þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Delaware | 36-4673192 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification number) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
PAGE | ||||||||
NUMBER | ||||||||
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4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
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48 | ||||||||
48 | ||||||||
49 | ||||||||
49 | ||||||||
49 | ||||||||
49 | ||||||||
49 | ||||||||
49 | ||||||||
50 | ||||||||
51 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
- 2 -
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands, except share amounts) | ||||||||
Assets: |
||||||||
Investment in real estate: |
||||||||
Master Planned Community assets |
$ | 1,611,125 | $ | 1,350,648 | ||||
Land |
259,557 | 180,976 | ||||||
Buildings and equipment |
523,871 | 343,006 | ||||||
Less accumulated depreciation |
(94,771 | ) | (83,390 | ) | ||||
Developments in progress |
190,287 | 293,403 | ||||||
Net property and equipment |
2,490,069 | 2,084,643 | ||||||
Investment in Real Estate Affiliates |
61,214 | 149,543 | ||||||
Net investment in real estate |
2,551,283 | 2,234,186 | ||||||
Cash and cash equivalents |
293,363 | 284,682 | ||||||
Accounts receivable, net |
15,555 | 8,154 | ||||||
Municipal Utility District receivables |
110,054 | 28,103 | ||||||
Notes receivable, net |
39,141 | 38,954 | ||||||
Tax indemnity receivable, including interest |
329,668 | 323,525 | ||||||
Deferred expenses, net |
7,899 | 6,619 | ||||||
Prepaid expenses and other assets |
130,013 | 98,484 | ||||||
Total assets |
$ | 3,476,976 | $ | 3,022,707 | ||||
Liabilities: |
||||||||
Mortgages, notes and loans payable |
$ | 708,172 | $ | 318,660 | ||||
Deferred tax liabilities |
72,339 | 78,680 | ||||||
Warrant liabilities |
128,586 | 227,348 | ||||||
Uncertain tax position liability |
146,985 | 140,076 | ||||||
Accounts payable and accrued expenses |
122,079 | 78,836 | ||||||
Total liabilities |
1,178,161 | 843,600 | ||||||
Commitments and Contingencies |
||||||||
Equity: |
||||||||
Preferred stock: $.01 par value; 50,000,000 shares authorized,
none issued |
| | ||||||
Common stock: $.01 par value; 150,000,000 shares authorized, |
| | ||||||
37,942,107 shares issued and outstanding as of September 30,
2011 and |
| | ||||||
37,904,506 shares issued and outstanding as of December 31, 2010 |
379 | 379 | ||||||
Additional paid-in capital |
2,710,536 | 2,708,036 | ||||||
Accumulated deficit |
(412,754 | ) | (528,505 | ) | ||||
Accumulated other comprehensive loss |
(4,399 | ) | (1,627 | ) | ||||
Total stockholders equity |
2,293,762 | 2,178,283 | ||||||
Noncontrolling interests |
5,053 | 824 | ||||||
Total equity |
2,298,815 | 2,179,107 | ||||||
Total liabilities and equity |
$ | 3,476,976 | $ | 3,022,707 | ||||
- 3 -
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Consolidated) | (Combined) | (Consolidated) | (Combined) | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Revenues: |
||||||||||||||||
Master Planned Community land sales |
$ | 33,246 | $ | 7,297 | $ | 74,786 | $ | 14,686 | ||||||||
Builder price participation |
2,145 | 1,148 | 3,263 | 3,343 | ||||||||||||
Minimum rents |
19,403 | 16,349 | 53,098 | 50,349 | ||||||||||||
Tenant recoveries |
5,399 | 4,637 | 14,538 | 13,891 | ||||||||||||
Condominium unit sales |
9,071 | | 19,495 | | ||||||||||||
Resort and conference center revenues |
7,200 | | 7,200 | | ||||||||||||
Other land revenues |
3,886 | 1,589 | 7,382 | 4,112 | ||||||||||||
Other rental and property revenues |
6,540 | 1,440 | 11,051 | 5,500 | ||||||||||||
Total revenues |
86,890 | 32,460 | 190,813 | 91,881 | ||||||||||||
Operating Expenses: |
||||||||||||||||
Master Planned Community cost of sales |
27,035 | 3,751 | 51,909 | 7,001 | ||||||||||||
Master Planned Community operations |
7,398 | 6,306 | 17,611 | 23,653 | ||||||||||||
Rental property real estate taxes |
1,639 | 4,131 | 8,064 | 11,161 | ||||||||||||
Rental property maintenance costs |
2,341 | 1,484 | 5,467 | 4,766 | ||||||||||||
Condominium unit cost of sales |
5,470 | | 13,723 | | ||||||||||||
Resort and conference center operations |
6,352 | | 6,352 | | ||||||||||||
Other property operating costs |
16,964 | 8,994 | 36,028 | 27,195 | ||||||||||||
Provision for doubtful accounts |
275 | 744 | 590 | 1,101 | ||||||||||||
General and administrative |
9,990 | 3,467 | 23,581 | 12,463 | ||||||||||||
Provisions for impairment |
| 92 | | 578 | ||||||||||||
Depreciation and amortization |
7,208 | 4,109 | 13,592 | 12,535 | ||||||||||||
Total operating expenses |
84,672 | 33,078 | 176,917 | 100,453 | ||||||||||||
Operating income (loss) |
2,218 | (618 | ) | 13,896 | (8,572 | ) | ||||||||||
Interest income |
2,341 | 59 | 7,097 | 118 | ||||||||||||
Interest expense |
| (681 | ) | | (1,888 | ) | ||||||||||
Early extinguishment of debt |
(11,305 | ) | | (11,305 | ) | | ||||||||||
Warrant liability gain |
169,897 | | 100,762 | | ||||||||||||
Investment in real estate affiliate
basis adjustment |
(6,053 | ) | | (6,053 | ) | | ||||||||||
Equity in earnings from Real Estate
Affiliates |
166 | 1,222 | 7,787 | 6,394 | ||||||||||||
Income (loss) before taxes and
reorganization items |
157,264 | (18 | ) | 112,184 | (3,948 | ) | ||||||||||
Benefit (provision) for income taxes |
7,760 | 350 | 4,344 | (17,603 | ) | |||||||||||
Reorganization items |
| (16,515 | ) | | (43,129 | ) | ||||||||||
Net income (loss) |
165,024 | (16,183 | ) | 116,528 | (64,680 | ) | ||||||||||
Net income attributable to
noncontrolling interests |
(729 | ) | (47 | ) | (777 | ) | (121 | ) | ||||||||
Net income (loss) attributable to common
stockholders |
$ | 164,295 | $ | (16,230 | ) | $ | 115,751 | $ | (64,801 | ) | ||||||
Basic Income (Loss) Per Share: |
$ | 4.33 | $ | (0.43 | ) | $ | 3.05 | $ | (1.72 | ) | ||||||
Diluted Income (Loss) Per Share: |
$ | (0.14 | ) | $ | (0.43 | ) | $ | 0.38 | $ | (1.72 | ) | |||||
Comprehensive Income (Loss), Net of Tax: |
||||||||||||||||
Net income (loss) |
$ | 165,024 | $ | (16,183 | ) | $ | 116,528 | $ | (64,680 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Interest rate swap (a) |
(2,024 | ) | | (2,772 | ) | | ||||||||||
Pension plan adjustment |
| 88 | | 188 | ||||||||||||
Other comprehensive income (loss) |
(2,024 | ) | 88 | (2,772 | ) | 188 | ||||||||||
Comprehensive income (loss) |
163,000 | (16,095 | ) | 113,756 | (64,492 | ) | ||||||||||
Comprehensive income attributable to
noncontrolling interests |
(729 | ) | (47 | ) | (777 | ) | (121 | ) | ||||||||
Comprehensive income (loss)
attributable to common stockholders |
$ | 162,271 | $ | (16,142 | ) | $ | 112,979 | $ | (64,613 | ) | ||||||
(a) | Net of deferred tax expense of $1.1 million during both the three and nine months ended September 30, 2011. |
- 4 -
Accumulated | Noncontrolling | |||||||||||||||||||||||||||
Additional | Other | Interests in | ||||||||||||||||||||||||||
Common | Paid-In | Accumulated | GGP | Comprehensive | Consolidated | Total | ||||||||||||||||||||||
(In thousands) | Stock | Capital | Deficit | Equity | Income (Loss) | Ventures | Equity | |||||||||||||||||||||
Balance, January 1, 2010 |
$ | | $ | | $ | | $ | 1,504,364 | $ | (1,744 | ) | $ | 900 | $ | 1,503,520 | |||||||||||||
Net income (loss) |
| | | (64,801 | ) | | 121 | (64,680 | ) | |||||||||||||||||||
Distributions to
noncontrolling interests |
| | | | | (218 | ) | (218 | ) | |||||||||||||||||||
Other comprehensive income |
| | | | 188 | | 188 | |||||||||||||||||||||
Contributions from GGP, net |
| | | 101,294 | | | 101,294 | |||||||||||||||||||||
Balance, September 30, 2010 |
$ | | $ | | $ | | $ | 1,540,857 | $ | (1,556 | ) | $ | 803 | $ | 1,540,104 | |||||||||||||
Balance, January 1, 2011 |
$ | 379 | $ | 2,708,036 | $ | (528,505 | ) | $ | | $ | (1,627 | ) | $ | 824 | $ | 2,179,107 | ||||||||||||
Net income |
| | 115,751 | | | 777 | 116,528 | |||||||||||||||||||||
Adjustment to
noncontrolling interests |
| | | | | 3,452 | 3,452 | |||||||||||||||||||||
Other comprehensive loss |
| | | | (2,772 | ) | | (2,772 | ) | |||||||||||||||||||
Stock plan activity |
| 2,500 | | | | | 2,500 | |||||||||||||||||||||
Balance, September 30, 2011 |
$ | 379 | $ | 2,710,536 | $ | (412,754 | ) | $ | | $ | (4,399 | ) | $ | 5,053 | $ | 2,298,815 | ||||||||||||
- 5 -
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(Consolidated) | (Combined) | |||||||
(In thousands) | ||||||||
Cash Flows from Operating Activities: |
||||||||
Net income (loss) |
$ | 116,528 | $ | (64,680 | ) | |||
Adjustments to reconcile net income (loss) to cash provided by
(used in) operating activities: |
||||||||
Equity in earnings from Real Estate Affiliates |
(3,727 | ) | (6,394 | ) | ||||
Distributions received from Real Estate Affiliates |
34 | | ||||||
Investment in Real Estate Affiliate basis adjustment |
6,053 | | ||||||
Provision for doubtful accounts |
590 | 1,101 | ||||||
Depreciation |
11,235 | 11,012 | ||||||
Amortization |
2,357 | 1,523 | ||||||
Amortization (accretion) of deferred financing costs and debt
market rate adjustments |
393 | 1,600 | ||||||
Amortization of intangibles other than in-place leases |
(1,205 | ) | 144 | |||||
Straight-line rent amortization |
(1,223 | ) | (574 | ) | ||||
Restricted stock and stock option amortization |
2,500 | | ||||||
Warrant liability adjustment |
(100,762 | ) | | |||||
Provisions for impairment |
| 578 | ||||||
Real estate acquisition and development expenditures |
(65,813 | ) | (39,115 | ) | ||||
Master Planned Community and condominium cost of sales |
65,359 | 7,089 | ||||||
Reorganization items |
| (1,569 | ) | |||||
Net changes*: |
||||||||
Accounts and notes receivable |
(1,822 | ) | 9,383 | |||||
Prepaid expenses and other assets |
(5,754 | ) | 4,132 | |||||
Deferred expenses |
(872 | ) | (1,426 | ) | ||||
Accounts payable and accrued expenses and deferred tax
liabilities |
(46 | ) | 16,529 | |||||
Other, net |
(1,873 | ) | 168 | |||||
Cash provided by (used in) operating activities |
21,952 | (60,499 | ) | |||||
Cash Flows from Investing Activities: |
||||||||
Cash acquired from The Woodlands acquisition, net of cash
consideration |
5,493 | | ||||||
Real estate and property expenditures |
(25,015 | ) | (71,069 | ) | ||||
Reimbursement for infrastructure improvements from municipality |
5,560 | | ||||||
Proceeds from dispositions |
1,130 | | ||||||
Investments in Real Estate Affiliates |
| (10 | ) | |||||
Cash used in investing activities |
(12,832 | ) | (71,079 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Change in GGP investment, net |
| 137,411 | ||||||
Proceeds from issuance of mortgages, notes and loans payable |
241,644 | | ||||||
Principal payments on mortgages, notes and loans payable |
(241,148 | ) | (4,697 | ) | ||||
Finance costs related to emerged entities |
| (1,311 | ) | |||||
Deferred financing costs |
(2,935 | ) | | |||||
Proceeds from issuance of Warrants |
2,000 | | ||||||
Distributions to noncontrolling interests |
| (218 | ) | |||||
Cash (used in) provided by financing activities |
(439 | ) | 131,185 | |||||
Net change in cash and cash equivalents |
8,681 | (393 | ) | |||||
Cash and cash equivalents at beginning of period |
284,682 | 3,204 | ||||||
Cash and cash equivalents at end of period |
$ | 293,363 | $ | 2,811 | ||||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Interest paid |
$ | 15,272 | $ | 14,831 | ||||
Interest capitalized |
16,687 | 15,443 | ||||||
Reorganization items paid |
| 46,009 | ||||||
Non-Cash Investing and Financing Transactions: |
||||||||
Reduction in investments in Real Estate Affiliates
due to The Woodlands acquisition |
(128,764 | ) | | |||||
Acquisition note related to The Woodlands (See Note 5) |
96,500 | | ||||||
Debt assumed from The Woodlands acquisition (See Note 1) |
296,695 | | ||||||
Prepetition liabilities funded by GGP |
3,323 | | ||||||
Mortgage debt market rate adjustment related to emerged entities |
| 2,382 | ||||||
Other non-cash GGP equity transactions |
| (36,117 | ) |
(*) | As a result of The Woodlands acquisition and consolidation, changes in certain accounts cannot be derived from the balance sheet because these changes are non-cash related (See Note 1). |
- 6 -
- 7 -
| four master planned communities (MPCs); | ||
| twenty-six operating assets; and | ||
| seventeen strategic developments. |
- 8 -
| The fair values of the Master Planned Community assets which consist of residential and commercial land held for development and sale were determined using a discounted cash flow analysis. | ||
| The fair values of the commercial and retail assets acquired, consisting of land and buildings, were determined by valuing each property as if it were vacant, and the as-if-vacant value was then allocated between land and buildings. The as-if-vacant values were derived by estimating the value of each property assuming it was generating stabilized cash flows using market lease, capitalization and discount rates based on recent comparable market transactions, reduced by the estimated lease-up and carrying costs the Company would incur to achieve stabilized cash flow if the property were vacant. The buildings are depreciated over the estimated useful life of 40 years using the straight-line method. | ||
| The values of above-market and below-market in-place leases of The Woodlands operating assets were based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) managements estimate of current market lease rates, measured over the remaining non-cancelable lease term. We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the lease term. | ||
| The estimated fair values of in-place leases included an estimate of carrying costs during the expected lease-up periods assuming the building was vacant, the estimated tenant improvement and leasing costs to acquire the leases, and an estimate of the lost net revenue during the lease-up period. | ||
