DALLAS, Feb. 27, 2020
/PRNewswire/ -- The Howard Hughes Corporation®
(NYSE: HHC) (the "Company," "HHC" or "we") announced today
operating results for the year and fourth quarter ended
December 31, 2019. The financial
statements, exhibits and reconciliations of non-GAAP measures, as
available through the Investors section of our website, provide
further details of these results.
Full-Year Highlights
- Net income attributable to common stockholders increased to
$74.0 million, or $1.71 per diluted share, for the year ended
December 31, 2019, compared to
$57.0 million, or $1.32 per diluted share, for the year ended
December 31, 2018. This increase is
despite approximately $34.3 million,
or $0.79 per diluted share, of
one-time expenses associated with retention and severance in
connection with management changes and a corporate relocation.
- 20% in total net operating income ("NOI") growth from Operating
Assets for the year ended December 31,
2019, over the prior year when including our share of NOI
from equity investments.
- Experienced best year in the Company's history in MPC segment
with land sales of $330.1 million and
26.9% growth in MPC earnings before tax ("EBT") to $257.6 million driven by a record number of acres
sold and price per acre.
- Significant progress on announced Transformation Plan
highlighted by:
-
- Executed sales of three non-core assets, Cottonwood Mall, West
Windsor and Bridges at Mint Hill, for a total of $95.5 million and recorded a $22.4 million net gain on sale of real estate and
other assets.
- Executed largest acquisition in Company history which included
two Class AAA office towers with a combined 1.4 million square
feet, a 125,801 square foot warehouse space and 9.3 acres of land
in The Woodlands, TX, reinforcing
our commitment to reinvest in our core MPCs.
- Meaningful progress reducing run-rate General and
administrative expenses that will materialize throughout 2020.
- Commenced construction on $154.1
million of multi-family, retail and office properties which,
at stabilization, are expected to contribute $14.3 million to our projected annual stabilized
NOI.
- In Ward Village, Hawaii, we broke ground on Kō'ula, which is
74.3% pre-sold, contracted to sell 467 condominium units during the
year and, subsequent to year-end, launched public pre-sales of our
newest project, Victoria Place,
where as of February 21, 2020, we
have executed contracts for 185 condominium units, or 53.0% of
total units.
- Increased Seaport District segment revenues by $23.0 million to $55.6
million as of December 31,
2019, compared to the prior year period due to increases in
both our existing businesses and new business openings such as The
Fulton and Malibu Farm, as well as sponsorship and summer
concert series revenue.
Highlights of our results for the years and three months ended
December 31, 2019 and 2018 are
summarized below. We are primarily focused on creating shareholder
value by increasing our per-share net asset value. Often, the
nature of our business results in short-term volatility in our Net
income due to the timing of MPC land sales, recognition of
condominium revenue and operating business pre-opening expenses,
and, as such, we believe the following metrics are most useful in
tracking our progress towards net asset value creation.
|
|
Year Ended
December 31,
|
|
|
|
|
|
Three Months
Ended
December 31,
|
|
|
|
|
($ in
thousands)
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
Operating Assets
NOI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
85,773
|
|
|
$
|
67,530
|
|
|
$
|
18,243
|
|
|
27
|
%
|
|
$
|
22,692
|
|
|
$
|
17,394
|
|
|
$
|
5,298
|
|
|
30
|
%
|
Retail
|
|
62,568
|
|
|
63,846
|
|
|
(1,278)
|
|
|
(2)
|
%
|
|
14,612
|
|
|
15,290
|
|
|
(678)
|
|
|
(4)
|
%
|
Multi-family
|
|
18,062
|
|
|
15,206
|
|
|
2,856
|
|
|
19
|
%
|
|
4,336
|
|
|
4,021
|
|
|
315
|
|
|
8
|
%
|
Hospitality
|
|
28,843
|
|
|
25,371
|
|
|
3,472
|
|
|
14
|
%
|
|
5,424
|
|
|
4,935
|
|
|
489
|
|
|
10
|
%
|
Other
|
|
10,374
|
|
|
146
|
|
|
10,228
|
|
|
7,005
|
%
|
|
(788)
|
|
|
1,493
|
|
|
(2,281)
|
|
|
(153)
|
%
|
Company's share NOI
(a)
|
|
10,943
|
|
|
8,096
|
|
|
2,847
|
|
|
35
|
%
|
|
2,123
|
|
|
1,952
|
|
|
171
|
|
|
9
|
%
|
Total Operating
Assets NOI (b)
|
|
$
|
216,563
|
|
|
$
|
180,195
|
|
|
$
|
36,368
|
|
|
20
|
%
|
|
$
|
48,399
|
|
|
$
|
45,085
|
|
|
$
|
3,314
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected stabilized
NOI Operating
Assets ($ in millions)
|
|
$
|
367.3
|
|
|
$
|
315.9
|
|
|
$
|
51.4
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres Sold -
Residential
|
|
571
|
|
|
456
|
|
|
115
|
|
|
25
|
%
|
|
234
|
|
|
72
|
|
|
162
|
|
|
225
|
%
|
Acres Sold -
Commercial
|
|
—
|
|
|
10
|
|
|
(10)
|
|
|
(100)
|
%
|
|
—
|
|
|
6
|
|
|
(6)
|
|
|
(100)
|
%
|
Price Per Acre -
Residential
|
|
$
|
571
|
|
|
$
|
515
|
|
|
$
|
56
|
|
|
11
|
%
|
|
$
|
610
|
|
|
$
|
418
|
|
|
$
|
192
|
|
|
46
|
%
|
Price Per Acre -
Commercial
|
|
$
|
—
|
|
|
$
|
517
|
|
|
$
|
(517)
|
|
|
(100)
|
%
|
|
$
|
—
|
|
|
$
|
399
|
|
|
$
|
(399)
|
|
|
(100)
|
%
|
MPC
EBT
|
|
$
|
257,586
|
|
|
$
|
202,955
|
|
|
$
|
54,631
|
|
|
27
|
%
|
|
$
|
112,117
|
|
|
$
|
30,617
|
|
|
$
|
81,500
|
|
|
266
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seaport District
NOI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historic District
& Pier 17 -
Landlord
|
|
$
|
(8,147)
|
|
|
$
|
(2,039)
|
|
|
$
|
(6,108)
|
|
|
(300)
|
%
|
|
$
|
(2,991)
|
|
|
$
|
707
|
|
|
$
|
(3,698)
|
|
|
523
|
%
|
Multi-Family
|
|
394
|
|
|
553
|
|
|
(159)
|
|
|
(29)
|
%
|
|
91
|
|
|
190
|
|
|
(99)
|
|
|
(52)
|
%
|
Hospitality
|
|
41
|
|
|
143
|
|
|
(102)
|
|
|
(71)
|
%
|
|
—
|
|
|
73
|
|
|
(73)
|
|
|
(100)
|
%
|
Historic District
& Pier 17 -
Managed Businesses
|
|
(7,172)
|
|
|
(4,985)
|
|
|
(2,187)
|
|
|
(44)
|
%
|
|
(2,752)
|
|
|
(4,457)
|
|
|
1,705
|
|
|
38
|
%
|
Events, Sponsorships
& Catering
Business
|
|
(136)
|
|
|
850
|
|
|
(986)
|
|
|
(116)
|
%
|
|
400
|
|
|
(28)
|
|
|
428
|
|
|
(1,529)
|
%
|
Company's share NOI
(a)
|
|
(710)
|
|
|
(713)
|
|
|
3
|
|
|
—
|
%
|
|
(325)
|
|
|
(134)
|
|
|
(191)
|
|
|
(143)
|
%
|
Total Seaport
District NOI
|
|
$
|
(15,730)
|
|
|
$
|
(6,191)
|
|
|
$
|
(9,539)
|
|
|
154
|
%
|
|
$
|
(5,577)
|
|
|
$
|
(3,649)
|
|
|
$
|
(1,928)
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
Developments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominium units
contracted to
sell (c)
|
|
108
|
|
|
103
|
|
|
5
|
|
|
5
|
%
|
|
26
|
|
|
54
|
|
|
(28)
|
|
|
(52)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes
Company's share of NOI from non-consolidated assets
|
(b) Excludes
properties sold or in redevelopment
|
(c) Includes
units at our buildings that are open or under construction as of
December 31, 2019
|
"Our final quarter of 2019 was marked by significant progress on
our transformation plan commitments to sell non-core properties and
to focus resources into the growth of our core MPC business. Our
acquisition of The Woodlands Towers at The Waterway increases
our office portfolio within the award-winning The Woodlands
MPC by approximately 50% and reinforces our standing as the
community's steward and largest stakeholder. Overall, our MPCs
continue to rank among the top-selling communities in the country
with Summerlin and Bridgeland again being ranked by RCLCO as
the third and 12th highest selling master
planned communities in the nation for 2019. Home sales, a leading
indicator of future land purchases by home builders, are
up 15% for the year across all our MPCs, and we had
a 25% increase in residential acres sold this year over
2018 across our MPC segment.
