DALLAS, Nov. 4, 2019
/PRNewswire/ -- The Howard Hughes Corporation®
(NYSE: HHC) (the "Company," "HHC" or "we") announced today
operating results for the third quarter ended September 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.
On October 21, 2019, Management
announced the conclusion of its previously announced review of
strategic alternatives. The process culminated in a transformation
plan led by new executive leadership and comprised of three
pillars: (1) a $45 - $50 million per annum reduction in overhead
expenses, (2) the sale of approximately $2
billion of non-core assets and (3) accelerated growth in our
core master planned communities ("MPC") assets.
Strategic Transformation Plan Highlights
- Paul Layne named Chief Executive
Officer to lead execution of the transformation plan to create a
lean, focused, decentralized organization built around the
Company's core MPCs.
- Executed on $86 million in
non-core asset sales by completing the sale of Cottonwood Mall, a
non-core asset in Salt Lake City,
Utah, for $46 million and the
sale of approximately 650 acres of land in the West Windsor Township near Princeton, NJ for $40
million.
- Accelerated growth in our core MPC business by commencing
construction of Creekside Park Apartments Phase II, a 360-unit
multi-family development in The
Woodlands, TX. The project is anticipated to contribute
approximately $4.7 million of
stabilized net operating income ("NOI").
- Board of Directors has authorized a new stock repurchase
program, under which the Company may repurchase up to $100 million of its outstanding common
stock.
Third Quarter 2019 Highlights
- Net income attributable to common stockholders increased to
$29.8 million, or $0.69 per diluted share, for the three months
ended September 30, 2019, compared to
$23.4 million, or $0.54 per diluted share, for the three months
ended September 30, 2018.
- Total NOI from the Operating Assets segment, including our
share of NOI from equity investments, grew strongly by 33% to
$56.3 million for the three months
ended September 30, 2019, compared to
$42.2 million for the prior year
period.
- MPC segment earnings before tax ("EBT") decreased by
$28.3 million to $60.6 million for the three months ended
September 30, 2019. Despite the
overall decrease in MPC EBT, our Houston MPCs showed continued
strength led by Bridgeland with a 62.4% increase in underlying home
sales as well as an 8.7% increase in price per acre.
- Broke ground on Kō'ula, our newest condominium tower that began
public sales in January 2019, which
is approximately 70.3% pre-sold as of the third quarter of
2019.
- Increased Seaport District segment revenues by $8.5 million to $23.1
million for the three months ended September 30, 2019 compared to the prior year
period partially driven by the openings of Bar Wayō, Malibu Farm and The Lookout on Pier 17.
Highlights of our results for the nine and three months ended
September 30, 2019 are summarized
below. We are primarily focused on creating shareholder value by
increasing our per share net asset value. Often, the nature of our
business results in short term volatility in our Net income due to
the timing of MPC land sales, recognition of condominium revenue
and operating business pre-opening expenses, and, as such, we
believe the following metrics are most useful in tracking our
progress towards net asset value creation.
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
|
|
($ in
thousands)
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
Operating Assets
NOI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
63,081
|
|
|
$
|
50,195
|
|
|
$
|
12,886
|
|
|
26
|
%
|
|
$
|
24,159
|
|
|
$
|
17,092
|
|
|
$
|
7,067
|
|
|
41
|
%
|
Retail
|
|
47,188
|
|
|
47,215
|
|
|
(27)
|
|
|
—
|
%
|
|
15,683
|
|
|
15,760
|
|
|
(77)
|
|
|
—
|
%
|
Multi-family
|
|
14,503
|
|
|
11,902
|
|
|
2,601
|
|
|
22
|
%
|
|
5,317
|
|
|
3,685
|
|
|
1,632
|
|
|
44
|
%
|
Hospitality
|
|
23,419
|
|
|
20,436
|
|
|
2,983
|
|
|
15
|
%
|
|
7,231
|
|
|
4,952
|
|
|
2,279
|
|
|
46
|
%
|
Other
|
|
11,149
|
|
|
(782)
|
|
|
11,931
|
|
|
1,526
|
%
|
|
1,894
|
|
|
(600)
|
|
|
2,494
|
|
|
(416)
|
%
|
Company's share NOI
(a)
|
|
8,820
|
|
|
6,155
|
|
|
2,665
|
|
|
43
|
%
|
|
2,043
|
|
|
1,343
|
|
|
700
|
|
|
52
|
%
|
Total Operating
Assets NOI (b)
|
|
$
|
168,160
|
|
|
$
|
135,121
|
|
|
$
|
33,039
|
|
|
24
|
%
|
|
$
|
56,327
|
|
|
$
|
42,232
|
|
|
$
|
14,095
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected stabilized
NOI
Operating Assets ($ in millions)
|
|
$
|
323.1
|
|
|
$
|
315.7
|
|
|
$
|
7.5
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres Sold -
Residential
|
|
337
|
|
|
384
|
|
|
(47)
|
|
|
(12)
|
%
|
|
147
|
|
|
222
|
|
|
(75)
|
|
|
(34)
|
%
|
Acres Sold -
Commercial
|
|
—
|
|
|
4
|
|
|
(4)
|
|
|
(100)
|
%
|
|
—
|
|
|
2
|
|
|
(2)
|
|
|
(100)
|
%
|
Price Per Acre -
Residential
|
|
$
|
543
|
|
|
$
|
533
|
|
|
$
|
10
|
|
|
2
|
%
|
|
$
|
574
|
|
|
$
|
527
|
|
|
$
|
47
|
|
|
9
|
%
|
Price Per Acre -
Commercial
|
|
$
|
—
|
|
|
$
|
767
|
|
|
$
|
(767)
|
|
|
(100)
|
%
|
|
$
|
—
|
|
|
$
|
851
|
|
|
$
|
(851)
|
|
|
(100)
|
%
|
MPC
EBT
|
|
$
|
145,469
|
|
|
$
|
172,338
|
|
|
$
|
(26,869)
|
|
|
(16)
|
%
|
|
$
|
60,637
|
|
|
$
|
88,918
|
|
|
$
|
(28,281)
|
|
|
(32)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seaport District
NOI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historic District
& Pier 17 -
Landlord
|
|
$
|
(5,156)
|
|
|
$
|
(2,746)
|
|
|
$
|
(2,410)
|
|
|
(88)
|
%
|
|
$
|
(2,150)
|
|
|
$
|
(1,435)
|
|
|
$
|
(715)
|
|
|
(50)
|
%
|
Multi-Family
|
|
303
|
|
|
363
|
|
|
(60)
|
|
|
(17)
|
%
|
|
112
|
|
|
109
|
|
|
3
|
|
|
3
|
%
|
Hospitality
|
|
41
|
|
|
70
|
|
|
(29)
|
|
|
(41)
|
%
|
|
—
|
|
|
70
|
|
|
(70)
|
|
|
(100)
|
%
|
Historic District
& Pier 17 -
Managed Businesses
|
|
(4,420)
|
|
|
(528)
|
|
|
(3,892)
|
|
|
(737)
|
%
|
|
(879)
|
|
|
(478)
|
|
|
(401)
|
|
|
(84)
|
%
|
Tin Building -
Managed
Businesses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Events, Sponsorships
& Catering
Business
|
|
(536)
|
|
|
878
|
|
|
(1,414)
|
|
|
(161)
|
%
|
|
25
|
|
|
(1,212)
|
|
|
1,237
|
|
|
(102)
|
%
|
Company's share NOI
(a)
|
|
(385)
|
|
|
(579)
|
|
|
194
|
|
|
(34)
|
%
|
|
(148)
|
|
