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The Howard Hughes Corporation Reports Second Quarter 2015 Results

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DALLAS--(BUSINESS WIRE)--

The Howard Hughes Corporation (NYSE: HHC):

Second Quarter Earnings Highlights

  • Net operating income ("NOI") for our income-producing Operating Assets increased 56.4% to $28.5 million for the second quarter 2015, compared to $18.2 million in the second quarter 2014. The increase is primarily related to the opening of new properties in 2014, the most significant of which were Downtown Summerlin in October 2014 and The Outlet Collection at Riverwalk in May 2014, as well as the acquisition of 10-60 Columbia Corporate Center office properties in December 2014.
  • Second quarter 2015 adjusted net income decreased (56.0%), or $42.0 million, to $33.0 million, compared to second quarter 2014 adjusted net income of $75.0 million. The decrease is primarily due to large commercial land sales in the second quarter 2014 which were not repeated in the second quarter 2015. We typically do not sell commercial land in our MPCs unless there are compelling strategic reasons to do so. Prior year second quarter results include several large commercial land sales, including a 59-acre land sale to the Houston Methodist Hospital System, bringing a major regional healthcare provider to The Woodlands. The impact was partially offset by the recognition of condominium income at Ward Village and income from recently completed developments in the second quarter of 2015. Adjusted net income excludes the following non-cash items: depreciation and amortization; warrant liability gains and losses; and gains and losses relating to the tax indemnity receivable for periods prior to its settlement in December 2014.
  • Master Planned Community ("MPC") land sales decreased (69.1%) to $46.8 million for the second quarter 2015 compared to $151.2 million for the second quarter 2014 primarily due to $88.0 million of commercial land sales at The Woodlands in the second quarter 2014, as noted above, and a slowdown in single-family lot sales velocity at our Houston, Texas MPCs due to the decrease in oil prices in 2015. Excluding the sale to the Houston Methodist Hospital System for $70.6 million, land sales decreased by $33.8 million, or (41.9%), during the same periods.

The Howard Hughes Corporation Property and Financing Highlights

  • Completed construction and placed into service One Lake's Edge, an eight-story, Class A, multi-family project within Hughes Landing in The Woodlands, comprised of 390 multi-family units, 22,289 square feet of retail and a 750-space parking garage.
  • As of July 24, 2015, 88.5% of the units at our Waiea and 81.7% of the units at our Anaha condominium developments at Ward Village were contracted for sale. We have received deposits for substantially all of the contracted units equal to 20% of the sales price and which are now beyond the 30-day rescission period.
  • During July 2015, began pre-sales for the first of two Gateway Towers designed by Richard Meier & Partners, which consists of 125 luxury units, and Ae‘o, a 466-unit condominium tower designed by Bohlin Cywinski Jackson located above a to-be-built Whole Foods Market flagship store. Both residential condominium towers are located at Ward Village.

The Howard Hughes Corporation Property and Financing Highlights (continued)

  • During August 2015, began construction on two self-storage developments in The Woodlands. The facilities represent approximately 161,000 square feet of storage space in 1,320 units, are expected to cost approximately $17.0 million in the aggregate and be completed by the second quarter 2016.
  • Closed on a $14.0 million non-recourse construction loan for Lakeland Village, an 83,400 square foot CVS-anchored mixed-use development located in Bridgeland. The loan bears interest at LIBOR plus 2.35% and has an initial maturity date of May 2018 with two, one-year extension options.
  • Extended the $30.0 million non-recourse Bridgeland credit facility for one year. The facility matures on July 15, 2016.

_____________________________________

* Non-recourse debt means that the debt is non-recourse to The Howard Hughes Corporation, but is recourse to the asset securing such debt and/or the subsidiary entity owning such asset.

The Howard Hughes Corporation (NYSE: HHC) or (the "Company") today announced its results for the second quarter of 2015.

For the three months ended June 30, 2015, net income attributable to common stockholders was $50.6 million, or $0.18 per diluted common share, compared with net loss attributable to common stockholders of $(14.8) million, or $(0.37) per diluted common share, for the three months ended June 30, 2014. Second quarter 2015 net income attributable to common stockholders includes a non-cash $42.6 million warrant gain and $(25.1) million of non-cash depreciation and amortization expense. Excluding these non-cash items, net income attributable to common stockholders, was $33.0 million, or $0.76 per diluted common share. Excluding the $(67.4) million non-cash warrant loss, $(10.9) million non-cash reduction in tax indemnity receivable and $(11.5) million of non-cash depreciation and amortization expense, net income attributable to common stockholders was $75.0 million, or $1.74 per diluted common share for the second quarter 2014.

As we complete and place our developments into service, non-cash depreciation and amortization expense associated with these cash-flowing commercial real estate properties is becoming a more material and growing component of our net income. Adjusted net income is a non-GAAP measure that excludes depreciation and amortization and non-cash warrant liability and tax indemnity receivable gains and losses. The tax indemnity receivable was settled in the fourth quarter 2014 and is not a component of our net income beginning in 2015. The presentation of net income excluding depreciation and amortization is consistent with other companies in the property ownership business, who also typically report an earnings measure that excludes non-cash depreciation and amortization. For a reconciliation of adjusted net income to net income (loss) attributable to common stockholders, please refer to the Supplemental Information contained in this earnings release.

