UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-34856

THE HOWARD HUGHES CORPORATION

(Exact name of registrant as specified in its charter)



Delaware			36-4673192
(State or other jurisdiction of incorporation or organization)			(I.R.S. employer identification number)

9950 Woodloch Forest Drive,, Suite 1100,, The Woodlands,, Texas77380

(Address of principal executive offices, including zip code)

~~(214)741-7744~~(281) 719-6100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered:

Common stock, par value $0.01 per share

HHC

New York Stock Exchange

The number of shares of common stock, $0.01 par value, outstanding as of ~~November 2, 2020~~July 28, 2021 was ~~54,922,801.~~55,126,260.

Table of Contents



TABLE OF CONTENTS					Page
PART I
Item 1.			Financial Statements
			Condensed Consolidated Financial Statements (Unaudited)		32
			Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2020,~~2021 and December 31, ~~2019~~2020		32
			Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020		43
			Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020		54
			Condensed Consolidated Statements of Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020		65
			Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020		87
			Notes to Condensed Consolidated Financial Statements		109
			Note 1. ~~Basis~~Summary of ~~Presentation and Organization~~Significant Accounting Policies		109
			Note 2. ~~Accounting Policies and Pronouncements~~		12
	~~Note 3.~~ Real Estate and Other Affiliates	1512
			Note ~~4. Recent Transactions~~3. Dispositions		1816
			~~Note 5. Impairment~~	19Note 4. Impairment		17
			Note 6.5. Other Assets and Liabilities		2018
			Note 7.6. Mortgages, Notes and Loans Payable, Net		2119
			Note 8.7. Fair Value		2321
			Note 9.8. Derivative Instruments and Hedging Activities		2523
			Note ~~10.~~9. Commitments and Contingencies		2725
			Note ~~11. Stock-Based Plans~~10. Income Taxes		2826
			Note ~~12. Income Taxes~~11. Warrants		2926
			Note ~~13. Warrants~~		29
	~~Note 14.~~12. Accumulated Other Comprehensive Loss	3027
			Note ~~15.~~13. Earnings Per Share		3128
			Note ~~16.~~14. Revenues		3229
			Note ~~17.~~15. Leases		3330
			Note ~~18.~~16. Segments		3533
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		3937
			~~Forward-looking~~Forward-Looking Information		4038
			Executive Overview		4140
			Results of Operations		48
			Liquidity and Capital Resources		60
			Off-Balance Sheet Financing Arrangements		62
			Critical Accounting Policies		62
Item 3.			Quantitative and Qualitative Disclosures about Market Risk		6263
Item 4.			Controls and Procedures		64
PART II
Item 1.			Legal Proceedings		65
Item 1A.			Risk Factors		65
Item 2.			Unregistered Sales of Equity Securities And Use Of Proceeds		6665
Item 3.			Default Upon Senior Securities		6665
Item 4.			Mine Safety Disclosures		6665
Item 5.			Other Information		6665
Item 6.			Exhibits		6766

HHC ~~2020~~2021 FORM 10-Q | 2



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~



~~PART I~~FINANCIAL STATEMENTS			Table of Contents


PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


thousands except par values and share amounts	September 30, 2020			December 31, 2019			thousands except par values and share amounts	June 30, 2021		December 31, 2020
ASSETS							ASSETS
Investment in real estate:							Investment in real estate:
Master Planned Communities assets	$	1,693,478		$	1,655,674		Master Planned Communities assets	$	1,743,502	$	1,687,519
Buildings and equipment	4,069,640			3,813,595			Buildings and equipment	4,170,506		4,115,493
Less: accumulated depreciation	(600,211		)	(507,933		)	Less: accumulated depreciation	(721,275)		(634,064)
Land	361,418			353,022			Land	365,725		363,447
Developments	1,110,101			1,445,997			Developments	1,352,999		1,152,674
Net property and equipment	6,634,426			6,760,355			Net property and equipment	6,911,457		6,685,069
Investment in real estate and other affiliates	389,882			121,757			Investment in real estate and other affiliates	298,161		377,145
Net investment in real estate	7,024,308			6,882,112			Net investment in real estate	7,209,618		7,062,214
Net investment in lease receivable	2,928			79,166			Net investment in lease receivable	2,917		2,926
Cash and cash equivalents	857,390			422,857			Cash and cash equivalents	1,063,261		1,014,686
Restricted cash	233,111			197,278			Restricted cash	219,483		228,311
Accounts receivable, net	10,087			12,279			Accounts receivable, net	81,503		66,726
Municipal Utility District receivables, net	331,451			280,742			Municipal Utility District receivables, net	354,932		314,394
Notes receivable, net	52,136			36,379			Notes receivable, net	3,235		622
Deferred expenses, net	112,503			133,182			Deferred expenses, net	111,491		112,097
Operating lease right-of-use assets, net	57,087			69,398			Operating lease right-of-use assets, net	54,566		56,255
Prepaid expenses and other assets, net	360,244			300,373			Prepaid expenses and other assets, net	208,063		282,101
Total assets	$	9,041,245		$	8,413,766		Total assets	$	9,309,069	$	9,140,332

LIABILITIES							LIABILITIES
Mortgages, notes and loans payable, net	$	4,219,334		$	4,096,470		Mortgages, notes and loans payable, net	$	4,449,333	$	4,287,369

Operating lease obligations	69,246			70,413			Operating lease obligations	68,102		68,929
Deferred tax liabilities	178,433			180,748			Deferred tax liabilities	167,105		187,639

Accounts payable and accrued expenses	830,209			733,147			Accounts payable and accrued expenses	925,845		852,258
Total liabilities	5,297,222			5,080,778			Total liabilities	5,610,385		5,396,195

Commitments and Contingencies (see Note 10)
Commitments and Contingencies (see Note 9)							Commitments and Contingencies (see Note 9)	0		0
Redeemable noncontrolling interest	30,361			0			Redeemable noncontrolling interest	26,781		29,114

EQUITY							EQUITY
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued	0			0
Common stock: $.01 par value; 150,000,000 shares authorized, 55,974,883 issued and 54,921,748 outstanding as of September 30, 2020, and 150,000,000 shares authorized, 43,635,893 shares issued and 42,585,633 outstanding as of December 31, 2019	561			437
Preferred stock: $0.01 par value; 50,000,000 shares authorized, NaN issued							Preferred stock: $0.01 par value; 50,000,000 shares authorized, NaN issued	0		0
Common stock: $0.01 par value; 150,000,000 shares authorized, 56,196,818 issued and 55,126,260 outstanding as of June 30, 2021, 56,042,814 shares issued and 54,972,256 outstanding as of December 31, 2020							Common stock: $0.01 par value; 150,000,000 shares authorized, 56,196,818 issued and 55,126,260 outstanding as of June 30, 2021, 56,042,814 shares issued and 54,972,256 outstanding as of December 31, 2020	563		562
Additional paid-in capital	3,942,173			3,343,983			Additional paid-in capital	3,955,162		3,947,278
Accumulated deficit	(65,910		)	(46,385		)	Accumulated deficit	(134,309)		(72,556)
Accumulated other comprehensive loss	(42,831		)	(29,372		)	Accumulated other comprehensive loss	(27,754)		(38,590)
Treasury stock, at cost, 1,053,135 shares as of September 30, 2020, and 1,050,260 shares as of December 31, 2019	(120,706		)	(120,530		)
Treasury stock, at cost, 1,070,558 shares as of June 30, 2021, and 1,070,558 shares as of December 31, 2020							Treasury stock, at cost, 1,070,558 shares as of June 30, 2021, and 1,070,558 shares as of December 31, 2020	(122,091)		(122,091)
Total stockholders' equity	3,713,287			3,148,133			Total stockholders' equity	3,671,571		3,714,603
Noncontrolling interests	375			184,855			Noncontrolling interests	332		420
Total equity	3,713,662			3,332,988			Total equity	3,671,903		3,715,023
Total liabilities and equity	$	9,041,245		$	8,413,766		Total liabilities and equity	$	9,309,069	$	9,140,332

See Notes to Condensed Consolidated Financial Statements.

HHC ~~2020~~2021 FORM 10-Q | 32



FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
thousands except per share amounts	2020			2019			2020			2019			thousands except per share amounts	2021		2020		2021		2020
REVENUES													REVENUES
Condominium rights and unit sales	$	142		$	9,999		$	185		$	443,931		Condominium rights and unit sales	$	12,861	$	0	$	50,028	$	43
Master Planned Communities land sales	39,248			77,368			136,053			177,001			Master Planned Communities land sales	58,342		57,073		95,819		96,805
Rental revenue	70,072			70,344			241,522			206,168			Rental revenue	88,476		78,706		174,375		171,450
Other land, rental and property revenues	35,748			63,801			82,092			165,054			Other land, rental and property revenues	41,389		11,447		64,632		46,344
Builder price participation	9,230			9,660			25,936			24,224			Builder price participation	11,389		8,947		18,183		16,706
Total revenues	154,440			231,172			485,788			1,016,378			Total revenues	212,457		156,173		403,037		331,348

EXPENSES													EXPENSES
Condominium rights and unit cost of sales	1,087			7,010			105,336			365,324			Condominium rights and unit cost of sales	13,435		6,348		68,403		104,249��
Master Planned Communities cost of sales	15,899			33,304			58,560			78,128			Master Planned Communities cost of sales	24,858		25,875		40,509		42,661
Operating costs	58,272			81,222			168,763			221,529			Operating costs	71,243		45,885		129,841		110,491
Rental property real estate taxes	15,448			9,080			44,225			28,585			Rental property real estate taxes	13,716		15,199		27,707		28,777
Provision for (recovery of) doubtful accounts	1,387			(107		)	4,954			(195		)	Provision for (recovery of) doubtful accounts	(1,520)		1,866		(2,098)		3,567
Demolition costs	0			138			0			737			Demolition costs	149		0		149		0
Development-related marketing costs	1,912			5,341			6,541			16,874			Development-related marketing costs	2,397		1,813		4,041		4,629
General and administrative	23,441			33,990			84,755			92,322			General and administrative	20,334		22,233		42,100		61,314
Depreciation and amortization	52,395			40,093			160,995			115,142			Depreciation and amortization	49,788		46,963		99,096		108,600
Total expenses	169,841			210,071			634,129			918,446			Total expenses	194,400		166,182		409,748		464,288

OTHER													OTHER
Provision for impairment	0			0			(48,738		)	0			Provision for impairment	(13,068)		0		(13,068)		(48,738)
Gain (loss) on sale or disposal of real estate and other assets, net	108			24,201			46,232			24,051			Gain (loss) on sale or disposal of real estate and other assets, net	21,333		8,000		21,333		46,124
Other income (loss), net	1,284			1,337			(793		)	11,798			Other income (loss), net	(663)		1,607		(10,971)		(2,077)
Total other	1,392			25,538			(3,299		)	35,849			Total other	7,602		9,607		(2,706)		(4,691)

Operating income (loss)	(14,009		)	46,639			(151,640		)	133,781			Operating income (loss)	25,659		(402)		(9,417)		(137,631)

Selling profit from sales-type leases	0			13,537			0			13,537

Interest income	358			2,872			1,908			7,696			Interest income	31		404		72		1,550
Interest expense	(31,872		)	(28,829		)	(98,717		)	(76,358		)	Interest expense	(31,439)		(32,397)		(65,649)		(66,845)
Gain (loss) on extinguishment of debt	(13,166		)	0			(13,166		)	0			Gain (loss) on extinguishment of debt	(51)		0		(35,966)		0

Equity in earnings (losses) from real estate and other affiliates	266,838			4,542			269,635			20,847			Equity in earnings (losses) from real estate and other affiliates	7,867		(8,552)		23,663		2,797
Income (loss) before taxes	208,149			38,761			8,020			99,503			Income (loss) before taxes	2,067		(40,947)		(87,297)		(200,129)
Provision (benefit) for income taxes	44,147			8,718			3,203			24,207
Income tax expense (benefit)													Income tax expense (benefit)	(1,550)		(6,844)		(22,755)		(40,944)
Net income (loss)	164,002			30,043			4,817			75,296			Net income (loss)	3,617		(34,103)		(64,542)		(159,185)
Net (income) loss attributable to noncontrolling interests	(24,292		)	(285		)	(24,325		)	(240		)	Net (income) loss attributable to noncontrolling interests	1,224		19		2,789		(33)
Net income (loss) attributable to common stockholders	$	139,710		$	29,758		$	(19,508	)	$	75,056		Net income (loss) attributable to common stockholders	$	4,841	$	(34,084)	$	(61,753)	$	(159,218)

Basic income (loss) per share	$	2.52		$	0.69		$	(0.38	)	$	1.74		Basic income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)
Diluted income (loss) per share	$	2.51		$	0.69		$	(0.38	)	$	1.73		Diluted income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)

See Notes to Condensed Consolidated Financial Statements.

HHC ~~2020~~2021 FORM 10-Q | 43



FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
thousands	2021		2020		2021		2020
Net income (loss)	$	3,617	$	(34,103)	$	(64,542)	$	(159,185)
Other comprehensive income (loss):
Interest rate swaps (a)	1,905		(838)		8,261		(31,739)



Share of investee’s other comprehensive income (b)	1,358		0		2,575		0

Other comprehensive income (loss)	3,263		(838)		10,836		(31,739)
Comprehensive income (loss)	6,880		(34,941)		(53,706)		(190,924)
Comprehensive income (loss) attributable to noncontrolling interests	1,224		19		2,789		(33)
Comprehensive income (loss) attributable to common stockholders	$	8,104	$	(34,922)	$	(50,917)	$	(190,957)

Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 2020 2019
Net income (loss) $ 164,002
$ 30,043
$ 4,817
$ 75,296
Other comprehensive income (loss):
Interest rate swaps (a) 5,923
(6,207 ) (24,558 ) (25,259 )
Capitalized swap interest expense (b) 0
0
0
(73 )
Terminated swap amortization (577 ) (764 ) (1,835 ) (2,055 )
Other comprehensive income (loss) 5,346
(6,971 ) (26,393 ) (27,387 )
Comprehensive income (loss) 169,348
23,072
(21,576 ) 47,909
Comprehensive income (loss) attributable to noncontrolling interests (24,292 ) (285 ) (24,325 ) (240 )
Comprehensive income (loss) attributable to common stockholders $ 145,056
$ 22,787
$ (45,901 ) $ 47,669
(a)Amounts are shown net of deferred tax expense of $0.5 million for the three months ended June 30, 2021, deferred tax benefit of $0.3 million for the three months ended June 30, 2020, deferred tax expense of $2.3 million for the six months ended June 30, 2021, and deferred tax benefit of $7.4 million for the six months ended June 30, 2020.


~~(a)~~	Amounts are shown net of deferred tax expense of $1.3 million for the three months ended September 30, 2020, and a deferred tax benefit of $1.7 million for the three months ended September 30, 2019. Amounts are shown net of deferred tax benefit of $5.6 million for the nine months ended September 30, 2020, and $7.0 million for the nine months ended September 30, 2019.


~~(b)~~	~~The deferred tax impact was 0 for the three and nine months ended September 30, 2020, and the three months ended September 30, 2019, and 0t meaningful for the nine months ended September 30, 2019.~~

(b)The amount for 2021 is shown net of deferred tax expense of $0.4 million for the three months ended June 30, 2021 and $0.7 million for the six months ended June 30, 2021.

See Notes to Condensed Consolidated Financial Statements.

HHC ~~2020~~2021 FORM 10-Q | 54



FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


								Accumulated
				Additional				Other					Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Treasury Stock			Stockholders'		Noncontrolling		Total
thousands except shares	Shares	Amount		Capital		Deficit		(Loss) Income		Shares	Amount		Equity		Interests (a)		Equity
Balance, March 31, 2021	56,178,233	$	563	$	3,952,537	$	(139,150)	$	(31,017)	1,070,558	$	(122,091)	$	3,660,842	$	425	$	3,661,267
Net income (loss) excluding a loss of $1,131 attributable to redeemable noncontrolling interest	—	—		—		4,841		—		—	—		4,841		(93)		4,748

Interest rate swaps, net of tax expense (benefit) of $524	—	—		—		—		1,905		—	—		1,905		—		1,905





Share of investee's other comprehensive income, net of tax expense (benefit) of $386	—	—		—		—		1,358		—	—		1,358		—		1,358



Stock plan activity	18,585	—		2,625		—		—		—	—		2,625		—		2,625
Balance, June 30, 2021	56,196,818	$	563	3,955,162		$	(134,309)	$	(27,754)	1,070,558	$	(122,091)	$	3,671,571	$	332	$	3,671,903

Balance, March 31, 2020	55,989,263	$	561	$	3,939,470	$	(171,537)	$	(60,273)	(1,050,260)	$	(120,530)	$	3,587,691	$	184,907	$	3,772,598
Net income (loss)	—	—		—		(34,084)		—		—	—		(34,084)		(19)		(34,103)
Interest rate swaps, net of tax expense (benefit) of $(262)	—	—		—		—		(838)		—	—		(838)		—		(838)







Common stock offering costs	—	—		(85)		—		—		—	—		(85)		—		(85)
Stock plan activity	(7,703)	—		2,131		—		—		—	—		2,131		—		2,131
Balance, June 30, 2020	55,981,560	$	561	$	3,941,516	$	(205,621)	$	(61,111)	(1,050,260)	$	(120,530)	$	3,554,815	$	184,888	$	3,739,703

(a) The three months ended June 30, 2021, excludes redeemable noncontrolling interest, which is reflected in temporary equity. See Note 2 - Real Estate and Other Affiliates.

See Notes to Condensed Consolidated Financial Statements.

Accumulated
Additional Other Total
Common Stock Paid-In Accumulated Comprehensive Treasury Stock Stockholders' Noncontrolling Total
thousands except shares Shares Amount Capital Deficit (Loss) Income Shares Amount Equity Interests (a) Equity
Balance, June 30, 2020 55,981,559
$ 561
$ 3,941,516
$ (205,621 ) $ (61,111 ) (1,050,260 ) $ (120,530 ) $ 3,554,815
$ 184,888
$ 3,739,703
Net income (loss), excluding $24,270 attributable to redeemable noncontrolling interest —
—
—
139,710
—
—
—
139,710
22
139,732
Interest rate swaps, net of tax of $1,349 —
—
—
—
5,923
—
—
5,923
—
5,923
Terminated swap amortization —
—
—
—
(577 ) —
—
(577 ) —
(577 )
Reclassification of redeemable noncontrolling interest to temporary equity —
—
—
—
—
—
—
—
(6,091 ) (6,091 )
Derecognition of 110 North Wacker (b) —
—
—
1
12,934
12,935
(178,444 ) (165,509 )
Common stock offering costs —
—
3
—
—
—
—
3
—
3
Stock plan activity (6,676 ) 0
654
—
—
(2,875 ) (176 ) 478
—
478
Balance, September 30, 2020 55,974,883
$ 561
3,942,173
$ (65,910 ) $ (42,831 ) (1,053,135 ) $ (120,706 ) $ 3,713,287
$ 375
$ 3,713,662
(a) Excludes redeemable noncontrolling interest, which is reflected in temporary equity. See Note 3 - Real Estate and Other Affiliates.
(b) Related to deconsolidation of 110 North Wacker. Refer to Note 3 - Real Estate and Other Affiliates for additional information.

Balance, June 30, 2019 43,661,694
$ 437
$ 3,329,062
$ (75,043 ) $ (28,542 ) (519,849 ) $ (62,190 ) $ 3,163,724
$ 188,043
$ 3,351,767
Net income (loss) —
—
—
29,758
—
—
—
29,758
285
30,043
Interest rate swaps, net of tax of $1,719 —
—
—
—
(6,207 ) —
—
(6,207 ) —
(6,207 )
Terminated swap amortization —
—
—
—
(764 ) —
—
(764 ) —
(764 )
Deconsolidation of Associations of Unit Owners —
—
—
—
—
—
—
—
177
177
Contributions to real estate and other affiliates —
—
—
—
—
—
—
—
—
—
Stock plan activity 91,083
1
5,039
—
—
—
—
5,040
—
5,040
Balance, September 30, 2019 43,752,777
$ 438
$ 3,334,101
$ (45,285 ) $ (35,513 ) (519,849 ) $ (62,190 ) $ 3,191,551
$ 188,505
$ 3,380,056

HHC ~~2020~~2021 FORM 10-Q | 56



FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


								Accumulated
				Additional				Other					Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Treasury Stock			Stockholders'		Noncontrolling		Total
thousands except shares	Shares	Amount		Capital		Deficit		(Loss) Income		Shares	Amount		Equity		Interests (a)		Equity
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
Net income (loss) excluding a loss of $2,701 attributable to redeemable noncontrolling interest	—	—		—		(61,753)		—		—	—		(61,753)		(88)		(61,841)
Interest rate swaps, net of tax expense (benefit) of $2,314	—	—		—		—		8,261		—	—		8,261		—		8,261







Share of investee's other comprehensive income, net of tax expense (benefit) of $732	—	—		—		—		2,575		—	—		2,575		—		2,575



Issuance of common shares	—	—		(5)		—		—		—	—		(5)		—		(5)
Stock plan activity	154,004	1		7,889		—		—		—	—		7,890		—		7,890
Balance, June 30, 2021	56,196,818	$	563	$	3,955,162	$	(134,309)	$	(27,754)	1,070,558	$	(122,091)	$	3,671,571	$	332	$	3,671,903



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)	—	—		—		(159,218)		—		—	—		(159,218)		33		(159,185)
Interest rate swaps, net of tax expense (benefit) of $(7,356)	—	—		—		—		(31,739)		—	—		(31,739)		—		(31,739)






Adoption of ASU 2016-13	—	—		—		(18)		—		—	—		(18)		—		(18)




Issuance of common shares	12,270,900	123		593,490		—		—		—	—		593,613		—		593,613
Stock plan activity	74,767	1		4,043		—		��		—	—		4,044		—		4,044
Balance, June 30, 2020	55,981,560	$	561	$	3,941,516	$	(205,621)	$	(61,111)	(1,050,260)	$	(120,530)	$	3,554,815	$	184,888	$	3,739,703

Accumulated
Additional Other Total
Common Stock Paid-In Accumulated Comprehensive Treasury Stock Stockholders' Noncontrolling Total
thousands except shares Shares Amount Capital Deficit (Loss) Income Shares Amount Equity Interests (a) Equity
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 $24,270 attributable to redeemable noncontrolling interest —
—
—
(19,508 ) —
—
—
(19,508 ) 55
(19,453 )
Interest rate swaps, net of tax of $5,611 —
—
—
—
(24,558 ) —
—
(24,558 ) —
(24,558 )
Terminated swap amortization —
—
—
—
(1,835 ) —
—
(1,835 ) —
(1,835 )
Reclassification of redeemable noncontrolling interest to temporary equity —
—
—
—
—
—
—
—
(6,091 ) (6,091 )
Derecognition of 110 North Wacker (b) —
1
12,934
12,935
(178,444 ) (165,509 )
Adoption of ASU 2016-13 —
—
—
(18 ) —
—
—
(18 ) —
(18 )
Common stock issued 12,270,900
123
593,493
—
—
—
—
593,616
—
593,616
Stock plan activity 68,090
1
4,697
—
—
(2,875 ) (176 ) 4,522
—
4,522
Balance, September 30, 2020 55,974,883
$ 561
$ 3,942,173
$ (65,910 ) $ (42,831 ) (1,053,135 ) $ (120,706 ) $ 3,713,287
$ 375
$ 3,713,662
(a) Excludes redeemable noncontrolling interest, which is reflected in temporary equity. See Note 3 - Real Estate and Other Affiliates.
(b) Related to deconsolidation of 110 North Wacker. Refer to Note 3 - Real Estate and Other Affiliates for additional information.

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 (loss) —
—
—
75,056
—
—
—
75,056
240
75,296
Interest rate swaps, net of tax of $6,968 —
—
—
—
(25,259 ) —
—
(25,259 ) —
(25,259 )
Terminated swap amortization —
—
—
—
(2,055 ) —
—
(2,055 ) —
(2,055 )
Capitalized swap interest, net of tax of $20 —
—
—
—
(73 ) —
—
(73 ) —
(73 )
Deconsolidation of Associations of Unit Owners —
—
—
—
—
—
—
—
(2,538 ) (2,538 )
Contributions to real estate and other affiliates —
—
—
—
—
—
—
—
84,889
84,889
Stock plan activity 241,304
2
11,668
—
—
—
—
11,670
—
11,670
Balance, September 30, 2019 43,752,777
$ 438
$ 3,334,101
$ (45,285 ) $ (35,513 ) (519,849 ) $ (62,190 ) $ 3,191,551
$ 188,505
$ 3,380,056
(a) The six months ended June 30, 2021 excludes redeemable noncontrolling interest, which is reflected in temporary equity. See Note 2 - Real Estate and Other Affiliates.

See Notes to Condensed Consolidated Financial Statements.

HHC ~~2020~~2021 FORM 10-Q | 76



FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended June 30,
thousands	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(64,542)	$	(159,185)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation	89,516		99,682
Amortization	8,356		8,517
Amortization of deferred financing costs	5,086		8,312
Amortization of intangibles other than in-place leases	1,205		340
Straight-line rent amortization	(6,770)		(6,183)
Deferred income taxes	(23,581)		(41,701)
Restricted stock and stock option amortization	4,781		3,346
Net gain on sale of properties	(21,338)		(8,000)

Net gain on sale of lease receivable	0		(38,124)
Proceeds from the sale of lease receivable	0		64,155

(Gain) loss on extinguishment of debt	35,966		0
Impairment charges	13,799		59,817


Equity in (earnings) losses from real estate and other affiliates, net of distributions	925		(2,057)
Provision for doubtful accounts	(628)		5,443

Master Planned Community development expenditures	(126,302)		(116,372)
Master Planned Community cost of sales	39,499		41,883
Condominium development expenditures	(150,509)		(114,660)
Condominium rights and units cost of sales	65,951		99,171
Net Changes:
Accounts and notes receivable	(12,063)		(14,895)
Prepaid expenses and other assets	22,176		(38,214)

Condominium deposits received	33,627		94,644
Deferred expenses	(5,316)		(19,530)
Accounts payable and accrued expenses	10,227		(25,032)


Cash provided by (used in) operating activities	(79,935)		(98,643)

CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment expenditures	(931)		(598)
Operating property improvements	(20,664)		(17,297)
Property development and redevelopment	(121,839)		(250,370)


Proceeds from sales of properties	49,907		0
Reimbursements under tax increment financings	403		2,671

Distributions from real estate and other affiliates	83,014		1,232
Investments in real estate and other affiliates, net	(767)		(3,127)

Cash provided by (used in) investing activities	(10,877)		(267,489)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages, notes and loans payable	1,503,083		392,714
Principal payments on mortgages, notes and loans payable	(1,328,054)		(51,008)
Proceeds from issuance of common stock	0		593,614

Debt extinguishment costs	(29,669)		0
Special Improvement District bond funds released from (held in) escrow	4,384		2,352
Deferred financing costs and bond issuance costs, net	(20,904)		(4,088)
Taxes paid on stock options exercised and restricted stock vested	(2,183)		(668)

Stock options exercised	3,902		1,365

Cash provided by (used in) financing activities	130,559		934,281

Net change in cash, cash equivalents and restricted cash	39,747		568,149
Cash, cash equivalents and restricted cash at beginning of period	1,242,997		620,135
Cash, cash equivalents and restricted cash at end of period	$	1,282,744	$	1,188,284

Nine Months Ended September 30,
thousands 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,817
$ 75,296
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:

Depreciation 146,345
106,328
Amortization 14,082
7,584
Amortization of deferred financing costs 10,392
8,126
Amortization of intangibles other than in-place leases 510
618
Straight-line rent amortization (10,277 ) (4,833 )
Deferred income taxes 1,186
23,191
Restricted stock and stock option amortization 4,000
9,902
Net gain on sales and acquisitions of properties 0
(24,201 )
Net gain on sale of lease receivable (38,124 ) 0
Proceeds from the sale of lease receivable 64,155
0
Loss on extinguishment of debt 9,604
0
Selling profit from sales-type leases 0
(13,537 )
Impairment charges 60,762
0
Equity in (earnings) losses from real estate and other affiliates, net of distributions (267,168 ) (12,260 )
Provision for doubtful accounts 16,835
3,698
Master Planned Communities land acquisitions 0
(752 )
Master Planned Communities development expenditures (160,217 ) (180,733 )
Master Planned Communities cost of sales 55,470
78,040
Condominium development expenditures (175,536 ) (165,520 )
Condominium rights and unit cost of sales 99,314
365,324
Net changes:

Accounts and notes receivable (17,514 ) (2,544 )
Prepaid expenses and other assets (37,345 ) (3,827 )
Condominium deposits received 102,606
(93,530 )
Deferred expenses (20,716 ) (29,613 )
Accounts payable and accrued expenses (32,979 ) (9,561 )
Cash (used in) provided by operating activities (169,798 ) 137,196
CASH FLOWS FROM INVESTING ACTIVITIES

Property and equipment expenditures (830 ) (5,395 )
Operating property improvements (28,490 ) (44,083 )
Property development and redevelopment (379,219 ) (492,279 )
Acquisition of assets 0
(579 )
Proceeds from sales of properties 0
9,460
Proceeds from (reimbursements under) Tax Increment Financings 4,887
3,224
Distributions from real estate and other affiliates 2,049
315
Investments in real estate and other affiliates, net (2,919 ) (6,469 )
Cash used in investing activities (404,522 ) (535,806 )
CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from mortgages, notes and loans payable 1,324,360
638,686
Proceeds from issuance of common stock 593,617
0
Principal payments on mortgages, notes and loans payable (861,975 ) (196,081 )
Special Improvement District bond funds released from (held in) escrow 4,562
1,777
Deferred financing costs and bond issuance costs, net (16,399 ) (14,468 )
Taxes paid on stock options exercised and restricted stock vested (844 ) (987 )
Stock options exercised 1,365
3,208
Contribution from (issuance of) noncontrolling interest 0
84,889
Cash provided by financing activities 1,044,686
517,024
Net change in cash, cash equivalents and restricted cash 470,366
118,414
Cash, cash equivalents and restricted cash at beginning of period 620,135
724,215
Cash, cash equivalents and restricted cash at end of period $ 1,090,501
$ 842,629

HHC ~~2020~~2021 FORM 10-Q | 78



FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


								Six Months Ended June 30,
thousands							thousands	2021		2020

	Nine Months Ended September 30,
thousands	2020			2019

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION							SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	154,448		$	137,967		Interest paid	$	88,041	$	97,015
Interest capitalized	53,699			55,110			Interest capitalized	34,801		35,949
Income taxes paid (refunded), net	312			(409		)	Income taxes paid (refunded), net	1,789		(2,408)

NON-CASH TRANSACTIONS							NON-CASH TRANSACTIONS
Accrued property improvements, developments, and redevelopments	(88,867		)	33,151
Initial recognition of ASC 842 operating leases ROU asset							Initial recognition of ASC 842 operating leases ROU asset	0		493
Initial recognition of ASC 842 operating lease obligation							Initial recognition of ASC 842 operating lease obligation	0		493
Accrued property improvements, developments and redevelopments							Accrued property improvements, developments and redevelopments	4,760		(35,250)
Special Improvement District bond transfers associated with land sales	3,090			88			Special Improvement District bond transfers associated with land sales	1,010		779
Special Improvement District bonds held in third party escrow	22,750			0
Accrued interest on construction loan borrowing	9,743			4,627			Accrued interest on construction loan borrowing	0		9,586

Capitalized stock compensation	1,107			1,325			Capitalized stock compensation	974		907
Initial recognition of ASC 842 Operating lease ROU asset	493			72,106
Initial recognition of ASC 842 Operating lease obligation	493			71,888

See Notes to Condensed Consolidated Financial Statements.

HHC ~~2020~~2021 FORM 10-Q | 89



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


1. ~~Basis~~Summary of ~~Presentation and Organization~~Significant Accounting Policies

General The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ~~(“GAAP”)~~(GAAP), with intercompany transactions between consolidated subsidiaries eliminated. In accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as issued by the Securities and Exchange Commission (the ~~“SEC”)~~SEC), these Condensed Consolidated Financial Statements do not include all of the information and disclosures required by GAAP for complete financial statements. Readers of this quarterly report on Form 10-Q ~~(“Quarterly Report”)~~(Quarterly Report) should refer to The Howard Hughes ~~Corporation’s (“HHC”~~Corporation (HHC or the ~~“Company”)~~Company) audited Consolidated Financial Statements, which are included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~27, 2020~~25, 2021 (the ~~“Annual Report”)~~Annual Report). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and equity for the interim periods have been included. The results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020,~~2021, and future fiscal years.

Certain amounts in the 2020 ~~and 2019~~ 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,~~revenue. Certain amounts in the 2020 Condensed Consolidated Balance Sheet have been reclassified to conform to the current presentation. Specifically, the Company reclassified straight-line rent from Prepaid expenses and other ~~rental and property revenues~~assets, net to Other land, rental and property revenues; and master planned communities operations, and other property operating costs, rental property maintenance costs, and hospitality operating costs to Operating costs. In addition, certain labor costs previously presented in the Master Planned Communities (“MPC”) property operating costs were reclassified to corporate General and administrative expense.Accounts Receivable, net.

Management has evaluated for disclosure or recognition all material events occurring subsequent to the date of the Condensed Consolidated Financial Statements up to the date and time this Quarterly Report was filed.

COVID-19 Pandemic ~~In December 2019, a~~The 2020 outbreak of the novel strain of the coronavirus ~~(“COVID-19”) was reported~~(COVID-19) resulted in a global slowdown of economic activity including worldwide travel restrictions, prohibitions of non-essential work activities, and the disruption and shutdown of businesses, all of which resulted in significant uncertainty in global financial markets and a material adverse impact on the Company’s financial performance in fiscal 2020, particularly in the Operating Asset and Seaport segments. Many states began easing quarantine protocols near the end of the second quarter of 2020, which allowed most of the Company’s retail and hospitality properties to ~~have surfaced in Wuhan, China.~~resume operations on a limited basis. While COVID-19 has ~~since spread globally, including to every state in~~adversely impacted all business segments during 2020 and the ~~United States. On March 11,~~first half of 2021, the Company’s performance has notably improved during the second half of 2020 and through the ~~World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The outbreak~~first half of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting a wide variety of control measures including states of emergency, mandatory quarantines, required business and school closures, implementing “shelter in place” orders and restricting travel.2021.