|
(452)
|
|
|
304
|
|
|
67
|
%
|
Total Seaport
District NOI
|
|
$
|
(10,153)
|
|
|
$
|
(2,542)
|
|
|
$
|
(7,611)
|
|
|
299
|
%
|
|
$
|
(3,040)
|
|
|
$
|
(3,398)
|
|
|
$
|
358
|
|
|
(11)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
Developments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominium units
contracted to
sell (c)
|
|
82
|
|
|
49
|
|
|
33
|
|
|
67
|
%
|
|
55
|
|
|
2
|
|
|
53
|
|
|
2,650
|
%
|
|
______________________________
|
(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
September 30, 2019.
|
"Our third quarter results illustrate the strong fundamentals of
our business across our core markets, highlighted by the 33%
quarter-over-quarter growth we experienced in recurring Operating
Assets NOI," said Paul H. Layne,
Chief Executive Officer. "With the NOI growth in our Operating
Assets segment, we have an annual run rate of $231 million with a stabilized NOI target of
$323 million, a 2.4% increase over
2018. At Summerlin, we celebrated the Las Vegas Ballpark and Las
Vegas Aviators being named ballpark and team of the year by
Ballpark Digest. These recognitions speak to the catalytic
impact baseball has had on Summerlin, in particular on Downtown
Summerlin, and the importance of masterful design in creating
vibrant destinations in the hearts of our planned cities.
Additionally, home sales, a leading indicator of future land
purchases by home builders, are up 22.6% across all our MPCs.
"At Ward Village, we also celebrated the ground breaking of
Kō'ula, which began public sales in January
2019, marking our latest milestone as we continue to execute
on our vision for the community with the development of each
building and one-of-a-kind public spaces as well as the ongoing
curation of unique offerings. Demand to live in our community
remains high as evidenced by sales at Kō'ula, which is already 70%
pre-sold.
"In New York, the Seaport District had a strong finish for the
summer with the openings of Bar Wayō, the latest offering from the
renowned Momofuku restaurant group; Malibu Farm, a California-inspired farm-to-table eatery; and
The Lookout, a seasonal bar pop-up. Overall, the Seaport District's
revenue is again up for the third quarter, and with many additional
key offerings coming online in the next 18 months to complete the
district, we are continuing to make substantial progress in
accomplishing our vision.
"Finally, we recently announced a transformation plan for the
Company following the conclusion of our strategic review process.
The transformation plan has three main elements: a streamlined
organizational structure with reduced overhead expenses, the sale
of non-core assets and accelerated growth in our core MPC business,
where we have unique and sustainable competitive advantages. We are
confident that focusing on this path will provide the best
long-term outcome for our shareholders, our customers and our
employees," said Mr. Layne.
Financial Results
Net income attributable to common
stockholders increased to $75.1 million,
or $1.73 per diluted share, and $29.8 million, or $0.69 per diluted share, for the nine and three
months ended September 30, 2019,
respectively, compared to $19.8
million, or $0.46 per diluted
share, and $23.4 million, or
$0.54 per diluted share, for the nine
and three months ended September 30,
2018, respectively. The increase for the nine months ended
September 30, 2019 is primarily due
to higher Condominium rights and unit sales, net of costs, driven
by closings at Ae'o. In addition, the increases in both the nine
and three months ended September 30,
2019 are attributable to a gain recognized on the sale of
Cottonwood Mall and selling profit recognized as a result of a
build-to-suit lease that commenced at our 100 Fellowship Drive
property which for accounting purposes is recognized as a
sales-type lease. The increases in both periods were partially
offset by lower MPC superpad sales at Summerlin and 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.
Key factors impacting our Funds from operations ("FFO"), Core
funds from operations ("Core FFO") and Adjusted FFO ("AFFO") are
discussed below.
|
|
Nine Months
Ended
September 30,
|
|
Three Months
Ended
September 30,
|
(In thousands,
except share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
attributable to common stockholders
|
|
$
|
75,056
|
|
|
$
|
19,751
|
|
|
$
|
29,758
|
|
|
$
|
23,365
|
|
Basic income per
share:
|
|
$
|
1.74
|
|
|
$
|
0.46
|
|
|
$
|
0.69
|
|
|
$
|
0.54
|
|
Diluted income per
share:
|
|
$
|
1.73
|
|
|
$
|
0.46
|
|
|
$
|
0.69
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
Funds from
operations
|
|
$
|
158,876
|
|
|
$
|
105,113
|
|
|
$
|
40,161
|
|
|
$
|
53,753
|
|
FFO per weighted
average diluted share
|
|
$
|
3.66
|
|
|
$
|
2.43
|
|
|
$
|
0.91
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
Core FFO
|
|
$
|
211,301
|
|
|
$
|
148,849
|
|
|
$
|
59,859
|
|
|
$
|
71,818
|
|
Core FFO per weighted
average diluted share
|
|
$
|
4.87
|
|
|
$
|
3.44
|
|
|
$
|
1.38
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
AFFO
|
|
$
|
204,711
|
|
|
$
|
136,471
|
|
|
$
|
57,852
|
|
|
$
|
70,055
|
|
AFFO per weighted
average diluted share
|
|
$
|
4.72
|
|
|
$
|
3.15
|
|
|
$
|
1.32
|
|
|
$
|
1.62
|
|
FFO increased $53.8 million, or
$1.23 per diluted share, for the nine
months ended September 30, 2019 and
decreased $13.6 million, or
$0.33 per diluted share, for the
three months ended September 30,
2019, compared to the same periods in 2018. As noted above,
the increase for the nine months ended September 30, 2019 was primarily attributable to
the increase in Condominium rights and unit sales, net of costs,
due to Ae'o closings, partially offset by higher operating losses
at the Seaport District. The decrease for the three months ended
September 30, 2019 is attributable to
a decrease in Master Planned Communities land sales due to fewer
superpad sales at Summerlin and a slower pace of land development
and custom lot sales at The Summit as well as an increase in
interest expense due to placing assets into service. The decrease
was partially offset by an increase in Other rental and property
revenues in the Operating Assets and Seaport District segments.
