DALLAS, Aug. 7, 2019
/PRNewswire/ -- The Howard Hughes
Corporation® (NYSE: HHC) (the "Company" or "HHC")
announced today operating results for the second quarter ended
June 30, 2019. The financial statements, exhibits and
reconciliations of non-GAAP measures in the attached Appendix and
the Supplemental Information, as available through the Investors
section of our website, provide further details of these
results.
Second Quarter 2019 Highlights
- Net income attributable to common stockholders increased to
$13.5 million, or $0.31 per diluted share, for the three months
ended June 30, 2019, as compared to
$(5.1) million, or $(0.12) per diluted share, for the three months
ended June 30, 2018.
- Total net operating income ("NOI") from the Operating Assets
segment, including our share of NOI from equity investments, was
$60.4 million for the three months
ended June 30, 2019, compared to
$45.8 million for the prior year
period, an increase of 32%.
- Increased Master Planned Communities ("MPC") segment earnings
before tax ("EBT") by a modest $0.7
million to $47.2 million for
the three months ended June 30, 2019.
Excluding Equity in earnings from real estate and other affiliates,
EBT from our core MPCs increased $8.3
million for the three months ended June 30, 2019 compared to the prior year
period.
- Commenced construction of Millennium Phase III Apartments, a
163-unit multi-family development in The
Woodlands. The project is anticipated to contribute
approximately $3.5 million of
stabilized NOI.
- Continued strong leasing activity at 110 North Wacker. The
latest 120,000 square foot lease has brought the building to
approximately 67% pre-leased as of June
30, 2019. This represents approximately 1.0 million total
leased square feet on a project that is not scheduled to be
completed until late 2020.
- Welcomed residents to Ke Kilohana, our recently delivered tower
in Ward Village, which is 99.3%
sold as of June 30, 2019.
- Contracted to sell 56 condominiums at Ward Village in the second quarter of 2019,
including 45 at Kō'ula, our newest building that began public sales
in January 2019. Kō'ula, which broke ground in early
July, is approximately 63.5% pre-sold as of the second quarter
of 2019. Excluding Kō'ula, the total percentage sold across the
community is approximately 92.9%.
- Increased Seaport District segment revenues by $8.4 million to $12.9
million for the three months ended June 30, 2019 compared to the prior year
period.
- Increased foot traffic at the Seaport District nearly 50% in
the three months ended June 30, 2019
compared to the same period in the prior year with approximately
1.5 million total visitors in the second quarter of 2019.
Highlights of our results for the six and three months ended
June 30, 2019 are summarized below.
We are primarily focused on creating shareholder value by
increasing our per share net asset value. Often, our long term
value creation goals cause short term volatility in our Net income
due to the timing of MPC land sales, recognition of condominium
revenue and operating business pre-opening expenses, and, as such,
we believe the following metrics are most useful in tracking our
progress towards net asset value creation.
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
($ in
thousands)
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
Operating Assets
NOI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
39,164
|
|
|
$
|
33,103
|
|
|
$
|
6,061
|
|
|
18
|
%
|
|
$
|
20,202
|
|
|
$
|
17,240
|
|
|
$
|
2,962
|
|
|
17
|
%
|
Retail
|
|
32,310
|
|
|
31,455
|
|
|
855
|
|
|
3
|
%
|
|
16,065
|
|
|
15,998
|
|
|
67
|
|
|
—
|
%
|
Multi-family
|
|
9,187
|
|
|
8,217
|
|
|
970
|
|
|
12
|
%
|
|
4,826
|
|
|
4,059
|
|
|
767
|
|
|
19
|
%
|
Hospitality
|
|
17,389
|
|
|
15,484
|
|
|
1,905
|
|
|
12
|
%
|
|
9,531
|
|
|
7,613
|
|
|
1,918
|
|
|
25
|
%
|
Other
|
|
7,006
|
|
|
(182)
|
|
|
7,188
|
|
|
3,949
|
%
|
|
8,079
|
|
|
146
|
|
|
7,933
|
|
|
5,434
|
%
|
Company's share NOI
(a)
|
|
6,777
|
|
|
4,812
|
|
|
1,965
|
|
|
41
|
%
|
|
1,688
|
|
|
791
|
|
|
897
|
|
|
113
|
%
|
Total Operating
Assets NOI (b)
|
|
$
|
111,833
|
|
|
$
|
92,889
|
|
|
$
|
18,944
|
|
|
20
|
%
|
|
$
|
60,391
|
|
|
$
|
45,847
|
|
|
$
|
14,544
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres Sold -
Residential
|
|
190
|
|
|
162
|
|
|
28
|
|
|
17
|
%
|
|
112
|
|
|
84
|
|
|
28
|
|
|
33
|
%
|
Acres Sold -
Commercial
|
|
—
|
|
|
2
|
|
|
(2)
|
|
|
(100)
|
%
|
|
—
|
|
|
2
|
|
|
(2)
|
|
|
(100)
|
%
|
Price Per Acre -
Residential (c)
|
|
$
|
532
|
|
|
$
|
543
|
|
|
$
|
(11)
|
|
|
(2)
|
%
|
|
$
|
528
|
|
|
$
|
538
|
|
|
$
|
(10)
|
|
|
(2)
|
%
|
Price Per Acre -
Commercial
|
|
$
|
—
|
|
|
$
|
573
|
|
|
$
|
(573)
|
|
|
(100)
|
%
|
|
$
|
—
|
|
|
$
|
573
|
|
|
$
|
(573)
|
|
|
(100)
|
%
|
MPC
EBT
|
|
$
|
84,832
|
|
|
$
|
83,420
|
|
|
$
|
1,412
|
|
|
2
|
%
|
|
$
|
47,235
|
|
|
$
|
46,584
|
|
|
$
|
651
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seaport District
NOI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historic District
& Pier 17 -
Landlord
|
|
$
|
(3,002)
|
|
|
$
|
(1,311)
|
|
|
$
|
(1,691)
|
|
|
(129)
|
%
|
|
$
|
(1,284)
|
|
|
$
|
(793)
|
|
|
$
|
(491)
|
|
|
(62)
|
%
|
Multi-Family
|
|
191
|
|
|
254
|
|
|
(63)
|
|
|
(25)
|
%
|
|
110
|
|
|
149
|
|
|
(39)
|
|
|
(26)
|
%
|
Hospitality
|
|
41
|
|
|
—
|
|
|
41
|
|
|
100
|
%
|
|
26
|
|
|
—
|
|
|
26
|
|
|
100
|
%
|
Historic District
& Pier 17 -
Managed Businesses
|
|
(3,541)
|
|
|
(50)
|
|
|
(3,491)
|
|
|
(6,982)
|
%
|
|
(888)
|
|
|
(50)
|
|
|
(838)
|
|
|
(1,676)
|
%
|
Tin Building -
Managed
Businesses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Events, Sponsorships
&
Catering Business
|
|
(561)
|
|
|
2,090
|
|
|
(2,651)
|
|
|
(127)
|
%
|
|
(851)
|
|
|
1,159
|
|
|
(2,010)
|
|
|
(173)
|
%
|
Company's share NOI
(a)
|
|
(237)
|
|
|
(127)
|
|
|
(110)
|
|
|
87
|
%
|
|
(42)
|
|
|
(127)
|
|
|
85
|
|
|
67
|
%
|
Total Seaport
District NOI
|
|
$
|
(7,109)
|
|
|
$
|
856
|
|
|
$
|
(7,965)
|
|
|
(930)
|
%
|
|
$
|
(2,929)
|
|
|
$
|
338
|
|
|
$
|
(3,267)
|
|
|
(967)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
Developments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominium units
contracted to
sell (d)
|
|
27
|
|
|
47
|
|
|
(20)
|
|
|
(43)
|
%
|
|
11
|
|
|
12
|
|
|
(1)
|
|
|
(8)
|
%
|
Projected stabilized
NOI
Operating Assets ($ in millions)
|
|
$
|
317.1
|
|
|
$
|
306.7
|
|
|
$
|
10.4
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
Projected stabilized
NOI Seaport
District ($ in millions)
|
|
$43.0 -
$58.0
|
|
$43.0 -
$58.0
|
|
$
|
—
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes Company's
share of NOI from non-consolidated assets.
