Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended September 30, 2014

 

or

 

o

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

 

(I.R.S. employer

incorporation or organization)

 

identification number)

 

13355 Noel Road, 22nd Floor, Dallas, Texas 75240

(Address of principal executive offices, including zip code)

 

(214) 741-7744

(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.  

 

x Yes  o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). 

 

x Yes  o No

 

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

 

Large accelerated filer x

Accelerated filer o

 

 

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

 

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

 

o Yes  x No

 

The number of shares of common stock, $0.01 par value, outstanding as of November 5, 2014 was 39,638,094.

 

 

 



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

INDEX

 

 

 

 

PAGE

 

 

 

NUMBER

 

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

Item 1: Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013

 

5

 

 

 

 

 

Condensed Consolidated Statements of Equity for the nine months ended September 30, 2014 and 2013

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013

 

7

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

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

 

35

 

 

 

 

 

Item 3: Quantitative and Qualitative Disclosures about Market Risk

 

65

 

 

 

 

 

Item 4: Controls and Procedures

 

66

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1: Legal Proceedings

 

66

 

 

 

 

 

Item 1A: Risk Factors

 

67

 

 

 

 

 

Item 6: Exhibits

 

67

 

 

 

 

 

SIGNATURE

 

68

 

 

 

 

 

EXHIBIT INDEX

 

69

 

2



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

UNAUDITED

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(In thousands, except share amounts)

 

Assets:

 

 

 

 

 

Investment in real estate:

 

 

 

 

 

Master Planned Community assets

 

$

1,605,814

 

$

1,537,758

 

Land

 

263,032

 

244,041

 

Buildings and equipment

 

907,283

 

754,878

 

Less: accumulated depreciation

 

(138,176

)

(111,728

)

Developments

 

899,827

 

488,156

 

Net property and equipment

 

3,537,780

 

2,913,105

 

Investment in Real Estate and Other Affiliates

 

85,344

 

61,021

 

Net investment in real estate

 

3,623,124

 

2,974,126

 

Cash and cash equivalents

 

805,606

 

894,948

 

Accounts receivable, net

 

25,827

 

21,409

 

Municipal Utility District receivables, net

 

122,515

 

125,830

 

Notes receivable, net

 

12,724

 

20,554

 

Tax indemnity receivable, including interest

 

333,877

 

320,494

 

Deferred expenses, net

 

73,230

 

36,567

 

Prepaid expenses and other assets, net

 

314,266

 

173,940

 

Total assets

 

$

5,311,169

 

$

4,567,868

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgages, notes and loans payable

 

$

1,880,916

 

$

1,514,623

 

Deferred tax liabilities

 

41,038

 

89,365

 

Warrant liabilities

 

444,680

 

305,560

 

Uncertain tax position liability

 

231,904

 

129,183

 

Accounts payable and accrued expenses

 

516,461

 

283,991

 

Total liabilities

 

3,114,999

 

2,322,722

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 15)

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued

 

 

 

Common stock: $.01 par value; 150,000,000 shares authorized, 39,638,094 shares issued and outstanding as of September 30, 2014 and 39,576,344 shares issued and outstanding as of December 31, 2013

 

396

 

396

 

Additional paid-in capital

 

2,835,753

 

2,829,813

 

Accumulated deficit

 

(638,864

)

(583,403

)

Accumulated other comprehensive loss

 

(7,677

)

(8,222

)

Total stockholders’ equity

 

2,189,608

 

2,238,584

 

Noncontrolling interests

 

6,562

 

6,562

 

Total equity

 

2,196,170

 

2,245,146

 

Total liabilities and equity

 

$

5,311,169

 

$

4,567,868

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

UNAUDITED

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(In thousands, except per share amounts)

 

Revenues:

 

 

 

 

 

 

 

 

 

Master Planned Community land sales

 

$

59,351

 

$

53,734

 

$

260,186

 

$

166,981

 

Builder price participation

 

5,311

 

2,002

 

13,251

 

5,703

 

Minimum rents

 

24,380

 

21,538

 

66,929

 

60,598

 

Tenant recoveries

 

7,601

 

5,291

 

20,509

 

15,681

 

Condominium rights and unit sales

 

4,032

 

810

 

11,516

 

31,191

 

Resort and conference center revenues

 

8,150

 

8,169

 

27,198

 

30,543

 

Other land revenues

 

4,112

 

3,579

 

9,322

 

10,211

 

Other rental and property revenues

 

6,291

 

4,492

 

18,601

 

14,557

 

Total revenues

 

119,228

 

99,615

 

427,512

 

335,465

 

Expenses:

 

 

 

 

 

 

 

 

 

Master Planned Community cost of sales

 

27,743

 

27,063

 

93,540

 

82,616

 

Master Planned Community operations

 

10,995

 

9,764

 

31,645

 

28,054

 

Other property operating costs

 

15,198

 

20,329

 

45,603

 

52,126

 

Rental property real estate taxes

 

4,559

 

3,698

 

12,540

 

10,814

 

Rental property maintenance costs

 

2,313

 

2,048

 

6,402

 

5,996

 

Condominium rights and unit cost of sales

 

2,026

 

406

 

5,788

 

15,678

 

Resort and conference center operations

 

8,910

 

7,381

 

22,833

 

22,537

 

Provision for doubtful accounts

 

119

 

204

 

293

 

910

 

Demolition costs

 

760

 

1,386

 

6,711

 

1,386

 

Development-related marketing costs

 

6,387

 

1,050

 

15,909

 

1,771

 

General and administrative

 

14,759

 

11,914

 

49,138

 

34,310

 

Other income, net

 

(11,409

)

(6,314

)

(27,468

)

(11,727

)

Depreciation and amortization

 

13,018

 

9,986

 

35,000

 

23,210

 

Total expenses

 

95,378

 

88,915

 

297,934

 

267,681

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

23,850

 

10,700

 

129,578

 

67,784

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

(1,162

)

2,061

 

19,651

 

6,484

 

Interest expense

 

(12,136

)

(1

)

(28,354

)

(144

)

Warrant liability gain (loss)

 

24,690

 

(4,479

)

(139,120

)

(148,706

)

Increase (reduction) in tax indemnity receivable

 

5,454

 

730

 

(5,473

)

(8,673

)

Equity in earnings from Real Estate and Other Affiliates

 

5,509

 

3,594

 

18,164

 

12,034

 

Income (loss) before taxes

 

46,205

 

12,605

 

(5,554

)

(71,221

)

Provision for income taxes

 

590

 

5,172

 

49,895

 

21,012

 

Net income (loss)

 

45,615

 

7,433

 

(55,449

)

(92,233

)

Net income attributable to noncontrolling interests

 

 

(98

)

(12

)

(110

)

Net income (loss) attributable to common stockholders

 

$

45,615

 

$

7,335

 

$

(55,461

)

$

(92,343

)

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

$

1.16

 

$

0.19

 

$

(1.41

)

$

(2.34

)

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

$

0.48

 

$

0.17

 

$

(1.41

)

$

(2.34

)

 

See Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

UNAUDITED

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(In thousands)

 

Comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

45,615

 

$

7,433

 

$

(55,449

)

$

(92,233

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Interest rate swaps (a)

 

784

 

(413

)

902

 

2,120

 

Capitalized swap interest (b)

 

(180

)

(293

)

(357

)

(1,024

)

Other comprehensive income (loss)

 

604

 

(706

)

545

 

1,096

 

Comprehensive income (loss)

 

46,219

 

6,727

 

(54,904

)

(91,137

)

Comprehensive income attributable to noncontrolling interests

 

 

(98

)

(12

)

(110

)

Comprehensive income (loss) attributable to common stockholders

 

$

46,219

 

$

6,629

 

$

(54,916

)

$

(91,247

)

 


(a)         Net of deferred tax expense of $0.1 million and $0.2 million for the three months and nine months ended September 30, 2014, respectively. Net of deferred tax expense of $0.4 million for both the three and nine months ended September 30, 2013.

