop;

•	our relationships with homebuilders;

•	our level of debt relative to total assets; and

•	the proximity of our developments to major metropolitan areas.

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•	the disruption of operations and displacement of revenue at operating hotels, including revenue lost while rooms, restaurants or meeting space under renovation are out of service;

•	the cost of funding renovations or developments and inability to obtain financing on attractive terms;

•	the return on our investment in these capital improvements or developments failing to meet expectations;

•	governmental restrictions on the nature or size of a project or the inability to obtain all necessary zoning, land use, building, occupancy and construction permits; and

•	disputes with franchisors or property managers regarding compliance with relevant franchise agreements or management agreements.

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•	inability to obtain construction financing for the development or redevelopment of properties;

•	increased construction costs for a project that exceeded our original estimates due to increases in materials, labor or other costs, which could make completion of the project less profitable because market rents or condominium prices may not increase sufficiently to compensate for the increased construction costs;

•	construction delays, which may increase project development costs;

•	claims for construction defects after a property has been developed;

•	poor performance or nonperformance by any of our joint venture partners or other third parties on whom we rely;

•	health and safety incidents and site accidents;

•	easement restrictions which may impact our development costs and timing;

•	compliance with building codes and other local regulations; and

•	the inability to secure tenants necessary to support commercial projects.

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•	making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the Senior Notes and Loan Agreements;

•	limiting our ability to obtain additional financing to fund future working capital, capital expenditures, debt service requirements, execution of our business strategy or finance other general corporate requirements;

•	requiring us to make non-strategic divestitures, particularly when the availability of financing in the capital markets is limited, which may adversely impact sales prices;

•	requiring a substantial portion of our cash flow to be allocated to debt service payments instead of other business purposes, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions, dividends and other general corporate purposes;

•	increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given that certain indebtedness bears interest at variable rates;

•	limiting our ability to capitalize on business opportunities, reinvest in and develop properties, and to react to competitive pressures and adverse changes in government regulations;

•	placing us at a disadvantage compared to other, less leveraged competitors;

•	limiting our ability, or increasing the costs, to refinance indebtedness; and

•	resulting in an event of default if we fail to satisfy our obligations under our indebtedness, which default could result in all or part of our indebtedness becoming immediately due and payable and, in the case of our secured debt, could permit the lenders to foreclose on our assets securing such debt.

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•	incur indebtedness or issue certain equity;

•	create certain liens;

•	pay dividends on, redeem or repurchase capital stock or make other restricted payments;

•	make investments;

•	incur obligations that restrict the ability of our subsidiaries to make dividend or other payments to us;

•	consolidate, merge or transfer all, or substantially all, of our assets;

•	enter into transactions with our affiliates; and

•	create or designate unrestricted subsidiaries.

•	incur further indebtedness

•	distribute cash generated from borrowers if financial coverage ratios or other covenants are not met

•	enter into or amend lease or other agreements or transactions without lender consent

•	substitute collateral due to product and geographic concentrations

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•	results of operations that vary from the expectations of securities analysts and investors, including our ability to finance and achieve operational success at the Seaport District project;

•	results of operations that vary from those of our competitors;

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•	changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

•	declines in the market prices of stocks generally, particularly those in the real estate industry;

•	strategic actions by us or our competitors;

•	announcements by us or our competitors of new significant real-estate developments, acquisitions, joint ventures, other strategic relationships, or capital commitments;

•	changes in general economic or market conditions, including increases in interest rates, or trends in our industry or markets;

•	changes in business or regulatory conditions;

•	future sales of our common stock or other securities;

•	investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives;

•	the successful transition of our new Chief Executive Officer and the services and contribution of our other senior management and key employees to execute on our Transformation Plan and to identify new opportunities;

•	the sale of our non-core assets;

•	the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission;

•	announcements relating to litigation;

•	guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance;

•	the development and sustainability of an active trading market for our stock;

•	changes in accounting principles;

•	events or factors resulting from natural disasters, such as the impact of Hurricane Harvey in the Houston, Texas area; and

•	other events or factors, including those resulting from war, acts of terrorism, or responses to these events.

