Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Consolidated Financial Statements and the related notes filed as a part of this Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties, assumptions and other factors, including those described in Part I, Item 1A. Risk Factors and elsewhere in this Annual Report. These factors and others not currently known to us could cause our financial results in 2020 and subsequent fiscal years to differ materially from those expressed in, or implied by, those forward-looking statements. You are cautioned not to place undue reliance on this information which speaks only as of the date of this report. We are not obligated to update this information, whether as a result of new information, future events or otherwise, except as may be required by law.
All references to numbered Notes are to specific Notes to our Consolidated Financial Statements included in this Annual Report and which descriptions are incorporated into the applicable response by reference. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) have the same meanings as in such Notes.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
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Please refer to Item 1. Business for a general discussion of our business strategy, competitive strengths and a general description of the assets contained in our four business segments and Item 2. Properties for details regarding the asset type, size, location and key metrics about our various properties.
The following highlights significant activities during 2020 for the Company and each of our business segments. While the impact of COVID-19 affected all of our business segments, we saw notable performance improvements during the second half of the year. Performance for each of our business segments is more fully described hereinafter (all items are pre-tax unless otherwise noted).
In the fourth quarter of 2019, we announced our intent to execute a Transformation Plan to reduce annual overhead expenses by $45 - $50 million, sell approximately $2 billion of non-core assets and accelerate the growth in our core MPC assets. We have made significant progress on the execution of our Transformation Plan commitments with meaningful reductions in overhead and the disposition of several non-core properties. Since the announcement of the Transformation Plan, we have executed on the sale of eight non-core assets generating approximately $213.8 million of net proceeds after debt repayment. The COVID-19 pandemic has made additional non-core asset sales more challenging to execute and we expect this to continue into 2021. We have continued horizontal development in our MPCs to keep pace with homebuilder demand given the strong underlying home sales in our communities. Additionally, we have commenced modest investments in pre-development work for the next vertical development opportunities in our core MPCs.
The outbreak of COVID-19 impacted global economic activity in early 2020 and caused significant volatility and negative pressure in financial markets. The impact of COVID-19 and the wide variety of government-issued control measures, including states of emergency, required business and school closures, shelter-in-place orders and travel restrictions, resulted in a negative impact on our financial performance in 2020, particularly in our Operating Asset and Seaport District segments. Many states began easing quarantine protocols near the end of the second quarter of 2020 which allowed most of our retail and hospitality properties to resume operations. While the impact of COVID-19 affected all of our business segments in the first half of the year, we saw notable performance improvements and significant sales momentum during the second half of the year. For a discussion of the risks and uncertainties related to the impact of COVID-19, refer to Item 1A. Risk Factors.
COVID-19 Impacts by Segment
Operating Assets
Office and Multifamily Throughout the pandemic, we have seen continued strength in our office and multifamily assets. We are closely monitoring our rental revenue, and based on collections from the second quarter through year end, we have collected 96.7% of our office portfolio billings, 97.8% of our multi-family portfolio billings and 83.8% of our other portfolio billings. Additionally, as a result of assets being placed in service during 2020 and the second half of 2019, revenues from our office and multi-family properties, which accounted for 13.1% of our total revenues for the year ended December 31, 2019, have increased 38.5% for the year ended December 31, 2020.
Retail Retail locations at our properties, which accounted for 8.2% of our revenues for the year ended December 31, 2019, were significantly negatively impacted by the pandemic. Beginning in April 2020, we experienced the temporary closure of all non-essential retail in Summerlin, Houston and Ward Village, and the complete closure of the Outlet Collection at Riverwalk. Several of our tenants were able to resume limited operations with phased reopenings beginning in May and June 2020 and the majority of our tenants had reopened by the end of the third quarter. As a result of these closures, retail revenue decreased 23.2% for the year ended December 31, 2020, and collections of our retail portfolio billings reached a low of 49.7% during the three months ended June 30, 2020. Our analysis of collections determined that full collection of outstanding receivables for certain retail tenants was not probable. As a result, during 2020, we recognized a total impact of $24.6 million in the Consolidated Statement of Operations, comprised of a $18.7 million charge against Rental revenue and a $5.9 million charge to the Provision for (recovery of) doubtful accounts. Refer to Note 1 - Summary of Significant Accounting Policies in the Company’s Consolidated Financial Statements for further details.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
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Despite these negative impacts, we saw notable improvements in the performance of our retail assets during the fourth quarter. Collections of our retail billings increased to 72.6% for the three months ended December 31, 2020, and net operating income (NOI) increased 44.2% quarter over quarter from $6.9 million for the three months ended September 30, 2020, to $10.0 million for the three months ended December 31, 2020, primarily as a result of increased collections and the positive impact of the holiday season in the fourth quarter.
Hospitality At the onset of the pandemic, we experienced significant cancellations and declines in occupancy in our three hotel properties, which accounted for 6.8% of our revenues for the year ended December 31, 2019, and temporarily closed all three of our hotel properties in March 2020. The Woodlands Resort reopened in May 2020, with 54% of the rooms available and the Embassy Suites reopened in June 2020, with 100% of the rooms available. Both hotels continued to operate with this initial percentage of available rooms through the end of 2020. At The Westin at The Woodlands, we reopened the bar and restaurant in April 2020, subject to local guidance, and reopened 100% of the guest rooms on July 1, 2020. As a result of these reopenings, occupancy levels have risen since the second quarter of 2020, however, total occupancy for 2020 declined, compared to levels achieved prior to the impact of the pandemic, resulting in a 59.9% decrease in total revenue for our hospitality properties for the year ended December 31, 2020.
As announced in late June, the Minor League Baseball season was canceled for 2020, which impacted the Las Vegas Aviators, our Triple-A professional baseball team, which accounted for 1.9% of our revenues for the year ended December 31, 2019. In February 2021, Major League Baseball announced that it was restructuring the organization and operation of Minor League Baseball. We are in the process of analyzing the effect this new structure may have on the value and profitability of our baseball assets. Refer to Note 10 - Commitments and Contingencies in the Company’s Consolidated Financial Statements for further details.
MPC In response to the COVID-19 pandemic, during the first quarter of 2020, we took steps to reduce expenses and preserve cash, including ceasing development of MPC land that was not under contract for sale or where we did not have a post-closing requirement, and reducing or postponing voluntary capital expenditures. In addition, homebuilders implemented new model home practices by adding 3D virtual tours of interactive floor plans, live chat capabilities with sales staff, and increased photographs on their websites conducive to social distancing and hygiene recommendations.
For our MPC segment, new home sales, a leading indicator of land sales, dropped considerably in April as a result of stay-at-home orders, but experienced large upticks in May through December as local economies began to re-open. In response, we restarted horizontal development to maintain a sufficient supply of lots and superpads to keep up with the strong home sales. Overall in 2020, new homes sales increased by 80.2% in The Woodlands Hills, 18.1% in Bridgeland and 8.1% in Summerlin. The Woodlands Hills and Bridgeland saw improved land sales revenue due to higher volume of acres sold and price per acre despite the impacts of COVID-19. Land sales revenues at Summerlin decreased compared to the prior period, however this was due to timing of superpad closings and not a decrease in homebuilder demand for our land.
Seaport District In response to the pandemic, we completely closed the Seaport District and halted construction on the Tin Building in mid-March. Social distancing restrictions also resulted in cancellation of our Seaport summer concert series. The city gradually eased restrictions in July, with dining limited to only outdoor spaces. Indoor dining resumed at minimum capacities in late September but due to a surge in COVID-19 cases late in the year, restrictions related to indoor dining were re-imposed in December. Many of the businesses within the Seaport District resumed operations, on a limited basis, in the third quarter of 2020, including The Fulton, Cobble & Co. and Malibu Farm. Construction on the Tin Building resumed in May and is expected to be substantially complete in the fourth quarter of 2021 and open in early 2022, with an expanded focus on in-person dining, retail shopping, mobile ordering and delivery.
In August, in place of the summer concert series, we launched a new concept at the Pier 17 rooftop called The Greens, which allowed groups of up to eight people to reserve their own socially distanced, mini-lawn space. We served over 55,000 guests, had an average wait list of over 20,000 people and generated $1.4 million in revenue through October. In November, the lawn spaces were converted to individual dining cabins for guests to enjoy throughout the winter months. Each cabin is 12 feet by 10 feet and seats up to 10 people. During November and December, we served over 24,000 guests, had an average wait list of over 4,000 people and generated $1.3 million in revenue. These concepts meaningfully increased the Seaport District’s exposure across social and media platforms with a significant increase in new social followers and media impressions earned. This concept also helped us fulfill obligations under our sponsorship agreements which might have been drastically reduced without the summer concert series.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
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We are closely monitoring our revenues, and based on collections from the second quarter through year end, we have collected 96.4% of our office portfolio billings and 30.7% of our retail portfolio billings. Based on our analysis of collections throughout the year, we determined that full collection of outstanding receivables for certain tenants was not probable. As a result, during 2020, the Company recognized a total impact of $3.2 million in the Consolidated Statement of Operations, comprised of a $3.1 million charge against Rental revenue and a $0.1 million charge to the Provision for (recovery of) doubtful accounts. Refer to Note 1 - Summary of Significant Accounting Policies in the Company’s Consolidated Financial Statements for further details.
Strategic Developments Given the challenges presented by this new environment, we launched digital sales efforts, including virtual tours to sell condominiums in Hawai’i, which we will maintain until social distancing recommendations are lifted. We have also implemented new model home practices by adding 3D virtual tours of interactive floor plans, live chat capabilities with sales staff, and increased photographs on their websites conducive to social distancing recommendations. As a result, overall progress at our condominium projects remains strong as of December 31, 2020, with Victoria Place, our newest project, 77% presold.
We have not experienced any delays in our existing construction as a result of COVID-19, other than the brief delay of construction on the Tin Building discussed above. We placed six assets in service upon completion of construction as planned and transferred 1.7 million square feet of office and retail space and 931 multi-family units to the Operating Assets segment in 2020. In the third quarter, following strong home sales and continued market demand, we commenced modest investments in pre-development work and in December, we broke ground on Starling at Bridgeland, a luxury multi-family development in Bridgeland. Additionally, we expect to begin construction on a new residential building in the Merriweather District in Downtown Columbia and the next residential tower at Ward Village in the first quarter of 2021, and an office building and luxury apartment complex in Downtown Summerlin in the second quarter of 2021.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
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Capital and Financing Activities
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As described above, the pandemic has negatively impacted the economy in most of the regions in which we operate, as well as directly impacted sectors that have historically been meaningful contributors to HHC, such as hospitality, retail and sports ventures. In direct response to the unprecedented COVID-19 pandemic and the impacts on our four business segments, as well as the economy and capital markets in general, we initiated measures to increase our liquidity. As a result, we were able to maintain a strong balance sheet, and ensure we maintain the financial flexibility and liquidity necessary to fund future growth.
During 2020, we enhanced our liquidity profile through a successful common stock offering, which generated $593.6 million in proceeds, and the issuance of $750 million in senior notes due August 2028. The Company used the net proceeds from the debt issuance, together with cash on hand, for the repayment of existing indebtedness of approximately $807.9 million. Additionally, the Company sold four non-core assets during the year, which generated a total of $102.3 million in net proceeds and received an additional $44.5 million related to the 2019 sales of West Windsor and Cottonwood Mall. Our liquidity was further enhanced during the year by obtaining approximately $400.2 million of new construction financings and $177.0 million in other financings. As of December 31, 2020, we had $1.0 billion of cash and cash equivalents, available capacity of $185.0 million on the revolver portion of our credit facilities, and approximately $321.7 million of debt payments due in 2021 based on extended maturity dates.
On February 2, 2021, the Company issued $650 million in 4.125% senior notes due 2029 and $650 million in 4.375% senior notes due 2031. The Company will use the net proceeds from the offering, as well as available cash on hand, to repurchase all of its $1 billion 5.375% senior notes due 2025, plus any accrued and unpaid interest, pursuant to a tender offer announced in January 2021; repay all of the approximately $280 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021; and pay all premiums, fees and expenses related to the foregoing. On February 2, 2021, the Company repurchased $512.5 million of its $1 billion 5.375% senior notes and intends to repurchase the remainder of these notes on March 15, 2021. In February 2021, the Company repaid all of the approximately $280 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021.
As discussed above, the COVID-19 pandemic resulted in the temporary closure of some of the Company’s Operating Assets, primarily retail and hospitality properties. As a result of the decline in interim operating results, the Company did not meet the debt service coverage ratios for some of its debt instruments during the year and subsequently cured these failures with either the repayment of the related debt instrument or modification of the existing terms of the debt instrument. As of December 31, 2020, the Company did not meet the debt service coverage ratio for the $615.0 million Term Loan portion of the Senior Secured Credit Facility and as a result, the excess net cash flow after debt service from the underlying properties became restricted. The restricted cash cannot be used for general corporate purposes but can continue to be used to fund operations of the underlying assets. The cash restrictions do not materially impact our operations. Apart from the Term Loan portion of the Senior Secured Credit Facility, as of December 31, 2020, the Company was in compliance with all remaining financial covenants included in the agreements governing its indebtedness. Please refer to Note 7 - Mortgages, Notes and Loans Payable, Net in our Notes to Consolidated Financial Statements for further discussion.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
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Comparison of the year ended December 31, 2020, to the year ended December 31, 2019
Operating Assets
–Net operating income (NOI) decreased $26.0 million due to decreases of $25.9 million in our hospitality properties, $22.5 million in our retail properties and $7.8 million in our other properties, partially offset by an increase of $29.5 million in our office properties. These decreases are primarily due to rent deferrals and collection reserves related to our retail properties, declines in occupancy at our hospitality properties and cancellation of the Las Vegas Aviators 2020 baseball season, all as a result of the COVID-19 pandemic. The increase in office properties is primarily related to new assets placed in service during 2020 and at the end of 2019.
–Retail asset NOI increased 44.2% quarter over quarter from $6.9 million for the three months ended September 30, 2020, to $10.0 million for the three months ended December 31, 2020, primarily as a result of increased collections and the positive impact of the holiday season in the fourth quarter.
–We continue to see strong demand for our newly completed multi-family assets, which have leased at or above our expectations.
MPC
–Segment Earnings Before Taxes (EBT) decreased by $54.4 million, primarily due to lower land sales revenues in Summerlin due to lower superpad sales and SID bond assumptions, partially offset by an increase in land sales revenues in Bridgeland due to an increase in acres sold and price per acre. The decrease in superpad sales in 2020 was primarily due to the accelerations of sales into 2019 as a result of increased demand from homebuilders and homebuyers.
–New home sales, a leading indicator of future land sales, increased 80.2% at The Woodlands Hills, 18.1% at Bridgeland and 8.1% at Summerlin.
–Bridgeland sold 169.1 residential acres compared to 150.3 acres in 2019. The average price per residential acre increased $31,000 to $439,000 per acre.
Seaport District
–Segment EBT decreased $40.7 million primarily due to a decrease in segment revenues and operating expense as a result of business closures and cancellations of events related to the COVID-19 pandemic, and an $11.6 million loss on extinguishment of debt upon retirement of the $250 million Seaport District loan in August 2020.
–Seaport District NOI decreased $1.5 million primarily due to a $2.5 million decrease in our events, sponsorships and catering business, partially offset by a $1.5 million increase in our managed business entities. The decrease in NOI was primarily the result of business closures and cancellation of events related to the COVID-19 pandemic.
–The total NOI loss from the Seaport District segment decreased by 50.1% to a loss of $3.2 million for the three months ended December 31, 2020, compared to a loss of $6.1 million for the three months ended September 30, 2020, primarily due to increased operations and sponsorship revenue recognized in the fourth quarter as a result of reopenings.
Strategic Developments
–Segment EBT increased $76.7 million primarily due to a $267.5 million gain on the deconsolidation of 110 North Wacker attributable to the initial fair value step-up of the retained equity method investment at the time of deconsolidation and an additional $15.4 million recognized upon deconsolidation attributable to previously eliminated 110 North Wacker development fees upon deconsolidation, partially offset by a $97.9 million charge in 2020 related to our expected funding of costs to correct alleged construction defects at Waiea and a $78.4 million decrease in Condominium rights and unit sales, net of costs, driven by the timing of condominium closings. The Company closed on 596 units at Ke Kilohana and Ae’o in 2019, with no new condominium towers completed in 2020.
–Despite the impacts of the COVID-19 pandemic, we experienced strong condominium unit sales in Ward Village, evidenced by the 302 condominium units we contracted to sell during 2020. Victoria Place, our newest project that began public pre-sales in December 2019, accounted for 268 of the units contracted during the year and was 76.8% presold as of December 31, 2020. We expect to begin construction on Victoria Place in the first quarter of 2021.
–During 2020, we placed the following assets in service upon substantial completion of construction: (i) 8770 New Trails, an office building in The Woodlands; (ii) 110 North Wacker, an office building in Chicago; (iii) Two Lakes Edge, an apartment complex in The Woodlands; (iv) Juniper Apartments, a multi-family property in Columbia, (v) Merriweather District Area 3 Standalone Restaurant, part of the retail amenity for Merriweather’s Area 3 in
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
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Columbia; and (vi) The Lane at Waterway, a multi-family property in The Woodlands. As a result, we transferred 1.7 million square feet of office and retail space and 931 multi-family units to the Operating Assets segment in 2020.
In addition to the required presentations using GAAP, we use certain non-GAAP performance measures, 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 our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change.
Because our four segments, Operating Assets, MPC, Seaport District and Strategic Developments, are managed separately, we use different operating measures to assess operating results and allocate resources among them. The one common operating measure used to assess operating results for our business segments is EBT. EBT, as it relates to each business segment, represents the revenues less expenses of each segment, including interest income, interest expense, depreciation and amortization and equity in earnings of real estate and other affiliates. EBT excludes corporate expenses and other items that are not allocable to the segments. See discussion herein at Corporate income, expenses and other items for further details. We present EBT for each segment because we use this measure, among others, internally to assess the core operating performance of our assets.
EBT should not be considered an alternative to GAAP net income attributable to common stockholders or GAAP net income, as it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of EBT are that it does not include the following in our calculations:
–cash expenditures, or future requirements for capital expenditures or contractual commitments
–corporate general and administrative expenses
–interest expense on our corporate debt
–income taxes that we may be required to pay
–any cash requirements for replacement of fully depreciated or amortized assets
–limitations on, or costs related to, the transfer of earnings from our real estate and other affiliates to us
Segment operating results are as follows:
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thousands
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Operating Assets Segment (a)
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MPC Segment
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Seaport District Segment
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Strategic Developments Segment
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Total
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Year ended December 31, 2020
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Total revenues
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$
|
372,057
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$
|
283,953
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|
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$
|
23,814
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|
|
$
|
19,407
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|
|
$
|
699,231
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Total operating expenses
|
(185,480)
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|
|
(128,597)
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|
(46,112)
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(135,160)
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|
|
(495,349)
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Segment operating income (loss)
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186,577
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|
|
155,356
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|
|
(22,298)
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|
|
(115,753)
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|
203,882
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Depreciation and amortization
|
(162,324)
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|
|
(365)
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|
|
(41,602)
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|
|
(6,545)
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|
|
(210,836)
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|
Interest income (expense), net
|
(91,411)
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|
|
36,587
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|
|
(12,512)
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|
|
6,312
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|
|
(61,024)
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|
|
Other income (loss), net
|
540
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|
|
—
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|
|
(2,616)
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|
|
2,165
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|
|
89
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|
|
Equity in earnings (losses) from real estate and other affiliates
|
(7,366)
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|
|
17,845
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|
|
(9,292)
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|
|
269,912
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|
|
271,099
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|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
38,232
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|
|
—
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|
|
—
|
|
|
21,710
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|
|
59,942
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|
|
|
|
|
|
|
|
|
|
|
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|
Gain (loss) on extinguishment of debt
|
(1,521)
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|
|
—
|
|
|
(11,648)
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|
|
—
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|
|
(13,169)
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Provision for impairment
|
(48,738)
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|
|
—
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|
|
—
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|
|
—
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|
|
(48,738)
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|
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Segment EBT
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$
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(86,011)
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|
|
$
|
209,423
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|
|
$
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(99,968)
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|
|
$
|
177,801
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|
|
$
|
201,245
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|
|
Corporate income, expenses and other items
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|
|
|
|
|
|
|
|
(204,418)
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|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
(3,173)
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|
|
Net (income) loss attributable to noncontrolling interests
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|
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|
|
|
|
|
|
(22,981)
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|
|
Net income (loss) attributable to common stockholders
|
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|
|
|
|
|
|
|
$
|
(26,154)
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|
|
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|
|
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|
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
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thousands
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Operating Assets Segment (a)
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MPC Segment
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Seaport District Segment
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Strategic Developments Segment
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Total
|
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Year Ended December 31, 2019
|
|
|
|
|
|
|
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|
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Total revenues
|
$
|
400,131
|
|
|
$
|
386,781
|
|
|
$
|
55,645
|
|
|
$
|
457,948
|
|
|
$
|
1,300,505
|
|
|
Total operating expenses
|
(187,322)
|
|
|
(183,472)
|
|
|
(77,872)
|
|
|
(391,848)
|
|
|
(840,514)
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|
|
Segment operating income (loss)
|
212,809
|
|
|
203,309
|
|
|
(22,227)
|
|
|
66,100
|
|
|
459,991
|
|
|
Depreciation and amortization
|
(115,499)
|
|
|
(424)
|
|
|
(26,381)
|
|
|
(5,473)
|
|
|
(147,777)
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|
|
Interest income (expense), net
|
(81,029)
|
|
|
32,019
|
|
|
(12,865)
|
|
|
11,321
|
|
|
(50,554)
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|
|
Other income (loss), net
|
1,142
|
|
|
601
|
|
|
(22)
|
|
|
831
|
|
|
2,552
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
3,672
|
|
|
28,336
|
|
|
(2,592)
|
|
|
1,213
|
|
|
30,629
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
—
|
|
|
—
|
|
|
(6)
|
|
|
27,119
|
|
|
27,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling profit from sales-type leases
|
13,537
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,537
|
|
|
Gain (loss) on extinguishment of debt
|
—
|
|
|
—
|
|
|
4,851
|
|
|
—
|
|
|
4,851
|
|
|
|
|
|
|
|
|
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|
|
|
|
Segment EBT
|
$
|
34,632
|
|
|
$
|
263,841
|
|
|
$
|
(59,242)
|
|
|
$
|
101,111
|
|
|
$
|
340,342
|
|
|
Corporate income, expenses and other items
|
|
|
|
|
|
|
|
|
(266,047)
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
74,295
|
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
(339)
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
|
|
|
|
$
|
73,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
348,242
|
|
|
$
|
309,451
|
|
|
$
|
32,632
|
|
|
$
|
374,212
|
|
|
$
|
1,064,537
|
|
|
Total operating expenses
|
(164,445)
|
|
|
(163,517)
|
|
|
(49,716)
|
|
|
(290,806)
|
|
|
(668,484)
|
|
|
Segment operating income (loss)
|
183,797
|
|
|
145,934
|
|
|
(17,084)
|
|
|
83,406
|
|
|
396,053
|
|
|
Depreciation and amortization
|
(103,293)
|
|
|
(243)
|
|
|
(12,466)
|
|
|
(3,307)
|
|
|
(119,309)
|
|
|
Interest income (expense), net
|
(71,551)
|
|
|
26,919
|
|
|
6,291
|
|
|
12,476
|
|
|
(25,865)
|
|
|
Other income (loss), net
|
(7,107)
|
|
|
18
|
|
|
102
|
|
|
3,015
|
|
|
(3,972)
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
1,994
|
|
|
36,284
|
|
|
(705)
|
|
|
2,364
|
|
|
39,937
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBT
|
$
|
3,836
|
|
|
$
|
208,912
|
|
|
$
|
(23,862)
|
|
|
$
|
97,954
|
|
|
$
|
286,840
|
|
|
Corporate income, expenses and other items
|
|
|
|
|
|
|
|
|
(229,114)
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
57,726
|
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
(714)
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
|
|
|
|
$
|
57,012
|
|
(a)Total revenues includes hospitality revenues of $35.2 million for the year ended December 31, 2020, $87.9 million for the year ended December 31, 2019, and $82.0 million for the year ended December 31, 2018. Total operating expenses includes hospitality operating costs of $32.3 million for the year ended December 31, 2020, $60.2 million for the year ended December 31, 2019, and $59.2 million for the year ended December 31, 2018.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Net income (loss) attributable to common stockholders decreased $100.1 million for the year ended December 31, 2020, compared to the same period in 2019 and increased $16.9 million for the year ended December 31, 2019, compared to the same period in 2018.
For the year ended December 31, 2020:
Total segment EBT decreased $139.1 million compared to the prior year period primarily due to the following:
–lower Operating Asset EBT primarily due to decreases in operating revenues due to rent deferrals and collection reserves related to our retail properties, declines in occupancy at our recently reopened hospitality properties and cancellation of the Las Vegas Aviators 2020 baseball season as a result of the COVID-19 pandemic
–lower MPC EBT primarily due to lower MPC land sales revenues, driven by timing of Summerlin superpad sales
–lower Seaport EBT primarily due to decreases in segment revenues and operating expenses primarily as a result of business closures and cancellations of events related to the COVID-19 pandemic
–loss on extinguishment of debt due to the early retirement of Seaport and Operating loans
–higher Strategic Developments EBT primarily due a gain on deconsolidation of 110 North Wacker attributable to the initial fair value step-up of the retained equity method investment at the time of deconsolidation and the recognition of previously eliminated 110 North Wacker development fees upon deconsolidation, partially offset by a charge in the 2020 related to our expected funding of costs to correct alleged construction defects at Waiea, and lower Condominium rights and unit sales, net of costs, driven by the timing of condominium closings
Net expenses related to Corporate income, expenses and other items decreased $61.6 million compared to the prior year period primarily due to the following:
–decrease in General and administrative expenses primarily related to the reduction of labor costs due to workforce reductions as part of an overall plan to reduce recurring overhead costs, and lower travel and entertainment costs, which are attributable to COVID-19 travel restrictions
–decrease in Income tax expense (benefit) primarily due to a decrease in Income before income tax
–increase in corporate interest expense, net primarily due to the $750 million issuance of senior notes in 2020
For the year ended December 31, 2019:
Total segment EBT increased $53.5 million compared to the prior year period primarily due to the following:
–higher MPC EBT primarily due to higher superpad sales at Summerlin and higher lot sales and the mix of lots sold at Bridgeland, The Woodlands and The Woodland Hills
–higher Operating Asset EBT primarily due to increases in operating revenues at our office, retail and multi-family properties due to placing six properties into service in the latter half of 2018 and early 2019, as well as increased our office, multi-family and hospitality properties and higher Other land, rental and property revenues due to placing the Las Vegas Ballpark into service in 2019
–higher Strategic Developments EBT primarily due to an increase in Gain (loss) on sale or disposal of real estate and other assets, net related to gains on the sales of West Windsor and Cottonwood Mall in 2019, partially offset by a loss on the sale of the Bridges at Mint Hill joint venture in 2019 and lower Condominium rights and unit sales, net of costs, driven by closings at Ke Kilohana in 2019, a workforce tower, compared to closings at Ae’o in 2018
–lower Seaport EBT primarily due to an increase in Interest expense for debt related to the acquisition of 250 Water Street, the Seaport District term loan that closed in the second quarter of 2019, and a reduction of interest capitalized to assets that were under development during 2018 but have since been placed in service, and an increase in Operating costs primarily due to start-up costs for new business openings and costs directly associated with increases in revenue at our businesses
Net expenses related to Corporate income, expenses and other items increased $36.9 million compared to the prior year period primarily due to the following:
–increase in General and administrative expenses primarily due to corporate restructuring costs and consulting fees for technology and data integration projects
–increase in Income tax expense (benefit) primarily due to an increase in Income before tax
–partially offsetting decrease in Demolition costs primarily related to 2018 costs at 110 North Wacker and Tin Building that did not recur in 2019 and increase in Corporate other income related to the receipt of insurance proceeds related to Superstorm Sandy
See segment discussions for more detail on the changes described above.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Segment EBT The following table presents segment EBT for Operating Assets for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets Segment EBT
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Rental Revenue
|
$
|
315,730
|
|
|
$
|
269,392
|
|
|
$
|
245,755
|
|
|
$
|
46,338
|
|
|
$
|
23,637
|
|
|
Other land, rental and property revenues
|
56,327
|
|
|
130,739
|
|
|
102,487
|
|
|
(74,412)
|
|
|
28,252
|
|
|
Total revenues
|
372,057
|
|
|
400,131
|
|
|
348,242
|
|
|
(28,074)
|
|
|
51,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
(133,877)
|
|
|
(155,137)
|
|
|
(130,701)
|
|
|
21,260
|
|
|
(24,436)
|
|
|
Rental property real estate taxes
|
(45,739)
|
|
|
(32,563)
|
|
|
(28,706)
|
|
|
(13,176)
|
|
|
(3,857)
|
|
|
Provision (recovery) for doubtful accounts
|
(5,864)
|
|
|
378
|
|
|
(5,038)
|
|
|
(6,242)
|
|
|
5,416
|
|
|
Total operating expenses
|
(185,480)
|
|
|
(187,322)
|
|
|
(164,445)
|
|
|
1,842
|
|
|
(22,877)
|
|
|
Segment operating income (loss)
|
186,577
|
|
|
212,809
|
|
|
183,797
|
|
|
(26,232)
|
|
|
29,012
|
|
|
Depreciation and amortization
|
(162,324)
|
|
|
(115,499)
|
|
|
(103,293)
|
|
|
(46,825)
|
|
|
(12,206)
|
|
|
Interest income (expense), net
|
(91,411)
|
|
|
(81,029)
|
|
|
(71,551)
|
|
|
(10,382)
|
|
|
(9,478)
|
|
|
Other income (loss), net
|
540
|
|
|
1,142
|
|
|
(7,107)
|
|
|
(602)
|
|
|
8,249
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
(7,366)
|
|
|
3,672
|
|
|
1,994
|
|
|
(11,038)
|
|
|
1,678
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
38,232
|
|
|
—
|
|
|
(4)
|
|
|
38,232
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling profit from sales-type leases
|
—
|
|
|
13,537
|
|
|
—
|
|
|
(13,537)
|
|
|
13,537
|
|
|
Gain (loss) on extinguishment of debt
|
(1,521)
|
|
|
—
|
|
|
—
|
|
|
(1,521)
|
|
|
—
|
|
|
Provision for impairment
|
(48,738)
|
|
|
—
|
|
|
—
|
|
|
(48,738)
|
|
|
—
|
|
|
Segment EBT
|
$
|
(86,011)
|
|
|
$
|
34,632
|
|
|
$
|
3,836
|
|
|
$
|
(120,643)
|
|
|
$
|
30,796
|
|
For the year ended December 31, 2020:
Operating Assets segment EBT decreased $120.6 million compared to the prior year period primarily due to the following:
–increase in the Provision for impairment of $48.7 million for Outlet Collection at Riverwalk, partially offset by an increase in Gain (loss) on sale or disposal of real estate related to the sale of 100 Fellowship Drive, in The Woodlands, Texas, in the first quarter of 2020. Please refer to Note 3 - Acquisitions and Dispositions and Note 4 - Impairment in the Company’s Consolidated Financial Statements for further details.
–net decreases in our Other land, rental and property revenues and related Operating expenses primarily due to declines in occupancy at our recently reopened hospitality properties and cancellation of the Las Vegas Aviators 2020 baseball season, all as a result of the COVID-19 pandemic
–net decreases in Rental revenue and related Operating expenses primarily due to rent deferrals and collection reserves related to our retail properties
–decrease in Selling profit from sales-type leases attributable to the commencement of a lease at our 100 Fellowship Drive property in the third quarter of 2019
–increase in Depreciation and amortization expense, Rental property real estate taxes, Interest expense, net, and Operating expenses, partially offset by Rental revenue related to office and multi-family assets recently acquired or placed in service, but still in the lease-up period
For the year ended December 31, 2019:
Operating Assets segment EBT increased $30.8 million compared to the prior year period primarily due to the following:
–increase in Rental Revenues primarily due to increases at our office, retail and multi-family properties due to placing Aristocrat, Two Summerlin, Two Merriweather and Lakefront North office properties and Lake Woodlands Crossing Retail property in service in the latter half of 2018, placing Creekside Park Apartments into service in 2019, as well as increased occupancy and continued stabilization at Millennium Waterway Apartments, Three Hughes Landing, 1725 Hughes Landing, 2201 Lake Woodlands Drive, 50 Columbia Corporate Center and One Merriweather
–increase in Other land, rental and property revenues primarily due to opening the Las Vegas Ballpark in 2019
–increase in Operating costs primarily due to costs associated with opening the Las Vegas Ballpark in 2019 as well as placing various office, retail and multi-family properties in service in 2019 or late 2018
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
–increase in Depreciation and amortization primarily due to the transfers of the Las Vegas Ballpark, 6100 Merriweather, 100 Fellowship Drive, Tanager Apartments and Hughes Landing Daycare from Strategic Developments to Operating Assets in 2019 or late 2018
–increase in Interest income (expense), net primarily due to the Las Vegas Ballpark, Two Summerlin, Aristocrat, Lakefront North, Creekside Park Apartments and Three Hughes Landing being placed in service in 2019 or late 2018
Net Operating Income We believe that NOI is a useful supplemental measure of the performance of our Operating Assets and Seaport District segments 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 as variances between years in NOI typically result from changes in rental rates, occupancy, tenant mix and operating expenses. 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). NOI excludes straight-line rents and amortization of tenant incentives, net; interest expense, net; ground rent amortization; demolition costs; other income (loss); amortization; depreciation; development-related marketing costs; gain on sale or disposal of real estate and other assets, net; provision for impairment and equity in earnings from real estate and other affiliates. 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.
Projected annual stabilized NOI is initially projected prior to the development of the asset based on market assumptions and is revised over the life of the asset as market conditions evolve. On a quarterly basis, each asset’s annualized NOI is compared to its projected stabilized NOI and stabilization date in conjunction with forecast data to determine if an adjustment is needed. Adjustments to an asset’s stabilized NOI are made when changes to the asset's long-term performance are thought to be more than likely and permanent. Projected stabilized dates are adjusted when the asset is believed to reach its stabilized NOI prior to or later than originally assumed.
Although we believe that NOI provides useful information to investors about the performance of our Operating Assets and Seaport District segments, due to the exclusions noted above, NOI should only be used as an additional measure of the financial performance of such assets and not as an alternative to GAAP net income. A reconciliation of Operating Assets segment EBT to Operating Assets NOI is presented in the table below. Refer to the Seaport District section for a reconciliation of Seaport District segment EBT to Seaport District NOI.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets NOI
|
|
|
|
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Total Operating Assets segment EBT
|
$
|
(86,011)
|
|
|
$
|
34,632
|
|
|
$
|
3,836
|
|
|
$
|
(120,643)
|
|
|
$
|
30,796
|
|
|
Depreciation and amortization
|
162,324
|
|
|
115,499
|
|
|
103,293
|
|
|
46,825
|
|
|
12,206
|
|
|
Interest (income) expense, net
|
91,411
|
|
|
81,029
|
|
|
71,551
|
|
|
10,382
|
|
|
9,478
|
|
|
Equity in (earnings) losses from real estate and other affiliates
|
7,366
|
|
|
(3,672)
|
|
|
(1,994)
|
|
|
11,038
|
|
|
(1,678)
|
|
|
(Gain) loss on sale or disposal of real estate and other assets, net
|
(38,232)
|
|
|
—
|
|
|
4
|
|
|
(38,232)
|
|
|
(4)
|
|
|
(Gain) loss on extinguishment of debt
|
1,521
|
|
|
—
|
|
|
—
|
|
|
1,521
|
|
|
—
|
|
|
Selling profit from sales-type leases
|
—
|
|
|
(13,537)
|
|
|
—
|
|
|
13,537
|
|
|
(13,537)
|
|
|
Provision for impairment
|
48,738
|
|
|
—
|
|
|
—
|
|
|
48,738
|
|
|
—
|
|
|
Impact of straight-line rent
|
(7,630)
|
|
|
(9,007)
|
|
|
(12,427)
|
|
|
1,377
|
|
|
3,420
|
|
|
Other
|
99
|
|
|
671
|
|
|
7,312
|
|
|
(572)
|
|
|
(6,641)
|
|
|
Operating Assets NOI
|
$
|
179,586
|
|
|
$
|
205,615
|
|
|
$
|
171,575
|
|
|
$
|
(26,029)
|
|
|
$
|
34,040
|
|
The below table presents Operating Assets NOI by property type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets NOI by Property Type
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Office
|
$
|
115,314
|
|
|
$
|
85,773
|
|
|
$
|
67,530
|
|
|
$
|
29,541
|
|
|
$
|
18,243
|
|
|
Retail
|
40,019
|
|
|
62,568
|
|
|
63,835
|
|
|
(22,549)
|
|
|
(1,267)
|
|
|
Multi-family
|
18,798
|
|
|
18,062
|
|
|
15,206
|
|
|
736
|
|
|
2,856
|
|
|
Hospitality
|
2,927
|
|
|
28,843
|
|
|
25,371
|
|
|
(25,916)
|
|
|
3,472
|
|
|
Other
|
2,528
|
|
|
10,369
|
|
|
(367)
|
|
|
(7,841)
|
|
|
10,736
|
|
|
Operating Assets NOI
|
$
|
179,586
|
|
|
$
|
205,615
|
|
|
$
|
171,575
|
|
|
$
|
(26,029)
|
|
|
$
|
34,040
|
|
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
The below table presents Operating Assets NOI by property type and property with redevelopments and dispositions presented separately:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets NOI by Property Type by Property
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
One Hughes Landing
|
$
|
5,795
|
|
|
$
|
6,968
|
|
|
$
|
6,263
|
|
|
$
|
(1,173)
|
|
|
$
|
705
|
|
|
Two Hughes Landing
|
4,128
|
|
|
5,573
|
|
|
5,862
|
|
|
(1,445)
|
|
|
(289)
|
|
|
Three Hughes Landing
|
7,780
|
|
|
5,546
|
|
|
1,804
|
|
|
2,234
|
|
|
3,742
|
|
|
1725 Hughes Landing Boulevard
|
6,262
|
|
|
5,665
|
|
|
5,002
|
|
|
597
|
|
|
663
|
|
|
1735 Hughes Landing Boulevard
|
8,193
|
|
|
7,887
|
|
|
7,512
|
|
|
306
|
|
|
375
|
|
|
2201 Lake Woodlands Drive
|
450
|
|
|
455
|
|
|
(87)
|
|
|
(5)
|
|
|
542
|
|
|
Lakefront North (a)
|
3,754
|
|
|
(161)
|
|
|
(993)
|
|
|
3,915
|
|
|
832
|
|
|
8770 New Trails (b)
|
341
|
|
|
—
|
|
|
—
|
|
|
341
|
|
|
—
|
|
|
9303 New Trails
|
1,325
|
|
|
941
|
|
|
1,043
|
|
|
384
|
|
|
(102)
|
|
|
3831 Technology Forest Drive
|
2,442
|
|
|
2,346
|
|
|
2,316
|
|
|
96
|
|
|
30
|
|
|
3 Waterway Square
|
5,711
|
|
|
6,466
|
|
|
6,824
|
|
|
(755)
|
|
|
(358)
|
|
|
4 Waterway Square
|
6,974
|
|
|
6,768
|
|
|
6,730
|
|
|
206
|
|
|
38
|
|
|
The Woodlands Towers at The Waterway (a)
|
26,901
|
|
|
189
|
|
|
—
|
|
|
26,712
|
|
|
189
|
|
|
1400 Woodloch Forest
|
599
|
|
|
1,369
|
|
|
1,878
|
|
|
(770)
|
|
|
(509)
|
|
|
Columbia
|
|
|
|
|
|
|
|
|
|
|
10-70 Columbia Corporate Center
|
13,282
|
|
|
14,400
|
|
|
13,288
|
|
|
(1,118)
|
|
|
1,112
|
|
|
Columbia Office Properties
|
420
|
|
|
1,104
|
|
|
1,325
|
|
|
(684)
|
|
|
(221)
|
|
|
One Mall North
|
1,811
|
|
|
1,786
|
|
|
1,844
|
|
|
25
|
|
|
(58)
|
|
|
One Merriweather
|
5,280
|
|
|
3,728
|
|
|
2,418
|
|
|
1,552
|
|
|
1,310
|
|
|
Two Merriweather (a)
|
1,803
|
|
|
967
|
|
|
(889)
|
|
|
836
|
|
|
1,856
|
|
|
6100 Merriweather (a)
|
(2,563)
|
|
|
(215)
|
|
|
—
|
|
|
(2,348)
|
|
|
(215)
|
|
|
Summerlin
|
|
|
|
|
|
|
|
|
|
|
Aristocrat (a) (c)
|
4,280
|
|
|
4,133
|
|
|
—
|
|
|
147
|
|
|
4,133
|
|
|
One Summerlin
|
6,243
|
|
|
5,702
|
|
|
5,510
|
|
|
541
|
|
|
192
|
|
|
Two Summerlin (a)
|
3,092
|
|
|
1,942
|
|
|
(120)
|
|
|
1,150
|
|
|
2,062
|
|
|
Total Office NOI
|
114,303
|
|
|
83,559
|
|
|
67,530
|
|
|
30,744
|
|
|
16,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
Creekside Park West (a)
|
$
|
441
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
439
|
|
|
$
|
2
|
|
|
Creekside Village Green
|
1,886
|
|
|
2,051
|
|
|
2,025
|
|
|
(165)
|
|
|
26
|
|
|
Hughes Landing Retail
|
3,635
|
|
|
4,329
|
|
|
4,301
|
|
|
(694)
|
|
|
28
|
|
|
1701 Lake Robbins
|
508
|
|
|
540
|
|
|
515
|
|
|
(32)
|
|
|
25
|
|
|
Lake Woodlands Crossing Retail (a)
|
1,449
|
|
|
1,297
|
|
|
104
|
|
|
152
|
|
|
1,193
|
|
|
One Lakes Edge Retail
|
766
|
|
|
1,048
|
|
|
962
|
|
|
(282)
|
|
|
86
|
|
|
Two Lakes Edge Retail
|
298
|
|
|
—
|
|
|
—
|
|
|
298
|
|
|
—
|
|
|
20/25 Waterway Avenue
|
1,317
|
|
|
1,573
|
|
|
1,942
|
|
|
(256)
|
|
|
(369)
|
|
|
Waterway Garage Retail
|
372
|
|
|
573
|
|
|
703
|
|
|
(201)
|
|
|
(130)
|
|
|
2000 Woodlands Parkway
|
400
|
|
|
79
|
|
|
81
|
|
|
321
|
|
|
(2)
|
|
|
Bridgeland
|
|
|
|
|
|
|
|
|
|
|
Lakeland Village Center at Bridgeland
|
1,257
|
|
|
1,869
|
|
|
1,190
|
|
|
(612)
|
|
|
679
|
|
|
Columbia
|
|
|
|
|
|
|
|
|
|
|
Columbia Regional Building
|
2,272
|
|
|
2,198
|
|
|
2,101
|
|
|
74
|
|
|
97
|
|
|
Juniper Retail
|
(131)
|
|
|
—
|
|
|
—
|
|
|
(131)
|
|
|
—
|
|
|
Merriweather District Area 3 Standalone Restaurant (b)
|
(3)
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
Summerlin
|
|
|
|
|
|
|
|
|
|
|
Downtown Summerlin
|
15,521
|
|
|
21,585
|
|
|
20,842
|
|
|
(6,064)
|
|
|
743
|
|
|
Ward Village
|
|
|
|
|
|
|
|
|
|
|
Ward Village Retail (a)
|
9,385
|
|
|
19,387
|
|
|
22,795
|
|
|
(10,002)
|
|
|
(3,408)
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Outlet Collection at Riverwalk
|
646
|
|
|
6,037
|
|
|
6,285
|
|
|
(5,391)
|
|
|
(248)
|
|
|
Total Retail NOI
|
40,019
|
|
|
62,568
|
|
|
63,846
|
|
|
(22,549)
|
|
|
(1,278)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets NOI by Property Type by Property
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
Creekside Park Apartments (a)
|
$
|
2,403
|
|
|
$
|
1,654
|
|
|
$
|
—
|
|
|
$
|
749
|
|
|
$
|
1,654
|
|
|
Millennium Six Pines Apartments
|
3,114
|
|
|
4,207
|
|
|
3,869
|
|
|
(1,093)
|
|
|
338
|
|
|
Millennium Waterway Apartments
|
3,245
|
|
|
3,890
|
|
|
3,423
|
|
|
(645)
|
|
|
467
|
|
|
One Lakes Edge
|
4,950
|
|
|
5,762
|
|
|
5,623
|
|
|
(812)
|
|
|
139
|
|
|
Two Lakes Edge (b)
|
(488)
|
|
|
—
|
|
|
—
|
|
|
(488)
|
|
|
—
|
|
|
The Lane at Waterway (b)(d)
|
(117)
|
|
|
—
|
|
|
—
|
|
|
(117)
|
|
|
—
|
|
|
Bridgeland
|
|
|
|
|
|
|
|
|
|
|
Lakeside Row (a)
|
696
|
|
|
(88)
|
|
|
—
|
|
|
784
|
|
|
(88)
|
|
|
Columbia
|
|
|
|
|
|
|
|
|
|
|
Juniper Apartments (b)
|
307
|
|
|
—
|
|
|
—
|
|
|
307
|
|
|
—
|
|
|
Summerlin
|
|
|
|
|
|
|
|
|
|
|
Constellation Apartments
|
1,912
|
|
|
1,980
|
|
|
2,291
|
|
|
(68)
|
|
|
(311)
|
|
|
Tanager Apartments (a)
|
2,776
|
|
|
657
|
|
|
—
|
|
|
2,119
|
|
|
657
|
|
|
Total Multi-family NOI
|
18,798
|
|
|
18,062
|
|
|
15,206
|
|
|
736
|
|
|
2,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
|
|
|
|
|
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
Embassy Suites at Hughes Landing
|
$
|
1,271
|
|
|
$
|
5,612
|
|
|
$
|
5,262
|
|
|
$
|
(4,341)
|
|
|
$
|
350
|
|
|
The Westin at The Woodlands
|
(132)
|
|
|
9,553
|
|
|
7,736
|
|
|
(9,685)
|
|
|
1,817
|
|
|
The Woodlands Resort & Conference Center
|
1,788
|
|
|
13,678
|
|
|
12,373
|
|
|
(11,890)
|
|
|
1,305
|
|
|
Total Hospitality NOI
|
2,927
|
|
|
28,843
|
|
|
25,371
|
|
|
(25,916)
|
|
|
3,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail, Office, Multi-family and Hospitality NOI
|
176,047
|
|
|
193,032
|
|
|
171,953
|
|
|
(16,985)
|
|
|
21,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
The Woodlands Ground Leases
|
$
|
1,868
|
|
|
$
|
1,778
|
|
|
$
|
1,589
|
|
|
$
|
90
|
|
|
$
|
189
|
|
|
The Woodlands Warehouse
|
1,052
|
|
|
6
|
|
|
—
|
|
|
1,046
|
|
|
6
|
|
|
Summerlin
|
|
|
|
|
|
|
|
|
|
|
Las Vegas Ballpark (a)(e)
|
(3,577)
|
|
|
8,135
|
|
|
(509)
|
|
|
(11,712)
|
|
|
8,644
|
|
|
Ward Village
|
|
|
|
|
|
|
|
|
|
|
Kewalo Basin Harbor
|
1,080
|
|
|
612
|
|
|
241
|
|
|
468
|
|
|
371
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Parking Garages (f)
|
(1,539)
|
|
|
(1,286)
|
|
|
(957)
|
|
|
(253)
|
|
|
(329)
|
|
|
Other Properties (a)
|
3,644
|
|
|
1,129
|
|
|
(218)
|
|
|
2,515
|
|
|
1,347
|
|
|
Total Other NOI
|
2,528
|
|
|
10,374
|
|
|
146
|
|
|
(7,846)
|
|
|
10,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets NOI excluding properties sold or in redevelopment
|
$
|
178,575
|
|
|
$
|
203,406
|
|
|
$
|
172,099
|
|
|
$
|
(24,831)
|
|
|
$
|
31,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopments
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
110 North Wacker (b)
|
$
|
—
|
|
|
$
|
(5)
|
|
|
$
|
(513)
|
|
|
$
|
5
|
|
|
$
|
508
|
|
|
Total Operating Assets Redevelopments NOI
|
—
|
|
|
(5)
|
|
|
(513)
|
|
|
5
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
100 Fellowship Drive (a)
|
$
|
1,011
|
|
|
$
|
2,214
|
|
|
$
|
—
|
|
|
$
|
(1,203)
|
|
|
$
|
2,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cottonwood Square
|
—
|
|
|
—
|
|
|
(11)
|
|
|
—
|
|
|
11
|
|
|
Total Operating Assets Dispositions NOI
|
1,011
|
|
|
2,214
|
|
|
(11)
|
|
|
(1,203)
|
|
|
2,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Assets NOI - Consolidated
|
$
|
179,586
|
|
|
$
|
205,615
|
|
|
$
|
171,575
|
|
|
$
|
(26,029)
|
|
|
$
|
34,040
|
|
(a)Properties placed in service in 2018 or 2019. Refer to Other Transferred Properties section below for details.