Core FFO, our FFO adjusted to exclude the impact of certain
non-cash and/or nonrecurring income and expense items, increased
$62.5 million, or $1.43 per diluted share, for the nine months
ended September 30, 2019 and
decreased $12.0 million, or
$0.28 per diluted share, for the
three months ended September 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 $68.2 million, or $1.57 per diluted share, for the nine months
ended September 30, 2019 and
decreased $12.2 million, or
$0.30 per diluted share, for the
three months ended September 30, 2019
compared to the same periods in 2018 primarily due to the items
mentioned in the FFO and Core FFO discussions above. The increase
in the nine month period was 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 $33.0 million,
or 24.5%, to $168.2 million in the
nine months ended September 30, 2019
and by $14.1 million, or 33.4%, to
$56.3 million in the three months
ended September 30, 2019 compared to
the same periods in 2018. The increase in NOI for the nine and
three months ended September 30, 2019
is primarily driven by increases of $11.9
million and $2.5 million in
our other properties category; $12.9
million and $7.1 million in
our office properties; and $3.0
million and $2.3 million in
our hospitality properties. The increase in our other category for
the nine and three months ended September
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. The increases
in our office and hospitality properties are mainly the result of
continued stabilization of existing assets within these categories,
increased occupancy, as well as NOI generated from assets placed
into service subsequent to the third quarter of 2018.
As previously mentioned, in September
2019, the Las Vegas Ballpark and its professional Triple-A
baseball team, the Las Vegas Aviators, were named ballpark and team
of the year, respectively, by Ballpark Digest. This is the
first time Ballpark Digest has awarded both a stadium and
its affiliated team with top honors during the same year.
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.
During the nine and three months ended September 30, 2019, our MPC segment EBT decreased
$26.9 million to $145.5 million and $28.3
million to $60.6 million,
respectively, mainly as a result of fewer superpad sales at
Summerlin and lower Equity in earnings from real estate and other
affiliates. Land sales revenues at Summerlin were also negatively
impacted by lower recognition of revenue deferred from previous
sales and fewer SID bond assumptions and reimbursements. As noted
above, the decrease in Equity in earnings from real estate and
other affiliates is primarily attributable to a slower pace of land
development and fewer custom lot sales at The Summit, which offers
a mix of custom lots, detached homes sold by the joint venture and
multi-family homes sold by the joint venture. 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. Despite the decline in
year-to-date land sales in Summerlin, we remain optimistic
that we will achieve total land sales for the year consistent with
our results over the past two years.
For the nine month period, the decreases noted above are
partially offset by increased land sales revenues at Bridgeland,
The Woodlands and The Woodlands
Hills. At Bridgeland, land sales revenues increased $15.3 million, or 50.4%, due to robust sales of
single-family lots, resulting in 197 more lot sales in the nine
months ended September 30, 2019
compared to the prior year period. Land sales revenues at
The Woodlands increased
$7.7 million due to a 48.3% increase
in superpad and single-family sales for the nine months ended
September 30, 2019 compared to the
prior period. For the nine months ended September 30, 2019, land sales revenues at The
Woodlands Hills increased 25.7% primarily due to the mix and
number of lots sold. Despite fewer lots sales, Summerlin's price
per acre increased to $685,000 for
the nine months ended September 30,
2019 from $589,000 in the
prior period primarily due to the mix of lots sold. For the three
months ended September 30, 2019, the
decreases in overall MPC revenue are partially offset by increased
land sales revenues at The Woodlands Hills and The Woodlands, which increased 77.0% and
62.7%, respectively, primarily due to the mix and number of lots
sold. The Woodlands also achieved
a $737,000 price per acre for the
three month period, an increase of $195,000, primarily due to the mix of lots sold.
Land sales revenue at Bridgeland also increased for the three
months ended September 30, 2019
primarily due to an 8.7% higher price per acre. Similarly, while
Summerlin had fewer lots sales, price per acre increased 17.8% for
the superpad and custom lot products for the three months ended
September 30, 2019.
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 154.5% and 18.2% for the nine and three months
ended September 30, 2019,
respectively, over the prior year periods. Bridgeland's home sales
increased 42.7% and 62.4% for the nine and three months ended
September 30, 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.
In addition, they have excellent access, schools and amenities.
During the current quarter, we celebrated the opening of one such
amenity, Dragonfly Park, a 25-acre park and 25-acre lake, located
in Bridgeland's Parkland Village. Touted as a destination, the
grand opening drew more than 1,500 residents to the park, which
offers an abundance of outdoor activities, including a resort-style
pool, lazy river, basketball and tennis courts, dragonfly play
structure and event space. While home sales decreased 5.4% and 3.8%
in Summerlin and The Woodlands,
respectively, for the nine months ended September 30, 2019 compared to the previous year,
home sales at Summerlin and The
Woodlands have increased 6.6% and 27.0%, respectively, for
the three months ended September 30,
2019 compared to the prior year period, evidencing continued
strength. The following summarizes home sales in our MPCs during
the nine and three months ended September
30, 2019.