•	the inability of our stockholders to act by written consent;

•	restrictions on the ability of stockholders to call a special meeting without 15% or more of the voting power of the issued and outstanding shares entitled to vote generally in the election of our directors;

•	rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

•	the right of our board of directors to issue preferred stock without stockholder approval;

•	a requirement that, to the fullest extent permitted by law, certain proceedings against or involving us or our directors or officers be brought exclusively in the Court of Chancery in the State of Delaware; and

•	that certain provisions may be amended only by the affirmative vote of at least 66 2/3% of the shares of common stock entitled to vote generally in the election of directors.

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(a)	Annualized Base Rent is calculated as the monthly Base Minimum Rent for the property for December 31, 2019, multiplied by 12. Annualized Base Rent Per Square Foot is the Annualized Base Rent for the property at December 31, 2019, divided by the average occupied square feet.

(b)	Creekside Park West was transferred from Strategic Developments in the fourth quarter of 2019 and tenants have not taken occupancy as of December 31, 2019. Therefore, the Annualized Base Rent and Annualized Base Rent Per Square Foot data is not meaningful.

(c)	Excludes 381,767 square feet of anchors, 206,279 square feet for One Summerlin, 144,615 square feet for Two Summerlin and 36,914 square feet of additional office space above our retail space.

(d)	The entire property is subject to a ground lease where we are the ground lessee.

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(a)	Annualized Base Rent is calculated as the monthly Base Minimum Rent for the property for December 31, 2019 multiplied by 12. Annualized Base Rent Per Square Foot is the Annualized Base Rent for the property at December 31, 2019 divided by the average occupied square feet.

(b)	Effective Annual Rent includes base minimum rent and common area maintenance recovery revenue. Effective Annual Rent Per Square Foot is the Effective Annual Rent divided by the average occupied square feet.

(c)	100 Fellowship Drive and Aristocrat are build-to-suit projects entirely leased by a single tenant. Therefore, the Annualized Base Rent and Effective Annual Rent details have been excluded for competitive reasons.

(d)	The Woodlands Towers at The Waterway was acquired on December 30, 2019, and therefore, the Annualized Base Rent, Annualized Base Rent Per Square Foot, Effective Annual Rent and Effective Annual Rent per Square Foot data is not meaningful.

(e)	Excludes the Ridgely Building which was moved to Strategic Developments in the fourth quarter of 2017.

(f)	6100 Merriweather was transferred from Strategic Developments in the fourth quarter of 2019. Therefore, the Annualized Base Rent, Annualized Base Rent Per Square Foot, Effective Annual Rent and Effective Annual Rent per Square Foot data is not meaningful.

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(a)	The Woodlands Resort & Conference Center was built in 1974, expanded in 2002, and renovated in 2014.

(a)	The Woodlands Warehouse was acquired in 2019.

(b)	Parking Garages consists of Woodloch Forest Garage, Waterway Square Garage, Hughes Landing Garage, Ward Village Shops Garage, Ae‘o Garage, Lakefront Parking Garages and Two Summerlin Garage.

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(a)	Includes 137 specialty leases totaling 211,548 square feet which expire in less than 365 days.

(a)	Encompasses all of the land located within the borders of the master planned community, including parcels already sold, saleable parcels and non-saleable areas such as roads, parks and recreation areas, conservation areas and parcels acquired during the year.

(b)	Average Price Per Acre is the weighted-average land value per acre estimated in the Company’s 2020 land models, which include estimates of future pricing over the remaining life of each project.

(c)	Remaining Saleable Residential Lots are estimates and include only lots that are intended for sale or joint venture. The mix of intended use on our remaining saleable and developable acres is primarily based on assumptions regarding entitlements and zoning of the remaining project and are likely to change over time as the master plan is refined.

(d)	Average Cash Margin represents the total projected cash profit (total projected cash sales minus remaining projected cash development expenditures excluding land costs), divided by total projected cash sales. It is calculated based on future revenues and future projected non-reimbursable development costs, capitalized overhead, capitalized taxes and capitalized interest.