|
(b)
|
Excludes properties
sold or in redevelopment.
|
(c)
|
Decrease in overall
price per acre due to greater contributions from MPCs with lower
priced land weighing down price per acre in the MPCs that saw an
increase. All MPCs except The Woodlands recorded an increase in
price per acre for the three months ended June 30, 2019.
|
(d)
|
Includes units at our
buildings that are open or under construction as of June 30, 2019.
Excludes units at Kō'ula, our newest building that began public
sales in January 2019.
|
"Our business continues to perform extremely well across our
three core segments, highlighted by the 32% quarter-over-quarter
growth we experienced in recurring Operating Asset NOI.
Additionally, our MPCs continue to rank among the top selling
communities in the country and experienced steady underlying demand
as we expect to have another very strong year in the segment," said
David R. Weinreb, Chief Executive
Officer. "At the midyear point in Bridgeland, home sales, a leading
indicator of future land purchases by home builders, are up 35%,
and we had a 33% increase in residential acres sold this quarter
over Q2 2018 across our MPC segment. With the NOI growth in our
Operating Assets segment, we have an annual run rate of
$216 million with a stabilized NOI
target of $317 million.
"We also celebrated a number of key milestones at Ward Village, including closing on a
$293.7 million construction loan for
'A'ali'i, accompanied by 418 closings at Ke Kilohana, which opened
in May. With four towers and key retail offerings delivered,
Ward Village is beginning to reach
a critical mass that continues to enhance its appeal. Demand to
live in our community remains high as evidenced by sales at Kō'ula,
our newest building which is already 64% pre-sold.
"In New York, the Seaport District has had a strong start to
Summer with the opening of The Fulton by Jean-Georges, which has been ranked
as one of the top new restaurants in New
York City; the launch of the 2019 summer concert series on
the Pier 17 rooftop; and opening of the garden bar in the historic
district and summer version of the rooftop bar and restaurant R17.
Overall, the Seaport District's revenue for the second quarter is
up nearly three times over the same period last year and traffic
has increased approximately 50%. With many additional key offerings
coming online in the next 18 months to complete the district, we
are making substantial progress in accomplishing our vision for the
Seaport.
"Finally, we recently announced that the Board is conducting a
broad review of potential strategic alternatives to maximize
shareholder value. We are committed to closing the significant gap
that exists between our share price and the Company's underlying
net asset value. While we undergo the review, we will remain
steadfast in executing our existing plans," said Mr.
Weinreb.
Financial Results
Net income attributable to common
stockholders increased to $45.3 million,
or $1.05 per diluted share, and $13.5 million, or $0.31 per diluted share, for the six and three
months ended June 30, 2019,
respectively, compared to losses of $(3.6)
million, or $(0.08) per
diluted share, and $(5.1) million, or
$(0.12) per diluted share, for the
six and three months ended June 30,
2018, respectively. The increases were primarily due to
higher Condominium rights and unit sales, net driven by closings at
Ae'o and Ke Kilohana as well as the absence of a $13.4 million charge for window repairs at our
Waiea condominium tower which was recorded in the second quarter of
2018 but did not recur in 2019. The increases were partially offset
by higher operating expenses at the Seaport District. The higher
operating expenses at the Seaport District are due to start-up
costs associated with opening new businesses.
These factors also impacted our Funds from operations ("FFO"),
Core fund from operations ("Core FFO") and Adjusted FFO ("AFFO")
discussed below.
|
|
Six Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
(In thousands,
except share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income (loss)
attributable to common stockholders
|
|
$
|
45,298
|
|
|
$
|
(3,614)
|
|
|
$
|
13,477
|
|
|
$
|
(5,088)
|
|
Basic income per
share
|
|
$
|
1.05
|
|
|
$
|
(0.08)
|
|
|
$
|
0.31
|
|
|
$
|
(0.12)
|
|
Diluted income per
share
|
|
$
|
1.05
|
|
|
$
|
(0.08)
|
|
|
$
|
0.31
|
|
|
$
|
(0.12)
|
|
|
|
|
|
|
|
|
|
|
Funds from
operations
|
|
$
|
120,707
|
|
|
$
|
52,740
|
|
|
$
|
52,432
|
|
|
$
|
22,643
|
|
FFO per weighted
average diluted share
|
|
$
|
2.79
|
|
|
$
|
1.22
|
|
|
$
|
1.21
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
Core FFO
|
|
$
|
153,528
|
|
|
$
|
80,177
|
|
|
$
|
65,803
|
|
|
$
|
36,366
|
|
Core FFO per weighted
average diluted share
|
|
$
|
3.55
|
|
|
$
|
1.87
|
|
|
$
|
1.52
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
AFFO
|
|
$
|
148,945
|
|
|
$
|
69,562
|
|
|
$
|
62,680
|
|
|
$
|
30,682
|
|
AFFO per weighted
average diluted share
|
|
$
|
3.44
|
|
|
$
|
1.62
|
|
|
$
|
1.45
|
|
|
$
|
0.71
|
|
FFO increased $68.0 million, or
$1.57 per diluted share, for the six
months ended June 30, 2019 and
$29.8 million, or $0.68 per diluted share, for the three months
ended June 30, 2019, compared to the
same periods in 2018. As noted above, the increase for the six
months ended June 30, 2019 was
primarily attributable to the increase in Condominium rights and
unit sales, net due to Ae'o closings, partially offset by higher
operating losses at the Seaport District. The increase for the
three months ended June 30, 2019 is
partly due to an increase in Condominium rights and unit sales, net
led by closings at Ke Kilohana as well as the absence of the
$13.4 million charge for window
repairs at Waiea which was recorded in the second quarter of 2018
but did not recur in 2019.