|
Net New Home
Sales
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
Three Months
Ended
September 30, 2019
|
|
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
|
2019
|
|
2018
|
|
Change
|
|
%
Change
|
The
Woodlands
|
255
|
|
|
265
|
|
|
(10)
|
|
|
(3.8)
|
%
|
|
80
|
|
|
63
|
|
|
17
|
|
|
27.0
|
%
|
The Woodlands
Hills
|
84
|
|
|
33
|
|
|
51
|
|
|
154.5
|
%
|
|
26
|
|
|
22
|
|
|
4
|
|
|
18.2
|
%
|
Bridgeland
|
541
|
|
|
379
|
|
|
162
|
|
|
42.7
|
%
|
|
190
|
|
|
117
|
|
|
73
|
|
|
62.4
|
%
|
Summerlin
|
989
|
|
|
1,046
|
|
|
(57)
|
|
|
(5.4)
|
%
|
|
322
|
|
|
302
|
|
|
20
|
|
|
6.6
|
%
|
Total
|
1,869
|
|
|
1,723
|
|
|
146
|
|
|
8.5
|
%
|
|
618
|
|
|
504
|
|
|
114
|
|
|
22.6
|
%
|
The Seaport District
In the Seaport District, we celebrated the openings of Bar Wayō,
the latest offering from the renowned Momofuku restaurant
group; Malibu Farm, a California-inspired farm-to-table eatery; and
The Lookout, a seasonal pop-up bar at Pier 17. We also sold out 30
concerts and have sold 96% of all available tickets for the Summer
Concert Series.
Seaport District segment revenues increased by $20.4 million to $43.1
million and $8.5 million to
$23.1 million for the nine and three
months ended September 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 $7.6
million to a net operating loss of $10.2 million and increased by $0.4 million to a net operating loss of
$3.0 million for the nine and three
months ended September 30, 2019,
respectively, compared to the same periods in 2018. The decrease in
NOI in the nine month 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 $3.9 million, $2.4
million and $1.4
million, in managed businesses, landlord operations and
events and sponsorships, respectively, compared to the prior year
period were primary contributors to the decrease in NOI for the
nine months ended September 30, 2019.
The increase for the three month period compared to the prior year
period was primarily attributable to an increase of $1.2 million in our events and sponsorships,
partially offset by a decrease of $0.7
million in landlord operations for the three months ended
September 30, 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 approximately 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
Jean-Georges food hall. 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 and after a more thorough internal review by our new
leadership, 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
Strategic Developments segment EBT increased $98.4 million and $25.9
million for the nine and three months ended September 30, 2019, respectively, compared to the
same periods in the prior year. The increase for the nine months
ended September 30, 2019 compared to
the prior year period is primarily due to an increase in
Condominium rights and unit sales, net of costs, due to closings at
Ae'o. As a result of the adoption of Topic 606 in 2018, condominium
revenue is only recognized as unit sales close which occurs after
building completion. The year to date period was also positively
impacted by the gain recognized for the sale of Cottonwood Mall and
the absence of the $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 increase for the three months ended September 30, 2019 compared to the prior year
period is primarily due to an increase in the Gain on sale or
disposal of real estate driven by the sale of Cottonwood Mall. For
the nine and three months ended September
30, 2019, we reported revenues of $443.9 million and $10.0
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 $39.8 million and $8.0
million for the prior periods, respectively.
As noted above, the cause of the increase in revenue in the nine
month period compared to prior year is increased closings. We
closed on 594 condominium units during the nine months ended
September 30, 2019 compared to 15
during the prior year 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. Strong sales momentum continued at 'A'ali'i and
Kō'ula, which are 83.1% and 70.3% pre-sold, respectively, as of
September 30, 2019. Kō'ula, our newest condominium tower that
began public sales in January 2019,
was 71.9% pre-sold as of October 31,
2019. With approximately 89% 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.
Balance Sheet Third Quarter Activity and Subsequent
Events
On October 24, 2019, we modified and extended our
$47.9 million loan for Outlet
Collection at Riverwalk. The total commitment was reduced to
$30.9 million, including the required
pay-down of $15.0 million. The loan
bears interest at one-month London Interbank Offered Rate ("LIBOR")
plus 2.50% and matures October 24, 2021.
On October 17, 2019, our wholly-owned subsidiary purchased
the $99.7 million note for 250 Water
Street from the previous lender at a discount of approximately
$6.5 million. We expect to obtain
third-party financing in the fourth quarter of 2019.
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 master planned communities. The
loan bears interest at LIBOR plus 2.50% with a final maturity of
October 17, 2024. 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 LIBOR plus 2.87%.
On September 13, 2019, we closed on a $37.7 million multi-family loan and security
agreement for Creekside Park Apartments. The loan bears interest at
3.52% with a maturity of October 1, 2029.
On August 6, 2019, we closed on a $30.7 million construction loan for Millennium
Phase III Apartments. The loan bears interest at one-month
LIBOR plus 1.75% with an initial maturity date of
August 6, 2023 and a one-year extension option.
On August 1, 2019, we modified our
$64.6 million construction loan, of
which $31.1 million relates to
Aristocrat and $33.5 million relates
to Two Summerlin. The original loan bears interest at Wall Street
Journal Prime plus 0.40% with a maturity of October 19, 2022.
As part of the modification, the $33.5
million Two Summerlin note was amended to bear interest at
4.25% with an initial maturity of October 18, 2022 and one,
36-month extension option. We closed on a new $38.3 million note for Aristocrat which bears
interest at 3.67% with an initial maturity of September 1,
2029. A portion of the proceeds for the new Aristocrat note were
used to extinguish the original Aristocrat note.