(e)	Undiscounted / Uninflated Value represents Remaining Saleable Acres, multiplied by Average Price Per Acre, multiplied by Average Cash Margin.

(f)	Amount represents remaining entitlements and not necessarily the number of lots that may ultimately be developed and sold.

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(a)	Real Estate Operations (Landlord) represents physical real estate developed and owned by HHC.

(b)	Managed Businesses represents retail and food and beverage businesses that HHC owns, either wholly or through joint ventures, and operates, including license and management agreements.

(c)	Multi-Family represents 85 South Street which includes base level retail in addition to residential units.

(d)	Hospitality represents Mr. C Seaport, of which HHC has a 35% ownership interest. Percentage occupied is the average for the fourth quarter of 2019.

(e)	Includes our 90% share of NOI from Bar Wayō.

(f)	Represents the food hall by Jean-Georges.

(g)	Events, Sponsorships & Catering Business includes private events, catering, sponsorships, concert series and other rooftop activities.

(h)	The percent leased for Historic District & Pier 17 landlord operations includes agreements with terms of less than one year and excludes leases with our managed businesses.

(i)	Development costs incurred and Estimated total costs (excl. land) are shown net of insurance proceeds of approximately $65.0 million.

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(a)	Retail for each open condominium tower has been placed into service.

(b)	We expect to remarket this asset, which was acquired in 2019.

(c)	We are currently approved for approximately 2.0 million square feet of net new mixed-use development which will include office, retail and residual assets. This future development district also includes the 3 acres of land related to Ridgely Building, Sterrett Place and American City Building, all of which have been demolished.

(d)	Represents 4 and 9 acres of land transferred and acquired, respectively, to the Strategic Developments segment in 2013 and 2019, respectively, for future development at The Woodlands.

(e)	Represents land transferred to the Strategic Developments segment in 2015 for future development in the Merriweather District in Columbia, Maryland, excluding acreage relating to One and Two Merriweather and 6100 Merriweather, all of which are now in service in our Operating Assets segment, as well as Juniper Apartments, which is reflected above.

(f)	Represents land transferred to the Strategic Developments segment for future development at Ward Village, excluding acreage related to ‘A‘ali‘i, Ae‘o, Anaha, Ke Kilohana, Kō'ula and Waiea.

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(a)

We adopted Accounting Standards Update (“ASU”) 2014-09, Revenues from Contracts with Customers (Topic 606), on January 1, 2018 using the modified retrospective transition method, and 2017 amounts presented have not been adjusted. The adoption of the new standard primarily impacted the recognition of condominium rights and unit sales revenues and cost of sales. Prior to 2018, Condominium rights and unit sales revenues were required to be recognized under the percentage of completion method. Under the new guidance, revenue and cost of sales for condominium units sold are not recognized until the construction is complete, the sale closes and the title to the property has transferred to the buyer.

(b)

2019 includes gains of $24.1 million and $12.0 million and a loss of $8.8 million on the sales of Cottonwood Mall, West Windsor and Bridges at Mint Hill, respectively. 2017 includes the $32.2 million gain on sale of 36 acres of land at The Elk Grove Collection and the $20.2 million gain on sale of Kendall Town Center. 2016 includes the $140.5 million gain on the sale of 80 South Street and a $35.7 million impairment charge on Park West.

(c)	Amount represents Net investment in real estate excluding accumulated depreciation.

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•	cash expenditures, or future requirements for capital expenditures or contractual commitments;

•	corporate general and administrative expenses;

•	interest expense on our corporate debt;

•	income taxes that we may be required to pay;

•	any cash requirements for replacement of fully depreciated or amortized assets; and

•	limitations on, or costs related to, the transfer of earnings from our real estate and other affiliates to us.

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(a)	Please refer to discussion in the following Other Transferred or Consolidated Properties section regarding this property.

(b)	Please refer to discussion in the following Retail, Office, Multi-family and Other sections regarding this property.

(c)	The Woodlands Towers at The Waterway was acquired on December 30, 2019.