"Further, we have made meaningful progress towards our goal of
having rental NOI comfortably cover interest expense and
steady-state corporate costs by realizing 20% growth in Operating
Assets NOI over 2018 and making substantial progress in the
reduction in our run rate general and administrative costs that
will be realized throughout 2020.
"In Honolulu, we continued our momentum at Ward Village by delivering Ke Kilohana and
beginning construction on Kō'ula, which was 74% pre-sold at year
end. Demand to live in our community remains high as evidenced by
sales at Kō'ula, and in January
2020, we began public pre-sales on Victoria Place, our
seventh condominium project, which as of February 21st is already 53.0% presold.
"In New York, we continue to make substantial progress in
accomplishing our vision for the Seaport District and have
celebrated the openings of multiple retail and restaurant
attractions throughout the year, including the critically acclaimed
The Fulton, by Jean Georges. We remain confident in our vision
for the Seaport District and the lasting impact it will make for
years to come," said Paul H. Layne,
Chief Executive Officer.
Financial Results
Net income attributable to common
stockholders increased to $74.0 million,
or $1.71 per diluted share, and decreased to $(1.1) million, or $(0.03) per diluted share, for the year and three
months ended December 31, 2019,
respectively, compared to $57.0
million, or $1.32 per diluted
share, and $37.3 million, or
$0.86 per diluted share, for the year
and three months ended December 31,
2018, respectively. The increase for the year ended
December 31, 2019, is primarily
attributable to higher MPC land sales; the increase in
the Gain (loss) on sale or disposal of real estate and other
assets, net due to the sales of non-core assets; higher
Minimum rental and Selling profit from sales-type leases revenues
in the Operating Assets segment and higher Other rental and
property revenues in the Operating Assets and Seaport District
segments. These increases are partially offset by higher operating
expenses at all four segments; higher Interest expense at the
Seaport District due to interest incurred on the 250 Water Street
and Seaport District debt facilities and higher Depreciation
and amortization expense as a result of properties being
placed into service. The higher operating expenses at the Seaport
District are primarily due to start-up costs associated with
opening new businesses. The decrease in Net income attributable to
common stockholders for the three months ended December 31, 2019, compared to the same period in
2018, is due to lower Condominium rights and units sales, net of
costs due to the timing of closings and an increase in General and
administrative expenses due to corporate restructuring costs and
consulting fees for technology and data integration projects. The
decrease was partially offset by higher Master Planned Communities
land sales.
Key factors impacting our Funds from operations ("FFO"), Core
funds from operations ("Core FFO") and Adjusted FFO ("AFFO") are
discussed below.
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
December 31,
|
(In thousands, except per share amounts)
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
Net income
attributable to common stockholders
|
|
$
|
73,956
|
|
|
$
|
57,012
|
|
|
|
$
|
(1,100)
|
|
|
$
|
37,261
|
|
Basic income per
share:
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
|
|
$
|
(0.03)
|
|
|
$
|
0.87
|
|
Diluted income per
share:
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
|
|
$
|
(0.03)
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
Funds from
operations
|
|
$
|
198,183
|
|
|
$
|
179,718
|
|
|
|
$
|
39,307
|
|
|
$
|
74,606
|
|
FFO per
weighted-average diluted share
|
|
$
|
4.58
|
|
|
$
|
4.16
|
|
|
|
$
|
0.91
|
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
Core FFO
|
|
$
|
293,390
|
|
|
$
|
248,239
|
|
|
|
$
|
82,089
|
|
|
$
|
99,392
|
|
Core FFO per
weighted-average diluted share
|
|
$
|
6.77
|
|
|
$
|
5.74
|
|
|
|
$
|
1.90
|
|
|
$
|
2.30
|
|
|
|
|
|
|
|
|
|
|
|
AFFO
|
|
$
|
283,961
|
|
|
$
|
230,372
|
|
|
|
$
|
79,250
|
|
|
$
|
93,903
|
|
AFFO per
weighted-average diluted share
|
|
$
|
6.56
|
|
|
$
|
5.33
|
|
|
|
$
|
1.84
|
|
|
$
|
2.17
|
|
FFO increased $18.5 million, or
$0.42 per diluted share, for the year
ended December 31, 2019, and
decreased $35.3 million, or
$0.81 per diluted share, for the
three months ended December 31, 2019,
compared to the same periods in 2018. The changes between periods
are primarily attributable to the factors impacting net income
discussed above.
Core FFO, our FFO adjusted to exclude the impact of certain
non-cash and/or nonrecurring income and expense items, increased
$45.2 million, or $1.03 per diluted share, for the year ended
December 31, 2019, and decreased
$17.3 million, or $0.40 per diluted share, for the three months
ended December 31, 2019, compared to
the same periods in 2018. Core FFO reflects the results of our core
operations during these periods, as it is adjusted to exclude
one-time costs such as Severance expense and Share-based
compensation expense, both of which negatively impacted net income
in 2019.
AFFO, our Core FFO adjusted to exclude recurring capital
improvements and leasing commissions, increased $53.6 million, or $1.23 per diluted share, for the year ended
December 31, 2019, and decreased
$14.7 million, or $0.33 per diluted share, for the three months
ended December 31, 2019, compared to
the same periods in 2018, primarily due to the items mentioned in
the FFO and Core FFO discussions above. Both periods were also
impacted by lower tenant and capital improvements. Please reference
FFO, Core FFO and AFFO as defined and reconciled to the closest
GAAP measure in the Appendix to this release and the reasons why we
believe these non-GAAP measures are meaningful to investors and a
better indication of our overall performance.
Business Segment Operating Results
Operating Assets
In our Operating Assets segment, we increased NOI, including our
share of NOI from equity investees and excluding properties sold or
in redevelopment, by $36.4 million,
or 20.2%, to $216.6 million in the
year ended December 31, 2019, and by
$3.3 million, or 7.4%, to
$48.4 million in the three months
ended December 31, 2019, compared to
the same periods in 2018. The increases in NOI for the year and
three months ended December 31, 2019,
are primarily driven by increases of $18.2
million and $5.3 million in
our office properties and $3.5
million and $0.5 million in
our hospitality properties. The increases in our office and
hospitality properties for the year and three months ended
December 31, 2019, are mainly the
result of increased occupancy as well as NOI generated from assets
placed into service in 2019 and late 2018. Our other properties
category also contributed $10.2
million to the increase in NOI for the year ended
December 31, 2019, due to placing the
Las Vegas Ballpark, the home of our Triple-A baseball team the Las
Vegas Aviators, into service in March
2019. The increase in the three months ended December 31, 2019, compared to the same periods
in 2018 was partially offset by a decrease of $2.3 million in our other properties category
which is primarily attributable to ending the baseball season,
leading to reduced ticket and concession revenue, while continuing
to incur recurring operating expenses such as salaries and benefits
which were not incurred in the prior year since the Las Vegas
Ballpark was not yet placed in service.