As of September 30, 2019, our total consolidated debt
equaled approximately 45.6% 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 September 30, 2019, we had $638.0 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:
- 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 ("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
|
|
|
|
Nine Months
Ended
September 30,
|
|
Three Months
Ended
September 30,
|
(In thousands, except per share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
|
|
|
Condominium rights
and unit sales
|
|
$
|
443,931
|
|
|
$
|
39,767
|
|
|
$
|
9,999
|
|
|
$
|
8,045
|
|
Master Planned
Communities land sales
|
|
177,001
|
|
|
226,727
|
|
|
77,368
|
|
|
127,730
|
|
Minimum
rents
|
|
164,356
|
|
|
153,156
|
|
|
55,552
|
|
|
53,244
|
|
Tenant
recoveries
|
|
40,724
|
|
|
37,808
|
|
|
13,704
|
|
|
12,806
|
|
Hospitality
revenues
|
|
68,536
|
|
|
64,738
|
|
|
20,031
|
|
|
19,108
|
|
Builder price
participation
|
|
24,224
|
|
|
19,394
|
|
|
9,660
|
|
|
8,685
|
|
Other land
revenues
|
|
16,646
|
|
|
15,988
|
|
|
5,954
|
|
|
7,145
|
|
Other rental and
property revenues
|
|
79,872
|
|
|
42,266
|
|
|
37,816
|
|
|
20,397
|
|
Interest income from
sales-type leases
|
|
1,088
|
|
|
—
|
|
|
1,088
|
|
|
—
|
|
Total
revenues
|
|
1,016,378
|
|
|
599,844
|
|
|
231,172
|
|
|
257,160
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Condominium rights
and unit cost of sales
|
|
365,324
|
|
|
41,713
|
|
|
7,010
|
|
|
6,168
|
|
Master Planned
Communities cost of sales
|
|
78,128
|
|
|
109,609
|
|
|
33,304
|
|
|
57,183
|
|
Master Planned
Communities operations
|
|
35,948
|
|
|
33,956
|
|
|
11,866
|
|
|
13,044
|
|
Other property
operating costs
|
|
131,808
|
|
|
91,847
|
|
|
53,214
|
|
|
42,942
|
|
Rental property real
estate taxes
|
|
28,585
|
|
|
24,148
|
|
|
9,080
|
|
|
8,519
|
|
Rental property
maintenance costs
|
|
11,862
|
|
|
11,604
|
|
|
3,533
|
|
|
4,456
|
|
Hospitality operating
costs
|
|
46,310
|
|
|
45,707
|
|
|
14,080
|
|
|
14,723
|
|
(Recovery) provision
for doubtful accounts
|
|
(195)
|
|
|
4,417
|
|
|
(107)
|
|
|
2,282
|
|
Demolition
costs
|
|
737
|
|
|
16,166
|
|
|
138
|
|
|
2,835
|
|
Development-related
marketing costs
|
|
16,874
|
|
|
20,484
|
|
|
5,341
|
|
|
7,218
|
|
General and
administrative
|
|
87,923
|
|
|
71,795
|
|
|
32,519
|
|
|
20,645
|
|
Depreciation and
amortization
|
|
115,142
|
|
|
88,398
|
|
|
40,093
|
|
|
31,123
|
|
Total
expenses
|
|
918,446
|
|
|
559,844
|
|
|
210,071
|
|
|
211,138
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Gain on sale or
disposal of real estate, net
|
|
24,051
|
|
|
—
|
|
|
24,201
|
|
|
—
|
|
Other income (loss),
net
|
|
11,798
|
|
|
(3,444)
|
|
|
1,337
|
|
|
(3,710)
|
|
Total
other
|
|
35,849
|
|
|
(3,444)
|
|
|
25,538
|
|
|
(3,710)
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
133,781
|
|
|
36,556
|
|
|
46,639
|
|
|
42,312
|
|
|
|
|
|
|
|
|
|
|
Selling profit from
sales-type leases
|
|
13,537
|
|
|
—
|
|
|
13,537
|
|
|
—
|
|
Interest
income
|
|
7,696
|
|
|
6,759
|
|
|
2,872
|
|
|
2,080
|
|
Interest
expense
|
|
(76,358)
|
|
|
(57,182)
|
|
|
(28,829)
|
|
|
(21,670)
|
|
Equity in earnings
from real estate and other affiliates
|
|
20,847
|
|
|
39,297
|
|
|
4,542
|
|
|
8,612
|
|
Income before
taxes
|
|
99,503
|
|
|
25,430
|
|
|
38,761
|
|
|
31,334
|
|
Provision for income
taxes
|
|
24,207
|
|
|
5,628
|
|
|
8,718
|
|
|
7,487
|
|
Net income
|
|
75,296
|
|
|
19,802
|
|
|
30,043
|
|
|
23,847
|
|
Net income
attributable to noncontrolling interests
|
|
(240)
|
|
|
(51)
|
|
|
(285)
|
|
|
(482)
|
|
Net income
attributable to common stockholders
|
|
$
|
75,056
|
|
|
$
|
19,751
|
|
|
$
|
29,758
|
|
|
$
|
23,365
|
|
|
|
|
|
|
|
|
|
|
Basic income per
share:
|
|
$
|
1.74
|
|
|
$
|
0.46
|
|
|
$
|
0.69
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
Diluted income per
share:
|
|
$
|
1.73
|
|
|
$
|
0.46
|
|
|
$
|
0.69
|
|
|
$
|
0.54
|
|
THE HOWARD HUGHES
CORPORATION
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
UNAUDITED
|
|
|
|
September
30,
|
|
December
31,
|
(In thousands, except par values and share
amounts)
|
|
2019
|
|
2018
|
Assets:
|
|
|
|
|
Investment in real
estate:
|
|
|
|
|
Master Planned
Communities assets
|
|
$
|
1,683,224
|
|
|
$
|
1,642,660
|
|
Buildings and
equipment
|
|
3,268,926
|
|
|
2,932,963
|
|
Less: accumulated
depreciation
|
|
(478,185)
|
|
|
(380,892)
|
|
Land
|
|
315,643
|
|
|
297,596
|
|
Developments
|
|
1,345,807
|
|
|
1,290,068
|
|
Net property and
equipment
|
|
6,135,415
|
|
|
5,782,395
|
|
Investment in real
estate and other affiliates
|
|
121,611
|
|
|
102,287
|
|
Net investment in real
estate
|
|
6,257,026
|
|
|
5,884,682
|
|
Net investment in
lease receivable
|
|
78,021
|
|
|
—
|
|
Cash and cash
equivalents
|
|
637,979
|
|
|
499,676
|
|
Restricted
cash
|
|
204,650
|
|
|
224,539
|
|
Accounts receivable,
net
|
|
17,248
|
|
|
12,589
|
|
Municipal Utility
District receivables, net
|
|
288,376
|
|
|
222,269
|
|
Notes receivable,
net
|
|
36,425
|
|
|
4,694
|
|
Deferred expenses,
net
|
|
110,935
|
|
|
95,714
|
|
Operating lease
right-of-use assets, net
|
|
70,349
|
|
|
—
|
|
Prepaid expenses and
other assets, net
|
|
246,906
|
|
|
411,636
|
|
Total assets
|
|
$
|
7,947,915
|
|
|
$
|
7,355,799
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgages, notes and
loans payable, net
|
|
$
|
3,624,684
|
|
|
$
|
3,181,213
|
|
Operating lease
obligations
|
|
71,190
|
|
|
—
|
|
Deferred tax
liabilities
|
|
172,476
|
|
|
157,188
|
|
Accounts payable and
accrued expenses
|
|
699,509
|
|
|
779,272
|
|
Total
liabilities
|
|
4,567,859
|
|
|
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, 43,752,777 issued and
43,232,928 outstanding as of September 30, 2019 and 43,511,473
shares issued and 42,991,624
outstanding as of December 31, 2018
|
|
438
|
|
|
436
|
|
Additional paid-in
capital
|
|
3,334,101
|
|
|
3,322,433
|
|
Accumulated
deficit
|
|
(45,285)
|
|
|
(120,341)
|
|
Accumulated other
comprehensive loss
|
|
(35,513)
|
|
|
(8,126)
|
|
Treasury stock, at
cost, 519,849 shares as of September 30, 2019 and December 31,
2018
|
|
(62,190)
|
|
|
(62,190)
|
|
Total stockholders'
equity
|
|
3,191,551
|
|
|
3,132,212
|
|
Noncontrolling
interests
|
|
188,505
|
|
|
105,914
|
|
Total equity
|
|
3,380,056
|
|
|
3,238,126
|
|
Total liabilities and
equity
|
|
$
|
7,947,915
|
|
|
$
|
7,355,799
|
|
Appendix – Reconciliations of Non-GAAP
Measures
As of and for the Nine and Three Months Ended
September 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.