David R. Weinreb, Chief Executive Officer of The Howard Hughes Corporation, stated, "I am pleased with the momentum we are achieving at our larger developments. The launch of pre-sales in July of two new condominium towers totaling 591 units, and the 413 units under contract at the Anaha and Waiea towers under construction at Ward Village are indicative of the strong demand we are seeing for high quality residential housing in our thoughtfully designed urban master planned community in Hawaii. Summerlin in Las Vegas also continues to deliver strong residential sales volume and pricing as this MPC benefits from the recently opened Downtown Summerlin mixed-use project and resurgence of the Las Vegas economy. At the South Street Seaport, we look forward to making some exciting tenant announcements later this year regarding the under construction Pier 17 project and historic area renovation. Homebuilders are continuing to be cautious on the Houston residential market and remain conservative on lot takedown commitments, yet pricing remains high compared to historical levels."

Business Segment Operating Results

For comparative purposes, MPC land sales and Operating Assets NOI are presented in our Supplemental Information. For a reconciliation of Operating Assets NOI to Operating Assets real estate property earnings before taxes ("REP EBT"), Operating Assets REP EBT to GAAP-basis income (loss), and segment-basis MPC land sales revenue to GAAP-basis land sales revenue, please refer to the Supplemental Information contained in this earnings release. Non-recourse debt means that the debt is non-recourse to The Howard Hughes Corporation, but is recourse to the asset securing such debt and/or the subsidiary entity owning such asset. All construction cost estimates presented herein are exclusive of land costs.

Operating Assets Highlights

NOI from our combined retail, office, multi-family and resort and conference center properties increased $10.3 million, or 56.4%, to $28.5 million for the second quarter 2015, compared to NOI of $18.2 million for the second quarter 2014. These properties are referred to as our "income-producing Operating Assets." These amounts include our share of NOI from our non-consolidated equity-method ventures and exclude NOI for all periods from properties that are substantially closed for redevelopment and/or were sold during the period.

The $10.3 million increase in NOI in the second quarter 2015 compared to the second quarter 2014 is primarily attributable to the acquisition of the 10-60 Columbia Corporate Center office properties in December 2014, which contributed $2.7 million to the increase, and completion of Downtown Summerlin and The Outlet Collection at Riverwalk, both of which opened in 2014 and contributed a combined $5.6 million to the increase. Two Hughes Landing and 3831 Technology Forest Drive contributed a combined $1.2 million to the increase as they continue to stabilize, and The Woodlands Resort & Conference Center, which completed its renovation in the fourth quarter 2014, contributed $0.6 million to the increase. The remaining $0.2 million of the increase is due to smaller changes in NOI at our other operating assets.

South Street Seaport remains substantially closed while redevelopment of Pier 17 and the renovation of the historic area continue.

During the second quarter 2015, we completed construction and placed into service One Lake's Edge, an eight-story, Class A, multi-family project within Hughes Landing. The building is comprised of 390 units, 22,289 square feet of retail and a 750-space parking garage. As of July 24, 2015, 39.0% of the units have been leased. We expect to reach stabilized annual NOI of $7.6 million by the end of the second quarter 2017.

Master Planned Communities Highlights

Land sales in our MPC segment, excluding deferred land sales and other revenue, decreased by $(104.4) million, or (69.1%), to $46.8 million for the three months ended June 30, 2014, as compared to $151.2 million for the same period in 2014. Excluding the commercial land sale at The Woodlands to the Houston Methodist Hospital System for $70.6 million in the second quarter 2014, described below, land sales decreased by $(33.8) million, or (41.9%), during the same periods.

Summerlin land sales decreased by $(1.7) million, or (4.5%), to $36.2 million on slightly lower acreage sold. For the second quarter 2015, Summerlin sold a mix of superpad sites and custom lots. Demand remains high for new home developments due to a shortage of resale homes and strong local economic conditions. Price per acre for superpads, Summerlin's primary residential land product, increased by $44,000, or 8.5%, to $563,000 for the second quarter 2015 compared to the second quarter 2014. The increase in land pricing at Summerlin is due to the scarcity of attractive developable residential land in the Las Vegas market.

Bridgeland land sales decreased to $1.5 million for the second quarter 2015 compared to $6.7 million for the second quarter 2014. Homebuilders are taking a more cautious approach to acquiring finished lots at Bridgeland and The Woodlands due to uncertainty regarding the impact on new home demand resulting from lower oil prices. Consequently, we are receiving bids to acquire lots via future quarterly takedown schedules rather than in large bulk one-time purchases as in the prior year. This approach will likely result in lower lot purchases over the next few quarters than in 2014 when homebuilders were more comfortable making larger commitments. Also, record rainfall in the Houston area in the second quarter 2015 caused construction delays, which negatively impacted new home development and sales, especially at Bridgeland due to the close proximity of large wetlands areas to residential developments within that MPC. Homebuilders are currently developing single-family homes for sale on the significant volume of lots purchased during the second half of 2014, and we expect demand for new lots at Bridgeland to be modest until a portion of these homes are completed and sold later in 2015.

Land sales revenues at The Woodlands decreased by $(97.5) million to $9.1 million in the second quarter 2015 compared to the second quarter 2014 primarily due to fewer residential lot sales and $88.0 million of commercial land sales in the second quarter 2014, including a 59-acre sale to the Houston Methodist Hospital System for $70.6 million, compared to $2.1 million in the second quarter 2015. The range of residential lot types/sizes available for sale is decreasing as The Woodlands' inventory of residential land for sale diminishes. This factor, combined with a more uncertain economic climate in the greater Houston area due to lower oil prices and a more conservative lot acquisition strategy by homebuilders, is contributing to lower sales velocity.