Master Planned Communities
Our MPC segment revenues fluctuate each quarter given the nature
of development and sale of land in these large-scale, long-term
communities. As a result of this fluctuation, we believe full-year
results are a better measurement of performance than quarterly
results. During the year and three months ended December 31, 2019, our MPC segment EBT was
$257.6 million and $112.1 million compared to $203.0 million and $30.6
million during the same periods in 2018, increases of 26.9%
and 266.2%, respectively. The primary drivers of these changes are
discussed below.
The $54.6 million increase in EBT
for the year ended December 31, 2019,
compared to the prior year period, was primarily attributable to an
increase in superpad sales at Summerlin as well as increased
single-family lot sales at Bridgeland, The Woodlands and The Woodlands Hills.
Summerlin's superpad sales totaled 316 acres for the year ended
December 31, 2019, compared to 241
acres in the prior year. Summerlin's superpads achieved a
$648,000 price per acre for the year
ended December 31, 2019, with the
custom lots yielding $1,701,000 per
acre, compared to $566,000 in the
prior year period. Bridgeland's single-family lot sales
totaled 773 for the year ended December 31,
2019, an increase of 24.7% over the prior year, and it
achieved a $408,000 price per acre,
compared to $385,000 in the prior
year. Single-family lot sales at The
Woodlands totaled 171 for the year ended December 31, 2019, compared to 146 for the same
period in the prior year. Single-family price per acre at
The Woodlands increased 11.5% to
$689,000 for the year ended
December 31, 2019, compared to the
prior year period. Land sales revenues at The Woodlands Hills
increased $2.2 million, or 24.9%, for
the year ended December 31, 2019, compared to 2018.
Residential acres sold increased to 40.2 acres in 2019 from 32.4
acres sold in 2018.
The $81.5 million increase in EBT
for the three months ended December 31,
2019, compared to the prior year period was primarily driven
by increased superpad sales at Summerlin and increased residential
land sales at The Woodlands,
partially offset by lower residential land sales at Bridgeland.
Land sales revenues at Summerlin increased to $120.8 million, or 176.3 residential acres,
compared $2.8 million, or 0.7
residential acres, in the prior year period. While The Woodlands sold fewer acres in the fourth
quarter of 2019 compared to the prior year, the overall increase in
land sales revenues was driven by a $985,000 residential price per acre for the three
months ended December 31, 2019, an
increase of $478,000 per acre from the prior year period
primarily due to product mix and continuing demand. While
Bridgeland also increased its residential price per acre by
$46,000 per acre, or 12%, over the
prior year period, the decrease in land sales revenues at
Bridgeland was driven by fewer lots sold for the three months ended
December 31, 2019, compared to the
prior year period. Land sales revenues at The Woodlands Hills
increased $0.5 million
due to a higher quantity and change in
the mix of lots sold for the three months ended
December 31, 2019, compared to the
prior year period. However, EBT at The Woodlands Hills decreased
primarily due to lower Other land sales revenues due to funds
received for a construction easement in 2018 that did not recur in
2019 and higher operating expenses.
Although they do not directly impact our results of operations,
we believe ongoing strong underlying home sales will continue to
drive demand for land in our MPCs. The rate of home sales at The
Woodlands Hills, which commenced sales in the second quarter of
2018, increased 245.7% and 1,750.0% for the year and three months
ended December 31, 2019,
respectively, over the prior year periods. Bridgeland's home sales
increased 49.3% and 70.7% for the year and three months ended
December 31, 2019, respectively, over
the prior year periods. We believe that the acceleration at both
The Woodlands Hills and Bridgeland speak to their respective
maturation as master planned communities as well as their
thoughtful approach to conservation, recreation and transportation.
While home sales decreased 7.0% and 17.9% in The Woodlands for the year and three months
ended December 31, 2019,
respectively, compared to the prior periods, home sales at
Summerlin have increased 1.3% and 31.7% for the year and three
months ended December 31, 2019,
compared to the prior year period, evidencing continued
strength.
Our MPCs have won numerous awards for design excellence and for
community contribution. Summerlin and Bridgeland were again ranked
by RCLCO,
capturing third and 12th highest-selling master
planned communities in the nation, respectively, for the year ended
December 31, 2019. Summerlin was also
recognized as "Master Planned Community of the Year" from the
National Association of Homebuilders for 2019. The following
summarizes home sales in our MPCs during the year and three months
ended December 31, 2019.
|
Net New Home
Sales
|
|
Year Ended
December
31,
|
|
|
|
|
|
Three Months
Ended
December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
The
Woodlands
|
319
|
|
|
343
|
|
|
(24)
|
|
|
(7.0)
|
%
|
|
64
|
|
|
78
|
|
|
(14)
|
|
|
(17.9)
|
%
|
The Woodlands
Hills
|
121
|
|
|
35
|
|
|
86
|
|
|
245.7
|
%
|
|
37
|
|
|
2
|
|
|
35
|
|
|
1,750.0
|
%
|
Bridgeland
|
739
|
|
|
495
|
|
|
244
|
|
|
49.3
|
%
|
|
198
|
|
|
116
|
|
|
82
|
|
|
70.7
|
%
|
Summerlin
|
1,292
|
|
|
1,276
|
|
|
16
|
|
|
1.3
|
%
|
|
303
|
|
|
230
|
|
|
73
|
|
|
31.7
|
%
|
Total
|
2,471
|
|
|
2,149
|
|
|
322
|
|
|
15.0
|
%
|
|
602
|
|
|
426
|
|
|
176
|
|
|
41.3
|
%
|
The Seaport District
In the Seaport District, we celebrated the openings of Seaport
News, Fellow Barber, the catering kitchen that will service Pier
17, The Fulton by Jean-Georges,
Garden Bar, Bar Wayō, Malibu Farm
and The Lookout on Pier 17. We also sold out 30 concerts for the
2019 Summer Concert Series on The Rooftop at Pier 17®.
In the fourth quarter, we opened Pier 17 Winterland for the second
year in a row. Attendance and sales for Winterland skating were up
approximately 68% and 137%, respectively, from the prior year. The
increase in foot traffic and accompanying increase in revenue, as
discussed in more detail below, demonstrates that the Seaport
District is becoming recognized as a new culinary and entertainment
destination in lower Manhattan.
Seaport District segment revenues increased by $23.0 million to $55.6
million and $2.6 million to
$12.6 million for the year and three
months ended December 31, 2019,
respectively, compared to the same periods in 2018. The increases
are due to both our existing businesses as well as new business
openings. The increase in the twelve-month period was driven by
Cobble & Co., Garden Bar, 10 Corso Como Retail and Café, The
Fulton, the summer concert series
and sponsorships. The increase in the three-month period was driven
by The Fulton, Malibu Farm, Winterland and our catering
businesses.
In the Seaport District segment, NOI, including our share of NOI
from equity investees, decreased by $9.5
million to a net operating loss of $15.7 million and decreased by $1.9 million to a net operating loss of
$5.6 million for the year and three
months ended December 31, 2019,
respectively, compared to the same periods in 2018. The decrease in
NOI in the year-end period was driven by continued investment in
the development of the Seaport District, particularly as it relates
to funding start-up costs related to the retail, food and beverage
and other operating businesses. Decreases of $6.1 million, $2.2
million and $1.0
million, in landlord operations, managed businesses,
and events and sponsorships, respectively, compared to the prior
year period were primary contributors to the decrease in NOI for
the year ended December 31, 2019. The
decrease for the three-month period compared to the prior year
period was primarily attributable to a decrease of $3.7 million in landlord operations, partially
offset by an increase of $1.7 million
in our managed businesses for the three months ended December 31, 2019. Our landlord operations
business represents physical real estate developed, owned and
leased to third parties by HHC. We expect to continue to incur
operating expenses in excess of rental revenues while the remaining
available space is in lease-up. Our managed businesses include
retail and food and beverage entities that we operate and own,
either directly, through license agreements or in joint ventures.
Our event and sponsorship businesses include our concert series;
Winterland skating and bar; event catering; private events; and
sponsorships from 11 partners. We expect to incur operating losses
for our event and sponsorship, landlord operations and managed
business entities until the Seaport District reaches its critical
mass of offerings.