|
|
Nine Months
Ended
September 30,
|
|
|
|
Three Months
Ended
September 30,
|
|
|
(In
thousands)
|
|
2019
|
|
2018
|
|
$
Change
|
|
2019
|
|
2018
|
|
$
Change
|
Operating Assets
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
305,395
|
|
|
$
|
264,017
|
|
|
$
|
41,378
|
|
|
$
|
104,223
|
|
|
$
|
87,462
|
|
|
$
|
16,761
|
|
Total operating
expenses
|
|
(139,589)
|
|
|
(126,372)
|
|
|
(13,217)
|
|
|
(47,950)
|
|
|
(43,373)
|
|
|
(4,577)
|
|
Segment operating
income
|
|
165,806
|
|
|
137,645
|
|
|
28,161
|
|
|
56,273
|
|
|
44,089
|
|
|
12,184
|
|
Depreciation and
amortization
|
|
(84,890)
|
|
|
(74,028)
|
|
|
(10,862)
|
|
|
(28,844)
|
|
|
(26,470)
|
|
|
(2,374)
|
|
Interest expense,
net
|
|
(60,695)
|
|
|
(52,886)
|
|
|
(7,809)
|
|
|
(21,645)
|
|
|
(18,891)
|
|
|
(2,754)
|
|
Other income (loss),
net
|
|
1,186
|
|
|
(2,603)
|
|
|
3,789
|
|
|
63
|
|
|
(2,767)
|
|
|
2,830
|
|
Equity in earnings
(losses) from real
estate and other affiliates
|
|
3,195
|
|
|
1,507
|
|
|
1,688
|
|
|
441
|
|
|
(76)
|
|
|
517
|
|
Selling profit from
sales-type leases
|
|
13,537
|
|
|
—
|
|
|
13,537
|
|
|
13,537
|
|
|
—
|
|
|
13,537
|
|
Segment
EBT
|
|
38,139
|
|
|
9,635
|
|
|
28,504
|
|
|
19,825
|
|
|
(4,115)
|
|
|
23,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC Segment
EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
216,042
|
|
|
261,665
|
|
|
(45,623)
|
|
|
92,287
|
|
|
143,135
|
|
|
(50,848)
|
|
Total operating
expenses
|
|
(114,075)
|
|
|
(143,608)
|
|
|
29,533
|
|
|
(45,169)
|
|
|
(70,237)
|
|
|
25,068
|
|
Segment operating
income
|
|
101,967
|
|
|
118,057
|
|
|
(16,090)
|
|
|
47,118
|
|
|
72,898
|
|
|
(25,780)
|
|
Depreciation and
amortization
|
|
(334)
|
|
|
(245)
|
|
|
(89)
|
|
|
(88)
|
|
|
(78)
|
|
|
(10)
|
|
Interest income,
net
|
|
24,376
|
|
|
19,826
|
|
|
4,550
|
|
|
8,550
|
|
|
6,626
|
|
|
1,924
|
|
Other income,
net
|
|
601
|
|
|
18
|
|
|
583
|
|
|
534
|
|
|
18
|
|
|
516
|
|
Equity in earnings
from real estate and
other affiliates
|
|
18,859
|
|
|
34,682
|
|
|
(15,823)
|
|
|
4,523
|
|
|
9,454
|
|
|
(4,931)
|
|
Segment
EBT
|
|
145,469
|
|
|
172,338
|
|
|
(26,869)
|
|
|
60,637
|
|
|
88,918
|
|
|
(28,281)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
Three Months
Ended
September 30,
|
|
|
(In
thousands)
|
|
2019
|
|
2018
|
|
$
Change
|
|
2019
|
|
2018
|
|
$
Change
|
Seaport District
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
43,051
|
|
|
22,612
|
|
|
20,439
|
|
|
23,130
|
|
|
14,601
|
|
|
8,529
|
|
Total operating
expenses
|
|
(59,735)
|
|
|
(31,965)
|
|
|
(27,770)
|
|
|
(27,330)
|
|
|
(21,989)
|
|
|
(5,341)
|
|
Segment operating
income
|
|
(16,684)
|
|
|
(9,353)
|
|
|
(7,331)
|
|
|
(4,200)
|
|
|
(7,388)
|
|
|
3,188
|
|
Depreciation and
amortization
|
|
(19,713)
|
|
|
(6,506)
|
|
|
(13,207)
|
|
|
(6,767)
|
|
|
(2,309)
|
|
|
(4,458)
|
|
Interest (expense)
income, net
|
|
(8,440)
|
|
|
8,466
|
|
|
(16,906)
|
|
|
(4,984)
|
|
|
1,471
|
|
|
(6,455)
|
|
Other loss,
net
|
|
(147)
|
|
|
(120)
|
|
|
(27)
|
|
|
—
|
|
|
(120)
|
|
|
120
|
|
Equity in losses from
real estate and
other affiliates
|
|
(1,788)
|
|
|
(692)
|
|
|
(1,096)
|
|
|
(705)
|
|
|
(452)
|
|
|
(253)
|
|
Loss on sale or
disposal of real estate
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Segment
EBT
|
|
(46,778)
|
|
|
(8,205)
|
|
|
(38,573)
|
|
|
(16,656)
|
|
|
(8,798)
|
|
|
(7,858)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
Developments Segment EBT
|
|
|
|
|
Total
revenues
|
|
451,873
|
|
|
51,550
|
|
|
400,323
|
|
|
11,515
|
|
|
11,962
|
|
|
(447)
|
|
Total operating
expenses
|
|
(382,341)
|
|
|
(60,892)
|
|
|
(321,449)
|
|
|
(11,327)
|
|
|
(13,553)
|
|
|
2,226
|
|
Segment operating
income
|
|
69,532
|
|
|
(9,342)
|
|
|
78,874
|
|
|
188
|
|
|
(1,591)
|
|
|
1,779
|
|
Depreciation and
amortization
|
|
(4,386)
|
|
|
(2,650)
|
|
|
(1,736)
|
|
|
(2,070)
|
|
|
(472)
|
|
|
(1,598)
|
|
Interest income,
net
|
|
9,499
|
|
|
9,794
|
|
|
(295)
|
|
|
3,002
|
|
|
2,848
|
|
|
154
|
|