| The fair value of working capital items such as cash, Municipal Utility District receivables, prepaid expenses, accounts payable and accrued expenses was determined based on the carrying value due to the short term nature of such items. | ||
| The debt assumed was primarily variable rate debt and fixed rate debt with short term maturities therefore, the carrying value was assumed to be the fair value. |
Master Planned Community Assets |
$ | 274,638 | ||
Land |
69,758 | |||
Buildings and Equipment |
80,130 | |||
Investments in Real Estate Affiliates |
42,932 | |||
Cash |
25,492 | |||
Accounts receivable |
7,661 | |||
Notes receivable |
3,189 | |||
Municipal Utility District receivables |
61,700 | |||
Other assets |
25,968 | |||
Total assets |
591,468 | |||
Mortgages, notes and loans payable |
(296,695 | ) | ||
Accounts payable and accrued expenses |
(45,995 | ) | ||
Noncontrolling interests |
(3,515 | ) | ||
Total liabilities and noncontrolling interests |
(346,205 | ) | ||
Total identifiable net assets |
$ | 245,263 | ||
- 9 -
Nine Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Total Revenues |
$ | 276,240 | $ | 203,734 | ||||
Net income (loss) |
112,393 | (76,524 | ) |
Asset Type | Years | |||
Buildings and improvements |
40-45 | |||
Equipment, tenant improvements and fixtures |
5-10 |
- 10 -
- 11 -
- 12 -
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Basic EPS: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) attributable to common
stockholders |
$ | 164,295 | $ | (16,230 | ) | $ | 115,751 | $ | (64,801 | ) | ||||||
Denominator: |
||||||||||||||||
Weighted average number of common shares
outstanding basic |
37,912 | 37,716 | 37,907 | 37,716 | ||||||||||||
Diluted EPS: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) attributable to common
stockholders |
$ | 164,295 | $ | (16,230 | ) | $ | 115,751 | $ | (64,801 | ) | ||||||
Warrant liability gain |
(169,897 | ) | | (100,762 | ) | | ||||||||||
Adjusted net income (loss) available to common
stockholders |
$ | (5,602 | ) | $ | (16,230 | ) | $ | 14,989 | $ | (64,801 | ) | |||||
Denominator: |
||||||||||||||||
Weighted average number of common shares
outstanding basic |
37,912 | 37,716 | 37,907 | 37,716 | ||||||||||||
Diluted effect: |
||||||||||||||||
Restricted stock and stock options |
| | 5 | | ||||||||||||
Warrants |
843 | | 1,585 | | ||||||||||||
Weighted average number of common shares
outstanding diluted |
38,755 | 37,716 | 39,497 | 37,716 | ||||||||||||
Anti-dilutive stock options and restricted stock,
not included above |
731 | | 731 | | ||||||||||||
Basic Earnings (Loss) Per Share |
$ | 4.33 | $ | (0.43 | ) | $ | 3.05 | $ | (1.72 | ) | ||||||
Diluted Earnings (Loss) Per Share |
$ | (0.14 | ) | $ | (0.43 | ) | $ | 0.38 | $ | (1.72 | ) |
- 13 -
Three Months Ended | Nine Months Ended | |||||||
Reorganization Items | September 30, 2010 | September 30, 2010 | ||||||
(In thousands) | ||||||||
Gains on liabilities subject to compromise vendors (a) |
$ | (216 | ) | $ | (498 | ) | ||
Gains on liabilities subject to compromise, net mortgage debt (b) |
(2,747 | ) | (2,382 | ) | ||||
Interest income (c) |
(13 | ) | (14 | ) | ||||
U.S. Trustee fees |
142 | 412 | ||||||
Restructuring costs (d) |
19,349 | 45,611 | ||||||
Total reorganization items |
$ | 16,515 | $ | 43,129 | ||||
(a) | This amount includes gains from repudiation, rejection or termination of contracts or guarantee of obligations. Such gains reflect agreements reached with certain critical vendors, which were authorized by the Bankruptcy Court, and for which payments on an installment basis began in July 2009. | |
(b) | Net losses include the fair value adjustments of mortgage debt relating to entities that emerged from bankruptcy. | |
(c) | Interest income primarily reflects amounts earned on cash accumulated as a result of our Chapter 11 cases. | |
(d) | Restructuring costs primarily include professional fees incurred related to the bankruptcy filings, our allocated share of the Key Employee Incentive Plan (KEIP) payment, finance costs incurred by debtors upon emergence from bankruptcy and any associated write-off of unamortized deferred finance costs related to emerged debtors. |
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Fair Value Measurements Using | Fair Value Measurements Using | |||||||||||||||||||||||||||||||
Quoted | Quoted | |||||||||||||||||||||||||||||||
Prices in | Prices in | |||||||||||||||||||||||||||||||
Active | Signifiicant | Active | Signifiicant | |||||||||||||||||||||||||||||
Markets for | Other | Signifiicant | Markets for | Other | Signifiicant | |||||||||||||||||||||||||||
Identical | Observable | Unobservable | Identical | Observable | Unobservable | |||||||||||||||||||||||||||
Assets | Inputs | Inputs | Assets | Inputs | Inputs | |||||||||||||||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||
Interest rate swap |
$ | 2 | $ | | $ | 2 | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||
Warrants |
128,586 | | | 128,586 | 227,348 | | | 227,348 | ||||||||||||||||||||||||
Interest rate swap |
3,561 | | 3,561 | | | | | |
- 14 -
(in thousands) | ||||
Balance as of December 31, 2010 |
$ | 227,348 | ||
Warrant liability gain |
(100,762 | ) | ||
Purchases |
2,000 | |||
Balance as of September 30, 2011 |
$ | 128,586 | ||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Fixed-rate debt |
$ | 138,219 | $ | 140,069 | $ | 191,037 | $ | 202,897 | ||||||||
Variable-rate debt |
512,609 | 512,609 | (a) | 65,518 | 65,629 | |||||||||||
SID bonds (b) |
57,344 | 57,344 | 62,105 | 62,105 | ||||||||||||
Total |
$ | 708,172 | $ | 710,022 | $ | 318,660 | $ | 330,631 | ||||||||
(a) | As more fully described in Note 5, $172.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt. | |
(b) | Due to the uncertain repayment terms of special improvement district SID bonds, the carrying value has been used as an approximation of fair value. |
- 15 -
The following table summarizes our intangible assets and liabilities: |
Accumulated | Net | |||||||||||
Gross Asset | (Amortization) | Carrying | ||||||||||
(Liability) | / Accretion | Amount | ||||||||||
(In thousands) | ||||||||||||
As of September 30, 2011 |
||||||||||||
Tenant leases: |
||||||||||||
In-place value |
$ | 24,037 | $ | (11,150 | ) | $ | 12,887 | |||||
Above-market |
3,185 | (1,816 | ) | 1,369 | ||||||||
Ground leases: |
||||||||||||
Above-market |
(3,545 | ) | 961 | (2,584 | ) | |||||||
Below-market |
23,096 | (2,378 | ) | 20,718 | ||||||||
As of December 31, 2010 |
||||||||||||
Tenant leases: |
||||||||||||
In-place value |
$ | 11,824 | $ | (10,221 | ) | $ | 1,603 | |||||
Above-market |
1,820 | (1,701 | ) | 119 | ||||||||
Below-market |
(77 | ) | 77 | | ||||||||
Ground leases: |
||||||||||||
Above-market |
(3,545 | ) | 638 | (2,907 | ) | |||||||
Below-market |
23,096 | (2,078 | ) | 21,018 |
- 16 -
Share of Earnings | ||||||||||||||||||||||||||||||||
Economic Ownership | Carrying Value | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | September 30, | |||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
(in percentages) | (in thousands) | |||||||||||||||||||||||||||||||
The Woodlands |
| 52.50 | $ | | $ | 131,090 | $ | | $ | 1,226 | $ | 3,727 | $ | 6,398 | ||||||||||||||||||
Circle T |
50.00 | 50.00 | 9,004 | 9,004 | | (4 | ) | | (4 | ) | ||||||||||||||||||||||
Stewart Title |
50.00 | | 3,714 | | 85 | | 85 | | ||||||||||||||||||||||||
Timbermill Apartments |
50.00 | | 5,161 | | 1 | | 1 | | ||||||||||||||||||||||||
Woodlands Sarofim |
20.00 | | 2,393 | | 30 | | 30 | | ||||||||||||||||||||||||
Millenium Waterway
Apartments |
83.55 | | 21,316 | | 14 | | 14 | | ||||||||||||||||||||||||
Forest View Apartments |
50.00 | | 6,542 | | 1 | | 1 | | ||||||||||||||||||||||||
48,130 | 140,094 | 131 | 1,222 | 3,858 | 6,394 | |||||||||||||||||||||||||||
Cost basis investments (a) |
13,084 | 9,449 | 35 | | 3,929 | | ||||||||||||||||||||||||||
Investment in Real Estate
Affiliates |
$ | 61,214 | $ | 149,543 | $ | 166 | $ | 1,222 | $ | 7,787 | $ | 6,394 |
(a) | Share of Earnings primarily represents dividends received for cost basis investments. |
September 30, | December 31, | |||||||
(In thousands) | 2011 | 2010 | ||||||
Fixed-rate debt: |
||||||||
Fixed-rate debt |
$ | 138,219 | $ | 191,037 | ||||
Variable-rate debt |
512,609 | (a) | 65,518 | |||||
Special Improvement District bonds |
57,344 | 62,105 | ||||||
Total mortgages, notes and loans payable |
$ | 708,172 | $ | 318,660 | ||||
(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. |
- 17 -
Maximum | Carrying Value | |||||||||||||||
Facility | September 30, | Interest | ||||||||||||||
Property (In thousands) | Amount | 2011 | Rate | Final Maturity | ||||||||||||
Mortgages, notes and loans payable |
||||||||||||||||
110 N. Wacker |
$ | 29,000 | 5.21 | %(a) | November 2019 | |||||||||||
Bridgeland |
||||||||||||||||
Note #1 |
15,295 | 6.50 | % | May 2026 | ||||||||||||
Note #2 |
3,288 | 6.50 | % | December 2017 | ||||||||||||
Note #3 |
2,062 | 6.50 | % | June 2033 | ||||||||||||
Note #4 |
253 | 6.50 | % | December 2021 | ||||||||||||
Bridgeland Total |
20,898 | |||||||||||||||
Special Improvement District bonds |
||||||||||||||||
Summerlin South S108 |
1,424 | 5.95 | % | December 2016 | ||||||||||||
Summerlin South S124 |
436 | 5.95 | % | December 2019 | ||||||||||||
Summerlin South S128 |
898 | 7.30 | % | December 2020 | ||||||||||||
Summerlin South S128C |
6,060 | 6.05 | % | December 2030 | ||||||||||||
Summerlin South S132 |
5,604 | 7.88 | % | December 2020 | ||||||||||||
Summerlin South S151 |
12,772 | 6.00 | % | June 2025 | ||||||||||||
Summerlin West S808 |
1,013 | 5.71 | % | April 2021 | ||||||||||||
Summerlin West S809 |
1,476 | 6.65 | % | April 2023 | ||||||||||||
Summerlin West S810 |
22,771 | 7.13 | % | April 2031 | ||||||||||||
The Shops @ Summerlin Centre S128 |
4,005 | 6.05 | % | December 2030 | ||||||||||||
The Shops @ Summerlin Centre S108 |
885 | 5.95 | % | December 2016 | ||||||||||||
Total Special Improvement District bonds |
57,344 | |||||||||||||||
The Woodlands |
||||||||||||||||
Master credit facility |
$ | 270,000 | 235,000 | 5.00 | %(b) | March 2015 | ||||||||||
Acquisition note |
96,500 | | (c) | December 2011 | ||||||||||||
Resort and Conference Center |
36,100 | 5.50 | %(d) | October 2012 | ||||||||||||
9303 New Trails |
13,142 | 1.37 | % | December 2011 | ||||||||||||
WCA Building |
4,875 | 6.50 | %(e) | November 2011 | ||||||||||||
Weiner Tract |
1,520 | 6.25 | % | January 2013 | ||||||||||||
Land in Montgomery Co. |
683 | 6.00 | % | December 2012 | ||||||||||||
Land in Harris Co. |
393 | 6.00 | % | January 2013 | ||||||||||||
Capital lease obligation |
107 | |||||||||||||||
CVS |
101 | 3.25 | % | upon sale | ||||||||||||
The Woodlands Total |
388,421 | |||||||||||||||
Ward Centers |
$ | 250,000 | 212,509 | 3.46 | %(f) | September 2016 | ||||||||||
$ | 708,172 | |||||||||||||||
(a) | Loan has a stated interest rate of one-month LIBOR + 2.50%. The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity. | |
(b) | Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor. | |
(c) | Acquisition Note has a $97.5 million outstanding principal balance, bears no interest, and is due on December 1, 2011 to our former partner in The Woodlands. The note is secured by The Woodlands partnership interests acquired, and was recorded at a $1.0 million discount to reflect in imputed interest cost during its term. | |
(d) | Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor. The rate increased by 0.5% on September 23, 2011 and increases by 0.5% every six months thereafter until maturity. | |
(e) | The Company is negotiating a five-year extension with lender. | |
(f) | Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.81% fixed rate through maturity. |
- 18 -
Long-term debt | ||||
principal payments | ||||
(In thousands) | ||||
4th Quarter 2011 |
$ | 115,109 | ||
2012 |
48,211 | |||
2013 |
27,966 | |||
2014 |
201,391 | |||
2015 |
4,241 | |||
Thereafter |
311,254 | |||
Total |
$ | 708,172 | ||
- 19 -
- 20 -
As of September 30, 2011 | As of December 31, 2010 | |||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
Location | Fair Value | Location | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Interest Rate Swaps |
||||||||||||||||
Assets |
Other Assets | $ | 2 | Other Assets | $ | | ||||||||||
Liabilities |
Other Liabilities | (3,561 | ) | Other Liabilities | | |||||||||||
Total derivatives designated as hedging instruments |
$ | (3,559 | ) | $ | | |||||||||||
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Amount of (Loss) | Amount of (Loss) | |||||||||||||||
Cash Flow Hedges | Recognized in OCI | Recognized in OCI | ||||||||||||||
(in thousands) | ||||||||||||||||
Interest Rate Swaps |
$ | (1,834 | ) | $ | | $ | (2,582 | ) | $ | |
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Amount of Gain or | Amount of Gain or | |||||||||||||||
(Loss) Reclassified | (Loss) Reclassified | |||||||||||||||
from Accumulated | from Accumulated | |||||||||||||||
Cash Flow Hedges | OCI into Income | OCI into Income | ||||||||||||||
(in thousands) | ||||||||||||||||
Interest Rate Swaps |
$ | (205 | ) | $ | | $ | (316 | ) | $ | |
- 21 -
- 22 -
2011 | ||||||||
Weighted | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
HHC Replacement Options outstanding at January 1 |
164,138 | $ | 133.28 | |||||
Exercised (a) |
(19,265 | ) | 40.71 | |||||
Expired |
(91,480 | ) | 139.01 | |||||
HHC Replacement Options outstanding at September 30 (b) |
53,393 | $ | 156.88 | |||||
(a) | All net share settled by GGP. | |
(b) | Weighted average remaining contractual term of 0.4 years. |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Special Improvement District receivable |
$ | 42,017 | $ | 46,250 | ||||
Other receivables |
7,722 | 5,352 | ||||||
Prepaid expenses |