Core FFO increased $73.4 million,
or $1.68 per diluted share, for the
six months ended June 30, 2019 and
increased $29.4 million, or
$0.67 per diluted share, for the
three months ended June 30, 2019,
compared to the same periods in 2018 primarily due to the factors
discussed in the FFO section above, as well as a higher Deferred
income tax expense, partially offset by lower Other non-recurring
expenses.
AFFO, our Core FFO adjusted to exclude recurring capital
improvements and leasing commissions, increased $79.4 million, or $1.82 per diluted share, for the six months ended
June 30, 2019 and increased
$32.0 million, or $0.74 per diluted share, for the three months
ended June 30, 2019 compared to the
same periods in 2018 primarily due to the items mentioned in the
FFO and Core FFO discussions above as well as 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 $18.9 million,
or 20.4%, to $111.8 million in the
six months ended June 30, 2019 and by
$14.5 million, or 31.7%, to
$60.4 million in the three months
ended June 30, 2019 compared to the
same periods in 2018. The increase in NOI for the six and three
months ended June 30, 2019 is
primarily driven by increases of $7.2
million and $7.9 million in
our other properties category; $6.1
million and $3.0 million in
our office properties; and $1.9
million and $1.9 million in
our hospitality properties. The increase in our other category for
the six and three months ended June 30,
2019 is a result of placing the Las Vegas Ballpark, the home
of our Triple-A baseball team The Las Vegas Aviators, into service
in March 2019. So far in 2019, The
Las Vegas Aviators have already reached the largest single season
home attendance in 36 years and led Triple-A baseball in home game
attendance with an average of over nine thousand fans per game. The
increases in our office and hospitality properties are mainly the
result of continued stabilization of existing assets within these
categories and increased occupancy, as well as NOI generated from
assets placed in service subsequent to the second quarter of
2018.
Master Planned Communities
Our MPC 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. We also use residential home sales as a leading indicator
of continued demand from homebuilders in our communities. As we
continue to see strong demand for our land from homebuilders,
continued demand in our MPCs for new homes and interest rate
stabilization, we do not expect a material slowdown in the pace of
residential land sales for the remainder of 2019. Based on the
strong acceleration of land sales in Bridgeland and Summerlin, as
discussed below, we expect that 2019 total land sales revenue will
be largely consistent with the results of the past few years.
During the six months ended June 30,
2019, our MPC segment EBT increased $1.4 million to $84.8
million, mainly as a result of increased lot sales at
Bridgeland and superpad sales at Summerlin totaling $41.5 million. At Bridgeland, land sales revenues
increased $12.4 million due to
continued robust sales of single-family lots, resulting in 198 more
lot sales in the current period. Due to relatively low costs to
develop the Summerlin superpads, the sales yielded a 19% higher
gross margin compared to the prior period. The higher margin
contributed to an increase in segment EBT despite overall fewer
acres sold in Summerlin relative to the prior year period. As noted
above, while fluctuation is typical for the MPC segment,
Summerlin's higher margins are not representative of our
expectations for the year. We expect that the full year land sales
in Summerlin, in terms of acres, price per acre and margin, will be
largely consistent with our results over the past few years. Land
sales revenues at The Woodlands
also increased $3.1 million due to
141 lot sales in the period, an increase of 49 lots over the prior
period.
MPC segment EBT for the three months ended June 30, 2019 increased $0.7 million to $47.2
million, mainly as a result of a large superpad sale at
Summerlin as well as increased lot sales at Bridgeland and The
Woodlands Hills. At Summerlin, superpad sales totaled 43 acres, a
13.2% increase over the prior year period. Summerlin achieved a
residential price per acre of $692,000, an increase of $100,000 per acre from the prior year, largely
due to custom lot sales. There were 217 single-family lot sales at
Bridgeland, which is 110 more lots sold compared to the same period
last year. As a result of this increase in lot sales, land sales
revenues at Bridgeland increased $7.4
million, or 82.4%, in the current period. At The Woodlands
Hills, land sales revenues increased 38.2% to $0.9 million as a result of 32.4% more lots
sold.
MPC segment EBT for both the six and three months ended
June 30, 2019 was negatively impacted
by lower Equity in earnings from real estate and other affiliates
primarily attributable to a slower pace of land development and
fewer custom lot sales at The Summit. This decrease in Equity in
earnings from The Summit is in line with our expectations as a
higher percentage of sales are being generated from the sale of
homes built by the joint venture, which has a lower margin than the
sale of custom lots. Our estimate of overall gross margin generated
by the project remains unchanged.
Although they do not directly impact our results of operations,
we believe the ongoing strong underlying home sales will continue
to drive demand for land in our MPCs. Our MPCs have won numerous
awards for design excellence and community contribution. Summerlin
and Bridgeland were again ranked by RCLCO, capturing 4th and 11th
highest selling master planned communities, respectively, for the
first half of 2019. Bridgeland's home sales increased 35.0% and
43.3% for the six and three months ended June 30, 2019, respectively, over the prior year
periods. We believe that this acceleration is due to Bridgeland's
maturation as a master planned community and its thoughtful
approach to conservation, recreation and transportation. In
addition, it has excellent access, schools and amenities. Summerlin
saw an 8.6% increase in home sales for the three months ended
June 30, 2019 compared to the prior
year period. While home sales decreased 10.3% in Summerlin for the
six months ended June 30, 2019
compared to the previous year, home sales at Summerlin have
increased 20.9% over the first quarter of 2019, evidencing
continued strength. The rate of home sales at The Woodlands Hills,
which commenced sales in the second quarter of 2018, increased
427.3% and 136.4% for the six and three months ended June 30, 2019, respectively, over the prior year
periods. The following summarizes home sales in our MPCs during the
six and three months ended June 30,
2019.