(b)         Net of deferred tax benefit of $0.1 million and $0.2 million for the three and nine months ended September 30, 2014, respectively. Net of deferred tax benefit of $0.2 million and $0.5 million for the three and nine months ended September 30, 2013, respectively.

 

See Notes to Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

 

UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common

 

Paid-In

 

Accumulated

 

Comprehensive

 

Noncontrolling

 

Total

 

(In thousands, except share amounts)

 

Shares

 

Stock

 

Capital

 

Deficit

 

Income (Loss)

 

Interests

 

Equity

 

Balance, January 1, 2013

 

39,498,912

 

$

395

 

$

2,824,031

 

$

(509,613

)

$

(9,575

)

$

5,759

 

$

2,310,997

 

Net income (loss)

 

 

 

 

 

(92,343

)

 

110

 

(92,233

)

Adjustment to noncontrolling interest

 

 

 

 

 

 

 

1,616

 

1,616

 

Preferred dividend payment on behalf of REIT subsidiary

 

 

 

 

 

 

 

(12

)

(12

)

Interest rate swaps, net of tax of ($376)

 

 

 

 

 

 

2,120

 

 

2,120

 

Capitalized swap interest, net of taxof $542

 

 

 

 

 

 

(1,024

)

 

(1,024

)

Stock plan activity

 

77,432

 

1

 

4,111

 

 

 

 

4,112

 

Balance, September 30, 2013

 

39,576,344

 

$

396

 

$

2,828,142

 

$

(601,956

)

$

(8,479

)

$

7,473

 

$

2,225,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

 

39,576,344

 

$

396

 

$

2,829,813

 

$

(583,403

)

$

(8,222

)

$

6,562

 

$

2,245,146

 

Net income (loss)

 

 

 

 

 

(55,461

)

 

12

 

(55,449

)

Preferred dividend payment on behalf of REIT subsidiary

 

 

 

 

 

 

 

(12

)

(12

)

Interest rate swaps, net of tax of $135

 

 

 

 

 

 

902

 

 

902

 

Capitalized swap interest, net of tax of $126

 

 

 

 

 

 

(357

)

 

(357

)

Stock plan activity

 

61,750

 

 

5,940

 

 

 

 

5,940

 

Balance, September 30, 2014

 

39,638,094

 

$

396

 

$

2,835,753

 

$

(638,864

)

$

(7,677

)

$

6,562

 

$

2,196,170

 

 

See Notes to Condensed Consolidated Financial Statements.

 

6



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

UNAUDITED

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

 

 

(In thousands)

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net loss

 

$

(55,449

)

$

(92,233

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

Depreciation

 

31,330

 

20,197

 

Amortization

 

3,670

 

3,013

 

Amortization of deferred financing costs

 

2,927

 

1,060

 

Amortization of intangibles other than in-place leases

 

462

 

271

 

Straight-line rent amortization

 

1,113

 

(2,087

)

Deferred income taxes

 

47,925

 

19,712

 

Restricted stock and stock option amortization

 

5,940

 

4,111

 

Gain on disposition of asset

 

(2,373

)

 

Warrant liability loss

 

139,120

 

148,706

 

Reduction in tax indemnity receivable

 

5,473

 

8,673

 

Interest income related to tax indemnity

 

(18,856

)

(5,555

)

Equity in earnings from Real Estate and Other Affiliates, net of distributions

 

(14,666

)

(5,408

)

Provision for doubtful accounts

 

293

 

910

 

Master Planned Community land acquisitions

 

(69,930

)

(5,667

)

Master Planned Community development expenditures

 

(93,080

)

(95,061

)

Master Planned Community cost of sales

 

86,044

 

73,201

 

Condominium development expenditures

 

(34,358

)

(10,891

)

Condominium and other cost of sales

 

5,788

 

15,678

 

Proceeds from sale of condominium rights

 

 

47,500

 

Percentage of completion revenue recognition from sale of condominium rights

 

(11,516

)

(31,191

)

Non-monetary consideration relating to land sale

 

(13,789

)

 

Net changes:

 

 

 

 

 

Accounts and notes receivable

 

26,188

 

1,850

 

Prepaid expenses and other assets

 

(3,436

)

12,143

 

Condominium deposits received

 

125,002

 

 

Deferred expenses

 

(32,028

)

(7,156

)

Accounts payable and accrued expenses

 

18,055

 

5,773

 

Condominium deposits held in escrow

 

(125,002

)

 

Other, net

 

(8,888

)

1,217

 

Cash provided by operating activities

 

15,959

 

108,766

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Property and equipment expenditures

 

(6,213

)

(26,527

)

Operating property improvements

 

(3,581

)

(22,623

)

Property developments and redevelopments

 

(467,497

)

(126,819

)

Proceeds from insurance claims

 

12,901

 

 

Proceeds from dispositions

 

11,953

 

10,831

 

Acquisition of 1701 Lake Robbins

 

(1,484

)

 

Investment in Summerlin Las Vegas Baseball Club, LLC

 

 

(10,350

)

Investment in KR Holdings, LLC

 

 

(16,750

)

Investments in Real Estate and Other Affiliates, net

 

(3,929

)

(1,031

)

Change in restricted cash

 

(8,136

)

(18,268

)

Cash used in investing activities

 

(465,986

)

(211,537

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from issuance of mortgages, notes and loans payable

 

414,046

 

360,788

 

Principal payments on mortgages, notes and loans payable

 

(45,443

)

(271,871

)

Deferred financing costs

 

(7,906

)

(2,437

)

Preferred dividend payment on behalf of REIT subsidiary

 

(12

)

(12

)

Distributions to noncontrolling interests

 

 

(2,134

)

Cash provided by financing activities

 

360,685

 

84,334

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(89,342

)

(18,437

)

Cash and cash equivalents at beginning of period

 

894,948

 

229,197

 

Cash and cash equivalents at end of period

 

$

805,606

 

$

210,760

 

 

7



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

UNAUDITED

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

 

 

(In thousands)

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Interest paid

 

$

49,617

 

$

23,228

 

Interest capitalized

 

34,760

 

26,537

 

Income taxes paid

 

1,487

 

2,127

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

Special Improvement District bond transfers associated with land sales

 

7,496

 

11,549

 

Property developments and redevelopments

 

59,819

 

56,763

 

Acquisition of 1701 Lake Robbins

 

 

 

 

 

Land

 

(1,663

)

 

Building

 

(3,725

)

 

Other assets and deferred expenses

 

(848

)

 

Mortgages, notes and loans payable

 

4,600

 

 

Other liabilities

 

152

 

 

Non-cash increase in Property due to consolidation of Real Estate Affiliate

 

 

3,750

 

Transfer of condominium buyer deposits to Real Estate Affiliate

 

 

34,220

 

 

See Notes to Condensed Consolidated Financial Statements.