The ~~outbreak of~~extent to which COVID-19 ~~has materially negatively impacted, and is expected~~continues to ~~continue to materially negatively~~ impact the ~~Company’s business, financial performance and condition, operating results and cash flows. The significance, extent and duration of such impact remains largely uncertain and dependent~~Company will depend on future developments, ~~that~~which are highly uncertain and cannot be ~~accurately predicted. The future developments include, but are not limited to: (1)~~predicted with confidence, including the ~~continued severity, duration, transmission rate and geographic spread of COVID-19 in~~actions taken to contain the ~~United States and other regions in which~~pandemic or mitigate its impact, such as the ~~Company operates; (2) the extent~~speed and effectiveness of vaccine and treatment developments and their deployment, potential mutations of COVID-19, and the ~~containment measures taken~~direct and ~~development of a vaccine; and (3) the response~~indirect economic effects of the ~~overall economy,~~pandemic and containment measures.

Restricted Cash Restricted cash reflects amounts segregated in escrow accounts in the ~~financial markets and the population, particularly in areas in which~~name of the Company, ~~operates, once the current containment measures are lifted. Material impacts~~primarily related to ~~the Company are noted below.~~escrowed condominium deposits by buyers and other amounts related to taxes, insurance and legally restricted security deposits and leasing costs.

Accounts Receivable, net On a quarterly basis, management reviews tenant rents, tenant recoveries and straight-line rent assets for collectability. As required under Accounting Standards Codification (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 continued impacts of COVID-19 on the collectability of ~~the Company’s accounts receivable,~~tenant receivables, the Company ~~completed an analysis~~determined full collection of ~~its collections~~outstanding tenant rents and ~~determined an additional reserve~~recoveries was ~~required related to its Retail accounts receivable. Upon assessment~~not probable for a number of ~~its uncollectible Accounts receivable, net balances,~~retail tenants. In addition, the Company determined that a reserve for estimated losses under ASC 450 - Contingencies is required ~~in addition to the specific reserve required under ASC 842 -~~ ~~Leases~~, as the amount is probable and can be reasonably estimated.

HHC 2021 FORM 10-Q | 9


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

The following table represents the components of Accounts Receivable, net of amounts considered uncollectible, in the accompanying Condensed Consolidated Balance Sheets:


thousands	June 30, 2021		December 31, 2020
Tenant receivables	$	8,531	$	4,339
Straight-line rent receivables	68,231		59,288
Other receivables	4,741		3,099
Accounts receivable, net (a)	$	81,503	$	66,726

(a)As ~~a result,~~of June 30, 2021, the ~~Company recorded a specific~~total reserve ~~as contra revenue under~~balance for amounts considered uncollectible was $30.6 million, comprised of $27.2 million related to ASC 842 and $3.4 million related to ASC 450. As of ~~$9.7~~December 31, 2020, the total reserve balance was $33.0 million, ~~for~~comprised of $27.3 million related to ASC 842 and $5.7 million related to ASC 450.

The following table summarizes the ~~three months ended September 30, 2020,~~impacts of the ASC 842 and ~~$16.9 million for the nine months ended September 30, 2020. In addition the Company recorded an~~ ASC 450 ~~reserve of $1.7 million for the three months ended September 30, 2020, and $5.9 million for the nine months ended September 30, 2020,~~reserves in the ~~Provision for (recovery of) doubtful accounts on the~~accompanying Condensed Consolidated Statements of ~~Operations.~~Operations:


		Three Months Ended June 30,				Six Months Ended June 30,
thousands	Income Statement Location	2021		2020		2021		2020
ASC 842 reserve	Rental revenue	$	330	$	5,716	$	1,361	$	7,219
ASC 450 reserve	Provision for (recovery of) doubtful accounts	(1,640)		2,818		(2,239)		4,396



Total impact		$	(1,310)	$	8,534	$	(878)	$	11,615

~~Impairment of Long-lived Assets~~

Temporary Business Closures During the first quarter of 2020, in conjunction with the Company’s quarterly impairment assessment, the Company recorded a $48.7 million impairment charge for Outlet Collection at Riverwalk, due to decreases in estimated future cash flows resulting from the impact of a shorter than anticipated holding term due to management’s plans to divest the non-core operating asset and 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. See Note 5 - ~~Impairment~~ ~~for additional information.~~

~~HHC~~ ~~2020 FORM 10-Q~~ | 10



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

~~Business ClosuresIn the first quarter~~half of 2020, the Company experienced closures of its Seaport ~~District~~ retail and food and beverage assets as well as ~~the~~its 3 hotels in The ~~Woodlands, and the Company temporarily laid off the majority of its staff in each impacted location.~~Woodlands.

The Company reopened The Woodlands Resort ~~& Conference Center~~ in May 2020, ~~with 54% of rooms available for use at~~ the ~~end of the third quarter. The~~ Embassy Suites at Hughes Landing ~~reopened~~ in June 2020 ~~with 100% of rooms available for use.~~and The Westin at The Woodlands ~~reopened its primary restaurant, Sorriso,~~ in ~~April 2020, subject to local guidance, and reopened 100% of~~July 2020. As a result, occupancy levels rose throughout the ~~guest rooms on July 1, 2020. Despite these reopenings, the Company continues to see significant declines in occupancy through the third quarter~~second half of 2020 ~~compared to~~but remained lower than levels achieved prior to the ~~impact~~pandemic. With the gradual return of leisure travel in the ~~pandemic.~~first half of 2021, occupancy levels have continued to rise at all properties. From the fourth quarter of 2020 to the second quarter of 2021, occupancy levels increased from 55% to 68% at the Embassy Suites, 28% to 49% at The Westin at The Woodlands and 27% to 31% at The Woodlands Resort.

Many of the Seaport ~~District~~ retail and food and beverage assets resumed operations in the third quarter of 2020, on a limited ~~basis, including The Fulton, Cobble & Co. and Malibu Farm. The Company retained key personnel at these locations to facilitate the efficient start-up of operations as~~basis. Most remaining restrictions were ~~lifted.~~lifted in June of 2021; however, many businesses at the Seaport continue to operate at reduced levels primarily due to labor shortages. The 2020 Seaport summer concert series was cancelled ~~for the 2020 season~~ and ~~the Company is~~ in ~~the process of rescheduling for 2021. In August, in~~its place ~~of the concert series,~~ a new concept at the Pier 17 rooftop was launched called The Greens, which ~~allows groups~~continued through the end of ~~up to eight people to reserve their own 14-foot by 14-foot green space.~~first quarter of 2021. The Greens ~~generated~~concept returned in May 2021 to complement the summer concert series, which began on July 30, 2021 and is expected to run through October 2021. The Greens concept and 2021 concert series continue to generate high customer demand for the outdoor ~~venue and helped to fulfill obligations under the Company’s sponsorship agreements, which would have been drastically reduced without the summer concert series.~~

venue.

~~Liquidity~~
In direct response to the COVID-19 pandemic and the impacts on the Company’s 4 business segments, as well as the economy and capital markets in general, the Company initiated measures to increase its liquidity. During the nine months ended September 30, 2020, the Company completed a common stock offering and entered into new financings and extensions of existing loans. See Note 15 - ~~Earnings Per Share~~ ~~and Note 7 -~~ ~~Mortgages, Notes and Loans Payable, Net~~.

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, 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, debt and options granted. In particular, ~~MPC~~Master Planned Communities (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~~In addition, these estimates ~~will~~may change in the near term due to the ~~rapid development~~continued demands and ~~fluidity of~~constraints on the ~~events and circumstances~~Company’s supply chain resulting from the COVID-19 pandemic.

Noncontrolling ~~interest~~Interests As of ~~September~~June 30, 2021 and December 31, 2020, ~~Noncontrolling~~noncontrolling interests isare related to the Ward Village Homeowners’ Associations ~~(“HOAs”)~~(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 -~~

HHC ~~Real Estate and Other Affiliates~~2021 FORM 10-Q ~~for details on the 110 North Wacker ownership structure.~~| 10


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

~~Impact of New Accounting Standard Related to~~ Financial Instruments - Credit Losses ~~In June 2016,~~The Company is exposed to credit losses through the ~~Financial Accounting Standards Board (“FASB”) issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326). The standard modifies~~sale of goods and services to the ~~impairment model for most financial assets, including~~Company’s customers. Receivables held by the Company primarily relate to short-term trade ~~accounts~~ receivables and ~~loans,~~financing receivables, which include Municipal Utility District (MUD) receivables, Special Improvement District (SID) bonds, TIF receivables, net investments in lease receivables, and ~~requires the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities are required~~notes receivable. The Company assesses its exposure to ~~estimate the lifetime expected~~ credit loss based on ~~such instruments~~historical collection experience and ~~record an allowance to offset~~future expectations by portfolio segment. Historical collection experience is evaluated on a quarterly basis by the Company.

The amortized cost basis of financing receivables, consisting primarily of MUD receivables, totaled $411.9 million as of June 30, 2021, including accrued interest of $18.6 million. There has been no material activity in the ~~financial asset, resulting in a net presentation~~allowance for credit losses for financing receivables for the six months ended June 30, 2021.

Financing receivables are considered to be past due once they are 30 days contractually past due under the terms 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).

agreement. The Company ~~adopted ASU 2016-13 using~~does not have significant 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 ~~modified retrospective method~~current period 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 thousand as of January 1, 2020, for the cumulative effect of adopting ASU 2016-13.

financing receivables.

~~See Note 2 -~~

Executive Transition ~~Accounting Policies and Pronouncements~~ ~~for further discussion of accounting policies impacted by the Company’s adoption of ASU 2016-13 and disclosures required by ASU 2016-13.~~

~~HHC~~ ~~2020 FORM 10-Q~~ | 11



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

~~Corporate Restructuring~~ ~~During the quarter ended~~In 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. In the third quarter of 2020, the Company ~~consolidated its Dallas corporate headquarters with its largest regional office in The Woodlands. Charges~~announced the appointment of ~~$34.3 million associated with retention and severance expenses were recorded in 2019, and $2.1 million was recorded in~~David R. O’Reilly as the nine months ended September 30, 2020. The Company expects to incur an additional $0.2 million to $0.7 million related to relocation, retention and severance expenses in the remainder of 2020. The restructuring costs are included in Corporate income, expenses and other items in Note 18 - ~~Segments. The Company expects to conclude its restructuring activity, excluding the disposition of non-core assets, in 2020.~~

~~The following table summarizes the changes to the restructuring liability included in Accounts payable and accrued expenses on the Condensed Consolidated Balance Sheets:~~

thousands Restructuring costs
Balance at December 31, 2019 $ 9,685
Charges (a) 2,058
Charges paid/settled (11,015 )
Balance at September 30, 2020 $ 728


~~(a)~~	~~Charges relate to relocation, retention and severance expenses and are included in General and administrative expense in the accompanying Condensed Consolidated Statements of Operations.~~

~~CEO Transition~~ ~~On September 17, 2020, Paul Layne retired as our~~Company’s Chief Executive Officer and ~~simultaneously agreed to step down from~~the appointment of L. Jay Cross as the Company’s ~~Board of Directors. David O’Reilly, our President and~~President. On April 8, 2021, the Company announced that Correne Loeffler had been appointed to serve as the Company's Chief Financial Officer ~~agreed~~(CFO), effective April 19, 2021. Ms. Loeffler succeeded David O'Reilly as the Company's CFO, a position that he had held since joining HHC in 2016 and had continued to ~~additionally serve as our~~hold on an interim basis since being appointed Chief Executive Officer ~~until~~in December 2020. Ms. Loeffler joined HHC following her role as Chief Financial Officer of Whiting Petroleum, where she managed the company’s Finance, Accounting, and Corporate Planning organizations. She also previously served as Vice President of Finance and Treasurer for the Callon Petroleum Company. In addition, she served as Callon's Interim Chief Financial Officer. Prior to that she spent over a ~~permanent Chief~~decade at JPMorgan Securities before leaving as an Executive Officer is appointed. The Company has commenced a search for a permanent Chief Executive Officer and will consider both internal and external candidates. Pursuant to a Separation and Release Agreement between Mr. Layne andDirector in 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. Corporate Client Banking group.

~~2. Accounting Policies and Pronouncements~~

Recently Issued Accounting Standards The following is a summary of recently issued and other notable accounting pronouncements ~~which~~that 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~~London Interbank Offered Rate (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 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~~Accounting Standards Update (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.

HHC ~~2020~~2021 FORM 10-Q | 1112



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

~~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 is currently evaluating the impact that the adoption of ASU 2019-12 may have on its Condensed Consolidated Financial Statements.

~~ASU 2019-08,~~ ~~Compensation-Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606~~) The amendments in this Update require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718. The grant date is the date at which a grantor (supplier) and a grantee (customer) reach a mutual understanding of the key terms and conditions of the share-based payment award. The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified, and the grantee is no longer a customer. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted ASU 2019-08 as of January 1, 2020, and it did not have a material effect on its Condensed Consolidated Financial Statements.

~~ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments~~ ~~The amendments in this update provide clarification on certain aspects of the amendments in ASU 2016-13,~~ ~~Financial Instruments—Credit Losses,~~ ~~ASU 2017-12,~~ ~~Derivatives and Hedging,~~ ~~and ASU 2016-01,~~ ~~Financial Instruments—Overall.~~ The effective date of the standard is for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted ASU 2019-04 as of January 1, 2020. See further discussion regarding adoption of ASU 2016-13 for the impact of amendments to Financial Instruments-Credit Losses. The amendments to Derivatives and Hedging, and Financial Instruments-Overall did not have a material effect on the Company’s Condensed Consolidated Financial Statements.

~~ASU 2018-17,~~ ~~Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities~~ This standard is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The effective date of the standard is for fiscal years, and interim periods within those years, beginning after December 15, 2019. The new standard must be adopted retrospectively with early adoption permitted. The Company adopted ASU 2018-17 as of January 1, 2020, and it did not have a material effect on its Condensed Consolidated Financial Statements.

~~ASU 2018-15,~~ ~~Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ This standard is intended to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software (and hosting arrangements that include an internal use software license). The standard requires an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This standard also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The new standard may be adopted prospectively or retrospectively with early adoption permitted. The Company adopted ASU 2018-15 prospectively as of January 1, 2020. There was no material impact to the Company’s Condensed Consolidated Financial Statements upon adoption.

~~ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~ The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level-3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. Early adoption is permitted. The Company adopted ASU 2018-13 as of January 1, 2020. The amended disclosure requirements did not have a material impact to the Company’s Condensed Consolidated Financial Statements upon adoption.

~~HHC~~ ~~2020 FORM 10-Q~~ | 13



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

~~ASU 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350)~~This standard is intended to simplify the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. In computing the implied fair value of goodwill under step two, an entity determined the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, an entity will perform only step one of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and then recognizing the impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity will still have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative step one impairment test is necessary. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The new standard must be adopted prospectively with early adoption permitted. The Company adopted ASU 2017-04 as of January 1, 2020, and will eliminate step two from its goodwill impairment tests. There was no material impact to the Condensed Consolidated Financial Statements upon adoption.

~~Financial Instruments - Credit Losses and Related Policy Updates~~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 Municipal Utility District (“MUD”) receivables, Special Improvement District (“SID”) bonds, tax increment financing (“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 September 30, 2020:~~

thousands MUD Receivables SID Receivables TIF Receivables Net Investments in Lease Receivable Notes Receivable Total
Ending balance as of September 30, 2020 $ 331,451
$ 60,198
$ 1,980
$ 2,946
$ 52,312
$ 448,887

Accrued interest of $17.7 million as of September 30, 2020, and $19.7 million as of September 30, 2019, are included within Municipal Utility District receivables on the Company’s Condensed Consolidated Balance Sheets.

~~The following table presents the activity in the allowance for credit losses for financing receivables by receivable type for the nine months ended September 30, 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 $ 0
$ 0
$ 0
$ 17
$ 209
$ 0
Current-period provision for expected credit losses 0
0
0
0
(32 ) 109
Write-offs 0
0
0
0
(1 ) (44 )
Recoveries 0
0
0
0
0
0
Ending balance as of September 30, 2020 $ 0
$ 0
$ 0
$ 17
$ 176
$ 65


~~(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. 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.~~

~~HHC~~ ~~2020 FORM 10-Q~~ | 14



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~



3. FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


2. Real Estate and Other Affiliates

As of ~~September~~June 30, ~~2020,~~2021, 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 ~~September~~June 30, ~~2020,~~2021, approximately ~~$491.4~~$610.2 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 ~~$252.5~~$291.3 million based ~~upon~~on 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
	June 30,		December 31,		June 30,		December 31,		Three Months Ended June 30,				Six Months Ended June 30,
thousands except percentages	2021		2020		2021		2020		2021		2020		2021		2020
Equity Method Investments
Operating Assets:
110 North Wacker (a)	see below		see below		$	237,804	$	261,143	$	(11,307)	0		$	(27,012)	$	0
The Metropolitan Downtown Columbia (b)	50	%	50	%	0		0		165		195		111		422
Stewart Title of Montgomery County, TX	50	%	50	%	4,034		3,924		383		160		634		503
Woodlands Sarofim #1	20	%	20	%	3,173		3,120		22		29		53		64
m.flats/TEN.M	50	%	50	%	834		1,247		318		91		636		156
Master Planned Communities:
The Summit (c)	see below		see below		40,920		96,300		18,641		(2,968)		46,291		5,966
Seaport
Mr. C Seaport (d)	0	%	0	%	0		0		0		(6,249)		0		(6,900)
Ssäm Bar (Momofuku) (e)	see below		see below		7,204		7,101		(336)		(384)		(688)		(1,776)
Strategic Developments:
Circle T Ranch and Power Center (f)	0	%	0	%	0		0		0		589		0		675
HHMK Development	50	%	50	%	10		10		0		0		0		0
KR Holdings	50	%	50	%	230		347		(19)		(15)		(117)		(37)


					294,209		373,192		7,867		(8,552)		19,908		(927)
Other equity investments (g)					3,952		3,953		0		0		3,755		3,724
Investments in real estate and other affiliates					$	298,161	$	377,145	$	7,867	$	(8,552)	$	23,663	$	2,797

Economic/Legal Ownership Carrying Value Share of Earnings/Dividends
September 30, December 31, September 30, December 31, Three Months Ended
September 30, Nine Months Ended
September 30,
thousands except percentages 2020 2019 2020 2019 2020 2019 2020 2019
Equity Method Investments

Operating Assets:

110 North Wacker (a) 0 % 0 % $ 273,608
n/a
$ 267,518
n/a
$ 267,518
n/a
The Metropolitan Downtown Columbia (b) 50 % 50 % 0
0
215
172
637
478
Stewart Title of Montgomery County, TX 50 % 50 % 4,052
4,175
375
306
878
579
Woodlands Sarofim #1 20 % 20 % 3,091
2,985
32
38
96
89
m.flats/TEN.M 50 % 50 % 1,820
2,431
340
(75 ) 496
(1,576 )
Master Planned Communities:
The Summit (c) 0 % 0 % 85,327
84,455
(1,563 ) 4,523
4,403
18,859
Seaport District:

Mr. C Seaport 0 % 35 % 0
7,650
0
(545 ) (6,900 ) (1,628 )
Bar Wayō (Momofuku) (c) 0 % 0 % 6,963
7,469
(288 ) (160 ) (2,064 ) (160 )
Strategic Developments:
Circle T Ranch and Power Center 50 % 50 % 10,686
8,207
216
400
891
691
HHMK Development 50 % 50 % 10
10
0
0
0
0
KR Holdings 50 % 50 % 372
422
(7 ) (117 ) (44 ) (110 )
385,929
117,804
266,838
4,542
265,911
17,222
Other equity investments (d) 3,953
3,953
0
0
3,724
3,625
Investments in real estate and other affiliates $ 389,882
$ 121,757
$ 266,838
$ 4,542
$ 269,635
$ 20,847
(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. Refer to the discussion below for additional details.

~~(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 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.


~~(b)~~	The Metropolitan Downtown Columbia was in a deficit position of $4.5 million at September 30, 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 September 30, 2020, and December 31, 2019.


~~(c)~~	~~Refer to the discussion below for details on the ownership structure.~~


~~(d)~~	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. There were no impairments, or upward or downward adjustments to the carrying amounts of these securities either during current year 2020, or cumulatively.

(b)The Metropolitan Downtown Columbia was in a deficit position of $5.5 million at June 30, 2021, and $5.0 million at December 31, 2020, due to distributions from operating cash flows in excess of basis. These deficit balances are presented in Accounts payable and accrued expenses at June 30, 2021, and December 31, 2020.

(c)The decrease in investment balance is primarily due to $100.5 million in distributions received during the second quarter of 2021. Refer to discussion below for details on the ownership structure.

(d)During the third quarter of 2020, the Company completed the sale of its 35% equity investment in Mr. C Seaport.

(e)During the first quarter of 2021, Bar Wayō was rebranded as Ssäm Bar. Refer to the discussion below for details on the ownership structure.

(f)During the fourth quarter of 2020, the Company completed the sale of its 50% equity investment in Circle T Ranch and Power Center.

(g)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. There were no impairments, or upward or downward adjustments to the carrying amounts of these securities either during current year 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 and June 30, 2020, 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 Investments in real estate and other affiliates in the Condensed 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 4 - ~~Recent Transactions~~ ~~and Note 5 -~~ ~~Impairment~~ ~~for additional information.~~

110 North Wacker The Company formed a partnership with a local developer (the ~~“Partnership”)~~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

~~HHC~~ ~~2020 FORM 10-Q~~ | 15



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

~~(collectively,~~ (collectively, the local developer and USAA are the ~~“Partners”)~~Partners) to construct and operate the building at 110 North Wacker (the ~~“Venture”)~~Venture).

HHC 2021 FORM 10-Q | 12


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

The Partnership was determined to be a ~~VIE,~~variable interest entity (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 Condensed Consolidated Balance Sheets. As of ~~September~~June 30, ~~2020,~~2021, 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 $ 0
Reclassification of redeemable noncontrolling interest from permanent equity 6,091
Net income (loss) attributable to noncontrolling interest 24,270
Balance as of September 30, 2020 $ 30,361


thousands	Redeemable Noncontrolling Interest
Balance as of December 31, 2020		$	29,114

Net income (loss) attributable to noncontrolling interest		(2,701)
Share of investee’s other comprehensive income		368
Balance as of June 30, 2021		$	26,781

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 76 - Mortgages, Notes and Loans Payable, Net. Any further cash funding requirements by the Partnership were eliminated when the construction loan was 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,~~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 development phase, the Company ~~has~~had 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 Condensed Consolidated Statements of Operations and reported in the Strategic Developments segment for the three ~~and nine~~ months ended September 30, 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 Condensed Consolidated Statements of Operations and reported in the Strategic Developments segment for the three ~~and nine~~ months ended September 30, 2020. As 110 North Wacker ~~has now been~~was 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 will be recognized based on the Hypothetical Liquidation at Book Value ~~(“HLBV”) method, which represents an economic interest of approximately 23% for the Company.~~(HLBV) method. Under this method, the Company will recognize income or loss in Equity in earnings from real estate and other affiliates based on the change in its underlying

~~HHC~~ ~~2020 FORM 10-Q~~ | 16



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

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

HHC 2021 FORM 10-Q | 13


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

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$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.

Ssäm Bar (formerly Bar Wayō) During the first quarter of 2016, the Company formed Pier 17 Restaurant C101, LLC ~~(“Bar~~(Bar Wayō”) with MomoPier, LLC ~~(“Momofuku”)~~(Momofuku), an affiliate of the Momofuku restaurant group, to construct and operate a restaurant and bar at Pier 17 in the ~~Seaport District.~~Seaport. Under the terms of the agreement, the Company ~~will fund~~funded 89.75% of the costs to construct the restaurant, and Momofuku ~~will contribute~~contributed the remaining 10.25%. In 2021, Bar Wayō was rebranded as the Ssäm Bar.

As of ~~September~~June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, Ssäm 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 Ssäm Bar ~~Wayō~~ as of ~~September~~June 30, ~~2020,~~2021, is ~~$7.0~~$7.2 million and is classified as Investments in real estate and other affiliates in the Condensed Consolidated Balance Sheets. The Company’s maximum exposure to loss as a result of this investment is limited to the aggregate carrying value of the investment 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 to the members in proportion to their respective percentage interests, or 50% each to the Company and Momofuku. Given the nature of ~~Bar Wayo’s~~Ssäm Bar’s capital structure and the provisions for the liquidation of assets, the Company’s share of ~~Bar Wayo’s~~Ssäm Bar’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”)~~(The Summit) with Discovery Land Company ~~(“Discovery”)~~(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.~~acre and has no further capital obligations. Discovery is required to fund up to a maximum of $30.0 million of cash as their capital contribution, ~~and the Company~~of which $3.75 million has ~~no further capital obligations.~~been contributed. The gains on the contributed land are recognized in Equity in earnings from real estate and other affiliates as The Summit sells lots.

~~After~~As of June 30, 2021, the Company ~~receives~~has received cash distributions equal to its capital contribution of $125.4 million and a 5.0% preferred return on such capital contribution, and Discovery ~~is entitled to~~has received cash distributions ~~until it has received~~equal to 2 times its equity contribution. Any further 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 iswill be recognized ~~based on the HLBV method.~~ according to equity ownership, with HHC receiving 50% and Discovery receiving 50%.

HHC 2021 FORM 10-Q | 14


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

Summarized Financial Information Relevant financial statement information for ~~The Summit~~significant equity method investments is summarized as follows:


thousands	The Summit (a)(b)		110 North Wacker (c)
Balance Sheet
June 30, 2021
Total assets	$	234,684	$	677,078
Total liabilities	180,597		470,950
Total equity	54,087		206,128

December 31, 2020
Total assets	$	310,855	$	634,274
Total liabilities	209,968		415,452
Total equity	100,887		218,822

Income Statement
Six Months Ended June 30, 2021
Revenues	$	199,505	$	18,042
Gross margin	69,695		0
Operating income (loss)	0		12,390
Net income (loss)	69,372		(16,777)

Six Months Ended June 30, 2020
Revenues	$	58,672	$	0
Gross margin	10,256		0
Operating income	0		0
Net income (loss)	7,591		0

September 30, December 31,
thousands 2020 2019
Total Assets $ 274,835
$ 221,277
Total Liabilities 187,375
136,314
Total Equity 87,460
84,963
(a)The decrease in Total Equity for The Summit is primarily the result of distributions made in the second quarter of 2021.

(b)The increase in Revenues for The Summit is due to an increase in units closed, with 35 units closing during the six months ended June 30, 2021 compared to 7 units closing during the six months ended June 30, 2020.

(c)The income statement amounts for 110 North Wacker do not include activity for the six months ended June 30, 2020, as it was not accounted for under the equity method during this period.

Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 2020 2019
Revenues (a) $ 37,350
$ 25,931
$ 96,022
$ 84,118
Net income (1,563 ) 4,523
6,028
18,859
Gross Margin 245
5,587
10,501
22,334


~~(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 2020, revenues allocated to each of The Summit’s~~

HHC ~~2020~~2021 FORM 10-Q | 1517



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

performance obligations is recognized over time based on an input measure of progress. The three and nine months ended September 30, 2019 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.



~~4. Recent Transactions~~ FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


3. Dispositions

On May 7, 2021, the Company completed the sale of Monarch City, a property comprised of approximately 229 acres of undeveloped land in Collin County, Texas, for $51.4 million. The carrying value of the property was approximately $28.7 million at the time of sale. Gain on sale of $21.3 million is calculated as the difference between the sale price and the asset’s carrying value, less related transaction costs of approximately $1.5 million. The gain on sale is included in Gain (loss) on sale or disposal of real estate and other assets, net in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021.

On July 16, 2020, the Company completed the sale 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 $0.8 million. Refer to Note 32 - Real Estate and Other Affiliatesand Note 54 - Impairment for additional information.

On June 29, 2020, the Company entered into an agreement terminating a participation right contained in the contract for the sale of West Windsor ~~a 659-acre parcel of land located in West Windsor, New Jersey, that occurred~~ in October 2019. As consideration, the Company received an $8.0 million termination payment in July of 2020, which iswas included in Gain (loss) on sale or disposal of real estate and other assets, net on the Condensed Consolidated Statements of Operations for the ~~nine~~three and six months ended ~~September 30, 2020, and in Accounts receivable on the Condensed Consolidated Balance Sheets as of September~~June 30, 2020.

OnIn 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 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 Condensed Consolidated Balance Sheets, recognizing $13.5 million of Selling profit from the sales-type lease on the Condensed Consolidated Statements of Operations.

The sale of 100 Fellowship Drive resulted in an additional gain of $38.3 million in the first quarter of 2020, which iswas included in Gain (loss) on sale or disposal of real estate and other assets, net on the Condensed Consolidated Statements of Operations. 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~~sale 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 Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, 2020.

HHC ~~2020~~2021 FORM 10-Q | 1618



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~



5. FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


4. Impairment

The Company reviews its long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

During the second quarter of 2021, the Company recorded a $13.1 million impairment charge for Century Park, which is included in Provision for impairment on the Condensed Consolidated Statements of Operations. The Century Park asset includes both building and land components. The impairment relates to the building component, while the land component was not impaired. Century Park is a 63-acre, 1.3 million square foot campus with 17 office buildings in the West Houston Energy Corridor, a non-core asset acquired as part of the acquisition of The Woodlands Towers at The Waterway. The Company recognized an impairment due to decreases in estimated future cash flows as a result of the impact of a shorter than anticipated holding term. The Company used weighted market and income valuation techniques to estimate the fair value of Century Park. Market valuation was based on recent sales of similar commercial properties in and around Houston, Texas. For the income approach, the Company utilized a capitalization rate of 8.75%, and probability weighted scenarios assuming lease-up periods ranging from 24 months to 48 months, and management’s estimate of future lease income and carry costs.

During the first quarter of 2020, the Company recorded a $48.7 million impairment charge for Outlet Collection at Riverwalk, which is included in Provision for impairment on the Condensed Consolidated Statements of Operations. The Outlet Collection at Riverwalk is a 273,270-square-foot urban upscale outlet center located along the Mississippi River in downtown New Orleans, ~~LA.~~Louisiana. 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~~the fair value amounts of Century Park or Outlet Collection at Riverwalk through ~~a sale.~~

sales of these assets. Refer to Note 7 - Fair Value for additional information.

~~With respect to the Investments~~

Each investment in real estate and other affiliates ~~a series of operating losses of an underlying asset or other factors may indicate that a decrease~~discussed in ~~value has occurred which is other‑than‑temporary. The investment in each real estate~~Note 2 - Real Estate and ~~other affiliate~~Other Affiliates is evaluated periodically ~~and as deemed necessary~~ for recoverability and valuation declines that are ~~other‑than‑temporary.~~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. NaN impairment charges were recorded for Investment in real estate and other affiliates during the three and six months ended June 30, 2021. 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 4 -~~ ~~Recent Transactions~~ ~~for additional details regarding the sale.~~ The impairment loss is presented in Equity in (losses) earnings ~~(losses)~~ from real estate and other affiliates. Refer to Note 32 - Real Estate and Other Affiliates for additional information. ~~NaN impairment charges were recorded for the Investments in real estate and other affiliates during the year ended December 31, 2019.~~

The Company periodically evaluates its strategic alternatives with respect to each ~~of its properties~~property and may revise ~~its~~the strategy from time to time, including ~~its~~the intent to hold anthe asset on a long-term basis or the timing of potential asset dispositions. ~~These~~For example, the Company may decide to sell property that is held for use, which may result in impairment charges if the current fair value of the property does not support 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 the three months ended June 30, 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 ~~$6.0~~$5.1 million included in Condominium rights and unit cost of ~~sales during the nine months ended September 30, 2020.~~sales.

~~The following table summarizes the pre-tax impacts of the items mentioned above to the Condensed Consolidated Statements of Operations:~~

Statements of Operations
Line Item
Three Months Ended
September 30, Nine Months Ended
September 30,
thousands 2020 2019 2020 2019
Operating Assets:
Outlet Collection at Riverwalk Provision for impairment $ 0
$ 0
$ 48,738
$ 0
Equity Investments:
Mr. C Seaport Equity in (losses) earnings from real estate and other affiliates $ 0
$ 0
$ 6,000
$ 0
Other Assets:
Condominium Inventory Condominium rights and unit cost of sales $ 944
$ 0
$ 6,022
$ 0

HHC ~~2020~~2021 FORM 10-Q | 1719



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~



6. FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


5. Other Assets and Liabilities

Prepaid Expenses and Other Assets The following table summarizes the significant components of Prepaid expenses and other assets:


thousands	June 30, 2021		December 31, 2020		$ Change
Special Improvement District receivable	$	49,864	$	54,770	$	(4,906)
In-place leases	46,611		49,161		(2,550)
Intangibles	31,390		32,595		(1,205)
Prepaid expenses	20,909		17,455		3,454
Security, escrow and other deposits (a)	19,266		48,576		(29,310)
Other	19,086		12,096		6,990
Condominium inventory (b)	11,123		55,883		(44,760)
Tenant incentives and other receivables	7,420		9,612		(2,192)
Food and beverage and lifestyle inventory	1,457		1,060		397
TIF receivable	937		893		44










Prepaid expenses and other assets, net	$	208,063	$	282,101	$	(74,038)

thousands September 30, 2020 December 31, 2019 $ Change
Special Improvement District receivable (a) $ 60,198
$ 42,996
$ 17,202
Straight-line rent 59,354
56,223
3,131
Condominium inventory 57,481
56,421
1,060
Security, escrow, and other deposits (b) 48,975
17,464
31,511
In-place leases 50,434
54,471
(4,037 )
Intangibles 32,765
33,275
(510 )
Prepaid expenses (c) 24,029
13,263
10,766
Other 11,155
9,252
1,903
Tenant incentives and other receivables 10,000
7,556
2,444
Federal income tax receivable 2,389
655
1,734
TIF receivable 1,980
3,931
(1,951 )
Food and beverage and lifestyle inventory (d) 1,117
4,310
(3,193 )
Above-market tenant leases 367
556
(189 )
Prepaid expenses and other assets, net $ 360,244
$ 300,373
$ 59,871
(a)The decrease in Security, escrow, and other deposits is primarily attributable to the settlement of the rate-lock agreement associated with the loans for 1201 Lake Robbins and The Woodlands Warehouse upon repayment in February 2021.

(b)The decrease in Condominium inventory is attributable to closing on inventory units at Waiea and Anaha.


