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 ~~March 31,~~June 30, 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, Texas 77380

(Address of principal executive offices, including zip code)

(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 ~~May 3,~~July 28, 2021 was ~~55,110,200.~~55,126,260.

Table of Contents


TABLE OF CONTENTS		Page
PART I
Item 1.	Financial Statements
	Condensed Consolidated Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2021 and December 31, 2020	2
	Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2021 and 2020	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020	4
	Condensed Consolidated Statements of Equity for the three and six months ended ~~March 31,~~June 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020	67
	Notes to Condensed Consolidated Financial Statements	89
	Note 1. Summary of Significant Accounting Policies	89
	Note 2. Real Estate and Other Affiliates	1112
	Note 3. Dispositions	1316
	Note 4. Impairment	1417
	Note 5. Other Assets and Liabilities	1518
	Note 6. Mortgages, Notes and Loans Payable, Net	1619
	Note 7. Fair Value	1821
	Note 8. Derivative Instruments and Hedging Activities	1923
	Note 9. Commitments and Contingencies	2125
	Note 10. Income Taxes	2226
	Note 11. Warrants	2226
	Note 12. Accumulated Other Comprehensive Loss	2327
	Note 13. Earnings Per Share	2328
	Note 14. Revenues	2429
	Note 15. Leases	2630
	Note 16. Segments	2833
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3037
	Forward-Looking Information	3138
	Executive Overview	3240
	Results of Operations	3948
	Liquidity and Capital Resources	4960
	Off-Balance Sheet Financing Arrangements	5162
	Critical Accounting Policies	5162
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5163
Item 4.	Controls and Procedures	5264
PART II
Item 1.	Legal Proceedings	5365
Item 1A.	Risk Factors	5365
Item 2.	Unregistered Sales of Equity Securities And Use Of Proceeds	5365
Item 3.	Default Upon Senior Securities	5365
Item 4.	Mine Safety Disclosures	5365
Item 5.	Other Information	5365
Item 6.	Exhibits	5466

HHC 2021 FORM 10-Q | 2


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	thousands except par values and share amounts	March 31, 2021		December 31, 2020		thousands except par values and share amounts	June 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Investment in real estate:	Investment in real estate:					Investment in real estate:
Master Planned Communities assets	Master Planned Communities assets	$	1,714,092	$	1,687,519	Master Planned Communities assets	$	1,743,502	$	1,687,519
Buildings and equipment	Buildings and equipment	4,137,760		4,115,493		Buildings and equipment	4,170,506		4,115,493
Less: accumulated depreciation	Less: accumulated depreciation	(677,202)		(634,064)		Less: accumulated depreciation	(721,275)		(634,064)
Land	Land	363,447		363,447		Land	365,725		363,447
Developments	Developments	1,263,571		1,152,674		Developments	1,352,999		1,152,674
Net property and equipment	Net property and equipment	6,801,668		6,685,069		Net property and equipment	6,911,457		6,685,069
Investment in real estate and other affiliates	Investment in real estate and other affiliates	389,586		377,145		Investment in real estate and other affiliates	298,161		377,145
Net investment in real estate	Net investment in real estate	7,191,254		7,062,214		Net investment in real estate	7,209,618		7,062,214
Net investment in lease receivable	Net investment in lease receivable	2,919		2,926		Net investment in lease receivable	2,917		2,926
Cash and cash equivalents	Cash and cash equivalents	975,784		1,014,686		Cash and cash equivalents	1,063,261		1,014,686
Restricted cash	Restricted cash	198,544		228,311		Restricted cash	219,483		228,311
Accounts receivable, net	Accounts receivable, net	70,990		66,726		Accounts receivable, net	81,503		66,726
Municipal Utility District receivables, net	Municipal Utility District receivables, net	332,040		314,394		Municipal Utility District receivables, net	354,932		314,394
Notes receivable, net	Notes receivable, net	1,300		622		Notes receivable, net	3,235		622
Deferred expenses, net	Deferred expenses, net	110,362		112,097		Deferred expenses, net	111,491		112,097
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	55,412		56,255		Operating lease right-of-use assets, net	54,566		56,255
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	215,557		282,101		Prepaid expenses and other assets, net	208,063		282,101
Total assets	Total assets	$	9,154,162	$	9,140,332	Total assets	$	9,309,069	$	9,140,332

LIABILITIES	LIABILITIES					LIABILITIES
Mortgages, notes and loans payable, net	Mortgages, notes and loans payable, net	$	4,395,187	$	4,287,369	Mortgages, notes and loans payable, net	$	4,449,333	$	4,287,369

Operating lease obligations	Operating lease obligations	68,460		68,929		Operating lease obligations	68,102		68,929
Deferred tax liabilities	Deferred tax liabilities	168,157		187,639		Deferred tax liabilities	167,105		187,639

Accounts payable and accrued expenses	Accounts payable and accrued expenses	833,373		852,258		Accounts payable and accrued expenses	925,845		852,258
Total liabilities	Total liabilities	5,465,177		5,396,195		Total liabilities	5,610,385		5,396,195

Commitments and Contingencies (see Note 9)	Commitments and Contingencies (see Note 9)	0		0		Commitments and Contingencies (see Note 9)	0		0
Redeemable noncontrolling interest	Redeemable noncontrolling interest	27,718		29,114		Redeemable noncontrolling interest	26,781		29,114

EQUITY	EQUITY					EQUITY
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		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, 56,178,233 issued and 55,107,675 outstanding as of March 31, 2021, 56,042,814 shares issued and 54,972,256 outstanding as of December 31, 2020		563		562
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	Additional paid-in capital	3,952,537		3,947,278		Additional paid-in capital	3,955,162		3,947,278
Accumulated deficit	Accumulated deficit	(139,150)		(72,556)		Accumulated deficit	(134,309)		(72,556)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(31,017)		(38,590)		Accumulated other comprehensive loss	(27,754)		(38,590)
Treasury stock, at cost, 1,070,558 shares as of March 31, 2021, and 1,070,558 shares as of December 31, 2020		(122,091)		(122,091)
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	Total stockholders' equity	3,660,842		3,714,603		Total stockholders' equity	3,671,571		3,714,603
Noncontrolling interests	Noncontrolling interests	425		420		Noncontrolling interests	332		420
Total equity	Total equity	3,661,267		3,715,023		Total equity	3,671,903		3,715,023
Total liabilities and equity	Total liabilities and equity	$	9,154,162	$	9,140,332	Total liabilities and equity	$	9,309,069	$	9,140,332

See Notes to Condensed Consolidated Financial Statements.

HHC 2021 FORM 10-Q | 2


FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
thousands except per share amounts	thousands except per share amounts		2021			2020		thousands except per share amounts	2021		2020		2021		2020
REVENUES	REVENUES							REVENUES
Condominium rights and unit sales	Condominium rights and unit sales		$	37,167		$	43	Condominium rights and unit sales	$	12,861	$	0	$	50,028	$	43
Master Planned Communities land sales	Master Planned Communities land sales		37,477			39,732		Master Planned Communities land sales	58,342		57,073		95,819		96,805
Rental revenue	Rental revenue		85,899			92,744		Rental revenue	88,476		78,706		174,375		171,450
Other land, rental and property revenues	Other land, rental and property revenues		23,243			34,897		Other land, rental and property revenues	41,389		11,447		64,632		46,344
Builder price participation	Builder price participation		6,794			7,759		Builder price participation	11,389		8,947		18,183		16,706
Total revenues	Total revenues		190,580			175,175		Total revenues	212,457		156,173		403,037		331,348

EXPENSES	EXPENSES							EXPENSES
Condominium rights and unit cost of sales	Condominium rights and unit cost of sales		54,968			97,901		Condominium rights and unit cost of sales	13,435		6,348		68,403		104,249��
Master Planned Communities cost of sales	Master Planned Communities cost of sales		15,651			16,786		Master Planned Communities cost of sales	24,858		25,875		40,509		42,661
Operating costs	Operating costs		58,598			64,606		Operating costs	71,243		45,885		129,841		110,491
Rental property real estate taxes	Rental property real estate taxes		13,991			13,578		Rental property real estate taxes	13,716		15,199		27,707		28,777
Provision for (recovery of) doubtful accounts	Provision for (recovery of) doubtful accounts		(578)			1,701		Provision for (recovery of) doubtful accounts	(1,520)		1,866		(2,098)		3,567

Demolition costs								Demolition costs	149		0		149		0
Development-related marketing costs	Development-related marketing costs		1,644			2,816		Development-related marketing costs	2,397		1,813		4,041		4,629
General and administrative	General and administrative		21,766			39,081		General and administrative	20,334		22,233		42,100		61,314
Depreciation and amortization	Depreciation and amortization		49,308			61,637		Depreciation and amortization	49,788		46,963		99,096		108,600
Total expenses	Total expenses		215,348			298,106		Total expenses	194,400		166,182		409,748		464,288

OTHER	OTHER							OTHER
Provision for impairment	Provision for impairment		0			(48,738)		Provision for impairment	(13,068)		0		(13,068)		(48,738)
Gain (loss) on sale or disposal of real estate and other assets, net	Gain (loss) on sale or disposal of real estate and other assets, net		0			38,124		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	Other income (loss), net		(10,308)			(3,684)		Other income (loss), net	(663)		1,607		(10,971)		(2,077)
Total other	Total other		(10,308)			(14,298)		Total other	7,602		9,607		(2,706)		(4,691)

Operating income (loss)	Operating income (loss)		(35,076)			(137,229)		Operating income (loss)	25,659		(402)		(9,417)		(137,631)

Interest income	Interest income		41			1,146		Interest income	31		404		72		1,550
Interest expense	Interest expense		(34,210)			(34,448)		Interest expense	(31,439)		(32,397)		(65,649)		(66,845)
Gain (loss) on extinguishment of debt	Gain (loss) on extinguishment of debt		(35,915)			0		Gain (loss) on extinguishment of debt	(51)		0		(35,966)		0

Equity in earnings (losses) from real estate and other affiliates	Equity in earnings (losses) from real estate and other affiliates		15,796			11,349		Equity in earnings (losses) from real estate and other affiliates	7,867		(8,552)		23,663		2,797
Income (loss) before taxes	Income (loss) before taxes		(89,364)			(159,182)		Income (loss) before taxes	2,067		(40,947)		(87,297)		(200,129)
Provision (benefit) for income taxes			(21,205)			(34,100)
Income tax expense (benefit)								Income tax expense (benefit)	(1,550)		(6,844)		(22,755)		(40,944)
Net income (loss)	Net income (loss)		(68,159)			(125,082)		Net income (loss)	3,617		(34,103)		(64,542)		(159,185)
Net (income) loss attributable to noncontrolling interests	Net (income) loss attributable to noncontrolling interests		1,565			(52)		Net (income) loss attributable to noncontrolling interests	1,224		19		2,789		(33)
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders		$	(66,594)		$	(125,134)	Net income (loss) attributable to common stockholders	$	4,841	$	(34,084)	$	(61,753)	$	(159,218)

Basic income (loss) per share	Basic income (loss) per share		$	(1.20)		$	(2.88)	Basic income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)
Diluted income (loss) per share	Diluted income (loss) per share		$	(1.20)		$	(2.88)	Diluted income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)

See Notes to Condensed Consolidated Financial Statements.

HHC 2021 FORM 10-Q | 3


FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
thousands	thousands		2021			2020		thousands	2021		2020		2021		2020
Net income (loss)	Net income (loss)		$	(68,159)		$	(125,082)	Net income (loss)	$	3,617	$	(34,103)	$	(64,542)	$	(159,185)
Other comprehensive income (loss):	Other comprehensive income (loss):							Other comprehensive income (loss):
Interest rate swaps (a)	Interest rate swaps (a)		6,356			(30,901)		Interest rate swaps (a)	1,905		(838)		8,261		(31,739)

Share of investee’s other comprehensive income (b)	Share of investee’s other comprehensive income (b)		1,217			0		Share of investee’s other comprehensive income (b)	1,358		0		2,575		0

Other comprehensive income (loss)	Other comprehensive income (loss)		7,573			(30,901)		Other comprehensive income (loss)	3,263		(838)		10,836		(31,739)
Comprehensive income (loss)	Comprehensive income (loss)		(60,586)			(155,983)		Comprehensive income (loss)	6,880		(34,941)		(53,706)		(190,924)
Comprehensive income (loss) attributable to noncontrolling interests	Comprehensive income (loss) attributable to noncontrolling interests		1,565			(52)		Comprehensive income (loss) attributable to noncontrolling interests	1,224		19		2,789		(33)
Comprehensive income (loss) attributable to common stockholders	Comprehensive income (loss) attributable to common stockholders		$	(59,021)		$	(156,035)	Comprehensive income (loss) attributable to common stockholders	$	8,104	$	(34,922)	$	(50,917)	$	(190,957)

(a)Amounts are shown net of deferred tax expense of ~~$1.8~~$0.5 million for the three months ended ~~March 31,~~June 30, 2021, ~~and a~~ deferred tax benefit of ~~$7.1~~$0.3 million for the three months ended ~~March 31,~~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.

(b)The amount for 2021 is shown net of deferred tax expense of ~~$0.3 million.~~$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 2021 FORM 10-Q | 4


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 $1,570 attributable to redeemable noncontrolling interest — — — (66,594) — — — (66,594) 5 (66,589)
Interest rate swaps, net of tax of $1,790 — — — — 6,356 — — 6,356 — 6,356
Share of investee's other comprehensive income, net of tax of $346 — — — — 1,217 — — 1,217 — 1,217
Issuance of common shares — — (5) — — — — (5) — (5)
Stock plan activity 135,419 1 5,264 — — — — 5,265 — 5,265
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
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) — — — (125,134) — — — (125,134) 52 (125,082)
Interest rate swaps, net of tax benefit of $7,094 — — — — (30,901) — — (30,901) — (30,901)
Adoption of ASU 2016-13 — — — (18) — — — (18) — (18)
Issuance of common shares 12,270,900 123 593,575 — — — — 593,698 — 593,698
Stock plan activity 82,470 1 1,912 — — — — 1,913 — 1,913
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
(a) The three months ended March 31, 2021 excludes redeemable noncontrolling interest, which is reflected in temporary equity. See Note 2 - Real Estate and Other Affiliates.


								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.

HHC 2021 FORM 10-Q | 5


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

(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 2021 FORM 10-Q | 56


FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
thousands	thousands	2021		2020		thousands	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	Net income (loss)	$	(68,159)	$	(125,082)	Net income (loss)	$	(64,542)	$	(159,185)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:					Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation	Depreciation	44,844		57,349		Depreciation	89,516		99,682
Amortization	Amortization	4,097		4,075		Amortization	8,356		8,517
Amortization of deferred financing costs	Amortization of deferred financing costs	2,453		4,114		Amortization of deferred financing costs	5,086		8,312
Amortization of intangibles other than in-place leases	Amortization of intangibles other than in-place leases	386		170		Amortization of intangibles other than in-place leases	1,205		340
Straight-line rent amortization	Straight-line rent amortization	(3,981)		(2,870)		Straight-line rent amortization	(6,770)		(6,183)
Deferred income taxes	Deferred income taxes	(21,619)		(34,625)		Deferred income taxes	(23,581)		(41,701)
Restricted stock and stock option amortization	Restricted stock and stock option amortization	2,533		1,152		Restricted stock and stock option amortization	4,781		3,346

Net gain on sale of properties						Net gain on sale of properties	(21,338)		(8,000)

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

(Gain) loss on extinguishment of debt	(Gain) loss on extinguishment of debt	35,915		0		(Gain) loss on extinguishment of debt	35,966		0
Impairment charges	Impairment charges	717		48,738		Impairment charges	13,799		59,817

Equity in (earnings) losses from real estate and other affiliates, net of distributions	Equity in (earnings) losses from real estate and other affiliates, net of distributions	(10,633)		(5,817)		Equity in (earnings) losses from real estate and other affiliates, net of distributions	925		(2,057)
Provision for doubtful accounts	Provision for doubtful accounts	432		(3,115)		Provision for doubtful accounts	(628)		5,443

Master Planned Community development expenditures	Master Planned Community development expenditures	(52,980)		(64,895)		Master Planned Community development expenditures	(126,302)		(116,372)
Master Planned Community cost of sales	Master Planned Community cost of sales	15,652		16,783		Master Planned Community cost of sales	39,499		41,883
Condominium development expenditures	Condominium development expenditures	(81,206)		(60,688)		Condominium development expenditures	(150,509)		(114,660)
Condominium rights and units cost of sales	Condominium rights and units cost of sales	53,017		97,901		Condominium rights and units cost of sales	65,951		99,171
Net Changes:	Net Changes:					Net Changes:
Accounts and notes receivable	Accounts and notes receivable	(3,578)		9,596		Accounts and notes receivable	(12,063)		(14,895)
Prepaid expenses and other assets	Prepaid expenses and other assets	30,739		(31,565)		Prepaid expenses and other assets	22,176		(38,214)

Condominium deposits received	Condominium deposits received	15,528		46,186		Condominium deposits received	33,627		94,644
Deferred expenses	Deferred expenses	(1,134)		(9,176)		Deferred expenses	(5,316)		(19,530)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(47,765)		(47,443)		Accounts payable and accrued expenses	10,227		(25,032)