|
Net New Home
Sales
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
The
Woodlands
|
175
|
|
|
202
|
|
|
(27)
|
|
|
(13.4)
|
%
|
|
88
|
|
|
115
|
|
|
(27)
|
|
|
(23.5)
|
%
|
The Woodlands
Hills
|
58
|
|
|
11
|
|
|
47
|
|
|
427.3
|
%
|
|
26
|
|
|
11
|
|
|
15
|
|
|
136.4
|
%
|
Bridgeland
|
351
|
|
|
260
|
|
|
91
|
|
|
35.0
|
%
|
|
215
|
|
|
150
|
|
|
65
|
|
|
43.3
|
%
|
Summerlin
|
667
|
|
|
744
|
|
|
(77)
|
|
|
(10.3)
|
%
|
|
365
|
|
|
336
|
|
|
29
|
|
|
8.6
|
%
|
Total
|
1,251
|
|
|
1,217
|
|
|
34
|
|
|
2.8
|
%
|
|
694
|
|
|
612
|
|
|
82
|
|
|
13.4
|
%
|
The Seaport District
In the Seaport District, we celebrated the opening of The
Fulton by Jean-Georges, our new
seafood restaurant, as well as the opening of the seasonal Garden
Bar. We also kicked off our second annual Summer Concert Series on
The Rooftop at Pier 17, which features a diverse roster of A-list
talent from various genres. Pier 17 has also been home to our
summer movie series and other events, including Seaport Fit and
Pride Day, among others. Foot traffic at the Seaport District
increased nearly 50% in the three months ended June 30, 2019 compared to the same period in the
prior year with approximately 1.5 million total visitors in the
second quarter of 2019. The increase in foot traffic and
accompanying increase in revenue, as discussed in more detail
below, demonstrates the demand for the Seaport District's dynamic
culinary, fashion, entertainment and cultural experiences.
Seaport District segment revenues increased by $11.9 million to $19.9
million and $8.4 million to
$12.9 million for the six and three
months ended June 30, 2019,
respectively, compared to the same periods in 2018. The increases
are due to both our existing businesses as well as new business
openings and were driven by the summer concert series, Cobble &
Co, The Fulton, Garden Bar and 10
Corso Como Retail and Café.
In the Seaport District segment, NOI, including our share of NOI
from equity investees, decreased by $8.0
million to a net operating loss of $7.1 million and $3.3
million to a net operating loss of $2.9 million for the six and three months ended
June 30, 2019, respectively, compared
to the same periods in 2018. These decreases were 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 $2.7 million, $1.7 million and $3.5
million for the six months ended June
30, 2019 and $2.0 million,
$0.5 million and $0.8 million for the three months ended
June 30, 2019 compared to the prior
year periods in our event and sponsorship, landlord operations and
managed businesses, respectively, were primary contributors to the
decrease in NOI. 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 approximately
10 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.
We project to achieve stabilization at the Seaport District in
2022.
Strategic Developments
In our Strategic Developments segment, we experienced another
strong quarter as evidenced by the continued sales momentum at
'A'ali'i and Kō'ula, which are approximately 81.6% and 63.5%
pre-sold, respectively, as of June 30, 2019. Kō'ula, which
launched public sales in January
2019, was approximately 65.3% pre-sold as
of July 31, 2019. As further detailed below, we also
secured financing for 'A'ali'i, marking yet another significant
milestone at Ward Village. With
approximately 87% of our homes sold across our six towers that are
either delivered or under construction, our sales continue to
support our ability to maintain a 30% blended profit margin,
excluding land, across the community. We feel that the pace of
pre-sales of our recent buildings reflects the combination of
product and price that we have found to 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. The current increased
pace of pre-sales gives us the opportunity to modestly accelerate
the pace under which we launch new towers.
As a result of the strong quarter, segment EBT increased
$72.5 million and $18.1 million for the six and three months ended
June 30, 2019, respectively, compared
to the same periods in prior year. The increase for the six months
ended June 30, 2019 compared to the
prior year period is primarily due to an increase in Condominium
rights and unit sales, net due to bulk closings at Ae'o, which
began in the fourth quarter of 2018 when the building opened. The
increase for the three months ended June 30,
2019 compared to the prior year period is partly due to an
increase in Condominium rights and unit sales, net driven by bulk
closings at Ke Kilohana. Both the six and three months ended
June 30, 2019 were also positively
impacted by the absence of a $13.4
million charge for window repairs at our Waiea condominium
tower which was recorded in the second quarter of 2018 but did not
recur in 2019. For the six and three months ended June 30, 2019, we reported revenues of
$433.9 million and $235.6 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
$31.7 million and $20.9 million for the prior periods. As noted
above, the cause of the increase in revenue in both the six and
three month periods compared to prior year is increased closings.
We closed on 587 and 418 condominium units during the six and three
months ended June 30, 2019 compared
to 13 and 7 units during the prior year periods, respectively.
Condominium revenue is recognized when unit sales close, leading to
greater variability in revenue recognized between periods.
We decreased our estimated annual stabilized NOI target,
excluding the Seaport District, by $3.9
million to $317.1 million as
of June 30, 2019. The decrease is primarily attributable to a
decrease in our effective ownership of the 110 North Wacker joint
venture. The 110 North Wacker loan was modified in May 2019 to increase the total loan commitment.
The funding commitments of the joint venture partners were modified
concurrently, and we will fund $35.3
million less cash equity for the project. The modified
agreement allows us to retain our waterfall upside and return while
reducing our capital requirements and mitigating our risk. We
remain optimistic about the success of this project, and the
strength of the project is further underscored by recent leasing
activity. As of June 30, 2019, the
project is 67% pre-leased, up from 50% in the prior quarter. The
decrease in estimated stabilized NOI from 110 North Wacker was
partially offset by an increase of $3.5
million related to the commencement of construction of
Millennium Phase III Apartments, a 163-unit multi-family
development in The Woodlands. This
builds on prior success with Millennium Waterway and Millennium Six
Pines which are 98% and 91% leased, respectively, at rates per
square foot in excess of budget.
Balance Sheet Second Quarter Activity and Subsequent
Events
On August 6, 2019, the Company
closed on a $30.7 million
construction loan for Millennium Phase III Apartments. The loan
bears interest at one-month London Interbank Offered Rate ("LIBOR")
plus 1.75% with an initial maturity date of August 6, 2023 and
a one-year extension option.
On June 27, 2019, the Company closed on a $35.5 million construction loan for 8770 New
Trails. The loan bears interest at one-month LIBOR plus 2.45% with
an initial maturity date of June 27, 2021 and a 127-month
extension option. The Company entered into a swap agreement to
fix the interest rate to 4.89%.
On June 20, 2019, the Company closed on a $250.0 million term loan for the redevelopment of
the Seaport District. The loan initially bears interest at 6.10%
and matures on June 1, 2024. The loan will begin bearing
interest at one-month LIBOR plus 4.10%, subject to a LIBOR cap of
2.30% and LIBOR floor of 0.00%, at the earlier of June 20,
2021 or the date certain debt coverage ratios are met.
On June 6, 2019, the Company closed on a $293.7 million construction loan for 'A'ali'i,
bearing interest at one-month LIBOR plus 3.10% with an initial
maturity date of June 6, 2022 and a one-year extension
option.