(d)	The building was placed in service and tenant took occupancy in late December 2018, and therefore 2018 NOI on the property is not meaningful.

(e)	Includes the Las Vegas Aviators. The Las Vegas Ballpark was placed in service in 2019.

(f)	Includes parking garages in The Woodlands, Columbia, Ward Village and Summerlin.

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(a)	Excludes executed leases with a term of 12 months or less, partnerships, internal leases, and percentage rent leases.

(b)	Avg. Starting Rent is based on Base Minimum Rent only.

(c)	Pre-leased information is associated with our projects under development at December 31, 2019.

(d)	Comparable - Renewal information is associated with stabilized assets for which the space was occupied by the same tenant within 12 months prior to the executed agreement. The leases represent an increase of 12.1% in cash rents from $24.56 per square foot collected from previous leases to $27.52 per square foot collected from current leases.

(e)	Comparable - New information is associated with stabilized assets for which the space was occupied by a different tenant within 12 months prior to the executed agreement. The leases represent an increase of 15.1% in cash rents from $24.92 per square foot collected from previous leases to $28.69 per square foot collected from current leases.

(f)	Non-comparable information is associated with space that was previously vacant for more than 12 months or has never been occupied.

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(a)	Excludes executed leases with a term of 12 months or less, subleases, percentage rent leases and intercompany leases.

(b)	Avg. Starting Rents is based on the gross rents, including recoveries.

(c)	Pre-leased information is associated with projects under development at December 31, 2019.

(d)	Comparable - Renewal information is associated with stabilized assets for which the space was occupied by the same tenant within 12 months prior to the executed agreement. The leases represent a decrease of 2.6% in cash rents from $30.40 per square foot collected from previous leases to $29.60 per square foot collected from current leases. The decrease is driven by the lower current market rates.

(e)

Comparable - New information is associated with stabilized assets for which the space was occupied by a different tenant within 12 months prior to the executed agreement. The leases represent a decrease of 6.1% in cash rents from $31.61 per square foot collected from previous leases to $29.69 per square foot collected from current leases. The decrease is driven by the limited sample size of Comparable - New leases reported this period.

(f)	Non-comparable information is associated with space that was previously vacant for more than 12 months or has never been occupied.

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(a)	Land sales include deferred revenue from land sales closed in a previous period which met criteria for recognition in the current period.

(b)	Builder price participation revenue is based on an agreed-upon percentage of the sales price of homes closed relative to the base lot price which was paid by the homebuilders to us. This revenue fluctuates based upon the number and the prices of homes closed that qualify for builder price participation payments.

(c)	For the year ended December 31, 2017, Other land revenues includes two sales of utility easements at our Bridgeland community totaling $14.1 million less related costs of $3.7 million.

(d)	Interest expense, net reflects the amount of interest that is capitalized at the project level. Negative interest expense amounts relate to interest capitalized relating to debt assigned to our Operating Assets segment and corporate debt.

(e)	Equity in earnings in real estate and other affiliates reflects our share of earnings in The Summit joint venture.

(f)	The negative MPC segment EBT in Columbia in 2019 and 2018 was due to real estate taxes and administrative expenses.

(g)	Commercial land sales in The Woodlands in 2018 consisted of a 1.6-acre site that was acquired in 2014 at market value, as the original purchaser did not proceed with construction, our holding costs exceeded the 2018 sale price.

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(a)	The Woodlands Hills began closing land sales in the fourth quarter of 2017.

(b)	Excludes revenues closed and deferred for recognition in a previous period that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales revenue for the years ended December 31, 2019, 2018 and 2017.

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(a)	Excludes revenues closed and deferred for recognition in a previous period that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales for the years ended December 31, 2019, 2018 and 2017.

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(a)	For a detailed breakdown of our MPC segment EBT, refer to Note 17 - Segments in our Notes to Consolidated Financial Statements.

(b)	SID collections are shown net of SID transfers to buyers in the respective periods.

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(a)	Development expenditures are inclusive of capitalized interest and property taxes.