~~(a)~~	~~The increase in Special Improvement District receivable is primarily attributable to a new SID Bond issuance in Summerlin.~~


~~(b)~~	~~The increase in Security, escrow, and other deposits is primarily attributable to rate-lock and security deposits for The Woodlands Towers at the Waterway.~~


~~(c)~~	~~The increase in Prepaid expenses is mainly due to the timing of insurance and property tax prepayments, as well as assets being placed into service.~~


~~(d)~~	~~The decrease in Food and beverage and lifestyle inventory is predominantly due to the write-off of inventory at 10 Corso Como Retail and Café in the first quarter of 2020.~~

Accounts Payable and Accrued Expenses The following table summarizes the significant components of Accounts payable and accrued expenses:


thousands	June 30, 2021		December 31, 2020		$ Change
Condominium deposit liabilities (a)	$	343,517	$	309,884	$	33,633
Construction payables (b)	295,997		253,626		42,371
Deferred income	68,548		66,656		1,892
Accrued interest (c)	45,561		37,007		8,554
Interest rate swap liabilities (d)	39,827		51,920		(12,093)
Tenant and other deposits (e)	38,197		25,801		12,396
Accounts payable and accrued expenses	31,786		28,589		3,197
Accrued real estate taxes (f)	27,878		38,863		(10,985)
Accrued payroll and other employee liabilities	22,674		27,419		(4,745)
Other	11,860		12,493		(633)










Accounts payable and accrued expenses	$	925,845	$	852,258	$	73,587

thousands September 30, 2020 December 31, 2019 $ Change
Condominium deposit liabilities (a) $ 297,400
$ 194,794
$ 102,606
Construction payables (b) 268,145
261,523
6,622
Deferred income 58,131
63,483
(5,352 )
Interest rate swap liabilities (c) 56,931
40,135
16,796
Accrued real estate taxes 40,797
27,559
13,238
Tenant and other deposits 29,883
24,080
5,803
Accrued payroll and other employee liabilities (d) 26,230
44,082
(17,852 )
Accounts payable and accrued expenses 26,540
37,480
(10,940 )
Accrued interest 13,204
23,838
(10,634 )
Other 12,948
16,173
(3,225 )
Accounts payable and accrued expenses $ 830,209
$ 733,147
$ 97,062
(a)The increase in Condominium deposit liabilities is attributable to contracted sales at Victoria Place, Kō'ula, and ‘A‘ali‘i.

(b)The increase in Construction payables is attributable to an increase of $78.2 million primarily related to increased construction spend at Ward Village, the Tin Building, and the Summerlin and Bridgeland MPC developments, and a $21.0 million charge for additional remediation costs at Waiea. These increases are partially offset by decreases of $35.8 million related to a reduction of construction spend for projects placed in service in 2020 or approaching completion, as well as costs incurred and paid for Waiea remediation activities during the first half of 2021.

(c)The increase in Accrued interest is primarily due to the accrual of interest due August 2021 on the Company’s $1.3 billion Senior Notes issued in February 2021, as compared to accrued interest on the Company’s $1.0 billion Senior Notes repurchased in the first quarter of 2021. See Note 6 - Mortgages, Notes and Loans Payable, Net for additional information.

(d)The decrease in Interest rate swap liabilities is due to an increase of the one-month LIBOR forward curve for the periods presented.

(e)The increase in Tenant and other deposits is primarily due to a $13.5 million deposit received in the second quarter of 2021 related to a 216-acre superpad sale in Summerlin. The sale is expected to close in the fourth quarter of 2021.

(f)The decrease in Accrued real estate taxes is primarily due to the payment of 2020 real estate taxes in the first quarter of 2021.


~~(a)~~	~~The increase in Condominium deposit liabilities is attributable to contracted sales at Victoria Place, Kô'ula, and ‘A‘ali‘i.~~

~~(b)~~

The increase in Construction payables is primarily attributable to a $97.9 million charge for repairs and remediation on certain alleged construction defects at the Waiea condominium tower (see Note 10 - Commitments and Contingencies for details), partially offset by a decrease of $39.3 million related to the deconsolidation of 110 North Wacker (see Note 3 - ~~Real Estate and Other Affiliates~~ ~~for details), as well as a reduction in construction spend of $51.8 million primarily related to several projects approaching completion.~~

HHC ~~2020~~2021 FORM 10-Q | 1820



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~


~~(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 periods presented, partially offset by a decrease of $15.2 million related to the deconsolidation of 110 North Wacker.


~~(d)~~	The decrease in Accrued payroll and other employee liabilities is primarily due to the payment of the 2019 annual incentive bonus payment in the first quarter of 2020, as well as the payment of relocation, retention and severance expenses in 2020, related to the corporate restructuring.



7. FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


6. Mortgages, Notes and Loans Payable, Net

Mortgages, notes and loans payable, net are summarized as follows:


thousands	June 30, 2021		December 31, 2020
Fixed-rate debt:
Unsecured 5.375% Senior Notes due 2025	$	0	$	1,000,000
Unsecured 5.375% Senior Notes due 2028	750,000		750,000
Unsecured 4.125% Senior Notes due 2029	650,000		0
Unsecured 4.375% Senior Notes due 2031	650,000		0
Secured mortgages, notes and loans payable	643,315		590,517
Special Improvement District bonds	32,807		34,305
Variable-rate debt:
Mortgages, notes and loans payable (a)	1,768,062		1,945,344
Unamortized bond discounts	0		(4,355)
Unamortized deferred financing costs (b)	(44,850)		(28,442)
Total mortgages, notes and loans payable, net	$	4,449,333	$	4,287,369

September 30, 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
0
Secured mortgages, notes and loans payable 594,920
884,935
Special Improvement District bonds 42,269
23,725
Variable-rate debt:
Mortgages, notes and loans payable (a) 1,866,406
2,229,958
Unamortized bond discounts (4,583 ) (5,249 )
Unamortized deferred financing costs (b) (29,678 ) (36,899 )
Total mortgages, notes and loans payable, net $ 4,219,334
$ 4,096,470
(a)As of June 30, 2021, $650.5 million of variable‑rate debt has been swapped to a fixed rate for the term of the related debt. As of December 31, 2020, $649.9 million of variable‑rate debt had been swapped to a fixed rate for the term of the related debt. As of June 30, 2021, $124.2 million of variable-rate debt was capped at a maximum interest rate. As of December 31, 2020, $75.0 million of variable-rate debt was capped at a maximum interest rate. See Note 8 - Derivative Instruments and Hedging Activities for additional information.

~~(a)~~

(b)Deferred financing costs 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).

Debt CollateralAs of September 30, 2020, $644.6 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 September 30, 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 costs 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).

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 percentage of the loan balance. As of ~~September~~June 30, ~~2020,~~2021, land, buildings and equipment and developments with a net book value of ~~$4.5~~$4.4 billion have been pledged as collateral for HHC’s ~~Mortgages,~~mortgages, notes and loans ~~payable, net.~~ payable.

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,Credit Facilities In 2018, the Company ~~did not meet~~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 ~~debt service coverage ratio required to maintain~~Term Loan, the ~~outstanding~~ Senior Secured Credit ~~Facility Revolver Loan balance of $61.3 million.~~Facility). The Company ~~cured this failure with~~has a one-time right to request an increase of $50.0 million in the ~~repayment~~aggregate amount of the Revolver Loan in August 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 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 Company is negotiating an amendment with the lender.commitment. As of June 30, ~~2020,~~2021, the Company ~~did not meet~~had 0 outstanding borrowings under the ~~debt service coverage ratios~~Revolver Loan.

In 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 ~~two~~a $100.0 million term loan ~~agreements related to the Self-Storage Operating Assets. Both loans, which totaled $10.9~~and a $150.0 million ~~were fully repaid in August 2020.~~revolver loan. As of June 30, ~~2020,~~2021, the Company ~~did not meet a semi-annual operating covenant within~~had $50.0 million of outstanding borrowings under the $62.5 million loan for The Woodlands Resort and Conference Center. The loan for The Woodlands Resort and Conference Center provides a partial repayment cure for the debt service coverage ratio test. Management is documenting a modification of the existing terms of the Woodlands Resort and Conference Center loan with the lender to receive a waiver of the $24.1 million repayment to cure.

~~As of September 30, 2020, apart from the Term Loan~~revolver portion of the Senior Secured Credit Facility and the Woodlands Resort and Conference Center described above, the Company was in compliance with all remaining financial covenants included in the agreements governing its indebtedness.loan.

~~HHC~~ Special Improvement District Bonds~~2020 FORM 10-Q~~ | 21



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

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. In the ~~nine~~six months ended ~~September~~June 30, ~~2020, 1~~2021, 0 new SID bond was issued and obligations of ~~$3.1~~$1.0 million were assumed by buyers.

HHC 2021 FORM 10-Q | 19


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

Debt ComplianceDue to the COVID-19 pandemic, the Company experienced a decline in operating results for certain retail and hospitality properties. As a result, as of December 31, 2020, and June 30, 2021, 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, $33.6 million of excess net cash flow after debt service from the underlying properties became restricted as of June 30, 2021. While the restricted cash cannot be used for general corporate purposes, it can continue to be used to fund operations of the underlying assets and does not have a material impact on the Company’s liquidity.

As of June 30, 2021, apart from the Term Loan portion of the Senior Secured Credit Facility described above, the Company was in compliance with all remaining financial covenants included in the agreements governing its indebtedness.

Financing Activity During the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

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 % (d) 22,750
Borrowings:
Revolver Loan September 2023 1.80 % (b),(e) 67,500
9950 Woodloch Forest Drive March 2025 2.10 % (b),(f) 63,500
A'eo Retail October 2025 2.80 % (b),(g) 30,640
Ke Kilohana Retail October 2025 2.80 % (b),(g) 9,360
Draws on existing mortgages, notes and loans payable

476,604
Repayments:
Revolver Loan September 2023 1.80 % (b),(c) (67,500 )
The Woodlands Towers at the Waterway June 2020 / June 2021 2.50 % (b),(f) (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),(h) (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),(i) (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 (14,095 )
Other:
Special Improvement District bond assumptions December 2020 / October 2049 5.00% - 6.00%
(3,090 )
Deconsolidation of 110 North Wacker April 2022 / April 2024 4.73 % (b),(j) (326,835 )
Deferred financing costs, net 7,887
Balance at September 30, 2020 $ 4,219,334

~~(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 0.15%, 0.23% and 3.25%, respectively, at September 30, 2020. Interest rates associated with loans which have been paid off reflect the interest rate at December 31, 2019.

~~HHC~~ ~~2020 FORM 10-Q~~ | 22



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

~~(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 July 9, 2020, a new SID bond was issued. The $22.8 million SID bears interest at 6.0% and matures October 2049.~~


~~(e)~~	~~On March 23, 2020, the Company drew $67.5 million on its Revolver Loan under the Senior Secured Credit Facility. As of September 30, 2020, the outstanding balance was 0.~~

~~(f)~~

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. The new loan bears interest at LIBOR plus 1.95% with a maturity date of March 26, 2025.


~~(g)~~	On September 30, 2020, the Company closed on a $40.0 million loan secured by Ae'o Retail and Ke Kilohana Retail. The loan bears interest at LIBOR, with a floor of 0.25%, plus 2.65% with a maturity date of October 1, 2025.


~~(h)~~	On March 13, 2020, the Company paid off the $50.0 million outstanding loan balance relating to 100 Fellowship Drive in conjunction with the sale of the property. The payment was made using the proceeds from the sale of the property.


~~(i)~~	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.


~~(j)~~	~~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 3 -~~ ~~Real Estate and Other Affiliates~~ ~~for additional information.~~


thousands	Initial / Extended Maturity (a)	Interest Rate			Carrying Value
Balance at December 31, 2020					$	4,287,369
Issuances:
Senior Notes due 2029	February 2029	4.13	%	(c)	650,000
Senior Notes due 2031	February 2031	4.38	%	(c)	650,000

Borrowings:
Victoria Place	September 2024/September 2026	5.25	%	(b),(d)	42,718

Tanager Apartments	May 2031	3.13	%	(e)	58,500


Draws on existing mortgages, notes and loans payable					101,864
Repayments:

1201 Lake Robbins	June 2021	2.49	%	(b),(f)	(273,070)
The Woodlands Warehouse	June 2021	2.49	%	(b),(f)	(7,230)
Tanager Apartments	October 2021 / October 2024	2.50	%	(b),(e)	(39,992)


Repayments on existing mortgages, notes and loans payable					(7,762)
Redemptions
Senior Notes due 2025	March 2025	5.38	%	(f)	(1,000,000)
Other:
Special Improvement District bond assumptions	April 2049	4.00	%		(1,010)
Deferred financing costs, net					(12,054)
Balance at June 30, 2021					$	4,449,333

~~Additional Debt Activity~~ (a)~~On January 7, 2020,~~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 0.10%, 0.15% and 3.25%, respectively, at June 30, 2021. Interest rates associated with loans that have been paid off reflect the interest rate at December 31, 2020.

(c)In February 2021, the Company issued $650 million in 4.125% Senior Notes due 2029 and $650 million in 4.375% Senior Notes due 2031. These notes will pay interest semi-annually in February and August of each year, beginning in August 2021. These notes will be unsecured senior obligations of the Company and will be guaranteed by certain subsidiaries of the Company.

(d)In March 2021, the Company closed on a ~~$43.4~~$368.2 million construction loan for the development of ~~Creekside Park~~Victoria Place in Ward Village. The loan bears interest at one-month LIBOR plus 5.00%, subject to a LIBOR cap of 2.00% and a LIBOR floor of 0.25%, with an initial maturity of September 2024 and 2 one-year extension options. Concurrent with the funding of the loan, the Company entered into interest rate cap agreements with a total notional amount of $368.2 million and interest rate of 2.00%.

(e)In April 2021, the Company closed on a $58.5 million loan to replace the existing construction loan for Tanager Apartments ~~Phase II.~~in Downtown Summerlin. The loan bears interest at 3.13% fixed with a maturity of May 2031.

HHC 2021 FORM 10-Q | 20


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

(f)The Company used the net proceeds from the February 2021 issuance of Senior Notes due 2029 and 2031, as well as available cash on hand, as follows: (1) repurchased its $1.0 billion 5.375% Senior Notes due 2025; resulting in a $35.1 million loss on extinguishment of debt and (2) repaid $280.3 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021, resulting in a $10.0 million loss on the settlement of the rate-lock agreement associated with these loans.

Additional Financing Activity In April 2021, the Company closed on an $82.6 million construction loan for the development of Marlow, a multi-family development in Columbia. The loan bears interest at LIBOR plus ~~1.75%~~2.95% with an initial maturity ~~date~~ of ~~January 7, 2024,~~April 2025 and a one-year extension ~~option.~~option, with no amounts drawn as of June 30, 2021.

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,~~In April 2021, the Company closed on a ~~$356.8~~$42.7 million construction loan for the development of ~~Kō'ula.~~Starling at Bridgeland. The loan bears interest at LIBOR plus ~~3.00% with~~2.75%, subject to an overall interest rate floor of 3.75%, and an initial maturity date of ~~March 27, 2023,~~May 2026, and a one-year extension ~~option.~~option, with no amounts drawn as of June 30, 2021.

~~On May 20, 2020,~~In June 2021, the Company ~~extended the remaining $280.3 million~~closed on an extension of the ~~bridge~~$35.5 million 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%,~~8770 New Trails, extending the final maturity date to ~~June 30, 2021.~~January 2032.

In July 2021, the Company closed on a $35.5 million loan to replace the existing construction loan for Lakeside Row in Bridgeland. The loan bears interest at 3.15% fixed with a maturity date of September 2031.



8.7. Fair Value

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~~hierarchical disclosure framework ~~which~~that 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:


	June 30, 2021											December 31, 2020
	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)
Assets:
Interest rate derivative assets	$	164		$	0		$	164		$	0	$	0		$	0		$	0		$	0

Liabilities:
Interest rate derivative liabilities	$	39,827		$	0		$	39,827		$	0	$	51,920		$	0		$	51,920		$	0

September 30, 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 $ 56,931
$ 0
$ 56,931
$ 0
$ 40,135
$ 0
$ 40,135
$ 0

~~HHC~~ ~~2020 FORM 10-Q~~ | 23



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

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.

HHC 2021 FORM 10-Q | 21


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis are as follows:


		June 30, 2021				December 31, 2020
thousands	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and Restricted cash	Level 1	$	1,282,744	$	1,282,744	$	1,242,997	$	1,242,997
Accounts receivable, net (a)	Level 3	81,503		81,503		66,726		66,726
Notes receivable, net (b)	Level 3	3,235		3,235		622		622

Liabilities:
Fixed-rate debt (c)	Level 2	2,726,121		2,766,762		2,374,822		2,461,155
Variable-rate debt (c)	Level 2	1,768,062		1,768,062		1,945,344		1,945,344

September 30, 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 $ 1,090,501
$ 1,090,501
$ 620,135
$ 620,135
Accounts receivable, net (a) Level 3 10,087
10,087
12,279
12,279
Notes receivable, net (b) Level 3 52,136
52,136
36,379
36,379

Liabilities:

Fixed-rate debt (c) Level 2 2,387,189
2,395,405
1,908,660
1,949,773
Variable-rate debt (c) Level 2 1,866,406
1,866,406
2,229,958
2,229,958
(a)Accounts receivable, net is shown net of an allowance of $30.6 million at June 30, 2021, and $33.0 million at December 31, 2020. Refer to Note 1 - Summary of Significant Accounting Policies for additional information on the allowance.


~~(a)~~	~~Accounts receivable, net is shown net of an allowance of $20.8 million at September 30, 2020, and $15.6 million at December 31, 2019.~~


~~(b)~~	~~Notes receivable, net is shown net of an allowance of $0.2 million at both September 30, 2020, and December 31, 2019.~~


~~(c)~~	~~Excludes related unamortized financing costs.~~

(b)Notes receivable, net is shown net of an allowance of $0.2 million at June 30, 2021, and $0.2 million at December 31, 2020. 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. Please refer to Note 76 - Mortgages, Notes and Loans Payable, Net ~~in the Company’s Condensed Consolidated Financial Statements.~~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.

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~~assets that ~~was~~were measured at fair value on a non-recurring basis resulting in the ~~property~~properties being ~~impaired during~~impaired:


				Fair Value Measurements Using
thousands	Segment	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)
2021
Century Park (a)	Strategic Developments	$	32,000	$	0	$	0	$	32,000
2020
Outlet Collection at Riverwalk (b)	Operating Assets	46,794		0		0		46,794

(a)The fair value was measured using weighted income and market valuation techniques as of the ~~nine months ended September 30, 2020:~~impairment date in the second quarter of 2021. Refer to Note 4 -Impairment for additional information.

(b)The fair value was measured as of the impairment date in 2020 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.

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
$ 0
$ 0
$ 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 5 -~~ ~~Impairment~~ ~~for additional information.~~

HHC ~~2020~~2021 FORM 10-Q | 2224



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~



9. FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


8. 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~~caps are not currently designated as ~~a hedge,~~hedges, and therefore, any ~~gain~~gains or ~~loss is~~losses are recognized in current-period earnings. ~~This derivative is~~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”)~~(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 Condensed Consolidated Statements of Cash Flows as the items being hedged. Gains and losses from derivative financial instruments are reported in Cash (used in) provided by operating activities within the Condensed 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,~~creditworthy, such as large financial institutions with favorable credit ratings. There were no events of default as of ~~September~~June 30, ~~2020, and~~2021, or as of December 31, ~~2019.~~2020.

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. ~~As of September~~During the six months ended June 30, 2021, and the year ended December 31, 2020, there were 0 termination ~~events, and as of December 31, 2019, there was 1 termination event, as discussed below.~~events. The Company recorded a $0.8 million reduction in Interest expense during the three months ended ~~September~~June 30, ~~2020,~~2021 and a ~~$2.4~~$1.5 million reduction in Interest expense during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, related to the amortization of terminated swaps.

The Company did 0t settle any derivatives during the ~~nine~~six months ended ~~September~~June 30, ~~2020. During~~2021 or the year ended December 31, 2019, the Company settled 1 interest rate cap agreement with a notional amount of $230.0 million and received payment of $0.2 million. The Company has deferred the effective portion of the fair value changes of 2 previously settled interest rate swap agreements in Accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets and will recognize the impact as a component of Interest expense over the next 7.3 and 1.0 years, which are what remain of the original forecasted periods.2020.

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, the Company estimates that an additional ~~$23.6~~$16.9 million of net loss will be reclassified to Interest expense.

~~HHC~~ ~~2020 FORM 10-Q~~ | 25



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

The following table summarizes certain terms of the Company’s derivative contracts:


								Fair Value Asset (Liability)
thousands		Balance Sheet Location	Notional Amount	Fixed Interest Rate (a)		Effective Date	Maturity Date	June 30, 2021		December 31, 2020
Derivative instruments not designated as hedging instruments:
Interest rate cap	(b)	Prepaid expenses and other assets, net	285,000	2.00	%	3/12/2021	9/15/2023	$	126	$	0
Interest rate cap	(b)	Prepaid expenses and other assets, net	83,200	2.00	%	3/12/2021	9/15/2023	38		0
Interest rate cap	(c)	Prepaid expenses and other assets, net	75,000	5.00	%	8/31/2020	10/17/2022	0		0
Total fair value derivative assets								164		0

Derivative instruments designated as hedging instruments:
Interest rate swap	(d)	Accounts payable and accrued expenses	615,000	2.96	%	9/21/2018	9/18/2023	(36,219)		(46,613)
Interest rate swap	(e)	Accounts payable and accrued expenses	35,487	4.89	%	11/1/2019	1/1/2032	(3,608)		(5,307)
Total fair value derivative liabilities								(39,827)		(51,920)
Total fair value derivatives, net								$	(39,663)	$	(51,920)

(a)These rates represent the strike rate on HHC’s interest swaps and caps.

HHC 2021 FORM 10-Q | 23

Fixed Fair Value Asset (Liability)
Notional Interest Effective Maturity September 30, 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 $ 230,000
2.50 % 12/22/2016 12/23/2019 $ 0
$ 0
Interest rate cap (c) Prepaid expenses and other assets, net 75,000
5.00 % 8/31/2020 10/17/2022 1
0
Total fair value derivative assets $ 1
$ 0

Derivative instruments designated as hedging instruments:
Interest rate collar (d) (e) Accounts payable and accrued expenses 193,967
2.00% - 3.00%
5/1/2019 5/1/2020 0
(182 )
Interest rate collar (d) (f) Prepaid expenses and other assets, net 354,217
2.25% - 3.25%
5/1/2020 5/1/2021 0
(2,074 )
Interest rate collar (d) (f) Prepaid expenses and other assets, net 381,404
2.75% - 3.50%
5/1/2021 4/30/2022 0
(4,578 )
Interest rate swap (g) Accounts payable and accrued expenses 615,000
2.96 % 9/21/2018 9/18/2023 (50,918 ) (31,187 )
Interest rate swap (h) Accounts payable and accrued expenses 1,810
4.89 % 11/1/2019 1/1/2032 (6,013 ) (2,114 )
Total fair value derivative liabilities $ (56,931 ) $ (40,135 )
Total fair value derivatives, net $ (56,930 ) $ (40,135 )


~~(a)~~			~~These rates represent the strike rate on HHC’s interest swaps, caps and collars.~~


~~(b)~~	The Company settled this Interest rate cap on February 1, 2019. Interest income of $0.2 million is included in the Condensed Consolidated Statements of Operations for the year ended December 31, 2019, related to this contract.


~~(c)~~	In the third quarter of 2020, the Company executed an agreement to extend the maturing position of this cap. Interest income included in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020, and the year ended December 31, 2019, related to this contract was not meaningful.


~~(d)~~	~~On May 17, 2018, and May 18, 2018, the Company entered into these interest rate collars which are designated as cash flow hedges.~~


~~(e)~~	~~On May 1, 2020, the $194.0 million interest rate collar matured as scheduled.~~


~~(f)~~ FINANCIAL STATEMENTS FOOTNOTES	AsTable of ~~September 30, 2020, the Company deconsolidated 110 North Wacker including the associated liabilities related to its interest rate collars. Refer to Note 3 -~~ Contents ~~Real Estate and Other Affiliates~~ ~~for additional information.~~

~~(g)~~

(b)In March 2021, the Company entered into 2 new interest rate caps, which are not designated as hedging instruments. Interest expense included in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021, related to these contracts was not material.

(c)In the third quarter of 2020, the Company executed an agreement to extend the maturing position of this cap. Interest expense included in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021, and the year ended December 31, 2020, related to this contract was not material.

(d)Concurrent with the funding of the $615.0 million term loan in September 2018, the Company entered into this interest rate swap which is designated as a cash flow hedge.

(e)Concurrent with the closing of the $35.5 million construction loan for 8770 New Trailsin June 2019, the Company entered into this interest rate swap, which is designated as a cash flow hedge.

~~on September 21, 2018, the Company entered into this interest rate swap which is designated as a cash flow hedge.~~


~~(h)~~	~~Concurrent with the closing of the $35.5 million construction loan for 8770 New Trailson June 27, 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 Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and ~~2019:~~2020:


thousands	Amount of Loss Recognized in AOCI on Derivative
Derivatives in Cash Flow Hedging Relationships	Three Months Ended September 30,					Nine Months Ended September 30,						Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives
	2020		2019			2020			2019				Three Months Ended June 30,				Six Months Ended June 30,
thousands												thousands	2021		2020		2021		2020
Interest rate derivatives	$	1,802	$	(6,406	)	$	(32,999	)	$	(25,238	)	Interest rate derivatives	$	(1,136)	$	(4,197)	$	2,247	$	(36,248)


Location of Gain (Loss) Reclassified from AOCI into Operations	Amount of Gain (Loss) Reclassified from AOCI into Operations
	Three Months Ended June 30,				Six Months Ended June 30,
thousands	2021		2020		2021		2020
Interest expense	$	(3,041)	$	(3,359)	$	(6,014)	$	(4,509)

thousands Amount of (Loss) Gain Reclassified from AOCI into Operations
Location of (Loss) Gain Reclassified from AOCI into Operations Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Interest expense $ (4,121 ) $ (199 ) $ (8,441 ) $ 21

Total Interest Expense Presented in the Results of Operations
thousands in which the Effects of Cash Flow Hedges are Recorded
Interest Expense Presented in Results of Operations Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Interest expense $ 31,872
$ 28,829
$ 98,717
$ 76,358


Interest Expense Presented in Results of Operations	Total Interest Expense Presented in the Results of Operations in which the Effects of Cash Flow Hedges are Recorded
	Three Months Ended June 30,				Six Months Ended June 30,
thousands	2021		2020		2021		2020
Interest expense	$	31,439	$	32,397	$	65,649	$	66,845

~~HHC~~ ~~2020 FORM 10-Q~~ | 26



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

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 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 ~~non-performance~~nonperformance risk, related to these agreements was ~~$60.3~~$50.0 million as of ~~September~~June 30, ~~2020,~~2021, and ~~$41.6~~$54.6 million as of December 31, ~~2019. As of September 30, 2020, the Company has not posted any collateral related to these agreements.~~2020. If the Company had breached any of these provisions at ~~September~~June 30, ~~2020,~~2021, it could have been required to settle its obligations under the agreements at their termination value of ~~$60.3~~$50.0 million.

HHC 2021 FORM 10-Q | 24



~~10.~~ FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


9. 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, including 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.

LitigationOn 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.

~~In management’s opinion, the liabilities, if any, that may ultimately result from normal course of business legal actions, including The Woodlands legal proceeding~~
~~discussed above, are not expected to have a material effect on the Company’s consolidated financial position, results of operations or liquidity.~~

The Company entered into a settlement agreement with the Waiea homeowners association related to certain construction defects at the 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,~~proceeds; however, the Company can provide no assurances that all or any portion of these costs will be recovered. The Company recorded ~~a $97.9~~total expenses of $99.2 million ~~charge~~ for the estimated repair costs related to this matter ~~which~~during 2020. An additional $21.0 million was charged during the six months ended June 30, 2021, related to additional anticipated costs. These amounts were included in Condominium rights and unit cost of sales in the accompanying Condensed Consolidated Statements of Operations. As of ~~September~~June 30, ~~2020, the Company has recorded~~2021, a total of ~~$114.5~~$112.0 million remains in Construction payables for the estimated repair costs related to this matter, which is included in Accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheet.

Environmental MattersThe 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 ~~evaluates~~continues to move forward with redevelopment ~~plans. Prior~~planning. The Company engaged a third-party specialist to ~~the purchase,~~perform a Phase I Environmental Site Assessment ~~(“ESA”) was prepared for the property,~~(ESA), and the ESA identified, among other findings, the existence of mercury in the soil at levels above New York State regulatory criteria. The ~~Company entered~~site is in the ~~site into the New York~~ State Brownfield Cleanup Program and is proposed to ~~facilitate site investigation and subsequent remediation. The site is currently in the investigation phase of the~~be remediated under this program. The normal operations of the parking lot do not require the property to be remediated, and ~~it is unlikely that~~ the ~~site will require any remedial measures until site redevelopment occurs. The~~ Company has not started any redevelopment activities as of ~~September~~June 30, ~~2020.~~2021. As a result, the potential remediation has no financial impact ~~as of September 30, 2020, and~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Letters of Credit and Surety BondsAs of ~~September~~June 30, 2021, the Company had outstanding letters of credit totaling $5.1 million and surety bonds totaling $347.3 million. As of December 31, 2020, the Company had outstanding letters of credit totaling ~~$11.5~~$5.2 million and surety bonds totaling ~~$275.3 million. As of December 31, 2019, the Company had outstanding letters of credit totaling $15.4 million and surety bonds totaling $200.1~~$272.4 million. These letters of credit and surety bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

~~HHC~~Operating Leases ~~2020 FORM 10-Q~~ | 27



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

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 Condensed Consolidated Balance Sheets. See Note 1715 -Leases for further discussion. Contractual rental expense, including participation rent, was ~~$2.0~~$1.9 million for the three months ended ~~September~~June 30, ~~2020,~~2021 and ~~$5.3~~$3.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to ~~$2.5~~$1.5 million for the three months ended ~~September~~June 30, ~~2019,~~2020 and ~~$6.7~~$3.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The amortization of above and below‑market ground leases and straight‑line rents included in the contractual rent amount was not significant.

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 guaranteed the performance of its subsidiaries under the funding agreement for up to a maximum of $1.0 million until October 31, 2020. Furthermore, to~~To the extent that increases in taxes do not cover debt service payments on the TIF bonds, the Company’s wholly owned subsidiary is

HHC 2021 FORM 10-Q | 25


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

obligated to pay special taxes. Management has concluded that as of ~~September~~June 30, ~~2020,~~2021, 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,~~requirement, which is triggered once the necessary permits are granted and construction commences, was satisfied for the Company’s 3 condominium towers, Waiea, Anaha and Ae‘o, with the opening of the Company’s fourth tower, Ke Kilohana, which is a workforce tower fully earmarked to fulfill this obligation. For the 23 towers under construction, the reserved units for the ‘A‘ali‘i tower are included in the tower, and the units for Kō'ula and Victoria Place 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 ~~September~~June 30, ~~2020,~~2021, and December 31, ~~2019.~~2020.

~~11. Stock-Based Plans~~

On May 14, 2020, the Company adopted 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.

Prior to the adoption of the 2020 Equity Plan, equity awards were issued under The Howard Hughes Corporation 2010 Equity Incentive Plan (the “2010 Equity Plan”). The 2010 Equity Plan is described and informational disclosures are provided in the Notes to Consolidated Financial Statements included in the Annual Report. 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.

~~Stock Options~~ ~~The following table summarizes stock option activity for the nine months ended September 30, 2020:~~

Stock
Options Weighted-average
Exercise Price
Stock Options outstanding at December 31, 2019 721,496
$ 104.55
Granted 3,000
75.82
Exercised (57,058 ) 67.24
Forfeited (245,100 ) 122.31
Expired (23,688 ) 100.24
Stock Options outstanding at September 30, 2020 398,650
$ 99.02

~~HHC~~ ~~2020 FORM 10-Q~~ | 28



~~FINANCIAL STATEMENTS~~			~~Table of Contents~~
~~FOOTNOTES~~

Compensation costs related to stock options were in a credit position of $1.5 million for the three months ended September 30, 2020. Compensation costs related to stock options were in a credit position of $2.1 million for the nine months ended September 30, 2020, of which $0.2 million were capitalized to development projects. These credit positions were due to significant forfeitures which exceeded the expense. Compensation costs related to stock options were $0.7 million for the three months ended September 30, 2019, of which 0 was capitalized to development projects, and $2.2 million for the nine months ended September 30, 2019, of which $0.4 million was capitalized to development projects.

~~Restricted Stock~~ ~~The following table summarizes restricted stock activity for the nine months ended September 30, 2020:~~

Restricted
Stock Weighted-average Grant
Date Fair Value
Restricted stock outstanding at December 31, 2019 406,802
$ 76.27
Granted 97,775
74.93
Vested (22,039 ) 107.75
Forfeited (54,366 ) 96.90
Restricted stock outstanding at September 30, 2020 428,172
$ 71.61

Compensation costs related to restricted stock awards were $2.2 million for the three months ended September 30, 2020, of which $0.2 million was capitalized to development projects, and $5.9 million for the nine months ended September 30, 2020, of which $0.9 million was capitalized to development projects. Compensation costs related to restricted stock awards were $3.0 million for the three months ended September 30, 2019, of which $0.3 million was capitalized to development projects, and $7.7 million for the nine months ended September 30, 2019, of which $0.9 million was capitalized to development projects. The total number of restricted stock outstanding set forth above reflects any restricted stock subject to performance-based vesting at the target level.

~~12.~~10. Income Taxes


	Three Months Ended June 30,							Six Months Ended June 30,
thousands except percentages	2021		2020			$ Change		2021			2020			$ Change
Income tax expense (benefit)	$	(1,550)	$	(6,844)		$	5,294	$	(22,755)		$	(40,944)		$	18,189
Income (loss) before income taxes	2,067		(40,947)			43,014		(87,297)			(200,129)			112,832
Effective tax rate	NM		16.7		%	NM		26.1		%	20.5		%	5.6		%

NM—Not Meaningful

The Company’s tax provision for interim periods is determined using an estimate of its annual current and deferred effective tax rates, adjusted for discrete items. The effective tax rate, based upon actual operating results, was 21.2% for the three months ended September 30, 2020, and 39.9% for the nine months ended September 30, 2020, compared to 22.5% for the three months ended September 30, 2019, and 24.3% for the nine months ended September 30, 2019.