On June 5, 2019, the Company paid off the construction loan
for Ke Kilohana with a commitment amount of $142.7 million. Total draws were approximately
$121.7 million and were paid off from
the proceeds of condominium sales.
On June 3, 2019, the Company
exercised the second extension option for its 250 Water Street note
payable. The extension required a $30.0
million pay down, reducing the outstanding note payable
balance to $99.7 million.
On May 23, 2019, the Company and its joint venture partners
closed on an amendment to increase the $512.6 million construction loan for 110 North
Wacker to $558.9 million, and modify
the commitments included in the loan syndication. The amendment
also increased the Company's guarantee from approximately
$92.3 million to approximately
$100.6 million. In addition, the
Company also guaranteed an additional $46.3
million, the increase in principal of the construction loan,
which will become payable in fiscal year 2020 if a certain leasing
threshold is not achieved. The guarantee of the $46.3 million will immediately expire on the date
the leasing threshold is first achieved.
On May 17, 2019, the Company
modified the facility for its Mr. C Seaport joint venture to
increase the total commitment to $41.0
million. The loan bears interest at one-month LIBOR plus
4.50%, has an initial maturity of May 16, 2022, and has one,
six-month extension option.
On April 9, 2019, the Company modified the HHC 242
Self-Storage and HHC 2978 Self-Storage facilities to reduce the
total commitments to $5.5 million and
$5.4 million, respectively. The loans
have an initial maturity date of December 31, 2021 and a
one-year extension option.
As of June 30, 2019, our total consolidated debt equaled
approximately 44.4% of our total assets and our leverage ratio
(debt to enterprise value, as defined in the Supplemental
Information) was 41.2%. 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 June 30, 2019, we had $650.7 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. Our properties include master planned
communities, operating properties, development opportunities and
other unique assets spanning 12 states from New York to Hawai'i. The Howard Hughes
Corporation® is traded on the New York Stock Exchange
under HHC with major offices in New
York, Columbia, MD,
Dallas, Houston, Las
Vegas and Honolulu. For
additional information about HHC, visit www.howardhughes.com or
find us on Facebook, Twitter, Instagram, and LinkedIn.
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:
- 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;
- transactions related to our non-core assets;
- announcement of our strategic review;
- 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 ("SEC") on February 27, 2019, as amended and supplemented by
any risk factors contained in our quarterly reports on Form 10-Q,
which have been subsequently filed with the SEC. 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
|
|
|
|
Six Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
(In thousands, except per share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
|
|
|
Condominium rights
and unit sales
|
|
$
|
433,932
|
|
|
$
|
31,722
|
|
|
$
|
235,622
|
|
|
$
|
20,885
|
|
Master Planned
Communities land sales
|
|
99,633
|
|
|
98,997
|
|
|
58,321
|
|
|
52,432
|
|
Minimum
rents
|
|
108,804
|
|
|
99,912
|
|
|
54,718
|
|
|
50,509
|
|
Tenant
recoveries
|
|
27,020
|
|
|
25,002
|
|
|
13,512
|
|
|
12,250
|
|
Hospitality
revenues
|
|
48,505
|
|
|
45,630
|
|
|
25,576
|
|
|
22,569
|
|
Builder price
participation
|
|
14,564
|
|
|
10,709
|
|
|
9,369
|
|
|
5,628
|
|
Other land
revenues
|
|
10,298
|
|
|
8,843
|
|
|
5,569
|
|
|
4,712
|
|
Other rental and
property revenues
|
|
42,450
|
|
|
21,869
|
|
|
28,629
|
|
|
12,020
|
|
Total
revenues
|
|
785,206
|
|
|
342,684
|
|
|
431,316
|
|
|
181,005
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Condominium rights
and unit cost of sales
|
|
358,314
|
|
|
35,545
|
|
|
220,620
|
|
|
28,816
|
|
Master Planned
Communities cost of sales
|
|
44,824
|
|
|
52,426
|
|
|
28,006
|
|
|
26,383
|
|
Master Planned
Communities operations
|
|
24,082
|
|
|
20,912
|
|
|
12,387
|
|
|
10,587
|
|
Other property
operating costs
|
|
78,586
|
|
|
48,905
|
|
|
41,322
|
|
|
25,730
|
|
Rental property real
estate taxes
|
|
19,505
|
|
|
15,629
|
|
|
9,674
|
|
|
7,502
|
|
Rental property
maintenance costs
|
|
8,329
|
|
|
7,148
|
|
|
4,152
|
|
|
3,951
|
|
Hospitality operating
costs
|
|
32,230
|
|
|
30,984
|
|
|
16,607
|
|
|
15,417
|
|
(Recovery) provision
for doubtful accounts
|
|
(88)
|
|
|
2,135
|
|
|
(86)
|
|
|
1,359
|
|
Demolition
costs
|
|
599
|
|
|
13,331
|
|
|
550
|
|
|
6,660
|
|
Development-related
marketing costs
|
|
11,541
|
|
|
13,266
|
|
|
5,839
|
|
|
7,188
|
|
General and
administrative
|
|
55,404
|
|
|
51,150
|
|
|
30,072
|
|
|
26,886
|
|
Depreciation and
amortization
|
|
75,049