(b)	MUD reimbursable costs represent land development expenditures transferred to MUD Receivables.

(c)	Primarily consists of changes in development expenditures payable.

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•	The Rooftop at Pier 17® at the Seaport District was named “Best New Concert Venue in North America” for 2018 at the 30th Annual Pollstar Awards;

•	Completed our first season of the Pier 17 Winterland, in which we attracted 28,000 skaters to New York’s only outdoor rooftop ice rink;

•	Celebrated the openings of several new businesses, including The Fulton by Jean-Georges, Bar Wayō, the latest offering from the renowned Momofuku restaurant group, Malibu Farm, a California-inspired farm-to-table eatery and The Lookout on Pier 17, a seasonal pop-up bar; and

•	Sold out 30 concerts held at The Rooftop at Pier 17® during the Summer Concert Series, selling over 124,000 tickets. The full artist lineup included a diverse roster of A-list talent from various genres.

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•	6100 Merriweather and Garage

•	Two Merriweather

•	Creekside Park West

•	1725-1735 Hughes Landing Boulevard

•	Three Hughes Landing

•	Two Summerlin

•	Pier 17

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(a)

Total Estimated Costs represent all costs to be incurred on the project which include construction costs, demolition costs, marketing costs, capitalized leasing, payroll or project development fees, deferred financing costs and advances for certain accrued costs from lenders and excludes land costs and capitalized corporate interest allocated to the project. Total Estimated Costs for assets at Ward Village and Columbia exclude master plan infrastructure and amenity costs at Ward Village and Merriweather District.

(b)	Costs included in (a) above which have been paid through December 31, 2019.

(c)	With respect to our condominium projects, remaining debt to be drawn is reduced by deposits utilized for construction.

(d)	Final completion is dependent on lease-up and tenant build-out.

(e)	Construction loans for 1725-1735 Hughes Landing Boulevard, Aristocrat and Two Summerlin have been repaid in full and any remaining project costs will be funded by us.

(f)	Excludes cost to acquire the Las Vegas Aviators.

(g)	Negative balances represent cash to be received in excess of Estimated Remaining to be Spent. These items are primarily related to December 2019 costs that were paid by us, but not yet reimbursed by our lenders. We expect to receive funds from our lenders for these costs in the future.

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(h)	Pier 17 and Seaport District Historic Area / Uplands Total Estimated Costs and Costs Paid Through December 31, 2019 include costs required for the Pier 17 and Historic Area/Uplands and are not reduced by the insurance proceeds received to date.

(i)	We closed on a $250.0 million loan for the redevelopment of the Seaport District during the three months ended June 30, 2019. All proceeds, less the interest escrow, have been received, and future project costs will be funded with the loan proceeds, which are included in our cash balance.

(j)

110 North Wacker is a consolidated joint venture discussed further in Note 2 - Real Estate and Other Affiliates. Total Estimated Costs exclude $76.0 million of the $86.0 million land value contributed to the joint venture at closing; The Debt to be Drawn includes future draws on the construction loan and anticipated equity partner and JV partner contributions. Costs Remaining to be Paid represent our remaining equity commitment. At loan closing, we received a $52.2 million cash distribution from the venture. In May 2019, we closed on a loan modification which reduced the amount of equity we are required to put into the project by $35.3 million.

(k)	Positive balances represent future spending which we anticipate will be funded through a combination of construction loans which we are currently seeking and equity.

(l)	The Ae‘o facility was repaid in December 2018 in conjunction with closing on the sales of units at the property. The Ke Kilohana facility was repaid in June 2019 in conjunction with closing on the sales of units at the property.

(m)	Initial estimated costs to be finalized.

(n)	Total estimate includes amounts necessary for warranty repairs. However, we anticipate recovering a substantial amount of these costs in the future which is not reflected in this schedule.

(o)	The financing for Creekside Park Apartments Phase II closed in January 2020. See Note 7 - Mortgages, Notes and Loans Payable, Net for additional information.

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(a)	Please refer to Note 17 - Segments in our Notes to Consolidated Financial Statements.