 

8



Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

NOTE 1        BASIS OF PRESENTATION AND ORGANIZATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and 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”). Such condensed consolidated financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In addition, readers of this Quarterly Report on Form 10-Q (“Quarterly Report”) should refer to The Howard Hughes Corporation’s (“HHC” or the “Company”) audited Consolidated Financial Statements which are included in the Company’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2013. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results for the full fiscal year.

 

Certain amounts in 2013 have been reclassified to conform to 2014 presentation. As a result of the increasing significance of development-related marketing costs in our operations, we have chosen to present, as a separate line item in the Condensed Consolidated Statements of Operations, the amount of development-related marketing costs expensed. Previously, these expenses were included in the line item Other property operating costs. Development-related marketing costs include salaries, benefits, agency fees, events, advertising, online hosting, marketing-related travel and other costs that we incur for the benefit of our developments and re-developments.

 

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.

 

NOTE 2        RECENTLY ISSUED ACCOUNTING PRONOUCEMENTS

 

In August, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements — Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” Before the issuance of this ASU, there was no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. This guidance is expected to reduce the diversity in the timing and content of footnote disclosures. This ASU requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards as specified in the guidance. This ASU becomes effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this ASU to have an impact on the Company’s Consolidated Financial Statements.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU states that entities should recognize revenue to properly depict the transfer of negotiated goods or services to customers in an amount that properly reflects the agreed upon consideration which the entity expects to be exchanged. The standard is effective for interim and annual periods beginning after December 15, 2016 and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The Company is evaluating the impact of the adoption of this ASU on the Company’s Consolidated Financial Statements.

 

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. The

 

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THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

Company has adopted this guidance. There is no impact of the adoption on the Company’s Consolidated Financial Statements because the Company does not have any discontinued operations.

 

NOTE 3        SPONSORS AND MANAGEMENT WARRANTS

 

On November 9, 2010 (the “Effective Date”), we issued warrants to purchase 8.0 million shares of our common stock to certain of our sponsors (the “Sponsors Warrants”) of which 1.9 million remain outstanding. The initial exercise price for the warrants of $50.00 per share and the number of shares of common stock underlying each warrant are subject to adjustment for future stock dividends, splits or reverse splits of our common stock or certain other events. The Sponsors Warrants expire on November 9, 2017.

 

In November 2010 and February 2011, we entered into certain agreements (the “Management Warrants”) with David R. Weinreb, our Chief Executive Officer, Grant Herlitz, our President, and Andrew C. Richardson, our Chief Financial Officer, in each case prior to his appointment to such position, to purchase shares of our common stock. The Management Warrants representing 2,862,687 underlying shares, which may be adjusted pursuant to a net settlement option, were issued pursuant to such agreements at fair value in exchange for a combined total of approximately $19.0 million in cash from such executives at the commencement of their respective employment. Mr. Weinreb and Mr. Herlitz’s warrants have exercise prices of $42.23 per share and Mr. Richardson’s warrant has an exercise price of $54.50 per share. Generally, the Management Warrants become exercisable in November 2016 and expire by February 2018.

 

As of September 30, 2014, the estimated $195.0 million fair value of the Sponsors Warrants representing warrants to purchase 1,916,667 shares and the estimated $249.7 million fair value of the Management Warrants representing warrants to purchase 2,862,687 shares have been recorded as liabilities because the holders of these warrants could require us to settle such warrants in cash upon a change of control. The estimated fair values for the outstanding Sponsors Warrants and Management Warrants were $141.8 million and $163.8 million, respectively, as of December 31, 2013. The fair values were estimated using an option pricing model and Level 3 inputs due to the unavailability of comparable market data, as further discussed in Note 7 — Fair Value of Financial Instruments. Decreases and increases in the fair value of the Sponsors Warrants and the Management Warrants are recognized as either warrant liability gains or losses, respectively, in the Condensed Consolidated Statements of Operations.

 

NOTE 4        EARNINGS PER SHARE

 

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) attributable 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 nonvested stock issued under stock-based compensation plans is computed using the treasury stock method. The dilutive effect of the Sponsors Warrants and Management Warrants is computed using the if-converted method. Gains associated with the Sponsors Warrants and Management Warrants are excluded from the numerator in computing diluted earnings per share because inclusion of such gains in the computation would be anti-dilutive.

 

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THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

Information related to our EPS calculations is summarized as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(In thousands, except per share amounts)

 

(In thousands, except per share amounts)

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

45,615

 

$

7,433

 

$

(55,449

)

$

(92,233

)

Net income attributable to noncontrolling interests

 

 

(98

)

(12

)

(110

)

Net income (loss) attributable to common stockholders

 

$

45,615

 

$

7,335

 

$

(55,461

)

$

(92,343

)

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

39,465

 

39,454

 

39,459

 

39,447

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

45,615

 

$

7,335

 

$

(55,461

)

$

(92,343

)

Less: Warrant liability gain

 

(24,690

)

 

 

 

Adjusted net income (loss) attributable to common stockholders

 

$

20,925

 

$

7,335

 

$

(55,461

)

$

(92,343

)

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

39,465

 

39,454

 

39,459

 

39,447

 

Restricted stock and stock options

 

405

 

253

 

 

 

Warrants

 

3,301

 

2,732

 

 

 

Weighted average diluted common shares outstanding

 

43,171

 

42,439

 

39,459

 

39,447

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

$

1.16

 

$

0.19

 

$

(1.41

)

$

(2.34

)

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

$

0.48

 

$

0.17

 

$

(1.41

)

$

(2.34

)

 

The diluted EPS computation for the nine months ended September 30, 2014 excludes 1,037,740 stock options, 172,690 shares of restricted stock, 1,916,667 shares of common stock underlying the Sponsors Warrants and 2,862,687 shares of common stock underlying the Management Warrants because their inclusion would have been anti-dilutive.

 

The diluted EPS computations for the nine months ended September 30, 2013 excludes 930,940 stock options, 122,332 shares of restricted stock, 1,916,667 shares of common stock underlying the Sponsor Warrants and 2,862,687 shares of common stock underlying the Management Warrants because their inclusion would have been anti-dilutive.

 

NOTE 5        RECENT TRANSACTIONS

 

In May 2014, we purchased 1,343 acres of undeveloped land located 13 miles north of The Woodlands for $67.2 million. On October 31, 2014, we purchased an additional 653 adjacent acres from a different seller. We have preliminarily planned for 1,835 acres of residential and 161 acres of commercial development on the combined sites, and estimate that the residential acres will yield over 4,600 lots. The first lots are expected to be finished and sold in 2016. This land acquisition will be developed by The Woodlands management team and is included in our Master Planned Communities segment.

 

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THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

NOTE 6                         IMPAIRMENT

 

We review our real estate assets, including operating assets, land held for development and sale and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. GAAP requires that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment charge should be recorded to write down the carrying amount of such asset to fair value (or for land held for sale, fair value less cost to sell). The impairment analysis does not consider the timing of future cash flows and whether the asset is expected to earn an above or below market rate of return.

 

Our investment in each of the Real Estate and Other Affiliates is evaluated periodically and as deemed necessary for recoverability and valuation declines that are other-than-temporary. If the decrease in value of our investment in a Real Estate and Other Affiliate is deemed to be other-than-temporary, our investment in such Real Estate and Other Affiliate is reduced to its estimated fair value.