|
|
|
57,275
|
|
|
38,918
|
|
|
29,087
|
|
Total
expenses
|
|
708,375
|
|
|
348,706
|
|
|
408,061
|
|
|
189,566
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Loss on sale or
disposal of real estate
|
|
(150)
|
|
|
—
|
|
|
(144)
|
|
|
—
|
|
Other income,
net
|
|
10,461
|
|
|
266
|
|
|
10,288
|
|
|
266
|
|
Total
other
|
|
10,311
|
|
|
266
|
|
|
10,144
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
87,142
|
|
|
(5,756)
|
|
|
33,399
|
|
|
(8,295)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
4,824
|
|
|
4,679
|
|
|
2,251
|
|
|
2,603
|
|
Interest
expense
|
|
(47,529)
|
|
|
(35,512)
|
|
|
(24,203)
|
|
|
(18,903)
|
|
Equity in earnings
from real estate and other affiliates
|
|
16,305
|
|
|
30,685
|
|
|
6,354
|
|
|
16,299
|
|
Income (loss) before
taxes
|
|
60,742
|
|
|
(5,904)
|
|
|
17,801
|
|
|
(8,296)
|
|
Provision for
(benefit from) income taxes
|
|
15,489
|
|
|
(1,859)
|
|
|
4,473
|
|
|
(2,417)
|
|
Net income
(loss)
|
|
45,253
|
|
|
(4,045)
|
|
|
13,328
|
|
|
(5,879)
|
|
Net loss attributable
to noncontrolling interests
|
|
45
|
|
|
431
|
|
|
149
|
|
|
791
|
|
Net income (loss)
attributable to common stockholders
|
|
$
|
45,298
|
|
|
$
|
(3,614)
|
|
|
$
|
13,477
|
|
|
$
|
(5,088)
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss)
per share:
|
|
$
|
1.05
|
|
|
$
|
(0.08)
|
|
|
$
|
0.31
|
|
|
$
|
(0.12)
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss)
per share:
|
|
$
|
1.05
|
|
|
$
|
(0.08)
|
|
|
$
|
0.31
|
|
|
$
|
(0.12)
|
|
THE HOWARD HUGHES
CORPORATION
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
UNAUDITED
|
|
|
|
June
30,
|
|
December
31,
|
(In thousands, except par values and share
amounts)
|
|
2019
|
|
2018
|
Assets:
|
|
|
|
|
Investment in real
estate:
|
|
|
|
|
Master Planned
Communities assets
|
|
$
|
1,675,536
|
|
|
$
|
1,642,660
|
|
Buildings and
equipment
|
|
3,136,130
|
|
|
2,932,963
|
|
Less: accumulated
depreciation
|
|
(444,461)
|
|
|
(380,892)
|
|
Land
|
|
303,384
|
|
|
297,596
|
|
Developments
|
|
1,349,855
|
|
|
1,290,068
|
|
Net property and
equipment
|
|
6,020,444
|
|
|
5,782,395
|
|
Investment in real
estate and other affiliates
|
|
117,821
|
|
|
102,287
|
|
Net investment in real
estate
|
|
6,138,265
|
|
|
5,884,682
|
|
Cash and cash
equivalents
|
|
650,702
|
|
|
499,676
|
|
Restricted
cash
|
|
197,898
|
|
|
224,539
|
|
Accounts receivable,
net
|
|
19,980
|
|
|
12,589
|
|
Municipal Utility
District receivables, net
|
|
273,169
|
|
|
222,269
|
|
Notes receivable,
net
|
|
300
|
|
|
4,694
|
|
Deferred expenses,
net
|
|
108,198
|
|
|
95,714
|
|
Operating lease
right-of-use assets, net
|
|
71,176
|
|
|
—
|
|
Prepaid expenses and
other assets, net
|
|
249,490
|
|
|
411,636
|
|
Total assets
|
|
$
|
7,709,178
|
|
|
$
|
7,355,799
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgages, notes and
loans payable, net
|
|
$
|
3,422,490
|
|
|
$
|
3,181,213
|
|
Operating lease
obligations
|
|
71,125
|
|
|
—
|
|
Deferred tax
liabilities
|
|
166,033
|
|
|
157,188
|
|
Accounts payable and
accrued expenses
|
|
697,763
|
|
|
779,272
|
|
Total
liabilities
|
|
4,357,411
|
|
|
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, 43,661,694 shares issued
and 43,141,845 outstanding as of June 30, 2019 and 43,511,473
shares issued and 42,991,624 outstanding as of
December 31, 2018
|
|
437
|
|
|
436
|
|
Additional paid-in
capital
|
|
3,329,062
|
|
|
3,322,433
|
|
Accumulated
deficit
|
|
(75,043)
|
|
|
(120,341)
|
|
Accumulated other
comprehensive loss
|
|
(28,542)
|
|
|
(8,126)
|
|
Treasury stock, at
cost, 519,849 shares as of June 30, 2019 and December 31,
2018
|
|
(62,190)
|
|
|
(62,190)
|
|
Total stockholders'
equity
|
|
3,163,724
|
|
|
3,132,212
|
|
Noncontrolling
interests
|
|
188,043
|
|
|
105,914
|
|
Total equity
|
|
3,351,767
|
|
|
3,238,126
|
|
Total liabilities and
equity
|
|
$
|
7,709,178
|
|
|
$
|
7,355,799
|
|
Appendix – Reconciliations of Non-GAAP Measures
As of and for the Six and Three Months Ended June 30, 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.
|
|
Six Months Ended
June 30,
|
|
|
|
Three Months Ended
June 30,
|
|
|
(In
thousands)
|
|
2019
|
|
2018
|
|
$
Change
|
|
2019
|
|
2018
|
|
$
Change
|
Operating Assets
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
201,172
|
|
|
$
|
176,555
|
|
|
$
|
24,617
|
|
|
$
|
109,219
|
|
|
$
|
88,808
|
|
|
$
|
20,411
|
|
Total operating
expenses
|
|
(91,639)
|
|
|
(82,999)
|
|
|
(8,640)
|
|
|
(48,727)
|
|
|
(40,988)
|
|
|
(7,739)
|
|
Segment operating
income
|
|
109,533
|
|
|
93,556
|
|
|
15,977
|
|
|
60,492
|
|
|
47,820
|
|
|
12,672
|
|
Depreciation and
amortization
|
|
(56,046)
|
|
|
(47,558)
|
|
|
(8,488)
|
|
|
(28,938)
|
|
|
(24,198)
|
|
|
(4,740)
|
|
Interest expense,
net
|
|
(39,050)
|
|
|
(33,995)
|
|
|
(5,055)
|
|
|
(20,059)
|
|
|
(17,308)
|
|
|
(2,751)
|
|
Other income,
net
|
|
1,123
|
|
|
164
|
|
|
959
|
|
|
1,088
|
|
|
71
|
|
|
1,017
|
|
Equity in earnings