Strategic Developments Highlights

Pre-sales for the first two market-rate residential condominium towers at Ward Village, Waiea and Anaha, launched in the beginning of 2014, and construction on both towers began later in the year. From April 30, 2015, the last reported sales date, through July 24, 2015, we had strong sales at these towers, entering into 15 sales contracts for Anaha and Waiea, combined, representing 17.9% of the then available units for sale. Sales contracts require a minimum deposit from the buyer equal to 20% of the contracted price and are subject to a 30-day rescission period, after which time the deposit becomes non-refundable. Substantially all of the contracted units at both towers are past their rescission periods.

Waiea will have 174 total units, of which 88.5% have been contracted as of July 24, 2015. Total development costs are expected to be approximately $403 million (excluding land value). We expect to complete the project by the end of 2016. As of June 30, 2015, we have incurred $116.5 million of development costs.

Anaha, will have 317 total units, of which 81.7% have been contracted as of July 24, 2015. Total development costs are expected to be approximately $401 million (excluding land value). We expect to complete the project by mid-2017. As of June 30, 2015, we have incurred $57.7 million of development costs.

In connection with Phase Two of the Ward Village master plan, during July 2015 we launched pre-sales of two new condominium towers: Ae‘o, designed by Bohlin Cywinski Jackson, and one of two Gateway Towers designed by Richard Meier & Partners. As of July 24, 2015, none of the contracted sales have passed their 30-day rescission period.

Ae‘o, the name for the Hawaiian stilt bird, will be a 466 unit condominium tower that will sit on top of a flagship 50,000 square foot Whole Foods Market. We expect to begin construction of the Whole Foods Market space in early 2016 with completion scheduled in 2018. The average condominium unit size at Ae‘o will be approximately 836 square feet. We are finalizing project budgets for the Whole Foods Market and condominium tower. Construction of the condominium units will be subject to obtaining an acceptable level of pre-sales and financing for the project. We have incurred $11.7 million of pre-development costs on this project as of June 30, 2015.

The first of two Gateway Towers will consist of 125 luxury residential condominium units averaging approximately 1,874 square feet per unit and approximately 8,500 square feet of retail. Gateway Towers will include a one-acre park that will serve as the start of a four-acre Village Green that will open up a pedestrian connection from the heart of Ward Village to the center of Kewalo Harbor. We are finalizing the project budget. Construction of the property will be subject to obtaining an acceptable level of pre-sales and financing for the project. We have incurred $24.0 million of pre-development costs as of June 30, 2015.

We began construction of two self-storage facilities in Alden Bridge, a neighborhood within The Woodlands, in the third quarter 2015. One facility located on 4.0 acres will be an approximate 82,000 square foot building and consist of 670 units with an estimated total cost of $8.4 million. The other facility located on 3.1 acres will be an approximate 79,000 square foot building and consist of 650 units with an estimated total cost of $8.4 million. We expect to complete both projects during the second quarter 2016, and are currently seeking financing for these projects.

In May 2015, we closed on a $14.0 million non-recourse financing for Lakeland Village Center. The loan bears interest at LIBOR plus 2.35% and has an initial maturity of May 2018 with two, one-year extension options. During the second quarter 2015, we also extended the final maturity date of the $30.0 million Bridgeland credit facility to July 15, 2016.

For a more complete description of all of our Strategic Developments please refer to "Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Strategic Developments" in our Quarterly Report on Form 10-Q for the three months ended June 30, 2015.

About The Howard Hughes Corporation®

The Howard Hughes Corporation owns, manages and develops commercial, residential and mixed-use real estate throughout the U.S. Our properties include master planned communities, operating properties, development opportunities and other unique assets spanning 16 states from New York to Hawai‘i. The Howard Hughes Corporation is traded on the New York Stock Exchange as HHC and is headquartered in Dallas, TX. For additional information about HHC, visit www.howardhughes.com.

Safe Harbor Statement

Statements made in this press release that are not historical facts, including statements accompanied by words such as "will," "believe," "expect," "enables," "realize," "plan," "intend," "assume," "transform" and other words of similar expression, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's expectations, estimates, assumptions and projections as of the date of this release and are not guarantees of future performance. Actual results may differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially are set forth as risk factors in The Howard Hughes Corporation's filings with the Securities and Exchange Commission, including its Quarterly and Annual Reports. The Howard Hughes Corporation cautions you not to place undue reliance on the forward-looking statements contained in this release. The Howard Hughes Corporation does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release, except as required by law.

 
 

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

UNAUDITED

       
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
(In thousands, except per share amounts)
Revenues:
Master Planned Community land sales $ 45,433 $ 153,164 $ 93,514 $ 200,835
Builder price participation 7,907 3,843 13,605 7,940
Minimum rents 36,989 22,189 72,183 42,549
Tenant recoveries 10,701 6,893 20,368 12,908
Condominium rights and unit sales 86,513 4,358 121,370 7,484
Resort and conference center revenues 11,481 9,622 23,484 19,048
Other land revenues 3,145 2,698 6,438 5,210
Other rental and property revenues   6,994   6,864   13,291   12,310
Total revenues   209,163   209,631   364,253   308,284
 