9,582 | 2,859 | ||||||
Below-market ground leases (Note 3) |
20,718 | 21,018 | ||||||
Security and escrow deposits |
6,618 | 6,814 | ||||||
Above-market tenant leases (Note 3) |
1,369 | 119 | ||||||
Uncertain tax position asset |
11,236 | 8,945 | ||||||
In place leases (Note 3) |
12,887 | 1,603 | ||||||
Intangibles |
6,487 | | ||||||
Other |
11,377 | 5,524 | ||||||
$ | 130,013 | $ | 98,484 | |||||
- 23 -
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Construction payable |
$ | 9,735 | $ | 15,531 | ||||
Accounts payable and accrued expenses |
36,280 | 29,745 | ||||||
Membership deposits |
17,807 | | ||||||
Above-market ground leases (Note 3) |
2,584 | 2,907 | ||||||
Deferred gains/income |
5,994 | 5,631 | ||||||
Accrued interest |
3,556 | 1,633 | ||||||
Accrued real estate taxes |
10,086 | 3,953 | ||||||
Tenant and other deposits |
3,482 | 3,555 | ||||||
Insurance reserve |
4,209 | 4,229 | ||||||
Accrued payroll and other employee liabilities |
7,702 | 3,930 | ||||||
Other |
20,644 | 7,722 | ||||||
Total accounts payable and accrued expenses |
$ | 122,079 | $ | 78,836 | ||||
- 24 -
| Master Planned Communities includes 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. In prior periods this segment included certain commercial properties and other ownership interests owned by The Woodlands. For the three and nine months ending September 30, 2011 and the same periods in 2010, we have reclassified the operations of The Woodlands commercial properties and other ownership interests to the Operating Assets segment. Furthermore, for segment reporting, we disclosed The Woodlands historical financial information as if we owned 100% for all periods presented so that operating performance between periods is comparable. | ||
| Operating Assets includes commercial, mixed use and retail properties currently generating revenues, many of which we believe there is an opportunity to redevelop or reposition the asset to increase operating performance. | ||
| Strategic Developments includes all properties held for development and redevelopment, including the current rental property operations (primarily retail and other interests in real estate at such locations) as well as our one residential condominium project located in Natick (Boston), Massachusetts. |
- 25 -
- 26 -
- 27 -
Three Months Ended September 30, 2011 | ||||||||||||
The Woodlands | ||||||||||||
Consolidated | (prior to July 1, | |||||||||||
Properties | 2011 at 100%) | Segment Basis | ||||||||||
(In thousands) | ||||||||||||
Master Planned Communities |
||||||||||||
Land sales |
$ | 33,246 | | $ | 33,246 | |||||||
Builder price participation |
2,145 | | 2,145 | |||||||||
Minimum rents |
| | | |||||||||
Other land revenues |
5,590 | | 5,590 | |||||||||
Other rental and property revenues |
| | | |||||||||
Total revenues |
40,981 | | 40,981 | |||||||||
Cost of sales land |
27,033 | | 27,033 | |||||||||
CSA participation expense |
| | | |||||||||
Land sales operations |
5,374 | | 5,374 | |||||||||
Land sales real estate and business taxes |
2,059 | | 2,059 | |||||||||
Rental property real estate taxes |
| | | |||||||||
Rental property maintenance costs |
| | | |||||||||
Other property operating costs |
1,153 | | 1,153 | |||||||||
Provisions for impairment |
| | | |||||||||
Depreciation and amortization |
23 | | 23 | |||||||||
Interest income |
(2,341 | ) | | (2,341 | ) | |||||||
Interest expense (*) |
(3,013 | ) | | (3,013 | ) | |||||||
Total expenses |
30,288 | | 30,288 | |||||||||
Venture partner share of The Woodlands EBT |
| | | |||||||||
MPC EBT |
10,693 | | 10,693 | |||||||||
Operating Assets |
||||||||||||
Minimum rents |
19,210 | | 19,210 | |||||||||
Tenant recoveries |
5,417 | | 5,417 | |||||||||
Resort and conference center revenue |
7,200 | | 7,200 | |||||||||
Other rental and property revenues |
4,765 | | 4,765 | |||||||||
Total revenues |
36,592 | | 36,592 | |||||||||
Rental property real estate taxes |
3,151 | | 3,151 | |||||||||
Rental property maintenance costs |
2,106 | | 2,106 | |||||||||
Resort and conference center operations |
6,352 | | 6,352 | |||||||||
Other property operating costs |
14,354 | | 14,354 | |||||||||
Provision for doubtful accounts |
305 | | 305 | |||||||||
Provisions for impairment |
| | | |||||||||
Depreciation and amortization |
6,942 | | 6,942 | |||||||||
Interest income |
| | | |||||||||
Interest expense |
2,893 | | 2,893 | |||||||||
Early extinguishment of debt |
11,305 | | 11,305 | |||||||||
Total expenses |
47,408 | | 47,408 | |||||||||
Venture partner share of The Woodlands EBT |
| | | |||||||||
Operating Assets EBT |
(10,816 | ) | | (10,816 | ) | |||||||
Strategic Developments |
||||||||||||
Minimum rents |
209 | | 209 | |||||||||
Tenant recoveries |
11 | | 11 | |||||||||
Condominium unit sales |
9,071 | | 9,071 | |||||||||
Other rental and property revenues |
26 | | 26 | |||||||||
Total revenues |
9,317 | | 9,317 | |||||||||
Condominium unit cost of sales |
5,470 | | 5,470 | |||||||||
Real estate taxes |
(819 | ) | | (819 | ) | |||||||
Rental property maintenance costs |
139 | | 139 | |||||||||
Other property operating costs |
956 | | 956 | |||||||||
Provision for doubtful accounts |
(4 | ) | | (4 | ) | |||||||
Provisions for impairment |
| | | |||||||||
Depreciation and amortization |
59 | | 59 | |||||||||
Interest income |
| | | |||||||||
Interest expense |
149 | | 149 | |||||||||
Total expenses |
5,950 | | 5,950 | |||||||||
Venture partner share of The Woodlands EBT |
| | | |||||||||
Strategic Developments EBT |
3,367 | | 3,367 | |||||||||
EBT |
$ | 3,244 | $ | | $ | 3,244 | ||||||
(*) | Negative interest expense relates to interest costs of debt at our Operating Assets segment which are allocated to the MPC segment assets eligible for interest capitalization. |
- 28 -
Three Months Ended September 30, 2010 | ||||||||||||
The Woodlands | ||||||||||||
Combined | (prior to July 1, | |||||||||||
Properties | 2011 at 100%) | Segment Basis | ||||||||||
(In thousands) | ||||||||||||
Master Planned Communities |
||||||||||||
Land sales |
$ | 7,297 | $ | 18,394 | $ | 25,691 | ||||||
Builder price participation |
1,148 | 1,103 | 2,251 | |||||||||
Minimum rents |
| 21 | 21 | |||||||||
Other land revenues |
1,589 | 2,314 | 3,903 | |||||||||
Other rental and property revenues |
207 | | 207 | |||||||||
Total revenues |
10,241 | 21,832 | 32,073 | |||||||||
Cost of sales land |
3,752 | 10,583 | 14,335 | |||||||||
CSA participation income |
(506 | ) | | (506 | ) | |||||||
Land sales operations |
5,198 | 1,989 | 7,187 | |||||||||
Land sales real estate and business taxes |
1,613 | 1,170 | 2,783 | |||||||||
Rental property real estate taxes |
203 | | 203 | |||||||||
Rental property maintenance costs |
| | | |||||||||
Other property operating costs |
| 705 | 705 | |||||||||
Depreciation and amortization |
11 | 29 | 40 | |||||||||
Interest income |
| (1,034 | ) | (1,034 | ) | |||||||
Interest expense (*) |
(3,390 | ) | 2,139 | (1,251 | ) | |||||||
Total expenses |
6,881 | 15,581 | 22,462 | |||||||||
Venture partner share of The Woodlands EBT |
| (2,969 | ) | (2,969 | ) | |||||||
MPC EBT |
3,360 | 3,282 | 6,642 | |||||||||
Operating Assets |
||||||||||||
Minimum rents |
16,109 | 2,071 | 18,180 | |||||||||
Tenant recoveries |
4,513 | 428 | 4,941 | |||||||||
Resort and conference center revenue |
| 6,496 | 6,496 | |||||||||
Other rental and property revenues |
1,222 | 2,870 | 4,092 | |||||||||
Total revenues |
21,844 | 11,865 | 33,709 | |||||||||
Rental property real estate taxes |
2,558 | 494 | 3,052 | |||||||||
Rental property maintenance costs |
1,291 | 468 | 1,759 | |||||||||
Resort and conference center operations |
| 6,179 | 6,179 | |||||||||
Other property operating costs |
7,321 | 4,969 | 12,290 | |||||||||
Provision for doubtful accounts |
594 | 38 | 632 | |||||||||
Provisions for impairment |
92 | | 92 | |||||||||
Depreciation and amortization |
4,034 | 1,774 | 5,808 | |||||||||
Interest income |
(59 | ) | | (59 | ) | |||||||
Interest expense |
4,058 | 208 | 4,266 | |||||||||
Total expenses |
19,889 | 14,130 | 34,019 | |||||||||
Venture partner share of The Woodlands EBT |
| 1,076 | 1,076 | |||||||||
Operating Assets EBT |
1,955 | (1,189 | ) | 766 | ||||||||
Strategic Developments |
||||||||||||
Minimum rents |
240 | | 240 | |||||||||
Tenant recoveries |
124 | | 124 | |||||||||
Condominium unit sales |
| | | |||||||||
Other rental and property revenues |
11 | | 11 | |||||||||
Total revenues |
375 | | 375 | |||||||||
Condominium unit cost of sales |
| | | |||||||||
Real estate taxes |
1,370 | | 1,370 | |||||||||
Rental property maintenance costs |
193 | | 193 | |||||||||
Other property operating costs |
1,673 | | 1,673 | |||||||||
Provision for doubtful accounts |
150 | | 150 | |||||||||
Provisions for impairment |
| | | |||||||||
Depreciation and amortization |
64 | | 64 | |||||||||
Interest income |
| | | |||||||||
Interest expense |
13 | | 13 | |||||||||
Total expenses |
3,463 | | 3,463 | |||||||||
Venture partner share of The Woodlands EBT |
| | | |||||||||
Strategic Developments EBT |
(3,088 | ) | | (3,088 | ) | |||||||
EBT |
$ | 2,227 | $ | 2,093 | $ | 4,320 | ||||||
* | Negative interest expense relates to interest costs of debt at our Operating Assets segment which are allocated to the MPC segment assets eligible for interest capitalization. |
- 29 -
Nine Months Ended September 30, 2011 | ||||||||||||
The Woodlands | ||||||||||||
Consolidated | (prior to July 1, | |||||||||||
Properties | 2011 at 100%) | Segment Basis | ||||||||||
(In thousands) | ||||||||||||
Master Planned Communities |
||||||||||||
Land sales |
$ | 74,786 | $ | 45,416 | $ | 120,202 | ||||||
Builder price participation |
3,263 | 2,463 | 5,726 | |||||||||
Minimum rents |
| 6 | 6 | |||||||||
Other land revenues |
9,086 | 3,926 | 13,012 | |||||||||
Other rental and property revenues |
| | | |||||||||
Total revenues |
87,135 | 51,811 | 138,946 | |||||||||
Cost of sales land |
51,907 | 23,931 | 75,838 | |||||||||
CSA participation expense |
| | | |||||||||
Land sales operations |
12,539 | 3,032 | 15,571 | |||||||||
Land sales real estate and business taxes |
5,110 | 1,907 | 7,017 | |||||||||
Rental property real estate taxes |
| | | |||||||||
Rental property maintenance costs |
| | | |||||||||
Other property operating costs |
1,270 | 2,356 | 3,626 | |||||||||
Provisions for impairment |
| | | |||||||||
Depreciation and amortization |
42 | 46 | 88 | |||||||||
Interest income |
(6,487 | ) | (2,733 | ) | (9,220 | ) | ||||||
Interest expense (a) |
(8,141 | ) | 5,085 | (3,056 | ) | |||||||
Total expenses |
56,240 | 33,624 | 89,864 | |||||||||
Venture partner share of The Woodlands EBT |
| (8,639 | ) | (8,639 | ) | |||||||
MPC EBT |
30,895 | 9,548 | 40,443 | |||||||||
Operating Assets |
||||||||||||
Minimum rents |
52,456 | 4,791 | 57,247 | |||||||||
Tenant recoveries |
14,421 | 1,158 | 15,579 | |||||||||
Resort and conference center revenue |
7,200 | 19,106 | 26,306 | |||||||||
Other rental and property revenues (b) |
12,101 | 7,220 | 19,321 | |||||||||
Total revenues |
86,178 | 32,275 | 118,453 | |||||||||
Rental property real estate taxes |
8,132 | 972 | 9,104 | |||||||||
Rental property maintenance costs |
4,902 | 712 | 5,614 | |||||||||
Resort and conference center operations |
6,352 | 13,904 | 20,256 | |||||||||
Other property operating costs |
31,174 | 11,140 | 42,314 | |||||||||
Provision for doubtful accounts |
317 | (9 | ) | 308 | ||||||||
Provisions for impairment |
| | | |||||||||
Depreciation and amortization |
13,189 | 3,769 | 16,958 | |||||||||
Interest income |
(610 | ) | | (610 | ) | |||||||
Interest expense |
7,987 | 389 | 8,376 | |||||||||
Early extinguishment of debt |
11,305 | | 11,305 | |||||||||
Total expenses |
82,748 | 30,877 | 113,625 | |||||||||
Venture partner share of The Woodlands EBT |
| (664 | ) | (664 | ) | |||||||
Operating Assets EBT |
3,430 | 734 | 4,164 | |||||||||
Strategic Developments |
||||||||||||
Minimum rents |
658 | | 658 | |||||||||
Tenant recoveries |
146 | | 146 | |||||||||
Condominium unit sales |
19,495 | | 19,495 | |||||||||
Other rental and property revenues |
1,096 | | 1,096 | |||||||||
Total revenues |
21,395 | | 21,395 | |||||||||
Condominium unit cost of sales |
13,723 | | 13,723 | |||||||||
Real estate taxes |
626 | | 626 | |||||||||
Rental property maintenance costs |
471 | | 471 | |||||||||
Other property operating costs |
3,550 | | 3,550 | |||||||||
Provision for doubtful accounts |
(143 | ) | | (143 | ) | |||||||
Provisions for impairment |
| | | |||||||||
Depreciation and amortization |
175 | | 175 | |||||||||
Interest income |
| | | |||||||||
Interest expense |
154 | | 154 | |||||||||
Total expenses |
18,556 | | 18,556 | |||||||||
Venture partner share of The Woodlands EBT |
| | | |||||||||
Strategic Developments EBT |
2,839 | | 2,839 | |||||||||
EBT |
$ | 37,164 | $ | 10,282 | $ | 47,446 | ||||||
(a) | Negative interest expense relates to interest costs of debt at our Operating Assets segment which are allocated to the MPC segment assets eligible for interest capitalization. | |
(b) | Reflects the $3.9 million cash dividends from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above. |
- 30 -
Nine Months Ended September 30, 2010 | ||||||||||||
The Woodlands | ||||||||||||
Combined | (prior to July 1, | |||||||||||
Properties | 2011 at 100%) | Segment Basis | ||||||||||
(In thousands) | ||||||||||||
Master Planned Communities |
||||||||||||
Land sales |
$ | 14,686 | $ | 64,402 | $ | 79,088 | ||||||
Builder price participation |
3,343 | 2,819 | 6,162 | |||||||||
Minimum rents |
| 19 | 19 | |||||||||
Other land revenues |
4,112 | 5,960 | 10,072 | |||||||||
Other rental and property revenues |
616 | | 616 | |||||||||
Total revenues |
22,757 | 73,200 | 95,957 | |||||||||
Cost of sales land |
7,001 | 36,789 | 43,790 | |||||||||
CSA participation income |