Cash provided by (used in) operating activities	Cash provided by (used in) operating activities	(84,742)		(73,181)		Cash provided by (used in) operating activities	(79,935)		(98,643)

CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment expenditures	Property and equipment expenditures	(400)		(270)		Property and equipment expenditures	(931)		(598)
Operating property improvements	Operating property improvements	(11,829)		(10,419)		Operating property improvements	(20,664)		(17,297)
Property development and redevelopment	Property development and redevelopment	(45,188)		(144,422)		Property development and redevelopment	(121,839)		(250,370)

Proceeds from sales of properties						Proceeds from sales of properties	49,907		0
Reimbursements under tax increment financings	Reimbursements under tax increment financings	0		1,625		Reimbursements under tax increment financings	403		2,671

Distributions from real estate and other affiliates	Distributions from real estate and other affiliates	985		1,232		Distributions from real estate and other affiliates	83,014		1,232
Investments in real estate and other affiliates, net	Investments in real estate and other affiliates, net	(553)		(952)		Investments in real estate and other affiliates, net	(767)		(3,127)

Cash provided by (used in) investing activities	Cash provided by (used in) investing activities	(56,985)		(153,206)		Cash provided by (used in) investing activities	(10,877)		(267,489)

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages, notes and loans payable	Proceeds from mortgages, notes and loans payable	1,402,869		256,770		Proceeds from mortgages, notes and loans payable	1,503,083		392,714
Principal payments on mortgages, notes and loans payable	Principal payments on mortgages, notes and loans payable	(1,283,512)		(5,115)		Principal payments on mortgages, notes and loans payable	(1,328,054)		(51,008)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	0		593,698		Proceeds from issuance of common stock	0		593,614

Debt extinguishment costs	Debt extinguishment costs	(29,655)		0		Debt extinguishment costs	(29,669)		0
Special Improvement District bond funds released from (held in) escrow	Special Improvement District bond funds released from (held in) escrow	2,264		1,126		Special Improvement District bond funds released from (held in) escrow	4,384		2,352
Deferred financing costs and bond issuance costs, net	Deferred financing costs and bond issuance costs, net	(20,253)		(2,276)		Deferred financing costs and bond issuance costs, net	(20,904)		(4,088)
Taxes paid on stock options exercised and restricted stock vested	Taxes paid on stock options exercised and restricted stock vested	(2,134)		(662)		Taxes paid on stock options exercised and restricted stock vested	(2,183)		(668)

Stock options exercised	Stock options exercised	3,479		1,424		Stock options exercised	3,902		1,365

Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	73,058		844,965		Cash provided by (used in) financing activities	130,559		934,281

Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(68,669)		618,578		Net change in cash, cash equivalents and restricted cash	39,747		568,149
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	1,242,997		620,135		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	Cash, cash equivalents and restricted cash at end of period	$	1,174,328	$	1,238,713	Cash, cash equivalents and restricted cash at end of period	$	1,282,744	$	1,188,284

HHC 2021 FORM 10-Q | 67


FINANCIAL STATEMENTS			Table of Contents

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
thousands	thousands	2021		2020		thousands	2021		2020

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	Interest paid	$	64,563	$	62,679	Interest paid	$	88,041	$	97,015
Interest capitalized	Interest capitalized	17,138		19,041		Interest capitalized	34,801		35,949

Income taxes paid (refunded), net						Income taxes paid (refunded), net	1,789		(2,408)

NON-CASH TRANSACTIONS	NON-CASH TRANSACTIONS					NON-CASH TRANSACTIONS

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	8,467		(28,221)		Accrued property improvements, developments and redevelopments	4,760		(35,250)
Special Improvement District bond transfers associated with land sales	Special Improvement District bond transfers associated with land sales	0		3		Special Improvement District bond transfers associated with land sales	1,010		779
Accrued interest on construction loan borrowing	Accrued interest on construction loan borrowing	0		4,773		Accrued interest on construction loan borrowing	0		9,586

Capitalized stock compensation	Capitalized stock compensation	517		0		Capitalized stock compensation	974		907

See Notes to Condensed Consolidated Financial Statements.

HHC 2021 FORM 10-Q | 78


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


1. Summary of 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), 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), 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) should refer to The Howard Hughes Corporation (HHC or the 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, 2020, filed with the SEC on February 25, 2021 (the 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 six months ended ~~March 31,~~June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, and future fiscal years.

Certain amounts in the 2020 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. Certain amounts in the 2020 ~~condensed consolidated balance sheets~~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 assets, net to 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 The 2020 outbreak of ~~COVID-19 in 2020~~the novel strain of the coronavirus (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, ~~and greater~~all of which resulted in significant uncertainty in global financial markets ~~all of which resulted in COVID-19 having an~~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 resume ~~operations.~~operations on a limited basis. While ~~the impact of~~ COVID-19 ~~affected~~has adversely impacted all business segments ~~throughout~~during 2020 and the first half of 2021, the Company’s performance has notably improved during the second half of 2020 and through the first half of 2021.

The extent to which COVID-19 continues to impact the Company ~~in 2021,~~will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ~~Company saw notable performance improvement during~~actions taken to contain the ~~second half~~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 ~~2020 that has continued throughout the first quarter of 2021.~~pandemic and containment measures.

Restricted Cash Restricted cash reflects amounts segregated in escrow accounts in the name of the Company, primarily related to escrowed condominium deposits by buyers and other amounts related to taxes, insurance and legally restricted security deposits and leasing costs.

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 tenant receivables, the Company determined full collection of outstanding tenant rents and recoveries was not probable for a number of retail tenants. In addition, the Company determined that a reserve for estimated losses under ASC 450 - Contingencies is required as the amount is probable and can be reasonably estimated.

HHC 2021 FORM 10-Q | 89


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	thousands	March 31, 2021		December 31, 2020		thousands	June 30, 2021		December 31, 2020
Tenant Receivables		$	3,802	$	4,339
Tenant receivables						Tenant receivables	$	8,531	$	4,339
Straight-line rent receivables	Straight-line rent receivables	64,605		59,288		Straight-line rent receivables	68,231		59,288
Other receivables	Other receivables	2,583		3,099		Other receivables	4,741		3,099
Accounts receivable, net (a)	Accounts receivable, net (a)	$	70,990	$	66,726	Accounts receivable, net (a)	$	81,503	$	66,726

(a)As of ~~March 31,~~June 30, 2021, the total reserve balance for amounts considered uncollectible was ~~$32.3~~$30.6 million, comprised of ~~$27.1~~$27.2 million related to ASC 842 and ~~$5.2~~$3.4 million related to ASC 450. As of December 31, 2020, the total reserve balance was $33.0 million, comprised of $27.3 million related to ASC 842 and $5.7 million related to ASC 450.

~~For~~The following table summarizes the ~~three months ended March 31, 2021,~~impacts of the ~~Company recognized total expense of $0.4 million in the Consolidated Statement of Operations, comprised of a $1.0 million charge against Rental revenue related to~~ ASC 842 and ~~a $0.6 million reversal to the Provision for (recovery of) doubtful accounts related to~~ ASC ~~450. For the three months ended March 31, 2020, the Company recognized a total impact of $3.1 million~~450 reserves in the accompanying Condensed Consolidated ~~Statement~~Statements of ~~Operations, comprised of a $1.4 million charge against Rental revenue related to ASC 842 and a $1.7 million charge to the Provision for (recovery of) doubtful accounts related to ASC 450.~~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

Temporary Business Closures InDuring the first ~~quarter~~half of 2020, the Company experienced closures of its Seaport retail and food and beverage assets as well as ~~the~~its 3 hotels in The Woodlands.

The Company reopened The Woodlands Resort ~~& Conference Center~~ in May 2020, the Embassy Suites at Hughes Landing in June 2020 and The Westin at The Woodlands in July 2020. ~~Despite these reopenings,~~As a result, occupancy levels rose throughout the ~~Company continues to see~~second half of 2020 but remained lower ~~occupancy, compared to~~than levels achieved prior to the pandemic. ~~However, with an increase in business and~~With the gradual return of leisure travel ~~during~~in the 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, ~~the performance of the Company’s hospitality assets has improved. Occupancy~~occupancy levels increased from 55% to 68% at the Embassy Suites, ~~at Hughes Landing increased~~28% to ~~63% for the three months ended March 31, 2021, compared to 55% for the three months ended December 31, 2020. Similarly, occupancy~~49% at The Westin at The Woodlands ~~increased~~and 27% to ~~38% for the three months ended March 31, 2021, compared to 28% for the three months ended December 31, 2020.~~31% at The Woodlands Resort and Conference Center continues to only operate at 55% capacity and occupancy decreased to 22% for the three months ended March 31, 2021, compared to 27% for the three months ended December 31, 2020. This reduced operating capacity and decrease in occupancy is partially due to damage from Winter Storm Uri during the first quarter of 2021.Resort.

Many of the Seaport retail and food and beverage assets resumed operations in the third quarter of 2020, on a limited basis. Most remaining restrictions were 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 and in its place a new concept at the Pier 17 rooftop was launched called The Greens, which continued through the end of first quarter of 2021. The Greens concept returned in May 2021 to complement the summer concert series, which began on July 30, 2021 and is expected to ~~return in May~~run through October 2021. The Greens concept and 2021 ~~to compliment the summer~~ concert ~~series. This concept continues~~series continue to generate high customer demand for the outdoor ~~venue and will help to fulfill obligations under HHC’s sponsorship agreements.~~venue.

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, 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 Interests As of ~~March 31,~~June 30, 2021 and December 31, 2020, ~~Noncontrolling~~noncontrolling interests are related to the Ward Village Homeowners’ Associations (HOAs). All revenues and expenses related to the HOAs are attributable to noncontrolling interests and do not impact net income attributable to common stockholders.

HHC 2021 FORM 10-Q | 910


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

Financial Instruments - Credit Losses 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, 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 amortized cost basis of financing receivables, consisting primarily of MUD receivables, totaled ~~$389.3~~$411.9 million as of ~~March 31,~~June 30, 2021, including accrued interest of ~~$18.7~~$18.6 million. There has been no material activity in the allowance for credit losses for financing receivables for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

Financing receivables are considered to be past due once they are 30 days contractually past due under the terms of the agreement. The Company 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 current period for financing receivables.

Executive Transition In December 2020, the Company announced the appointment of David R. O’Reilly as the Company’s Chief Executive Officer and the appointment of L. Jay Cross as the Company’s President. On April 8, 2021, the Company announced that Correne Loeffler ~~has~~had been appointed to serve as the Company's Chief Financial Officer (CFO), effective April 19, 2021. Ms. Loeffler ~~succeeds~~succeeded David O'Reilly as the Company's CFO, a position that he ~~has~~had held since joining HHC in 2016 and ~~has~~had continued to hold on an interim 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 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 decade at JPMorgan Securities before leaving as an Executive Director in the Corporate Client Banking group.

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 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 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 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 2021 FORM 10-Q | 1011


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


2. Real Estate and Other Affiliates

As of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021, approximately ~~$584.0~~$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 ~~$286.9~~$291.3 million based 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							Economic/Legal Ownership					Carrying Value				Share of Earnings/Dividends
		March 31,		December 31,		March 31,		December 31,		Three Months Ended March 31,			June 30,			December 31,				June 30,		December 31,			Three Months Ended June 30,				Six Months Ended June 30,
thousands except percentages	thousands except percentages	2021		2020		2021		2020			2021			2020			thousands except percentages	2021		2020			2021		2020		2021		2020		2021		2020
Equity Method Investments	Equity Method Investments																Equity Method Investments
Operating Assets:	Operating Assets:																Operating Assets:
110 North Wacker (a)	110 North Wacker (a)	see below		see below		$	247,175	$	261,143		$	(15,705)		$	0		110 North Wacker (a)	see below		see below			$	237,804	$	261,143	$	(11,307)	0		$	(27,012)	$	0
The Metropolitan Downtown Columbia (b)	The Metropolitan Downtown Columbia (b)	50	%	50	%	0		0			(54)			227			The Metropolitan Downtown Columbia (b)	50	%	50	%		0		0		165		195		111		422
Stewart Title of Montgomery County, TX	Stewart Title of Montgomery County, TX	50	%	50	%	4,176		3,924			251			343			Stewart Title of Montgomery County, TX	50	%	50	%		4,034		3,924		383		160		634		503
Woodlands Sarofim #1	Woodlands Sarofim #1	20	%	20	%	3,151		3,120			31			35			Woodlands Sarofim #1	20	%	20	%		3,173		3,120		22		29		53		64
m.flats/TEN.M	m.flats/TEN.M	50	%	50	%	766		1,247			318			65			m.flats/TEN.M	50	%	50	%		834		1,247		318		91		636		156
Master Planned Communities:	Master Planned Communities:																Master Planned Communities:
The Summit (c)	The Summit (c)	see below		see below		122,805		96,300			27,650			8,934			The Summit (c)	see below		see below			40,920		96,300		18,641		(2,968)		46,291		5,966
Seaport	Seaport																Seaport
Mr. C Seaport (d)	Mr. C Seaport (d)	0	%	0	%	0		0			0			(651)			Mr. C Seaport (d)	0	%	0	%		0		0		0		(6,249)		0		(6,900)
Ssäm Bar (Momofuku) (c)(e)		see below		see below		7,302		7,101			(352)			(1,392)
Ssäm Bar (Momofuku) (e)																	Ssäm Bar (Momofuku) (e)	see below		see below			7,204		7,101		(336)		(384)		(688)		(1,776)
Strategic Developments:	Strategic Developments:																Strategic Developments:
Circle T Ranch and Power Center (f)	Circle T Ranch and Power Center (f)	0	%	0	%	0		0			0			86			Circle T Ranch and Power Center (f)	0	%	0	%		0		0		0		589		0		675
HHMK Development	HHMK Development	50	%	50	%	10		10			0			0			HHMK Development	50	%	50	%		10		10		0		0		0		0
KR Holdings	KR Holdings	50	%	50	%	248		347			(98)			(22)			KR Holdings	50	%	50	%		230		347		(19)		(15)		(117)		(37)

						385,633		373,192			12,041			7,625									294,209		373,192		7,867		(8,552)		19,908		(927)
Other equity investments (g)	Other equity investments (g)					3,953		3,953			3,755			3,724			Other equity investments (g)						3,952		3,953		0		0		3,755		3,724
Investments in real estate and other affiliates	Investments in real estate and other affiliates					$	389,586	$	377,145		$	15,796		$	11,349		Investments in real estate and other affiliates						$	298,161	$	377,145	$	7,867	$	(8,552)	$	23,663	$	2,797

(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.

(b)The Metropolitan Downtown Columbia was in a deficit position of $5.5 million at ~~March 31,~~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 ~~March 31,~~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 ~~the~~ discussion below for details on the ownership structure.

(d)During the ~~three months ended September 30,~~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.~~details on the ownership structure.

(f)During the ~~three months ended December 31,~~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 ~~2020,~~ or cumulatively.

Significant activity for real estate and other affiliates and the related accounting considerations are described below.

110 North Wacker The Company formed a partnership with a local developer (the Partnership) during the second quarter of 2017. During the second quarter of 2018, the Partnership executed an agreement with USAA related to 110 North Wacker (collectively, the local developer and USAA are the Partners) to construct and operate the building at 110 North Wacker (the Venture).

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The Partnership was determined to be a 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 ~~March 31,~~June 30, 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, 2020		$	29,114

Net income (loss) attributable to noncontrolling interest		~~(1,570)~~(2,701)
Share of investee’s other comprehensive income		~~174~~368
Balance as of ~~March��31,~~June 30, 2021		$	~~27,718~~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 6 - 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 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 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 months ended September 30, 2020. As 110 North Wacker 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. 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 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

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~~the reporting date. After USAA receives a 9.0% preferred return on its capital contribution, the Partnership is entitled to~~ cash distributions from the venture until it receives a 9.0% return on its capital account, calculated as the initial land contribution of $85.0 million and cash contribution of $5.0 million, plus subsequent cash contributions and less subsequent cash distributions. Subsequently, USAA is entitled to cash distributions equal to 11.11% of the amount distributed to the Partnership that resulted in a 9.0% return. Thereafter, the Partnership and USAA are entitled to distributions pari passu to their profit ownership interests of 90% and 10%, respectively.

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

As of ~~March 31,~~June 30, 2021, and December 31, 2020, Ssäm Bar 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 as of ~~March 31,~~June 30, 2021, is ~~$7.3~~$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 Ssäm Bar’s capital structure and the provisions for the liquidation of assets, the Company’s share of 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) with Discovery Land Company (Discovery). The Company contributed land with a carrying value of $13.4 million and transferred SID bonds related to such land with a carrying value of $1.3 million to The Summit at the agreed upon capital contribution value of $125.4 million, or $226,000 per ~~acre.~~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.~~

~~Relevant financial statement information for The Summit is summarized as follows:~~

thousands March 31, 2021 December 31, 2020
Total Assets $ 334,970 $ 310,855
Total Liabilities 203,138 209,968
Total Equity 131,832 100,887

Three Months Ended March 31,
thousands 2021 2020
Revenues (a) $ 90,873 $ 39,836
Net income 32,089 10,559
Gross Margin 33,049 11,704

~~(a)The increase in Revenues for the Summit is due~~according to ~~an increase in units closed,~~equity ownership, with ~~19 units closing during the three months ended March 31, 2021 compared to 6 units closing during the three months ended March 31, 2020.~~

HHC receiving 50% and Discovery receiving 50%.