Expenses:
Master Planned Community cost of sales 24,236 42,719 48,132 65,797
Master Planned Community operations 11,963 11,389 21,946 20,650
Other property operating costs 19,634 16,600 37,779 30,405
Rental property real estate taxes 6,568 4,241 12,768 7,981
Rental property maintenance costs 2,900 2,174 5,644 4,089
Condominium rights and unit cost of sales 56,765 2,191 79,174 3,762
Resort and conference center operations 8,893 6,412 17,971 13,923
Provision for doubtful accounts 1,266 31 2,075 174
Demolition costs 1,496 3,435 1,613 5,951
Development-related marketing costs 5,594 5,299 11,837 9,522
General and administrative 19,606 17,497 38,569 34,379
Other income, net (399) (5,611) (1,863) (16,059)
Depreciation and amortization   25,069   11,473   46,579   21,982
Total expenses   183,591   117,850   322,224   202,556
 
Operating income 25,572 91,781 42,029 105,728
 
Interest income 271 18,625 407 20,813
Interest expense (14,685) (8,897) (27,931) (16,218)
Warrant liability gain (loss) 42,620 (67,370) (66,190) (163,810)
Reduction in tax indemnity receivable (10,927) (10,927)
Equity in earnings from Real Estate and Other Affiliates   1,081   6,587   2,869   12,655
Income (loss) before taxes 54,859 29,799 (48,816) (51,759)
Provision for income taxes   4,274   44,532   6,558   49,305
Net income (loss) 50,585 (14,733) (55,374) (101,064)
Net income (loss) attributable to noncontrolling interests   (12)   (27)   (12)   (12)
Net income (loss) attributable to common stockholders $ 50,573 $ (14,760) $ (55,386) $ (101,076)
 
Basic income (loss) per share: $ 1.28 $ (0.37) $ (1.40) $ (2.56)
 
Diluted income (loss) per share: $ 0.18 $ (0.37) $ (1.40) $ (2.56)
 
 

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

UNAUDITED

   
June 30, December 31,
2015 2014
(In thousands, except share amounts)
Assets:
Investment in real estate:
Master Planned Community assets $ 1,648,729 $ 1,641,063
Land 319,194 317,211
Buildings and equipment 1,429,386 1,243,979
Less: accumulated depreciation (192,886) (157,182)
Developments   1,119,774   914,303
Net property and equipment 4,324,197 3,959,374
Investment in Real Estate and Other Affiliates   55,959   53,686
Net investment in real estate 4,380,156 4,013,060
Cash and cash equivalents 488,629 560,451
Accounts receivable, net 36,122 28,190
Municipal Utility District receivables, net 124,828 104,394
Notes receivable, net 25,138 28,630
Deferred expenses, net 72,705 75,070
Prepaid expenses and other assets, net   278,251   310,136
Total assets $ 5,405,829 $ 5,119,931
 
Liabilities:
Mortgages, notes and loans payable $ 2,286,174 $ 1,993,470
Deferred tax liabilities 67,610 62,205
Warrant liabilities 432,270 366,080
Uncertain tax position liability 4,765 4,653
Accounts payable and accrued expenses   437,998   466,017
Total liabilities   3,228,817   2,892,425
 
 
Equity:
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued
Common stock: $.01 par value; 150,000,000 shares authorized, 39,715,005 shares issued and outstanding as of June 30, 2015 and 39,638,094 shares issued and outstanding as of December 31, 2014 398 396
Additional paid-in capital 2,842,266 2,838,013
Accumulated deficit (662,320) (606,934)
Accumulated other comprehensive loss   (7,116)   (7,712)
Total stockholders' equity 2,173,228 2,223,763
Noncontrolling interests   3,784   3,743
Total equity   2,177,012   2,227,506
Total liabilities and equity $ 5,405,829 $ 5,119,931
 
 

Supplemental Information

June 30, 2015

As our three segments, Master Planned Communities, Operating Assets and Strategic Developments, are managed separately, we use different operating measures to assess operating results and allocate resources among these three segments. The one common operating measure used to assess operating results for our business segments is real estate property earnings before taxes ("REP EBT"), which represents the operating revenues of the properties less property operating expenses. REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate interest income and depreciation expense, provision for income taxes, warrant liability gain (loss), increase (reduction) in the tax indemnity receivable and corporate other income. We present REP EBT because we use this measure, among others, internally to assess the core operating performance of our assets. However, REP EBT should not be considered as an alternative to GAAP net income (loss).

       
Reconciliation of REP EBT to GAAP Three Months Ended June 30, Six Months Ended June 30,
income (loss) before taxes 2015 2014 2015 2014
(In thousands) (In thousands)
REP EBT $ 46,171 $ 116,378 $ 83,985 $ 152,022
General and administrative (19,606) (17,497) (38,569) (34,379)
Corporate interest income/(expense), net (13,235) 4,829 (26,447) (6,151)
Warrant liability gain (loss) 42,620 (67,370) (66,190) (163,810)
Reduction in tax indemnity receivable (10,927) (10,927)
Corporate other income, net 396 5,611 1,529 13,686
Corporate depreciation and amortization   (1,487)   (1,225)   (3,124)   (2,200)
Income (loss) before taxes $ 54,859 $ 29,799 $ (48,816) $ (51,759)
   
Reconciliation of Adjusted Net Income to Net loss   Three Months Ended June 30,
attributable to common stockholders 2015 2014
(In thousands)
Adjusted Net Income $ 33,022 $ 75,010
Depreciation and amortization (25,069) (11,473)
Warrant liability loss 42,620 (67,370)
Reduction in tax indemnity receivable     (10,927)
Net income (loss) attributable to common stockholders $ 50,573 $ (14,760)
 
 