 

No impairment charges were recorded during the three or nine months ended September 30, 2014 or 2013. We continually evaluate our strategic alternatives with respect to each of our properties and may revise our strategy from time to time, including our intent to hold the asset on a long-term basis or the timing of potential asset dispositions. For example, we may decide to sell property that is held for use and the sale price may be less than the carrying amount. As a result, these changes in strategy could result in impairment charges in future periods.

 

NOTE 7                         FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following table presents, for each of the fair value hierarchy levels required under FASB Accounting Standards Codification (“ASC”) 820 Fair Value Measurement, our assets and liabilities that are measured at fair value on a recurring basis.

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Fair Value Measurements Using

 

Fair Value Measurements Using

 

 

 

 

 

Quoted Prices

 

Significant

 

 

 

 

 

Quoted Prices

 

Significant

 

 

 

 

 

 

 

in Active

 

Other

 

Significant

 

 

 

in Active

 

Other

 

Significant

 

 

 

 

 

Markets for

 

Observable

 

Unobservable

 

 

 

Markets for

 

Observable

 

Unobservable

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(In thousands)

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

200,014

 

$

200,014

 

$

 

$

 

$

 

$

 

$

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

444,680

 

 

 

444,680

 

305,560

 

 

 

305,560

 

Interest rate swaps

 

3,195

 

 

3,195

 

 

4,164

 

 

4,164

 

 

 

Cash equivalents consist primarily of two registered money market mutual funds which invest in United States treasury securities that are valued at the net asset value of the underlying shares in the funds as of the close of business at the end of each period. The fair value approximates carrying value.

 

The valuation of warrants is based on an option pricing valuation model. The inputs to the model include the fair value of the stock related to the warrants, exercise price of the warrants, term, expected volatility, risk-free interest rate and dividend yield and with respect to the Management Warrants, a discount for lack of marketability.

 

The fair values of interest rate swaps 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.

 

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THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3) which are our Sponsors and Management Warrants:

 

 

 

2014

 

2013

 

 

 

(In thousands)

 

Balance as of January 1,

 

$

305,560

 

$

123,573

 

Warrant liability loss

 

139,120

 

148,706

 

Balance as of September 30,

 

$

444,680

 

$

272,279

 

 

The fair values were estimated using an option pricing model and Level 3 inputs due to the unavailability of comparable market data. Changes in the fair value of the Sponsors Warrants and the Management Warrants are recognized in earnings as a warrant liability gain or loss.

 

Significant unobservable inputs used in the fair value measurement of our warrants designated as Level 3 as of September 30, 2014 is as follows:

 

 

 

 

 

 

 

Unobservable Inputs

 

 

 

 

 

Valuation

 

Expected

 

Marketability

 

 

 

Fair Value

 

Technique

 

Volatility (a)

 

Discount (b)

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Option Pricing

 

 

 

 

 

Warrants

 

$

444,680

 

Valuation Model

 

23.0

%

20.0% - 22.0%

 

 


(a)   Based on our implied equity volatility.

(b)   Represents the discount rate for lack of marketability of the Management Warrants. The discount rates ranged from 29.0%-30.0% at December 31, 2013.

 

The expected volatility and marketability discount in the table above are significant unobservable inputs used to estimate the fair value of our warrant liabilities. An increase in expected volatility would increase the fair value of the liability, while a decrease in expected volatility would decrease the fair value of the liability. As the period of restriction lapses, the marketability discount reduces to zero and increases the fair value of the warrants.

 

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THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

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

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

 

 

 

 

(In thousands)

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (a)

 

$

605,592

 

$

605,592

 

$

894,948

 

$

894,948

 

Notes receivable, net

 

12,724

 

12,724

 

20,554

 

20,554

 

Tax indemnity receivable, including interest

 

333,877

 

(b

)

320,494

 

(b

)

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Fixed-rate debt

 

$

956,739

 

$

979,836

 

$

971,786

 

$

1,012,461

 

Variable-rate debt (c)

 

899,623

 

899,623

 

509,737

 

509,737

 

SID bonds

 

24,554

 

24,399

 

33,100

 

32,837

 

Total mortgages, notes and loans payable

 

$

1,880,916

 

$

1,903,858

 

$

1,514,623

 

$

1,555,035

 

 


(a)         Consists of bank deposits with original maturities of 90 days or less.

(b)         It is not practicable to estimate the fair value of the tax indemnity receivable, including interest, as the timing and ultimate amount received under the agreement is highly dependent on numerous future events that cannot be reliably predicted.

(c)          $172.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt.

 

Notes receivable are carried at net realizable value, which approximates fair value. The estimated fair values of these notes receivable are categorized as Level 3 due to certain factors, such as current interest rates, terms of the note and credit worthiness of the borrower.

 

The fair value of debt in the table above, not including our Senior Notes (as defined below), was estimated based on a discounted future cash payment model using Level 2 inputs, which includes risk premiums for loans of comparable quality and a risk free rate derived from the current London Interbank Offered Rate (“LIBOR”) or U.S. Treasury obligation interest rates. The discount rates reflect our 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 fair value of our Senior Notes included in Fixed-rate debt in the table above was estimated based on quoted market prices for similar issues.

 

The carrying amounts of cash and cash equivalents and accounts receivable approximate fair value because of the short-term maturity of these instruments.

 

NOTE 8                         REAL ESTATE AND OTHER AFFILIATES

 

In the ordinary course of business, we enter into partnerships or joint ventures primarily for the development and operations of real estate assets which are referred to as “Real Estate Affiliates”. These partnerships or joint ventures are accounted for in accordance with FASB ASC 810 Consolidation.

 

In accordance with ASC 810, we assess our joint ventures at inception to determine if any meet the qualifications of a variable interest entity (“VIE”). We consider a partnership or joint venture a VIE if: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual

 

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THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

returns of the entity); or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, we reassess our initial determination of whether the partnership or joint venture is a VIE.

 

We perform a qualitative assessment of each VIE to determine if we are the primary beneficiary, as required by ASC 810. Under ASC 810, a company concludes that it is the primary beneficiary and consolidates the VIE if the company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the company is the primary beneficiary. As required by ASC 810, management’s assessment of whether the company is the primary beneficiary of a VIE is continuously performed.

 

We account for investments in joint ventures deemed to be VIEs for which we are not considered to be the primary beneficiary; but have significant influence, using the equity method, and investments in joint ventures where we do not have significant influence over the joint venture’s operations and financial policies, on the cost method. Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages.