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Summarized Financial Information Relevant financial statement information for 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

(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.

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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 2 - Real Estate and Other Affiliates and Note 4 - 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 in October 2019. As consideration, the Company received an $8.0 million termination payment in July 2020, which was included in Gain (loss) on sale or disposal of real estate and other assets, net on the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020.

In March 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 ~~three~~six months ended ~~March 31,~~June 30, 2020.

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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. ~~NaN~~

During the second quarter of 2021, the Company recorded a $13.1 million impairment ~~charges were recorded during~~charge for Century Park, which is included in Provision for impairment on the ~~three~~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 ~~ended March 31, 2021.~~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 ~~was~~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.

Each investment in real estate and other affiliates discussed in Note 2 - Real Estate and Other Affiliates is evaluated periodically for recoverability and valuation declines that are other-than-temporary. If the decrease in value of an investment in a real estate and other affiliate is deemed to be other-than-temporary, the investment in such real estate and other affiliates is reduced to its estimated fair value. NaN impairment charges were recorded for Investment in real estate and other affiliates during the three and six months ended ~~March 31, 2021~~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. The impairment loss is presented in Equity in (losses) earnings from real estate and ~~2020.~~other affiliates. Refer to Note 2 - Real Estate and Other Affiliates for additional information.

The Company periodically evaluates its strategic alternatives with respect to each property and may revise the strategy from time to time, including the intent to hold the asset on a long-term basis or the timing of potential asset dispositions. For example, the Company may decide to sell property that is held for use, 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 $5.1 million included in Condominium rights and unit cost of sales.

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5. Other Assets and Liabilities

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


thousands	thousands	March 31, 2021		December 31, 2020		$ Change		thousands	June 30, 2021		December 31, 2020		$ Change
Special Improvement District receivable	Special Improvement District receivable	$	51,952	$	54,770	$	(2,818)	Special Improvement District receivable	$	49,864	$	54,770	$	(4,906)
In-place leases	In-place leases	47,861		49,161		(1,300)		In-place leases	46,611		49,161		(2,550)
Intangibles	Intangibles	32,209		32,595		(386)		Intangibles	31,390		32,595		(1,205)
Condominium inventory (a)		23,616		55,883		(32,267)
Prepaid expenses								Prepaid expenses	20,909		17,455		3,454
Security, escrow and other deposits ~~(b)~~(a)	Security, escrow and other deposits ~~(b)~~(a)	18,881		48,576		(29,695)		Security, escrow and other deposits ~~(b)~~(a)	19,266		48,576		(29,310)
Prepaid expenses		16,208		17,455		(1,247)
Other	Other	14,527		11,781		2,746		Other	19,086		12,096		6,990
Condominium inventory (b)								Condominium inventory (b)	11,123		55,883		(44,760)
Tenant incentives and other receivables	Tenant incentives and other receivables	7,680		9,612		(1,932)		Tenant incentives and other receivables	7,420		9,612		(2,192)
Food and beverage and lifestyle inventory								Food and beverage and lifestyle inventory	1,457		1,060		397
TIF receivable	TIF receivable	1,103		893		210		TIF receivable	937		893		44
Food and beverage and lifestyle inventory		1,040		1,060		(20)

Above-market tenant leases		276		315		(39)

Interest rate swap derivative assets		204		0		204

Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	$	215,557	$	282,101	$	(66,544)	Prepaid expenses and other assets, net	$	208,063	$	282,101	$	(74,038)

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

~~(b)~~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.

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


thousands	thousands	March 31, 2021		December 31, 2020		$ Change		thousands	June 30, 2021		December 31, 2020		$ Change
Condominium deposit liabilities (a)	Condominium deposit liabilities (a)	$	325,413	$	309,884	$	15,529	Condominium deposit liabilities (a)	$	343,517	$	309,884	$	33,633
Construction payables (b)	Construction payables (b)	276,213		253,626		22,587		Construction payables (b)	295,997		253,626		42,371
Deferred income	Deferred income	67,885		66,656		1,229		Deferred income	68,548		66,656		1,892
Interest rate swap liabilities (c)		43,015		51,920		(8,905)
Accrued interest (c)								Accrued interest (c)	45,561		37,007		8,554
Interest rate swap liabilities (d)								Interest rate swap liabilities (d)	39,827		51,920		(12,093)
Tenant and other deposits(e)								Tenant and other deposits(e)	38,197		25,801		12,396
Accounts payable and accrued expenses	Accounts payable and accrued expenses	26,989		28,589		(1,600)		Accounts payable and accrued expenses	31,786		28,589		3,197
Tenant and other deposits(e)		26,384		25,801		583
Accrued interest (d)		21,993		37,007		(15,014)
Accrued real estate taxes ~~(e)~~(f)	Accrued real estate taxes ~~(e)~~(f)	17,610		38,863		(21,253)		Accrued real estate taxes ~~(e)~~(f)	27,878		38,863		(10,985)
Accrued payroll and other employee liabilities ~~(f)~~	Accrued payroll and other employee liabilities ~~(f)~~	15,545		27,419		(11,874)		Accrued payroll and other employee liabilities ~~(f)~~	22,674		27,419		(4,745)
Other	Other	12,326		12,493		(167)		Other	11,860		12,493		(633)

Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	833,373	$	852,258	$	(18,885)	Accounts payable and accrued expenses	$	925,845	$	852,258	$	73,587

(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 ~~$47.8~~$78.2 million primarily related to increased construction spend at Ward Village, the Tin Building, and the Summerlin and Bridgeland MPC developments, and a ~~$20.5~~$21.0 million charge for additional remediation costs at Waiea. These increases are partially offset by decreases of ~~$25.2~~$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 ~~quarter~~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.

~~(d)~~(e)The ~~decrease~~increase in ~~Accrued interest~~Tenant and other deposits is primarily due to ~~the repurchase of the $1.0 billion 5.375% Senior Notes due 2025, partially offset by the issuance of $650~~a $13.5 million ~~in 4.125% Senior Notes due 2029 and $650 million in 4.375% Senior Notes due 2031,~~deposit received in the ~~first~~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.

~~(e)~~(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.

~~(f)The decrease in Accrued payroll and other employee liabilities is primarily due to the payment of the 2020 annual incentive bonus payment in the first quarter of 2021.~~

HHC 2021 FORM 10-Q | 1518


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


6. Mortgages, Notes and Loans Payable, Net

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


thousands	thousands	March 31, 2021		December 31, 2020		thousands	June 30, 2021		December 31, 2020
Fixed-rate debt:	Fixed-rate debt:					Fixed-rate debt:
Unsecured 5.375% Senior Notes due 2025	Unsecured 5.375% Senior Notes due 2025	$	0	$	1,000,000	Unsecured 5.375% Senior Notes due 2025	$	0	$	1,000,000
Unsecured 5.375% Senior Notes due 2028	Unsecured 5.375% Senior Notes due 2028	750,000		750,000		Unsecured 5.375% Senior Notes due 2028	750,000		750,000
Unsecured 4.125% Senior Notes due 2029	Unsecured 4.125% Senior Notes due 2029	650,000		0		Unsecured 4.125% Senior Notes due 2029	650,000		0
Unsecured 4.375% Senior Notes due 2031	Unsecured 4.375% Senior Notes due 2031	650,000		0		Unsecured 4.375% Senior Notes due 2031	650,000		0
Secured mortgages, notes and loans payable	Secured mortgages, notes and loans payable	588,203		590,517		Secured mortgages, notes and loans payable	643,315		590,517
Special Improvement District bonds	Special Improvement District bonds	34,101		34,305		Special Improvement District bonds	32,807		34,305
Variable-rate debt:	Variable-rate debt:					Variable-rate debt:
Mortgages, notes and loans payable (a)	Mortgages, notes and loans payable (a)	1,767,218		1,945,344		Mortgages, notes and loans payable (a)	1,768,062		1,945,344
Unamortized bond discounts	Unamortized bond discounts	0		(4,355)		Unamortized bond discounts	0		(4,355)
Unamortized deferred financing costs (b)	Unamortized deferred financing costs (b)	(44,335)		(28,442)		Unamortized deferred financing costs (b)	(44,850)		(28,442)
Total mortgages, notes and loans payable, net	Total mortgages, notes and loans payable, net	$	4,395,187	$	4,287,369	Total mortgages, notes and loans payable, net	$	4,449,333	$	4,287,369

(a)As of ~~March 31,~~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 ~~March 31,~~June 30, 2021, ~~$117.7~~$124.2 million of ~~variable rate~~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.

(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 Collateral 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 ~~March 31,~~June 30, 2021, land, buildings and equipment and developments with a net book value of ~~$4.3~~$4.4 billion have been pledged as collateral for HHC’s ~~Mortgages,~~mortgages, notes and loans ~~payable, net.~~payable.

Credit Facilities In 2018, the Company entered into a $700.0 million loan agreement, which provides for a $615.0 million term loan (the Term Loan) and an $85.0 million revolver loan (the Revolver Loan and together with the Term Loan, the Senior Secured Credit Facility). The Company has a one-time right to request an increase of $50.0 million in the aggregate amount of the Revolver Loan commitment. As of ~~March 31,~~June 30, 2021, the Company had 0 outstanding borrowings under the 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 a $100.0 million term loan and a $150.0 million revolver loan. As of ~~March 31,~~June 30, 2021, the Company had $50.0 million of outstanding borrowings under the revolver portion of the loan.

Special Improvement District Bonds The Summerlin MPC uses SID bonds to finance certain common infrastructure improvements. These bonds are issued by the municipalities and are secured by the assessments on the land. The majority of proceeds from each bond issued is held in a construction escrow and disbursed to the Company as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the SID bonds have been classified as debt, and the Summerlin MPC pays the debt service on the bonds semi‑annually. As Summerlin sells land, the buyers assume a proportionate share of the bond obligation at closing, and the residential sales contracts provide for the reimbursement of the principal amounts that the Company previously paid with respect to such proportionate share of the bond. In the ~~three~~six months ended ~~March 31,~~June 30, 2021, 0 new SID bond was issued and 0 obligations of $1.0 million were assumed by buyers.

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FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

Debt Compliance Due 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 ~~March 31,~~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, ~~$9.4~~$33.6 million of excess net cash flow after debt service from the underlying properties became restricted as of ~~March 31,~~

~~HHC~~ ~~2021 FORM 10-Q~~ ~~| 16~~


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

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 ~~March 31,~~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 ~~Three~~Six Months Ended ~~March 31,~~June 30, 2021

The Company’s borrowing activity is summarized as follows:

thousands

Initial / Extended
Maturity (a)

Interest Rate

Carrying Value

thousands

Initial / Extended
Maturity (a)

Interest Rate

Carrying Value

Balance at December 31, 2020

4,287,369

Balance at December 31, 2020

4,287,369

Issuances:

Senior Notes due 2029

February 2029

4.13

(c)

650,000

Senior Notes due 2029

February 2029

4.13

(c)

650,000

Senior Notes due 2031

February 2031

4.38

(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

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

60,152

Draws on existing mortgages, notes and loans payable

101,864

Repayments:

1201 Lake Robbins

June 2021

2.49

(b),(e)

(273,070)

1201 Lake Robbins

June 2021

2.49

(b),(f)

(273,070)

The Woodlands Warehouse

June 2021

2.49

(b),(e)

(7,230)

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

(3,212)

Repayments on existing mortgages, notes and loans payable

(7,762)

Redemptions

Senior Notes due 2025

March 2025

5.38

(e)

(1,000,000)

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

(11,540)

Deferred financing costs, net

(12,054)

Balance at March 31, 2021

4,395,187

Balance at June 30, 2021

4,449,333

(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 ~~0.11%~~0.10%, ~~0.19%~~0.15% and 3.25%, respectively, at ~~March 31,~~June 30, 2021. Interest rates associated with loans ~~which~~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 $368.2 million construction loan for the development of 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 in Downtown Summerlin. The loan bears interest at 3.13% fixed with a maturity of May 2031.

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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 2.95% with an initial maturity of April 2025 and a one-year extension ~~option.~~option, with no amounts drawn as of June 30, 2021.

~~HHC~~ ~~2021 FORM 10-Q~~ ~~| 17~~


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

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.~~option, with no amounts drawn as of June 30, 2021.

In ~~April~~June 2021, the Company closed on an extension of the $35.5 million loan for 8770 New Trails, extending the final maturity date to January 2032.

In July 2021, the Company closed on a ~~$58.5~~$35.5 million loan to replace the existing construction loan for ~~Tanager Apartments~~Lakeside Row in ~~Downtown Summerlin.~~Bridgeland. The loan bears interest at ~~3.13%~~3.15% fixed with a maturity date of ~~May~~September 2031.


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 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:


		March 31, 2021											December 31, 2020												June 30, 2021											December 31, 2020
		Fair Value Measurements Using											Fair Value Measurements Using												Fair Value Measurements Using											Fair Value Measurements Using
thousands	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)			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:	Assets:																							Assets:
Interest rate derivative assets	Interest rate derivative assets	$	204		$	0		$	204		$	0	$	0		$	0		$	0		$	0	Interest rate derivative assets	$	164		$	0		$	164		$	0	$	0		$	0		$	0		$	0

Liabilities:	Liabilities:																							Liabilities:
Interest rate derivative liabilities	Interest rate derivative liabilities	$	43,015		$	0		$	43,015		$	0	$	51,920		$	0		$	51,920		$	0	Interest rate derivative liabilities	$	39,827		$	0		$	39,827		$	0	$	51,920		$	0		$	51,920		$	0

The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

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

March 31, 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 $ 1,174,328 $ 1,174,328 $ 1,242,997 $ 1,242,997
Accounts receivable, net (a) Level 3 70,990 70,990 7,437 7,437
Notes receivable, net (b) Level 3 1,300 1,300 622 622
Liabilities:
Fixed-rate debt (c) Level 2 2,672,304 2,681,014 2,374,822 2,461,155
Variable-rate debt (c) Level 2 1,767,218 1,767,218 1,945,344 1,945,344

~~(a)Accounts receivable, net is shown net of an allowance of $32.3 million at March 31, 2021, and $33.0 million at December 31, 2020. Refer to Note 1 -~~ ~~Summary of Significant Accounting Policies~~ ~~for additional information on the allowance.~~

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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

(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.

(b)Notes receivable, net is shown net of an allowance of ~~$0.1~~$0.2 million at ~~March 31,~~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 6 - Mortgages, Notes and Loans Payable, Net for additional information. The discount rates reflect the Company’s judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assuming that the debt is outstanding through maturity.

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 ~~first~~impairment date in the second quarter of ~~2020:~~

Fair Value Measurements Using
thousands Total Fair Value Measurement Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Operating Assets:
Outlet Collection at Riverwalk (a) $ 46,794 $ 0 $ 0 $ 46,794
2021. Refer to Note 4 -Impairment for additional information.

~~(a)~~(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.

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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 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 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 caps are not currently designated as hedges, and therefore, any gains or losses are recognized in current-period earnings. These derivatives are recorded on a gross basis at fair value on the balance sheet.

Assessments of hedge effectiveness are performed quarterly using regression analysis. The change in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated Other Comprehensive Income (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings within the same income statement line item being hedged. Derivatives accounted for as cash flow hedges are classified in the same category in the 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 ~~March 31,~~June 30, 2021, ~~and~~or as of December 31, 2020.

~~HHC~~ ~~2021 FORM 10-Q~~ ~~| 19~~


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

If the derivative contracts are terminated prior to their maturity, the amounts previously recorded in AOCI are recognized into earnings over the period that the hedged transaction impacts earnings. If the hedging relationship is discontinued because it is probable that the forecasted transaction will not occur in accordance with the original strategy, any related amounts previously recorded in AOCI are recognized in earnings immediately. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, and the year ended December 31, 2020, there were 0 termination events. The Company recorded a $0.8 million reduction in Interest expense during the three months ended ~~March 31,~~June 30, 2021 and a $1.5 million reduction in Interest expense during the six months ended June 30, 2021, related to the amortization of terminated swaps.

The Company did 0t settle any derivatives during the ~~three~~six months ended ~~March 31,~~June 30, 2021 or the year ended December 31, 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 ~~$26.0~~$16.9 million of net loss will be reclassified to Interest expense.