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. ~~In addition,~~For the three and six months ended June 30, 2020, the effective ~~tax~~ rate ~~for three and nine months ended September 30, 2020,~~ was also impacted by ~~the gain on the deconsolidation of 110 North Wacker (refer to Note 3 -~~ ~~Real Estate and Other Affiliates~~ ~~for additional details), a tax expense 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 4 -~~ ~~Recent Transactions~~ ~~for additional details) and~~ a valuation allowance on ~~our carryover for~~the Company’s charitable ~~contributions.~~contribution carryover.



~~13.~~11. Warrants

On October 7, 2016, the Company entered into a warrant agreement with David R. O’Reilly, (the ~~“O’Reilly Warrant”)~~O’Reilly Warrant) prior to his appointment to the 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.~~ 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, (the ~~“Weinreb Warrant”)~~Weinreb Warrant) and President, Grant Herlitz, (the ~~“Herlitz Warrant”)~~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 (but such warrants became exercisable in connection with Mr. Weinreb’s~~provisions. The Weinreb Warrant expires June 15, 2023, and ~~Mr. Herlitz’s terminations of employment, as described below).~~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 Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2020,~~2021, and December 31, ~~2019.~~2020.

~~HHC~~ ~~2020 FORM 10-Q~~ | 29



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

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 June 30, 2021.

HHC 2021 FORM 10-Q | 26



~~14.~~ FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


12. Accumulated Other Comprehensive ~~Loss~~Income

The following tables summarize changes in ~~AOCI~~accumulated other comprehensive income (AOCI) by component, all of which are presented net of tax:

thousands
Balance as of June 30, 2020 $ (61,111 )
Other comprehensive income (loss) before reclassifications 1,802
(Gain) loss reclassified from accumulated other comprehensive loss to net income 4,121
Terminated swap amortization (577 )
Derecognition of interest rate swap 12,934
Net current-period other comprehensive income 18,280
Balance as of September 30, 2020 $ (42,831 )

Balance as of June 30, 2019 $ (28,542 )
Other comprehensive income (loss) before reclassifications (6,406 )
(Gain) loss reclassified from accumulated other comprehensive loss to net income 199
Terminated swap amortization (764 )
Net current-period other comprehensive loss (6,971 )
Balance as of September 30, 2019 $ (35,513 )

thousands
Balance as of December 31, 2019 $ (29,372 )
Other comprehensive income (loss) before reclassifications (32,999 )
(Gain) loss reclassified from accumulated other comprehensive loss to net income 8,441
Terminated swap amortization (1,835 )
Derecognition of interest rate swap 12,934
Net current-period other comprehensive loss (13,459 )
Balance as of September 30, 2020 $ (42,831 )

Balance as of December 31, 2018 $ (8,126 )
Other comprehensive income (loss) before reclassifications (25,311 )
(Gain) loss reclassified from accumulated other comprehensive loss to net income (21 )
Terminated swap amortization (2,055 )
Net current-period other comprehensive loss (27,387 )
Balance as of September 30, 2019 $ (35,513 )

~~HHC~~ ~~2020 FORM 10-Q~~ | 30


thousands
Balance as of March 31, 2021	$	(31,017)
Other comprehensive income (loss) before reclassifications	(1,136)
(Gain) loss reclassified from accumulated other comprehensive loss to net income	3,041
Share of investee's other comprehensive income, net of tax expense (benefit) of $386	1,358

~~FINANCIAL STATEMENTS~~Net current-period other comprehensive income	~~Table of Contents~~3,263
~~FOOTNOTES~~Balance as of June 30, 2021	$	(27,754)

Balance as of March 31, 2020	$	(60,273)
Other comprehensive income (loss) before reclassifications	(4,197)
(Gain) loss reclassified from accumulated other comprehensive loss to net income	3,359
Net current-period other comprehensive loss	(838)
Balance as of June 30, 2020	$	(61,111)


thousands
Balance as of December 31, 2020	$	(38,590)
Other comprehensive income (loss) before reclassifications	2,247
(Gain) loss reclassified from accumulated other comprehensive loss to net income	6,014
Share of investee's other comprehensive income, net of tax expense (benefit) of $732	2,575
Net current-period other comprehensive loss	10,836
Balance as of June 30, 2021	$	(27,754)

Balance as of December 31, 2019	$	(29,372)
Other comprehensive income (loss) before reclassifications	(36,248)
(Gain) loss reclassified from accumulated other comprehensive loss to net income	4,509
Net current-period other comprehensive loss	(31,739)
Balance as of June 30, 2020	$	(61,111)

The following table summarizes the amounts reclassified out of AOCI:


Accumulated Other Comprehensive Income (Loss) Components	Amounts reclassified from Accumulated Other Comprehensive Income (Loss)
	Three Months Ended June 30,				Six Months Ended June 30,				Affected line items in the Statements of Operations
thousands	2021		2020		2021		2020
(Gains) losses on cash flow hedges	$	3,888	$	4,103	$	7,689	$	5,510	Interest expense
Income taxes on (gains) losses on cash flow hedges	(847)		(744)		(1,675)		(1,001)		Provision for income taxes
Total reclassifications of (income) loss, net of tax for the period	$	3,041	$	3,359	$	6,014	$	4,509

thousands
Amounts reclassified from
Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive
Income (Loss) Components
Three Months Ended September 30, Nine Months Ended September 30,
Affected line items in the
Statements of Operations
2020 2019 2020 2019
(Gains) losses on cash flow hedges $ 5,216
$ 252
$ 10,685
$ (26 ) Interest expense
Income taxes on (gains) losses on cash flow hedges (1,095 ) (53 ) (2,244 ) 5
Provision for income taxes
Total reclassifications of (income) loss, net of tax for the period $ 4,121
$ 199
$ 8,441
$ (21 )

HHC 2021 FORM 10-Q | 27



~~15.~~ FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


13. Earnings Per Share

Basic earnings per share ~~(“EPS”)~~(EPS) is computed by dividing net income available to common stockholders by the ~~weighted‑average~~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~~stock-based compensation plans is computed using the treasury stock method. The dilutive effect of the warrants is computed using the ~~if‑converted~~if-converted method.

Information related to the Company’s EPS calculations is summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
thousands except per share amounts	2021		2020		2021		2020
Net income (loss)
Net income (loss)	$	3,617	$	(34,103)	$	(64,542)	$	(159,185)
Net (income) loss attributable to noncontrolling interests	1,224		19		2,789		(33)
Net income (loss) attributable to common stockholders	$	4,841	$	(34,084)	$	(61,753)	$	(159,218)

Shares
Weighted-average common shares outstanding - basic	55,704		55,530		55,691		49,455
Restricted stock and stock options	53		0		0		0

Weighted-average common shares outstanding - diluted	55,757		55,530		55,691		49,455

Net income (loss) per common share
Basic income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)
Diluted income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)

Three Months Ended September 30, Nine Months Ended September 30,
thousands except per share amounts 2020 2019 2020 2019
Net income (loss)
Net income (loss) $ 164,002
$ 30,043
$ 4,817
$ 75,296
Net (income) loss attributable to noncontrolling interests (24,292 ) (285 ) (24,325 ) (240 )
Net income (loss) attributable to common stockholders $ 139,710
$ 29,758
$ (19,508 ) $ 75,056

Shares

Weighted-average common shares outstanding - basic 55,542
43,134
51,493
43,118
Restricted stock and stock options 43
208
0
171
Warrants 0
86
0
86
Weighted-average common shares outstanding - diluted 55,585
43,428
51,493
43,375

Net income (loss) per common share
Basic income (loss) per share $ 2.52
$ 0.69
$ (0.38 ) $ 1.74
Diluted income (loss) per share $ 2.51
$ 0.69
$ (0.38 ) $ 1.73

~~The~~For the three months ended June 30, 2021, the diluted EPS computation excludes ~~391,875~~231,500 shares of stock ~~awards for the three months ended September 30, 2020,~~options and ~~excludes 266,422~~326,958 shares of restricted stock ~~awards for the nine months ended September 30, 2020,~~ because their effect is anti-dilutive. ~~In addition, for both periods, 252,037~~For the six months ended June 30, 2021, the diluted EPS computation excludes 285,487 shares of stock options and 472,116 shares of restricted stock ~~were excluded~~ because ~~performance conditions provided for in~~their effect is anti-dilutive.

For the ~~restricted stock awards have not been satisfied.~~

~~The~~three and six months ended June 30, 2020, the diluted EPS computation excludes ~~351,908~~518,750 shares of stock options ~~for the three months ended September 30, 2019,~~ and ~~excludes 418,808~~440,283 shares of restricted stock ~~options for the nine months ended September 30, 2019,~~ because their effect is anti-dilutive. ~~In addition, for both periods, 277,212 shares of restricted stock were excluded because performance conditions provided for in the restricted stock awards have 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

~~HHC~~ ~~2020 FORM 10-Q~~ | 31



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

placement at $50.00 per share. The total issuance of 12,270,900 shares closed on March 31, 2020, and the Company received ~~$593.7~~$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.

HHC 2021 FORM 10-Q | 28



~~16.~~ FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


14. Revenues

~~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. ~~Condominium rights and unit sales revenues were previously required to be recognized under the percentage of completion method. Under ASC 606, revenue~~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 table presents the Company’s revenues disaggregated by revenue source:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
thousands	2020		2019		2020		2019		thousands	2021		2020		2021		2020
Revenues
From contracts with customers
Revenues from contracts with customers									Revenues from contracts with customers
Recognized at a point in time:									Recognized at a point in time:
Condominium rights and unit sales	$	142	$	9,999	$	185	$	443,931	Condominium rights and unit sales	$	12,861	$	0	$	50,028	$	43
Master Planned Communities land sales	39,248		77,368		136,053		177,001		Master Planned Communities land sales	58,342		57,073		95,819		96,805
Builder price participation	9,230		9,660		25,936		24,224		Builder price participation	11,389		8,947		18,183		16,706
Total revenue from contracts with customers	48,620		97,027		162,174		645,156
Total									Total	82,592		66,020		164,030		113,554

Recognized at a point in time and/or over time:
Recognized at a point in time or over time:									Recognized at a point in time or over time:
Other land, rental and property revenues	35,748		63,801		82,092		165,054		Other land, rental and property revenues	41,389		11,447		64,632		46,344
Total other income	35,748		63,801		82,092		165,054


Rental and lease-related revenues									Rental and lease-related revenues
Rental revenue	70,072		70,344		241,522		206,168		Rental revenue	88,476		78,706		174,375		171,450

Total revenues	$	154,440	$	231,172	$	485,788	$	1,016,378	Total revenues	$	212,457	$	156,173	$	403,037	$	331,348

Revenues by segment									Revenues by segment
Operating Assets revenues	$	81,667	$	104,223	$	280,201	$	305,395	Operating Assets revenues	$	113,422	$	84,277	$	209,861	$	198,534
Master Planned Communities revenues	52,158		92,287		171,517		216,042		Master Planned Communities revenues	74,578		68,913		122,865		119,359
Seaport District revenues	4,204		23,130		16,170		43,051
Seaport revenues									Seaport revenues	10,898		2,272		18,351		11,966
Strategic Developments revenues	16,365		11,515		17,749		451,873		Strategic Developments revenues	13,466		624		51,766		1,384
Corporate revenues	46		17		151		17		Corporate revenues	93		87		194		105
Total revenues	$	154,440	$	231,172	$	485,788	$	1,016,378	Total revenues	$	212,457	$	156,173	$	403,037	$	331,348

HHC ~~2020~~2021 FORM 10-Q | 2932



FINANCIAL STATEMENTS FOOTNOTES			Table of Contents
~~FOOTNOTES~~

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 period. 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 period are as follows:


thousands	Contract Liabilities
Balance as of December 31, 2020	$	360,416
Consideration earned during the period	(71,778)
Consideration received during the period	127,030
Balance as of June 30, 2021	$	415,668

Balance as of December 31, 2019	$	246,010
Consideration earned during the period	(30,200)
Consideration received during the period	122,526
Balance as of June 30, 2020	$	338,336

thousands Contract Liabilities
Balance as of December 31, 2019 $ 246,010
Consideration earned during the period (38,960 )
Consideration received during the period 138,291
Balance as of September 30, 2020 $ 345,341

Remaining Unsatisfied Performance Obligations The Company’s remaining unsatisfied performance obligations as of ~~September~~June 30, ~~2020,~~2021, 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 ~~September~~June 30, ~~2020,~~2021, is ~~$1.7~~$2.0 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 $ 220,354
$ 437,371
$ 1,081,751


thousands	Less than 1 year			1-2 years		3 years and thereafter
Total remaining unsatisfied performance obligations		$	713,231	$	544,582		$	737,106

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~~that are constrained, such as builder price participation.



~~17.~~15. Leases

~~Leases~~Lessee Arrangements ~~(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 Condensed 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 does not have any finance leases as of ~~September~~June 30, ~~2020.~~2021.

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 5352 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from two to 40 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

HHC 2021 FORM 10-Q | 30


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

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.

~~HHC~~ ~~2020 FORM 10-Q~~ | 33



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

The Company’s leased assets and liabilities are as follows:


thousands	June 30, 2021		December 31, 2020
Assets
Operating lease right-of-use assets, net	$	54,566	$	56,255
Liabilities
Operating lease obligations	68,102		68,929

thousands September 30, 2020
Assets
Operating lease right-of-use assets $ 67,322
Riverwalk impairment (10,235 )
Total leased assets $ 57,087

Liabilities
Operating lease liabilities $ 69,246
Total leased liabilities $ 69,246

The components of lease expense are as follows:

thousands Three Months Ended Nine Months Ended
Lease cost September 30, 2020 September 30, 2020
Operating lease cost $ 2,181
$ 6,539
Variable lease costs 382
672
Net lease cost $ 2,563
$ 7,211


	Three Months Ended June 30,				Six Months Ended June 30,
thousands	2021		2020		2021		2020
Operating lease cost	$	2,180	$	2,179	$	4,363	$	4,358
Variable lease costs	324		117		440		290

Net lease cost	$	2,504	$	2,296	$	4,803	$	4,648

Future minimum lease payments as of ~~September~~June 30, ~~2020,~~2021, are as follows:


thousands	Operating Leases
Remainder of 2021	$	3,349
2022	6,507
2023	6,464
2024	6,432
2025	5,047
Thereafter	261,806
Total lease payments	289,605
Less: imputed interest	(221,503)
Present value of lease liabilities	$	68,102

Operating
thousands Leases
2020 (excluding the nine months ended September 30, 2020) $ 1,339
2021 7,184
2022 6,507
2023 6,464
2024 6,432
Thereafter 266,852
Total lease payments 294,778
Less: imputed interest (225,532 )
Present value of lease liabilities $ 69,246

Other information related to the Company’s lessee agreements is as follows:


Supplemental Condensed Consolidated Statements of Cash Flows Information	Six Months Ended June 30,
thousands	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	3,531	$	3,849


Other Information	June 30, 2021		June 30, 2020
Weighted-average remaining lease term (years)
Operating leases	37.3		37.0
Weighted-average discount rate
Operating leases	7.8	%	7.8	%

HHC 2021 FORM 10-Q | 31

thousands Nine Months Ended
Supplemental Condensed Consolidated Statements of Cash Flows Information September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases $ 5,566



~~Other Information~~ FINANCIAL STATEMENTS FOOTNOTES			~~September 30, 2020~~
~~Weighted-average remaining lease term (years)~~
~~Operating leases~~	~~37.1~~	Table of Contents
~~Weighted-average discount rate~~
~~Operating leases~~	~~7.8~~	%

Lessor Arrangements

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 termination

~~HHC~~ ~~2020 FORM 10-Q~~ | 34



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~
~~FOOTNOTES~~

options, extension options and fixed rental rate increases or rental rate increases based on an index. The decrease in total minimum rent payments for the six months ended June 30, 2021, as compared to the same period in 2020, is due to slowing of new lease activity caused by the COVID-19 pandemic coupled with the natural attrition of lease payments as leases move toward expiration. The minimum rentals based on operating leases of the consolidated properties held as of ~~September~~June 30, ~~2020,~~2021, are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
thousands	2021		2020		2021		2020
Total minimum rent payments	$	54,658	$	54,114	$	108,000	$	113,213

Three Months Ended Nine Months Ended
thousands September 30, 2020 September 30, 2020
Total minimum rent payments $ 51,104
$ 164,317

Total future minimum rents associated with operating leases are as follows as of ~~September~~June 30, ~~2020:~~2021:

Total
thousands Minimum Rent
Remainder of 2020 $ 56,261
2021 230,029
2022 243,260
2023 233,321
2024 228,531
Thereafter 1,459,096
Total $ 2,450,498


thousands	Total Minimum Rent
Remainder of 2021	$	118,036
2022	246,736
2023	242,933
2024	238,289
2025	211,057
Thereafter	1,296,561
Total	$	2,353,612

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 Condensed Consolidated Statements of Operations also include amortization related to above and below‑market tenant leases on acquired properties.

~~A sales-type~~In response to the COVID-19 pandemic, the Company granted rent deferrals to certain tenants. Under the accounting elections provided by the Financial Accounting Standards Board (FASB) in response to the COVID-19 pandemic, the Company has elected to not assess whether COVID-19 related deferrals are lease ~~is defined~~modifications and will account for the deferrals as ~~a lease that meets one or more of~~if contemplated in 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 theoriginal lease. Rent deferrals are treated as variable lease payments ~~equals or exceeds~~resulting in a decrease in straight-line rent revenue during the ~~fair value~~deferral period and additional revenue upon payment in subsequent periods. COVID-19 related rent deferrals were $3.8 million as of ~~the asset, or the asset is~~June 30, 2021, net 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 nine months ended September 30,~~subsequent collections.

In 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.

HHC 2021 FORM 10-Q | 32



~~18.~~ FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


16. Segments

The Company has 4 business segments ~~which~~that offer different products and services. HHC’s 4 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 2. - 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”)~~(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 retail, office, hospitality and multi-family properties along with other real estate investments. These assets are currently generating revenues and are comprised of commercial real estate properties recently developed or acquired, and properties with an opportunity to redevelop, reposition or sell

–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 3 primary locations in New York, New York: Pier 17, Seaport District Historic Area/Uplands and Tin Building. While the latter is still under development and will comprise about 53,000 square feet when completed, the 2 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.~~

–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 – consists of approximately 453,000 square feet of restaurant, retail and entertainment properties situated in 3 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 2 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.

HHC ~~2020~~2021 FORM 10-Q | 3335



FINANCIAL STATEMENTS FOOTNOTES			Table of Contents
~~FOOTNOTES~~

Segment operating results are as follows:


thousands	Operating Assets Segment (a)		MPC Segment		Seaport Segment		Strategic Developments Segment		Total
Three Months Ended June 30, 2021
Total revenues	$	113,422	$	74,578	$	10,898	$	13,466	$	212,364
Total operating expenses	(53,191)		(33,905)		(15,996)		(18,640)		(121,732)
Segment operating income (loss)	60,231		40,673		(5,098)		(5,174)		90,632
Depreciation and amortization	(39,975)		(98)		(7,004)		(1,597)		(48,674)
Interest income (expense), net	(18,152)		10,615		187		659		(6,691)
Other income (loss), net	(156)		0		(618)		14		(760)
Equity in earnings (losses) from real estate and other affiliates	(10,419)		18,641		(336)		(19)		7,867
Gain (loss) on sale or disposal of real estate and other assets, net	0		0		0		21,333		21,333

Gain (loss) on extinguishment of debt	(46)		0		0		0		(46)
Provision for impairment	0		0		0		(13,068)		(13,068)
Segment EBT	$	(8,517)	$	69,831	$	(12,869)	$	2,148	$	50,593
Corporate income, expenses and other items									(46,976)
Net income (loss)									3,617
Net (income) loss attributable to noncontrolling interests									1,224
Net income (loss) attributable to common stockholders									$	4,841

Three Months Ended June 30, 2020
Total revenues	$	84,277	$	68,913	$	2,272	$	624	$	156,086
Total operating expenses	(42,222)		(31,970)		(8,464)		(12,517)		(95,173)
Segment operating income (loss)	42,055		36,943		(6,192)		(11,893)		60,913
Depreciation and amortization	(36,995)		(91)		(6,776)		(1,650)		(45,512)
Interest income (expense), net	(23,103)		8,303		(4,626)		1,057		(18,369)
Other income (loss), net	226		0		(409)		1,668		1,485
Equity in earnings (losses) from real estate and other affiliates	475		(2,968)		(6,633)		574		(8,552)
Gain (loss) on sale or disposal of real estate and other assets, net	0		0		0		8,000		8,000



Segment EBT	$	(17,342)	$	42,187	$	(24,636)	$	(2,244)	$	(2,035)
Corporate income, expenses and other items									(32,068)
Net income (loss)									(34,103)
Net (income) loss attributable to noncontrolling interests									19
Net income (loss) attributable to common stockholders									$	(34,084)

thousands Operating Assets
Segment (a) MPC
Segment Seaport
Segment Strategic Developments
Segment Total
Three Months Ended September 30, 2020
Total revenues $ 81,667
$ 52,158
$ 4,204
$ 16,365
$ 154,394
Total operating expenses (47,590 ) (23,059 ) (11,522 ) (9,922 ) (92,093 )
Segment operating income (loss) 34,077
29,099
(7,318 ) 6,443
62,301
Depreciation and amortization (41,395 ) (91 ) (7,174 ) (1,643 ) (50,303 )
Interest expense, net (21,045 ) 9,176
(2,811 ) 1,921
(12,759 )
Other income (loss), net (17 ) 0
1,590
134
1,707
Equity in earnings (losses) from real estate and other affiliates 962
(1,563 ) (288 ) 267,727
266,838
Gain (loss) on sale or disposal of real estate, net 108
0
0
0
108
Gain (loss) on extinguishment of debt (1,521 ) 0
(11,645 ) 0
(13,166 )
Segment EBT $ (28,831 ) $ 36,621
$ (27,646 ) $ 274,582
$ 254,726
Corporate income, expenses and other items (90,724 )
Net income (loss) 164,002
Net (income) loss attributable to noncontrolling interests (24,292 )
Net income (loss) attributable to common stockholders $ 139,710

Three Months Ended September 30, 2019
Total revenues $ 104,223
$ 92,287
$ 23,130
$ 11,515
$ 231,155
Total operating expenses (47,950 ) (43,697 ) (27,330 ) (11,327 ) (130,304 )
Segment operating income (loss) 56,273
48,590
(4,200 ) 188
100,851
Depreciation and amortization (28,844 ) (88 ) (6,767 ) (2,070 ) (37,769 )
Interest expense, net (21,645 ) 8,550
(4,984 ) 3,002
(15,077 )
Other income (loss), net 63
534
0
354
951
Equity in earnings (losses) from real estate and other affiliates 441
4,523
(705 ) 283
4,542
Gain (loss) on sale or disposal of real estate, net 0
0
0
24,201
24,201
Selling profit from sales-type leases 13,537
13,537
Segment EBT $ 19,825
$ 62,109
$ (16,656 ) $ 25,958
$ 91,236
Corporate income, expenses and other items (61,193 )
Net income (loss) 30,043
Net (income) loss attributable to noncontrolling interests (285 )
Net income (loss) attributable to common stockholders $ 29,758


~~(a)~~	Total revenues includes hospitality revenues of $8.1 million for the three months ended September 30, 2020, and $20.0 million for the three months ended September 30, 2019. Total operating expenses includes hospitality operating costs of $7.6 million for the three months ended September 30, 2020, and $14.1 million for the three months ended September 30, 2019.

(a)Total revenues includes hospitality revenues of $13.9 million for the three months ended June 30, 2021, and $2.5 million for the three months ended June 30, 2020. Total operating expenses includes hospitality operating costs of $11.0 million for the three months ended June 30, 2021, and $4.4 million for the three months ended June 30, 2020.

HHC ~~2020~~2021 FORM 10-Q | 3436



FINANCIAL STATEMENTS FOOTNOTES			Table of Contents
~~FOOTNOTES~~


thousands	Operating Assets Segment (a)		MPC Segment		Seaport Segment		Strategic Developments Segment		Total
Six Months Ended June 30, 2021
Total revenues	$	209,861	$	122,865	$	18,351	$	51,766	$	402,843
Total operating expenses	(100,425)		(57,172)		(28,502)		(78,263)		(264,362)
Segment operating income (loss)	109,436		65,693		(10,151)		(26,497)		138,481
Depreciation and amortization	(79,626)		(170)		(13,839)		(3,195)		(96,830)
Interest income (expense), net	(37,152)		21,372		289		1,760		(13,731)
Other income (loss), net	(10,254)		0		(954)		14		(11,194)
Equity in earnings (losses) from real estate and other affiliates	(21,823)		46,291		(688)		(117)		23,663
Gain (loss) on sale or disposal of real estate and other assets, net	0		0		0		21,333		21,333


Gain (loss) on extinguishment of debt	(882)		0		0		0		(882)
Provision for impairment	0		0		0		(13,068)		(13,068)
Segment EBT	$	(40,301)	$	133,186	$	(25,343)	$	(19,770)	$	47,772
Corporate income, expenses and other items									(112,314)
Net income (loss)									(64,542)
Net (income) loss attributable to noncontrolling interests									2,789
Net income (loss) attributable to common stockholders									$	(61,753)

Six Months Ended June 30, 2020
Total revenues	$	198,534	$	119,359	$	11,966	$	1,384	$	331,243
Total operating expenses	(94,462)		(55,692)		(22,775)		(116,816)		(289,745)
Segment operating income (loss)	104,072		63,667		(10,809)		(115,432)		41,498
Depreciation and amortization	(74,084)		(182)		(27,651)		(3,411)		(105,328)
Interest income (expense), net	(49,296)		16,857		(9,679)		2,988		(39,130)
Other income (loss), net	167		0		(3,777)		1,293		(2,317)
Equity in earnings (losses) from real estate and other affiliates	4,869		5,966		(8,676)		638		2,797
Gain (loss) on sale or disposal of real estate and other assets, net	38,124		0		0		8,000		46,124



Provision for impairment	(48,738)		0		0		0		(48,738)
Segment EBT	$	(24,886)	$	86,308	$	(60,592)	$	(105,924)	$	(105,094)
Corporate income, expenses and other items									(54,091)
Net income (loss)									(159,185)
Net (income) loss attributable to noncontrolling interests									(33)
Net income (loss) attributable to common stockholders									$	(159,218)

(a)Total revenues includes hospitality revenues of $21.6 million for the six months ended June 30, 2021, and $19.8 million for the six months ended June 30, 2020. Total operating expenses includes hospitality operating costs of $18.9 million for the six months ended June 30, 2021, and $17.2 million for the six months ended June 30, 2020.

thousands Operating Assets
Segment (a) MPC
Segment Seaport
Segment Strategic Developments
Segment Total
Nine Months Ended September 30, 2020
Total revenues $ 280,201
$ 171,517
$ 16,170
$ 17,749
$ 485,637
Total operating expenses (142,052 ) (78,751 ) (34,297 ) (126,738 ) (381,838 )
Segment operating income (loss) 138,149
92,766
(18,127 ) (108,989 ) 103,799
Depreciation and amortization (115,479 ) (273 ) (34,825 ) (5,054 ) (155,631 )
Interest expense, net (70,341 ) 26,033
(12,490 ) 4,909
(51,889 )
Other income (loss), net 150
0
(2,187 ) 1,427
(610 )
Equity in earnings (losses) from real estate and other affiliates 5,831
4,403
(8,964 ) 268,365
269,635
Gain (loss) on sale or disposal of real estate, net 38,232
0
0
8,000
46,232
Gain (loss) on extinguishment of debt (1,521 ) 0
(11,645 ) 0
(13,166 )
Provision for impairment (48,738 ) 0
0
0
(48,738 )
Segment EBT $ (53,717 ) $ 122,929
$ (88,238 ) $ 168,658
$ 149,632
Corporate income, expenses and other items (144,815 )
Net income (loss) 4,817
Net (income) loss attributable to noncontrolling interests (24,325 )
Net income (loss) attributable to common stockholders $ (19,508 )

Nine Months Ended September 30, 2019
Total revenues $ 305,395
$ 216,042
$ 43,051
$ 451,873
$ 1,016,361
Total operating expenses (139,589 ) (109,676 ) (59,735 ) (382,341 ) (691,341 )
Segment operating income (loss) 165,806
106,366
(16,684 ) 69,532
325,020
Depreciation and amortization (84,890 ) (334 ) (19,713 ) (4,386 ) (109,323 )
Interest expense, net (60,695 ) 24,376
(8,440 ) 9,499
(35,260 )
Other income (loss), net 1,186
601
(147 ) 664
2,304
Equity in earnings (losses) from real estate and other affiliates 3,195
18,859
(1,788 ) 581
20,847
Gain (loss) on sale or disposal of real estate, net 0
0
(6 ) 24,057
24,051
Selling profit from sales-type leases 13,537
0
0
0
13,537
Segment EBT $ 38,139
$ 149,868
$ (46,778 ) $ 99,947
$ 241,176
Corporate income, expenses and other items (165,880 )
Net income (loss) 75,296
Net (income) loss attributable to noncontrolling interests (240 )
Net income (loss) attributable to common stockholders $ 75,056


~~(a)~~	Total revenues includes hospitality revenues of $27.9 million for the nine months ended September 30, 2020, and $68.5 million for the nine months ended September 30, 2019. Total operating expenses includes hospitality operating costs of $24.8 million for the nine months ended September 30, 2020, and $46.3 million for the nine months ended September 30, 2019.

HHC ~~2020~~2021 FORM 10-Q | 3537



FINANCIAL STATEMENTS FOOTNOTES			Table of Contents
~~FOOTNOTES~~

The assets by segment and the reconciliation of total segment assets to the Total assets in the Condensed Consolidated Balance Sheets are summarized as follows:

September 30, December 31,
thousands 2020 2019
Operating Assets $ 3,911,853
$ 3,476,718
Master Planned Communities 2,310,333
2,166,472
Seaport District 912,191
930,067
Strategic Developments 1,164,749
1,540,161
Total segment assets 8,299,126
8,113,418
Corporate 742,119
300,348
Total assets $ 9,041,245
$ 8,413,766


thousands	June 30, 2021		December 31, 2020
Operating Assets	$	3,949,294	$	3,936,119
Master Planned Communities	2,327,151		2,285,896
Seaport	972,512		924,245
Strategic Developments	1,212,919		1,132,231
Total segment assets	8,461,876		8,278,491
Corporate	847,193		861,841
Total assets	$	9,309,069	$	9,140,332

HHC ~~2020~~2021 FORM 10-Q | 3836



MANAGEMENT’S DISCUSSION AND ANALYSIS			Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis by management should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes included in this quarterly report on Form 10-Q (the ~~“Quarterly Report”)~~Quarterly Report) and in The Howard Hughes Corporation’s ~~(“HHC”~~(HHC or the ~~“Company”)~~Company) annual report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, filed with the Securities and Exchange Commission ~~(“SEC”)~~(SEC) on February ~~27, 2020~~25, 2021 (the ~~“Annual Report”)~~Annual Report). All references to numbered Notes are to specific notes to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~



~~FORWARD-LOOKING INFORMATION~~MANAGEMENT’S DISCUSSION AND ANALYSIS			Table of Contents


FORWARD-LOOKING INFORMATION

~~We may make forward-looking~~

Certain statements contained in or incorporated by reference into this Quarterly Report, including, without limitation, those related to our future operations and those related to our expectations concerning the impact of the ongoing coronavirus pandemic (COVID-19) on our future operations and balance sheet, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact included in this Quarterly Report ~~and in other reports and presentations that we file or furnish with the SEC. In addition, our management may make~~are forward-looking statements ~~orally to analysts, investors, creditors, the media~~ and ~~others.~~

Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance, business and the Transformation Plan (as described below). You can identify forward-looking statements by the fact that they do not relate strictly to current or historical facts. These statements may include words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “plan,” “project,” “realize,” “should,” “transform,” “would,” and other ~~words~~statements of similar expression. ~~Forward-looking~~

These forward-looking statements ~~give~~involve known and unknown risks, uncertainties and other important factors that could cause our ~~expectations about the future and are not guarantees of~~actual results, performance or ~~results. We caution you not~~achievements, or industry results, to ~~rely on these forward-looking statements.~~

differ materially from any predictions of future results, performance or achievements that we express or imply in this Quarterly Report or in the information incorporated herein by reference. Currently, one of the most significant factors is the ~~potential~~unknown future adverse ~~effect~~impact of ~~the current pandemic of the novel strain of coronavirus (“COVID-19”)~~COVID-19 on ~~the~~our financial condition, results of operations, cash flows and performance, ~~of our Company,~~on our industry, and on the global economy and financial markets. The extent to which COVID-19 ~~impacts~~will continue to impact us ~~will depend~~depends on future developments ~~which are highly~~that remain uncertain and cannot be predicted with confidence, including the scope ~~severity~~ and duration of the pandemic, ~~the~~ actions taken by governments and authorities to contain ~~the pandemic~~ or mitigate ~~its~~the impact of the virus, the speed of distribution and effectiveness of vaccines, the impact of ongoing and future mutations of the virus, and the ~~direct~~short and ~~indirect~~long-term economic ~~effects of~~and consumer behavior impact caused by the ~~pandemic and containment measures, among others. Moreover,~~pandemic. In addition, you should interpret many of the risks identified ~~in this Quarterly Report, as well as the risks~~below and set forth ~~below,~~in our 2020 Annual Report on Form 10-K (2020 Annual Report), as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

~~Forward-looking statements include, among others:~~


–	the impact of COVID-19, including the recent surge of COVID-19 cases in regions where we operate, on our business and numerous governmental restrictions and other orders instituted in response to the COVID-19 pandemic on our business


–	our “Transformation Plan”, including new executive leadership, reduction in our overhead expenses, the proposed sale of our non-core assets and accelerated growth in our core Master Planned Communities (“MPC”) assets


–	~~expected performance of our stabilized, income-producing properties and the performance and stabilization timing of properties that we have recently placed into service or are under construction~~


–	~~forecasts of our future economic performance~~


–	~~expected capital required for our operations and development opportunities for our properties~~


–	~~the impact of technology on our operations and business~~


–	~~expected performance of all of our segments~~


–	~~expected commencement and completion for property developments and timing and amount of sales or rentals of certain properties~~


–	~~estimates of our future liquidity, development opportunities, development spending and management plans~~


–	~~descriptions of assumptions underlying or relating to any of the foregoing~~

~~There are several~~Some of the risks, uncertainties and other important factors ~~many beyond our control, which could~~that may affect future results or cause actual results to differ materially from those expressed or implied by forward-looking statements include:

–the impact of COVID-19 on our ~~expectations. These risk~~business, our tenants and the economy in general, including as described above;

–a prolonged recession in the national economy, including any adverse business or economic conditions in the homebuilding, condominium development, retail, office and hospitality sectors;

–potential changes in the financial markets and interest rates;

–our continuing ability to obtain operating and development capital on favorable terms, or at all;

–our ability to compete effectively, including the potential impact of heightened competition for tenants and potential decreases in occupancy at our properties;

–our ability to successfully dispose of non-core assets on terms favorable to us;

–our ability to lease new or redeveloped space;

–our ability to successfully identify, acquire, develop and/or manage properties on terms that are favorable to us;

–our ability to obtain the necessary governmental permits for the development of our properties and necessary regulatory approvals pursuant to an extensive entitlement process involving multiple and overlapping regulatory jurisdictions, which often require discretionary action by local governments;

–potential increases in real estate construction costs, including construction cost increases as the result of trade disputes and tariffs on goods imported in the United States;

–impact of construction costs exceeding our original estimates, delays or overruns, claims for construction defects, or other factors affecting our ability to develop, redevelop or construct our properties;

–regulation of the portion of our business that is dedicated to the formation and sale of condominiums, including regulatory filings to state agencies, additional entitlement processes and requirements to transfer control to a condominium association’s board of directors in certain situations;

–potential defaults by purchasers on their obligations to purchase our condominiums;

–fluctuations in regional and local economies, the residential housing and condominium markets, local real estate conditions, and competition from competing retail properties and the internet;

–natural disasters, terrorist activity, acts of violence, contamination of our properties by hazardous or toxic substances, or other similar disruptions, as well as losses that are not insured or exceed the applicable insurance limits;

–our inability to control certain of our properties due to the joint ownership of such property and our inability to successfully attract desirable strategic partners;

–catastrophic events or geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business;

–inherent risks related to disruption of information technology networks and related systems, including cyber security attacks;

–our ability to attract and retain key personnel; and

–other risks and uncertainties described herein, as well as those risks and uncertainties discussed from time to time in ~~Item 1A.-~~ our other reports and other public filings with the SEC.