(b)Properties placed in service in 2020. See below for further details.
(c)Building was placed in service and tenant took occupancy in late December 2018 and therefore 2018 NOI on the property is not meaningful.
(d)Millennium Phase III Apartments was renamed to The Lane at Waterway.
(e)Includes the Las Vegas Aviators.
(f)Includes parking garages in The Woodlands, Columbia and Ward Village.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Office Properties Our office properties are located in Summerlin in Las Vegas, Nevada; Columbia, Maryland; and The Woodlands, Texas. Leases related to our office properties are generally triple net leases in The Woodlands, gross leases in Summerlin and modified gross leases in Columbia.
The following discussions summarize our recently completed or acquired office properties, which were placed in service in 2020:
The Woodlands
8770 New Trails This build-to-suit office building was placed in service in the first quarter of 2020. We entered into this build-to-suit arrangement with Alight Solutions, a national health and welfare benefits administrator, in the first quarter of 2019. The building, which is 100% leased, is a four-story, 180,000 rentable square foot office building. Total development costs of approximately $46.0 million was partially financed with a $35.5 million construction loan. We expect to reach projected annual stabilized NOI of $4.4 million in 2021.
Other
110 North Wacker This 1,492,940 square foot office building was placed in service in the third quarter of 2020. This triggered a reconsideration event that resulted in the deconsolidation of 110 North Wacker and the recognition of the retained equity method investment at fair value. The equity method investment was transferred from the Strategic Development segment to the Operating Asset segment, however NOI for equity method investments is not disclosed in the table above. As of December 31, 2020, the asset is 77% leased.
Retail Properties Some of the leases related to our retail properties are triple net leases, which generally require tenants to pay their pro-rata share of property operating costs, such as real estate taxes, utilities and insurance, and the direct costs of their leased space. We also enter into certain leases which require tenants to pay a fixed rate per square foot reimbursement for common area costs which is increased annually according to the terms of the lease. Given the unique nature of many of our retail properties, the mix of tenant lease agreements and related lease terms executed during the year ended December 31, 2020, may differ significantly from those entered into in prior periods.
The following discussions summarize our retail properties which were completed and transferred from Strategic Developments to Operating Assets in 2020:
Columbia
Merriweather District Area 3 Standalone Restaurant In the third quarter of 2020, this standalone restaurant project in Merriweather District Area 3 which is 100% pre-leased to Busboys and Poets, was placed in service. This project is one of two separate retail buildings, the other being a standalone kiosk. These two projects will serve as amenities to Area 3’s residents and office workers and launch us into the next phase of transforming Area 3 into an urban, mixed-use regional attraction. Total development cost for the standalone restaurant project was approximately $5.6 million. We expect to reach projected annual stabilized NOI of $0.4 million in the first half of 2021.
Multi-family Properties The following are multi-family properties which were transferred from Strategic Developments to Operating Assets during the year ended December 31, 2020:
Columbia
Juniper Apartments This seven-story, 382-unit multi-family property in Columbia was placed in service in the first quarter of 2020. The building includes 56,683 square feet of retail on the ground level, a parking garage, a fitness center and yoga studio, a clubroom with an outdoor terrace and a swimming pool, along with other amenities. Total development costs of approximately $116.4 million were partially financed with a $85.7 million construction loan. We expect to reach projected annual stabilized NOI of $9.2 million in 2023.
The Woodlands
The Lane at Waterway This multi-family development was placed in service in the fourth quarter of 2020. The project is the third phase of the Millennium Apartment portfolio, following the success of Millennium Waterway and Millennium Six Pines. The community includes 163 luxury units situated on 1.67 acres, with one, two and three-bedroom units as well as townhomes. Total development costs were approximately $45.0 million which was partially financed with a $30.7 million construction loan. We expect to reach projected annual stabilized NOI of $3.5 million in 2022.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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Two Lakes Edge This eight-story, Class-A, 386-unit multi-family development was placed in service in the second quarter of 2020. The mixed-use development in The Woodlands is our second apartment complex in Hughes Landing. The project includes 11,448 square feet of retail and restaurant space on the ground level and community amenities that include a resort-style pool and outdoor entertainment area overlooking Lake Woodlands, a Sky Lounge, built-in wine storage, a fitness center with a large yoga room and an outdoor fitness lawn. Total development costs were approximately $107.7 million which was partially financed with a $74.0 million construction loan. We expect to reach projected annual stabilized NOI of $8.5 million in 2024.
Other The properties that are included in Other Properties in our Operating Assets NOI and EBT table for the years ended December 31, 2020, 2019 and 2018 include the Las Vegas Ballpark, Kewalo Basin Harbor, HHC 242 Self-Storage, HHC 2978 Self-Storage, Hughes Landing Daycare, Woodlands Warehouse and the ground lease for our NHL hockey practice facility in Downtown Summerlin. The decrease in NOI in Other Properties for the year ended December 31, 2020, compared to the same period in 2019 is primarily related to the cancellation of the Las Vegas Aviators 2020 baseball season, as a result of the COVID-19 pandemic. The increase in NOI for the year ended December 31, 2019, compared to the same period in 2018, is primarily related to placing assets such as Las Vegas Ballpark, Kewalo Basin Harbor and Hughes Landing Daycare into service as well as continued stabilization of various assets.
Other Transferred Properties The following discussions summarize our properties which were transferred to Operating Assets from Strategic Developments or acquired in 2019 and 2018:
Bridgeland
Lakeside Row In the fourth quarter of 2019, we opened our first multi-family development in Bridgeland. Total development costs were approximately $45.6 million. We expect to reach annual stabilized NOI of approximately $3.9 million in 2022.
The Woodlands
Creekside Park West We placed this retail center in service in the fourth quarter of 2019. Total development costs were approximately $20.8 million. We expect to reach annual stabilized NOI of approximately $2.2 million in 2022.
Creekside Park Apartments The grand opening and completion of the clubhouse and certain buildings for this apartment complex took place in the third quarter of 2018. In 2019, we opened all remaining buildings. Total development costs were approximately $40.5 million.
Hughes Landing Daycare We placed this build-to-suit daycare center in service in the third quarter of 2019. Total development costs were approximately $2.9 million.
Lakefront North We purchased this campus comprised of a four-story building and a six-story building in September 2018.
Lake Woodlands Crossing Retail We placed this retail center in The Woodlands Town Center in service in the fourth quarter of 2018. Total development costs were approximately $12.3 million.
100 Fellowship Drive In the third quarter of 2019, we opened this build-to-suit medical building. Total development costs were approximately $61.0 million. The building was 100% leased and stabilized as of December 30, 2019, and sold in the first quarter of 2020. See Note 3 - Acquisitions and Dispositions for additional information regarding this disposition.
The Woodlands Towers at The Waterway On December 30, 2019, we acquired two Class AAA office towers. We leased 100% of one tower to Occidental Petroleum Corporation, the current tenant, for 13 years. In addition, we relocated our corporate headquarters into the other tower during 2020 and will lease the remaining space.
Columbia
m.flats/TEN.M We have a 50% ownership interest in this multi-family property, the m.flats portion of which was completed in the first quarter of 2018.
Two Merriweather This Class-A office building, located in the Merriweather District, was placed in service in 2018. Total development costs were approximately $40.9 million.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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6100 Merriweather This Class-A mixed-use office building was placed in service in the third quarter of 2019. Total development costs were approximately $138.2 million. We expect to reach projected annual stabilized NOI of approximately $9.2 million in 2023.
Summerlin
Aristocrat This build-to-suit project, which includes two office buildings, was placed in service in the third quarter of 2018. Total development costs were approximately $37.7 million.
Las Vegas Ballpark This ballpark, home of the Las Vegas Aviators Triple-A professional baseball team, was placed in service in March 2019. Total development costs were approximately $127.8 million. The Las Vegas Ballpark, inclusive of the results from both the stadium operations and those of the Las Vegas Aviators, is expected to contribute approximately $8.1 million to our NOI annually. This expected NOI was not achieved during 2020 due to the cancellation of the Las Vegas Aviators 2020 baseball season, as a result of the COVID-19 pandemic
Two Summerlin This Class-A office building was completed in the third quarter of 2018. Total development costs were approximately $50.9 million.
Tanager Apartments In the fourth quarter of 2019, we opened this multi-family development in Downtown Summerlin. Total development costs were approximately $59.3 million. We expect to reach projected annual stabilized NOI of approximately $4.4 million by the first quarter of 2022.
Ward Village
Kewalo Basin Harbor Modernization efforts at Kewalo Basin Harbor in Honolulu, which focused on achieving a market-leading boating facility to drive occupancy, were completed in the fourth quarter of 2019.
Ward Village Retail In the fourth quarter of 2019, a full-service pharmacy was opened at Ke Kilohana. In the second quarter of 2018, a Whole Foods Market’s Honolulu flagship store was opened at Ae‘o.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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Master Planned Communities
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Segment EBT The following table presents segment EBT for MPC Assets for the years ended December 31:
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MPC Segment EBT
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Bridgeland
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Columbia
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Summerlin
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The Woodlands
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The Woodlands Hills
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Total MPC
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thousands except percentages
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2020
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2019
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2018
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2020
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2019
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2018
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2020
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2019
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2018
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2020
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2019
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2018
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2020
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2019
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2018
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2020
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2019
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2018
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Land sales (a)
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$
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76,040
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$
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61,401
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$
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50,150
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$
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—
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$
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—
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$
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—
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$
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113,336
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$
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214,793
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$
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168,311
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$
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26,290
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$
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42,846
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$
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34,551
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$
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17,378
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$
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11,106
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$
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8,893
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$
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233,044
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$
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330,146
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$
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261,905
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Builder price participation (b)
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1,841
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920
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569
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—
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—
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—
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34,687
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34,355
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26,245
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362
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290
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250
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182
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116
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21
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37,072
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35,681
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27,085
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Other land revenues
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96
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150
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1,207
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|
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—
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—
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327
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13,432
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12,830
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11,996
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309
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7,966
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6,444
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—
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8
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487
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13,837
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20,954
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20,461
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Total revenues
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77,977
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62,471
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51,926
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—
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—
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327
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161,455
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261,978
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206,552
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26,961
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51,102
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41,245
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17,560
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11,230
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9,401
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283,953
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386,781
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309,451
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Cost of sales - land
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24,790
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22,781
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16,097
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—
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—
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—
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55,100
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93,590
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87,229
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15,011
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20,600
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16,563
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6,604
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4,881
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4,325
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101,505
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141,852
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124,214
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Land sales operations
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5,195
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7,162
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6,809
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1,054
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1,281
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1,541
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9,564
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11,422
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10,436
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9,099
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19,266
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18,161
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2,180
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2,489
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2,313
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27,092
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41,620
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39,260
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Provision for doubtful accounts
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—
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—
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33
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—
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—
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—
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—
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—
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10
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—
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—
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—
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—
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—
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—
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—
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—
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43
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Total operating expenses
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29,985
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29,943
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22,939
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1,054
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1,281
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1,541
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64,664
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105,012
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97,675
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24,110
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39,866
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34,724
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8,784
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7,370
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6,638
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128,597
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183,472
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163,517
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Operating income
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47,992
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32,528
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28,987
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(1,054)
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(1,281)
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(1,214)
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96,791
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156,966
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108,877
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2,851
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11,236
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6,521
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8,776
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3,860
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2,763
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155,356
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203,309
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145,934
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Depreciation and amortization
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133
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133
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127
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—
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(20)
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(51)
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|
97
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|
176
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31
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135
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135
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136
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—
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—
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—
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365
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424
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|
243
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Other (income) loss
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—
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(223)
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—
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—
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(311)
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—
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—
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5
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—
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|
—
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(72)
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(18)
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—
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—
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—
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—
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(601)
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(18)
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Interest (income) expense, net (c)
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(16,578)
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(15,639)
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(13,035)
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—
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—
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(151)
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(21,838)
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(20,736)
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(17,514)
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2,913
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|
5,497
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|
4,656
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(1,084)
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(1,141)
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(875)
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(36,587)
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(32,019)
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(26,919)
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Equity in earnings in real estate and other affiliates (d)
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—
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—
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—
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|
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—
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|
—
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—
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(17,845)
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(28,336)
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(36,284)
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|
—
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|
—
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|
—
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—
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|
—
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—
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(17,845)
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(28,336)
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(36,284)
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Segment EBT (e)
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$
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64,437
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$
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48,257
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$
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41,895
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$
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(1,054)
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$
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(950)
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$
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(1,012)
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$
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136,377
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$
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205,857
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$
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162,644
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$
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(197)
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$
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5,676
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$
|
1,747
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|
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$
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9,860
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$
|
5,001
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$
|
3,638
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|
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$
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209,423
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$
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263,841
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$
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208,912
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(GAAP Basis) Residential Gross Margin %
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67.4
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%
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62.9
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%
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67.6
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%
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NM
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NM
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NM
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51.4
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%
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56.4
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%
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48.4
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%
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42.9
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%
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51.9
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%
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54.4
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%
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62.2
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%
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56.1
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%
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51.4
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%
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56.5
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%
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57.0
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%
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52.9
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%
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(GAAP Basis) Commercial Gross Margin % (f)
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67.4
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%
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74.9
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%
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75.9
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%
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NM
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NM
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NM
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NM
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NM
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32.8
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%
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NM
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NM
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(4.7)
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%
|
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NM
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NM
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NM
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67.4
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%
|
74.9
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%
|
38.3
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%
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(a)Land sales include deferred revenue from land sales closed in a previous period which met criteria for recognition in the current period.
(b)Builder price participation revenue is based on an agreed-upon percentage of the sales price of homes closed relative to the base lot price which was paid by the homebuilders to us. This revenue fluctuates based upon the number and the prices of homes closed that qualify for builder price participation payments.
(c)Interest expense, net reflects the amount of interest that is capitalized at the project level. Negative interest expense amounts relate to interest capitalized relating to debt assigned to our Operating Assets segment and corporate debt.
(d)Equity in earnings in real estate and other affiliates reflects our share of earnings in The Summit joint venture.
(e)The negative MPC segment EBT in Columbia in 2020, 2019 and 2018 was due to real estate taxes and administrative expenses.
(f)Commercial land sales in The Woodlands in 2018 consisted of a 1.6-acre site that was acquired in 2014 at market value, as the original purchaser did not proceed with construction, our holding costs exceeded the 2018 sale price.
NM - Not Meaningful
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MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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MPC revenues vary between periods based on economic conditions and several factors including location, availability of land for sale, development density and residential or commercial use. Gross margin for each MPC will vary from period to period based on the locations of the land sold and the related costs associated with developing the land sold. Reported results differ significantly from actual cash flows generated principally because cost of sales for GAAP purposes is derived from margins calculated using carrying values, projected future improvements and other capitalized project costs in relation to projected future land sale revenues. Carrying values generally represent acquisition and development costs reduced by any previous impairment charges. Development expenditures are capitalized and generally not reflected in the Statements of Operations in the current period. Accordingly, Cost of sales – land includes both actual and estimated future costs allocated based upon relative sales value to the lots or land parcels in each of the villages and neighborhoods in our MPCs.
For the year ended December 31, 2020:
MPC Segment EBT decreased $54.4 million to $209.4 million for the year ended December 31, 2020 primarily due to the following results by MPC:
Bridgeland
–Residential land sales revenues increased $12.9 million primarily due to an increase in acres sold and price per acre. Bridgeland sold 169.1 residential acres compared to 150.3 acres in 2019. The average price per residential acre increased by $31,000 to $439,000 per acre.
–Commercial land sales increased $2.2 million from the sale of 16.6 acres compared to no commercial site sales in 2019.
Summerlin
–Land sales revenues decreased $101 million primarily due to lower superpad sales and SID bond assumptions, partially offset by an increase in custom lot sales. The decrease in land sales revenues was partially offset by a decrease in associated MPC cost of sales of $38 million. The decrease in superpad sales in 2020 was primarily due to the acceleration of sales into 2019 as a result of increased demand from homebuilders and homebuyers.
–Revenues from custom lot sales increased due to an increase in quantity of lots sold despite a decrease in average price for custom lots, which averaged approximately $34.50 per square foot in 2020 compared to $39.00 per square foot in 2019.
–Summerlin’s residential land sales totaled 126.9 acres compared to 319.4 for the same period in 2019. The average price per acre for superpad sites for the year increased by $90,000 to $738,000 per acre compared to the same period in 2019 due to the mix of lots sold.
–Equity earnings at The Summit decreased due to an increase in projected amenity costs and the 2020 sales consisting of a greater mix of built units which have a lower margin than custom lot sales.
The Woodlands
–Land sales revenues decreased $16.6 million primarily due to a decrease in acres sold due to availability of land as the community reaches completion. The Woodlands sold 24.6 residential acres compared to 60.9 acres in 2019. The average price per residential acre increased $384,000 to $1.1 million per acre, primarily due to an increase in land sales in a high-end, exclusive section of The Woodlands community that generates significantly higher value per acre in comparison.
The Woodlands Hills
–Land sales revenues increased $6.3 million due to an increase in acres sold and price per acre. The Woodlands Hills sold 56.1 residential acres compared to 40.2 acres in 2019. The average price per acre increased $34,000 to $310,000 per acre.
For the year ended December 31, 2019:
MPC Segment EBT increased $55 million to $263.8 million for the year ended December 31, 2019 primarily due to the following results by MPC:
Bridgeland
–Land sales revenues increased $11.3 million as a result of higher residential land sales and the recognition of revenues deferred in previous periods.
–Residential land sales were higher due to an increase in acres sold and price per acre. For the year ended December 31, 2019, Bridgeland sold 150.3 residential acres compared to 125.3 acres in 2018. The average price per residential acre increased $23,000 to $408,000 per acre as a result of contractual escalations in lot prices.
–Commercial land sales decreased as there were no commercial sites sales compared to one commercial site totaling 2.4 acres sold at an average price of $583,000 per acre in 2018.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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–Builder price participation increased 61.7% due to an increase in the number of homes closed.
–Other land revenues decreased $1.1 million due to easement sales that did not reoccur.
Summerlin
–Land sales revenues increased $46.5 million due to an increase in superpad sales and SID bond assumptions related to debt for a new SID formed in the fourth quarter of 2019. These increases were partially offset by a decrease in average price for custom lot sales from $1,414,000 per lot in 2018 to $744,000 per lot in 2019. The decrease in average price for custom lots is a result of selling smaller lots in 2019, which averaged $39.00 per square foot in 2019 compared to $47.34 per square foot in 2018.
–Summerlin’s residential land sales totaled 319.4 acres compared to 244.8 acres for the same period in 2018. The average price per acre for superpad sites for the year increased $82,000 to $648,000 per acre compared to the same period in 2018 due to the mix of lots sold.
–There were no commercial land sales in 2019 and in 2018 the Company sold a 5.9-acre church site for $399,000 per acre.
–Builder price participation revenue increased 30.9% and 20.8% for the years ended December 31, 2019 and 2018, respectively, primarily due to increases in the prices of new homes and associated options, upgrades and lot premiums.
The Woodlands
–Land sales revenues increased $8.3 million. Residential land sales revenues were up $9.7 million, primarily due to the quantity and mix of lots sold, including 3.9 acres of superpad sales. Commercial land sales decreased $1.4 million as there were no commercial parcel sales in the current year period.
–The Woodlands sold 60.9 residential acres in 2019 compared to 53.7 acres in 2018. The average price per residential acre for single-family lots increased $71,000 to $689,000 per acre in 2019 while the average price per acre for superpad sites was $923,000 in 2019. The increase in price per residential acre is primarily due to product mix.
–In 2018, The Woodlands sold a 1.6-acre commercial retail site for $850,000 per acre. The higher price per acre was due to the location being on a major thoroughfare.
–Builder price participation revenue increased 16.0% as contractual terms with our homebuilders were adjusted to align with the current Houston market.
The Woodlands Hills
–Land sales revenues increased $2.2 million due to volume and product mix of lots sold.
–The Woodlands Hills sold 40.2 residential acres compared to 32.4 acres in 2018.
–Other land revenues decreased $0.5 million due to funds received for a construction easement in 2018 that did not recur in 2019.
The Summit
Land development began at The Summit, our joint venture with Discovery Land, in the second quarter of 2015, and the development continues to progress. The golf course and related amenities were completed and opened to the members of the golf club in October 2017. The Club Tower Suites broke ground in March of 2019 with construction on schedule to be completed in 2021. Construction of the clubhouse has commenced with an expected delivery in 2022. Lot closings began in the second quarter of 2016, and a total of 158 lots have closed for $577.1 million through December 31, 2020. For the year ended December 31, 2020, 29 residential lots closed for $155.7 million, compared to 20 residential lots closed for $76.4 million in 2019 and 32 lots closed for $104.8 million in 2018 at The Summit, which offers a mix of custom lots, single family homes and clubhouse suites, sold by the joint venture. We recognized $17.8 million, $28.3 million and $36.3 million in equity in earnings and cash distributions of $6.0 million, $16.1 million and $10.0 million were received in the years ended December 31, 2020, 2019 and 2018, respectively. Refer to Note 2 - Real Estate and Other Affiliates in our Notes to Consolidated Financial Statements for a description of the joint venture and further discussion.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
The following tables detail our residential and commercial land sales for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Residential MPC Land Sales Closed
|
|
|
|
Land Sales
|
|
Acres Sold
|
|
Number of Lots/Units
|
|
Price Per Acre
|
|
Price Per Lot
|
|
thousands except percentages
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Bridgeland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
$
|
74,180
|
|
|
$
|
61,320
|
|
|
$
|
48,200
|
|
|
169.1
|
|
|
150.3
|
|
|
125.3
|
|
|
856
|
|
|
773
|
|
|
620
|
|
|
$
|
439
|
|
|
$
|
408
|
|
|
$
|
385
|
|
|
$
|
87
|
|
|
$
|
79
|
|
|
$
|
78
|
|
|
Change
|
|
12,860
|
|
|
13,120
|
|
|
|
|
18.8
|
|
|
25.0
|
|
|
|
|
83
|
|
|
153
|
|
|
|
|
31
|
|
|
23
|
|
|
|
|
8
|
|
|
1
|
|
|
|
|
% Change
|
|
21.0
|
%
|
|
27.2
|
%
|
|
|
|
12.5
|
%
|
|
20.0
|
%
|
|
|
|
10.7
|
%
|
|
24.7
|
%
|
|
|
|
7.6
|
%
|
|
6.0
|
%
|
|
|
|
10.1
|
%
|
|
1.3
|
%
|
|
|
|
Columbia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No residential land sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Summerlin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Superpad sites
|
|
89,461
|
|
|
204,647
|
|
|
136,246
|
|
|
121.2
|
|
|
315.9
|
|
|
240.8
|
|
|
593
|
|
|
1,862
|
|
|
786
|
|
|
738
|
|
|
648
|
|
|
566
|
|
|
151
|
|
|
110
|
|
|
173
|
|
|
Custom lots
|
|
8,563
|
|
|
5,952
|
|
|
8,485
|
|
|
5.7
|
|
|
3.5
|
|
|
4.0
|
|
|
14
|
|
|
8
|
|
|
6
|
|
|
1,502
|
|
|
1,701
|
|
|
2,121
|
|
|
612
|
|
|
744
|
|
|
1,414
|
|
|
Total
|
|
98,024
|
|
|
210,599
|
|
|
144,731
|
|
|
126.9
|
|
|
319.4
|
|
|
244.8
|
|
|
607
|
|
|
1,870
|
|
|
792
|
|
|
772
|
|
|
659
|
|
|
591
|
|
|
161
|
|
|
113
|
|
|
183
|
|
|
Change
|
|
(112,575)
|
|
|
65,868
|
|
|
|
|
(192.5)
|
|
|
74.6
|
|
|
|
|
(1,263)
|
|
|
1,078
|
|
|
|
|
113
|
|
|
68
|
|
|
|
|
48
|
|
|
(70)
|
|
|
|
|
% Change
|
|
(53.5)
|
%
|
|
45.5
|
%
|
|
|
|
(60.3)
|
%
|
|
30.5
|
%
|
|
|
|
(67.5)
|
%
|
|
136.1
|
%
|
|
|
|
17.1
|
%
|
|
11.5
|
%
|
|
|
|
42.5
|
%
|
|
(38.3)
|
%
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
26,290
|
|
|
39,246
|
|
|
33,189
|
|
|
24.5
|
|
|
57.0
|
|
|
53.7
|
|
|
112
|
|
|
240
|
|
|
215
|
|
|
1,073
|
|
|
689
|
|
|
618
|
|
|
235
|
|
|
164
|
|
|
154
|
|
|
Superpad sites
|
|
—
|
|
|
3,600
|
|
|
—
|
|
|
—
|
|
|
3.9
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
923
|
|
|
—
|
|
|
—
|
|
|
120
|
|
|
—
|
|
|
Total
|
|
26,290
|
|
|
42,846
|
|
|
33,189
|
|
|
24.5
|
|
|
60.9
|
|
|
53.7
|
|
|
112
|
|
|
270
|
|
|
215
|
|
|
1,073
|
|
|
704
|
|
|
618
|
|
|
235
|
|
|
159
|
|
|
154
|
|
|
Change
|
|
(16,556)
|
|
|
9,657
|
|
|
|
|
(36.4)
|
|
|
7.2
|
|
|
|
|
(158)
|
|
|
55
|
|
|
|
|
369
|
|
|
86
|
|
|
|
|
76
|
|
|
5
|
|
|
|
|
% Change
|
|
(38.6)
|
%
|
|
29.1
|
%
|
|
|
|
(59.8)
|
%
|
|
13.4
|
%
|
|
|
|
(58.5)
|
%
|
|
25.6
|
%
|
|
|
|
52.4
|
%
|
|
13.9
|
%
|
|
|
|
47.8
|
%
|
|
3.2
|
%
|
|
|
|
The Woodlands Hills
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
17,378
|
|
|
11,107
|
|
|
8,893
|
|
|
56.1
|
|
|
40.2
|
|
|
32.4
|
|
|
280
|
|
|
171
|
|
|
146
|
|
|
310
|
|
|
276
|
|
|
274
|
|
|
62
|
|
|
65
|
|
|
61
|
|
|
Change
|
|
6,271
|
|
|
2,214
|
|
|
|
|
15.9
|
|
|
7.8
|
|
|
|
|
109
|
|
|
25
|
|
|
|
|
34
|
|
|
2
|
|
|
|
|
(3)
|
|
|
4
|
|
|
|
|
% Change
|
|
56.5
|
%
|
|
24.9
|
%
|
|
|
|
39.6
|
%
|
|
24.1
|
%
|
|
|
|
63.7
|
%
|
|
17.1
|
%
|
|
|
|
12.3
|
%
|
|
0.7
|
%
|
|
|
|
(4.6)
|
%
|
|
6.6
|
%
|
|
|
|
Total residential land sales closed in period (a)
|
|
$
|
215,872
|
|
|
$
|
325,872
|
|
|
$
|
235,013
|
|
|
376.6
|
|
|
570.8
|
|
|
456.2
|
|
|
1,855
|
|
|
3,084
|
|
|
1,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Excludes revenues closed and deferred for recognition in a previous period that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales revenue for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Commercial MPC Land Sales Closed
|
|
|
Land Sales
|
|
Acres Sold
|
|
Price Per Acre
|
|
thousands except percentages
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Bridgeland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not-for-profit
|
$
|
2,164
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
16.6
|
|
|
—
|
|
|
—
|
|
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other
|
—
|
|
|
—
|
|
|
1,398
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|
583
|
|
|
Total
|
2,164
|
|
|
—
|
|
|
1,398
|
|
|
16.6
|
|
|
—
|
|
|
2.4
|
|
|
130
|
|
|
—
|
|
|
583
|
|
|
Change
|
2,164
|
|
|
(1,398)
|
|
|
|
|
16.6
|
|
|
(2.4)
|
|
|
|
|
130
|
|
|
(583)
|
|
|
|
|
% Change
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
Columbia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Change
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
% Change
|
NM
|
|
NM
|
|
|
|
NM
|
|
NM
|
|
|
|
NM
|
|
NM
|
|
|
|
Summerlin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not-for-profit
|
—
|
|
|
—
|
|
|
2,356
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
|
—
|
|
|
399
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
—
|
|
|
—
|
|
|
2,356
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
|
—
|
|
|
399
|
|
|
Change
|
—
|
|
|
(2,356)
|
|
|
|
|
—
|
|
|
(5.9)
|
|
|
|
|
—
|
|
|
(399)
|
|
|
|
|
% Change
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
—
|
|
|
—
|
|
|
1,362
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
|
851
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
—
|
|
|
—
|
|
|
1,362
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
|
851
|
|
|
Change
|
—
|
|
|
(1,362)
|
|
|
|
|
—
|
|
|
(1.6)
|
|
|
|
|
—
|
|
|
(851)
|
|
|
|
|
% Change
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
—
|
%
|
|
(100.0)
|
%
|
|
|
|
Total commercial land sales closed in period (a)
|
$
|
2,164
|
|
|
$
|
—
|
|
|
$
|
5,116
|
|
|
16.6
|
|
|
—
|
|
|
9.9
|
|
|
|
|
|
|
|
(a)Excludes revenues closed and deferred for recognition in a previous period that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales for the years ended December 31, 2020, 2019 and 2018.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Although our business does not involve the sale or resale of homes, we believe that net new home sales are an important indicator of future demand for our superpad sites and finished lots. Therefore, we use this statistic where relevant in our discussion of MPC operating results herein. Net new home sales reflect home sales made by homebuilders, less cancellations. Cancellations generally occur when a homebuyer signs a contract to purchase a home but later fails to qualify for a home mortgage or is unable to provide an adequate down payment to complete the home sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Information
|
|
|
Net New Home Sales
|
|
Median Home Sales Price
|
|
thousands except percentages
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Bridgeland
|
873
|
|
|
739
|
|
|
495
|
|
|
$
|
372
|
|
|
$
|
371
|
|
|
$
|
383
|
|
|
Change
|
134
|
|
|
244
|
|
|
|
|
1
|
|
|
(12)
|
|
|
|
|
% Change
|
18.1
|
%
|
|
49.3
|
%
|
|
|
|
0.3
|
%
|
|
(3.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summerlin
|
1,397
|
|
|
1,292
|
|
|
1,276
|
|
|
565
|
|
|
578
|
|
|
575
|
|
|
Change
|
105
|
|
|
16
|
|
|
|
|
(13)
|
|
|
3
|
|
|
|
|
% Change
|
8.1
|
%
|
|
1.3
|
%
|
|
|
|
(2.2)
|
%
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands
|
236
|
|
|
319
|
|
|
343
|
|
|
614
|
|
|
525
|
|
|
465
|
|
|
Change
|
(83)
|
|
|
(24)
|
|
|
|
|
89
|
|
|
60
|
|
|
|
|
% Change
|
(26.0)
|
%
|
|
(7.0)
|
%
|
|
|
|
17.0
|
%
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands Hills
|
218
|
|
|
121
|
|
|
35
|
|
|
316
|
|
|
297
|
|
|
325
|
|
|
Change
|
97
|
|
|
86
|
|
|
|
|
19
|
|
|
(28)
|
|
|
|
|
% Change
|
80.2
|
%
|
|
245.7
|
%
|
|
|
|
6.4
|
%
|
|
(8.6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia - No New Home Sales
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue The following table reconciles Total residential and commercial land sales closed in the years ended December 31, 2020, 2019 and 2018 to Land sales revenue for the respective periods. Total net recognized (deferred) revenue includes revenues recognized in the current period which are related to sales closed in prior periods, offset by revenues deferred on sales closed in the current period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Total residential land sales closed in period
|
$
|
215,872
|
|
|
$
|
325,872
|
|
|
$
|
235,013
|
|
|
Total commercial land sales closed in period
|
2,164
|
|
|
—
|
|
|
5,116
|
|
|
Net recognized (deferred) revenue:
|
|
|
|
|
|
|
Bridgeland
|
(305)
|
|
|
81
|
|
|
553
|
|
|
Summerlin
|
5,019
|
|
|
(19,290)
|
|
|
7,049
|
|
|
Total net recognized (deferred) revenue
|
4,714
|
|
|
(19,209)
|
|
|
7,602
|
|
|
Special Improvement District revenue
|
10,294
|
|
|
23,483
|
|
|
14,174
|
|
|
Land sales
|
$
|
233,044
|
|
|
$
|
330,146
|
|
|
$
|
261,905
|
|
Population growth, coupled with low mortgage interest rates, have led to continued demand for new homes in the Summerlin and Houston markets. Summerlin was ranked the third highest selling master planned community in the nation and also recognized as the “Best Selling MPC in Las Vegas” by RCLCO. Bridgeland was ranked the ninth highest selling master planned community in the nation and also recognized as the “Best Selling MPC in Texas” by RCLCO for 2020. We expect demand to continue as home sales in high quality suburban communities continue to grow in 2021.
MPC Net Contribution In addition to MPC segment EBT, we believe that certain investors measure the value of the assets in this segment based on their contribution to liquidity and capital available for investment. MPC Net Contribution is defined as MPC segment EBT, plus MPC cost of sales, Depreciation and amortization and net collections from SID bonds and Municipal Utility District (MUD) receivables, reduced by MPC development expenditures, land acquisitions and Equity in earnings from real estate and other affiliates, net of distributions. MPC Net Contribution is not a GAAP-based operational metric and should not be used to measure operating performance of the MPC assets as a substitute for GAAP measures of such performance nor should it be used as a comparison metric with other comparable businesses. A reconciliation of segment EBT to MPC Net Contribution is presented below.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
The following table sets forth the MPC Net Contribution for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
MPC segment EBT (a)
|
$
|
209,423
|
|
|
$
|
263,841
|
|
|
$
|
208,912
|
|
|
$
|
(54,418)
|
|
|
$
|
54,929
|
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
Cost of sales - land
|
101,505
|
|
|
141,852
|
|
|
124,214
|
|
|
(40,347)
|
|
|
17,638
|
|
|
Depreciation and amortization
|
365
|
|
|
424
|
|
|
243
|
|
|
(59)
|
|
|
181
|
|
|
MUD and SID bonds collections, net (b)
|
51,247
|
|
|
24,047
|
|
|
37,401
|
|
|
27,200
|
|
|
(13,354)
|
|
|
Distributions from real estate and other affiliates
|
6,000
|
|
|
16,051
|
|
|
10,000
|
|
|
(10,051)
|
|
|
6,051
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
MPC development expenditures
|
(229,065)
|
|
|
(238,951)
|
|
|
(195,504)
|
|
|
9,886
|
|
|
(43,447)
|
|
|
MPC land acquisitions
|
—
|
|
|
(752)
|
|
|
(8,826)
|
|
|
752
|
|
|
8,074
|
|
|
Equity in (earnings) losses in real estate and other affiliates
|
(17,845)
|
|
|
(28,336)
|
|
|
(36,284)
|
|
|
10,491
|
|
|
7,948
|
|
|
MPC Net Contribution
|
$
|
121,630
|
|
|
$
|
178,176
|
|
|
$
|
140,156
|
|
|
$
|
(56,546)
|
|
|
$
|
38,020
|
|
(a)For a detailed breakdown of our MPC segment EBT, refer to Note 18 -Segments in our Notes to Consolidated Financial Statements.
(b)SID collections are shown net of SID transfers to buyers in the respective periods.
MPC Net Contribution decreased for the year ended December 31, 2020, primarily due to the land sales changes explained in the EBT section above, partially offset by higher MUD and SID bonds collections, net and lower MPC development expenditures. MPC Net Contribution increased for the year ended December 31, 2019, primarily due to the land sales changes explained in the EBT section above. MPC development expenditures at Bridgeland and Summerlin increased in 2019 to accommodate projected land sales.
The following table sets forth MPC land inventory activity for 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Bridgeland
|
|
Columbia
|
|
Summerlin
|
|
The Woodlands
|
|
The
Woodlands Hills
|
|
Total MPC
|
|
Balance December 31, 2018
|
$
|
473,851
|
|
|
$
|
16,634
|
|
|
$
|
829,908
|
|
|
$
|
204,281
|
|
|
$
|
117,986
|
|
|
$
|
1,642,660
|
|
|
Acquisitions
|
752
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
752
|
|
|
Development expenditures (a)
|
115,135
|
|
|
—
|
|
|
98,303
|
|
|
10,978
|
|
|
14,535
|
|
|
238,951
|
|
|
MPC Cost of sales
|
(22,781)
|
|
|
—
|
|
|
(93,590)
|
|
|
(20,600)
|
|
|
(4,881)
|
|
|
(141,852)
|
|
|
MUD reimbursable costs (b)
|
(82,636)
|
|
|
—
|
|
|
—
|
|
|
(1,483)
|
|
|
(7,568)
|
|
|
(91,687)
|
|
|
Transfer to Strategic Developments
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,426)
|
|
|
—
|
|
|
(6,426)
|
|
|
Other (c)
|
2,993
|
|
|
9
|
|
|
10,819
|
|
|
23
|
|
|
(568)
|
|
|
13,276
|
|
|
Balance December 31, 2019
|
487,314
|
|
|
16,643
|
|
|
845,440
|
|
|
186,773
|
|
|
119,504
|
|
|
1,655,674
|
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Development expenditures (a)
|
106,839
|
|
|
—
|
|
|
100,177
|
|
|
6,148
|
|
|
15,901
|
|
|
229,065
|
|
|
MPC Cost of sales
|
(24,790)
|
|
|
—
|
|
|
(55,100)
|
|
|
(15,011)
|
|
|
(6,604)
|
|
|
(101,505)
|
|
|
MUD reimbursable costs (b)
|
(72,539)
|
|
|
—
|
|
|
—
|
|
|
(377)
|
|
|
(10,379)
|
|
|
(83,295)
|
|
|
Transfer to Strategic Developments
|
(1,511)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,511)
|
|
|
Other (c)
|
(8,446)
|
|
|
(18)
|
|
|
(1,563)
|
|
|
(192)
|
|
|
(690)
|
|
|
(10,909)
|
|
|
Balance December 31, 2020
|
$
|
486,867
|
|
|
$
|
16,625
|
|
|
$
|
888,954
|
|
|
$
|
177,341
|
|
|
$
|
117,732
|
|
|
$
|
1,687,519
|
|
(a)Development expenditures are inclusive of capitalized interest and property taxes.