The Seaport District is part non-stabilized operating asset,
part development project and part operating business. As such, the
Seaport District has a greater range of possible outcomes than our
other projects. The greater uncertainty is largely the result of
(i) business operating risks, (ii) seasonality, (iii) potential
sponsorship revenue and (iv) event revenue. We operate and own,
either directly, through license agreements or in joint ventures,
many of the tenants in the Seaport District, including retail
stores such as 10 Corso Como and SJP by Sarah Jessica Parker and restaurants such as The
Fulton by Jean-Georges, Bar Wayō,
Malibu Farm, two concepts by
Andrew Carmellini, R17 and the food
hall operated by Jean-Georges. As a result, the revenues and
expenses of these businesses, as well as the underlying market
conditions affecting these types of businesses, will directly
impact the NOI of the Seaport District. This is in contrast to our
other retail properties where we primarily receive lease payments
and are not as directly impacted by the operating performance of
the underlying businesses. This causes the quarterly results and
eventual stabilized yield of the Seaport District to be less
predictable than our other operating real estate assets with
traditional lease structures. Further, as we open new operating
businesses, either owned entirely or in joint venture, we expect to
incur pre-opening expenses and operating losses until those
businesses stabilize, which likely will not happen until the
Seaport District reaches its critical mass of offerings. We expect
the time to stabilize the Seaport District will be primarily driven
by the construction, interior finish work and stabilization to
occur at the Jean-Georges food hall in the Tin Building.
Construction is expected to be substantially complete in early 2021
with an expected opening by summer 2021, assuming that we receive
the necessary approvals timely. We expect stabilization to occur
approximately 12 to 18 months after opening. Given the factors and
uncertainties listed above combined with our operating experience
during this past summer as we opened multiple new venues, we will
no longer provide guidance on our expected NOI yield and
stabilization date for the Seaport District for the next several
quarters. We will continue all other aspects of our disclosure for
the Seaport District segment including revenues, expenses, NOI and
EBITDA. As we move closer to opening a critical mass of offerings
at the Seaport District, we will re-establish goals for yield on
costs and stabilization dates when the uncertainties and range of
possible outcomes are more clear.
Strategic Developments
In our Strategic Developments segment, we experienced another
strong year, including robust sales of condominium units at
Ward Village. Strong sales
momentum continued at 'A'ali'i and Kō'ula, which are 83.5% and
74.3% pre-sold, respectively, as of December 31, 2019. We
launched public sales of our newest project, Kō'ula, in
January 2019 and broke ground in
July 2019. Kō'ula was 75.4% presold
as of February 21, 2020. Our most recent sales continue to
support our ability to maintain a 30% blended profit margin,
excluding land, across Ward
Village. Given the strong sales momentum at 'A'ali'i and
Kō'ula, which we expect to complete in 2021 and 2022, respectively,
along with Ward Village's
reputation and scale, we launched public pre-sales of Victoria
Place, our newest 349-unit mixed-use condominium project in
January 2020. As of February 21,
2020, have entered into contracts for 185 units, or 53.0%, of
Victoria Place's total units.
For the year and three months ended December 31, 2019, we reported revenues of
$448.9 million and $5.0 million, respectively, from Condominium
rights and unit sales for homes that actually closed escrow at our
four delivered buildings (Waiea, Anaha, Ae'o and Ke Kilohana) in
Ward Village compared to
$357.7 million and $318.0 million for the prior year periods,
respectively. The cause of the increase in revenue in the
twelve-month period compared to prior year is increased closings.
The decrease for the three months ended December 31, 2019, is
due to $309.0 million of condominium
revenue due to closings at Ae'o in 2018 which did not recur in the
current period. Condominium revenue is recognized when
construction of the condominium tower is complete and unit sales
close, leading to greater variability in revenue recognized between
periods. We closed on 596 condominium units during the year ended
December 31, 2019, compared to 315
during the prior year period. With approximately 90% of our homes
sold across our six towers that are either delivered or under
construction, we feel that we have found the combination of product
and price that resonate in the market. Further, these sales
continue to demonstrate the desirability of our community and the
high-quality product that we are developing in Honolulu. As noted above, the current
increased pace of pre-sales gives us the opportunity to modestly
accelerate the pace under which we launch new towers.
We also increased our projected annual stabilized NOI target by
$51.4 million from $315.9 million at December 31, 2018, to
$367.3 million at December 31,
2019, excluding the redevelopment of the Seaport District. This
increase is primarily attributable to the acquisitions of The
Woodlands Towers at the Waterway and The Woodlands Warehouse as
well as the commencement of construction of 8770 New Trails,
Millennium Phase III Apartments, Creekside Park Apartments Phase II
and Merriweather District Area 3 Standalone Restaurant.
Segment EBT increased $3.2 million
for the year ended December 31, 2019,
primarily due to the net gain recognized for the sales of
Cottonwood Mall, West Windsor and
Bridges at Mint Hill, partially offset by lower Condominium rights
and unit sales, net of costs, primarily due to the lower profit
margin at Ke Kilohana, which is in line with our expectation given
the concentration of workforce housing units in this tower. Segment
EBT decreased $95.3 million for the
three months ended December 31, 2019,
compared to the same period in 2018, primarily due to a decrease in
the Condominium rights and unit sales, net of costs, due to 2018
closings at Ae'o that did not recur in 2019.
Balance Sheet Fourth-Quarter Activity and Subsequent
Events
On January 7, 2020, we closed on a $43.4 million construction loan for the
development of Creekside Park Apartments Phase II. The loan bears
interest at one-month London Interbank Offered Rate ("LIBOR") plus
1.75% with an initial maturity date of January 7, 2024 and a
one-year extension option.
On December 30, 2019, we closed on a $343.8 million bridge loan for the acquisitions
of The Woodlands Towers at the Waterway and The Woodlands
Warehouse. The loan bears interest at one-month LIBOR plus 1.95%
with a maturity of June 30, 2020. We are currently documenting
long-term mortgage financing and anticipate closing in the first
quarter of 2020.
On December 5, 2019, we modified and extended the
$61.2 million loan for Three Hughes
Landing. The loan bears interest at one-month LIBOR plus 2.60% and
the extended maturity date is now March 5, 2020, at which
point we anticipate Three Hughes Landing will be added to the
Senior Secured Credit Facility.
On November 19, 2019, we closed on a $100.0 million note payable for 250 Water Street.
The note bears interest at one-month LIBOR plus 3.50% with an
initial maturity date of November 18, 2022 and a one-year
extension option. We extinguished the previous note on the
property at a $4.9 million discount
in the fourth quarter of 2019.
On October 24, 2019, we modified and extended the
$47.9 million loan for Outlet
Collection at Riverwalk. The total commitment was reduced to
$30.9 million, including the required
paydown of $15.0 million. The loan
bears interest at one-month LIBOR plus 2.50% and matures
October 24, 2021.
On October 17, 2019, we closed on a $250.0 million credit facility secured by land
and certain other collateral in The
Woodlands and Bridgeland MPCs. The loan bears interest at
one-month LIBOR plus 2.50% with an initial maturity of October 17, 2022 and two one-year extension
options. The new loan refinanced The Woodlands Master Credit
Facility and Bridgeland Credit Facility with a combined principal
balance of $215.0 million and a
weighted-average interest rate of one-month LIBOR plus 2.87%.
As of December 31, 2019, our total consolidated debt
equaled approximately 48.7% of our total assets and our leverage
ratio (debt to enterprise value, as defined in the Supplemental
Information) was 44.2%. We believe our low leverage, with a focus
on project-specific financing, reduces our exposure to potential
downturns and provides us with the ability to evaluate new
opportunities. As of December 31, 2019, we had $422.9 million of cash and cash equivalents.
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; 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 28th
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.