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


									Fair Value Asset (Liability)												Fair Value Asset (Liability)
thousands	thousands		Balance Sheet Location	Notional Amount	Fixed Interest Rate (a)		Effective Date	Maturity Date	March 31, 2021		December 31, 2020		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:	Derivative instruments not designated as hedging instruments:												Derivative instruments not designated as hedging instruments:
Interest rate cap	Interest rate cap	(b)	Prepaid expenses and other assets, net	285,000	2.00	%	3/12/2021	9/15/2023	$	157	$	0	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	Interest rate cap	(b)	Prepaid expenses and other assets, net	83,200	2.00	%	3/12/2021	9/15/2023	46		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	Interest rate cap	(c)	Prepaid expenses and other assets, net	75,000	5.00	%	8/31/2020	10/17/2022	1		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	Total fair value derivative assets								204		0		Total fair value derivative assets								164		0

Derivative instruments designated as hedging instruments:	Derivative instruments designated as hedging instruments:												Derivative instruments designated as hedging instruments:

Interest rate swap	Interest rate swap	(d)	Accounts payable and accrued expenses	615,000	2.96	%	9/21/2018	9/18/2023	(40,432)		(46,613)		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	Interest rate swap	(e)	Accounts payable and accrued expenses	35,487	4.89	%	11/1/2019	1/1/2032	(2,583)		(5,307)		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	Total fair value derivative liabilities								(43,015)		(51,920)		Total fair value derivative liabilities								(39,827)		(51,920)
Total fair value derivatives, net	Total fair value derivatives, net								$	(42,811)	$	(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


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

(b)In March 2021, the Company entered into 2 new interest rate caps, which are not designated as hedging instruments. Interest ~~income~~expense included in the Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31,~~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 ~~income~~expense included in the Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31,~~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 Trails in June 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 six months ended ~~March 31,~~June 30, 2021, and 2020:


			Amount of Gain (Loss) Recognized in AOCI on Derivatives
Derivatives in Cash Flow Hedging Relationships										Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives
	Derivatives in Cash Flow Hedging Relationships	Three Months Ended March 31,				Derivatives in Cash Flow Hedging Relationships	Three Months Ended June 30,							Six Months Ended June 30,
thousands	thousands			2021				2020			thousands		2021				2020			2021			2020
Interest rate derivatives	Interest rate derivatives			$	3,383			$	(32,051)	Interest rate derivatives	$	(1,136)			$	(4,197)		$	2,247		$	(36,248)


			Amount of Gain (Loss) Reclassified from AOCI into Operations
Location of Gain (Loss) Reclassified from AOCI into Operations										Location of Gain (Loss) Reclassified from AOCI into Operations	Amount of Gain (Loss) Reclassified from AOCI into Operations
	Location of Gain (Loss) Reclassified from AOCI into Operations	Three Months Ended March 31,				Location of Gain (Loss) Reclassified from AOCI into Operations	Three Months Ended June 30,							Six Months Ended June 30,
thousands	thousands			2021				2020			thousands		2021				2020			2021			2020
Interest expense	Interest expense			$	(2,973)			$	(1,150)	Interest expense	$	(3,041)			$	(3,359)		$	(6,014)		$	(4,509)

~~HHC~~ ~~2021 FORM 10-Q~~ ~~| 20~~


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


			Total Interest Expense Presented in the Results of Operations in which the Effects of Cash Flow Hedges are Recorded
Interest Expense Presented in Results of Operations										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
	Interest Expense Presented in Results of Operations	Three Months Ended March 31,				Interest Expense Presented in Results of Operations	Three Months Ended June 30,							Six Months Ended June 30,
thousands	thousands			2021				2020			thousands		2021				2020			2021			2020
Interest expense	Interest expense			$	34,210			$	34,448	Interest expense	$	31,439			$	32,397		$	65,649		$	66,845

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 nonperformance risk, related to these agreements was ~~$45.0~~$50.0 million as of ~~March 31,~~June 30, 2021, and $54.6 million as of December 31, 2020. If the Company had breached any of these provisions at ~~March 31,~~June 30, 2021, it could have been required to settle its obligations under the agreements at their termination value of ~~$45.0~~$50.0 million.

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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.

Litigation On June 14, 2018, the Company was served with a petition involving approximately 500 individuals or entities who claim that their properties, located in the Timarron Park neighborhood of The Woodlands, were damaged by flood waters that resulted from the unprecedented rainfall that occurred throughout Harris County and surrounding areas during Hurricane Harvey in August 2017. The complaint was filed in State Court in Harris County of the State of Texas. In general, the plaintiffs allege negligence in the development of Timarron Park and violations of Texas’ Deceptive Trade Practices Act and name as defendants The Howard Hughes Corporation, The Woodlands Land Development Company and two unaffiliated parties involved in the planning and engineering of Timarron Park. The plaintiffs are seeking restitution for damages to their property and diminution of their property values. The Company intends to vigorously defend the matter as it believes that these claims are without merit and that it has substantial legal and factual defenses to the claims and allegations contained in the complaint. Based upon the present status of this matter, the Company does not believe it is probable that a loss will be incurred. Accordingly, the Company has not recorded a charge as a result of this action.

The Company entered into a settlement agreement with the Waiea homeowners association related to certain construction defects at the 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; however, the Company can provide no assurances that all or any portion of these costs will be recovered. ~~During the first quarter of 2020, the~~The Company recorded ~~a $97.9~~total expenses of $99.2 million ~~charge~~ for the estimated repair costs related to this ~~matter.~~matter during 2020. An additional ~~$20.5~~$21.0 million was charged during the ~~three~~six months ended ~~March 31,~~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 ~~March 31,~~June 30, 2021, ~~the Company has recorded~~ a total of ~~$116.5~~$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 Matters The Company purchased its 250 Water Street property in the Seaport in June 2018. The site is currently used as a parking lot while the Company continues to move forward with redevelopment planning. The Company engaged a third-party specialist to perform a Phase I Environmental Site Assessment (ESA) ~~of the property,~~, and the ESA identified, among other findings, the existence of mercury in the soil at levels above New York State regulatory criteria. ~~Under~~The site is in the ~~current regulations, the site does not require remediation until the Company begins redevelopment activities.~~State Brownfield Cleanup Program and is proposed to be remediated under this program. The normal operations of the parking lot do not require the property to be remediated, and the Company has not started any redevelopment activities as of ~~March 31,~~June 30, 2021. As a result, the potential remediation has no financial impact for the three and six months ended ~~March 31,~~June 30, 2021.

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

Letters of Credit and Surety Bonds As of ~~March 31,~~June 30, 2021, the Company had outstanding letters of credit totaling $5.1 million and surety bonds totaling ~~$306.6~~$347.3 million. As of December 31, 2020, the Company had outstanding letters of credit totaling $5.2 million and surety bonds totaling $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.

Operating Leases The Company leases land or buildings at certain properties from third parties, which are recorded in Operating lease right-of-use assets, net and Operating lease obligations on the Condensed Consolidated Balance Sheets. See Note 15 - Leases for further discussion. Contractual rental expense, including participation rent, was ~~$1.7~~$1.9 million for the three months ended ~~March 31,~~June 30, 2021 and $3.7 million for the six months ended June 30, 2021, compared to ~~$1.8~~$1.5 million for the three months ended ~~March 31,~~June 30, 2020 and $3.3 million for the six months ended June 30, 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 In conjunction with the execution of the ground lease for the Seaport, the Company executed a completion guarantee for the redevelopment of the Tin Building. The completion guaranty 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. To the extent that increases in taxes do not cover debt service payments on the TIF bonds, the Company’s wholly owned subsidiary is

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FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

obligated to pay special taxes. Management has concluded that as of ~~March 31,~~June 30, 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 3 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 ~~March 31,~~June 30, 2021, and December 31, 2020.


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 Company’s effective tax rate is typically impacted by non-deductible executive compensation and other permanent differences as well as state income taxes, which cause the Company’s effective tax rate to deviate from the federal statutory rate. ~~The effective tax rate, based upon actual operating results, was 23.7% for~~For the three and six months ended ~~March 31, 2021, compared to 21.4% for~~June 30, 2020, the ~~three months ended March 31, 2020.~~effective rate was also impacted by a valuation allowance on the Company’s charitable contribution carryover.


11. Warrants

On October 7, 2016, the Company entered into a warrant agreement with David R. O’Reilly, (the 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, and will expire on October 2, 2022.

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

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) and President, Grant Herlitz, (the Herlitz Warrant) to acquire 1,965,409 shares and 87,951 shares of common stock for the purchase price of $50.0 million and $2.0 million, respectively. The Weinreb Warrant would have become exercisable on June 15, 2022, at an exercise price of $124.64 per share, and the Herlitz Warrant would have become exercisable on October 3, 2022, at an exercise price of $117.01 per share, subject in each case to earlier exercise upon certain change in control, separation and termination provisions. The Weinreb Warrant expires June 15, 2023, and the Herlitz Warrant expires October 3, 2023. The purchase prices paid by the respective executives for the O’Reilly Warrant, the Weinreb Warrant and the Herlitz Warrant, which qualify as equity instruments, are included within Additional paid-in capital in the Condensed Consolidated Balance Sheets at ~~March 31,~~June 30, 2021, and December 31, 2020.

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 ~~March 31,~~June 30, 2021.

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FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


12. Accumulated Other Comprehensive Income

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


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

Net current-period other comprehensive income	3,263
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	~~3,383~~2,247
(Gain) loss reclassified from accumulated other comprehensive loss to net income	~~2,973~~6,014

Share of ~~investee’s~~investee's other comprehensive income, net of tax expense (benefit) of ~~$346~~$732	~~1,217~~2,575


Net current-period other comprehensive loss	~~7,573~~10,836
Balance as of ~~March 31,~~June 30, 2021	$	~~(31,017)~~(27,754)

Balance as of December 31, 2019	$	(29,372)
Other comprehensive income (loss) before reclassifications	~~(32,051)~~(36,248)
(Gain) loss reclassified from accumulated other comprehensive loss to net income	~~1,150~~4,509




Net current-period other comprehensive loss	~~(30,901)~~(31,739)
Balance as of ~~March 31,~~June 30, 2020	$	~~(60,273)~~(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 March 31, Affected line items in the
Statements of Operations
thousands 2021 2020
(Gains) losses on cash flow hedges $ 3,801 $ 1,407 Interest expense
Income taxes on (gains) losses on cash flow hedges (828) (257) Provision for income taxes
Total reclassifications of (income) loss, net of tax for the period $ 2,973 $ 1,150


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

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13. Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares. The dilutive effect of options and non-vested stock issued under stock-based compensation plans is computed using the treasury stock method. The dilutive effect of the warrants is computed using the if-converted method.

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


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
thousands except per share amounts	thousands except per share amounts		2021			2020		thousands except per share amounts	2021		2020		2021		2020
Net income (loss)	Net income (loss)							Net income (loss)
Net income (loss)	Net income (loss)		$	(68,159)		$	(125,082)	Net income (loss)	$	3,617	$	(34,103)	$	(64,542)	$	(159,185)
Net (income) loss attributable to noncontrolling interests	Net (income) loss attributable to noncontrolling interests		1,565			(52)		Net (income) loss attributable to noncontrolling interests	1,224		19		2,789		(33)
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders		$	(66,594)		$	(125,134)	Net income (loss) attributable to common stockholders	$	4,841	$	(34,084)	$	(61,753)	$	(159,218)

Shares	Shares							Shares
Weighted-average common shares outstanding - basic	Weighted-average common shares outstanding - basic		55,678			43,380		Weighted-average common shares outstanding - basic	55,704		55,530		55,691		49,455

Restricted stock and stock options								Restricted stock and stock options	53		0		0		0

Weighted-average common shares outstanding - diluted	Weighted-average common shares outstanding - diluted		55,678			43,380		Weighted-average common shares outstanding - diluted	55,757		55,530		55,691		49,455

Net income (loss) per common share	Net income (loss) per common share							Net income (loss) per common share
Basic income (loss) per share	Basic income (loss) per share		$	(1.20)		$	(2.88)	Basic income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)
Diluted income (loss) per share	Diluted income (loss) per share		$	(1.20)		$	(2.88)	Diluted income (loss) per share	$	0.09	$	(0.61)	$	(1.11)	$	(3.22)

For the three months ended ~~March 31,~~June 30, 2021, the diluted EPS computation excludes ~~296,012~~231,500 shares of stock options and ~~486,164~~326,958 shares of restricted stock because their effect is anti-dilutive. For the ~~three~~six months ended ~~March 31,~~June 30, 2021, the diluted EPS computation excludes 285,487 shares of stock options and 472,116 shares of restricted stock because their effect is anti-dilutive.

For the three and six months ended June 30, 2020, the diluted EPS computation excludes ~~560,938~~518,750 shares of stock options and ~~464,216~~440,283 shares of restricted stock because their effect is anti-dilutive.

Common Stock Offering On March 27, 2020, the Company offered 2,000,000 shares of common stock to the public at $50.00 per share and granted the underwriters an option to purchase up to an additional 300,000 shares of common stock at the same price. The underwriters exercised most of their option and purchased an additional 270,900 shares. Concurrently, the Company entered into a share purchase agreement with a related party, Pershing Square Capital Management, L.P., acting as investment advisor to funds that it manages, to issue and sell 10,000,000 shares of common stock in a private placement at $50.00 per share. The total issuance of 12,270,900 shares closed on March 31, 2020, and the Company received ~~$593.7~~$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.

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FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


14. Revenues

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. 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 June 30,				Six Months Ended June 30,
thousands	2021		2020		2021		2020
Revenues from contracts with customers
Recognized at a point in time:
Condominium rights and unit sales	$	12,861	$	0	$	50,028	$	43
Master Planned Communities land sales	58,342		57,073		95,819		96,805
Builder price participation	11,389		8,947		18,183		16,706
Total	82,592		66,020		164,030		113,554

Recognized at a point in time or over time:
Other land, rental and property revenues	41,389		11,447		64,632		46,344


Rental and lease-related revenues
Rental revenue	88,476		78,706		174,375		171,450




Total revenues	$	212,457	$	156,173	$	403,037	$	331,348

Revenues by segment
Operating Assets revenues	$	113,422	$	84,277	$	209,861	$	198,534
Master Planned Communities revenues	74,578		68,913		122,865		119,359
Seaport revenues	10,898		2,272		18,351		11,966
Strategic Developments revenues	13,466		624		51,766		1,384
Corporate revenues	93		87		194		105
Total revenues	$	212,457	$	156,173	$	403,037	$	331,348

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~~The following table presents the Company’s revenues disaggregated by revenue source:~~

Three Months Ended March 31,
thousands 2021 2020
Revenues from contracts with customers
Recognized at a point in time:
Condominium rights and unit sales $ 37,167 $ 43
Master Planned Communities land sales 37,477 39,732
Builder price participation 6,794 7,759
Total 81,438 47,534
Recognized at a point in time or over time:
Other land, rental and property revenues 23,243 34,897
Rental and lease-related revenues
Rental revenue 85,899 92,744
Total revenues $ 190,580 $ 175,175
Revenues by segment
Operating Assets revenues $ 96,439 $ 114,257
Master Planned Communities revenues 48,287 50,446
Seaport revenues 7,453 9,694
Strategic Developments revenues 38,300 760
Corporate revenues 101 18
Total revenues $ 190,580 $ 175,175

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

~~(43,967)~~(71,778)

Consideration received during the period

~~61,221~~127,030

Balance as of ~~March 31,~~June 30, 2021

~~377,670~~415,668

Balance as of December 31, 2019

246,010

Consideration earned during the period

~~(17,885)~~(30,200)

Consideration received during the period

~~64,432~~122,526

Balance as of ~~March 31,~~June 30, 2020

~~292,557~~338,336

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

Remaining Unsatisfied Performance Obligations The Company’s remaining unsatisfied performance obligations as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021, is ~~$1.9~~$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 $ 725,912 $ 528,989 $ 685,474


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.


15. Leases

Lessee ArrangementsThe 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 ~~March 31,~~June 30, 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 52 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

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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.

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

The components of lease expense are as follows:


	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 June 30, 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

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	%

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FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

Lessor ArrangementsThe 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 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 June 30, 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

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


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.

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 modifications and will account for the deferrals as if contemplated in the original lease. Rent deferrals are treated as variable lease payments resulting in a decrease in straight-line rent revenue during the deferral period and additional revenue upon payment in subsequent periods. COVID-19 related rent deferrals were ~~$4.3~~$3.8 million as of ~~March 31,~~June 30, 2021, net of subsequent collections.

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

thousands March 31, 2021 December 31, 2020
Assets
Operating lease right-of-use assets, net $ 55,412 $ 56,255
Liabilities
Operating lease obligations 68,460 68,929

~~HHC~~ ~~2021 FORM 10-Q~~ ~~| 26~~


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

~~The components of lease expense are as follows:~~

Three Months Ended March 31,
thousands 2021 2020
Operating lease cost $ 2,181 $ 2,179
Variable lease costs 114 158
Net lease cost $ 2,295 $ 2,337

~~Future minimum lease payments as of March 31, 2021, are as follows:~~

thousands Operating Leases
Remainder of 2021 $ 5,055
2022 6,507
2023 6,464
2024 6,432
2025 5,047
Thereafter 261,806
Total lease payments 291,311
Less: imputed interest (222,851)
Present value of lease liabilities $ 68,460

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

Supplemental Condensed Consolidated Statements of Cash Flows Information Three Months Ended March 31,
thousands 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases $ 1,807 $ 1,796

Other Information March 31, 2021 March 31, 2020
Weighted-average remaining lease term (years)
Operating leases 37.2 37.1
Weighted-average discount rate
Operating leases 7.8 % 7.8 %

The Company receives rental income from the leasing of retail, office, multi-family and other space under operating leases, as well as certain variable tenant recoveries. Such operating leases are with a variety of tenants and have a remaining average term of approximately five years. Lease terms generally vary among tenants and may include early termination options, extension options and fixed rental rate increases or rental rate increases based on an index. The decrease in total minimum rent payments below is due to slowing of new lease activity due to 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 March 31, 2021, are as follows:

Three Months Ended March 31,
thousands 2021 2020
Total minimum rent payments $ 53,342 $ 59,099

~~HHC~~ ~~2021 FORM 10-Q~~ ~~| 27~~


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

~~Total future minimum rents associated with operating leases are as follows as of March 31, 2021:~~

thousands Total
Minimum Rent
Remainder of 2021 $ 168,234
2022 221,619
2023 200,619
2024 188,806
2025 160,742
Thereafter 779,593
Total $ 1,719,613

A sales-type lease is defined as a lease that meets one or more of the following: transfers ownership at the end of the lease term, grants the lessee an option to purchase that is reasonably expected to be exercised, covers the major part of the asset’s economic life, the net present value of the lease payments equals or exceeds the fair value of the asset, or the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease. 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.