(b)MUD reimbursable costs represent land development expenditures transferred to MUD Receivables.
(c)Primarily consists of changes in development expenditures payable.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
The revitalization of Lower Manhattan into a media and entertainment hub continues in our Seaport District, which encompasses several city blocks along the East River waterfront and includes (i) the Historic Area/Uplands, which is west of the FDR Drive and consists of approximately 187,000 square feet of retail space, including the 105,000 square foot Fulton Market Building, a portion of which was placed in service in the fourth quarter of 2016, and (ii) approximately 213,000 square feet of experiential retail, studio and creative office space at Pier 17, which opened in 2018, with an additional 53,000 square feet at the Tin Building located east of the FDR Drive, which is under development and discussed further below.
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) seasonality; (ii) potential sponsorship revenue; (iii) potential event revenue; and (iv) business operating risks from various start-up businesses. 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 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 marketplace operated by Jean-Georges. As a result, the revenues and expenses of these businesses, as well as the underlying market conditions affecting these types of businesses, will directly impact the NOI of the Seaport District. This is in contrast to our other retail properties where we primarily receive lease payments and are not as directly impacted by the operating performance of the underlying businesses. This causes the financial 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 partnership with third parties, 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 marketplace in the Tin Building. As a result of impacts related to COVID-19, there were delays in construction on the Tin Building, however construction is still on track for completion in the fourth quarter of 2021, with an expanded focus on experiences including in-person dining, retail shopping, mobile ordering and delivery. As a result of COVID-19, we expect stabilization to take at least 18 months. Given the factors and uncertainties listed above combined with potential future impacts related to COVID-19, we do not currently provide guidance on our expected NOI yield and stabilization date for the Seaport District. As we move closer to opening a critical mass of offerings at the Seaport District, we will re-establish goals for yield on costs and stabilization dates when the uncertainties and range of possible outcomes are clearer.
We primarily categorize the businesses in the Seaport District segment into three groups: landlord operations, managed businesses and events and sponsorships. Real Estate Operations (Landlord) represents physical real estate we have developed and own, either wholly or through joint ventures, and is inclusive of our office, retail and multi-family properties. Managed Businesses represents retail and food and beverage businesses that HHC owns, either wholly or through partnerships with third parties, and operates, including license and management agreements. For the year ended December 31, 2020, our managed businesses include, among others, The Fulton, SJP by Sarah Jessica Parker, R17, Cobble & Co. and Malibu Farm. In July 2020, Seaport entered into management agreements with Creative Culinary Management Company, LLC (Creative Culinary), a Jean-Georges company, to manage and operate its food and beverage operations for the Fulton, R17, Cobble & Co. and Malibu Farm. Creative Culinary is responsible for employment and supervision of all employees providing services for the food and beverage operations and restaurant as well as day-to-day operations and accounting for food and beverage operations.
Our events and sponsorship businesses have historically included our concert series, Winterland skating and bar, event catering, private events and sponsorships. With the cancellation of the 2020 summer concert series and the Winterland skating and bar, in August, we launched a new concept at the Pier 17 rooftop called The Greens, which allows groups of up to eight people to reserve their own socially distanced, mini-lawn space. In November, the lawn spaces were converted to individual dining cabins for guests to enjoy throughout the winter months. The Greens generated high customer demand for the outdoor venue and helped to fulfill obligations under our sponsorship agreements, which would have been drastically reduced without the concert series.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Segment EBT The following table presents segment EBT for the Seaport District for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Rental Revenue
|
$
|
6,894
|
|
|
$
|
8,582
|
|
|
$
|
9,962
|
|
|
$
|
(1,688)
|
|
|
$
|
(1,380)
|
|
|
Other land, rental and property revenues
|
16,920
|
|
|
47,063
|
|
|
22,670
|
|
|
(30,143)
|
|
|
24,393
|
|
|
Total revenues
|
23,814
|
|
|
55,645
|
|
|
32,632
|
|
|
(31,831)
|
|
|
23,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
(44,515)
|
|
|
(76,527)
|
|
|
(47,715)
|
|
|
32,012
|
|
|
(28,812)
|
|
|
Rental property real estate taxes
|
(1,452)
|
|
|
(1,366)
|
|
|
(1,019)
|
|
|
(86)
|
|
|
(347)
|
|
|
Provision (recovery) for doubtful accounts
|
(145)
|
|
|
21
|
|
|
(982)
|
|
|
(166)
|
|
|
1,003
|
|
|
Total operating expenses
|
(46,112)
|
|
|
(77,872)
|
|
|
(49,716)
|
|
|
31,760
|
|
|
(28,156)
|
|
|
Segment operating income (loss)
|
(22,298)
|
|
|
(22,227)
|
|
|
(17,084)
|
|
|
(71)
|
|
|
(5,143)
|
|
|
Depreciation and amortization
|
(41,602)
|
|
|
(26,381)
|
|
|
(12,466)
|
|
|
(15,221)
|
|
|
(13,915)
|
|
|
Interest income (expense), net
|
(12,512)
|
|
|
(12,865)
|
|
|
6,291
|
|
|
353
|
|
|
(19,156)
|
|
|
Other income (loss), net
|
(2,616)
|
|
|
(22)
|
|
|
102
|
|
|
(2,594)
|
|
|
(124)
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
(9,292)
|
|
|
(2,592)
|
|
|
(705)
|
|
|
(6,700)
|
|
|
(1,887)
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
—
|
|
|
(6)
|
|
|
—
|
|
|
6
|
|
|
(6)
|
|
|
Gain (loss) on extinguishment of debt
|
(11,648)
|
|
|
4,851
|
|
|
—
|
|
|
(16,499)
|
|
|
4,851
|
|
|
Segment EBT
|
$
|
(99,968)
|
|
|
$
|
(59,242)
|
|
|
$
|
(23,862)
|
|
|
$
|
(40,726)
|
|
|
$
|
(35,380)
|
|
For the year ended December 31, 2020:
Seaport District segment EBT decreased $40.7 million compared to the prior year period primarily due to the following:
–decreases in segment revenues were offset by decreases in segment operating expenses primarily as a result of business closures and cancellations of events related to the COVID-19 pandemic
–$11.6 million loss on extinguishment of debt upon retirement of the $250 million Seaport District loan in August 2020
–$6.0 million impairment of the Company’s equity investment in Mr. C Seaport. Refer to Note 4 - Impairment in the Company’s Consolidated Financial Statements for further details.
–write-offs of retail inventory totaling $3.1 million recorded within Other income (loss), net and building improvements and other assets totaling $14.1 million recorded within Depreciation and amortization due to permanent closure of 10 Corso Como Retail and Café during the first quarter of 2020
–partially offset by a $1.6 million increase in Other income (loss), net due to liquidation sales of 10 Corso Como Retail inventory
For the year ended December 31, 2019:
Seaport District segment EBT decreased $35.4 million compared to the prior year period primarily due to the following:
–increase in segment revenues primarily due to existing businesses including Cobble & Co., Garden Bar and 10 Corso Como Retail and Café, and new business openings such as The Fulton and Malibu Farm
–increase in Operating costs primarily due to start-up costs and costs directly associated with increases in revenue at our businesses including Garden Bar, The Lookout, Malibu Farm, The Fulton and our summer concert series
–increase in Depreciation and amortization primarily due to the transfers of assets such as The Lookout, Malibu Farm and The Fulton from Strategic Developments to Seaport District
–increase in Interest expense, net primarily due to debt related to the acquisition of 250 Water Street, the Seaport District term loan that closed on June 20, 2019, and a reduction of interest capitalized to assets that were under development during 2018 but have since been placed into operations
–$4.9 million gain on extinguishment of debt in 2019 due to the acquisition of the 250 Water Street loan at a discount
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Net Operating Income A reconciliation of Seaport District segment EBT to Seaport District NOI is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seaport District NOI
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Total Seaport District segment EBT
|
$
|
(99,968)
|
|
|
$
|
(59,242)
|
|
|
$
|
(23,862)
|
|
|
$
|
(40,726)
|
|
|
$
|
(35,380)
|
|
|
Depreciation and amortization
|
41,602
|
|
|
26,381
|
|
|
12,466
|
|
|
15,221
|
|
|
13,915
|
|
|
Interest (income) expense, net
|
12,512
|
|
|
12,865
|
|
|
(6,291)
|
|
|
(353)
|
|
|
19,156
|
|
|
Equity in (earnings) losses from real estate and other affiliates
|
9,292
|
|
|
2,592
|
|
|
705
|
|
|
6,700
|
|
|
1,887
|
|
|
(Gain) loss on sale or disposal of real estate and other assets, net
|
—
|
|
|
6
|
|
|
—
|
|
|
(6)
|
|
|
6
|
|
|
(Gain) loss on extinguishment of debt
|
11,648
|
|
|
(4,851)
|
|
|
—
|
|
|
16,499
|
|
|
(4,851)
|
|
|
Impact of straight-line rent
|
2,801
|
|
|
1,634
|
|
|
(433)
|
|
|
1,167
|
|
|
2,067
|
|
|
Other (income) loss, net (a)
|
5,639
|
|
|
5,595
|
|
|
11,937
|
|
|
44
|
|
|
(6,342)
|
|
|
Seaport District NOI
|
$
|
(16,474)
|
|
|
$
|
(15,020)
|
|
|
$
|
(5,478)
|
|
|
$
|
(1,454)
|
|
|
$
|
(9,542)
|
|
(a)Includes miscellaneous development-related items as well as the loss related to the write-off of inventory due to the permanent closure of 10 Corso Como Retail and Café in the first quarter of 2020, and income related to inventory liquidation sales in the third quarter of 2020.
The below table presents Seaport District NOI by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seaport District NOI by Category
|
|
|
|
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Historic District & Pier 17 - Landlord
|
$
|
(8,526)
|
|
|
$
|
(8,147)
|
|
|
$
|
(2,039)
|
|
|
$
|
(379)
|
|
|
$
|
(6,108)
|
|
|
Multi-family
|
290
|
|
|
394
|
|
|
553
|
|
|
(104)
|
|
|
(159)
|
|
|
Hospitality
|
(12)
|
|
|
41
|
|
|
143
|
|
|
(53)
|
|
|
(102)
|
|
|
Historic District & Pier 17 - Managed Businesses
|
(5,638)
|
|
|
(7,172)
|
|
|
(4,985)
|
|
|
1,534
|
|
|
(2,187)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Events, Sponsorships & Catering Business
|
(2,588)
|
|
|
(136)
|
|
|
850
|
|
|
(2,452)
|
|
|
(986)
|
|
|
Seaport District NOI
|
$
|
(16,474)
|
|
|
$
|
(15,020)
|
|
|
$
|
(5,478)
|
|
|
$
|
(1,454)
|
|
|
$
|
(9,542)
|
|
Seaport District NOI decreased for the year ended December 31, 2020, compared to 2019, primarily as a result of business closures and cancellations of events related to the COVID-19 pandemic. Seaport District NOI decreased for the year ended December 31, 2019, compared to 2018, primarily driven by the opening of new businesses as mentioned above and continued investment in the development of the Seaport District, particularly as it relates to funding of the start-up costs related to the retail, food and beverage and other operating assets.
Including managed businesses, events, sponsorships, catering and the Tin Building, the Seaport District is approximately 52% leased. We may continue to incur operating expenses in excess of rental revenues while the remaining available space is in lease-up. Additionally, rental revenue earned from businesses we own and operate is eliminated in consolidation. We expect to incur operating losses for our landlord operations, managed business entities and event and sponsorship until businesses in New York are able to safely reopen at full capacity, the economy recovers from the economic impact of the COVID-19 pandemic and the Seaport District reaches its critical mass of offerings.
The following describes the status of our major construction projects at the Seaport District as of December 31, 2020:
Tin Building In January 2017, we executed a ground lease amendment with the City of New York, incorporating the Tin Building into our leased premises and modifying other related provisions. The project includes construction of a turn-key, interior fit-out for the marketplace space, leased by a joint venture with Jean-Georges Vongerichten, which will feature a variety of fresh specialty foods, seafood, exceptional dining experiences and other products. As part of the asset’s redevelopment, important historical elements were salvaged and catalogued during the building’s deconstruction. We have completed the reconstruction of the platform pier where the Tin Building previously stood and restoration of the building is well under way. As a result of impacts related to COVID-19, there were delays in construction on the Tin Building, however construction is expected to be substantially complete in the fourth quarter of 2021.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
250 Water Street We acquired 250 Water Street in the second quarter of 2018. This one-acre site, currently used as a parking lot, is at the entrance of the Seaport District and encompasses a full city block bounded by Peck Slip, Pearl Street, Water Street and Beekman Street. On November 19, 2019, we closed on a $100.0 million note for 250 Water Street. See Note 7 - Mortgages, Notes and Loans Payable, Net for more details. In October 2020, the Company announced its comprehensive proposal for this site and submitted to the New York City Landmarks Preservation Commission its plans, which includes the transformation of this underutilized full-block surface parking lot into a mixed-use development that would include affordable housing, condominium units, community-oriented spaces and office space. While the Company moves forward with the planning and continues to seek LPC and additional governmental approvals for this strategic site, it will continue to be used as a parking lot.
Our Strategic Developments assets generally require substantial future development to maximize their value. Other than our condominium properties, most of the properties and projects in this segment do not generate revenues. Our expenses relating to these assets are primarily related to costs associated with constructing the assets, selling condominiums, marketing costs associated with our Strategic Developments, carrying costs including, but not limited to, property taxes and insurance and other ongoing costs relating to maintaining the assets in their current condition. If we decide to redevelop or develop a Strategic Developments asset, we would expect that with the exception of the residential portion of our condominium projects, upon completion of development, the asset would likely be reclassified to Operating Assets when the asset is placed in service and NOI would become a meaningful measure of its operating performance. All development costs discussed herein are exclusive of land costs.
Segment EBT The following table presents segment EBT for Strategic Developments for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments Segment EBT
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Rental Revenue
|
$
|
446
|
|
|
$
|
832
|
|
|
$
|
1,591
|
|
|
$
|
(386)
|
|
|
$
|
(759)
|
|
|
Condominium rights and unit sales
|
1,143
|
|
|
448,940
|
|
|
357,720
|
|
|
(447,797)
|
|
|
91,220
|
|
|
Other land, rental and property revenues
|
17,818
|
|
|
8,176
|
|
|
14,901
|
|
|
9,642
|
|
|
(6,725)
|
|
|
Total revenues
|
19,407
|
|
|
457,948
|
|
|
374,212
|
|
|
(438,541)
|
|
|
83,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condominium rights and unit cost of sales
|
(108,229)
|
|
|
(369,759)
|
|
|
(262,562)
|
|
|
261,530
|
|
|
(107,197)
|
|
|
Operating costs
|
(21,307)
|
|
|
(19,172)
|
|
|
(25,771)
|
|
|
(2,135)
|
|
|
6,599
|
|
|
Real estate taxes
|
(5,624)
|
|
|
(2,932)
|
|
|
(2,458)
|
|
|
(2,692)
|
|
|
(474)
|
|
|
Provision (recovery) for doubtful accounts
|
—
|
|
|
15
|
|
|
(15)
|
|
|
(15)
|
|
|
30
|
|
|
Total operating expenses
|
(135,160)
|
|
|
(391,848)
|
|
|
(290,806)
|
|
|
256,688
|
|
|
(101,042)
|
|
|
Segment operating income (loss)
|
(115,753)
|
|
|
66,100
|
|
|
83,406
|
|
|
(181,853)
|
|
|
(17,306)
|
|
|
Depreciation and amortization
|
(6,545)
|
|
|
(5,473)
|
|
|
(3,307)
|
|
|
(1,072)
|
|
|
(2,166)
|
|
|
Interest income (expense), net
|
6,312
|
|
|
11,321
|
|
|
12,476
|
|
|
(5,009)
|
|
|
(1,155)
|
|
|
Other income (loss), net
|
2,165
|
|
|
831
|
|
|
3,015
|
|
|
1,334
|
|
|
(2,184)
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
269,912
|
|
|
1,213
|
|
|
2,364
|
|
|
268,699
|
|
|
(1,151)
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
21,710
|
|
|
27,119
|
|
|
—
|
|
|
(5,409)
|
|
|
27,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBT
|
$
|
177,801
|
|
|
$
|
101,111
|
|
|
$
|
97,954
|
|
|
$
|
76,690
|
|
|
$
|
3,157
|
|
For the year ended December 31, 2020:
Strategic segment EBT increased $76.7 million compared to the prior year period primarily due to the following:
–increase in Equity in earnings (losses) from real estate and other affiliates primarily due to a $267.5 million gain on deconsolidation of 110 North Wacker attributable to the initial fair value step-up of the retained equity method investment at the time of deconsolidation. Please refer to Note 2 - Real Estate and Other Affiliates in the Company’s Consolidated Financial Statements for further details.
–increase in Other land, rental and property revenues primarily due to the recognition of $15.4 million of previously eliminated 110 North Wacker development fees upon deconsolidation.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
These increases were partially offset by the following:
–increase in Condominium rights and unit cost of sales primarily driven by a $97.9 million charge in the first quarter of 2020, related to our expected funding of costs to correct alleged construction defects at Waiea. Please refer to Note 10 - Commitments and Contingencies in our Consolidated Financial Statements for further details.
–decrease in net condominium sales (condominium unit sales net of condominium cost of sales) of $78.4 million driven by the timing of condominium closings. The Company closed on 596 units in 2019, primarily at Ke Kilohana and Ae’o, with no new condominium towers scheduled for completion in 2020. As highlighted below, the overall pace of sales at Ward Village remains strong, and as of December 31, 2020, we have entered into contracts for 82.1% of the units in our two under construction towers.
–increase in Condominium rights and unit cost of sales of $7.6 million driven by a reduction in the estimated net sales price of certain condominium units, including the remaining penthouse inventory, to better align the expected price with recently contracted final sales prices
–decrease in Gain (loss) on sale or disposal of real estate and other assets, net of $5.4 million as a result of 2020 activity that included the receipt of an $8.0 million termination payment related to the 2019 sale of West Windsor and a $13.7 million gain on the sale of Elk Grove, compared to 2019 activity related to the sales of Cottonwood Mall, West Windsor and Bridges at Mint Hill
For the year ended December 31, 2019:
Strategic District segment EBT increased $3.2 million compared to the prior year period primarily due to the following:
–increase in Gain (loss) on sale or disposal of real estate and other assets, net driven by 2019 activity that included a $24.1 million gain on the sale of Cottonwood Mall and a $12.0 million gain on the sale of West Windsor, partially offset by an $8.8 million loss on the sale of the Bridges at Mint Hill, compared to no dispositions in 2018
–increase in Condominium rights and unit sales due to closings at Ke Kilohana, which began in the second quarter of 2019, partially offset by lower closings at Ae‘o, which began in the fourth quarter of 2018. We closed on 596 condominium units during the year ended December 31, 2019, compared to 315 units during the year ended December 31, 2018.
–increase in Condominium rights and unit costs of sales primarily represent development, construction and sales costs relating to the revenues recognized at Ke Kilohana, which began closing on units in the second quarter of 2019, partially offset by lower closings at Ae‘o, which began in the fourth quarter of 2018.
Strategic Developments Projects The following describes the status of our major construction projects and announced Strategic Developments projects as of December 31, 2020. For projects that have been under construction for a substantial period and are nearing completion, please refer to the Projects under Construction table below for an update on the project’s individual metrics and associated timeline for completion. For information on the construction financings on our projects, please refer to Note 7 - Mortgages, Notes and Loans Payable, Net in our Notes to Consolidated Financial Statements.
Downtown Columbia Redevelopment District
We continued to execute on our redevelopment strategy in the Downtown Columbia Redevelopment District during 2020. The Master Plan and zoning for Downtown Columbia, as amended in 2017, allows for a total of approximately 14,000,000 square feet for all of Downtown Columbia and has densities for the future development of up to 6,200 residential units, 4,300,000 square feet of commercial office space, 1,300,000 square feet of retail space and 640 hotel rooms. The majority of the properties will be developed on raw land, surface parking lots and other assets controlled by us. Based on the Development Rights and Responsibilities Agreement, signed in 2018 with the County, the existing Master Plan, zoning and project approval process cannot be amended for a period of 30 years. Additionally, pursuant to a 2010 development agreement, we have a preferred residential and office development covenant that provides us the right of first offer for new development densities of both residential and office space within the Columbia Mall Ring Road. This covenant expires in 2030.
We are currently focusing on the redevelopment of the Merriweather and Lakefront Districts. At the Merriweather District, we completed the construction of Juniper Apartments, a 382-unit multi-family property and Merriweather District Area 3 Standalone Restaurant in 2020 and we expect to begin construction on Marlow, a 472-unit multi-family property, in the first quarter of 2021. At the Lakefront District, we received final approvals in 2019 for approximately 2,000,000 square feet of net new mixed-use development which will include office, retail and residential assets. This future development district also includes three acres of land related to Ridgley Building, Sterret Place and American City Building, all of which have been demolished.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Bridgeland
Starling at Bridgeland Starling at Bridgeland is the second phase of multi-family development in Bridgeland. The project will be 358-unit, luxury development, situated on approximately 15.2 acres and will be comprised of one, two and three-bedroom units. Total development costs are expected to be approximately $58.1 million which will be partially financed with a $38.6 million construction loan that we expect to close in late first quarter or early second quarter of 2021. We began construction in December 2020 and anticipate project completion in the second quarter of 2022. We expect to reach projected annual stabilized NOI of $4.4 million in 2024.
The Woodlands
Creekside Park The Grove Creekside Park The Grove is the second phase of multi-family development in Creekside Park. The project will be a 360-unit, luxury development, situated on approximately 14.0 acres and will be comprised of one, two and three-bedroom units at an average of 973 square feet each. Total development costs are expected to be approximately $57.5 million which will be partially financed with a $43.4 million construction loan which closed on January 7, 2020. We began construction in the third quarter of 2019 and anticipate project completion in the second quarter of 2021. We expect to reach projected annual stabilized NOI of $4.7 million in 2023.
Other
Century Park On December 30, 2019, we acquired Century Park, a 63-acre, 1,302,597 square foot campus with 17 office buildings in the West Houston Energy Corridor as a part of the $565.0 million transaction to acquire The Woodlands Towers at The Waterway; a warehouse space and 9.3 acres of land in The Woodlands, TX. We plan to remarket Century Park. See Note 3 - Acquisitions and Dispositions for additional information regarding this acquisition.
Ward Village
We continue to transform Ward Village into a vibrant neighborhood offering unique retail experiences, dining and entertainment, along with exceptional residences and workforce housing set among open public spaces and pedestrian-friendly streets. We believe we have found the optimal mix of price point and product in the Honolulu market for condominium development as evidenced by the demand for our condominium projects discussed below. The ongoing and completed construction at our mixed-use condominium projects includes 171,307 square feet of retail to serve our new residents and the community at large. In addition, during the last half of 2017, we removed 226,466 square feet of dated retail space from service to prepare it for redevelopment. Many of the tenants occupying these locations were relocated within Ward Village. As we progress the buildout of the master plan, which ultimately contemplates a total of approximately 1,000,000 million square feet of commercial space at completion, we will periodically redevelop, reposition, or replace the existing retail spaces as part of new mixed-use projects.
Condominium revenue is recognized when construction of the condominium tower is complete and unit sales close, leading to variability in revenue recognized between periods. As a result of significantly lower available inventory, we closed on zero condominium units during the year ended December 31, 2020, compared to 596 condominium units for the year ended December 31, 2019. However, as discussed below, overall progress at our condominium projects remains strong.
Sales contracts for condominium units are subject to a 30-day rescission period, and the buyers are typically required to make an initial deposit at signing and an additional deposit 30 days later at which point their total deposit becomes non-refundable. Buyers are typically then required to make a final deposit within approximately 90 days of our receipt of their second deposit. Certain buyers are required to deposit the remainder of the sales price on a predetermined pre-closing date, which is specified in the sales contracts for each condominium project. Contracted amounts disclosed below represent sales that are past the 30-day rescission period.
Completed Condominiums As of December 31, 2020, our four completed towers are 99.6% sold with only five units remaining to be sold at Waiea and one unit remaining to be sold at Anaha. Both Ae‘o and Ke Kilohana are completely sold. In January 2021, we closed on the two units under contract at Waiea and closed on an additional two units in February 2021, resulting in only three units remaining to be sold at Waiea as of February 19, 2021. Additionally, in February 2021, the remaining unsold unit at Anaha went under contract and closed. The last unit remains under contract as of February 19, 2021.
Under Construction Condominiums As of December 31, 2020, 82.1% of the units at our two under construction towers, ‘A‘ali‘i and Kō'ula, are under contract. We launched public sales for ‘A‘ali‘i in January 2018 and broke ground in October 2018. ‘A‘ali‘i will be a 42-story, 750-unit mixed-use condominium project located off of Queen Street next to Ae’o and will consist of studio, one and two-bedroom residences and 150 workforce units. We launched public sales of our sixth
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
condominium project, Kō'ula, in January 2019 and broke ground in July 2019. Kō'ula will be a 41-story, 565-unit, mixed-use condominium project located on Auahi Street that will consist of studio, one, town and three-bedroom residences.
Predevelopment Condominiums As a result of strong demand demonstrated by sales at ‘A‘ali‘i and Kō'ula, we launched public sales of our seventh condominium project in December 2019. Victoria Place will be a 40-story, 349-unit condominium project located between Auahi Street and Ala Moana Boulevard, immediately to the west of Waiea and adjacent to Victoria Ward Park. The project will consist of one, two and three-bedroom residences with units ranging from approximately 750 square feet to 1,850 square feet. Additionally, there will be approximately 15,600 square feet of ground level open space, and 64,000 square feet of indoor and outdoor recreational space. We have entered into contracts for 281 units as of February 19, 2021 which represent 80.5% of total units.
The following provides further details for Ward Village as of December 31, 2020:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Closed
|
|
Units Under Contract
|
|
Total Units
|
|
Total % of Units Closed or Under Contract
|
|
Total % of Residential Square Feet Closed or Under Contract
|
|
Completion
Date
|
|
Completed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waiea
|
(a)
|
170
|
|
|
2
|
|
|
177
|
|
|
97.2
|
%
|
|
95.2
|
%
|
|
Q4 2016
|
|
Anaha
|
(a)
|
315
|
|
|
1
|
|
|
317
|
|
|
99.7
|
%
|
|
98.7
|
%
|
|
Q4 2017
|
|
Ae‘o
|
(b)
|
465
|
|
|
—
|
|
|
465
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Q4 2018
|
|
Ke Kilohana
|
(a)
|
423
|
|
|
—
|
|
|
423
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Q2 2019
|
|
Under Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‘A‘ali‘i
|
(c)
|
—
|
|
|
640
|
|
|
750
|
|
|
85.3
|
%
|
|
80.7
|
%
|
|
Q4 2021
|
|
Kō'ula
|
(d)
|
—
|
|
|
439
|
|
|
565
|
|
|
77.7
|
%
|
|
80.1
|
%
|
|
2022
|
|
Predevelopment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victoria Place
|
|
—
|
|
|
268
|
|
|
349
|
|
|
76.8
|
%
|
|
79.5
|
%
|
|
n/a
|
(a)The retail portions of these projects are 100% leased and have been placed in service.
(b)The retail portion of the project, which is primarily comprised of the 57,000-square-foot flagship Whole Foods Market, is 97.9% leased and has been placed into service.
(c)There will be approximately 12,000 square feet of new street level retail space as part of this project.
(d)There will be approximately 37,000 square feet of retail space as part of this project. During the year ended December 31, 2020, two purchasers defaulted on their obligations to purchase condominiums.
Projects Under Construction The following table summarizes our projects under construction and related debt held in Operating Assets, the Seaport District and Strategic Developments as of December 31, 2020. Projects that are substantially complete and which have been placed into service in the Operating Assets or the Seaport District segment are included in the following table if the project has more than $1.0 million of estimated costs remaining to be incurred. Typically, these amounts represent budgeted tenant allowances necessary to bring the asset to stabilized occupancy. Tenant build-out costs represent a significant portion of the remaining costs for the following properties in the Operating Assets and Seaport District segments:
–Creekside Park West
–Two Lakes Edge
–Merriweather District Area 3 Standalone Restaurant
–6100 Merriweather
–Pier 17
The total estimated costs and costs paid are prepared on a cash basis to reflect the total anticipated cash requirements for the projects. This table does not include projects for which construction has not yet started. We expect to be able to meet our cash funding requirements with a combination of existing and anticipated construction loans, condominium buyer deposits, free cash flow from our Operating Assets and MPC segments, net proceeds from condominium sales and our existing cash balances.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Total Estimated
Costs (a)
|
|
Costs Paid Through December 31, 2020 (b)
|
|
Estimated Remaining to be Spent
|
|
Remaining Buyer Deposits/Holdback to be Drawn
|
|
Debt to be Drawn (c)
|
|
Costs Remaining to be Paid, Net of Debt and Buyer Deposits/Holdbacks to be Drawn (c)
|
|
Estimated
Completion
Date
|
|
Operating Assets
|
(A)
|
|
(B)
|
|
(A) - (B) = (C)
|
|
(D)
|
|
(E)
|
|
(C) - (D) - (E) = (F)
|
|
|
|
Columbia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6100 Merriweather
|
$
|
138,221
|
|
|
$
|
108,360
|
|
|
$
|
29,861
|
|
|
$
|
—
|
|
|
$
|
27,805
|
|
|
$
|
2,056
|
|
(d)
|
Open
|
|
Juniper Apartments
|
116,386
|
|
|
95,325
|
|
|
21,061
|
|
|
—
|
|
|
19,849
|
|
|
1,212
|
|
|
Open
|
|
Merriweather District Area 3 Standalone Restaurant
|
6,530
|
|
|
3,050
|
|
|
3,480
|
|
|
—
|
|
|
—
|
|
|
3,480
|
|
(d)(e)
|
Open
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Creekside Park West
|
20,777
|
|
|
18,997
|
|
|
1,780
|
|
|
—
|
|
|
3,281
|
|
|
(1,501)
|
|
(d)(f)
|
Open
|
|
The Lane at Waterway
|
45,033
|
|
|
35,232
|
|
|
9,801
|
|
|
—
|
|
|
8,533
|
|
|
1,268
|
|
(g)
|
Open
|
|
Two Lakes Edge
|
107,706
|
|
|
95,314
|
|
|
12,392
|
|
|
—
|
|
|
7,837
|
|
|
4,555
|
|
(d)
|
Open
|
|
Total Operating Assets
|
434,653
|
|
|
356,278
|
|
|
78,375
|
|
|
—
|
|
|
67,305
|
|
|
11,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seaport District Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pier 17 and Seaport District Historic Area / Uplands
|
659,018
|
|
|
603,163
|
|
|
55,855
|
|
|
—
|
|
|
—
|
|
|
55,855
|
|
(d)(h)
|
Open
|
|
Tin Building
|
194,613
|
|
|
107,147
|
|
|
87,466
|
|
|
—
|
|
|
—
|
|
|
87,466
|
|
(f)
|
Q4 2021
|
|
Total Seaport District Assets
|
853,631
|
|
|
710,310
|
|
|
143,321
|
|
|
—
|
|
|
—
|
|
|
143,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Developments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Creekside Park The Grove
|
57,472
|
|
|
29,890
|
|
|
27,582
|
|
|
—
|
|
|
26,919
|
|
|
663
|
|
(i)
|
Q2 2021
|
|
Bridgeland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Starling at Bridgeland
|
58,072
|
|
|
1,039
|
|
|
57,033
|
|
|
—
|
|
|
—
|
|
|
57,033
|
|
|
2022
|
|
Ward Village
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‘A‘ali‘i
|
411,900
|
|
|
268,117
|
|
|
143,783
|
|
|
7,803
|
|
|
139,099
|
|
|
(3,119)
|
|
(f)
|
Q4 2021
|
|
Anaha
|
402,797
|
|
|
400,182
|
|
|
2,615
|
|
|
—
|
|
|
—
|
|
|
2,615
|
|
|
Open
|
|
Ke Kilohana
|
217,483
|
|
|
215,811
|
|
|
1,672
|
|
|
—
|
|
|
—
|
|
|
1,672
|
|
|
Open
|
|
Kō'ula
|
487,039
|
|
|
117,698
|
|
|
369,341
|
|
|
54,568
|
|
|
291,518
|
|
|
23,255
|
|
|
2022
|
|
Waiea
|
566,256
|
|
|
431,836
|
|
|
134,420
|
|
|
—
|
|
|
—
|
|
|
134,420
|
|
(j)
|
Open
|
|
Total Strategic Developments
|
2,201,019
|
|
|
1,464,573
|
|
|
736,446
|
|
|
62,371
|
|
|
457,536
|
|
|
216,539
|
|
(k)
|
|
|
Combined Total at December 31, 2020
|
$
|
3,489,303
|
|
|
$
|
2,531,161
|
|
|
$
|
958,142
|
|
|
$
|
62,371
|
|
|
$
|
524,841
|
|
|
$
|
370,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Starling at Bridgeland financing
|
|
$
|
(38,607)
|
|
(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated costs to be funded net of financing, assuming closing on estimated financing
|
|
$
|
332,323
|
|
|
|
(a)Total Estimated Costs represent all costs to be incurred on the project which include construction costs, demolition costs, marketing costs, capitalized leasing, payroll or project development fees, deferred financing costs and advances for certain accrued costs from lenders and excludes land costs and capitalized corporate interest allocated to the project. Total Estimated Costs for assets at Ward Village and Columbia exclude master plan infrastructure and amenity costs at Ward Village and Merriweather District.
(b)Costs included in (a) above which have been paid through December 31, 2020.
(c)With respect to our condominium projects, remaining debt to be drawn is reduced by deposits utilized for construction. Refer to Note 7 - Mortgages, Notes and Loans Payable, Net for additional information on each loan.
(d)Final completion is dependent on lease-up and tenant build-out.
(e)Merriweather District 3 Standalone Restaurant has been placed in service but will not open until tenant build-out is complete.
(f)Negative balances represent cash to be received in excess of Estimated Remaining to be Spent. These items are primarily related to December 2020 costs that were paid by us, but not yet reimbursed by our lenders. We expect to receive funds from our lenders for these costs in the future.
(g)Millennium Phase III was renamed to The Lane at Waterway.
(h)Pier 17 and Seaport District Historic Area / Uplands Total Estimated Costs and Costs Paid Through December 31, 2020, include costs required for the Pier 17 and Historic Area/Uplands and are not reduced by the insurance proceeds received to date.
(i)Creekside Park Apartments Phase II was renamed to Creekside Park The Grove.
(j)Total estimate includes $115.4 million for necessary for warranty repairs. However, we anticipate recovering a substantial amount of these costs in the future which is not reflected in this schedule. Refer to Note 10 - Commitments and Contingencies for additional information.
(k)110 North Wacker was placed in service during the third quarter of 2020. The venture was deconsolidated as of September 30, 2020, and removed from this table. Refer to Note 2 - Real Estate and Other Affiliates for additional information.
(l)The financing for Starling at Bridgeland is estimated to close in late first quarter or early second quarter of 2021.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
Corporate Income, Expenses and Other Items
|
The following table contains certain corporate related and other items not related to segment activities and that are not otherwise included within the segment analyses. Variances related to income and expenses included in NOI or EBT are explained within the previous segment discussions. Significant variances for consolidated items not included in NOI or EBT are described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020-2019
|
|
2019-2018
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
Corporate income
|
$
|
258
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
224
|
|
|
$
|
34
|
|
|
General and administrative
|
(109,402)
|
|
|
(162,506)
|
|
|
(110,582)
|
|
|
53,104
|
|
|
(51,924)
|
|
|
Corporate interest expense, net
|
(68,865)
|
|
|
(45,023)
|
|
|
(47,677)
|
|
|
(23,842)
|
|
|
2,654
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
(210)
|
|
|
—
|
|
|
210
|
|
|
(210)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate other income (loss), net
|
41
|
|
|
7,597
|
|
|
(1,546)
|
|
|
(7,556)
|
|
|
9,143
|
|
|
Corporate gain (loss) on sale or disposal of real estate and other assets, net
|
—
|
|
|
(4,751)
|
|
|
—
|
|
|
4,751
|
|
|
(4,751)
|
|
|
Equity in earnings (loss) from real estate and other affiliates
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
(17)
|
|
|
Corporate depreciation and amortization
|
(6,631)
|
|
|
(8,021)
|
|
|
(7,256)
|
|
|
1,390
|
|
|
(765)
|
|
|
Demolition costs
|
—
|
|
|
(855)
|
|
|
(17,329)
|
|
|
855
|
|
|
16,474
|
|
|
Development-related marketing costs
|
(8,166)
|
|
|
(23,067)
|
|
|
(29,249)
|
|
|
14,901
|
|
|
6,182
|
|
|
Income tax (expense) benefit
|
(11,653)
|
|
|
(29,245)
|
|
|
(15,492)
|
|
|
17,592
|
|
|
(13,753)
|
|
|
Total Corporate income, expenses and other items
|
$
|
(204,418)
|
|
|
$
|
(266,047)
|
|
|
$
|
(229,114)
|
|
|
$
|
61,629
|
|
|
$
|
(36,933)
|
|
For the year ended December 31, 2020:
Corporate income, expenses and other items was favorably impacted compared to the prior year period by the following:
–decrease in General and administrative expenses primarily related to the reduction of labor costs due to workforce reductions, which are part of an overall plan to reduce recurring overhead costs, and lower travel and entertainment costs, which are attributable to COVID-19 travel restrictions
–decrease in Income tax (expense) benefit primarily due to a decrease in Income before income taxes
–decrease in Development-related marketing costs primarily related to a reduction in the number of projects under development
Corporate income, expenses and other items was unfavorably impacted compared to the prior year period by the following:
–increase in corporate interest expense, net primarily due to the $750 million issuance of senior notes in August 2020, as well as a decrease in interest income due to lower interest rates
–decrease in corporate other income (loss), net due to the receipt of Superstorm Sandy insurance proceeds in the second quarter of 2019, which did not recur in 2020
For the year ended December 31, 2019:
Corporate income, expenses and other items was favorably impacted compared to the prior year period by the following:
–decrease in Demolition costs primarily related to 2018 costs at 110 North Wacker and Tin building that did not recur in 2019
–increase in Corporate other income (loss), net primarily due to the receipt of insurance proceeds related to our claim for Superstorm Sandy in 2019
–decrease in Development-related marketing costs primarily related to the reduction of costs at the Seaport District and parts of Ward Village, including ‘A‘ali‘i
Corporate income, expenses and other items was unfavorably impacted compared to the prior year period by the following:
–increase in General and administrative expenses primarily due to corporate restructuring costs and consulting fees for technology and data integration projects
–increase in Income tax (expense) benefit primarily due to an increase in Income before income tax
–increase in corporate loss on sale or disposal of real estate and other assets, net due to the loss recognized on the sale of our corporate aircraft in 2019
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
|
|
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands except percentages
|
2020
|
|
2019
|
|
2018
|
|
Income tax expense (benefit)
|
$
|
11,653
|
|
|
$
|
29,245
|
|
|
$
|
15,492
|
|
|
Income (loss) before income taxes
|
$
|
8,480
|
|
|
$
|
103,540
|
|
|
$
|
73,218
|
|
|
Effective tax rate
|
137.4
|
%
|
|
28.2
|
%
|
|
21.2
|
%
|
The Company’s effective tax rate is typically impacted by non-deductible executive compensation and other permanent differences as well as state income taxes, which cause the Company’s effective tax rate to deviate from the federal statutory rate.
The Company’s effective tax rate for the year ended December 31, 2020, was 137.4% as compared to 28.2% for the year ended December 31, 2019. The increase was primarily due to a valuation allowance of $4.7 million on a capital loss generated by the sale of the Company’s 50% equity method investment in Circle T Ranch and Power Center (refer to Note 3 - Acquisitions and Dispositions for additional details), a valuation allowance of $1.8 million on our charitable contribution carryover and a tax expense of $1.7 million related to the recapture of federal and state historic preservation credits due to the sale of our interest in Mr. C Seaport (refer to Note 3 - Acquisitions and Dispositions for additional details), offset by a $4.8 million tax impact related to the noncontrolling interest share of the gain on the deconsolidation of 110 North Wacker (refer to Note 2 - Real Estate and Other Affiliates for additional details).
The Company’s effective tax rate for the year ended December 31, 2019, was 28.2% as compared to 21.2% for the year ended December 31, 2018. The increase was primarily related to permanent differences related to stock compensation deductions and non-deductible executive compensation. The year ended December 31, 2018, was also impacted by a tax benefit due to federal and state historic preservation credits related to our interest in Mr. C Seaport.
For additional information on income taxes, see Note 12 - Income Taxes in the Notes to the Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data.
Capitalized Internal Costs The following table presents our capitalized internal costs by segment for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Internal Costs
|
|
Capitalized Internal Costs Related to
Compensation Costs
|
|
millions
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Operating Assets segment
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
MPC segment
|
7.7
|
|
|
9.4
|
|
|
9.6
|
|
|
6.9
|
|
|
7.3
|
|
|
7.6
|
|
|
Seaport District segment
|
3.5
|
|
|
2.8
|
|
|
6.0
|
|
|
3.3
|
|
|
2.5
|
|
|
5.2
|
|
|
Strategic Developments segment
|
13.8
|
|
|
24.1
|
|
|
24.1
|
|
|
12.9
|
|
|
21.5
|
|
|
21.2
|
|
|
Total
|
$
|
25.0
|
|
|
$
|
36.5
|
|
|
$
|
39.9
|
|
|
$
|
23.1
|
|
|
$
|
31.5
|
|
|
$
|
34.2
|
|
Capitalized internal costs (which include compensation costs) decreased for the year ended December 31, 2020, compared to 2019, primarily related to workforce reductions in the Strategic Developments segment. The capitalized internal costs for the Seaport segment increased due to tenant buildouts and escalated work on the Tin building. In the MPC segment, capitalized internal costs decreased in 2020 due to fluctuations in the level of development activity at our newer MPCs.
Capitalized internal costs (which include compensation costs) decreased for the year ended December 31, 2019, compared to 2018, primarily due to fewer projects under development in the current year at the Seaport District segment. In the MPC segment, capitalized internal costs decreased for the year ended December 31, 2019, due to fluctuations in the level of development activity at our newer MPCs.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
|
In direct response to the unprecedented COVID-19 pandemic and the impacts on our four business segments, as well as the economy and capital markets in general, we initiated measures to increase our liquidity. As a result, we were able to maintain a strong balance sheet, and ensure we maintain the financial flexibility and liquidity necessary to fund future growth.
As previously reported, we generated $593.6 million in proceeds from the issuance of common stock in the first quarter of 2020. In the second quarter 2020, we entered into an agreement to extend the existing Downtown Summerlin loan and the bridge loan for The Woodlands Towers at the Waterway and The Woodlands Warehouse. On August 18, 2020, the Company issued $750 million in 5.375% senior notes due August 2028. These senior notes are unsecured senior obligations of the Company and are guaranteed by certain subsidiaries of the Company. The Company used the net proceeds from this issuance, together with cash on hand, for the repayment of existing indebtedness of approximately $807.9 million in the third quarter of 2020 in order to extend the average maturity date of our indebtedness. Our liquidity was further enhanced during the year by obtaining approximately $400.2 million of new construction financings and $177.0 million in other financings. Additionally, the Company sold four non-core assets during the year, which generated a total of $102.3 million in net proceeds and received an additional $44.5 million related to the 2019 sales of West Windsor and Cottonwood Mall. As of December 31, 2020, we had $1.0 billion of cash and cash equivalents, available capacity of $185.0 million on the revolver portion of our credit facilities and approximately $321.7 million of debt payments due in 2021 based on extended maturity dates.