MPC Land Sales Summary

Three Months Ended June 30, 2015

                   
MPC Sales Summary
Land Sales Acres Sold Number of Lots/Units Price per Acre Price per Lot/Units
Three Months Ended June 30,
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
 
Bridgeland
Residential
Single family - detached $ 1,495   $ 6,705   3.7   15.6 19   60 $ 404   $ 430 $ 79   $ 112
Total   1,495     6,705   3.7   15.6 19   60   404     430   79     112
Changes in dollars, acres and lots (5,210 ) (11.9 ) (41 ) (26 ) (33 )
% Change NM NM NM -6.0 % -29.5 %
 
Maryland Communities
No land sales
 
Summerlin
Residential
Superpad sites 29,256 27,285 52.0 52.6 155 285 563 519 189 96
Single family - detached 6,370 6.1 35 1,044 182
Custom lots 3,775 4,200 2.5 3.7 6 7 1,510 1,135 629 600
Commercial
Other   3,136       3.6       871          
Total   36,167     37,855   58.1   62.4 161   327   622     607   205     116
Changes in dollars, acres and lots (1,688 ) (4.3 ) (166 ) 15 89
% Change -4.5 % -6.9 % -50.8 % 2.5 % 76.7 %
 
The Woodlands
Residential
Single family - detached 7,052 16,266 12.2 23.8 43 100 578 683 164 163
Single family - attached 2,388 3.3 40 724 60
Commercial
Not for profit
Medical 70,550 58.9 1,198
Retail 733 17,401 5.0 30.3 147 574
Other   1,321       0.9       1,468          
Total   9,106     106,605   18.1   116.3 43   140   503     917   164     133
Changes in dollars, acres and lots (97,499 ) (98.2 ) (97 ) (414 ) 31
% Change -91.5 % -84.4 % -69.3 % -45.1 % 23.3 %
 
Total acreage sales revenue   46,768     151,165   79.9   194.3 223   527
 
Deferred revenue (2,500 ) (2,267 )
Special Improvement District revenue *   1,165     4,266  
Total segment land sale revenue - GAAP basis $ 45,433   $ 153,164  

* Applicable exclusively to Summerlin.

NM – Not Meaningful

 
 

MPC Land Sales Summary

Six Months Ended June 30, 2015

                   
  MPC Sales Summary
Land Sales Acres Sold Number of Lots/Units Price per Acre Price per Lot/Units
Six Months Ended June 30,
($ in thousands) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
 
Bridgeland
Residential
Single family - detached $ 6,073   $ 6,841   15.5   16.1 60   63 $ 392   $ 425 $ 101   $ 109
Total   6,073     6,841   15.5   16.1 60   63   392     425   101     109
Changes in dollars, acres and lots (768 ) (0.6 ) (3.0 ) (33.0 ) (8 )
% Change -11.2 % -3.7 % -4.8 % -7.8 % -7.3 %
 
Maryland Communities
No land sales
 
Summerlin
Residential
Superpad sites 46,030 43,566 81.2 83.9 233 406 567 519 198 107
Custom lots 6,320 9,236 4.5 7.5 11 15 1,404 1,231 575 616
Single family - detached 13,650 11,170 14.9 13.0 75 60 916 859 182 186
Commercial
Other   3,136     2,250   3.6   10.0     871     225      
Total   69,136     66,222   104.2   114.4 319   481   663     579   207     133
Changes in dollars, acres and lots 2,914 (10.2 ) (162.0 ) 84.0 74
% Change 4.4 % -8.9 % -33.7 % 14.5 % 55.6 %
 
The Woodlands
Residential
Single family - detached 13,859 33,537 22.0 47.7 80 183 630 703 173 183
Single family - attached 408 3,326 0.8 4.6 9 54 510 723 45 62
Commercial
Not for profit 5.0
Medical 70,550 58.9 1,198
Retail 733 17,401 30.3 147 574
Other   1,321     0.9       1,468          
Total   16,321     124,814   28.7   141.5 89   237   569     882   160     156
Changes in dollars, acres and lots (108,493 ) (112.8 ) (148 ) (313 ) 4
% Change -86.9 % -79.7 % -62.4 % -35.5 % 2.6 %
 
Total acreage sales revenue   91,530     197,877   148.4   272.0 468   781
 
Deferred revenue (2,107 ) (3,925 )
Special Improvement District revenue *   4,091     6,883  
Total segment land sale revenue - GAAP basis $ 93,514   $ 200,835  

* Applicable exclusively to Summerlin.

 
 

Operating Assets Net Operating Income

The Company believes that NOI is a useful supplemental measure of the performance of our Operating Assets 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 occupancy rates, rental rates, and operating costs. We define NOI as revenues (rental income, tenant recoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI also excludes straight line rents and tenant incentives amortization, net interest expense, ground rent amortization, demolition costs, amortization, depreciation, development-related marketing costs and equity in earnings from Real Estate and Other Affiliates.

We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on our operating results, gross margins and investment returns.

Although we believe that NOI provides useful information to the investors about the performance of our Operating Assets due to the exclusions noted above, NOI should only be used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP net income (loss).

