The Howard Hughes Corporation® Reports Full-Year and Fourth Quarter 2020 Results

THE WOODLANDS, Texas, Feb. 25, 2021 /PRNewswire/ -- The Howard Hughes Corporation^® HHC (the "Company," "HHC" or "we") announced today operating results for the year and fourth quarter ended December 31, 2020. The financial statements, exhibits and reconciliations of non-GAAP measures in the attached Appendix and the Supplemental Information at Exhibit 99.2 provide further details of these results.

"This past year highlights the exceptional quality and the resiliency of HHC's irreplaceable assets and our business model along with the incredible dedication of our people. It was a year that despite the world-wide pandemic, we exceeded our pre-COVID estimate for residential land sales, had the fastest-selling condo project since we opened Ward Village, saw our retail rent collections bounce back from their lows and saw home sales increase from prior year levels across our portfolio. In addition, we took steps to fortify and diversify our balance sheet which has left us positioned to accelerate strategic development across our core assets where we continue to see strong demand," said David O'Reilly, Chief Executive Officer and Interim Chief Financial Officer.

"The strength of the fourth quarter is evidenced by the performance of our MPCs which generated $86 million in earnings before tax (EBT)⁽¹⁾, propelling our full-year MPC EBT to $209 million. Underlying new home sales—a leading indicator for our future land sales—grew 10% in 2020 compared to full-year 2019 results, giving us confidence that the velocity of land sales will extend into 2021. These results are supported by the continuing trend of migration to low-cost, low-tax states and are a testament to the exceptional quality of our walkable, amenity-rich communities.

"During the year, we delivered two office assets and a standalone restaurant spanning 1.7 million square feet and three multi-family assets totaling 931 units. At stabilization, these assets will generate $40 million in net operating income (NOI)⁽¹⁾. The pace of lease-up of our newly completed assets, combined with our strong balance sheet, helped drive our decision to announce approximately 2 million square feet of new developments to be launched in 2021 that will continue to grow our recurring income and unlock value in our commercial land.

"With a total of 302 condo units sold or under contract in 2020, Ward Village continues to demonstrate its market resiliency as the desire to live in this sought-after community remains high. Victoria Place—the fastest-selling tower to date at Ward Village—contracted 268 units during the year and is already 77% presold—a tremendous pace given that we only launched presales in December 2019 and a significant amount of these sales were completed virtually due to travel restrictions.

"Capitalizing on last quarter's successful launch of The Greens at the Seaport, we transformed the summer's mini green lawns on the rooftop of Pier 17 into socially-distanced winterized cabins offering seasonal dishes and festive cocktails. This concept continued to generate strong demand from local New Yorkers with nearly 39,000 guests served and had an average daily waitlist of 5,000 people. Despite construction delays earlier in the year as a result of COVID-19, we are steadily making progress at the Tin Building with the new Jean-Georges marketplace and we anticipate completion in the fourth quarter of 2021, featuring enhanced mobile ordering and delivery capabilities responding to New York City's strong appetite for high-quality home delivery of groceries and prepared meals.

"We have largely completed our Transformation Plan and are focused squarely on the acceleration of development opportunities within our master planned communities in response to growing market demand. Our decentralization efforts and corporate overhead reductions are substantially complete. Our annualized fourth quarter general and administrative expense, excluding one-time charges, represents a savings of approximately $40 million compared to our full-year 2019 general and administrative expense. We've made progress on our sale of non-core assets and only have a few dispositions remaining. Our balance sheet is strong, and we are ideally positioned for growth across our portfolio. Our new leadership is committed to seeking out the most advantageous opportunities within our MPCs that increase our net asset value and achieve the highest risk-adjusted returns."

Full-Year Highlights
Total Company

• Net income attributable to common stockholders decreased to a loss of $26.2 million, or $(0.50) per diluted share, for the year ended December 31, 2020, compared to income of $74.0 million, or $1.71 per diluted share, for the year ended December 31, 2019.
• As of December 31, 2020, we had $1.0 billion of cash and cash equivalents and available capacity of $185.0 million on the revolver portion of our credit facilities. In 2020, we strengthened our balance sheet and enhanced liquidity through the following:
• Completed an equity offering of common stock resulting in the issuance of 12,270,900 shares and receipt of $593.6 million in net proceeds.
• Issued $750 million in senior notes due August 2028 and used the net proceeds from the debt issuance, together with cash on hand, for the repayment of existing indebtedness of approximately $807.9 million in order to extend the average maturity date of our indebtedness.
• Completed the sale of four non-core assets during the year, which generated a total of $102.3 million in net proceeds.
• Obtained $400.2 million of new construction financings and $177.0 million in other financings.
• On February 2, 2021, we issued $650 million in 4.125% senior notes due 2029 and $650 million in 4.375% senior notes due 2031 and intend to repurchase all of our $1 billion 5.375% senior notes due 2025 and repay all of the approximately $280 million outstanding under our loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021. On February 2, 2021, we repurchased $512.5 million of our $1 billion 5.375% senior notes and intend to repurchase the remainder of these notes on March 15, 2021.