 

Our investment in real estate and other affiliates which are reported on the equity and cost methods are as follows:

 

 

 

Economic/ Legal Ownership

 

Carrying Value

 

Share of Earnings/Dividends

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

 

 

(In percentages)

 

(In thousands)

 

(In thousands)

 

Equity Method Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Circle T Ranch and Power Center

 

50.00

%

50.00

%

$

9,005

 

$

9,004

 

$

 

$

 

$

 

$

 

HHMK Development (a)

 

50.00

%

50.00

%

110

 

13

 

386

 

290

 

869

 

443

 

KR Holdings (a)

 

50.00

%

50.00

%

41,171

 

19,764

 

5,066

 

2,716

 

14,801

 

7,907

 

Millennium Phase II (a) (b)

 

81.43

%

81.43

%

1,937

 

2,174

 

(243

)

(59

)

(378

)

(59

)

Parcel C (a)

 

50.00

%

50.00

%

7,638

 

5,801

 

 

 

 

 

Stewart Title

 

50.00

%

50.00

%

3,770

 

3,843

 

383

 

382

 

901

 

899

 

Summerlin Apartments, LLC (a)

 

50.00

%

 

 

 

 

 

 

 

Summerlin Las Vegas Baseball Club, LLC (a)

 

50.00

%

50.00

%

10,835

 

10,636

 

22

 

220

 

198

 

220

 

Parcel D

 

50.00

%

50.00

%

4,362

 

3,461

 

 

 

 

 

Woodlands Sarofim

 

20.00

%

20.00

%

2,600

 

2,579

 

27

 

45

 

124

 

121

 

 

 

 

 

 

 

81,428

 

57,275

 

5,641

 

3,594

 

16,515

 

9,531

 

Cost basis investments

 

 

 

 

 

3,916

 

3,746

 

(132

)

 

1,649

 

2,503

 

Investment in Real Estate and Other Affiliates

 

 

 

 

 

$

85,344

 

$

61,021

 

$

5,509

 

$

3,594

 

$

18,164

 

$

12,034

 

 


(a)        Equity method variable interest entities.

(b)       Millennium Phase II was placed into service in the beginning of the third quarter of 2014 and moved from the Strategic Developments segment to the Operating Assets segment.

 

We are not the primary beneficiary of any of the VIEs listed above because we do not have the power to direct activities that most significantly impact the economic performance of such joint ventures and therefore we report our interests on the equity method. Our maximum exposure to loss as a result of these investments is limited to the aggregate carrying value of the investment as we have not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of these VIEs. The aggregate carrying value of the unconsolidated VIEs was $61.7 million and $38.4 million as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014, approximately $194.4 million of indebtedness was secured by the properties owned by our Real Estate Affiliates of which our share was approximately $106.0 million based upon our economic ownership. All of this debt is without recourse to us.

 

At September 30, 2014, the Company was the primary beneficiary of one VIE, which we therefore consolidated. The creditors of the consolidated VIE do not have recourse to the Company’s general credit. As of September 30,

 

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THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

2014, the carrying values of the assets and liabilities associated with the operations of the consolidated VIE were $20.7 million and $0.2 million, respectively. As of December 31, 2013, the carrying values of the assets and liabilities associated with the operations of the consolidated VIE were $20.6 million and $0.1 million, respectively. The assets of the VIE are restricted for use only by the particular VIE and are not available for our general operations.

 

Our recent and more significant investments in Real Estate Affiliates and the related accounting considerations are described below.

 

ONE Ala Moana Condominium Project

 

On October 11, 2011, we and an entity jointly owned by two local development partners formed a joint venture called HHMK Development, LLC to explore the development of a luxury condominium tower at the Ala Moana Center in Honolulu, Hawaii. On June 14, 2012, we formed another 50/50 joint venture, KR Holdings, with the same partner. We own 50% of each venture and our partners jointly own the remaining 50%.

 

On September 17, 2012, KR Holdings closed on two $20.0 million non-recourse mezzanine loan commitments with List Island Properties, LLC and A & B Properties, Inc. These loans have a blended interest rate of 12.00%, were drawn in full on May 15, 2013 and mature on April 30, 2018 with the option to extend for one year. In addition to the mezzanine loans, A & B Properties and List Island Properties, LLC both have profit interests in KR Holdings, which entitles them to receive a share of the profits, after a return of our capital plus a 13% preferred return on our capital. A & B Properties’ participation is capped at $3.0 million.

 

KR Holdings closed on a $132.0 million first mortgage construction loan on May 15, 2013 of which $79.7 million is outstanding as of September 30, 2014. Upon closing and under the terms of the venture agreement, we sold to KR Holdings our interest in the condominium rights for net cash proceeds of $30.8 million and a 50% equity interest in KR Holdings. Our partner contributed $16.8 million of cash for their 50% equity interest. The construction loan will be drawn over the course of construction, is secured by the condominium rights and buyers’ deposits, has no recourse to us, matures on May 15, 2016, and bears interest at one-month LIBOR plus 3.00%. Summarized financial information for KR Holdings as of September 30, 2014 includes total assets of $253.0 million, total liabilities of $170.2 million, gross sales of $163.9 million and net income of $29.6 million. The venture uses the percentage of completion method to recognize earnings and we recorded $5.1 million and $14.8 million in equity in earnings from Real Estate Affiliates related to KR Holdings in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2014, respectively. Our investment balance includes deferred profit of $1.5 million which is being recognized on the same percentage of completion basis as KR Holdings. We expect to complete the project and close on the sales of the units under contract in the fourth quarter 2014.

 

Millennium Woodlands Phase II, LLC

 

On May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC (“Millennium Phase II”), with The Dinerstein Companies, the same joint venture partner in the Millennium Waterway Apartments I project, for the construction of a new 314-unit Class A multi-family complex in The Woodlands Town Center. Our partner is the managing member of Millennium Phase II. As the managing member, our partner controls, directs, manages and administers the affairs of Millennium Phase II. On July 5, 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres of land valued at $15.5 million to the joint venture, our partner’s contribution of $3.0 million in cash and a construction loan in the amount of $37.7 million which is guaranteed by our partner. The development of Millennium Phase II further expands our multi-family portfolio in The Woodlands Town Center.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

Parcel C

 

On October 4, 2013, we entered into a joint venture agreement with a local developer, Kettler, Inc. (“Kettler”), to construct a 437-unit, Class A apartment building with 31,000 square feet of ground floor retail on Parcel C in downtown Columbia, Maryland. We contributed approximately five acres of land having an approximate book value of $4.0 million to the joint venture. Our land was valued at $23.4 million or $53,500 per constructed unit. When the venture closes on the construction loan and upon completion of certain other conditions, including obtaining completed site development and construction plans and an approved project budget, our partner will be required to contribute cash to the venture.

 

Summerlin Apartments, LLC

 

On January 24, 2014, we entered into a joint venture with a national multi-family real estate developer, The Calida Group (“Calida”), to construct, own and operate a 124-unit gated luxury apartment development. We and our partner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions. This project represents the first residential development in Summerlin’s 400-acre downtown. We will contribute a 5.5-acre parcel of land with an agreed value of $3.2 million in exchange for a 50% interest in the venture when construction financing closes. Our partner will contribute cash for their 50% interest, act as the development manager, fund all pre-development activities, obtain construction financing and provide any guarantees required by the lender. Upon a sale of the property, we are entitled to our 50% share of proceeds and 100% of the proceeds in excess of an amount determined by applying a 7.0% capitalization rate to net operating income (“NOI”). The venture is expected to begin construction in the fourth quarter of 2014 with the first units available for rent by the fourth quarter of 2015.

 

Summerlin Las Vegas Baseball Club, LLC

 

On August 6, 2012, we entered into a joint venture for the purpose of acquiring 100% of the operating assets of the Las Vegas 51s, a Triple-A baseball team which is a member of the Pacific Coast League. We own 50% of the venture and our partners jointly own the remaining 50%. Unanimous consent of the partners is required for all major decisions. As of the date the joint venture acquired the baseball team, we had funded our capital contribution of $10.5 million. Our strategy in owning an interest is to pursue a potential relocation of the team to a to-be-built stadium in our Summerlin master planned community. Efforts to re-locate the team are ongoing and there can be no assurance that such a stadium will ultimately be built.