(5,195 | ) | | (5,195 | ) | |||||||
Land sales operations |
18,566 | 4,667 | 23,233 | |||||||||
Land sales real estate and business taxes |
10,282 | 3,594 | 13,876 | |||||||||
Rental property real estate taxes |
604 | | 604 | |||||||||
Rental property maintenance costs |
| | | |||||||||
Other property operating costs |
| 2,907 | 2,907 | |||||||||
Depreciation and amortization |
34 | 84 | 118 | |||||||||
Interest income |
| (2,966 | ) | (2,966 | ) | |||||||
Interest expense (*) |
(11,270 | ) | 6,248 | (5,022 | ) | |||||||
Total expenses |
20,022 | 51,323 | 71,345 | |||||||||
Venture partner share of The Woodlands EBT |
| (10,392 | ) | (10,392 | ) | |||||||
MPC EBT |
2,735 | 11,485 | 14,220 | |||||||||
Operating Assets |
||||||||||||
Minimum rents |
49,571 | 5,788 | 55,359 | |||||||||
Tenant recoveries |
13,575 | 1,129 | 14,704 | |||||||||
Resort and conference center revenue |
| 22,260 | 22,260 | |||||||||
Other rental and property revenues |
4,854 | 9,476 | 14,330 | |||||||||
Total revenues |
68,000 | 38,653 | 106,653 | |||||||||
Rental property real estate taxes |
7,694 | 1,466 | 9,160 | |||||||||
Rental property maintenance costs |
4,216 | 1,344 | 5,560 | |||||||||
Resort and conference center operations |
| 18,347 | 18,347 | |||||||||
Other property operating costs |
22,283 | 14,439 | 36,722 | |||||||||
Provision for doubtful accounts |
983 | 19 | 1,002 | |||||||||
Provisions for impairment |
522 | | 522 | |||||||||
Depreciation and amortization |
12,350 | 5,180 | 17,530 | |||||||||
Interest income |
(118 | ) | | (118 | ) | |||||||
Interest expense |
13,131 | 637 | 13,768 | |||||||||
Total expenses |
61,061 | 41,432 | 102,493 | |||||||||
Venture partner share of The Woodlands EBT |
| 1,320 | 1,320 | |||||||||
Operating Assets EBT |
6,939 | (1,459 | ) | 5,480 | ||||||||
Strategic Developments |
||||||||||||
Minimum rents |
778 | | 778 | |||||||||
Tenant recoveries |
316 | | 316 | |||||||||
Condominium unit sales |
| | | |||||||||
Other rental and property revenues |
30 | | 30 | |||||||||
Total revenues |
1,124 | | 1,124 | |||||||||
Condominium unit cost of sales |
| | | |||||||||
Real estate taxes |
2,863 | | 2,863 | |||||||||
Rental property maintenance costs |
550 | | 550 | |||||||||
Other property operating costs |
4,912 | | 4,912 | |||||||||
Provision for doubtful accounts |
118 | | 118 | |||||||||
Provisions for impairment |
56 | | 56 | |||||||||
Depreciation and amortization |
151 | | 151 | |||||||||
Interest income |
| | | |||||||||
Interest expense |
27 | | 27 | |||||||||
Total expenses |
8,677 | | 8,677 | |||||||||
Venture partner share of The Woodlands EBT |
| | | |||||||||
Strategic Developments EBT |
(7,553 | ) | | (7,553 | ) | |||||||
EBT |
$ | 2,121 | $ | 10,026 | $ | 12,147 | ||||||
* | Negative interest expense relates to interest costs of debt at our Operating Assets segment which are allocated to the MPC segment assets eligible for interest capitalization. |
- 31 -
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Reconciliation of EBT to GAAP-basis
income (loss) from continuing operations |
||||||||||||||||
Real estate property EBT: |
||||||||||||||||
Segment basis |
$ | 3,244 | $ | 4,320 | $ | 47,446 | $ | 12,147 | ||||||||
Real Estate Affiliates |
| (2,093 | ) | (10,282 | ) | (10,026 | ) | |||||||||
Segment EBT |
3,244 | 2,227 | 37,164 | 2,121 | ||||||||||||
General and administrative |
(9,990 | ) | (3,467 | ) | (23,581 | ) | (12,463 | ) | ||||||||
Warrant liability gain |
169,897 | | 100,762 | | ||||||||||||
Benefit (provision) for income taxes |
7,760 | 350 | 4,344 | (17,603 | ) | |||||||||||
Equity in earnings from Real Estate Affiliates |
166 | 1,222 | 3,892 | (a) | 6,394 | |||||||||||
Investment in real estate affiliate basis
adjustment |
(6,053 | ) | | (6,053 | ) | | ||||||||||
Reorganization items |
| (16,515 | ) | | (43,129 | ) | ||||||||||
Income (loss) |
$ | 165,024 | $ | (16,183 | ) | $ | 116,528 | $ | (64,680 | ) | ||||||
(a) | The segment EBT includes a $3.9 million dividend from Summerlin Hospital Medical Center. The dividend is reflected in equity in earnings from Real Estate Affiliates. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Reconciliation of segment basis revenues
to GAAP revenues |
||||||||||||||||
Master Planned Communities Total segment |
$ | 40,981 | $ | 32,073 | $ | 138,946 | $ | 95,957 | ||||||||
Operating Assets Total segment |
36,592 | 33,709 | 118,453 | 106,653 | ||||||||||||
Strategic Developments Total segment |
9,317 | 375 | 21,395 | 1,124 | ||||||||||||
Total segment revenues |
86,890 | 66,157 | 278,794 | 203,734 | ||||||||||||
Less The Woodlands revenue (a) |
| (33,697 | ) | (84,087 | ) | (111,853 | ) | |||||||||
Operating Assets Real Estate |
||||||||||||||||
Affiliates revenues |
| | (3,894 | ) | | |||||||||||
Total revenues GAAP basis |
$ | 86,890 | $ | 32,460 | $ | 190,813 | $ | 91,881 | ||||||||
(a) | For periods prior to July 1, 2011. |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Assets by segment |
||||||||
Master Planned Communities |
$ | 1,820,573 | $ | 1,765,487 | ||||
Operating Assets |
827,253 | 812,646 | ||||||
Strategic Developments |
188,418 | 206,037 | ||||||
Total segment assets |
2,836,244 | 2,784,170 | ||||||
Corporate and other |
640,732 | 730,741 | ||||||
Real Estate Affiliates |
| (492,204 | ) | |||||
Total assets |
$ | 3,476,976 | $ | 3,022,707 | ||||
- 32 -
| Projections of our revenues, net operating income, earnings per share, EBT, capital expenditures, income tax and other contingent liabilities, dividends, leverage, capital structure or other financial items; |
| Forecasts of our future economic performance; and |
| Descriptions of assumptions underlying or relating to any of the foregoing. |
| Capital required for our operations and development opportunities for the properties in our Strategic Developments segment; |
| Expected performance of our Master Planned Communities segment and other current income producing properties; and |
| Future liquidity, development opportunities, development spending and management plans. |
- 33 -
- 34 -
- 35 -
| does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; |
| does not reflect income taxes that we may be required to pay; |
| does not reflect any cash requirements for replacement of depreciated or amortized assets or that these assets have different useful lives; |
| does not reflect limitations on, or costs related to, transferring earnings from our Real Estate Affiliates to us; and |
| may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure. |
- 36 -
Land Sales * | Acres Sold | Number of Lots/Units | Price per acre | Price per lot | ||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Residential Land
Sales |
||||||||||||||||||||||||||||||||||||||||||||
Maryland Columbia |
Single family detached | $ | 630 | $ | | 0.5 | | 3 | | $ | 1,260 | $ | | $ | 210 | $ | | |||||||||||||||||||||||||||
Maryland Columbia |
Townhomes | 1,697 | | 0.5 | | 12 | | n/a | n/a | 141 | | |||||||||||||||||||||||||||||||||
Bridgeland |
Single family detached | 5,149 | 4,201 | 20.3 | 17.0 | 103 | 87 | 254 | 247 | 50 | 48 | |||||||||||||||||||||||||||||||||
Summerlin |
Single family detached | | | | | | | | | | | |||||||||||||||||||||||||||||||||
Custom lots | | 1,362 | | 1.0 | | 2 | | 1,362 | | 681 | ||||||||||||||||||||||||||||||||||
The Woodlands |
Single family detached | 19,043 | 11,486 | 53.5 | 29.6 | 216 | 105 | 356 | 388 | 88 | 109 | |||||||||||||||||||||||||||||||||
Single family attached | 887 | | 2.3 | | 34 | | 386 | | 26 | | ||||||||||||||||||||||||||||||||||
Subtotal | $ | 27,406 | $ | 17,049 | 77.1 | 47.6 | 368 | 194 | ||||||||||||||||||||||||||||||||||||
Commercial Land Sales |
||||||||||||||||||||||||||||||||||||||||||||
The Woodlands |
Office and other | $ | | $ | 6,905 | | 11.3 | | 611 | |||||||||||||||||||||||||||||||||||
Apartments and assisted living | 1,839 | | 5.3 | | 347 | | ||||||||||||||||||||||||||||||||||||||
Retail | 2,001 | | 5.0 | | 400 | | ||||||||||||||||||||||||||||||||||||||
Subtotal | 3,840 | 6,905 | 10.3 | 11.3 | ||||||||||||||||||||||||||||||||||||||||
Total acreage sales revenue | 31,246 | 23,954 | ||||||||||||||||||||||||||||||||||||||||||
Deferred revenue |
2,000 | 1,709 | ||||||||||||||||||||||||||||||||||||||||||
Special Improvement District revenue | | 28 | ||||||||||||||||||||||||||||||||||||||||||
Total segment land sales revenue | $ | 33,246 | $ | 25,691 | ||||||||||||||||||||||||||||||||||||||||
Less: Real Estate Affiliates land sales revenue | | (18,394 | ) | |||||||||||||||||||||||||||||||||||||||||
Total land sales revenue GAAP basis | $ | 33.246 | $ | 7,297 | ||||||||||||||||||||||||||||||||||||||||
* | Land sales do not include $2.1 million and $2.3 million of builder price participation revenue for the three months ended September 30, 2011 and 2010, respectively. Prior year amount includes The Woodlands at 100%. |
- 37 -
Land Sales * | Acres Sold | Number of Lots/Units | Price per acre | Price per lot | ||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Residential
Land Sales |
||||||||||||||||||||||||||||||||||||||||||||
Maryland Columbia |
Single family detached | $ | 1,480 | $ | | 1.4 | | 7 | | $ | 1,057 | $ | | $ | 211 | $ | | |||||||||||||||||||||||||||
Maryland Columbia |
Townhomes | 3,311 | | 1.0 | | 24 | | n/a | n/a | 138 | | |||||||||||||||||||||||||||||||||
Bridgeland |
Single family detached | 13,846 | 10,391 | 52.2 | 40.9 | 260 | 209 | 265 | 254 | 53 | 50 | |||||||||||||||||||||||||||||||||
Summerlin |
Single family detached | 25,504 | | 62.4 | | 312 | | 409 | | 82 | | |||||||||||||||||||||||||||||||||
Custom lots | | 1,362 | | 1.0 | | 2 | | 1,362 | | 681 | ||||||||||||||||||||||||||||||||||
The Woodlands |
Single family detached | 53,261 | 48,419 | 149.8 | 140.6 | 610 | 565 | 356 | 344 | 87 | 86 | |||||||||||||||||||||||||||||||||
Single family attached | 887 | 988 | 2.3 | 3.5 | 34 | 52 | 386 | 282 | 26 | 19 | ||||||||||||||||||||||||||||||||||
Subtotal | $ | 98,289 | $ | 61,160 | 269.1 | 186.0 | 1,247 | 828 | ||||||||||||||||||||||||||||||||||||
Commercial Land
Sales |
||||||||||||||||||||||||||||||||||||||||||||
Summerlin |
Not-for-profit | $ | 3,615 | $ | | 16.0 | | 226 | | |||||||||||||||||||||||||||||||||||
The Woodlands |
Office and other | $ | 1,800 | $ | 10,709 | 3.2 | 21.3 | 563 | 503 | |||||||||||||||||||||||||||||||||||
Apartments and assisted living | 1,839 | | 5.3 | | 347 | | ||||||||||||||||||||||||||||||||||||||
Retail | 5,115 | 4,470 | 10.5 | 14.7 | 487 | 304 | ||||||||||||||||||||||||||||||||||||||
Subtotal | 12,369 | 15,179 | 35.0 | 36.0 | ||||||||||||||||||||||||||||||||||||||||
Total acreage sales revenue | 110,658 | 76,339 | ||||||||||||||||||||||||||||||||||||||||||
Deferred revenue |
(769 | ) | 2,818 | |||||||||||||||||||||||||||||||||||||||||
Deferred revenue Woodlands | 6,285 | (97 | ) | |||||||||||||||||||||||||||||||||||||||||
Special Improvement District revenue | 4,028 | 28 | ||||||||||||||||||||||||||||||||||||||||||
Total segment land sales revenue | $ | 120,202 | $ | 79,088 | ||||||||||||||||||||||||||||||||||||||||
Less: Real Estate Affiliates land sales revenue | (45,416 | ) | (64,402 | ) | ||||||||||||||||||||||||||||||||||||||||
Total land sales revenue GAAP basis | $ | 74,786 | $ | 14,686 | ||||||||||||||||||||||||||||||||||||||||
* | Land sales do not include $5.7 million and $6.2 million of builder price participation revenue for the nine months ended September 30, 2011 and 2010, respectively. Such amounts include The Woodlands at 100%. |
- 38 -
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Master Planned Communities (*) |
||||||||||||||||
Land sales |
$ | 33,246 | $ | 25,691 | $ | 120,202 | $ | 79,088 | ||||||||
Other land revenues |
7,735 | 6,154 | 18,738 | 16,234 | ||||||||||||
Other rental and property revenues |
| 228 | 6 | 635 | ||||||||||||
Total revenues |
40,981 | 32,073 | 138,946 | 95,957 | ||||||||||||
Cost of sales land |
27,033 | 14,335 | 75,838 | 43,790 | ||||||||||||
Land sales operations |
7,433 | 9,464 | 22,588 | 31,914 | ||||||||||||
Rental property operations |
1,153 | 908 | 3,626 | 3,511 | ||||||||||||
Provisions for impairments |
| | | | ||||||||||||
Depreciation and amortization |
23 | 40 | 88 | 118 | ||||||||||||
Interest, net |
(5,354 | ) | (2,285 | ) | (12,276 | ) | (7,988 | ) | ||||||||
Total expenses |
30,288 | 22,462 | 89,864 | 71,345 | ||||||||||||
Venture partner share of The |
||||||||||||||||
Woodlands EBT |
| (2,969 | ) | (8,639 | ) | (10,392 | ) | |||||||||
MPC EBT |
$ | 10,693 | $ | 6,642 | $ | 40,443 | $ | 14,220 | ||||||||
(*) | Our master planned communities segment includes revenues and expenses related to The Woodlands (Note 1). For a detailed breakdown of EBT, refer to Note 12. Such amounts include The Woodlands at 100%. |
- 39 -
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
MPC EBT (*) |
$ | 10,693 | $ | 6,642 | $ | 40,443 | $ | 14,220 | ||||||||
Plus: |
||||||||||||||||
Cost of sales land |
27,033 | 14,335 | 75,838 | 43,790 | ||||||||||||
Provisions for impairments |
| | | | ||||||||||||
Depreciation and amortization |
23 | 40 | 88 | 118 | ||||||||||||
Less: |
||||||||||||||||
MPC land/residential development
and acquisitions expenditures |
(27,132 | ) | (16,582 | ) | (71,875 | ) | (45,964 | ) | ||||||||
MPC Net Contribution |
$ | 10,617 | $ | 4,435 | $ | 44,494 | $ | 12,164 | ||||||||
(*) | Our Master Planned Communities segment includes revenues and expenses related to The Woodlands, one of our Real Estate Affiliates until July 1, 2011, at which time The Woodlands became a wholly-owned subsidiary. | |
For a detailed breakdown of EBT, refer to Note 12. |
- 40 -
Net Operating Income (NOI) | Net Operating Income (NOI) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Operating Assets |
||||||||||||||||
Retail |
||||||||||||||||
Ward Centers |