~~Risk Factors~~
of

Although we presently believe that the plans, expectations and anticipated results expressed in or suggested by the forward-looking statements contained in or incorporated by reference into this Quarterly Report ~~as well as our Annual Report and~~ are incorporated herein by reference. Any factor could, by itself, or together with one or more other factors, adversely affect our business, results of operations, plans, objectives, future performance or financial condition. There may be other factors currently unknown to us that we have not described in this Quarterly Report or in our Annual Report that could cause results to differ from our expectations. Thesereasonable, all forward-looking statements ~~present~~are inherently subjective, uncertain and subject to change, as they involve substantial risks and uncertainties, including those beyond our ~~estimates~~control. New factors emerge from time to time, and ~~assumptions~~it is not possible for us to predict the nature, or assess the potential impact, of each new factor on our business. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update or

HHC 2021 FORM 10-Q | 38


MANAGEMENT’S DISCUSSION AND ANALYSIS			Table of Contents

revise any of our forward-looking statements for events or circumstances that arise after the statement is made, except as ~~of the date of this Quarterly Report. Except as~~otherwise may be required by ~~law,~~law.

The above list of risks and uncertainties is only a summary of some of the most important factors and is not intended to be exhaustive. Additional information regarding risk factors that may affect us is included in our 2020 Annual Report. The risk factors contained in our 2020 Annual Report are updated by us from time to time in Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings that we ~~undertake no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after~~make with the ~~date of this Quarterly Report.~~SEC.

HHC ~~2020~~2021 FORM 10-Q | 3940



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~EXECUTIVE OVERVIEW~~



MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW			Table of Contents



EXECUTIVE OVERVIEW


Description of Business

We strive to create timeless places and extraordinary experiences that inspire people while driving sustainable, long-term growth and value for our ~~shareholders.~~stockholders. We operate in four business segments: Operating Assets, MPC, Seaport ~~District~~ and Strategic Developments. The operational synergies of combining our three main business segments, Operating Assets, MPC and Strategic Developments, create a unique and continuous value-creation cycle. We sell land to residential homebuilders in our MPCs, and the new homes attract residents to our cities looking for places to live, work and shop. New homeowners create demand for commercial developments, such as retail, office, self-storage and hospitality offerings. We build these commercial properties through Strategic Developments when the timing is right using the cash flow harvested from our operating properties ~~NOI~~Net Operating Income (NOI) and from the sale of land to homebuilders. Once these strategic developments are completed and stabilized, they transition to Operating Assets, which are located across the United States and increase recurring ~~Net Operating Income (“NOI”),~~NOI, further funding the equity requirements in Strategic Developments. New office, retail and other commercial amenities make our MPC residential land more appealing to buyers and increase the velocity of land sales at premiums that exceed the broader market. Increased demand for residential land generates more cash flow from MPC, thus continuing the cycle. Our fourth business segment, the Seaport, ~~District,~~ is one of the only privately controlled districts in New York City and is being transformed into a culinary and entertainment destination. The Seaport ~~District~~ spans across approximately 453,000 square feet and several city blocks, including Pier 17, the Tin Building, the Historic District as well as the 250 Water Street parking lot.

In addition to the required presentations using GAAP, we use certain non-GAAP performance measures, such as earnings before taxes (EBT) and NOI. See the Earnings Before Taxes, Operating Assets and Seaport sections below for the reconciliation of GAAP to non-GAAP financial measures and a statement indicating why management believes the non-GAAP financial measure provides useful information for investors.

~~CEO Transition~~

~~As previously disclosed on a Current Report on Form 8-K filed with~~Executive Transition In December 2020, the ~~SEC on September 21, 2020, Mr. Paul Layne retired~~Company announced the appointment of David R. O’Reilly as ~~our~~the Company’s Chief Executive Officer and ~~stepped down from~~the appointment of L. Jay Cross as the Company’s ~~Board of Directors effective September 17, 2020. At~~President. On April 8, 2021, the ~~same time, Mr. David O’Reilly, our President and Chief Financial Officer, was~~Company announced that Correne Loeffler had been appointed to serve as ~~our~~the Company's Chief Financial Officer (CFO), effective April 19, 2021. Ms. Loeffler succeeded David O'Reilly as the Company's CFO, a position that he had held since joining HHC in 2016 and had continued to hold on an interim ~~Chief Executive Officer. The Board has commenced a search for a permanent~~basis since being appointed Chief Executive Officer in December 2020. Ms. Loeffler joined HHC following her role as Chief Financial Officer of Whiting Petroleum, where she managed the company’s Finance, Accounting, and ~~plans to consider both internal~~Corporate Planning organizations. She also previously served as Vice President of Finance and ~~external candidates.~~

~~Transformation Plan~~

Following our previously announced review of strategic alternatives, we announced our intent to execute a transformation plan, comprised of three pillars: (1) a $45 - $50 million reduction in annual overhead expenses, (2) the sale of approximately $2 billion of non-core assets, and (3) accelerated 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 six non-core assets generating approximately $132 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 during the remainder of the year. We have continued horizontal development in our MPCs to keep pace with builder demand given the strong underlying home sales in our communities. Additionally, we have commenced modest investments in pre-development workTreasurer for the ~~next vertical development opportunities in our core MPCs~~Callon Petroleum Company. In addition, she served as Callon's Interim Chief Financial Officer. Prior to ~~ensure~~ that ~~we are ready to move forward~~she spent over a decade at JPMorgan Securities before leaving as ~~soon as demand warrants.~~

~~COVID-19 Pandemic~~

~~In December 2019, COVID-19 was reported to have surfaced in Wuhan, China. COVID-19 has since spread globally, including to every state~~an Executive Director in the ~~United States. On March 11, 2020, the World Health Organization declared~~ Corporate Client Banking group.

COVID-19 ~~a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.~~ Pandemic The outbreak of COVID-19 ~~has severely~~ impacted global economic activity in early 2020 and caused significant volatility and negative pressure in financial markets. The ~~global~~ impact of ~~the outbreak evolved rapidly~~COVID-19 and ~~countries, including~~ the ~~United States, reacted by instituting a~~ wide variety of government-issued control measures, including states of emergency, ~~mandatory quarantines,~~ required business and school closures, ~~implementing “shelter in place”~~shelter-in-place orders and ~~restricting travel.~~travel restrictions, resulted in a negative impact on our financial performance in 2020, particularly in our Operating Asset and Seaport segments. Many states ~~have since eased~~began easing quarantine protocols near the end of the second quarter of 2020, which ~~has~~ allowed most of our retail and hospitality properties to resume operations ~~specifically~~on a limited basis. The extent to which COVID-19 continues to impact us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the actions taken to contain the pandemic or mitigate its impact, such as the speed and effectiveness of vaccine and treatment developments and their deployment, potential mutations of COVID-19, and the direct and indirect economic effects of the pandemic and containment measures.

While the impact of COVID-19 affected all of our business segments throughout 2020 and continues to impact the Company in ~~retail~~2021, we saw significant performance improvement during the second half of the 2020 that has continued throughout the first half of 2021. Notably, during the second quarter of 2021, we achieved Operating Asset NOI of $56.2 million, MPC EBT of $69.8 million and ~~hospitality.~~contracted to sell 45 condominium units at Ward Village. This represents a $17.3 million increase in Operating Asset NOI, a $27.6 million increase in MPC EBT and a 246% increase in condominium units sold at Ward Village, as compared to the second quarter of 2020.

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MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW			Table of Contents
~~EXECUTIVE OVERVIEW~~


Second Quarter 2021 Highlights

~~COVID-19 Impacts by Segment~~

Comparison of the three months ended June 30, 2021, to the three months ended June 30, 2020

Total Company

–Net income attributable to common stockholders increased to $4.8 million, or $0.09 per diluted share, for the three months ended June 30, 2021, compared to a loss of $34.1 million, or $(0.61) per diluted share, for the three months ended June 30, 2020.

–We continue to maintain a strong liquidity position with $1.1 billion of cash and cash equivalents and available capacity of $185 million on the revolver portion of our credit facilities as of June 30, 2021, with limited near-term debt maturities.

Capital and Financing Activities

–In April 2021, the Company closed on an $82.6 million construction loan for the development of Marlow in Columbia. The loan bears interest at LIBOR plus 2.95% with an initial maturity of April 2025 and a one-year extension option.

–In April 2021, the Company closed on a $42.7 million construction loan for the development of Starling at Bridgeland. The loan bears interest at LIBOR plus 2.75%, subject to an overall interest rate floor of 3.75%, and an initial maturity date of May 2026, and a one-year extension option.

Operating Assets

–Operating Assets NOI totaled $56.2 million in the current quarter, a $17.3 million or 44% increase compared to $38.9 million in the prior-year period.

–Retail NOI increased $6.2 million, primarily due to improving rent collections of 79.7% and strong leasing activity primarily in Downtown Summerlin and Ward Village.

–Hospitality NOI increased $4.6 million, primarily due to an increase in the volume of leisure travelers during the early summer months, resulting in an overall occupancy of 45% in the current quarter.

–Other property NOI increased $4.4 million, primarily due to the return of the Las Vegas Aviators 2021 baseball season. The Las Vegas Ballpark generated $3.1 million of NOI during the quarter as the Las Vegas Aviators began the 2021 minor league baseball season. This compares to a $1.1 million loss in the prior-year period when the impacts of COVID-19 resulted in the cancellation of the entire 2020 minor league baseball season.

–Multi-family NOI increased $3.6 million, primarily due to faster than expected lease-up at Juniper Apartments, Two Lakes Edge and The Lane at Waterway.

–Office NOI decreased $1.4 million, primarily due to the expiration of a short-term lease at The Woodlands Towers at the Waterway in June 2020.

MPC

–MPC EBT totaled $69.8 million in the current quarter, a $27.6 million or 66% increase compared to $42.2 million in the prior-year period.

–The increase in EBT was primarily due to higher Equity in earnings (losses) from real estate and other affiliates at The Summit due to an increased number of unit closings during the second quarter of 2021 and higher land sales revenues at Summerlin due to an increase in superpad, custom lot and commercial land sales. These increases were partially offset by lower land sales revenues at Bridgeland due to a reduction in acres sold as greater than expected demand accelerated lot sales into the third and fourth quarter of 2020 that were originally expected to occur in the second quarter of 2021. In addition, The Woodlands experienced a decrease in residential acres sold, with only 26 acres remaining to be sold as the development of residential land nears completion.

–New home sales, a leading indicator of future land sales, continued to increase, with 687 homes sold in our MPCs during the quarter, a 23% increase compared to the prior-year period.

Seaport

–Seaport EBT increased $11.8 million to a loss of $12.9 million, primarily due to an impairment charge of $6.0 million for the Company’s equity investment in Mr. C Seaport in the second quarter of 2020, that did not reoccur in 2021 and a decrease in interest expense due to the retirement of a $250 million Seaport loan in August 2020.

–Seaport NOI decreased $0.8 million to a loss of $4.3 million, primarily due to a $2.2 million decrease in our landlord entities, partially offset by a $1.0 million increase in our managed business entities and $0.4 million increase in our events, sponsorships and catering business. The decreases in NOI were primarily due to increased operating expenses in our landlord operations, partially offset by increased revenue in our managed business entities, as business resumes after the onset of the COVID-19 pandemic in 2020.

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Strategic Developments

–Strategic Developments EBT totaled income of $2.1 million in the current quarter, a $4.4 million increase compared to a loss of $2.2 million in the prior-year period.

–The increase in EBT was primarily due to a $13.3 million increase in Gain (loss) on sale or disposal of real estate and other assets, net and a $5.1 million write down of condominium inventory during the second quarter of 2020 that did not reoccur in the current period, partially offset by a $13.1 million impairment of Century Park in the second quarter of 2021. The increase in Gain (loss) on sale or disposal of real estate and other assets, net was driven by a gain of $21.3 million recognized in the second quarter of 2021 related to the sale of Monarch City, compared to the receipt of an $8.0 million termination payment in the second quarter of 2020, related to the October 2019 sale of West Windsor.

–We continued to experience strong condominium unit sales in Ward Village, evidenced by the 45 condominium units we contracted to sell during the second quarter of 2021. Victoria Place, which began construction in February 2021, accounted for 28 of the units contracted during the quarter and was 93.4% presold as of June 30, 2021.

–We closed on the final unit at Anaha, totaling $12.9 million in net revenue. As a result, Anaha is completely sold.

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MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW			Table of Contents


Overview of Business Segments

Operating Assets

Office and Multi-familyThroughout the pandemic, we have seen continued strength in our office and ~~multifamily~~multi-family assets. We ~~are~~continue to closely ~~monitoring~~monitor our rental revenue, and for the three months ended ~~September~~June 30, ~~2020,~~2021, we collected ~~97.3%~~98.6% of our office portfolio billings, ~~98.5%~~98.6% of our multi-family portfolio billings, and ~~96.2%~~92.5% of our other portfolio billings. Multi-family net operating income (NOI) increased 94% or $3.6 million, from $3.8 million for the three months ended June 30, 2020, to $7.4 million for the three months ended June 30, 2021, due to our newly completed multi-family assets continuing to lease at or above our expectations. Office NOI decreased 5% or $1.4 million, from $27.7 million for the three months ended June 30, 2020 to $26.3 million for the three months ended June 30, 2021, primarily due to the expiration of a short-term lease at The Woodlands Towers at the Waterway in June 2020; however, leasing velocity in The Woodlands and Summerlin continues to increase throughout 2021.

Retail Retail locations at our properties ~~have been~~were significantly negatively impacted ~~given~~by the pandemic in 2020. 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 ~~Riverwalk for approximately two months beginning in April 2020 (revenues from our retail properties accounted for 12% of our revenues for~~ the ~~year ended December 31, 2019).~~Outlet Collection at Riverwalk. Several of our tenants ~~have resumed~~were able to resume limited operations ~~with phased reopenings beginning~~ in May and June 2020, and ~~continuing through September~~the majority of our tenants had reopened by the end of the third quarter of 2020. As a result of these ~~phased reopenings and rent deferrals,~~closures, collections of our retail portfolio billings ~~have~~reached a low of 49.7% during the three months ended June 2020. Despite these negative impacts, we began to see notable improvements in the performance of our retail assets during the fourth quarter of 2020 and collections of our retail billings increased ~~from 49.7%~~to 77.5% for the three months ended March 31, 2021, and continued to increase to 79.7% for the three months ended June ~~2020, to 65.7%~~30, 2021. Additionally, NOI increased 72% or $6.2 million, from $8.6 million for the three months ended ~~September~~June 30, ~~2020. In addition, occupancy rates remained above 90%~~2020, to $14.8 million for the ~~majority of our stabilized retail assets.~~three months ended June 30, 2021.

HospitalityAt the onset of the pandemic in March 2020, we ~~experienced significant cancellations and declines in occupancy in our three hotel properties (which accounted for 7% of our revenues for the year ended December 31, 2019), and~~temporarily closed all three of our hotel ~~properties in March 2020.~~properties. 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 third quarter of 2020. At~~and 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,~~re-openings, occupancy levels ~~have risen since the second quarter of~~rose throughout 2020 ~~however, we continue to see declines in occupancy through the third quarter of 2020, compared to~~but remained lower than levels achieved prior to the ~~impact~~pandemic. However, with the gradual return of leisure travel in the ~~pandemic.~~first half of 2021, we have continued to see occupancy levels rise at all of our properties. From the fourth quarter of 2020 to the second quarter of 2021, occupancy levels increased from 55% to 68% at the Embassy Suites, 28% to 49% at The Westin at The Woodlands and 27% to 31% at The Woodlands Resort. As a result of this increased occupancy, NOI increased $4.6 million, from a loss of $1.8 million for the three months ended June 30, 2020, to income of $2.7 million for the three months ended June 30, 2021.

~~As announced in late June, the~~Las Vegas Aviators The Minor League Baseball season was canceled for 2020, which impacted the Las Vegas Aviators, our Triple-A professional baseball ~~team (which accounted for 2%~~team. Following the 2021 restructuring of ~~our revenues~~Minor League Baseball, the Las Vegas Aviators are participating in the Triple-A West Professional Development League and began the 2021 season on May 6, 2021. As a result, NOI has increased substantially from a loss of $1.1 million for the ~~year~~three months ended ~~December 31, 2019).~~

~~Further, despite the continued phased reopenings at our properties during the third quarter~~June 30, 2020, to income of 2020, there may be (i) a failure of our tenants in our retail properties as well as in our office and multi-family properties to make timely rental payments (revenues from our office and multi-family properties accounted for 13% of our total revenues$3.1 million for the ~~year~~three months ended December 31, 2019), (ii) rent reductions, deferrals, downsizing or other concessions, (iii) reductions in demand for leased space and/or (iv) defaults under our leases as a result of downturns in our tenants’ personal financial situations as well as commercial businesses, due in part to containment measures, such as travel restrictions, mandatory government closures, quarantines, “shelter in place” orders and social distancing, as well as the overall impact on the economy and our tenants’ industries (including the energy sector). We cannot predict whether government action will require rent delays or other abatement measures or concessions or prohibit lease terminations or evictions for tenants.June 30, 2021.

MPC~~In response to~~At the ~~COVID-19~~onset of the 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, builders implemented new model~~

New 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~~in our MPC ~~segment, new home sales,~~locations, a leading indicator of land sales, dropped considerably in April of 2020 as a result of stay-at-home orders, but experienced large upticks in May through ~~October as local economies began to re-open.~~December of 2020. In response, we restarted horizontal development to maintain a sufficient supply of lots and superpads to keep up with the strong home sales. ~~During~~This trend has continued through the ~~third quarter~~first half of ~~2020, The Woodlands Hills saw improved land sales revenue due~~2021, with 1,616 new homes sold in our MPCs year to higher volume of acres sold and lot sales mix. In addition, Bridgeland land sales revenue remained consistent with the prior year quarter performance despite the impacts of COVID-19. Land sales revenues at Summerlin decreaseddate, representing a 29.5% increase compared to the ~~prior period, however this was due to timing~~first half of ~~superpad closings and not a decrease in homebuilder demand for our land.~~

~~We may experience a decrease in~~2020. In addition, the price per acre of residential land ~~sales in~~across all our MPCs ~~as a result of~~increased 5% year to date to $618 thousand per acre compared to $589 thousand per acre in the fluctuations in regional economies. Houston has been adversely affected by negative impacts on the energy sector and the local economy. In particular, The Woodlands, The Woodlands Hills and Bridgeland are correlated with the energy sector. Our success depends to a large extent upon the business activity, population, income levels, employment trends and real estate activity in and around Houston. Summerlin is to some degree correlated with the gaming industry, which could be adversely affected by changes in consumer trends and preferences in times of economic uncertainty, and have a negative impact on the local Las Vegas economy.prior-year period.

Seaport ~~District~~ In response to the pandemic, we completely closed the Seaport ~~District~~ and halted construction on the Tin Building in ~~mid-March.~~March 2020. Social distancing restrictions also resulted in cancellation of our 2020 Seaport summer concert ~~series,~~series. While restrictions remained in place throughout 2020 and ~~although the city gradually eased restriction in July, dining was limited to only outdoor spaces, with indoor dining resuming~~

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~EXECUTIVE OVERVIEW~~

~~at minimum capacities in late September. As a result,~~into 2021, many of the businesses within the Seaport ~~District resumed~~were able to resume operations, on a limited basis, in the third quarter of ~~2020, including The Fulton, Cobble & Co. and Malibu Farm.~~2020. Most restrictions were lifted in June of 2021; however, many businesses at the Seaport continued to operate at reduced levels primarily due to labor shortages. Construction on the Tin Building resumed in May 2020 and is ~~on track for completion~~expected to be substantially complete in the fourth quarter of 2021 and open in early 2022, with an expanded focus on ~~experiences including~~ in-person dining, retail shopping, mobile ordering and delivery. We are closely monitoring our revenues, and based on collections for the three months ended June 30, 2021, we have collected 99.0% of

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MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW			Table of Contents

our $1.2 million of office portfolio billings and a nominal amount of our $1.1 million of retail portfolio billings as we have restructured many leases as a result of the impacts of the pandemic.

In ~~August, in~~ place of the 2020 summer concert series, we launched a new concept at the Pier 17 rooftop called The Greens, which ~~allows groups of up to eight~~allowed people to reserve ~~their own~~ socially distanced, mini-lawn ~~space. We served over 42,000~~spaces. These lawn spaces were converted to individual dining cabins for guests ~~had an average wait list of over 20,000 people~~to enjoy in the winter months. The Greens concept returned in May 2021 to complement the 2021 summer concert series, which began on July 30, 2021, and ~~generated $1.0 million in revenue~~is expected to run through October 2021. The Greens concept continues to generate high customer demand for the ~~three months ended September 30, 2020. This concept meaningfully increased~~outdoor venue, as evidenced by us hosting a variety of rooftop events, including ESPN’s The ESPYS in July 2021, and the ~~Seaport District’s exposure across social and media platforms with an increase~~launch of 253% in new social followers and over 378 million media impressions earned. This concept also helped us fulfill obligations under our sponsorship agreements which might have been drastically reduced without the 2021 summer concert series.

~~There may be (i)~~In April 2021, Momofuku reopened the Ssäm Bar in the space previously occupied by its former concept, Bar Wayō. Additionally, Andrew Carmellini’s Noho Hospitality opened Mister Dips in May 2021 and Carne Mare in June 2021.

We have also announced the future opening of two new concepts at the Fulton Market Building in the space previously occupied by 10 Corso Como. In early 2022, in a ~~failure~~joint partnership with Endorphin Ventures, we expect to launch The Lawn Club, a new concept that will transform 20,000 square feet of the Fulton Market Building into an immersive indoor and outdoor experience that includes a massive expanse of indoor grass, a stylish clubhouse bar and a wide variety of lawn games. We also expect to launch a new restaurant concept by Josh Eden and Wylie Dufresne at 1 Fulton Street featuring an all-day menu with many specialty to-go items and an expansive outdoor café in early 2022.

In October 2020, we announced our ~~tenants in our retail~~comprehensive proposal for the redevelopment of 250 Water Street, 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 ~~properties~~space. In May 2021, we received approval from the New York City Landmarks Preservation Commission on our proposed design for the 250 Water Street building. This favorable ruling confirms that the proposed architecture is appropriate for the South Street Seaport Historic District and allows us to ~~make timely rental payments, (ii) rent reductions, deferrals, downsizing or other concessions, (iii) reductions~~proceed with the formal New York City Uniform Land Use Review Procedure known as ULURP, which will be required to complete the necessary transfer of development rights to the parking lot site. Although this ruling is currently being contested in ~~demand for leased space and/or (iv) defaults under our leases as~~court, we believe this ruling will be upheld. This project, which includes approximately 540,000 zoning square feet, presents a result of downturns in our tenants’ personal financial situations as well as commercial businesses, which include our leased and wholly owned retail stores, our managed businesses, including restaurants and event attractionsunique opportunity at the Seaport ~~District, in part due~~ to ~~containment measures, such~~transform this last available development site into a vibrant mixed-use asset. The plan as ~~travel restrictions, mandatory government closures, quarantines, “shelter in place” orders~~proposed will provide long-term viability to the South Street Seaport Museum and ~~social distancing, as well as~~deliver much-needed affordable housing and economic stimulus to the ~~overall impact on~~area. We will continue working with the economy and our tenants’ industries. We cannot predict whether government action will require rent delays or other abatement measures or concessions or prohibit lease terminations or evictions for tenants.City to advance this process over the coming calendar year with the goal of bringing these benefits to this one-of-a-kind neighborhood.

Strategic Developments Given the challenges presented by ~~this new environment,~~the pandemic, we ~~have~~ launched digital sales efforts in early 2020, including virtual tours to sell condominiums in Hawai’i, which we ~~expect~~will continue to 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~~our websites conducive to social distancing recommendations. As a result, overall progress at our condominium projects remains strong as of ~~September~~June 30, ~~2020,~~2021, with ~~Victoria Place,~~ our ~~newest project, 71.3%~~four completed towers 99.8% sold and our three under-construction towers 86.4% presold.

We may experience a decrease in condominium sales in Hawai’i, in light of the impact on the overall economy and consumers’ reluctance to make significant capital decisions, and availability of consumer financing in times of economic uncertainty.

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. ~~As mentioned~~In December 2020, we began construction on Starling at Bridgeland, a luxury multi-family development in ~~our Transformation Plan update, we have commenced modest investments in pre-development work to ensure we are ready to move forward the moment we see demand.~~

~~Liquidity Outlook~~ As described above, the pandemic has caused economic problems 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 residential land sales, hospitality, retail and sports venues. 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.Bridgeland. During the ~~nine months ended September 30, 2020,~~first quarter of 2021, we ~~enhanced~~began construction on Marlow, a multi-family development in Columbia, and Victoria Place, our ~~liquidity profile through~~seventh condominium project in Ward Village. During the second quarter of 2021 in Downtown Summerlin, we began construction on 1700 Pavilion, an office building and Tanager Echo, 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. We also extended our bridge loan for The Woodlands Towers at The Waterway and sold 100 Fellowship Drive in The Woodlands, Texas, which generated $64.2 million in net proceeds. As of September 30, 2020, we had $857.4 million of Cash and cash equivalents on our Condensed Consolidated Balance Sheets.luxury apartment complex.

HHC ~~2020~~2021 FORM 10-Q | 4344



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~EXECUTIVE OVERVIEW~~

~~Third Quarter 2020 Highlights~~

~~Comparison of the three months ended September 30, 2020, to the three months ended September 30, 2019~~

~~Capital and Financing Activities~~


– MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW			~~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~~ Table 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 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.Contents

~~Operating Assets~~


–			NOI decreased $18.4 million due to decreases of $8.8 million in our retail properties, $6.6 million in our hospitality properties and $1.3 million in our other properties. These decreases were primarily 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, all as a result of the COVID-19 pandemic.


–	~~Despite COVID-19, we saw strong demand for our newly completed multifamily assets, which have leased at or above our expectations.~~

~~MPC~~


–	Segment earnings before taxes (“EBT”) decreased by $25.5 million primarily due to lower land sales revenues primarily driven by reductions in acres sold at Summerlin due to the timing of super pad sales and lower Equity in earnings (losses) from real estate and other affiliates at The Summit.


–	~~New home sales, a leading indicator of future land sales, continued to increase at~~ Earnings Before Taxes~~The Woodlands Hills, Bridgeland and Summerlin~~ ~~during the third quarter of 2020, compared to the same period in 2019.~~


–	~~Bridgeland price per acre increased 8.3% with acres sold remaining consistent with acres sold in the third quarter of 2019.~~


–	The Woodlands Hills’ price per acre increased 9.6% coupled with a 103.6% increase in acres sold due to a higher volume and change in product type of lots sold in the third quarter of 2020, compared to the same period in 2019.

~~Seaport District~~


–	Segment EBT decreased $11.0 million to a loss of $27.6 million primarily due to a decrease in segment revenues and operating expenses 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 $3.2 million to a net operating loss of $6.1 million primarily due to a $2.5 million decrease in our events, sponsorships, and catering category, and a $0.8 million decrease in our managed business entities. The decreases in NOI were primarily a result of business closures and cancellation of events related to the COVID-19 pandemic.

~~Strategic Developments~~

–

Segment EBT increased $248.6 million to income of $274.6 million 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 and an additional $15.4 million attributable to the recognition of previously eliminated 110 North Wacker development fees upon deconsolidation. These increases were partially offset by a $24.2 million gain recognized for the sale of the Cottonwood Mall during the three months ended September 30, 2019, and the timing of condominium closings. The Company closed units at Ke Kilohana and Ae‘o in 2019, with no new condominium towers scheduled for completion in 2020. Please refer to Note 3 - ~~Real Estate and Other Affiliates~~ ~~in the Company’s Condensed Consolidated Financial Statements for further details on the 110 North Wacker deconsolidation.~~


–	Continued sales at Ward Village by contracting to sell 24 condominiums in the third quarter of 2020. Victoria Place, our newest building that began public sales in December 2019, accounted for 13 of the units contracted this quarter and was 71.3% presold as of September 30, 2020.


–	Excluding Victoria Place, we have sold 2,446 residential units at our six under construction towers in Ward Village since inception, bringing the total percentage of units sold at these condominium towers to 90.7%.

~~HHC~~ ~~2020 FORM 10-Q~~ | 44



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~EXECUTIVE OVERVIEW~~

~~Earnings Before Taxes~~

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 earnings before taxes ~~(“EBT”)~~(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~~

–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

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MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW			Table of Contents
~~EXECUTIVE OVERVIEW~~

A reconciliation between EBT and Net income is presented below:


thousands	Operating Assets Segment (a)		MPC Segment		Seaport Segment		Strategic Developments Segment		Total
Three Months Ended June 30, 2021
Total revenues	$	113,422	$	74,578	$	10,898	$	13,466	$	212,364
Total operating expenses	(53,191)		(33,905)		(15,996)		(18,640)		(121,732)
Segment operating income (loss)	60,231		40,673		(5,098)		(5,174)		90,632
Depreciation and amortization	(39,975)		(98)		(7,004)		(1,597)		(48,674)
Interest income (expense), net	(18,152)		10,615		187		659		(6,691)
Other income (loss), net	(156)		—		(618)		14		(760)
Equity in earnings (losses) from real estate and other affiliates	(10,419)		18,641		(336)		(19)		7,867
Gain (loss) on sale or disposal of real estate and other assets, net	—		—		—		21,333		21,333

Gain (loss) on extinguishment of debt	(46)		—		—		—		(46)
Provision for impairment	—		—		—		(13,068)		(13,068)
Segment EBT	$	(8,517)	$	69,831	$	(12,869)	$	2,148	$	50,593
Corporate income, expenses and other items									(46,976)
Net income (loss)									3,617
Net (income) loss attributable to noncontrolling interests									1,224
Net income (loss) attributable to common stockholders									$	4,841

Three Months Ended June 30, 2020
Total revenues	$	84,277	$	68,913	$	2,272	$	624	$	156,086
Total operating expenses	(42,222)		(31,970)		(8,464)		(12,517)		(95,173)
Segment operating income (loss)	42,055		36,943		(6,192)		(11,893)		60,913
Depreciation and amortization	(36,995)		(91)		(6,776)		(1,650)		(45,512)
Interest income (expense), net	(23,103)		8,303		(4,626)		1,057		(18,369)
Other income (loss), net	226		—		(409)		1,668		1,485
Equity in earnings (losses) from real estate and other affiliates	475		(2,968)		(6,633)		574		(8,552)
Gain (loss) on sale or disposal of real estate and other assets, net	—		—		—		8,000		8,000



Segment EBT	$	(17,342)	$	42,187	$	(24,636)	$	(2,244)	$	(2,035)
Corporate income, expenses and other items									(32,068)
Net income (loss)									(34,103)
Net (income) loss attributable to noncontrolling interests									19
Net income (loss) attributable to common stockholders									$	(34,084)

thousands Operating Assets
Segment (a) MPC
Segment Seaport
Segment Strategic Developments
Segment Total
Three Months Ended September 30, 2020
Total revenues $ 81,667
$ 52,158
$ 4,204
$ 16,365
$ 154,394
Total operating expenses (47,590 ) (23,059 ) (11,522 ) (9,922 ) (92,093 )
Segment operating income (loss) 34,077
29,099
(7,318 ) 6,443
62,301
Depreciation and amortization (41,395 ) (91 ) (7,174 ) (1,643 ) (50,303 )
Interest expense, net (21,045 ) 9,176
(2,811 ) 1,921
(12,759 )
Other income (loss), net (17 ) —
1,590
134
1,707
Equity in earnings (losses) from real estate and other affiliates 962
(1,563 ) (288 ) 267,727
266,838
Gain (loss) on sale or disposal of real estate, net 108
—
—
—
108
Gain (loss) on extinguishment of debt (1,521 ) —
(11,645 ) —
(13,166 )
Segment EBT $ (28,831 ) $ 36,621
$ (27,646 ) $ 274,582
$ 254,726
Corporate income, expenses and other items (90,724 )
Net income (loss) 164,002
Net (income) loss attributable to noncontrolling interests (24,292 )
Net income (loss) attributable to common stockholders $ 139,710

Three Months Ended September 30, 2019
Total revenues $ 104,223
$ 92,287
$ 23,130
$ 11,515
$ 231,155
Total operating expenses (47,950 ) (43,697 ) (27,330 ) (11,327 ) (130,304 )
Segment operating income (loss) 56,273
48,590
(4,200 ) 188
100,851
Depreciation and amortization (28,844 ) (88 ) (6,767 ) (2,070 ) (37,769 )
Interest expense, net (21,645 ) 8,550
(4,984 ) 3,002
(15,077 )
Other income (loss), net 63
534
—
354
951
Equity in earnings (losses) from real estate and other affiliates 441
4,523
(705 ) 283
4,542
Gain (loss) on sale or disposal of real estate, net —
—
—
24,201
24,201
Selling profit from sales-type leases 13,537
—
—
—
13,537
Segment EBT $ 19,825
$ 62,109
$ (16,656 ) $ 25,958
$ 91,236
Corporate income, expenses and other items (61,193 )
Net income (loss) 30,043
Net (income) loss attributable to noncontrolling interests (285 )
Net income (loss) attributable to common stockholders $ 29,758


~~(a)~~	Total revenues includes hospitality revenues of $8.1 million for the three months ended September 30, 2020, and $20.0 million for the three months ended September 30, 2019. Total operating expenses includes hospitality operating costs of $7.6 million for the three months ended September 30, 2020, and $14.1 million for the three months ended September 30, 2019.