(b)	Includes our $79.6 million share of Mortgages, notes and loans payable of our real estate and other affiliates in Operating Assets (Woodlands Sarofim #1, The Metropolitan Downtown Columbia and m.flats/TEN.M).

(c)	Includes our $2.4 million share of Cash and cash equivalents of our real estate and other affiliates in Operating Assets (Woodlands Sarofim #1, The Metropolitan Downtown Columbia, Stewart Title of Montgomery County, TX and m.flats/TEN.M).

(d)	Includes our $6.4 million share of Mortgages, notes and loans payable of our real estate and other affiliates in MPC related to The Summit.

(e)	Includes our $51.6 million share of Cash and cash equivalents of our real estate and other affiliates in MPC related to The Summit.

(f)	Includes our $14.4 million share of Mortgages, notes and loans payable of our real estate and other affiliates in the Seaport District related to Mr. C Seaport.

(g)	Includes our $1.3 million share of Cash and cash equivalents of our real estate and other affiliates in Seaport District (Mr. C Seaport and Bar Wayō).

(h)	Includes our $1.3 million share of Cash and cash equivalents of our real estate and other affiliates in Strategic Developments (KR Holdings, HHMK Development and Circle T Ranch and Power Center).

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(a)	Based on final maturity, inclusive of extension options.

(b)	Interest is based on the borrowings that are presently outstanding and current floating interest rates.

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(a)	Amounts are shown net of deferred tax benefit of $5.0 million for the year ended December 31, 2019 and $0.3 million for the years ended December 31, 2018 and 2017.

(b)	The deferred tax impact was not meaningful for the years ended December 31, 2019 and 2018. Amount is net of deferred tax benefit of $0.1 million for the year ended December 31, 2017.

(c)	The deferred tax impact is not meaningful for the year ended December 31, 2019. Amount is net of deferred tax expense of $0.5 million for the year ended December 31, 2018.

(d)	The Company adopted Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, as of January 1, 2018.

(e)	The Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, as of January 1, 2018.

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•	BPP is highly susceptible to factors outside HHC’s influence such as unemployment and interest rates;

•	the time between the sale of land to a developer and closing on a completed home can take up to three years; and

•	historical experience is of little value when it comes to predicting future home prices.

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(a)	Includes the $4.8 million loss on sale of the corporate aircraft, which is included in Gain (loss) on sale of real estate and other assets in the accompanying Consolidated Statements of Operations. The balance relates to relocation, retention and severance expenses and is included in General and administrative expense in the accompanying Consolidated Statements of Operations.

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(a)	The Company acquired this joint venture partner’s interest in 2017 and has consolidated the assets and liabilities of the entity in its financial results. See Note 3 - Acquisitions and Dispositions for additional information regarding the transaction.

(b)	Metropolitan Downtown Columbia was in a deficit position of $4.7 million and $3.8 million at December 31, 2019 and December 31, 2018, respectively, due to distributions from operating cash flows in excess of basis. These deficit balances are presented in Accounts payable and accrued expenses at December 31, 2019 and 2018.

(c)	Property was transferred from Strategic Developments to Operating Assets during the three months ended March 31, 2018.

(d)	Please refer to the discussion below for a description of the joint venture ownership structure.

(e)	Property was transferred from Strategic Developments to Operating Assets during the three months ended September 30, 2018. The share of earnings/dividends for Mr. C Seaport in the Operating Assets and Strategic Developments sections represents the Company’s share recognized when the investment was in the respective segment.

(f)

Other equity investments represent equity investments not accounted for under the equity method. The Company elected the measurement alternative as these investments do not have readily determinable fair values. See Note 1 - Summary of Significant Accounting Policies for additional information. There were no impairments, or upward or downward adjustments to the carrying amounts of these securities either during current year 2019 or cumulatively.

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(a)

The Summit adopted ASU 2014-09, Revenues from Contracts with Customers (Topic 606) effective in the fourth quarter of 2019 using the modified retrospective transition method. Therefore, for 2019, revenues allocated to each of The Summit’s performance obligations is recognized over time based on an input measure of progress. Prior period amounts have not been adjusted and are recognized on a percentage of completion basis. The Summit’s adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements.