$ | 5,630 | $ | 5,565 | $ | 16,449 | $ | 17,219 | ||||||||
South Street Seaport |
1,502 | 787 | 3,150 | 2,952 | ||||||||||||
Rio West Mall |
287 | 444 | 963 | 1,480 | ||||||||||||
Landmark Mall |
83 | 287 | 553 | 1,149 | ||||||||||||
Riverwalk Marketplace |
194 | (117 | ) | 590 | 605 | |||||||||||
Cottonwood Square |
83 | 114 | 299 | 373 | ||||||||||||
Park West |
159 | 87 | 490 | 255 | ||||||||||||
20/25 Waterway Avenue |
377 | 113 | 902 | 457 | ||||||||||||
Waterway Garage Retail |
(8 | ) | | 6 | | |||||||||||
Total Retail |
8,307 | 7,280 | 23,402 | 24,490 | ||||||||||||
Office |
||||||||||||||||
110 N. Wacker |
1,526 | 1,530 | 4,586 | 4,589 | ||||||||||||
Columbia Office Properties |
259 | 660 | 2,033 | 2,133 | ||||||||||||
4 Waterway Square |
425 | 45 | 1,102 | (161 | ) | |||||||||||
9303 New Trails |
299 | 330 | 852 | 831 | ||||||||||||
1400 Woodloch Forest |
239 | 245 | 649 | 756 | ||||||||||||
2201 Lake Woodlands Drive |
83 | 84 | 249 | 239 | ||||||||||||
Total Office |
2,831 | 2,894 | 9,471 | 8,387 | ||||||||||||
The Woodlands Resort and Conference Center |
848 | 317 | 6,051 | 3,913 | ||||||||||||
Total Retail, Office, Resort and Conference Center |
11,986 | 10,491 | 38,924 | 36,790 | ||||||||||||
The Club at Carlton Woods |
(1,420 | ) | (1,512 | ) | (3,932 | ) | (4,161 | ) | ||||||||
The Woodlands Parking Garages |
(469 | ) | (201 | ) | (902 | ) | (578 | ) | ||||||||
The Woodlands Ground leases |
97 | 91 | 310 | 263 | ||||||||||||
Other properties |
(508 | )(a) | 1,073 | 5,453 | (b) | 3,096 | ||||||||||
Total Other |
(2,300 | ) | (549 | ) | 929 | (1,380 | ) | |||||||||
Total Operating Assets NOI |
9,686 | 9,942 | 39,853 | 35,410 | ||||||||||||
Straight-line and market lease amortization rent |
506 | (24 | ) | 1,356 | 466 | |||||||||||
Provisions for impairment |
| (92 | ) | | (522 | ) | ||||||||||
Early extinguishment of debt |
(11,305 | ) | | (11,305 | ) | | ||||||||||
Depreciation and amortization |
(6,942 | ) | (5,808 | ) | (16,958 | ) | (17,530 | ) | ||||||||
Equity in earnings from nonconsolidated affiliates |
132 | (122 | ) | (352 | ) | (14 | ) | |||||||||
Interest, net |
(2,893 | ) | (4,207 | ) | (7,766 | ) | (13,650 | ) | ||||||||
Less: Partners share of Operating Assets EBT |
| 1,076 | (664 | ) | 1,320 | |||||||||||
Operating Assets EBT (100% Owned) |
(10,816 | ) | 765 | 4,164 | 5,480 | |||||||||||
Operating Assets NOI Equity Method Investments |
||||||||||||||||
Millennium Waterway Apartments |
$ | 779 | $ | (175 | ) | $ | 741 | $ | (24 | ) | ||||||
Woodlands Sarofim #1 |
364 | 394 | 1,138 | 1,177 | ||||||||||||
Stewart Title (title company) |
323 | 354 | 667 | 784 | ||||||||||||
Forest View/Timbermill Apartments |
465 | 409 | 1,317 | 1,198 | ||||||||||||
Total NOI equity investees of September 30, 2011 (c) |
1,931 | 982 | 3,863 | 3,135 | ||||||||||||
Adjustments to NOI |
(1,411 | )(d) | (833 | )(d) | (3,748 | )(d) | (2,140 | )(d) | ||||||||
Net Income |
520 | 149 | 115 | 995 | ||||||||||||
Less: JV Partners Share of Net Income |
(388 | ) | (381 | ) | (905 | ) | (1,022 | ) | ||||||||
The Woodlands Share of Net Income |
132 | (232 | ) | (790 | ) | (27 | ) | |||||||||
Equity in earnings from nonconsolidated affiliates |
132 | (122 | ) | (352 | ) | (14 | ) | |||||||||
(adjusted for The Companys ownership of The Woodlands) |
Economic | September 30, 2011 | |||||||||||
Ownership | Debt | Cash | ||||||||||
Millennium Waterway Apartments |
83.55 | % | $ | 47,175 | $ | 1,720 | ||||||
Woodlands Sarofim #1 |
20.00 | % | 7,153 | 665 | ||||||||
Stewart Title (title company) |
50.00 | % | | 236 | ||||||||
Forest View/Timbermill Apartments |
50.00 | % | 5,840 | |
(a) | Includes $0.5 million loss associated with the Golf Courses at Summerlin. | |
(b) | Includes $3.9 million dividends from Summerlin Hospital Medical Center. | |
(c) | Our share of equity investees NOI is $1.1 million and $0.3 million for the three months ended September 30, 2011 and 2010, respectively, and $1.8 million and $1.2 million for the nine months ended September 30, 2011 and 2010, respectively. | |
(d) | Adjustments to NOI include straight-line and market lease amortization, depreciation and amortization and non-real estate taxes. |
- 41 -
- 42 -
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Operating Assets (*) |
||||||||||||||||
Minimum rents |
$ | 19,210 | $ | 18,180 | $ | 57,247 | $ | 55,359 | ||||||||
Resort and conference center revenues |
7,200 | 6,496 | 26,306 | 22,260 | ||||||||||||
Other rental and property revenues |
10,182 | 9,033 | 34,900 | 29,034 | ||||||||||||
Total revenues |
36,592 | 33,709 | 118,453 | 106,653 | ||||||||||||
Rental property real estate taxes |
3,151 | 3,052 | 9,104 | 9,160 | ||||||||||||
Rental property maintenance costs |
2,106 | 1,759 | 5,614 | 5,560 | ||||||||||||
Resort and conference center
operations |
6,352 | 6,179 | 20,256 | 18,347 | ||||||||||||
Other property operating costs |
14,354 | 12,290 | 42,314 | 36,722 | ||||||||||||
Provision for doubtful accounts |
305 | 632 | 308 | 1,002 | ||||||||||||
Provisions for impairment |
| 92 | | 522 | ||||||||||||
Depreciation and amortization |
6,942 | 5,808 | 16,958 | 17,530 | ||||||||||||
Interest, net |
2,893 | 4,207 | 7,766 | 13,650 | ||||||||||||
Early extinguishment on debt |
11,305 | | 11,305 | | ||||||||||||
Total expenses |
47,408 | 34,019 | 113,625 | 102,493 | ||||||||||||
Venture partner share of The Woodlands |
||||||||||||||||
EBT |
| 1,076 | (664 | ) | 1,320 | |||||||||||
Operating Assets EBT |
$ | (10,816 | ) | $ | 766 | $ | 4,164 | $ | 5,480 | |||||||
(*) | For a detailed breakdown of our Operating Assets segment EBT, refer to Note 12. Such amounts include The Woodlands at 100%. |
- 43 -
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Strategic Developments (*) |
||||||||||||||||
Minimum rents |
$ | 209 | $ | 240 | $ | 658 | $ | 778 | ||||||||
Condominium unit sales |
9,071 | | 19,495 | | ||||||||||||
Other rental and property revenues |
37 | 135 | 1,242 | 346 | ||||||||||||
Total revenues |
9,317 | 375 | 21,395 | 1,124 | ||||||||||||
Condominium unit cost of sales |
5,470 | | 13,723 | | ||||||||||||
Rental and other property operations |
272 | 3,386 | 4,504 | 8,443 | ||||||||||||
Provisions for impairment |
| | | 56 | ||||||||||||
Depreciation and amortization |
59 | 64 | 175 | 151 | ||||||||||||
Interest, net |
149 | 13 | 154 | 27 | ||||||||||||
Total expenses |
5,950 | 3,463 | 18,556 | 8,677 | ||||||||||||
Venture partner share of The Woodlands EBT |
| | | | ||||||||||||
Strategic Developments EBT |
$ | 3,367 | $ | (3,088 | ) | $ | 2,839 | $ | (7,553 | ) | ||||||
(*) | For a detailed breakdown of our Strategic Developments segment EBT, refer to Note 12. |
- 44 -
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Minimum rents |
$ | 19,403 | $ | 16,349 | $ | 53,098 | $ | 50,349 | ||||||||
Tenant recoveries |
5,399 | 4,637 | 14,538 | 13,891 | ||||||||||||
Master Planned Community land sales |
33,246 | 7,297 | 74,786 | 14,686 | ||||||||||||
Builder price participation |
2,145 | 1,148 | 3,263 | 3,343 | ||||||||||||
Condominium unit sales |
9,071 | | 19,495 | | ||||||||||||
Resort and conference center revenues |
7,200 | | 7,200 | | ||||||||||||
Other land revenues |
3,886 | 1,589 | 7,382 | 4,112 | ||||||||||||
Other rental and property revenues |
6,540 | 1,440 | 11,051 | 5,500 | ||||||||||||
Master Planned Community cost of sales |
(27,035 | ) | (3,751 | ) | (51,909 | ) | (7,001 | ) | ||||||||
Master Planned Community operations |
(7,398 | ) | (6,306 | ) | (17,611 | ) | (23,653 | ) | ||||||||
Condominium unit cost of sales |
(5,470 | ) | | (13,723 | ) | | ||||||||||
Resort and conference center operations |
(6,352 | ) | | (6,352 | ) | | ||||||||||
Rental property real estate taxes |
(1,639 | ) | (4,131 | ) | (8,064 | ) | (11,161 | ) | ||||||||
Rental property maintenance costs |
(2,341 | ) | (1,484 | ) | (5,467 | ) | (4,766 | ) | ||||||||
Other property operating costs |
(16,964 | ) | (8,994 | ) | (36,028 | ) | (27,195 | ) | ||||||||
Provision for doubtful accounts |
(275 | ) | (744 | ) | (590 | ) | (1,101 | ) | ||||||||
General and administrative |
(9,990 | ) | (3,467 | ) | (23,581 | ) | (12,463 | ) | ||||||||
Provisions for impairment |
| (92 | ) | | (578 | ) | ||||||||||
Depreciation and amortization |
(7,208 | ) | (4,109 | ) | (13,592 | ) | (12,535 | ) | ||||||||
Interest income |
2,341 | 59 | 7,097 | 118 | ||||||||||||
Interest expense |
| (681 | ) | | (1,888 | ) | ||||||||||
Early extinguishment of debt |
(11,305 | ) | | (11,305 | ) | | ||||||||||
Warrant liability gain |
169,897 | | 100,762 | | ||||||||||||
Investment in real estate affiliate basis adjustment |
(6,053 | ) | | (6,053 | ) | | ||||||||||
Benefit (provision) for income taxes |
7,760 | 350 | 4,344 | (17,603 | ) | |||||||||||
Equity in earnings from Real Estate Affiliates |
166 | 1,222 | 7,787 | 6,394 | ||||||||||||
Reorganization items |
| (16,515 | ) | | (43,129 | ) | ||||||||||
Net income (loss) |
$ | 165,024 | $ | (16,183 | ) | $ | 116,528 | $ | (64,680 | ) | ||||||
- 45 -
- 46 -
Master | Non- | Total | ||||||||||||||||||||||
Planned | Operating | Strategic | Segment | Segment | September 30, | |||||||||||||||||||
Segment Basis (a) | Communities | Assets | Developments | Totals | Amounts | 2011 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Mortgages, notes and |
||||||||||||||||||||||||
loans payable |
$ | 413,424 | (b) | $ | 334,516 | (c) | $ | 4,890 | $ | 752,830 | $ | | $ | 752,830 | ||||||||||
Less: Cash and cash equivalents |
(40,775 | ) | (12,285 | ) (d) | | (53,060 | ) | (241,990 | ) | (295,050 | ) | |||||||||||||
Special Improvement |
||||||||||||||||||||||||
District receivable |
(42,017 | ) | | | (42,017 | ) | | (42,017 | ) | |||||||||||||||
Municiple Utility District |
||||||||||||||||||||||||
receivable |
(110,054 | ) | | | (110,054 | ) | | (110,054 | ) | |||||||||||||||
Net debt |
$ | 220,578 | $ | 322,231 | $ | 4,890 | $ | 547,699 | $ | (241,990 | ) | $ | 305,709 | |||||||||||
(a) | Refer to Note 12 Segments in the Notes to the Condensed Consolidated and Combined Financial Statements. | |
(b) | Includes The Woodlands $97.5 million acquisition note and $235.0 million Master Credit Facility outstanding balance. | |
(c) | Includes our $43.8 million share of debt of our Real Estate Affiliates. | |
(d) | Includes our $1.7 million share of cash and cash equivalents of our Real Estate Affiliates. |
- 47 -
- 48 -
- 49 -
The Howard Hughes Corporation |
||||
Date: November 10, 2011 | By: | /s/ Andrew C. Richardson | ||
Andrew C. Richardson | ||||
Chief Financial Officer |
- 50 -
2.1
|
Partnership Interest Purchase Agreement among TWC Commercial Properties, LLC, TWC Commercial Properties, LP, TWC Operating, LLC, TWC Operating, LP, TWC Land Development, LLC, TWC Land Development, LP and MS TWC, Inc., MS/TWC Joint Venture (incorporated by reference to Exhibit 2.1 to the Companys current report on Form 8-K, filed July 5, 2011) | |
10.1
|
Loan Agreement dated as of September 29, 2011, by and among Victoria Ward Limited along with certain of Victoria Ward, Limiteds subsidiaries, as borrowers, Wells Fargo Bank, National Association, as Administrative Agent and lead lender, CIBC, First Hawaiian Bank, Bank of Hawaii and Central Pacific Bank, as lenders, and Wells Fargo Securities, L.L.C., as sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Companys current report on Form 8-K, filed October 4, 2011) | |
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 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS
|
XBRL Instance Document. | |
101.SCH
|
XBRL Taxonomy Extension Schema Document. | |
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document. |
- 51 -
Date: November 10, 2011 | By: | /s/ David R. Weinreb | ||
David R. Weinreb | ||||
Chief Executive Officer |
Date: November 10, 2011 | By: | /s/ Andrew C. Richardson | ||
Andrew C. Richardson | ||||
Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 10, 2011 | By: | /s/ David R. Weinreb | ||
David R. Weinreb | ||||
Chief Executive Officer |
(3) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(4) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 10, 2011 | By: | /s/ Andrew C. Richardson | ||
Andrew C. Richardson | ||||
Chief Financial Officer | ||||
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M%#1@%D;08@C/H,$6N!&&-D1#"-MP$RGB$`8"?,$3YU`#"B@1S@N(P@<*H,$8 M5#$*/AR@HX0TZUG1VA.,V.`%9+#!(G.UB$[LHPVL(/_$*@!`B2.@\@II\,<7 MKH`$&%0"%[9`@B5*L00L-``'F?`'&0S!`3MT802*(&5&1&$&?T``$*W`!17< M`(,?0&(6`@#$+S>`ARLD8`ZCZ`4RE (@R`N`(D":L$'K+""/_RP MA"I
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Equity: | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred stock, shares issued | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 150,000,000 | 150,000,000 |
Common stock, shares issued | 37,942,107 | 37,904,506 |
Common stock, shares outstanding | 37,942,107 | 37,904,506 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 05, 2011 | |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Howard Hughes Corp | |
Entity Central Index Key | 0001498828 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2011 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 37,942,107 |
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Mortgages, Notes and Loans Payable | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgages, Notes and Loans Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MORTGAGES, NOTES AND LOANS PAYABLE |
NOTE 5 MORTGAGES, NOTES AND LOANS PAYABLE
Mortgages, notes and loans payable are summarized as follows:
The following table presents our mortgages, notes, and loans payable by property:
The weighted average interest rate on our mortgages, notes and loans payable, inclusive of
interest rate hedges but excluding the acquisition note and capital lease obligation, was 4.65% and
5.14% as of September 30, 2011 and December 31, 2010, respectively.