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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). The Company’s segments or assets within such segments could change in the future as development of certain properties commences or other operational or management changes occur. All operations are within the United States. The Company’s reportable segments are as follows:

–Operating Assets – consists of developed or acquired retail, office, hospitality and multi-family properties along with other real estate investments. These properties are currently generating revenues and may be redeveloped, repositioned, or sold to improve segment performance or to recycle capital.

–MPC – consists of the development and sale of land in large‑scale, long‑term community development projects in and around Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland.

–Seaport – 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.

~~Segment operating results are as follows:~~

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FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

thousands Operating Assets Segment (a) MPC Segment Seaport Segment Strategic Developments Segment Total
Three Months Ended March 31, 2021
Total revenues $ 96,439 $ 48,287 $ 7,453 $ 38,300 $ 190,479
Total operating expenses (47,234) (23,267) (12,506) (59,623) (142,630)
Segment operating income (loss) 49,205 25,020 (5,053) (21,323) 47,849
Depreciation and amortization (39,651) (72) (6,835) (1,598) (48,156)
Interest income (expense), net (19,000) 10,757 102 1,101 (7,040)
Other income (loss), net (10,098) 0 (336) 0 (10,434)
Equity in earnings (losses) from real estate and other affiliates (11,404) 27,650 (352) (98) 15,796
Gain (loss) on extinguishment of debt (836) 0 0 0 (836)
Segment EBT $ (31,784) $ 63,355 $ (12,474) $ (21,918) $ (2,821)
Corporate income, expenses and other items (65,338)
Net income (loss) (68,159)
Net (income) loss attributable to noncontrolling interests 1,565
Net income (loss) attributable to common stockholders $ (66,594)
Three Months Ended March 31, 2020
Total revenues $ 114,257 $ 50,446 $ 9,694 $ 760 $ 175,157
Total operating expenses (52,240) (23,722) (14,311) (104,299) (194,572)
Segment operating income (loss) 62,017 26,724 (4,617) (103,539) (19,415)
Depreciation and amortization (37,089) (91) (20,875) (1,761) (59,816)
Interest income (expense), net (26,193) 8,554 (5,053) 1,931 (20,761)
Other income (loss), net (59) 0 (3,368) (375) (3,802)
Equity in earnings (losses) from real estate and other affiliates 4,394 8,934 (2,043) 64 11,349
Gain (loss) on sale or disposal of real estate and other assets, net 38,124 0 0 0 38,124
Provision for impairment (48,738) 0 0 0 (48,738)
Segment EBT $ (7,544) $ 44,121 $ (35,956) $ (103,680) $ (103,059)
Corporate income, expenses and other items (22,023)
Net income (loss) (125,082)
Net (income) loss attributable to noncontrolling interests (52)
Net income (loss) attributable to common stockholders $ (125,134)
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)

(a)Total revenues includes hospitality revenues of ~~$7.7~~$13.9 million for the three months ended ~~March 31,~~June 30, 2021, and ~~$17.2~~$2.5 million for the three months ended ~~March 31,~~June 30, 2020. Total operating expenses includes hospitality operating costs of ~~$7.9~~$11.0 million for the three months ended ~~March 31,~~June 30, 2021, and ~~$12.9~~$4.4 million for the three months ended ~~March 31,~~June 30, 2020.

HHC 2021 FORM 10-Q | 34


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents


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.

HHC 2021 FORM 10-Q | 35


FINANCIAL STATEMENTS FOOTNOTES			Table of Contents

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:


thousands	thousands	March 31, 2021		December 31, 2020		thousands	June 30, 2021		December 31, 2020
Operating Assets	Operating Assets	$	3,895,742	$	3,936,119	Operating Assets	$	3,949,294	$	3,936,119
Master Planned Communities	Master Planned Communities	2,346,687		2,285,896		Master Planned Communities	2,327,151		2,285,896
Seaport	Seaport	946,893		924,245		Seaport	972,512		924,245
Strategic Developments	Strategic Developments	1,182,983		1,132,231		Strategic Developments	1,212,919		1,132,231
Total segment assets	Total segment assets	8,372,305		8,278,491		Total segment assets	8,461,876		8,278,491
Corporate	Corporate	781,857		861,841		Corporate	847,193		861,841
Total assets	Total assets	$	9,154,162	$	9,140,332	Total assets	$	9,309,069	$	9,140,332

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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) and in The Howard Hughes Corporation’s (HHC or the Company) annual report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (SEC) on February 25, 2021 (the 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

~~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 statements give our expectations about the future and are not guarantees of performance or results. We caution you not to rely on these forward-looking statements.~~

These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to 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:~~

–~~our assumptions and projections related to the impact~~Some of 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~~risks, uncertainties 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~~other important factors that ~~we have recently placed into service~~may affect future results or ~~are under construction~~

–~~forecasts of our future economic performance~~

–~~expected capital required for our operations and development opportunities for our properties~~cause actual results to differ materially from those expressed or implied by forward-looking statements include:

–the impact of ~~technology~~COVID-19 on our ~~operations~~business, our tenants and ~~business~~the economy in general, including as described above;

–~~expected performance of all of our segments~~a prolonged recession in the national economy, including any adverse business or economic conditions in the homebuilding, condominium development, retail, office and hospitality sectors;

–~~expected commencement~~potential changes in the financial markets and ~~completion for property developments and timing and amount of sales or rentals of certain properties~~interest rates;

–~~estimates of~~ our ~~future liquidity,~~continuing ability to obtain operating and development ~~opportunities, development spending and management plans~~capital on favorable terms, or at all;

–~~descriptions~~our ability to compete effectively, including the potential impact of ~~assumptions underlying~~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 ~~relating~~redeveloped space;

–our ability to ~~any~~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 ~~foregoing~~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 our other reports and other public filings with the SEC.

~~There are several factors, many beyond our control, which could cause~~Although we presently believe that the plans, expectations and anticipated results ~~to differ materially from our expectations. These risk factors are described~~expressed in ~~Item 1A.-~~ ~~Risk Factors~~ ofor 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 as~~it is not possible for us to predict the nature, or assess the potential impact, of ~~the date of this Quarterly Report. Except as may be required by law,~~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 ~~modify~~update or ~~revise any forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.~~

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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 otherwise may be required by 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 make with the SEC.

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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 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 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 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, is one of the only privately controlled districts in New York City and is being transformed into a culinary and entertainment destination. The Seaport 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.

~~Transformation Plan~~ ~~During 2020,~~In addition to the required presentations using GAAP, we ~~substantially completed executing on our Transformation Plan. Corporate overhead reductions~~use certain non-GAAP performance measures, such as earnings before taxes (EBT) and ~~decentralization~~NOI. See the Earnings Before Taxes, Operating Assets and Seaport sections below for the reconciliation of ~~our business are substantially complete,~~GAAP to non-GAAP financial measures and ~~we continue to pursue~~a statement indicating why management believes the sale of our remaining non-core assets. Since the announcement of the Transformation Plan, we have executed on the sale of eight non-core assets generating approximately $213.8 million of net proceeds after debt repayment. While the COVID-19 pandemic has made additional non-core asset sales more challenging to execute, we expect to make additional progress in 2021. We have continued horizontal development in our MPCs to keep pace with builder demand given the strong underlying home sales in our communities and are focused on accelerating strategic developments in our MPC locations.non-GAAP financial measure provides useful information for investors.

COVID-19 Pandemic The outbreak of COVID-19 impacted global economic activity in early 2020 and caused significant volatility and negative pressure in financial markets. The impact of COVID-19 and the wide variety of government-issued control measures, including states of emergency, required business and school closures, shelter-in-place orders and travel restrictions, resulted in a negative impact on our financial performance in 2020, particularly in our Operating Asset and Seaport segments. Many states began easing quarantine protocols near the end of the second quarter of 2020, which allowed most of our retail and hospitality properties to resume ~~operations.~~ operations 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 2021, we saw ~~notable~~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 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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Second Quarter 2021 Highlights

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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Overview of Business Segments

Operating Assets

Office and Multi-family Throughout the pandemic, we have seen continued strength in our office and multi-family assets. We continue to closely monitor our rental revenue, and for the three months ended ~~March 31,~~June 30, 2021, we collected ~~98.7%~~98.6% of our office portfolio billings, ~~98.8%~~98.6% of our multi-family portfolio billings, and ~~95.1%~~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 were significantly negatively impacted 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 the Outlet Collection at Riverwalk. Several of our tenants were able to resume limited operations in May and June 2020, and the majority of our tenants had reopened by the end of the third quarter of 2020. As a result of these closures, collections of our retail portfolio billings reached a low of 49.7% during the three months ended June 2020. Despite these negative impacts, we ~~saw~~began to see notable improvements in the performance of our retail assets during the fourth quarter of ~~2020. Collections~~2020 and collections of our retail billings increased ~~to 72.6% for the three months ended December 31, 2020, and have continued to increase~~ to 77.5% for the three months ended March 31, 2021, and continued to increase to 79.7% for the three months ended June 30, 2021. Additionally, ~~net operating income (NOI)~~NOI increased ~~20% quarter over quarter~~72% or $6.2 million, from ~~$10.0~~$8.6 million for the three months ended ~~December 31,~~June 30, 2020, to ~~$12.0~~$14.8 million for the three months ended ~~March 31,~~June 30, 2021.

Hospitality At the onset of the pandemic in March 2020, we temporarily closed all three of our hotel properties. The Woodlands Resort reopened in May 2020, the Embassy Suites reopened in June 2020 and The Westin at The Woodlands reopened in July 2020. As a result of these re-openings, occupancy levels rose throughout 2020 ~~however, we continued to see~~but remained lower ~~occupancy, compared to~~than levels achieved prior to the pandemic. However, with ~~an increase in business and~~the gradual return of leisure travel ~~during~~in the 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, ~~the performance of our hospitality assets continues~~occupancy levels increased from 55% to ~~improve. Occupancy~~68% at the Embassy Suites, ~~increased~~28% to ~~63% for the three months ended March 31, 2021, compared to 55% for the three months ended December 31, 2020. Similarly, occupancy~~49% at The Westin at The Woodlands and 27% to 31% at The Woodlands Resort. As a result of this increased ~~to 38%~~occupancy, NOI increased $4.6 million, from a loss of $1.8 million for the three months ended ~~March 31, 2021, compared~~June 30, 2020, to ~~28%~~income of $2.7 million for the three months ended December 31, 2020. The Woodlands Resort & Conference Center continues to only operate at 55% capacity and occupancy decreased to 22% for the three months ended March 31, 2021, compared to 27% for the three months ended December 31, 2020. This reduced operating capacity and decrease in occupancy is partially due to damage from Winter Storm Uri during the first quarter ofJune 30, 2021.

Las Vegas Aviators The Minor League Baseball season was canceled for 2020, which impacted the Las Vegas Aviators, our Triple-A professional baseball team. Following the 2021 restructuring of 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 three months ended June 30, 2020, to income of $3.1 million for the three months ended June 30, 2021.

MPC At the onset of the pandemic, 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.

New home sales in our MPC 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 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. This trend has continued through the first ~~quarter~~half of 2021, with 1,616 new ~~home sales increasing by 104.9%~~homes sold in ~~The Woodlands Hills, 41.1% in Summerlin and 33.3% in Bridgeland,~~our MPCs year to date, representing a 29.5% increase compared to the first ~~quarter~~half of 2020. In addition, the price per acre of residential land across all our MPCs increased 5% year to date to $618 thousand per acre compared to $589 thousand per acre in the prior-year period.

Seaport In response to the pandemic, we completely closed the Seaport and halted construction on the Tin Building in March 2020. Social distancing restrictions also resulted in cancellation of our 2020 Seaport summer concert series. ~~The city gradually eased~~While restrictions remained in ~~July~~place throughout 2020 with dining limited to only outdoor spaces. Indoor dining resumed at minimum capacities in late September but due to a surge in COVID-19 cases late in 2020, restrictions related to indoor dining were re-imposed in December and ~~continued through the first quarter of 2021. Many~~into 2021, many of the businesses within the Seaport ~~resumed~~were able to resume operations, on a limited basis, in the third quarter of ~~2020 and continue~~2020. Most restrictions were lifted in June of 2021; however, many businesses at the Seaport continued to operate ~~on a limited basis through the first quarter of 2021.~~at reduced levels primarily due to labor shortages. Construction on the Tin Building resumed in May 2020 and is expected to be substantially complete in the fourth quarter of 2021 and open in early 2022, with an expanded focus on in-person dining, retail shopping, mobile ordering and delivery. We are closely monitoring our revenues, and based on collections for the three months ended ~~March 31,~~June 30, 2021, we have collected ~~98.2%~~99.0% of ~~our office portfolio billings and 12.7% of our retail portfolio billings, which is consistent with collections for the three months ended December 31, 2020.~~

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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 2020, in~~ place of the 2020 summer concert series, we launched a new concept at the Pier 17 rooftop called The Greens, which allowed people to reserve socially distanced, mini-lawn spaces. ~~In November 2020, the~~These lawn spaces were converted to individual dining cabins for guests to enjoy ~~throughout~~in the winter months. The ~~dining cabin concept continued through the end first quarter of 2021, serving over 38,000 guests and generating $2.0 million in revenue. The~~ Greens concept ~~will return~~returned in May 2021 to ~~compliment~~complement the 2021 summer concert ~~series. This~~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 ~~will help to fulfill obligations under our sponsorship agreements.~~the launch of the 2021 summer concert series.

~~During~~In April 2021, Momofuku reopened the ~~first quarter of~~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 weand 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. ~~Later in 2021,~~In early 2022, in a 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 ~~which~~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 ~~late 2021.~~early 2022.

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 ~~building at the site.~~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. Approval from the NYC City Planning Commission via this process~~ULURP, which will be required ~~to allow us~~ 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.

Strategic Developments Given the challenges presented by the ~~current environment,~~pandemic, we launched digital sales efforts in early 2020, including virtual tours to sell condominiums in Hawai’i, which we will continue to maintain until social distancing recommendations are lifted. We 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 our websites conducive to social distancing recommendations. As a result, overall progress at our condominium projects remains strong as of ~~March 31,~~June 30, 2021, with our four completed towers 99.8% sold and our three ~~under construction~~under-construction towers ~~83.7%~~86.4% presold.

We have not experienced any delays in our existing construction as a result of COVID-19, other than the brief delay of construction on the Tin Building discussed above. In December 2020, we began construction on Starling at Bridgeland, a luxury multi-family development in Bridgeland. During the first quarter of 2021, we began construction on Marlow, a multi-family development in Columbia, and Victoria Place, our seventh condominium project in Ward Village. ~~Additionally,~~During the second quarter of 2021 in Downtown Summerlin, we ~~expect to begin~~began construction on 1700 Pavilion, an office building and Tanager Echo, a luxury apartment ~~complex in Downtown Summerlin in the second quarter of 2021.~~complex.

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~~First Quarter 2021 Highlights~~

~~Comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020~~

~~Capital and Financing Activities~~

–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. The Company used the net proceeds from this issuance, together with 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.

–In March 2021, the Company closed on a $368.2 million construction loan for the development of 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.

~~Operating Assets~~

–Operating Assets NOI decreased $14.9 million primarily due to decreases of $9.7 million in our office properties, $4.5 million in our hospitality properties and $2.5 million in our retail properties, partially offset by an increase of $1.2 million in our multi-family properties. The decrease in our office properties was primarily related to the expiration of a short-term lease at The Woodlands Towers at the Waterway in June 2020, and the decrease in our hospitality properties was primarily due to declines in occupancy as a result of the COVID-19 pandemic.

–~~We continue to see strong demand for our newly completed multifamily assets, which are leasing at or above our expectations.~~

~~MPC~~

–Segment earnings before taxes (EBT) increased $19.2 million 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 first quarter of 2021 and higher land sales revenues at Summerlin due to an increase in custom lot 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 first quarter of 2021. In addition, The Woodlands experienced no sales during the first quarter of 2021, with few residential 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 at The Woodlands Hills, Bridgeland and Summerlin during the first quarter of 2021, compared to the same period in 2020.~~

–Summerlin’s residential land sales realized an increase of $10.6 million, or 116%, despite no super-pad sales for the period. The increase was driven by an increase in custom lot sales and a 13% increase in price per acre in the three months ended March 31, 2021, compared to the same period in 2020.

~~Seaport~~

–Segment EBT increased $23.5 million primarily due to 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 related to the permanent closure of 10 Corso Como Retail and Café that did not reoccur in the 2021 and a decrease in interest expense due to the retirement of a $250 million Seaport loan in August 2020.