On February 2, 2021, the Company issued $650 million in 4.125% senior notes due 2029 and $650 million in 4.375% senior notes due 2031. The Company will use the net proceeds from the offering, as well as available cash on hand, to repurchase all of its $1 billion 5.375% senior notes due 2025, plus any accrued and unpaid interest, pursuant to a tender offer announced in January 2021; repay all of the approximately $280 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021; and pay all premiums, fees and expenses related to the foregoing. On February 2, 2021, the Company repurchased $512.5 million of its $1 billion 5.375% senior notes and intends to repurchase the remainder of these notes on March 15, 2021. In February 2021, the Company repaid all of the approximately $280 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021.
Our primary sources of cash include cash flow from land sales in MPC, cash generated from our operating assets, condominium closings, deposits from condominium sales (which are restricted to funding construction of the related developments), equity offerings, first mortgage financings secured by our assets and the corporate bond markets. The sale of our non-core assets may also provide additional cash proceeds to our operating or investing activities. Our primary uses of cash include working capital, overhead, debt service, property improvements, acquisitions and development costs. Uses of cash also include one-time charges associated with relocation expenses, retention and severance payments. We believe that our sources of cash, including existing cash on hand, will provide sufficient liquidity to meet our existing obligations and anticipated ordinary course operating expenses for at least the next 12 months, even after taking into account the consequences of the COVID-19 pandemic discussed above. The development and redevelopment opportunities in Operating Assets and Strategic Developments are capital intensive and will require significant additional funding, if and when pursued. Any additional funding, if available, would be raised with a mix of construction, bridge and long-term financings, by entering into joint venture arrangements, through the sale of non-core assets at the appropriate time, and lastly future equity raises. We cannot provide assurance that financing arrangements for our properties will be on favorable terms or occur at all, which could have a negative impact on our liquidity and capital resources. In addition, we typically must provide completion guarantees to lenders in connection with their providing financing for our projects. We also provided completion guarantees to the City of New York for the redevelopment of Pier 17 and the Tin Building, as well as the Hawai’i Community Development Authority for reserve condominium units at Ward Village.
Total outstanding debt was $4.3 billion as of December 31, 2020. Certain mortgages may require paydowns in order to exercise contractual extension terms. Please refer to Note 7 - Mortgages, Notes and Loans Payable, Net in our Consolidated Financial Statements for a table showing our debt maturity dates. Our proportionate share of the debt of our real estate and other affiliates totaled $274.5 million as of December 31, 2020. All of this indebtedness is without recourse to the Company, with the exception of $100.6 million related to 110 North Wacker. The following table summarizes our share of affiliate debt and cash as of December 31, 2020.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
thousands
|
|
Company’s Share of Affiliate Debt
|
|
Company’s Share of Affiliate Cash
|
|
Operating Assets
|
|
|
|
|
|
110 North Wacker
|
|
$
|
189,306
|
|
|
$
|
718
|
|
|
The Metropolitan Downtown Columbia
|
|
35,000
|
|
|
2,411
|
|
|
Stewart Title of Montgomery County, TX
|
|
—
|
|
|
460
|
|
|
Woodlands Sarofim #1
|
|
831
|
|
|
219
|
|
|
m.flats/TEN.M
|
|
43,587
|
|
|
813
|
|
|
Master Planned Communities
|
|
|
|
|
|
The Summit
|
|
5,808
|
|
|
101,584
|
|
|
Seaport District
|
|
|
|
|
|
Bar Wayō
|
|
—
|
|
|
56
|
|
|
Strategic Developments
|
|
|
|
|
|
HHMK Development
|
|
—
|
|
|
10
|
|
|
KR Holdings
|
|
—
|
|
|
333
|
|
|
Total
|
|
$
|
274,532
|
|
|
$
|
106,604
|
|
The following table summarizes our net debt on a segment basis as of December 31, 2020. Net debt is defined as Mortgages, notes and loans payable, net, including our ownership share of debt of our real estate and other affiliates, reduced by liquidity sources to satisfy such obligations such as our ownership share of Cash and cash equivalents and SID, MUD and TIF receivables. Although net debt is a non-GAAP financial measure, we believe that such information is useful to our investors and other users of our financial statements as net debt and its components are important indicators of our overall liquidity, capital structure and financial position. However, it should not be used as an alternative to our debt calculated in accordance with GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Operating
Assets
(a)
|
Master
Planned
Communities (b)
|
Seaport District
(c)
|
Strategic
Developments (d)
|
Segment
Totals
|
Non-
Segment
Amounts
|
December 31, 2020
|
|
Mortgages, notes and loans payable
|
$
|
2,039,359
|
|
$
|
179,982
|
|
$
|
99,074
|
|
$
|
236,038
|
|
$
|
2,554,453
|
|
$
|
1,732,916
|
|
$
|
4,287,369
|
|
|
Mortgages, notes and loans payable of real estate and other affiliates
|
268,724
|
|
5,808
|
|
—
|
|
—
|
|
274,532
|
|
—
|
|
274,532
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
(86,171)
|
|
(109,478)
|
|
(8,517)
|
|
(1,289)
|
|
(205,455)
|
|
(809,231)
|
|
(1,014,686)
|
|
|
Cash and cash equivalents of real estate and other affiliates
|
(4,621)
|
|
(101,584)
|
|
(56)
|
|
(343)
|
|
(106,604)
|
|
—
|
|
(106,604)
|
|
|
Special Improvement District receivables
|
—
|
|
(54,770)
|
|
—
|
|
—
|
|
(54,770)
|
|
—
|
|
(54,770)
|
|
|
Municipal Utility District receivables, net
|
—
|
|
(314,394)
|
|
—
|
|
—
|
|
(314,394)
|
|
—
|
|
(314,394)
|
|
|
TIF receivable
|
—
|
|
—
|
|
—
|
|
(893)
|
|
(893)
|
|
—
|
|
(893)
|
|
|
Net Debt
|
$
|
2,217,291
|
|
$
|
(394,436)
|
|
$
|
90,501
|
|
$
|
233,513
|
|
$
|
2,146,869
|
|
$
|
923,685
|
|
$
|
3,070,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Cash provided by (used in) operating activities
|
$
|
(72,868)
|
|
|
$
|
207,732
|
|
|
$
|
210,520
|
|
|
Cash used in investing activities
|
(428,546)
|
|
|
(1,232,897)
|
|
|
(841,771)
|
|
|
Cash provided by financing activities
|
1,124,278
|
|
|
921,085
|
|
|
391,166
|
|
Operating Activities Each segment’s relative contribution to our cash flows from operating activities will likely vary significantly from year to year given the changing nature of our development focus. Other than our condominium properties, most of the properties and projects in our Strategic Developments segment do not generate revenues and the cash flows and earnings may vary. Condominium deposits received from contracted units offset by other various cash uses related to condominium development and sales activities are a substantial portion of our operating activities in 2020.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
|
|
Operating cash continued to be utilized during the year ended December 31, 2020, to fund ongoing development expenditures in our Strategic Developments, Seaport District and MPC segments, consistent with prior years.
The cash flows and earnings from the MPC business may fluctuate more than from our operating assets because the MPC business generates revenues from land sales rather than recurring contractual revenues from operating leases. MPC land sales are a substantial portion of our cash flows from operating activities and are partially offset by development costs associated with the land sales business and acquisitions of land that is intended to ultimately be developed and sold.
The extent to which the COVID-19 pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
Net cash provided by operating activities decreased $280.6 million in 2020, compared to 2019, primarily due to a decrease of $269.2 million in condominium rights and units cost of sales due to timing, which were partially offset by proceeds from the sale of lease receivable and condominium deposits received. Net cash provided by operating activities decreased $2.8 million in 2019, compared to 2018, primarily due to the timing of MPC development expenditures and receipts of condominium deposits.
Investing Activities For the year ended December 31, 2020, cash used in investing activities of $428.5 million was primarily related to property development expenditures related to ongoing development activity at 110 North Wacker, the Seaport District and 6100 Merriweather. The $243.7 million decrease in property development expenditures, as compared to 2019, was primarily attributable to temporary shut downs of construction activity due to the COVID-19 pandemic.
For the year ended December 31, 2019, cash used in investing activities was $1.2 billion, primarily due to $674.2 million of development expenditures and $565.6 million of asset acquisition activity. For the year ended December 31, 2018, cash used in investing was $841.8 million primarily due to $573.0 million of property development expenditures and $235 million of asset acquisition activity. The $101.3 million increase in property development expenditures, as compared to 2018, primarily related to ongoing development activity at 110 North Wacker, the Seaport District, 6100 Merriweather and 100 Fellowship Drive. Asset acquisitions of $565.6 million in 2019 included two Class AAA office towers, a warehouse space, 9.3 acres of land in the Woodlands, TX, a 63-acre and 1.3 million square foot campus with 17 office buildings in the West Houston Energy Corridor. Asset acquisitions of $235.0 million included Lakefront North, two Class-A office buildings and 250 Water Street, a one-acre parking lot in the Seaport District.
Financing Activities For the year ended December 31, 2020, net proceeds from new loan borrowings and refinancing activities exceeded principal payments on our debt and were used to partially fund development activity at our development projects, to increase liquidity and for the acquisition of assets. Cash provided by financing activities also included $593.6 million proceeds from the issuance of common stock.
For the year ended December 31, 2019, net proceeds from new loan borrowings and refinancing activities exceeded principal payments on our debt and were used to partially fund development activity at our development projects and for the acquisition of assets. Cash provided by financing activities also included $84.9 million related to the issuance of noncontrolling interest at our 110 North Wacker project. Cash used in financing activities includes $53.9 million for the purchase of treasury stock.
For the year ended December 31, 2018, net proceeds from new loan borrowings and refinancing activities exceeded principal payments on our debt and were used to partially fund development activity at our development projects. Cash provided by financing activities also included $99.6 million related to the issuance of noncontrolling interest at our 110 North Wacker project. Cash used in financing activities includes $58.7 million for the purchase of treasury stock.
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
Contractual Cash Obligations and Commitments
|
The following table aggregates our contractual cash obligations and commitments as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
|
Mortgages, notes and loans payable (a)
|
$
|
321,712
|
|
|
$
|
77,689
|
|
|
$
|
1,091,049
|
|
|
$
|
430,490
|
|
|
$
|
1,136,625
|
|
|
$
|
1,262,601
|
|
|
$
|
4,320,166
|
|
|
Interest Payments (b)
|
182,862
|
|
|
176,740
|
|
|
163,137
|
|
|
127,829
|
|
|
74,650
|
|
|
230,763
|
|
|
955,981
|
|
|
Ground lease and other leasing commitments
|
3,951
|
|
|
4,325
|
|
|
4,371
|
|
|
4,419
|
|
|
4,468
|
|
|
249,941
|
|
|
271,475
|
|
|
Total
|
$
|
508,525
|
|
|
$
|
258,754
|
|
|
$
|
1,258,557
|
|
|
$
|
562,738
|
|
|
$
|
1,215,743
|
|
|
$
|
1,743,305
|
|
|
$
|
5,547,622
|
|
(a)Based on final maturity, inclusive of extension options. In February 2021, the Company issued $650 million of senior notes due 2029 and $650 million of senior notes due 2031 and used the proceeds to repay approximately $280 million of outstanding loans maturing in 2021 as well as $1 billion of senior notes due in 2025.
(b)Interest is based on the borrowings that are presently outstanding and current floating interest rates.
We lease land or buildings at certain properties from third parties. Rental payments are expensed as incurred and have been, to the extent applicable, straight-lined over the term of the lease. Contractual rental expense, including participation rent, was $7.2 million for the year ended December 31, 2020, $8.5 million for the year ended December 31, 2019, and $9.7 million for the year ended December 31, 2018. The amortization of above- and below-market ground leases and straight-line rents included in the contractual rent amount were not significant.
|
|
|
|
|
OFF-BALANCE SHEET FINANCING ARRANGEMENTS
|
We do not have any material off-balance sheet financing arrangements. Although we have interests in certain property owning non-consolidated ventures which, as of December 31, 2020, have mortgage financing totaling $545.0 million, the financings are non-recourse to us, with the exception of $100.6 million related to 110 North Wacker.
|
|
|
|
|
CRITICAL ACCOUNTING POLICIES
|
Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments. For further discussion about the Company’s critical accounting policies, please refer to Note 1 - Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements.
|
|
|
|
|
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
|
Please refer to Note 1 - Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements for additional information about new accounting pronouncements.
|
|
|
|
|
|
|
|
MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES
|
|
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are subject to interest rate risk with respect to our variable-rate financings in that increases in interest rates will increase our payments under these variable rates. With respect to fixed-rate financings, increases in interest rates could make it more difficult to refinance such debt when due. We manage a portion of our variable interest rate exposure by using interest rate swaps, collars and caps. As of December 31, 2020, of our $1.9 billion of variable-rate debt outstanding, $649.9 million is swapped to a fixed rate. We may enter into interest rate cap contracts to mitigate our exposure to rising interest rates. We have a cap contract for our $250.0 million Master Credit Facility for The Woodlands and Bridgeland, $150.0 million of which is currently outstanding and $75.0 million of which is currently capped. As the properties are placed into service and become stabilized, we typically refinance the variable-rate debt with long-term fixed-rate debt.
As of December 31, 2020, annual interest costs would increase approximately $13.0 million for every 1.00% increase in floating interest rates. Generally, a significant portion of our interest expense is capitalized due to the level of assets we currently have under development; therefore, the current impact of a change in our interest rate on our Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) would be less than the total change, but we would incur higher cash payments and the development costs of our assets would be higher. For additional information concerning our debt and management’s estimation process to arrive at a fair value of our debt as required by GAAP, please refer to the Liquidity and Capital Resources section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 7 - Mortgages, Notes and Loans Payable, Net and Note 9 - Derivative Instruments and Hedging Activities in our Consolidated Financial Statements.
The following table summarizes principal cash flows on our debt obligations and related weighted-average interest rates by expected maturity dates as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Maturity Date
|
|
|
|
thousands
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
|
Mortgages, notes and loans payable (a)
|
$
|
321,712
|
|
|
$
|
77,689
|
|
|
$
|
1,091,049
|
|
|
$
|
430,490
|
|
|
$
|
1,136,625
|
|
|
$
|
1,262,601
|
|
|
$
|
4,320,166
|
|
|
Weighted-average interest rate
|
3.93
|
%
|
|
4.18
|
%
|
|
4.21
|
%
|
|
4.39
|
%
|
|
4.96
|
%
|
|
4.12
|
%
|
|
|
(a)Based on final maturity, inclusive of extension options. In February 2021, the Company issued $650 million of senior notes due 2029 and $650 million of senior notes due 2031 and used the proceeds to repay approximately $280 million of outstanding loans maturing in 2021 as well as $1 billion of senior notes due in 2025.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
INDEX
|
|
Item 8. Financial Statements and Supplementary Data
|
|
|
|
|
|
|
|
Index to Consolidated Financial Statements and Financial Statement Schedule
|
Page
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
The Howard Hughes Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Howard Hughes Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities (MPC) Cost of Sales Estimates
|
|
Description of the Matter
|
|
As discussed in Note 1 of the consolidated financial statements, when developed residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs, based on relative sales value, that benefit the property sold. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the remaining parcels available for sale.
MPC cost of sales estimates are highly judgmental as they are sensitive to cost escalation, sales price escalation and lot absorption, which are subject to judgment and affected by expectations about future market or economic conditions.
|
|
How We Addressed the Matter in Our Audit
|
|
We obtained an understanding of and evaluated the design and operating effectiveness of the Company’s internal controls over the estimation process that affect MPC cost of sales. This included controls over management’s monitoring and review of key assumptions, including the Company’s procedures to validate the completeness and accuracy of data used to determine estimates.
Our testing of the Company’s MPC cost of sales estimates included, among other procedures, evaluating management’s methodology of estimating future costs and revenues, testing the significant assumptions related to cost escalation, sales price escalation and lot absorption, evaluating the underlying data used by management and performing site visits for certain MPC developments to compare the overall status of the developments to what is reflected within the development cost models. We involved internal specialists to assist in comparing a sample of estimated future costs, lot absorption rates, and sales price escalation to market data, assessing contrary information and obtaining supporting evidence used to derive the estimates. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the cost of sale estimates that resulted from changes in the assumptions.
|
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
Houston, Texas
February 25, 2021
THE HOWARD HUGHES CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
thousands except par values and share amounts
|
2020
|
|
2019
|
|
ASSETS
|
|
|
|
|
Investment in real estate:
|
|
|
|
|
Master Planned Communities assets
|
$
|
1,687,519
|
|
|
$
|
1,655,674
|
|
|
Buildings and equipment
|
4,115,493
|
|
|
3,813,595
|
|
|
Less: accumulated depreciation
|
(634,064)
|
|
|
(507,933)
|
|
|
Land
|
363,447
|
|
|
353,022
|
|
|
Developments
|
1,152,674
|
|
|
1,445,997
|
|
|
Net property and equipment
|
6,685,069
|
|
|
6,760,355
|
|
|
Investment in real estate and other affiliates
|
377,145
|
|
|
121,757
|
|
|
Net investment in real estate
|
7,062,214
|
|
|
6,882,112
|
|
|
Net investment in lease receivable
|
2,926
|
|
|
79,166
|
|
|
Cash and cash equivalents
|
1,014,686
|
|
|
422,857
|
|
|
Restricted cash
|
228,311
|
|
|
197,278
|
|
|
Accounts receivable, net
|
7,437
|
|
|
12,279
|
|
|
Municipal Utility District receivables, net
|
314,394
|
|
|
280,742
|
|
|
Notes receivable, net
|
622
|
|
|
36,379
|
|
|
Deferred expenses, net
|
112,097
|
|
|
133,182
|
|
|
Operating lease right-of-use assets, net
|
56,255
|
|
|
69,398
|
|
|
Prepaid expenses and other assets, net
|
341,390
|
|
|
300,373
|
|
|
|
|
|
|
|
Total assets
|
$
|
9,140,332
|
|
|
$
|
8,413,766
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Mortgages, notes and loans payable, net
|
$
|
4,287,369
|
|
|
$
|
4,096,470
|
|
|
|
|
|
|
|
Operating lease obligations
|
68,929
|
|
|
70,413
|
|
|
Deferred tax liabilities
|
187,639
|
|
|
180,748
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
852,258
|
|
|
733,147
|
|
|
Total liabilities
|
5,396,195
|
|
|
5,080,778
|
|
|
|
|
|
|
|
Commitments and Contingencies (see Note 10)
|
—
|
|
|
—
|
|
|
Redeemable noncontrolling interest
|
29,114
|
|
|
—
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
Preferred stock: $0.01 par value; 50,000,000 shares authorized, none issued
|
—
|
|
|
—
|
|
|
Common stock: $0.01 par value; 150,000,000 shares authorized, 56,042,814 issued and 54,972,256 outstanding as of December 31, 2020, and 43,635,893 shares issued and 42,585,633 outstanding as of December 31, 2019
|
562
|
|
|
437
|
|
|
Additional paid-in capital
|
3,947,278
|
|
|
3,343,983
|
|
|
Accumulated deficit
|
(72,556)
|
|
|
(46,385)
|
|
|
Accumulated other comprehensive loss
|
(38,590)
|
|
|
(29,372)
|
|
|
Treasury stock, at cost, 1,070,558 and 1,050,260 shares as of December 31, 2020 and 2019
|
(122,091)
|
|
|
(120,530)
|
|
|
Total stockholders' equity
|
3,714,603
|
|
|
3,148,133
|
|
|
Noncontrolling interests
|
420
|
|
|
184,855
|
|
|
Total equity
|
3,715,023
|
|
|
3,332,988
|
|
|
Total liabilities and equity
|
$
|
9,140,332
|
|
|
$
|
8,413,766
|
|
See Notes to Consolidated Financial Statements.
THE HOWARD HUGHES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
thousands except per share amounts
|
2020
|
|
2019
|
|
2018
|
|
REVENUES
|
|
|
|
|
|
|
Condominium rights and unit sales
|
$
|
1,143
|
|
|
$
|
448,940
|
|
|
$
|
357,720
|
|
|
Master Planned Communities land sales
|
233,044
|
|
|
330,146
|
|
|
261,905
|
|
|
Rental revenue
|
323,182
|
|
|
278,806
|
|
|
257,308
|
|
|
Other land, rental and property revenues
|
105,048
|
|
|
206,966
|
|
|
160,519
|
|
|
Builder price participation
|
37,072
|
|
|
35,681
|
|
|
27,085
|
|
|
Total revenues
|
699,489
|
|
|
1,300,539
|
|
|
1,064,537
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
Condominium rights and unit cost of sales
|
108,229
|
|
|
369,759
|
|
|
262,562
|
|
|
Master Planned Communities cost of sales
|
101,505
|
|
|
141,852
|
|
|
124,214
|
|
|
Operating costs
|
226,791
|
|
|
294,486
|
|
|
248,029
|
|
|
Rental property real estate taxes
|
52,815
|
|
|
36,861
|
|
|
32,183
|
|
|
Provision for (recovery of) doubtful accounts
|
6,009
|
|
|
(414)
|
|
|
6,078
|
|
|
Demolition costs
|
—
|
|
|
855
|
|
|
17,329
|
|
|
Development-related marketing costs
|
8,166
|
|
|
23,067
|
|
|
29,249
|
|
|
General and administrative
|
109,402
|
|
|
162,506
|
|
|
110,582
|
|
|
Depreciation and amortization
|
217,467
|
|
|
155,798
|
|
|
126,565
|
|
|
Total expenses
|
830,384
|
|
|
1,184,770
|
|
|
956,791
|
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
|
|
|
|
Provision for impairment
|
(48,738)
|
|
|
—
|
|
|
—
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
59,942
|
|
|
22,362
|
|
|
(4)
|
|
|
Other income (loss), net
|
130
|
|
|
12,179
|
|
|
(936)
|
|
|
Total other
|
11,334
|
|
|
34,541
|
|
|
(940)
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
(119,561)
|
|
|
150,310
|
|
|
106,806
|
|
|
|
|
|
|
|
|
|
Selling profit from sales-type leases
|
—
|
|
|
13,537
|
|
|
—
|
|
|
Interest income
|
2,368
|
|
|
9,797
|
|
|
8,486
|
|
|
Interest expense
|
(132,257)
|
|
|
(105,374)
|
|
|
(82,028)
|
|
|
|
|
|
|
|
|
|
Gain (loss) on extinguishment of debt
|
(13,169)
|
|
|
4,641
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
271,099
|
|
|
30,629
|
|
|
39,954
|
|
|
Income (loss) before income taxes
|
8,480
|
|
|
103,540
|
|
|
73,218
|
|
|
Income tax expense (benefit)
|
11,653
|
|
|
29,245
|
|
|
15,492
|
|
|
Net income (loss)
|
(3,173)
|
|
|
74,295
|
|
|
57,726
|
|
|
Net (income) loss attributable to noncontrolling interests
|
(22,981)
|
|
|
(339)
|
|
|
(714)
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(26,154)
|
|
|
$
|
73,956
|
|
|
$
|
57,012
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
$
|
(0.50)
|
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
|
Diluted income (loss) per share
|
$
|
(0.50)
|
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
See Notes to Consolidated Financial Statements.
THE HOWARD HUGHES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Net income (loss)
|
$
|
(3,173)
|
|
|
$
|
74,295
|
|
|
$
|
57,726
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
Interest rate swaps (a)
|
(23,070)
|
|
|
(21,184)
|
|
|
(63)
|
|
|
Capitalized swap interest (expense) income (b)
|
—
|
|
|
(73)
|
|
|
30
|
|
|
Pension adjustment (c)
|
(84)
|
|
|
11
|
|
|
759
|
|
|
Adoption of ASU 2018-02 (d)
|
—
|
|
|
—
|
|
|
(1,148)
|
|
|
Adoption of ASU 2017-12 (e)
|
—
|
|
|
—
|
|
|
(739)
|
|
|
Deconsolidation of 110 North Wacker (f)
|
12,934
|
|
|
—
|
|
|
—
|
|
|
Share of investee's other comprehensive income (g)
|
1,002
|
|
|
—
|
|
|
—
|
|
|
Other comprehensive income (loss)
|
(9,218)
|
|
|
(21,246)
|
|
|
(1,161)
|
|
|
Comprehensive income (loss)
|
(12,391)
|
|
|
53,049
|
|
|
56,565
|
|
|
Comprehensive (income) loss attributable to noncontrolling interests
|
(22,981)
|
|
|
(339)
|
|
|
(714)
|
|
|
Comprehensive income (loss) attributable to common stockholders
|
$
|
(35,372)
|
|
|
$
|
52,710
|
|
|
$
|
55,851
|
|
(a)Amounts are shown net of deferred tax benefit of $5.3 million for the year ended December 31, 2020, $6.2 million for the year ended December 31, 2019, and $0.3 million for the year ended December 31, 2018.
(b)The deferred tax impact was not meaningful for the years ended December 31, 2020, 2019 and 2018.
(c)The deferred tax impact is not meaningful for the years ended December 31, 2020 and 2019. Amount is net of deferred tax expense of $0.5 million for the year ended December 31, 2018.
(d)The Company adopted Accounting Standards Update (ASU) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, as of January 1, 2018.
(e)The Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, as of January 1, 2018.
(f)This amount represents the derecognition of Other comprehensive income (loss) related to interest rate collars on the 110 North Wacker debt, shown net of deferred tax expense of $1.0 million.
(g)The amount for 2020 is shown net of deferred tax expense of $0.3 million.
See Notes to Consolidated Financial Statements.
THE HOWARD HUGHES CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
Total
|
|
|
|
thousands except shares
|
Common Stock
|
Paid-In
|
Accumulated
|
Comprehensive
|
Treasury Stock
|
Stockholders'
|
Noncontrolling
|
Total
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
(Loss)
|
Shares
|
Amount
|
Equity
|
Interests (a)
|
Equity
|
|
Balance, January 1, 2018
|
43,300,253
|
|
$
|
433
|
|
$
|
3,302,502
|
|
$
|
(109,508)
|
|
$
|
(6,965)
|
|
(29,373)
|
|
$
|
(3,476)
|
|
$
|
3,182,986
|
|
$
|
5,565
|
|
$
|
3,188,551
|
|
|
Net income
|
—
|
—
|
|
—
|
|
57,012
|
|
—
|
|
—
|
|
—
|
|
57,012
|
|
714
|
|
57,726
|
|
|
Preferred dividend payment on behalf of subsidiary
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
—
|
|
—
|
|
(11)
|
|
(11)
|
|
|
Interest rate swaps, net of tax of $342
|
—
|
—
|
|
—
|
|
—
|
|
(63)
|
|
—
|
|
—
|
|
(63)
|
|
—
|
|
(63)
|
|
|
Pension adjustment, net of tax of $467
|
—
|
—
|
|
—
|
|
—
|
|
759
|
|
—
|
|
—
|
|
759
|
|
—
|
|
759
|
|
|
Capitalized swap interest, net of tax of $8
|
—
|
—
|
|
—
|
|
—
|
|
30
|
|
—
|
|
—
|
|
30
|
|
—
|
|
30
|
|
|
Adoption of ASU 2014-09 (b)
|
—
|
—
|
|
—
|
|
(69,732)
|
|
—
|
|
—
|
|
—
|
|
(69,732)
|
|
—
|
|
(69,732)
|
|
|
Adoption of ASU 2017-12
|
—
|
—
|
|
—
|
|
739
|
|
(739)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Adoption of ASU 2018-02
|
—
|
—
|
|
—
|
|
1,148
|
|
(1,148)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Restricted stock activity
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
(14,556)
|
|
(1,447)
|
|
(1,447)
|
|
—
|
|
(1,447)
|
|
|
Repurchase of common shares
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
(475,920)
|
|
(57,267)
|
|
(57,267)
|
|
—
|
|
(57,267)
|
|
|
Contributions to joint ventures
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
99,646
|
|
99,646
|
|
|
Stock plan activity
|
211,220
|
|
3
|
|
19,931
|
|
—
|
|
—
|
|
—
|
|
—
|
|
19,934
|
|
—
|
|
19,934
|
|
|
Balance, December 31, 2018
|
43,511,473
|
|
$
|
436
|
|
$
|
3,322,433
|
|
$
|
(120,341)
|
|
$
|
(8,126)
|
|
(519,849)
|
|
$
|
(62,190)
|
|
$
|
3,132,212
|
|
$
|
105,914
|
|
$
|
3,238,126
|
|
|
Net income
|
—
|
—
|
|
—
|
|
73,956
|
|
—
|
|
—
|
|
—
|
|
73,956
|
|
339
|
|
74,295
|
|
|
Interest rate swaps, net of tax of $6,161
|
—
|
—
|
|
—
|
|
—
|
|
(21,184)
|
|
—
|
|
—
|
|
(21,184)
|
|
—
|
|
(21,184)
|
|
|
Pension adjustment, net of tax of $41
|
—
|
—
|
|
—
|
|
—
|
|
11
|
|
—
|
|
—
|
|
11
|
|
—
|
|
11
|
|
|
Capitalized swap interest, net of tax of $20
|
—
|
—
|
|
—
|
|
—
|
|
(73)
|
|
—
|
|
—
|
|
(73)
|
|
—
|
|
(73)
|
|
|
Deconsolidation of equity investments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,750)
|
|
(3,750)
|
|
|
Deconsolidation of Associations of Unit Owners
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,538)
|
|
(2,538)
|
|
|
Restricted stock activity
|
927
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(34,411)
|
|
(4,417)
|
|
(4,417)
|
|
—
|
|
(4,417)
|
|
|
Repurchase of common shares
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(496,000)
|
|
(53,923)
|
|
(53,923)
|
|
—
|
|
(53,923)
|
|
|
Contributions to joint ventures
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
84,890
|
|
84,890
|
|
|
Stock plan activity
|
123,493
|
|
1
|
|
21,550
|
|
—
|
|
—
|
|
—
|
|
—
|
|
21,551
|
|
—
|
|
21,551
|
|
|
Balance, December 31, 2019
|
43,635,893
|
|
$
|
437
|
|
$
|
3,343,983
|
|
$
|
(46,385)
|
|
$
|
(29,372)
|
|
(1,050,260)
|
|
$
|
(120,530)
|
|
$
|
3,148,133
|
|
$
|
184,855
|
|
$
|
3,332,988
|
|
|
Net income(loss), excluding $22,881 attributable to redeemable noncontrolling interest
|
—
|
—
|
|
—
|
|
(26,154)
|
|
—
|
|
—
|
|
—
|
|
(26,154)
|
|
100
|
|
(26,054)
|
|
|
Interest rate swaps, net of tax of $5,260
|
—
|
—
|
|
—
|
|
—
|
|
(23,070)
|
|
—
|
|
—
|
|
(23,070)
|
|
—
|
|
(23,070)
|
|
|
Pension adjustment, net of tax of $87
|
|
—
|
|
—
|
|
—
|
|
(84)
|
|
—
|
|
—
|
|
(84)
|
|
—
|
|
(84)
|
|
|
Reclassification of redeemable noncontrolling interest to temporary equity
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(6,091)
|
|
(6,091)
|
|
|
Share of investee's other comprehensive income, net of tax of $285
|
—
|
|
—
|
|
—
|
|
—
|
|
1,002
|
|
—
|
|
—
|
|
1,002
|
|
—
|
|
1,002
|
|
|
Derecognition of 110 North Wacker, net of tax of $951 (c)
|
—
|
—
|
|
—
|
|
1
|
|
12,934
|
|
—
|
|
—
|
|
12,935
|
|
(178,444)
|
|
(165,509)
|
|
|
Adoption of ASU 2016-13 (d)
|
—
|
|
—
|
|
—
|
|
(18)
|
|
—
|
|
—
|
|
—
|
|
(18)
|
|
—
|
|
(18)
|
|
|
Issuance of common shares
|
12,270,900
|
|
123
|
|
593,493
|
|
—
|
|
—
|
|
—
|
|
—
|
|
593,616
|
|
—
|
|
593,616
|
|
|
Stock plan activity
|
136,021
|
|
2
|
|
9,802
|
|
—
|
|
—
|
|
(20,298)
|
|
(1,561)
|
|
8,243
|
|
—
|
|
8,243
|
|
|
Balance, December 31, 2020
|
56,042,814
|
|
$
|
562
|
|
$
|
3,947,278
|
|
$
|
(72,556)
|
|
$
|
(38,590)
|
|
(1,070,558)
|
|
$
|
(122,091)
|
|
$
|
3,714,603
|
|
$
|
420
|
|
$
|
3,715,023
|
|
(a)Excludes redeemable noncontrolling interest, which is reflected in temporary equity. See Note 3 - Acquisitions and Dispositions.
(b)Related to the adoption of ASU 2014-09, Revenues from Contracts with Customers (Topic 606) and all its related amendments as of January 1, 2018.
(c)Related to deconsolidation of 110 North Wacker. Refer to Note 3 - Acquisitions and Dispositions for additional information.
(d)Related to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and all its related amendments as of January 1, 2020.
See Notes to Consolidated Financial Statements.
THE HOWARD HUGHES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(3,173)
|
|
|
$
|
74,295
|
|
|
$
|
57,726
|
|
|
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
Depreciation
|
198,556
|
|
|
143,698
|
|
|
113,518
|
|
|
Amortization
|
18,200
|
|
|
10,684
|
|
|
13,047
|
|
|
Amortization of deferred financing costs
|
13,301
|
|
|
11,726
|
|
|
9,347
|
|
|
Amortization of intangibles other than in-place leases
|
680
|
|
|
788
|
|
|
1,681
|
|
|
Straight-line rent amortization
|
(14,204)
|
|
|
(5,652)
|
|
|
(12,584)
|
|
|
Deferred income taxes
|
10,827
|
|
|
27,818
|
|
|
16,195
|
|
|
Restricted stock and stock option amortization
|
5,983
|
|
|
19,502
|
|
|
12,128
|
|
|
Net gain on sale of properties
|
(13,710)
|
|
|
(22,669)
|
|
|
—
|
|
|
Net gain on sale of equity method investments
|
(1,076)
|
|
|
—
|
|
|
—
|
|
|
Net gain on sale of lease receivable
|
(38,124)
|
|
|
—
|
|
|
—
|
|
|
Proceeds from the sale of lease receivable
|
64,155
|
|
|
—
|
|
|
—
|
|
|
Selling profit from sales-type leases
|
—
|
|
|
(13,537)
|
|
|
—
|
|
|
(Gain) loss on extinguishment of debt
|
9,604
|
|
|
(4,851)
|
|
|
—
|
|
|
Impairment charges
|
62,384
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (earnings) losses from real estate and other affiliates, net of distributions
|
(264,416)
|
|
|
(9,585)
|
|
|
(24,809)
|
|
|
Provision for doubtful accounts
|
21,403
|
|
|
3,920
|
|
|
6,078
|
|
|
Master Planned Community land acquisitions
|
—
|
|
|
(752)
|
|
|
(3,565)
|
|
|
Master Planned Community development expenditures
|
(228,402)
|
|
|
(238,806)
|
|
|
(195,504)
|
|
|
Master Planned Community cost of sales
|
91,383
|
|
|
119,429
|
|
|
113,282
|
|
|
Condominium development expenditures
|
(244,642)
|
|
|
(211,617)
|
|
|
(289,084)
|
|
|
Condominium rights and units cost of sales
|
100,584
|
|
|
369,759
|
|
|
262,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Changes:
|
|
|
|
|
|
|
Accounts and notes receivable
|
78,647
|
|
|
24,519
|
|
|
26,209
|
|
|
Prepaid expenses and other assets
|
(31,467)
|
|
|
3,147
|
|
|
(6,942)
|
|
|
|
|
|
|
|
|
|
Condominium deposits received
|
115,090
|
|
|
(68,842)
|
|
|
108,061
|
|
|
Deferred expenses
|
(23,289)
|
|
|
(52,503)
|
|
|
(17,697)
|
|
|
Accounts payable and accrued expenses
|
(1,162)
|
|
|
27,261
|
|
|
20,676
|
|
|
|
|
|
|
|
|
|
Other, net
|
—
|
|
|
—
|
|
|
195
|
|
|
Cash provided by (used in) operating activities
|
(72,868)
|
|
|
207,732
|
|
|
210,520
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
Property and equipment expenditures
|
(1,611)
|
|
|
(6,951)
|
|
|
(4,485)
|
|
|
Operating property improvements
|
(39,863)
|
|
|
(55,524)
|
|
|
(47,750)
|
|
|
Property development and redevelopment
|
(430,498)
|
|
|
(674,244)
|
|
|
(572,966)
|
|
|
|
|
|
|
|
|
|
Acquisition of assets
|
—
|
|
|
(565,552)
|
|
|
(234,541)
|
|
|
Proceeds from sales of properties
|
24,373
|
|
|
67,110
|
|
|
—
|
|
|
Reimbursements under tax increment financings
|
6,703
|
|
|
6,883
|
|
|
22,651
|
|
|
Notes issued to real estate and other affiliates and third party
|
—
|
|
|
—
|
|
|
(3,795)
|
|
|
Distributions from real estate and other affiliates
|
16,232
|
|
|
1,437
|
|
|
1,732
|
|
|
Investments in real estate and other affiliates, net
|
(3,882)
|
|
|
(6,056)
|
|
|
(2,617)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
(428,546)
|
|
|
(1,232,897)
|
|
|
(841,771)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from mortgages, notes and loans payable
|
1,403,923
|
|
|
1,292,083
|
|
|
1,172,622
|
|
|
Principal payments on mortgages, notes and loans payable
|
(867,935)
|
|
|
(386,489)
|
|
|
(838,462)
|
|
|
Proceeds from issuance of common stock
|
593,574
|
|
|
—
|
|
|
—
|
|
|
Purchase of treasury stock
|
—
|
|
|
(53,922)
|
|
|
(58,715)
|
|
|
|
|
|
|
|
|
|
Special Improvement District bond funds released from (held in) escrow
|
10,151
|
|
|
6,077
|
|
|
8,051
|
|
|
Deferred financing costs and bond issuance costs, net
|
(17,844)
|
|
|
(19,639)
|
|
|
(15,833)
|
|
|
Taxes paid on stock options exercised and restricted stock vested
|
(2,229)
|
|
|
(5,449)
|
|
|
(3,995)
|
|
|
|
|
|
|
|
|
|
Gain on unwinding of swaps
|
—
|
|
|
—
|
|
|
16,104
|
|
|
Stock options exercised
|
4,638
|
|
|
3,535
|
|
|
11,748
|
|
|
Issuance of noncontrolling interests
|
—
|
|
|
84,889
|
|
|
99,646
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
1,124,278
|
|
|
921,085
|
|
|
391,166
|
|
|
Net change in cash, cash equivalents and restricted cash
|
622,864
|
|
|
(104,080)
|
|
|
(240,085)
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
620,135
|
|
|
724,215
|
|
|
964,300
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
1,242,999
|
|
|
$
|
620,135
|
|
|
$
|
724,215
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
Interest paid
|
$
|
179,355
|
|
|
$
|
168,925
|
|
|
$
|
149,693
|
|
|
Interest capitalized
|
70,258
|
|
|
73,002
|
|
|
77,918
|
|
|
Income taxes paid (refunded), net
|
(2,409)
|
|
|
(2,138)
|
|
|
70
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS
|
|
|
|
|
|
|
Initial recognition of ASC 842 operating leases ROU asset
|
493
|
|
|
72,106
|
|
|
—
|
|
|
Initial recognition of ASC 842 operating lease obligation
|
493
|
|
|
71,888
|
|
|
—
|
|
|
Accrued property improvements, developments and redevelopments
|
(92,383)
|
|
|
14,454
|
|
|
—
|
|
|
Special Improvement District bond transfers associated with land sales
|
10,122
|
|
|
22,423
|
|
|
10,937
|
|
|
Accrued interest on construction loan borrowing
|
9,743
|
|
|
10,154
|
|
|
7,584
|
|
|
Acquisition of below-market lease intangible
|
—
|
|
|
—
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
Capitalized stock compensation
|
1,158
|
|
|
1,443
|
|
|
2,434
|
|
|
Special Improvement District bonds held in third party escrow
|
—
|
|
|
9,686
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
|
|
|
|
|
1. Summary of Significant Accounting Policies
|
General The Howard Hughes Corporation is a Delaware corporation that was formed on July 1, 2010. Together with its subsidiaries (herein, HHC or the Company), HHC develops Master Planned Communities (MPC) and residential condominiums, transforms a multi-block district largely under private management in New York City into a lifestyle destination (Seaport District), invests in other strategic real estate opportunities in the form of entitled and unentitled land and other development rights (Strategic Developments) and owns, manages and operates real estate assets currently generating revenues (Operating Assets), which may be redeveloped or repositioned from time to time.
Certain amounts in the 2019 and 2018 results of operations have been reclassified to conform to the current presentation. Specifically, the Company reclassified minimum rents, tenant recoveries and interest income from sales-type leases to Rental revenue; hospitality revenues, other land revenues and other rental and property revenues to Other land, rental and property revenues; and master planned communities operations, other property operating costs, rental property maintenance costs and hospitality operating costs to Operating costs. In addition, certain labor costs previously presented in the MPC property operating costs were reclassified to corporate General and administrative expense.
COVID-19 Pandemic The outbreak of COVID-19 in 2020 resulted in a global slowdown of economic activity including worldwide travel restrictions, prohibitions of non-essential work activities, disruption and shutdown of businesses and greater uncertainty in global financial markets, all of which resulted in COVID-19 having an impact on the Company’s financial performance in fiscal 2020. As this pandemic endures and continues to have an impact on global economic activity, the extent to which COVID-19 adversely impacts the Company’s future business operations, financial performance and results of operations will depend on many factors outside the Company's control. The significance, extent and duration of such impact remains largely uncertain and dependent on future developments that cannot be accurately predicted. The future developments include, but are not limited to: (1) the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States and other regions in which the Company operates; (2) the extent and effectiveness of the containment measures taken and distribution and continued efficacy of the vaccine; and (3) the response of the overall economy, the financial markets and the population, particularly in areas in which the Company operates.
Principles of Consolidation and Basis of Presentation The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP), with all intercompany balances eliminated. The presentation includes the accounts of the Company and those entities in which HHC has a controlling financial interest. The Company also consolidates certain variable interest entities (VIEs) in accordance with Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 810 Consolidation (ASC 810). The outside equity interests in certain entities controlled by the Company are reflected in the Consolidated Financial Statements as noncontrolling interests.
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The estimates and assumptions include, but are not limited to, capitalization of development costs, provision for income taxes, future cash flows used in impairment analysis and fair value used in impairment calculations, recoverable amounts of receivables and deferred tax assets, initial valuations of tangible and intangible assets acquired and the related useful lives of assets upon which depreciation and amortization is based. Estimates and assumptions have also been made with respect to future revenues and costs, and the fair value of warrants, debt and options granted. In particular, MPC cost of sales estimates are highly judgmental as they are sensitive to cost escalation, sales price escalation and lot absorption, which are subject to judgment and affected by expectations about future market or economic conditions. Actual results could differ from these and other estimates. It is reasonably possible these estimates will change in the near term due to the rapid development and fluidity of the events and circumstances resulting from the COVID-19 pandemic.