HHC ~~2020~~2021 FORM 10-Q | 46



MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW			Table of Contents
~~EXECUTIVE OVERVIEW~~


thousands	Operating Assets Segment (a)		MPC Segment		Seaport Segment		Strategic Developments Segment		Total
Six Months Ended June 30, 2021
Total revenues	$	209,861	$	122,865	$	18,351	$	51,766	$	402,843
Total operating expenses	(100,425)		(57,172)		(28,502)		(78,263)		(264,362)
Segment operating income (loss)	109,436		65,693		(10,151)		(26,497)		138,481
Depreciation and amortization	(79,626)		(170)		(13,839)		(3,195)		(96,830)
Interest income (expense), net	(37,152)		21,372		289		1,760		(13,731)
Other income (loss), net	(10,254)		—		(954)		14		(11,194)
Equity in earnings (losses) from real estate and other affiliates	(21,823)		46,291		(688)		(117)		23,663
Gain (loss) on sale or disposal of real estate and other assets, net	—		—		—		21,333		21,333


Gain (loss) on extinguishment of debt	(882)		—		—		—		(882)
Provision for impairment	—		—		—		(13,068)		(13,068)
Segment EBT	$	(40,301)	$	133,186	$	(25,343)	$	(19,770)	$	47,772
Corporate income, expenses and other items									(112,314)
Net income (loss)									(64,542)
Net (income) loss attributable to noncontrolling interests									2,789
Net income (loss) attributable to common stockholders									$	(61,753)

Six Months Ended June 30, 2020
Total revenues	$	198,534	$	119,359	$	11,966	$	1,384	$	331,243
Total operating expenses	(94,462)		(55,692)		(22,775)		(116,816)		(289,745)
Segment operating income (loss)	104,072		63,667		(10,809)		(115,432)		41,498
Depreciation and amortization	(74,084)		(182)		(27,651)		(3,411)		(105,328)
Interest income (expense), net	(49,296)		16,857		(9,679)		2,988		(39,130)
Other income (loss), net	167		—		(3,777)		1,293		(2,317)
Equity in earnings (losses) from real estate and other affiliates	4,869		5,966		(8,676)		638		2,797
Gain (loss) on sale or disposal of real estate and other assets, net	38,124		—		—		8,000		46,124



Provision for impairment	(48,738)		—		—		—		(48,738)
Segment EBT	$	(24,886)	$	86,308	$	(60,592)	$	(105,924)	$	(105,094)
Corporate income, expenses and other items									(54,091)
Net income (loss)									(159,185)
Net (income) loss attributable to noncontrolling interests									(33)
Net income (loss) attributable to common stockholders									$	(159,218)

thousands Operating Assets
Segment (a) MPC
Segment Seaport
Segment Strategic Developments
Segment Total
Nine Months Ended September 30, 2020
Total revenues $ 280,201
$ 171,517
$ 16,170
$ 17,749
$ 485,637
Total operating expenses (142,052 ) (78,751 ) (34,297 ) (126,738 ) (381,838 )
Segment operating income (loss) 138,149
92,766
(18,127 ) (108,989 ) 103,799
Depreciation and amortization (115,479 ) (273 ) (34,825 ) (5,054 ) (155,631 )
Interest expense, net (70,341 ) 26,033
(12,490 ) 4,909
(51,889 )
Other income (loss), net 150
—
(2,187 ) 1,427
(610 )
Equity in earnings (losses) from real estate and other affiliates 5,831
4,403
(8,964 ) 268,365
269,635
Gain (loss) on sale or disposal of real estate, net 38,232
—
—
8,000
46,232
Gain (loss) on extinguishment of debt (1,521 ) —
(11,645 ) —
(13,166 )
Provision for impairment (48,738 ) —
—
—
(48,738 )
Segment EBT $ (53,717 ) $ 122,929
$ (88,238 ) $ 168,658
$ 149,632
Corporate income, expenses and other items (144,815 )
Net income (loss) 4,817
Net (income) loss attributable to noncontrolling interests (24,325 )
Net income (loss) attributable to common stockholders $ (19,508 )

Nine Months Ended September 30, 2019
Total revenues $ 305,395
$ 216,042
$ 43,051
$ 451,873
$ 1,016,361
Total operating expenses (139,589 ) (109,676 ) (59,735 ) (382,341 ) (691,341 )
Segment operating income (loss) 165,806
106,366
(16,684 ) 69,532
325,020
Depreciation and amortization (84,890 ) (334 ) (19,713 ) (4,386 ) (109,323 )
Interest expense, net (60,695 ) 24,376
(8,440 ) 9,499
(35,260 )
Other income (loss), net 1,186
601
(147 ) 664
2,304
Equity in earnings (losses) from real estate and other affiliates 3,195
18,859
(1,788 ) 581
20,847
Gain (loss) on sale or disposal of real estate, net —
—
(6 ) 24,057
24,051
Selling profit from sales-type leases 13,537
13,537
Segment EBT $ 38,139
$ 149,868
$ (46,778 ) $ 99,947
$ 241,176
Corporate income, expenses and other items (165,880 )
Net income (loss) 75,296
Net (income) loss attributable to noncontrolling interests (240 )
Net income (loss) attributable to common stockholders $ 75,056


~~(a)~~	Total revenues includes hospitality revenues of $27.9 million for the nine months ended September 30, 2020, and $68.5 million for the nine months ended September 30, 2019. Total operating expenses includes hospitality operating costs of $24.8 million for the nine months ended September 30, 2020, and $46.3 million for the nine months ended September 30, 2019.

HHC ~~2020~~2021 FORM 10-Q | 47



MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents
~~RESULTS OF OPERATIONS~~



RESULTS OF OPERATIONS

Net income attributable to common stockholders increased ~~$110.0~~$38.9 million to income of ~~$139.7~~$4.8 million for the three months ended ~~September~~June 30, ~~2020,~~2021, and ~~decreased $94.6~~increased $97.5 million to a loss of ~~$19.5~~$61.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the ~~prior year~~prior-year periods. Refer to the Second Quarter 2021 Highlights section above for information on the variances for three months ended June 30, 2021.

For the ~~three~~six months ended ~~September~~June 30, ~~2020:~~2021:

Total segment EBT increased ~~$163.5~~$152.9 million compared to the ~~prior year~~prior-year period primarily due to the following:

–

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 gain recognized for the sale of the Cottonwood Mall during the three months ended September 30, 2019 and lower Condominium rights and unit sales, net of costs, driven by the timing of condominium closings.


–	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 EBT driven by a decrease in charges related to our expected funding of costs to correct alleged construction defects at Waiea and a decrease in Condominium rights and unit cost of sales related to a write down of inventory units in 2020 that did not reoccur in 2021

~~For~~–higher MPC EBT primarily due to higher Equity in earnings (losses) from real estate and other affiliates at The Summit resulting from an increased number of unit closings and higher land sales revenues at Summerlin due to an increase in custom lot, super pad and commercial land sales, partially offset by lower land sales revenues at Bridgeland and The Woodlands due to reductions in acres sold

–higher Seaport EBT primarily due to the ~~nine months ended September 30, 2020:~~write off of retail inventory and building improvements related to the permanent closure of 10 Corso Como Retail and Café in the first quarter of 2020 and the impairment of our equity method investment in Mr. C Seaport in the second quarter of 2020 that did not reoccur in 2021 and a decrease in interest expense due to the retirement of a $250 million Seaport loan in August 2020

–lower Operating Assets EBT primarily due to lower Equity in earnings (losses) from real estate and other affiliates at 110 North Wacker related to losses during the lease-up period and an increase in Operating expenses primarily due to the steady return of business operations across our portfolio after the onset of the COVID-19 pandemic in 2020, partially offset by an increase in our Other land, rental and property revenues primarily related to return of the Las Vegas Aviators 2021 baseball season after cancellation in 2020 as a result of the COVID-19 pandemic

~~Total segment EBT decreased $91.5~~–lower impairment charge of Century Park during the current quarter, compared to the impairment on the Outlet Collection at Riverwalk in the first quarter of 2020

–loss on the settlement of the rate-lock agreement associated with the loans for 1201 Lake Robbins and The Woodlands Warehouse upon repayment in February 2021

–lower Gain on sale or disposal of real estate, net due to the sale Monarch City in the current quarter, compared to the sale of 100 Fellowship Drive in the first quarter of 2020 and the receipt of a termination payment in the second quarter of 2020 related to the sale of West Windsor

Net expenses related to Corporate income, expenses and other items increased $58.2 million compared to the ~~prior year~~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, cancellation of the Las Vegas Aviators 2020 baseball season as a result of the COVID-19 pandemic and an impairment charge for Outlet Collection at Riverwalk


–	~~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~~


–	~~lower MPC EBT primarily due to lower MPC land sales revenues, driven by timing of Summerlin superpad sales~~


–	~~loss on extinguishment of debt due to the early retirement of Seaport and Operating loans~~

–

higher Strategic EBT 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 related to our expected funding of costs to correct alleged defects at Waiea, which we expect to recover from responsible parties and insurance proceeds, as well as lower Condominium rights and unit sales, net of costs, driven by the timing of condominium closings


–	an increase in the Gain on sale or disposal of real estate, net due to the termination payment received related to the sale of West Windsor in the second quarter of 2020, and the sale of 100 Fellowship Drive in the first quarter of 2020

–loss on extinguishment of debt related to the repurchase of the Company’s $1.0 billion 5.375% Senior Notes due 2025 during the first quarter of 2021

–higher corporate interest expense, net primarily due to the issuance of $750 million 5.375% Senior Notes in August 2020, as well as the issuance of $650 million 4.125% Senior Notes and $650 million 4.375% Senior Notes in the first quarter of 2021, offset by the repurchase its $1.0 billion 5.375% Senior Notes in the first quarter of 2021

–decrease in income tax benefit primarily due to a decrease in the loss before income taxes, partially offset by a valuation allowance recorded in 2020 on our charitable contribution carryover

See segment discussions for more detail of the changes described above.

HHC ~~2020~~2021 FORM 10-Q | 48



MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents
~~RESULTS OF OPERATIONS~~



Operating Assets

The Operating Assets segment consists of retail, office, hospitality and multi-family properties along with other real estate investments, excluding the properties located at the Seaport, ~~District,~~ which are reported in the Seaport ~~District~~ segment for all periods presented.

Segment EBT Segment EBT for Operating Assets is presented below:


Operating Assets Segment EBT	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Rental Revenue	$	86,149	$	77,664	$	8,485	$	169,648	$	167,163	$	2,485
Other land, rental and property revenues	27,273		6,613		20,660		40,213		31,371		8,842
Total revenues	113,422		84,277		29,145		209,861		198,534		11,327

Operating costs	(42,379)		(27,338)		(15,041)		(77,522)		(66,110)		(11,412)
Rental property real estate taxes	(12,426)		(13,029)		603		(25,148)		(24,897)		(251)
(Provision for) recovery of doubtful accounts	1,614		(1,855)		3,469		2,245		(3,455)		5,700
Total operating expenses	(53,191)		(42,222)		(10,969)		(100,425)		(94,462)		(5,963)
Segment operating income (loss)	60,231		42,055		18,176		109,436		104,072		5,364
Depreciation and amortization	(39,975)		(36,995)		(2,980)		(79,626)		(74,084)		(5,542)
Interest income (expense), net	(18,152)		(23,103)		4,951		(37,152)		(49,296)		12,144
Other income (loss), net	(156)		226		(382)		(10,254)		167		(10,421)
Equity in earnings (losses) from real estate and other affiliates	(10,419)		475		(10,894)		(21,823)		4,869		(26,692)
Gain (loss) on sale or disposal of real estate and other assets, net	—		—		—		—		38,124		(38,124)


Gain (loss) on extinguishment of debt	(46)		—		(46)		(882)		—		(882)
Provision for impairment	—		—		—		—		(48,738)		48,738
Segment EBT	$	(8,517)	$	(17,342)	$	8,825	$	(40,301)	$	(24,886)	$	(15,415)

Operating Assets Segment EBT Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Total revenues $ 81,667
$ 104,223
$ (22,556 ) $ 280,201
$ 305,395
$ (25,194 )
Total operating expenses (47,590 ) (47,950 ) 360
(142,052 ) (139,589 ) (2,463 )
Segment operating income (loss) 34,077
56,273
(22,196 ) 138,149
165,806
(27,657 )
Depreciation and amortization (41,395 ) (28,844 ) (12,551 ) (115,479 ) (84,890 ) (30,589 )
Interest expense, net (21,045 ) (21,645 ) 600
(70,341 ) (60,695 ) (9,646 )
Other income (loss), net (17 ) 63
(80 ) 150
1,186
(1,036 )
Equity in earnings (losses) from real estate and other affiliates 962
441
521
5,831
3,195
2,636
Gain (loss) on sale or disposal of real estate 108
—
108
38,232
—
38,232
Gain (loss) on extinguishment of debt (1,521 ) —
(1,521 ) (1,521 ) —
(1,521 )
Selling profit from sales-type leases —
13,537
(13,537 ) —
13,537
(13,537 )
Provision for impairment —
—
—
(48,738 ) —
(48,738 )
Segment EBT $ (28,831 ) $ 19,825
$ (48,656 ) $ (53,717 ) $ 38,139
$ (91,856 )

For the three months ended ~~September~~June 30, ~~2020:~~2021:

Operating Assets segment EBT increased $8.8 million compared to the prior-year period primarily due to the following:

–increase in Rental revenue primarily due to increased rental income in Summerlin and Columbia as well as reserve reductions due an increase in collections at Summerlin

–increase in Other land, rental and property revenues, net of related Operating costs, primarily due to higher occupancy at our hospitality properties in 2021 and the return of the Las Vegas Aviators 2021 baseball season after cancellation in 2020 as a result of the COVID-19 pandemic

–decrease in interest expense due to the retirement or refinancing of various loans

–partially offset by a decrease in equity earnings, primarily due to losses incurred at 110 North Wacker during the lease-up period that were not present in the second quarter of 2020 as the property was in the development phase. Upon completion of construction in the third quarter of 2020, 110 North Wacker was deconsolidated and recorded as an equity method investment.

For the six months ended June 30, 2021:

Operating Assets segment EBT decreased ~~$48.7 million to a loss of $28.8~~$15.4 million compared to the ~~prior year~~prior-year period primarily due to the following:


–	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 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~~

–

–gain on the sale of 100 Fellowship Drive, in The Woodlands, Texas, in the first quarter of 2020

–decrease in equity earnings, primarily due to losses incurred at 110 North Wacker during the lease-up period that were not present in the first half of 2020 as the property was in the development phase. Upon completion of construction in the third quarter of 2020, 110 North Wacker was deconsolidated and recorded as an equity method investment.

–loss on the settlement of the rate-lock agreement upon repayment of $280.3 million outstanding on our loans for 1201 Lake Robbins and The Woodlands Warehouse in February 2021

–increase in Operating expenses Interest expense, net and Depreciation and amortization expense, partially offset by Rental revenue related to office and multi-family assets recently placed in service, but still in the lease-up period

~~For the nine months ended September 30, 2020:~~

~~Operating Assets segment EBT decreased $91.9 million to a loss of $53.7 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 4 - steady return of business operations across our portfolio after the onset of the COVID-19 pandemic in 2020, partially offset by an increase in our Other land, rental and~~Recent Transactions~~ ~~and Note 5 -~~ ~~Impairment~~ ~~in the Company’s Condensed 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 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 Operating expenses, Interest expense, net and Depreciation and amortization expense, partially offset by Rental revenue related to office and multi-family assets recently placed in service, but still in the lease-up period

HHC ~~2020~~2021 FORM 10-Q | 49



MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents
~~RESULTS OF OPERATIONS~~

property revenues primarily related to return of the Las Vegas Aviators 2021 baseball season after cancellation in 2020 as a result of the COVID-19 pandemic

–partially offset by an impairment on the Outlet Collection at Riverwalk in the first quarter of 2020 and a decrease in interest expense due to the retirement or refinancing of various loans

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 (loss) income; amortization; depreciation; development-related marketing cost; 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.

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	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Total Operating Assets segment EBT	$	(8,517)	$	(17,342)	$	8,825	$	(40,301)	$	(24,886)	$	(15,415)
Add back:
Depreciation and amortization	39,975		36,995		2,980		79,626		74,084		5,542
Interest (income) expense, net	18,152		23,103		(4,951)		37,152		49,296		(12,144)
Equity in (earnings) losses from real estate and other affiliates	10,419		(475)		10,894		21,823		(4,869)		26,692
(Gain) loss on sale or disposal of real estate and other assets, net	—		—		—		—		(38,124)		38,124
(Gain) loss on extinguishment of debt	46		—		46		882		—		882

Provision for impairment	—		—		—		—		48,738		(48,738)
Impact of straight-line rent	(3,987)		(3,248)		(739)		(9,094)		(6,351)		(2,743)
Other	100		(119)		219		10,239		54		10,185
Operating Assets NOI	$	56,188	$	38,914	$	17,274	$	100,327	$	97,942	$	2,385

Operating Assets NOI Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Total Operating Assets segment EBT $ (28,831 ) $ 19,825
$ (48,656 ) $ (53,717 ) $ 38,139
$ (91,856 )
Depreciation and amortization 41,395
28,844
12,551
115,479
84,890
30,589
Interest expense, net 21,045
21,645
(600 ) 70,341
60,695
9,646
Equity in (earnings) losses from real estate and other affiliates (962 ) (441 ) (521 ) (5,831 ) (3,195 ) (2,636 )
(Gain) loss on sale or disposal of real estate and other assets, net (108 ) —
(108 ) (38,232 ) —
(38,232 )
(Gain) loss on extinguishment of debt 1,521
—
1,521
1,521
—
1,521
Selling profit from sales-type leases —
(13,537 ) 13,537
—
(13,537 ) 13,537
Provision for impairment —
—
—
48,738
—
48,738
Impact of straight-line rent 1,766
(2,529 ) 4,295
(4,585 ) (7,911 ) 3,326
Other 69
477
(408 ) 123
259
(136 )
Operating Assets NOI $ 35,895
$ 54,284
$ (18,389 ) $ 133,837
$ 159,340
$ (25,503 )

The below table presents Operating Assets NOI by property type:


Operating Assets NOI by Property Type	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Office	$	26,283	$	27,731	$	(1,448)	$	52,115	$	63,291	$	(11,176)
Retail	14,799		8,599		6,200		26,802		23,089		3,713
Multi-family	7,410		3,815		3,595		13,145		8,362		4,783
Hospitality	2,721		(1,844)		4,565		2,574		2,537		37
Other	4,975		613		4,362		5,691		663		5,028
Operating Assets NOI	$	56,188	$	38,914	$	17,274	$	100,327	$	97,942	$	2,385

Operating Assets NOI by Property Type Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Office $ 23,819
$ 24,159
$ (340 ) $ 87,110
$ 63,081
$ 24,029
Retail 6,932
15,683
(8,751 ) 30,021
47,188
(17,167 )
Multi-family 3,924
5,317
(1,393 ) 12,286
14,503
(2,217 )
Hospitality 626
7,231
(6,605 ) 3,163
23,419
(20,256 )
Other 594
1,894
(1,300 ) 1,257
11,149
(9,892 )
Operating Assets NOI $ 35,895
$ 54,284
$ (18,389 ) $ 133,837
$ 159,340
$ (25,503 )

HHC ~~2020~~2021 FORM 10-Q | 50



MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents
~~RESULTS OF OPERATIONS~~

For the three months ended ~~September~~June 30, ~~2020:~~2021:

Operating Assets NOI ~~decreased $18.4 million to $35.9~~increased $17.3 million compared to the ~~prior year~~prior-year period primarily due to the following:


–	decreases 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, all as a result of the COVID-19 pandemic


–	~~decreases related to our multi-family properties as a result of increased concessions and operating expenses on newly opened multi-family assets~~

–increase at our retail and hospitality properties as business rebounds from the COVID-19 pandemic

–increase at our multi-family properties primarily related to the lease-up of Juniper Apartments and Two Lakes Edge which opened in 2020

–increase at our other properties primarily related to the return of the Las Vegas Aviators 2021 baseball season after cancellation in 2020 as a result of the COVID-19 pandemic

–partially offset by a decrease in revenue on our office properties primarily related to the expiration of a short-term lease at The Woodlands Towers at the Waterway in June 2020

For the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:

Operating Assets NOI ~~decreased $25.5 million to $133.8~~increased $2.4 million compared to the ~~prior year~~prior-year period primarily due to the following:


–	decreases 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


–	partially offset by increases in our office properties, primarily attributable to NOI from the recent acquisition of The Woodlands Towers at the Waterway and placing various office properties into service subsequent to the third quarter of 2019

–increase at our other properties primarily related to the return of the Las Vegas Aviators 2021 baseball season after cancellation in 2020 as a result of the COVID-19 pandemic

–increase at our multi-family properties primarily related to the lease-up of Juniper Apartments and Two Lakes Edge which opened in 2020

–increase at our retail properties as business rebounds from the COVID-19 pandemic

–partially offset by a decrease in revenue on our office properties primarily related to the expiration of a short-term lease at The Woodlands Towers at the Waterway in June 2020

In addition, Operating Assets NOI for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, includes NOI from the following assets that were transferred from Strategic Developments to Operating Assets:

–8770 New Trails and Juniper Apartments transferred during the first quarter of 2020

–Two Lakes Edge transferred during the second quarter of 2020

–Merriweather District Area 3 Standalone Restaurant transferred during the third quarter of 2020

–The Lane at Waterway transferred during the fourth quarter of 2020

–Creekside Park The Grove transferred during the second quarter of 2021


–			~~8770 New Trails and Juniper Apartments transferred during the first quarter of 2020~~


–	~~Two Lakes Edge transferred during the second quarter of 2020~~


–	~~Merriweather District Area 3 Standalone Restaurant transferred during the third quarter of 2020~~

Master Planned Communities

Segment EBT Segment EBT for MPC Assets is presented below:


MPC Segment EBT	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Master Planned Community land sales (a)	$	58,342	$	57,073	$	1,269	$	95,819	$	96,805	$	(986)
Other land, rental and property revenues	4,847		2,893		1,954		8,863		5,848		3,015
Builder price participation (b)	11,389		8,947		2,442		18,183		16,706		1,477
Total revenues	74,578		68,913		5,665		122,865		119,359		3,506

Master Planned Communities cost of sales	(24,858)		(25,875)		1,017		(40,509)		(42,661)		2,152
Operating costs	(9,047)		(6,095)		(2,952)		(16,663)		(13,031)		(3,632)

Total operating expenses	(33,905)		(31,970)		(1,935)		(57,172)		(55,692)		(1,480)
Segment operating income (loss)	40,673		36,943		3,730		65,693		63,667		2,026
Depreciation and amortization	(98)		(91)		(7)		(170)		(182)		12
Interest income (expense), net	10,615		8,303		2,312		21,372		16,857		4,515

Equity in earnings (losses) from real estate and other affiliates	18,641		(2,968)		21,609		46,291		5,966		40,325





MPC segment EBT	$	69,831	$	42,187	$	27,644	$	133,186	$	86,308	$	46,878

(a)Master Planned Community land sales include deferred revenue from land sales closed in a previous period that 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 that 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.

HHC 2021 FORM 10-Q | 51

MPC Segment EBT Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Total revenues $ 52,158
$ 92,287
$ (40,129 ) $ 171,517
$ 216,042
$ (44,525 )
Total operating expenses (23,059 ) (43,697 ) 20,638
(78,751 ) (109,676 ) 30,925
Segment operating income (loss) 29,099
48,590
(19,491 ) 92,766
106,366
(13,600 )
Depreciation and amortization (91 ) (88 ) (3 ) (273 ) (334 ) 61
Interest income, net 9,176
8,550
626
26,033
24,376
1,657
Other income (loss), net —
534
(534 ) —
601
(601 )
Equity in earnings (losses) from real estate and other affiliates (1,563 ) 4,523
(6,086 ) 4,403
18,859
(14,456 )
Segment EBT $ 36,621
$ 62,109
$ (25,488 ) $ 122,929
$ 149,868
$ (26,939 )


MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents

For the three months ended ~~September~~June 30, ~~2020:~~2021:

MPC segment EBT ~~decreased $25.5 million to $36.6~~increased $27.6 million compared to the ~~prior year~~prior-year period. Lower MPC land sales revenues were primarily driven by reductions in acres sold at Summerlin due to superpad sales in the third quarter of 2019, that did not recur in the third quarter of 2020. This decreasePerformance was ~~partially offset by increases in price-per-acre metrics for Bridgeland and The Woodlands Hills. Additional highlights for the period included:~~


–	~~Bridgeland price per acre increased 8.3% with acres sold remaining consistent with results in the third quarter 2019.~~


–	The Woodlands Hills price per acre increased 9.6% coupled with a 103.6% increase in acres sold due to a higher volume and change in product type of lots sold in the third quarter of 2020, compared to the same period in 2019.

~~In addition, performance was negatively~~positively impacted by ~~lower~~higher Equity in earnings (losses) from real estate and other affiliates at The Summit due to the impact of ~~increased amenities cost and~~unit closings during the period compared the second quarter of 2020. In addition, higher ~~unit completion cost.~~

~~HHC~~ ~~2020 FORM 10-Q~~ | 51



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~RESULTS OF OPERATIONS~~

~~For the nine months ended September 30, 2020:~~

~~MPC segment EBT decreased $26.9 million to $122.9 million compared to the prior year period. Lower~~ MPC land sales revenues were primarily ~~driven~~attributable to an increase in Summerlin superpad, custom lot and commercial land sales, partially offset by ~~reductions~~fewer acres sold for the first half of 2021 in The Woodlands, where only 26 residential acres remain to be sold as the development of residential land nears completion, and a reduction in acres sold at ~~Summerlin due~~Bridgeland as greater than expected demand accelerated lot sales into the third and fourth quarter of 2020 that were originally expected to ~~lower superpad sales. These decreases were partially offset by increases~~occur in ~~price-per-acre metrics across all MPCs.~~the first half of 2021. Additional highlights for the period included:


–	The Woodlands price per acre increased 82.6% 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.


–	Bridgeland’s residential land sales realized an increase of $5.7 million, or 12.4%, driven by a 9.5% increase in price per acre and a 2.6% increase in acres sold in the nine months ended September 30, 2020, compared to the same period in 2019. In addition, in 2020, a 16.6-acre school site was sold for $2.2 million.


–	The Woodlands Hills’ price per acre increased 8.3% coupled with a 25.3% increase in acres sold due to a change in product type of lots sold in the nine months ended September 30, 2020, compared to the same period in 2019.

–Summerlin experienced an increase in superpad land sales, 47.2 acres sold at a price of $729,000 per acre in the second quarter of 2021 versus 36.4 acres sold at a price of $687,000 per acre for the same period of 2020.

~~In addition, performance~~–Summerlin realized an increase of $4.3 million in commercial land sales driven by the sale of 6.3 acres of industrial/warehouse land in the second quarter of 2021, compared to no commercial land sales in the second quarter of 2020.

–The Woodlands Hills’ residential land sales realized an increase of $3.7 million due to an increase in the quantity of acres sold, 18.5 acres at an average price of $327,000 per acre in the second quarter of 2021, compared to 7.6 acres at an average price of $311,000 per acre in the second quarter of 2020.

For the six months ended June 30, 2021:

MPC segment EBT increased $46.9 million compared to the prior-year period. Performance was ~~negatively~~positively impacted by ~~lower~~higher Equity in earnings (losses) from real estate and other affiliates at The Summit due to the impact of ~~increased amenities cost~~unit closings during the period compared to the six months ended 2020. In addition, higher MPC land sales revenues were primarily attributable to an increase in Summerlin custom lot, superpad and ~~higher unit~~commercial land sales, partially offset by fewer acres sold for the first half of 2021 in The Woodlands, where only 26 residential acres remain to be sold as the development of residential land nears completion, ~~cost.~~and a reduction in acres sold at Bridgeland as greater than expected demand accelerated lot sales into the third and fourth quarter of 2020 that were originally expected to occur in the first half of 2021. Additional highlights for the period included:

–Summerlin experienced an increase in custom lot sales, 11.7 acres sold at a price of $1.9 million per acre in the first half of 2021 versus 1.6 acres sold at a price of $1.4 million per acre for the same period of 2020.

–The Woodlands Hills’ residential land sales realized an increase of $6.1 million due to an increase in the quantity of lots sold, 34.8 acres at an average price of $318,000 per acre in the first half of 2021 compared to 16.1 acres at an average price of $307,000 per acre in the first quarter of 2020.

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”)~~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.

The following table sets forth the MPC Net ~~Contribution for the three and nine months ended September 30:~~Contribution:


MPC Net Contribution	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
MPC Segment EBT	$	69,831	$	42,187	$	27,644	$	133,186	$	86,308	$	46,878
Plus:
Cost of sales - land	24,858		25,875		(1,017)		40,509		42,661		(2,152)
Depreciation and amortization	98		91		7		170		182		(12)
MUD and SID bonds collections, net (a)	(291)		4,935		(5,226)		2,603		6,058		(3,455)
Distributions from real estate and other affiliates	100,528		1,173		99,355		101,672		2,345		99,327
Less:
MPC development expenditures	(73,322)		(51,488)		(21,834)		(126,302)		(116,384)		(9,918)

Equity in (earnings) losses in real estate and other affiliates	(18,641)		2,968		(21,609)		(46,291)		(5,966)		(40,325)
MPC Net Contribution	$	103,061	$	25,741	$	77,320	$	105,547	$	15,204	$	90,343

HHC 2021 FORM 10-Q | 52

MPC Net Contribution Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
MPC Segment EBT $ 36,621
$ 62,109
$ (25,488 ) $ 122,929
$ 149,868
$ (26,939 )
Plus:
Cost of sales - land 15,899
33,304
(17,405 ) 58,560
78,128
(19,568 )
Depreciation and amortization 91
88
3
273
334
(61 )
MUD and SID bonds collections, net (a) (101 ) 10,099
(10,200 ) 5,957
11,080
(5,123 )
Distributions from real estate and other affiliates 1,186
1,320
(134 ) 3,531
4,061
(530 )
Less:
MPC development expenditures (43,833 ) (60,890 ) 17,057
(160,217 ) (180,733 ) 20,516
MPC land acquisitions —
—
—
—
(752 ) 752
Equity in (earnings) losses in real estate and other affiliates 1,563
(4,523 ) 6,086
(4,403 ) (18,859 ) 14,456
MPC Net Contribution $ 11,426
$ 41,507
$ (30,081 ) $ 26,630
$ 43,127
$ (16,497 )


~~(a)~~ MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			~~SID collections are shown net~~ Table of ~~SID transfers to buyers in the respective periods.~~Contents

(a)SID collections are shown net of SID transfers to buyers in the respective periods.

MPC Net Contribution ~~decreased $30.1~~increased $77.3 million for the three months ended ~~September~~June 30, ~~2020, and $16.5 million for the nine months ended September 30, 2020,~~2021, compared to the same ~~periods~~period in ~~2019,~~2020, primarily due to an increase in distributions from real estate and other affiliates. MPC Net Contribution increased $90.3 million for the ~~decrease~~six months ended June 30, 2021, compared to the same period in ~~MPC land sales revenues mentioned above and lower MUD and SID bonds collections, net, partially offset by decreases~~2020, primarily due to an increase in ~~operating expenses and MPC development expenditures.~~distributions from The Summit.

~~HHC~~ ~~2020 FORM 10-Q~~ | 52



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~RESULTS OF OPERATIONS~~

The following table sets forth MPC land inventory activity for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


thousands	Bridgeland		Columbia		Summerlin		The Woodlands		The Woodlands Hills		Total MPC
Balance December 31, 2020	$	486,867	$	16,625	$	888,954	$	177,341	$	117,732	$	1,687,519
Acquisitions	—		—		—		—		—		—
Development expenditures (a)	54,564		—		61,164		3,598		6,976		126,302
MPC Cost of sales	(6,313)		—		(29,413)		(361)		(4,422)		(40,509)
MUD reimbursable costs (b)	(35,137)		—		—		(127)		(2,978)		(38,242)
Transfer to Strategic Developments	(402)		—		—		—		—		(402)
Other (c)	3,204		—		5,432		(602)		800		8,834
Balance June 30, 2021	$	502,783	$	16,625	$	926,137	$	179,849	$	118,108	$	1,743,502

(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 accrued development expenditures payable.

thousands Bridgeland Columbia Summerlin The
Woodlands The Woodlands Hills Total MPC
Balance at December 31, 2019 $ 487,314
$ 16,643
$ 845,440
$ 186,773
$ 119,504
$ 1,655,674
MPC development expenditures (a) 73,113
—
72,638
4,699
9,767
160,217
MPC cost of sales (17,386 ) —
(23,219 ) (13,544 ) (4,411 ) (58,560 )
MUD reimbursable costs (b) (47,803 ) —
—
(480 ) (6,254 ) (54,537 )
Other (c) (7,737 ) (18 ) (1,223 ) (511 ) 173
(9,316 )
Balance at September 30, 2020 $ 487,501
$ 16,625
$ 893,636
$ 176,937
$ 118,779
$ 1,693,478


~~(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 accrued development expenditures payable.~~

Seaport ~~District~~

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 ofof: (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 ~~partnership with third parties,~~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, Ssäm Bar (formerly 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.~~Seaport. 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,~~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~~the continued impacts related to COVID-19, ~~and our operating experience during this past summer as we opened multiple new venues,~~ we do not currently provide guidance on our expected NOI yield and stabilization date for the ~~Seaport District.~~Seaport. 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.