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. In addition, our management may
make forward-looking statements orally to analysts, investors,
creditors, the media and others. Forward-looking statements
include:
- announcement of certain changes, which we refer to as our
"Transformation Plan", including new executive leadership,
reduction in our overhead expenses, the proposed sale of our
non-core assets and accelerated growth in our core MPC assets;
- expected performance of our stabilized, income-producing
properties and the performance and stabilization timing of
properties that we have recently placed into service or are under
construction;
- capital required for our operations and development
opportunities for the properties in our Operating Assets, Seaport
District and Strategic Developments segments;
- expected commencement and completion for property developments
and timing of sales or rentals of certain properties;
- expected performance of our MPC segment;
- forecasts of our future economic performance; and
- future liquidity, finance opportunities, development
opportunities, development spending and management plans.
These statements involve known and unknown risks, uncertainties
and other factors that may have a material impact on any future
results, performance and achievements expressed or implied by such
forward-looking statements. These risk factors are described in our
Annual Report on Form 10-K, which has been filed with the
Securities and Exchange Commission on February 27, 2020. Any
factor could, by itself, or together with one or more other
factors, adversely affect our business, results of operations or
financial condition. There may be other factors currently unknown
to us that we have not described in our Annual Report 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. Management
continually evaluates the usefulness, relevance, limitations and
calculation of the Company's reported non-GAAP performance measures
to determine how best to provide relevant information to the
public, and thus such reported measures could change. The non-GAAP
financial measures used throughout this release are Net operating
income, Funds from operations, Core funds from operations, and
Adjusted funds from operations. We provide a more detailed
discussion about these non-GAAP measures in our reconciliation of
non-GAAP measures provided in this earnings release.
THE HOWARD HUGHES
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
UNAUDITED
|
|
|
|
Year Ended
December 31,
|
|
Three Months Ended
December 31,
|
(In thousands, except per share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
|
|
|
Condominium rights
and unit sales
|
|
$
|
448,940
|
|
|
$
|
357,720
|
|
|
$
|
5,009
|
|
|
$
|
317,953
|
|
Master Planned
Communities land sales
|
|
330,146
|
|
|
261,905
|
|
|
153,145
|
|
|
35,178
|
|
Minimum
rents
|
|
221,907
|
|
|
207,315
|
|
|
57,551
|
|
|
54,159
|
|
Tenant
recoveries
|
|
54,710
|
|
|
49,993
|
|
|
13,986
|
|
|
12,185
|
|
Hospitality
revenues
|
|
87,864
|
|
|
82,037
|
|
|
19,328
|
|
|
17,299
|
|
Builder price
participation
|
|
35,681
|
|
|
27,085
|
|
|
11,457
|
|
|
7,691
|
|
Other land
revenues
|
|
23,399
|
|
|
21,314
|
|
|
6,753
|
|
|
5,326
|
|
Other rental and
property revenues
|
|
95,703
|
|
|
57,168
|
|
|
15,831
|
|
|
14,902
|
|
Interest income from
sales-type leases
|
|
2,189
|
|
|
—
|
|
|
1,101
|
|
|
—
|
|
Total
revenues
|
|
1,300,539
|
|
|
1,064,537
|
|
|
284,161
|
|
|
464,693
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Condominium rights
and unit cost of sales
|
|
369,759
|
|
|
262,562
|
|
|
4,435
|
|
|
220,849
|
|
Master Planned
Communities cost of sales
|
|
141,852
|
|
|
124,214
|
|
|
63,724
|
|
|
14,605
|
|
Master Planned
Communities operations
|
|
47,875
|
|
|
45,217
|
|
|
11,927
|
|
|
11,261
|
|
Other property
operating costs
|
|
175,230
|
|
|
133,761
|
|
|
43,422
|
|
|
41,914
|
|
Rental property real
estate taxes
|
|
36,861
|
|
|
32,183
|
|
|
8,276
|
|
|
8,035
|
|
Rental property
maintenance costs
|
|
17,410
|
|
|
15,813
|
|
|
5,548
|
|
|
4,209
|
|
Hospitality operating
costs
|
|
60,226
|
|
|
59,195
|
|
|
13,916
|
|
|
13,488
|
|
(Recovery of)
provision for doubtful accounts
|
|
(414)
|
|
|
6,078
|
|
|
(219)
|
|
|
1,661
|
|
Demolition
costs
|
|
855
|
|
|
17,329
|
|
|
118
|
|
|
1,163
|
|
Development-related
marketing costs
|
|
23,067
|
|
|
29,249
|
|
|
6,193
|
|
|
8,765
|
|
General and
administrative
|
|
156,251
|
|
|
104,625
|
|
|
68,328
|
|
|
32,830
|
|
Depreciation and
amortization
|
|
155,798
|
|
|
126,565
|
|
|
40,656
|
|
|
38,167
|
|
Total
expenses
|
|
1,184,770
|
|
|
956,791
|
|
|
266,324
|
|
|
396,947
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Gain (loss) on sale
or disposal of real estate and other
assets, net
|
|
22,362
|
|
|
(4)
|
|
|
(1,689)
|
|
|
(4)
|
|
Other income (loss),
net
|
|
12,179
|
|
|
(936)
|
|
|
381
|
|
|
2,508
|
|
Total
other
|
|
34,541
|
|
|
(940)
|
|
|
(1,308)
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
150,310
|
|
|
106,806
|
|
|
16,529
|
|
|
70,250
|
|
|
|
|
|
|
|
|
|
|
Selling (loss) profit
from sales-type leases
|
|
13,537
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest
income
|
|
9,797
|
|
|
8,486
|
|
|
2,101
|
|
|
1,727
|
|
Interest
expense
|
|
(105,374)
|
|
|
(82,028)
|
|
|
(29,016)
|
|
|
(24,846)
|
|
Gain on
extinguishment of debt
|
|
4,641
|
|
|
—
|
|
|
4,641
|
|
|
—
|
|
Equity in earnings
from real estate and other affiliates
|
|
30,629
|
|
|
39,954
|
|
|
9,782
|
|
|
657
|
|
Income before
taxes
|
|
103,540
|
|
|
73,218
|
|
|
4,037
|
|
|
47,788
|
|
Provision (benefit)
for income taxes
|
|
29,245
|
|
|
15,492
|
|
|
5,038
|
|
|
9,864
|
|
Net income
|
|
74,295
|
|
|
57,726
|
|
|
(1,001)
|
|
|
37,924
|
|
Net income
attributable to noncontrolling interests
|
|
(339)
|
|
|
(714)
|
|
|
(99)
|
|
|
(663)
|
|
Net income
attributable to common stockholders
|
|
$
|
73,956
|
|
|
$
|
57,012
|
|
|
$
|
(1,100)
|
|
|
$
|
37,261
|
|
|
|
|
|
|
|
|
|
|
Basic income per
share:
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
|
$
|
(0.03)
|
|
|
$
|
0.87
|
|
Diluted income per
share:
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
|
$
|
(0.03)
|
|
|
$
|
0.86
|
|
THE HOWARD HUGHES
CORPORATION
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