Operating Assets

• From the start of the second quarter through year end, we have collected 96.7% of our office portfolio billings, 97.8% of our multi-family portfolio billings and 83.8% of our other portfolio billings. As a result of the phased reopenings and rent deferrals, collections of our retail portfolio billings increased from 49.7% for the three months ended June 2020, to 72.6% for three months ended December 31, 2020.
• Operating Assets NOI, including our share of NOI from equity investments, decreased by 11% to $190.0 million for the year ended December 31, 2020, compared to $214.3 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. These decreases were partially offset by new office and multi-family properties placed in service during 2020 and at the end of 2019.
• Retail asset NOI increased 44.2% quarter over quarter from $6.9 million for the three months ended September 30, 2020, to $10.0 million for the three months ended December 31, 2020, primarily as a result of increased collections and the positive impact of the holiday season in the fourth quarter.
• We continue to see strong demand for our newly completed multi-family assets, which have leased at or above our expectations.

MPC

• MPC segment EBT of $209.4 million exceeded pre-COVID expectations for the year ended December 31, 2020. While this represents a decrease of $54.4 million compared to EBT of $263.8 million in 2019 primarily due to the acceleration of super pad sales into 2019 as a result of increased demand from homebuilders and homebuyers, the 2020 EBT results demonstrate growth as compared to $208.9 million in 2018 and $196.7 million in 2017.
• New home sales, a leading indicator of future land sales, increased by 80.2% at The Woodlands Hills, 18.1% at Bridgeland and 8.1% at Summerlin.

Strategic Developments

• Despite the impacts of the COVID-19 pandemic, we experienced a strong year of condominium unit sales in Ward Village, evidenced by the 302 condominium units we contracted to sell during 2020. Victoria Place, our newest project that began public pre-sales in December 2019, accounted for 268 of the units contracted during the year and was 76.8% presold as of December 31, 2020.
• Subsequent to year end, we closed on 4 units at Waiea and 1 unit at Anaha, totaling $35.2 million in net revenue.

Seaport District

• Seaport District NOI decreased $1.5 million to a loss of $16.5 million for the year ended December 31, 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.
• Total NOI losses from the Seaport District segment, including our share of NOI from equity investments, were reduced by 48.9% to $3.0 million for the three months ended December 31, 2020, compared to $6.2 million for the three months ended September 30, 2020, primarily due to increased operations and sponsorship revenue recognized in the fourth quarter as a result of reopenings and cost control.
• In the Fall of 2021, we expect to launch The Lawn Club, a new concept that will transform 20,000 square feet of the Fulton Market Building into an immersive indoor/outdoor experience which includes a massive expanse of indoor grass, a stylish clubhouse bar and a wide variety of lawn games.
  

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.

About The Howard Hughes Corporation^®
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; Downtown Columbia^®, Maryland; The Woodlands^®, The Woodlands Hills^®, and Bridgeland^® in the Greater Houston, Texas area; Summerlin^®, Las Vegas; and Ward Village^® 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 fourth quarter earnings call. Say verifies all shareholder positions and provides permission to participate on the February 26, 2021 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, February 26, 2021, at 9:00 a.m Central Standard Time (10:00 a.m. Eastern Standard Time) to discuss fourth 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 0300450 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 should not be relied upon. They give our expectations about the future and are not guarantees.

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. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

• the near and long-term impact of the COVID-19 pandemic
• 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 executive officers
• our ability to execute the Transformation Plan, including the successful sale of our non-core assets
• natural disasters, 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 indebtedness, including certain restrictions related to our indebtedness that may limit our ability to operate our business
• our ability to retain key executive personnel
• our ability to collect rent, attract tenants and customers to our hotels
• 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
• catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business

For more information about risks and uncertainties associated with our business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of our SEC filings, including, but not limited to, our Annual Report on Form 10-K, copies of which may be obtained on our Investor Relations website at 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.

Media Contact
The Howard Hughes Corporation
Cristina Carlson, 646-822-6910
Vice President, Corporate Communications & Public Relations
cristina.carlson@howardhughes.com

Investor Relations
The Howard Hughes Corporation
David M. Striph, 281-929-7772
Executive Vice President, Head of Operations & Investor Relations
david.striph@howardhughes.com

David R. O'Reilly, 972-392-6236
Chief Executive Officer & Interim Chief Financial Officer
david.o'reilly@howardhughes.com

Appendix – Reconciliation of Non-GAAP Measures

For the Year and Three Months Ended December 31, 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.

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 income (loss); 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.