Operating Assets NOI and REP EBT

           
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 Change 2015 2014 Change
(In thousands) (In thousands)
Retail
Columbia Regional (a) $ 204 $ $ 204 $ 465 $ $ 465
Cottonwood Square 146 180 (34 ) 305 333 (28 )
Creekside Village Green (b) 186 186 225 225
Downtown Summerlin (b) 2,450 2,450 4,194 4,194
Hughes Landing Retail (b) 328 328 387 387
1701 Lake Robbins (c) 15 15 184 184
Landmark Mall (d) (109 ) 75 (184 ) (186 ) 624 (810 )
Outlet Collection at Riverwalk (e) 1,966 (1,221 ) 3,187 3,119 (1,473 ) 4,592
Park West 535 524 11 1,175 1,088 87
Ward Village (f) 6,700 6,171 529 13,015 11,800 1,215
20/25 Waterway Avenue 526 343 183 947 764 183
Waterway Garage Retail   184     164     20     354     332     22  
Total Retail   13,131     6,236     6,895     24,184     13,468     10,716  
Office
10-70 Columbia Corporate Center (g) 3,291 525 2,766 6,524 669 5,855
Columbia Office Properties 65 596 (531 ) 80 684 (604 )
One Hughes Landing (h) 1,314 1,491 (177 ) 2,636 1,960 676
Two Hughes Landing (i) 648 648 851 851
2201 Lake Woodlands Drive (34 ) 137 (171 ) (86 ) 104 (190 )
9303 New Trails 490 553 (63 ) 983 1,020 (37 )
110 N. Wacker 1,529 1,514 15 3,058 3,034 24
One Summerlin (b) (139 ) (139 ) (169 ) (169 )
3831 Technology Forest Drive (j) 538 538 928 928
3 Waterway Square 1,697 1,560 137 3,171 3,127 44
4 Waterway Square 1,482 1,407 75 2,942 2,848 94
1400 Woodloch Forest   435     293     142     763     533     230  
Total Office   11,316     8,076     3,240     21,681     13,979     7,702  
 
85 South Street (k) 108 108 215 215
Millennium Waterway Apartments 993 1,112 (119 ) 2,045 2,172 (127 )
One Lake's Edge (b) (541 ) (541 ) (541 ) (541 )
The Woodlands Resort & Conference Center (l)   2,588     2,005     583     5,513     3,920     1,593  
Total Retail, Office, Multi-family, Resort & Conference Center   27,595     17,429     10,166     53,097     33,539     19,558  
 
The Club at Carlton Woods (b) (847 ) (799 ) (48 ) (1,693 ) (2,012 ) 319
The Woodlands Ground leases 310 112 198 526 222 304
The Woodlands Parking Garages (95 ) (110 ) 15 (271 ) (289 ) 18
Other Properties   955     251     704     1,873     531     1,342  
Total Other   323     (546 )   869     435     (1,548 )   1,983  
Operating Assets NOI - Consolidated and Owned   27,918     16,883     11,035     53,532     31,991     21,541  
 
Redevelopments
South Street Seaport (b)   (387 )   (1,734 )   1,347     (401 )   (3,956 )   3,555  
Total Operating Asset Redevelopments (387 ) (1,734 ) 1,347 (401 ) (3,956 ) 3,555
 
Dispositions
Rio West Mall       30     (30 )       79     (79 )
Total Operating Asset Dispositions       30     (30 )       79     (79 )
Total Operating Assets NOI - Consolidated   27,531     15,179     12,352     53,131     28,114     25,017  
 
Straight-line lease amortization (m) 1,028 (537 ) 1,565 2,224 (973 ) 3,197
Demolition costs (n) (1,496 ) (3,434 ) 1,938 (1,613 ) (5,928 ) 4,315
Development-related marketing costs (2,748 ) (2,703 ) (45 ) (5,014 ) (4,779 ) (235 )
Depreciation and amortization (22,887 ) (9,531 ) (13,356 ) (41,649 ) (18,541 ) (23,108 )
Write-off of lease intangibles and other (154 ) (154 )
Equity in earnings from Real Estate and Other Affiliates 160 767 (607 ) 1,044 2,572 (1,528 )
Interest, net   (7,621 )   (3,917 )   (3,704 )   (14,105 )   (5,842 )   (8,263 )
Total Operating Assets REP EBT (o) $ (6,033 ) $ (4,176 ) $ (1,857 ) $ (6,136 ) $ (5,377 ) $ (759 )
           
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 Change 2015 2014 Change
(In thousands) (In thousands)
Operating Assets NOI - Equity and Cost Method Investments
Millennium Woodlands Phase II $ 111 $ $

111

$ 7 $ $ 7
Stewart Title Company 608 861 (253 ) 999 1,059 (60 )
Summerlin Baseball Club 803 611 192 569 364 205
The Metropolitan Downtown Columbia (b) 139 139 (369 ) (369 )
Woodlands Sarofim # 1   338     389     (51 )   729     790     (61 )
Total NOI - equity investees 1,999 1,861 138 1,935 2,213 (278 )
 
Adjustments to NOI (p)   (774 )   (48 )   (726 )   (1,454 )   (79 )   (1,375 )
Equity Method Investments REP EBT 1,225 1,813 (588 ) 481 2,134 (1,653 )
Less: Joint Venture Partner's Share of REP EBT   (1,065 )   (1,046 )   (19 )   (1,184 )   (1,343 )   159  
Equity in earnings from Real Estate and Other Affiliates   160     767     (607 )   (703 )   791     (1,494 )
 
Distributions from Summerlin Hospital Investment (q)               1,747     1,781     (34 )
Segment equity in earnings from Real Estate and Other Affiliates $ 160   $ 767   $ (607 ) $ 1,044   $ 2,572   $ (1,528 )
 