The following table summarizes the principal payment obligations relating to our long-term debt:
Collateralized Mortgages, Notes and Loans Payable
As of September 30, 2011, we had $708.2 million of collateralized mortgages, notes and loans
payable. Approximately $388.4 million of the debt included in the table above, including the $97.5
million Acquisition note, is related to The Woodlands, which was consolidated on July 1, 2011. All
of the debt is non-recourse and is secured by the individual properties as listed in the table
above, except for The Woodlands Master Credit Facility and Resort and Conference Center Loan which
is recourse to the partnerships that directly own The Woodlands operations, and a $7.0 million
corporate recourse guarantee associated with the 110 N. Wacker mortgage, which is more fully
discussed below. The Bridgeland MPC loan is secured by approximately 7,615 acres of land within the
Bridgeland MPC and a security interest in its Municipal Utility District receivables. In addition,
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 2011. 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.
The Acquisition note has a $97.5 million outstanding principal balance, is non-interest bearing and
matures on December 1, 2011. The note was recorded at its approximate $96.5 million fair value on
July 1, 2011, is non-recourse to us and is secured by the acquired Woodlands interests acquired on
July 1, 2011. We intend to repay the note at maturity with cash on hand.
The Woodlands Master Credit Facility is a $270 million facility consisting of a $170 million term
loan and a $100 million revolving credit line (together, the “TWL Facility”). As of September 30,
2011, the facility had an outstanding balance of $235.0 million. The TWL Facility bears interest at
one-month LIBOR plus 4.0% with a 1.0% LIBOR floor, has a March 29, 2014 initial maturity date and a
one-year extension at borrower’s option. The TWL Facility also contains certain restrictions that,
among other things, require the maintenance of specified financial ratios, restrict the incurrence
of additional indebtedness at The Woodlands, and limit distributions from The Woodlands to us.
Until The Woodlands leverage, as defined by the credit agreement, is less than a 40.0% loan to
value ratio, we must amortize the debt on a dollar for dollar basis for any distributions that we
make from The Woodlands. As of September 30, 2011, leverage was approximately 51.9% and there was
$35.0 million of undrawn and available borrowing capacity under TWL Facility.
The TWL Facility also requires mandatory principal amortization payments during its initial term
and during the extension period, if exercised. Repayments of $10.0 million, $25.0 million and
$30.0 million are required on March 29 of 2012, 2013 and, if extended, 2014, respectively.
Furthermore, $10.0 million is due on each of June 29, September 29 and December 29, 2014 during the
extension period.
The Woodlands Resort and Conference Center loan has a $36.1 million outstanding balance as of
September 30, 2011, matures on October 30, 2012 and has an option for a one year extension. The
loan bears interest at one-month LIBOR plus 4.5% as of September 30, 2011 and has a 1.0% LIBOR
floor. The interest rate increased by 0.5% on September 23, 2011 and increases by 0.5% every six
months thereafter until maturity. The loan is secured by a 440 room and 40 acre conference center
and resort located within The Woodlands, and requires the maintenance of specified financial
ratios.
On September 30, 2011, the Company closed on a $250.0 million first mortgage financing secured by
the Ward Centers in Honolulu, Hawaii, that bears interest at LIBOR plus 2.50%. The loan matures on
September 29,
2016, and $143.0 million of the principal balance was swapped to a 3.81% fixed rate
for the term of the loan. The loan proceeds were used to repay approximately $209.5 million of
mortgage debt and to fund closing costs. 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 in order to draw additional loan proceeds under the facility. The loan also permits partial repayment during its term in connection with property
releases for development. The repayment of three mortgages previously secured by Ward Centers
resulted in an $11.3 million pre-tax loss on early repayment of debt. The mortgages had been
recorded at discounts to their outstanding principal balances because they were recorded at their
fair values as part of the reorganization transactions in 2010.
On May 10, 2011, the Company closed a $29.0 million first mortgage financing secured by its office
building located at 110 N. Wacker Drive in Chicago, Illinois and bearing interest at LIBOR plus
2.25%. At closing, the interest rate on the loan was swapped to a 5.21% fixed rate for the term of
the loan. The loan matures on October 31, 2019 and its term is coterminous with the expiration of
the first term of the existing tenant’s lease (Note 9). The loan has an interest-only period
through April 2015 and, thereafter, amortizes ratably to $12.0 million through maturity. The
proceeds from the financing were used to repay the existing $28.2 million mortgage and to pay
closing costs and other expenses. The Company provided a $7.0 million repayment guarantee for the
loan, which is reduced on a dollar for dollar basis during the amortization period.
Special Improvement District Bonds
The Summerlin master planned community uses Special Improvement District bonds to finance certain
common infrastructure. These bonds are issued by the municipalities and, although unrated, are
secured by the assessments on the land and approximately 1,971 acres of land within the Summerlin
MPC. The majority of proceeds from each bond issued is held in a construction escrow and dispersed
to us as infrastructure projects are completed, inspected by the municipalities and approved for
reimbursement. Accordingly, the cash raised but not yet spent related to the Special Improvement
District bonds has been classified as a receivable within Prepaid and other assets. We pay the debt
service on the bonds semi-annually, but typically receive reimbursement of all principal
amortization paid by us from certain purchasers of our land; therefore, the Special Improvement
District receivable (included in Prepaid expenses and other assets) and Special Improvement
District bonds (included in Mortgages, notes and loans payable) largely offset (Note 7). In
addition, as the Summerlin master planned community sells land, the purchasers assume a
proportionate share of the bond obligation.
As of September 30, 2011, the Company was in compliance with all of the financial covenants related
to its debt agreements.
Letters of Credit and Surety Bonds
We had outstanding letters of credit and surety bonds of $36.8 million as of September 30, 2011 and
$38.7 million as of December 31, 2010. These letters of credit and bonds were issued primarily in
connection with insurance requirements, special real estate assessments and construction
obligations.
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Commitments and Contingencies | 9 Months Ended |
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Sep. 30, 2011 | |
Commitments and Contingencies [Abstract] | |
COMMITMENTS AND CONTINGENCIES |
NOTE 10 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, we are involved in legal proceedings relating
to the ownership and operations of our properties. In management’s opinion, the liabilities, if
any, that may ultimately result from such legal actions are not expected to have a material effect
on our consolidated financial position, results of operations or liquidity.
We lease land or buildings at certain properties from third parties. Rental payments are expensed
as incurred and have, to the extent applicable, been straight-lined over the term of the lease.
Rental expense was $1.0 million and $2.6 million for the
three and nine months ended September 30, 2011, respectively. Rental expense
was $0.9 million and $2.2 million for the three and nine months ended September
30, 2010, respectively. The amortization of above and below-market ground leases and straight-line
rents included in the rent amount, is not significant.
On September 28, 2011 the Company entered into an agreement with the owners of an adjacent property
to pursue development opportunities for the Bridges at Mint Hill asset located in Charlotte, NC in
which we expect to be the majority equity partner and our partner will be the developer. Our
equity in the venture will consist of the value of the land as of a future contribution date. This
joint venture development opportunity is contingent upon the approval of the applicable development
plans by the partners and obtaining financing for the development and construction of the project.
At this time, we have agreed with our partner to jointly conduct pre-development activities, and
there can be no assurance that this venture will result in actual development or construction.
In conjunction with GGP’s acquisition of The Rouse Company (“TRC”) in November 2004, GGP assumed
TRC’s obligations under the Contingent Stock Agreement, (the “CSA”). TRC entered into the CSA in
1996 when it acquired The Hughes Corporation (“Hughes”). This acquisition included various assets,
including Summerlin (the “CSA Assets”), a development in our Master Planned Communities segment.
The CSA provided that the beneficiaries receive a share of the cash flow and income from the
development or sale of the CSA assets and a final payment representing their share of the valuation
of the CSA Assets as of December 31, 2009. The Plan provided that the final payment and settlement
of all other claims under the CSA was an obligation of GGP and was $230 million (down from the $245
million estimate at December 31, 2009), and such amount was distributed by GGP after the Effective
Date. Accordingly, during September 2010, we reduced our carrying value of the CSA assets, and the
related GGP equity, by $15 million for this revised estimate.
See Note 5 for our obligations related to uncertain tax positions for disclosure of additional
contingencies.
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BASIS OF PRESENTATION AND ORGANIZATION |
NOTE 1 BASIS OF PRESENTATION AND ORGANIZATION
The accompanying unaudited condensed consolidated and combined 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 SEC. Such condensed consolidated and
combined 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 Company’s (as defined below) audited Consolidated and
Combined Financial Statements for the year ended December 31, 2010 which are included in the
Company’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31,
2010. Capitalized terms used, but not defined in this Quarterly Report have the same meanings as in
the Annual Report.
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 interim periods ended September 30,
2011 and 2010 are not necessarily indicative of the results to be expected for the full fiscal
year. In addition, certain amounts in the 2010 Combined Financial Statements have been reclassified
to conform to the current period presentation. Management has evaluated all material events
occurring subsequent to the date of the consolidated financial statements up to the date and time
this Quarterly Report is filed.
General
The Howard Hughes Corporation (“HHC” or the “Company”) is a Delaware corporation that was
formed on July 1, 2010 to hold, after receipt via a tax-free distribution, certain assets of
General Growth Properties, Inc. (“GGP”) and certain of its subsidiaries (collectively, the
“Predecessors”) pursuant to their plans of reorganization (the “Plan”) under Chapter 11 of the
United States Code (“Chapter 11”). We are a real estate company that specializes in the
development and operation of master planned communities, operating rental properties and other
strategic real estate opportunities across the United States. Pursuant to the Plan, certain of the
assets and liabilities of the Predecessors (the “HHC Businesses”) were transferred to us and our
common stock was distributed to the holders of GGP’s common stock and common units (the
“Separation”) on a pro-rata basis (approximately 32.5 million shares of our common stock) on GGP’s
date of emergence from bankruptcy, November 9, 2010 (the “Effective Date”). Also as part of the
Plan, approximately 5.25 million shares of our common stock and 8.0 million warrants were purchased
by certain of the investors sponsoring the Plan for $250 million. Unless the context otherwise
requires, references to “we,” “us” and “our” refer to HHC and its subsidiaries.
The accompanying consolidated balance sheets at September 30, 2011 and December 31, 2010 reflect
the consolidation of HHC and its subsidiaries, as of such date, with all significant intercompany
balances and transactions eliminated. The accompanying combined financial statements for the
periods prior to the Separation have been prepared in accordance with GAAP on a carve-out basis
from the consolidated financial statements of GGP using the historical results of operations and
the basis of the assets and liabilities of the transferred businesses as well as allocations from
GGP. This presentation incorporates the same accounting principles used when preparing consolidated financial
statements, including elimination of intercompany transactions. The presentation also includes the
accounts of the HHC Businesses in which we have a controlling interest. The noncontrolling equity
holders’ share of the assets, liabilities and operations are reflected in noncontrolling interests
within permanent equity of the Company. The statement of equity and statement of cash flows for the
nine months ended September 30, 2010 and the statements of operations and comprehensive income
(loss) for the three and nine months ended September 30, 2010 are presented on a carve out basis.
The statement of equity and statements of cash flows for the nine months ended September 30, 2011
and the statements of operations and comprehensive income (loss) for the three and nine months
ended September 30, 2011 are presented on a consolidated basis.
As discussed above, we were formed for the purpose of receiving, via a tax-free distribution,
certain assets and assuming certain liabilities of the Predecessors pursuant to the Plan. We
conducted no business and had no separate material assets or liabilities until the Separation was
consummated. No previous historical financial statements for the HHC Businesses have been prepared
and, accordingly, our combined financial statements for
the three and nine months ended September 30, 2010 were derived from the books and records of GGP
and were carved-out from GGP at carrying values reflective of such historical cost. Our historical
financial results reflect allocations for certain corporate expenses which include, but are not
limited to, costs related to property management, human resources, security, payroll and benefits,
legal, corporate communications, information services and restructuring and reorganizations. Costs
of the services (approximately $1.7 million and $7.4 million, for the three and nine months ended
September 30, 2010, respectively) that were allocated or charged to us were based on either actual
costs incurred or a proportion of costs estimated to be applicable to us based on a number of
factors, most significantly the Company’s percentage of GGP’s adjusted revenue and assets and the
number of properties. We believe these allocations are reasonable; however, these results do not
reflect what our expenses would have been had the Company been operating as a separate, stand-alone
public company for such period. In addition, the HHC Businesses were operated as subsidiaries of
GGP, which operated as a real estate investment trust during such period. We operate as a taxable
corporation. The historical combined statement of equity and statement of cash flows presented for
the nine months ended September 30, 2010, and the statement of operations and comprehensive income
(loss) presented for the three and nine months ended September 30, 2010 therefore are not
indicative of the results of operations, or cash flows that would have been obtained if we had been
an independent, stand-alone entity during such period. The results of operations for the three and
nine months ended September 30, 2011 are not necessarily indicative of results that can be expected
for the full year.
As of September 30, 2011, our assets, including the assets associated with The Woodlands
acquisition as discussed below, consisted of the following:
Our ownership interests in properties in which we own a controlling interest are combined for the
period from January 1, 2010 through September 30, 2010 and consolidated for the period from January
1, 2011 through September 30, 2011 under GAAP, with the non-controlling interests in such
consolidated or combined ventures reflected as components of equity.
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 and 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. For example, estimates and assumptions have been made with respect to useful lives of
assets, capitalization of development and leasing costs, provision for income taxes, recoverable
amounts of receivables and deferred taxes, initial valuations and related amortization periods of
deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived
assets and goodwill, fair value of warrants and debt and cost ratios and completion percentages
used for land sales. Actual results could differ from these and other estimates.
Acquisition
On July 1, 2011, we acquired for $117.5 million our partner’s 47.5% economic interest (represented
by a 57.5% legal interest) in TWCPC Holdings, L.P., the Woodlands Operating Company, L.P. and
TWLDC, Holdings, L.P. (collectively referred to as “The Woodlands”), located near Houston, Texas.
The Company made the acquisition so that it can control attractive residential and commercial
assets and to internalize The Woodlands platform to benefit our MPC business. As a result of the
acquisition, we now consolidate The Woodlands operations and our consolidated financial statements
are therefore not comparable to prior periods. Please refer to Note 12 — Segments, for a
presentation of the results as if we owned 100% of the Woodlands, for all periods presented.
On its acquisition date, The Woodlands had approximately 1,324 acres of unsold residential land,
representing approximately 4,395 lots, and approximately 962 acres of unsold land for commercial
use. The Woodlands also has full or partial ownership interests in commercial properties totaling
approximately 434,328 square feet of office space, 203,282 square feet of retail and service space,
865 rental apartment units, and also owns and operates a 440-room conference center facility and a
36-hole country club. We paid $20.0 million in cash at closing and the remaining $97.5 million of
the purchase price is represented by a non-interest bearing
promissory note due December 1, 2011. There was no contingent consideration related to this
acquisition. We intend to repay the note at maturity with cash on hand.