HHC 2021 FORM 10-Q | 53


MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents

In October 2020, we announced our comprehensive proposal for the redevelopment of 250 Water Street, 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. In May 2021, we received approval from the New York City Landmarks Preservation Commission on our proposed design for the 250 Water Street building. This favorable ruling confirms that the proposed architecture is appropriate for the South Street Seaport Historic District and allows us to proceed with the formal New York City Uniform Land Use Review Procedure known as ULURP, which will be required to complete the necessary transfer of development rights to the parking lot site. Although this ruling is currently being contested in court, we believe this ruling will be upheld. This project, which includes approximately 540,000 zoning square feet, presents a unique opportunity at the Seaport to transform this last available development site into a vibrant mixed-use asset. The plan as proposed will provide long-term viability to the South Street Seaport Museum and deliver much-needed affordable housing and economic stimulus to the area. We will continue working with the City to advance this process over the coming calendar year with the goal of bringing these benefits to this one-of-a-kind neighborhood.

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)~~Landlord operations 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~~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 nine months ended September 30, 2020, our~~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~~the food and beverage operations for the Fulton, R17, Cobble & Co. and Malibu Farm. Creative Culinary ~~will be~~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. In early 2022, we plan to expand our managed business portfolio with the launch of The Lawn Club, a new concept that will transform 20,000 square feet of the Fulton Market Building into an immersive indoor and outdoor experience that includes a massive expanse of indoor grass, a stylish clubhouse bar and a wide variety of lawn games. We also expect to launch a new restaurant concept by Josh Eden and Wylie Dufresne at 1 Fulton Street featuring an all-day menu with many specialty to-go items and an expansive outdoor café in early 2022.

Our events and sponsorship businesses have historically included our concert series, Winterland skating and bar, event catering, private events and ~~sponsorships from 11 partners.~~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~~continued through the end of ~~up to eight people to reserve their own socially distanced, mini-lawn space.~~the first quarter of 2021. The Greens ~~generated~~concept returned in May 2021 to compliment the 2021 summer concert series, which began on July 30, 2021 and is expected to run through October 2021. The Greens concept continues to generate high customer demand for the outdoor venue, as evidenced by us hosting a variety of rooftop events, including ESPN’s The ESPYS in July 2021, and ~~helped to fulfill obligations under our sponsorship agreements, which would have been drastically reduced without~~ the launch of the 2021 summer concert series.

HHC ~~2020~~2021 FORM 10-Q | 5354



MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents
~~RESULTS OF OPERATIONS~~

Segment EBT Segment EBT for Seaport ~~District~~ is presented below:


Seaport Segment EBT	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Rental Revenue	$	2,139	$	944	$	1,195	$	4,367	$	4,080	$	287
Other land, rental and property revenues	8,759		1,328		7,431		13,984		7,886		6,098
Total revenues	10,898		2,272		8,626		18,351		11,966		6,385

Operating costs	(15,522)		(8,099)		(7,423)		(27,681)		(21,956)		(5,725)
Rental property real estate taxes	(380)		(354)		(26)		(674)		(707)		33
(Provision for) recovery of doubtful accounts	(94)		(11)		(83)		(147)		(112)		(35)
Total operating expenses	(15,996)		(8,464)		(7,532)		(28,502)		(22,775)		(5,727)
Segment operating income (loss)	(5,098)		(6,192)		1,094		(10,151)		(10,809)		658
Depreciation and amortization	(7,004)		(6,776)		(228)		(13,839)		(27,651)		13,812
Interest income (expense), net	187		(4,626)		4,813		289		(9,679)		9,968
Other income (loss), net	(618)		(409)		(209)		(954)		(3,777)		2,823
Equity in earnings (losses) from real estate and other affiliates	(336)		(6,633)		6,297		(688)		(8,676)		7,988





Segment EBT	$	(12,869)	$	(24,636)	$	11,767	$	(25,343)	$	(60,592)	$	35,249

Seaport District Segment EBT Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Total revenues $ 4,204
$ 23,130
$ (18,926 ) $ 16,170
$ 43,051
$ (26,881 )
Total operating expenses (11,522 ) (27,330 ) 15,808
(34,297 ) (59,735 ) 25,438
Segment operating income (loss) (7,318 ) (4,200 ) (3,118 ) (18,127 ) (16,684 ) (1,443 )
Depreciation and amortization (7,174 ) (6,767 ) (407 ) (34,825 ) (19,713 ) (15,112 )
Interest expense, net (2,811 ) (4,984 ) 2,173
(12,490 ) (8,440 ) (4,050 )
Other income (loss), net 1,590
—
1,590
(2,187 ) (147 ) (2,040 )
Equity in earnings (losses) from real estate and other affiliates (288 ) (705 ) 417
(8,964 ) (1,788 ) (7,176 )
Gain (loss) on sale or disposal of real estate —
—
—
—
(6 ) 6
Gain (loss) on extinguishment of debt (11,645 ) —
(11,645 ) (11,645 ) —
(11,645 )
Segment EBT $ (27,646 ) $ (16,656 ) $ (10,990 ) $ (88,238 ) $ (46,778 ) $ (41,460 )

For the three months ended ~~September~~June 30, ~~2020:~~2021:

Seaport ~~District~~ segment EBT loss decreased ~~$11.0 million to a loss of $27.6~~$11.8 million compared to the ~~prior year~~prior-year period primarily due to the following:


–	~~decrease in segment revenues and 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~~


–	~~partially offset by a decrease in Interest expense, net due to the early repayment of the loan and an increase in Other income (loss), net due to liquidation sales of 10 Corso Como Retail inventory~~

–$6.0 million impairment of the Company’s equity investment in Mr. C Seaport in the second quarter of 2020. Please refer to Note 4 - Impairment in the Company’s Condensed Consolidated Financial Statements for further details.

–decrease in interest expense due to the retirement of a $250 million Seaport loan in August 2020

For the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:

Seaport ~~District~~ segment EBT loss decreased ~~$41.5~~$35.2 million ~~to a loss of $88.2 million. In addition~~compared to the ~~items affecting the three months ended September 30, 2020, the decrease for the nine months ended September 30, 2020, was~~prior-year period primarily ~~driven by~~due to the following:


–	~~$6.0 million impairment of the Company’s equity investment in Mr. C Seaport. Please refer to Note 5 - Impairment in the Company’s Condensed Consolidated Financial Statements for further details.~~


–	write-offs of retail inventory recorded within Other income (loss), net and building improvements recorded within Depreciation and amortization due to the permanent closure of 10 Corso Como Retail and Café during the first quarter

–charges in the first quarter of 2020 related to write-offs of retail inventory recorded within Other income (loss), net and building improvements recorded within Depreciation and amortization due to the permanent closure of 10 Corso Como Retail and Café that did not reoccur in 2021

–$6.0 million impairment of the Company’s equity investment in Mr. C Seaport in the second quarter of 2020

–decrease in interest expense due to the retirement of a $250 million Seaport loan in August 2020

Net Operating Income A reconciliation of Seaport ~~District~~ segment EBT to Seaport ~~District~~ NOI is presented in the table ~~below.~~below:


Seaport NOI	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Total Seaport segment EBT	$	(12,869)	$	(24,636)	$	11,767	$	(25,343)	$	(60,592)	$	35,249
Add back:
Depreciation and amortization	7,004		6,776		228		13,839		27,651		(13,812)
Interest (income) expense, net	(187)		4,626		(4,813)		(289)		9,679		(9,968)
Equity in (earnings) losses from real estate and other affiliates	336		6,633		(6,297)		688		8,676		(7,988)


Impact of straight-line rent	463		1,208		(745)		867		1,333		(466)
Other (income) loss, net (a)	978		1,953		(975)		1,719		5,923		(4,204)
Seaport NOI	$	(4,275)	$	(3,440)	$	(835)	$	(8,519)	$	(7,330)	$	(1,189)

Seaport District NOI Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Total Seaport District segment EBT $ (27,646 ) $ (16,656 ) $ (10,990 ) $ (88,238 ) $ (46,778 ) $ (41,460 )
Depreciation and amortization 7,174
6,767
407
34,825
19,713
15,112
Interest expense, net 2,811
4,984
(2,173 ) 12,490
8,440
4,050
Equity in (earnings) losses from real estate and other affiliates 288
705
(417 ) 8,964
1,788
7,176
(Gain) loss on sale or disposal of real estate —
—
—
—
6
(6 )
(Gain) loss on extinguishment of debt 11,645
—
11,645
11,645
—
11,645
Impact of straight-line rent 1,027
412
615
2,360
1,658
702
Other (income) loss, net (a) (1,398 ) 896
(2,294 ) 4,525
5,405
(880 )
Seaport District NOI $ (6,099 ) $ (2,892 ) $ (3,207 ) $ (13,429 ) $ (9,768 ) $ (3,661 )
(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.


~~(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.

HHC ~~2020~~2021 FORM 10-Q | 5455



MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents
~~RESULTS OF OPERATIONS~~

The below table presents Seaport ~~District~~ NOI by category:


Seaport NOI by Category	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Landlord Operations - Historic District & Pier 17	$	(3,834)	$	(1,611)	$	(2,223)	$	(7,074)	$	(3,472)	$	(3,602)
Multi-family	44		110		(66)		136		214		(78)
Hospitality	—		(12)		12		—		(12)		12
Managed Businesses - Historic District & Pier 17	(256)		(1,256)		1,000		(916)		(3,336)		2,420

Events, Sponsorships & Catering Business	(229)		(671)		442		(665)		(724)		59
Seaport NOI	$	(4,275)	$	(3,440)	$	(835)	$	(8,519)	$	(7,330)	$	(1,189)

Seaport District NOI by Category Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Historic District & Pier 17 - Landlord $ (2,022 ) $ (2,150 ) $ 128
$ (5,494 ) $ (5,156 ) $ (338 )
Multi-family 46
112
(66 ) 260
303
(43 )
Hospitality —
—
—
(12 ) 41
(53 )
Historic District & Pier 17 - Managed Businesses (1,657 ) (879 ) (778 ) (4,993 ) (4,420 ) (573 )
Events, Sponsorships & Catering Business (2,466 ) 25
(2,491 ) (3,190 ) (536 ) (2,654 )
Seaport District NOI $ (6,099 ) $ (2,892 ) $ (3,207 ) $ (13,429 ) $ (9,768 ) $ (3,661 )

Seaport ~~District~~ NOI decreased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, primarily a result of business closures and cancellations of events related~~2021, compared to the prior-year period, primarily due to increased operating expenses in our landlord operations, partially offset by increased revenue in our managed business entities, as business resumes after the onset of the COVID-19 ~~pandemic.~~pandemic in 2020.

Including managed businesses, events, sponsorships, catering and the Tin Building, the Seaport ~~District~~ is approximately ~~54%~~59% 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~~events and ~~sponsorship~~sponsorships until businesses in New York are able to ~~safely reopen,~~operate 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.~~offerings, including the opening of the Tin Building.

HHC 2021 FORM 10-Q | 56


MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents



Strategic Developments

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 into service and NOI would become a meaningful measure of its operating performance. All development costs discussed herein are exclusive of land costs.

Segment EBT Segment EBT for Strategic Developments is presented below:


Strategic Developments Segment EBT	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Condominium rights and unit sales	$	12,861	$	—	$	12,861	$	50,028	$	43	$	49,985
Rental Revenue	104		98		6		192		207		(15)
Other land, rental and property revenues	501		526		(25)		1,546		1,134		412
Total revenues	$	13,466	$	624	$	12,842	$	51,766	$	1,384	$	50,382

Condominium rights and unit cost of sales	(13,435)		(6,348)		(7,087)		(68,403)		(104,249)		35,846
Operating costs	(4,295)		(4,353)		58		(7,975)		(9,394)		1,419
Rental property real estate taxes	(910)		(1,816)		906		(1,885)		(3,173)		1,288

Total operating expenses	(18,640)		(12,517)		(6,123)		(78,263)		(116,816)		38,553
Segment operating income (loss)	(5,174)		(11,893)		6,719		(26,497)		(115,432)		88,935
Depreciation and amortization	(1,597)		(1,650)		53		(3,195)		(3,411)		216
Interest income (expense), net	659		1,057		(398)		1,760		2,988		(1,228)
Other income (loss), net	14		1,668		(1,654)		14		1,293		(1,279)
Equity in earnings (losses) from real estate and other affiliates	(19)		574		(593)		(117)		638		(755)
Gain (loss) on sale or disposal of real estate and other assets, net	21,333		8,000		13,333		21,333		8,000		13,333



Provision for impairment	(13,068)		—		(13,068)		(13,068)		—		(13,068)
Segment EBT	$	2,148	$	(2,244)	$	4,392	$	(19,770)	$	(105,924)	$	86,154

Strategic Developments Segment EBT Three Months Ended September 30, Nine Months Ended September 30,
thousands 2020 2019 $ Change 2020 2019 $ Change
Total revenues $ 16,365
$ 11,515
$ 4,850
$ 17,749
$ 451,873
$ (434,124 )
Total operating expenses (9,922 ) (11,327 ) 1,405
(126,738 ) (382,341 ) 255,603
Segment operating (loss) income 6,443
188
6,255
(108,989 ) 69,532
(178,521 )
Depreciation and amortization (1,643 ) (2,070 ) 427
(5,054 ) (4,386 ) (668 )
Interest income, net 1,921
3,002
(1,081 ) 4,909
9,499
(4,590 )
Other income (loss), net 134
354
(220 ) 1,427
664
763
Equity in earnings (losses) from real estate and other affiliates 267,727
283
267,444
268,365
581
267,784
Gain (loss) on sale or disposal of real estate, net —
24,201
(24,201 ) 8,000
24,057
(16,057 )
Segment EBT $ 274,582
$ 25,958
$ 248,624
$ 168,658
$ 99,947
$ 68,711

~~HHC~~ ~~2020 FORM 10-Q~~ | 55



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~RESULTS OF OPERATIONS~~

For the three months ended ~~September~~June 30, ~~2020:~~2021:

Strategic Developments segment EBT increased ~~$248.6 million to income of $274.6~~$4.4 million compared to the ~~prior year~~prior-year period primarily due to the following:

–increase in Gain (loss) on sale or disposal of real estate and other assets, net of $13.3 million driven by a gain of $21.3 million recognized in the second quarter of 2021 related to the sale of Monarch City, compared to the receipt of an $8.0 million termination payment in the second quarter of 2020 related to the October 2019 sale of West Windsor

–decrease in Condominium rights and unit cost of sales primarily driven by a loss of $5.1 million recorded in 2020 related to the write down of inventory units to better align the expected price with recent final sales prices, with no similar write downs during 2021

–increase in Provision for impairment of $13.1 million due to an impairment of Century Park. Refer to Note 4 -Impairment in our Condensed Consolidated Financial Statements for further details.

HHC 2021 FORM 10-Q | 57


– MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			~~increase in Equity in earnings (losses) from real estate and other affiliates primarily due to a $267.5 million gain on deconsolidation~~Table 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~~ Contents ~~Note 3 -~~ ~~Real Estate and Other Affiliates in the Company’s Condensed 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~~

~~These increases were partially offset by the following:~~


–	~~decrease in Gain (loss) on sale or disposal of real estate, net driven by the $24.2 million gain on the sale of the Cottonwood Mall in during the three months ended September 30, 2019~~


–	decrease in Condominium rights and unit sales, net of costs driven by the timing of condominium closings. The Company closed on a large number of units at Ke Kilohana and Ae’o in 2019, with no new condominium towers scheduled for completion in 2020.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:

Strategic Developments segment EBT increased ~~$68.7 million to income of $168.7~~$86.2 million compared to the ~~prior year period~~prior-year period. In addition to the items affecting the three months ended June 30, 2021, the increase was 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

–decrease in Condominium rights and unit cost of sales primarily driven by charges related to our expected funding of costs to correct alleged construction defects at Waiea. An additional $21.0 million was charged during the six months ended June 30, 2021, related to additional anticipated costs, compared to charges of $99.1 million during the six months ended June 30, 2020. Refer to Note 9 - Commitments and Contingencies in our Condensed Consolidated Financial Statements for additional information.~~Note 3 -~~ ~~Real Estate and Other Affiliates in the Company’s Condensed 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~~

~~These increases were partially offset~~–increase in Condominium rights and unit sales, net of costs, driven 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 - timing of condominium closings. The Company closed on four units at Waiea and two units at Anaha during the six months ended June 30, 2021, compared to no closings during the six months ended June 30, 2020.~~Commitments and Contingencies~~ ~~in our Condensed Consolidated Financial Statements for additional information related to the alleged construction defects at Waiea.~~


–	decrease in Condominium rights and unit sales, net of costs, driven by the timing of condominium closings. The Company closed on a large number of units at Ke Kilohana and Ae’o in 2019, with no new condominium towers scheduled for completion in 2020.


–	decrease in Gain (loss) on sale or disposal of real estate, net of $16.1 million driven by the receipt of an $8.0 million termination payment in the second quarter of 2020, related to the October 2019 sale of West Windsor, compared to the $24.2 million gain on the sale of the Cottonwood Mall recognized in the third quarter of 2019


–	increase in Condominium rights and unit cost of sales of $6.0 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 recent final sales prices

~~HHC~~ ~~2020 FORM 10-Q~~ | 56



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~RESULTS OF OPERATIONS~~

Ward Village 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~~six condominium inventory units during the ~~three and nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to ~~7 for~~no condominium unit closings during the ~~three~~six months ended ~~September~~June 30, ~~2019, and 594 for the nine months ended September 30, 2019.~~2020. However, overall progress at our condominium projects remains ~~strong. At September~~strong, as evidenced by the six units closed at our completed towers and 91 units contracted to sell at our under construction towers during the six months ended June 30, ~~2020,~~2021. Victoria Place, our newest project and Ward Village’s fastest-selling tower to date, accounted for 58 of these contracted units and is 93.4% sold as of June 30, 2021.

Completed Condominiums As of June 30, 2021, our four completed towers are 99.8% sold. During the six ~~completed or~~months ended June 30, 2021 we closed on four of the remaining units at Waiea, resulting in only three units remaining to be sold. Additionally, during the six months ended June 30, 2021, we closed on the two remaining units at Anaha. As a result, Ae’o, Ke Kilohana and Anaha are completely sold.

Under Construction Condominiums As of June 30, 2021, our three under construction towers are ~~90.7% sold with only five units that remain to be sold at Waiea and one at Anaha. Both Ae‘o and Ke Kilohana are completely~~86.4% sold.

~~As a result of strong demand demonstrated by sales at~~ ‘A‘ali‘i is a 42-story, 750-unit mixed-use condominium project that will consist of studio, one- and two-bedroom residences and 150 workforce units. Kō'ula ~~we launched public sales~~is a 41-story, 565-unit, mixed-use condominium project that will consist of studio, one-, two- and three-bedroom residences. We began construction on Victoria Place, our seventh condominium ~~project at Ward Village~~tower, in ~~December 2019.~~February 2021. Victoria Place ~~will be~~is 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~~that will consist of ~~one, two~~one-, two- and three-bedroom residences. The units will range 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 255 units as of October 31, 2020, representing 73.1% of total units and 75.2% of the total residential square feet available for sale.

The following provides further detail for Ward Village as of ~~September~~June 30, ~~2020:~~2021:


	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)	174	—	177	98.3	%	97.7	%	Q4 2016
Anaha (a)	317	—	317	100.0	%	100.0	%	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)	—	653	750	87.1	%	82.3	%	Q4 2021
Kō'ula (d)	—	459	565	81.2	%	84.1	%	2022
Victoria Place	—	326	349	93.4	%	94.6	%	2024

Units Closed Units Under Contract Total Units Total % of Units Closed or Under Contract Total % of Residential Square Feet Closed or Under Contract
Completed
Waiea (a) 170
2
177
97.2 % 95.2 %
Anaha (a) 315
1
317
99.7 % 98.7 %
Ae’o (b) 465
—
465
100.0 % 100.0 %
Ke Kilohana (a) 423
—
423
100.0 % 100.0 %
Under construction
‘A‘ali‘i —
635
750
84.7 % 80.0 %
Kō'ula (c) —
435
565
77.0 % 79.3 %
Predevelopment
Victoria Place —
249
349
71.3 % 73.4 %


~~(a)~~	(a)The retail portions of these projects are 100% leased and ~~has 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 98% leased and has been placed into service.~~


~~(c)~~	~~During the nine months ended September 30, 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 September 30, 2020. Projects that are substantially complete and which have been placed ~~into service~~ in the Operating Assets or the Seaport District segment but have not reached stabilized occupancy status 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 significantservice.

(b)The retail portion of the ~~remaining costs for~~project, which is primarily comprised of the ~~following properties in the Operating Assets~~57,000-square-foot flagship Whole Foods Market, is 97.9% leased and ~~Seaport District segments:~~has been placed into service.


–	~~6100 Merriweather and Garage~~


–	~~Creekside Park West~~


–	~~Merriweather District Area 3 Standalone Restaurant~~


–	~~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(c)There will be ~~able to meet our cash funding requirements with a combination~~approximately 12,000 square feet of ~~existing and anticipated construction loans, condominium buyer deposits, free cash flow from our Operating Assets and MPC segments, net proceeds from condominium sales, our existing cash balances and~~new street level retail space as ~~necessary, the postponement~~part of ~~certain projects.~~this project.

(d)There will be approximately 37,000 square feet of retail space as part of this project.

HHC ~~2020~~2021 FORM 10-Q | 5758



MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS			Table of Contents
~~RESULTS OF OPERATIONS~~

thousands Total
Estimated
Costs (a) Costs Paid Through September 30, 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 and Garage $ 138,221
$ 105,929
$ 32,292
$ —
$ 31,384
$ 908
(d) Open
Juniper Apartments 116,386
94,516
21,870
—
21,709
161
Open
Merriweather District Area 3 Standalone Restaurant 5,680
2,857
2,823
—
—
2,823
(d)(e) Open
The Woodlands
Creekside Park West 22,625
18,170
4,455
—
3,524
931
(d) Open
8770 New Trails 45,985
38,376
7,609
—
5,924
1,685
Open
Two Lakes Edge 107,706
90,802
16,904
—
13,281
3,623
Open
Bridgeland
Lakeside Row 48,412
43,428
4,984
—
2,880
2,104
Open
Total Operating Assets 485,015
394,078
90,937
—
78,702
12,235

Seaport District
Pier 17 and Seaport District Historic Area / Uplands 659,018
600,980
58,038
—
—
58,038
(d)(f)(g) Open
Tin Building 173,452
99,836
73,616
—
—
73,616
(g) Q4 2021
Total Seaport District 832,470
700,816
131,654
—
—
131,654

Strategic Developments
The Woodlands
Creekside Park Apartments Phase II 57,472
19,412
38,060
—
37,861
199
Q2 2021
Residences at the Lane at Waterway 45,033
31,065
13,968
—
12,949
1,019
(h) Q4 2020
Ward Village
‘A‘ali‘i 411,900
231,543
180,357
8,368
177,964
(5,975 ) (i) Q4 2021
Anaha 401,314
398,838
2,476
—
—
2,476
Open
Ke Kilohana 218,898
213,983
4,915
—
—
4,915
(j) Open
Kō'ula 487,039
91,510
395,529
77,524
293,109
24,896
2022
Waiea 566,256
426,615
139,641
—
—
139,641
(k) Open
Total Strategic Developments 2,187,912
1,412,966
774,946
85,892
521,883
167,171
(l)
Combined Total $ 3,505,397
$ 2,507,860
$ 997,537
$ 85,892
$ 600,585
$ 311,060


~~(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 September 30, 2020.~~


~~(c)~~	~~With respect to our condominium projects, remaining debt to be drawn is reduced by deposits utilized for construction.~~


~~(d)~~	~~Final completion is dependent on lease-up and tenant build-out.~~


~~(e)~~	~~Merriweather District 3 Stand Alone Restaurant has been placed in service but will not open until tenant build-out is complete.~~


~~(f)~~	Pier 17 and Seaport District Historic Area / Uplands Total Estimated Costs and Costs Paid Through September 30, 2020, include costs required for the Pier 17 and Seaport District Historic Area / Uplands and are not reduced by the insurance proceeds received to date.


~~(g)~~	We closed on a $250.0 million loan for the redevelopment of the Seaport District during the three months ended June 30, 2019. This loan was repaid during the three months ended September 30, 2020, with proceeds from the issuance of the Senior Notes due 2028 in the third quarter of 2020. Refer to Note 7 - ~~Mortgages, Notes and Loans Payable, Net~~ ~~for additional information.~~


~~(h)~~	~~Millennium Phase III Apartments was renamed to Residences at the Lane at Waterway as of Q3 2020.~~


~~(i)~~	Negative balances represent cash to be received in excess of Estimated Remaining to be Spent. These items are primarily related to September 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.


~~(j)~~	~~The Ke Kilohana facility was repaid in June 2019, in conjunction with closing on the sales of units at the property.~~


~~(k)~~	Total estimate includes $115.4 million for necessary 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.~~


~~(l)~~	~~110 North Wacker was placed in service during the third quarter of 2020. As a result, the venture was deconsolidated as of September 30, 2020, and removed from this table. Refer to Note 3 -~~ ~~Real Estate and Other Affiliates~~ ~~for additional information.~~

~~HHC~~ ~~2020 FORM 10-Q~~ | 58



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~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:


	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2021		2020		$ Change		2021		2020		$ Change
Corporate income	$	93	$	87	$	6	$	194	$	105	$	89
General and administrative	(20,334)		(22,233)		1,899		(42,100)		(61,314)		19,214
Corporate interest expense, net	(24,717)		(13,624)		(11,093)		(51,846)		(26,165)		(25,681)
Gain (loss) on extinguishment of debt	(5)		—		(5)		(35,084)		—		(35,084)

Corporate other income (loss), net	97		122		(25)		223		240		(17)


Corporate depreciation and amortization	(1,114)		(1,451)		337		(2,266)		(3,272)		1,006
Demolition costs	(149)		—		(149)		(149)		—		(149)
Development-related marketing costs	(2,397)		(1,813)		(584)		(4,041)		(4,629)		588
Income tax (expense) benefit	1,550		6,844		(5,294)		22,755		40,944		(18,189)
Total Corporate income, expenses and other items	$	(46,976)	$	(32,068)	$	(14,908)	$	(112,314)	$	(54,091)	$	(58,223)

For the three months ended June 30, 2021:

Corporate income, expenses and other items ~~increased~~was unfavorably impacted compared to the prior-year period by ~~$29.5~~the following:

–increase in corporate interest expense, net primarily due to the issuance of $750 million 5.375% Senior Notes in August 2020, as well as the issuance of $650 million 4.125% Senior Notes and $650 million 4.375% Senior Notes in the first quarter of 2021, offset by the repurchase its $1.0 billion 5.375% Senior Notes in the first quarter of 2021

–decrease in income tax benefit primarily due to an increase in income before income taxes, partially offset by a ~~$90.7 million net expense~~valuation allowance recorded in 2020 on our charitable contribution carryover. Refer to Note 10 - Income Taxes for additional information.

For the six months ended June 30, 2021:

Corporate income, expenses and other items was unfavorably impacted compared to the prior-year period. In addition to the items affecting the three months ended ~~September~~June 30, ~~2020, and decreased~~2021, the period was also unfavorably impacted by ~~$21.1~~the following:

–loss on extinguishment of debt of $35.1 million ~~to a $144.8 million net expense for the nine months ended September 30, 2020, compared~~due to the ~~prior year periods.~~repurchase of the Company’s $1.0 billion 5.375% Senior Notes due 2025

~~For the three months ended September 30, 2020:~~

Corporate income, expenses and other items was favorably impacted compared to the ~~prior year~~prior-year period by the following:


–	~~$10.8 million~~ –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~~


–	$3.4 million decrease in Development-related marketing costs primarily related to the reduction of labor costs due to reduction in staff and reduction of costs at parts of Victoria Place, Downtown Columbia, Ward Village and~~the Seaport District~~

~~Corporate income, expenses~~ and other ~~items was unfavorably impacted compared~~corporate initiatives, which are part of an overall plan to ~~the prior year period by the following:~~


–	~~$35.4 million increase in the Provision (benefit) for income taxes primarily due to a $169.4 million increase in income before taxes~~


–	~~$7.9 million 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~~

reduce recurring overhead costs, and a decrease in consulting expenses as a result of fewer IT projects taking place in 2021

~~For the nine months ended September 30, 2020:~~

~~Corporate income, expenses and other items was favorably impacted compared to the prior year period by the following:~~


–	~~$21.0 million decrease in the Provision (benefit) for income taxes primarily due to a $91.5 million decrease in income before taxes~~


–	$10.3 million decrease in Development-related marketing costs primarily related to the reduction of labor costs due to reduction in staff and reduction of costs at parts of Victoria Place, Downtown Columbia, Las Vegas Ballpark, Ward Village and~~the Seaport District~~


–	$9.6 million 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

~~Corporate income, expenses and other items was unfavorably impacted compared to the prior year period by the following:~~


–	$11.5 million increase in corporate interest expense, net primarily due to a decrease in interest income due to lower interest rates, as well as an increase in interest expense due to the $750 million issuance of senior notes in August 2020


–	~~$9.7 million 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~~

HHC ~~2020~~2021 FORM 10-Q | 59



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~LIQUIDITY AND CAPITAL RESOURCES~~



MANAGEMENT’S DISCUSSION AND ANALYSIS			Table of Contents
LIQUIDITY AND CAPITAL RESOURCES


Liquidity and Capital Resources

~~In direct response to~~Throughout the ~~unprecedented COVID-19~~ pandemic ~~and the impacts~~we have focused on ~~our four business segments, as well as the economy and capital markets in general, we initiated~~ measures to increase our liquidity. InAs a result, we have been able to maintain a strong balance sheet and ensure we maintain the ~~second quarter 2020, we entered into an agreement~~financial flexibility and liquidity necessary to extend the existing Downtown Summerlin loan and the bridge loan for The Woodlands Towers at the Waterway and The Woodlands Warehouse. As previously reported, we also generated $593.7 million in proceeds from the issuance of common stockfund future growth. We continued to enhance our liquidity profile in the first quarter of ~~2020.~~ ~~On August 18, 2020,~~2021 through the ~~Company issued $750~~issuance of $650 million ~~in 5.375% senior notes~~4.125% Senior Notes due ~~August 2028. These senior notes are unsecured senior obligations of the Company~~2029 and ~~are guaranteed by certain subsidiaries of the Company.~~$650 million 4.375% Senior Notes due 2031. The Company used the net proceeds from ~~this~~the issuance, ~~together with~~as well as available cash on hand, to repurchase its $1.0 billion 5.375% Senior Notes due 2025 and repay the $280.3 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021. Additionally, the Company closed on a $368.2 million construction loan for the ~~repayment property specific indebtedness~~development of ~~approximately $807.9~~Victoria Place in Ward Village. In April 2021, the Company closed on $125.3 million of additional new construction financings for Marlow in ~~order~~Columbia and Starling at Bridgeland, as well as a $58.5 million loan to ~~push out~~replace the ~~average~~existing construction loan for Tanager Apartments in Downtown Summerlin. In June 2021, the Company closed on an extension of the $35.5 million loan for 8770 New Trails, extending the final maturity date ~~of our indebtedness.~~ ~~We ended~~to January 2032. In July 2021, the ~~third quarter with $857.4~~Company closed on a $35.5 million ~~of Cash and cash equivalents on our Condensed Consolidated Balance Sheets as of September 30, 2020.~~loan to replace the existing construction loan for Lakeside Row in Bridgeland.

Our primary sources of cash include cash flow from land sales in ~~MPC,~~our MPCs, 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.

During 2021, we have continued to pursue the sale of our remaining non-core assets. We closed on the sale of Monarch City during the second quarter of 2021 for total net proceeds of $49.9 million. Since the fourth quarter of 2019, we have completed the sales of nine non-core assets generating approximately $263.7 million of net proceeds after debt repayment. While the COVID-19 pandemic has made additional non-core asset sales more challenging to execute, we expect to continue to make additional progress in the second half of 2021.

Total outstanding debt was ~~$4.2~~$4.4 billion as of ~~September~~June 30, ~~2020. Certain mortgages may require paydowns in order to exercise contractual extension terms.~~2021. Refer to Note 76 - Mortgages, Notes and Loans Payable, Net in the Condensed Consolidated Financial Statements. Our proportionate share of the debt of our real estate and other affiliates ~~which is non-recourse to us,~~ totaled ~~$252.5~~$291.3 million as of ~~September~~June 30, ~~2020.~~ 2021. 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 net debt on a segment basis as of ~~September~~June 30, ~~2020.~~2021. 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 September 30, 2020
Mortgages, notes and loans payable, net $ 1,998,974
$ 187,071
$ 98,948
$ 202,123
$ 2,487,116
$ 1,732,218
$ 4,219,334
Mortgages, notes and loans payable of real estate and other affiliates 246,615
5,851
—
—
252,466
—
252,466
Less:
Cash and cash equivalents (56,498 ) (94,264 ) (5,740 ) (6,669 ) (163,171 ) (694,219 ) (857,390 )
Cash and cash equivalents of real estate and other affiliates (2,882 ) (84,656 ) (81 ) (1,184 ) (88,803 ) —
(88,803 )
Special Improvement District receivables —
(60,198 ) —
—
(60,198 ) —
(60,198 )
Municipal Utility District receivables, net —
(331,451 ) —
—
(331,451 ) —
(331,451 )
TIF receivable —
—
—
(1,980 ) (1,980 ) —
(1,980 )
Net debt $ 2,186,209
$ (377,647 ) $ 93,127
$ 192,290
$ 2,093,979
$ 1,037,999
$ 3,131,978

HHC ~~2020~~2021 FORM 10-Q | 60



MANAGEMENT’S DISCUSSION AND ANALYSIS			Table of Contents
LIQUIDITY AND CAPITAL RESOURCES


~~(a)~~	Includes our share of Mortgages, notes and loans payable, net and Cash and cash equivalents of our real estate and other affiliates in the Operating Assets segment (110 North Wacker, Woodlands Sarofim #1, The Metropolitan Downtown Columbia, Stewart Title of Montgomery County and m.flats/TEN.M).