Other income (loss),
net
|
|
664
|
|
|
(77)
|
|
|
741
|
|
|
354
|
|
|
(450)
|
|
|
804
|
|
Equity in earnings
(loss) from real
estate and other affiliates
|
|
581
|
|
|
3,797
|
|
|
(3,216)
|
|
|
283
|
|
|
(315)
|
|
|
598
|
|
Gain on sale or
disposal of real estate,
net
|
|
24,057
|
|
|
—
|
|
|
24,057
|
|
|
24,201
|
|
|
—
|
|
|
24,201
|
|
Segment
EBT
|
|
99,947
|
|
|
1,522
|
|
|
98,425
|
|
|
25,958
|
|
|
20
|
|
|
25,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Segment EBT
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
1,016,361
|
|
|
599,844
|
|
|
416,517
|
|
|
231,155
|
|
|
257,160
|
|
|
(26,005)
|
|
Total operating
expenses
|
|
(695,740)
|
|
|
(362,837)
|
|
|
(332,903)
|
|
|
(131,776)
|
|
|
(149,152)
|
|
|
17,376
|
|
Segment operating
income
|
|
320,621
|
|
|
237,007
|
|
|
83,614
|
|
|
99,379
|
|
|
108,008
|
|
|
(8,629)
|
|
Depreciation and
amortization
|
|
(109,323)
|
|
|
(83,429)
|
|
|
(25,894)
|
|
|
(37,769)
|
|
|
(29,329)
|
|
|
(8,440)
|
|
Interest expense,
net
|
|
(35,260)
|
|
|
(14,800)
|
|
|
(20,460)
|
|
|
(15,077)
|
|
|
(7,946)
|
|
|
(7,131)
|
|
Other income (loss),
net
|
|
2,304
|
|
|
(2,782)
|
|
|
5,086
|
|
|
951
|
|
|
(3,319)
|
|
|
4,270
|
|
Equity in earnings
from real estate and
other affiliates
|
|
20,847
|
|
|
39,294
|
|
|
(18,447)
|
|
|
4,542
|
|
|
8,611
|
|
|
(4,069)
|
|
Gain on sale or
disposal of real estate,
net
|
|
24,051
|
|
|
—
|
|
|
24,051
|
|
|
24,201
|
|
|
—
|
|
|
24,201
|
|
Selling profit from
sales-type leases
|
|
13,537
|
|
|
—
|
|
|
13,537
|
|
|
13,537
|
|
|
—
|
|
|
13,537
|
|
Consolidated segment
EBT
|
|
236,777
|
|
|
175,290
|
|
|
61,487
|
|
|
89,764
|
|
|
76,025
|
|
|
13,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income,
expenses and other
items
|
|
(161,481)
|
|
|
(155,488)
|
|
|
(5,993)
|
|
|
(59,721)
|
|
|
(52,178)
|
|
|
(7,543)
|
|
Net income
|
|
75,296
|
|
|
19,802
|
|
|
55,494
|
|
|
30,043
|
|
|
23,847
|
|
|
6,196
|
|
Net income
attributable to
noncontrolling interests
|
|
(240)
|
|
|
(51)
|
|
|
(189)
|
|
|
(285)
|
|
|
(482)
|
|
|
197
|
|
Net income
attributable to common
stockholders
|
|
$
|
75,056
|
|
|
$
|
19,751
|
|
|
$
|
55,305
|
|
|
$
|
29,758
|
|
|
$
|
23,365
|
|
|
$
|
6,393
|
|
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.
|
|
Nine Months
Ended
September 30,
|
|
Three Months
Ended
September 30,
|
|
|
(Unaudited)
|
|
(Unaudited)
|
(In
thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total Operating
Assets segment EBT (a)
|
|
$
|
38,139
|
|
|
$
|
9,635
|
|
|
$
|
19,825
|
|
|
$
|
(4,115)
|
|
|
|
|
|
|
|
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
84,890
|
|
|
74,028
|
|
|
28,844
|
|
|
26,470
|
|
Interest expense,
net
|
|
60,695
|
|
|
52,886
|
|
|
21,645
|
|
|
18,891
|
|
Equity in (earnings)
loss from real estate and other affiliates
|
|
(3,195)
|
|
|
(1,507)
|
|
|
(441)
|
|
|
76
|
|
Selling profit from
sales-type leases
|
|
(13,537)
|
|
|
—
|
|
|
(13,537)
|
|
|
—
|
|
Impact of
straight-line rent
|
|
(7,911)
|
|
|
(8,777)
|
|
|
(2,529)
|
|
|
(3,241)
|
|
Other
|
|
259
|
|
|
2,701
|
|
|
477
|
|
|
2,808
|
|
Total Operating
Assets NOI - Consolidated
|
|
159,340
|
|
|
128,966
|
|
|
54,284
|
|
|
40,889
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
|
|
|
|
|
|
Cottonwood
Square
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
Total Operating
Asset Dispositions NOI
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Operating Assets NOI excluding properties sold or in
redevelopment
|
|
159,340
|
|
|
128,977
|
|
|
54,284
|
|
|
40,889
|
|
|
|
|
|
|
|
|
|
|
Company's Share NOI -
Equity investees
|
|
5,195
|
|
|
2,709
|
|
|
2,043
|
|
|
1,343
|
|
|
|
|
|
|
|
|
|
|
Distributions from
Summerlin Hospital Investment
|
|
3,625
|
|
|
3,435
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Assets NOI
|
|
$
|
168,160
|
|
|
$
|
135,121
|
|
|
$
|
56,327
|
|
|
$
|
42,232
|
|
|
______________________________
|
(a) EBT excludes
corporate expenses and other items that are not allocable to the
segments.