(b)	The decrease in gross margin from 2018 to 2019 is primarily due to the mix of product sold in each year. Built product has a lower margin than lot sales, and built product comprised a higher percentage of revenues in 2019 than in 2018.

(a)	Total is inclusive of the asset acquisition price as well as leasing commission paid at closing.

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(a)

As more fully described below, $630.1 million and $615.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt as of December 31, 2019 and 2018. An additional $184.3 million and $50.0 million of variable-rate debt was subject to interest rate collars as of December 31, 2019 and December 31, 2018, and $75.0 million of variable-rate debt was capped at a maximum interest rate as of December 31, 2019 and 2018.

(b)	Deferred financing fees are amortized to interest expense over the terms of the respective financing agreements using the effective interest method (or other methods which approximate the effective interest method).

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(a)

Maturity dates presented represent initial maturity dates and the extended or final maturity dates as contractually stated. HHC has the option to exercise extension periods at the initial maturity date, subject to extension terms that are based on current property performance projections. Extension terms may include minimum debt service coverage, minimum occupancy levels or condominium sales levels, as applicable and other performance criteria. In certain cases, due to property performance not meeting covenants, HHC may have to pay down a portion of the loan to obtain the extension.

(b)	The interest rate presented is based on the one-month LIBOR, three-month LIBOR or Prime rate, as applicable, which was 1.73%, 1.90% and 4.75%, respectively, at December 31, 2019. Interest rates associated with loans which have been paid off reflect the prior year interest rate.

(c)	100.0% of the outstanding principal of the $343.8 million is recourse to the Company but not currently secured by any mortgage.

(d)	100.0% of the outstanding principal of the $615.0 million Term Loan is swapped to a fixed rate equal to 4.61%.

(e)	The loan initially bears interest at 6.10% and will begin bearing interest at one-month LIBOR plus 4.10%, subject to a LIBOR cap of 2.30% and LIBOR floor of 0.00%, at the earlier of June 20, 2021 or the date certain debt coverage ratios are met.

(f)	100.0% of the outstanding principal of the $184.3 million is subject to fixed interest rate collar contracts for the remaining term of the debt.

(g)	Includes SID Bonds related to Two Summerlin, Aristocrat, Tanager Apartments, and Las Vegas Ballpark. Maturity dates range between December 2020 and December 2030 and interest rates range between 6.00% and 7.30%.

(h)	Concurrent with the closing of the $35.5 million construction loan for 8770 New Trails on June 27, 2019, the Company entered into an interest rate swap which is designated as a cash flow hedge. The Loan will bear interest at one-month LIBOR plus 2.45% but it is currently swapped to a fixed rate equal to 4.89%.

(i)	The Company completed the sale of its corporate aircraft during the quarter ended December 31, 2019.

i.	100%, or $1.0 billion of Senior Notes due 2025;

ii.	100%, or $336.6 million of The Woodlands Towers at the Waterway outstanding balance;

iii.	100%, or $7.2 million of The Woodlands Warehouse outstanding balance;

iv.	35%, or $90.7 million of the Downtown Summerlin outstanding balance;

v.	35%, or $35.0 million of the 250 Water Street outstanding loan balance;

vi.	50%, or $15.3 million, of the Outlet Collection at Riverwalk outstanding loan balance;

vii.	18%, or $33.2 million, of the 110 North Wacker outstanding loan balance;

viii.	25%, or $7.3 million of the Tanager Apartments outstanding loan balance;

ix.	25%, or $6.0 million of the Lakeside Row outstanding loan balance;

x.	25%, or $8.7 million of the Juniper Apartments outstanding loan balance;

xi.	25%, or $7.7 million of the ‘A‘ali‘i outstanding loan balance; and

xii.	25%, or $9.1 million of the 6100 Merriweather outstanding loan balance.

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(a)	Amount represents losses recognized relating to each warrant prior to the respective exercise date.