~~(b)~~	~~Includes our share of Mortgages, notes and loans payable, net and Cash and cash equivalents of our real estate and other affiliates in the MPC segment (The Summit).~~


~~(c)~~	~~Includes our share of Mortgages, notes and loans payable, net and Cash and cash equivalents of our real estate and other affiliates in the Seaport District segment (Bar Wayō).~~


~~(d)~~	~~Includes our share of Cash and cash equivalents of our real estate and other affiliates in the Strategic Developments segment (KR Holdings, HHMK Development and Circle T Ranch and Power Center).~~


thousands	Operating Assets		Master Planned Communities		Seaport		Strategic Developments		Segment Totals		Non-Segment Amounts		June 30, 2021
Mortgages, notes and loans payable	$	1,829,704	$	179,028	$	99,327	$	320,942	$	2,429,001	$	2,020,332	$	4,449,333
Mortgages, notes and loans payable of real estate and other affiliates	287,544		3,747		—		—		291,291		—		291,291
Less:
Cash and cash equivalents	(120,357)		(115,824)		(11,621)		(2,061)		(249,863)		(813,398)		(1,063,261)
Cash and cash equivalents of real estate and other affiliates	(5,448)		(48,707)		(336)		(240)		(54,731)		—		(54,731)
Special Improvement District receivables	—		(49,864)		—		—		(49,864)		—		(49,864)
Municipal Utility District receivables, net	—		(354,932)		—		—		(354,932)		—		(354,932)
TIF receivable	—		—		—		(937)		(937)		—		(937)
Net Debt	$	1,991,443	$	(386,552)	$	87,370	$	317,704	$	2,009,965	$	1,206,934	$	3,216,899

~~During the second quarter of 2020,~~

Due to the COVID-19 pandemic, ~~necessitated temporary closure of some of~~ the ~~Company’s Operating Assets, primarily~~Company experienced a decline in operating results for certain retail and hospitality properties. As a result, ~~of the decline in interim operating results for certain of these properties,~~ as of December 31, 2020, and 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 September 30, 2020,2021, 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~~$33.6 million of excess net cash flow after debt service from the underlying properties became ~~restricted. The~~restricted as of June 30, 2021. While the restricted cash cannot be used for general corporate purposes, ~~but~~it can continue to be used to fund operations of the underlying ~~assets. The Company is negotiating an amendment with~~assets and does not have a material impact on the ~~lender.~~ Company’s liquidity.

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. The loan for The Woodlands Resort and Conference Center provides a partial repayment cure for the debt service coverage ratio test. Management is documenting a modification of the existing terms of the Woodlands Resort and Conference Center loan with the lender to receive a waiver of the $24.1 million repayment to cure.

~~As of September 30, 2020,~~2021, apart from the Term Loan portion of the Senior Secured Credit Facility ~~and the Woodlands Resort and Conference Center~~ described above, the Company was in compliance with all remaining financial covenants included in the agreements governing its indebtedness.



Cash Flows


	Six Months Ended June 30,
thousands	2021		2020
Cash provided by (used in) operating activities	$	(79,935)	$	(98,643)
Cash provided by (used in) investing activities	(10,877)		(267,489)
Cash provided by (used in) financing activities	130,559		934,281

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.~~2021. Operating cash continued to be utilized in the first ~~quarter~~half of ~~2020,~~2021, 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.

HHC 2021 FORM 10-Q | 61


MANAGEMENT’S DISCUSSION AND ANALYSIS			Table of Contents
LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was ~~$169.8~~$79.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020, as compared to net cash provided by operating activities of $137.2~~2021, and $98.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~$307.0~~$18.7 million net ~~increase~~decrease in cash used in operating activities in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same period in ~~2019,~~2020, was primarily ~~related~~due to the ~~current period net loss~~timing of ~~$5 million as well as a decrease of $266.0 million in condominium rights and units of cost due to timing, which were partially offset by proceeds received from the sale of lease receivable~~MPC and condominium ~~deposits received. The current period net loss was largely offset by a $267.5 million gain on the deconsolidation of 110 North Wacker.~~expenditures and sales.

~~HHC~~ ~~2020 FORM 10-Q~~ | 61



~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~	~~Table of Contents~~
~~LIQUIDITY AND CAPITAL RESOURCES~~

Investing Activities Net cash used in investing activities was ~~$404.5~~$10.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, and ~~$535.8~~$267.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~$131.3~~$256.6 million decrease in cash used was primarily the result of ~~the~~a $128.5 million decrease in property development and redevelopment expenditures, ~~as well as~~and a ~~decrease~~$81.8 million increase in ~~operating property improvements expenditures~~distributions from real estate and other affiliates and a $49.9 million increase in proceeds from sales of properties related to Monarch City during the ~~nine~~six months ended ~~September~~June 30, ~~2020, primarily attributable to temporary shut downs of construction activity due to the COVID-19 pandemic.~~2021.

Financing Activities Net cash provided by financing activities was ~~$1,044.7~~$130.6 million for ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, as compared to net cash provided by financing activities of ~~$517.0~~$934.3 million for ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~decrease of ~~$527.7~~$803.7 million was primarily due to ~~proceeds from mortgages, notes and loans payable and~~ the ~~issuance of~~$593.6 million common stock ~~partially offset by an increase of $665.9 million~~issuance in 2020 that did not repeat in 2021. In addition, principal payments on mortgages, notes and loans payable ~~during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.~~increased $1.3 billion, partially offset by an increase of $1.1 billion in proceeds from mortgages, notes and loans payable.



Contractual Cash Obligations and Commitments

The following table summarizes our contractual obligations as of June 30, 2021:


thousands	Remaining in 2021		2022		2023		2024		2025		2026		Thereafter		Total
Mortgages, notes and loans payable (a)	$	34,228	$	77,309	$	1,142,925	$	408,902	$	161,862	$	79,282	$	2,589,675	$	4,494,183
Interest payments (b)	94,041		184,973		173,537		137,110		124,306		120,484		348,526		1,182,977
Ground lease and other leasing commitments	1,946		4,325		4,371		4,419		4,468		4,518		245,424		269,471
Total	$	130,215	$	266,607	$	1,320,833	$	550,431	$	290,636	$	204,284	$	3,183,625	$	5,946,631

(a)Based on final maturity, inclusive of extension options. In July 2021, the Company closed on a $35.5 million loan maturing in September ~~30, 2020:~~2031 to replace the existing construction loan for Lakeside Row in Bridgeland.

(b)Interest is based on the borrowings that are presently outstanding and current floating interest rates.

thousands Remaining in 2020 2021 2022 2023 2024 2025 Thereafter Total
Mortgages, notes and loans payable (a) $ 3,610
$ 321,634
$ 77,607
$ 1,046,439
$ 419,873
$ 1,118,045
$ 1,266,387
$ 4,253,595
Interest payments (b) 48,160
177,921
174,616
161,631
127,050
74,769
241,149
1,005,296
Ground lease and other leasing commitments 1,339
7,184
6,507
6,464
6,432
5,047
261,805
294,778
Total $ 53,109
$ 506,739
$ 258,730
$ 1,214,534
$ 553,355
$ 1,197,861
$ 1,769,341
$ 5,553,669


~~(a)~~			~~Based on final maturity, inclusive of extension options.~~


~~(b)~~	~~Interest is based on the borrowings that are presently outstanding and current floating interest rates.~~

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 have mortgage financing totaling ~~$491.4~~$610.2 million as of ~~September~~June 30, ~~2020,~~2021, 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. See Note 1 - ~~Basis~~Summary of ~~Presentation and Organization~~Significant Accounting Policies in our Annual Report and ~~Note 2 -~~ ~~Accounting Policies and Pronouncements~~in this Quarterly Report.

HHC 2021 FORM 10-Q | 62


MARKET RISK AND CONTROLS AND PROCEDURES			Table of Contents

Item 3. 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 ~~September~~June 30, ~~2020,~~2021, of our ~~$1.9~~$1.8 billion of variable-rate debt outstanding, ~~$644.6~~$650.5 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 credit facility for The Woodlands and Bridgeland, of which $150.0 million is outstanding and $75.0 million is capped. Additionally, we have cap contracts totaling $368.2 million for our construction loan on Victoria Place, which has an outstanding balance of $49.2 million as of June 30, 2021. As properties are placed into service and become stabilized, we typically refinance the variable-rate debt with long-term fixed-rate debt.

As of ~~September~~June 30, ~~2020,~~2021, annual interest costs would increase approximately ~~$12.2~~$11.2 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 Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income would be less than the total change, but we would incur higher cash payments and the development costs of our assets would be ~~higher.~~higher, resulting in greater depreciation or cost of sales in later years. For additional information concerning our debt and management’s estimation process to arrive at a fair value of our debt as

~~HHC~~ ~~2020 FORM 10-Q~~ | 62



~~MARKET RISK AND CONTROLS AND PROCEDURES~~	~~Table of Contents~~

required by GAAP, please refer to the Liquidity and Capital Resources section of Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 76 - Mortgages, Notes and Loans Payable, Net and Note 98 - Derivative Instruments and Hedging Activities in our Condensed Consolidated Financial Statements. ~~See also the Liquidity and Capital Resources section of Item 2. -~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~andNote 7 -~~ ~~Mortgages, Notes and Loans Payable, Net~~ ~~for~~For discussion of the impact of COVID-19 on our business, including our success in closing on and extending various debt facilities after the onset of the ~~pandemic.~~pandemic, see the Liquidity and Capital Resources section of Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 6 - Mortgages, Notes and Loans Payable, Net in our Condensed Consolidated Financial Statements.

HHC ~~2020~~2021 FORM 10-Q | 63

Table of Contents

Item 4. Controls and Procedures



DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in our reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure. On September 17, 2020, Paul Layne retired as our principal executive officer. David O’Reilly, our president and principal financial officer, agreed to additionally serve as our interim principal executive officer until a permanent principal executive officer is appointed.

As required by SEC rules, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September~~June 30, ~~2020,~~2021, the end of the period covered by this report. Based on the foregoing, our principal executive officer ~~(David O’Reilly)~~ and principal financial and accounting officer ~~(David O’Reilly)~~ concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2020.~~2021.



CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of January 1, 2020, we adopted Topic 326. In connection with the adoption, we implemented certain changes to our processes and controls related to accounting for the measurement of credit losses on financial instruments. These changes included the development of new practices based on the guidance outlined in Topic 326, new credit quality review requirements and new processes related to the additional disclosure requirements.

Due to the COVID-19 pandemic, beginning on March 13, 2020, we instituted an ongoing telecommuting arrangement for employees whose job duties are conducive to working from home. Our transition of a large portion of associates working remotely did not have a material effect on our internal controls over financial reporting.

There were no ~~other~~ changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

HHC ~~2020~~2021 FORM 10-Q | 64



~~OTHER INFORMATION~~	~~Table of Contents~~



~~PART II~~OTHER INFORMATION			Table of Contents


PART II

Item 1. Legal Proceedings

Please refer to Note 109 - Commitments and Contingencies in the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

There are no material changes to the risk factors previously disclosed in our 2020 Annual ~~Report, with the exception of the additional risk factors discussed below.~~Report.

COVID-19 has disrupted our business and has had a material adverse effect on our business, financial performance and condition, operating results and cash flows, and will continue to materially adversely impact and cause disruption to, our business, financial performance and condition, operating results and cash flows. Factors that would negatively impact our ability to successfully operate during and after COVID-19 or another pandemic include:


–	our ability to continue to sell land to residential homebuilders and developers in our MPCs at attractive prices, which would lead to lower land sales revenue in our MPC segment, if such homebuilders continue to see a decline in new home sales to their consumers or if there is reduced availability of loans to support such homebuilders


–	our ability to continue to collect rents, on a timely basis or at all, without reductions or other concessions, in multi-family and office properties (revenues from which properties accounted for 13% of our revenues for the year ended December 31, 2019)


–	our ability to keep our hotels open, even at a limited capacity, given current and potential government restrictions and the dramatic decline in travel caused by COVID-19 (revenues from our hotel properties accounted for 7% of our total revenue for the year ended December 31, 2019)


–	our ability to collect rent from our retail tenants where most retail tenants have closed their businesses (including nearly all of our retail tenants in Summerlin, Ward Village and Riverwalk) (revenues from our retail properties accounted for 12% of our revenues for the year ended December 31, 2019)

–

reductions in demand for leased space and/or defaults under our leases, as a result of downturns in our tenants’ personal financial situations as well as commercial businesses, which include retail stores, restaurants and event attractions such as those in the Seaport District, in part due to containment measures, such as travel restrictions, mandatory government closures, quarantines, “shelter in place” orders and social distancing, as well as the overall impact on the economy and our tenants' industries (including the energy sector)


–	lost revenue due to the cancellation of the 2020 season for the Las Vegas Aviators, our Triple-A professional baseball team, (revenues from the Las Vegas Aviators accounted for 2% of our revenues for the year ended December 31, 2019)


–	~~fluctuations in regional and local economies, the residential housing and condominium markets, local real estate conditions, and tenant rental rates~~


–	our ability to continue to make condominium sales in Hawai’i and land sales in our MPCs, in light of the impact on the overall economy and consumers’ reluctance to make significant capital decisions in times of economic uncertainty, particularly if there is reduced availability of loans for such consumers


–	our ability to attract people to the Seaport District through socially distanced events and programs and resume the Seaport District summer concert series in 2021, the revenue and sponsorship of which historically has been a meaningful contribution to our annual revenue


–	~~our and our tenants’ ability to continue or complete construction as planned for their operations, or delays in the supply of materials or labor necessary for construction~~

–

the continued service and availability of personnel, including our executive officers and other leaders that are part of our management team and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel are impacted in significant numbers or in other significant ways by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work

~~HHC~~ ~~2020 FORM 10-Q~~ | 65



~~OTHER INFORMATION~~	~~Table of Contents~~


–	~~our ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption~~


–	~~a complete or partial closure of, or other operational issues at, one or more of our MPCs or our corporate headquarters resulting from government action or otherwise~~


–	~~delays in, or our ability to complete, our “Transformation Plan” on the expected terms or timing~~


–	difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions that may affect our access to capital necessary to fund business operations or address maturing liabilities

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. Although many cities and states have lifted restrictions instituted in response to the COVID-19 pandemic, we cannot predict whether and to what extent the restrictions will be reinstated, whether additional cities and states will implement similar restrictions or when restrictions currently in place will expire. In addition to governmental restrictions, we cannot predict when our customers will again feel comfortable with frequenting retail and hospitality establishments or working from offices.

The effects of restrictions on our operations, including future restrictions and extended periods of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. The COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Moreover, many risk factors set forth in the Annual Report should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~


PURCHASES OF EQUITY SECURITIES BY THE ISSUER


Common Stock Repurchases

The following sets forth information with respect to repurchases made by the Company of its shares of common stock during the second quarter of 2021:


	Total number of shares purchased (a)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
Period
April 1 - 30, 2021	457	$	106.70	—	$	46,100,000
May 1 - 31, 2021	—	$	—	—	$	46,100,000
June 1 - 30, 2021	—	$	—	—	$	46,100,000
Total	457	$	106.70	—

(a)The shares repurchased related to stock received by the Company for the payment of withholding taxes due on employee share issuances under share-based compensation plans.

Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~On November 4, 2020, the Company entered into an Amendment No. 1 to Restricted Stock Agreements (“Restricted Stock Amendments~~”) with each of David O’Reilly and Peter F. Riley. The Restricted Stock Amendments amended certain time-based restricted stock awards previously granted to each of Mr. O’Reilly and Mr. Riley, by providing Mr. O’Reilly and Mr. Riley with eligibility to vest in full in such time-based restricted stock awards if their employment with the Company ends by reason of death or disability. The foregoing summary of the Restricted Stock Amendments does not purport to be complete and is qualified in its entirely by reference to the full text of the Restricted Stock Amendments, filed as Exhibits 10.3 and 10.4 herewith.

HHC ~~2020~~2021 FORM 10-Q | 6665

Item 6. Exhibits

The following Exhibit Index to this Quarterly Report lists the exhibits furnished as required by Item 601 of Regulation S-K and is incorporated by reference.


Exhibit Number		Description


~~Exhibit Number~~10.1**		~~Description~~
~~3.1~~	~~Second Amended and Restated Certificate of Incorporation of The Howard Hughes Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed May 24, 2016)~~

~~3.2~~	~~Amended and Restated Bylaws of The Howard Hughes Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed November 12, 2010)~~

~~3.3~~	~~Amendment No. 1 to the Amended and Restated Bylaws of The Howard Hughes Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed May 24, 2016)~~

~~3.4~~	Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on February 29, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 29, 2012)

~~4.1~~	~~Indenture, dated as of March 16, 2017~~Employment Agreement, effective April 19, 2021, by and between The Howard Hughes Corporation and ~~Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed March 21, 2017)~~

~~4.2~~	~~Form of Senior Indenture (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)~~

~~4.3~~	~~Form of Subordinated Indenture (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)~~

~~4.4~~	~~Form of Senior Note (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)~~

~~4.5~~	~~Form of Subordinated Note (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)~~

4.6*	~~Form of Deposit Agreement~~

4.7*	~~Form of Warrant Agreement~~

4.8*	~~Form of Purchase Contract Agreement~~

4.9*	~~Form of Unit Agreement~~

10.1**	~~The Howard Hughes Corporation 2020 Equity Incentive Plan~~Correne Loeffler (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed ~~May 20, 2020)~~on April 8, 2021)

10.2**+		~~First Amendment to Amended and Restated Employment Agreement dated June 24, 2020, between~~Form of Restricted Stock Award (Non-Employee Directors) under The Howard Hughes Corporation ~~and David O’Reilly (incorporated by reference to Exhibit 10.1 to the Company’s Current Report Form 8-K filed June 25, 2020)~~2020 Equity Incentive Plan

~~10.3**+~~31.1+		~~Amendment No. 1 to Restricted Stock Agreements dated November 4, 2020 between The Howard Hughes Corporation and David O’Reilly~~

~~10.4**+~~	~~Amendment No. 1 to Restricted Stock Agreements dated November 4, 2020 between The Howard Hughes Corporation and Peter F. Riley~~

~~31.1+~~	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2+		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1++		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH+		Inline XBRL Taxonomy Extension Schema Document

101.CAL+		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB+		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE+		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF+		Inline XBRL Taxonomy Extension Definition Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~HHC~~ ~~2020 FORM 10-Q~~ | 67

* To be filed by amendment to the Form S-3 filed on March 27, 2020, or by a Current Report on Form 8-K.

** Management contract, compensatory plan or arrangement

+ Filed herewith

++ Furnished herewith

Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, and ~~2019,~~2020, (iii) the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, (iv) Condensed Consolidated Statements of Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, (v) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and (vi) the Notes to Condensed Consolidated Financial Statements.

HHC ~~2020~~2021 FORM 10-Q | 6866

Table of Contents



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The Howard Hughes Corporation

By:

/s/ ~~David R. O’Reilly~~Correne Loeffler

~~David R. O’Reilly~~Correne Loeffler

~~Interim Chief Executive Officer, President and~~ Chief Financial Officer

~~November 5, 2020~~August 4, 2021

HHC ~~2020~~2021 FORM 10-Q | 6967



thousands	Restructuring costs
Balance at December 31, 2019	$	9,685
Charges (a)	2,058
Charges paid/settled	(11,015		)
Balance at September 30, 2020	$	728



thousands	MUD Receivables		SID Receivables		TIF Receivables		Net Investments in Lease Receivable		Notes Receivable		Total
Ending balance as of September 30, 2020	$	331,451	$	60,198	$	1,980	$	2,946	$	52,312	$	448,887



	September 30,		December 31,
thousands	2020		2019
Total Assets	$	274,835	$	221,277
Total Liabilities	187,375		136,314
Total Equity	87,460		84,963



	Statements of Operations Line Item	Three Months Ended September 30,				Nine Months Ended September 30,
thousands	Statements of Operations Line Item	2020		2019		2020		2019
Operating Assets:
Outlet Collection at Riverwalk	Provision for impairment	$	0	$	0	$	48,738	$	0
Equity Investments:
Mr. C Seaport	Equity in (losses) earnings from real estate and other affiliates	$	0	$	0	$	6,000	$	0
Other Assets:
Condominium Inventory	Condominium rights and unit cost of sales	$	944	$	0	$	6,022	$	0



					Fixed				Fair Value Asset (Liability)
			Notional		Interest		Effective	Maturity	September 30,			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	$	230,000	2.50	%	12/22/2016	12/23/2019	$	0		$	0
Interest rate cap	(c)	Prepaid expenses and other assets, net	75,000		5.00	%	8/31/2020	10/17/2022	1			0
Total fair value derivative assets									$	1		$	0

Derivative instruments designated as hedging instruments:
Interest rate collar	(d) (e)	Accounts payable and accrued expenses	193,967		2.00% - 3.00%		5/1/2019	5/1/2020	0			(182		)
Interest rate collar	(d) (f)	Prepaid expenses and other assets, net	354,217		2.25% - 3.25%		5/1/2020	5/1/2021	0			(2,074		)
Interest rate collar	(d) (f)	Prepaid expenses and other assets, net	381,404		2.75% - 3.50%		5/1/2021	4/30/2022	0			(4,578		)
Interest rate swap	(g)	Accounts payable and accrued expenses	615,000		2.96	%	9/21/2018	9/18/2023	(50,918		)	(31,187		)
Interest rate swap	(h)	Accounts payable and accrued expenses	1,810		4.89	%	11/1/2019	1/1/2032	(6,013		)	(2,114		)
Total fair value derivative liabilities									$	(56,931	)	$	(40,135	)
Total fair value derivatives, net									$	(56,930	)	$	(40,135	)



thousands	Amount of (Loss) Gain Reclassified from AOCI into Operations
Location of (Loss) Gain Reclassified from AOCI into Operations	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Interest expense	$	(4,121	)	$	(199	)	$	(8,441	)	$	21



	Total Interest Expense Presented in the Results of Operations
thousands	in which the Effects of Cash Flow Hedges are Recorded
Interest Expense Presented in Results of Operations	Three Months Ended September 30,				Nine Months Ended September 30,
Interest Expense Presented in Results of Operations	2020		2019		2020		2019
Interest expense	$	31,872	$	28,829	$	98,717	$	76,358



	Stock Options		Weighted-average Exercise Price
Stock Options outstanding at December 31, 2019	721,496		$	104.55
Granted	3,000		75.82
Exercised	(57,058	)	67.24
Forfeited	(245,100	)	122.31
Expired	(23,688	)	100.24
Stock Options outstanding at September 30, 2020	398,650		$	99.02



	Restricted Stock		Weighted-average Grant Date Fair Value
Restricted stock outstanding at December 31, 2019	406,802		$	76.27
Granted	97,775		74.93
Vested	(22,039	)	107.75
Forfeited	(54,366	)	96.90
Restricted stock outstanding at September 30, 2020	428,172		$	71.61



thousands
Balance as of June 30, 2020	$	(61,111	)
Other comprehensive income (loss) before reclassifications	1,802
(Gain) loss reclassified from accumulated other comprehensive loss to net income	4,121
Terminated swap amortization	(577		)
Derecognition of interest rate swap	12,934
Net current-period other comprehensive income	18,280
Balance as of September 30, 2020	$	(42,831	)

Balance as of June 30, 2019	$	(28,542	)
Other comprehensive income (loss) before reclassifications	(6,406		)
(Gain) loss reclassified from accumulated other comprehensive loss to net income	199
Terminated swap amortization	(764		)
Net current-period other comprehensive loss	(6,971		)
Balance as of September 30, 2019	$	(35,513	)



thousands	Amounts reclassified from Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss) Components	Three Months Ended September 30,						Nine Months Ended September 30,						Affected line items in the Statements of Operations
Accumulated Other Comprehensive Income (Loss) Components	2020			2019			2020			2019			Affected line items in the Statements of Operations
(Gains) losses on cash flow hedges	$	5,216		$	252		$	10,685		$	(26	)	Interest expense
Income taxes on (gains) losses on cash flow hedges	(1,095		)	(53		)	(2,244		)	5			Provision for income taxes
Total reclassifications of (income) loss, net of tax for the period	$	4,121		$	199		$	8,441		$	(21	)



thousands	Three Months Ended			Nine Months Ended
Lease cost	September 30, 2020			September 30, 2020
Operating lease cost		$	2,181		$	6,539
Variable lease costs		382			672
Net lease cost		$	2,563		$	7,211



	Operating
thousands	Leases
2020 (excluding the nine months ended September 30, 2020)	$	1,339
2021	7,184
2022	6,507
2023	6,464
2024	6,432
Thereafter	266,852
Total lease payments	294,778
Less: imputed interest	(225,532		)
Present value of lease liabilities	$	69,246



	Total
thousands	Minimum Rent
Remainder of 2020	$	56,261
2021	230,029
2022	243,260
2023	233,321
2024	228,531
Thereafter	1,459,096
Total	$	2,450,498



thousands	Operating Assets Segment (a)			MPC Segment			Seaport Segment			Strategic Developments Segment			Total
Three Months Ended September 30, 2020
Total revenues	$	81,667		$	52,158		$	4,204		$	16,365		$	154,394
Total operating expenses	(47,590		)	(23,059		)	(11,522		)	(9,922		)	(92,093		)
Segment operating income (loss)	34,077			29,099			(7,318		)	6,443			62,301
Depreciation and amortization	(41,395		)	(91		)	(7,174		)	(1,643		)	(50,303		)
Interest expense, net	(21,045		)	9,176			(2,811		)	1,921			(12,759		)
Other income (loss), net	(17		)	0			1,590			134			1,707
Equity in earnings (losses) from real estate and other affiliates	962			(1,563		)	(288		)	267,727			266,838
Gain (loss) on sale or disposal of real estate, net	108			0			0			0			108
Gain (loss) on extinguishment of debt	(1,521		)	0			(11,645		)	0			(13,166		)
Segment EBT	$	(28,831	)	$	36,621		$	(27,646	)	$	274,582		$	254,726
Corporate income, expenses and other items													(90,724		)
Net income (loss)													164,002
Net (income) loss attributable to noncontrolling interests													(24,292		)
Net income (loss) attributable to common stockholders													$	139,710

Three Months Ended September 30, 2019
Total revenues	$	104,223		$	92,287		$	23,130		$	11,515		$	231,155
Total operating expenses	(47,950		)	(43,697		)	(27,330		)	(11,327		)	(130,304		)
Segment operating income (loss)	56,273			48,590			(4,200		)	188			100,851
Depreciation and amortization	(28,844		)	(88		)	(6,767		)	(2,070		)	(37,769		)
Interest expense, net	(21,645		)	8,550			(4,984		)	3,002			(15,077		)
Other income (loss), net	63			534			0			354			951
Equity in earnings (losses) from real estate and other affiliates	441			4,523			(705		)	283			4,542
Gain (loss) on sale or disposal of real estate, net	0			0			0			24,201			24,201
Selling profit from sales-type leases	13,537												13,537
Segment EBT	$	19,825		$	62,109		$	(16,656	)	$	25,958		$	91,236
Corporate income, expenses and other items													(61,193		)
Net income (loss)													30,043
Net (income) loss attributable to noncontrolling interests													(285		)
Net income (loss) attributable to common stockholders													$	29,758



Index			Page
Forward-looking Information			4038
Executive Overview			4140
Results of Operations			48
Operating Assets			49
Master Planned Communities			51
Seaport ~~District~~			53
Strategic Developments			5557
Corporate Income, Expenses and Other Items			59
Liquidity and Capital Resources			60
Off-Balance Sheet Financing Arrangements			62
Critical Accounting Policies			62



Seaport District Segment EBT	Three Months Ended September 30,									Nine Months Ended September 30,
thousands	2020			2019			$ Change			2020			2019			$ Change
Total revenues	$	4,204		$	23,130		$	(18,926	)	$	16,170		$	43,051		$	(26,881	)
Total operating expenses	(11,522		)	(27,330		)	15,808			(34,297		)	(59,735		)	25,438
Segment operating income (loss)	(7,318		)	(4,200		)	(3,118		)	(18,127		)	(16,684		)	(1,443		)
Depreciation and amortization	(7,174		)	(6,767		)	(407		)	(34,825		)	(19,713		)	(15,112		)
Interest expense, net	(2,811		)	(4,984		)	2,173			(12,490		)	(8,440		)	(4,050		)
Other income (loss), net	1,590			—			1,590			(2,187		)	(147		)	(2,040		)
Equity in earnings (losses) from real estate and other affiliates	(288		)	(705		)	417			(8,964		)	(1,788		)	(7,176		)
Gain (loss) on sale or disposal of real estate	—			—			—			—			(6		)	6
Gain (loss) on extinguishment of debt	(11,645		)	—			(11,645		)	(11,645		)	—			(11,645		)
Segment EBT	$	(27,646	)	$	(16,656	)	$	(10,990	)	$	(88,238	)	$	(46,778	)	$	(41,460	)



Seaport District NOI	Three Months Ended September 30,									Nine Months Ended September 30,
thousands	2020			2019			$ Change			2020			2019			$ Change
Total Seaport District segment EBT	$	(27,646	)	$	(16,656	)	$	(10,990	)	$	(88,238	)	$	(46,778	)	$	(41,460	)
Depreciation and amortization	7,174			6,767			407			34,825			19,713			15,112
Interest expense, net	2,811			4,984			(2,173		)	12,490			8,440			4,050
Equity in (earnings) losses from real estate and other affiliates	288			705			(417		)	8,964			1,788			7,176
(Gain) loss on sale or disposal of real estate	—			—			—			—			6			(6		)
(Gain) loss on extinguishment of debt	11,645			—			11,645			11,645			—			11,645
Impact of straight-line rent	1,027			412			615			2,360			1,658			702
Other (income) loss, net (a)	(1,398		)	896			(2,294		)	4,525			5,405			(880		)
Seaport District NOI	$	(6,099	)	$	(2,892	)	$	(3,207	)	$	(13,429	)	$	(9,768	)	$	(3,661	)



Seaport District NOI by Category	Three Months Ended September 30,									Nine Months Ended September 30,
thousands	2020			2019			$ Change			2020			2019			$ Change
Historic District & Pier 17 - Landlord	$	(2,022	)	$	(2,150	)	$	128		$	(5,494	)	$	(5,156	)	$	(338	)
Multi-family	46			112			(66		)	260			303			(43		)
Hospitality	—			—			—			(12		)	41			(53		)
Historic District & Pier 17 - Managed Businesses	(1,657		)	(879		)	(778		)	(4,993		)	(4,420		)	(573		)
Events, Sponsorships & Catering Business	(2,466		)	25			(2,491		)	(3,190		)	(536		)	(2,654		)
Seaport District NOI	$	(6,099	)	$	(2,892	)	$	(3,207	)	$	(13,429	)	$	(9,768	)	$	(3,661	)



thousands	Total Estimated Costs (a)		Costs Paid Through September 30, 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 and Garage	$	138,221	$	105,929	$	32,292	$	—	$	31,384	$	908		(d)	Open
Juniper Apartments	116,386		94,516		21,870		—		21,709		161				Open
Merriweather District Area 3 Standalone Restaurant	5,680		2,857		2,823		—		—		2,823			(d)(e)	Open
The Woodlands
Creekside Park West	22,625		18,170		4,455		—		3,524		931			(d)	Open
8770 New Trails	45,985		38,376		7,609		—		5,924		1,685				Open
Two Lakes Edge	107,706		90,802		16,904		—		13,281		3,623				Open
Bridgeland
Lakeside Row	48,412		43,428		4,984		—		2,880		2,104				Open
Total Operating Assets	485,015		394,078		90,937		—		78,702		12,235

Seaport District
Pier 17 and Seaport District Historic Area / Uplands	659,018		600,980		58,038		—		—		58,038			(d)(f)(g)	Open
Tin Building	173,452		99,836		73,616		—		—		73,616			(g)	Q4 2021
Total Seaport District	832,470		700,816		131,654		—		—		131,654

Strategic Developments
The Woodlands
Creekside Park Apartments Phase II	57,472		19,412		38,060		—		37,861		199				Q2 2021
Residences at the Lane at Waterway	45,033		31,065		13,968		—		12,949		1,019			(h)	Q4 2020
Ward Village
‘A‘ali‘i	411,900		231,543		180,357		8,368		177,964		(5,975		)	(i)	Q4 2021
Anaha	401,314		398,838		2,476		—		—		2,476				Open
Ke Kilohana	218,898		213,983		4,915		—		—		4,915			(j)	Open
Kō'ula	487,039		91,510		395,529		77,524		293,109		24,896				2022
Waiea	566,256		426,615		139,641		—		—		139,641			(k)	Open
Total Strategic Developments	2,187,912		1,412,966		774,946		85,892		521,883		167,171			(l)
Combined Total	$	3,505,397	$	2,507,860	$	997,537	$	85,892	$	600,585	$	311,060



thousands	Operating Assets (a)			Master Planned Communities (b)			Seaport District (c)			Strategic Developments (d)			Segment Totals			Non- Segment Amounts			September 30, 2020
Mortgages, notes and loans payable, net	$	1,998,974		$	187,071		$	98,948		$	202,123		$	2,487,116		$	1,732,218		$	4,219,334
Mortgages, notes and loans payable of real estate and other affiliates	246,615			5,851			—			—			252,466			—			252,466
Less:
Cash and cash equivalents	(56,498		)	(94,264		)	(5,740		)	(6,669		)	(163,171		)	(694,219		)	(857,390		)
Cash and cash equivalents of real estate and other affiliates	(2,882		)	(84,656		)	(81		)	(1,184		)	(88,803		)	—			(88,803		)
Special Improvement District receivables	—			(60,198		)	—			—			(60,198		)	—			(60,198		)
Municipal Utility District receivables, net	—			(331,451		)	—			—			(331,451		)	—			(331,451		)
TIF receivable	—			—			—			(1,980		)	(1,980		)	—			(1,980		)
Net debt	$	2,186,209		$	(377,647	)	$	93,127		$	192,290		$	2,093,979		$	1,037,999		$	3,131,978



thousands	Remaining in 2020		2021		2022		2023		2024		2025		Thereafter		Total
Mortgages, notes and loans payable (a)	$	3,610	$	321,634	$	77,607	$	1,046,439	$	419,873	$	1,118,045	$	1,266,387	$	4,253,595
Interest payments (b)	48,160		177,921		174,616		161,631		127,050		74,769		241,149		1,005,296
Ground lease and other leasing commitments	1,339		7,184		6,507		6,464		6,432		5,047		261,805		294,778
Total	$	53,109	$	506,739	$	258,730	$	1,214,534	$	553,355	$	1,197,861	$	1,769,341	$	5,553,669