from real estate and other affiliates
|
|
2,754
|
|
|
1,583
|
|
|
1,171
|
|
|
45
|
|
|
(1,000)
|
|
|
1,045
|
|
Segment
EBT
|
|
18,314
|
|
|
13,750
|
|
|
4,564
|
|
|
12,628
|
|
|
5,385
|
|
|
7,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC Segment
EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
123,755
|
|
|
118,530
|
|
|
5,225
|
|
|
72,859
|
|
|
62,765
|
|
|
10,094
|
|
Total operating
expenses
|
|
(68,906)
|
|
|
(73,371)
|
|
|
4,465
|
|
|
(40,392)
|
|
|
(37,003)
|
|
|
(3,389)
|
|
Segment operating
income
|
|
54,849
|
|
|
45,159
|
|
|
9,690
|
|
|
32,467
|
|
|
25,762
|
|
|
6,705
|
|
Depreciation and
amortization
|
|
(246)
|
|
|
(167)
|
|
|
(79)
|
|
|
(86)
|
|
|
(86)
|
|
|
—
|
|
Interest income,
net
|
|
15,826
|
|
|
13,200
|
|
|
2,626
|
|
|
8,283
|
|
|
6,808
|
|
|
1,475
|
|
Other income,
net
|
|
67
|
|
|
—
|
|
|
67
|
|
|
72
|
|
|
—
|
|
|
72
|
|
Equity in earnings
from real estate and other affiliates
|
|
14,336
|
|
|
25,228
|
|
|
(10,892)
|
|
|
6,499
|
|
|
14,100
|
|
|
(7,601)
|
|
Segment
EBT
|
|
84,832
|
|
|
83,420
|
|
|
1,412
|
|
|
47,235
|
|
|
46,584
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Three Months Ended
June 30,
|
|
|
(In
thousands)
|
|
2019
|
|
2018
|
|
$
Change
|
|
2019
|
|
2018
|
|
$
Change
|
Seaport District
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
19,921
|
|
|
8,011
|
|
|
11,910
|
|
|
12,891
|
|
|
4,500
|
|
|
8,391
|
|
Total operating
expenses
|
|
(32,405)
|
|
|
(9,976)
|
|
|
(22,429)
|
|
|
(17,972)
|
|
|
(6,441)
|
|
|
(11,531)
|
|
Segment operating
income
|
|
(12,484)
|
|
|
(1,965)
|
|
|
(10,519)
|
|
|
(5,081)
|
|
|
(1,941)
|
|
|
(3,140)
|
|
Depreciation and
amortization
|
|
(12,946)
|
|
|
(4,197)
|
|
|
(8,749)
|
|
|
(6,753)
|
|
|
(1,953)
|
|
|
(4,800)
|
|
Interest (expense)
income, net
|
|
(3,456)
|
|
|
6,995
|
|
|
(10,451)
|
|
|
(1,924)
|
|
|
3,278
|
|
|
(5,202)
|
|
Other loss,
net
|
|
(147)
|
|
|
—
|
|
|
(147)
|
|
|
(61)
|
|
|
—
|
|
|
(61)
|
|
Equity in losses from
real estate and other affiliates
|
|
(1,083)
|
|
|
(240)
|
|
|
(843)
|
|
|
(451)
|
|
|
(240)
|
|
|
(211)
|
|
Loss on sale or
disposal of real estate
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Segment
EBT
|
|
(30,122)
|
|
|
593
|
|
|
(30,715)
|
|
|
(14,270)
|
|
|
(856)
|
|
|
(13,414)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
Developments Segment EBT
|
|
|
|
|
Total
revenues
|
|
440,358
|
|
|
39,588
|
|
|
400,770
|
|
|
236,347
|
|
|
24,932
|
|
|
211,415
|
|
Total operating
expenses
|
|
(371,014)
|
|
|
(47,339)
|
|
|
(323,675)
|
|
|
(224,711)
|
|
|
(35,312)
|
|
|
(189,399)
|
|
Segment operating
income
|
|
69,344
|
|
|
(7,751)
|
|
|
77,095
|
|
|
11,636
|
|
|
(10,380)
|
|
|
22,016
|
|
Depreciation and
amortization
|
|
(2,316)
|
|
|
(2,178)
|
|
|
(138)
|
|
|
(1,260)
|
|
|
(1,113)
|
|
|
(147)
|
|
Interest income,
net
|
|
6,497
|
|
|
6,946
|
|
|
(449)
|
|
|
3,235
|
|
|
3,139
|
|
|
96
|
|
Other income (loss),
net
|
|
310
|
|
|
373
|
|
|
(63)
|
|
|
(385)
|
|
|
164
|
|
|
(549)
|
|
Equity in earnings
from real estate and other affiliates
|
|
298
|
|
|
4,112
|
|
|
(3,814)
|
|
|
261
|
|
|
3,440
|
|
|
(3,179)
|
|
Loss on sale or
disposal of real estate
|
|
(144)
|
|
|
—
|
|
|
(144)
|
|
|
(144)
|
|
|
—
|
|
|
(144)
|
|
Segment
EBT
|
|
73,989
|
|
|
1,502
|
|
|
72,487
|
|
|
13,343
|
|
|
(4,750)
|
|
|
18,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
785,206
|
|
|
342,684
|
|
|
442,522
|
|
|
431,316
|
|
|
181,005
|
|
|
250,311
|
|
Total operating
expenses
|
|
(563,964)
|
|
|
(213,685)
|
|
|
(350,279)
|
|
|
(331,802)
|
|
|
(119,744)
|
|
|
(212,058)
|
|
Segment operating
income
|
|
221,242
|
|
|
128,999
|
|
|
92,243
|
|
|
99,514
|
|
|
61,261
|
|
|
38,253
|
|
Depreciation and
amortization
|
|
(71,554)
|
|
|
(54,100)
|
|
|
(17,454)
|
|
|
(37,037)
|
|
|
(27,350)
|
|
|
(9,687)
|
|
Interest expense,
net
|
|
(20,183)
|
|
|
(6,854)
|
|
|
(13,329)
|
|
|
(10,465)
|
|
|
(4,083)
|
|
|
(6,382)
|
|
Other income,
net
|
|
1,353
|
|
|
537
|
|
|
816
|
|
|
714
|
|
|
235
|
|
|
479
|
|
Equity in earnings
from real estate and other affiliates
|
|
16,305
|
|
|
30,683
|
|
|
(14,378)
|
|
|
6,354
|
|
|
16,300
|
|
|
(9,946)
|
|
Loss on sale or
disposal of real estate
|
|
(150)
|
|
|
—
|
|
|
(150)
|
|
|
(144)
|
|
|
—
|
|
|
(144)
|
|
Consolidated segment
EBT
|
|
147,013
|
|
|
99,265
|
|
|
47,748
|
|
|
58,936
|
|
|
46,363
|
|
|
12,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
and other items
|
|
101,760
|
|
|
103,310
|
|
|
1,550
|
|
|
45,608
|
|
|
52,242
|
|
|
6,634
|
|
Net income
(loss)
|
|
45,253
|
|
|
(4,045)
|
|
|
49,298
|
|
|
13,328
|
|
|
(5,879)
|
|
|
19,207
|
|
Net loss attributable
to noncontrolling interests
|
|
45
|
|
|
431
|
|
|
386
|
|
|
149
|
|
|
791
|
|
|
642
|
|
Net income (loss)
attributable to common stockholders
|
|
$
|
45,298
|
|
|
$
|
(3,614)
|
|
|
$
|
48,912
|
|
|
$
|
13,477
|
|
|
$
|
(5,088)
|
|
|
$
|
18,565
|
|
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.