 

The Metropolitan Downtown Columbia Project

 

On October 27, 2011, we entered into a joint venture, Parcel D Development, LLC (“Parcel D”), with Kettler to construct a Class A apartment building with ground floor retail space in downtown Columbia, Maryland. We and our partner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions. On July 11, 2013, the joint venture closed a $64.1 million construction loan which is non-recourse to us. The loan bears interest at one-month LIBOR plus 2.40% and matures in July 2020. At loan closing, our land contribution was valued at $53,500 per unit, or $20.3 million, and Kettler contributed $13.3 million in cash, of which $7.0 million was distributed to us. Both we and Kettler made additional contributions of $3.1 million to the joint venture in accordance with the loan agreement, thus increasing our total capital account to $16.4 million. This transaction was accounted for as a partial sale of land for which we recognized a net profit of $0.7 million. We expect the project to be substantially completed by the fourth quarter of 2014.

 

Upon formation of the joint venture, we determined that Parcel D was a VIE, and that we were not the primary beneficiary. Accordingly, we accounted for our investment in Parcel D using the equity method. Upon closing of the first mortgage construction loan, the entity was recapitalized resulting in a reconsideration of the initial determination of VIE status. As a result of the reconsideration, we determined that Parcel D was no longer considered a VIE. We continue to account for our investment in Parcel D using the equity method.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

NOTE 9                         MORTGAGES, NOTES AND LOANS PAYABLE

 

Mortgages, notes and loans payable are summarized as follows:

 

 

 

September 30,
2014

 

December 31,
2013

 

 

 

(In thousands)

 

Fixed-rate debt:

 

 

 

 

 

Collateralized mortgages, notes and loans payable

 

$

956,739

 

$

971,786

 

Special Improvement District bonds

 

24,554

 

33,100

 

Variable-rate debt:

 

 

 

 

 

Collateralized mortgages, notes and loans payable (a)

 

899,623

 

509,737

 

Total mortgages, notes and loans payable

 

$

1,880,916

 

$

1,514,623

 

 


(a) As more fully described below, $172.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt.

 

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UNAUDITED

 

The following table presents our mortgages, notes, and loans payable by property:

 

 

 

 

 

 

 

 

 

Carrying Value

 

 

 

 

 

Interest

 

Maximum

 

September 30,

 

December 31,

 

$ In thousands

 

Maturity (a)

 

Rate

 

Facility

 

2014

 

2013

 

Master Planned Communities

 

 

 

 

 

 

 

 

 

 

 

Bridgeland Land Loan

 

June 2022

 

5.50

%

 

 

$

15,874

 

$

18,066

 

Bridgeland Development Loan

 

June 2015

 

5.00

%(d)

$

30,000

 

24,200

 

 

Summerlin South SID Bonds - S108

 

December 2016

 

5.95

%

 

 

694

 

823

 

Summerlin South SID Bonds - S124

 

December 2019

 

5.95

%

 

 

256

 

285

 

Summerlin South SID Bonds - S128

 

December 2020

 

7.30

%

 

 

665

 

707

 

Summerlin South SID Bonds - S128C

 

December 2030

 

6.05

%

 

 

5,392

 

5,511

 

Summerlin South SID Bonds - S132

 

December 2020

 

6.00

%

 

 

3,232

 

3,962

 

Summerlin South SID Bonds - S151

 

June 2025

 

6.00

%

 

 

6,421

 

6,623

 

Summerlin West SID Bonds - S808/S810

 

April 2031

 

7.13

%

 

 

4,000

 

11,168

 

The Woodlands Master Credit Facility

 

August 2018

 

2.90

%(d)

250,000

 

176,663

 

176,663

 

Master Planned Communities Total

 

 

 

 

 

 

 

237,397

 

223,808

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Assets

 

 

 

 

 

 

 

 

 

 

 

70 Columbia Corporate Center (b)

 

June 2019

 

2.40

%(d)

 

 

20,000

 

16,287

 

Columbia Regional Building

 

March 2018

 

2.15

%(d)

23,008

 

18,960

 

9,207

 

One Hughes Landing

 

November 2017

 

2.80

%(d)

38,000

 

34,417

 

19,128

 

Two Hughes Landing

 

September 2018

 

2.80

%(d)

41,230

 

17,828

 

10

 

1701 Lake Robbins

 

April 2017

 

5.81

%

 

 

4,600

 

 

Millennium Waterway Apartments

 

June 2022

 

3.75

%

 

 

55,584

 

55,584

 

110 N. Wacker (c)

 

October 2019

 

5.21

%(d)

 

 

29,000

 

29,000

 

9303 New Trails

 

December 2023

 

4.88

%

 

 

13,157

 

13,398

 

Outlet Collection at Riverwalk

 

October 2018

 

2.90

%(d)

64,400

 

44,703

 

 

The Woodlands Resort & Conference Center

 

February 2019

 

3.65

%(d)

95,000

 

66,177

 

36,100

 

Victoria Ward

 

September 2016

 

3.34

%(d)

250,000

 

238,716

 

238,716

 

20/25 Waterway Avenue

 

May 2022

 

4.79

%

 

 

14,383

 

14,450

 

3 Waterway Square

 

August 2028

 

3.94

%

 

 

52,000

 

52,000

 

4 Waterway Square

 

December 2023

 

4.88

%

 

 

38,530

 

39,237

 

Capital lease obligations

 

various

 

3.60

%

 

 

156

 

205

 

Operating Assets Total

 

 

 

 

 

 

 

648,211

 

523,322

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic Developments

 

 

 

 

 

 

 

 

 

 

 

Downtown Summerlin

 

July 2019

 

2.40

%(d)

311,800

 

172,913

 

 

Downtown Summerlin SID Bonds - S108

 

December 2016

 

5.95

%

 

 

388

 

452

 

Downtown Summerlin SID Bonds - S128

 

December 2030

 

6.05

%

 

 

3,506

 

3,569

 

ExxonMobil

 

June 2019

 

2.05

%(d)

143,000

 

23,702

 

 

Hughes Landing Retail

 

December 2018

 

2.10

%(d)

36,575

 

14,259

 

913

 

One Lake’s Edge

 

November 2018

 

2.65

%(d)

73,525

 

18,085

 

 

Waterway Hotel

 

August 2019

 

2.80

%(d)

69,300

 

 

 

Strategic Developments Total

 

 

 

 

 

 

 

232,853

 

4,934

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Corporate Financing Arrangements

 

July 2018

 

3.00

%

22,700

 

20,434

 

21,309

 

Senior Notes

 

October 2021

 

6.88

%

 

 

750,000

 

750,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized underwriting fees

 

 

 

 

 

 

 

(7,979

)

(8,750

)

 

 

 

 

 

 

 

 

$

1,880,916

 

$

1,514,623

 

 


(a)   Maturity date includes any extension periods which can be exercised at our option.

(b)   The note we assumed on August 15, 2012 was fully paid with cash on hand on April 15, 2014. On June 30, 2014, we entered into a new $20.0 million mortgage loan at one-month LIBOR plus 2.25%.

(c)    The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity.

(d)   The interest rate presented is based on the one or three month LIBOR rate, as applicable, at September 30, 2014.

 

The weighted average interest rate on our mortgages, notes and loans payable was 4.73% and 5.25% as of September 30, 2014 and December 31, 2013, respectively.