Company's Share of Equity Method Investments NOI
Millennium Woodlands Phase II $ 91 $ $ 91 $ 6 $ $ 6
Stewart Title Company 304 431 (127 ) 500 530 (30 )
Summerlin Baseball Club 402 306 96 285 182 103
The Metropolitan Downtown Columbia (b) 69 78 (9 ) (185 ) (185 )
Woodlands Sarofim # 1   68         68     146     158     (12 )
Total NOI - equity investees $ 934   $ 815   $ 119   $ 752   $ 870   $ (118 )
     
Economic Six Months Ended June 30, 2015
Ownership Debt Cash
(In thousands)
Millennium Woodlands Phase II 81.43% $ 37,700 $ 902
Stewart Title Company 50.00% 387
Summerlin Baseball Club 50.00% 865
The Metropolitan Downtown Columbia (b) 50.00% 56,187 678
Woodlands Sarofim # 1 20.00% 6,084 782

_____________________________________________

(a)   Stabilized annual NOI of $2.2 million is expected by the end of the second quarter 2016.
(b) Please refer to the discussion regarding this property in our second quarter 2015 Form 10-Q.
(c) This asset was acquired in July 2014.
(d) The lower NOI is due to a one-time favorable property tax settlement with the City of Alexandria of $0.7 million that occurred in the first quarter 2014.
(e) Building was re-opened May 2014. Stabilized annual NOI of $7.8 million is expected by early 2017 based on leases in place as of June 30, 2015.
(f) NOI increase is primarily due to higher rental rates and increased occupancy.
(g) In December 2014, we acquired 10–60 Columbia Corporate Center comprised of six adjacent office buildings totaling 699,884 square feet. We acquired 70 Columbia Corporate Center in 2012.
(h) NOI increase for the six months ended June 30, 2015 is primarily due to increased occupancy. The NOI decrease for the three months ended June 30, 2015 is primarily due to an adjustment to 2014 tenant recoveries.
(i) Building was placed in service in 2014. Stabilized annual NOI of $5.2 million is expected by the fourth quarter 2015.
(j) Building was placed in service in 2014 and is 100% leased to a single tenant.
(k) Building was acquired in 2014.
(l) The renovation project has increased NOI due to the higher revenue per available room ("RevPAR") resulting from the new and upgraded rooms. RevPAR is calculated by dividing total room revenues by total occupied rooms for the period.

(m)

The net change in straight-line lease amortization for the three and six months ended June 30, 2015 compared to the same periods in 2014 is primarily due to new leases at Downtown Summerlin and 10-60 Columbia Corporate Center office buildings purchased in December 2014.
(n) Demolition costs for 2014 relate to Pier 17 and such costs for 2015 relate to the Fulton Market Building, both at South Street Seaport.
(o) For a detailed breakdown of our Operating Asset segment REP EBT, please refer to Note 15 - Segments in the Condensed Consolidated Financial Statements.

(p)

Adjustments to NOI include straight-line rent and market lease amortization, demolition costs, depreciation and amortization and non-real estate taxes.
(q) During the first quarters of 2015 and 2014, we received distributions of $1.7 million and $1.8 million, respectively, from our Summerlin Hospital investment. Distributions from the Summerlin Hospital are typically made one time per year in the first quarter.
 
 

Commercial Properties NOI

       
($ in millions) Square
Feet/Number
of Units
% Leased (a) Three Months Ended
June 30, 2015

Projected Annual

Stabilized NOI (b)

Debt Balance
June 30, 2015 (c)
 

Commercial Properties - Stabilized

 
Retail
Cottonwood Square 77,079 96 % $ 0.1 $ 0.6 $
1701 Lake Robbins 12,376 100 % - 0.4 4.6
Landmark Mall (d) 320,325 44 % (0.1) 0.8
Park West 249,177 66 % 0.5 2.1
Ward Village 1,273,845 88 % 6.7 24.8 238.7
20/25 Waterway Avenue 50,022 100 % 0.5 1.7 14.3
Waterway Garage Retail 21,513 100 %   0.2   0.8  
Total Retail - Stabilized 2,004,337 79 % $ 7.9 $ 31.2 $ 257.6
 
Office
10-70 Columbia Corporate Center 887,714 90 % $ 3.3 $ 13.2 $ 100.0
Columbia Office Properties (d) 220,471 47 % 0.1 0.3
One Hughes Landing 197,719 100 % 1.3 5.3 52.0
9303 New Trails 97,553 94 % 0.5 2.0 12.9
110 N. Wacker 226,000 100 % 1.5 6.1 28.4
3831 Technology Forest Drive 95,078 100 % 0.5 2.2 22.9
3 Waterway Square 232,021 100 % 1.7 6.8 52.0
4 Waterway Square 218,551 100 % 1.5 5.9 37.8
1400 Woodloch Forest 95,667 100 %   0.4   1.7  
Total Office - Stabilized 2,270,774 91 % $ 10.8 $ 43.5 $ 306.0
 
Multi-family, Resort & Conference Center & Other
85 South Street 21 95 % $ 0.1 $ 0.4 $
Millennium Waterway Apartments 393 93 % 1.0 4.0 55.6
Other Assets (e) N/A N/A   1.1   4.2  
Total Multi-family, Resort & Conference Center & Other - Stabilized 414 93 % $ 2.2 $ 8.6 $ 55.6
 