UNAUDITED
|
|
|
|
December
31,
|
(In thousands, except par values
and share amounts)
|
|
2019
|
|
2018
|
Assets:
|
|
|
|
|
Investment in real
estate:
|
|
|
|
|
Master Planned
Communities assets
|
|
$
|
1,655,674
|
|
|
$
|
1,642,660
|
|
Buildings and
equipment
|
|
3,813,595
|
|
|
2,932,963
|
|
Less: accumulated
depreciation
|
|
(507,933)
|
|
|
(380,892)
|
|
Land
|
|
353,022
|
|
|
297,596
|
|
Developments
|
|
1,445,997
|
|
|
1,290,068
|
|
Net property and
equipment
|
|
6,760,355
|
|
|
5,782,395
|
|
Investment in real
estate and other affiliates
|
|
121,757
|
|
|
102,287
|
|
Net investment in real
estate
|
|
6,882,112
|
|
|
5,884,682
|
|
Net investment in
lease receivable
|
|
79,166
|
|
|
—
|
|
Cash and cash
equivalents
|
|
422,857
|
|
|
499,676
|
|
Restricted
cash
|
|
197,278
|
|
|
224,539
|
|
Accounts receivable,
net
|
|
12,279
|
|
|
12,589
|
|
Municipal Utility
District receivables, net
|
|
280,742
|
|
|
222,269
|
|
Notes receivable,
net
|
|
36,379
|
|
|
4,694
|
|
Deferred expenses,
net
|
|
133,182
|
|
|
95,714
|
|
Operating lease
right-of-use assets, net
|
|
69,398
|
|
|
—
|
|
Prepaid expenses and
other assets, net
|
|
300,373
|
|
|
411,636
|
|
Total assets
|
|
$
|
8,413,766
|
|
|
$
|
7,355,799
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgages, notes and
loans payable, net
|
|
$
|
4,096,470
|
|
|
$
|
3,181,213
|
|
Operating lease
obligations
|
|
70,413
|
|
|
—
|
|
Deferred tax
liabilities
|
|
180,748
|
|
|
157,188
|
|
Accounts payable and
accrued expenses
|
|
733,147
|
|
|
779,272
|
|
Total
liabilities
|
|
5,080,778
|
|
|
4,117,673
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
Preferred stock: $.01
par value; 50,000,000 shares authorized, none issued
|
|
—
|
|
|
—
|
|
Common stock: $.01
par value; 150,000,000 shares authorized, 43,635,893 issued and
42,585,633 outstanding as of December 31, 2019, and 43,511,473
shares issued and 42,991,624
outstanding as of December 31, 2018
|
|
437
|
|
|
436
|
|
Additional paid-in
capital
|
|
3,343,983
|
|
|
3,322,433
|
|
Accumulated
deficit
|
|
(46,385)
|
|
|
(120,341)
|
|
Accumulated other
comprehensive loss
|
|
(29,372)
|
|
|
(8,126)
|
|
Treasury stock, at
cost, 1,050,260 and 519,849 shares as of December 31, 2019 and
2018
|
|
(120,530)
|
|
|
(62,190)
|
|
Total stockholders'
equity
|
|
3,148,133
|
|
|
3,132,212
|
|
Noncontrolling
interests
|
|
184,855
|
|
|
105,914
|
|
Total equity
|
|
3,332,988
|
|
|
3,238,126
|
|
Total liabilities and
equity
|
|
$
|
8,413,766
|
|
|
$
|
7,355,799
|
|
Appendix – Reconciliations of Non-GAAP
Measures
As of and for the Year and Three Months Ended
December 31, 2019
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.
Management continually evaluates the usefulness, relevance,
limitations and calculation of the Company's reported non-GAAP
performance measures to determine how best to provide relevant
information to the public, and thus such reported measures could
change. The non-GAAP financial measures used herein are Net
operating income ("NOI"), Funds from operations ("FFO"), Core funds
from operations ("Core FFO") and Adjusted funds from operations
("AFFO").
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, EBT should not
be considered as an alternative to GAAP net income.
Effective January 1, 2019, the
Company moved the Seaport District out of the Operating Assets and
Strategic Development segments and into a stand-alone segment for
disclosure purposes. As applicable, we have adjusted our
performance measures in all periods reported to reflect this
change.
|
|
Year Ended
December 31,
|
|
|
|
Three Months
Ended
December 31,
|
|
|
(In
thousands)
|
|
2019
|
|
2018
|
|
$
Change
|
|
2019
|
|
2018
|
|
$
Change
|
Operating Assets
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
400,131
|
|
|
$
|
348,242
|
|
|
$
|
51,889
|
|
|
$
|
94,736
|
|
|
$
|
84,225
|
|
|
$
|
10,511
|
|
Total operating
expenses
|
|
(187,322)
|
|
|
(164,445)
|
|
|
(22,877)
|
|
|
(47,733)
|
|
|
(38,073)
|
|
|
(9,660)
|
|
Segment operating
income
|
|
212,809
|
|
|
183,797
|
|
|
29,012
|
|
|
47,003
|
|
|
46,152
|
|
|
851
|
|
Depreciation and
amortization
|
|
(115,499)
|
|
|
(103,293)
|
|
|
(12,206)
|
|
|
(30,609)
|
|
|
(29,265)
|
|
|
(1,344)
|
|
Provision for
impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest expense,
net
|
|
(81,029)
|
|
|
(71,551)
|
|
|
(9,478)
|
|
|
(20,334)
|
|
|
(18,665)
|
|
|
(1,669)
|
|
Other income (loss),
net
|
|
1,142
|
|
|
(7,107)
|
|
|
8,249
|
|
|
(44)
|
|
|
(4,504)
|
|
|
4,460
|
|
Equity in earnings
from real estate and other
affiliates
|
|
3,672
|
|
|
1,994
|
|
|
1,678
|
|
|
477
|
|
|
487
|
|
|
(10)
|
|
(Loss) gain on sale
or disposal of real estate and
other assets, net
|
|
—
|
|
|
(4)
|
|
|
4
|
|
|
—
|
|
|
(4)
|
|
|
4
|
|
Selling profit from
sales-type leases
|
|
13,537
|
|
|
—
|
|
|
13,537
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating Assets
segment EBT
|
|
34,632
|
|
|
3,836
|
|
|
30,796
|
|
|
(3,507)
|
|
|
(5,799)
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned
Communities Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
386,781
|
|
|
309,451
|
|
|
77,330
|
|
|
170,739
|
|
|
47,786
|
|
|
122,953
|
|
Total operating
expenses
|
|
(189,727)
|
|
|
(169,474)
|
|
|
(20,253)
|
|
|
(75,652)
|
|
|
(25,866)
|
|
|
(49,786)
|
|
Segment operating
income
|
|
197,054
|
|
|
139,977
|
|
|
57,077
|
|
|
95,087
|
|
|
21,920
|
|
|
73,167
|
|
Depreciation and
amortization
|
|
(424)
|
|
|
(243)
|
|
|
(181)
|
|
|
(90)
|
|
|
2
|
|
|
(92)
|
|
Interest income,
net
|
|
32,019
|
|
|
26,919
|
|
|
5,100
|
|
|
7,643
|
|
|
7,093
|
|
|
550
|
|
Other income,
net
|
|
601
|
|
|
18
|
|
|
583
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity in earnings
from real estate and other
affiliates
|
|
28,336
|
|
|
36,284
|
|
|
(7,948)
|
|
|
9,477
|
|
|
1,602
|
|
|
7,875
|
|
MPC segment
EBT
|
|
257,586
|
|
|
202,955
|
|
|
54,631
|
|
|
112,117
|
|
|
30,617
|
|
|
81,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
Three Months
Ended
December 31,
|
|
|
(In
thousands)
|
|
2019
|
|
2018
|
|
$
Change
|
|
2019
|
|
2018
|
|
$
Change
|
Seaport District
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
55,645
|
|
|
32,632
|
|
|
23,013
|
|
|
12,594
|
|
|
10,020
|
|
|
2,574
|
|
Total operating
expenses
|
|
(77,872)
|
|
|
(49,716)
|
|
|
(28,156)
|
