STOCK BASED PLANS

12 Months Ended

Dec. 31, 2012

STOCK BASED PLANS

STOCK BASED PLANS

NOTE 14 STOCK BASED PLANS

Incentive Stock Plans

On November 9, 2010 (the "Effective Date"), 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 were 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.

The Equity Plan is administered by the Compensation Committee of the Board of Directors ("Committee"). Option grant amounts are awarded by the Committee. Options granted vest ratably over five years, expire ten years after the grant date and generally become exercisable after five years. Recorded compensation cost for share-based payment arrangements totaled $4.3 million and $3.0 million for 2012 and 2011, respectively.

Prior to the Chapter 11 cases, our 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 pertaining to such employees has been reflected in our financial statements for periods prior to the Effective Date. For 2010, the GGP stock compensation expense for employees specifically attributed to the HHC Businesses, of approximately $0.6 million was included in the accompanying financial statements for periods prior to the Effective Date.

As of December 31, 2012, there were a maximum of 2,758,729 shares available for future grant under our various stock plans.

Stock Options

Pursuant to the Equity Plan, each outstanding option to acquire shares of GGP stock ("Old GGP Options") was converted 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 Options"). The replacement options are fully vested as of the Effective Date and have the same terms and conditions as the outstanding GGP options. As of December 31, 2012, the number of shares of common stock issuable upon exercise of the HHC options is insignificant.

The following tables summarize stock option activity:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(In years)
Stock options outstanding at January 1, 2011		—		$	—
Granted		751,840			57.81
Exercised		—			—
Forfeited		(39,200	)		59.44
Expired		—			—
Stock options outstanding at December 31, 2011		712,640		$	57.72
Granted		200,000			64.19
Exercised		—			—
Forfeited		(50,700	)		58.62
Expired		—			—
Stock options outstanding at December 31, 2012		861,940		$	59.17		8.5	$	11,941,409
Stock options exercisable at December 31, 2012		—			—		—		—
Remaining unvested options outstanding and expected to vest		828,536		$	59.16		8.5	$	11,481,453

Information related to stock options outstanding as of December 31, 2012 is summarized below:

Range of Exercise Prices	Number Oustanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Number Exercisable
					(In years)
$46.49 – 55.82		66,500	$	51.19		8.7		—
$57.77 – 60.33		619,000		58.00		8.3		—
$61.64 – 69.75		176,440		66.26		9.2		—
		861,940	$	59.17		8.50		—

The fair value on the grant date and the significant assumptions used in the Black-Scholes option-pricing model are as follows:

	2012
	Weighted Average		Range
Grant date fair value	$	19.33	$	18.77 – 20.51
Expected life of options (in years)		7.3		7.2 – 7.4
Risk-free interest rate		1.4		1.1% – 1.9	%
Expected volatility		25		23% – 27	%
Expected annual dividend per share		—		—

The computation of the expected volatility assumption used in the Black-Scholes calculations is based on the median asset volatility of comparable companies as of each of the grant dates.

The balance of unamortized stock option expense as of December 31, 2012 is $12.8 million, which is expected to be recognized over a weighted-average period of 3.6 years. Expense associated with stock options for the year ended December 31, 2012, which is included in general and administrative expense in the accompanying Consolidated and Combined Statements of Operations, totaled $3.0 million.

Restricted Stock

Restricted stock awards issued under the Equity Plan provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed as established by the Committee. In addition to the granting of restricted stock to certain members of management, we award restricted stock to our non-employee directors as part of their annual retainer. The management awards vest over five years, and the restriction on the non-employee director shares lapse in June of each year. Generally, upon termination of employment or directorship, restricted stock units and restricted shares which have not vested are forfeited. For the year ended December 31, 2012, recognized compensation expense of $1.3 million is included in general and administrative expense related to restricted stock awards. The fair value of restricted stock that vested during 2012 was $0.8 million. The balance of unamortized restricted stock expense as of December 31, 2012 was $2.6 million, which is expected to be recognized over a weighted-average period of 3.2 years.

The following table summarizes restricted stock activity:

	Shares			Weighted Average Grant Date Fair Value
Restricted stock outstanding at January 1, 2011		8,247		$	41.42
Granted		42,553		$	65.18
Vested		(6,895	)		41.42
Cancelled		(1,352	)		41.42
Restricted stock outstanding at December 31, 2011		42,553		$	65.18
Granted		27,933		$	63.86
Vested		(12,553	)		59.77
Cancelled		—			—
Restricted stock outstanding at December 31, 2012		57,933		$	65.72