Total Commercial Properties - Stabilized $ 20.9 $ 83.3 $ 619.2
 

Commercial Properties - Recently Developed And Not Yet Stabilized

 
Retail
Columbia Regional 88,556 77 % $ 0.2 $ 2.1 $ 22.1
Creekside Village Green 74,581 71 % 0.2 2.2
Downtown Summerlin 818,521 82 % 2.5 37.2 276.4
Hughes Landing Retail 123,000 89 % 0.3 3.5 23.4
Outlet Collection at Riverwalk 248,157 91 %   2.0   7.8   55.5
Total Retail - Not Stabilized 1,352,815 83 % $ 5.2 $ 52.8 $ 377.4
 
Office
Two Hughes Landing 197,714 88 % $ 0.6 $ 5.2 $ 31.3
One Summerlin 206,279 54 %   (0.1)   (f)  
Total Office - Not Stabilized 403,993 71 % $ 0.5 $ 5.2 $ 31.3
 
Multi-family, Resort & Conference Center & Other
One Lake's Edge 390 39 % $ (0.5) $ 6.9 $ 59.2
The Metropolitan Downtown Columbia Project 380 59 % 0.1 3.4 28.1
The Woodlands Resort & Conference Center 406 N/A % 2.6 16.4 83.1
Millennium Woodlands Phase II 314 78 %   0.1   4.0   31.7
Total Multi-family, Resort & Conference Center & Other - Not Stabilized 1,490 57 % $ 2.3 $ 30.7 $ 202.1
 
Total Commercial Properties - Not Stabilized $ 8.0 $ 88.7 $ 610.8
       
($ in millions) Square
Feet/Number
of Units
% Leased (a) Three Months Ended
June 30, 2015

Projected Annual

Stabilized NOI (b)

Debt Balance
June 30, 2015 (c)
 

Under Construction or Renovation

 
Retail
South Street Seaport 362,000 N/A $ (0.4) $ N/A (g) $
Lakeland Village Center 83,339 18 %     1.7  
Total Retail - Not Stabilized 445,339 18 % $ (0.4) $ 1.7 $
 
Office
1725-35 Hughes Landing Boulevard 647,000 74 % $ $ 10.7 (h) $ 72.6
Three Hughes Landing 324,000 0 %     9.1   9.7
Total Office - Not Stabilized 971,000 49 % $ $ 19.8 $ 82.3
 
Multi-family, Resort & Conference Center & Other
Waterway Square Hotel (Westin) 302 N/A $ $ 9.6 $ 11.4
Hughes Landing Hotel (Embassy Suites) 206 N/A     4.1   1.1
Total Multi-family, Resort & Conference Center & Other - Under Construction 508 N/A $ $ 13.7 $ 12.5
 
Total Commercial Properties - Under Construction $ (0.4) $ 35.2 $ 94.8
 

Total Commercial Properties

 
Retail
Stabilized 2,004,337 79 % $ 7.9 $ 31.2 $ 257.6
Not Stabilized 1,352,815 83 % 5.2 52.8 377.4
Under Construction 445,339 18 %   (0.4)   1.7  
Total Retail 3,802,491 73 % $ 12.7 $ 85.7 $ 635.0
 
Office
Stabilized 2,270,774 91 % $ 10.8 $ 43.4 $ 306.0
Not Stabilized 403,993 71 % 0.5 5.2 31.3
Under Construction 324,000 49 %     19.8   82.3
Total Office 2,998,767 84 % $ 11.3 $ 68.4 $ 419.6
 
Multi-family, Resort & Conference Center & Other
Stabilized 414 93 % $ 2.2 $ 8.6 $ 55.6
Not Stabilized 1,490 57 % 2.3 30.7 202.0
Under Construction 508 N/A     13.7   12.5
Total Multi-family, Resort & Conference Center & Other 2,412 65 % $ 4.5 $ 53.0 $ 270.1
           
Total Commercial Properties $ 28.5 $ 207.1 $ 1,324.7
(a)   Percentage leased is as of June 30, 2015 unless a more recent leasing statistic is disclosed in the June 30, 2015 10-Q filing or in this release. Statistic indicates percentage pre-leased for projects under development.
(b) For stabilized properties, Projected Annual Stabilized NOI is computed as follows:

i. Retail, Hotel, Resort & Conference Center and Other NOI represents the last twelve months actual NOI generated by the property.

ii. Office and Multifamily represents the most recent quarter NOI for the property annualized.

For properties not stabilized or under construction, Projected Annual Stabilized NOI is shown based upon the most recent estimates disclosed in our periodic filings and CEO Letter dated March 13, 2015. We do not necessarily update these projections on a regular basis and such projections may vary based upon many factors, more fully described under "Forward Looking Statements" and "Risk Factors" in our Exchange Act filings. There can be no assurance as to when or if these properties will achieve Projected Annual Stabilized NOI.

(c) Represents the outstanding balance of the mortgage debt directly attributable to the asset. The total debt balance excludes corporate and other debt not directly attributable to, or secured by, the properties.
(d) Property is a redevelopment opportunity but is being operated to maximize cash flow "as is" until such time as we begin active redevelopment.
(e) Amount includes our share of our Equity Method Investments NOI. The Metropolitan Downtown Columbia Project and Millennium Woodlands Phase II are disclosed separately within this schedule.
(f) One Summerlin projected annual stabilized NOI is included as part of Downtown Summerlin projected annual stabilized NOI.
(g) Amount not disclosed.
(h) ExxonMobil has pre-leased 478,000 square feet and has an option on the remaining 160,000 square feet. If the option is exercised, projected annual stabilized NOI would increase to approximately $14.5 million.

The Howard Hughes Corporation
Caryn Kboudi, 214-741-7744
caryn.kboudi@howardhughes.com

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