|
|
(18,137)
|
|
|
(17,751)
|
|
|
(386)
|
|
Segment operating
income
|
|
(22,227)
|
|
|
(17,084)
|
|
|
(5,143)
|
|
|
(5,543)
|
|
|
(7,731)
|
|
|
2,188
|
|
Depreciation and
amortization
|
|
(26,381)
|
|
|
(12,466)
|
|
|
(13,915)
|
|
|
(6,668)
|
|
|
(5,960)
|
|
|
(708)
|
|
Interest (expense)
income, net
|
|
(12,865)
|
|
|
6,291
|
|
|
(19,156)
|
|
|
(4,425)
|
|
|
(2,175)
|
|
|
(2,250)
|
|
Other (loss) income,
net
|
|
(22)
|
|
|
102
|
|
|
(124)
|
|
|
125
|
|
|
222
|
|
|
(97)
|
|
Equity in losses from
real estate and other affiliates
|
|
(2,592)
|
|
|
(705)
|
|
|
(1,887)
|
|
|
(804)
|
|
|
(13)
|
|
|
(791)
|
|
Loss on sale or
disposal of real estate and other
assets
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on
extinguishment of debt
|
|
4,851
|
|
|
—
|
|
|
4,851
|
|
|
4,851
|
|
|
—
|
|
|
4,851
|
|
Seaport District
segment EBT
|
|
(59,242)
|
|
|
(23,862)
|
|
|
(35,380)
|
|
|
(12,464)
|
|
|
(15,657)
|
|
|
3,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
Developments Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
457,948
|
|
|
374,212
|
|
|
83,736
|
|
|
6,075
|
|
|
322,662
|
|
|
(316,587)
|
|
Total operating
expenses
|
|
(391,848)
|
|
|
(290,806)
|
|
|
(101,042)
|
|
|
(9,507)
|
|
|
(229,914)
|
|
|
220,407
|
|
Segment operating
income
|
|
66,100
|
|
|
83,406
|
|
|
(17,306)
|
|
|
(3,432)
|
|
|
92,748
|
|
|
(96,180)
|
|
Depreciation and
amortization
|
|
(5,473)
|
|
|
(3,307)
|
|
|
(2,166)
|
|
|
(1,087)
|
|
|
(657)
|
|
|
(430)
|
|
Interest income,
net
|
|
11,321
|
|
|
12,476
|
|
|
(1,155)
|
|
|
1,822
|
|
|
2,682
|
|
|
(860)
|
|
Other income,
net
|
|
831
|
|
|
3,015
|
|
|
(2,184)
|
|
|
167
|
|
|
3,092
|
|
|
(2,925)
|
|
Equity in earnings
(losses) from real estate and other
affiliates
|
|
1,213
|
|
|
2,364
|
|
|
(1,151)
|
|
|
632
|
|
|
(1,433)
|
|
|
2,065
|
|
Gain on sale or
disposal of real estate and other
assets, net
|
|
27,119
|
|
|
—
|
|
|
27,119
|
|
|
3,062
|
|
|
—
|
|
|
3,062
|
|
Strategic
Developments EBT
|
|
101,111
|
|
|
97,954
|
|
|
3,157
|
|
|
1,164
|
|
|
96,432
|
|
|
(95,268)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
1,300,505
|
|
|
1,064,537
|
|
|
235,968
|
|
|
284,144
|
|
|
464,693
|
|
|
(180,549)
|
|
Total operating
expenses
|
|
(846,769)
|
|
|
(674,441)
|
|
|
(172,328)
|
|
|
(151,029)
|
|
|
(311,604)
|
|
|
160,575
|
|
Segment operating
income
|
|
453,736
|
|
|
390,096
|
|
|
63,640
|
|
|
133,115
|
|
|
153,089
|
|
|
(19,974)
|
|
Depreciation and
amortization
|
|
(147,777)
|
|
|
(119,309)
|
|
|
(28,468)
|
|
|
(38,454)
|
|
|
(35,880)
|
|
|
(2,574)
|
|
Provision for
impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest expense,
net
|
|
(50,554)
|
|
|
(25,865)
|
|
|
(24,689)
|
|
|
(15,294)
|
|
|
(11,065)
|
|
|
(4,229)
|
|
Other income (loss),
net
|
|
2,552
|
|
|
(3,972)
|
|
|
6,524
|
|
|
248
|
|
|
(1,190)
|
|
|
1,438
|
|
Equity in earnings
from real estate and other
affiliates
|
|
30,629
|
|
|
39,937
|
|
|
(9,308)
|
|
|
9,782
|
|
|
643
|
|
|
9,139
|
|
Gain (loss) on sale
or disposal of real estate and
other assets, net
|
|
27,113
|
|
|
(4)
|
|
|
27,117
|
|
|
3,062
|
|
|
(4)
|
|
|
3,066
|
|
Selling profit from
sales-type leases
|
|
13,537
|
|
|
—
|
|
|
13,537
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on
extinguishment of debt
|
|
4,851
|
|
|
—
|
|
|
4,851
|
|
|
4,851
|
|
|
—
|
|
|
4,851
|
|
Consolidated segment
EBT
|
|
334,087
|
|
|
280,883
|
|
|
53,204
|
|
|
97,310
|
|
|
105,593
|
|
|
(8,283)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income,
expenses and other items
|
|
(259,792)
|
|
|
(223,157)
|
|
|
(36,635)
|
|
|
(98,311)
|
|
|
(67,669)
|
|
|
(30,642)
|
|
Net income
|
|
74,295
|
|
|
57,726
|
|
|
16,569
|
|
|
(1,001)
|
|
|
37,924
|
|
|
(38,925)
|
|
Net (income) loss
attributable to noncontrolling
interests
|
|
(339)
|
|
|
(714)
|
|
|
375
|
|
|
(99)
|
|
|
(663)
|
|
|
564
|
|
Net income
attributable to common stockholders
|
|
$
|
73,956
|
|
|
$
|
57,012
|
|
|
$
|
16,944
|
|
|
$
|
(1,100)
|
|
|
$
|
37,261
|
|
|
$
|
(38,361)
|
|
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, ground rent amortization, demolition costs,
other (loss) income, amortization, depreciation and
development-related marketing. 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 EBT to
NOI for Operating Assets and Seaport District has been presented in
the tables below.
|
|
Year Ended
December 31,
|
|
Three Months
Ended
December 31,
|
(In
thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total Operating
Assets segment EBT (a)
|
|
$
|
34,632
|
|
|
$
|
3,836
|
|
|
$
|
(3,507)
|
|
|
$
|
(5,799)
|
|
|
|
|
|
|
|
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
115,499
|
|
|
103,293
|
|
|
30,609
|
|
|
29,265
|
|
Interest expense,
net
|
|
81,029
|
|
|
71,551
|
|
|
20,334
|
|
|
18,665
|
|
Equity in (earnings)
loss from real estate and other affiliates
|
|
(3,672)
|
|
|
(1,994)
|
|
|
(477)
|
|
|
(487)
|
|
Loss on sale or
disposal of real estate and other assets, net
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Selling profit from
sales-type leases
|
|
(13,537)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of
straight-line rent
|
|
(9,007)
|
|
|
(12,427)
|
|
|
(1,096)
|
|
|
(3,650)
|
|
Other
|
|
671
|
|
|
7,312
|
|
|
412
|
|
|
4,611
|
|
Total Operating
Assets NOI - Consolidated
|
|
205,615
|
|
|
171,575
|
|
|
46,275
|
|
|
42,609
|
|
|
|
|
|
|
|
|
|
|
Redevelopments
|
|
|
|
|
|
|
|
|
110 North
Wacker
|
|
5
|
|
|
513
|
|
|
1
|
|
|
513
|
|
Total Operating
Asset Redevelopments NOI
|
|
5
|
|
|
513
|
|
|
1
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
|
|
|
|
|
|
Cottonwood
Square
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Total Operating
Asset Dispositions NOI
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Operating Assets NOI excluding properties sold or in
redevelopment
|
|
205,620
|
|
|
172,099
|
|
|
46,276
|
|
|
43,133
|
|
|
|
|
|
|
|
|
|
|
Company's Share NOI -
Equity investees
|
|
7,318
|
|
|
4,661
|
|
|
2,123
|
|
|
1,952
|
|
|
|
|
|
|
|
|
|
|
Distributions from
Summerlin Hospital Investment
|
|
3,625
|
|
|
3,435
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Assets NOI
|
|
$
|
216,563
|
|
|
$
|
180,195
|
|
|
$
|
48,399
|
|
|
$
|
45,085
|
|
_______________
|
(a) EBT excludes
corporate income, expenses and other items that are not allocable
to the segments.