Segments Segment information is prepared on the same basis that management reviews information for operational decision-making purposes. Management evaluates the performance of each of HHC’s real estate assets or investments individually and aggregates such properties into segments based on their economic characteristics and types of revenue streams. The Company operates in four business segments: (i) Operating Assets; (ii) MPC; (iii) Seaport District and (iv) Strategic Developments.
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FINANCIAL STATEMENTS
FOOTNOTES
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Investment in Real Estate
Master Planned Community Assets, Land, Buildings and Equipment Real estate assets are stated at cost less any provisions for impairments. Expenditures for significant improvements to the Company’s assets are capitalized. Tenant improvements relating to the Company’s operating assets are capitalized and depreciated over the shorter of their economic lives or the lease term. Maintenance and repair costs are charged to expense when incurred.
The Company periodically reviews the estimated useful lives of properties. Depreciation or amortization expense is computed using the straight‑line method based upon the following estimated useful lives:
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Asset Type
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Years
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Balance Sheet Location
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Buildings and improvements
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7 - 40
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|
Buildings and Equipment
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Equipment and fixtures
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5 - 20
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Buildings and Equipment
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Computer hardware and software, and vehicles
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3 - 5
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Buildings and Equipment
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Tenant improvements
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Lesser of lease term or useful life
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Buildings and Equipment
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Leasing costs
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Related lease term
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Prepaid expenses and other assets, net
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From time to time, the Company may reassess the development strategies for certain buildings and improvements which results in changes to the Company’s estimate of their remaining useful lives. The Company did not recognize additional depreciation expense of significance for the years ended December 31, 2020, 2019 and 2018.
Developments Development costs, which primarily include direct costs related to placing the asset in service associated with specific development properties, are capitalized as part of the property being developed. Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized before they are placed into service. Costs include planning, engineering, design, direct material, labor and subcontract costs. Real estate taxes, utilities, direct legal and professional fees related to the sale of a specific unit, interest, insurance costs and certain employee costs incurred during construction periods are also capitalized. Capitalization commences when the development activities begin and ceases when a project is completed, put on hold or at the date that the Company decides to not move forward with a project. Capitalized costs related to a project where HHC has determined not to move forward are expensed if they are not deemed recoverable. Capitalized interest costs are based on qualified expenditures and interest rates in place during the construction period. Demolition costs associated with redevelopments are expensed as incurred unless the demolition was included in the Company’s development plans and imminent as of the acquisition date of an asset. Once the assets are placed into service, they are depreciated in accordance with HHC’s policy. In the event that management no longer has the ability or intent to complete a development, the costs previously capitalized are evaluated for impairment.
Developments consist of the following categories as of December 31:
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thousands
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2020
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2019
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|
Land and improvements
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$
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407,926
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|
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$
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423,520
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Development costs
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744,748
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|
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1,022,477
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Total Developments
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$
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1,152,674
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$
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1,445,997
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Real Estate and Other Affiliates In the ordinary course of business, HHC enters into partnerships or joint ventures primarily for the development and operation of real estate assets which are referred to as Real estate and other affiliates. The Company assesses its joint ventures at inception to determine if any meet the qualifications of a VIE. HHC considers a partnership or joint venture a VIE if: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity); or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether the partnership or joint venture is a VIE.
The Company also performs a qualitative assessment of each VIE to determine if HHC is the primary beneficiary. Under ASC 810, a company concludes that it is the primary beneficiary and consolidates the VIE if the company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the company is the primary beneficiary.
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FINANCIAL STATEMENTS
FOOTNOTES
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As required by ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is continuously performed.
The Company accounts for VIEs for which it is not considered to be the primary beneficiary but has significant influence using the equity method, and investments in VIEs where HHC does not have significant influence on the joint venture’s operating and financial policies using the cost method. The Company accounts for investments in joint ventures where it owns a noncontrolling interest using the equity method. For investments in joint ventures where the Company has virtually no influence on the joint venture’s operating and financial policies, the Company has elected the measurement alternative to carry the securities at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the issuer. Equity securities not accounted for under the equity method are required to be reported at fair value with unrealized gains and losses reported in the Consolidated Statements of Comprehensive Income (Loss) as Net unrealized gains (losses) on instruments measured at fair value through earnings, unless the securities do not have readily determinable fair values.
Under the equity method, the cost of an investment is adjusted for the Company’s share of the equity in earnings or losses of such Real Estate Affiliates from the date of investment and reduced by distributions received. Generally, the operating agreements with respect to Real estate and other affiliates provide that assets, liabilities and funding obligations are shared in accordance with HHC’s ownership percentages. The Company generally also shares in the profit and losses, cash flows and other matters relating to its Real estate and other affiliates in accordance with the respective ownership percentages. For certain equity method investments, when the preferences on profit sharing on liquidation rights and priorities differ from the ownership percentages, HHC considers ASC 970 and applies the Hypothetical Liquidation Book Value (HLBV) method. Under this method, the Company recognizes income or loss based on the change in the underlying share of the venture’s net assets on a hypothetical liquidation basis as of the reporting date.
Acquisitions of Properties The Company accounts for the acquisition of real estate properties in accordance with ASC 805 Business Combinations (ASC 805). This methodology requires that assets acquired and liabilities assumed be recorded at their fair values on the date of acquisition.
Costs directly related to asset acquisitions are considered additions to the purchase price and increase the cost basis recorded for the Investment in Real Estate. Acquisition costs related to the acquisition of a business are expensed as incurred.
The fair value of tangible assets of an acquired property (which includes land, buildings and improvements) is determined by valuing the property as if it were vacant, and the as-if-vacant value is then allocated to land, buildings and improvements based on management’s determination of the fair value of these assets. The as-if-vacant values are derived from several sources which incorporate significant unobservable inputs that are classified as Level 3 inputs in the fair value hierarchy and primarily include a discounted cash flow analysis using discount and capitalization rates based on recent comparable market transactions, where available.
The fair value of acquired intangible assets consisting of in-place, above-market and below-market leases is recorded based on a variety of considerations, some of which incorporate significant unobservable inputs that are classified as Level 3 inputs in the fair value hierarchy. In-place lease considerations include, but are not necessarily limited to: (1) the value associated with avoiding the cost of originating the acquired in-place leases (i.e., the market cost to execute a lease, including leasing commissions and tenant improvements); (2) the value associated with lost revenue related to tenant reimbursable operating costs incurred during the assumed lease-up period (i.e., real estate taxes, insurance and certain other operating expenses); and (3) the value associated with lost rental revenue from existing leases during the assumed lease-up period. Above-market and below-market leases are valued at the present value, using a discount rate that reflects the risks associated with the leases acquired, of the difference between (1) the contractual amounts to be paid pursuant to the in-place lease; and (2) management’s estimate of current market lease rates, measured over the remaining non-cancelable lease term, including any below-market renewal option periods.
Impairment HHC reviews its long-lived assets (including those held by its real estate and other affiliates) for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future economic conditions, such as occupancy, rental rates, capital requirements and sales values that could differ materially from actual results in future periods. If impairment indicators exist and it is expected that undiscounted cash flows generated by the asset are less than its carrying amount, less costs to sell in the case of assets classified as held for sale, an impairment provision is recorded to write-down the carrying amount of the asset to its fair value.
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FINANCIAL STATEMENTS
FOOTNOTES
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Impairment indicators for HHC’s assets or projects within MPCs are assessed separately and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs or cancellation rates, and projected losses on expected future sales. MPC assets have extended life cycles that may last 20 to 40 years, or longer, and have few long‑term contractual cash flows. Further, MPC assets generally have minimal to no residual values because of their liquidating characteristics. MPC development periods often occur through several economic cycles. Subjective factors such as the expected timing of property development and sales, optimal development density and sales strategy impact the timing and amount of expected future cash flows and fair value.
Impairment indicators for Operating Assets are assessed for each property and include, but are not limited to, significant decreases in net operating income, significant decreases in occupancy, ongoing low occupancy and significant net operating losses.
Impairment indicators for Seaport District include, but are not limited to, significant changes in projected completion dates, operating revenues or cash flows, development costs, ongoing low occupancy, and market factors.
Impairment indicators for assets in the Strategic Developments are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, development costs, market factors, significant decreases in comparable property sale prices and feasibility.
The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, pricing, development costs, sales pace and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated fair value of certain assets may be exceeded by the carrying amount, a real estate asset is only considered to be impaired when its carrying amount is not expected to be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary, the excess of the carrying amount of the asset over its estimated fair value is expensed to operations. In addition, the impairment provision is allocated proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset or, for MPCs, is expensed as a cost of sales when land is sold. Assets that have been impaired will in the future have lower depreciation and cost of sale expenses. The impairment will have no impact on cash flow.
With respect to HHC’s Investment in real estate and other affiliates, a series of operating losses of an underlying asset or other factors may indicate that a decrease in value has occurred which is other‑than‑temporary. The investment in each real estate and other affiliate is evaluated periodically and as deemed necessary for recoverability and valuation declines that are other‑than‑temporary. If the decrease in value of an investment in a real estate and other affiliate is deemed to be other‑than‑temporary, HHC’s investment is reduced to its estimated fair value. In addition to the property‑specific impairment analysis that are performed on the underlying assets of the investment, the Company also considers the ownership, distribution preferences, limitations and rights to sell and repurchase its ownership interests.
All indefinite-lived intangible assets are tested for impairment annually as of October 1 of each year, or sooner if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset to its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, the Company recognizes an impairment loss in an amount equal to that excess, and the adjusted carrying amount of the intangible asset becomes the new accounting basis.
HHC recorded impairments of $48.7 million for the year ended December 31, 2020. For the years ended December 31, 2019 and 2018, HHC evaluated whether impairment indicators existed at any of its assets and concluded there were no impairments. Please refer to Note 4 - Impairment for additional information.
Cash and Cash Equivalents Cash and cash equivalents consist of highly-liquid investments with maturities at date of purchase of three months or less and include registered money market mutual funds which are invested in United States Treasury bills that are valued at the net asset value of the underlying shares in the funds as of the close of business at the end of each period as well as deposits with major banks throughout the United States. Such deposits are in excess of FDIC limits and are placed with high quality institutions in order to minimize concentration of counterparty credit risk.
Restricted Cash Restricted cash reflects amounts segregated in escrow accounts in the name of the Company, primarily related to escrowed condominium deposits by buyers and other amounts related to taxes, insurance and legally restricted security deposits and leasing costs.
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FINANCIAL STATEMENTS
FOOTNOTES
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Operating Lease Collectibility On a quarterly basis, management reviews tenant rents, tenant recoveries and straight-line rent assets for collectibility. As required under ASC 842 - Leases, this analysis includes a review of past due accounts and considers factors such as the credit quality of tenants, current economic conditions and changes in customer payment trends. When full collection of a lease receivable or future lease payment is not probable, a reserve for the receivable balance is charged against rental revenue and future rental revenue is recognized on a cash basis. Due to the impacts of COVID-19 on the collectability of tenant receivables, the Company completed an analysis of its collections and determined full collection of outstanding tenant rents and recoveries was not probable for a number of retail tenants. In addition, the Company determined that a reserve for estimated losses under ASC 450 - Contingencies is required as the amount is probable and can be reasonably estimated.
Therefore, for the year ended December 31, 2020, the Company recognized a total impact of $27.8 million in the Consolidated Statement of Operations, comprised of a $21.8 million charge against Rental revenue related to ASC 842 and a $6.0 million charge to the Provision for (recovery of) doubtful accounts related to ASC 450. For the year ended December 31, 2019, the company recognized a charge of $6.3 million against Rental revenue related to ASC 842.
Accounts Receivable, net Accounts receivable includes tenant rents, tenant recoveries and other receivables. Accounts receivables are shown net of allowances for doubtful accounts of $24.0 million as of December 31, 2020, and $15.6 million as of December 31, 2019.
Notes Receivable, net Notes receivable, net includes non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, they are recorded at amortized cost less any provision for impairment as required under ASC 326 - Financial Instruments - Credit Losses. Refer to discussion below for information related to the adoption of ASC 326 in 2020.
Municipal Utility District Receivables, net In Houston, Texas, certain development costs are reimbursable through the creation of a Municipal Utility District (MUD), also known as Water Control and Improvement Districts, which are separate political subdivisions authorized by Article 16, Section 59 of the Texas Constitution and governed by the Texas Commission on Environmental Quality (TCEQ). MUDs are formed to provide municipal water, wastewater, drainage services, recreational facilities and roads to those areas where they are currently unavailable through the regular city services. Typically, the developer advances funds for the creation of the facilities, which must be designed, bid and constructed in accordance with the City of Houston’s and TCEQ requirements.
The MUD Board of Directors authorizes and approves all MUD development contracts, and MUD bond sale proceeds are used to reimburse the developer for its construction costs, including interest. At the date the expenditures occur, the Company determines the costs it believes will be eligible for reimbursement and recognizes that as MUD receivables. These expenditures are subject to review by the MUD engineers for eligibility in accordance with the development contracts as part of the process for reimbursement. MUD receivables are pledged as security to creditors under the debt facilities relating to Bridgeland and The Woodlands MPCs.
Prepaid Expenses and Other Assets, net The major components of Prepaid expenses and other assets, net include Straight-line rent assets, Condominium inventory, Special Improvement District (SID) receivables, Various Intangibles, and prepaid expenses related to the Company’s properties. Straight-line rent assets are shown net of allowances for doubtful accounts of $9.0 million as of December 31, 2020, and $1.0 million as of December 31, 2019.
SID receivables are amounts due from SID bonds related to the Company’s Summerlin MPC. Proceeds from SID bonds are held in escrow by a third-party and are used to reimburse the Company for a portion of the development costs incurred in Summerlin. SID receivables are $54.8 million as of December 31, 2020, and $43.0 million as of December 31, 2019.
Tax increment financing (TIF) receivables are amounts which the Company has submitted for reimbursement from Howard County, Maryland, in conjunction with development costs expended on key roads and infrastructure work within the Merriweather District of Columbia specified per the terms of the county’s TIF legislation and Special Obligation Bonds issued in October 2017. TIF receivables are $0.9 million as of December 31, 2020, and $3.9 million as of December 31, 2019.
The Company’s intangibles include in-place lease assets and above-market lease assets where HHC is the lessor, trademark/tradename intangibles related to MPCs, and other indefinite lived intangibles relating to properties and businesses acquired in previous real estate transactions. The balance of unamortized below-market ground leases was reclassified to Operating lease right-of-use assets, net upon adoption of ASU No. 2016-02, Leases (Topic 842). The Company amortizes finite-lived intangible assets less any residual value, if applicable, on a straight-line basis over the term of the related lease or the estimated useful life of the asset. Intangible assets with an indefinite useful life, primarily
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FINANCIAL STATEMENTS
FOOTNOTES
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attributable to the acquisition of the joint venture partner’s interest in the Las Vegas Aviators baseball team, are not amortized. The Company reviews for any changes in business that would lead to a reconsideration that the life is finite and should be subject to amortization.
Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards.
The Company periodically assesses the realizability of its deferred tax assets. If the Company concludes that it is more likely than not that some of the deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including expectations of future taxable income, carryforward periods available to the Company for tax reporting purposes, various income tax strategies and other relevant factors. In addition, interest and penalties related to uncertain tax positions, if necessary, are recognized in income tax expense.
In the Company’s MPCs, gains with respect to land sales, whether for commercial use or for single family residences, are reported for tax purposes either on the modified accrual method or on the percentage-of-completion method. Under the percentage-of-completion method, a gain is recognized for tax purposes as costs are incurred in satisfaction of contractual obligations.
Deferred Expenses, net Deferred expenses consist principally of leasing costs. Deferred leasing costs are amortized to amortization expense using the straight‑line method over the related lease term. Deferred expenses are shown net of accumulated amortization of $39.7 million as of December 31, 2020 and $31.7 million as of December 31, 2019.
Marketing and Advertising Each of the Company’s segments incur various marketing and advertising costs as part of their development, branding, leasing or sales initiatives. These costs include special events, broadcasts, direct mail and online digital and social media programs, and they are expensed as incurred.
Fair Value of Financial Instruments The carrying values of cash and cash equivalents, marketable securities, escrows, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.
Derivative Instruments and Hedging Activities Derivative instruments and hedging activities require management to make judgments on the nature of its derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported as a component of Net Income in the Consolidated Statements of Operations or as a component of Comprehensive Income in the Equity on the Consolidated Balance Sheets. While management believes its judgments are reasonable, a change in a derivative’s effectiveness as a hedge could materially affect expenses, net income and equity. The Company accounts for the changes in the fair value of an effective hedge in other comprehensive income (loss) and subsequently reclassifies the balance from other comprehensive income (loss) to earnings over the term that the hedged transaction affects earnings. The Company accounts for the changes in the fair value of an ineffective hedge directly in earnings.
Stock-Based Compensation The Company applies the provisions of ASC 718 Stock Compensation which requires all share‑based payments to be recognized in the Consolidated Statements of Operations based on their fair values. The Company grants various types of stock-based awards including stock options, restricted stock awards and performance-based awards. The fair value of stock option awards is determined using the Black-Scholes option-pricing model. Restricted stock awards are valued using the market price of the Company’s common stock on the grant date. For performance-based awards, the fair value of the market-condition portion of the award is measured using a Monte Carlo simulation, and the performance-condition portion is measured at the market price of Company’s common stock on the grant date. The Company records compensation cost for stock-based compensation awards over the requisite service period. If the requisite service period is satisfied, compensation cost is not adjusted unless the award contains a performance condition. If an award contains a performance condition, expense is recognized only for those shares that ultimately vest using the per-share fair value measured at the grant date. The Company recognizes forfeitures as they occur. See Note 11 - Stock-Based Compensation Plans for additional information.
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FINANCIAL STATEMENTS
FOOTNOTES
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Revenue Recognition and Related Matters
Condominium Rights and Unit Sales Revenue from the sale of an individual unit in a condominium project is recognized at a point in time (i.e., the closing) when HHC satisfies the single performance obligation to construct a condominium project and transfer control of a completed unit to a buyer. The transaction price, which is the amount of consideration the Company receives upon delivery of the completed condominium unit to the buyer, is allocated to this single obligation and is received at closing less any amounts previously paid on deposit.
The Company receives cash payments in the form of escrowed condominium deposits from customers who have contracted to purchase a condominium unit based on billing schedules established in HHC’s condominium purchase agreement contracts. The amounts are recorded in Restricted cash until released from escrow in accordance with the escrow agreement and on approval of HHC’s lender to fund construction costs of a project. A corresponding condominium contract deposit liability is established at the date of receipt, representing a portion of HHC’s unsatisfied performance obligation at each reporting date.
These deposits, along with the balance of the contract value, are recognized at closing upon satisfaction of HHC’s performance obligation and transfer of title to the buyer. Real estate project costs directly associated with a condominium project, which are HHC’s costs to fulfill contracts with condominium buyers, are capitalized while all other costs are expensed as incurred. Total estimated project costs include direct costs such as the carrying value of the land, site planning, architectural, construction and financing costs, as well as indirect cost allocations. The allocations include costs which clearly relate to the specific project, including certain infrastructure and amenity costs which benefit the project as well as others, and are based upon the relative sales value of the units. Costs incurred to sell condominium units are evaluated for capitalization in accordance with ASC 340-40, and incremental costs of obtaining and fulfilling a contract are capitalized only if the costs relate directly to a specifically identified contract, enhance resources to satisfy performance obligations in the future and are expected to be recovered.
Master Planned Community Land Sales Revenues from land sales are recognized at a point in time when the land sale closing process is complete. The transaction price generally has both fixed and variable components, with the fixed price stipulated in the contract and representative of a single performance obligation. See Builder Price Participation (BPP) below for a discussion of the variable component. The fixed transaction price, which is the amount of consideration received in full upon transfer of the land title to the buyer, is allocated to this single obligation and is received at closing of the land sale less any amounts previously paid on deposit.
The Company receives cash payments in the form of land purchase deposits from homebuilders or other commercial buyers who have contracted to purchase land within the Company’s MPCs, and HHC holds any escrowed deposits in Restricted cash or Cash and cash equivalents based on the terms of the contract. In situations where the Company has completed the closing of a developed land parcel or superpad and consideration is paid in full, but a portion of HHC’s performance obligation relating to the enhancement of the land is still unsatisfied, revenue related to HHC’s obligation is recognized over time. The Company recognizes only the portion of the improved land sale where the improvements are fully satisfied based on a cost input method. The aggregate amount of the transaction price allocated to the unsatisfied obligation is recorded as deferred land sales and is presented in Accounts payable and accrued expenses. The Company measures the completion of HHC’s unsatisfied obligation based on the costs remaining relative to the total cost at the date of closing.
When developed residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold. In accordance with ASC 970-360-30-1, when developed land is sold, costs are allocated to each sold superpad or lot based upon the relative sales value. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the remaining parcels available for sale. For certain parcels of land, including acquired parcels that the Company does not intend to develop or for which development was complete at the date of acquisition, the specific identification method is used to determine the cost of sales.
Builder Price Participation BPP is the variable component of the transaction price for Master Planned Communities Land Sales. BPP is earned when a developer that acquired land from HHC develops and sells a home to an end user at a price higher than a predetermined breakpoint. The excess over the breakpoint is shared between HHC and the developer at the time of closing on the sale of the home based on a percentage previously agreed upon. The Company concluded that as of December 31, 2020, BPP was constrained, as discussed below, and accordingly, the Company did not recognize an estimate of variable consideration. The Company’s conclusion is based on the following factors:
–BPP is highly susceptible to factors outside HHC’s influence such as unemployment and interest rates
–the time between the sale of land to a homebuilder and closing on a completed home can take up to three years
–historical experience is of little value when it comes to predicting future home prices
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FINANCIAL STATEMENTS
FOOTNOTES
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The Company evaluates contracts with homebuilders with respect to BPP at each reporting period to determine whether a change in facts and circumstances has eliminated the constraint and will record an estimate of BPP revenue, if applicable.
For Condominium Rights and Unit Sales, Master Planned Community Land Sales and Builder Price Participation the Company elected the practical expedient to not adjust promised amount of consideration for the effects of a significant financing component when the period between transfer of the promised asset and payment is expected to be one year or less.
Rental Revenues Revenue associated with the Company’s operating assets includes minimum rent, percentage rent in lieu of fixed minimum rent, tenant recoveries and overage rent.
Minimum rent revenues are recognized on a straight‑line basis over the terms of the related leases when collectability is reasonably assured and the tenant has taken possession of, or controls, the physical use of the leased asset. Percentage rent in lieu of fixed minimum rent is recognized as sales are reported from tenants. Minimum rent revenues reported on the Consolidated Statements of Operations also include amortization related to above and below‑market tenant leases on acquired properties.
Recoveries from tenants are stipulated in the leases, are generally computed based upon a formula related to real estate taxes, insurance and other real estate operating expenses, and are generally recognized as revenues in the period the related costs are incurred.
Overage rent is recognized on an accrual basis once tenant sales exceed contractual thresholds contained in the lease and is calculated by multiplying the tenant sales in excess of the minimum amount by a percentage defined in the lease.
If the lease provides for tenant improvements, the Company determines whether the tenant improvements are owned by the tenant or by HHC. When HHC is the owner of the tenant improvements, rental revenue begins when the improvements are substantially complete. When the tenant is the owner of the tenant improvements, any tenant allowance funded by the Company is treated as a lease incentive and amortized as an adjustment to rental revenue over the lease term.
Other Land, Rental and Property Revenues - Over Time and Point in Time Other land revenues recognized over time include ground maintenance revenue, homeowner association management fee revenue and revenue from providing exclusive cable and internet services at the Company’s MPCs for the benefit of the tenants and owners of the communities. These revenues are recognized over time, as time elapses. The amount of consideration and the duration are fixed, as stipulated in the related agreements, and represent a single performance obligation.
Other land revenues also include transfer fees on the secondary sales of homes in MPCs, forfeitures of earnest money deposits by buyers of HHC’s condominium units and other miscellaneous items. These items are recognized at a point in time when the real estate closing process is complete or HHC has a legal right to the respective fee or deposit.
Other rental and property revenues related to contracts with customers is generally comprised of baseball related ticket sales, retail operations, food sales, advertising and sponsorships. Season ticket sales are recognized over time as games take place. Single tickets and total net sales from retail operations are recognized at a point in time, at the time of sale when payment is received and the customer takes possession of the merchandise. In all cases, the transaction prices are fixed, stipulated in the ticket, contract or product, and representative in each case of a single performance obligation. Events-related service revenue is recorded at the time the customer receives the benefit of the service.
Hospitality revenues are recognized at a point in time in accordance with the pattern of each related service. Lodging is recognized on daily increments, while retail services such as food and beverage are recognized at the point of sale. The transaction price is fixed, clearly stipulated and representative of a single performance obligation in all cases. The duration of all contracts with customers of HHC’s hospitality lodging and related services is generally short.
Baseball-related and other sponsorships generally cover a season or contractual period of time, and the related revenue is generally recognized on a straight-line basis over time, as time elapses, unless a specific performance obligation exists within the sponsorship contract where point-in-time delivery occurs and recognition at a specific performance or delivery date is more appropriate. Advertising and sponsorship agreements that allow third parties to display their advertising and products at HHC’s venues for a certain amount of time relate to a single performance obligation, consideration terms for these services are fixed in each respective agreement, and HHC generally recognizes the related revenue on a straight-line basis over time, as time elapses.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Noncontrolling interest As of December 31, 2020, Noncontrolling interests is related to the Ward Village Homeowners’ Associations (HOAs). All revenues and expenses related to the HOAs are attributable to noncontrolling interests and do not impact net income attributable to common stockholders. As of December 31, 2019, Noncontrolling interests is related to the HOAs, as well as noncontrolling interest in the 110 North Wacker venture. See Note 3 - Real Estate and Other Affiliates for details on the 110 North Wacker ownership structure.
Redeemable Noncontrolling Interest As of December 31, 2020, Redeemable noncontrolling interest relates to a local developer’s interest in the 110 North Wacker project. This noncontrolling interest holder has the right to require the Company to purchase its interest if 110 North Wacker has not been sold or refinanced (with distributions made to the local developer and Company sufficient to repay all capital contributions) by a certain date. As exercise of this put right is outside of the Company’s control, the noncontrolling interest is presented as redeemable noncontrolling interest outside of stockholders’ equity on the Consolidated Balance Sheets. See Note 2 - Real Estate and Other Affiliates for additional information.
Corporate Restructuring During the fourth quarter ended December 31, 2019, the Company initiated a plan to strategically realign and streamline certain aspects of its business, including selling approximately $2.0 billion of non-core assets, reducing overhead and relocating its corporate headquarters. Charges of $34.3 million associated with retention and severance expenses were recorded in 2019, and $2.6 million was recorded in 2020. The Company expects to incur an additional $0.2 million to $0.5 million related to relocation, retention and severance expenses in 2021. The restructuring costs are included in Corporate income, expenses and other items in Note 18 - Segments.
Details of the plan activities during the year ended December 31, 2020, are as follows:
|
|
|
|
|
|
|
|
thousands
|
Restructuring Costs
|
|
Balance at December 31, 2019
|
$
|
9,685
|
|
|
Charges (a)
|
2,650
|
|
|
Charges paid/settled (a)
|
(12,035)
|
|
|
Balance at December 31, 2020
|
$
|
300
|
|
(a)Charges relate to relocation, retention and severance expenses and are included in General and administrative expense in the accompanying Consolidated Statement of Operations.
Executive Transition On September 17, 2020, Paul Layne retired as Chief Executive Officer and simultaneously agreed to step down from the Company’s Board of Directors. David O’Reilly, the Company’s President and Chief Financial Officer, was appointed to serve as interim Chief Executive Officer.
Pursuant to a Separation and Release Agreement between Mr. Layne and the Company, the Company agreed to continue to pay Mr. Layne his base salary, and permit him to continue participating in Company benefit programs, through November 16, 2020, and to credit Mr. Layne through that date for purposes of calculating the prorated target bonus included in his severance package. In September 2020, the Company recognized $1.4 million in expense related to Mr. Layne’s salary and benefits through November 16, 2020, cash severance, restricted stock acceleration, prorated bonus and forfeited options.
On December 1, 2020, the Company announced that Mr. O’Reilly had been appointed Chief Executive Officer effective December 1, 2020. In addition, the Board of Directors of the Company appointed Mr. O’Reilly to serve as a Director on the Board effective December 1, 2020. Mr. O’Reilly will not receive any compensation for his service on the Board and will continue to serve as the Company’s Chief Financial Officer until his successor is duly qualified and appointed by the Board.
Further on December 1, 2020, the Company announced that the Board appointed L. Jay Cross as the Company’s President. Mr. Cross will be responsible for overseeing the development of Company's portfolio of master planned communities and mixed-use developments. Mr. Cross joined The Howard Hughes Corporation following his role as President of Related Hudson Yards. In that role, he led the development of a $20 billion, 28-acre project in the west side of Manhattan. Previously, Mr. Cross served as President of the New York Jets and led the development of the $1.3 billion MetLife Stadium, the team's joint venture with the New York Giants. Prior to his work in the New York region, Mr. Cross served as President of Business Operations for the NBA's Miami Heat and was responsible for the development of the AmericanAirlines Arena.
Impact of New Accounting Standard Related to Financial Instruments - Credit Losses In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments - Credit Losses (ASC 326). The standard modifies the impairment model for most financial assets, including trade accounts receivables and loans, and requires the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities are
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amended the scope of ASU 2016-13 and clarified that receivables arising from operating leases are not within the scope of the standard and should continue to be accounted for in accordance with the leases standard (Topic 842).
The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized costs. Results for reporting periods beginning after January 1, 2020, are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $18.0 thousand as of January 1, 2020, for the cumulative effect of adopting ASU 2016-13.
The Company is exposed to credit losses through the sale of goods and services to the Company’s customers. Receivables held by the Company primarily relate to short-term trade receivables and financing receivables, which include MUD receivables, SID bonds, TIF receivables, net investments in lease receivables, and notes receivable. The Company assesses its exposure to credit loss based on historical collection experience and future expectations by portfolio segment. Historical collection experience is evaluated on a quarterly basis by the Company.
The following table summarizes the amortized cost basis of financing receivables by receivable type as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
MUD Receivables (a)
|
|
SID Receivables
|
|
TIF Receivables
|
|
Net Investments in Lease Receivable
|
|
Notes Receivable
|
|
Total
|
|
Ending balance as of December 31, 2020
|
$
|
314,394
|
|
|
$
|
54,770
|
|
|
$
|
893
|
|
|
$
|
2,943
|
|
|
$
|
1,178
|
|
|
$
|
374,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Accrued interest of $15.7 million as of December 31, 2020, and $17.3 million as of December 31, 2019, are included within Municipal Utility District receivables on the Company’s Consolidated Balance Sheets.
The following table presents the activity in the allowance for credit losses for financing receivables by receivable type for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
MUD Receivables
|
|
SID Receivables
|
|
TIF Receivables
|
|
Net Investments in Lease Receivable
|
|
Notes Receivable
|
|
Trade Accounts Receivable (a)
|
|
Beginning balance as of January 1, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
209
|
|
|
$
|
—
|
|
|
Current-period provision for expected credit losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52)
|
|
|
99
|
|
|
Write-offs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(59)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as of December 31, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
156
|
|
|
$
|
40
|
|
(a)Trade accounts receivable are presented within accounts receivable, net on the consolidated balance sheet. Accounts receivable, net also includes receivables related to operating leases. Collectability and related allowance for amounts due under operating leases is assessed under the guidance of ASC 842 and ASC 450. Reserves related to operating lease receivables are not included in the above table.
Financing receivables are considered to be past due once they are 30 days contractually past due under the terms of the agreement. The Company currently does not have significant financing receivables that are past due or on nonaccrual status.
There have been no significant write-offs or recoveries of amounts previously written-off during the current period for financing receivables.
Recently Issued Accounting Standards The following is a summary of recently issued and other notable accounting pronouncements which relate to the Company’s business.
ASU 2020-04, Reference Rate Reform The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform when certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has applied certain optional expedients, that are retained through the end of the hedging relationship. The amendments in this Update are effective as of March 12, 2020, through December 31, 2022. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedge transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The amendments in this Update simplify the accounting for income taxes by removing certain exceptions from ASC 740. Additionally, the amendments in this Update also simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination, and other targeted changes. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
|
|
|
|
|
2. Real Estate and Other Affiliates
|
As of December 31, 2020, the Company is not the primary beneficiary of any of the investments listed below as it does not have the power to direct the activities that most significantly impact the economic performance of the ventures. As a result, the Company reports its interests in accordance with the equity method. As of December 31, 2020, approximately $545.0 million of indebtedness was secured by the properties owned by the Company’s real estate and other affiliates of which the Company’s share was $274.5 million based upon economic ownership. All of this indebtedness is without recourse to the Company, with the exception of $100.6 million related to 110 North Wacker.
Equity investments in real estate and other affiliates are reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic/Legal Ownership
|
|
Carrying Value
|
|
Share of Earnings/Dividends
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
Year Ended December 31,
|
|
|
thousands except percentages
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2018
|
|
|
Equity Method Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 North Wacker (a)
|
see below
|
|
see below
|
|
$
|
261,143
|
|
|
$
|
—
|
|
|
$
|
(13,896)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
The Metropolitan Downtown Columbia (b)
|
50.0
|
%
|
|
50.0
|
%
|
|
—
|
|
|
—
|
|
|
765
|
|
|
694
|
|
|
467
|
|
|
|
Stewart Title of Montgomery County, TX
|
50.0
|
%
|
|
50.0
|
%
|
|
3,924
|
|
|
4,175
|
|
|
1,250
|
|
|
1,105
|
|
|
573
|
|
|
|
Woodlands Sarofim #1
|
20.0
|
%
|
|
20.0
|
%
|
|
3,120
|
|
|
2,985
|
|
|
125
|
|
|
125
|
|
|
94
|
|
|
|
m.flats/TEN.M
|
50.0
|
%
|
|
50.0
|
%
|
|
1,247
|
|
|
2,431
|
|
|
666
|
|
|
(1,875)
|
|
|
(2,478)
|
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Summit (c)
|
see below
|
|
see below
|
|
96,300
|
|
|
84,455
|
|
|
17,845
|
|
|
28,336
|
|
|
36,284
|
|
|
|
Seaport District
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. C Seaport (d)
|
—
|
%
|
|
35.0
|
%
|
|
—
|
|
|
7,650
|
|
|
(6,900)
|
|
|
(1,980)
|
|
|
(465)
|
|
|
|
Bar Wayō (Momofuku) (c)
|
see below
|
|
see below
|
|
7,101
|
|
|
7,469
|
|
|
(2,392)
|
|
|
(612)
|
|
|
—
|
|
|
|
Strategic Developments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circle T Ranch and Power Center (e)
|
—
|
%
|
|
50.0
|
%
|
|
—
|
|
|
8,207
|
|
|
2,463
|
|
|
950
|
|
|
1,534
|
|
|
|
HHMK Development
|
50.0
|
%
|
|
50.0
|
%
|
|
10
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
KR Holdings
|
50.0
|
%
|
|
50.0
|
%
|
|
347
|
|
|
422
|
|
|
(69)
|
|
|
263
|
|
|
830
|
|
|
|
Mr. C Seaport (d)
|
—
|
%
|
|
35.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(240)
|
|
|
|
110 North Wacker (a)
|
see below
|
|
see below
|
|
—
|
|
|
—
|
|
|
267,518
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
373,192
|
|
|
117,804
|
|
|
267,375
|
|
|
27,006
|
|
|
36,599
|
|
|
|
Other equity investments (f)
|
|
|
|
|
3,953
|
|
|
3,953
|
|
|
3,724
|
|
|
3,623
|
|
|
3,355
|
|
|
|
Investments in real estate and other affiliates
|
|
|
|
|
$
|
377,145
|
|
|
$
|
121,757
|
|
|
$
|
271,099
|
|
|
$
|
30,629
|
|
|
$
|
39,954
|
|
|
(a)During the third quarter of 2020, 110 North Wacker was completed and placed in service. This triggered a reconsideration event that resulted in the deconsolidation of 110 North Wacker and the recognition of the retained equity method investment at fair market value. The $267.5 million gain on deconsolidation was recorded in the Strategic Developments segment. The equity method investment was transferred from the Strategic Development segment to the Operating Asset segment. Refer to the discussion below for additional details.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
(b)The Metropolitan Downtown Columbia was in a deficit position of $5.0 million at December 31, 2020, and $4.7 million at December 31, 2019, due to distributions from operating cash flows in excess of basis. These deficit balances are presented in Accounts payable and accrued expenses at December 31, 2020 and 2019.
(c)Refer to the discussion below for details on the ownership structure.
(d)Mr. C Seaport was transferred from Strategic Developments to Operating Assets during the three months ended September 30, 2018. During the three months ended September 30, 2020, the Company completed the sale of its 35% equity investment.
(e)The Company completed the sale of its 50.0% equity investment in Circle T Ranch and Power Center in December 2020. See Note 3 - Acquisitions and Dispositions for additional information.
(f)Other equity investments represent equity investments not accounted for under the equity method. The Company elected the measurement alternative as these investments do not have readily determinable fair values. See Note 1 - Summary of Significant Accounting Policies for additional information. There were no impairments, or upward or downward adjustments to the carrying amounts of these securities either during current year 2020, or cumulatively.
Significant activity for real estate and other affiliates and the related accounting considerations are described below.
Mr. C Seaport As of December 31, 2019, the Mr. C Seaport variable interest entity (VIE) did not have sufficient equity at risk to finance its operations without additional financial support and the carrying value of the Company’s investment was classified as Investment in real estate and other affiliates on the Consolidated Balance Sheets. During the three months ended June 30, 2020, the Company recognized a $6.0 million impairment of its equity investment in Mr. C Seaport. During the three months ended September 30, 2020, the Company completed the sale of its 35% equity investment in Mr. C Seaport. Refer to Note 3 - Acquisitions and Dispositions and Note 4 - Impairment for additional information.
110 North Wacker The Company formed a partnership with a local developer (the Partnership) during the second quarter of 2017. During the second quarter of 2018, the Partnership executed an agreement with USAA related to 110 North Wacker (collectively, the local developer and USAA are the Partners) to construct and operate the building at 110 North Wacker (the Venture).
The Partnership was determined to be a VIE, and as the Company has the power to direct the activities of the Partnership that most significantly impact its economic performance, the Company is considered the primary beneficiary and consolidates the Partnership. Additionally, the noncontrolling interest holder has the right to require the Company to purchase its interest in the Partnership if the Venture has not been sold or refinanced (with distributions made to the local developer and Company sufficient to repay all capital contributions), at the later of (1) the third anniversary of the issuance of the certificate of occupancy for the project or (2) the fifth anniversary of the effective date of the Partnership's LLC agreement. Therefore, the local developer’s redeemable noncontrolling interest in the Partnership is presented as temporary equity on the Consolidated Balance Sheets. As of December 31, 2020, the time restriction has not been met, and the Company believes it is not probable that the put will be redeemed. As such, the redeemable noncontrolling interest is measured at the initial carrying value plus net income (loss) attributable to the noncontrolling interest and is not adjusted to fair value.
The following table presents changes in Redeemable noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
thousands
|
|
Redeemable Noncontrolling Interest
|
|
Balance as of December 31, 2019
|
|
$
|
—
|
|
|
Reclassification of redeemable noncontrolling interest to temporary equity
|
|
6,091
|
|
|
Net income (loss) attributable to noncontrolling interest
|
|
22,881
|
|
|
Share of investee's other comprehensive income
|
|
142
|
|
|
Balance as of December 31, 2020
|
|
$
|
29,114
|
|
Upon execution of the Venture in the second quarter of 2018, the Company contributed land with a carrying value of $33.6 million and an agreed upon fair value of $85.0 million, the local developer contributed $5.0 million in cash and USAA contributed $64.0 million in cash. USAA was required to fund up to $105.6 million in addition to its initial contribution. HHC and the local developer also had additional cash funding requirements and contributed $9.8 million and $1.1 million, respectively, during 2018. The Company and its Partners entered into a construction loan agreement further described in Note 7 - Mortgages, Notes and Loans Payable, Net. Any further cash funding requirements by the Partnership were eliminated when the construction loan increased on May 23, 2019. Concurrently with the increase in the construction loan, USAA agreed to fund an additional $8.8 million, for a total commitment of $178.4 million. No changes were made to the rights of either the Company or the Partners under the construction loan agreement.
The Company concluded that the Venture was within the scope of the VIE model, and that it was the primary beneficiary of the Venture during the development phase of the project because it had the power to direct activities that most significantly impact the Venture’s economic performance, however, upon the building’s completion, the Company expected to recognize the investment under the equity method. As the primary beneficiary of the VIE during the
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
development phase, the Company has consolidated 110 North Wacker and its underlying entities since the second quarter of 2018. During the third quarter of 2020, 110 North Wacker was completed and placed in service, triggering a reconsideration event. Upon development completion, the Company concluded it is no longer the primary beneficiary and as such, should no longer consolidate the Venture. As there have been no changes to the structure and control of the Partnership with the local developer, the Company will continue to consolidate the Partnership.
As of September 30, 2020, the Company derecognized all assets, liabilities and noncontrolling interest related to the Venture that were previously consolidated and recognized an equity method investment of $273.6 million based on the fair value of its interest in 110 North Wacker. The Company recognized a gain of $267.5 million attributable to the initial fair value step-up at the time of deconsolidation, which is included in Equity in earnings (losses) from real estate and other affiliates on the Consolidated Statements of Operations and reported in the Strategic Developments segment for the year ended December 31, 2020. The Company utilized a third-party appraiser to measure the fair value of 110 North Wacker on an as-is basis at September 30, 2020, using the discounted cash flow approach and sales comparison approach, based on current market assumptions. Also as a result of the deconsolidation, the Company recognized an additional $15.4 million attributable to the recognition of previously eliminated development management fees, which is included in Other land, rental and property revenues on the Consolidated Statements of Operations and reported in the Strategic Developments segment for the year ended December 31, 2020. As 110 North Wacker has now been placed in service, the equity method investment was transferred from the Strategic Development segment to the Operating Asset segment.
Given the nature of the Venture’s capital structure and the provisions for the liquidation of assets, the Company’s share of the Venture’s income-producing activities is recognized based on the Hypothetical Liquidation at Book Value (HLBV) method. Under this method, the Company recognizes income or loss in Equity in earnings from real estate and other affiliates based on the change in its underlying share of the Venture’s net assets on a hypothetical liquidation basis as of the reporting date. After USAA receives a 9.0% preferred return on its capital contribution, the Partnership is entitled to cash distributions from the Venture until it receives a 9.0% return on its capital account, calculated as the initial land contribution of $85.0 million and cash contribution of $5.0 million, plus subsequent cash contributions and less subsequent cash distributions. Subsequently, USAA is entitled to cash distributions equal to 11.11% of the amount distributed to the Partnership that resulted in a 9.0% return. Thereafter, the Partnership and USAA are entitled to distributions pari passu to their profit ownership interests of 90% and 10%, respectively.
As of December 31, 2019, when the Venture was a consolidated VIE, the carrying value of the assets associated with the operations of the Venture was $393.3 million and the carrying value of the related liabilities was $186.5 million. The assets of the Venture were restricted for use only by the Venture and were not available for the Company’s general operations.