|
|
|
Nine Months
Ended
September 30,
|
|
Three Months
Ended
September 30,
|
|
|
(Unaudited)
|
|
(Unaudited)
|
(In
thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total Seaport
District segment EBT (a)
|
|
$
|
(46,778)
|
|
|
$
|
(8,205)
|
|
|
$
|
(16,656)
|
|
|
$
|
(8,798)
|
|
|
|
|
|
|
|
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
19,713
|
|
|
6,506
|
|
|
6,767
|
|
|
2,309
|
|
Interest expense
(income), net
|
|
8,440
|
|
|
(8,466)
|
|
|
4,984
|
|
|
(1,471)
|
|
Equity in losses from
real estate and other affiliates
|
|
1,788
|
|
|
692
|
|
|
705
|
|
|
452
|
|
Impact of
straight-line rent
|
|
1,658
|
|
|
(612)
|
|
|
412
|
|
|
(274)
|
|
Loss on sale or
disposal of real estate
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other - development
related
|
|
5,405
|
|
|
8,122
|
|
|
896
|
|
|
4,836
|
|
Total Seaport
District NOI - Consolidated
|
|
(9,768)
|
|
|
(1,963)
|
|
|
(2,892)
|
|
|
(2,946)
|
|
|
|
|
|
|
|
|
|
|
Company's Share NOI -
Equity investees
|
|
(385)
|
|
|
(579)
|
|
|
(148)
|
|
|
(452)
|
|
|
|
|
|
|
|
|
|
|
Total Seaport
District NOI
|
|
$
|
(10,153)
|
|
|
$
|
(2,542)
|
|
|
$
|
(3,040)
|
|
|
$
|
(3,398)
|
|
|
______________________________
|
(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.
|
|
Nine Months
Ended
September 30,
|
|
Three Months
Ended
September 30,
|
|
|
(Unaudited)
|
|
(Unaudited)
|
(In thousands,
except share amounts)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
attributable to common shareholders
|
|
$
|
75,056
|
|
|
$
|
19,751
|
|
|
$
|
29,758
|
|
|
$
|
23,365
|
|
Adjustments to arrive
at FFO:
|
|
|
|
|
|
|
|
|
Segment real estate
related depreciation and amortization
|
|
109,323
|
|
|
83,429
|
|
|
37,769
|
|
|
29,329
|
|
Gain on sale or
disposal of real estate, net
|
|
(24,051)
|
|
|
—
|
|
|
(24,201)
|
|
|
—
|
|
Selling profit from
sales-type leases
|
|
(13,537)
|
|
|
—
|
|
|
(13,537)
|
|
|
—
|
|
Income tax expense
adjustments:
|
|
|
|
|
|
|
|
|
Gain on sale or
disposal of real estate, net
|
|
5,868
|
|
|
—
|
|
|
5,868
|
|
|
—
|
|
Selling profit from
sales-type leases
|
|
3,303
|
|
|
—
|
|
|
3,303
|
|
|
—
|
|
Reconciling items
related to noncontrolling interests
|
|
240
|
|
|
51
|
|
|
285
|
|
|
482
|
|
Our share of the
above reconciling items included in earnings from
unconsolidated joint ventures
|
|
2,674
|
|
|
1,882
|
|
|
916
|
|
|
577
|
|
FFO
|
|
$
|
158,876
|
|
|
$
|
105,113
|
|
|
$
|
40,161
|
|
|
$
|
53,753
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at Core FFO:
|
|
|
|
|
|
|
|
|
Severance
expenses
|
|
$
|
3,090
|
|
|
$
|
420
|
|
|
$
|
2,167
|
|
|
$
|
139
|
|
Non-real estate
related depreciation and amortization
|
|
5,819
|
|
|
4,969
|
|
|
2,324
|
|
|
1,794
|
|
Straight-line
amortization
|
|
(6,257)
|
|
|
(10,104)
|
|
|
(2,103)
|
|
|
(3,676)
|
|
Deferred income tax
expense
|
|
23,189
|
|
|
4,621
|
|
|
8,368
|
|
|
7,179
|
|
Non-cash fair value
adjustments related to hedging instruments
|
|
(21)
|
|
|
(1,262)
|
|
|
199
|
|
|
(394)
|
|
Share based
compensation
|
|
8,893
|
|
|
8,231
|
|
|
3,240
|
|
|
2,877
|
|
Other non-recurring
expenses (development related marketing and
demolition costs)
|
|
17,611
|
|
|
36,650
|
|
|
5,479
|
|
|
10,053
|
|
Our share of the
above reconciling items included in earnings from
unconsolidated joint ventures
|
|
101
|
|
|
211
|
|
|
24
|
|
|
93
|
|
Core
FFO
|
|
$
|
211,301
|
|
|
$
|
148,849
|
|
|
$
|
59,859
|
|
|
$
|
71,818
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at AFFO:
|
|
|
|
|
|
|
|
|
Tenant and capital
improvements
|
|
$
|
(4,001)
|
|
|
$
|
(10,684)
|
|
|
$
|
(206)
|
|
|
$
|
(1,519)
|
|
Leasing
commissions
|
|
(2,589)
|
|
|
(1,694)
|
|
|
(1,801)
|
|
|
(244)
|
|
AFFO
|
|
$
|
204,711
|
|
|
$
|
136,471
|
|
|
$
|
57,852
|
|
|
$
|
70,055
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted share
value
|
|
$
|
3.66
|
|
|
$
|
2.43
|
|
|
$
|
0.91
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
Core FFO per diluted
share value
|
|
$
|
4.87
|
|
|
$
|
3.44
|
|
|
$
|
1.38
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
AFFO per diluted
share value
|
|
$
|
4.72
|
|
|
$
|
3.15
|
|
|
$
|
1.32
|
|
|
$
|
1.62
|
|
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