 

As of September 30, 2014, we had $1.9 billion of mortgages, notes and loans payable. All of the mortgage debt is secured by the individual properties as listed in the table above and is non-recourse to HHC, except for:

 

(i)            $750.0 million of Senior Notes;

(ii)           $311.8 million financing for the Downtown Summerlin development which has a maximum recourse to us of 35.0% assuming the loan is fully drawn;

(iii)          $64.4 million of construction financing for the Outlet Collection at Riverwalk with an initial maximum recourse of 50%, which will be reduced to 25.0% upon completion of the project and the achievement of an 11.0% debt yield and a minimum level of tenant sales per square foot for twelve months,

(iv)          $20.4 million of Other Corporate Financing Arrangements; and

(v)           $7.0 million parent guarantee associated with the 110 N. Wacker mortgage.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

The Woodlands Master Credit Facility and The Woodlands Resort & Conference Center loans are recourse to the entities that directly own The Woodlands operations. Certain of our 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. Such provisions are not expected to impact our operations in 2014. Certain mortgage notes may be prepaid, but may be subject to a prepayment penalty equal to a yield-maintenance premium, defeasance, or a percentage of the loan balance. As of September 30, 2014, land, buildings and equipment and developments in progress with a cost basis of $2.5 billion have been pledged as collateral for our mortgages, notes and loans payable.

 

As of September 30, 2014, we were in compliance with all of the financial covenants related to our debt agreements.

 

Master Planned Communities

 

On August 8, 2013, The Woodlands refinanced its existing Master Credit Facility with a $250.0 million credit facility consisting of a $125.0 million term loan and a $125.0 million revolver (together, the “TWL Facility”). The TWL Facility bears interest at one-month LIBOR plus 2.75% and has an initial three-year term through August 2016 with two, one-year extension options. The extension options require a reduction of the total commitment to $220.0 million for the first extension and $185.0 million for the second extension. The TWL Facility also contains certain covenants that, among other things, require the maintenance of specified financial ratios, limit the incurrence of additional recourse indebtedness at The Woodlands, and limit distributions from The Woodlands to us based on a loan-to-value test. There was $73.3 million of undrawn capacity and $47.1 million of available borrowing capacity under the TWL Facility based on the collateral underlying the facility and loan covenants as of September 30, 2014.

 

During the second quarter of 2012, we refinanced $18.1 million of existing debt related to our Bridgeland Master Planned Community with a ten-year term loan facility at a fixed interest rate of 5.50% for the first five years and three-month LIBOR plus 2.75% for the remaining term and maturing on June 29, 2022. Beginning on June 29, 2014, annual principal payments are required in the amount of 5.00% of the then outstanding principal balance. In addition, we simultaneously entered into a three-year revolving credit facility with aggregate borrowing capacity of $140.0 million of which $83.9 million has been utilized as of September 30, 2014 and which has a $30.0 million maximum outstanding loan balance at any time. The revolving loan bears interest at the greater of 5.00% or one-month LIBOR plus 3.25% and matures on June 29, 2015. This loan is intended to provide working capital at Bridgeland to accelerate development efforts to meet the demand of homebuilders for finished lots in the community. The Bridgeland loans are cross-collateralized and cross-defaulted and the Bridgeland Master Planned Community serves as collateral for the loans. The loans also require that Bridgeland maintain a minimum $3.0 million cash balance and a minimum net worth of $250.0 million. Additionally, we are restricted from making cash distributions from Bridgeland unless the revolving credit facility has no outstanding balance and one year of real estate taxes and debt service on the term loan have been escrowed with the lender.

 

The Summerlin Master Planned Community uses Special Improvement District (“SID”) bonds to finance certain common infrastructure improvements. These bonds are issued by the municipalities and, although unrated, 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 us 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 Master Planned Community 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 we previously paid with respect to such proportionate share of the bond.

 

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UNAUDITED

 

Operating Assets

 

On July 18, 2014, we assumed a $4.6 million non-recourse mortgage loan at 1701 Lake Robbins. The loan bears fixed interest at 5.81% and has a maturity date of April 2017.

 

On April 15, 2014, we paid $17.0 million cash in full satisfaction of the $16.0 million participating loan that we assumed as part of the acquisition of 70 Columbia Corporate Center (“70 CCC”) in August 2012. The non-recourse, interest only promissory note was due to mature on August 31, 2017 and included a participation right to the lender for 30.0% of the appreciation in the market value of the property after our 10.0% cumulative preferred return and repayment of the outstanding debt and our contributed equity. The final payment included approximately $0.7 million for this participation right based upon the appraised value of the property. On June 27, 2014, we closed on a new $20.0 million loan for 70 CCC that bears interest at one-month LIBOR plus 2.25% and has an initial maturity date of July 2017 with two, one-year extension options.

 

On October 24, 2013, we closed on a $64.4 million partial recourse construction loan for the Outlet Collection at Riverwalk. The loan bears interest at one-month LIBOR plus 2.75%, with an initial maturity date of October 24, 2016 with two, one-year extension options. The initial recourse amount of 50.0% will be reduced to 25.0% upon completion of the project and the achievement of an 11.0% debt yield and a minimum level of tenant sales per square foot for 12 months.

 

On September 11, 2013, we closed on a non-recourse financing totaling $41.2 million for the construction of Two Hughes Landing, the second Class A office building in the 66-acre mixed-use development of Hughes Landing on Lake Woodlands, located in The Woodlands. Two Hughes Landing will be a 197,000 square foot, eight-story office building with an adjacent parking garage containing approximately 630 spaces. The loan matures on September 11, 2016 and has two, one-year extension options. The loan bears interest at one-month LIBOR plus 2.65% due monthly.

 

On August 2, 2013, we refinanced the $43.3 million construction loan with a non-recourse first mortgage financing totaling $52.0 million on 3 Waterway Square, an 11-story, 232,000 square foot office building in The Woodlands. The loan bears interest at 3.94% and matures on August 11, 2028.

 

On March 15, 2013, we closed on a non-recourse financing totaling $23.0 million for the redevelopment of the Columbia Regional Building (also known as the Rouse Building), an office building located in Columbia, Maryland. The loan bears interest at one-month LIBOR plus 2.00%. The loan matures on March 15, 2016, and has two, one-year extension options.

 

On February 8, 2013, we closed on a $95.0 million non-recourse construction loan which repaid the existing $36.1 million mortgage and provides funding for the redevelopment of The Woodlands Resort & Conference Center. The loan bears interest at one-month LIBOR plus 3.50% and has an initial maturity of February 8, 2016, with three, one-year extension options. The loan is currently secured by a 624-room (440 original rooms plus 184 newly built rooms), 40-acre conference center and resort located within The Woodlands and requires the maintenance of specified financial ratios after completion of construction. Beginning in the first quarter of 2015, the room count will reduce to 406 after 218 original cottage rooms that were built in 1974 are demolished.

 

On November 14, 2012, we closed on a non-recourse financing totaling $38.0 million for the construction of One Hughes Landing, an eight-story, 197,000 square foot office building in The Woodlands. The loan bears interest at one-month LIBOR plus 2.65% and matures on November 14, 2015 and has two, one-year extension options.

 

On May 31, 2012, as part of the acquisition of our former partner’s interest in Millennium Waterway Apartments, located within The Woodlands, we closed on a $55.6 million non-recourse first mortgage loan. The proceeds from the mortgage were used to refinance the joint venture’s existing debt and to fund our acquisition of the partner’s interest in the property. The loan has a fixed interest rate of 3.75% and matures on June 1, 2022.