Bar Wayō During the first quarter of 2016, the Company formed Pier 17 Restaurant C101, LLC (Bar Wayō) with MomoPier, LLC (Momofuku), an affiliate of the Momofuku restaurant group, to construct and operate a restaurant and bar at Pier 17 in the Seaport District. Under the terms of the agreement, the Company will fund 89.75% of the costs to construct the restaurant, and Momofuku will contribute the remaining 10.25%.
As of December 31, 2020 and 2019, Bar Wayō is classified as a VIE because the equity holders, as a group, lack the characteristics of a controlling financial interest. The carrying value of Bar Wayō as of December 31, 2020, is $7.1 million and is classified as Investments in real estate and other affiliates in the Consolidated Balance Sheets. The Company’s maximum exposure to loss as a result of these investments is limited to the aggregate carrying value of the investments as the Company has not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of this VIE.
After each member receives a 10.0% preferred return on its capital contributions, available cash will be allocated 75.0% to the Company and 25.0% to Momofuku, until each member’s unreturned capital account has been reduced to zero. Any remaining cash will be distributed 50% to each of the members. Given the nature of the Bar Wayō’s capital structure and the provisions for the liquidation of assets, the Company’s share of the Bar Wayō’s income-producing activities is recognized based on the HLBV method.
The Summit During the first quarter of 2015, the Company formed DLV/HHPI Summerlin, LLC (The Summit) with Discovery Land Company (Discovery). The Company contributed land with a carrying value of $13.4 million and transferred SID bonds related to such land with a carrying value of $1.3 million to The Summit at the agreed upon capital contribution value of $125.4 million, or $226,000 per acre. Discovery is required to fund up to a maximum of $30.0 million of cash as their capital contribution, and the Company has no further capital obligations. The gains on the contributed land are recognized in Equity in earnings from real estate and other affiliates as The Summit sells lots.
After the Company receives its capital contribution of $125.4 million and a 5.0% preferred return on such capital contribution, Discovery is entitled to cash distributions until it has received two times its equity contribution. Any further
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
cash distributions are shared equally. Given the nature of The Summit’s capital structure and the provisions for the liquidation of assets, the Company’s share of The Summit’s income-producing activities is recognized based on the HLBV method.
Summarized Financial Information The following tables include relevant summarized financial statement information for all equity method investments as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
The Summit (a)(b)
|
|
110 North Wacker (c)
|
|
Other Investments (d)
|
|
Balance Sheet
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
Total Assets
|
$
|
306,541
|
|
|
$
|
634,274
|
|
|
$
|
247,742
|
|
|
Total Liabilities
|
207,152
|
|
|
415,452
|
|
|
166,418
|
|
|
Total Equity
|
99,389
|
|
|
218,822
|
|
|
81,324
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Total Assets
|
$
|
221,277
|
|
|
$
|
—
|
|
|
$
|
324,926
|
|
|
Total Liabilities
|
136,314
|
|
|
—
|
|
|
208,991
|
|
|
Total Equity
|
84,963
|
|
|
—
|
|
|
115,935
|
|
|
|
|
|
|
|
|
|
Income Statement
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
Revenues
|
$
|
147,680
|
|
|
$
|
5,333
|
|
|
$
|
36,450
|
|
|
Gross Margin
|
27,064
|
|
|
n/a
|
|
n/a
|
|
Operating Income
|
n/a
|
|
(3,148)
|
|
|
17,100
|
|
|
Net income (loss)
|
20,426
|
|
|
(8,236)
|
|
|
11,220
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Revenues
|
$
|
120,337
|
|
|
$
|
—
|
|
|
$
|
42,778
|
|
|
Gross Margin
|
32,205
|
|
|
n/a
|
|
n/a
|
|
Operating Income
|
n/a
|
|
—
|
|
|
16,085
|
|
|
Net income (loss)
|
26,298
|
|
|
—
|
|
|
5,162
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
Revenues
|
$
|
102,559
|
|
|
$
|
—
|
|
|
$
|
36,613
|
|
|
Gross Margin
|
42,338
|
|
|
n/a
|
|
n/a
|
|
Operating Income
|
n/a
|
|
—
|
|
|
14,495
|
|
|
Net income (loss)
|
36,697
|
|
|
—
|
|
|
6,250
|
|
(a)The Summit adopted ASU 2014-09, Revenues from Contracts with Customers (Topic 606) effective in the fourth quarter of 2019 using the modified retrospective transition method. Therefore, for 2019, revenues allocated to each of The Summit’s performance obligations is recognized over time based on an input measure of progress. Prior period amounts have not been adjusted and are recognized on a percentage of completion basis. The Summit’s adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements.
(b)The decrease in gross margin for The Summit from 2018 to 2020 is primarily due to the mix of product sold in each year. Home sales, which has a lower margin than lot sales, comprised a higher percentage of revenues in both 2020 and 2019, when compared to each prior year period. Additionally, gross margin decreased from 2019 to 2020 due to an increase in projected amenity costs.
(c)The income statement amounts for 110 North Wacker only include activity for the three months ended December 31, 2020, to correspond with the period it was accounted for under the equity method. The loss for that period is the result of the asset still being in the lease-up period.
(d)Other Investments includes The Metropolitan Downtown Columbia, Stewart Title, Woodlands Sarofim #1, m.flats / TEN.M, Bar Wayō, Mr. C Seaport, Circle T Ranch and Power, HHMK Development and KR Holdings. As the Company sold its interests Mr. C Seaport and Circle T Ranch and Power in 2020, the income statement amounts only include activity through the date of sale and the balance sheet amounts do not include balances for these assets as of December 31, 2020.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Previously Consolidated VIEs As of December 31, 2018, the Company was the primary beneficiary of Bridges at Mint Hill and the Ke Kilohana, Anaha, Waiea and Ae‘o Associations of Unit Owners (AOUO), none of which were related parties, and consolidated these entities in its financial statements. The Company deconsolidated the Ke Kilohana, Anaha, Waiea and Ae‘o AOUOs during the year ended December 31, 2019, as the Company no longer controlled these entities and as such, the entities no longer met the definition of a VIE. The Company sold Bridges at Mint Hill in December 2019. See Note 3 - Acquisitions and Dispositions for additional information.
|
|
|
|
|
3. Acquisitions and Dispositions
|
Acquisitions There were no acquisitions during 2020. On December 30, 2019, the Company acquired two Class AAA office towers, consisting of 1,401,611 square feet, which it has rebranded as The Woodlands Towers at The Waterway, a 125,801 square feet warehouse space and 9.3 acres of land in The Woodlands, TX for $565.0 million plus Leasing commission of $19.3 million for a total of $584.3 million in an asset acquisition. The transaction also included the acquisition of Century Park, a 63-acre, 1,302,597 square foot campus with 17 office buildings in the West Houston Energy Corridor. The Company has leased 100% of the 805,993 square foot tower and 125,801 square foot warehouse to Occidental Petroleum Corporation, the current tenant, for 13 years and is re-marketing Century Park. During 2020, the Company relocated its Dallas corporate headquarters into part of the 595,618 square foot tower in The Woodlands and will lease the remaining space. The following table summarizes the accounting of the purchase price using the income approach:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Acquisition Date Fair Value
thousands
|
The Woodlands Towers at The Waterway
|
The Woodlands Warehouse
|
Waterway Land
|
Century Park
|
Total
|
|
Building
|
$
|
377,308
|
|
$
|
4,198
|
|
$
|
—
|
|
$
|
24,585
|
|
$
|
406,091
|
|
|
Tenant improvements
|
58,869
|
|
—
|
|
—
|
|
—
|
|
58,869
|
|
|
In-place leases
|
49,511
|
|
1,410
|
|
—
|
|
—
|
|
50,921
|
|
|
Land
|
11,044
|
|
4,480
|
|
11,511
|
|
19,816
|
|
46,851
|
|
|
Leasing commission
|
18,599
|
|
720
|
|
—
|
|
—
|
|
19,319
|
|
|
Site Improvements
|
1,384
|
|
190
|
|
—
|
|
667
|
|
2,241
|
|
|
Legal and marketing costs
|
16
|
|
3
|
|
—
|
|
—
|
|
19
|
|
|
Total (a)
|
$
|
516,731
|
|
$
|
11,001
|
|
$
|
11,511
|
|
$
|
45,068
|
|
$
|
584,311
|
|
(a)Total is inclusive of the asset acquisition price as well as leasing commission paid at closing.
On September 7, 2018, the Company acquired Lakefront North, two Class-A office buildings previously occupied by CB&I and immediately adjacent to the Hughes Landing development. The Company purchased the four- and six-story buildings, totaling approximately 258,000 rentable square feet, as well as 12.9 acres of land for $53.0 million.
On June 8, 2018, the Company acquired the property at 250 Water Street, an approximately one-acre parking lot in the Seaport District. The Company purchased the site for $180.0 million plus closing costs, consisting of an initial payment of $53.1 million and a $129.7 million note payable. At acquisition, the loan had an initial interest-free term of six months with an initial maturity date of December 8, 2018, and three, six-month extension options at a rate of 6.00%. Please refer to Note 7 - Mortgages, Notes and Loans Payable, Net for details of the extinguishment of this debt and the new debt facility subsequently entered into.
Dispositions
On December 18, 2020, the Company completed the sale to its joint venture partner of its 50% equity method investment in Circle T Ranch and Power Center, a joint venture with Westlake Retail Associates for $13.0 million. The carrying value of the asset at the time of sale was approximately $11.9 million and the Company recognized a gain on sale of $1.1 million which is included in Equity in earnings (losses) from real estate and other affiliates on the Consolidated Statements of Operations.
On November 20, 2020, the Company completed the sale of its Elk Grove asset, a 64-acre land parcel in the City of Elk
Grove, California, for $24.6 million. The carrying value of the asset at the time of sale was approximately $10.8 million and the Company recognized a gain on sale of $13.7 million which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations.
On July 16, 2020, the Company completed the sale to its joint venture partner of its 35% equity investment in Mr. C Seaport, a 66-room boutique hotel located at 33 Peck Slip, New York, in close proximity to the Seaport District, for
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
On June 29, 2020, the Company entered into an agreement terminating a participation right contained in the contract for the sale of West Windsor that occurred in October 2019, as discussed below. As consideration, the Company received an $8.0 million termination payment in 2020, which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations for the year ended December 31, 2020.
On March 13, 2020, the Company closed on the sale of its property at 100 Fellowship Drive, a 13.5-acre land parcel and 203,257-square-foot build-to-suit medical building with approximately 550 surface parking spaces in The Woodlands, Texas, for a total sales price of $115.0 million. The sale of 100 Fellowship Drive resulted in an additional gain of $38.3 million in the first quarter of 2020, which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations. This gain was in addition to $13.5 million of Selling profit from the sales-type lease recognized on the Consolidated Statements of Operations as of December 31,2019. The Company had previously entered into a lease agreement related to this property in November of 2019, and at lease commencement, the Company derecognized $63.7 million from Developments and recorded an initial net investment in lease receivable of $75.9 million on the Consolidated Balance Sheets
The carrying value of the net investment in lease receivable was approximately $76.1 million at the time of sale. Gain on sale is calculated as the difference between the purchase price of $115.0 million, and the asset’s carrying value, less related transaction costs of approximately $0.2 million. Contemporaneous with the sale, the Company credited to the buyer approximately $0.6 million for operating account funds and the buyer’s assumption of the related liabilities. After the sale, the Company had no continuing involvement in this lease. After repayment of debt associated with the property, the sale generated approximately $64.2 million in net proceeds, which are presented as cash inflows from operating activities in the Consolidated Statements of Cash Flows for the year ended December 31, 2020.
On December 20, 2019, the Company sold its 90.5% share in Bridges at Mint Hill, a joint venture to develop a shopping center southeast of Charlotte, North Carolina, for $9.5 million. Prior to the sale, the Company accounted for its investment in Bridges at Mint Hill, which was in the Strategic Developments segment, as a consolidated joint venture. The carrying value of assets acquired by the purchaser and deconsolidated from the Company’s financial statements total $22.0 million; liabilities assumed and deconsolidated were not meaningful; and noncontrolling interest deconsolidated from the Company’s financial statements totaled $3.8 million. The Company recognized a pre-tax loss of $8.8 million which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations.
On October 29, 2019, the Company closed on the sale of West Windsor, a 658-acre parcel of land located in West Windsor, New Jersey, for $40.0 million. The carrying value of assets acquired by the purchaser total $27.5 million; no liabilities were assumed. As a result of the sale, the Company recorded a $12.0 million pre-tax gain which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations.
On September 16, 2019, the Company closed on the sale of Cottonwood Mall, a 196,975 square foot building and 54-acre land parcel in Holladay, Utah. The Company sold the asset for a total sales price of $46.0 million, resulting in a pre-tax gain of $24.1 million which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations. The carrying value of assets acquired by the purchaser total $21.5 million; no liabilities were assumed. As consideration, the Company received a $10.0 million down payment from the purchaser and recorded a $36.0 million note receivable for the remainder at time of sale. The receivable was subsequently collected during the year ended December 31, 2020.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
The Company reviews its long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment or disposal of long‑lived assets in accordance with ASC 360 requires that if impairment indicators exist and expected undiscounted cash flows generated by the asset over an anticipated holding period are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of the asset to its fair value. The impairment analysis does not consider the timing of future cash flows and whether the asset is expected to earn an above- or below-market rate of return.
During the first quarter of 2020, the Company recorded a $48.7 million impairment charge for Outlet Collection at Riverwalk, a 273,270-square-foot urban upscale outlet center located along the Mississippi River in downtown New Orleans, LA. The Company recognized the impairment due to decreases in estimated future cash flows as a result of the impact of a shorter than anticipated holding term due to management’s plans to divest the non-core operating asset, decreased demand and reduced interest in brick and mortar retail due to the impact of COVID-19, as well as an increase in the capitalization rate used to evaluate future cash flows due to the impact of COVID-19. The $46.8 million net carrying value of Outlet Collection at Riverwalk, after the impairment, represents the estimated fair market value at March 31, 2020, at the time of the impairment assessment. The Company used a discounted cash flow analysis using a capitalization rate of 10% to determine fair value. There can be no assurance that the Company will ultimately recover this amount through a sale.
Each investment in real estate and other affiliates discussed in Note 2 - Real Estate and Other Affiliates is evaluated periodically for recoverability and valuation declines that are other-than-temporary. If the decrease in value of an investment in a real estate and other affiliate is deemed to be other-than-temporary, the investment in such real estate and other affiliates is reduced to its estimated fair value. During the three months ended June 30, 2020, the Company recorded a $6.0 million impairment of its equity investment in Mr. C Seaport, a 66-room boutique hotel located at 33 Peck Slip in close proximity to the Seaport District. The Company recognized the impairment due to a change in the anticipated holding period as the Company entered into a plan to sell its 35% equity investment in Mr. C Seaport to its venture partners for $0.8 million. In July 2020, the Company completed the sale of its interest in Mr. C Seaport. See Note 3 - Acquisitions and Dispositions for additional details regarding the sale. The impairment loss is presented in Equity in earnings (losses) from real estate and other affiliates. No impairment charges were recorded for the Investments in real estate and other affiliates during the year ended December 31, 2019.
The Company periodically evaluates strategic alternatives with respect to each property and may revise the strategy from time to time, including the intent to hold the asset on a long-term basis or the timing of potential asset dispositions. For example, the Company may decide to sell property that is held for use, and the sale price may be less than the carrying amount. As a result, changes in strategy could result in impairment charges in future periods.
In addition to the impairments discussed above, during 2020, the Company reduced the estimated net sales price of certain condominium units, including the remaining penthouse inventory, to better align the expected price with recent final sales prices, resulting in a loss of $7.6 million included in Condominium rights and unit cost of sales for the year ended December 31, 2020.
The following table summarizes the pre-tax impacts of the items mentioned above to the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
thousands
|
Statements of Operations Line Item
|
|
Operating assets:
|
|
|
|
Outlet Collection at Riverwalk
|
Provision for impairment
|
$
|
48,738
|
|
|
Equity Investments:
|
|
|
|
Mr. C Seaport
|
Equity in earnings (losses) from real estate and other affiliates
|
$
|
6,000
|
|
|
Other Assets:
|
|
|
|
Condominium Inventory
|
Condominium rights and unit sales
|
$
|
7,644
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
|
|
|
|
|
5. Other Assets and Liabilities
|
Prepaid Expenses and Other Assets The following table summarizes the significant components of Prepaid expenses and other assets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2020
|
|
2019
|
|
$ Change
|
|
Straight-line rent
|
$
|
59,289
|
|
|
$
|
56,223
|
|
|
$
|
3,066
|
|
|
Condominium inventory
|
55,883
|
|
|
56,421
|
|
|
(538)
|
|
|
Special Improvement District receivable (a)
|
54,770
|
|
|
42,996
|
|
|
11,774
|
|
|
In-place leases (b)
|
49,161
|
|
|
54,471
|
|
|
(5,310)
|
|
|
Security, escrow and other deposits (c)
|
48,576
|
|
|
17,464
|
|
|
31,112
|
|
|
Intangibles
|
32,595
|
|
|
33,275
|
|
|
(680)
|
|
|
Prepaid expenses (d)
|
17,455
|
|
|
13,263
|
|
|
4,192
|
|
|
Other
|
11,781
|
|
|
9,252
|
|
|
2,529
|
|
|
Tenant incentives and other receivables
|
9,612
|
|
|
7,556
|
|
|
2,056
|
|
|
Food and beverage and lifestyle inventory
|
1,060
|
|
|
4,310
|
|
|
(3,250)
|
|
|
TIF receivable
|
893
|
|
|
3,931
|
|
|
(3,038)
|
|
|
Above-market tenant leases
|
315
|
|
|
556
|
|
|
(241)
|
|
|
Federal income tax receivable
|
—
|
|
|
655
|
|
|
(655)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets, net
|
$
|
341,390
|
|
|
$
|
300,373
|
|
|
$
|
41,017
|
|
(a)Proceeds from SID bonds are held in escrow by a third-party and are used to reimburse the Company for a portion of the development costs. The increase in Special Improvement District receivable is primarily attributable to a third quarter 2020 SID Bond issuance in Summerlin.
(b)The decrease in In-place leases is primarily attributable to routine amortization.
(c)The increase in Security, escrow and other deposits is primarily attributable to rate-lock and security deposits for The Woodlands Towers at the Waterway.
(d)The increase in Prepaid expenses is mainly due to the timing of insurance and property tax prepayments, as well as assets being place into service.
Accounts Payable and Accrued Expenses The following table summarizes the significant components of Accounts payable and accrued expenses as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2020
|
|
2019
|
|
$ Change
|
|
Condominium deposit liabilities (a)
|
$
|
309,884
|
|
|
$
|
194,794
|
|
|
$
|
115,090
|
|
|
Construction payables (b)
|
253,626
|
|
|
261,523
|
|
|
(7,897)
|
|
|
Deferred income
|
66,656
|
|
|
63,483
|
|
|
3,173
|
|
|
Interest rate swap liabilities (c)
|
51,920
|
|
|
40,135
|
|
|
11,785
|
|
|
Accrued real estate taxes (d)
|
38,863
|
|
|
27,559
|
|
|
11,304
|
|
|
Accrued interest (e)
|
37,007
|
|
|
23,838
|
|
|
13,169
|
|
|
Accounts payable and accrued expenses
|
28,589
|
|
|
37,480
|
|
|
(8,891)
|
|
|
Accrued payroll and other employee liabilities (f)
|
27,419
|
|
|
44,082
|
|
|
(16,663)
|
|
|
Tenant and other deposits
|
25,801
|
|
|
24,080
|
|
|
1,721
|
|
|
Other
|
12,493
|
|
|
16,173
|
|
|
(3,680)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
852,258
|
|
|
$
|
733,147
|
|
|
$
|
119,111
|
|
(a)The increase in Condominium deposit liabilities is primarily due to the increase in contracted condominium unit sales at Victoria Place, Kō'ula and ‘A‘ali‘i.
(b)The decrease in Construction payables is primarily attributable to a decrease of $39.5 million related to the deconsolidation of 110 North Wacker in the third quarter of 2020 (see Note 2 - Real Estate and Other Affiliates for details) as well as a reduction in construction spend of $63.3 million primarily due to placing a number of assets into service in 2020 and several projects approaching completion. These decreases were partially offset by an increase of $97.9 million related to a charge for repairs and remediation on certain alleged construction defects at the Waiea condominium tower in the first quarter of 2020 (see Note 10 - Commitments and Contingencies for details).
(c)The increase in Interest rate swap liabilities is due to a decrease of the one-month London Interbank Offered Rate (LIBOR) forward curve for the period presented, partially offset by a decrease of $15.2 million related to the deconsolidation of 110 North Wacker.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
(d)The increase in Accrued real estate taxes is primarily related to the acquisition of The Woodlands Towers at the Waterway at the end of 2019 and new assets placed in service in 2020.
(e)The increase in Accrued interest was primarily related to new loan agreements entered into in 2020.
(f)The decrease in Accrued payroll and other employee liabilities is primarily due to relocation, retention and severance expenses related to the corporate restructuring that were accrued in 2019 and paid in 2020.
The following table summarizes the Company’s intangible assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
As of December 31, 2019
|
|
|
Gross Asset (Liability)
|
|
Accumulated (Amortization)/ Accretion
|
|
Net Carrying Amount
|
|
Gross Asset (Liability)
|
|
Accumulated (Amortization)/ Accretion
|
|
Net Carrying Amount
|
|
|
|
|
|
|
|
|
thousands
|
|
|
|
|
|
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangibles
|
$
|
25,028
|
|
|
$
|
—
|
|
|
$
|
25,028
|
|
|
$
|
25,028
|
|
|
$
|
—
|
|
|
$
|
25,028
|
|
|
Goodwill
|
1,307
|
|
|
—
|
|
|
1,307
|
|
|
1,307
|
|
|
—
|
|
|
1,307
|
|
|
Other intangibles
|
9,251
|
|
|
(2,991)
|
|
|
6,260
|
|
|
10,278
|
|
|
(3,338)
|
|
|
6,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
In-place value
|
63,584
|
|
|
(14,423)
|
|
|
49,161
|
|
|
66,606
|
|
|
(12,135)
|
|
|
54,471
|
|
|
Above-market
|
1,985
|
|
|
(1,670)
|
|
|
315
|
|
|
2,247
|
|
|
(1,691)
|
|
|
556
|
|
|
Below-market
|
(4,839)
|
|
|
3,198
|
|
|
(1,641)
|
|
|
(7,008)
|
|
|
4,912
|
|
|
(2,096)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite lived intangibles
|
|
|
|
|
$
|
26,335
|
|
|
|
|
|
|
$
|
26,335
|
|
|
Total amortizing intangibles
|
|
|
|
|
$
|
54,095
|
|
|
|
|
|
|
$
|
59,871
|
|
The tenant in-place, above-market and below-market lease intangible assets and the below-market ground lease intangible assets resulted from real estate acquisitions. The in‑place value and above-market value of tenant leases are included in Prepaid expenses and other assets, net and are amortized over periods that approximate the related lease terms. The below‑market tenant leases are included in Accounts payable and accrued expenses and are amortized over the remaining non‑cancelable terms of the respective leases. See Note 5 - Other Assets and Liabilities for additional information regarding Prepaid expenses and other assets, net and Accounts payable and accrued expenses.
Net amortization and accretion expense for these intangible assets and liabilities was $5.8 million in 2020, $2.1 million in 2019 and $6.0 million in 2018.
Future net amortization and accretion expense is estimated as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Net amortization and accretion expense
|
$
|
5,287
|
|
|
$
|
4,901
|
|
|
$
|
4,481
|
|
|
$
|
4,485
|
|
|
$
|
34,941
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
|
|
|
|
|
7. Mortgages, Notes and Loans Payable, Net
|
Financing Activity The Company’s borrowing activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Initial / Extended Maturity (a)
|
Interest Rate
|
Carrying Value
|
|
Balance at December 31, 2019
|
|
|
|
$
|
4,096,470
|
|
|
Issuances:
|
|
|
|
|
|
Senior Notes due 2028
|
August 2028
|
5.38%
|
(c)
|
750,000
|
|
|
Special Improvement District bonds
|
October 2049
|
6.00%
|
|
22,750
|
|
|
Borrowings:
|
|
|
|
|
|
Revolver Loan
|
September 2023
|
1.79%
|
(b)
|
67,500
|
|
|
|
|
|
|
|
|
9950 Woodloch Forest Drive
|
March 2025
|
2.09%
|
(b),(d)
|
63,500
|
|
|
A’eo Retail
|
October 2025
|
2.90%
|
(b)
|
30,640
|
|
|
Ke Kilohana Retail
|
October 2025
|
2.90%
|
(b)
|
9,360
|
|
|
Draws on existing mortgages, notes and loans payable
|
|
|
|
556,166
|
|
|
Repayments:
|
|
|
|
|
|
Revolver Loan
|
September 2023
|
1.79%
|
(b),(c)
|
(67,500)
|
|
|
The Woodlands Towers at the Waterway
|
June 2020/June 2021
|
3.68%
|
(b),(d)
|
(63,500)
|
|
|
Three Hughes Landing
|
September 2020
|
4.33%
|
(b),(c)
|
(60,766)
|
|
|
Two Merriweather
|
October 2020/October 2021
|
4.23%
|
(b),(c)
|
(30,557)
|
|
|
100 Fellowship Drive
|
May 2022
|
3.23%
|
(b)
|
(49,978)
|
|
|
HHC 242 Self-Storage
|
December 2021/December 2022
|
4.33%
|
(b),(c)
|
(5,499)
|
|
|
HHC 2978 Self-Storage
|
December 2021/December 2022
|
4.33%
|
(b),(c)
|
(5,395)
|
|
|
Downtown Summerlin
|
June 2023
|
3.88%
|
(b),(c),(e)
|
(255,297)
|
|
|
Lakefront North
|
December 2022/December 2023
|
3.73%
|
(b),(c)
|
(40,062)
|
|
|
Seaport District
|
June 2024
|
6.10%
|
(c)
|
(250,000)
|
|
|
Bridgeland Credit Facility
|
October 2022/October 2024
|
4.23%
|
(b),(c)
|
(50,000)
|
|
|
The Woodlands Master Credit Facility
|
October 2022/October 2024
|
4.23%
|
(b),(c)
|
(50,000)
|
|
|
Two Summerlin
|
October 2022/October 2025
|
4.25%
|
(b),(c)
|
(32,803)
|
|
|
Repayments on existing mortgages, notes and loans payable
|
|
|
|
(20,055)
|
|
|
Other:
|
|
|
|
|
|
Special Improvement District bond assumptions
|
December 2020/October 2049
|
5.00% - 6.00%
|
|
(10,122)
|
|
|
Deconsolidation of 110 North Wacker
|
April 2022/April 2024
|
4.73%
|
(b),(f)
|
(326,835)
|
|
|
Deferred financing costs, net
|
|
|
|
9,352
|
|
|
Balance at December 31, 2020
|
|
|
|
$
|
4,287,369
|
|
(a)Maturity dates presented represent initial maturity dates and the extended or final maturity dates as contractually stated. HHC has the option to exercise extension periods at the initial maturity date, subject to extension terms that are based on current property performance projections. Extension terms may include minimum debt service coverage, minimum occupancy levels or condominium sales levels, as applicable and other performance criteria. In certain cases, due to property performance not meeting covenants, HHC may have to pay down a portion of the loan to obtain the extension.
(b)The interest rate presented is based on the one-month LIBOR, three-month LIBOR or Prime rate, as applicable, which was 0.14%, 0.24% and 3.25%, respectively, at December 31, 2020. Interest rates associated with loans which have been paid off reflect the interest rate at December 31, 2019.
(c)On August 18, 2020, the Company issued $750 million in senior notes due August 2028 (the Senior Notes due 2028), which will pay interest semi-annually at a rate of 5.375% per annum payable on August 1st and February 1st of each year, beginning on February 1, 2021. The Senior Notes due 2028 will be unsecured senior obligations of the Company and will be guaranteed by certain subsidiaries of the Company. The Company used the net proceeds from this issuance, together with cash on hand, for the repayment of existing indebtedness of approximately $807.9 million and recorded a loss on extinguishment of debt of approximately $13.2 million.
(d)On March 26, 2020, the Company closed on a partial refinance of the bridge loan for The Woodlands Towers at the Waterway and The Woodlands Warehouse for $137.0 million. In conjunction with the partial refinance, the original loan was paid down by $63.5 million and 9950 Woodloch Forest Drive tower was split into a new loan.
(e)On June 22, 2020, the Company modified the existing Downtown Summerlin loan, extending the financing by three years to June 22, 2023 at a rate of LIBOR plus 2.15% in exchange for a pay-down of $33.8 million to a total commitment of $221.5 million.
(f)As of September 30, 2020, the Company derecognized a $326.8 million balance on 110 North Wacker’s variable-rate debt that was subject to interest rate collars. Refer to Note 2 - Real Estate and Other Affiliates for additional information.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Additional Financing Activity in 2020 On January 7, 2020, the Company closed on a $43.4 million construction loan for the development of Creekside Park The Grove. The loan bears interest at LIBOR plus 1.75% with an initial maturity date of January 7, 2024, and a one-year extension option.
On March 5, 2020, the Company modified and extended the $61.2 million loan for Three Hughes Landing. The new $61.0 million loan bears interest at one-month LIBOR plus 2.60%, with a maturity of September 5, 2020, at which point the Company has the option to extend the Three Hughes Landing loan for an additional 12 months.
On March 27, 2020, the Company closed on a $356.8 million construction loan for the development of Kō'ula. The loan bears interest at LIBOR plus 3.00% with an initial maturity date of March 27, 2023, and a one-year extension option.
On May 20, 2020, the Company extended the remaining $280.3 million of the bridge loan for The Woodlands Towers at the Waterway and The Woodlands Warehouse for six months at LIBOR plus 2.35%, with an option for an additional six-month extension at LIBOR plus 2.90%, extending the final maturity to June 30, 2021.
Financing Activity in 2021 On February 2, 2021, the Company issued $650 million in 4.125% senior notes due 2029 (the 2029 Notes) and $650 million in 4.375% senior notes due 2031 (the 2031 notes, and together with the 2029 Notes, the Notes). The Notes will pay interest semi-annually on February 1 and August 1 of each year, beginning on August 1, 2021. The Notes will be unsecured senior obligations of the Company and will be guaranteed by certain subsidiaries of the Company.
The Company will use the net proceeds from the offering, as well as available cash on hand, to repurchase all of its $1 billion 5.375% senior notes due 2025, plus any accrued and unpaid interest, pursuant to a tender offer announced in January 2021; repay all of the approximately $280 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021; and pay all premiums, fees and expenses related to the foregoing. On February 2, 2021, the Company repurchased $512.5 million of its $1 billion 5.375% senior notes and intends to repurchase the remainder of these notes on March 15, 2021. In February 2021, the Company repaid all of the approximately $280 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021.
Mortgages, Notes and Loans Payable Mortgages, notes and loans payable, net are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
thousands
|
|
2020
|
|
2019
|
|
Fixed-rate debt:
|
|
|
|
|
|
Unsecured 5.375% Senior Notes due 2025
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
Unsecured 5.375% Senior Notes due 2028
|
|
750,000
|
|
|
—
|
|
|
Secured mortgages, notes and loans payable
|
|
590,517
|
|
|
884,935
|
|
|
Special Improvement District bonds
|
|
34,305
|
|
|
23,725
|
|
|
Variable-rate debt:
|
|
|
|
|
|
Mortgages, notes and loans payable (a)
|
|
1,945,344
|
|
|
2,229,958
|
|
|
Unamortized bond issuance costs
|
|
(4,355)
|
|
|
(5,249)
|
|
|
Unamortized deferred financing costs (b)
|
|
(28,442)
|
|
|
(36,899)
|
|
|
Total mortgages, notes and loans payable, net
|
|
$
|
4,287,369
|
|
|
$
|
4,096,470
|
|
(a)As of December 31, 2020, $649.9 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt. As of December 31, 2019, $630.1 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt and an additional $184.3 million of variable-rate debt was subject to interest rate collars. As of both December 31, 2020, and December 31, 2019, $75.0 million of variable-rate debt was capped at a maximum interest rate. See Note 9 - Derivative Instruments and Hedging Activities for additional information.
(b)Deferred financing fees are amortized to interest expense over the terms of the respective financing agreements using the effective interest method (or other methods which approximate the effective interest method).
Senior Secured Credit Facility On September 18, 2018, certain wholly-owned subsidiaries of the Company entered into a $700.0 million loan agreement, which provides for a $615.0 million term loan (the Term Loan) and an $85.0 million revolver loan (the Revolver Loan and together with the Term Loan, the Senior Secured Credit Facility or the Loans). The Loans bear interest at one-month LIBOR plus 1.65% and mature September 18, 2023. The Borrowers have a one-time right to request an increase of $50.0 million in the aggregate amount of the Revolver Loan commitment. Concurrent with the funding of the Term Loan on September 21, 2018, the Company entered into a swap agreement to fix 100% of the outstanding principal of the Term Loan to an overall rate equal to 4.61%. As of December 31, 2020, the Company had no outstanding borrowings under the Revolver Loan.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
The Loans are secured by a first priority security interest in certain of the Company’s properties. In connection with the Loans, the Company provided the administrative agent, on behalf of the lenders, a non-recourse carve-out guarantee and a hazardous materials indemnity agreement.
The Woodlands and Bridgeland Credit Facility On October 17, 2019, the Company closed on a $250.0 million credit facility secured by land and certain other collateral in The Woodlands and Bridgeland MPCs. The loan provides for a $100.0 million term loan and a $150.0 million revolver loan. The loan bears interest at one-month LIBOR plus 2.50% with an initial maturity of October 17, 2022 and two one-year extension options. As of December 31, 2020, the Company had $50.0 million of outstanding borrowings under the revolver portion of the loan.
Special Improvement District Bonds The Summerlin MPC uses SID bonds to finance certain common infrastructure improvements. These bonds are issued by the municipalities and are secured by the assessments on the land. The majority of proceeds from each bond issued is held in a construction escrow and disbursed to the Company as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the SID bonds have been classified as debt, and the Summerlin MPC pays the debt service on the bonds semi‑annually. As Summerlin sells land, the buyers assume a proportionate share of the bond obligation at closing, and the residential sales contracts provide for the reimbursement of the principal amounts that the Company previously paid with respect to such proportionate share of the bond. For the year ended December 31, 2020, one new SID bond was issued and obligations of $10.1 million were assumed by buyers.
Debt Compliance
Quarter-ended March 31, 2020:
–There were no instances of non-compliance.
Quarter-ended June 30, 2020:
–During the second quarter of 2020, the COVID-19 pandemic necessitated temporary closure of some of the Company’s Operating Assets, primarily retail and hospitality properties. As a result of the decline in interim operating results for certain of these properties, as of June 30, 2020, the Company did not meet the debt service coverage ratio required to maintain the outstanding Senior Secured Credit Facility Revolver Loan balance of $61.3 million. The Company cured this failure with the repayment of the Revolver Loan in August 2020.
–As of June 30, 2020, the Company did not meet the debt service coverage ratios for two loan agreements related to the Self-Storage Operating Assets. Both loans, which totaled $10.9 million, were fully repaid in August 2020.
–As of June 30, 2020, the Company did not meet a semi-annual operating covenant within the $62.5 million loan for The Woodlands Resort and Conference Center and subsequently completed a modification of the loan terms with the lender to receive a waiver of the $24.1 million repayment to cure. As part of the modification, the loan balance became fully recourse to The Woodlands Land Development Company.
Quarter-ended September 30, 2020:
–As of September 30, 2020, the Company did not meet the debt service coverage ratio for the $615.0 million Term Loan portion of the Senior Secured Credit Facility and as a result, the Company subsequently completed a modification of the loan terms which resolved the failure.
Quarter-ended December 31, 2020:
–As of December 31, 2020, the Company did not meet the debt service coverage ratio for the $615.0 million Term Loan portion of the Senior Secured Credit Facility and as a result, the excess net cash flow after debt service from the underlying properties became restricted. The restricted cash cannot be used for general corporate purposes but can continue to be used to fund operations of the underlying assets.
Other than disclosed above, as of December 31, 2020, the Company was in compliance with all financial covenants included in the agreements governing its indebtedness.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Mortgages, Notes, and Loans Payable Balances by Property The following table presents the Company’s mortgages, notes and loans payable by property, presented within each segment in order of extended maturity date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
December 31,
|
|
thousands
|
Initial / Extended Maturity (a)
|
Interest Rate
|
|
2020
|
2019
|
|
Operating Assets
|
|
|
|
|
|
|
|
Three Hughes Landing
|
March 2020
|
4.33
|
%
|
(b)
|
|
$
|
—
|
|
$
|
59,822
|
|
|
The Woodlands Towers at the Waterway
|
June 2020
|
3.68
|
%
|
(b),(c)
|
|
—
|
|
336,570
|
|
|
1201 Lake Robbins
|
June 2021
|
2.49
|
%
|
(b)
|
|
273,070
|
|
—
|
|
|
The Woodlands Warehouse
|
June 2021
|
2.49
|
%
|
(b),(c)
|
|
7,230
|
|
7,230
|
|
|
Downtown Summerlin
|
September 2020 / September 2021
|
3.88
|
%
|
(b)
|
|
—
|
|
259,179
|
|
|
Two Merriweather
|
October 2020 / October 2021
|
4.23
|
%
|
(b)
|
|
—
|
|
28,216
|
|
|
Outlet Collection at Riverwalk
|
October 2021
|
3.50
|
%
|
(b)
|
|
28,679
|
|
30,615
|
|
|
100 Fellowship Drive
|
May 2022
|
3.23
|
%
|
(b)
|
|
—
|
|
47,916
|
|
|
20/25 Waterway Avenue
|
May 2022
|
4.79
|
%
|
|
|
12,855
|
|
13,131
|
|
|
Millennium Waterway Apartments
|
June 2022
|
3.75
|
%
|
|
|
51,946
|
|
53,032
|
|
|
HHC 242 Self-Storage
|
December 2021 / December 2022
|
4.33
|
%
|
(b)
|
|
—
|
|
5,499
|
|
|
HHC 2978 Self-Storage
|
December 2021 / December 2022
|
4.33
|
%
|
(b)
|
|
—
|
|
5,395
|
|
|
Lake Woodlands Crossing Retail
|
January 2023
|
1.94
|
%
|
(b)
|
|
12,329
|
|
12,163
|
|
|
Lakeside Row
|
July 2022 / July 2023
|
2.39
|
%
|
(b)
|
|
31,566
|
|
23,958
|
|
|
Senior Secured Credit Facility
|
September 2023
|
4.61
|
%
|
(c)
|
|
615,000
|
|
615,000
|
|
|
Two Lakes Edge
|
October 2022 / October 2023
|
2.40
|
%
|
(b)
|
|
66,198
|
|
38,214
|
|
|
The Woodlands Resort & Conference Center
|
December 2021 / December 2023
|
3.00
|
%
|
(b)
|
|
62,500
|
|
62,500
|
|
|
Lakefront North
|
December 2022 / December 2023
|
3.73
|
%
|
(b)
|
|
—
|
|
32,731
|
|
|
9303 New Trails
|
December 2023
|
4.88
|
%
|
|
|
10,763
|
|
11,196
|
|
|
4 Waterway Square
|
December 2023
|
4.88
|
%
|
|
|
31,519
|
|
32,789
|
|
|
Creekside Park West
|
March 2023 / March 2024
|
2.39
|
%
|
(b)
|
|
14,719
|
|
8,505
|
|
|
The Lane at Waterway
|
August 2023 / August 2024
|
1.89
|
%
|
(b),(d)
|
|
22,167
|
|
1
|
|
|
6100 Merriweather
|
September 2022 / September 2024
|
2.89
|
%
|
(b)
|
|
62,040
|
|
36,418
|
|
|
Juniper Apartments
|
September 2022 / September 2024
|
2.89
|
%
|
(b)
|
|
65,808
|
|
34,610
|
|
|
Tanager Apartments
|
October 2021 / October 2024
|
2.50
|
%
|
(b)
|
|
39,744
|
|
29,165
|
|
|
9950 Woodloch Forest Drive
|
March 2025
|
2.09
|
%
|
(b)
|
|
71,106
|
|
—
|
|
|
Two Summerlin
|
October 2022 / October 2025
|
4.25
|
%
|
|
|
—
|
|
33,183
|
|
|
Ae‘o Retail
|
October 2025
|
2.90
|
%
|
(b)
|
|
30,532
|
|
—
|
|
|
Ke Kilohana Retail
|
October 2025
|
2.90
|
%
|
(b)
|
|
9,327
|
|
—
|
|
|
3831 Technology Forest Drive
|
March 2026
|
4.50
|
%
|
|
|
20,686
|
|
21,137
|
|
|
Kewalo Basin Harbor
|
September 2027
|
2.89
|
%
|
(b)
|
|
11,562
|
|
11,110
|
|
|
Millennium Six Pines Apartments
|
August 2028
|
3.39
|
%
|
|
|
42,500
|
|
42,500
|
|
|
3 Waterway Square
|
August 2028
|
3.94
|
%
|
|
|
46,224
|
|
47,647
|
|
|
One Lakes Edge
|
March 2029
|
4.50
|
%
|
|
|
69,440
|
|
69,440
|
|
|
Aristocrat
|
September 2029
|
3.67
|
%
|
|
|
37,093
|
|
38,055
|
|
|
Creekside Park Apartments
|
October 2029
|
3.52
|
%
|
|
|
37,730
|
|
37,730
|
|
|
One Hughes Landing
|
December 2029
|
4.30
|
%
|
|
|
50,815
|
|
52,000
|
|
|
Two Hughes Landing
|
December 2030
|
4.20
|
%
|
|
|
48,000
|
|
48,000
|
|
|
Other SID Bonds
|
December 2030
|
6.00% - 6.05%
|
(e)
|
|
2,785
|
|
3,441
|
|
|
8770 New Trails
|
June 2021 / January 2032
|
4.89
|
%
|
(f)
|
|
35,417
|
|
15,124
|
|
|
Constellation Apartments
|
January 2033
|
4.07
|
%
|
|
|
24,200
|
|
24,200
|
|
|
Hughes Landing Retail
|
December 2036
|
3.50
|
%
|
|
|
34,328
|
|
35,000
|
|
|
Columbia Regional Building
|
February 2037
|
4.48
|
%
|
|
|
24,244
|
|
24,664
|
|
|
Las Vegas Ballpark
|
December 2039
|
4.92
|
%
|
|
|
48,173
|
|
51,231
|
|
|
Operating Assets Total
|
|
|
|
|
2,052,295
|
|
2,338,317
|
|
|
Master Planned Communities
|
|
|
|
|
|
|
|
The Woodlands Master Credit Facility
|
October 2022 / October 2024
|
2.64
|
%
|
(b),(g)
|
|
75,000
|
|
107,500
|
|
|
Bridgeland Credit Facility
|
October 2022 / October 2024
|
2.64
|
%
|
(b),(g)
|
|
75,000
|
|
107,500
|
|
|
Summerlin South SID Bonds
|
June 2025 - October 2049
|
5.00% - 6.05%
|
(h)
|
|
31,520
|
|
20,284
|
|
|
Master Planned Communities Total
|
|
|
|
|
181,520
|
|
235,284
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
December 31,
|
|
thousands
|
Initial / Extended Maturity (a)
|
Interest Rate
|
|
2020
|
2019
|
|
|
|
|
|
|
|
|
|
Seaport District
|
|
|
|
|
|
|
|
250 Water Street
|
November 2022 / November 2023
|
3.64
|
%
|
(b)
|
|
100,000
|
|
100,000
|
|
|
Seaport District
|
June 2024
|
6.10
|
%
|
|
|
—
|
|
250,000
|
|
|
Seaport District Total
|
|
|
|
|
100,000
|
|
350,000
|
|
|
Strategic Developments
|
|
|
|
|
|
|
|
‘A‘ali‘i
|
June 2022 / June 2023
|
4.10
|
%
|
(b)
|
|
154,601
|
|
30,717
|
|
|
Kō‘ula
|
March 2023 / March 2024
|
3.14
|
%
|
(b)
|
|
65,282
|
|
—
|
|
|
110 North Wacker
|
April 2022 / April 2024
|
4.73
|
%
|
(b),(i)
|
|
—
|
|
184,300
|
|
|
Creekside Park The Grove
|
January 2024 / January 2025
|
1.89
|
%
|
(b)
|
|
16,468
|
|
—
|
|
|
Strategic Developments Total
|
|
|
|
|
236,351
|
|
215,017
|
|
|
|
|
|
|
|
|
|
|
Senior Notes due 2025
|
March 2025
|
5.38
|
%
|
|
|
1,000,000
|
|
1,000,000
|
|
|
Senior Notes due 2028
|
August 2028
|
5.38
|
%
|
|
|
750,000
|
|
—
|
|
|
Unamortized bond issuance costs
|
|
|
|
|
(4,355)
|
|
(5,249)
|
|
|
Unamortized deferred financing costs
|
|
|
|
|
(28,442)
|
|
(36,899)
|
|
|
Total mortgages, notes and loans payable
|
|
|
|
$
|
4,287,369
|
|
$
|
4,096,470
|
|
(a)Maturity dates presented represent initial maturity dates and the extended or final maturity dates as contractually stated. HHC has the option to exercise extension periods at the initial maturity date, subject to extension terms that are based on current property performance projections. Extension terms may include minimum debt service coverage, minimum occupancy levels or condominium sales levels, as applicable and other performance criteria. In certain cases, due to property performance not meeting covenants, HHC may have to pay down a portion of the loan to obtain the extension.