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(a)	Accounts receivable, net is shown net of an allowance of $15.6 million and $10.7 million at December 31, 2019 and 2018, respectively.

(b)	Notes receivable, net is shown net of an allowance of $0.2 million and $0.1 million at December 31, 2019 and 2018.

(c)	Excludes related unamortized financing costs.

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(a)	These rates represent the strike rate on HHC’s interest swaps, caps and collars.

(b)	Interest income of $0.2 million is included in the Consolidated Statements of Operations for the years ended December 31, 2019 and 2018 related to these contracts.

(c)	The Company settled this Interest rate cap on February 1, 2019.

(d)	On August 30, 2019, the Company executed an agreement to extend the maturing position of this cap.

(e)	On May 17, 2018 and May 18, 2018, the Company entered into these interest rate collars which are designated as cash flow hedges. On May 1, 2019, the $51.6 million interest rate collar matured as scheduled.

(f)	Concurrent with the funding of the new $615.0 million Term Loan, on September 21, 2018, the Company entered into this interest rate swap which is designated as a cash flow hedge.

(g)	Concurrent with the closing of the $35.5 million construction loan for 8770 New Trails on June 27, 2019, the Company entered into this interest rate swap which is designated as a cash flow hedge.

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(a)

The diluted EPS computation excludes 379,608, 425,908 and 313,500 shares of stock options as of December 31, 2019, 2018 and 2017, respectively, because their inclusion would have been anti-dilutive. The diluted EPS computation also excludes 235,894, 205,979 and 161,155 shares of restricted stock because performance conditions provided for in the restricted stock awards have not been satisfied as of December 31, 2019, 2018 and 2017, respectively.

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•	Operating Assets – consists of retail, office, hospitality and multi-family properties along with other real estate investments. These assets are currently generating revenues and are comprised of commercial real estate properties recently developed or acquired, and properties with an opportunity to redevelop, reposition or sell to improve segment performance or to recycle capital.

•	MPC – consists of 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.

•

Seaport District - consists of approximately 453,000 square feet of restaurant, retail and entertainment properties situated in three primary locations in New York, New York: Pier 17, Historic Area/Uplands and Tin Building. While the latter is still under development and will comprise about 53,000 square feet when completed, the two operating locations consist of third-party tenants, tenants either directly or jointly owned and operated by the Company, and businesses owned and operated by the Company under licensing agreements.

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•	Strategic Developments – consists of residential condominium and commercial property projects currently under development and all other properties held for development which have no substantial operations.

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(a)	Diluted earnings per share includes the impact of dilutive warrants, in the money options and restricted stock.

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(a)	See description of Encumbrances in Note 7 - Mortgages, Notes and Loans Payable, Net of the Consolidated Financial Statements.

(b)	Initial cost for projects undergoing development or redevelopment is cost at end of first complete calendar year subsequent to opening.

(c)	For retail and other properties, costs capitalized subsequent to acquisitions is net of cost of disposals or other property write‑downs. For MPCs, costs capitalized subsequent to acquisitions are net of the cost of land sales.

(d)	The aggregate cost of land, building and improvements for federal income tax purposes is approximately $6.1 billion.

(e)	Reductions in Land reflect transfers to Buildings and Improvements for projects which the Company is internally developing.

(f)	Includes all amounts related to Developments.

(g)	Depreciation is computed based upon the useful lives in Note 1 - Summary of Significant Accounting Policies.

(h)	Property is collateral for the Senior Secured Credit Facility. See Note 7 - Mortgages, Notes and Loans Payable, Net of the Consolidated Financial Statements for additional information.

(i)	Encumbrances balance either represents or is inclusive of SIDs. See Note 7 - Mortgages, Notes and Loans Payable, Net of the Consolidated Financial Statements for additional information.

(j)	Downtown Summerlin includes the One Summerlin office property, which was placed in service in 2015.

(k)	Lands, buildings and improvements were derecognized and a Net investment in lease receivable was recorded during 2019. Refer to Note 1 - Summary of Significant Accounting Policies for additional information.

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