 

On April 26, 2012, we closed on a $14.5 million non-recourse financing secured by 20/25 Waterway Avenue, located within The Woodlands. The loan bears interest at 4.79% and matures on May 1, 2022.

 

On December 5, 2011, we obtained a $41.0 million loan for 4 Waterway Square and a $14.0 million loan for 9303 New Trails, both located within The Woodlands. These non-recourse mortgages mature on December 11, 2023 and

 

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UNAUDITED

 

have fixed interest rates of 4.88%.

 

On September 30, 2011, we closed on a $250.0 million non-recourse first mortgage financing secured by Ward Village in Honolulu, Hawaii, that bears interest at one-month LIBOR plus 2.50%. The loan may be drawn to a maximum $250.0 million to fund capital expenditures at the property, provided that the outstanding principal balance cannot exceed 65% of the property’s appraised value, and the borrowers are required to have a minimum 10.0% debt yield to draw additional loan proceeds under the facility. The loan permits partial repayment during its term in connection with property releases for development. In the third quarter of 2013, certain properties securing the loan were approved for condominium development. As a result, the properties were removed from the collateral pool and a minor principal paydown of the loan was required. The loan matures on September 29, 2016, and $143.0 million of the principal balance was swapped to a 3.80% fixed rate for the term of the loan. The unused portion of this mortgage was $11.3 million as of September 30, 2014.

 

On May 10, 2011, we closed a $29.0 million first mortgage financing secured by our office building located at 110 N. Wacker Drive in Chicago, IL. The loan term is coterminous with the expiration of the first term of the existing tenant’s lease. The loan has an interest-only period through April 2015 and, thereafter, amortizes ratably to $12.0 million through maturity on October 31, 2019. We provided a $7.0 million repayment guarantee for the loan, which is reduced on a dollar for dollar basis during the amortization period.

 

Strategic Developments

 

On November 6, 2014 we closed on a $600.0 million non-recourse construction loan for the Waiea and Anaha Condominium towers bearing interest at one-month LIBOR plus 6.75%. The loan has an initial maturity date of November 6, 2017, with two, one-year extension options.

 

On October 3, 2014, we closed on a $37.1 million construction financing for our Hughes Landing Hotel. The loan bearing interest at one-month LIBOR plus 2.50%. The loan has an initial maturity of October 2018, with two, one-year extension options.

 

On August 6, 2014, we closed on a $69.3 million non-recourse construction financing for the Waterway Hotel bearing interest at one-month LIBOR plus 2.65%. The loan has an initial maturity of August 2018, with a one-year extension option. The development will be a 302-room Westin-branded hotel that will be owned and managed by us.

 

On July 15, 2014, we closed a $311.8 million financing for the construction of Downtown Summerlin development bearing interest at one-month LIBOR plus 2.25%. The loan has an initial maturity date of July 15, 2017, with two, one-year extension options. The loan contains a maximum recourse to the Company of 35.0% of the outstanding principal plus all unpaid interest. Upon completion of the project and achievement of a 1.25x debt service coverage ratio, 90.0% occupancy and a minimum level of tenant sales per square foot for 12 months, the recourse amount will decrease to 10.0% of the outstanding principal. Due to the recent opening and its 50.7% occupancy as of November 1, 2014, we have not met this criteria.

 

On June 30, 2014, we closed on a $143.0 million non-recourse construction financing for two office buildings bearing interest at one-month LIBOR plus 1.90%. The loan has an initial maturity date of June 30, 2018, with a one-year extension option. The office buildings are substantially pre-leased to ExxonMobil.

 

On December 20, 2013, we closed on a $36.6 million non-recourse loan for the construction of Hughes Landing Retail, a 123,000 square foot retail component of Hughes Landing bearing interest at one-month LIBOR plus 1.95%. The loan has an initial maturity date of December 20, 2016, with two, one-year extension options.

 

On November 25, 2013, we closed on a $73.5 million non-recourse loan for the construction of an eight-story, Class A, multi-family project within Hughes Landing called One Lake’s Edge. One Lake’s Edge will be comprised of 390

 

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UNAUDITED

 

multi-family units (averaging 984 square feet per unit), 22,289 square feet of retail and an approximately 750 space parking garage, all situated on 2.92 acres of land. The loan bears interest at one-month LIBOR plus 2.50% with an initial maturity date of November 25, 2016, with two, one-year extension options.

 

On September 11, 2013, we closed on a non-recourse financing totaling $41.2 million for the construction of Two Hughes Landing, the second Class A office building in the 66-acre mixed-use development of Hughes Landing on Lake Woodlands, located in The Woodlands. Two Hughes Landing will be a 197,000 square foot, eight-story office building with an adjacent parking garage containing approximately 630 spaces. The loan matures on September 11, 2016 and has two, one-year extension options. The loan bears interest at one-month LIBOR plus 2.65% due monthly.

 

Corporate

 

On October 2, 2013, we issued $750.0 million in aggregate principal amount of 6.875% Senior Notes due 2021 (the “Senior Notes”) and raised approximately $741.3 million of net cash proceeds. Interest is payable semiannually, on April 1 and October 1 of each year starting in April 2014. At any time prior to October 1, 2016, we may redeem up to 35% of the Senior Notes at a price equal to 106.875% using the proceeds from equity offerings. We may redeem all or part of the Senior Notes at any time on or after October 1, 2016 with a declining call premium thereafter to maturity. The Senior Notes contain customary terms and covenants for non-investment grade senior notes and have no maintenance covenants.

 

NOTE 10                  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

We are exposed to interest rate risk related to our variable interest debt, and we manage this risk by utilizing interest rate derivatives. Our objectives in using interest rate derivatives are to add stability to interest costs by reducing our exposure to interest rate movements. To accomplish this objective, we use interest rate swaps and caps as part of our interest rate risk management strategy. 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 effective portion of changes in the fair value of derivatives designated and that qualify 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. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the nine months ended September 30, 2014, the ineffective portion recorded in earnings was insignificant.

 

As of September 30, 2014, we had gross notional amounts of $172.0 million for interest rate swaps and a $100.0 million interest rate cap that were designated as cash flow hedges of interest rate risk. The fair value of the interest rate cap derivative was insignificant.

 

If the interest rate swap agreements 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 according to the original strategy, any related amounts previously recorded in AOCI are recognized in earnings immediately.

 

Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. Over the next 12 months, we estimate that an additional $2.3 million will be reclassified to interest expense.

 

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Table of Contents

 

THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

The table below presents the fair value of our derivative financial instruments which are included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets:

 

 

 

September 30,
2014

 

December 31,
2013

 

 

 

(In thousands)

 

Interest Rate Swaps

 

$

3,195

 

$

4,164

 

Total derivatives designated as hedging instruments

 

$

3,195

 

$

4,164

 

 

The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013:

 

 

 

Three Months Ended September 30,

 

 

 

Three Months Ended September 30,

 

 

 

2014

 

2013

 

Location of Gain

 

2014

 

2013

 

 

 

 

 

 

 

(Loss) Reclassified

 

Amount of Loss

 

Amount of Gain

 

Cash Flow Hedges

 

Amount of Gain
Recognized in OCI

 

Amount of Loss
Recognized in OCI

 

from AOCI into
Earnings

 

Reclassified from
AOCI into Earnings

 

Reclassified from
AOCI into Earnings

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Interest Rate Swaps

 

$

229

 

$

(407

)

Interest Expense

 

$