(b)The interest rate presented is based on the one-month LIBOR, three-month LIBOR or Prime rate, as applicable, which was 0.14%, 0.24% and 3.25%, respectively, at December 31, 2020. Interest rates associated with loans which have been paid off reflect the prior year interest rate.
(c)100.0% of the outstanding principal of the $615.0 million Term Loan is swapped to a fixed rate equal to 4.61%.
(d)Millennium Phase III Apartments was renamed to The Lane at Waterway.
(e)Includes SID bonds related to Downtown Summerlin, Hockey Ground Lease, Two Summerlin, Tanager Apartments and Las Vegas Ballpark.
(f)Concurrent with the closing of the $35.5 million construction loan for 8770 New Trails in 2019, the Company entered into an interest rate swap which is designated as a cash flow hedge. The Loan bears interest at one-month LIBOR plus 2.45% but it is currently swapped to a fixed rate equal to 4.89%.
(g)The Woodlands and Bridgeland Credit Facility is secured by land and certain other collateral in The Woodlands and Bridgeland MPCs with a combined maximum facility amount of $250 million.
(h)Includes SID bonds with various maturity dates ranging from June 2025 to October 2049 and interest rates ranging from 5.00% to 6.05%.
(i)As of September 30, 2020, the Company derecognized a $326.8 million balance on 110 North Wacker’s variable-rate debt that was subject to interest rate collars. Refer to Note 2 - Real Estate and Other Affiliates for additional information.
The weighted-average interest rate on the Company’s mortgages, notes and loans payable, excluding interest rate hedges, was 4.34% as of December 31, 2020, and 4.75% as of December 31, 2019.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
HHC’s mortgages, notes and loans payable are secured by the properties listed in the table above and are non-recourse except for the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Recourse %
|
|
Amount
|
|
Recourse to HHC
|
|
|
|
|
Senior Notes due 2025
|
100
|
%
|
|
$
|
1,000,000
|
|
|
Senior Notes due 2028
|
100
|
%
|
|
750,000
|
|
|
1201 Lake Robbins
|
100
|
%
|
|
273,070
|
|
|
‘A‘ali‘i
|
25
|
%
|
|
38,650
|
|
|
250 Water Street
|
35
|
%
|
|
35,000
|
|
|
Juniper Apartments
|
25
|
%
|
|
16,452
|
|
|
Kō‘ula
|
25
|
%
|
|
16,320
|
|
|
6100 Merriweather
|
25
|
%
|
|
15,510
|
|
|
Outlet Collection at Riverwalk
|
50
|
%
|
|
14,339
|
|
|
Tanager
|
25
|
%
|
|
9,936
|
|
|
Lakeside Row
|
25
|
%
|
|
7,892
|
|
|
The Woodlands Warehouse
|
100
|
%
|
|
7,230
|
|
|
Total recourse to HHC
|
|
|
2,184,399
|
|
|
Recourse to The Woodlands Land Development Company (TWLDC) (a)
|
|
|
|
|
The Woodlands Resort & Conference Center
|
100
|
%
|
|
62,500
|
|
|
Two Lake's Edge
|
25
|
%
|
|
16,550
|
|
|
9950 Woodloch Forest
|
20
|
%
|
|
14,221
|
|
|
The Lane at Waterway
|
35
|
%
|
|
7,759
|
|
|
Lake Woodlands Crossing Retail
|
50
|
%
|
|
6,164
|
|
|
Creekside Park The Grove
|
25
|
%
|
|
4,117
|
|
|
Creekside Park West
|
25
|
%
|
|
3,680
|
|
|
Total recourse to TWLDC
|
|
|
114,991
|
|
|
Total
|
|
|
$
|
2,299,390
|
|
(a)This debt is partially recourse to The Woodlands Land Development Company which is a wholly owned subsidiary of HHC.
Certain of the Company’s loans contain provisions which grant the lender a security interest in the operating cash flow of the property that represents the collateral for the loan. Certain mortgage notes may be prepaid subject to a prepayment penalty equal to a yield maintenance premium, defeasance, or a percentage of the loan balance. As of December 31, 2020, land, buildings and equipment and developments with a net book value basis of $4.5 billion have been pledged as collateral for HHC’s mortgages, notes and loans payable.
Scheduled Maturities The following table summarizes the contractual obligations relating to the Company’s mortgages, notes and loans payable as of December 31, 2020, based on extended maturity dates:
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Mortgages, notes and loans payable principal payments
|
|
2021
|
|
$
|
321,712
|
|
|
2022
|
|
77,689
|
|
|
2023
|
|
1,091,049
|
|
|
2024
|
|
430,490
|
|
|
2025
|
|
1,136,625
|
|
|
Thereafter
|
|
1,262,601
|
|
|
Total principal payments
|
|
4,320,166
|
|
|
Unamortized deferred financing and bond issuance costs
|
|
(32,797)
|
|
|
Total mortgages, notes and loans payable
|
|
$
|
4,287,369
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
ASC 820, Fair Value Measurement, emphasizes that fair value is a market-based measurement that should be determined using assumptions market participants would use in pricing an asset or liability. The standard establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring assets or liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the asset or liability. Assets or liabilities with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
The following table presents the fair value measurement hierarchy levels required under ASC 820 for the Company’s liabilities that are measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Fair Value Measurements Using
|
|
Fair Value Measurements Using
|
|
thousands
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative liabilities
|
$
|
51,920
|
|
|
$
|
—
|
|
|
$
|
51,920
|
|
|
$
|
—
|
|
|
$
|
40,135
|
|
|
$
|
—
|
|
|
$
|
40,135
|
|
|
$
|
—
|
|
The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.
The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
thousands
|
Fair Value Hierarchy
|
|
Carrying Amount
|
|
Estimated Fair Value
|
|
Carrying Amount
|
|
Estimated Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and Restricted cash
|
Level 1
|
|
$
|
1,242,997
|
|
|
$
|
1,242,997
|
|
|
$
|
620,135
|
|
|
$
|
620,135
|
|
|
Accounts receivable, net (a)
|
Level 3
|
|
7,437
|
|
|
7,437
|
|
|
12,279
|
|
|
12,279
|
|
|
Notes receivable, net (b)
|
Level 3
|
|
622
|
|
|
622
|
|
|
36,379
|
|
|
36,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt (c)
|
Level 2
|
|
2,374,822
|
|
|
2,461,155
|
|
|
1,908,660
|
|
|
1,949,773
|
|
|
Variable-rate debt (c)
|
Level 2
|
|
1,945,344
|
|
|
1,945,344
|
|
|
2,229,958
|
|
|
2,229,958
|
|
(a)Accounts receivable, net is shown net of an allowance of $24.0 million at December 31, 2020, and $15.6 million at December 31, 2019. Refer to Note 1 - Summary of Significant Accounting Policies for additional information on the allowance.
(b)Notes receivable, net is shown net of an allowance of $0.2 million at December 31, 2020, and $0.2 million at December 31, 2019. Refer to Note 1 - Summary of Significant Accounting Policies for additional information on the allowance.
(c)Excludes related unamortized financing costs.
The carrying amounts of Cash and Restricted cash, Accounts receivable, net and Notes receivable, net approximate fair value because of the short‑term maturity of these instruments.
The fair value of the Company’s Senior Notes, included in fixed-rate debt in the table above, is based upon the trade price closest to the end of the period presented. The fair value of other fixed-rate debt in the table above was estimated based on a discounted future cash payment model, which includes risk premiums and risk-free rates derived from the current LIBOR or U.S. Treasury obligation interest rates. Refer to Note 7 - Mortgages, Notes and Loans Payable, Net for additional information. The discount rates reflect the Company’s judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assuming that the debt is outstanding through maturity.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
The carrying amounts for the Company’s variable-rate debt approximate fair value given that the interest rates are variable and adjust with current market rates for instruments with similar risks and maturities.
The below table includes a non-financial asset that was measured at fair value on a non-recurring basis resulting in the property being impaired during the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
thousands
|
Total Fair Value Measurement
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
Operating Assets:
|
|
|
|
|
|
|
|
|
|
|
Outlet Collection at Riverwalk (a)
|
$
|
46,794
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,794
|
|
|
|
(a)The fair value was measured as of the impairment date based on a discounted cash flow analysis using a capitalization rate of 10.0% and is shown net of transaction costs. Refer to Note 4 - Impairment for additional information.
|
|
|
|
|
9. Derivative Instruments and Hedging Activities
|
The Company is exposed to interest rate risk related to its variable interest rate debt, and it manages this risk by utilizing interest rate derivatives. The Company uses interest rate swaps, collars and caps to add stability to interest costs by reducing the Company’s exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company’s fixed‑rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above an established ceiling rate and payment of variable amounts to a counterparty if interest rates fall below an established floor rate, in exchange for an up‑front premium. No payments or receipts are exchanged on interest rate collar contracts unless interest rates rise above or fall below the established ceiling and floor rates. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up‑front premium. The Company’s interest rate cap is not currently designated as a hedge, and therefore, any gain or loss is recognized in current-period earnings. These derivatives are recorded on a gross basis at fair value on the balance sheet.
Assessments of hedge effectiveness are performed quarterly using regression analysis. The change in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated Other Comprehensive Income (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings within the same income statement line item being hedged. Derivatives accounted for as cash flow hedges are classified in the same category in the Consolidated Statements of Cash Flows as the items being hedged. Gains and losses from derivative financial instruments are reported in Cash provided by (used in) operating activities within the Consolidated Statements of Cash Flows.
The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate its credit risk, the Company enters into agreements with counterparties that are considered credit-worthy, such as large financial institutions with favorable credit ratings. There were no events of default as of December 31, 2020 and 2019.
If the derivative contracts are terminated prior to their maturity, the amounts previously recorded in AOCI are recognized into earnings over the period that the hedged transaction impacts earnings. If the hedging relationship is discontinued because it is probable that the forecasted transaction will not occur in accordance with the original strategy, any related amounts previously recorded in AOCI are recognized in earnings immediately. During the year ended December 31, 2020, there were no termination events, and during the year ended December 31, 2019, there was one termination event, as discussed below. During the year ended December 31, 2020, the Company recorded $3.2 million reduction in Interest expense related to the amortization of terminated swaps. The Company has deferred the effective portion of the fair value changes of two interest rate swap agreements in Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheets and will recognize the impact as a component of Interest expense over the next 7.0 and 0.7 years, which are what remain of the original forecasted periods.
During the year ended December 31, 2020, the Company did not settle any derivatives. During the year ended December 31, 2019, the Company settled one interest rate cap agreement with a notional amount of $230.0 million, recorded interest income of $0.2 million and received payment of $0.2 million.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Amounts reported in AOCI related to derivatives will be reclassified to Interest expense as interest payments are made on the Company’s variable‑rate debt. Over the next 12 months, HHC estimates that an additional $25.1 million of net loss will be reclassified to Interest expense.
The following table summarizes certain terms of the Company’s derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
Fair Value Asset (Liability)
|
|
|
|
|
Notional
|
Interest
|
Effective
|
Maturity
|
|
December 31,
|
|
December 31,
|
|
thousands
|
|
Balance Sheet Location
|
Amount
|
Rate (a)
|
Date
|
Date
|
|
2020
|
|
2019
|
|
Derivative instruments not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
(b)
|
Prepaid expenses and other assets, net
|
75,000
|
5.00%
|
8/31/2020
|
10/17/2022
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total fair value derivative assets
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Interest rate collar
|
(c)
|
Accounts payable and accrued expenses
|
193,967
|
2.00% - 3.00%
|
5/1/2019
|
5/1/2020
|
|
—
|
|
|
(182)
|
|
|
Interest rate collar
|
(d)
|
Accounts payable and accrued expenses
|
354,217
|
2.25% - 3.25%
|
5/1/2020
|
5/1/2021
|
|
—
|
|
|
(2,074)
|
|
|
Interest rate collar
|
(d)
|
Accounts payable and accrued expenses
|
381,404
|
2.75% - 3.50%
|
5/1/2021
|
4/30/2022
|
|
—
|
|
|
(4,578)
|
|
|
Interest rate swap
|
(e)
|
Accounts payable and accrued expenses
|
615,000
|
2.96%
|
9/21/2018
|
9/18/2023
|
|
(46,613)
|
|
|
(31,187)
|
|
|
Interest rate swap
|
(f)
|
Accounts payable and accrued expenses
|
34,918
|
4.89%
|
11/1/2019
|
1/1/2032
|
|
(5,307)
|
|
|
(2,114)
|
|
|
Total fair value derivative liabilities
|
|
|
|
|
|
(51,920)
|
|
|
(40,135)
|
|
|
Total fair value derivatives, net
|
|
|
|
|
|
$
|
(51,920)
|
|
|
$
|
(40,135)
|
|
(a)These rates represent the strike rate on HHC’s interest swaps, caps and collars.
(b)In the third quarter of 2020, the Company executed an agreement to extend the maturing position of this cap. Interest income included in the Consolidated Statements of Operations for the years ended December 31, 2020 and 2019, related to this contract was not meaningful.
(c)On May 1, 2020, the $194.0 million interest rate collar matured as scheduled.
(d)As of September 30, 2020, the Company deconsolidated 110 North Wacker including the associated liabilities related to its interest rate collars. Refer to Note 3 - Real Estate and Other Affiliates for additional information.
(e)Concurrent with the funding of the new $615.0 million Term Loan in 2018, the Company entered into this interest rate swap which is designated as a cash flow hedge.
(f)Concurrent with the closing of the $35.5 million construction loan for 8770 New Trails in 2019, the Company entered into this interest rate swap which is designated as a cash flow hedge.
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in AOCI on Derivatives
|
|
thousands
|
December 31,
|
|
Derivatives in Cash Flow Hedging Relationships
|
2020
|
|
2019
|
|
2018
|
|
Interest rate derivatives
|
$
|
(32,134)
|
|
|
$
|
(19,245)
|
|
|
$
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Operations
|
|
thousands
|
December 31,
|
|
Location of Gain (Loss) Reclassified from AOCI into Operations
|
2020
|
|
2019
|
|
2018
|
|
Interest expense
|
$
|
(9,064)
|
|
|
$
|
1,939
|
|
|
$
|
2,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense Presented in the Results of Operations in which the Effects of Cash Flow Hedges are Recorded
|
|
thousands
|
December 31,
|
|
Interest Expense Presented in Results of Operations
|
2020
|
|
2019
|
|
2018
|
|
Interest expense
|
$
|
132,257
|
|
|
$
|
105,374
|
|
|
$
|
82,028
|
|
Credit-risk-related Contingent Features The Company has agreements with certain derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain derivative counterparties that contain a provision where the
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
The fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $54.6 million as of December 31, 2020, and $41.6 million as of December 31, 2019. If the Company had breached any of these provisions at December 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $54.6 million.
|
|
|
|
|
10. Commitments and Contingencies
|
In the normal course of business, from time to time, the Company is involved in legal proceedings relating to the ownership and operations of its properties. In management’s opinion, the liabilities, if any, that may ultimately result from normal course of business legal actions or The Woodlands legal proceeding discussed below, are not expected to have a material effect on the Company’s consolidated financial position, results of operations or liquidity.
Litigation On June 14, 2018, the Company was served with a petition involving approximately 500 individuals or entities who claim that their properties, located in the Timarron Park neighborhood of The Woodlands, were damaged by flood waters that resulted from the unprecedented rainfall that occurred throughout Harris County and surrounding areas during Hurricane Harvey in August 2017. The complaint was filed in State Court in Harris County of the State of Texas. In general, the plaintiffs allege negligence in the development of Timarron Park and violations of Texas’ Deceptive Trade Practices Act and name as defendants The Howard Hughes Corporation, The Woodlands Land Development Company and two unaffiliated parties involved in the planning and engineering of Timarron Park. The plaintiffs are seeking restitution for damages to their property and diminution of their property values. The Company intends to vigorously defend the matter as it believes that these claims are without merit and that it has substantial legal and factual defenses to the claims and allegations contained in the complaint. Based upon the present status of this matter, the Company does not believe it is probable that a loss will be incurred. Accordingly, the Company has not recorded a charge as a result of this action.
The Company entered into a settlement agreement with the Waiea homeowners association related to certain construction defects at the condominium tower. Pursuant to the settlement agreement, the Company will pay for the repair of the defects. The Company believes that the general contractor is ultimately responsible for the defects and expects to recover all the repair costs from the general contractor, other responsible parties and insurance proceeds. During the first quarter of 2020, the Company recorded a $97.9 million charge for the estimated repair costs related to this matter, which was included in Condominium rights and unit cost of sales in the accompanying Consolidated Statements of Operations bringing total estimated repair costs to $115.4 million. As of December 31, 2020, the Company has a remaining liability of $111.3 million in Construction payables for the estimated repair costs related to this matter, which is included in Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheet.
Environmental Matters The Company purchased its 250 Water Street property in the Seaport District in June 2018. The site is currently used as a parking lot while the Company continues to move forward with redevelopment planning. The Company engaged a third-party specialist to perform a Phase I Environmental Site Assessment (ESA) of the property, and the ESA identified, among other findings, the existence of mercury levels above regulatory criteria. Under the current regulations, the site does not require remediation until the Company begins redevelopment activities. The normal operations of the parking lot do not require the property to be remediated, and the Company has not started any redevelopment activities as of December 31, 2020. As a result, the potential remediation has no financial impact for the year ended December 31, 2020.
Letters of Credit and Surety Bonds As of December 31, 2020, the Company had outstanding letters of credit totaling $5.2 million and surety bonds totaling $272.4 million. As of December 31, 2019, the Company had outstanding letters of credit totaling $15.4 million and surety bonds totaling $200.1 million. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.
Operating Leases The Company leases land or buildings at certain properties from third parties, which are recorded in Operating lease right-of-use assets, net and Operating lease obligations on the Consolidated Balance Sheets. See Note 17 - Leases for further discussion. Contractual rental expense, including participation rent, was $7.2 million for the year ended December 31, 2020, $8.5 million for the year ended December 31, 2019, and $9.7 million for the year ended December 31, 2018. The amortization of above and below‑market ground leases and straight‑line rents included in the contractual rent amount was not significant.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Guarantee Agreements The Company has entered into guarantee agreements as part of certain development projects. In conjunction with the execution of the ground lease for the Seaport District, the Company executed a completion guarantee for the redevelopment of Pier 17 and the Tin Building. The Company satisfied its completion guarantee for Pier 17 in the second quarter of 2019. The completion guaranty for the Tin Building is for the core and shell construction, which is nearing completion.
The Company’s wholly owned subsidiaries agreed to complete defined public improvements and to indemnify Howard County, Maryland, for certain matters as part of the Downtown Columbia Redevelopment District TIF bonds. The Company’s guarantee of the performance of its subsidiaries under the funding agreement for up to a maximum of $1.0 million expired on October 31, 2020. Furthermore, to the extent that increases in taxes do not cover debt service payments on the TIF bonds, the Company’s wholly owned subsidiary is obligated to pay special taxes. Management has concluded that as of December 31, 2020, any obligations to pay special taxes are not probable.
As part of the Company’s development permits with the Hawai’i Community Development Authority for the condominium towers at Ward Village, the Company entered into a guarantee whereby it is required to reserve 20% of the residential units for local residents who meet certain maximum income and net worth requirements. This guarantee, which is triggered once the necessary permits are granted and construction commences, was satisfied for the Company’s three condominium towers, Waiea, Anaha and Ae‘o, with the opening of Ke Kilohana, which is a workforce tower fully earmarked to fulfill this obligation. For the two towers under construction, the reserved units for the ‘A‘ali‘i tower are included in the tower, and the units for Kō'ula will either be built off site or fulfilled by paying a cash-in-lieu fee. As a result of this guarantee, the Company expects that future reserved housing towers will be delivered on a break-even basis.
The Company evaluates the likelihood of future performance under these guarantees and did not record an obligation as of December 31, 2020, and December 31, 2019.
Minor League Baseball Restructuring On February 12, 2021, Major League Baseball announced that it was restructuring the organization and operation of Minor League Baseball. As part of this restructuring, the Company’s baseball team, the Las Vegas Aviators will be required to enter into a Player Development License Agreement with a Major League Baseball affiliate. This licensing agreement structure is currently under negotiation and the effect it may have on the operation and value of the Company’s baseball assets is unknown at this time. HHC is in the process of analyzing the effect this new structure may have on the value and profitability of the Company’s baseball assets.
|
|
|
|
|
11. Stock-Based Compensation Plans
|
On May 14, 2020, the Company’s shareholders approved The Howard Hughes Corporation 2020 Equity Incentive Plan (the 2020 Equity Plan). Pursuant to the 2020 Equity Plan, 1,350,000 shares of the Company’s common stock were reserved for issuance. The 2020 Equity Plan provides for grants of options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards (collectively, the Awards). Employees, directors and consultants of the Company are eligible for Awards. The 2020 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors (the Committee).
Prior to the adoption of the 2020 Equity Plan, equity awards were issued under The Howard Hughes Corporation Amended and Restated 2010 Equity Incentive Plan (the 2010 Equity Plan). The adoption of the 2020 Equity Plan did not impact the administration of Awards issued under the 2010 Equity Plan but following adoption of the 2020 Equity Plan, equity awards will no longer be granted under the 2010 Equity Plan.
As of December 31, 2020, there were a maximum of 1,199,794 shares available for future grant under the Company’s 2020 Equity Plan.
The following summarizes stock-based compensation expense, net of amounts capitalized to development projects, for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
millions
|
2020
|
|
2019
|
|
2018
|
|
Stock Options (a)(b)
|
$
|
(1.9)
|
|
|
$
|
1.4
|
|
|
$
|
2.2
|
|
|
Restricted Stock (c)(d)
|
6.5
|
|
|
16.7
|
|
|
7.5
|
|
|
Pre-tax stock-based compensation expense
|
$
|
4.6
|
|
|
$
|
18.1
|
|
|
$
|
9.7
|
|
|
Income tax benefit
|
$
|
0.2
|
|
|
$
|
3.7
|
|
|
$
|
1.7
|
|
(a)Amounts shown are net of $0.2 million capitalized to development projects in 2020, $0.4 million capitalized to development projects in 2019 and $2.4 million capitalized to development projects in 2018.
(b)The credit position for the year ended December 31, 2020, was due to significant forfeitures which exceeded the expense.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
(c)Amounts shown are net of $0.9 million capitalized to development projects in 2020, $1.0 million capitalized to development projects in 2019 and $1.0 million capitalized to development projects in 2018.
(d)The increase in compensation expense for the year ended December 31, 2019, compared to the year ended December 31, 2018, was generally in connection with the Company’s restructuring.
Stock Options The following table summarizes stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Weighted-average Exercise Price
|
Weighted-average Remaining Contractual Term (years)
|
Aggregate Intrinsic Value
|
|
Stock options outstanding at December 31, 2019
|
721,496
|
|
|
$
|
104.55
|
|
|
|
|
Granted
|
41,337
|
|
|
$
|
74.65
|
|
|
|
|
Exercised (a)
|
(106,237)
|
|
|
65.91
|
|
|
|
|
Forfeited
|
(253,600)
|
|
|
121.63
|
|
|
|
|
Expired
|
(30,260)
|
|
|
106.39
|
|
|
|
|
Stock options outstanding at December 31, 2020
|
372,736
|
|
|
$
|
100.49
|
|
4.7
|
$
|
1,908,239
|
|
|
|
|
|
|
|
|
|
Stock options vested and expected to vest at December 31, 2020
|
369,384
|
|
|
$
|
100.55
|
|
4.7
|
$
|
1,899,155
|
|
|
Stock options exercisable at December 31, 2020
|
257,899
|
|
|
$
|
99.18
|
|
3.3
|
$
|
1,719,245
|
|
(a)The total intrinsic value of stock options exercised was $2.4 million during 2020, $2.4 million during 2019, and $12.1 million during 2018, based on the difference between the market price at the exercise date and the exercise price.
Cash received from stock option exercises was $4.6 million in 2020, $3.5 million in 2019, and $11.7 million in 2018, and the tax benefit from these exercises was $0.5 million in 2020, $0.5 million in 2019, and $2.6 million in 2018.
The fair value of stock option awards is determined using the Black-Scholes option-pricing model with the following assumptions:
–Expected life—Based on the average of the time to vesting and full term of an option
–Risk-free interest rates—Based on the U.S. Treasury rate over the expected life of an option
–Expected volatility—Based on the average of implied and historical volatilities as of each of the grant dates
The fair value on the grant date and the significant assumptions used in the Black‑Scholes option‑pricing model are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Grant date fair value
|
$
|
32.10
|
|
|
$
|
32.51
|
|
|
$
|
48.27
|
|
|
Assumptions
|
|
|
|
|
|
|
Expected life of options (in years)
|
7.5
|
|
7.5
|
|
8.4
|
|
Risk-free interest rate
|
0.7
|
%
|
|
2.2
|
%
|
|
2.7
|
%
|
|
Expected volatility
|
40.4
|
%
|
|
22.6
|
%
|
|
24.7
|
%
|
|
Expected annual dividend per share
|
—
|
|
|
—
|
|
|
—
|
|
Generally, options granted vest over requisite service periods, expire ten years after the grant date and generally do not become exercisable until their restrictions on exercise lapse after the five-year anniversary of the grant date.
The balance of unamortized stock option expense as of December 31, 2020, is $2.4 million, which is expected to be recognized over a weighted‑average period of 3.5 years.
Restricted Stock Restricted stock awards issued under the 2020 Equity Plan provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed as established by the Committee. In addition to the granting of restricted stock to certain members of management, the Company awards restricted stock to non‑employee directors as part of their annual retainer. The management awards generally vest over a range of three to five years, and the restriction on the non‑employee director shares generally lapses on the date of the Company’s following annual meeting of shareholders, or June 1st of the year following the award year, whichever is earlier, in each case generally subject to continued service.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
The following table summarizes restricted stock activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Weighted-average Grant Date Fair Value
|
|
Restricted stock outstanding at December 31, 2019
|
406,802
|
|
$
|
76.27
|
|
|
Granted
|
181,079
|
|
71.48
|
|
|
Vested
|
(77,276)
|
|
108.60
|
|
|
Forfeited
|
(101,495)
|
|
71.06
|
|
|
Restricted stock outstanding at December 31, 2020
|
409,110
|
|
$
|
69.21
|
|
The grant date fair value of restricted stock is based on the closing sales price of common stock on the grant date. For restricted stock awards that vest based on shareholder returns, the grant date fair values are calculated using a Monte-Carlo approach which simulates the Company’s stock price on the corresponding vesting dates. The number of shares of restricted stock subject to performance-based vesting conditions are reflected at the target level of performance in the table above.
The weighted-average grant-date fair value per share of restricted stock granted was $98.78 during 2019 and $83.09 during 2018. The fair value of restricted stock that vested was $5.6 million during 2020, $14.9 million during 2019, and $5.5 million during 2018, based on the market price at the vesting date.
The balance of unamortized restricted stock expense as of December 31, 2020, was $17.9 million, which is expected to be recognized over a weighted‑average period of 3.1 years.
Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates currently in effect. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards.
The following summarizes income tax expense (benefit) for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Current
|
$
|
826
|
|
|
$
|
1,427
|
|
|
$
|
(703)
|
|
|
Deferred
|
10,827
|
|
|
27,818
|
|
|
16,195
|
|
|
Total
|
$
|
11,653
|
|
|
$
|
29,245
|
|
|
$
|
15,492
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Reconciliation of the Income tax expense (benefit) if computed at the U.S. federal statutory income tax rate to the Company’s reported Income tax expense (benefit) for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands except percentages
|
2020
|
|
2019
|
|
2018
|
|
Income (loss) before income taxes
|
$
|
8,480
|
|
|
$
|
103,540
|
|
|
$
|
73,218
|
|
|
U.S. federal statutory tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
Tax computed at the U.S. federal statutory rate
|
$
|
1,781
|
|
|
$
|
21,743
|
|
|
$
|
15,376
|
|
|
Increase (decrease) in valuation allowance, net
|
11,822
|
|
|
4,419
|
|
|
8,033
|
|
|
State income taxes, net of federal income tax expense (benefit)
|
(2,608)
|
|
|
417
|
|
|
(3,713)
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit) from other change in rates, prior period adjustments and other permanent differences
|
2,079
|
|
|
179
|
|
|
(1,442)
|
|
|
Tax expense (benefit) on equity compensation
|
192
|
|
|
(317)
|
|
|
(1,490)
|
|
|
Tax expense on compensation disallowance
|
1,553
|
|
|
2,804
|
|
|
1,168
|
|
|
Deconsolidation of 110 North Wacker (a)
|
(4,826)
|
|
|
—
|
|
|
—
|
|
|
Tax expense (benefit) on historic tax credit
|
1,660
|
|
|
—
|
|
|
(2,440)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
$
|
11,653
|
|
|
$
|
29,245
|
|
|
$
|
15,492
|
|
|
Effective tax rate
|
137.4
|
%
|
|
28.2
|
%
|
|
21.2
|
%
|
(a)The Company deconsolidated 110 North Wacker in the third quarter of 2020. Refer to Note 2 - Real Estate and Other Affiliates for additional information.
As of December 31, 2020, the amounts and expiration dates of operating loss, charitable contribution and tax credit carryforwards for tax purposes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Amount
|
|
Expiration Date
|
|
Net operating loss carryforwards - Federal
|
$
|
119,167
|
|
|
2033-2037
|
|
Net operating loss carryforwards - Federal
|
461,245
|
|
|
n/a
|
|
Net operating loss carryforwards - State (a)
|
348,027
|
|
|
2021-2040
|
|
Net operating loss carryforwards - State (a)
|
176,197
|
|
|
n/a
|
|
Capital loss carryforwards - Federal (a)
|
22,866
|
|
|
2025
|
|
Charitable contribution carryforwards - Federal
|
9,759
|
|
|
2022-2025
|
|
|
|
|
|
|
Tax credit carryforwards - Historic Tax Credit
|
630
|
|
|
2038
|
(a)A valuation allowance has been recorded against the deferred tax benefit related to the capital loss carryforwards and a majority of the state net operating loss carryforwards.
The following summarizes tax effects of temporary differences and carryforwards included in the net deferred tax liabilities at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2020
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities
|
$
|
51,580
|
|
|
$
|
65,590
|
|
|
|
|
|
|
|
Operating loss and tax carryforwards
|
161,701
|
|
|
132,277
|
|
|
Total deferred tax assets
|
213,281
|
|
|
197,867
|
|
|
Valuation allowance
|
(38,065)
|
|
|
(29,723)
|
|
|
Total net deferred tax assets
|
$
|
175,216
|
|
|
$
|
168,144
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property associated with MPCs, primarily differences in the tax basis of land assets and treatment of interest and other costs
|
$
|
(163,836)
|
|
|
$
|
(163,024)
|
|
|
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities
|
(100,564)
|
|
|
(67,125)
|
|
|
Deferred income
|
(98,455)
|
|
|
(118,743)
|
|
|
Total deferred tax liabilities
|
(362,855)
|
|
|
(348,892)
|
|
|
Total net deferred tax liabilities
|
$
|
(187,639)
|
|
|
$
|
(180,748)
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
The deferred tax liability associated with the Company’s MPCs is largely attributable to the difference between the basis and value determined as of the date of the acquisition by its predecessors adjusted for sales that have occurred since that time. The recognition of these deferred tax liabilities is dependent upon the timing and sales price of future land sales and the method of accounting used for income tax purposes. The deferred tax liability related to deferred income represents the difference between the income tax method of accounting and the financial statement method of accounting for prior sales of land in the Company’s MPCs.
Generally, the Company is currently open to audit under the statute of limitations by the Internal Revenue Service as well as state taxing authorities for the years ended December 31, 2017 through 2020. In the Company’s opinion, it has made adequate tax provisions for years subject to examination. However, the final determination of tax examinations and any related litigation could be different from what was reported on the returns.
The Company applies the generally accepted accounting principle related to accounting for uncertainty in income taxes, which prescribes a recognition threshold that a tax position is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.
The Company recognizes and reports interest and penalties related to unrecognized tax benefits, if applicable, within the provision for income tax expense. The Company had no unrecognized tax benefits for the years ended December 31, 2020, 2019 or 2018, and therefore did not recognize any interest expense or penalties.
On October 7, 2016, the Company entered into a warrant agreement with David R. O’Reilly, (O’Reilly Warrant) prior to his appointment to his previous position of Chief Financial Officer. Upon exercise of his warrant, Mr. O’Reilly may acquire 50,125 shares of common stock at an exercise price of $112.08 per share. The O’Reilly Warrant was issued at fair value in exchange for a $1.0 million payment in cash from Mr. O’Reilly. The O’Reilly Warrant becomes exercisable on April 6, 2022, subject to earlier exercise upon certain change in control, separation and termination provisions, and will expire on October 2, 2022. On June 16, 2017, and October 4, 2017, the Company entered into warrant agreements with its Chief Executive Officer, David R. Weinreb, (Weinreb Warrant) and President, Grant Herlitz, (Herlitz Warrant) to acquire 1,965,409 shares and 87,951 shares of common stock for the purchase price of $50.0 million and $2.0 million, respectively. The Weinreb Warrant would have become exercisable on June 15, 2022, at an exercise price of $124.64 per share, and the Herlitz Warrant would have become exercisable on October 3, 2022, at an exercise price of $117.01 per share, subject in each case to earlier exercise upon certain change in control, separation and termination provisions. The Weinreb Warrant expires June 15, 2023, and the Herlitz Warrant expires October 3, 2023. The purchase prices paid by the respective executives for the O’Reilly Warrant, the Weinreb Warrant and the Herlitz Warrant, which qualify as equity instruments, are included within Additional paid-in capital in the Consolidated Balance Sheets at December 31, 2020 and 2019.
On October 21, 2019, Mr. Weinreb and Mr. Herlitz stepped down from their roles as Chief Executive Officer and President of the Company, respectively. The Company and each of Mr. Weinreb and Mr. Herlitz have agreed to treat their terminations of employment as terminations without cause under their respective employment and warrant agreements with the Company. Thus, effective October 21, 2019, the Weinreb Warrant and Herlitz Warrant became exercisable by the terms of their respective warrant agreements in connection with their respective terminations of employment. The warrant expiration dates remain unchanged. Neither of these warrants have been exercised as of December 31, 2020.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
|
|
|
|
|
14. Accumulated Other Comprehensive Income
|
The following tables summarize changes in AOCI by component, all of which are presented net of tax:
|
|
|
|
|
|
|
|
thousands
|
|
|
Balance as of December 31, 2017
|
$
|
(6,965)
|
|
|
Other comprehensive income (loss) before reclassifications
|
2,120
|
|
|
(Gain) loss reclassified from accumulated other comprehensive loss to net income
|
(2,153)
|
|
|
Adjustment related to adoption of ASU 2018-02
|
(1,148)
|
|
|
Balance as of Adjustment related to adoption of ASU 2017-12
|
(739)
|
|
|
Pension adjustment
|
759
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
(1,161)
|
|
|
|
|
|
Balance as of December 31, 2018
|
(8,126)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(19,318)
|
|
|
(Gain) loss reclassified from accumulated other comprehensive loss to net income
|
(1,939)
|
|
|
Pension adjustment
|
11
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
(21,246)
|
|
|
|
|
|
Balance as of December 31, 2019
|
(29,372)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(32,134)
|
|
|
(Gain) loss reclassified from accumulated other comprehensive loss to net income
|
9,064
|
|
|
Pension adjustment
|
(84)
|
|
|
Share of investee's other comprehensive income, net of tax of $285
|
1,002
|
|
|
Deconsolidation of 110 North Wacker
|
12,934
|
|
|
Net current-period other comprehensive income (loss)
|
(9,218)
|
|
|
Balance as of Balance as of December 31, 2020
|
$
|
(38,590)
|
|
The following table summarizes the amounts reclassified out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Amounts reclassified from
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated Other Comprehensive Income
(Loss) Components
|
For the Year Ended
|
Affected line items in the Statements of Operations
|
|
2020
|
|
2019
|
|
(Gains) losses on cash flow hedges
|
$
|
11,356
|
|
|
$
|
(2,855)
|
|
Interest expense
|
|
Income taxes on (gains) losses on cash flow hedges
|
(2,292)
|
|
|
916
|
|
Income tax expense (benefit)
|
|
Total reclassifications of (income) loss for the period
|
$
|
9,064
|
|
|
$
|
(1,939)
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Basic earnings (loss) per share (EPS) is computed by dividing net income (loss) available to common stockholders by the weighted‑average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares. The dilutive effect of options and non-vested stock issued under stock‑based compensation plans is computed using the treasury stock method. The dilutive effect of the warrants is computed using the if-converted method.
Information related to the Company’s EPS calculations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
thousands except per share amounts
|
2020
|
|
2019
|
|
2018
|
|
Net income (loss)
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(3,173)
|
|
|
$
|
74,295
|
|
|
$
|
57,726
|
|
|
Net (income) loss attributable to noncontrolling interests
|
(22,981)
|
|
|
(339)
|
|
|
(714)
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(26,154)
|
|
|
$
|
73,956
|
|
|
$
|
57,012
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Weighted-average basic common shares outstanding - basic
|
52,522
|
|
|
43,136
|
|
|
43,036
|
|
|
Restricted stock and stock options
|
—
|
|
|
168
|
|
|
201
|
|
|
Warrants
|
—
|
|
|
4
|
|
|
—
|
|
|
Weighted-average diluted common shares outstanding - diluted
|
52,522
|
|
|
43,308
|
|
|
43,237
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
Basic income (loss) per share
|
$
|
(0.50)
|
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
|
Diluted income (loss) per share
|
$
|
(0.50)
|
|
|
$
|
1.71
|
|
|
$
|
1.32
|
|
The diluted EPS computation excludes 394,008 shares of stock options as of December 31, 2020, 379,608 shares as of December 31, 2019, and 425,908 shares as of December 31, 2018, because their inclusion would have been anti-dilutive. The diluted EPS computation also excludes 271,371 shares of restricted stock as of December 31, 2020, 235,894 shares as of December 31, 2019, and 205,979 shares as of December 31, 2018, because performance conditions provided for in the restricted stock awards had not been satisfied.
Common Stock Offering On March 27, 2020, the Company offered 2,000,000 shares of common stock to the public at $50.00 per share and granted the underwriters an option to purchase up to an additional 300,000 shares of common stock at the same price. The underwriters exercised most of their option and purchased an additional 270,900 shares. Concurrently, the Company entered into a share purchase agreement with a related party, Pershing Square Capital Management, L.P., acting as investment advisor to funds that it manages, to issue and sell 10,000,000 shares of common stock in a private placement at $50.00 per share. The total issuance of 12,270,900 shares closed on March 31, 2020, and the Company received $593.6 million in net proceeds. The Company used the net proceeds for general corporate purposes including strengthening the Company’s balance sheet and enhancing liquidity.
Common Stock Repurchase During the fourth quarter of 2019, the Company repurchased 496,000 shares of its common stock, par value $0.01 per share, in 13 transactions with an unaffiliated entity. These transactions were funded with cash on hand for $53.9 million, or approximately $108.71 per share. On February 23, 2018, the Company repurchased 475,920 shares of its common stock, par value $0.01 per share, in a private transaction with an unaffiliated entity at a purchase price of $120.33 per share, or $57.3 million in the aggregate. The repurchase transaction was consummated on February 21, 2018, and was funded with cash on hand.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
The core principle of ASC 606, Revenues from Contracts with Customers, is that revenues from contracts with customers (excluding lease-related revenues) are recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Under ASC 606, revenue and cost of sales for condominium units sold are not recognized until the construction is complete, the sale closes and the title to the property has transferred to the buyer (point in time). Additionally, certain real estate selling costs, such as the costs related to the Company’s condominium model units, are either expensed immediately or capitalized as property and equipment and depreciated over their estimated useful life.
The following presents the Company’s revenues disaggregated by revenue source for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2020
|
|
2019
|
|
2018
|
|
Revenues from contracts with customers
|
|
|
|
|
|
|
Recognized at a point in time
|
|
|
|
|
|
|
Condominium rights and unit sales
|
$
|
1,143
|
|
|
$
|
448,940
|
|
|
$
|
357,720
|
|
|
Master Planned Communities land sales
|
233,044
|
|
|
330,146
|
|
|
261,905
|
|
|
Builder price participation
|
37,072
|
|
|
35,681
|
|
|
27,085
|
|
|
Total
|
271,259
|
|
|
814,767
|
|
|
646,710
|
|
|
|
|
|
|
|
|
|
Recognized at a point in time or over time
|
|
|
|
|
|
|
Other land, rental and property revenues
|
105,048
|
|
|
206,966
|
|
|
160,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and lease-related revenues
|
|
|
|
|
|
|
Rental revenue
|
323,182
|
|
|
278,806
|
|
|
257,308
|
|
|
Total revenues
|
$
|
699,489
|
|
|
$
|
1,300,539
|
|
|
$
|
1,064,537
|
|
|
|
|
|
|
|
|
|
Revenues by segment
|
|
|
|
|
|
|
Operating Assets revenues
|
$
|
372,057
|
|
|
$
|
400,131
|
|
|
$
|
348,242
|
|
|
Master Planned Communities revenues
|
283,953
|
|
|
386,781
|
|
|
309,451
|
|
|
Seaport revenues
|
23,814
|
|
|
55,645
|
|
|
32,632
|
|
|
Strategic Developments revenues
|
19,407
|
|
|
457,948
|
|
|
374,212
|
|
|
Corporate revenues
|
258
|
|
|
34
|
|
|
—
|
|
|
Total revenues
|
$
|
699,489
|
|
|
$
|
1,300,539
|
|
|
$
|
1,064,537
|
|
Contract Assets and Liabilities Contract assets are the Company’s right to consideration in exchange for goods or services that have been transferred to a customer, excluding any amounts presented as a receivable. Contract liabilities are the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration.