–Seaport NOI decreased $0.4 million primarily due to a $1.4 million decrease in our landlord entities and $0.4 million decrease in our events, sponsorships and catering businesses, partially offset by a $1.4 million increase in our managed business entities. The decreases in NOI were primarily due to defaults, the recognition of rental revenue on a cash basis due to collectibility issues and the cancellation of events, all related to the COVID-19 pandemic.

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~~Strategic Developments~~

–Segment EBT increased $81.8 million primarily due to a decrease in charges related to our expected funding of costs to correct alleged construction defects at Waiea. An additional $20.5 million was charged during the three months ended March 31, 2021, related to additional anticipated costs, compared to the initial charge of $97.9 million during the three months ended March 31, 2020.

–We continued to experience strong condominium unit sales in Ward Village, evidenced by the 46 condominium units we contracted to sell during the first quarter of 2021. Victoria Place, our newest project that began public pre-sales in December 2019 and began construction in February 2021, accounted for 30 of the units contracted during the quarter and was 85.4% presold as of March 31, 2021.

–We closed on four units at Waiea and one unit at Anaha, totaling $35.2 million in net revenue. The last unit at Anaha remained under contract as of March 31, 2021, and closed during April 2021. As a result, Waiea has three units remaining to be sold and Anaha is completely sold.

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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 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, 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

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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)

(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.

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thousands	thousands	Operating Assets Segment (a)		MPC Segment		Seaport Segment		Strategic Developments Segment		Total		thousands	Operating Assets Segment (a)		MPC Segment		Seaport Segment		Strategic Developments Segment		Total
Three Months Ended March 31, 2021
Six Months Ended June 30, 2021												Six Months Ended June 30, 2021
Total revenues	Total revenues	$	96,439	$	48,287	$	7,453	$	38,300	$	190,479	Total revenues	$	209,861	$	122,865	$	18,351	$	51,766	$	402,843
Total operating expenses	Total operating expenses	(47,234)		(23,267)		(12,506)		(59,623)		(142,630)		Total operating expenses	(100,425)		(57,172)		(28,502)		(78,263)		(264,362)
Segment operating income (loss)	Segment operating income (loss)	49,205		25,020		(5,053)		(21,323)		47,849		Segment operating income (loss)	109,436		65,693		(10,151)		(26,497)		138,481
Depreciation and amortization	Depreciation and amortization	(39,651)		(72)		(6,835)		(1,598)		(48,156)		Depreciation and amortization	(79,626)		(170)		(13,839)		(3,195)		(96,830)
Interest income (expense), net	Interest income (expense), net	(19,000)		10,757		102		1,101		(7,040)		Interest income (expense), net	(37,152)		21,372		289		1,760		(13,731)
Other income (loss), net	Other income (loss), net	(10,098)		—		(336)		—		(10,434)		Other income (loss), net	(10,254)		—		(954)		14		(11,194)
Equity in earnings (losses) from real estate and other affiliates	Equity in earnings (losses) from real estate and other affiliates	(11,404)		27,650		(352)		(98)		15,796		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												Gain (loss) on sale or disposal of real estate and other assets, net	—		—		—		21,333		21,333

Gain (loss) on extinguishment of debt	Gain (loss) on extinguishment of debt	(836)		—		—		—		(836)		Gain (loss) on extinguishment of debt	(882)		—		—		—		(882)

Provision for impairment												Provision for impairment	—		—		—		(13,068)		(13,068)
Segment EBT	Segment EBT	$	(31,784)	$	63,355	$	(12,474)	$	(21,918)	$	(2,821)	Segment EBT	$	(40,301)	$	133,186	$	(25,343)	$	(19,770)	$	47,772
Corporate income, expenses and other items	Corporate income, expenses and other items									(65,338)		Corporate income, expenses and other items									(112,314)
Net income (loss)	Net income (loss)									(68,159)		Net income (loss)									(64,542)
Net (income) loss attributable to noncontrolling interests	Net (income) loss attributable to noncontrolling interests									1,565		Net (income) loss attributable to noncontrolling interests									2,789
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders									$	(66,594)	Net income (loss) attributable to common stockholders									$	(61,753)

Three Months Ended March 31, 2020
Six Months Ended June 30, 2020												Six Months Ended June 30, 2020
Total revenues	Total revenues	$	114,257	$	50,446	$	9,694	$	760	$	175,157	Total revenues	$	198,534	$	119,359	$	11,966	$	1,384	$	331,243
Total operating expenses	Total operating expenses	(52,240)		(23,722)		(14,311)		(104,299)		(194,572)		Total operating expenses	(94,462)		(55,692)		(22,775)		(116,816)		(289,745)
Segment operating income (loss)	Segment operating income (loss)	62,017		26,724		(4,617)		(103,539)		(19,415)		Segment operating income (loss)	104,072		63,667		(10,809)		(115,432)		41,498
Depreciation and amortization	Depreciation and amortization	(37,089)		(91)		(20,875)		(1,761)		(59,816)		Depreciation and amortization	(74,084)		(182)		(27,651)		(3,411)		(105,328)
Interest income (expense), net	Interest income (expense), net	(26,193)		8,554		(5,053)		1,931		(20,761)		Interest income (expense), net	(49,296)		16,857		(9,679)		2,988		(39,130)
Other income (loss), net	Other income (loss), net	(59)		—		(3,368)		(375)		(3,802)		Other income (loss), net	167		—		(3,777)		1,293		(2,317)
Equity in earnings (losses) from real estate and other affiliates	Equity in earnings (losses) from real estate and other affiliates	4,394		8,934		(2,043)		64		11,349		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	Gain (loss) on sale or disposal of real estate and other assets, net	38,124		—		—		—		38,124		Gain (loss) on sale or disposal of real estate and other assets, net	38,124		—		—		8,000		46,124

Provision for impairment	Provision for impairment	(48,738)		—		—		—		(48,738)		Provision for impairment	(48,738)		—		—		—		(48,738)
Segment EBT	Segment EBT	$	(7,544)	$	44,121	$	(35,956)	$	(103,680)	$	(103,059)	Segment EBT	$	(24,886)	$	86,308	$	(60,592)	$	(105,924)	$	(105,094)
Corporate income, expenses and other items	Corporate income, expenses and other items									(22,023)		Corporate income, expenses and other items									(54,091)
Net income (loss)	Net income (loss)									(125,082)		Net income (loss)									(159,185)
Net (income) loss attributable to noncontrolling interests	Net (income) loss attributable to noncontrolling interests									(52)		Net (income) loss attributable to noncontrolling interests									(33)
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders									$	(125,134)	Net income (loss) attributable to common stockholders									$	(159,218)

(a)Total revenues includes hospitality revenues of ~~$7.7~~$21.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, and ~~$17.2~~$19.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020. Total operating expenses includes hospitality operating costs of ~~$7.9~~$18.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, and ~~$12.9~~$17.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020.

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


RESULTS OF OPERATIONS

Net income attributable to common stockholders increased ~~$58.5~~$38.9 million to income of $4.8 million for the three months ended June 30, 2021, and increased $97.5 million to a loss of ~~$66.6~~$61.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to the ~~prior year period.~~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 ~~March 31,~~June 30, 2021:

Total segment EBT increased ~~$100.2~~$152.9 million compared to the ~~prior year~~prior-year period primarily due to the following:

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

–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 ~~the timing of closings for completed condominium units~~lower land sales revenues at Bridgeland and The Woodlands due to reductions in acres sold

–higher Seaport EBT primarily due to the 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~~

–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 during the first quarter of 2021 and higher land sales revenues at Summerlin due to an increase in custom lot sales, partially offset by lower land sales revenues at Bridgeland due to reductions in acres sold and The Woodlands experiencing no sales during the first quarter of 2021

–~~no impairments during the current quarter compared to the impairment on the Outlet Collection at Riverwalk in the first quarter of~~ 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 ~~lower occupancy at~~an increase in Operating expenses primarily due to the steady return of business operations across our ~~hospitality properties~~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 ~~as well as a decrease in revenue related~~

–lower impairment charge of Century Park during the current quarter, compared to the ~~expiration~~impairment on the Outlet Collection at Riverwalk in the first quarter of ~~a short-term lease at The Woodlands Towers at the Waterway in June 2020.~~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

–~~a decrease in the~~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 ~~$43.3~~$58.2 million compared to the ~~prior year~~prior-year period primarily due to the following:

–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.

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


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, which are reported in the Seaport segment for all periods presented.

Segment EBT Segment EBT for Operating Assets is presented below:


Operating Assets Segment EBT	Operating Assets Segment EBT	Three Months Ended March 31,			Operating Assets Segment EBT	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Rental Revenue	Rental Revenue		$	83,499			$	89,499	$	(6,000)	Rental Revenue	$	86,149	$	77,664	$	8,485	$	169,648	$	167,163	$	2,485
Other land, rental and property revenues	Other land, rental and property revenues		12,940				24,758		(11,818)		Other land, rental and property revenues	27,273		6,613		20,660		40,213		31,371		8,842
Total revenues	Total revenues		96,439				114,257		(17,818)		Total revenues	113,422		84,277		29,145		209,861		198,534		11,327

Operating costs	Operating costs		(35,143)				(38,772)		3,629		Operating costs	(42,379)		(27,338)		(15,041)		(77,522)		(66,110)		(11,412)
Rental property real estate taxes	Rental property real estate taxes		(12,722)				(11,868)		(854)		Rental property real estate taxes	(12,426)		(13,029)		603		(25,148)		(24,897)		(251)
Provision (recovery) for doubtful accounts			631				(1,600)		2,231
(Provision for) recovery of doubtful accounts											(Provision for) recovery of doubtful accounts	1,614		(1,855)		3,469		2,245		(3,455)		5,700
Total operating expenses	Total operating expenses		(47,234)				(52,240)		5,006		Total operating expenses	(53,191)		(42,222)		(10,969)		(100,425)		(94,462)		(5,963)
Segment operating income (loss)	Segment operating income (loss)		49,205				62,017		(12,812)		Segment operating income (loss)	60,231		42,055		18,176		109,436		104,072		5,364
Depreciation and amortization	Depreciation and amortization		(39,651)				(37,089)		(2,562)		Depreciation and amortization	(39,975)		(36,995)		(2,980)		(79,626)		(74,084)		(5,542)
Interest income (expense), net	Interest income (expense), net		(19,000)				(26,193)		7,193		Interest income (expense), net	(18,152)		(23,103)		4,951		(37,152)		(49,296)		12,144
Other income (loss), net	Other income (loss), net		(10,098)				(59)		(10,039)		Other income (loss), net	(156)		226		(382)		(10,254)		167		(10,421)
Equity in earnings (losses) from real estate and other affiliates	Equity in earnings (losses) from real estate and other affiliates		(11,404)				4,394		(15,798)		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	Gain (loss) on sale or disposal of real estate and other assets, net		—				38,124		(38,124)		Gain (loss) on sale or disposal of real estate and other assets, net	—		—		—		—		38,124		(38,124)

Gain (loss) on extinguishment of debt	Gain (loss) on extinguishment of debt		(836)				—		(836)		Gain (loss) on extinguishment of debt	(46)		—		(46)		(882)		—		(882)
Provision for impairment	Provision for impairment		—				(48,738)		48,738		Provision for impairment	—		—		—		—		(48,738)		48,738
Segment EBT	Segment EBT		$	(31,784)			$	(7,544)	$	(24,240)	Segment EBT	$	(8,517)	$	(17,342)	$	8,825	$	(40,301)	$	(24,886)	$	(15,415)

For the three months ended ~~March 31,~~June 30, 2021:

Operating Assets segment EBT ~~decreased $24.2~~increased $8.8 million compared to the ~~prior year~~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 ~~first~~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 $15.4 million compared to the prior-year period primarily due to the following:

–gain on the sale of 100 Fellowship Drive, in The Woodlands, Texas, in the first quarter of 2020 ~~offset by an impairment on~~

–decrease in equity earnings, primarily due to losses incurred at 110 North Wacker during the ~~Outlet Collection at Riverwalk~~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,

–~~net decreases in our Other land, rental~~ 110 North Wacker was deconsolidated and ~~property revenues and related Operating expenses primarily due to lower occupancy at our hospitality properties~~recorded as ~~a result of the COVID-19 pandemic~~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 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

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

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 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.

~~HHC~~ ~~2021 FORM 10-Q~~ ~~| 40~~


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

Although we believe that NOI provides useful information to investors about the performance of our Operating Assets and Seaport 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 section for a reconciliation of Seaport segment EBT to Seaport NOI.


Operating Assets NOI	Operating Assets NOI	Three Months Ended March 31,			Operating Assets NOI	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Total Operating Assets segment EBT	Total Operating Assets segment EBT		$	(31,784)			$	(7,544)	$	(24,240)	Total Operating Assets segment EBT	$	(8,517)	$	(17,342)	$	8,825	$	(40,301)	$	(24,886)	$	(15,415)
Add back:	Add back:										Add back:
Depreciation and amortization	Depreciation and amortization		39,651				37,089		2,562		Depreciation and amortization	39,975		36,995		2,980		79,626		74,084		5,542
Interest (income) expense, net	Interest (income) expense, net		19,000				26,193		(7,193)		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	Equity in (earnings) losses from real estate and other affiliates		11,404				(4,394)		15,798		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	(Gain) loss on sale or disposal of real estate and other assets, net		—				(38,124)		38,124		(Gain) loss on sale or disposal of real estate and other assets, net	—		—		—		—		(38,124)		38,124
(Gain) loss on extinguishment of debt	(Gain) loss on extinguishment of debt		836				—		836		(Gain) loss on extinguishment of debt	46		—		46		882		—		882

Provision for impairment	Provision for impairment		—				48,738		(48,738)		Provision for impairment	—		—		—		—		48,738		(48,738)
Impact of straight-line rent	Impact of straight-line rent		(5,107)				(3,103)		(2,004)		Impact of straight-line rent	(3,987)		(3,248)		(739)		(9,094)		(6,351)		(2,743)
Other	Other		10,139				173		9,966		Other	100		(119)		219		10,239		54		10,185
Operating Assets NOI	Operating Assets NOI		$	44,139			$	59,028	$	(14,889)	Operating Assets NOI	$	56,188	$	38,914	$	17,274	$	100,327	$	97,942	$	2,385

The below table presents Operating Assets NOI by property type:


Operating Assets NOI by Property Type	Operating Assets NOI by Property Type	Three Months Ended March 31,			Operating Assets NOI by Property Type	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Office	Office		$	25,832			$	35,560	$	(9,728)	Office	$	26,283	$	27,731	$	(1,448)	$	52,115	$	63,291	$	(11,176)
Retail	Retail		12,003				14,490		(2,487)		Retail	14,799		8,599		6,200		26,802		23,089		3,713
Multi-family	Multi-family		5,735				4,547		1,188		Multi-family	7,410		3,815		3,595		13,145		8,362		4,783
Hospitality	Hospitality		(147)				4,381		(4,528)		Hospitality	2,721		(1,844)		4,565		2,574		2,537		37
Other	Other		716				50		666		Other	4,975		613		4,362		5,691		663		5,028
Operating Assets NOI	Operating Assets NOI		$	44,139			$	59,028	$	(14,889)	Operating Assets NOI	$	56,188	$	38,914	$	17,274	$	100,327	$	97,942	$	2,385

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

For the three months ended ~~March 31,~~June 30, 2021:

Operating Assets NOI ~~decreased $14.9~~increased $17.3 million compared to the ~~prior year~~prior-year period primarily due to the following:

–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 six months ended June 30, 2021:

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

–~~decrease~~increase at our ~~hospitality~~other properties ~~due~~primarily related to ~~lower occupancy~~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 six months ended ~~March 31,~~June 30, 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

~~HHC~~ –Creekside Park The Grove transferred during the second quarter of 2021 ~~FORM 10-Q~~ ~~| 41~~


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


Master Planned Communities

Segment EBT Segment EBT for MPC Assets is presented below:


MPC Segment EBT	MPC Segment EBT	Three Months Ended March 31,			MPC Segment EBT	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Master Planned Community land sales (a)	Master Planned Community land sales (a)		$	37,477			$	39,732	$	(2,255)	Master Planned Community land sales (a)	$	58,342	$	57,073	$	1,269	$	95,819	$	96,805	$	(986)
Other land, rental and property revenues	Other land, rental and property revenues		4,016				2,955		1,061		Other land, rental and property revenues	4,847		2,893		1,954		8,863		5,848		3,015
Builder price participation (b)	Builder price participation (b)		6,794				7,759		(965)		Builder price participation (b)	11,389		8,947		2,442		18,183		16,706		1,477
Total revenues	Total revenues		48,287				50,446		(2,159)		Total revenues	74,578		68,913		5,665		122,865		119,359		3,506

Master Planned Communities cost of sales	Master Planned Communities cost of sales		(15,651)				(16,786)		1,135		Master Planned Communities cost of sales	(24,858)		(25,875)		1,017		(40,509)		(42,661)		2,152
Operating costs	Operating costs		(7,616)				(6,936)		(680)		Operating costs	(9,047)		(6,095)		(2,952)		(16,663)		(13,031)		(3,632)

Total operating expenses	Total operating expenses		(23,267)				(23,722)		455		Total operating expenses	(33,905)		(31,970)		(1,935)		(57,172)		(55,692)		(1,480)
Segment operating income (loss)	Segment operating income (loss)		25,020				26,724		(1,704)		Segment operating income (loss)	40,673		36,943		3,730		65,693		63,667		2,026
Depreciation and amortization	Depreciation and amortization		(72)				(91)		19		Depreciation and amortization	(98)		(91)		(7)		(170)		(182)		12
Interest income (expense), net	Interest income (expense), net		10,757				8,554		2,203		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	Equity in earnings (losses) from real estate and other affiliates		27,650				8,934		18,716		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	MPC segment EBT		$	63,355			$	44,121	$	19,234	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 ~~which~~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 ~~which~~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.