|
|
|
|
Year Ended
December 31,
|
|
Three Months
Ended
December 31,
|
(In
thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total Seaport
District segment EBT (a)
|
|
$
|
(59,242)
|
|
|
$
|
(23,862)
|
|
|
$
|
(12,464)
|
|
|
$
|
(15,657)
|
|
|
|
|
|
|
|
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
26,381
|
|
12,466
|
|
6,668
|
|
|
5,960
|
|
Interest expense
(income), net
|
|
12,865
|
|
(6,291)
|
|
4,425
|
|
|
2,175
|
|
Equity in losses from
real estate and other affiliates
|
|
2,592
|
|
705
|
|
804
|
|
|
13
|
|
Impact of
straight-line rent
|
|
1,634
|
|
(433)
|
|
(24)
|
|
|
179
|
|
Loss on sale or
disposal of real estate and other assets
|
|
6
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on
extinguishment of debt
|
|
(4,851)
|
|
—
|
|
|
(4,851)
|
|
|
—
|
|
Other -
development-related
|
|
5,595
|
|
11,937
|
|
190
|
|
|
3,815
|
|
Total Seaport
District NOI - Consolidated
|
|
(15,020)
|
|
(5,478)
|
|
(5,252)
|
|
|
(3,515)
|
|
|
|
|
|
|
|
|
|
|
Company's Share NOI -
Equity investees
|
|
(710)
|
|
(713)
|
|
(325)
|
|
|
(134)
|
|
|
|
|
|
|
|
|
|
|
Total Seaport
District NOI
|
|
(15,730)
|
|
(6,191)
|
|
$
|
(5,577)
|
|
|
$
|
(3,649)
|
|
_______________
|
(a) EBT excludes
corporate income, expenses and other items that are not allocable
to the segments.
|
FFO, Core FFO and AFFO
FFO is defined by the National Association of Real Estate
Investment Trusts ("NAREIT") as net income calculated in accordance
with GAAP, excluding gains or losses from real estate dispositions,
as well as real estate depreciation and amortization and impairment
charges all of which we believe are not indicative of the
performance of our operating portfolio. We calculate FFO in
accordance with NAREIT's definition. Since FFO excludes
depreciation and amortization, as well as gains and losses from
depreciable property, dispositions and impairments, it can provide
a performance measure that, when compared year over year, reflects
the impact on operations from trends in land sales prices,
occupancy rates, rental rates, operating costs, acquisition and
development activities, and financing costs. This provides a
perspective of our financial performance not immediately apparent
from net income determined in accordance with GAAP. Core FFO is
calculated by adjusting FFO to exclude the impact of certain
non-cash and/or nonrecurring income and expense items, as set forth
in the calculation below. These items can vary greatly from period
to period, depending upon the volume of our acquisition activity
and debt retirements, among other factors. We believe that by
excluding these items, Core FFO serves as a useful, supplementary
measure of the ongoing operating performance of our core
operations, and we believe it is used by investors in a similar
manner. Finally, AFFO adjusts our Core FFO operating measure
to deduct cash spent on recurring tenant improvements and capital
expenditures of a routine nature as well as leasing commissions to
present an adjusted measure of Core FFO. Core FFO and AFFO are
non-GAAP and non-standardized measures and may be calculated
differently by other peer companies.
While FFO, Core FFO, AFFO and NOI are relevant and widely used
measures of operating performance of real estate companies, they do
not represent cash flows from operations or net income as defined
by GAAP and should not be considered an alternative to those
measures in evaluating our liquidity or operating performance. FFO,
Core FFO, AFFO and NOI do not purport to be indicative of cash
available to fund our future cash requirements. Further, our
computations of FFO, Core FFO, AFFO and NOI may not be comparable
to those reported by other real estate companies. We have included
a reconciliation of FFO, Core FFO and AFFO to GAAP net income
below. Non-GAAP financial measures should not be considered
independently, or as a substitute, for financial information
presented in accordance with GAAP.
|
|
Year Ended
December 31,
|
|
Three Months
Ended
December 31,
|
(In thousands,
except share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
attributable to common shareholders
|
|
$
|
73,956
|
|
|
$
|
57,012
|
|
|
$
|
(1,100)
|
|
|
$
|
37,261
|
|
Adjustments to arrive
at FFO:
|
|
|
|
|
|
|
|
|
Segment real estate
related depreciation and amortization
|
|
147,777
|
|
|
119,309
|
|
|
38,454
|
|
|
35,880
|
|
(Gain) loss on sale
or disposal of real estate, net
|
|
(22,362)
|
|
|
4
|
|
|
1,689
|
|
|
4
|
|
Selling profit from
sales-type leases
|
|
(13,537)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income tax expense
adjustments:
|
|
|
|
|
|
|
|
|
(Gain) loss on sale or
disposal of real estate, net
|
|
5,479
|
|
|
—
|
|
|
(389)
|
|
|
—
|
|
Selling profit from
sales-type leases
|
|
2,843
|
|
|
—
|
|
|
(460)
|
|
|
—
|
|
Reconciling items
related to noncontrolling interests
|
|
339
|
|
|
714
|
|
|
99
|
|
|
663
|
|
Our share of the
above reconciling items included in earnings from
unconsolidated joint ventures
|
|
3,688
|
|
|
2,679
|
|
|
1,014
|
|
|
798
|
|
FFO
|
|
$
|
198,183
|
|
|
$
|
179,718
|
|
|
$
|
39,307
|
|
|
$
|
74,606
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at Core FFO:
|
|
|
|
|
|
|
|
|
Gain on
extinguishment of debt
|
|
$
|
(4,641)
|
|
|
$
|
—
|
|
|
$
|
(4,641)
|
|
|
$
|
—
|
|
Severance
expenses
|
|
29,144
|
|
|
687
|
|
|
26,054
|
|
|
267
|
|
Non-real estate
related depreciation and amortization
|
|
8,021
|
|
|
7,256
|
|
|
2,202
|
|
|
2,288
|
|
Straight-line
amortization
|
|
(7,364)
|
|
|
(12,609)
|
|
|
(1,107)
|
|
|
(2,505)
|
|
Deferred income tax
expense
|
|
27,816
|
|
|
16,195
|
|
|
4,627
|
|
|
11,574
|
|
Non-cash fair value
adjustments related to hedging instruments
|
|
770
|
|
|
(1,135)
|
|
|
791
|
|
|
127
|
|
Share-based
compensation
|
|
17,349
|
|
|
11,242
|
|
|
8,456
|
|
|
3,011
|
|
Other non-recurring
expenses (development-related marketing and
demolition costs)
|
|
23,922
|
|
|
46,579
|
|
|
6,311
|
|
|
9,929
|
|
Our share of the
above reconciling items included in earnings from
unconsolidated joint ventures
|
|
190
|
|
|
306
|
|
|
89
|
|
|
95
|
|
Core
FFO
|
|
$
|
293,390
|
|
|
$
|
248,239
|
|
|
$
|
82,089
|
|
|
$
|
99,392
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at AFFO:
|
|
|
|
|
|
|
|
|
Tenant and capital
improvements
|
|
$
|
(5,237)
|
|
|
$
|
(14,267)
|
|
|
$
|
(1,236)
|
|
|
$
|
(3,583)
|
|
Leasing
commissions
|
|
(4,192)
|
|
|
(3,600)
|
|
|
(1,603)
|
|
|
(1,906)
|
|
AFFO
|
|
$
|
283,961
|
|
|
$
|
230,372
|
|
|
$
|
79,250
|
|
|
$
|
93,903
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted
share value
|
|
$
|
4.58
|
|
|
$
|
4.16
|
|
|
$
|
0.91
|
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
Core FFO per
diluted share value
|
|
$
|
6.77
|
|
|
$
|
5.74
|
|
|
$
|
1.90
|
|
|
$
|
2.30
|
|
|
|
|
|
|
|
|
|
|
AFFO per diluted
share value
|
|
$
|
6.56
|
|
|
$
|
5.33
|
|
|
$
|
1.84
|
|
|
$
|
2.17
|
|
Contact Information:
David R.
O'Reilly
Chief Financial Officer
(214)
741-7744
David.O'Reilly@howardhughes.com
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SOURCE The Howard Hughes Corporation