The assets and liabilities of The Woodlands were consolidated into our financial statements at fair
value as of the acquisition date according to the following methodologies:
On July 1, 2011, the acquisition date, we consolidated $591.5 million of assets and $342.7 million
of liabilities relating to The Woodlands. Consolidation of The Woodlands net assets resulted in a
$3.9 million after-tax loss on the remeasurement relating to our existing 52.5% economic interest
which had a $134.8 million net book value at June 30, 2011. The loss is recorded in the Investment in real estate affiliate basis adjustment line on our consolidated and combined statements of operations and Comprehensive Income (Loss). For periods prior to July 1, 2011, our
investment in The Woodlands was accounted for using the equity method. This business combination
did not represent a significant acquisition of assets under the SEC rules.
The following table summarizes amounts recorded for the assets acquired and liabilities assumed at
the acquisition date. Such amounts are subject to change pending completion of fair value
allocations:
Included in the consolidated statement of operations since the acquisition date are revenues
of $40.3 million and a net loss of $7.9 million for the quarter ended September 30, 2011. The net
loss includes the impact of purchase accounting adjustments, including an $8.6 million increase in
cost of sales to reflect the step-up in basis of finished lot inventory sold during the three
months ended September 30, 2011.
Pro Forma Information
The following pro forma information for the nine months ended September 30, 2011 and 2010 was
prepared as if The Woodlands acquisition had occurred as of the beginning of such period:
Pro forma
adjustments were made for: (1) purchase accounting, including: (a) depreciation for the step-up
in basis for property, plant and equipment; (b) amortization of in-place and above/below market
leases; (c) increase in Land cost of sales for step-up in land
basis for finished lots subsequently sold and (d) elimination of amortization of deferred financing costs, prepaid commissions and
profits previously deferred and; (2) reductions in interest expense which is capitalizable in accordance
with the Company’s interest capitalization policy.
The pro forma information is not necessarily indicative of the results that would have occurred had
the acquisition occurred as of the beginning of the period presented, nor is it necessarily
indicative of future results.
Investment in Real Estate
Real estate assets are stated at cost, including acquisition cost, less any provisions for
impairments. Construction and improvement costs incurred in connection with the development of new
properties or the redevelopment of existing properties are capitalized. Real estate taxes and
interest costs incurred during construction periods are also capitalized. Capitalized interest
costs are based on qualified expenditures and interest rates in place during the construction
period. As of September 30, 2011, we have approximately 14,000 remaining saleable acres within our
master planned communities, including The Woodlands.
Pre-development costs, that generally include legal and professional fees and other
directly-related third-party costs associated with specific development properties, are capitalized
as part of the property being developed. In the event that management no longer has the ability or
intent to complete a development, the costs previously capitalized are expensed (see also our
impairment policies below).
Tenant improvements relating to our operating assets, either paid directly or in the form of
construction allowances paid to tenants, are capitalized and depreciated over the shorter of their
economic lives or the lease term. Maintenance and repairs are charged to expense when incurred.
Expenditures for significant improvements are capitalized.
Depreciation or amortization expense is computed using the straight-line method based upon the
following estimated useful lives:
Impairment
Generally accepted accounting principles related to accounting for the impairment or disposal of
long-lived assets require that if impairment indicators exist and the undiscounted cash flows
expected to be generated by an asset over its anticipated holding period are less than its carrying
amount, the fair value of such assets should be estimated and an impairment provision should be
recorded to write down the carrying amount of such asset to its estimated fair value. The
impairment analysis does not consider the timing of future cash flows and whether the asset is
expected to earn an above or below market rate of return. We review our real estate assets
as well as our investments in Real Estate Affiliates for potential impairment indicators whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable.
If an indicator of potential impairment exists, the asset is tested for recoverability by
comparing its carrying amount to the estimated future undiscounted cash flow during our expected
holding period. The cash flow estimates used both for determining recoverability and estimating
fair value are inherently judgmental and reflect current and projected trends in rental, occupancy,
pricing, development costs, sales pace and capitalization rates, and estimated holding periods for
the applicable assets. Although the estimated fair value of certain assets may be exceeded by the
carrying amount, a real estate asset is only considered to be impaired when its carrying amount is
not expected to be recovered through estimated future undiscounted cash flows. To the extent an
impairment provision is necessary, the excess of the carrying amount of the asset over its
estimated fair value is expensed to operations. In addition, the impairment provision is allocated
proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which
represents the new cost basis of the asset, is depreciated over the remaining useful life of the
asset or, for Master Planned Communities, is expensed as a cost of sales when the asset is sold.
Assets that have been impaired will in the future have lower depreciation and cost of sale
expenses, but the impairment will have no impact on cash flow.
No impairment provisions were recorded in the three and nine months ended September 30, 2011 and
approximately $0.1 million and $0.6 million, respectively, of impairment provisions, on
predevelopment costs at certain of our Strategic Development properties, were recorded in the three
and nine months ended September 30, 2010. As of September 30, 2011, no additional impairments were
taken because we believe that the carrying amounts are recoverable. Despite this conclusion,
additional impairment charges in the future could result if our plans regarding our assets change
and/or economic conditions deteriorate. We can provide no assurance that material impairment
charges with respect to Master Planned Community assets, Operating Assets, Strategic Developments,
Real Estate Affiliates or Developments in progress will not occur in future periods. Accordingly,
we will continue to monitor circumstances and events in future periods to determine whether
additional impairments are warranted.
Municipal Utility District — Receivables
In Houston, Texas, certain development costs are reimbursable through the creation of Municipal
Utility Districts (“MUD”s) and Water Control and Improvement Districts, which are separate
political subdivisions authorized by Article 16, Section 59 of the Texas Constitution and governed
by the Texas Commission on Environmental Quality (“TCEQ”). MUDs are formed to provide municipal
water, waste water, drainage services, recreational facilities and roads to those areas where they
are currently unavailable through the regular city services. Typically, the developer advances
funds for the creation of the facilities, which must be designed, bid and constructed in accordance
with the City of Houston’s and TCEQ requirements. The developer initiates the MUD process by
filing the applications for the formation of the MUD, and once the applications have been approved,
a board of directors is elected for the MUD and given the authority to issue ad valorem tax bonds
and the authority to tax residents. The MUD board authorizes and approves all MUD development
contracts and pay estimates. The Company estimates the costs it believes will be eligible for
reimbursement and classifies them as MUD receivables. MUD bond sale proceeds are used to reimburse
the developer for its construction costs, including interest. MUD taxes are used to pay the debt
service on the bonds and the operating expenses of the MUD. The Company has not incurred any debt
relating to the MUDs.
Warrants
As described above, on the Effective Date, we issued warrants to purchase 8.0 million shares of our
common stock to certain of the sponsors of the Plan (the “Sponsors Warrants”) with an estimated
initial value of approximately $69.5 million. The initial exercise price for the warrants of $50.00
per share is subject to adjustment for future stock dividends, splits or reverse splits of our
common stock or certain other events. Approximately 6.1 million warrants are immediately
exercisable and approximately 1.9 million warrants are exercisable upon 90 days prior notice for
the first 6.5 years after issuance and exercisable without notice any time thereafter. The Sponsors
Warrants expire on November 9, 2017.
In November 2010 and February 2011, the Company entered into certain warrant 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. The Management Warrants representing 2,862,687 underlying shares were
issued pursuant to such agreements at fair value in exchange for 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.
The aggregate estimated $128.6 million and $227.3 million fair values for the Sponsors Warrants and
Management Warrants as of September 30, 2011 and December 31, 2010, respectively, have been
recorded as a
liability because the holders of these warrants could require HHC to settle such
warrants in cash upon a change of control. Such 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 and,
accordingly, warrant liability gains reflecting decreases in value of approximately $169.9 million
and $100.8 million, were recognized for the three and nine months ended September 30, 2011,
respectively.
Revenue Recognition and Related Matters
Revenues from land sales are recognized using the full accrual method if certain criteria provided
by GAAP relating to the terms of the transactions and our subsequent involvement with the land sold
are met. Revenues relating to transactions that do not qualify for the full accrual method are
deferred and recognized using the installment or cost recovery methods. Revenue related to builder
participation rights is recognized when collected.
Cost of land sales is determined as a specified percentage of land sales revenues recognized for
each community development project. These cost ratios are based on actual costs incurred and
estimates of future development costs and sales revenues to completion of each project. The ratios
are reviewed regularly and revised for changes in sales and cost estimates or development plans.
Significant changes in these estimates or development plans, whether due to changes in market
conditions or other factors, could result in changes to the cost ratio used for a specific project.
For certain parcels of land, however, the specific identification method is used to determine cost
of sales including acquired parcels that we do not intend to develop or for which development was
complete at the date of acquisition. Expenditures in our MPC business to develop land for sale are
classified as an operating activity under real estate acquisition and development expenditures in
our condensed consolidated and combined statements of cash flows.
Nouvelle at Natick is a 215 unit residential condominium project, located in Natick, Massachusetts.
Pursuant to the Plan, only the unsold units on the Effective Date were distributed to us and no
deferred revenue or sales proceeds from unit closings prior to the Effective Date were allocated to
us. As of September 30, 2011, nine units were unsold, of which four are under contract for sale.
Income related to unit sales subsequent to the Effective Date is accounted for on a unit-by-unit
full accrual method.
Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases.
Minimum rent revenues also include amounts collected from tenants to allow the termination of their
leases prior to their scheduled termination dates and amortization related to above and
below-market tenant leases on acquired properties. Certain leases require tenants to pay, as
additional rent, the real estate taxes and property operating expenses, common area maintenance and
insurance related to the leased space. This additional rent is recorded as tenant recoveries.
Straight-line rent receivables, which represents the current net cumulative rents recognized prior
to when billed and collectible as provided by the terms of the leases, of $3.2 million and $2.0
million as of September 30, 2011 and December 31, 2010, respectively, are included in Accounts
receivable, net in our condensed consolidated balance sheets.
Revenue for the resort and conference center is recognized as services are performed and primarily
represents room rentals and food and beverage sales.
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 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.
As defined and described in Note 8, certain HHC Replacement Options outstanding are required to be
settled by GGP and therefore do not represent dilutive securities at any date presented. Of the HHC
Replacement Options outstanding that are required to be settled by HHC, diluted EPS excludes
options where the exercise price was
higher than the average market price of our common stock and options for which vesting requirements
were not satisfied. Such options totaled 2,522 shares as of September 30, 2011.
As discussed above, in connection with the Separation on November 9, 2010, GGP distributed to its
stockholders 32.5 million shares of our common stock and approximately 5.25 million shares were
purchased by certain investors sponsoring the Plan. This share amount is used in the calculation
of basic and diluted EPS for the three and nine months ended September 30, 2010 as our common stock
was not traded prior to November 9, 2010 and there were no dilutive securities in the prior
periods.
Information related to our EPS calculations is summarized as follows:
Reorganization Items
As certain of the HHC Businesses had filed for bankruptcy protection in April 2009 (the “HHC
Debtors”), these entities were required by GAAP to separately present as Reorganization items
elements of expense or income that were incurred or realized as a result of the bankruptcy filings.
These items include professional fees and similar types of expenses and gains and interest earned
on cash accumulated by certain of our subsidiaries, all as a result of the bankruptcy.
Reorganization items specific to the HHC Debtors have been allocated to us from GGP and have been
reflected in our combined statement of operations and comprehensive income (loss) for the three and
nine months ended September 30, 2010. GGP agreed that it would reimburse HHC up to $5.0 million for
liability claims related to periods prior to the HHC Debtors’ bankruptcy filings, $3.3 million of
which has been paid as of September 30, 2011.
Reorganization items are as follows:
Recently Issued Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued a new standard which changes
the requirements for presenting comprehensive income in the financial statements. The new standard
eliminates the option to present other comprehensive income (“OCI”) in the statement of
stockholders’ equity and instead requires net income, components of OCI, and total comprehensive
income to be presented in one continuous statement or two separate but consecutive statements. The
standard will be effective for us beginning with our first quarter 2012 reporting and will be
applied retrospectively. HHC had elected to present OCI in one continuous statement in all its
previous filings and accordingly, the effective date of this standard will not have an effect on
our results of operating, financial position, or cash flows in our consolidated financial
statements.
In May 2011, the FASB issued “Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs.” The standard revises guidance for fair value measurement and
expands the disclosure requirements. It is effective for fiscal years beginning after December 15,
2011. We are currently evaluating the impact that the adoption of this standard will have on our
Consolidated Financial Statements.
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Income Taxes | 9 Months Ended |
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Sep. 30, 2011 | |
Income Taxes [Abstract] | |
INCOME TAXES |
NOTE 7 INCOME TAXES
We are taxed as a C Corporation. One of our consolidated entities, Victoria Ward, Limited (“Ward”,
substantially all of which is owned by us) elected to be taxed as a REIT under sections 856-860 of
the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the taxable year
beginning January 1, 2002. To qualify as a REIT, Ward must meet a number of organizational and
operational requirements,
including requirements to distribute at least 90% of its ordinary taxable income and to distribute
to stockholders or pay tax on 100% of capital gains and to meet certain asset and income tests.
Ward was in compliance with the REIT requirements for 2010 and we intend to operate Ward as a REIT
in all periods subsequent to the Effective Date.
Warrant liability gain or loss as calculated for GAAP purposes reflects the change in the estimated
Warrant liability based on an option pricing model and is not deductible for tax purposes. Changes
in the Company’s stock price can materially change the estimated liability from quarter to quarter.
For financial reporting purposes, the tax effect of the warrant liability gain or loss will be
treated as a discrete item within the provision for income taxes due to the volatility of the
change in estimated liability from quarter to quarter.
A component of the tax benefit recorded during the three months ended September 30, 2011 relates to
an immaterial adjustment to true up the deferred tax assets and liabilities that were received by
the Company upon the spin-off from GGP related to interests in various entities of The Woodlands.
The Company also recorded tax expense during the three months ended September 30, 2011 to true up
deferred tax assets and liabilities as of December 31, 2010 based upon actual amounts reflected in
the federal and state income tax returns as filed.
Unrecognized tax benefits recorded pursuant to uncertain tax positions were $120.5 million as of
September 30, 2011 and $120.1 million as of December 31, 2010, excluding interest, none of which
would impact our effective tax rate. Accrued interest related to these unrecognized tax benefits
amounted to $26.5 million as of September 30, 2011 and $20.0 million as of December 31, 2010. We
recognized an increase of interest expense related to the unrecognized tax benefits of $2.3 million
and $6.5 million, respectively, for the three and nine months ended September 30, 2011. Based on
the expected outcome of existing examinations or examinations that may commence, or as a result of
the expiration of the statute of limitations for specific jurisdictions, management does not
believe that the unrecognized tax benefits, excluding accrued interest, for tax positions taken
regarding previously filed tax returns will materially increase or decrease during the next twelve
months. As described in the Annual Report, pursuant to the Tax Matters Agreement, GGP has
indemnified us from and against 93.75% of any and all losses, claims, damages, liabilities and
reasonable expenses to which we become subject (the “Tax Indemnity Cap”), in each case solely to
the extent directly attributable to certain taxes related to sales of certain assets in our Master
Planned Communities segment prior to March 31, 2010, in an amount up to $303.8 million, plus
interest and penalties related to these amounts so long as GGP controls the action in the Tax Court
related to the dispute with the IRS. The unrecognized tax benefits and related accrued interest
recorded through September 30, 2011 are primarily related to the taxes that are the subject of the
Tax Indemnity Cap.
On October 20, 2011, GGP filed a motion in the United States Tax Court to consolidate the cases of
the two former taxable REIT subsidiaries of GGP subject to litigation with the Internal Revenue
Service due to the common nature of the cases’ facts and circumstances and the issues being
litigated. The United States Tax Court granted the motion to consolidate.