|
|
Six Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
|
|
(Unaudited)
|
|
(Unaudited)
|
(In
thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total Operating
Assets segment EBT (a)
|
|
$
|
18,314
|
|
|
$
|
13,750
|
|
|
$
|
12,628
|
|
|
$
|
5,385
|
|
|
|
|
|
|
|
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
56,046
|
|
|
47,558
|
|
|
28,938
|
|
|
24,198
|
|
Interest expense,
net
|
|
39,050
|
|
|
33,995
|
|
|
20,059
|
|
|
17,308
|
|
Equity in (earnings)
loss from real estate and other affiliates
|
|
(2,754)
|
|
|
(1,583)
|
|
|
(45)
|
|
|
1,000
|
|
Impact of
straight-line rent
|
|
(5,382)
|
|
|
(5,536)
|
|
|
(2,537)
|
|
|
(2,414)
|
|
Other
|
|
(218)
|
|
|
(107)
|
|
|
(340)
|
|
|
(421)
|
|
Total Operating
Assets NOI - Consolidated
|
|
105,056
|
|
|
88,077
|
|
|
58,703
|
|
|
45,056
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
|
|
|
|
|
|
Cottonwood
Square
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
Total Operating
Asset Dispositions NOI
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Operating Assets NOI excluding properties sold or in
redevelopment
|
|
$
|
105,056
|
|
|
$
|
88,088
|
|
|
$
|
58,703
|
|
|
$
|
45,056
|
|
|
|
|
|
|
|
|
|
|
Company's Share NOI -
Equity investees
|
|
3,152
|
|
|
1,366
|
|
|
1,688
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
Distributions from
Summerlin Hospital Investment
|
|
3,625
|
|
|
3,435
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Assets NOI
|
|
$
|
111,833
|
|
|
$
|
92,889
|
|
|
$
|
60,391
|
|
|
$
|
45,847
|
|
|
|
|
|
|
|
|
(a)
|
EBT excludes
corporate expenses and other items that are not allocable to the
segments.
|
|
|
Six Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
|
|
(Unaudited)
|
|
(Unaudited)
|
(In
thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total Seaport
District segment EBT (a)
|
|
$
|
(30,122)
|
|
|
$
|
593
|
|
|
$
|
(14,270)
|
|
|
$
|
(856)
|
|
|
|
|
|
|
|
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
12,946
|
|
|
4,197
|
|
|
6,753
|
|
|
1,953
|
|
Interest expense
(income), net
|
|
3,456
|
|
|
(6,995)
|
|
|
1,924
|
|
|
(3,278)
|
|
Equity in (earnings)
loss from real estate and other affiliates
|
|
1,083
|
|
|
240
|
|
|
451
|
|
|
240
|
|
Impact of
straight-line rent
|
|
1,246
|
|
|
(338)
|
|
|
491
|
|
|
(156)
|
|
Loss on sale or
disposal of real estate
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other - development
related
|
|
4,513
|
|
|
3,286
|
|
|
1,764
|
|
|
2,562
|
|
Total Seaport
District NOI - Consolidated
|
|
(6,872)
|
|
|
983
|
|
|
(2,887)
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
Company's Share NOI -
Equity investees
|
|
(237)
|
|
|
(127)
|
|
|
(42)
|
|
|
(127)
|
|
|
|
|
|
|
|
|
|
|
Total Seaport
District NOI
|
|
$
|
(7,109)
|
|
|
$
|
856
|
|
|
$
|
(2,929)
|
|
|
$
|
338
|
|
|
|
|
|
|
|
|
(a)
|
EBT excludes
corporate 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,
plus real estate depreciation and amortization and impairment
charges (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, 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.
|
|
Six Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
|
|
(Unaudited)
|
|
(Unaudited)
|
(In thousands,
except share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
attributable to common shareholders
|
|
$
|
45,298
|
|
|
$
|
(3,614)
|
|
|
$
|
13,477
|
|
|
$
|
(5,088)
|
|
Adjustments to arrive
at FFO:
|
|
|
|
|
|
|
|
|
Segment real estate
related depreciation and amortization
|
|
71,554
|
|
|
54,100
|
|
|
37,037
|
|
|
27,350
|
|
Loss on sale or
disposal of real estate
|
|
150
|
|
|
—
|
|
|
144
|
|
|
—
|
|
Reconciling items
related to noncontrolling interests
|
|
(45)
|
|
|
(431)
|
|
|
(149)
|
|
|
(791)
|
|
Our share of the
above reconciling items included in earnings from
unconsolidated joint ventures
|
|
3,750
|
|
|
2,685
|
|
|
1,923
|
|
|
1,172
|
|
FFO
|
|
$
|
120,707
|
|
|
$
|
52,740
|
|
|
$
|
52,432
|
|
|
$
|
22,643
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at Core FFO:
|
|
|
|
|
|
|
|
|
Severance
expenses
|
|
$
|
923
|
|
|
$
|
281
|
|
|
$
|
69
|
|
|
$
|
63
|
|
Non-real estate
related depreciation and amortization
|
|
3,495
|
|
|
3,175
|
|
|
1,880
|
|
|
1,738
|
|
Straight-line
amortization
|
|
(4,154)
|
|
|
(6,428)
|
|
|
(2,020)
|
|
|
(3,088)
|
|
Deferred income tax
expense (benefit)
|
|
14,821
|
|
|
(924)
|
|
|
4,118
|
|
|
(1,170)
|
|
Non-cash fair value
adjustments related to hedging instruments
|
|
(220)
|
|
|
(868)
|
|
|
(92)
|
|
|
(652)
|
|
Share based
compensation
|
|
5,653
|
|
|
5,354
|
|
|
2,928
|
|
|
2,828
|
|
Other non-recurring
expenses (development related marketing and
demolition costs)
|
|
12,140
|
|
|
26,597
|
|
|
6,389
|
|
|
13,848
|
|
Our share of the
above reconciling items included in earnings from
unconsolidated joint ventures
|
|
163
|
|
|
250
|
|
|
99
|
|
|
156
|
|
Core
FFO
|
|
$
|
153,528
|
|
|
$
|
80,177
|
|
|
$
|
65,803
|
|
|
$
|
36,366
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at AFFO:
|
|
|
|
|
|
|
|
|
Tenant and capital
improvements
|
|
$
|
(3,795)
|
|
|
$
|
(9,165)
|
|
|
$
|
(2,753)
|
|
|
$
|
(4,633)
|
|
Leasing
commissions
|
|
(788)
|
|
|
(1,450)
|
|
|
(370)
|
|
|
(1,051)
|
|
AFFO
|
|
$
|
148,945
|
|
|
$
|
69,562
|
|
|
$
|
62,680
|
|
|
$
|
30,682
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted share
value
|
|
$
|
2.79
|
|
|
$
|
1.22
|
|
|
$
|
1.21
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
Core FFO per diluted
share value
|
|
$
|
3.55
|
|
|
$
|
1.87
|
|
|
$
|
1.52
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
AFFO per diluted
share value
|
|
$
|
3.44
|
|
|
$
|
1.62
|
|
|
$
|
1.45
|
|
|
$
|
0.71
|
|
Contact Information:
David R.
O'Reilly
Chief Financial Officer
(214)
741-7744
David.OReilly@howardhughes.com
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SOURCE The Howard Hughes Corporation