~~For the three months ended March 31, 2021:~~

MPC segment EBT increased $19.2 million compared to the prior year period. Performance was positively impacted by higher Equity in earnings (losses) from real estate and other affiliates at The Summit due to the impact of unit closings during the period compared to the first quarter of 2020. In addition, lower MPC land sales revenues were primarily attributable to no acres being sold at The Woodlands in the first quarter of 2021 as few residential acres remain to be sold as the development of residential land nears completion, as well as 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 quarter of 2021. These decreases were partially offset by increases in price-per-acre metrics across all MPCs excluding The Woodlands. Additional highlights for the period included:

–The Woodlands Hills’ residential land sales realized an increase of $2.4 million, or 94%, driven by a 92% increase in acres sold in the three months ended March 31, 2021, compared to the same period in 2020.

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For the three months ended June 30, 2021:

MPC segment EBT increased $27.6 million compared to the prior-year period. Performance was positively impacted by higher Equity in earnings (losses) from real estate and other affiliates at The Summit due to the impact of unit closings during the period compared the second quarter of 2020. In addition, higher MPC land sales revenues were primarily attributable to an increase in Summerlin superpad, custom lot and 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, 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 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.

–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 positively impacted by higher Equity in earnings (losses) from real estate and other affiliates at The Summit due to the impact of 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 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, 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 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:


MPC Net Contribution	MPC Net Contribution	Three Months Ended March 31,			MPC Net Contribution	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
MPC Segment EBT	MPC Segment EBT		$	63,355			$	44,121	$	19,234	MPC Segment EBT	$	69,831	$	42,187	$	27,644	$	133,186	$	86,308	$	46,878
Plus:	Plus:										Plus:
Cost of sales - land	Cost of sales - land		15,651				16,786		(1,135)		Cost of sales - land	24,858		25,875		(1,017)		40,509		42,661		(2,152)
Depreciation and amortization	Depreciation and amortization		72				91		(19)		Depreciation and amortization	98		91		7		170		182		(12)
MUD and SID bonds collections, net (a)	MUD and SID bonds collections, net (a)		2,894				1,123		1,771		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	Distributions from real estate and other affiliates		1,144				1,173		(29)		Distributions from real estate and other affiliates	100,528		1,173		99,355		101,672		2,345		99,327
Less:	Less:										Less:
MPC development expenditures	MPC development expenditures		(52,980)				(64,896)		11,916		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	Equity in (earnings) losses in real estate and other affiliates		(27,650)				(8,934)		(18,716)		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	MPC Net Contribution		$	2,486			$	(10,536)	$	13,022	MPC Net Contribution	$	103,061	$	25,741	$	77,320	$	105,547	$	15,204	$	90,343

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

MPC Net Contribution increased ~~$13.0~~$77.3 million for the three months ended ~~March 31,~~June 30, 2021, compared to the same period in 2020, primarily due to ~~decreases~~an increase in distributions from real estate and other affiliates. MPC ~~development expenditures.~~Net Contribution increased $90.3 million for the six months ended June 30, 2021, compared to the same period in 2020, primarily due to an increase in distributions from The Summit.

The following table sets forth MPC land inventory activity for the ~~three~~six months ended ~~March 31,~~June 30, 2021:


thousands	thousands	Bridgeland		Columbia		Summerlin		The Woodlands		The Woodlands Hills		Total MPC		thousands	Bridgeland		Columbia		Summerlin		The Woodlands		The Woodlands Hills		Total MPC
Balance December 31, 2020	Balance December 31, 2020	$	486,867	$	16,625	$	888,954	$	177,341	$	117,732	$	1,687,519	Balance December 31, 2020	$	486,867	$	16,625	$	888,954	$	177,341	$	117,732	$	1,687,519
Acquisitions	Acquisitions	—		—		—		—		—		—		Acquisitions	—		—		—		—		—		—
Development expenditures (a)	Development expenditures (a)	21,334		—		26,875		2,180		2,591		52,980		Development expenditures (a)	54,564		—		61,164		3,598		6,976		126,302
MPC Cost of sales	MPC Cost of sales	(3,440)		—		(10,209)		—		(2,002)		(15,651)		MPC Cost of sales	(6,313)		—		(29,413)		(361)		(4,422)		(40,509)
MUD reimbursable costs (b)	MUD reimbursable costs (b)	(13,989)		—		—		(125)		(1,093)		(15,207)		MUD reimbursable costs (b)	(35,137)		—		—		(127)		(2,978)		(38,242)
Transfer to Strategic Developments	Transfer to Strategic Developments	—		—		—		—		—		—		Transfer to Strategic Developments	(402)		—		—		—		—		(402)
Other (c)	Other (c)	2,077		—		1,736		(496)		1,134		4,451		Other (c)	3,204		—		5,432		(602)		800		8,834
Balance March 31, 2021		$	492,849	$	16,625	$	907,356	$	178,900	$	118,362	$	1,714,092
Balance June 30, 2021														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.

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


Seaport

The Seaport is part non-stabilized operating asset, part development project and part operating business. As such, the Seaport 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 joint ventures, many of the tenants in the Seaport, 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. 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 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 reaches its critical mass of offerings. We expect the time to stabilize the Seaport 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 the continued impacts related to COVID-19, we do not currently provide guidance on our expected NOI yield and stabilization date for the Seaport. As we move closer to opening a critical mass of offerings at the Seaport, we will re-establish goals for yield on costs and stabilization dates when the uncertainties and range of possible outcomes are clearer.

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We primarily categorize the businesses in the Seaport segment into three groups: landlord operations, managed businesses, and events and sponsorships. 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 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. 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 the food and beverage operations for the Fulton, R17, Cobble & Co. and Malibu Farm. Creative Culinary is responsible for employment and supervision of all employees providing services for the food and beverage operations and restaurant as well as day-to-day operations and accounting for food and beverage operations. In ~~2021,~~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 ~~which~~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 ~~late 2021.~~early 2022.

Our events and sponsorship businesses have historically included our concert series, Winterland skating and bar, event catering, private events and sponsorships. With the cancellation of the 2020 summer concert series and the Winterland skating and bar, we launched a new concept at the Pier 17 rooftop called The Greens, which continued through the end of the first quarter of 2021. The Greens 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 the launch of the 2021 summer concert series.

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Our events and sponsorship businesses have historically included our concert series, Winterland skating and bar, event catering, private events and sponsorships. With the cancellation of the 2020 summer concert series and the Winterland skating and bar, in August, we launched a new concept at the Pier 17 rooftop called The Greens, which continued through the end first quarter of 2021 and is expected to return in May 2021 to compliment the summer concert series. The Greens continues to generate high customer demand for the outdoor venue and will help to fulfill obligations under our sponsorship agreements.

Segment EBT Segment EBT for Seaport is presented below:


Seaport Segment EBT	Seaport Segment EBT	Three Months Ended March 31,			Seaport Segment EBT	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Rental Revenue	Rental Revenue		$	2,228			$	3,136	$	(908)	Rental Revenue	$	2,139	$	944	$	1,195	$	4,367	$	4,080	$	287
Other land, rental and property revenues	Other land, rental and property revenues		5,225				6,558		(1,333)		Other land, rental and property revenues	8,759		1,328		7,431		13,984		7,886		6,098
Total revenues	Total revenues		7,453				9,694		(2,241)		Total revenues	10,898		2,272		8,626		18,351		11,966		6,385

Operating costs	Operating costs		(12,159)				(13,857)		1,698		Operating costs	(15,522)		(8,099)		(7,423)		(27,681)		(21,956)		(5,725)
Rental property real estate taxes	Rental property real estate taxes		(294)				(353)		59		Rental property real estate taxes	(380)		(354)		(26)		(674)		(707)		33
Provision (recovery) for doubtful accounts			(53)				(101)		48
(Provision for) recovery of doubtful accounts											(Provision for) recovery of doubtful accounts	(94)		(11)		(83)		(147)		(112)		(35)
Total operating expenses	Total operating expenses		(12,506)				(14,311)		1,805		Total operating expenses	(15,996)		(8,464)		(7,532)		(28,502)		(22,775)		(5,727)
Segment operating income (loss)	Segment operating income (loss)		(5,053)				(4,617)		(436)		Segment operating income (loss)	(5,098)		(6,192)		1,094		(10,151)		(10,809)		658
Depreciation and amortization	Depreciation and amortization		(6,835)				(20,875)		14,040		Depreciation and amortization	(7,004)		(6,776)		(228)		(13,839)		(27,651)		13,812
Interest income (expense), net	Interest income (expense), net		102				(5,053)		5,155		Interest income (expense), net	187		(4,626)		4,813		289		(9,679)		9,968
Other income (loss), net	Other income (loss), net		(336)				(3,368)		3,032		Other income (loss), net	(618)		(409)		(209)		(954)		(3,777)		2,823
Equity in earnings (losses) from real estate and other affiliates	Equity in earnings (losses) from real estate and other affiliates		(352)				(2,043)		1,691		Equity in earnings (losses) from real estate and other affiliates	(336)		(6,633)		6,297		(688)		(8,676)		7,988

Gain (loss) on extinguishment of debt			—				—		—

Segment EBT	Segment EBT		$	(12,474)			$	(35,956)	$	23,482	Segment EBT	$	(12,869)	$	(24,636)	$	11,767	$	(25,343)	$	(60,592)	$	35,249

For the three months ended ~~March 31,~~June 30, 2021:

Seaport segment EBT ~~increased $23.5~~loss decreased $11.8 million compared to the ~~prior year~~prior-year period primarily due to the following:

–$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 six months ended June 30, 2021:

Seaport segment EBT loss decreased $35.2 million compared to the prior-year period primarily due to the following:

–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 segment EBT to Seaport NOI is presented in the table below:


Seaport NOI	Seaport NOI	Three Months Ended March 31,			Seaport NOI	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Total Seaport segment EBT	Total Seaport segment EBT		$	(12,474)			$	(35,956)	$	23,482	Total Seaport segment EBT	$	(12,869)	$	(24,636)	$	11,767	$	(25,343)	$	(60,592)	$	35,249
Add back:	Add back:										Add back:
Depreciation and amortization	Depreciation and amortization		6,835				20,875		(14,040)		Depreciation and amortization	7,004		6,776		228		13,839		27,651		(13,812)
Interest (income) expense, net	Interest (income) expense, net		(102)				5,053		(5,155)		Interest (income) expense, net	(187)		4,626		(4,813)		(289)		9,679		(9,968)
Equity in (earnings) losses from real estate and other affiliates	Equity in (earnings) losses from real estate and other affiliates		352				2,043		(1,691)		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	Impact of straight-line rent		404				125		279		Impact of straight-line rent	463		1,208		(745)		867		1,333		(466)
Other (income) loss, net (a)	Other (income) loss, net (a)		741				3,970		(3,229)		Other (income) loss, net (a)	978		1,953		(975)		1,719		5,923		(4,204)
Seaport NOI	Seaport NOI		$	(4,244)			$	(3,890)	$	(354)	Seaport NOI	$	(4,275)	$	(3,440)	$	(835)	$	(8,519)	$	(7,330)	$	(1,189)

(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.

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The below table presents Seaport NOI by category:


Seaport NOI by Category	Seaport NOI by Category	Three Months Ended March 31,			Seaport NOI by Category	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Landlord Operations - Historic District & Pier 17	Landlord Operations - Historic District & Pier 17		$	(3,240)			$	(1,861)	$	(1,379)	Landlord Operations - Historic District & Pier 17	$	(3,834)	$	(1,611)	$	(2,223)	$	(7,074)	$	(3,472)	$	(3,602)
Multi-family	Multi-family		92				104		(12)		Multi-family	44		110		(66)		136		214		(78)

Hospitality											Hospitality	—		(12)		12		—		(12)		12
Managed Businesses - Historic District & Pier 17	Managed Businesses - Historic District & Pier 17		(660)				(2,080)		1,420		Managed Businesses - Historic District & Pier 17	(256)		(1,256)		1,000		(916)		(3,336)		2,420

Events, Sponsorships & Catering Business	Events, Sponsorships & Catering Business		(436)				(53)		(383)		Events, Sponsorships & Catering Business	(229)		(671)		442		(665)		(724)		59
Seaport NOI	Seaport NOI		$	(4,244)			$	(3,890)	$	(354)	Seaport NOI	$	(4,275)	$	(3,440)	$	(835)	$	(8,519)	$	(7,330)	$	(1,189)

Seaport NOI decreased for the three and six months ended ~~March 31,~~June 30, 2021, compared to the ~~prior year~~prior-year period, primarily due to ~~defaults,~~increased operating expenses in our landlord operations, partially offset by increased revenue in our managed business entities, as business resumes after the ~~recognition~~onset of ~~rental revenue on a cash basis due to collectibility issues and the cancellation of events, all related to~~ the COVID-19 ~~pandemic.~~pandemic in 2020.

Including managed businesses, events, sponsorships, catering and the Tin Building, the Seaport is approximately 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 reaches its critical mass of offerings, including the opening of the Tin Building.

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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	Strategic Developments Segment EBT	Three Months Ended March 31,			Strategic Developments Segment EBT	Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021				2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Condominium rights and unit sales	Condominium rights and unit sales		$	37,167			$	43	$	37,124	Condominium rights and unit sales	$	12,861	$	—	$	12,861	$	50,028	$	43	$	49,985
Rental Revenue	Rental Revenue		88				109		(21)		Rental Revenue	104		98		6		192		207		(15)
Other land, rental and property revenues	Other land, rental and property revenues		1,045				608		437		Other land, rental and property revenues	501		526		(25)		1,546		1,134		412
Total revenues	Total revenues		38,300				760		37,540		Total revenues	$	13,466	$	624	$	12,842	$	51,766	$	1,384	$	50,382

Condominium rights and unit cost of sales	Condominium rights and unit cost of sales		(54,968)				(97,901)		42,933		Condominium rights and unit cost of sales	(13,435)		(6,348)		(7,087)		(68,403)		(104,249)		35,846
Operating costs	Operating costs		(3,680)				(5,041)		1,361		Operating costs	(4,295)		(4,353)		58		(7,975)		(9,394)		1,419
Rental property real estate taxes	Rental property real estate taxes		(975)				(1,357)		382		Rental property real estate taxes	(910)		(1,816)		906		(1,885)		(3,173)		1,288

Total operating expenses	Total operating expenses		(59,623)				(104,299)		44,676		Total operating expenses	(18,640)		(12,517)		(6,123)		(78,263)		(116,816)		38,553
Segment operating income (loss)	Segment operating income (loss)		(21,323)				(103,539)		82,216		Segment operating income (loss)	(5,174)		(11,893)		6,719		(26,497)		(115,432)		88,935
Depreciation and amortization	Depreciation and amortization		(1,598)				(1,761)		163		Depreciation and amortization	(1,597)		(1,650)		53		(3,195)		(3,411)		216
Interest income (expense), net	Interest income (expense), net		1,101				1,931		(830)		Interest income (expense), net	659		1,057		(398)		1,760		2,988		(1,228)
Other income (loss), net	Other income (loss), net		—				(375)		375		Other income (loss), net	14		1,668		(1,654)		14		1,293		(1,279)
Equity in earnings (losses) from real estate and other affiliates	Equity in earnings (losses) from real estate and other affiliates		(98)				64		(162)		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											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											Provision for impairment	(13,068)		—		(13,068)		(13,068)		—		(13,068)
Segment EBT	Segment EBT		$	(21,918)			$	(103,680)	$	81,762	Segment EBT	$	2,148	$	(2,244)	$	4,392	$	(19,770)	$	(105,924)	$	86,154

For the three months ended June 30, 2021:

Strategic Developments segment EBT increased $4.4 million compared to the prior-year period primarily due to the following:

–increase in Gain (loss) on sale or disposal of real estate and other assets, net 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.

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

For the ~~three~~six months ended ~~March 31,~~June 30, 2021:

Strategic Developments segment EBT increased ~~$81.8~~$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:

–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 ~~$20.5~~$21.0 million was charged during the ~~three~~six months ended ~~March 31,~~June 30, 2021, related to additional anticipated costs, compared to ~~the initial charge~~charges of ~~$97.9~~$99.1 million during the ~~three~~six months ended ~~March 31,~~June 30, 2020. Refer to Note 9 - Commitments and Contingencies in our Condensed Consolidated Financial Statements for additional information.