There were no contract assets for the periods presented. The contract liabilities primarily relate to escrowed condominium deposits, MPC land sales deposits and deferred MPC land sales related to unsatisfied land improvements. The beginning and ending balances of contract liabilities and significant activity during the periods presented are as follows:
|
|
|
|
|
|
|
|
thousands
|
Contract Liabilities
|
|
Balance as of December 31, 2018
|
$
|
296,496
|
|
|
Consideration earned during the period
|
(490,137)
|
|
|
Consideration received during the period
|
439,651
|
|
|
Balance as of December 31, 2019
|
246,010
|
|
|
Consideration earned during the period
|
(55,696)
|
|
|
Consideration received during the period
|
170,102
|
|
|
Balance as of December 31, 2020
|
$
|
360,416
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
Remaining Unsatisfied Performance Obligations The Company’s remaining unsatisfied performance obligations represent a measure of the total dollar value of work to be performed on contracts executed and in progress. These performance obligations primarily relate to the completion of condominium construction and transfer of control to a buyer, as well as the completion of contracted MPC land sales and related land improvements. These obligations are associated with contracts that generally are noncancelable by the customer after 30 days; however, purchasers of condominium units have the right to cancel the contract should the Company elect not to construct the condominium unit within a certain period of time or materially change the design of the condominium unit. The aggregate amount of the transaction price allocated to the Company’s remaining unsatisfied performance obligations as of December 31, 2020, is $1.7 billion. The Company expects to recognize this amount as revenue over the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Less than 1 year
|
|
1-2 years
|
3 years and thereafter
|
|
Total remaining unsatisfied performance obligations
|
|
$
|
589,860
|
|
|
$
|
521,957
|
|
|
$
|
628,837
|
|
The Company’s remaining performance obligations are adjusted to reflect any known project cancellations, revisions to project scope and cost, and deferrals, as appropriate. These amounts exclude estimated amounts of variable consideration which are constrained, such as builder price participation.
Leases (Topic 842) increases transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. The Company determines whether an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets, net and Operating lease obligations on the Consolidated Balance Sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an estimate of the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Operating lease right-of-use asset also includes any lease payments made, less any lease incentives and initial direct costs incurred. The Company elected the practical expedient to not separate lease components from non-lease components of its lease agreements for all classes of underlying assets including ground leases, office leases and other leases. Certain of the Company’s lease agreements include non-lease components such as fixed common area maintenance charges. The Company applies Leases (Topic 842) to the single combined lease component. The Company does not have any finance leases as of December 31, 2020.
The Company’s lessee agreements consist of operating leases primarily for ground leases and other real estate. The Company’s leases have remaining lease terms of less than one year to 52 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from two to 41 years, and some of which may include options to terminate the leases within one year. The Company considers its strategic plan and the life of associated agreements in determining when options to extend or terminate lease terms are reasonably certain of being exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Certain of the Company’s lease agreements include variable lease payments based on a percentage of income generated through subleases, changes in price indices and market rates, and other costs arising from operating, maintenance and taxes. The Company’s lease agreements do not contain residual value guarantees or restrictive covenants. The Company leases certain buildings and office space constructed on its ground leases to third parties.
In response to the COVID-19 pandemic the Company granted rent deferrals to certain tenants. Under the accounting elections provided by the FASB in response to the COVID-19 pandemic, the Company has elected to not assess whether COVID-19 related deferrals are lease modifications and will account for the deferrals as if contemplated in the original lease. Rent deferrals are treated as variable lease payments resulting in a decrease in straight-line rent revenue during the deferral period and additional revenue upon payment in subsequent periods. COVID-19 related rent deferrals were $4.8 million as of 12/31/2020, net of subsequent collections.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
|
|
|
|
2020
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
|
|
|
$
|
66,490
|
|
|
$
|
69,398
|
|
|
Riverwalk impairment
|
|
|
|
|
(10,235)
|
|
|
—
|
|
|
Total leased assets
|
|
|
|
|
$
|
56,255
|
|
|
$
|
69,398
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
|
|
|
$
|
68,929
|
|
|
$
|
70,413
|
|
|
Total leased liabilities
|
|
|
|
|
$
|
68,929
|
|
|
$
|
70,413
|
|
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
thousands
|
|
|
|
|
2020
|
|
2019
|
|
Operating lease cost
|
|
|
|
|
$
|
8,720
|
|
|
$
|
9,082
|
|
|
Variable lease costs
|
|
|
|
|
958
|
|
|
1,682
|
|
|
|
|
|
|
|
|
|
|
|
Net lease cost
|
|
|
|
|
$
|
9,678
|
|
|
$
|
10,764
|
|
Future minimum lease payments as of December 31, 2020, are as follows:
|
|
|
|
|
|
|
|
thousands
|
Operating Leases
|
|
2021
|
$
|
6,853
|
|
|
2022
|
6,507
|
|
|
2023
|
6,464
|
|
|
2024
|
6,432
|
|
|
2025
|
5,047
|
|
|
Thereafter
|
261,805
|
|
|
Total lease payments
|
293,108
|
|
|
Less: imputed interest
|
(224,179)
|
|
|
Present value of lease liabilities
|
$
|
68,929
|
|
Other information related to the Company’s lessee agreements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Year ended December 31,
|
|
Supplemental Consolidated Statements of Cash Flows Information
|
2020
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows on operating leases
|
$
|
7,235
|
|
|
$
|
6,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information
|
2020
|
|
2019
|
|
Weighted-average remaining lease term (years)
|
|
|
|
|
Operating leases
|
37.1
|
|
37.0
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
7.8
|
%
|
|
7.8
|
%
|
The Company receives rental income from the leasing of retail, office, multi-family and other space under operating leases, as well as certain variable tenant recoveries. Such operating leases are with a variety of tenants and have a remaining average term of approximately five years. Lease terms generally vary among tenants and may include early
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
termination options, extension options and fixed rental rate increases or rental rate increases based on an index. The minimum rentals based on operating leases of the consolidated properties held as of December 31, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
thousands
|
|
|
2020
|
|
2019
|
|
Total Minimum Rent Payments
|
|
|
$
|
213,072
|
|
|
$
|
218,740
|
|
Total future minimum rents associated with operating leases are as follows:
|
|
|
|
|
|
|
|
thousands
|
Total Minimum Rent
|
|
2021
|
$
|
221,374
|
|
|
2022
|
220,296
|
|
|
2023
|
199,858
|
|
|
2024
|
187,942
|
|
|
2025
|
158,817
|
|
|
Thereafter
|
778,057
|
|
|
Total
|
$
|
1,766,344
|
|
Minimum rent revenues are recognized on a straight‑line basis over the terms of the related leases when collectability is reasonably assured and the tenant has taken possession of, or controls, the physical use of the leased asset. Percentage rent in lieu of fixed minimum rent is recognized as sales are reported from tenants. Minimum rent revenues reported on the Consolidated Statements of Operations also include amortization related to above and below‑market tenant leases on acquired properties.
A sales-type lease is defined as a lease that meets one or more of the following: transfers ownership at the end of the lease term, grants the lessee an option to purchase that is reasonably expected to be exercised, covers the major part of the asset’s economic life, the net present value of the lease payments equals or exceeds the fair value of the asset, or the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease. During the year ended December 31, 2020, the Company sold 100 Fellowship Drive, one of its sales-type leases. The Net investment in lease receivable, interest income and future minimum rents for the remaining sales-type lease are not significant.
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
The Company has four business segments which offer different products and services. HHC’s four segments are managed separately because each requires different operating strategies or management expertise and are reflective of management’s operating philosophies and methods. As further discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, one common operating measure used to assess operating results for the Company’s business segments is earnings before taxes (EBT). The Company’s segments or assets within such segments could change in the future as development of certain properties commences or other operational or management changes occur. All operations are within the United States. The Company’s reportable segments are as follows:
–Operating Assets – consists of developed or acquired retail, office, hospitality and multi-family properties along with other real estate investments. These properties are currently generating revenues and may be redeveloped, repositioned or sold to improve segment performance or to recycle capital.
–MPC – consists of the development and sale of land in large‑scale, long‑term community development projects in and around Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland.
–Seaport District – consists of approximately 453,000 square feet of restaurant, retail and entertainment properties situated in three primary locations in New York, New York: Pier 17, Historic Area/Uplands and Tin Building. While the latter is still under development and will comprise about 53,000 square feet when completed, the two operating locations consist of third-party tenants, tenants either directly or jointly owned and operated by the Company and businesses owned and operated by the Company under licensing agreements.
–Strategic Developments – consists of residential condominium and commercial property projects currently under development and all other properties held for development which have no substantial operations.
Segment operating results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Operating Assets Segment (a)
|
MPC Segment
|
Seaport District Segment
|
|
Strategic Developments Segment
|
|
Total
|
|
Year ended December 31, 2020
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
372,057
|
|
$
|
283,953
|
|
$
|
23,814
|
|
|
$
|
19,407
|
|
|
$
|
699,231
|
|
|
Total operating expenses
|
(185,480)
|
|
(128,597)
|
|
(46,112)
|
|
|
(135,160)
|
|
|
(495,349)
|
|
|
Segment operating income (loss)
|
186,577
|
|
155,356
|
|
(22,298)
|
|
|
(115,753)
|
|
|
203,882
|
|
|
Depreciation and amortization
|
(162,324)
|
|
(365)
|
|
(41,602)
|
|
|
(6,545)
|
|
|
(210,836)
|
|
|
Interest income (expense), net
|
(91,411)
|
|
36,587
|
|
(12,512)
|
|
|
6,312
|
|
|
(61,024)
|
|
|
Other income (loss), net
|
540
|
|
—
|
|
(2,616)
|
|
|
2,165
|
|
|
89
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
(7,366)
|
|
17,845
|
|
(9,292)
|
|
|
269,912
|
|
|
271,099
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
38,232
|
|
—
|
|
—
|
|
|
21,710
|
|
|
59,942
|
|
|
|
|
|
|
|
|
|
|
|
Selling profit from sales-type leases
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Gain (loss) on extinguishment of debt
|
(1,521)
|
|
—
|
|
(11,648)
|
|
|
—
|
|
|
(13,169)
|
|
|
Provision for impairment
|
(48,738)
|
|
—
|
|
—
|
|
|
—
|
|
|
(48,738)
|
|
|
Segment EBT
|
$
|
(86,011)
|
|
$
|
209,423
|
|
$
|
(99,968)
|
|
|
$
|
177,801
|
|
|
$
|
201,245
|
|
|
Corporate income, expenses and other items
|
|
|
|
|
|
|
(204,418)
|
|
|
Net income (loss)
|
|
|
|
|
|
|
(3,173)
|
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
(22,981)
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
|
|
$
|
(26,154)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
FOOTNOTES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
Operating Assets Segment (a)
|
MPC Segment
|
Seaport District Segment
|
|
Strategic Developments Segment
|
|
Total
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
400,131
|
|
$
|
386,781
|
|
$
|
55,645
|
|
|
$
|
457,948
|
|
|
$
|
1,300,505
|
|
|
Total operating expenses
|
(187,322)
|
|
(183,472)
|
|
(77,872)
|
|
|
(391,848)
|
|
|
(840,514)
|
|
|
Segment operating income (loss)
|
212,809
|
|
203,309
|
|
(22,227)
|
|
|
66,100
|
|
|
459,991
|
|
|
Depreciation and amortization
|
(115,499)
|
|
(424)
|
|
(26,381)
|
|
|
(5,473)
|
|
|
(147,777)
|
|
|
Interest income (expense), net
|
(81,029)
|
|
32,019
|
|
(12,865)
|
|
|
11,321
|
|
|
(50,554)
|
|
|
Other income (loss), net
|
1,142
|
|
601
|
|
(22)
|
|
|
831
|
|
|
2,552
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
3,672
|
|
28,336
|
|
(2,592)
|
|
|
1,213
|
|
|
30,629
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
—
|
|
—
|
|
(6)
|
|
|
27,119
|
|
|
27,113
|
|
|
|
|
|
|
|
|
|
|
|
Selling profit from sales-type leases
|
13,537
|
|
—
|
|
—
|
|
|
—
|
|
|
13,537
|
|
|
Gain (loss) on extinguishment of debt
|
—
|
|
—
|
|
4,851
|
|
|
—
|
|
|
4,851
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBT
|
$
|
34,632
|
|
$
|
263,841
|
|
$
|
(59,242)
|
|
|
$
|
101,111
|
|
|
$
|
340,342
|
|
|
Corporate income, expenses and other items
|
|
|
|
|
|
|
(266,047)
|
|
|
Net income (loss)
|
|
|
|
|
|
|
74,295
|
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
(339)
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
|
|
$
|
73,956
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
348,242
|
|
$
|
309,451
|
|
$
|
32,632
|
|
|
$
|
374,212
|
|
|
$
|
1,064,537
|
|
|
Total operating expenses
|
(164,445)
|
|
(163,517)
|
|
(49,716)
|
|
|
(290,806)
|
|
|
(668,484)
|
|
|
Segment operating income (loss)
|
183,797
|
|
145,934
|
|
(17,084)
|
|
|
83,406
|
|
|
396,053
|
|
|
Depreciation and amortization
|
(103,293)
|
|
(243)
|
|
(12,466)
|
|
|
(3,307)
|
|
|
(119,309)
|
|
|
Interest income (expense), net
|
(71,551)
|
|
26,919
|
|
6,291
|
|
|
12,476
|
|
|
(25,865)
|
|
|
Other income (loss), net
|
(7,107)
|
|
18
|
|
102
|
|
|
3,015
|
|
|
(3,972)
|
|
|
Equity in earnings (losses) from real estate and other affiliates
|
1,994
|
|
36,284
|
|
(705)
|
|
|
2,364
|
|
|
39,937
|
|
|
Gain (loss) on sale or disposal of real estate and other assets, net
|
(4)
|
|
—
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBT
|
$
|
3,836
|
|
$
|
208,912
|
|
$
|
(23,862)
|
|
|
$
|
97,954
|
|
|
$
|
286,840
|
|
|
Corporate income, expenses and other items
|
|
|
|
|
|
|
(229,114)
|
|
|
Net income (loss)
|
|
|
|
|
|
|
57,726
|
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
|
|
|
|
(714)
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
|
|
$
|
57,012
|
|
(a)Total revenues includes hospitality revenues of $35.2 million for the year ended December 31, 2020, $87.9 million for the year ended December 31, 2019, and $82.0 million for the year ended December 31, 2018. Total operating expenses includes hospitality operating costs of $32.3 million for the year ended December 31, 2020, $60.2 million for the year ended December 31, 2019, and $59.2 million for the year ended December 31, 2018.
The following represents assets by segment and the reconciliation of total segment assets to the total assets in the Consolidated Balance Sheets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
2020
|
|
2019
|
|
Operating Assets
|
$
|
3,936,119
|
|
|
$
|
3,476,718
|
|
|
Master Planned Communities
|
2,285,896
|
|
|
2,166,472
|
|
|
Seaport District
|
924,245
|
|
|
930,067
|
|
|
Strategic Developments
|
1,132,231
|
|
|
1,540,161
|
|
|
Total segment assets
|
8,278,491
|
|
|
8,113,418
|
|
|
Corporate
|
861,841
|
|
|
300,348
|
|
|
Total assets
|
$
|
9,140,332
|
|
|
$
|
8,413,766
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
|
|
|
Initial Cost (b)
|
|
Costs Capitalized Subsequent to Acquisition (c)
|
|
Gross Amounts at Which Carried at Close of Period (d)
|
|
|
|
|
Name of Center
|
Location
|
Center Type
|
Encumbrances (a)
|
Land
|
Buildings and Improvements
|
|
Land (e)
|
Buildings and Improvements (e)(f)
|
|
Land
|
Buildings and Improvements (f)
|
Total
|
Accumulated Depreciation (g)
|
Date of Construction
|
Date Acquired / Completed
|
|
Bridgeland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeland
|
Cypress, TX
|
MPC
|
$
|
75,000
|
|
$
|
260,223
|
|
$
|
—
|
|
|
$
|
226,644
|
|
$
|
4,464
|
|
|
$
|
486,867
|
|
$
|
4,464
|
|
$
|
491,331
|
|
$
|
(508)
|
|
|
2004
|
|
Lakeland Village Center at Bridgeland (h)
|
Cypress, TX
|
Retail
|
14,135
|
|
2,404
|
|
11,135
|
|
|
—
|
|
3,399
|
|
|
2,404
|
|
14,534
|
|
16,938
|
|
(2,035)
|
|
|
2016
|
|
Lakeside Row
|
Cypress, TX
|
Multi-family
|
31,566
|
|
812
|
|
42,875
|
|
|
—
|
|
(1)
|
|
|
812
|
|
42,874
|
|
43,686
|
|
(1,953)
|
|
2018
|
2019
|
|
Columbia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia
|
Columbia, MD
|
MPC
|
—
|
|
457,552
|
|
—
|
|
|
(440,927)
|
|
—
|
|
|
16,625
|
|
—
|
|
16,625
|
|
—
|
|
|
2004
|
|
10 - 70 Columbia Corporate Center (h)
|
Columbia, MD
|
Office
|
99,184
|
|
24,685
|
|
94,824
|
|
|
—
|
|
28,185
|
|
|
24,685
|
|
123,009
|
|
147,694
|
|
(24,724)
|
|
|
2012/2014
|
|
Columbia Office Properties
|
Columbia, MD
|
Office
|
—
|
|
1,175
|
|
14,913
|
|
|
—
|
|
(769)
|
|
|
1,175
|
|
14,144
|
|
15,319
|
|
(6,095)
|
|
|
1969/1972
|
|
Columbia Regional Building
|
Columbia, MD
|
Retail
|
24,244
|
|
—
|
|
28,865
|
|
|
—
|
|
2,357
|
|
|
—
|
|
31,222
|
|
31,222
|
|
(6,085)
|
|
|
2014
|
|
Juniper Apartments
|
Columbia, MD
|
Multi-family
|
65,808
|
|
—
|
|
—
|
|
|
3,923
|
|
108,771
|
|
|
3,923
|
|
108,771
|
|
112,694
|
|
(2,973)
|
|
2018
|
2020
|
|
Lakefront District (i)
|
Columbia, MD
|
Development
|
—
|
|
400
|
|
80,053
|
|
|
(400)
|
|
(53,682)
|
|
|
—
|
|
26,371
|
|
26,371
|
|
—
|
|
|
2004
|
|
Merriweather District
|
Columbia, MD
|
Development
|
—
|
|
—
|
|
—
|
|
|
—
|
|
81,654
|
|
|
—
|
|
81,654
|
|
81,654
|
|
—
|
|
|
2015
|
|
Merriweather District Area 3 Standalone Restaurant
|
Columbia, MD
|
Retail
|
—
|
|
—
|
|
—
|
|
|
337
|
|
16,268
|
|
|
337
|
|
16,268
|
|
16,605
|
|
(28)
|
|
2019
|
2020
|
|
One Mall North (h)
|
Columbia, MD
|
Office
|
12,425
|
|
7,822
|
|
10,818
|
|
|
—
|
|
1,170
|
|
|
7,822
|
|
11,988
|
|
19,810
|
|
(1,425)
|
|
|
2016
|
|
One Merriweather (h)
|
Columbia, MD
|
Office
|
42,008
|
|
1,433
|
|
58,936
|
|
|
—
|
|
15,417
|
|
|
1,433
|
|
74,353
|
|
75,786
|
|
(9,039)
|
|
|
2017
|
|
Two Merriweather
|
Columbia, MD
|
Office
|
—
|
|
1,019
|
|
4,931
|
|
|
—
|
|
33,856
|
|
|
1,019
|
|
38,787
|
|
39,806
|
|
(3,943)
|
|
|
2017
|
|
6100 Merriweather
|
Columbia, MD
|
Office
|
62,040
|
|
2,550
|
|
112,669
|
|
|
—
|
|
—
|
|
|
2,550
|
|
112,669
|
|
115,219
|
|
(3,893)
|
|
2018
|
2019
|
|
Seaport District
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85 South Street
|
New York, NY
|
Multi-family
|
—
|
|
15,913
|
|
8,137
|
|
|
—
|
|
2,662
|
|
|
15,913
|
|
10,799
|
|
26,712
|
|
(3,985)
|
|
|
2014
|
|
Seaport Predevelopment
|
New York, NY
|
Development
|
—
|
|
—
|
|
7,641
|
|
|
—
|
|
14,536
|
|
|
—
|
|
22,177
|
|
22,177
|
|
—
|
|
2013
|
|
|
Tin Building
|
New York, NY
|
Development
|
—
|
|
—
|
|
8,290
|
|
|
—
|
|
98,404
|
|
|
—
|
|
106,694
|
|
106,694
|
|
—
|
|
|
2015
|
|
Pier 17
|
New York, NY
|
Retail
|
—
|
|
—
|
|
468,476
|
|
|
—
|
|
3,423
|
|
|
—
|
|
471,899
|
|
471,899
|
|
(44,371)
|
|
2017
|
2018
|
|
Seaport District Historic Area / Uplands
|
New York, NY
|
Retail
|
—
|
|
—
|
|
7,884
|
|
|
—
|
|
114,830
|
|
|
—
|
|
122,714
|
|
122,714
|
|
(17,830)
|
|
2013
|
2016
|
|
250 Water Street
|
New York, NY
|
Development
|
100,000
|
|
—
|
|
179,471
|
|
|
—
|
|
370
|
|
|
—
|
|
179,841
|
|
179,841
|
|
—
|
|
|
2018
|
|
Summerlin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aristocrat (j)
|
Las Vegas, NV
|
Office
|
37,093
|
|
5,004
|
|
34,588
|
|
|
—
|
|
159
|
|
|
5,004
|
|
34,747
|
|
39,751
|
|
(2,866)
|
|
2017
|
2018
|
|
Constellation Apartments
|
Las Vegas, NV
|
Multi-family
|
24,200
|
|
3,069
|
|
39,759
|
|
|
—
|
|
—
|
|
|
3,069
|
|
39,759
|
|
42,828
|
|
(4,666)
|
|
|
2016
|
|
Downtown Summerlin (j)(k)
|
Las Vegas, NV
|
Retail/Office
|
2,121
|
|
30,855
|
|
364,100
|
|
|
—
|
|
26,050
|
|
|
30,855
|
|
390,150
|
|
421,005
|
|
(80,563)
|
|
|
2014
|
|
Hockey Ground Lease (j)
|
Las Vegas, NV
|
Other
|
113
|
|
—
|
|
—
|
|
|
6,705
|
|
2,198
|
|
|
6,705
|
|
2,198
|
|
8,903
|
|
(183)
|
|
|
2017
|
|
Las Vegas Ballpark (j)(l)
|
Las Vegas, NV
|
Other
|
48,459
|
|
—
|
|
179
|
|
|
5,318
|
|
124,212
|
|
|
5,318
|
|
124,391
|
|
129,709
|
|
(11,484)
|
|
|
2019
|
|
Two Summerlin (j)
|
Las Vegas, NV
|
Office
|
87
|
|
3,037
|
|
47,104
|
|
|
—
|
|
1,923
|
|
|
3,037
|
|
49,027
|
|
52,064
|
|
(3,844)
|
|
2017
|
2018
|
|
Summerlin
|
Las Vegas, NV
|
MPC
|
31,520
|
|
990,179
|
|
—
|
|
|
(101,227)
|
|
701
|
|
|
888,952
|
|
701
|
|
889,653
|
|
(354)
|
|
|
2004
|
|
Tanager Apartments (j)
|
Las Vegas, NV
|
Multi-family
|
39,922
|
|
9,633
|
|
55,858
|
|
|
—
|
|
—
|
|
|
9,633
|
|
55,858
|
|
65,491
|
|
(2,813)
|
|
2017
|
2019
|
|
The Woodlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Creekside Park Apartments
|
The Woodlands, TX
|
Multi-family
|
37,730
|
|
729
|
|
40,116
|
|
|
—
|
|
31
|
|
|
729
|
|
40,147
|
|
40,876
|
|
(3,168)
|
|
2017
|
2018
|
|
Creekside Park The Grove (m)
|
The Woodlands, TX
|
Development
|
16,468
|
|
—
|
|
—
|
|
|
—
|
|
38,771
|
|
|
—
|
|
38,771
|
|
38,771
|
|
—
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
|
|
|
Initial Cost (b)
|
|
Costs Capitalized Subsequent to Acquisition (c)
|
|
Gross Amounts at Which Carried at Close of Period (d)
|
|
|
|
|
Name of Center
|
Location
|
Center Type
|
Encumbrances (a)
|
Land
|
Buildings and Improvements
|
|
Land (e)
|
Buildings and Improvements (e)(f)
|
|
Land
|
Buildings and Improvements (f)
|
Total
|
Accumulated Depreciation (g)
|
Date of Construction
|
Date Acquired / Completed
|
|
Creekside Park West
|
The Woodlands, TX
|
Retail
|
14,719
|
|
1,228
|
|
17,922
|
|
|
—
|
|
—
|
|
|
1,228
|
|
17,922
|
|
19,150
|
|
(677)
|
|
2018
|
2019
|
|
Creekside Village Green (h)
|
The Woodlands, TX
|
Retail
|
17,051
|
|
2,551
|
|
33,822
|
|
|
(1,228)
|
|
(17,980)
|
|
|
1,323
|
|
15,842
|
|
17,165
|
|
(2,978)
|
|
|
2015
|
|
Embassy Suites at Hughes Landing (h)
|
The Woodlands, TX
|
Hospitality
|
27,970
|
|
—
|
|
6,752
|
|
|
1,818
|
|
36,503
|
|
|
1,818
|
|
43,255
|
|
45,073
|
|
(7,671)
|
|
|
2015
|
|
HHC 242 Self-Storage
|
The Woodlands, TX
|
Other
|
—
|
|
878
|
|
6,802
|
|
|
—
|
|
1,106
|
|
|
878
|
|
7,908
|
|
8,786
|
|
(809)
|
|
|
2017
|
|
HHC 2978 Self-Storage
|
The Woodlands, TX
|
Other
|
—
|
|
124
|
|
5,498
|
|
|
—
|
|
2,063
|
|
|
124
|
|
7,561
|
|
7,685
|
|
(740)
|
|
|
2017
|
|
One Hughes Landing
|
The Woodlands, TX
|
Office
|
50,815
|
|
1,678
|
|
34,761
|
|
|
—
|
|
394
|
|
|
1,678
|
|
35,155
|
|
36,833
|
|
(10,654)
|
|
|
2013
|
|
Two Hughes Landing
|
The Woodlands, TX
|
Office
|
48,000
|
|
1,269
|
|
34,950
|
|
|
—
|
|
(3,899)
|
|
|
1,269
|
|
31,051
|
|
32,320
|
|
(7,924)
|
|
|
2014
|
|
Three Hughes Landing
|
The Woodlands, TX
|
Office
|
—
|
|
2,626
|
|
46,372
|
|
|
—
|
|
32,097
|
|
|
2,626
|
|
78,469
|
|
81,095
|
|
(12,324)
|
|
|
2016
|
|
1725 Hughes Landing Boulevard (h)
|
The Woodlands, TX
|
Office
|
56,772
|
|
1,351
|
|
36,764
|
|
|
—
|
|
38,448
|
|
|
1,351
|
|
75,212
|
|
76,563
|
|
(18,671)
|
|
|
2015
|
|
1735 Hughes Landing Boulevard (h)
|
The Woodlands, TX
|
Office
|
54,568
|
|
3,709
|
|
97,651
|
|
|
—
|
|
(372)
|
|
|
3,709
|
|
97,279
|
|
100,988
|
|
(22,033)
|
|
|
2015
|
|
Hughes Landing Daycare
|
The Woodlands, TX
|
Other
|
—
|
|
138
|
|
—
|
|
|
—
|
|
—
|
|
|
138
|
|
—
|
|
138
|
|
—
|
|
2018
|
2019
|
|
Hughes Landing Retail
|
The Woodlands, TX
|
Retail
|
34,328
|
|
5,184
|
|
—
|
|
|
—
|
|
33,103
|
|
|
5,184
|
|
33,103
|
|
38,287
|
|
(7,524)
|
|
|
2015
|
|
1701 Lake Robbins (h)
|
The Woodlands, TX
|
Retail
|
3,658
|
|
1,663
|
|
3,725
|
|
|
—
|
|
459
|
|
|
1,663
|
|
4,184
|
|
5,847
|
|
(711)
|
|
|
2014
|
|
Lake Woodlands Crossing Retail
|
The Woodlands, TX
|
Retail
|
12,329
|
|
5,122
|
|
11,440
|
|
|
—
|
|
65
|
|
|
5,122
|
|
11,505
|
|
16,627
|
|
(938)
|
|
2017
|
2018
|
|
2201 Lake Woodlands Drive
|
The Woodlands, TX
|
Office
|
—
|
|
3,755
|
|
—
|
|
|
—
|
|
1,210
|
|
|
3,755
|
|
1,210
|
|
4,965
|
|
(286)
|
|
|
1994
|
|
Lakefront North
|
The Woodlands, TX
|
Office
|
—
|
|
10,260
|
|
39,357
|
|
|
—
|
|
11,437
|
|
|
10,260
|
|
50,794
|
|
61,054
|
|
(3,366)
|
|
|
2018
|
|
One Lakes Edge
|
The Woodlands, TX
|
Multi-family
|
69,440
|
|
1,057
|
|
81,768
|
|
|
—
|
|
418
|
|
|
1,057
|
|
82,186
|
|
83,243
|
|
(13,425)
|
|
|
2015
|
|
Two Lakes Edge
|
The Woodlands, TX
|
Multi-family
|
66,198
|
|
—
|
|
—
|
|
|
1,870
|
|
95,653
|
|
|
1,870
|
|
95,653
|
|
97,523
|
|
(2,826)
|
|
2018
|
2020
|
|
Millennium Six Pines Apartments
|
The Woodlands, TX
|
Multi-family
|
42,500
|
|
4,000
|
|
54,624
|
|
|
7,225
|
|
514
|
|
|
11,225
|
|
55,138
|
|
66,363
|
|
(8,942)
|
|
|
2014
|
|
Millennium Waterway Apartments
|
The Woodlands, TX
|
Multi-family
|
51,946
|
|
15,917
|
|
56,002
|
|
|
—
|
|
2,941
|
|
|
15,917
|
|
58,943
|
|
74,860
|
|
(20,035)
|
|
|
2010
|
|
The Lane at Waterway (n)
|
The Woodlands, TX
|
Multi-family
|
22,167
|
|
—
|
|
—
|
|
|
2,029
|
|
39,246
|
|
|
2,029
|
|
39,246
|
|
41,275
|
|
(134)
|
|
2019
|
2020
|
|
8770 New Trails
|
The Woodlands, TX
|
Office
|
35,417
|
|
—
|
|
—
|
|
|
2,204
|
|
34,989
|
|
|
2,204
|
|
34,989
|
|
37,193
|
|
(1,483)
|
|
2019
|
2020
|
|
9303 New Trails
|
The Woodlands, TX
|
Office
|
10,763
|
|
1,929
|
|
11,915
|
|
|
—
|
|
1,322
|
|
|
1,929
|
|
13,237
|
|
15,166
|
|
(3,125)
|
|
|
2008
|
|
3831 Technology Forest Drive
|
The Woodlands, TX
|
Office
|
20,686
|
|
514
|
|
14,194
|
|
|
—
|
|
1,813
|
|
|
514
|
|
16,007
|
|
16,521
|
|
(4,824)
|
|
|
2014
|
|
20/25 Waterway Avenue
|
The Woodlands, TX
|
Retail
|
12,855
|
|
2,346
|
|
8,871
|
|
|
—
|
|
(83)
|
|
|
2,346
|
|
8,788
|
|
11,134
|
|
(2,320)
|
|
|
2007/2009
|
|
Waterway Garage Retail
|
The Woodlands, TX
|
Retail
|
—
|
|
1,341
|
|
4,255
|
|
|
—
|
|
997
|
|
|
1,341
|
|
5,252
|
|
6,593
|
|
(1,449)
|
|
|
2011
|
|
3 Waterway Square
|
The Woodlands, TX
|
Office
|
46,224
|
|
748
|
|
—
|
|
|
—
|
|
40,386
|
|
|
748
|
|
40,386
|
|
41,134
|
|
(12,926)
|
|
|
2013
|
|
4 Waterway Square
|
The Woodlands, TX
|
Office
|
31,519
|
|
1,430
|
|
51,553
|
|
|
—
|
|
6,208
|
|
|
1,430
|
|
57,761
|
|
59,191
|
|
(17,736)
|
|
|
2010
|
|
The Westin at the Woodlands (h)
|
The Woodlands, TX
|
Hospitality
|
41,793
|
|
22,473
|
|
—
|
|
|
(20,520)
|
|
94,634
|
|
|
1,953
|
|
94,634
|
|
96,587
|
|
(14,750)
|
|
|
2016
|
|
The Woodlands
|
The Woodlands, TX
|
MPC
|
75,000
|
|
269,411
|
|
9,814
|
|
|
(92,069)
|
|
7,625
|
|
|
177,342
|
|
17,439
|
|
194,781
|
|
(392)
|
|
|
2011
|
|
The Woodlands Ground Leases
|
The Woodlands, TX
|
Other
|
—
|
|
1,770
|
|
—
|
|
|
3,257
|
|
—
|
|
|
5,027
|
|
—
|
|
5,027
|
|
—
|
|
|
2011
|
|
The Woodlands Parking Garages
|
The Woodlands, TX
|
Other
|
—
|
|
5,857
|
|
—
|
|
|
1,529
|
|
12,022
|
|
|
7,386
|
|
12,022
|
|
19,408
|
|
(2,173)
|
|
|
2008/2009
|
|
2000 Woodlands Parkway
|
The Woodlands, TX
|
Retail
|
—
|
|
—
|
|
—
|
|
|
—
|
|
655
|
|
|
—
|
|
655
|
|
655
|
|
(118)
|
|
|
1997
|
|
The Woodlands Resort & Conference Center
|
The Woodlands, TX
|
Hospitality
|
62,500
|
|
13,258
|
|
37,983
|
|
|
—
|
|
78,367
|
|
|
13,258
|
|
116,350
|
|
129,608
|
|
(26,496)
|
|
|
2014
|
|
The Woodlands Towers at the Waterway
|
The Woodlands, TX
|
Office
|
344,176
|
|
11,044
|
|
437,561
|
|
|
—
|
|
11,860
|
|
|
11,044
|
|
449,421
|
|
460,465
|
|
(14,144)
|
|
|
2019
|
|
The Woodlands Warehouse
|
The Woodlands, TX
|
Other
|
7,230
|
|
4,480
|
|
4,389
|
|
|
—
|
|
—
|
|
|
4,480
|
|
4,389
|
|
8,869
|
|
(179)
|
|
|
2019
|
|
1400 Woodloch Forest
|
The Woodlands, TX
|
Office
|
—
|
|
—
|
|
—
|
|
|
1,570
|
|
15,531
|
|
|
1,570
|
|
15,531
|
|
17,101
|
|
(5,206)
|
|
|
1981
|
|
The Woodlands Hills
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands Hills
|
Conroe, TX
|
MPC
|
—
|
|
99,284
|
|
—
|
|
|
18,448
|
|
8
|
|
|
117,732
|
|
8
|
|
117,740
|
|
—
|
|
|
2014
|
|
Ward Village
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‘A‘ali‘i
|
Honolulu, HI
|
Development
|
154,601
|
|
—
|
|
—
|
|
|
—
|
|
298,825
|
|
|
—
|
|
298,825
|
|
298,825
|
|
(3,123)
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands
|
|
|
|
Initial Cost (b)
|
|
Costs Capitalized Subsequent to Acquisition (c)
|
|
Gross Amounts at Which Carried at Close of Period (d)
|
|
|
|
|
Name of Center
|
Location
|
Center Type
|
Encumbrances (a)
|
Land
|
Buildings and Improvements
|
|
Land (e)
|
Buildings and Improvements (e)(f)
|
|
Land
|
Buildings and Improvements (f)
|
Total
|
Accumulated Depreciation (g)
|
Date of Construction
|
Date Acquired / Completed
|
|
Ae‘o
|
Honolulu, HI
|
Condominium
|
—
|
|
9,795
|
|
85,046
|
|
|
(9,795)
|
|
(83,884)
|
|
|
—
|
|
1,162
|
|
1,162
|
|
(58)
|
|
2016
|
2018
|
|
Anaha
|
Honolulu, HI
|
Condominium
|
—
|
|
5,546
|
|
47,450
|
|
|
(5,546)
|
|
(46,353)
|
|
|
—
|
|
1,097
|
|
1,097
|
|
(85)
|
|
2014
|
2017
|
|
Ke Kilohana
|
Honolulu, HI
|
Condominium
|
—
|
|
152
|
|
12,842
|
|
|
(152)
|
|
(12,186)
|
|
|
—
|
|
656
|
|
656
|
|
(27)
|
|
2016
|
2019
|
|
Kewalo Basin Harbor
|
Honolulu, HI
|
Other
|
11,562
|
|
—
|
|
24,116
|
|
|
—
|
|
—
|
|
|
—
|
|
24,116
|
|
24,116
|
|
(2,462)
|
|
2017
|
2019
|
|
Kō'ula
|
Honolulu, HI
|
Development
|
65,282
|
|
—
|
|
—
|
|
|
—
|
|
130,728
|
|
|
—
|
|
130,728
|
|
130,728
|
|
(2,726)
|
|
2019
|
|
|
Waiea
|
Honolulu, HI
|
Condominium
|
—
|
|
—
|
|
20,812
|
|
|
—
|
|
(16,849)
|
|
|
—
|
|
3,963
|
|
3,963
|
|
(131)
|
|
2014
|
2017
|
|
Ward Predevelopment
|
Honolulu, HI
|
Development
|
—
|
|
—
|
|
24,069
|
|
|
—
|
|
73,443
|
|
|
—
|
|
97,512
|
|
97,512
|
|
(5,071)
|
|
2013
|
|
|
Ward Village Retail (h)
|
Honolulu, HI
|
Retail
|
285,295
|
|
164,007
|
|
89,321
|
|
|
(76,252)
|
|
293,486
|
|
|
87,755
|
|
382,807
|
|
470,562
|
|
(96,682)
|
|
|
2002
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Century Park
|
Houston, TX
|
Development
|
—
|
|
19,816
|
|
36,763
|
|
|
—
|
|
—
|
|
|
19,816
|
|
36,763
|
|
56,579
|
|
—
|
|
|
2019
|
|
Landmark Mall
|
Alexandria, VA
|
Development
|
—
|
|
28,396
|
|
67,235
|
|
|
(28,396)
|
|
(10,218)
|
|
|
—
|
|
57,017
|
|
57,017
|
|
(365)
|
|
|
2004
|
|
Monarch City
|
Allen, TX
|
Development
|
—
|
|
25,575
|
|
—
|
|
|
(25,575)
|
|
28,657
|
|
|
—
|
|
28,657
|
|
28,657
|
|
—
|
|
|
2006
|
|
Outlet Collection at Riverwalk
|
New Orleans, LA
|
Retail
|
28,679
|
|
—
|
|
94,513
|
|
|
—
|
|
(35,328)
|
|
|
—
|
|
59,185
|
|
59,185
|
|
(18,575)
|
|
|
2014
|
|
Total excluding Corporate, Deferred financing costs and Unamortized bond issuance costs
|
2,570,166
|
|
2,570,176
|
|
3,372,534
|
|
|
(519,210)
|
|
1,869,420
|
|
|
2,050,966
|
|
5,241,954
|
|
7,292,920
|
|
(618,122)
|
|
|
|
|
Corporate
|
Various
|
|
1,750,000
|
|
885
|
|
1,027
|
|
|
(885)
|
|
25,186
|
|
|
—
|
|
26,213
|
|
26,213
|
|
(15,942)
|
|
|
|
|
Unamortized bond issuance costs
|
N/A
|
|
(4,355)
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
Deferred financing costs
|
N/A
|
|
(28,442)
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
Total
|
$
|
4,287,369
|
|
$
|
2,571,061
|
|
$
|
3,373,561
|
|
|
$
|
(520,095)
|
|
$
|
1,894,606
|
|
|
$
|
2,050,966
|
|
$
|
5,268,167
|
|
$
|
7,319,133
|
|
$
|
(634,064)
|
|
|
|
(a)See description of Encumbrances in Note 7 - Mortgages, Notes and Loans Payable, Net of the Consolidated Financial Statements.
(b)Initial cost for projects undergoing development or redevelopment is cost at end of first complete calendar year subsequent to opening.
(c)For retail and other properties, costs capitalized subsequent to acquisitions is net of cost of disposals or other property write‑downs. For MPCs, costs capitalized subsequent to acquisitions are net of the cost of land sales.
(d)The aggregate cost of land, building and improvements for federal income tax purposes is approximately $6.2 billion.
(e)Reductions in Land reflect transfers to Buildings and Improvements for projects which the Company is internally developing.
(f)Includes all amounts related to Developments.
(g)Depreciation is computed based upon the useful lives in Note 1 - Summary of Significant Accounting Policies.
(h)Property is collateral for the Senior Secured Credit Facility. See Note 7 - Mortgages, Notes and Loans Payable, Net of the Consolidated Financial Statements for additional information. The Ward Village Retail line includes $30.5 million related to Ae’o Retail and $9.3 million related to Ke Kilohana retail that are not collateral for the Senior Secured Credit Facility.
(i)Lakefront District includes American City Building acquired in 2016, Ridgley Building acquired in 2017 and Sterrett Place acquired in 2018, all of which have been demolished and now represent future development rights.
(j)Encumbrances balance either represents or is inclusive of SIDs. See Note 7 - Mortgages, Notes and Loans Payable, Net of the Consolidated Financial Statements for additional information.
(k)Downtown Summerlin includes the One Summerlin office property, which was placed in service in 2015.
(l)Includes the Las Vegas Aviators.
(m)Creekside Park Apartments Phase II was renamed to Creekside Park The Grove.
(n)Millennium Phase III Apartments was renamed to The Lane at Waterway.
|
|
|
|
|
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Real Estate
|
|
thousands
|
|
2020
|
|
2019
|
|
2018
|
|
Balance as of January 1,
|
|
$
|
7,268,288
|
|
|
$
|
6,163,287
|
|
|
$
|
5,355,409
|
|
|
Change in land
|
|
228,402
|
|
|
239,558
|
|
|
199,069
|
|
|
Additions
|
|
716,614
|
|
|
1,513,888
|
|
|
1,148,826
|
|
|
Impairments
|
|
(48,738)
|
|
|
—
|
|
|
—
|
|
|
Dispositions and write-offs and land and condominium costs of sales
|
|
(845,433)
|
|
|
(648,445)
|
|
|
(540,017)
|
|
|
Balance as of December 31,
|
|
$
|
7,319,133
|
|
|
$
|
7,268,288
|
|
|
$
|
6,163,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Accumulated Depreciation
|
|
thousands
|
|
2020
|
|
2019
|
|
2018
|
|
Balance as of January 1,
|
|
$
|
507,933
|
|
|
$
|
380,892
|
|
|
$
|
321,882
|
|
|
Depreciation Expense
|
|
198,556
|
|
|
143,698
|
|
|
113,518
|
|
|
Dispositions and write-offs
|
|
(72,425)
|
|
|
(16,657)
|
|
|
(54,508)
|
|
|
Balance as of December 31,
|
|
$
|
634,064
|
|
|
$
|
507,933
|
|
|
$
|
380,892
|
|