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Segments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENTS |
NOTE 12 SEGMENTS
We have three business segments which offer different products and services. In 2010, we reported
in two segments because our Operating Assets segment and our Strategic Developments segment were
managed jointly as a group. Currently, our three segments are managed separately because each
requires different operating strategies or management expertise. These segments are different than
those of the Predecessors with respect to the HHC Businesses and are reflective of our current
management’s operating philosophies and methods. All resulting changes from the Predecessors’
previous presentation of our segments have been applied to all periods presented. In addition, our
current segments or assets within such segments could change in the future as development of
certain properties commence or other operational or management changes occur. We do not distinguish
or group our combined operations on a geographic basis. Further, all operations are within the
United States and no customer or tenant comprises more than 10% of revenues. Our reportable
segments are as follows:
The assets included in each segment as of September 30, 2011, are contained in the following
chart:
As our segments are managed separately, different operating measures are utilized to assess
operating results and allocate resources. The one common operating measure used to assess
operating results for the business segments is Real Estate Property Earnings Before Taxes (“EBT”)
which represents the operating revenues of the properties less property operating expenses, as
further described below. Management believes that EBT provides useful information about the
operating performance of all of our assets, projects and property.
EBT is defined as net income (loss) from continuing operations as adjusted for: (1)
reorganization items; (2) income tax provision (benefit); (3) warrant liability gain (loss); and
(4) general and administrative costs. The net income (loss) from our Real Estate Affiliates, at
our proportionate share, is similarly adjusted for items (1) through (4) immediately above. We
present EBT because we use this measure, among others, internally to assess the core operating
performance of our assets. We also present this measure because we believe certain investors use
it as a measure of a company’s historical operating performance and its ability to service and
incur debt. We believe that the inclusion of certain adjustments to net income (loss) from
continuing operations to calculate EBT is appropriate to provide additional information to
investors because EBT excludes certain non-recurring and non-cash items, including reorganization
items related to the bankruptcy, which we believe are not indicative of our core operating
performance. EBT should not be considered as an alternative to GAAP net income (loss)
attributable to common stockholders or GAAP net income (loss) from continuing operations, 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.
The Woodlands operating results for historical periods when this investment was a Real Estate
Affiliate are now presented at 100% in order to provide comparability between periods for analyzing
operating results. We continue to reconcile the segment presentation to reported EBT. In prior
periods, for segment reporting purposes, we presented the operations of our equity method Real
Estate Affiliates using the proportionate share method. Under this method our share of the
revenues and expenses of these Real Estate Affiliates are aggregated with the revenues and expenses
of consolidated or combined properties. We chose the proportionate method because our 52.5%
economic interest in The Woodlands represented a significant portion of our Master
Planned Community segment. As more fully discussed in this report, on July 1, 2011, we acquired
our partner’s interest in The Woodlands master planned community. We now own 100% of The Woodlands
and consolidate its operations. Our segment operating results for the three months ended September
30, 2011 include the consolidated results of The Woodlands under Consolidated Properties. The
remaining Real Estate Affiliates, including The Woodlands Equity Investments, primarily represent
entities that own single assets rather than a large business such as The Woodlands; therefore,
beginning with the third quarter of 2011, we will no longer use the proportionate share method for
Real Estate Affiliates. Rather, we will include the results of our Real Estate Affiliates using the
equity or cost method, as appropriate.
Our investment in the Summerlin Hospital Medical Center is accounted for on the cost method.
We received approximately $3.9 million of dividends from this investment in the first quarter of 2011 and have reflected such dividends as other rental and property revenues for the nine months ended
September 30, 2011 within the
Operating Assets segment. Dividends by Summerlin Hospital are
typically made one time per year; however, no dividends were paid in 2010 principally due to a capital project
at the hospital. Approximately $2.0 million of the amount received in
the first quarter of 2011 relates to calendar year 2010.
The remaining $1.9 million relates to periods prior to 2010 which were deferred pending completion of the capital project.
During the third quarter 2011, we placed into service a 732-space structured parking garage and
land improvements located on an approximate 2.7 acre parcel within an area of Ward Centers called
the Ward Village Shops. The garage and land improvement construction was started by GGP prior to
its bankruptcy and was halted during the bankruptcy proceedings. Subsequent to GGP’s emergence and
our spinoff, we invested approximately $19.7 million to complete these projects. Project costs
totaling $98.7 million relating to this development were moved from Developments in progress to
Land and Buildings and equipment effective July 1, 2011.
The total cash expenditures for additions to long-lived assets for the Master Planned Communities
and condominiums was $65.8 million for the nine months ended September 30, 2011 and $39.1 million
for the nine months ended September 30, 2010. Similarly, total cash expenditures for long-lived
assets for the Operating Assets and Strategic Developments segments were $25.0 million and $71.1
million for the nine months ended September 30, 2011 and 2010, respectively. Such amounts for the
Master Planned Communities segment and certain amounts in the Strategic Developments segment are
included in the amounts listed in our consolidated and combined statements of cash flow as Real
estate acquisition and development expenditures. With respect to the long-lived assets within the
Operating Assets segment and certain other investing amounts in the Strategic Developments
segment, such amounts are included in the amounts listed as Development of real estate and
property additions/improvements primarily previously accrued, respectively, in our consolidated
and combined statements of cash flows.
Segment operating results are as follows:
The following reconciles EBT to GAAP-basis income (loss) from continuing operations:
The following reconciles segment revenue to GAAP-basis consolidated and combined revenues:
The assets by segment and the reconciliation of total segment assets to the total assets in
the consolidated balance sheets at September 30, 2011 and December 31, 2010 are summarized as
follows:
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Stock-Based Plans | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED PLANS |
NOTE 8 STOCK-BASED PLANS
Incentive Stock Plans
On November 9, 2010, HHC adopted The Howard Hughes Corporation 2010 Equity Incentive Plan (the
“Equity Plan”). Pursuant to the Equity Plan, 3,698,050 shares of HHC common stock are reserved
for issuance. The Equity Plan provides for grants of options, stock appreciation rights, restricted
stock, other stock-based awards and performance-based compensation (collectively, the “Awards”).
Directors, employees and consultants of HHC and its subsidiaries and affiliates are eligible for
Awards.
Prior to the Separation, the Predecessors granted qualified and non-qualified stock options and
restricted stock to certain GGP officers and key employees whose compensation costs related
specifically to our assets. Accordingly, an allocation of stock-based compensation costs of
approximately $0.2 million and $0.5 million, respectively, pertaining to such employees has been
reflected in our combined statement of operations and comprehensive income (loss) for the three and
nine months ended September 30, 2010.
Stock Options
There were no grants of stock options under the Equity Plan in 2010. In the nine months ended
September 30, 2011, 714,840 options to purchase shares of our common stock were granted to certain
of our employees. Such options had a weighted average exercise price of approximately $58.39, vest
at the rate of 20% per year on each of the first five anniversaries of the grant date, may not be
exercised prior to December 31, 2016 and, unless earlier terminated under certain circumstances,
expire ten years from the grant date. Compensation expense
related to stock options was approximately $0.9 million for the three months ended September 30,
2011 and $1.6 million for the nine months ended September 30, 2011.
Pursuant to the Plan, each outstanding option to acquire shares of GGP stock (“Old GGP Options”)
was converted on the Effective Date into (i) an option to acquire the same number of shares of
common stock of reorganized GGP (“New GGP Options”) and (ii) a separate option to acquire 0.0983
shares of our common stock for each existing option for one share of GGP common stock (“HHC
Replacement Options”). The HHC Replacement Options were fully vested as of the Effective Date and
have the same terms and conditions as the Old GGP Options except that we have agreed with GGP that
all exercises of New GGP Options and HHC Replacement Options in 2011 and beyond would be settled by
the respective employer at the time of exercise. As of September 30, 2011 and January 1, 2011,
there were 53,393 and 164,138, respectively, HHC Replacement Options outstanding. Of such amounts,
only 2,522 of such options represent potentially dilutive
shares at such dates as all remaining
amounts were held by GGP employees. In addition, 25,994 New GGP Options (with a weighted average
exercise price of $45.99 as compared to a September 30, 2010 GGP closing stock price of $12.10 and
a weighted average remaining contracted term of 0.4 years) were held by our employees at September
30, 2011 and therefore our potential net share settlement obligation for such New GGP Options is
expected to be nominal.
The following tables summarize HHC Replacement Option activity as of and for the nine months ended
September 30, 2011:
Restricted Stock
Pursuant to the Equity Plan, the Company granted 8,247 and 8,953 shares of restricted common stock
in November 2010 and June 2011, respectively, to certain non-employee directors as part of their
annual retainer for their services on the board of directors. Our chairman has waived all
compensation, including any restricted stock grants, for services
rendered as a director. During 2011, one of our directors also waived compensation, including receipt of 1,352 shares of restricted stock granted in
November 2010. The restrictions on all shares of restricted common stock issued in 2010 lapsed on
June 1, 2011, and restrictions on all shares of restricted common stock issued in 2011 lapse on the
earlier of the Company’s annual stockholders meeting or June 1, 2012. The Company granted 20,000
shares of restricted common stock to our CFO in March 2011 and 10,000 shares to our general counsel
in May 2011 in connection with their employment agreements and pursuant to the Equity Plan. The
restricted shares granted to our CFO generally do not vest until March 28, 2016, and the restricted
shares granted to our general counsel generally do not vest until May 2, 2016.
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Derivative Instruments and Hedging Activities | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Derivative Instruments and Hedging Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
NOTE 6 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to certain risks arising from business operations and economic conditions. We seek
to manage certain economic risks, including interest rate, liquidity, and credit risk primarily by
managing the amount, sources, and duration of our debt funding through the use of derivative
financial instruments. Specifically, the Company enters into interest rate swap and cap
instruments to manage exposures that arise from future uncertain debt service payments principally
related to floating rate borrowings.
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 and predictability,
we primarily 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 making 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.
During 2011, such derivatives were used to hedge the variable cash flows associated with existing
variable-rate debt. The ineffective portion
of the change in fair value of the derivatives is
recognized directly in earnings. During the three and nine months ended September 30, 2011 and 2010
there was no ineffectiveness recorded in earnings.
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 $1.5 million will be reclassified as an increase to interest
expense.
As of September 30, 2011, the Company had gross notional amounts of $172.0 million of interest rate
swaps and a $100.0 million interest rate cap that were designated as cash flow hedges of interest
risk. The fair value of the interest rate cap derivative was immaterial.
The table below presents the fair value of the Company’s derivative financial instruments as well
as their classification on the Balance Sheet as of September 30, 2011 and December 31, 2010:
The tables below present the effect of the Company’s derivative financial instruments on the
Income Statement for the quarters ended September 30, 2011 and 2010:
|
Consolidated and Combined Statements of Equity (Unaudited) (USD $) In Thousands | 3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | Dec. 31, 2010 | Dec. 31, 2009 | |
Net income (loss) | $ 165,024 | $ (16,183) | $ 116,528 | $ (64,680) | ||
Adjustment to noncontrolling interests | 3,452 | |||||
Distributions to noncontrolling interests | (218) | |||||
Other comprehensive income (loss) | (2,024) | 88 | (2,772) | 188 | ||
Stock plan activity | 2,500 | |||||
Contributions from GGP, net | 101,294 | |||||
Ending balance | 2,298,815 | 1,540,104 | 2,298,815 | 1,540,104 | 2,179,107 | 1,503,520 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Total | 2,298,815 | 1,540,104 | 2,298,815 | 1,540,104 | 2,179,107 | 1,503,520 |
Common Stock | ||||||
Ending balance | 379 | 0 | 379 | 0 | 379 | 0 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Total | 379 | 0 | 379 | 0 | 379 | 0 |
Additional Paid-In Capital | ||||||
Stock plan activity | 2,500 | |||||
Ending balance | 2,710,536 | 0 | 2,710,536 | 0 | 2,708,036 | 0 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Total | 2,710,536 | 0 | 2,710,536 | 0 | 2,708,036 | 0 |
Accumulated Deficit | ||||||
Net income (loss) | 115,751 | |||||
Ending balance | (412,754) | 0 | (412,754) | 0 | (528,505) | 0 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Total | (412,754) | 0 | (412,754) | 0 | (528,505) | 0 |
GGP Equity | ||||||
Net income (loss) | (64,801) | |||||
Contributions from GGP, net | 101,294 | |||||
Ending balance | 0 | 1,540,857 | 0 | 1,540,857 | 0 | 1,504,364 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Total | 0 | 1,540,857 | 0 | 1,540,857 | 0 | 1,504,364 |
Accumulated Other Comprehensive Income (Loss) | ||||||
Other comprehensive income (loss) | (2,772) | 188 | ||||
Ending balance | (4,399) | (1,556) | (4,399) | (1,556) | (1,627) | (1,744) |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Total | (4,399) | (1,556) | (4,399) | (1,556) | (1,627) | (1,744) |
Noncontrolling Interests in Consolidated Ventures | ||||||
Net income (loss) | 777 | 121 | ||||
Adjustment to noncontrolling interests | 3,452 | |||||
Distributions to noncontrolling interests | (218) | |||||
Ending balance | 5,053 | 803 | 5,053 | 803 | 824 | 900 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Total | $ 5,053 | $ 803 | $ 5,053 | $ 803 | $ 824 | $ 900 |
Fair Value of Financial Instruments | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE OF FINANCIAL INSTRUMENTS |
NOTE 2 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents, for each of the fair value hierarchy levels required under Accounting
Standards Codification (“ASC”) 820, “Fair Value Measurement,” the Company’s assets and liabilities
that are measured at fair value on a recurring basis.
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.
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.
The following table presents a reconciliation of the beginning and ending balances of the fair
value measurements using significant unobservable inputs (Level 3)
The estimated fair values of the Company’s financial instruments that are not measured at fair
value on a recurring basis are as follows:
The fair value of debt was estimated based on quoted market prices for publicly traded debt, recent
financing transactions, estimates of the fair value of the property that serves as collateral for
such debt, historical risk premiums for loans of comparable quality, the current London Interbank
Offered Rate (“LIBOR”), a widely quoted market interest rate which is frequently the index used to
determine the rate at which we borrow funds, U.S. Treasury obligation interest rates and on the
discounted estimated future cash payments to be made on such debt. 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 assume that
the debt is outstanding through maturity. We have utilized available market information or present
value techniques to estimate the amounts required to be disclosed. Since such amounts are
estimates that are based on limited available market information for similar transactions and do
not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is
unlikely that the estimated fair value of any of such debt could be realized by immediate
settlement of the obligation.
The carrying amounts of cash and cash equivalents and accounts and notes receivable approximate
fair value because of the short-term maturity of these instruments.
|
Intangible Assets and Liabilities | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets and Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS AND LIABILITIES |
NOTE 3 INTANGIBLE ASSETS AND LIABILITIES
The gross asset balances of the in-place value of tenant leases are included in Buildings and
equipment in our consolidated balance sheets. The above-market and below-market tenant and ground
leases are included in Prepaid expenses and other assets and Accounts payable and accrued expenses
in our consolidated balance sheets.
Amortization/accretion of these intangible assets and liabilities decreased our income (excluding
the impact of noncontrolling interests and the provision for income taxes) by $0.8 million and $1.1
million, respectively, for the three and nine months ended September 30, 2011 and by $0.2 million
and $0.6 million, respectively, for the three and nine months ended September 30, 2010.
Future amortization of these intangible assets and liabilities is estimated to decrease net income
(excluding the impact of noncontrolling interests and the provision for income taxes) by
approximately $1.2 million for the remainder of 2011 and $2.2 million in 2012, $2.1 million in
2013, $1.9 million in 2014 and $25.0 million thereafter.
|
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