–increase in Condominium rights and unit sales, net of costs, driven by the timing of condominium closings. The Company closed on four units at Waiea and ~~one unit~~two units at Anaha during the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to no closings during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

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 ~~five~~six condominium inventory units during the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to no condominium unit closings during the ~~three~~six months ended ~~March 31,~~June 30, 2020. However, overall progress at our condominium projects remains strong, as evidenced by the 5six units closed at our completed towers and 4691 units contracted to sell at our under construction towers during the ~~first quarter of~~six months ended June 30, 2021. Victoria Place, our newest project and Ward Village’s fastest-selling tower to date, accounted for 3058 of these contracted ~~units.~~units and is 93.4% sold as of June 30, 2021.

Completed Condominiums As of ~~March 31,~~June 30, 2021, our four completed towers are 99.8% sold. During the ~~three~~six months ended ~~March 31,~~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 ~~three~~six months ended ~~March 31,~~June 30, 2021, we closed on the two remaining ~~unsold unit~~units at ~~Anaha went under contract and closed. The last unit at Anaha remained under contract as of March 31, 2021, and closed during April 2021.~~Anaha. As a result, Ae’o, Ke Kilohana and Anaha are completely ~~sold as of April 2021.~~sold.

Under Construction Condominiums As of ~~March 31,~~June 30, 2021, our three under construction towers are ~~83.7%~~86.4% sold. ‘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 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 tower, in February 2021. Victoria Place is a 40-story, 349-unit condominium project that will consist of one-, two- and three-bedroom residences.

The following provides further detail for Ward Village as of ~~March 31,~~June 30, 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		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	Completed									Completed
Waiea (a)	Waiea (a)	174	—	177	98.3	%	97.7	%	Q4 2016	Waiea (a)	174	—	177	98.3	%	97.7	%	Q4 2016
Anaha (a)	Anaha (a)	316	1	317	100.0	%	100.0	%	Q4 2017	Anaha (a)	317	—	317	100.0	%	100.0	%	Q4 2017
Ae’o (b)	Ae’o (b)	465	—	465	100.0	%	100.0	%	Q4 2018	Ae’o (b)	465	—	465	100.0	%	100.0	%	Q4 2018
Ke Kilohana (a)	Ke Kilohana (a)	423	—	423	100.0	%	100.0	%	Q2 2019	Ke Kilohana (a)	423	—	423	100.0	%	100.0	%	Q2 2019
Under construction	Under construction									Under construction
‘A‘ali‘i (c)	‘A‘ali‘i (c)	—	648	750	86.4	%	81.7	%	Q4 2021	‘A‘ali‘i (c)	—	653	750	87.1	%	82.3	%	Q4 2021
Kō'ula (d)	Kō'ula (d)	—	447	565	79.1	%	81.5	%	2022	Kō'ula (d)	—	459	565	81.2	%	84.1	%	2022
Victoria Place	Victoria Place	—	298	349	85.4	%	87.6	%	2024	Victoria Place	—	326	349	93.4	%	94.6	%	2024

(a)The retail portions of these projects are 100% leased and have been placed in service.

(b)The retail portion of the project, which is primarily comprised of the 57,000-square-foot flagship Whole Foods Market, is 97.9% leased and has been placed into service.

(c)There will be approximately 12,000 square feet of new street level retail space as part of this project.

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

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


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 March 31,			Three Months Ended June 30,								Six Months Ended June 30,
thousands	thousands		2021			2020		$ Change		thousands	2021		2020		$ Change		2021		2020		$ Change
Corporate income	Corporate income		$	101		$	18	$	83	Corporate income	$	93	$	87	$	6	$	194	$	105	$	89
General and administrative	General and administrative		(21,766)			(39,081)		17,315		General and administrative	(20,334)		(22,233)		1,899		(42,100)		(61,314)		19,214
Corporate interest expense, net	Corporate interest expense, net		(27,129)			(12,541)		(14,588)		Corporate interest expense, net	(24,717)		(13,624)		(11,093)		(51,846)		(26,165)		(25,681)
Gain (loss) on extinguishment of debt	Gain (loss) on extinguishment of debt		(35,079)			—		(35,079)		Gain (loss) on extinguishment of debt	(5)		—		(5)		(35,084)		—		(35,084)

Corporate other income (loss), net	Corporate other income (loss), net		126			118		8		Corporate other income (loss), net	97		122		(25)		223		240		(17)

Corporate depreciation and amortization	Corporate depreciation and amortization		(1,152)			(1,821)		669		Corporate depreciation and amortization	(1,114)		(1,451)		337		(2,266)		(3,272)		1,006

Demolition costs										Demolition costs	(149)		—		(149)		(149)		—		(149)
Development-related marketing costs	Development-related marketing costs		(1,644)			(2,816)		1,172		Development-related marketing costs	(2,397)		(1,813)		(584)		(4,041)		(4,629)		588
Income tax (expense) benefit	Income tax (expense) benefit		21,205			34,100		(12,895)		Income tax (expense) benefit	1,550		6,844		(5,294)		22,755		40,944		(18,189)
Total Corporate income, expenses and other items	Total Corporate income, expenses and other items		$	(65,338)		$	(22,023)	$	(43,315)	Total Corporate income, expenses and other items	$	(46,976)	$	(32,068)	$	(14,908)	$	(112,314)	$	(54,091)	$	(58,223)

For the three months ended ~~March 31,~~June 30, 2021:

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

–increase in corporate interest expense, net primarily due to the 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 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 June 30, 2021, the period was also unfavorably impacted by the following:

–loss on extinguishment of debt of $35.1 million due to the repurchase of the Company’s $1.0 billion 5.375% Senior Notes due 2025

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

–decrease in General and administrative expenses primarily related to workforce reductions and other corporate initiatives, which are part of an overall plan to reduce recurring overhead costs, and a decrease in consulting expenses as a result of fewer IT projects taking place in 2021

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

–~~loss on extinguishment of debt of $35.1 million due to the repurchase of the Company’s $1.0 billion 5.375% Senior Notes due 2025~~

–~~increase in corporate interest expense, net primarily due to the issuance of $750 million in senior notes in August 2020~~

–~~decrease in income tax benefit primarily due to a decrease in the loss before income taxes~~

~~Income Taxes~~

Three Months Ended March 31,
thousands except percentages 2021 2020 $ Change
Income tax expense (benefit) $ (21,205) $ (34,100) $ 12,895
Income (loss) before income taxes (89,364) (159,182) 69,818
Effective tax rate 23.7 % 21.4 % 2.3 %

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.

HHC 2021 FORM 10-Q | 4859


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


Liquidity and Capital Resources

Throughout the pandemic we have focused on measures to increase our liquidity. As a result, we have been able to maintain a strong balance sheet and ensure we maintain the financial flexibility and liquidity necessary to fund future growth. We continued to enhance our liquidity profile in the first quarter of 2021 through the issuance of $650 million in 4.125% Senior Notes due 2029 and $650 million in 4.375% Senior Notes due 2031. The Company used the net proceeds from the issuance, 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 development of Victoria Place in Ward Village. In April 2021, the Company closed on $125.3 million of additional new construction financings for Marlow in Columbia and Starling at Bridgeland, as well as a $58.5 million loan to replace the 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 to 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.

Our primary sources of cash include cash flow from land sales in 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 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 $4.4 billion as of ~~March 31,~~June 30, 2021. Refer to Note 6 - 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 totaled ~~$286.9~~$291.3 million as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 Master Planned Communities Seaport Strategic Developments Segment Totals Non-Segment Amounts March 31, 2021
Mortgages, notes and loans payable $ 1,771,448 $ 179,994 $ 99,201 $ 325,261 $ 2,375,904 $ 2,019,283 $ 4,395,187
Mortgages, notes and loans payable of real estate and other affiliates 281,355 5,584 — — 286,939 — 286,939
Less:
Cash and cash equivalents (97,501) (103,928) (9,616) (8,489) (219,534) (756,250) (975,784)
Cash and cash equivalents of real estate and other affiliates (4,429) (140,887) (101) (259) (145,676) — (145,676)
Special Improvement District receivables — (51,952) — — (51,952) — (51,952)
Municipal Utility District receivables, net — (332,040) — — (332,040) — (332,040)
TIF receivable — — — (1,103) (1,103) — (1,103)
Net Debt $ 1,950,873 $ (443,229) $ 89,484 $ 315,410 $ 1,912,538 $ 1,263,033 $ 3,175,571

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


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

Due 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 ~~March 31,~~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, ~~$9.4~~$33.6 million of excess net cash flow after debt service from the underlying properties became restricted as of ~~March 31,~~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.


Cash Flows


		Three Months Ended March 31,					Six Months Ended June 30,
thousands	thousands	2021		2020		thousands	2021		2020
Cash provided by (used in) operating activities	Cash provided by (used in) operating activities	$	(84,742)	$	(73,181)	Cash provided by (used in) operating activities	$	(79,935)	$	(98,643)
Cash provided by (used in) investing activities	Cash provided by (used in) investing activities	(56,985)		(153,206)		Cash provided by (used in) investing activities	(10,877)		(267,489)
Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	73,058		844,965		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 2021. Operating cash continued to be utilized in the first ~~quarter~~half of 2021, to fund ongoing development expenditures in our Strategic Developments, Seaport and MPC segments, consistent with prior years.

The cash flows and earnings from the MPC business may fluctuate more than from our operating assets because the MPC business generates revenues from land sales rather than recurring contractual revenues from operating leases. MPC land sales are a substantial portion of our cash flows from operating activities and are partially offset by development costs associated with the land sales business and acquisitions of land that is intended to ultimately be developed and sold.

The extent to which the COVID-19 pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, 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, among others.

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

Net cash used in operating activities was ~~$84.7~~$79.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, and ~~$73.2~~$98.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020. The ~~$11.6~~$18.7 million net ~~increase~~decrease in cash used in operating activities in the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to the same period in 2020, was primarily ~~related~~due to ~~an increase~~the timing of ~~$20.5 million in~~MPC and condominium ~~development~~ expenditures ~~which was partially offset by an $11.9 million decrease in Master Planned Community development expenditures.~~and sales.

Investing Activities Net cash used in investing activities was ~~$57.0~~$10.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, and ~~$153.2~~$267.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020. The ~~$96.2~~$256.6 million decrease in cash used was primarily the result of ~~the~~a $128.5 million decrease in property development and redevelopment expenditures, and a $81.8 million increase in 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 ~~three~~six months ended ~~March 31, 2021, primarily attributable to the timing of development projects and the completion of 110 North Wacker and Two Lakes Edge in 2020.~~June 30, 2021.

Financing Activities Net cash provided by financing activities was ~~$73.1~~$130.6 million for ~~three~~six months ended ~~March 31,~~June 30, 2021, as compared to net cash provided by financing activities of ~~$845.0~~$934.3 million for ~~three~~six months ended ~~March 31,~~June 30, 2020. The decrease of ~~$771.9~~$803.7 million was primarily due to the $593.6 million common stock issuance in 2020 that did not repeat in 2021. In addition, principal payments on mortgages, notes and loans payable increased $1.3 billion, partially offset by an increase of $1.1 billion in proceeds from mortgages, notes and loans payable.

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~~Table of Contents~~


Contractual Cash Obligations and Commitments

The following table summarizes our contractual obligations as of ~~March 31,~~June 30, 2021:


thousands	thousands	Remaining in 2021		2022		2023		2024		2025		2026		Thereafter		Total		thousands	Remaining in 2021		2022		2023		2024		2025		2026		Thereafter		Total
Mortgages, notes and loans payable (a)	Mortgages, notes and loans payable (a)	$	38,403	$	77,689	$	1,128,042	$	437,126	$	153,077	$	72,782	$	2,532,403	$	4,439,522	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)	Interest payments (b)	139,337		182,981		171,610		136,149		122,480		118,637		341,490		1,212,684		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	Ground lease and other leasing commitments	2,896		4,325		4,371		4,419		4,468		4,518		245,423		270,420		Ground lease and other leasing commitments	1,946		4,325		4,371		4,419		4,468		4,518		245,424		269,471
Total	Total	$	180,636	$	264,995	$	1,304,023	$	577,694	$	280,025	$	195,937	$	3,119,316	$	5,922,626	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 ~~April~~July 2021, the Company closed on ~~an $82.6 million construction loan due April 2025 with~~ a one-year extension option for the development of Marlow in Columbia, a $42.7 million construction loan due May 2026 with a one-year extension option for the development of Starling at Bridgeland, and a $58.5$35.5 million loan ~~due May~~maturing in September 2031 to replace the existing construction loan for ~~Tanager Apartments~~Lakeside Row in ~~Downtown Summerlin.~~Bridgeland.

(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 ~~$584.0~~$610.2 million as of ~~March 31,~~June 30, 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 - Summary of Significant Accounting Policies in our Annual Report and in this Quarterly Report.

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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 and caps. As of ~~March 31,~~June 30, 2021, of our $1.8 billion of variable-rate debt outstanding, $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 ~~$42.7~~$49.2 million as of ~~March 31,~~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 ~~March 31,~~June 30, 2021, annual interest costs would increase approximately $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, 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 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 6 - Mortgages, Notes and Loans Payable, Net and Note 8 - Derivative Instruments and Hedging Activities in our Condensed Consolidated Financial Statements. 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, 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.

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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.

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 ~~March 31,~~June 30, 2021, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2021.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting that occurred during the ~~first quarter of 2021~~period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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OTHER INFORMATION			Table of Contents


PART II

Item 1. Legal Proceedings

Please refer to Note 9 - 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


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 ~~first~~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
January 1-31, 2021 — $ — — $ 46,100,000
February 1-28, 2021 15,836 $ 98.25 — $ 46,100,000
March 1-31, 2021 — $ — — $ 46,100,000
Total 15,836 $ 98.25 —


	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.

HHC 2021 FORM 10-Q | 5365

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


~~4.1~~10.1**						~~Indenture, dated as of February 2,~~Employment Agreement, effective April 19, 2021, by and ~~among~~between The Howard Hughes Corporation ~~HHC Warehouse Holding Company, LLC, HH Warehouse Land Holdings, LLC, HH Woodlands Tower Holdings, LLC, API/HHC Lake Robbins Holding Company, LLC,~~ and ~~Wells Fargo Bank, National Association, as trustee~~Correne Loeffler (incorporated by reference to Exhibit ~~4.1~~10.1 to the ~~Company's current Report on Form 8-K, filed on February 4, 2021)~~

~~4.2~~						Indenture, dated as of February 2, 2021, by and among The Howard Hughes Corporation, HHC Warehouse Holding Company, LLC, HH Warehouse Land Holdings, LLC, HH Woodlands Tower Holdings, LLC, API/HHC Lake Robbins Holding Company, LLC, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company'sCompany’s Current Report on Form 8-K filed on ~~February 4,~~April 8, 2021)

~~4.3~~						Fourth Supplemental Indenture, dated as of February 2, 2021, to the indenture dated as of March 16, 2017, by and among The Howard Hughes Corporation, HHC Warehouse Holdings Company, LLC, HH Warehouse Land Holdings, LLC, HH Woodlands Tower Holdings, LLC, API/HHC Lake Robbins Holding Company, LLC, and Wells Fargo Bank, National Association, as the trustee (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K, filed on February 4, 2021)

~~10.1**+~~						~~Form of Time-Based Restricted Stock Award (Executives with Employment Agreements) under The Howard Hughes Corporation 2020 Equity Incentive Plan~~

10.2**+						Form of ~~Time-Based~~ Restricted Stock Award ~~(Executive Officers without Employment Agreements)~~(Non-Employee Directors) under The Howard Hughes Corporation 2020 Equity Incentive Plan

~~10.3**+~~						~~Form of Performance-Based Restricted Stock Award (Executive Officers with Employment Agreements) under The Howard Hughes Corporation 2020 Equity Incentive Plan~~

~~10.4**+~~						~~Form of Performance-Based Restricted Stock Award (Executive Officers without Employment Agreements) under The Howard Hughes Corporation 2020 Equity Incentive Plan~~

~~10.5**+~~						~~Amended and Restated Performance-Based Restricted Stock Award Agreement, dated January 4, 2021, by and between The Howard Hughes Corporation and Saul Scherl~~

10.6**						2021 Offer Letter, effective March 10, 2021, by and between The Howard Hughes Corporation and Saul Scherl (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March 15, 2021)

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)

** Management contract, compensatory plan or arrangement

+ Filed herewith

++ Furnished herewith

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

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 six months ended ~~March 31,~~June 30, 2021 and 2020, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended ~~March 31,~~June 30, 2021, and 2020, (iii) the Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2021 and December 31, 2020, (iv) Condensed Consolidated Statements of Equity for the three and six months ended ~~March 31,~~June 30, 2021 and 2020, (v) the Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, and (vi) the Notes to Condensed Consolidated Financial Statements.

HHC 2021 FORM 10-Q | 5566

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/ Correne Loeffler
									Correne Loeffler
									Chief Financial Officer
									~~May 10,~~August 4, 2021

HHC 2021 FORM 10-Q | 5667


Other Information	March 31, 2021		March 31, 2020
Weighted-average remaining lease term (years)
Operating leases	37.2		37.1
Weighted-average discount rate
Operating leases	7.8	%	7.8	%


Index			Page
Forward-looking Information			3138
Executive Overview			3240
Results of Operations			3948
Operating Assets			4049
Master Planned Communities			4251
Seaport			4353
Strategic Developments			4657
Corporate Income, Expenses and Other Items			4859
Liquidity and Capital Resources			4960
Off-Balance Sheet Financing Arrangements			5162
Critical Accounting Policies			5162